Government response
The Government welcomes the Business and Enterprise
Select Committee's Eleventh Report: of Session 2008-09 'Risk and
Reward: sustaining a higher value-added economy'
The Report makes a valuable contribution to the discussions
now taking place about the best way to support this critical part
of the UK's economy now and in the future.
THE BACKGROUND OF THE INQUIRY: HISTORY AND CIRCUMSTANCE
Higher value-added goods and services will be
essential to the strength of the UK economy in the future. Encouraging
the growth of such activities depends on a realistic and measured
assessment of the United Kingdom's strengths and weaknesses. This
does not mean refusing to acknowledge the very real economic difficulties
which face the country. However, this should be balanced by more
confident and better-informed acknowledgement of the economy's
very real underlying strengths. (Paragraph 19)
1. The UK Government recognises that as competitive
pressures from the emerging economies continues to grow British
firms must continue to move into higher value-added activities
based on sophisticated knowledge and skills.
2. In April 2009 the UK Government published the
policy statement 'Building Britain's Future - New Industry,
New Jobs'. This set out the Government's strategy for ensuring
that British firms are well placed to take advantage of the new
opportunities which will exist after the downturn.
3. The paper contained a detailed assessment of the
key strengths and weaknesses of British businesses and the UK
economy as a whole and identified where targeted action was needed
to help high potential UK firms.
MANUFACTURING
Any strategy for ensuring that the United Kingdom
has a higher value-added economy must not look simply at new opportunities
flowing from new technologies or new challenges, such as the move
to a low-carbon economy, but must also identify, safeguard and
build on existing manufacturing strengths. (Paragraph 28)
4. The Government's Advanced Manufacturing Strategy
published in July 2009 recognised the important contribution existing
manufacturers made to the economy and looked at ways they could
be helped to transform themselves to deal with new competitive
challenges.
5. The strategy also identified new areas of potential
high growth where Government action could have an impact, particularly
focusing on underpinning technologies such as composites and plastic
electronics where the UK has strengths on which to build, including
world class science. The government published its strategy for
advanced composites on 26 November and for plastic electronics
on 7 December.
6. The priorities of the Technology Strategy Board
are identified at the level of addressing specific market or societal
challenges or maintaining core expertise in leading edge technologies,
where the UK has real strength, and there are opportunities for
growth. While investing in and helping develop capability in emerging
industries such as Plastic Electronics, it also recognises and
invests significantly to continue to develop capability in key
areas of UK strength such as Aerospace and Chemicals/Pharmaceuticals.
SERVICES
Although we recognise and emphasise the importance
of manufacturing, it is only part of the economy. In the manufacturing
strategy published in September 2008, the Government stated that
"our future lies in a mixed and balanced economy with manufacturing
and services reinforcing each other". We agree. We should
celebrate the fact that the United Kingdom is the second largest
exporter of services in the world. (Paragraph 32)
7. As the Committee notes, the Manufacturing Strategy
recognised the growth of servicisation. UKTI is leading UK-wide
sector marketing strategies on key areas of UK business strength
including financial and professional services and the creative
industries. These strategies mark a step change in delivery in
partnership with business and aim to change perceptions and position
the UK as the world's preferred trading partner and investment
destination in the services field.
CREATIVE BUSINESS: BRANDING AND DESIGN
Branding is an area where the UK creative industries
are strong but which is talked about far too little in public
debate. Government policy must sustain the creative industries
that are responsible for the successful development of brands
in the United Kingdom, and must protect effectively the intellectual
property of the brands themselves. (Paragraph 34)
8. The Government recognises the importance of the
creative industries, including branding and design, to the UK
economy—in 2006, the creative industries contributed 6.4%
of the UK's Gross Value Added. Government is committed to working
with industry and other organisations to increase the productivity
of the creative industries, raise their profile, and support their
development so that the United Kingdom can become the world's
creative hub.
The Government welcomes the Committee's comment on
the importance of branding and the need to effectively protect
the intellectual property of brands. The Rt. Hon. David Lammy
MP, Minister for Higher Education and Intellectual Property, recently
instigated a conference to debate 'Branding in a modern economy'.
In November 2009, for perhaps the first time, government brought
together leading brand owners, SMEs, legal representatives and
policy officials to discuss the United Kingdom's inherent strengths
in brand building, and the role of public and economic policy
in establishing and supporting the conditions in which brand-focussed
businesses may thrive. A series of workshops took place during
the conference to provide an open forum for all interested parties
to see what can be done to help develop and foster branding in
the UK. A report from these workshops, together with their recommendations,
will be published in due course.
10.
THE HIGHER VALUE-ADDED ECOSYSTEM
The United Kingdom cannot build a higher value-added
economy on a single sector, or type of intervention. Many different
factors come into play. For example, a wide range of skills is
needed if we are both to sustain manufacturing and maintain our
strength in services and the creative industries. Government undoubtedly
has a role to play in creating the right environment for innovation,
and responsibility for this spreads beyond the remit of the Department
for Business, Innovation and Skills. However, central government
cannot foster innovation alone. Local policy makers, academia
and, above all, industry itself—of all sizes—need
to be involved. (Paragraph 37)
11. To build and secure the UK as a high value-added
economy, the UK Government has announced as part of its New
Industry New Jobs agenda a wide-ranging number of commitments
aimed at boosting investment and innovation in a variety of priority
sectors and technologies with the potential for high growth.
12. The UK Government has also just published the
Skills for Growth Strategy (November 2009) which announced
a number of commitments including a joint investment scheme to
boost skills in priority sectors.
13. The Department for Business, Innovation and Skills
is working closely with other government departments and agencies,
business, the Technology Strategy Board, the RDAs and the Devolved
Administrations to identify suitable investment for support from
the Strategic Investment Fund. Details of projects and technologies
which have been supported are set out in the Strategic Investment
Fund Interim Report which was published in October 2009.
14. Through the Technology Strategy Board, we also
help develop opportunities for such joint working between Government
(central, devolved and regional), industry and academe. Recent
developments include the establishment of a Knowledge Transfer
Network in the Financial Services, targeted programmes focused
on the Creative Industries and £30 million of activity in
support of the Digital Britain agenda including £10 million
for Digital Test beds—these will use the next generation
broadband networks as test-beds to enable infrastructure providers,
content owners and consumers to come together to trial innovative
projects on micropayments and other methods of monetisation of
digital content, new rights models and new methods of ensuring
personal digital security.
GOVERNMENT POLICIES
Over the last year, the Government has produced
a succession of strategy and policy papers related to innovation
and industry. Their proposals cannot be implemented by the Government
alone. All those involved now need to ensure that the emphasis
is on the actual delivery of policies designed to support innovation,
rather than producing further policy documents. (Paragraph 38)
15. Budget 2009 established the Strategic Investment
Fund to support a range of targeted investments across the UK
economy intended to strengthen its capacity for innovation, job
creation and growth. As part of this process, the Department for
Business, Innovation and Skills has been working closely with
industry, the Technology Strategy Board, the Regional Development
Agencies and the Devolved Administrations to identify suitable
projects for funding.
16. In October 2009, the UK Government published
its interim report on the Strategic Investment Fund which set
out details of the projects and technologies which have already
benefited from SIF support. These include a range of new advanced
manufacturing technologies, low carbon energy technologies, and
an Innovation Investment Fund providing capital funding for high-tech
companies. The UK government has also just published the Composites
Strategy (November 2009) which announced £22 million in new
investment to further advance the development of composite materials
17. The UK Government will also be reporting progress
on the Innovation Nation and Sainsbury Review recommendations
in the forthcoming Annual Innovation Report
CENTRAL GOVERNMENT
At this stage, although we make no comment on
the inclusion of higher and further education within the new Department
for Business, Innovation and Skills, we acknowledge the vital
importance of improved skills to all British industrial sectors.
We believe that the new Department is a welcome opportunity to
coordinate policy on innovation, and to ensure that policy is
consistent. (Paragraph 42)
18. The Department shares the view that skills development
is vital for the future of British business, and that the creation
of BIS offers an opportunity to build on what has already been
achieved in co-ordinating policies across skills, higher education,
innovation and science.
RESEARCH AND DEVELOPMENT
The United Kingdom's relatively modest rates of
R&D relative to GDP are in part the result of the structure
of the United Kingdom economy. Indeed, the proportion of R&D
financed by government is not out of line with many comparable
countries. If the United Kingdom is to grow as a higher value-added
economy, the policy challenge will be to encourage companies to
take advantage of the United Kingdom's strengths as a source of
innovation. This includes promoting the strength of United Kingdom
research and development capabilities, but also looking at innovation
more widely. (Paragraph 57)
19. The Government welcomes this affirmation of the
need to consider innovation in the broad. R&D remains important
but is not the whole story. BIS has policies in place to enable
innovation to draw on the strengths of the research base such
as the Higher Education Investment Fund (HEIF) and the support
for collaboration between business and Higher Education through
the TSB. BIS also supports innovation through our partners in
the knowledge infrastructure, such as the work of the National
Measurement Office, National Measurement Institutes and the British
Standards Institute. BIS officials are active in international
fora such as the OECD, in developing more complete innovation
measurement frameworks, including non-technological dimensions
and the extensions to the public sector, on an internationally
comparable basis. "Innovation Nation" put considerable
emphasis on better measuring and encouraging innovation in the
public sector and services.
WIDER INNOVATION
It should be possible to produce wider measures
of innovation than those currently in use, and we are delighted
that the Government has asked NESTA to work on this. However,
as well as knowing how the United Kingdom is doing internally,
we need to be able to benchmark performance against other countries.
We hope the Government will take a lead in encouraging the development
of better international monitoring. (Paragraph 57)
20. BIS has in fact been producing wider measures
of innovation, in the form of the UK Innovation Survey, for some
years. The recently-completed 2009 Survey covers 14,000 firms,
and collects data on sales from innovative products, expenditures
on different categories of innovation inputs (design, training
etc, as well as R&D), innovation collaboration patterns and
a range of other metrics. This data is internationally comparable,
since it is part of the EU's Community Innovation Survey, and
is published on the EU's website. This and related SET data also
feed in to the EU's Innovation Scoreboard, which indicates that
the UK does well in comparative terms. BIS also takes part in
the OECD Microdata project, which undertakes major comparative
work with innovation data across countries. We are therefore fully
committed to improved international monitoring, and strongly engaged
in it.
EDUCATION AND SKILLS
It is vitally important that British education
and training is as good as it can be and we welcome the growing
public debate about the necessary steps to improve it. We are
particularly concerned about the continuing complexity of the
skills system and the impact this has on the smaller companies
who wish to engage with it. But ultimately, the skills available
to the United Kingdom depend on the individual choices made by
individual students and workers. They will create the demand for
the training which will sustain the higher value-added economy.
They will only do so if they have a realistic understanding of
the opportunities available to those with particular skills. They
will also need to know employers rewards the skills they say they
need. (Paragraph 64)
21. We know employers, particularly smaller companies,
find the skills landscape complex. We have made good progress
simplifying the system, working with the UK Commission for Employment
and Skills. For example, we have cut bureaucracy in Apprenticeships
and Train to Gain so the programmes are more accessible; and we
have made Business
Link the main point of access for all government support and advice,
including on skills.
22. But we know employers still find it hard to understand
the array of qualifications available; the length of time it takes
to develop new ones; and find the number of skills bodies bewildering.
Skills for Growth—the national skills strategy published
in November, outlines our proposals to tackle these specific
issues:
- we will continue to reform
and simplify the range of vocational qualifications available
and reduce development times to an average of 6 months and maximum
of 12 months;
- we accept the UK Commission's recommendation
to reduce the number of separate publicly funded agencies by over
30 and are working with them to implement it; and
- and to simplify things further, we task Regional
Development Agencies to produce single regional skills strategies, working in
partnership with Local Authorities, Sector Skills Councils and
other local partners such as local employers.
Government understands how important it is for individuals
to understand the opportunities available to them so they can
be confident about making the right choices to get into and on
in work.
23. In the Higher Education Framework, Higher
Ambitions, published in November we set out our desire to
ensure that students have much better information before they
choose their courses - both about what they will be taught and
about the future employment prospects.
24. Skills for Growth also outlines how Government
will ensure everyone can equip themselves with the right skills
for the jobs of the future and with the skills employers find
valuable. We will give people access to information about career
prospects and wage returns of courses so they can make their own
choices.
25. The new adult advancement and careers service
will be launched in August 2010, providing high quality information,
advice and guidance to help people make the best choices. We will
also introduce new skills accounts, putting consumer choice firmly
in the hands of individuals. We will more than treble the number
of providers where learners can use their skills accounts; and
use them to provide quality information on how well different
courses and colleges can meet their needs.
RISK TAKING AND ENTREPRENEURIALISM
The Committee recognises that a successful higher
value-added economy is influence by factors stretching across
many government departments. The role of education is giving young
people the confidence, ambition and skills to be creative and
entrepreneurial is vital. The Committee welcomes the Government's
proposals to extend and develop entrepreneurial training. The
Committee also believes that it is important to teach children
from a young age to take appropriate risks and not to fear failure.
We recommend that the Government incorporates this into education
on entrepreneurship. (Paragraph 69)
26. Government's (DCSF) education strategy aims to
develop 'can-do' attitudes in young people and to raise their
aspirations. A key part of this strategy is to encourage young
people to take risks and to manage them and to do this with determination
and drive. We want to persuade and enable teachers to embed enterprise
education into the curriculum so that young people learn to take
and manage risks in their personal and working life and can cope
with change and adversity. An 'enterprise learning environment'
in schools allows students to take personal responsibility for
their actions and to tackle problems which involve an element
of risk as well as reward for the successful resolution of these
risks.
27. As young people progress into Further and Higher
Education, they are also becoming increasingly exposed to the
different facets of enterprise, with more institutions recognising
the importance of helping students make the transition into self-employment.
Government is encouraging the institutions to work with the likes
of Enterprise UK and the National Council for Graduate Entrepreneurship
(both funded by BIS), and with Regional Development Agencies,
to increase the opportunities for students to participate in enterprise-related
activities and to learn business skills, in a controlled environment
(and therefore one where risk can be experienced with less consequence)
as part of their studies or as an extra curricula activity.
We also stress the importance of well-informed
up to date careers advice in schools to encourage children to
consider careers in business—especially in engineering—and
in entrepreneurship, alongside balanced advice about other careers.
Careers advice in most schools appear not to be of the standard
required to enable young people to make properly informed choices
and we urge the Government to consider how this serious shortcoming
can be addressed. If our economy is to continue adding value and
competing successfully internationally, it is essential that young
people understand the true range of opportunities open to them
(Paragraph 70)
28. On 26 October, the Department for Children, Schools
and Families published the new 'Information, Advice and Guidance'
(IAG) strategy which aims to modernise IAG and careers education
to make it accessible for today's generation of young people and
to keep pace with a rapidly changing economy. We want all young
people to aim high and to be able to unlock their skills and talents.
The principles underpinning this 21st century approach to excellent
IAG are:
- Excellent, personalised and
impartial careers information, advice and guidance in schools
- Support for parents to help them help their children
to make the right decisions
- State-of-the-art on-line IAG resources, accessible
24/7 by young people and their parents, with links into one-to-one
advice
The strategy includes extending excellent careers
advice into primary schools because in order to raise aspirations
of our young people, we need to ensure that they receive the right
advice from an early age. A further part of the new IAG strategy
is to encourage the take up of Science and Maths A-levels. The
guidance provided places emphasis on the importance of these subjects
and advice for students deciding what A-levels to take.
Shifting the United Kingdom's culture to one which
accepts that making progress may require taking risks, and that
success is not always guaranteed, will take time, but will be
vital to the future success of our economy. It will depend in
large part on a more balanced approach from politicians and the
media—two groups that too often seem to celebrate failure
with more enthusiasm than success (Paragraph 73).
29. In promoting the opportunities available through
enterprise, Government recognises the importance of ensuring that
individuals get appropriate advice and guidance at every stage
to enable them to make informed choices about whether self-employment
is right for them. This includes a clear articulation of the
risks inherent in such a decision - but also a realisation that
such risks can be managed and that it is often necessary to take
risks in order to succeed. The UK culture is typically seen as
"risk averse" (when compared to the US), but much can
be done through educational programmes and by highlighting role
models for whom risk has not been a barrier, in order to change
attitudes amongst the would be self-employed.
THE PUBLIC SECTOR
In Innovation Nation, the Government
announced that the National Audit Office will be conducting a
study into the role of risk in public sector innovation. We welcome
this development. We have no desire to waste money, but progress
requires risk-taking. Some of those risks will lead to a project's
failure, in whole or in part. We believe that the United Kingdom's
culture is too risk averse. This needs to change in the public
as well as the private sector. (Paragraph 74)
30. This is well recognised across government. The
NAO covered the role of risk in public sector innovation within
its report 'Innovation across central government' which was published
in March 2009.
31. This report recognised that Britain has a long
track record of public services innovation, from the creation
of the National Health Service, the Open University and the BBC
through to innovations in medical procedures like keyhole surgery.
However, government recognises that against the background of
a global economic downturn and tightening public finances, more
needs to be done.
32. The report identified a number of critical success
factors for innovation, including the need to ensure that risks
are well managed. It also highlighted the importance of learning
from testing and piloting when trying something new, and quickly
identifying what is not working. A good understanding of risks
also includes the risks of not innovating.
33. These factors are included in the package of
measures that BIS is further developing to support innovation
across central Government. A number of programmes have already
been established to help build a culture of innovation and to
support departments to work more openly and collaboratively and
to create an environment where staff are both encouraged and incentivised
to come up with and try out new ideas in a safe environment.
34. These include the Design Council's Public Services
by Design programme, which focuses on the use of design techniques
to help public sector organisations transform service delivery.
In addition, the National Endowment for Science, Technology and
the Arts (NESTA) Public Services Innovation Laboratory develops
new methods for uncovering, developing, and testing new ideas
and innovations.
CLUSTERS
Strong academic institutions can play a key role
in supporting valuable clusters of innovative industry. In the
best examples, academics, entrepreneurs and public institutions
understand and value one another's contribution. It is impossible
to mandate such cross-fertilisation between universities and industry,
but a great deal can be done to support it, by providing collaborative
facilities, by supporting technology transfer and simply by promoting
networking. Collaborations of this kind, formal or informal, offer
a great deal to all parties concerned, and we have seen that universities,
financial institutions and industry can all play an active part
in supporting them. Public authorities should be aware of the
benefits of this kind of clustering, and should actively look
for ways in which they can act as catalysts to encourage it. (Paragraph
79)
35. We welcome the recognition that networking and
collaboration can bring and we are working to facilitate such
joint working through investments in Knowledge Transfer Networks,
joint working between the Research Councils and the Technology
Strategy Board, and through the Technology Strategy Board's increased
focus on challenge-led innovation, which seeks to create the opportunity
to bring together key partners (government, business and academe)
and creating critical mass to address major challenges e.g. through
activities such as its £150 million Low Carbon Vehicles Innovation
Platform that brings its funding together with that of the Department
for Transport, Regional Development Agencies and the Engineering
and Physical Sciences Research Council (EPSRC), under which, the
EPSRC is for example supporting a £7m Strategic Programme
to develop a portfolio of university based research focussed on
key longer term technologies for lower carbon vehicles that will
inform future calls/activity by the Technology Strategy Board.
COLLABORATIVE RESEARCH
Recognising and building on the research strengths
both of the United Kingdom as a whole, and of particular areas,
will be essential to sustain a higher value-added economy. In
principle we strongly support developments such as the proposed
UK Centre for Medical Research and Innovation. (Paragraph 81)
36. The Government agrees that strength of our research
base should be a vital asset to help sustain a higher value-added
economy. The UK Centre for Medical Research and Innovation represents
an exciting prospect through creating a world-class centre for
interdisciplinary medical research as part of a growing cluster
of excellence and international renown in the heart of London.
The centre will bring together a critical mass of expertise from
the contributing partners and facilitate interdisciplinary research
with UCL and clinical interaction with the many teaching hospitals
in the area with a view to promoting greater translation of basic
research into clinical benefit.
We applaud the development of centres of excellence
such as Quantum Technology Partnership, and its approach of fostering
collaboration among existing institutions rather than duplicating
effort. (Paragraph 82)
37. The Government agrees that university business
collaboration will be important for the higher value-added economy.
Research Councils work with over 2900 businesses in sectors ranging
from engineering to insurance, broadcasting to biotechnology.
Furthermore, we know that the strength of the United Kingdom's
research base can also help to attract inward investment of knowledge-intensive
firms: UK Trade and Investment (UKTI) say that they have used
the strength of the research base to attract more than 200 Research
and Development (R&D) investments to the UK during 2008-09
alone.
TECHNOLOGY STRATEGY BOARD
The Committee supports the role of the TSB and
its re-focus on driving innovation. We believe that the TSB can
play a strong role in helping industry, especially developing
sectors, to develop a higher value-added economy. The TSB should
work on behalf of the Government to help to foster an enterprise
culture within which risks can be taken and where fear of failure
does not hinder innovation. However, although it is tackling a
broad remit with enthusiasm, the TSB is a small organisation.
We will be keeping the extent to which its remit is too broad,
or its resources are adequate, under review. (Paragraph 88)
38. We welcome the Committee's strong support and
endorsement of the valuable work of the Technology Strategy Board.
It is clear that there has been significant progress
on university-business collaboration since the Lambert Report
in 2003. It is also clear that much more needs to be done. Since
this is a matter of building relationships between individual
institutions and companies, progress will necessarily be slow.
We are encouraged by the success of knowledge transfer partnerships,
but recommend that the process of applying for such partnerships
should be made faster and simpler. (Paragraph 93)
39. The process of applying for and supporting Knowledge
Transfer Partnerships is kept under constant review and the Committee
may wish to note that the Technology Strategy Board and its partners
recently launched shorter, more flexible KTPs, over 100 of which
have been funded to date, focused towards smaller companies not
requiring a more in depth longer project. The shorter KTP application
process was simplified when designed and is wholly electronic.
INNOVATION VOUCHERS
The Committee recognises the vital importance
of the small business sector to innovation in the private sector.
We therefore welcome the recognition of the success of Innovation
Vouchers as one way of achieving a better dialogue between SMEs
and universities. We consider their effectiveness should be kept
under review, and further support for them be given, if appropriate.
(Paragraph 95)
40. Innovation Voucher pilot schemes have now been
rolled out in eight of the nine English regions, with the South
West looking to roll out their scheme from April 2010. By the
end of June 2009, over 1,300 vouchers had been issued to SMEs
with a total value of over £4.5 million.
41. BIS will be working with the RDA network over
the remainder of the current CSR period to evaluate the impact
of the vouchers and the different pilot voucher schemes. This
evaluation will help inform considerations on whether Innovation
Vouchers are developed into a formal product within the Solutions
for Business portfolio of business support products.
MISSION-LED INNOVATION
The Committee considers that mission-led projects
can encourage greater innovation. However, as we saw at DARPA,
such approaches work best in a culture which does not fear failure
and which is not subject to obsessive accountability requirements.
The Committee believes this method must be embraced and encouraged
more by the Government and recognised in future policy formulation.
Innovation will, by its very nature, always be elusive in a bureaucratic
culture. (Paragraph 100)
42. We welcome the Committee's strong endorsement
for Mission-led innovation and would like to draw the Committee's
attention to the concept of challenge-led innovation which has
been pioneered by the Technology Strategy Board, through activities
such as the aforementioned Low Carbon Vehicles Innovation Platform.
This particular platform seeks to:
- Accelerate industry investment
in low carbon vehicle commercialisation;
- Build new partnerships to address technical challenges;
and
- Increase UK-sourced products offered to the market.
And is also an integral component of the policy package
outlined in Ultra-Low Carbon Vehicles in the UK, which
will be delivered by the new Office for Low Emission Vehicles,
and will seek to position the UK as one of the global leaders
of Low Carbon Vehicle development, demonstration, manufacture
and use.
43. The Technology Strategy Board is also rolling
out of the Small Business Research Initiative (SBRI) more broadly
across the public sector to help industry provide potential novel
solutions to meet public service challenges in areas such as security
and defence, healthcare, transport and retrofit demonstrators
for low carbon buildings. To date, 25 SBRI competitions have been
launched over the last six months, and 277 contracts awarded with
a value of £9.3 million.
44. Furthermore, the Technology Strategy Board is
also exploring innovative ways in which to support mission/challenge
based activities. For example its recently launched Grand Challenge
competition in Composites represents a unique approach that will
see a £5m prize awarded to British business to develop innovative
composite manufacturing techniques for high-performance, high-value
products. It addresses a major barrier to the commercial exploitation
of composites across all sectors and offers British companies
the chance to become world leaders in this area by developing
cost-effective and rapid manufacturing processes.
R&D TAX CREDITS
On balance, the evidence available suggests that
R&D tax credits have been successful and that they are becoming
more so as awareness of them grows. Businesses take time to adjust
to new policy instruments, so this increased awareness is not
surprising. We recognise, then, that the policy needs time to
produce its full effects, and welcome the Government's commitment
to a full evaluation in due course. However, although we support
the principle that business needs some basic certainty about the
incentives available, this should not prevent improvements to
the tax credit system before then. We particularly urge the Government
to look at ways in which the scheme could be made more accessible
to SMEs by reducing both the eligibility thresholds and the complexity
of the scheme. (Paragraph 108)
45. R&D tax credits were introduced in 2000 for
companies that are small or medium-sized enterprises (SME's) and
extended in 2002 to large companies. The schemes are one of the
Government's most important policies designed to promote innovation
in the UK, playing an effective role in supporting business R&D
expenditure.
46. The latest statistics show the continued success
of the schemes. Since their introduction over 36,000 claims have
been made for R&D tax credits with over £3.0 billion
of relief claimed, supporting over £32 billion of R&D
activity by companies.
47. Government has undertaken a number of measures
to enhance and improve the schemes, and their accessibility for
all companies. The rate of relief was increased from 125 to 130
per cent for large companies from April 2008, and from 150 to
175 per cent for SME's from August 2008. Additionally, to improve
the claiming process for companies, HMRC established seven specialist
R&D tax credit units in 2006 to deal with R&D tax credit
claims, working alongside the Large Business Service where appropriate.
The units provide consistency and certainty for companies making
claims, and also play a role in raising awareness of the schemes.
48. The Government is committed to evaluating the
effectiveness of the schemes, focusing first on the SME scheme,
by the end of 2010.
The Committee strongly agrees that innovation
is much broader than R&D and that wider innovation should
also be encouraged. Nonetheless, we would be cautious in making
radical changes to the R&D tax credits scheme, which is currently
seen as a success, particularly before it has been properly evaluated.
However, we strongly encourage the Government to think about how
it might better encourage innovation beyond the current support
for traditional R&D and particularly, how it will encourage
innovation in the service sector. (Paragraph 111)
49. BIS firmly recognises the importance of services
in the economy, including the role of business services in supporting
wider business productivity and growth, including in the current,
difficult economic circumstances. The importance of wider innovation
in the Service sector and the Public sector was recognised in
"Innovation Nation" which included a number of
measures to support innovation beyond traditional R&D.
50. The report "Supporting Innovation in
Services", published by BERR and DIUS in August 2008,
examined the nature of innovation in service sectors and confirmed,
from discussions with service businesses, that traditional research
and development is seen as less relevant to their innovation,
which is markedly customer- or user-centric. BIS is following
up "Supporting Innovation in Services" across
Government policy delivery in key areas - including promotion
of ICT and software to transform business processes, skills and
standards for services - and it is coordinating implementation
of a package of specific policy interventions identified in the
report, which aim to improve the environment for innovation in
service sectors.
51. In addition, BIS is working with ONS and DCMS
to better understand the wider economic benefits of innovation
in the creative industries sector and will report in early 2010.
INTELLECTUAL PROPERTY
The Committee welcomes the fact that responsibility
for IP within Government will lie within the new Department for
Business, Innovation and Skills. All too often, intellectual property
is seen as synonymous with patenting; one of the tasks of the
department should be to raise awareness of the variety of ways
in which such property can be protected. (Paragraph 114)
52. BIS has as dedicated Minister of State for Intellectual
Property, the Rt. Hon David Lammy MP who is responsible for the
Intellectual Property Office (IPO) which leads on the majority
of IP policy for the government an also represents the statutory
body for the administration of IPRs. In recognition of the role
of IP in innovation and knowledge economy the IPO's activities
are configured around four main themes;
(i) Improving the understanding of the role intellectual property
plays in Britain's economic life, and in the competitiveness of
UK's businesses—the economic evidence issue;
(ii) Shaping the policy environment on IP, particularly in Europe
and internationally;
(iii) Reaching out more effectively to individuals and individual
companies in the UK to help them better understand, manage and
benefit IP effectively and
(iv) continued excellence in delivering individual rights: patents,
trademarks and registered designs.
We believe that the British Library Business and
IP Centre is providing an exemplary service to the SMEs and entrepreneurs
of the capital and we would like to see this model replicated
throughout the United Kingdom. The Committee recommends that the
Government secure the Centre's long term funding to enable it
to provide a service to business people across the United Kingdom
and provide funding for similar centres in key business hubs within
the United Kingdom. (Paragraph 115)
53. We agree that quality IP advice is an essential
component in ensuring the UK's future economic prosperity. In
the current economic climate, it is more important than ever for
UK businesses to continue to invest in the future, to protect
and make their ideas work, and be able to compete on the world
stage when the economy begins to recover.
54. The IPO offers IP help to inventors and business
through online information and advice including interactive IP
Healthchecks, the IPO central enquiry unit, various business support
literature including licensing templates, a programme of regional
awareness events, IP Masterclasses, and training of intermediaries
(public and private sector business advisors) including HMRC,
UK Trade & Investment, British Standards and Patent information
centres (PATLIB).
55. Various other bodies also provide IP advice and
the British Library make a valuable contribution to this IP information
and advice landscape.
56. The future provision of IP support for business
will be considered within this wider context. The IPO will continue
to provide advisory support. How that is supplemented by local
delivery will continue to be a matter for local providers; the
extent to which the government provides direct support for these
providers falls to be considered in the wider context of future
spending decisions.
PUBLIC PROCUREMENT
The Committee highlights the vitally important
role for public procurement in stimulating innovation in the United
Kingdom. The Government has an obligation to use the large amount
of money that it spends each year on public procurement to stimulate
innovation. We welcome the Government's promise to accept the
Glover Committee recommendations and look forward to monitoring
the results this produces for SMEs. (Paragraph 120)
57. In the current economic climate, it is more important
than ever that Government obtains maximum value from its expenditure
on buying goods and services. The 2009 Pre-Budget Report (PBR)
announced that the Government is prioritising its pursuit of certain
policy agendas to stimulate economic growth, by harnessing its
purchasing power. These agendas are apprenticeships, skills and
youth employment, small businesses, and low carbon resource efficiency.
The Government will in January publish a Policy through Procurement
(PtP) Action Plan showing how it will use procurement to deliver
against these policies.
58. Running through the action plan is innovation.
Driving innovation through public procurement gives the Government
the potential to create better value for money by contributing
to better quality public services, reduced costs and faster achievement
of benefits. The new OGC/BIS pamphlet 'Driving Innovation through
Public Procurement'[1]
shows Government departments the positive steps to take at the
various stages of the procurement process to encourage innovation.
Moving to outcome specifications is important. It also shows
how they can encourage suppliers to use their capabilities and
know-how to innovate in ways that will benefit both public services
and the wider economy.
59. Innovation Procurement Plans have been published
detailing the type of activities being taken forward by Departments
to obtain innovative solutions and to embed processes for the
procurement of innovation in their procurement procedures. BIS
and OGC will continue to work with Departments to further develop
the Plans.
60. Linking the delivery of these plans to the PtP
agendas will ensure we maximise the potential offered by public
procurement to deliver innovation and key policy priorities. Innovation
lies at the heart of the investment-led recovery and the 'green-jobs
revolution'.
61. Good progress has been made against the recommendations
of the Glover Committee's report Accelerating the SME economic
engine, and the Government has also announced in the 2009
PBR that:
- online training aimed at increasing
SME understanding of the public procurement process is being enhanced
and will be free of charge when it is re-launched on Learn Direct
in January 2010;
- the Government will increase the transparency
of its spend and will in summer 2010 publish the level of central
government spend with SMEs; and
- a free, online portal will be delivered by HMRC
and accessed via the BusinessLink.Gov website by end 2010. This
will enable all contract opportunities above £20,000 from
across the public sector to be viewed in one place.
The Government will have delivered on the majority
of the recommendations this financial year. The key challenge
is now to institutionalise SME-friendly procurement across the
public sector to enable SMEs to benefit from public procurement
opportunities and to enable the public sector to benefit from
their vfm, innovation and flexibility. To do that OGC is working
with change agents in the local government, health and education
sectors.
We welcome the OGC's guidance on innovation and
procurement; the difficulty will be to ensure that departments
and individual officials really understand the ways in which procurement
can support innovation, and are supported in using procurement
policy in this way. It will require the public sector, and those
who monitor its effectiveness, to take a balanced approach to
risk, rather than simply reaching for the tried and tested way
of doing things, because it is safer. (Paragraph 121)
62. The Government continues to develop the procurement
profession across Government to help ensure departments deliver
procurement increasingly innovatively. Also, the procurement
capability review (PCR) self-assessment process has the assessment
of 'innovation' embedded in it.
63. The Government recognises that there can be a
tendency for procurers to opt for low-risk solutions, low-margin
players and mature technology and that innovation is not consistently
welcomed or rewarded. In undertaking an innovative procurement,
procurers should apply best practice consistently, including effective
risk management because innovation and risk often go hand in hand.
Risks can be embraced so long as they are effectively assessed
and managed. For example, both the Forward Commitment Procurement
(FCP) and Pre-commercial Procurement (PCP) approaches, such as
the Small Business Research Initiative (SBRI), provide ways to
manage the risk of procuring innovative products and services.
SMALL BUSINESS RESEARCH INITIATIVE
The Committee welcomes the establishment of the
SBRI in the United Kingdom and hopes that it will play its part
in fostering a true spirit of innovation. The Committee also recommend
that the Government use a larger part of the public procurement
budget to invest in riskier, high payoff projects that will help
to stimulate a change of culture within government departments
and in the UK economy. Such a policy may be considered courageous
in the prevailing climate, but the example of DARPA in the USA
shows the value of such courage. (Paragraph 123)
64. Following the Sainsbury Report on science and
innovation, SBRI has been reformed to ensure that it focuses on
the objectives of supporting technology based innovations within
SMEs while delivering solutions to government needs that result
in improved delivery of public services at better value for money.
The reformed SBRI programme is managed and supported by the Technology
Strategy Board, thus ensuring that the buying body benefits from
its expertise in framing competitions and in engaging with industry
and from its increased outreach, particularly to SMEs.
65. The Technology Strategy Board ran SBRI pilot
schemes in partnership with the Ministry of Defence and the Department
of Health in 2008. Building on the lessons learnt from those pilots,
the scheme was relaunched in April 2009 and has now been extended
to include other public sector bodies, e.g. Department for Transport
and Home Office have run competitions, and the Technology Strategy
Board are engaging with RDAs and local authorities. Topics for
competitions have come from a wide range of areas, addressing
significant public service challenges—such as paediatric
transport, modelling complex traffic systems on motorways, detecting
intent in crowded places, low carbon buildings and patient safety.
Proposed solutions have come from a wide range of industry sectors,
with competitions effectively reaching out to companies that the
procuring authorities would not have normally engaged with. The
first 25 competitions generated 956 responses which resulted in
the award of over 270 contracts with a total value of £9.3m.
Whilst this represents dramatic growth since the rollout of the
programme commenced in April 2009, growing the scheme at the same
rate over coming years will be challenging, and BIS and TSB are
working together to promote greater use of the scheme by central
government departments and other public sector bodies.
ACCESS TO FINANCE
We welcome the launch of the UK Innovation Investment
Fund, although only time will tell whether the investment from
the Government will leverage all the money required. (Paragraph
127)
66. We welcome the Committee's support of the UK
Innovation Investment fund, which has been endorsed by the British
Venture Capital Association and a number of trade associations.
67. We recognise that the climate for fundraising
is difficult—that is why we are establishing the fund.
But we are confident, firstly, that we will achieve the initial
target of raising investment that matches the Government's £150
million and, secondly, that the UKIIF will be ones of the largest
technology funds in Europe worth up to £1 billion over its
15 year life.
THE FUTURE OF THE HIGHER VALUE-ADDED ECONOMY
The Government needs to take a leading role in
being prepared to experiment, to take more risks, to spread best
practice, and to monitor and fund initiatives that are shown to
work well. It must also be prepared to put in place a policy framework
which supports successful industry, as well as encouraging new
businesses to begin. We acknowledge, however, that this is a difficult
task. We believe that the Government is saying many of the right
things; it now needs to make sure its many policy documents are
translated into action. (Paragraph 130)
68. The UK Government has followed up the policy
documents which it has published with concrete action and support.
For example, in recent weeks and months it has launched:
- The Advanced Manufacturing
Strategy (July 2009) which announced a package of measures totalling
£150m in targeted new investment in emerging technologies
including plastic electronics and industrial biotechnology
- The Composites Strategy (November 2009) which
announced £22m in new investment to further advance the development
of composite materials
- The Skills for Growth Strategy (November 2009)
which announced a number of commitments including a joint investment
scheme to boost skills in priority sectors.
1 The guidance can be found on the OGC website http://www.ogc.gov.uk/documents/OGC09-0679_InnovationBrochure.pdf
Back
| 
