Spending Review 2010 - HC 618Written evidence submitted by Rolls-Royce plc (SR 11)

Declaration of Interest

1. Rolls-Royce is a global business providing integrated power systems for use on land, at sea and in the air. The Group has a balanced business portfolio with leading market positions, developing products that add value for our customers, improve efficiency and reduce environmental impact. In 2010 Rolls-Royce invested £923 million in R&D, approximately two-thirds of this in the UK. The Company is widely and consistently recognised as a leading practitioner of truly collaborative industry-academic research. ,

2. Rolls-Royce primarily operates two highly successful models for academic collaboration: its world-wide network of University Technology Centres (UTCs), and its partnerships in Advanced Manufacturing Research Centres (AxRCs). These partnerships have consistently delivered advanced technologies that can be traced through to many of today’s world leading products. The majority of the Company’s fundamental research is carried out through collaboration with these centres, making them critical to Rolls-Royce. Additionally, Rolls-Royce has significant relationships with other research centres around the world, including National research centres in Japan, Singapore, China, Germany, and the USA.

Experience of Rolls-Royce in Leading Science and Research

3. A consistent strategy of developing long-term relationships has provided Rolls-Royce with close contact with world-class academic institutions, provided stability for the researchers, and given the Company and the academic institutions access to a wealth of talent and creativity to help protect competitiveness into the future. This has fostered an increase in successful collaborations, allowed a more strategic approach to be taken by all parties in planning for future challenges, and encouraged the development of skills and exceptional talent through a challenging and stimulating environment.

4. Successful, leading concentrations of research such as these provide the UK with an ideal platform for playing a major role in international research projects, offering significant opportunities to exploit the results. A long-term, focused approach to ensure stability has been essential.

Response to the Funding Allocation

5. The Company welcomes the Government’s general protection of the science budget, as announced in the December 2010 report, particularly in respect of the focus on Engineering and related skills through the Engineering and Physical Sciences Research Council (EPSRC) and the Learned Societies. The cross-cutting nature of Science & Engineering has the added benefit of underpinning and facilitating development in other essential sciences in which the UK has strength.

6. It is critical that the Government continues to invest in key elements of the country’s research infrastructure if it is to maintain its position as an attractive place for business to carry out research. This investment should be targeted on those areas of technology where the country has a world-leading position and on those institutions with a proven track record of excellence and delivering impact, or on emerging technologies where the UK has the business infrastructure and skill-base to become world leading.

7. Public funding for research and support for pull-through of research output promotes private investment and growth, and stimulates additional inward investment by foreign companies. It is clear that many of the other world economies are protecting or increasing their investment in research for just such reasons. Businesses have to date invested in UK research because it is recognised as amongst the best in the world. However, other countries are becoming increasingly competitive and UK industry now has more choice than ever before. Many Governments, for example Singapore and Germany, are investing heavily to develop their research capability and providing attractive incentives for Companies to move their R&D efforts. It should be noted that much of this investment is based on a long-term national “vision” that stretches well beyond a ten-year horizon.

8. The Technology Strategy Board and the Research Councils should continue to be encouraged to work closely together. The TSB has an essential role in promoting collaboration and encouraging effective pull-through of research outputs to industry. The Research Councils provide the steady pipeline of talent and fundamental research. Therefore, both the TSB and the Research Councils have an equally important part to play in ensuring that the UK remains competitive in the long term. We believe that there is a clear case that funding to TSB should be significantly increased, but it is not suggested that this funding is simply diverted from other elements of the research base.

9. It must be noted that simultaneously with these settlements the English RDAs are being disbanded. The RDAs did much to support access to the science base by SMEs and to provide the capital support for larger collaborative research activities in conjunction with the TSB. There seem to be no plans to provide additional budget to TSB to allow them to fulfil these functions going forward.

10. Reduction in Capital budgets, particularly as applied to the Research Councils where capital appears to be outside of the ring-fence, is an understandable consequence of fiscal restraint. In the short term it is reasonable to expect efficiency savings to be realised by the shared use of facilities, both large and small. However, over time, the capability that the UK can offer will deteriorate as equipment ages, and will eventually erode not only the ability to carry out leading edge research but also the ability to attract and develop new talent. It is recommended that the Research Councils and other public sector stakeholders be given appropriate flexibility in their funding settlements such that, in the medium term, they are in a position to take action before the problem becomes acute.

11. The EPSRC’s key themes of Delivering Impact, Shaping Capability, and Developing Leaders, along with its efforts to consult widely on the plan for delivery, are appreciated. However, it is inevitable that some hard choices will be required, as the settlement still represents a contraction in real terms. There will be those who will see this as a threat rather than an opportunity to concentrate on their key strengths, and understandably seek to defend their position. Concentration of effort on the key elements of a long-term strategy, which has clearly articulated ambition, vision and intent, will be required to avoid distraction from those elements that are critical to the UK. A stable environment with consistent funding mechanisms that recognises the importance of research is essential.

12. There is no question that the quality of research must remain internationally competitive. It also has to be recognised that the traditional “outcomes” of a research project are not the only measure of success, and indeed for business they can be argued as secondary to whether the research has real impact. Research Councils and the Learned Societies have an important role in promoting the topics deemed to be strategically important to the UK.

13. The dual funding system in the UK is recognised as a strength, but an increase in the proportion allocated to the Business QR stream should be strongly considered. This would allow due recognition of those universities that take active steps to foster improved links with industry. This is not to say that blue-skies, purely curiosity-driven research is not valued, but simply to recognise that working with business is not somehow less important, or less academically challenging. Apparent misunderstanding of the Research Excellence Framework (REF), intended to replace the Research Assessment Exercise (RAE) in 2014, has not helped to shift this perception, and we would encourage the public sector stakeholders to continue their efforts in conveying this message.

14. It is essential in any response to current financial constraints, that the numbers of PhDs in engineering and science subjects are not significantly reduced. However, a greater emphasis on quality, rather than quantity, would be an appropriate response. The Company recognises the critical importance of doctorate research, both PhD and EngD, with over 350 Doctorate students supported by Rolls-Royce through its UTC network, the majority in the UK. This number has increased, not declined, over recent times. This reflects the importance we place on this level of research, but it would not be possible without the surrounding infrastructure of the existing UK science base. Many of these people go on to take up positions of significant influence, not just in the academic field, but also in business, politics, teaching, leadership, and so on.

15. Finally, Rolls-Royce recognises the drive for further efficiency savings in the research and higher education sector. The Company operates in a highly competitive market, and is acutely aware of the need to remain cost-competitive whilst simultaneously delivering leading technology. The introduction of Full Economic Costing around 2005 allowed the Universities to better understand the cost of their research activities, and ensure they were placed on a sustainable footing. However, the cost of carrying out research, and the price that the external market can bear, must be kept in proportion. The CBI has indicated that the cost of post-doctoral research in the UK is amongst the most expensive in the world, and this is likely to be having an adverse effect on where industry focuses its research efforts. The quality of UK research may for some time prevent any mass exodus; however, the increasing competition from overseas is not to be underestimated, and we therefore generally support initiatives to reduce the overhead cost associated with research in a sustainable manner and increase value for money to industrial research funders. Savings from such exercises should be reinvested into the higher education sector, with those Universities that demonstrate improvements in efficiency being allowed the flexibility to reinvest in line with their strategies.

Conclusion

16. A strong and vibrant research base is essential to the success of UK companies competing in highly competitive global markets. Successful models of academic-industry collaboration exist, and those pursued by Rolls-Royce serve as examples; there are of course others. It is possible to deliver high-quality research that simultaneously has a direct impact on business performance, is recognised as world leading, and produces exceptionally talented people.

17. Promoting stable and long term partnerships that fit with national strategies can lead to a high degree of success.

18. Consistent, focused research investment by the public sector can have a disproportionately large economic impact, encouraging investment and growth, and maintaining a robust infrastructure, upon which UK business and academia can flourish.

19. The Company therefore welcomes the Government’s protection of much of the science budget, but recognises that it still presents some significant challenges to the higher education sector and the associated public sector bodies.

20. In times of fiscal constraint there needs to be more focus in our research base, more emphasis on funding those with a proven track record, and a refreshed balance between long-term, fundamental research and research with nearer term economic impact.

21. Organisations that demonstrate a commitment to achieving these aims should be recognised and supported.

Professor R J Parker, FREngDirector of Research & Technology

21 April 2011

Prepared 7th November 2011