Conclusions and recommendations
Investment in technology companies
1. We
are concerned that our small companies are too often bought up
by larger overseas companies before they can develop into the
medium sized enterprises that would produce substantial jobs and
wealth in the UK. We are convinced that while equity investments
have a place, too many companies are forced into over-reliance
on this route because other types of funding are unavailable.
We recommend that the proposed bank for business, possibly
in partnership with the Business Growth Fund, be used to promote
a bond market for medium sized businesses, thus providing growing
small businesses with an additional source of funding. (Paragraph
39)
2. We have concerns
that regulation to de-risk pension and insurance funds has had
the effect of starving technology companies of a source of long
term patient capital. There is a need to deploy these funds more
usefully. We recommend that the Government investigate the
potential to require funds to have a proportion of European SME
equities. (Paragraph 40)
3. Lloyds Banking
Group run a scheme where senior staff attend a Warwick based engineering
course designed to help them make better decisions on financial
risk by giving them a better understanding of some emerging technologies.
We recommend that the bank for business adopts such an approach
for its staff from the outset. (Paragraph 41)
4. The bank for business
announced by the Government may provide a useful go-between for
institutional investors and technology businesses. We urge
the Government proactively to seek to develop not only the market
in technology equities but to ensure that the market has ready
access to information that may change the perception of these
equities and their relative risk and create mechanisms, such as
the Lloyds scheme, to help fund managers understand evolving
technologies. However, reporting requirements and other costly
regulatory burdens on UK-based listed companies, especially in
the AIM market, should be kept to a 'fit for purpose' minimum.
(Paragraph 42)
5. We recommend
that the Government re-examine their portfolio of interventions
to determine where gaps may lie and to ensure there is a consistent
spread of funding across the spectrum of business need. It is
important that government funding fits the needs of growing companies
rather than company growth having to adapt to gain government
funding. It is also important to ensure that the incentives from
Government tend towards greater growth and retention of jobs and
wealth creation in the UK. (Paragraph
45)
6. We consider
that the R&D Scoreboard was a useful and widely respected
source of information for technology businesses and we recommend
that the Government should reinstate it. We also recommend that
the Bank of England should resume their monitoring activity on
the availability of finance to SMEs. (Paragraph
87)
The need for physical infrastructure
7. We
share the concerns of our witnesses that the UK small business
sector lacks access to large scale test and experimental production
facilities. We recommend the Government to find a way to ensure
that those facilities that do exist can be more readily accessed
by business, that gaps in requirements are identified and a fund
established to subsidise those facilities that cannot afford to
remain at the leading edge in a purely commercial environment.
(Paragraph 51)
8. We urge the
Government, when looking at the issue of production facilities,
to ensure that the Technology Strategy Board and other commercialisation
activities address whether projects are properly supported in
issues of manufacturing capability. (Paragraph
52)
Small companies
9. The
Government indicated that it would not follow the James Dyson
report recommendations that the tax credit should be refocused
on high technology sectors or on small and start-up companies.
The R&D tax credit has been successful in increasing spend
by business on research and development but this has, mostly,
been within larger companies. We recommend that the Government
identify the reasons why R&D spend still appears to be drifting
away from the UK despite the benefits enjoyed by larger companies.
We also believe that there needs to be a mechanism to support
SME's who do disproportionately badly from the current scheme.
(Paragraph 59)
10. We conclude that
the Government needs to distinguish in its innovation policy between
small and medium enterprises: a single SME category is too broad.
(Paragraph 61)
Taxation and regulation
11. We
recommend that the Government address the issue of VAT and how
it might ensure that VAT rules allow academic teaching and research
to sit alongside commercial and incubation activities within public
or charitably funded laboratories and research centres without
creating a financial burden for the institute.
(Paragraph 63)
12. Poor regulation
adds to the risk burden of entrepreneurs. We welcome the proactive
response of the Minister on the issue raised in evidence to us
and recommend the TSB to undertake a review of regulatory burdens
on technological innovation in the UK. This review should be consistent
with the advice to Government by Professor Ragnar Lofstedt on
Health & Safety matters but should not include just a list
of regulatory burdens in need of reform but a roadmap of how that
reform might be used to drive innovation and which institutions
should take the lead. (Paragraph 70)
Intellectual property and technology transfer
13. We
judge that the IPO mediation service could be more heavily used
to arbitrate in matters of intellectual property. We recommend
that the Government require the use of mediation before any legal
action can be taken in a UK court, both speeding up the resolution
of disputes and reducing the costs of protecting intellectual
property. We also recommend that refusal to engage in mediation
be taken into account in awarding costs.
(Paragraph 76)
14. We recommend
that the Government assess the benefits of the Easy Access IP
experiment and whether it improves the flow of IP not just between
universities but into wealth creation activities within the UK.
(Paragraph 81)
15. We understand
the intent behind changes to HEIF that further reward institutions
that have already benefitted from successfully commercialising
their IP. We have concerns that IP transfer from universities
that have been less successful in commercialising their IP may
decrease further. We recommend that the Government review the
situation after three years and publish a report on how the changes
have contributed to increased IP transfer, job creation and related
social benefits. (Paragraph 82)
16. We recommend
the Technology Strategy Board examine the current provision of
proof of concept funding to universities and small companies and
report to Government a coherent view of the amounts of funding
available along with a recommendation on whether there exists
a shortfall of provision of these funds and whether a consolidation
of provision into a single programme would be helpful.
(Paragraph 96)
The UK innovation ecosystem
17. There
is an evident need for an innovation agency in the UK and it makes
greater sense to ensure the TSB and its schemes evolve to meet
this need than create a new organisation.
It also makes sense to concentrate the innovation function within
a single agency to ensure there is coherence and consistency within
the system. We support the current Government's approach to its
innovation policy. (Paragraph 100)
18. We consider it
vital that the Catapults are made to work. We ask the Government
to confirm to us that they will not seek to push the Catapults
to generate revenue but instead allow them to grow slowly and
organically with a focus on developing the necessary capabilities
to support innovation. (Paragraph 103)
19. We have concerns
about the ability of the TSB to provide real local information
unless they have the funding and resources to develop regional
points of contact that can talk knowledgeably to local businesses.
We recommend that the Government consider how they can resource
the TSB to provide local level advice to technology businesses.
(Paragraph 109)
20. UK universities
collectively constitute a world class research base which is,
consequently, attractive to foreign businesses. Even if they are
not focussed on commercial considerations, they will inevitably
generate ideas and discoveries that are of commercial value. (Paragraph
117)
21. They are an important
facet of the UK innovation ecosystem but a resource to be drawn
on rather than a primary driver of commercialisation. (Paragraph
118)
The role of universities
22. We
are sympathetic to the demand that universities become more accommodating
to non-traditional backgrounds among their academic staff. We
regard it as axiomatic that the extended presence of people with
an industrial background within university faculties would facilitate
a greater understanding of commercial imperatives and the most
effective ways to engage university resources within businesses.
(Paragraph 123)
23. We are concerned
that driving an innovation agenda too aggressively through universities
may have diminishing returns with regard to commercialisation
and risk damaging the academic research that is working well.
We recommend that
the Government's objective should be to create a commercial demand
for university engagement to which they are already primed
to respond. This echoes and reinforces the point made almost 10
years ago in the Lambert Review. (Paragraph
127)
24. It is crucial
that the Government has a coherent plan on how to engage the research
base (people, facilities and intellectual property) with the innovation
agenda. However, the current situation is fragmented and confusing
and, as such, extremely difficult for small businesses to engage
with. (Paragraph 136)
25. We ask the Government
to provide, in their response to this report, its perspective
on the adequacy of the national infrastructure for innovation,
benchmarked against nations with which we compete and how it intends
to remedy structural short-comings, possibly along the lines recently
recommended by the Council for Science and Technology. We recommend
that Public Sector Research Establishments play a key role in
this infrastructure and we plan, in future, to examine their role
within the research and innovation ecosystem in more detail. (Paragraph
137)
Government procurement
26. PraxisUnico
provides training programmes and networking events to improve
technology transfer skills across the whole of the university
sector. It is a good example of a government sponsored programme
that delivered necessary skills across a disparate sector. We
recommend that the Government should consider it as a model for
the delivery of a coherent set of skills across the whole of Government
procurement. (Paragraph 142)
27. We were concerned
that the SBRI scheme fails to assist companies to gain Government
commercial contracts. We recommend that the Government ensure
that its procurement officers, and those of other public sector
agencies, are properly trained to take into consideration the
wider public benefits of procuring services from small technology
companies that have been developed through the SBRI.
(Paragraph 150)
28. We recommend
the Government examine the critical role of research hospitals
in addressing the most challenging of conditions and explore ways
of ensuring that funding encourages the development of innovative
solutions. (Paragraph 159)
29. We consider
it critical for the future of the bioscience sector in the UK
that the Government ensures that a significant proportion of the
NHS procurement budget is accessible by small innovative companies.
The Government should incentivise NHS Trusts to engage with SME
companies for innovative technology solutions. A similar approach
should also be adopted across other agencies including local government,
police etc. (Paragraph 160)
30. Both the Crick
institute and the Stevenage Open Innovation campus demonstrate
that the Government is working actively with the industry to ensure
that bioscience retains a strong presence in UK research and development.
Government support for life sciences has been excellent and there
is real innovation taking place in how that sector might be supported.
(Paragraph 166)
31. We have not been
persuaded that the Department for Business, Innovation and Skills
has a strong enough voice across Government policy to effect the
necessary radical change in procurement practices. Procurement
by Government departments needs to focus on issues other than
simply cost. We recommend a Minister in HM Treasury be given
responsibility for the delivery of procurement-driven benefits
identified by the Department for Business, Innovation and Skills.
(Paragraph 172)
32. We recommend
that the Government, in two years, publish a breakdown of companies
successful in tendering for Government contracts and compare whether
greater openness in procurement has resulted in increased contracts
among small and developing British technology companies.
(Paragraph 174)
33. During our inquiry
we have become aware of the multitude of issues and problems that
are faced by businesses in a variety of innovation sectors. Each
of these companies find issues in funding that innovation but
their concerns and needs vary from sector to sector and are often
predicated on the size of the business. We conclude there is no
single valley of death that all businesses, or even all small
businesses, must cross. (Paragraph 175)
Final conclusions
34. What
is consistent across business is the need for a clear vision from
the Government to provide confidence into the future. Without
a definite commitment from Government, business is more reticent
about making its own financial commitment to the levels of risk
that innovation requires. (Paragraph 176)
35. The evidence that
we have seen shows that there is no coherent innovation policy.
The Government has begun to consolidate its innovation policy
by bringing more schemes and responsibilities within the Technology
Strategy Board. We judge that this consolidation needs to go further
and that the TSB should be given more funds including monies designed
to better finance existing programmes such as SMART and SBRI but
not at the expense of the Research Councils. (Paragraph 177)
36. We have seen a
desperate need for government procurement to do heavier lifting
than in providing encouragement to the growth of small technology
companies. There is possibly a greater and more sustainable benefits
to be gained by growing and developing small companies into successful
medium sized ones than in attracting large companies. (Paragraph
178)
37. There needs
to be a coherent strategy across the whole of UK industry to provide
UK business with confidence in where
they might expect Government support for the medium and long term—whether
through procurement, R&D focus or fiscal policies.
(Paragraph 179)
38. Finally we would
urge the Government to seriously consider the financial markets
and the inadvertent negative impacts that changes to policy there
might have on innovation policy, for example how the regulation
of pension funds has effectively starved technology firms of growth
capital. Where it is not possible to foresee such impacts Government
should be alert to the need to detect and to rectify them in a
speedy fashion. (Paragraph 180)
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