Bridging the valley of death: improving the commercialisation of research - Science and Technology Committee Contents

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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Prepared 13 March 2013