Science and TechnologyWritten evidence submitted by ADS

About ADS

ADS is the trade organisation advancing the UK Aerospace, Defence, Security and Space industries. Farnborough International Limited (FIL), which runs the Farnborough International Airshow, is a wholly-owned subsidiary. ADS has offices in England, Scotland, Northern Ireland, France, the Middle East and India. ADS comprises over 900 member companies within the industries it represents, of which over 850 are small and medium enterprises (SMEs). Together with its regional partners, ADS represents over 2,600 companies across the UK supply chain.

ADS also supports SC21, Sustainable Aviation, Defence Industries Council, RISC, Defence Matters and hosts the Aerospace & Defence Knowledge Transfer Network.

Background

Investment in Science and Research today will ensure that the UK maintains its cutting edge capabilities in the Aerospace, Defence, Security and Space industries in the decades beyond.

Investment in Science and Research has made the UK the largest Aerospace sector in Europe and the second largest in the world after the USA. (17% market share), and worth over £23 billion. to the UK, of which £16 billion. (70%) is exported world-wide. The sector directly employs nearly 100,000 people in the UK, and supports a workforce of around 360,000. Total R&D in 2010 amounted to £1.7 billion, more than 7% of annual turnover.

The Defence Industry employs 314,000 people in the UK—directly and through the supply chain. The industry is highly skilled, with 59 percent of workers holding a university degree or equivalent. The industry invests 8% of annual sales revenue in research and development—amongst the highest in industrial sectors.

Around 450 companies within the membership of ADS are engaged in growing Security, resilience and policing markets, at home and overseas, for which there are many interfaces with UK Government, the police service, the other emergency services and operators of the Critical National Infrastructure (CNI). Security-related SMEs maintain a heavy focus on upper tier technologies and comprise 93% of the ADS membership. A recent survey completed by ADS found that its members generated around £2 billion worth of business in the UK security market during 2010.

The UK Space industry recorded a total turnover of over £7.5 billion. in 2008–09. This represented a real growth of 8% since 2007–08—the UK sector expects to grow 10% each year. The sector is strong in areas such as satellite communications and satellite navigation, and well placed to capitalise on new emerging services derived from Earth Observation, Cyber Security, Cubesats, and Broadband Services. The global market is anticipated to continue to grow at a robust rate of 5% on average in the next decade.

1. What are the difficulties of funding the commercialisation of research, and how can they be overcome?

1.1 The long technology development cycle within the four industries ADS represents means they have a necessity for a balanced portfolio of Research and Development (R&D) at all times. The development of technologies is iterative and achieved by evolution rather than a series of separate discoveries, so research continuity and funding stability are essential.

1.2 Research in defence is falling. The UK Government spend on Research and Development is less than half the level it was fifteen years ago. This, coupled with a loss in funding from agencies, like RDAs has created a sense of uncertainty within industry and does not incentivise the private sector to continue its own investments. Industry welcomes the Government’s decision to halt this decline and sustain investment in Science and Technology at a minimum of 1.2% of the defence budget, announced in the “National Security through Technology” White Paper. The Government must now work to reverse this trend to prevent our position in the export markets weakening.

1.3 ADS members are already successfully engaging with some excellent Technology and Innovation Centres, recently launched as Catapult Centres. The concern here is that while future new centres are considered, high-performing existing ones need to be supported. A comprehensive mapping of what the UK has already is necessary and ADS does not believe this has been done.

1.3.1Industry welcomes the Catapult Centres and ADS believes that industry involvement with them from an early stage, is essential. From inception, Catapults must work with large businesses (who often have the best understanding of market demand) to pull through the best research to meet their needs.

1.3.2Over 850 of ADS’s members are SMEs, some of which are highly innovative, and funding for the commercialisation of their research is vital. A barrier that often disincentivises industrial participation, disproportionately affecting smaller companies is the overly bureaucratic processes, particularly in applying for funding. Catapults should play both a direct and indirect role in supporting the UK in assessing European R&D support.

1.4 The Centre for Defence Enterprise (CDE) has proved effective at bringing in new ideas and providing them with seed corn funding, but there is little evidence so far of exploitation into products. Efforts should be made to achieve downstream exploitation by bringing in companies that may provide exploitation funding at an early stage in the process.

1.4.1Award of CDE funds to an SME should include a commitment to pitch the idea to Primes and CDE should be measured on its ability to stimulate ideas which then become attractive to industry to fund.

1.4.2Trade bodies could be encouraged to work with CDE on engaging with companies in receipt of CDE support to see whether they can help companies develop beyond the seedcorn phase and attract development funding. ADS has discussed the idea in principle with banks of bringing together with industry expertise to help provide potential lenders with better assessment of the risks and thereby facilitate exploitation; ADS would welcome further discussion on this aspect.

2. Are there specific science and engineering sectors where it is particularly difficult to commercialise research? Are there common difficulties and common solutions across sectors?

2.1 In the export-led Defence sector, Government has to decide whether the UK is simply going to buy from the global market or whether it can and should stimulate an industrial base to generate the required technological capabilities. The Catapult programme should ensure that key strategic capabilities remain indigenous in the UK and the MOD now needs to clearly define its priorities so that necessary future R&D can be understood. Only this will give Industry the confidence to invest. Joint planning for the technology development between Government and Industry is the best way forward to ensure investment is complementary and not duplicative and delivers the confidence needed to both sides. ADS looks forward to the publication of the MOD’s 10 year equipment plan later this year.

2.2 In the Aerospace sector, the long term returns from R&D make it an unattractive capital market investment and so Government intervention is key. The failure of the capital market is exacerbated by international market skewing, where other nations including France, Germany and the USA, are specifically backing their Aerospace Industries with R&D support. Such nations have recognised the growing market and the long term economic benefits of a strong national Aerospace Industry. Future market predictions estimate a £352 billion return between now and 2029 for the UK if it maintains its 17% global aerospace market share.

2.3 Some of the most successful advanced manufacturing technology programmes that have delivered innovation and growth through the supply chain have been regionally supported. With the demise of the RDAs and no assurance that funding for their innovation activities is to be retained, there is risk that these value-add innovative projects will evaporate. ADS has led a federation of Regional Trade Alliances to deliver a range of technology development and exploitation projects at the regional and local supply chain level, through a programme vying for Regional Growth Fund support. The ENTASC will be a nationally supported, regionally delivered programme, which will embed a variety of high value and advance engineering technological capabilities into SMEs, enabling them to achieve growth in sectors such as aerospace, defence, automotive and energy.

3. What if any, examples are there of UK-based research having to be transferred outside the UK for commercialisation? Why did this occur?

3.1 There has been an erosion of the Aerodynamics research capability in the UK. Unlike in France and Germany, whose Aerospace research centres conduct industry-relevant research to the benefit of industry but at little or no cost to those companies, the UK is reliant on Universities and Research and Technology Organisations (RTOs), working separately with no overall coordination. These Centres influence EU research priorities within the Framework Programme (FP7) and draw down funding once it becomes available—all to the benefit of their national Aerospace industries. The French and German aforementioned centres have therefore been able to build their respective countries’ Aerodynamics capability, making them much more attractive to global business. There is a genuine risk that future wing design and therefore manufacture, will move to these nations for future generation aircraft.

3.2 ADS is working through the Aerospace Growth Partnership (AGP) process to define an Aerodynamics centre for the UK. Having a stronger European voice will enable the UK to act as a beacon for large scale European Technology Demonstrators as well as European Research Infrastructure and enable UK industry to capitalise on the globalised market as is already happening in France and Germany.

4. What evidence is there that Government and Technology Strategy Board initiatives to date have improved the commercialisation of research?

4.1. ADS is concerned that the Technology Strategy Board model is becoming increasingly unfit for the Industries we represent, in particular Aerospace. ADS welcomes the Government’s recognition of the need to develop the entire Innovation Ecosystem; however this may be undermined by discrepancies in funding levels. Whereas Research Councils receive £3.5 billion per year, the TSB only receives £500 million: £300 million in direct funding and £200 million funding for Catapults. The value placed on knowledge creation therefore is greatly welcomed however this should not be to the detriment of knowledge exploitation, a critical part of the process that the TSB should provide.

4.2. Technology Demonstrators are an effective route to maturing and exploiting R&D, enabling the thousands of discrete parts of the supply to come together in order to integrate and demonstrate these technologies at the systems level. They allow a fair and transparent partnership with mutual benefits for all concerned; SMEs develop their technologies quicker, gain exposure through showcasing their capabilities and assimilate invaluable knowledge of the sector; systems integrators are able to integrate those into products that meet market demand; and critical mass is formed through a truly multidisciplinary approach.

4.2.1ADS therefore welcomes the £25m investment in Technology Demonstrators announced in the Government’s Autumn Statement 2011 however looks to the Government for future clarification on which Industries will be set to gain from this investment.

5. What impact will the Government’s innovation, research and growth strategies have on bridging the valley of death?

5.1 ADS welcomes Govt commitment to ring fence Science investment but is concerned about the impact on our industries of what constitutes a 5–6% cut in real terms over the CSR period. This is in stark contrast to the US where the Administration is seeking an annual budget for the National Science Foundation in 2012 that is 13% higher in cash terms that the 2010 figure. This is compared to the UK science budget which will be 6.7% lower in cash terms in 2012–13 compared with 2010–11

5.1.1Science investment needs to be supported as part of the wider innovation climate, whereby base research can be efficiently brought to exploitation. This is best done by aligning research with national strategies such as NATS (National Aerospace Technology Strategy), which has been a successful partnership between Government, Industry and Academia, transitioning research into technology demonstrators and through to products that bring economic growth, exports and sustains jobs in the UK.

5.2 Similarly, ADS welcomes the Catapults launched to date and looks forward to engaging with further centres as they emerge.

5.2.1Some very hard decisions will need to be taken to ensure that Catapults are supported at a critical mass, so that they are effective. Spreading investment too thinly is not going to create any critical mass of activity, and the activity will fail.

5.2.2Strong coordination will be needed to ensure that Catapults not only avoid duplicating work that is going on elsewhere, but also influence those research and innovations streams to ensure maximum pull through and therefore business and economic impact. A governance structure which allows this nature of interaction needs to be established. Catapults cannot become independent commercial operations and must link in with other parts of the innovation system.

5.2.3ADS strongly endorses that the Centres need to evolve to financially sustainable business models. However, the TSB should recognise that some Government money will always be necessary to make Catapults successful. Attempts to make them financially sustainable within too short a time window will encourage them to focus on the types of activities that are going to generate short term income, rather than on delivering long term targets.

5.2.4Catapults need to operate flexibly and innovatively so that SMEs can engage at any point in the process. Large companies will sign up from the inception of a 10 year programme, SMEs will not. This flexibility of approach will enable supply chain companies in particular to diversify into multiple sectors; the main effect of spill-over is at the lower end of the supply chain, where technology advances and process improvements filter down and are available for use in the range of sectors beyond those in which they were developed.

5.3 The Government has recognised the need to develop the Innovation Ecosystem as a whole rather than a set of separate interventions and, in the Aviation sector, Industry is working with the Government through the Aerospace Growth Partnership to identify not just the sector’s technology and innovation needs but broader requirements too.

6. Should the UK seek to encourage more private equity investment (including venture capital and angel investment) into science and engineering sectors and if so, how can this be achieved?

6.1 ADS believes that at a time of financial constraint, it is all the more important for investment in research to be focussed on the right areas and effectively pulled through. One of the features of the advanced engineering sectors ADS represents is the very strong interaction between public and private investment. Industrial R&D is made possible and multiplied by public funding research and innovation. Cuts in public funding for research gives the private-sector less confidence also to invest which will ultimately hurt UK economic growth, exports and jobs.

6.2 Catapults will play an important role in fostering international technology partnerships and will be increasingly prevalent in paving the way for exports. In order to attract additional funding and de-risk some of the investments that others make, the Centres need central core funding from Government and have long-term financial stability.

6.3 ADS would suggest that Government consult with the private equity sector to gain a deeper understanding of the incentives that would encourage investment in the science and engineering sector, however at the outset, it is likely that tax breaks for such investments and reduced capital gains tax on returns should be considered as a first step.

6.4 Critically, the Government must work to help businesses, particularly SMEs access European R&D funding. The new Horizon 2020 programme addresses many bureaucracy and relevance issues but businesses have become increasingly disenfranchised throughout FP7 and previous Frameworks until now. Government has a role to play in reversing this trend and providing the necessary support for businesses to exploit European funding as it becomes available.

7. What other types of investment or support should the Government develop?

7.1 The sectors that ADS represents are primarily affected by the changes in the Engineering and Physical Sciences Research Council (EPSRC) budget. To ensure the future success of its sectors, ADS believes that spending on Science and Research has to increase in the long-term. Despite financial pressures, the long-term nature of research necessitates a growth plan that spans multiple parliaments. The current freeze is in effect a real-term cut at a time when Science spending plans of similarly developed countries are rising.

7.2 ADS is also concerned that with the existing degree of uncertainty and real-term cuts, it will be difficult to attract students to Science, Technology, Engineering and Mathematics (STEM) subjects. This could play out as a vicious circle which erodes the science base—making the UK a much less attractive place to invest for global businesses.

7.3 ADS recommends that Government consider funding for long-term, large collaborative Centres. This would be an efficient way of using resources. A good example is the Advanced Simulation Research Centre (ASRC) in the South West that brings together industry and academia around strategically important, exploitation driven, multidisciplinary research, that benefits multiple sectors eg rail, marine, aerospace, wind energy in the case of ASRC.

7.4 Through a range of regional and national programmes and investments, such as the Autonomous Systems Technology Related Airborne Evaluation & Assessment (ASTRAEA) in the aerospace sector and Systems Engineering for Autonomous Systems Defence Technology Centre (SEAS DTC) in the defence environment, the UK has a global lead in terms of technical capability in developing and deploying autonomous systems. Pockets and clusters of excellence exist, comprising the knowledge and skills to both develop and exploit these technologies. A business-focussed Catapult in this area will enable a coordinated approach to investment in innovation. Moreover, an Unmanned Air Systems (UAS) Catapult will ensure that promising research is transitioned through the “valley of death” to realise its wealth-creating potential.

February 2012

Prepared 12th March 2013