2Stimulating demand for technology transfer
9.During the course of our inquiry into graphene, we heard that both large companies and SMEs were keen to work with the National Graphene Institute (NGI) and develop commercially viable applications of the material (see Annex). Sir Andre Geim from the University of Manchester recalled that:
Five years ago, I got an inquiry every day from companies about what they could do with graphene and whether we could help. Fortunately, now all those inquiries end up at the NGI. I heard that there are 900 every year, so there are about four inquiries per day from companies.13
Contributors to our technology transfer inquiry stressed, however, that this level of demand from business to collaborate with a university was not typical. This Chapter considers current levels of investment in R&D by UK business and how this may be increased.
Research intensity of British business
10.Cambridge Enterprise (the TTO of the University of Cambridge) identified a general “lack of demand from businesses both small and large for commercialisation opportunities”.14 This, they told us, reflected the findings of the “Lambert Review of Business–University Collaboration”, published in 2003, which concluded that the:
biggest challenge identified in this Review lies on the demand side. Compared with other countries, British business is not research intensive, and its record of investment in R&D in recent years has been unimpressive. UK business research is concentrated in a narrow range of industrial sectors, and in a small number of large companies. All this helps to explain the productivity gap between the UK and other comparable economies.15
11.According to Sir Richard Lambert’s review, the key question was “how to raise the overall level of demand by business for research from all sources” and thereby increase the scope for technology transfer.16 This point was reiterated 10 years later by our predecessor Committee in its 2013 report, Bridging the Valley of Death, which recommended that “the Government’s objective should be to create a commercial demand for university engagement to which they are already primed to respond”.17 Cambridge Enterprise noted, however, that the Government’s response to date had predominately focused on universities and the supply side of the equation. It stressed that “until the demand side is addressed the commercialisation challenge will remain for universities”.18
12.Dr Tony Raven from Cambridge Enterprise told us that the research intensity of British business had changed for the better in the intervening period but “not radically”.19 Expenditure on R&D by UK businesses reached £20.9 billion in 2015, the highest level since records began.20 Yet, when placed in an international context, the “R&D intensity of the [UK] business sector continues to be low” compared to other OECD countries.21 OECD figures from 2015 showed that while UK business was spending 1.12% of GDP on R&D, the OECD average was 1.65%, with Germany spending 1.95% and South Korea 3.28%.22 Measures of innovation output—namely the proportion of companies introducing new, or significantly improved, goods and services—also showed a decline from 24% to 18% between 2008 and 2012 before rising to 19% in 2015.23
13.Dr Claire Brady from the University of Edinburgh’s technology transfer office, however, was careful to distinguish between sectors, rather than treat ‘business’ as a homogenous group. According to Dr Brady, “demand depends a lot on company pipelines and company need” and was “different across sectors and across different sizes of companies”.24 She held up the pharmaceutical industry, and its ongoing collaborations with universities, as a positive case in point.25 Professor Trevor McMillan, who recently authored a report on ‘Good practice in Technology Transfer’ for HEFCE, also identified ‘sectoral variations’ in technology transfer as something that required more thought and understanding by TTOs.26
14.Jo Johnson MP, the Minister responsible for universities, science, research and innovation, was clear that the UK had “a strong innovation ecosystem”, noting that the country was ranked “very high on the global innovation scorecard” and that “pound per pound [the UK does] very well in terms of exploiting opportunities for innovation”.27 He agreed, however, that the UK did “invest less in terms of what our business community is doing” and that this had “been a consistent feature of our industrial landscape relative to other developed economies”.28 The Government’s Industrial Strategy Green Paper subsequently announced that it would be exploring how the additional £4.7 billion of research funding by 2020–21 could be best used, alongside the tax environment for R&D, “to drive up the level of private investment in science, research and innovation across the economy”.29
15.Successful technology transfer does not begin and end with universities; business also has a vital part to play. Yet, compared to our OECD counterparts, the research intensity of UK business is low. Without a healthy commercial demand for R&D, the scope for universities to engage more in technology transfer will be limited. Responsibility for remedying this problem does not rest solely with the Government, but it should be leading the way by creating conditions that are conducive to businesses investing more in R&D. To date, however, the Government’s efforts to increase technology transfer have been disproportionately targeted at the university, rather than business, sector.
16.The lack of progress forces us to reiterate the recommendation made in our 2013 report, namely for the Government to “create a commercial demand for university engagement to which they are already primed to respond”. Facilitating greater investment in UK R&D by British business should be a key goal of the Government’s Industrial Strategy.
17.The remainder of this chapter considers how business demand for R&D could be further encouraged and incentivised.
R&D Tax Credits
18.Our witnesses identified R&D tax credits as an important tool that could “stimulate and incentivise spending on R&D”.30 Established in 2000, they allow companies to reduce their tax bill or claim payable cash credits for a proportion of their R&D expenditure. Claims have grown 35 fold since their introduction: the Government highlighted that businesses “benefit from tax credits of £1.75 billion in 2013–14 compared with £70 million in 2000–01”31 and had risen to £2.45 billion in 2015–16.32 Whilst welcoming R&D tax credits, witnesses stressed that the both the eligibility criteria and claims process were complex.
19.Dr Toby Basey-Fisher from Eva Diagnostics described how his company “had to move to a specialist [accountancy] firm just to get the R&D tax credits” since his original “accountancy firm did not understand it”.33 Part of the challenge, according to Dr Phil Clare from Praxis Unico, was that R&D tax credits were:
inevitably a complicated accounting activity that requires detailed assessment on whether something fits in the box or not [ … ] If, for example, you were able to say that any R&D spend in a university was eligible for an R&D tax credit, it would be very clear, simple and easy for us to promote and explain to our partners that if they spend money with us they get a benefit.34
20.Innovate UK also stressed that “tax credits do not encourage R&D specifically in collaboration with universities”. They suggested addressing this through “the development of separate schemes focussing on business-university collaboration or investments in companies based on UK university IP”.35 There are currently two R&D tax credits schemes; one for SMEs and the other for large companies. Felicity Burch from the CBI recommended “supercharging small companies’ R and D tax credits, to make them even more of a boost to companies’ cash flow” and “enabling companies to access that money on a quarterly rather than an annual basis [to] give them cash back a little more quickly”.36 We made a similar point in our Science Budget report in 2015.37 The Minister, however, described the R&D tax credit system as “generous and increasingly popular”, though noted that the Chancellor had announced at the 2016 Autumn Statement “a review of the R&D tax environment for business to look at whether it was as competitive as it needs to be”.38
21.We recommend that the Government’s review of R&D tax credits should carefully consider how the qualification and claims process for both the SME, and large company, schemes could be simplified so that they explicitly support business R&D in collaboration with higher education institutions.
Small business research initiative
22.A review of the Small Business Research Initiative (SBRI), led by the Cambridge entrepreneur Dr David Connell, was announced by the Government at the same time as the R&D tax credits review. According to the Minister, the SBRI helps “small businesses take advantage of procurement contracts that Government are offering so that they can offer their services in an innovative way”.39 The SBRI is a:
two stage, contract-based programme to fund the development of innovative technology solutions to meet government needs—either for departments’ own requirements or to meet policy challenges. Phase 1 contacts are typically worth £50–100,000 and Phase 2 £250,000 to £1 million. Project costs are 100% funded.40
23.Commenting on the review, the Prime Minister was enthusiastic about the Government’s capacity to “step up to help drive innovative procurement, particularly from small businesses”.41 She also highlighted how effective this approach had been in the United States, under its Small Business Innovation Research (SBIR) initiative. Unlike the UK, the SBIR in the United States has a sister programme—Small Business Technology Transfer (STTR)—which has a requirement for “the small business to formally collaborate with a research institution”.42
24.The Dowling Review similarly singled out the UK’s SBRI scheme as an important mechanism for encouraging collaboration and engaging small businesses. Dame Ann Dowling told us that the SBRI represented a “huge opportunity to use Government procurement to help SMEs” and “join up academics with small companies around a new product”.43 To date, however, the UK’s scheme has lagged behind its US counterpart. In Budget 2013, the Government announced that it would:
substantially expand SBRI among key departments so that the value of contracts through this route increases from £40 million in 2012–13 to over £100 million in 2013–14 and over £200 million in 2014–15.44
But, according to the Dowling Review, the SBRI had:
not yet met the expectations placed on it by government or the research community and is widely perceived to be less successful than the US Small Business Innovation Research (SBIR) model. In 2013—14, £78.5 million of contracts were awarded via the SBRI mechanism, falling short of the target of £100 million.45
25.In December 2016, David Connell confirmed that the 2014–15 target of £200 million had also not been met.46 Figures given to us by the Minister indicated that the value of contracts awarded had, in fact, decreased. According to the Minister, the SBRI “currently provides around £63 million of contracts a year to businesses”, approximately £15.5 million less than was awarded in 2013–14.47 Dr Connell also noted that there were “many [Government] departments that don’t use SBRI at all”.48
26.Government procurement via the Small Business Research Initiative (SBRI) is a valuable means through which to stimulate innovation, especially among SMEs. The SBRI, however, has consistently underperformed against the Government’s own targets and has yet to reach its full potential. We recommend that the current review of the SBRI consider what mechanisms could be put in place to encourage small businesses to collaborate with research institutions as part of the SBRI scheme.
Online brokerage platforms
27.Some SMEs told us during our graphene inquiry that they found it difficult to access graphene commercialisation opportunities and engage with the National Graphene Institute, though other SMEs had different experiences (see Annex).49 In our technology transfer inquiry, we heard that both SMEs and larger businesses were generally given equitable access to commercialisation opportunities, but that larger businesses tended to be more readily able to take advantage of those opportunities. As the Academy of Medical Sciences explained:
SMEs are often focused on managing the immediate pressures of day-to-day operations, which means they may struggle to find the spare capacity to engage with universities to investigate potential licensing and collaborative opportunities.50
Similarly, Imperial Innovations suggested that larger organisations were “more likely to employ staff whose role is to discover new technologies and have more resources to engage”.51 Navigating the plethora of organisations involved in technology transfer was also singled out as a barrier to collaborating with universities for SMEs. The Government recognised that it was hard for:
SMEs with limited resources to navigate so many institutions and ideas and it is hard for universities to engage a myriad of smaller commercial partners.52
28.To make it easier for all businesses to identify potential academic partners, and understand where academic capabilities lie, the National Centre for Universities and Business (NCUB)53 worked with the Higher Education Funding Council for England (HEFCE), Innovate UK and the research councils to develop an ‘online brokerage platform’. Dr Rosa Fernández from the NCUB explained that the system, called ‘Konfer’, helped to identify potential research partners and was a “match.com-type” of platform:
Konfer rarely will give you a one to one [match]. We are normally trying to describe Konfer as saying that it will give one, two or three potential dates, but you still have to go to the date and find out whether you want to go with one another. It is unlikely at this stage that Konfer will give you the person you will marry; it will give you a few possible candidates.54
29.Universities UK thought that Konfer would “help make collaboration opportunities more visible to businesses of all sizes”.55 Knowledge of the platform—the pilot version of which was rolled out in 2016—was, however, patchy among some of our witnesses. Dr Will West from the BioIndustry Association told us that “very few people in industry know about [brokerage platforms]”, and that he had first heard about Konfer following our evidence session with the NCUB.56
30.Others questioned whether an online brokerage platform alone was sufficient to bring businesses and academics together. According to IN-PART (a business aimed at building university-industry collaborations):
most R&D companies do not have a dedicated technology scouting or open innovation team going out looking for opportunities. This means people from that company are very unlikely to go to a university website or passive platform to look at what they have to offer. Ultimately this means that direct approaches are required.57
Many witnesses described identifying potential collaboration partners as a “contact sport” that relied on networking and face-to-face interactions.58 What was needed, according to Professor Trevor McMillan from Keele University, was:
people on a daily basis wandering around, talking to the academics, getting them into the right mindset and then picking up on the ideas and gems when they appear.59
31.We welcome the development of ‘Konfer’ as a straightforward way for businesses to identify potential academic collaborators. Algorithms alone, however, will not produce productive collaborations: potential ‘matches’ will need to be nurtured through supportive human interventions. We recommend that the Government works with the National Centre for Universities and Business to publicise the Konfer platform. A business engagement team should also be established alongside Konfer to work with businesses and help develop the potential partnerships identified by the platform.
VAT rules
32.HEFCE’s 2014–15 Higher Education–Business and Community Interaction Survey indicated that 9% of university revenue from licensing IP to businesses came from SMEs (£13.8m out of a total IP revenue of £155m). Income from universities renting out their facilities to business, however, was more substantial, especially from SMEs, who accounted for 31% of the total income (£59m out of a total income of £191m).
33.Some witnesses suggested that further collaboration between businesses and universities was being held back by current VAT rules on income from academic buildings. Praxis Unico, the professional association for technology transfer, stated that “VAT issues” were constraining collaboration and that “VAT on academic buildings should be changed so that businesses can co-locate with universities without causing tax challenges”.60 As the Dowling Review explained:
The construction of publicly-funded or charity research institutes is eligible for zero-rate VAT on account of it being considered a Relevant Charitable Purpose. Research institutes which are publicly funded can therefore opt not to pay VAT. If they do so, the amount of commercial activity on their premises cannot exceed 5%, and this ‘commercial activity’ includes research collaboration with industry.61
34.In our recent inquiry Leaving the EU: implications and opportunities for science and research, we heard from UCL that “previous explanations for this state of affairs have been the requirements to comply with EU legislation”.62 In the 2016 Autumn Statement the Government reported that it had asked the Office for Tax Simplification (OTS) “to carry out reviews on aspects of the VAT system”.63 When we asked the Minister if he would be pushing the OTS to scrap VAT charges on buildings where academics and industry were working alongside one another, he was non-committal, stating that:
We obviously want to ensure that we have a competitive R&D tax environment in this country that underpins the whole theme of the autumn statement, and I look forward to seeing the outcomes of the Treasury’s review.64
35.The UK’s exit from the European Union, combined with the Office for Tax Simplification’s reviews of the VAT system, present an opportunity to revise VAT rules on the income from academic buildings in a way that facilitates greater collaboration with business. We encourage the Office for Tax Simplification to examine the VAT rules on shared academic buildings with business as part of its current VAT review, and consider how they could be revised to enhance collaboration opportunities.
13 Oral evidence taken on 26 April 2016 HC (2016–17) 960, Q69 [Sir Andre Geim]
16 HM Treasury, The Lambert Review of Business-University Collaboration, December 2003, p3
17 Science and Technology Committee, Eighth Report of Session 2012–13, Bridging the valley of death: improving the commercialisation of research, HC 348, para 127
19 Q17
20 Office for National Statistics , Statistical bulletin: Business enterprise research and development, UK: 2015, November 2016
21 OECD Science, Technology and Industry Scoreboard 2015, United Kingdom Highlights, October 2015
23 Department for Business, Energy and Industrial Strategy, The UK Innovation Survey 2015 Main Report, Innovation Analysis, July 2016, p 11; see also Barnett, A et al, The UK productivity puzzle, Bank of England Quarterly Bulletin, 2014 Q2, p 122
24 Q18 [Dr Brady]
25 Q18 [Dr Brady]
27 Q319
28 Q281
29 HM Government, Building Our Industrial Strategy, Green Paper, January 2017, p 29
32 Q281
33 Q78 [Dr Basey-Fisher]
34 Q78 [Dr Clare]
36 Q113 [Felicity Burch]
37 Science and Technology Committee, First Report of Session 2015–16, The Science Budget, HC 340, para 80
38 Q281
39 Q282
40 David Connell, Review of Small Business Research Initiative (SBRI), Innovate UK blog, 16 December 2016
41 CBI annual conference 2016: Prime Minister’s speech, 21 November 2016
42 “About STTR”, last accessed on 1 March 2017 at http://www.sbir.gov/about/about-sttr
43 Q250
44 HM Treasury, Budget 2013, March 2013, HC 1033, para 1.146
45 The Dowling Review of Business-University Research Collaborations, July 2015, para 168
46 David Connell, Review of Small Business Research Initiative (SBRI), Innovate UK blog, 16 December 2016
47 Q308
48 David Connell, Review of Small Business Research Initiative (SBRI), Innovate UK blog, 16 December 2016
49 Oral evidence taken on 26 April 2016 HC (2016–17) 960, Q20 [Dr Cox]
53 An independent, not for profit body, funding by the Research Councils and Innovate UK.
54 Q90
56 Q154 [Dr West]
57 IN-PART (MIP0032) para 4.5; see also The Dowling Review of Business-University Research Collaborations, July 2015, para 67
58 see Q262, Q268; Q134; Q70 [Dr Clare]; Q18; Q13
59 Q268
61 The Dowling Review of Business-University Research Collaborations, July 2015, para 78
62 Science and Technology Committee, Seventh Report of Session 2016–17, Leaving the EU: implications and opportunities for science and research, HC 502, para 48
63 HM Treasury, Autumn Statement 2016, Cm 9362, para 4.43
64 Q313
10 March 2017