4.In this Chapter we draw together five themes from our earlier inquiries and reports which are relevant to the Green Paper consultation: sufficient science and innovation funding; a research funding framework that reflects the need for increasingly cross-cutting and multi-disciplinary research; support for innovation; technology transfer from publicly-funded university research; and a supportive regulatory environment. We discuss each of these below.
5.The Green Paper noted the November 2016 announcement by the Prime Minister of an extra £2 billion a year of government expenditure for research by the end of the current Spending Review period (subsequently confirmed in the 2016 Autumn Statement). An additional £4.7bn will be spent in total on research over the course of the period—one of four areas of additional expenditure to be covered by a new National Productivity Investment Fund (NPIF), which has also been used to create an Industrial Strategy Challenge Fund (ISCF) (paragraph 26). The Green Paper “start[ed] a consultation on how to invest this funding” although it also then adopted almost a white paper approach in listing suggestions including: expanding Higher Education Innovation Funding (HEIF), making the Research Partnerships Investment Fund open to industry-led (rather than university-led) groups, creating new research institutions, “a new capital spending roadmap to provide the modern infrastructure to support fundamental research”, and more “sector-specific funding to support business investment in R&D”. (We discuss the Green Paper’s sector support approach further below; paragraph 21.)
6.The increased budget came in the wake of our November 2015 report on the Science budget, in which we made a detailed case for the Government to increase its science budget, and for the private and public sectors together to invest more on research, not least because of its multiplier effect on innovation. Against a background of ‘flat cash’ Government spending on the science budget since 2010, we called for a “roadmap” for increasing public and private sector science R&D investment, taken together, to 3% of GDP, from a figure of only 1.7%. In the subsequent 2015 Spending Review, the Government set a science budget for the Spending Review period that was stable in real terms (rather than cash terms) through the addition of a new Global Challenges Research Fund.
7.The Green Paper presented the increased Government science expenditure as a response to increases in other countries:
Our competitors have also grown their investment in research and development relative to the UK. The UK invests 1.7% of GDP in private and public funds on research and development. This is below the OECD average of 2.4% and substantially below the leading backers of innovation—countries like South Korea, Israel, Japan, Sweden, Finland and Denmark—which contribute over 3% of their GDP to this area.
The Government has protected the public science budget since 2010 […] But other countries have been increasing their investment in research and development in relation to GDP.
The Green Paper anticipates the additional public funding helping “to drive up the level of private investment in science, research and innovation.”
8.The BEIS Committee repeated our earlier calls for the Government to set a target of research expenditure rising to 3% of GDP, and the CBI has recently called for such a target to be met by 2025.
9.The Green Paper does not address the potential effects of Brexit on the research funding we get from overseas. EU funding through the Horizon-2020 Framework Programme provided €1.2 billion to UK-based organisations for research project bids submitted in 2015 (16% of the total funding allocated in that period). Before the Referendum, we highlighted that:
Under current arrangements the UK benefits significantly from access to EU science research budgets. If, despite the clear attractiveness of the UK as a research location, EU research funding was withdrawn after the EU exit negotiations, new funding could come from research collaborations outside the EU and from the Treasury reallocating funds previously sent to the EU.
A similar message came through in the evidence to our follow-up Leaving the EU inquiry.
10.Collaboration with researchers in other countries is dependent to a degree on the availability of funding for it. The Royal Society of Biology told us in April 2016, for example, that:
Leaving the EU will not create spare capacity for collaboration elsewhere unless supporting funds are identified, ring-fenced and made available. If the UK wishes to increase global collaboration then it must increase the funding and support to make it possible, ideally encouraging collaborations both in Europe and further afield.
Collaborative research also provides access to a wider pool of expertise.
11.After the EU Referendum, the Government and the EU gave assurances that, while the UK remains in the EU, funding for existing Horizon-2020 research programmes involving UK researchers would continue. The Government also gave a commitment to guarantee funds for EU payments “still to be made after the UK has left the EU for which there has been a commitment while the UK is still a member”. There could be cases, however, as we noted, where UK partners were simply not invited to join a new research consortium in future.
12.In its Brexit White Paper, the Government stated that “as we exit the EU, we would welcome agreement to continue to collaborate with our European partners on major science, research and technology initiatives”. The Industrial Strategy Green Paper, published a short time before, put an emphasis on facilitating research collaboration by “maintaining and building on our strengths in R&D to continue attracting world-class people, skills and foreign investment”.
13.The welcome additional £2 billion a year of funding recently promised by the Government represents a valuable contribution to sustaining the country’s world-leading science status. It will help maintain the UK as an attractive location for science and research. This should be regarded as a down-payment on a trajectory for increasing R&D investment—in private and public sectors together—to the 3% of GDP target which we and others have previously advocated. Within that context, the Government must be ready to ensure that its science funding makes up any net shortfall in research funding available through international collaborative research as a result of Brexit.
14.The Government has previously emphasised that “the challenges facing the world are complex, and increasingly require multi- or inter-disciplinary approaches”. It expects that the bringing together of the research councils within UKRI, as a single overarching body, will facilitate that multi-disciplinary research. Sir John Kingman, the interim chair of UKRI, told us last year that “while the research councils have worked hard on this [inter-disciplinary] agenda, the risk is that the organisational silos could cause some of the most interesting work to fall between the cracks”. The Government also believed that the research councils, in their current form, would not be able to collaborate in managing multi-disciplinary grants under the Global Challenges Research Fund.
15.Sir Mark Walport, the newly appointed UKRI CEO, like the Government before, promised that UKRI would “deliver a system that is more agile, flexible and able to respond strategically to future challenges”. He told us in March 2017 that decisions about any reallocation of funding between the research councils would be made by ministers on the basis of recommendations from the UKRI board, and that after 30 years without any substantive change:
It surely makes sense to look at the strengths and disciplines, look at where there are opportunities, where there are unfilled needs and, if it is appropriate, recommend a slight change in the balance of funding between the research councils. I can assure you that there is no intention to go in flailing around changing the allocations overnight.
16.In a similar vein, Professor Paul Nightingale from University of Sussex believed that “UKRI will face difficult decisions about resource allocation, including cutting areas that have stagnated”. Potential resource reallocation appears also to be in the mind of the Government, judging from the way that the Green Paper compared the balance of research funding in the UK with our competitors:
We have a challenge in translating our leadership in global research into commercial outcomes—a longstanding weakness relative to other countries. […] The UK has too often pioneered discovery but not realised the commercial benefits. This may reflect in part the balance of funding. While the way we distribute funding across different stages of R&D is not out of line with other European countries, it is striking that in leading innovation nations, such as Israel and countries in Asia, a greater proportion of total R&D investment is on later-stage, experimental development.
17.Professor Paul Nightingale was concerned about the implied conclusions from these comparisons:
We need to be very careful in looking at that data and understanding what it means. The distribution between ‘early-stage’, ‘basic’ and ‘applied’ [research] is very influenced by industrial structure […] [and] the level of development. If you are looking at China, it is going to have more later-stage activity, in part because labour costs are so much less. We should not try to replicate China because we will not be able to compete on labour costs. The policy focus should be: […] what are the parts of those global value chains where the UK is good, and how can we upgrade to increased productivity, higher-wage jobs and more jobs within those?
Universities UK had expressed similar concerns before the Green Paper was published:
The UK’s service-oriented economic base combined with a relative shortage of research and innovation funding and finance compared to our competitors means a successful industrial strategy should include some fresh thinking around how these systemic constraints can be relaxed. Simply replicating the policies and strategies adopted by countries with long track records in innovation, growth and exports—such as Switzerland, Germany or the so-called Asian Tigers—is unlikely to be a fruitful approach.
18.Sir Mark Walport told us that “there is general recognition that there is opportunity to expand the innovation funding. That must not be done at the expense of the research base, but when there is new funding available there is the opportunity to change the balance slightly”.
19.It is clear from the Green Paper and from UKRI that the Government envisages a relative shift of focus in its funding towards innovation. To some degree that reflects a changing world with increasingly multi-disciplinary challenges, but it also reflects a Government desire to reassess the relative weight given in funding different areas of research. A responsive UKRI, and a multi-disciplinary approach to its strategies and science funding, will make changing research priorities easier to implement to reflect our post-Brexit opportunities. As such, it will be a crucial participant in making the UK’s industrial strategy a success, not least in terms of providing the coordinated support needed for innovation, including the Industrial Strategy Challenge Fund, as we discuss below.
20.The creation of UKRI will bring Innovate UK and the bodies that fund university research together within a single organisation. The Government envisages that this will “ensure that the funding landscape is well equipped to meet tomorrow’s commercial challenges”. Rebecca Endean from BEIS told us in October 2016 that “UKRI can play a key part in delivering any industrial strategy”.
21.The Green Paper subsequently emphasised that UKRI would “enable us to identify future opportunities and keep the UK at the cutting-edge of new technologies and developing solutions to global challenges”. The Green Paper placed particular emphasis on an approach to innovation which includes a significant focus on sectors. The BEIS Committee concluded that it is debateable whether some areas involved could be described as ‘sectors’ rather than particular ‘products’. Rupert Lewis from the Government Office for Science emphasised to us that the Green Paper addressed what he called ‘enabling capabilities’:
The Council for Science and Technology advised [the Prime Minister in July 2016] on particular enabling technology areas—not exclusively enabling, but largely. The Industrial Strategy Green Paper largely took that advice: New energy technology includes battery and grid storage, robotics, artificial intelligence, satellites and space, leading-edge healthcare and medicine, manufacturing processes, materials, bioscience, quantum and digital, including supercomputing and 5G. Most of them are enabling technologies.
22.The Green Paper does, however, envisage groups coming forward to pitch to the Government for sector-specific strategies, or ‘deals’:
We will work with industry and draw upon the considerable expertise of UK business to design our industrial strategy.
In our own experience and in the experience of our competitors, there is advantage in addressing the opportunities in particular industries and sectors. […] Arrangements must be open to new entrants and challengers to existing incumbents, and be agile so that emerging industries and sectors can avail themselves of cross-industry institutions, not just traditional sectors. […] We propose to set an ‘open door’ challenge to industry to come to the Government with proposals to transform and upgrade their sector through ‘Sector Deals’.
23.This reflects the approach favoured by the Royal Academy of Engineering, who said last year that “prioritisation of support for specific sectors should target sectors where there is greatest potential for growth and the UK can be a market leader. […] A shared commitment by business, government and academia to investment in innovation and R&D is important and could be a condition of government support for sectors.” The Green Paper listed five areas of work already underway on early sector deals—on life sciences, ultra-low emission vehicles, industrial digitalisation, nuclear, and creative industries.
24.The BEIS Committee, in its March 2017 report on the Industrial Strategy, criticised “the absence of a clear set of criteria” for sector deals, and concluded:
Sectoral policies appear to have worked well for the automotive and aerospace industries. However, with regards to other sectors this approach has had, at best, mixed results. Furthermore, this approach appears to have the greatest risk of policy being built on the vested interests of big businesses and incumbents that are best equipped to lobby. Despite Government allowing sectors to self-identify, there is a risk that a sectoral approach encourages businesses to maintain rather than break down silos, and leads to policies designed to suit preferred industries at the expense of other sectors and the wider public interest. We recommend that Government reconsider giving sectoral strategies priority and instead focus on [‘strategic pillar’] horizontal policies and specific ‘missions’ to meet UK-wide and local public policy challenges.
25.Nesta, one of our witnesses, shared such concerns, stating “data is now available and can help ensure that policy responds to reality on the ground, and the role played by younger companies, rather than lobbying by incumbents which has so often distorted industrial policy in the past.” They believed that it was “pivotal that fast growing, less defined, sectors like digital and creative industries are supported in their interaction with government so that they secure the partnerships and deals they need to thrive”. Professor Alex Halliday from the Royal Society warned of a need to avoid “those cross-disciplinary areas that could end up being ignored because you have siloed everything into sectors”. Professor Paul Nightingale warned against supporting “just the incumbents, which is highlighted in the Green Paper”.
26.Complementing the sector approach to supporting innovation, the Green Paper also provided further information on the Government’s Industrial Strategy Challenge Fund (ISCF), previously announced by the Prime Minister in November 2016. It listed the criteria for the ISCF: a potentially large, or fast growing global market; UK research and business capacity to meet market needs; significant potential social and economic benefits; and where government support will make a difference.
27.The Green Paper sought views on the priorities for the ISCF, but also listed eight potential technologies (with some overlap with the previous ‘Eight Great Technologies’) that could be favoured, including robotics and artificial intelligence, satellites and space technologies, and quantum technologies—a list that the Council for Science & Technology had recommended to the Prime Minister in October 2016. The Green Paper noted UKRI’s role in the ISCF initiative:
The Industrial Strategy Challenge Fund creates a new funding stream which will enable UKRI to back technologies at all stages where the UK has the potential to take an industrial lead, from early research to commercialisation. […] Some challenges may well cut across the boundaries of existing research councils, and the creation of UKRI will enable us to take an effective overview of the development of new technologies unrestricted by traditional silos.
UKRI, the Green Paper stated, would consult on the initiative “in more detail in early 2017”. In the meantime, Sir Mark Walport told us that:
[The ISCF] is where emerging technology meets a very strong scientific base in universities and research institutes, where there is a nascent or an existent industrial sector that is able to provide pull, where there is a substantial market, not only UK but global.
28.The President of the Royal Society believed that the ‘challenge-led approach’ of the ISCF “has the potential to catalyse transformational research and innovation outcomes, incentivise new and sustained partnerships between public and private research organisations and deliver economic growth”. Our witnesses were also generally supportive of the ISCF approach, although Paul Nightingale and Alex Halliday had reservations about the risk of money being wasted if candidates were not considered with some caution. Nesta wanted the ISCF to bring innovation to different parts of the economy to those usually favoured by Government support:
It sends a clear signal that the UK is an international hub for the development of future technologies, and gives businesses, large and small, the confidence to invest. But this funding should not go towards more of the same programmes. Instead it should stimulate innovation from the more unusual quarters of our society and economy, as well as from the usual suspects.
29.The 2017 Spring Budget in March announced “an initial investment” of £270 million for 2017–18 and listed areas to benefit in “the first wave of challenges funded from the ISCF”, including batteries, artificial intelligence and robotics systems, and new medicine manufacturing technologies. Rebecca Endean, now an official in UKRI as well as BEIS, told us that these early allocations were made because “some of the money had to be decided on and allocated before UKRI could come into existence. We wanted to do that because the industrial strategy is such a high priority for Ministers; that we wanted to start having an impact before UKRI came into existence”.
30.The broad innovation thrust of the Industrial Strategy Green Paper has been largely welcomed, including the Industrial Strategy Challenge Fund announced last November and the Government’s approach of allowing sectors to take the lead in making the case for ‘sector deals’. How well such initiatives translate into the improved productivity that the Green Paper seeks will depend on how extensively and imaginatively they are taken up. Their impact will only become apparent in the years ahead. In the meantime, the Government should clarify in the next iteration of the industrial strategy the relationship between the sectors deals and ISCF, and UKRI’s role in these initiatives in the period before the organisation is fully up and running.
31.Sector deals and the ISCF will not be the only prerequisites for effective innovation. It is also imperative that there is meaningful technology transfer and commercialisation of the research undertaken in our universities. The Government’s July 2015 ‘Productivity Plan’ included a commitment for universities to “continue to increase their collaboration with industry to drive research commercialisation, and increase the income they earn from working with business and others to £5 billion per annum by 2025”.
32.In our recent Managing intellectual property and technology transfer report, we highlighted areas where the Government could assist in the technology transfer process, for example through the Small Business Research Initiative (SBRI). We recommended that the Government examine the VAT rules on academic buildings that are shared with businesses, which can hinder collaborations; work with the National Centre for Universities & Business to publicise the ‘Konfer’ collaboration data-platform; get all Local Enterprise Partnerships to work more closely with universities and build on the strengths of the University Enterprise Zone pilots; and address university commercialisation issues in its ongoing Patient Capital Review. We also recommended that the majority of the Industrial Strategy Challenge Fund (paragraph 26) should be disbursed in the form of grants rather than loans.
33.The Green Paper included some prospective initiatives which could be helpful to that technology transfer agenda, and help address the issues we highlighted in our report. It noted, for example, a review of the SBRI scheme. Before the Green Paper was published, the Royal Academy of Engineering had commented that the “SBRI is far too limited in scope, only applying to departmental research spend, and is very small in comparison to the overall public procurement spend”.
34.On the other hand, while the Green Paper envisages the Government working with Local Enterprise Partnerships “to review their role in delivering local growth and examine how we can spread best practice and strengthen them”, it made no specific reference to the University Enterprise Zones pilot. The future of the scheme, once its pilot funding ends in 2017, remains unclear.
35.We examined in our Managing intellectual property and technology transfer report how universities themselves could do more to commercialise the results of their research work, including the development of best practice. In the Green Paper, the Government acknowledged that it has “a key role to play in facilitating the exchange of ideas and collaboration between business, universities and government laboratories”, and announced new research on universities’ “principles and practices on commercialisation of intellectual property”:
With a view to spreading best practice the Government will commission research on different institutions’ principles and practices on commercialisation of intellectual property, including how they approach licensing intellectual property and take equity in spin-outs. For example, the size of equity stakes taken in spin-outs varies considerably, with little consensus over what is appropriate. […] This research will explore the approaches taken by different institutions and examine the impact these have on spin-out creation and growth. The Government will then use the findings to identify and spread best practice among universities’ technology transfer offices.
The Green Paper also highlighted that the Government would “place Intellectual Property Office representatives in key UK cities […] to build local capability to commercialise intellectual property”.
36.Professor Dame Ann Dowling, president of the Royal Academy of Engineering, welcomed the Government’s proposed review, commenting that “by exploring the impact of different commercialisation approaches, including the varying size of equity stakes taken by institutions, I hope that the Government can provide valuable ‘best practice’ guidance to university technology transfer offices”.
37.The Government announced additional funding during the course of our intellectual property and technology transfer inquiry, including £120 million over the next four years, to “incentivise university collaboration in tech transfer”. This is welcome, but, as we have previously concluded, the Government’s efforts have disproportionately focused on the ‘supply’ of commercialisable research by universities, rather than on the level of ‘demand’ from businesses.
38.In our Industrial strategy inquiry, our witnesses had mixed views on the focus in the Green Paper on university-sourced innovation. Professor Paul Nightingale of Sussex University emphasised that this accounted for “only 3% of the UK economy” and that the focus should be on raising productivity more generally. Others, including Professor Alex Halliday and Professor Quintin McKellar, saw it nevertheless as an important front for increasing innovation. Our witnesses generally took issue with the implied salience in the Green Paper of the number of patents and spin-out companies as measures of commercialisation success. Professor McKellar highlighted that the UK had higher relative figures than the US for spin-outs created but lower figures for patents, but “neither is a particularly good metric”.
39.There are aspects of the Green Paper which are likely to facilitate the greater ‘supply’ of technology transfer from university research, including the prospect of a broadened SBRI. We welcome the Government’s decision to review the practices of universities’ technology transfer offices, and look to it to take forward the agenda for improvement that we presented in our recent report on managing intellectual property and technology transfer. If, as we hope, the Green Paper’s initiatives have a favourable impact on economic growth, that could in turn help improve the ‘demand’ that is needed from businesses for the outputs of university research.
40.In our Regulation of life sciences report, before the EU Referendum in June 2016, we examined the pros and cons of the EU regulatory regime for collaboration, access to markets and costs. We concluded that the precautionary principle had been “wilfully misused” in the formulation of EU life science policy-making, notably for genetically modified organisms (GMOs), and that a change to a more scientifically-grounded ‘process-based approach’ to regulation was needed. In our subsequent Leaving the EU report in November we heard that with Brexit “a substantial amount of work will be needed to review science and technology-related legislation, regulations and projects”, but also that there would be the opportunity, as some witnesses put it, for the UK to “create a distinctive, attractive environment for research and innovation” and become “a global leader in scientific regulation”. The UK, we heard, could become “an exemplar for public dialogue and engagement with science”. We concluded that “the Government must seek to capitalise on the opportunities of Brexit, including in terms of setting regulations to facilitate accessing markets and research collaborations beyond the EU”.
41.Last September, in anticipation of the Green Paper, the Royal Society warned:
To prevent regulation acting as a barrier to applications that have public support, it is essential that legislation regulating the research and innovation sector is designed to respond effectively to future challenges and account for fast developing technologies. […] It is critical that we identify those areas of regulation where alignment with EU rules is most important for the UK’s competitiveness, and that UK experts remain fully engaged in shaping the development of standards and regulations.
42.The regulatory environment, however, was not directly covered in the Green Paper. As Steve Bates from the Bio-Industry Association put it, “it only mentions ‘regulation’ three times in the Green Paper and they all refer to saving businesses money through reducing red tape”. Jen Rae of Nesta, on the other hand, pointed out that potential sector deals (paragraph 22) could also be “a conversation about regulation and about how different sectors interact with Government in different ways”.
43.A regulatory regime that is well-crafted and relevant to our post-Brexit international research and trading relationships will be vital for a successful industrial strategy. The next iteration of the industrial strategy must give a fuller indication of the relationship with the proposed post-Brexit regulatory environment, and, as we explain in Chapter 4, present a closer and more explicit alignment with the Government’s Brexit strategic aims.
19 , 21 November 2016
20 (November 2016), para 3.29
21 (Jan 2017), p15, pp29–30
23 HM Treasury, , Cm 9162 (November 2015), p48 and para 2.69
24 (Jan 2017), p15 and p26
25 , p25
26 , p29
27 Business, Energy and Industrial Strategy Committee, Second Report of Session 2016–17, , HC 616, para 103
28 CBI, (20 March 2017)
29 European Commission ()
30 First Report of Session 2016–17, , HC 158
31 Royal Society of Biology (); See also Seventh Report of Session 2016–17, , HC 502, Annex, Table 3
32 , HC 502, Annex, Table 3
33 , HC 502, paras 11–20
34 HM Government, , Cm 9417 (February 2017), para 10.14
35 (Jan 2017), p28
36 BIS, , Cm 9258 (May 2016)
37 Science and Technology Committee, Eighth Report of Session 2016–17, , HC 671, para 30
38 , HC 671, para 35
39 Sir Mark Walport, (March 2017)
40 , HC 1047, Q51
41 Paul Nightingale, (January 2017)
42 (Jan 2017), p26 (see also graph on p27)
44 Written evidence submitted to the BEIS Committee from Universities UK ()
45 , HC 949, Q60
46 BIS, , Cm 9258 (May 2016), p75
47 Science and Technology Committee, Eighth Report of Session 2016–17, , HC 671, Q37
48 (Jan 2017), p29
49 Business, Energy and Industrial Strategy Committee, Second Report of Session 2016–17, , HC 616, para 56
50 CST, , Letter to the Prime Minister (July 2016)
51 , HC 949, Q23
52 (Jan 2017), p10 and p100
53 Written evidence submitted to the BEIS Committee from Royal Academy of Engineering ()
54 (Jan 2017), p102–103
55 Business, Energy and Industrial Strategy Committee, Second Report of Session 2016–17, , HC 616, para 56
56 , HC 616, paras 54–55
57 Nesta, , press release, 23 January 2017
60 , November 2016
61 (Jan 2017), pp30–31
62 Council for Science & Technology, (and ) to the Prime Minister on the Industrial Strategy,20 October 2016
63 (Jan 2017), p30
64 (Jan 2017), p29
65 , HC 949, Q29
66 Royal Society, , press release, 23 January 2017
67 Q2 [Prof Alex Halliday], Q12 [Prof Alex Halliday], Q20 [Prof Paul Nightingale],
68 Qq24, 27, 29, 64
69 Nesta, , press release, 23 January 2017
70 HM Treasury, (March 2017), para 4.24
71 , HC 1047, Q41
72 HM Treasury, , Cm 9098 (July 2015)
73 Science and Technology Committee, Tenth Report of Session 2016–17, , HC 755
74 (Jan 2017), p72
75 Written evidence submitted to the BEIS Committee from Royal Academy of Engineering ()
76 (Jan 2017), p125
78 (Jan 2017), p25
79 , p32
80 , p34
81 Royal Academy of Engineering, press release, 23 January 2017
82 Science and Technology Committee, Tenth Report of Session 2016–17, , HC 755
83 Q3 (see also Qq34–35)
84 Q2 [Prof McKellar]; Qq36, 39 [Prof Halliday]
85 Qq37–39, 58; (Jan 2017), p27
87 First Report of Session 2016–17, , HC 158
88 Seventh Report of Session 2016–17, , HC 502, Annex, Table 4
89 Campaign for Science and Engineering (); UCL () para 52
90 , HC 502, para 49
91 , HC 502, Summary
92 Written evidence submitted to the BEIS Committee from Royal Society ()
5 April 2017