Lord Wade of Chorlton rose to move, That this House takes note of the report of the Science and Technology Committee, Chips for Everything: Britain's opportunities in a key global market (2nd Report, HL Paper 13).
The noble Lord said: My Lords, it gives me great pleasure to present to noble Lords the report of the Science and Technology Select Committee, Chips for Everything, on the future of microprocessing. The world has seen the dramatic impact of this new technology, which is only some 50 years old and has now created one of the largest industries in the world. It employs many thousands of people throughout the world and has created much wealth and opportunity in recent years. We have now looked at the industry and identified some of the opportunities that it presents for the UK, particularly for our own industry and wealth creation.
I am aware that we are presenting the report before having received the Government's response to it, which is not the usual procedure. But we felt that it was important to bring before your Lordships' House the findings of the report and to open discussion on the issues before the Government presented their response. So there is no criticism of the Government for not responding to the report before we debated it. Unusually, our report made recommendations not just to the Government but to industry, particularly the finance industry. We deal not only with issues relating to the manufacture of microchips but the importance of having a financial structure that allows new ideas to come forward and be promoted, to be funded and to prosper.
I thank the Select Committee under the chairmanship of the noble Lord, Lord Oxburgh, for allowing me to chair the sub-committee. We had some splendid Select Committee members, to whom I am extremely grateful for their work and effort in producing this interesting report, which I hope noble Lords will find readable. The sub-committee also comprised some co-opted members. I am particularly grateful for the time, effort and work that they contributed to support the report. A wide range of experts from all aspects of the industry assisted us by giving evidence. We are grateful to them for their time and effort. I was particularly pleased to have the help of our specialist adviser, Professor Steve Furber, of the University of Manchester Department of Computer Science, whom I am delighted to see is in the House
I shall outline some of the issues that occurred to me as we went through the report. I do not have a scientific background but I have now learnt more about the industry than I ever thought I needed to know. It was a great eye-opener to be introduced to something that, on the surface, was extremely complicated, but, as we took evidence, started to emerge as an interesting picture of how the technology develops, its opportunities and structure, which leads us a long way towards learning lessons for other aspects of new technologies and ideas that we develop in our country.
The process started with a presentation to the Select Committee by Professor John Enderby of the Royal Society, who presented the concept that the basis of CMOS technologythe present method of manufacturing computer chipshad doubled its capacity every 18 months for around 40 years now. He explained Moore's law. Mr Moore, a co-founder of Intel, made a speech in 1965 predicting that over the next 20 years computer speed would probably double some every 18 months because of the technology to create more transistors on one silicon chip. That has continued for much longer than Mr Moore suggested. The improvement of the ability to make smaller and smaller components to create microchips has continued at such a pace that now a piece of silicon as big as a thumbnail contains many millions of transistors, each with its own significant characteristics and ability to take part in calculations that we now learn are so enormously quick.
Professor Enderby also made the point that as things were made increasingly smaller their characteristics changed, and that scientists could now see the limits to which miniaturisation would continue. He said that once those limits were reached, CMOS technology could not continue to create greater computer speeds and capacity. Scientists estimate a time of 10 to 15 years. The reason why that barrier will be reached is that, as we make the components smaller and smaller, they come down to atoms. One of the presenters, Dr Cowburn, made the point to us that a twentieth of a fruitcake is still a piece of fruitcake but a thousandth of a fruitcake is a currant. As we come down to a smaller and smaller unit, its characteristics change. As those characteristics change, they no longer apply the same capacity as they do when they are a little larger.
Dr Cowburn made the point that the continuing development of Moore's law would reach a barrier, which would mean that, in order to continue the development of computer technology, we would need to develop other devices. He presented to us the fact that, in the UK, there was a certain amount of research going on throughout the research departments but that they were not sufficiently co-ordinated or focused for the UK to take advantage of new developments created in those research activities. He put it to us that it would be interesting to investigate the various activities to see how they could be better co-ordinated, so that the UK could take full advantage of any new
As we considered that, the first thing that struck us was the fact that, in the UK, we no longer have any major chip-manufacturing capacity. The largest manufacturer in the world is Intel, and most of its chips are made in the Far East. We were developers of chip technology 20 or 30 years ago, but we no longer have the size of industry capable of putting large investments into that area. It now costs about 2 billion dollars to develop a chip-manufacturing capacity. We were given information that, in the next 10 or 20 years, the cost could rise to hundreds of billions of dollarsa staggering figureand that our industry was not likely to be geared up to such development.
We had strengths in nanotechnology, however. It is an important aspect of the development of new technologies, lithography and metrology. We were impressed by the National Physical Laboratory, where a great deal of excellent work is being done on metrology, which is the measurement of physical activities. It is important to have precise measurement technologies for those small particles, which are, as I said, only atoms thick. We saw incredible experiments being carried out there. We were pleased that, following our report, which suggested that it had probably not fully utilised the commercial potential of what it was doing, the laboratory opened up contacts in the United States and in Europe with other organisations to develop the work done at the laboratory.
As we considered that aspect, we concluded that, although it was important for government closely to monitor work on new devices, that was probably not the most important thing for the development of the UK economy. As noble Lords can imagine, we may manufacture the devicesthe small componentsbut computers must be assembled, given information and told how to work and give the answers. We must decide how to put the question in and get the answer out. All that comes under the heading of design and architecture. In the UK, we have tremendous, diverse skills in that area. We are at the forefront of the design of many important microchips. The company ARM produces three-quarters of the microchips that go into mobile telephones; it does not make them, but it designs them. We identified a large number of skills that could be utilised.
That moved us away from considering how the UK could get new devices to considering how we could use our skills to play an important role in the world- wide industry and get involved in the design and architecture of new computers. We spent more and more time on that area, as our investigation developed.
I shall give the House a taste of what, we learnt, is possible with new technologies. In our report, it comes under the heading "Networking and applications". We went to California, where we were introduced to a company that had been established by bringing
Subsequently the group decided to bring in a research team and gave it the challenge of producing a new and small sensor. Within two years, it developed a substance called "smart dust". A piece of smart dust is about the size of the end of my little finger. It can be scattered over a wide areain fact, it was scattered from an aeroplane flying over San Francisco. As the smart dust lay on the ground, it pulled in energy and communicated using wireless technology. The smart dust sensed a whole range of matter in the locality. It can do only one task at a time, but the possibilities for it to do more than one is enormous. It can sense how noise changes in an area or how pollution in the atmosphere changes.
That type of system, using small microchip technologies, to create an understanding of a much wider environment resulted in the next stage of development. It identified a change in the use of computingnamely, "ambient" computing. In using a computer, a person would no longer merely sit in front of it and work. The facilities of the computer would be managed on their own. A network of information would be created. Therefore, there could be a number of ambient computers in the Chamber that could identify many different aspects about us.
A toilet bowl has been developed which will automatically test a person's health whenever it is used. Noble Lords may laughbut, by God, we may need it one day. That creates a completely different picture of how the role of computing in our lives will change. It will come from our ability to understand design and architecture and how the tremendous technology which has evolved during the past 50 years can be utilised.
Technological advances will move us from being the manager of our computer to a situation in which the computer has a life of its own and will develop its own activities from which we shall then benefit. That will need a change in attitude, which will come from succeeding generations, and from technological development, in which we are already major leaders.
I turn to the next important stage. In order for those developments to occur, we do not need only the technological development, we need the business and financial structure that will encourage and understand the new technologies. The knowledge and involvement of the financial and industrial world with these new technological opportunities differed greatly between the UK and the US. In America, it is impressive how closely business and industry work together. There is an understanding already, within the financial, venture capital, manufacturing and industrial world, of what is taking place in new technology. Therefore, it is not a sudden shock when a new entrepreneur knocks on the door and says that he has an idea that will change the world.
My time is up. During the debate noble Lords will hear from more expert members of the committee. They will help your Lordships to understand more fundamentally the technology involved. The message with which I should like to end is that I came to the report knowing little about what was involved. Listening to experts, listening to industry and studying the whole concept of how these technologies will change our lives, we should be making an enormous mistake if, as a nation, we did not realise the importance of these developments. The microchip industry will be one of the great industries of the coming century. It will create opportunities and benefits to people in all types of fields which no one dreamt ofand which no one is dreaming about now. Most of what will happen is beyond our comprehension. But that makes it more exciting and more important.
As I have sat in this House during the years, I have been most concerned at the resistance, in many areas, against new technologies, new opportunities and new developments. The excitement of the future has not been embraced, but continually it has been said that the past must be maintained.
I do not believe that. Everything is driven by innovation, excitement, investment and the ability of people to face the future with great confidence. I am not worried, I am excited. I hope that we shall embrace it and that the Government, industry and the financial world will be able to come together and grasp these opportunities. I beg to move.
Moved, That this House takes note of the report of the Science and Technology Committee, Chips for Everything: Britain's opportunities in a key global market (2nd Report, HL Paper 13).(Lord Wade of Chorlton.)
Lord Hunt of Chesterton: My Lords, it is a pleasure to follow the noble Lord, Lord Wade, who gave an excellent description of science and technology. I shall not attempt to rival that, but will focus on some of the broader issues that emerged in this important report. The report concerns a key aspect of government policy for our whole future economy and our livesvery intimately, as implied by the noble Lord, Lord Wadeas well as our science and technology.
My qualifications are that I made my own radio set when I was 15 years-old. Subsequently, I did a few other things and I set up a small company. Therefore, I know a little about running a company. I ran a government agency and I was president of the Institute of Mathematics and its Applications, which is an important part of this issue.
The question addressed by the committee was how to ensure the future strength of UK science and technology research into chip technology and how to promote effective application by UK industry. I should like to emphasise and amplify some of the major points of the report. We were impressed by the science and technology commitment of the Government. They have invested considerably during the past few years. Any comments I make are made within that context.
The summary emphasises that the optimum route map for the future is not clear. It is therefore essential not necessarily to pick particular winners or particular strategies now, but to ensure a strong science and technology research effort to cover all the main possible avenues. Therefore, it is necessary to have a flexible and innovative approach by government and industry to the exploitation and developments as they occur.
Paragraph 7.25 of the report states that computing technology requires the close working of electrical engineering, computer science and physics. In future, medicine and many more disciplines will be involved. It was recognised that universities and institutions co-ordinate some of these aspects but not all of them. The co-ordination is not as effective as it should be and, in particular, is not as effective as it should be across the country. That is why some of the particular suggestions of institutes around the country are so important. New specialist institutes at universities may be required. They will require strong leadership and industrial involvement.
I hope that the Minister will recall his remarks in an earlier debate on his White Paper on science and technology, when it was pointed outand he endorsed itthat practical applications stimulate fundamental research as much as vice versa. In other words, as one slightly disaffected industrialist commented, the academics need to listen to the industry just as much as the scientists need to preach about their results to industry.
Interdisciplinary working is a major feature and interdisciplinary centres will be as exciting in this field as I have seen in the past 10 years in climate change. Interestingly, climate change was such a success because it began from the top with a 45-minute speech from Mrs Thatcher at the United Nations. We do not suggest that Tony Blair should talk for 45 minutes on microchips, but Mrs Thatcher's speech had a big impact on the drive for a co-ordinated UK role. Leadership at the top is therefore essential, recognising that this is at the heart of the future of science and technology and its application in the UK.
The evidence given by the officials from the DTI and the OST indicated that they recognise that priority but are only gingerly pushing a top-down agenda in the Engineering and Physical Research Council, indicated on page 5 of the evidence.
Evidence was also given about the importance of international comparisons and collaboration. It is essential that when we establish large projectsas I hope we will in this areathey should be reviewed and co-ordinated internationally. In some areas of funding by research councils, concern has been expressed by both UK and even European colleagues as to whether there is as effective an international critiquing as is required. That is important.
Another way to ensure that policies and opportunities for developing the science and technology in this field are kept continually under review is to devolve a wide range of societies and industry; for example, industry through the Foresight initiative. I hope that the Minister will endorse the recent House of Commons Select Committee recommendation of last July that more effort should be made by research councils and government to encourage and consult scientific societies, with their extensive membership, about new policies and about the critical issues of providing training and sufficient manpower.
As regards manpower, it is clear in Chapter 9 that there is a problem about the requisite number of well-trained, top-class mathematicians and physicists. The committee heard strong evidence from Sir Robin Saxby about the problem. He almost threw up his hands during evidence, as can be seen in the report.
However, a new government report by Professor Adrian Smith focuses on mathematical education in schools. It is good news that the new Secretary of State studied mathematics at Cambridgeif only for one yearand that he realises the critical need for mathematics education for everyone. It is probably the only part of the school curriculum that requires logical thinkingnow that we have dropped Latin. The key to software writing is abstract and logical thinking, an aspect of mathematics that is as important as computing numbers.
My second main theme concerns the recommendations (a) and (p) in the summary: that the Government need to use their own procurement intelligently to promote the microchip industry and develop more world-beating products. As the evidence on pages 6 to 10 of the report show, the committee had considerable difficulty in extracting a strategic view from our DTI officials about how the Government should be a major player. They mainly emphasised their role in helping UK industry with trade promotion and developing links with large overseas companies.
I hope that the Minister will recognise that with government expenditure of perhaps £100 billion a year on the NHS and £25 billion of defence, there is huge scope for innovative chip technology in communications, energy, transport systems and
In the recent issue of Science in Parliament, a professor at University College London regretted the absence of large government industrial laboratories, such as exist in the United States and Japan. They are unlikely to emerge in the near future, so the purchasing and stimulation policy by government is the main tool available to Her Majesty's Government in this field. Is the Minister aware that there are no scientific or engineering representatives on the board of the Office of Government Commerce? Surely that is an oversight.
The report in paragraphs 10.12 to 10.20 emphasises the importance of setting up small companies to exploit new technology. I have a little experience in that field with colleagues in Cambridge. Our small company of software consultants, set up 17 years ago, is still going strong. That experience has confirmed the opinion of many industrialists who approached me when I was running a government agency that the UK Government could do considerably more to help small businesses grow through contracts and trade promotion; for example, as other countries do by using government web pages to publicise approved contractors. Is the statement of the DTI on page 7 of the evidence to be implemented? It states:
I do not want to sound critical because I believe that the UK has a flourishing science, engineering and business culture supported by a forward-looking Government. I see that because I often visit the Continent and I think that the UK is the place to be. But given the huge, once-in-a-lifetime investments now going into the public services, it is essential that they are used to maximum effect to build up world-class UK research and industry in this vital area of technology.
The Earl of Erroll: My Lords, I thank the noble Lord, Lord Wade of Chorlton, and the Science and Technology Committee for a thorough and fascinating report. I cannot contribute a huge amount, but I want to comment on a couple of points from
I have experience of developing new applications. I have therefore been involved with people who put "risk money" into producing something for the marketplace which may or may not succeed. One of the problems is attracting money to such applications, because they can be highly unattractive. It can often be more profitable to take something that has been developed, the risk therefore having been taken, pick up the business or IPR cheaply and then make money out of producing the product.
I discovered that different skills are involved in producing a marketable product which will generate money and original green-field or blue-sky development. I do not know whether the law has changed, but when I was head of development at GiroVend, working on smart cards, we were not allowed to capitalise all the software and programming work that we did. That did not help at all. I was given the job because the previous holder who had been there for two years had undertaken a great deal of research, spending a couple of million pounds, without producing a product. The board said that they could not afford that for much longer and I came along and we produced a product a year later because of a different remit. In industry, it is difficult to justify the funding of blue-sky development, particularly when someone else comes along and benefits from your work.
Many of the problems come down to moneyan issue on which I wish to commentand Chapters 7 and 8 of the report are very interesting in that regard. I also learnt a great deal from the rest of the report.
As the noble Lord, Lord Hunt of Chesterton, said, the initiative to bring together different disciplines is very important. Some people are very good at focusing on one area, but to produce something useful from their efforts very often necessitates bringing different disciplines together. The memorandum by British Airways made an interesting comment on that issue in the report.
There are some interesting ideas in Chapter 8. The report states that we should beware of creating new organisations. That is a relevant factor. We must be careful about creating new empires which absorb more money on administration than ends up at the sharp end.
Another difficulty is that where you have people with what might be called "conventional" wisdom reviewing new ideaseven if that wisdom is only a few years oldbecause the boundaries of science are always being pushed forward, you can end up in a position where some new, very innovative ideas are not funded.
Chapters 7 and 8 deal with funding. I know from personal experience in the past that this is important on an industry basis. I was talking to someone yesterday about the problems of the stock market funding projects. Companies are desperate to keep their share prices up, particularly when there is a downturn in the economy. They have to achieve quick wins and therefore investment in longer-term research may well be abandoned.
It is not in the interest of a board to be vulnerable to a take-over, where its members will probably be heaved out and a new lot come in and benefit from what they have done in the past. Vulnerability to a volatile market can inhibit investment in research.
I do not know how to get round the problem; I merely point it out as one of the challenges that we face. I hugely respect those companies which take the longer-term view and continue to fund development through a bad period. It is a view which is not fashionable at the moment in many sections of industry.
I wish to comment on the issue of applying for EU funding. I have been involved in a couple of ventures where we have spoken about such funding. In both cases we said, "Oh God, it is far too complicated. We have to join with all these other countries, it is quite costly and there is no certainty that you will get anything. Basically, big companies can fund that kind of venture, but if you are a small company forget it". I do not know whether or not that is right, but it is an image that is out there. I suspect that there is a large amount of truth in it. You have to know your way around Brussels and its bureaucracy to decide whether or not it is worth going for framework moneys.
I shall refer also to procurement. I declare an interest as a partner in a procurement consultancy. We are advising some local government people on the e-procurement targets for 2005. One of the problems of going into large-scale government procurement is that there is a danger of inhibiting the growth of SMEs and microbusinesses. Many innovative ideas come out of very small businesses, and it may be only one genius producing them. I am not talking about academics and universities. A great deal is done by people working outside that framework and we must be very careful that we do not kill them off.
My final comment takes me back to the 1960s, when my parents were discussing the brain drain. This issue relates to Chapter 9 and concerns salaries and so on. Ultimately, most of us work to have some kind of a lifestyle. We may have a family dependent on our income. We may be a two-income family, but every bit of income is desperately important these days. When taxes rise too high people are attracted to going abroad to lower-tax regimes. The danger of what is happening
Lord Freeman: My Lords, I am sure that all noble Lords will join the noble Earl in congratulating my noble friend Lord Wade on both his speech and his chairmanship of the committee. The energy, enthusiasm and clarity that he brought to his excellent speech is much to be commended. He reminds me very much of the David Attenborough of the microchip industry.
My contribution will concentrate specifically on Chapter 10 of the report. I am not a scientist; I am a businessman. When the Minister replies to the debate, I shall be interested to learn what is the Government's approach to the recommendations in regard to trying to improve the exploitation of innovative technological ideas in the commercial world, which is what Chapter 10 is essentially about.
Although the recommendations are specific to the microprocessing industry, they are of general relevance to the exploitation of high technology in British industry. I shall refer not only to spin-outs from universities but to start-up projects in the private sector of industry.
There is clear evidence in the report that in the field of information technology we are not doing enough in this country to exploit innovative ideas. We are not doing badly, but we could do better. I suspect that the Government share that general conclusion, which is one of the reasons for the announcement of recent initiatives, about which we shall doubtless hear more from the Minister in due course.
I draw your Lordships' attention to the conclusions reached by the Association of Technology Entrepreneurs, a body consisting of young entrepreneurs involved principally in start-ups rather than spin-outs from universities. The association's general conclusion, and the evidence it presents to the world, is that it is very difficult to raise funding and that sometimes it is difficult to get the right managerial support for initiatives. I shall come later to one or two of the report's recommendations in that regard.
In this country there is no shortage of good innovative ideas in the fields of microprocessing and high technology. We have some of the best research universities in the world. There is no shortage of capital in the United Kingdom, although there is a funding gap for the development of young companies. There is no shortage of management or entrepreneurial skills in the United Kingdom, but somehow these great skills do not come together as well as they should to exploit high technology.
As my noble friend Lord Wade clearly explained, these various assetsmoney, ideas and management skillscome together in Silicon Valley in the United States, where the community seems to coalesce extremely well. The academics, the entrepreneurs and the financiers talk to each other; they are proximate to each other; they live in each other's houses. But this does not seem to happen as well in this country.
Incidentally, in France it happens in a way similar to the United States, although it is structurally different. At the very senior levels of government, politics, business and industry, there is a much closer communication and networking between senior people. That does not seem to happen to the same extent in this country.
We are still risk averse in this country towards new ideas and their exploitation. We are afraid of failure. The noble Lord, Lord Wade, drew our attention to the fact that, in the United States, trying an idea but genuinely failingnot because of fraud or malpractice, but simply because the idea turns out to be inapplicableis not a cause for self-blame or blame by the community as a whole. I am pleased with the recent legislation introduced by the Government in an attempt to decriminalise in the minds of many people the problems of insolvent companies and bankrupt individuals. Very often, such events occur for genuine reasons and are merely a case of bad luck or bad judgment. They are not criminal matters.
For every 10 ideas coming out of a major university such as Oxford or Cambridge, or Imperial College, only one or two may be outstanding successes. The rest may be dogs; they may be failures. We have to employ the same approach to risk-taking in exploiting new ideas as exists in the academic world.
Three specific problems need to be addressed. The first is the cultural gap to which I have alludedthe gap between the experience, knowledge and practice in our universities and the business community. We need to take more initiatives to bring our universities and the business world closer together. The Government have announced the higher education and innovation fund, which sounds excellent in theory. It would be helpful to know a little more about how, for non-research-intensive universities, the fund can be made to encourage the exploitation of new ideas and bridge the gap between universities and the business world.
The second is the funding gap. The committee heard evidence from a number of individuals that there seems to be a gap between ideas, particularly in universities, which are financed in the early stage by university challenge funds or perhaps by the friends and families of academics, and the point when venture capitalists begin to take an interestfor example, when the project needs £10 million or £20 million. A gap exists, between a funding level of about half a million pounds and the £10 million funding level, where there does not seem to be sufficient institutional interest in backing new ideas. That is certainly the case in the microprocessing industry.
Finally, there is a problem that we heard repeated several times in evidence which may be termed the management advisory gap. If we are to exploit new ideas, in terms of newly formed companies, we need skills that are not usually found in universities: marketing, finance, and strategic planning; a chairman will be needed, and sometimes a chief executive. Very often, researchers coming from universities who want to follow their own ideas in a company that they have founded might not have those skills. For new start-ups outside universities, similar skills are needed, and are sometimes impossible to obtain.
Therefore, perhaps at the regional level, we need to build up a network of people who could help to develop new high-tech ideas. They may be semi-retired or retired and may have specific expertise that they are willing to contribute to new companies.
In replying, will the Minister be kind enough to indicate whether the recommendation in paragraph 10.20 of the report is to be accepted? It is a brief recommendation. It may be helpful to the Minister and to the House if I repeat it:
Lord Mitchell: My Lords, I, too, thank the noble Lord, Lord Wade of Chorlton, for introducing the debate. It was a privilege to be part of the sub-committee investigating the micro-processing industry, an experience made even better by the sometimes deft, sometimes forceful way in which our chairman steered us to completing this excellent report.
There were many distinguished scientists on the sub-committee. We visited many eminent people operating in this specialist field. Your Lordships will understand that there were many times when the scientists were drawn into esoteric debates which they relished; but it was always the noble Lord, Lord Wade, who dragged us back to reality. His focus was always on the taxpayer and the customer: if you cannot sell it, then what is the point?
I also extend my thanks to fellow noble Lords on the sub-committee. We got to know each other well and worked hard together. I certainly learnt a lot and enjoyed working with talented and experienced colleagues.
My friends say of me that, if you cut my veins, I will bleed zeros and ones. There is some truth in that. I started work in what was then called the data processing industry in 1967. In those days we had hard-wired accounting machines, used punch cards and were amazed when the first 32k computer was produced for the commercial market. Those machines were fitted into air-conditioned machine rooms and were permanently attended by computer technicians.
Yesterday, in a Select Committee meeting, I sat next to my noble friend Lord Winston, who is the proud owner of the latest and very beautiful Apple laptop. This machine contains a hard disk with a 60 gigabyte capacity. On such memories, users can store music, film clips, computer aided design and research documentsa far cry from the 1960s when every byte of memory was precious. We have come a long way.
I wish to address two areas of the Chips for Everything report that particularly interest me: the skills need and the financing need. I drive a pretty fancy car. It will surprise no one who knows me that it is full of every kind of gadget known to mankind. GPS navigation not only talks to me but ensures that I never get lost. I can dial a telephone number by speaking to the car. Any fault is instantly notified. Tyre pressures are automatically monitored. The vehicle has CD, television and a telephone. I pay my congestion charge from my car's console and I receive SMS texts from my children. All this, noble Lords will be relieved to hear, is before I move even an inch.
I tell this anecdote because it is just one example of where technology is going and its implications for the workforce of tomorrow. The car engineer will no longer be a mechanic in dirty overalls with a spanner. In future, he will have to understand how the electronics system of the car works. That provides huge challenges.
In our investigations we were constantly struck by the worries that the UK has at every level, and by the scarcity of talent, particularly in our universities. Universities have found it hard to match the high salaries that industry pays to IT professionals, although I suspect that after the dotcom boom the problem has somewhat eased. Nevertheless, we need to address certain defects. We need to understand why there has been a decline in maths, physics and engineering in schools and universities. We also need to address the question of why girls are not attracted into this sector.
In our schools we are beginning to make great progress in familiarising children with IT. I declare an interest as a trustee of the eLearning Foundation whose remit it is to ensure that all schoolchildren have a laptop computer on a 24/7 basis. We believe that this will contribute to making our children computer literate and hope that it will kindle interest in computing itself.
As regards higher education, there was particular concern at the difficulties universities are having in recruiting and retaining researchers. We recommend that the Government consult universities and industry about ways of making an exchange of staff between
Finally, we ask the Government to continue to make it easier for talented foreigners with key skills to be able to bring their families to the UK. One can only be awestruck, in Silicon Valley, by the number of people of Asian background who work in the IT industry or who are students in the Californian universities. Recruiting from abroad is not quite the talent rape often portrayed in the media. In these difficult days, for example, Indian IT specialists in Silicon Valley have been returning to their own country, using the skills acquired in the US to set up businesses in the exploding Indian IT industry. The UK could easily replicate this. We need these talented people. We should continue to remove the barriers to their coming here and contributing to our IT industry.
Britain has made great strides in its desire to become a leader in the IT field. I express my thanks to the Minister for his passionate commitment to science and technology and, most of all, for upping the science budget. At last the tide is turning. I thank also the Secretary of State, my right honourable friend Patricia Hewitt. It is hugely reassuring to have the DTI led by someone who understands IT and understands what our business needs.
Forty per cent of the European market for electronic systems and semi-conductor design is based in the UK. The situation in our country is not gloomy, but it could be much better. IT requires innovative talents and entrepreneurial skills, and we are pretty good at that. In 2000, for example, our universities provided 200 business spin-offs in the IT sector, up from 70 the previous year. Research funding does not necessarily have spin-offs as an objective; it is nevertheless a fact that we produce one spin-off for every 8 million dollars of research funding. The figure in the US is 50 million dollars. So we are pretty efficient at that.
The Economist Intelligence Unit has the UK right at the top of countries which are the choice of entrepreneurs. It is important to make the UK even more attractive by reducing red tape and, if I can beat an old hobby horse, making planning permissions much simpler. My noble friend the Minister said something to our sub-committee that truly struck home. Quoting from a comment he had heard in Silicon Valley, he said that we in this country talk about success and failure; in Silicon Valley, they talk about success and learning experience.
I am delighted that the Enterprise Act 2002 has gone some way to redressing the stigma of failure. Like the noble Lord, Lord Freeman, I think that bankruptcy, though not to be encouraged, is on course to no longer being classified as the mark of Cain. But I must make a special and heartfelt plea: can we please improve the treatment of share options?
Venture capital growth in the UK has been impressive by any standards. We are clearly the leaders in Europe. To the layman, venture capital is the provision of seed capital, but the reality is that VCs tend to avoid this area. They like bigger investments, they prefer to minimise their risk and they prefer management buy-outs. That is the way they do things at present.
One issue that keeps coming to the forefront is intellectual property and how our universities handle it. I have one personal recommendation to make. We could do with a central body of highly skilled lawyers and IT professionals to advise our universities and prevent all the existing inconsistencies.
I wish to talk about two British success stories not referred to in the paper. The first is the British games industry. True, it is not about microprocessor development and it is seldom talked about, but its growth has been truly amazing. The UK is the third largest producer of IT games in the world, which, as any parent will know, are compulsive for any child. The games industry has a turnover of £1.1 billion and employs 6,000 people. It earns half a billion pounds in exports, exceeding TV and film and soon projected to go higher than the music business. The industry has developed without the benefits of any House of Lords inquiry and with little government investment. It does not require geographic clusters or any form of government intervention. It has just grown. But it now faces considerable problems. This is still a cottage industry which multinationals are entering; it needs to develop its own management skills.
The second success story is Symbian. Symbian is a spin-out of Psion, which noble Lords will know as one of the British pioneers of the PDA market. Psion was successful in this highly competitive market but lost ground to Palm, Blackberry, Sony, Compaq and the rest. But instead of folding its tent, Psion set up Symbian as a provider of software to the third generation of mobile telephony.
Symbian is a wonderful British example. Today it is owned by many of its customersNokia, Motorola, Ericsson, Sony and Siemens, as well as by Psion itself. Symbian licenses its software at 5 dollars a share. Its royalty revenue doubled last year. As 3G takes off, Symbian's revenue is posed for astronomic growth. Symbian, like ARM, is a pointer as to how the UK IT industry can develop.
I conclude with an observation. We are making great progress in the UK. IT is out of fashion and, for me, that is a good thing. The hype of two years ago led to unrealistic expectations and then to great disappointment. But this industry is inexorable. The technology in front of us will continue to change all our lives. The industry is now the biggest in the world, and it is still in its infancy.
Lord Patel: My Lords, I, too, congratulate the noble Lord, Lord Wade of Chorlton, and thank him for his brilliant chairmanship that motivated all of us who were privileged to be members of the inquiry. He
When we started the inquiry, the assumption was that CMOS technology will soon run its coursethat Moore's law would not continue beyond the next decade. Even Gordon Moore, the creator of Moore's law, agreed in a recent speech in San Francisco that his guiding principle will probably only hold true for another decade. But he also threw down a gauntlet. He said that no exponential is for ever, adding, "Your job is to delay for ever".
Innovations have reduced the size of chips and added more capabilities in a smaller area for less money. The one dollar it cost to buy a single transistor in 1968 could now buy 50 million. In 1971, a microprocessor had 2,300 transistors. By 2005, Intel intends to produce chips with 1 billion transistors. The challenge, Gordon Moore says, is to solve the problem of power leakage and the need to reduce heat levels. It may be that these problems will be solved and Moore's law will last beyond the next decade.
At the beginning of our inquiry we were given evidence that developments in nanotechnology, molecular electronics, autonomic computing and quantum computing will be the next big thing in microprocessorsthe next grand challenge. But it became clear, as the inquiry progressed, that the technologies are not yet ready to replace the conventional silicon.
CMOS technology still has a lot to offer, particularly, as the report states, in exploiting the technology for system on chip design. I believe that it is in this area, particularly in its potential in medical diagnostics, disease and treatment monitoring devices, that its promise is greatest.
Despite our initial lead in the micro-electronics industry, the UK has lost out because we did not invest enough over the long term in large-scale research facilities, as did Belgium with IMEC, let alone the United States of America. We have a good record on investing in big science, but not in big technology. We need to learn from the past, for we must not fail in microsystems or nanotechnology.
The report's recommendations focus on the creation of a national institute for system on chip design, the establishment of a national programme for design and architecture, sustained long-term investment, recognition of the multi-disciplinary nature of the technologies and the need for funding and research councils to take positive steps to recognise that, particularly in the assessment of grants.
We need to be aware of existing facilities for system level integration and how they could contribute to the overall national strategy. The proposed national task force to take that forward would be an important initiative.
Some of the areas of potential development excite me greatly as a doctor. The report mentions that reaching the practical limits of CMOS miniaturisation does not mean that the technology reaches the end of its useful life. It will remain the mainstay of supporting many new and improved applications and advances in chip design and architecture. As an example, the report mentions the remote-sensing wirelessly networked smart dust that CITRIS in California has developed, which the noble Lord, Lord Wade, so graphically described.
I shall concentrate on future applications for biomedical systems, which is one of the most exciting and profitable areas for the future. This country is a leader in bioscience and biotechnology. We clearly have strengths in micro-electronics and system on chip design. Both areas need to be harnessed further with long-term sustained investment. Today I refer only to areas of possible benefit in biomedical systems.
Pages 40 and 41 of the report refer to some of the possible developments. I shall enlarge further. Biochips have rich potential for micro-electronic chips in medical healthcare and even in environmental monitoring and diagnostics. Professor Kevin Warwick's famous experiments on implanting chips into his nervous system show how technology can be used directly. We recently heard about the work at Washington University on brain implants, with a chip interpreting neural signals and mimicking the behaviour of the hippocampus. Ingestible diagnostics is another example of the use of microtechnology, as we heard on a recent visit to the Institute for System Level Integration at the Alba Centre in Livingston. Miniature ingestible cameras that take images of the inside of the gut as they travel through the digestive tract allow for more extensive investigation of diseases of the gut than is possible with conventional endoscopy. Data are compressed and communicated through wireless data links. Such technology is at the first stage of trial now.
Combining physical and chemical sensors is an even more exciting possibility. Devices could monitor pH, oxygen and temperature as they pass through the body. The potential of such applications for medicine appears endless: tissue-embedded chips that monitor levels of metabolism; embedded chips that monitor levels of substances such as glucose and adjust levels of insulin accordingly; chips that constantly monitor blood pressure to provide information that allows for better control of blood pressure, reducing the risk of heart attacks or cerebral haemorrhage.
The prospect of combining gene chips and micro-electronics is even more exciting. A previous report on genetic databases, following an inquiry chaired by the noble Lord, Lord Oxburgh, highlighted the great potential of the developing sciences of pharmacogenetics and proteonics. Biochips that
There are other applications in the area of cancers and chronic mental illness. DNA diagnostics is another area that could produce quicker diagnosis, having great impact on the management of conditions such as methicillin-resistant staphylococcus aureus infectionbetter known as MRSAand meningitis. The potential of this technology for supporting developments in telemedicine is another exciting area. I could go on. The list is endless.
The United Kingdom has a number of centres of excellence in small-scale microfabrication. We also have strengths in micro-electronic design, bioscience and biotechnology. We have the potential to achieve technological breakthroughs. We now need firm, long-term and sustained investment in research in these highly interdisciplinary technologies. That is the grand challenge. For once, the United Kingdom could be the leader. We must not fail.
Lord Oxburgh: My Lords, I, too, congratulate the noble Lord, Lord Wade, on his truly splendid speech. I pay tribute to his dextrous and forthright leadership of our committee. He steered the inquiry most skilfully. His knack of rapidly striking to the heart of the matter saved us much labour. We had many opportunities to observe and learn from his savoir faire and aplomb and his ability to deal with any eventuality, nowhere better than in California, when, most properly introducing himself as a Member of your Lordships' House, he elicited the reply from an incredulous lady, "And I'm Princess Di".
There will be many contenders for the title of most influential invention of the 20th century, but undoubtedly one of the most serious claims will be that of the transistor etched on a silicon microchip. In essence, the purpose of the inquiry was to see whether there are future opportunities in the microchip industry that the UK could exploit if strategic action is taken today.
The chip industry is certainly here to stay. Besides revolutionising practically every device of everyday life, it has transformed the computer industry and affected every industrial and commercial process. The effect on research has been one of massive empowerment. For example, without the microchip, the advances that astound us in modern medicine, and which we are beginning to take for granted, would not have happened.
The noble Lord, Lord Wade, has clearly outlined why the astonishing achievements of the chip industry in improving performance and reducing cost cannot continue indefinitely. They probably cannot continue more than another eight years or a decade at the most. It is not only a problem of the building bricks of chipsatomsnot allowing us to go to finer size. As anyone who has owned a laptop knows, the machine gets hot. As more and more transistors are packed into a smaller volume, which is the main point of miniaturisation, the local heating effect is proportionally greater, hot transistors perform less well, and may even burn out. All that tells us that the story of the last quarter of a centurydeclining unit costs and size, coupled with improved performancehas come to an end.
That raises the intriguing question of what, if anything, comes next. There are several intriguing possibilities that might allow future devices to be still smaller and faster. For the present, however, they are no more than demonstrations of principle. Excellent work is being done on that in universities and in other institutions. In universities, that work is largely supported by research councils, and it is right that that situation should continue, but it needs to be carefully watched. The councils are well placed to spot early breakthroughs and decide whether additional funding or co- ordination should be provided. That will definitely require the research councils to be more proactive than in the past.
There are two other important considerations for the future. The first is the overwhelming market hold of existing microchip technologythe so-called CMOS, or complementary metal oxide semiconductor technology. That technology has been outstandingly successful, and the massive investment in facilities to produce CMOS-based chips means that it would be extraordinarily difficult for any new technology to displace CMOS. Any successor technology would have to offer significant improvements in performance or cost. Given that low cost is generally driven by volume, it seems that a new technology would first make its appearance, at best, in specialised applications in which performance was paramount and cost was the secondary consideration. It would spread beyond that if, and only if, it truly offered new opportunities at a reasonable cost.
The second consideration, as the report points out, is that there is still immense scope for incremental improvement of the importance of CMOS-based chips. The limitations, of which the noble Lord, Lord Wade, and other noble Lords, have spoken earlier, relate only to the physics of miniaturisation. However, as the noble Lord, Lord Wade, also said, there is still scope to improve the way in which devices are arranged and interconnected on chips and how they distribute and manage the various tasks that they are given. That is the so-called chip architecture, which is a discipline in which the UK has a strong international position from both a commercial and academic point of view. It is here that our committee saw a strength on which it was well worth building.
In other words, although the density of transistors on chips may not increase much, their performance will get much better through improved architecture. As the noble Lord, Lord Wade, said, that in turn opens new possibilities and new possible uses. These will be of broadly two kinds. First, we shall almost certainly see progressively more user-friendly electronic devices, which will themselves take on and manage some of the problems that today we find so irritating and tiresome. They will be in wireless communication with each other, and they will themselves manage problems of mutual compatibility. We will be able to decide on how we want to communicate with themby word of mouth, by keyboard, or by other gestures, such as writing. Whether the machines are laptops, printers, telephones, cameras, organisers or other bits of technology that we may have round us, they will manage the complexity of their interrelations and their interface with the user. That simplification means that the so-called "digital divide"the real concern that some of the population may be disenfranchised because they are not computer literatewill almost certainly be solved by the technology.
The second way in which chip technology will pervade our lives is embraced by the unhelpful term "ambient computing". As several noble Lords have pointed out, it will be possible for small chip-based devices, to be cheaply incorporated into manufactured goods. As so-called "smart dust", they may be distributed around the home or the wider environment and they will be designed to record and transmit particular kinds of information. The scope for clever and imaginative new applications that require sophisticated and economical chip architecture is almost unlimited. For example, it should be possible to build sensors into the mechanical components of aircraft or other safety-critical structures, which would automatically warn of fatigue or risk of failure. Equally, it should be possible to monitor the external environment, cheaply and reliably, for a wide range of purposes, which might range from domestic security to sensing pollutants in the atmosphere or water.
The noble Lord, Lord Patel, drew attention to the development at Livingston of the "smart pill", which has no therapeutic properties but may carry a small camera or chemical sensors that can transmit information continuously during its possibly unhappy passage through the body. People are already working on chip-based artificial eyes to bring sight to the blind. The only limits are those set by our imagination.
So what is standing in our way? The answer, surprisingly, might be not all that muchat least, not all that much that is very expensive. When our committee visited California, the venture capitalists said that, from the point of view of taxation, general economics and the availability of new ideas, they viewed the UK as an attractive country in which to invest. They seemed to perceive this country as more attractive than did our own venture capital industry. However, we should do certain things, which are spelled out in the report.
I endorse and support the point made by my noble friend the Earl of Erroll, in connection with EU funding. There seemed to be a strong indication that the chip industry and related industries in the UK were benefiting much less from EU funding than their competitors in other countries. My own experience of working on EU funding for nearly 15 years was that the initial threshold that one had to cross in order to gain entry was high; one had to establish personal contacts. After that, however, it became very easy. Once, for example, when I was having difficulty with a submission that I was making, I spoke to the manager of the programme in Brussels. I explained that my application was ready but that I had not had time to translate it into the second community language, which was required at that time. He said, "Oh, don't bother, just let us have it and say that the second language is to follow". It is still waiting to follow.
Many exciting ideas that may lead to important new products are likely to emerge from universities, if we can tap them. In the report, we spell out some of the things that need to be done. I wish to make an additional point, based on my own experience at Imperial College, although it is not a new idea. We should make more use of technology scoutstrusted people who have a broad-based understanding of technology and its potential applications, who work in universities, and whose job is to keep abreast of what is happening in the labs. They are in a position to spot likely prospects and either to steer the inventor in the direction of help that may be needed in starting a business or, alternatively, they might, with the inventor's permission, bring the discovery to the attention of those who might take over the initiative, develop it further, license it or exploit it in other ways.
At Imperial, we had a dozen or so people acting as technology scouts, although some of them did other things as well. In at least one case, simply in the process of building a nucleus of complex experimental equipment, a research group unwittingly solved an engineering problem that had been bothering one section of industry for some time. That was spotted and exploited by the scouts. It was something that the scientists could not possibly have known. Clearly, for it to be worthwhile for a university to have its own team of scouts, it has to be reasonably large and have a fair amount of research going on. In that case, the scouting can pay for itself. For smaller institutions or those with a more limited range of research, the research councils might employ people on a regional basis to do the job. It is essential, however, that they enjoy the confidence of the researchers.
In conclusion, there is a great deal of mileage left in CMOS technology. It is unlikely to be overtaken by a pervasive successor technology in the near future and it might well continue for decades. However, the UK has real strengths in chip architecture and there are major opportunities for us. How well we exploit those will depend on maintaining a favourable business environment in the UK, ensuring that we have an effective means of capturing the benefits of university research and ensuring that new enterprises can flourish.
Lord Methuen: My Lords, from these Benches it gives me great pleasure to congratulate the noble Lord, Lord Wade of Chorlton, on introducing this debate on his report on the future of microprocessing. He was a very able chairman contending with a highly technical subject which initially was well above our heads. I, too, thank Professor Steve Furber for keeping us on track, and our Clerk, Roger Morgan, for all the help and assistance he gave us. I found it an especially interesting inquiry on which to serve, having been involved with the computer industry since 1967. We had a most interesting series of visits to Silicon Valley, IMEC in Flanders, and to the NPL. I am glad to hear from the noble Lord, Lord Wade, that the NPL is being more proactive in promoting its skills.
I should like to give some historical perspective to the debate from my 40 years in industry. I first came into contact with the semiconductor industry when I was a graduate apprentice with GEC in Coventry in the mid-1950s. GEC had a pilot semiconductor plant producing germanium transistors, and I believe that the reject rate was 95 per cent. If you compare that with the latest chips with more than 40 million transistors, every one of which must work, you get an idea of how things have moved on. If the same reject rate applied to those chips, there would not be many good ones.
I subsequently joined the Westinghouse Brake and Signal Company in 1957 at a time when it was bringing into production what was, I think, the first transistorised remote control system for railways. It was designed to use the minimum number of transistors because they were so expensive, each costing about £7.50, in 1957perhaps £100 each in today's money. The whole piece of equipment, which occupied a six-foot high by 30-inch wide cabinet, would now occupy only a fraction of the space and facilities available on a current system-on-a-chip microchip.
As a last example, in 1968 IBM had a process control computer system called the 1800. One could buy a 128 kilobyte (core) memory upgrade for this machine. The cost? It was £64,000perhaps over half a million pounds in today's money. Compare that with the 64 megabyte memory chips now available which cost a few tens of pence. That is what Moore's Law has given us in practical terms, with chips in every conceivable piece of equipmentdomestic, industrial, aerospace, medical and so on.
That was yesterday. Today we are at a crossroads. We do not know in which direction the new embryonic nano-technologies will take the microchip industry. As other speakers have said, there is no clear indication yet of which technologies will become the future leaders. We had glimpses during our visit to Silicon Valley of quantum computing and spintronics, among other contenders, both of which are still in their infancy. Quantum computing will certainly lead to a complete revolution in the style of computing.
However, that is not the end of the story. The existing CMOS technology is quite sufficient for many humdrum applications where plenty of power is available and computational speed is not the be all and end all of the application. It is the extremes which are driving the research and development. At one extreme are very large computers for weather forecasting, simulation, nuclear physics, geophysics and the like; at the other are the handheld systems such as mobile phones and other portable equipment where low power consumption and specialised computational capability are critical. However, CMOS technology will continue to be the mainstay of the electronics industry for many years to come.
The noble Lord, Lord Wade, referred to "smart dust", and the noble Lord, Lord Mitchell, to his car. The point here is that microprocessor systems will become so integrated into our lives that we are not even aware that we are using computers. In the past, computer use involved punching cards and typing. When I first entered the industry we had to have experts and everything had to be in the right column on the card. The change in user interfaces and the switch to Windows, for example, have been major factors in increasing computer literacy. Children today are much more capable than the average adult of using equipment such as video recorders. That demonstrates the need to produce better interfaces, one of the major areas of development. The latest microchips are making it much easier to produce those interfaces.
What will be the UK's role in the new technologies? It would cost about £300 billion or more to build a fabrication facility to make the next generation chips employing 10 to 20 nanometre linear structures, and it is dubious whether those facilities could be financially viable. Certainly it seems that the UK would not be a contender for such a facility. Our strengths lie in the architectural and system design of the chips where we have a significant presence with world-leading firms such as ARM. The design of the new chips with 40 million or more transistors requires immense effort in design simulation and validation and the devising of test strategies for the production processes. In view of the large numbers of transistors on the chip, and to achieve an acceptable yield, the chips need to be configurable on test to minimise rejection due to faulty transistors. The strategies to achieve that place even more onerous demands on the designers as the dimensions decrease.
The UK should support a single national research institute similar to IMEC in Flanders. Recently, many members of the committee visited the Institute for System Level Integration at the Alba Centre, Livingston, in Scotland. That institute, which teaches graduates system-on-a-chip design, goes some way to meeting the criteria for a national institute. However, it was disappointing to note that the majority of its
One of the UK's basic weaknesses is in the exploitation of our strengths. As others have said, that is not helped by the reluctance of our venture capitalists to fund high-tech enterprises where they do not or are unwilling to understand the technology. That is compounded by the unwillingness to take a long-term view on research and development. It was an eye-opener to visit the IBM Almaden Laboratory in California where they were looking for a return on basic research in 10 to 15 years. That should be compared with UK industry's general reluctance to invest in research.
I urge the Government to take note of our recommendations in the report. We need to take a co-ordinated and integrated approach to our research and development, avoiding wasteful duplication. This is where the RDAs can play a large part in enabling and facilitating university and industry co-operation.
Finally, I urge the Government to accept the necessity for long-term funding implicit with keeping the UK at the forefront of microprocessor developments. The UK has huge talents in this field; do not let us waste them.
Lord Hodgson of Astley Abbotts: My Lords, this has been a truly fascinating debate on a truly fascinating subject. I begin by congratulating my noble friend Lord Wade not just on his chairmanship but also on the witty and able way in which he introduced the debate. Above all, I was encouraged by his peroration about enthusiasm. Enthusiasm is a virtue which we need more of in this countryenthusiasm for new ideas and new approaches. An American friend of mine, when asked to summarise the difference between the US and the UK towards innovation, said, "The trouble with you is that in Britain new ideas are guilty until proved innocent. In the US we regard new ideas as innocent until proved guilty". What the noble Lord had to say on that point was absolutely critical as a background to our debate.
I also congratulate all noble Lords who sat on the committee on producing a report which is informative, readable and commendably to the point. It has been a pleasure to listen to their contributions.
The significance of this policy area is that it brings together three strands that are hugely exciting and important to the future prosperity of this country: first, the likely direction of future developments in the information and communication technology marketparticularly post-CMOS, and before the end of CMOSfrom improved design and architecture; secondly, and absolutely critically, how strategically a middle-ranking economic power such as the United Kingdom, with an economy one-tenth of the size of that of the United States, can maximise the economic benefits from these developments; and, thirdly, what practical steps can be taken, or, equally importantly, avoided by the Government to enhance the achievement of that strategy.
I must declare an interest. My career has been spent in the City where I focused on what is now known as the private equity industry. It was previously known as the venture and development capital industry. I have sat on management committees of both high and low-tech investment funds and I remain an investor in several private equity funds focused on the technology sector.
Fundamental to success in this policy area is an acceptance of a realistic analysis of this country's economic position. We surely cannot hope to advance on all fronts. To do so would be to risk spreading ourselves too thinly and achieving nothing. The figures in the report on comparative research and development spending in the United States as compared with Europe as a whole, let alone the UK on its own, make sobering reading. Sir Robin Saxby's remarks in paragraph 8.31 on the dangers of searching for what he calls another "Great White Hope" have a terrible ring of truth about them. The report's recommendations as regards the need for focus must, therefore, deserve serious attention.
It is important to take a hard look at what we, the British, are good at. We are good inventors. We are good entrepreneurs at every level, from the toolmaker in Birmingham who sets up on his own to the research scientist pursuing his ideas in a university science park. What we are perhaps less good at, or perhaps less interested in, are the techniques and processes of developing and redeveloping and particularly mass producing. This is evidenced by the fact that although UK patent applications continue to run at a high level, British productivity increases remain below what we should be achieving. Successive governments of both political persuasions have found that to be a very difficult nut to crack.
The Minister and I have exchanged views in the past about the difference in concept between companies which are world class and companies which are national champions. I believe that we need to encourage world-class British companies in as many sectors as possible, but I see no role for national champions. The political framework is a poor one in which to make and follow through the tough but delicate decisions such a concept demands. So it is encouraging to see that the report recommends that
It was, however, interesting to see the difference the report draws in paragraphs 7.16 and 7.17 between responsive mode programmes and managed programmes. Although it is obvious that not all research can or should go through a managed programme, it surely is important that even at the front end of innovation the available resources are not spread too thinly. Equally important must be the need to avoid overlap and duplication and to encourage collaboration, including collaboration at a transnational level, as the noble Lord, Lord Hunt of Chesterton, pointed out, wherever possible. Parochialism can play no part in the world of design and information technology. As the report points out, research councils must have an important role to play here.
An industry where the United Kingdom has done particularly well in the world is the pharmaceutical industry which has some of the characteristics of the design and information technology industry. One wonders if there are any read-across lessons to be learnt, particularly as regards the role of broad and focused research, but also more generally as regards the linkage between the research laboratory and the market-place.
In IT, as in all industry and commerce, the key to our future success is the recruiting and retaining of high-quality staff. The report's remarks on that at paragraphs 9.9 and 9.15 are extremely pertinent, especially in relation to the UK's established strengths in design and architecture. In that connection there are other actions which the Government should be considering very carefully. The first of these is the draft EU directive on temporary agency workers. This industry is one in which subcontractors, who are entrepreneurs in the most direct sense of that word, are a permanent part of the scene. The directive, if implemented in its present form, may well have the effect of fossilising the structure to the very great competitive disadvantage of the United Kingdom. At the very least, member states must have the option of exempting higher skilled technical and professional agency workers from the provisions of the directive.
The second is the IR35 tax regime which affects as many as 100,000 consultants, many of whom work in the IT industry. It is a sly measure which is having a bad effect on the industry generally. Contracting out of functions is now a legitimate and growing practice in all industries. This backhanded approach will undoubtedly continue to drive people abroadpeople whose skills are vitally needed in this countryand no industry is more mobile than the IT industry.
Those of your Lordships who took part in the proceedings last year on the Enterprise Bill will recall the balance that was sought to be struck between unavoidable bankruptcy as a learning experience and deliberate bankruptcy as a fraud on creditors,
The provisions of the new Enterprise Act take me back to the issue of world-class companies. To succeed in the IT field, companies have to be world class. To be world class, they need scale so they have the depth of financial and managerial resources to expand beyond the narrow confines of their domestic markets. It will be important that the competition provisions of the new Enterprise Act do not inhibit the emergence of such companies by preventing them achieving a substantial market share within the United Kingdom. In this field in particular, there are no national boundariescompetition is worldwide. If the competition authorities here choose to measure on the narrow basis of the UK market alone, it will be a huge inhibition to potentially successful firms in this field.
I turn briefly to the issue of funding, which was dealt with most ably by my noble friend Lord Freeman and referred to by a number of other noble Lords, including the noble Lord, Lord Mitchell. The report refers in paragraph 10.20 to the role of the venture capital industry in providing funding and other support. There is a difficult issue of timescales in that regard. In order to continue to fundraise, investment management companies must show a track record of successful realisations of their investments. A typical fund will have a seven-year life with realisations beginning after about three or four years. Such a timescale does not sit happily with the needs of a start-up company. It is true that during the late 1990s the technology boom saw a number of the early stage funds perform extremely well, but those were exceptional times. Now that a grimmer reality has returned and pension fund trustees, for example, contemplate funding gaps, the appetite for risk will have diminished but the readiness to fund a company through the several rounds of financing required will also have been reduced.
One solution for the early rounds of funding is to be provided by groups of private individuals, many of whom will be experienced and successful entrepreneurs in the IT field. That has the added advantage of giving the investee company access to practical managerial support, of the type referred to by my noble friend Lord Freeman, and pure funding. In that connection, the enterprise investment scheme (EIS) tax reliefs are critical. I urge the Minister to ensure that the Inland Revenue continues to take a positive and open-minded approach to applying the scheme rules, which has not always been the case in the past.
The report points out at 10.21 that there is much, as a major purchaser, that the Government can do on their own in terms of helping the development of the sector. Last Friday, I took the opportunity of a long train journey to read the report and its accompanying appendices. Before leaving Euston, I opened my Financial Times and saw on the front page the headline:
I conclude as I began by saying that this is a worthwhile and interesting report. I hope that the Government will study its recommendations carefully. In my view, the Government's primary role is as an enabler: to encourage a proper balance between wide-ranging and focused research; to avoid duplication, overlap and reinvention of the wheel; to provide a financial framework that encourages collaboration and investment, especially by those with hands-on experience in the industry; to ensure a flexible, well-trained domestic labour market; and to use government purchasing power wherever possible to foster British entrepreneurialism and commercial drive.
The right approach and the right answers will surely reap rich rewards for the United Kingdom. I look forward to hearing the Minister's reaction to this excellent report on an industry which, despite its huge size, is, as the noble Lord, Lord Mitchell, pointed out, still only in its infancy.
The Parliamentary Under-Secretary of State, Department of Trade and Industry (Lord Sainsbury of Turville): My Lords, I join other noble Lords in welcoming the report of the Science and Technology Select Committee on microprocessing and I congratulate the noble Lord, Lord Wade, on an outstanding report. It is already proving to be extremely useful and is stimulating some valuable thinking in the DTI and the OST. I cannot honestly give detailed answers to the report at this stage because we have not yet finalised our response but perhaps I can give some indications of our thinking. I add, as the Under-Secretary of State for Science and Innovation, that it is a pleasure to speak in a debate on sciencethis is one of the few occasions on which I have had an opportunity to do so. It was a pleasure to hear from the noble Lords, Lord Wade, Lord Patel, Lord Methuen and Lord Oxburgh, who gave brilliant surveys of technological developments in the field.
The Government support many of the findings and recommendations in the Select Committee's report. We recognise the importance of this global industry and the key role that the UK plays in it. In particular, we agree that initiatives in the ICT arena are needed if the UK is to capitalise on future opportunities.
The UK has considerable expertise in silicon design and we must ensure that that skills base is maintained, embracing all of the possible ways in which that technology might develop. We should bear in mind that silicon will not stop working when Moore's law does. For example, at the moment there is considerable commercial exploitation of microtechnology in silicon, not as integrated circuits but as micro-scale or nano-scale sensors and instruments. That in turn is driving experimentation using the techniques pioneered in silicon for other materials, such as glass and ceramics, for applications as far removed as miniature chemical processing plants called micro-reactors.
A successful strategy also needs to take into account the characteristics of our "new style computer industry". That is an industry in which there is far closer integration between hardware design, software and manufacturing than ever before. Government interaction with the industry needs to reflect that. That has influenced initiatives such as the Information Age Partnership, which meets regularly under the chair of the Secretary of State and has a wide-ranging membership which encompasses telecommunications and content and service companies as well as design and hardware interests.
Within that work discussions are ongoing, led by Intellectthe ICT trade associationto agree the future requirements of the entire ICT arena. There is considerable interest in areas such as modelling and complexity, which would cover many of the needs of future design work in integrated circuits, regardless of the underlying materials, and be of wider application to modelling future complex IT systems.
Microprocessor design and architecture is an area where government spending on basic research can have a big impact. EPSRC, in particular, has a broad research portfolio underpinning the sector, totalling some £120 million, of which £40 million is in collaboration with industry. However, we, too, note that in recent years that area has become less well represented in EPSRC's overall portfolio. Steps are being taken to address that by raising the overall skills level in the area through initiatives such as Faraday Partnerships and an engineering doctorate programme for "system on a chip" technologies.
At the same time, materials research offers the prospect of taking integrated circuits into materials other than silicon with radically different design constraints. Technologies such as printing with conducting plasticsthe so-called "plastronics"and many developments in nanotechnology are examples of that.
We are carrying out basic research across a broad range of new materials applicable to this field. The EPSRC International Review of Materials, which reported in March 2002, recognised the international competitiveness of the work at places such as the Semiconductor Facility at Sheffield University and the centres of excellence at Birmingham and Cambridge Universities.
The £9 million research programme launched last year on quantum information processing is another example of the exciting research into unconventional post-silicon processing. In that context, we believe that it is right to support a broad research portfolio in materials because now is not the moment to place all our bets on a single emerging technology. I was glad that my noble friend Lord Hunt and the noble Earl, Lord Erroll, supported that point. However, I agree with the noble Lord, Lord Oxburgh, that if one technology begins to emerge as the winner, then research councils need to be quick to respond.
We are currently considering what other initiatives are needed to support industry across the board as part of the DTI's Innovation Review. I am looking at further support in the area of nanotechnology to help industry in work relating to both awareness of what this field can offer and the applied research that will help to realise its potential.
An evaluation is currently being made of a centre, working in collaboration with other centres of expertise around the country, which would give industry a world-class focus for this important work, as well as avoiding the fragmentation of the science base. That would facilitate the exploitation of equivalent centres overseas on an equitable basis and improve access to European funds by industry.
We fully endorse the need to encourage radical approaches, and a number of schemes operated by EPSRC are intended to do just that. For example, EPSRC platform grants are allowing key research groups to take a more strategic view of their research
The shortage of skilled people is a particularly acute problem in this industry, and a number of initiatives are now underway to address that, starting in schools with the Science and Engineering Ambassadors scheme. In response to the Roberts review recommendations, the Government have committed themselves to creating 1,000 new academic fellowships to facilitate the progress of contract research staff into academic posts. We have already announced the funding of a post-doctoral salary increase of £4,000 per annum by 2005-06.
The noble Earl, Lord Erroll, raised the question of salaries. I do not believe that we are now seeing a brain drain; in fact, there is some evidence of a brain gain. I agree that salaries are a key issue here, but I believe that it is a matter of salary levels rather than tax. It is our belief that salaries should reflect labour market pressures, although the mechanism for identifying areas to be targeted for an increase is still under consideration.
The noble Lord, Lord Freeman, raised the question of exploitation. I believe that today the climate on knowledge transfer, in particular, is very different from that of 10 or even five years ago. A number of schemes, such as University Challenge, science enterprise centres and HEIF, the Higher Education Innovation Fund, have done much to bring about changes in the culture in this area. I believe that the culture was probably changing 10 or 15 years ago, but in the past five years those schemes have provided a major boost.
The figures that we now have from HEFCE's Higher Education Business Interaction Survey suggests that that is right. The figures for the second year of the survey in 2002 show that there were a total of 248 spin-out companies in 2001-02 compared with 204 from 1998 to 2000 and 70 per year on average in the previous five years. Therefore, there has been a major cultural change. The total number of patents filed increased from 594 in 1996-97 to 1,515 in 2000-01. As my noble friend Lord Mitchell said, UK universities are now identifying one spin-out for every £12 million of research expenditure, and that compares very favourably with the US figure of £53 million. However, I agree that we can still do more and we shall continue to support that trend with extra money under SR2002.
The noble Lord also raised the question of the role of the non-research-intensive universities, which I regard as extremely important. The new money that we are receiving under SR2002 will maintain what we
The noble Earl, Lord Erroll, and the noble Lord, Lord Oxburgh, raised the question of European funding. The Government accept that UK industry's participation in EU programmes has been at a relatively low level. However, in terms of our overall performance in framework programmes, we are probably the major beneficiary and we certainly get far more out of it than we put in. But we are considering seriously the question of the industrial dimension, and I believe that we need to review programmes such as EUREKA to see whether we should put more resources into them.
I turn to one or two specific points raised by noble Lords. The noble Lord, Lord Wade, raised a number of questions about the conditions for the industry in this country. It should be said that we have the best venture capital industry in Europe and that today we have far closer contact with hi-tech businesses than we have had in the past.
The Government have also done much work in supporting clusters and encouraging regional networks. I believe that the setting up of regional science and industry councils, where the way was led by the North West, is an important initiative in that respect. I hope that the innovation report on which we are now working will give a further thrust to those efforts. But I believe it is extremely important to get right the regional networks between universities and industry on a regional basis.
The noble Lord, Lord Hunt, raised the question of government procurement. I prefer to think of that in terms of the intelligent customer function and getting government departments to do what commercial companies do naturally. That involves supporting their suppliers in terms of innovation on the basis that if their suppliers are more innovative, that will help their own competitive advantage. We also have SMART awards and the SBRI scheme, modelled on the US SBRI scheme, which support small hi-tech businesses in their early days when they are trying to carry out more R&D.
The noble Earl, Lord Erroll, also raised the question of financing R&D in companies. We introduced the R&D tax credit, first, for small companies and then for large companies. I believe the noble Earl will find that at present the R&D tax credit, which gives cash payments to small businesses when they are not paying tax, is proving extremely popular again, as a way of supporting small hi-tech companies in their early days.
The noble Lord, Lord Freeman, raised the question of networks and clusters. I believe it should be said that we do not live in a country where there is only one clusterCambridge. I say that as a Cambridge man. Equally, Oxford now has a very dynamic cluster of hi-tech businesses. In the ICT field, Bristol is very strong. London is now proving to have quite a strong biotech
Clusters of hi-tech businesses are rapidly changing the situation in this country. We should not consider that we are doing badly. A recent Deloitte and Touche survey of the top 500 fastest growing hi-tech businesses in Europe found that 150 were in the UK.
The noble Lord also asked about the recommendation in paragraph 10.20. We in the DTI and in the Treasury have had a series of consultations with industry, with the venture capital industry, with hi-tech businesses and with the equity industry on the subject. In order to help we have made a series of major tax changes. We are looking at this point again as part of the innovation report. I hope that something will follow from that.
The noble Lord, Lord Mitchell, raised the issue of attracting talent from abroad. We have made it easier, but if there are further things that we should do I would like to hear about them. I believe that the battle for talent across the world will be one of the most important battles that we shall fight on the economic front. It constantly has to be made clear that a number of countries, such as Canada, are now openly targeting the best scientists from other parts of the world. We need to ensure that our scientists and engineers are paid enough so that they are not tempted to take up such offers.
I agree with the noble Lord, Lord Mitchell, about the success of the British computer games industry. It is a great success. It is now under pressure and there may be something to be learned from the support, for example, that the South Korean Government provide to their industry in terms of a centre of expertise.
The noble Lord, Lord Patel, raised the issue of multidisciplinarity. We have taken many steps in that direction; in particular we have brought together the research councils under Research Councils UK, in order to encourage multidisciplinary work. In SR2000 the three major projects that we supported, which were in genomics, e-science and basic technology, were all cross-research council programmes to encourage multidisciplinarity. I also agree with the noble Lord, Lord Patel, that bio-engineering and biochips are enormously important areas that we support.
The noble Lord, Lord Oxburgh, raised the issue of technology scouts in universities. I think that HEIF has enabled many more universities to do that kind of work and it is one of the exciting developments in this country.
I agree with the noble Lord, Lord Hodgson, about the need to avoid the next great white hope. In the past a mistake that we in this country have made is to hope that one technological thrust in one area will be the saviour of all. Such a matter has always involved large sums of money that means that politicians become involved in commercial decisions, which absolutely is not the right way to proceed. I am sure that we would
I also agree that one of the important science policy decisions is to get the balance right between responsive mode funding and directive research funding. I think that in the past, perhaps in the ICT area, we have erred in going too much towards the responsive mode funding which means that we have not built the centres of excellence because everything has been accomplished on small grants. We are putting that right.
The noble Lord, Lord Hodgson, spoke of IR35. I am not sure that it is totally relevant to this debate, but I point out once again that IR35 is simply a matter of how the rules are applied for determining whether people are self-employed or employed by a company. All that IR35 says is that the fact that one sets up a company does not in any way detract from the normal application of the rules. That is a sensible and fair tax decision and one that we stand by.
Finally, I make an important point about the work of the Government. We believe that the Institute for System Level Integration, based on the Alba campus at Livingstone in Scotland, has been a great success and has much expertise relevant to the committee's recommendations. In preparing the Government's response to the report we shall take into account the Institute for System Level Integration experience and build that into our plans.
The Select Committee's report is a very useful and stimulating contribution to an important debate. I hope that our response will show how much agreement there is between the Government and the committee. The Government are grateful to all those who took part in the preparation of the report and to those who have taken part in the debate. I believe that there are many opportunities for UK industry and the computer chip business. The Government recognise the importance of the sector and are determined to provide the best possible conditions for it to grow and to flourish. This area is one of competitive advantage and we need to build on our strengths.
Lord Wade of Chorlton: My Lords, I thank the Minister for the encouraging comments about our report. We look forward to receiving the Government's response. All the members of the Select Committee are willing, and most of us are able, to work with the Government if they desire to bring about some of the ideas.
I also thank my noble friend Lord Hodgson for his support for our report and for his helpful comments. I thank the noble Earl, Lord Erroll, for taking part in the debate. It is pleasant to see someone who is not a member of the Select Committee, and who had no need to speak, showing enthusiasm for it. We are grateful to him. I also thank all members of the Select Committee who made such excellent speeches. They