Supplementary evidence from the Department
of Trade and Industry
This note follows oral evidence to Sub-Committee
B (Energy, Industry and Transport) given on 19 May by Mr Nick
Hallett, Mr Ray Lambert and Mr Andrew Reeseconomists at
the Department of Trade and Industry. It is in addition to a note
already submitted on spend on research on business support activities
and monitoring and evaluation issues and focuses on questions
relating to the co-ordination of UK and EU policies and initiatives
and UK policy on intrapreneurship.
1. GENERAL CO
AT UK AND EU LEVEL
1.1 Mechanisms are in place to ensure that
domestic and European policy initiatives, both for entrepreneurship
and for the wider agenda, are dealt with in a co-ordinated manner
1.2 Within the Department of Trade and Industry,
each group and agency has a European and International team which
aims to ensure that UK policy towards the EU is informed by domestic
policy in that area, and vice versa. Many individuals are also
working directly with the European institutions on specific issues
1.3 At the European level there is also
increased policy co-ordination with the recent establishment of
the Competitiveness Council. This is an issue on which the UK
lobbied hard, and worked closely with EU Presidencies on to make
a reality. This new formation deals with policy previously covered
by the internal market, industry and research councils. It has
a horizontal, micro-economic remit, to enhance growth and competitiveness,
working with ECOFIN to ensure delivery of economic reform throughout
1.4 There is also ongoing UK representation
on numerous working groups of national experts which contribute
to the development of Commission policy, as well as instruments.
Additionally, following the review of DTI business support, all
proposals for new products will need to clearly indicate how they
complement the wider government and EU picture.
1.5 The Committee asked how UK schemes,
such as Regional Venture Capital Funds (RVCFs), the proposed early
growth schemes etc matched up with schemes such as ETF Start up
and Seed Capital Action Plan.
1.6 Although the UK has one of the most
dynamic and efficient financial markets in the world the Government
has an important role to play in ensuring that UK markets work
effectively and that any gaps or weaknesses are addressed. The
Government's approach is based on targeted action to correct or
compensate for market weaknesses by working through private sector
intermediaries that operate using commercial criteria. This ensures
that Government support complements rather than competes with
existing private or public sector provision.
1.7 The Government works closely with relevant
EU authorities to make sure that interventions are compatible
with EC state aid rules and that potential sources of EU funding
are secured to support Government programmes. The UK has been
successful in securing over £53.5 million from the European
Investment Fund (EIF) to invest in Regional Venture Capital Funds
(RVCFs), the largest single investment in any single Member State.
1.8 The RVCFs had a difficult passage through
the State Aids' clearance process, not least because they were
a new concept, but were ultimately approved and, potentially more
importantly from a policy perspective, led directly to the publication
of the Commission's Communication on State Aids and Risk Capital
(SARC). This established a framework for such funds throughout
the EU. Similarly, the decision on the Community Investment Tax
Relief has set out a framework for investor-intermediary-investee
business relationships in the Community Development Finance sector.
1.9 The ETF Start-Up Facility is managed,
on a trust basis by the EIF and makes investments in venture capital
funds established specifically to provide equity or other forms
of risk capital to SMEs. The funds supported are smaller or newly
established ones, in particular those operating at regional level,
those focusing on specific industries or technologies and those
that finance the exploitation of R&D results. Under the new
Multi-Annual Programme for Enterprise and Entrepreneurship, the
ETF Start-Up Facility has been adapted to support the establishment
and financing of SMEs in their start-up phase by including support
for specialised venture capital funds and business incubators.
At year-end 2001, total disbursements to venture capital funds
amounted to EUR 50 million, compared to EUR 32 million at year-end
2000. at 31 December 2001, the venture capital funds had invested
a total EUR 184.6 million in 179 SMEs. This included EUR 15.4
million in 11 beneficiary SMEs in the UK.
1.10 This compares with a total invested
in 2001 by members of the British Venture Capital Association
(BVCA) in UK high-technology companies of £1,658 million.
Of this, £315 million went into 308 early stage companies.
While the Government welcomes the increased availability of venture
capital, particularly for technology starts the above figures
suggest that the ETF Start-Up Facility is likely to have only
a marginal impact in the UK. There may be additional scope for
the UK to take advantage of EU guarantees for micro-credits and
there have been discussions between the Small Business Service
and the ETF regarding how this might be done in conjunction with
existing national support for Community Development Finance Institutions
2.1 In the evidence originally submitted
to the House of Lords Sub-Committee B, a paragraph on intrapreneurship
was added as the Lords expressed their interest in this subject
when stating the focus of the inquiry. Therefore, the information
was included on this rationale and not due to it being a high
priority for the Department of Trade and Industry.
2.2 The following information seeks to address
the Committee's request for further information on the Government's
stance on intrapreneurship.
2.3 Intrapreneurship is encouraged within
larger companies by giving managers freedom within a defined financial
framework, to run "their" business as they see fit.
In particular, a company may establish a new R&D/business
group with a "free rein" to develop and/or commercialise.
A new product:
A new market (in the geographical
sense, or a novel application for an existing product);
A new route to market (eg e-commerce,
or selling groceries at petrol stations).
2.4 In such circumstances funding will be
provided by the parent company. Such initiatives to renew the
business portfolio are part of any successful company's continuous
push to innovate. They are likely to be commercially sensitive
and not widely publicised.
2.5 The concept of "intrapreneurship"
is too vague, and the processes involved too general to allow
public funds to be specifically earmarked for such a defined activity.
Companies may however receive funding through R&D tax incentives,
or various schemes encouraging pre-competitive research collaboration
with academic institutions.
2.6 Spin-outs leading to truly independent
companies typically occur either as a result of academic researchfor
example the many biotech companies around Oxford and Cambridgeor
because a venture capital provider is willing to finance a management
buy-out from a larger parent which does not see the activity as
fitting into its long term strategy. Such smaller independent
units would be eligible for a range of "incubator" assistance
schemes, and public funds may well have helped to finance early
R&D and product development.
2.7 The Government has also been actively
taking stepsfor example through the establishment of Regional
Venture Capital funds in eight out of nine English regions (with
steps being taken to establish a RVCF in the ninth) to make it
easier for start-up companies to find sources of venture capital
Department of Trade and Industry