Regional Development Agencies and Science

– in the House of Lords at 2:51 pm on 29th April 2004.

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Photo of Lord Patel Lord Patel Crossbench 2:51 pm, 29th April 2004

rose to move, That this House takes note of the report of the Science and Technology Committee on Science and the RDAs: SETting the regional agenda (5th Report, Session 2002–03, HL Paper 140).

Photo of Lord Patel Lord Patel Crossbench

My Lords, I am delighted to be able to present to the House the July 2003 report on Science and the RDAs by the Science and Technology Committee. The committee looked at how to improve, to mutual advantage, the interaction between the recently established regional development agencies—the RDAs of the title—and science, engineering and technology, normally contracted to "SET".

While the committee took account of the longer experience of these matters in Scotland, Wales and Northern Ireland, I should explain that our inquiry concentrated on the nine English agencies which were set up some five years ago. Strictly speaking, only eight of those are RDAs. However, the separately established London Development Agency is essentially the same. My and others' references to RDAs should therefore be understood to include the London body.

Alongside the report, we shall be considering the Government's December 2003 response to the committee's wide-ranging recommendations. Copies of the response are available in the Printed Paper Office, and will be published in a follow-up report after this debate. We shall also need from time to time to refer to the Government's December 2003 innovation report—Competing in the Global Economy: the Innovation Challenge—and the contemporaneous report of the Lambert review of business-university collaboration—which helped inform the innovation report. Both of those reports acknowledge the influence of the committee's recommendations, and I am pleased about that.

I shall also be able to draw on useful material from the RDAs themselves about their actions in the light of the committee's and these other reports. The RDAs have found the report helpful and that is encouraging and pleasing. That material too is available in the Printed Paper Office and will be published in due course.

Before turning to the key points arising from the report and the Government's response, I should like to thank the Select Committee for the honour of chairing the inquiry, and the other members of the sub-committee for making that such an enjoyable experience—most of the time. I am sure that they will join me in thanking the many people who helped us complete our task: those who provided in writing and orally much useful source material, all as published in the 349 pages of the evidence volume accompanying the report; all those involved in a valuable series of visits in England, Scotland and Wales which helped us to understand the position on the ground, as summarised in appendices to the report; our specialist adviser, Dr Marilyn Wedgwood, Pro-Vice-Chancellor of Manchester Metropolitan University, for helping us work through the inquiry's many interrelated strands—her knowledge of RDAs is phenomenal, to say the least. And to our Clerk, Roger Morgan, I give especial thanks as this was his last inquiry, and I, on behalf of the committee, wish him well in his retirement. We were also helped by the Clerk who followed, Christopher Johnson, and the scientific adviser, Jonathan Radcliffe. I thank them, too.

No modern economy can be successful without innovation. Much of that innovation is technological, involving the application and exploitation of SET. The English structures for encouraging innovation as a driver of economic growth were substantially changed in the late 1990s with the introduction of RDAs. The starting point of our inquiry was the effect this explicitly regional perspective is having on the national SET base.

I think it is fair to say that at least some sub-committee members started by doubting that the apparent fragmentation of influences on the national SET base could be beneficial. However, we were quickly won over by what we heard and, during our various visits, saw on the ground. RDAs' activities at the interface between economic development and SET can, when properly focused, be a potent force for good.

While the energy and enthusiasm of RDAs' board members and staff cannot be faulted, our emerging concern was that the framework within which they were required to operate meant that their activities were not always focused on the right things. To allow RDAs to focus their activities better, with consequent benefits to regional and national economies, we saw the main needs as greater coherence, longer-term perspectives and reduced bureaucracy.

To that end, the committee made 19 recommendations, addressed to the Government and others. These arise at various points in our report, but are, for convenience, collected together on pages 8 to 10. I will briefly outline the key points, and comment on them further in the light of the Government's response.

However, on a general point, it is a little disappointing that the Government's formal response deals only with the report's individual recommendations. Most Select Committee reports are more than the sum of their specific recommendations. They normally also represent a committee's considered reflection on a particular issue or area of policy. The response provides no introductory section giving the Government's overview of the role and future of the RDAs. It is therefore difficult to infer the Government's overview from the response, or to glean this from the various references in last December's innovation report.

I hope that the Minister, when replying to this debate, in order to set the context for his more detailed points, will be able to give a brief overview on the lines I have indicated. In particular, I would welcome his assurance that the Government plan to involve RDAs as vital partners in developing arrangements for the exploitation of SET.

Turning to the committee's detailed recommendations, we found that the principal handicap for the RDAs—and others—was the absence of coherent policies for the exploitation of SET. Accordingly, our key recommendation—at sub-paragraph (a) on page 8—was that the Government should involve relevant national and regional players in urgently devising and implementing a national policy and strategy for SET exploitation that truly integrates national and regional perspectives. I am pleased that the Government's response fully recognises the importance of filling this major gap. It mentions various activities towards this end, and I wonder if the Minister is able to update the House on the progress made and the timetable for completion.

At the operational level, we recommended at sub-paragraph (b) the establishment of a forum to enable national and regional interests to address the impact of and synergy between national and regional SET investments and, as far as possible, harmonise them. The Government's response states their belief that the Steering Group for the Research Councils and RDAs will fulfil this task. My fear is that this body may not be at a level involving the right people to resolve the operational issues. What will the Government do to ensure that their expectations for the steering group are realised? Are there any incentives for the stakeholders more actively to strive for the highly desirable national/regional synergy?

Several regions made strong representations about the mismatch between the Government's emphasis on regional development and reluctance to increase their R&D funding outside the South East in areas that are far from scientific deserts. We illustrated this with 1999 figures, the latest year for which full data were available at the time. Our recommendation at sub-paragraph (c) on page 8 was that the Government should urgently publish the latest possible information about their R&D spend per region and keep this up to date as a performance measure of support for regional economies through nationally-provided SET.

The Government's comment that regions' success in attracting others' R&D funding might be more relevant—and we accepted its value as a regional performance measure at sub-paragraph (f)—I thought missed the point of our recommendation. However, I appreciate that there are more recent data for government R&D spend per region. Can the Minister again say whether later figures show any proportionate increase for regions outside the South East?

Our final recommendation relating to overall coherence—in sub-paragraph (d) on page 8—addressed the need for an analysis of the complex issues in the demand for and supply of SET, better to inform future policies on SET exploitation. The Government's response acknowledges that the thrust of the recommendation was on target, but I should be grateful if the Minister could say whether the activity outlined in the response is now yielding the necessary results.

I now turn to our recommendations on metrics and bureaucracy. Alongside the absence of coherent policies for the exploitation of SET, we found the other principal handicap for RDAs was the government-set framework within which they were required to operate. As noted in Box 4 on page 21 of our report, RDAs are subject to a bewildering array of performance measures. Although SET is both directly and indirectly relevant to a wide range of RDAs' activities, it is mentioned only peripherally in the definition of the eleventh Tier 2 outcome concerning innovation.

Not only were the wrong things being measured, measurements are made over periods too short to allow necessary longer-term projects to show their worth. Moreover, all that was compounded by bureaucratic demands. RDAs operate under some 1,400 pages of guidance documents which, having been developed at different times and by different limbs of government, contain many ambiguities and contradictions. Accordingly, we made a series of recommendations, at sub-paragraphs (e) to (h) on page 9, about providing RDAs with a simplified and more relevant set of performance measures and reducing their bureaucratic load.

The Government's response notes these as covering similar ground to the National Audit Office's November 2003 report Success in the Regions. Of course, our report in fact predated the NAO's report, but I welcome the indication that the committee's comments will be taken into account in implementing the NAO's recommendations. Is the Minister able to say when he expects that work to be complete?

Specifically on SET, did the Government achieve their indicated target of developing a limited set of innovation indicators by the end of March 2004?

The committee made a number of subsidiary recommendations, addressed principally to RDAs, regional business and higher education interests, about boosting regional capacity and connections on SET-related matters. Time does not permit me to expand on those, although I am pleased to report that RDAs have welcomed these and are tackling them energetically.

There is, however, one particular issue that I should like to highlight before I finish—that of public sector procurement. Small businesses are often the source of the most technologically-innovative products and services. Encouraging their growth is good for the economy and SET base at both regional and national levels. We were concerned to learn that public sector purchasing policies can actively work against such businesses. The committee heard from an Internet company that, solely on the grounds of turnover, was precluded from bidding for a project within its internationally-established competence. Another example was of a small company that could not sell its high-tech equipment needed by the local hospital other than through the German-based preferred contractor.

Accordingly we recommended, at sub-paragraph (p) on page 10, that consideration be given to the case for arrangements such as the USA's small company set aside scheme to help small firms participate in public sector procurements, either directly or as sub-contractors in larger projects. It seemed to us to be a win-win solution: small companies and their regions would benefit from the better opportunities; at the same time, the public sector would benefit from the innovation that is the characteristic of small SET-related businesses.

It is therefore disappointing that the Government rejected this recommendation, particularly as, from the limited steps described in their response to increase the success of smaller businesses in government procurements, they seem to accept that there is a real problem here.

Two reasons are given for the rejection. The first is that such a move would run counter to the Government's objective of basing all public procurement decisions on value for money for the taxpayer. Neither of the examples I gave had anything to do with the price of the product. Even where that is an issue, however, is there not also a broader value for taxpayers' money in helping to develop a vibrant small company sector?

The Government's second objection was conflict with EC and WTO treaty obligations. However, they have presumably not stood in the way of the present limited initiatives. Can the Government really not explore whether any further elbow room might be available?

I have covered most of the recommendations and I hope that my colleagues on the committee will cover the others. I am aware of the time. I look forward to hearing the views of my colleagues on the committee and to the Minister's reply.

I conclude by observing that, as the relatively new RDAs have paid attention to the role of SET in their economic strategies, weaknesses and opportunities have become apparent in the structures intended to encourage and support SET-based economic development. While some of those weaknesses are matters of process, others are consequences of a deep-seated lack of coherence in the various policy levers. For the good of regional and national economies, all those weaknesses need urgently to be redressed. As indicated in the title of our report, SET needs to be an explicit and integral part of the regional agenda. Securing this now will help ensure our national prosperity in the increasingly challenging years to come. I beg to move.

Moved, That the House takes note of the report of the Science and Technology Committee on Science and the RDAs: SETting the regional agenda (5th Report, Session 2002–03, HL Paper 140).—(Lord Patel.)

Photo of Lord Mitchell Lord Mitchell Labour 3:09 pm, 29th April 2004

My Lords, I thank the noble Lord, Lord Patel, for introducing the debate. The noble Lord was an inspirational and incisive chairman who kept us on the straight and narrow. We travelled to many places in the UK, but I have to admit some disappointment that the noble Lord was not able to get us to visit Dundee. I also have to thank the noble Lord because it was he who co-opted me onto the sub-committee for microprocessors during the next 20 years, which has led to me being on the Select Committee on Science and Technology itself, a role and a position for which I am truly grateful.

I thank Marilyn Wedgwood, our special adviser. As the noble Lord said, she has a phenomenal knowledge of RDAs, and she too was able to guide us through a difficult period of understanding how the various RDAs operate. I have to thank twice over our Clerk, Roger Morgan, for his superb work. I omitted to thank him when we had the debate on microprocessors.

We have produced a jolly good report. I hope that those people who read it, particularly in the DTI but also elsewhere throughout the country, will take notice of what we have to say. We have made some powerful recommendations.

To be frank, I was left with a series of worries about the report itself. The first was whether we were looking at RDAs too early into their life. Many of them had been going for less than five years, and I wondered if that really was the period when we should be looking at them and seeing how they were doing. Sometimes I had the feeling that we were digging up the plants to see how they were growing. Perhaps we should look at the subject again in three or four years' time. How well are they doing? Well, I am not sure. The jury is out on this, but we certainly saw some encouraging aspects.

My other, perhaps more important, worry about the RDAs concerns how the RDAs themselves operate. I had this feeling that no sooner had they been incorporated than the normal corporatist trappings were being put into the way that they operate. The good and the great were associated with the RDAs: the directors of the public companies, the professors, the knights of the realm. But where were the entrepreneurs? Where were the real customers? We did not see very many of those, and I think that is a great pity. We went to a sumptuous dinner at the splendid offices of the Royal Society in Edinburgh. We had a superb lunch at AstraZeneca in Macclesfield. Speaking frankly, I would have preferred to have gone to the pub with the entrepreneurs in their t-shirts and jeans, and to have shot the breeze with them.

I have this overwhelming worry that the RDAs have become too posh, too grand and too out of touch, and I hope that they keep close to their prime customers, the entrepreneurs and the people who are in the regions. The job of the RDAs is to create the correct environment. It is not necessarily to back winners, and they must become accessible and not remote from the population.

The prime job, I suppose, of an RDA is to generate regional growth and regeneration, but at the moment that is actually happening before our eyes. In our major regional cities which, 10 or 15 years ago, were almost beyond hope, we are seeing some tremendous growth occurring. I think of Manchester, Leeds and Glasgow. Leeds is now a major financial centre in this country. There was an article in the Economist this week that indicated that, for the first time, more people are moving north than are moving south. House prices, as most noble Lords will know, are rising faster in the North than they are in the South. There are economic reasons that propel regional growth. It may even be said that things people might not think are important, such as the Commonwealth Games being in Manchester, or Liverpool being awarded the European Capital of Culture for 2008, actually are important, because they all demonstrate that the regional areas are nice places to live, and they will attract the key people and the key investments that we need in these areas. It is said that while 39 per cent of Newcastle University graduates used to stay within that region after they graduated, that figure is now close to half—another positive move. So the RDAs are not pushing against a closed door. The moves are going in that direction, the regions are becoming much more attractive, and it makes the job the RDAs are doing all the more important.

It has to be said that one of the reasons why many of our deprived areas are doing well, the North in particular, is the strong economy in this country. I know it is the usual mantra that will be heard from these Benches, but the facts are true: the lowest unemployment, the lowest inflation and low interest rates. Indeed, a smile crossed my face just the other day to read that the inflation rate is dangerously close to 1 per cent, a point at which the Governor of the Bank of England has to write to the Chancellor explaining why inflation is low. I think that is all good news. We can scoff, if we like, at boom and bust—and I know people do—but stability and steady growth are absolutely key to regeneration, and they bring their own reward. To quote a phrase, "when the tide comes in, all boats rise", and I think that is what we are seeing in the north of the country.

One of the recommendations we make in the report concerns the funding gap. It is a perennial issue that has been discussed certainly as long as I have been involved in economics. The venture capital community in this country has revolutionised investment in the UK, but there are still problems, and so there are roles for the regional development authorities. There are not many angels around who make seed investments. That is a job for institutions, whether it is the University Challenge Fund, or any other body that is supported by the RDAs. But I have found from my own experience that venture capitalists are not really interested in investments of less than £5 million. It is too costly, it takes up too much time, and, who knows, it may be too risky as well. That is something we saw when we were in Silicon Valley on the microprocessor investigation. So it is important that the RDAs are able to fund this gap. How does my noble friend the Minister, who I know has an interest in this area beyond most people, see this issue and what changes are being made with respect to funding the investment gap below £5 million.

I want to draw attention to one recommendation. The noble Lord, Lord Patel, mentioned the small company set-aside scheme, which relies on the importance of government spending on pump priming with regard to small companies. Once more, in Silicon Valley, we saw the benefit. The US Government use their spending money to give a leg-up to small companies. It is hard for such companies to get government funds—they do not know who to go to, they cannot fill out the reports, they do not have the infrastructure. We recommended in our report that the DTI should emulate US small company set-aside schemes. So I should like to ask the Minister a difficult question that I think he needs to answer.

This country is spending probably £10 billion on IT infrastructure investments—in the NHS, Defra and the Ministry of Defence—but I do not see any directive in that spending to support small companies. I should like to know why that is. I have heard the reasons, but I cannot believe them. The first is that when one tenders, Europe insists on pan-European Union tendering, and somehow the small companies do not fit in on that. The second is that all governments have had a lamentable history on major projects in the IT sector that have gone wrong, and if small companies are brought in the risk will be increased. Somehow it is felt that we cannot fail again with the NHS, the MoD, and so on. Frankly, I find this all a little lame. We have got to be much bolder in what we do, and we must insist that large companies involve small companies in tendering.

Finally, we have heard about the DTI report on innovation; we have heard about the Lambert report on universities and business; there are various reports from the House of Commons. Is it not possible that these reports could be co-ordinated so that we could bring forward some recommendations that make sense across the board?

Photo of Lord Freeman Lord Freeman Conservative 3:20 pm, 29th April 2004

My Lords, I, too, pay tribute to the noble Lord, Lord Patel, for chairing the Select Committee, on which I was privileged to serve as a co-opted member. The noble Lord's patience, persistence and good humour are quite remarkable. I put it down to his having worked for more than 30 years with real patients in the health sector. For me, a humble accountant, not a scientist, serving on the committee has been a prolonged adult education course, learning more and more about the science base in this country and how government in the public sector can assure that we develop it, as the noble Lord, Lord Mitchell, said, to be one of the most dynamic in the world, at the forefront of events.

I think that the noble Lord, Lord Patel, was being a bit too modest when he said that very soon after the Select Committee's report was published, a number of public sector reports were published. He seemed to imply that these came in parallel. I detect a good deal of influence exerted by the committee and by the report on a number of public sector reports, which I shall mention for the record. The National Audit Office's report, Success in the Regions, was published towards the end of 2003. The Treasury published Bridging the Finance Gap, and the noble Lord, Lord Mitchell, referred, quite rightly, to the funding gap. There was also the DTI's innovation report and, of course, the Lambert review. All four reports drew in some measure—some greater than others—on the work of the committee.

I was impressed by the regional development agencies as we went around the country. The noble Lord, Lord Mitchell, in his typical fresh, invigorating style, said he thought that some of them were "too posh". The further north I went—north of Yorkshire and Humberside, through the north-west, the north-east and Scotland—the more impressed I became, particularly in the north of England, at how hard-working and how directly rooted those agencies were in the business community. I applaud what they have already achieved; I think their individual responses, which I am sure your Lordships will look forward to reading in due course, were very constructive.

I hope that your Lordships will return, as a matter of discipline, to this subject again in two or three years' time. Parliaments have a great habit of writing reports, listening to the government's response and then all the papers get filed away in the Library. As a discipline, we, as parliamentarians, ought to return to the same subject and see what has and has not been achieved, otherwise the collective memory dissipates and our effect is diminished.

The three points I want to deal with have already been touched upon. I support what the noble Lord, Lord Patel, said about bureaucracy and metrics—that is, the measurement of innovation performance and support. Secondly, I want to refer to the funding gap and the success that universities have in spinning out high technology, with or without the support of regional development agencies. Finally, I should like to say a word on the valuable recommendation made in the report about the relationships between universities and the regional development agencies.

On bureaucracy and metrics, it was interesting to read in the National Audit Office's report which was published after that of the Select Committee that the NAO said that the DTI must allow maximum delegation—that is, delegation of responsibility to the regional development agencies. It said that the DTI,

"must give the Agencies freedom to derive maximum benefit from their private sector leadership and regional knowledge".

Those, I believe, are very wise words.

My noble friend Lord Wade and the noble Lord, Lord Thomas—whom it is very nice to see in his place—both have a very deep knowledge of the work of the Northwest Development Agency, to which I pay tribute. In the agencies' response to the Government's report, they raised a very interesting point. They said that they believed that a wider approach to reducing bureaucracy should initially be dealt with at RDA chair and government Minister level. If the Minister could share his valuable experience and much appreciated work with the chairmen of the nine English RDAs, that would be much appreciated. Those discussions will surely complement what the noble Lord, Lord Patel, was talking about—the introduction by March this year of performance indicators for the support of innovation.

The noble Lord, Lord Mitchell, talked about the funding gap. Clearly there has been a problem in funding new start-up technology companies, particularly in the bracket which the noble Lord referred to—between £250,000 and £500,000 and up to about £5 million, for reasons which he spelt out very clearly. That problem is both cyclical and structural. The Government are seeking to alleviate that problem. My understanding is that detailed bidding guidance was going to be given by the spring of this year on how companies can bid for what is described as a pathfinder round of new enterprise capital funds. I am not sure whether that guidance has been issued by Her Majesty's Treasury or the DTI. Such funds are set up to support the growth of small companies which might have been started up inside or outside university with debt finance coming from the Government to support equity raised locally or nationally. That is modelled on the United States Small Business Investment Corporation. I am sure that many of your Lordships will have welcomed that initiative and the announcement when it was made in December last year, but we want to see some progress.

The only point I would add to what the noble Lord, Lord Mitchell, said is that in addition to the funding gap, I think there is an entrepreneurial gap. It is very difficult for academics to make that transition from university to the tough world of making money to understand how an idea is translated into a profitable company and how an idea or invention is turned into a product that is needed by the world economy. The regional development agencies have a big role to play because they are rooted in the business community and the advice that they can give to universities in particular is much appreciated and necessary.

My final point is to do with recommendation (r) and the need for greater co-operation between universities and the regional development agencies in strategic working. Universities should co-operate more, in my humble judgment, on a regional basis, in interfacing with the relevant RDA. The RDA can identify the industrial demand—what clusters of specialisation of industrial knowledge exist in the region and what, therefore, is needed in terms of support, not only from the universities within that region but also nationally. I greatly welcome the setting up of science and industry councils by the RDAs and their participation in them.

The Lambert review referred to the DTI needing to shift its pattern of regional support from projects which created jobs to those where there was an opportunity for collaboration between the regional development agencies and universities on important research and development products. It is the research and development as well as the creation of jobs which is very important. Anything the Minister can say on that would be appreciated.

I end by declaring a prospective interest. Along with Dr Kenny Tang and with Mr Ajay Vohora from Nottingham University, I am co-editing a book to be published this autumn on this very subject—the development of spin-outs from universities and how the local business community can succour and support them. In advance, I thank the Minister very warmly for having agreed to write a foreword to the book.

Photo of Lord Methuen Lord Methuen Liberal Democrat 3:30 pm, 29th April 2004

My Lords, I too thank the noble Lord, Lord Patel, for introducing this debate on our report on science and the RDAs. He was an able chairman and we would not have achieved what we did without his help. It was an interesting inquiry. We much benefited also from the experience of the noble Lord, Lord Thomas of Macclesfield, whom I am glad to see in his place. His experience as a sometime chairman of the North West RDA was absolutely invaluable to us. We would also have been lost without the expertise of our specialist adviser, Dr Marilyn Wedgwood, and the support of our clerk, Roger Morgan. Roger came into the House when I was sitting on EU Sub-Committee B. Between us, he and I contributed to no fewer than four reports to the House. We also represented the House at the Eureka conferences on three occasions. We had extensive meetings around the country, and were able to view the practical aspects of what had been achieved, not only in England, but also in Scotland and Wales.

Those visits brought home to me the disparate nature of the problems with which an RDA is faced. Let us take Advantage West Midlands as an example. Not only does it have the benefit of the leading universities of Birmingham, Aston, Warwick and Keele on its doorstep, but also the run-down industrial areas of the Black Country, with substantial ethnic minorities and unemployment. It has the diminishing ceramics industry in the Potteries, and the rural areas of Herefordshire and Shropshire. Similar circumstances apply for many RDAs, though perhaps less so in the south-east of England. That disparity requires different solutions to promote growth in the various parts of the region. One size does not fit all. A typical solution for rural areas is the enabling of broadband communications for the benefit of both private and commercial users. The RDAs can promulgate that.

The RDAs are a comparatively new creation and there was a substantial learning curve before they began to be effective in promoting science, engineering and technology in their regions. That was in part due to the lack of staff suitably qualified to promote SET, although that situation is now being rectified.

When we were in Newcastle, we had a meeting with the North East Science and Industry Council, which comprised local people who had the relevant scientific and industrial experience and who were committed to their region's future. Such councils have a central role to play in helping to steer the region's regeneration. That point was reinforced by the Government's response to conclusion (k) in our report.

However, the regions do not operate in isolation. They must form part of a national agenda. Cross-regional co-operation and co-ordination are vital and they are occurring. Correspondingly, the regions' relationship with the research councils needs to be optimised. The formation of the steering group for the research councils and the RDAs, as mentioned in the Government's innovation report, will go some way to meeting that necessity. However, I suggest that it needs to meet more than the once a year, which I understand to be the current proposal.

I shall emphasise some other local issues. The RDA has a vital role to play in ensuring that the regional education system, at all levels, produces people with the requisite skills for the regions' industries, particularly for the high-tech industries that are now emerging. We must also remember that we need the craft skills such as those produced by the Modern Apprenticeship Scheme; that is, we need a well balanced and well trained workforce. Those people will need employment in the region. It worries me that the start-up and university spin-off companies may achieve only a fraction of what is actually required, particularly in the regions of our old heavy industry—the north-west and the north-east. Thousands of jobs have been lost there in mining and the heavy industries, yet the new start-ups and spin-offs are providing only tens of jobs each. The arithmetic does not add up.

The regions can however maximise opportunities by providing premises for start-up companies and expert professional help during their initial years of operation. It has been remarked that many people in university start-up companies are essentially boffins and do not have the business expertise to do the job. Bureaucracy at the start-up stage needs to be minimised. We received several comments that the RDAs were too bureaucratic and too slow to respond at those early stages.

The RDAs should have a greater responsibility for identifying transport priorities and producing a regional transport strategy that covers both passenger and freight carriage by road and rail. Discussions with various RDAs suggested that central government took insufficient notice of an RDA's transport requirements; particularly for rail. A recent Commons Written Answer to Mr Philip Hammond MP stated that the powers of RDAs or regional assemblies—when they come into existence—would be limited to making proposals for schemes of regional importance to the Highways Authority or the NRA. It was emphasised to us that transport is vital to regional regeneration and the promulgation of science and technology. More note should be taken of an RDA's or a regional assembly's concerns to enable it to meet its objectives.

I am glad to see that the Government's response to our report indicates that they have taken some notice of our conclusions. I look forward to the Minister's comments.

Photo of Baroness Finlay of Llandaff Baroness Finlay of Llandaff Crossbench 3:36 pm, 29th April 2004

My Lords, I too thank the noble Lord, Lord Patel, for his chairmanship of an enjoyable and interesting inquiry. I declare an interest as I hold a university position in Cardiff. I had the honour of serving on the inquiry into science and RDAs and learnt much in the process.

The Welsh Development Agency welcomed a visit from the inquiry team. The agency explained how it promotes enterprise in conjunction with universities in Wales. I hope to illustrate how the WDA has worked towards the "five Cs" recommended by our report: coherence; connectivity; co-ordination; communication; and co-operation. Our report recommended that they should apply also to the English RDAs.

The Welsh Development Agency was established in 1976. Unlike the new English RDAs, it therefore has long experience of trying to serve the people of Wales by stimulating businesses to grow in vibrant communities and to become more competitive. It has been involved in community regeneration across Wales during the decline of traditional industries, being aware that only successful businesses could create the prosperity needed. Most Welsh companies were fairly small and unable to commit large sums to corporate research and development. Although the WDA played a role in supporting science, technology and innovation since the early 1990s, that activity increased considerably following the development of the Wales Regional Technology Plan in 1996. It is now a major strategic activity.

Since devolution, a close working relationship has been established at ministerial and official level between the WDA and the Assembly, especially with its Economic Development Committee. The Assembly's national economic development strategy, A Winning Wales, outlined the WDA's framework, identifying developments that are key to the future prosperity of Wales, such as the Innovation Action Plan. The WDA's board is private-sector led and it meets formally with the economic development Minister at least twice a year. It has adopted a "Team Wales" approach to bring together partners from academic institutions, the Higher Education Funding Council for Wales, local authorities, private sector providers and the Welsh Assembly government.

In Wales, the human dimension of personal networks, short lines of decision-making and responsiveness are particularly helpful drivers to a knowledge-based economy in an increasingly competitive world. Partnerships between public bodies and the private and voluntary sectors are assisted by Wales being, as Roger Jones, Chairman of the WDA described, "a two-telephone call economy". If you phone someone about a problem and they cannot give an answer, they will tell you whom to phone to get the answer. Most things in Wales are therefore two phone calls away.

Against that background, strategic links between the WDA and the university sector have developed for the benefit of all. For example, Cardiff University, which is a Russell Group member, has doubled its research income in the past four years.

The WDA supports applied and collaborative research and outreach to businesses through its Centres of Excellence for Technology and Industrial Collaboration programme, or CETIC. Six of these centres are hosted by Cardiff University, and the funding provided by the WDA enables the university to appoint commercial managers to work at the interface between industry and the academic research teams.

The WDA has been key to the development of strategic all-Wales initiatives based on a critical mass of high-quality research, such as the Wales Gene Park, which is one of the UK's genetic knowledge parks. The Wales Gene Park programme is led by Cardiff University, with links to other universities in Wales, and the university continues to work with the WDA towards developing the next phase of the Wales Gene Park, which will include a physical infrastructure. The Cardiff Institute of Tissue Repair is another example of the WDA being a catalyst for collaborative developments.

Cardiff University hosts one of the nodes of the UK Grid: the Welsh e-Science Centre. Through financial support from the WDA's Wales Information Society initiative, the Welsh e-Science Centre has been able to appoint specialist staff to bring the benefits of the grid to industry in Wales.

The WDA organises showcase events for Welsh R&D technologies, such as the BioWales and Technology Wales events. I went to BioWales 2004 last month. It is ground-level networking and enhances innovation, bringing together people with ideas and those who are able to put those ideas into practice.

The quarterly publication Advances Wales highlights new science and technology from academic institutions, and companies undertaking R&D in Wales. The journal always features articles from the university sector and is distributed widely in Wales and beyond, and through the WDA's offices overseas.

The WDA "field-force", the technology and innovation team, comprises some 65 staff who work closely with businesses. It includes 16 innovation and technology counsellors based across Wales, in Cardiff, Treforest, Swansea, Aberystwyth, Newtown and St Asaph, and also commercial managers in 20 Welsh institutions. The staff individually play an important role in alerting businesses to the expertise and specialised facilities available in our academic institutions, and in bringing opportunities for collaboration to the universities.

The WDA has financially supported academics attending international conferences and trade fairs, to facilitate international research collaborations and technology marketing, and has placed students with industry and businesses to form strategic partnerships. It has collaborated with neighbouring English RDAs where there are areas of common interest, such as with the north-west in aerospace development.

The WDA has also worked closely with universities in developing and funding the Wales Spinout Programme, to support the establishment of new enterprises from Welsh universities and colleges. Through this programme alone, which is now managed by the WDA subsidiary Finance Wales, Cardiff University has created 11 spinout companies since the scheme was launched in 2000. The Wales Spinout Programme works especially well in tandem with the Treasury and Wellcome Trust-funded University Challenge Seed Fund at Cardiff University.

The Technium concept is the brainchild of the WDA and Swansea University. The WDA-managed site provides administrative support and business advice to start-ups and spin-off enterprises as short-term tenants who can then move on as their business grows. Technium is now being rolled out across Wales as cluster-related developments. The optoelectronics sector development, OpTIC Technium, has developed in north Wales, where 40 per cent of the UK optoelectronics capacity is based. The Centre for Advanced Software Technologies was also developed in north Wales, with Objective 1 funding, and the Technium concept is now at the centre of Welsh economic development strategy.

The problems of metrics alluded to in the report have been addressed in Wales, as they need to be addressed everywhere. This is about measuring performance, and was highlighted by our inquiry because GDP and job creation are crude markers of success. Metrics are the subject of collaborative research between the WDA and Cardiff Business School.

Forgive me for continuing to talk about Wales, but this is just a taste of what the WDA has done over the years, to try to find locally relevant solutions to national and international development problems. I am confident that a warm welcome to the inquiry came from the confidence of experience over time and the history of having made a very positive difference to Wales. To use the analogy of the noble Lord, Lord Mitchell, I personally believe that the WDA has taken root, and when we went to visit it we were not digging it up to see what was happening to its roots. I hope that the new RDAs can draw on the Welsh experience.

Photo of Lord Thomas of Macclesfield Lord Thomas of Macclesfield Labour 3:45 pm, 29th April 2004

My Lords, I thank the noble Lord, Lord Patel, for providing the opportunity for this debate. When I first met him, the proposed timescale was six months and that frightened the life out of me, because I knew how long it would take me to assess all the ideas about RDAs. However, we did it, although we could have overrun and still hit the target. I would certainly like to thank the special adviser as well because, like the noble Lord, Lord Patel, she taught me in four weeks what would have taken me four years to learn.

I should immediately declare I was not only a co-opted member of this committee but, from 1999 to 2003, I was chairman of the North-West Development Agency. This debate follows a list of complementary reports on RDA operations and involves, for example, reducing the growth rates between regions; the future of higher education, in as much as it involves RDAs; and the provision of support to industries and business—all set up by the House of Commons. Our report predated those later reports, and it is interesting to note that, in general, they confirm our views and conclusions.

There are 350 pages of evidence, but I would like to concentrate on just one indisputable fact when it comes to research and development. It is on page 192 of the evidence, in case anybody wants to check it out. The north-west has the third largest expenditure by private business on research and development, beaten only by the south-east and eastern regions. In stark contrast, it has the third lowest public expenditure on research and development of any region except the north-east and Yorkshire and Humberside, which are the comparable regions in the north. Why is that true, and continue to be true? Does the private sector waste money in the northern regions, I ask myself? Or have we not invested sufficient resources in our northern universities?

If that was true, how would we explain that the splitting of the atom, or the facility to random access computer memory, were invented in our Manchester University, to name just two examples? But these two examples changed the world as we know it. The importance of splitting the atom is self-evident, but RAM—random access memory—gave us what we today call computers, and was invented as recently as the 1950s. Without computers, much of the world would not be able to operate as it does now. It appears to me, and to many others, to be an example of academics' and civil servants' preference for universities in the south-east or eastern regions, with many of those civil servants and academics being trained by those universities, and now living in the south-east. Only government can change the distribution of public sector investment, and they should not be put off by the self-serving claims that it is all based on peer groups views on excellence. Only recently, a couple of university professors in Manchester came to me, trying to raise money for what will be a global breakthrough in medicine. They were told that if they moved south, into the "golden triangle", funding would be no problem. I am glad to say they are not going to move, and their launch will be this autumn; it will be, yet again, of global significance.

We in the North-West Development Agency pioneered the setting up of Science Council, led by Tom McKillop of AstraZeneca, and including leading scientists and industrialists from diverse groups such as the National Health Service, BAe, Pilkingtons, Unilever, AstraZeneca, BNFL and many others. At no cost to the public purse, they provide those services free, and they are very busy men and women. Such science councils are being replicated elsewhere.

We were told that science, engineering and technology in business clusters are the way forward for improving the region's GNP, and, moreover, that the DTI has all the necessary expertise in those areas. Accepting that the private sector apparently knew nothing about those areas of expertise, we asked for some of these people from DTI to be seconded to the regions. As recorded in our evidence, the DTI needed both notice of that question and time to reply. As far as I know, however, no one with such alleged experience was ever seconded to any of the nine regions of England between 1999 and 2003. I understand that that is still the position.

Only the Government can change the Civil Service's reluctance to change attitudes on regional issues, particularly within the DTI. MORI published a report on a national study of stakeholders' views on RDAs, commissioned by the DTI after RDAs had been operating for four years. The study addressed various issues. I have all the statistics but I shall not bore the House by providing them; but some are very relevant. To the question, "How would you rate the performance of your individual RDA compared with the government office in your region?", 51 per cent thought the RDAs were better and only 9 per cent thought them worse. To the question, "How do you compare that with the local authorities in your region?", 42 per cent thought the RDAs better and only 16 per cent thought them worse. To the question, "How do they compare with all other organisations providing funding and investment?", 52 per cent thought them better and 11 per cent thought them worse. To the question on European funding—which is there for all RDAs to grab; this was the clincher in terms of funding—60 per cent thought the RDAs better, but 72 per cent thought that the North-West Development Agency was better.

Forgive me for bringing to your Lordships' attention the fact that MORI described the north-west of England as the most successful of the nine English regions in those four formative years. The Select Committee was unsure about the new RDAs, and just five years ago the Conservative Party was totally opposed to their formation. However, the results speak for themselves.

My conversion on the road to Damascus happened for two reasons. First, I got to know the industrialists and scientists who live in the great north-west, where 7 million people live. Although I had already been aware of it, I was again impressed by their intellectual input and commitment to the north-west. If we ever have a regional assembly, it will incorporate the RDAs and the private sector boards that make up the RDAs. It will have sole responsibility for economic development in our region. Although I know that some of my friends in the House will disagree with me on this issue, it is a fundamental point for me. I also have a lot of experience of the power and contacts of such boards. They have always given us excellent advice.

The previous speaker dealt with the Welsh experience. As a banker for 40 years I learned that, on development agencies, the Scots were way ahead of everyone else. However, when they were given a Parliament they did away with their development agency after which politicians dealt with those matters. The Welsh took a different line by embracing the private sector and all the knowledge of that sector. As your Lordships can probably tell from my accent, I am very pleased to see that the Welsh RDA is doing wonderful work.

Many people of Conservative views have been converted on RDAs. However, Damascus is a long way off for the DTI in Whitehall. We know where the policy is pinching. RDAs have never taken anything from local authorities, but their budgets and powers are continuing to come from Whitehall thanks to the effective support of the Deputy Prime Minister and the Chancellor of the Exchequer.

Photo of Lord Wade of Chorlton Lord Wade of Chorlton Conservative 3:55 pm, 29th April 2004

My Lords, it is a great pleasure to follow the noble Lord, Lord Thomas. I am delighted that he has been able to join us today and to give me the opportunity to congratulate him on the excellent job he did as chairman of the North West Regional Development Agency. He established it in great style. I hope that it has been able to continue in that direction. I agree with him that it is terribly important that it is business led and that all the development agencies are business led. Whatever changes the Government may decide to bring to the regions, I hope to God that they do not change that very important fact.

I join other noble Lords in expressing our pleasure in working under our chairman, the noble Lord, Lord Patel. One of the great pleasures of being part of this great establishment is to sit on Select Committees. It is always a great pleasure to meet and work with different Select Committee chairmen. The noble Lord brought his great charm and drive to a most enjoyable and, I thought, very effective Select Committee.

My noble colleagues have dealt with a lot of the detail of the report, which I fully endorse. I shall therefore make a more general point.

In the 1970s and 1980s I was in the food export business. As a major supplier of British foods to the United States I was a member of the United States Cheese and Deli Association which brought together all those involved in that fascinating industry. On one occasion I went to the annual meeting which took place in Loews Hotel, in Dallas. We were given a major address by the then chairman of Federated Foods, an enormous conglomerate in the United States. At the appropriate time we all gathered in a vast auditorium—there were many thousands; it is an enormous industry in America—and waited for the speaker. While we waited, soft music played. A very seductive voice said, "Move forward. Move forward". So we were all ready for something very exciting. Finally, the curtains parted and on to the stage drove an enormous open-topped white Cadillac. Fastened to its front were the horns of an enormous beast. Out of it stepped a little fat man in a white suit. It was he. He walked to the front of the stage and said, "Always question the status quo". I have remembered that very clearly, as I was intended to do, ever since.

To question the status quo means innovation. It is the key to many successful businesses. It is the key to financial growth. It is the key to the growing economy and the extra wealth of our nation. It is brought about by science, engineering, technology and their application in business.

Such wealth creation is the reason why RDAs were set up in the first place. They were set up to ensure that each region of the United Kingdom could achieve the highest regional growth levels in the whole of Europe. To achieve that, there would have to be a higher growth rate in the north-west and other regions than there was in some of our wealthier regions. That could happen only by driving businesses to their limits and creating as much enthusiasm and ability in businesses as possible. That entails an understanding and knowledge at the local level. It is in small entrepreneurial businesses that the great innovation occurs that leads to benefits for products and consumers.

The message that came to me as we went through the evidence and discussed the various issues with the RDAs themselves and with all the various businesses and organisations that gave evidence to us was that the Government agreed and wanted to see growth in the regions but did not quite understand how to do it.

I was interested to receive yesterday a paper that has been brought out by the DTI in conjunction with the Treasury and Department for Education and Skills called Science and innovation: working towards a ten-year investment framework. They put down the problems and ask some questions, one of which is:

"How can the Government and the Regional Development Agencies and their equivalents in the Devolved Administrations help integrate funding of science research on a predominantly national basis with development and delivery of regional economic strategies? In particular how can Government and RDAs strengthen partnership working to facilitate more effective knowledge transfer and research collaboration?"

The first thing they could do would be to read our report, which would go a long way to explaining the answers. The key is talking at the right level, and giving authority at the right level.

As I listened again to the evidence, it occurred to me that there was too wide a misunderstanding between the power and the influence that the RDAs could bring about, and those in central government who wanted to achieve something but were not close enough to the operators to make it happen. If we want to achieve what both the Government and the RDAs want to achieve, they must give the RDAs more power to get on with things.

They should understand that innovation is not a one-off development that can be created, but is a continuous process; and that, while something might be innovative one year, there could be something entirely different that needs to be innovative the following year. That means that they have to be close enough to the various industries involved in these changes to see how the policy can be changed and new ideas introduced in order to encourage development and to be influential and definite at the local level.

Far too much regulation was placed on the RDAs and there were far too many frameworks for fitting in with government policy. These were not flexible enough and could not be adjusted at the local level in response to these changing needs.

I hope the Government will ensure that our report is not just read and dismissed, but read, considered and acted upon. I hope they will understand that the power of the RDAs to change so much of what they want to see happen—and what needs to happen for our economy to grow—lies in that advice. Let them get on with it; encourage new ideas; give them the resources; and ensure that by monitoring effectively over a period of time we can see more innovative and exciting business developments that are going to be the key to our success.

Photo of Lord Oxburgh Lord Oxburgh Crossbench 4:03 pm, 29th April 2004

My Lords, I add my thanks to my noble friend Lord Patel for his wisdom and skill in guiding this inquiry through to a successful conclusion. I, too, wish to add my thanks to our special adviser, Dr Marilyn Wedgwood and to our clerk, Dr Roger Morgan.

Duly respecting devolved authority, the inquiry was restricted to the English regions. However, we made very valuable visits to Scotland and Wales to learn from their experience. To ensure total impartiality, we selected our chairman from Scotland.

I must confess that before this inquiry got under way and we started visiting the RDAs, I was not entirely clear how they might play an effective role in the support and promotion of science and technology. But having seen first hand some examples of their work and visited them, I am converted and am an enthusiastic supporter.

Arguably the most important single institution that any region that believes in exploiting its science and technology base can have is a science council. An effective science council can provide a forum in which representatives of all those in the region with an interest in science and technology—whether from industry, commerce, SMEs or universities—are able to meet each other and devise a science strategy for the region.

At the very least this may provide an opportunity for all to know what research and development is going on in the region, what particular needs exist, and what specialist facilities are available. More optimistically, it may offer the opportunity for the pooling of resources and possibly for preparing collaborative applications for funding to external organisations such as central government or the EU. It can make the region aware of opportunities to strengthen the regional science base to the advantage of local industry.

An excellent example of this was the decision of the North West RDA to provide some tens of millions of pounds to facilitate the merger between the University of Manchester and UMIST. In doing so it acquired for the region what must become one of the most formidable universities in the country, extremely strong in a number of important areas of science and engineering.

The same authority saw advantage in putting money into the famous Jodrell Bank radio telescope, recognising that this historic instrument was not only able to attract able scientists to the area but was also an important tourist attraction.

Although there is scope for many different ways of operating science councils and achieving the desired objectives, it appeared to us that a particularly effective model was one in which the council stood alongside the official RDA structure and was business led, but received some infrastructural support such as a secretariat from the RDA. We saw advantage in the science council being able to offer independent advice to the RDA but without the danger of being stifled by possible RDA bureaucracy.

It was a disappointment to us to see that the research councils found it difficult to interact with the RDAs. Occasional meetings do take place, but we got the feeling that their function was rather for the councils to announce from above to the RDAs what they had decided to do, rather than to enter into a constructive discussion.

From time to time the research councils have to make decisions about the location of particular research facilities or research centres. Sometimes there are very compelling scientific reasons why these should be located in a particular place, but on other occasions there may be several equally attractive sites. Given that such facilities invariably feel that they need more money than is provided for them, partnerships with a particular RDA that had a special interest and was prepared to provide a site or a building could offer advantage to both the council and the region. I personally feel that this is an opportunity that the research councils are missing.

Although we came across great enthusiasm and a great deal of imagination, one could not escape the impression that some of the RDAs were in the losing game of picking winners when it came to selecting areas of technology that the region wished to promote. The trouble was that time and time again we saw the same winners picked: biotechnology, microelectronics, IT systems and so on, rather than looking for local niche opportunities. Experience shows that identifying and backing bright and energetic individuals is the way to optimise chances of success. To be fair, we did see examples of this where the regions were providing advice and inexpensive start-up incubator units in which new businesses spend their vulnerable years. In passing we discovered that one of the performance indicators used by the DTI in assessing the performance of RDAs was the number of new businesses started. Going forward, it would be much more informative to count the number that were still in business after five years. A 20 per cent success rate would be rather good.

I have just returned from Singapore, which I visit several times a year as a member of A*star, the Singapore governmental advisory committee on science technology and research. It occurred to me during my return flight that, given the population of Singapore at 3 million indigenous Singaporeans and 1 million residents from abroad, its three universities and various polytechnics and so on, it was about the size of a small English RDA, and I was a member of the Science Council.

The east Midlands region of England has around 4.3 million people. At a guess it has a score of universities and colleges, although it is hard to keep track in these days of multiple mergers. In both Singapore and the East Midlands the spend on R&D is about 2 per cent of the local GDP. Why should Singapore appear to be so successful and prosperous? I do not mean to suggest that the east Midlands is not, but I think that most people would agree that there is a bit of a difference. Why in Singapore is there a superb system of roads, an excellent underground system and a major international airport that is both architecturally and functionally outstanding? Why in Singapore do we see the startling developments of Futuropolis and of Biopolis? The latter is a complex of excellent buildings with state-of-the-art laboratories that are attracting research workers from all over the world. Indeed, I know that the Minister has visited at least some of those facilities in the recent past.

There is no time today to address the question of the success or otherwise of Singapore, but the point I wish to make is that great achievements are possible in a socio-economic-geographical area the size of our English regions. However, I make two observations. It is clear that while the RDAs are enthusiastic about stimulating economic growth in their regions, they feel that they are hampered by external bureaucratic control, whether it be in planning their road systems or other aspects of infrastructure, or, indeed, in being obliged by Whitehall to meet a series of key performance indicators that may have limited relevance to the problems of that particular region. They do not have significant control over essential resources.

The RDAs would perhaps argue that although the research spend in their regions may in some cases be at the same level as that in Singapore, the difference is that they do not control it. In both cases more than half that spend comes from private industry and therefore it is not controlled by the region. However, the big difference is that government research spend is in the case of our RDAs virtually all controlled from outside the region and to a great extent without the needs of the region in mind. That makes an enormous difference. We know that there are very good reasons for some of the issues, but perhaps everything points in the same direction. If the RDAs are expected to stimulate economic growth in their areas, they must have the tools with which to do so. Those that they have at present are insufficient.

Photo of Lord Naseby Lord Naseby Conservative

My Lords, as a former Member of Parliament for the east Midlands, and perhaps speaking for Nottinghamshire, Derbyshire and Northamptonshire, I am not sure that Rolls-Royce, a Derbyshire company, would feel entirely comfortable about the noble Lord's analysis. Indeed, the same might be true in Northamptonshire, where we do not have a company of a similar size to Rolls-Royce.

As vice-chairman of the All-Party Group on Singapore, I am not sure that the noble Lord's analysis stands up in the manner that he suggests. Surely the difference is that Singapore is a unitary state. It is very single-minded under the leadership of a family business, with Lee Kuan Yew, BG Lee and the present incumbent. That leadership is very single-minded on what Singapore is about. East Midlands as a whole does not wish the regional development agency to be particularly successful; the east Midlands is very successful on its own.

Photo of Lord Oxburgh Lord Oxburgh Crossbench

My Lords, I can reassure the noble Lord. I thought that I had made it clear that there was absolutely no reflection on the east Midlands area. Indeed, I endorse his comments about the businesses that he described. However, if he visited Singapore today—I do not know how recent his experience is—he would find it difficult to parallel the focused scientific energy that one finds there. I could not find it anywhere in this country. There is total commitment of the government and the people to get together and achieve something, and I simply say that our regions do not having anything like that. In a way, that was the point that he was making, but that does not mean that we cannot learn from Singapore.

Photo of Baroness Sharp of Guildford Baroness Sharp of Guildford Shadow Minister, Education & Skills 4:16 pm, 29th April 2004

My Lords, I, too, thank the noble Lord, Lord Patel, and the whole Science and Technology Committee for bringing to the House this very timely and good report. When it did so, I was not a member of the committee and I did not benefit from the visits that were made but, in the course of my academic life, I have spent a certain amount of time looking at some of the issues covered by the report. From that standpoint, I would like to make a few comments on the debate and, in winding up on it from these Benches, talk a little about the Liberal Democrats' stance on some of the issues.

The Minister and I were both present yesterday afternoon at a session held by the Institute of Biology that looked at the development of science policy. One issue raised there was that of university/industry links, and there was a very good presentation by Professor Gareth Roberts that looked at how we could measure the issue in the context of the research assessment exercise. In that presentation, he produced the old chestnut from which we all start; namely, that Britain is good at science—by any measurement, we actually come close to the top of the league tables in the production of science—but bad at exploitation. Somewhere or other along the line, we produce the ideas but do not manage to carry them through into new products and processes.

I started to think about what I was going to say in this debate, and I was amused to go back to the Waldegrave report. In 1992, John Major put William Waldegrave—now the noble Lord, Lord Waldegrave—into the Cabinet as the Minister for Science, and it was the first time that we had a Minister for Science since 1963. He took that core question—can we explain why Britain is good at science but bad at exploiting it?—to wide consultation before he brought out his White Paper on science and technology in 1993. Out of the White Paper came the whole exercise of foresight.

If we look at what happened to research and development in the UK between 1992 and 2003, we see that the proportion spent by businesses on it fell from 1.39 per cent of GDP to 1.24 per cent. If we look at the course of that instead of only those two points, we see that the low point was 1997, when the figure was 1.16 per cent. The hope had been that, by involving industry in the foresight exercise—getting industrialists to sit down with scientists and government experts and have a look at different emerging areas—it would be inspired to look to the future, which would help to promote R&D. In spite of that hope, it did not work. Other factors, perhaps macro-economic, had overridden this. Thanks partly to the leadership provided by the Government, we have seen an improvement since 1997. I pay tribute to the work of the Minister in being the champion for science and technology. We have seen a turnaround in that area.

The noble Lord, Lord Patel, is correct in saying that there are new drivers in the system. In the 1990s, work was done on what was wrong with science and technology in this country and on what other countries were doing. There is a recognition that the agenda is moving on from wanting merely national leadership. Many countries are grabbing that leadership from below and moving it on.

In looking through the evidence, I saw a nice piece from our Embassy in the United States on a number of initiatives there and I want to quote the example of Georgia. The initiative in Georgia was taken because it was missing out on development into a high-tech economy. It was stated that in the 1990s,

"The State of Georgia . . . invested $242 million in the alliance . . . through research and development programmes at the six member universities, matched by $65 million in private funds. This investment has helped to attract over $600 million in additional sponsored research. At the heart of the programme has been the luring of 32 'eminent scholars' to chairs at Georgia universities. These scholars serve as a magnet for economic activity, as technology based companies seek to form alliances with the leading scientific talent, often resulting in the location of corporate R&D labs and operations".

That is precisely what we are hoping to achieve in Britain. Not only has Georgia been undertaking this work—it was being undertaken in terms of Silicon Valley, the research triangle in North Carolina, Route 122 at Harvard and, in this country, the Cambridge phenomenon.

The great hope is that we will capture a new dynamism which can drive things forward and the concept of that new dynamism is welcomed by these Benches. We Liberal Democrats believe in constitutional devolution, but we also believe that full devolution cannot be achieved unless there is also economic devolution. The two run side by side and it is important that regional and local authorities have far greater autonomy to make their own decisions.

I am delighted by the degree to which the RDAs are grasping that nettle and I pay tribute to the noble Lord, Lord Thomas of Macclesfield, for the work that the North-West Development Agency has done, for example. However, on autonomy, the development agencies are poor relations to the state of Georgia, to California and to the German Lainder, for example, which are able to do their own thing.

Let us return to the age of entrepreneurship when cities such as Manchester and Birmingham were promoting their new tram and electricity systems and so forth. What did they do? They went out and borrowed that money to invest in assets which bore great fruit for many generations. Can the RDAs invest in such assets? The answer is: no; they have no such discretion.

I was very struck by the statement that came from the North-West Development Agency. One general conclusion that emerged from the discussion was:

"Whitehall tended to micro-manage the RDAs with over-concentration on short-term targets of questionable relevance. RDAs needed more freedom to pursue longer-term goals and might usefully assist Whitehall in devising more relevant measures for evaluating success".

I know that that point has been brought out to a large extent by the report as a whole, but one should consider the amount of time that officials working for the RDAs have to spend filling in performance indicator forms. I believe that that point came through strongly from the evidence. Is it not a waste of time? Why cannot we give people more time to get on with doing the job? That type of task pervades all public services, does it not? I feel very strongly that the issue raised by the noble Lord, Lord Freeman, of greater autonomy for organisations to get on with doing their own thing is of vital importance.

The noble Lord, Lord Oxburgh, talked about Singapore. I frequently make the analogy with Ireland. Ireland's great advantage was that it did not have the Treasury. I know that Ireland had many advantages with an enormous amount of structural funds going into the country.

I was also struck by a point that arose from the evidence from Northern Ireland. Perhaps I may quote a paragraph from the report because it is quite telling. It indicates the advantage of setting a long-term target and pursuing that target over a given period of time with leverage. Again, Northern Ireland has the advantage of having structural funds available. I quote from the evidence given by the Centre for Urban and Regional Development Studies at the University of Newcastle. It said:

"We would draw the Committee's attention to the case of Northern Ireland, where the IRTU were able to mix a range of EU, national and local policies to revitalise their research base. A central focus of this activity was in improving the research performance of the University sector; ERDF [the European Regional Development Fund] for example providing support for recurrent costs, infrastructure costs and new research establishments which very quickly moved to win other funding, from EPSRC, Framework Programme and through the RAE, with the effect of raising their game.

"The main benefit came from focusing on strengthening the research base".

All those very important, long-term activities—mutually reinforcing activities—if pursued over a longer period of time really reap benefits.

The other point that I want to make relates to people. The noble Lord, Lord Mitchell, said that the RDAs are full of the great and the good. They have people such as Sir Tom McKillop of AstraZeneca. He is a fantastic person and I am delighted that he is leading the science council. However, they are dominated to some extent by the big investors—the multinational companies—and if we look at the miserable record of business R&D in Britain, the big problem does not lie with the big companies. We know that organisations such as the pharmaceutical companies, Rolls-Royce and British Aerospace are putting a great deal of money into research. The problem arises from the fact that our small and medium-sized businesses are not putting money into R&D. When they are pressed, they do not have the knowledge to go up-market. Instead, they go down-market, the competitive pressures are even greater and they go out of business. We know that small and medium-sized companies that have an R&D presence and can move up-market often succeed, whereas others fall by the wayside.

Therefore, one big question is: how can we get such small and medium-sized businesses to pick up and use the science base? They will not naturally go along to their local university and say, "Hi, I've got a problem", but it is vitally necessary that we pull them into the networks. The networks need to be wider than just our universities. We need to embrace our further education colleges, which have a lot of technical expertise. If we were in Germany they would be pulled in through the Chamber of Commerce. The small and medium-sized businesses would have access to this expertise because they would meet side by side at the Chamber of Commerce. It does not happen in quite the same way here.

We have a large number of measures to promote R&D. Starting from the university sector, there is Higher Education Reach-out to Business and the Community Fund (HEROBAC), which used to be called HEROIC, and there are other measures that encourage links. However, we also have tax credits which encourage companies to undertake R&D. The UUK study on university and industry links raised the possibility that perhaps too much investment was going into the kind of measures which encourage capital investment and not enough into those which encourage people.

The Germans had a very good scheme, which they introduced in the mid-1970s, when they were worried about R&D in small and medium-sized businesses, which subsidised the salaries of those engaged in R&D in those businesses. By the mid-1980s they withdrew it because they reckoned that the problem was solved. They reintroduced it with a new lender in the early 1990s and it ran throughout most of the 1990s.

I wonder whether that might be an idea that we could consider in terms of trying to pull in small and medium-sized businesses. Certainly, this whole issue is a central one. There is a need for the RDAs to be involved in the skills and training agenda in pulling together these networks of support for industry within the region.

As I have said, we welcome the report, which is very much along the right lines. I hope that the Minister takes note of its recommendation.

Photo of Lord Glentoran Lord Glentoran Conservative 4:32 pm, 29th April 2004

My Lords, it is almost with fear and trepidation that I attempt to follow the superb contribution of the noble Baroness, Lady Sharp. I am not a scientist or an academic, but her breadth of knowledge and enthusiasm has really added to the debate today.

I thank the Select Committee for this excellent report, which is informative, readable and commendably to the point. It is the second seriously punchy report to government that I have read in recent days. I highly commend the committee.

The report highlights the importance of innovation in many industries, including aerospace, pharmaceuticals, software, engineering, medical technologies, and so forth. I share the view that innovation is an important driver to economic growth. Accepting all of that, it is disappointing to read in the DTI's innovation report published in December last year that Britain still lags behind its competitors in R&D investment. Where the UK spends 1.25 per cent of GDP on research and development, the United States spends 2.06 per cent and Germany 1.75 per cent. If government expenditure on defence is excluded to identify only non-government business activity, the UK's investment level is even lower and is already less than the OECD average. That is not a good picture.

Bearing those figures in mind, it is necessary to examine why this lag exists. To that end, this report makes some important observations. At the heart of the report is the reality that for innovation to occur and for this to translate into commercial products and services that are competitive in the global marketplace, UK firms need to be able to harness our expertise in science, engineering and technology. For too many years and generations we have been the inventors without being able to convert that into product and profit for the nation.

In paragraph 1.5 the report concludes that while there is a great deal of activity at all levels encouraging the exploitation of SET for economic gain, that has been complicated by the introduction of the nine regional development agencies.

I shall turn to a few references within the report because I am anxious that the Minister should respond and say what the Government are doing about the report and its negative comments. The report has been out for nine months, so they have had time to think about it and to get the matter together.

On page 8 we have the five Cs, so ably outlined by the noble Lord, Lord Patel, at the beginning of the debate. Where are we on that? On page 21, referring to RDAs and RDA targets, the EEDA and Universities UK comment:

"Tier 2 targets remain a stumbling block for delivery of complex and strategic activity at regional level".

That does not sound like a good omen. On page 22, paragraph 3.28 states:

"On the basis that what gets measured gets done, we recommend that the Government should work with the RDAs urgently to develop simplified performance measures that take better account of SET's [Science Engineering and Technology] importance in economic development, and accommodate both realistic timescales for results and the differing circumstances of individual regions".

The noble Baroness, Lady Sharp, made the point that timescales are very relevant and that much of the Government's policies are too short-term. They have to become longer-term and more far-sighted, with better commitment to capital funding of one sort or another.

On bureaucracy—the bane of any government's life, but this Government seem to be the worse yet for bureaucracy—the committee states in paragraph 3.30:

"However, we heard many concerns that the bureaucratic demands to meet this accountability were unnecessarily burdensome and sometimes contradictory".

That is followed through by a comment from SEEDA. It states:

"We have to conduct our business in accordance with numerous guidance documents totalling some 1400 pages [which] have been developed at different times, often in isolation from each other and inevitably embody contradictions and ambiguities as they come from several departmental sources".

What hope have the universities, RDAs and others of getting together with this sort of environment and background?

The report continues on page 23 that the Better Regulation Task Force noted:

"When we looked at the delivery process from Whitehall to the ground level, we found too many initiatives, confused accountabilities and overly bureaucratic monitoring and reporting systems. We recommend that the centre delivers a programme of reviews focused on local delivery issues which cross departmental boundaries".

What position have the Government reached on that issue?

Paragraph 3.33 states:

"Regardless of developing the stronger bottom up approach to performance measurement . . . we recommend that the Government should reduce the bureaucratic load on RDAs and work with them to ensure that its guidance is reduced to the essential minimum and is, in any case, made consistent".

On page 32, on support schemes, the committee states:

"There is no shortage of support schemes . . . Indeed, there are far too many schemes, leading to high transaction costs in applying for and administering them, and wasteful confusion and lost opportunities under complicated rules".

Then there are the comments of Dr Keaton of Campus Ventures on the Better Regulation Task Force. He said:

"When we looked at the delivery process from Whitehall to the ground level, we found too many initiatives, confused accountabilities and overly bureaucratic monitoring and delivery systems".

If one goes on through the report, as I and I am sure other noble Lords have done, certainly the early part is full of such criticisms. They are real and objective criticisms. I am sure that the committee made them as objective criticisms to be tackled by the Government and by the department.

I turn to the section on public sector procurement. Other noble Lords have talked about the funding gap. On page 34, paragraphs 4.52 and 4.55 state:

"The growth of any sector depends on businesses securing orders . . . We were concerned to learn from Mr Wren-Hilton that his Internet company was precluded from bidding for a project within its technical competence (and in which it had a good international track record) solely on grounds of turnover".

The day before yesterday, I was fortunate to have a meeting with a lady from the Ethnic Minority Business Group, and she told us that this was one of the major problems for ethnic minority business groups getting business. She told us that more than 50 per cent of ethnic minority entrepreneurs skipped round these barriers and took their business offshore using international agents. The cost of entry for innovative entrepreneurs is too high, and it is too high because of overregulation. The report makes that point abundantly clear.

However, all of the regional development agencies place an emphasis on SET in their economic strategies. Relationships are complex and widely varied. The report goes on to suggest that work is needed to rationalise activity to allow for better SET exploitation. It argues for coherent longer-term perspectives and reduced bureaucracy—the points that I hope I have been making to your Lordships. In paragraph 6.37, the report says that national leadership is required on exploitation of SET to provide the right drivers and processes for the exploitation of SET for economic gain. The report calls for the five Cs, to which we have already referred. Looking specifically at RDAs, the report recommends a revision of current accountability and targets to take into account the importance of SET in economic development strategies. An incoming Conservative government will work with RDAs, business interests in the regions and local authorities to reform RDAs to create effective, business-led, economic regeneration vehicles in those areas where regeneration is required, and to focus the RDAs on innovation, capacity building, entrepreneurship and the skills base in those regions where this agenda is more appropriate.

In all cases the RDAs, if they are to provide a valuable contribution in the future, need to be genuinely business-led, but also need to be accountable to the communities they serve. There is a delicate balance to be struck, and Conservatives will engage with business and local authorities to ensure that the balance is right, so that properly restructured, business-led RDAs can play their part in addressing local needs.

One other point that I have not made is the possible introduction of regional government. That will increase the confusion and the bureaucratic complications, but that is not a point that I should be making from this side of the House at this stage. It is not part of this report, but it is yet another possible difficulty on the skyline for our business ventures.

In summary, this is a very worthwhile and interesting report. I hope that the Government will study its recommendations carefully. The Government's primary role is to provide the strategic direction and framework, which is the five Cs that the noble Lord, Lord Patel, and his committee have laid down clearly. Their role is to ensure that the five Cs can be applied, and that SET can be harnessed for the economic benefit of local communities. If this is achieved, it will surely reap rich rewards for the United Kingdom.

Just to refer once more to what was said by the noble Baroness, Lady Sharp, noble Lords will know that I am a Northern Ireland man. I come from Northern Ireland, and I have experienced and seen at first hand the incredible growth of the Republic of Ireland. I have also seen what can really be done with a community of 1.3 million people, when the infrastructure is right and when the communications are right. There has been such growth, despite the terrorism and everything else that has taken place in the past few years in Northern Ireland, because it is a tightly-managed and tightly-knit community, with totally committed entrepreneurs, and close relationships with competent civil servants. I believe that it is an example. The Republic of Ireland has done the same, again for the same reasons. If the infrastructure can be got right, if the bureaucracy can be reduced to a sensible level, and if the directives can be held and contained to be positive and objective, we will have a great future in this field ahead of us. This report points out of all of this very clearly, and I congratulate the committee.

Photo of Lord Sainsbury of Turville Lord Sainsbury of Turville Parliamentary Under-Secretary (Science and Innovation), Department of Trade and Industry, Parliamentary Under-Secretary (Department of Trade and Industry) (Science and Innovation) 4:44 pm, 29th April 2004

My Lords, I am grateful to the noble Lord, Lord Patel, for his opening speech this afternoon and for drawing the attention of this House to the report on science and the RDAs, which was published last summer by this House's Science and Technology Committee. I also thank other noble Lords for their contribution and insights this afternoon. We have had a fascinating debate, bringing together two areas of key importance to the Government—the growth of the UK science base and increased prosperity for UK regions.

The Government welcomed the conclusions of the report when it was published last year. I should say to the noble Lord, Lord Glentoran, that we have already responded to the report and have taken action where we think that is appropriate.

I am very pleased that the committee has been converted to the value of RDAs and indeed converted to the view of the enormously important role they can play in innovation. That is a view that we have been pushing extremely hard in Government for the last four or five years, and I hope that the committee will go on communicating this message both to business and indeed to other political parties of which they are members, so that they too realise that the issues of RDAs and the RDAs' role in innovation are extremely important for the future of this country.

The noble Lord, Lord Mitchell, said that we had had a lot of reports. I do not make any apology for that long list of reports, because that is how we convince people of the importance of innovation and of the science and technology agenda, and indeed of the importance of that to the regions. We have had a whole series of reports, going back to 1998. We started with one on biotechnology clusters, we then had Excellence and Opportunity, which set out the science agenda and what we needed to do, but which also made the point that that was all about innovation. We also started some of the initiatives on innovation.

We had the White Paper, Opportunity for All in a World of Change, in which we first set out that approach. That report refers to the need to change regional policy away from merely trying to create jobs of any kind to a strong focus on innovation as the means of improving regional prosperity. We have now had Investing in Innovation, which again deals with the people issues and how we support our best young scientists. We had various ideas on fellowships and improving science in schools. Recently we have had the innovation report. I make no apology for those reports. That has been a major campaign to change people's views and I welcome the committee's report supporting this general approach enormously.

I shall reply to some of the points made on specific issues, but I will first set out our policy on the UK science base and the role of the RDAs. Investment in the UK science base is at the heart of the UK's national economic strategy. We believe that in an increasingly global economy, science and engineering skills—and a supply of new ideas—are crucial to the UK's ability to compete in high-technology, high value-added sectors. We need to do that because increasingly in this global world we have to compete with countries such as China where the wages are 5 per cent of what they are in this country. We will not be able to compete on the basis of low costs. We have to compete on the basis of innovation.

The UK already has an excellent science base and this Government have taken many steps since 1997 to ensure that we do not fall behind our competitors. When we came into government the science budget was £1.3 billion; today it is growing at 10 per cent per annum in real terms and will be £2.9 billion in 2005–06. So when the noble Lord, Lord Glentoran, complains about the level of science spending by government in this country, he should remember that we would be a lot worse if it was not for the action of this Government. The previous Conservative government presided over a disastrous fall, not only, interestingly, in government research—which as the noble Baroness said fell dramatically—but also in business R&D, which fell from something like 1.5 per cent to 1.16 per cent over the last period of Conservative government. So it was not only government spending which went down; business R&D went down because the view was not held that that was where the future of the country lay. That situation has now changed. The figure came down to 1.16 per cent but, as the noble Baroness, Lady Sharp, pointed out, in the year that I became a science Minister it turned round and business R&D started to move up and is now at 1.24 per cent. That is still not anywhere near where we need to be but there are many policies in the business innovation report for increasing it.

We have also made significant investments to improve the scientific infrastructure of the UK which, in many cases, was falling apart. Over the next two years we shall move up to spending about £500 million a year on the scientific infrastructure, £350 million of which will be for ongoing development and £150 million to catch up on the nearly £2 billion shortfall in the scientific infrastructure.

On the back of the growth in funding and the renewal of our science base we are now in a position to look forward to where we want UK science to be in the next decade. The Government will therefore be publishing alongside the forthcoming spending review their framework for science, technology and engineering research and innovation over the next decade. That, again, is a sign of the Government's commitment to spending on the science base.

In it we will set out the direction in which policy will need to continue to develop to make the most of our investment in the science base and to identify how this will contribute to economic growth and the Government's public service priorities. The framework will provide a clear lead to all those who invest, and want to continue to invest, in our science base, including universities, business and the RDAs.

We are extremely pleased at the way in which the RDAs in England and similar bodies in the devolved administrations have picked up the challenge of how we support science and innovation in the regions. In 2002–03, the RDAs committed themselves to invest £240 million in science and innovation-related activities, some 15 per cent of their total budgets. Most RDAs have identified science and innovation as high priorities in their economic strategies, recognising the benefits it will bring.

I agree with my noble friend Lord Mitchell that this is an early moment to look at science and innovation policy in the RDAs; it is very much a developing story. The original task of the RDAs flowed very much from the bodies they took over, which were concerned with property and regeneration. We then established the innovation fund, which was the beginning of their use of innovation in their strategies.

My noble friend Lord Mitchell told us of his lunch at AstraZeneca. I should say to him that the whole story of science and industry councils started in the north-west. It was originally put forward by businessmen and scientists in the north-west as a result of Diamond Synchrotron. One of the suggestions to come out of that was that a science and industry council should be established, and I was very happy to persuade Sir Tom McKillop to lead it.

It is absolutely essential to the success of science and industry councils that they are led by either distinguished businessmen or scientists. That is what gives them credibility; that is what encourages other businessmen and the universities to take them seriously. Sir Tom McKillop has done a fantastic job for the north-west in this respect, as Sir Ian Gibson has done in the north-east. They have led the way in how to use science and industry councils to make these changes. We have encouraged all the other RDAs to set up science and industry councils on the back of that good performance, and I am glad to say that they are now all committed to doing so.

Any idea that my own department, the Department of Trade and Industry, was against this development and somehow held it back is quite wrong. The DTI took the lead in sponsoring innovation in regional policy and in the establishment of science and industry councils, and it is greatly to its credit that it did so.

The RDAs' approach to supporting regional science and innovation has been diverse in scale and direction, but that is how it should be, reflecting the different starting points of each region and their individual challenges. Some have funded the physical infrastructure of clusters, others have co-funded university research and supported technology transfer. Many of the RDAs have now established Science and Industry Councils, and they are all going to do that.

Given the historical concentration of research funding in the Golden Triangle in the south-east of England, some have argued that we are allowing our goal of world-class science supporting UK-based innovation to override the Government's regional economic goals to increase prosperity and reduce the gap between regions. I do not think this is the case. We have to balance these two objectives. On the one hand there is the need for excellent world-class research universities; on the other, getting money into the regions and supporting regional growth. I think we have done that in the right way, which is to give substantially larger budgets to the RDAs in the regions that have traditionally performed less well, so that they can use that money as they wish.

Rather than having science and technology budgets, we have now adopted the strategy of the "single pot", which is about saying to RDAs that they have a single pot of money to use as they wish, and if they wish to spend it on science and technology, we support that. I think that is the right way to go. What we do not want to do is micro-manage it. If one is to devolve authority, one has to give money to people and let them make the decisions. They can then tension spending on science and technology against their other regional objectives. What is key to this whole issue is that the proper connectivity is achieved at a regional level.

In its report, the committee succinctly concluded:

"The main message of our Report is the need for coherence, longer term perspectives and reduced bureaucracy . . . The primary need is for a clear sense of national direction and purpose to create the conditions in which all stakeholders can make their optimal contributions . . . The message can be summed up in the five Cs—coherence, connectivity, coordination, communication and co-operation. Applying these to the exploitation of SET will improve the growth of regional economies, with consequent benefits for the nation as a whole".

We very much accept that view.

I would, however, make one organisational point, one that comes from my experience in industry. If one has delegation or devolution, one has to stick with it. What always happens in these things is that people say "We will delegate to a particular division or region", which is immediately followed by people saying "Ah, but we have to have coherence. We have to co-ordinate everything." If one does that, one ends up with bureaucracy. So I do not think the committee can say that it wants devolution, delegation, coherence, co-ordination and no bureaucracy, because that is not the real world. Delegation means that some things will not be co-ordinated, as regions will do what they think is right for their region. We must have the courage to say that we believe in delegation, which will mean some things will not be co-ordinated, but people will have ownership and get the co-ordination and delivery right at a regional level. That is a more important objective.

The noble Lord, Lord Patel, asked about the Government's approach to RDAs and regional innovation. Our overall approach is set out very fully in the innovation report, Competing in the Global Economy—The Innovation Challenge. A whole section of that report is entirely about the regional innovation agenda, and in it we make a whole series of proposals that are directly about how we see science and innovation within regional policy, including a proposal about science and industry councils. It had important recommendations about regional selective assistance. Instead of simply concentrating on the number of jobs and using that as the only criterion for inward investment, innovation—that is, research and development—is now the measure. There is no point in having inward investment when it is a question of a number of low value jobs which will not have a great deal of long-term success. We want to import into the regions high value-added jobs which will contribute to their innovation and dynamism.

There were proposals about adding on to the manufacturing advisory service, which is delivered at regional level, services related to innovation and design. That is another way in which we can contribute to the regional agenda. The Lambert report contains many aspects which go in the same direction.

I think I have covered the points that the noble Lord, Lord Patel, raised about the integration of government policies. Let me say a word about the links with the research councils. We have a forum for the OST, RDAs and other key players to address the impact and synergy between national and regional SET investments. The steering group for the research councils and the regional development agencies was formed in 2003. It provides a high level of strategic advice to develop the relationship and to provide a communication channel between the RDAs and the research councils. To facilitate the development of outcomes from RCUK and the RDA meetings on RDA innovation, we have established a more operational level science and technology group, which includes representatives from the RDAs as well as from the OST and DTI.

The noble Lord, Lord Patel, also asked about government statistics about government R&D in different regions. The figures for 2000–01 show a proportionate increase for the north-east, north-west, Yorkshire and Humber, east Midlands and east of London. But there is a huge skewed distribution of government institutions across the country. This is an historical fact.

Very few new facilities are being built in this way. The whole move is towards putting the research much more into universities rather than stand-alone institutes. There are very good reasons why that is happening, although I shall not go into them now. So new research institutes are not being built. In addition, I do not think these are nearly as important to regional growth as what is happening in the universities. That is where we are seeing the most innovation and change which is relevant for regional growth.

While the RDAs are saying that we should put more research money into the north and the midlands, the South East England Development Agency is asking why they do not have a pot of money like they have so they can support knowledge transfer in the south-east.

The noble Lords, Lord Patel and Lord Mitchell, both raised the major question of whether we should follow the USA and have a small company set-aside scheme. There are, I am afraid, very clear international reasons why this is difficult to do in the EU. More importantly, however, is the fact that we change our procurement policies at all levels to make them support innovation rather than an old, traditional view of value for money. The innovation report shows the importance we attach to procurement being changed to support innovation in suppliers. This applies to all levels of business.

The Secretary of State for Trade and Industry, Patricia Hewitt, is leading a cross-government team which is considering, as one of its main issues, how we change the £109 billion of government procurement so that it focuses more on innovation in suppliers. Of course, this is a major task because it is about changing around the whole way in which procurement is carried out to give value for money while also taking innovation into account. We have had the Small Business Research Initiative, which is again based on an American scheme, to bring money for research into small companies. That does not have nearly enough drive behind it, so we are changing it to achieve more.

The noble Lord, Lord Methuen, raised the question of transport. The Department for Transport regards the RDAs as customers rather than the people who will make transport decisions, but we all agree that transport is a key part of regional development and we must keep it under review.

I shall respond to a few other points that were made during the debate. My noble friend Lord Mitchell asked about regional venture capital. We have the regional venture capital funds, but I agree with him that the key area is business angels. They are still very unevenly spread across the country. We have a strong business angel community in some areas, but we need to extend it across the country.

In addition, the Enterprise Capital Funds are coming forward. I have a great personal interest in them, because I wrote a Fabian pamphlet in 1982, arguing that we should look at small business investment companies in America and see if we could copy them in this country. I was therefore delighted when the Chancellor said in the last Budget that he would look at them. It seemed that the Fabian Society motto—"the inevitability of gradualness"—was for once coming true. That move will give further support to that kind of small business.

I am delighted that the noble Lord, Lord Freeman, is writing a book on spin-offs. There is a very good story to be told of a dramatic change in British culture. Those stories relate in some sense to schemes such as science enterprise centres, to HEIF and to University Challenge, which, if nothing else, have changed the climate in universities.

The noble Baroness, Lady Finlay, and a number of other noble Lords drew attention to one of the most interesting aspects of the whole area of innovation across the world, which is the extraordinary performance of small countries with a typical population of 3 million to 5 million. That is true of Finland—which has enjoyed one of the most dramatic changes—Ireland, Israel and Singapore. That is the size of the average US state. The message seems to be that if one wants to co-ordinate matters and bring all the players together, one can do it more easily in a population of 5 million, whether it is a US state, an RDA or a small country. That demonstrates the importance of co-ordination at a regional level. It is why the RDAs are particularly successful.

My noble friend Lord Thomas of Macclesfield spoke about strengthening capability of regions. I totally agree with him. We are looking at whether there is a way in which we could do that as part of our spending review.

The noble Lord, Lord Wade, happily reminded me of a body that I thought had gone out of my life, which is the US Cheese and Deli Association. I thought that I would never come across it again in my life, so it was nice to make contact with it again. I have already alluded to his point, that delegation is not a "yes or no" issue. It is always about what you delegate and what you do not delegate. We are still trying to work out that relationship properly with the RDAs. It is quite a subtle relationship. We want to delegate to them, but it would be an absurdity if every RDA were to begin producing its own forward look on the biotech industry. That should be done centrally. There is otherwise always a danger of their going to a consultancy, which produces the North West Strategy for Biotechnology, promptly followed by the consultancy selling the same document to the north, the south-west and the east of England and so on. The overall strategy needs to stay in the centre, but we should delegate much more of the operational side. We are working on that.

The noble Lord, Lord Oxburgh, raised the question of picking winners. The RDAs started off picking very much the same areas. That has changed. They are now much more selective and much more inclined to look at where they have areas of strength, be it in aerospace or the chemical industry, and to realise that it is more important to make certain that those clusters are working efficiently.

The noble Baroness, Lady Sharp of Guildford, raised the question of business R&D. Suffice to say that it is now going up. We see this as one of the most important objectives, and in terms of the framework for science and innovation, it is one of the targets we will pick up from the innovation report. We want that figure to be a leading figure in the major countries of Europe.

The noble Lord, Lord Glentoran, talked about the business support scheme. We inherited over 100 business support schemes when we came into government, and are now in the process of whittling that down to 10. That simplification is enormously valuable to industry.

Finally, the noble Baroness, Lady Sharp, raised the issue of the dynamism of our economy. That is already beginning to take place. The noble Lord, Lord Mitchell, pointed to what is happening in places such as Manchester. Some very interesting figures have been produced by Citicorp, showing that we in this country have a rather strong position in terms of high-tech manufacturing and knowledge-intensive services compared to the rest of Europe. We are beginning to see the value of the flexibility in the British economy in enabling growth areas to progress very fast, and that is helping our industrial performance. On the ground, one can see the importance of science and technology innovation to our future success.

We have had an opportunity to air some very important issues this afternoon, and I am grateful for the inputs of all noble Lords. As your Lordships have heard, the Government have already taken action to implement many of the report's recommendations, and will continue to refer to its findings in the future development of policy. The UK has many scientific assets of which it can be proud. It is now up to the Government, RDAs, universities and businesses to make the most of them, and to ensure that they are connected fully to the regional and national economies.

Photo of Lord Patel Lord Patel Crossbench 5:12 pm, 29th April 2004

My Lords, I could not have wished for a better debate, and I thank all noble Lords who have participated.

It is traditional at this stage to pick up on some of the points, but I shall not do that because we have had a full debate. All the speakers paid tribute to me as chairman. Let me pay a tribute in return: it was a pleasure to chair the committee. All the committee members, as evidenced in their speeches, are colourful characters. That made it a pleasure. I might regret my next comment, but if I were asked to do so again with the same membership, it would be a pleasure.

I sincerely thank the Minister for answering all the questions fully. We all know that he is a champion of the need to promote science and technology, and his answers, given at length, typified that. We are fortunate to have a Science Minister who has a full understanding of the issues related to the promotion of science and innovation.

Several noble Lords, as did the Minister, made the point that the RDAs are developing, and have been in existence for a relatively short time. It would be appropriate to have another look at the problems of RDAs in three to four years' time, and I am sure the chairman of the Science and Technology Committee has noted that.

Lastly, a true entrepreneur never misses an opportunity, as demonstrated by the noble Lord, Lord Freeman, advertising his book—not only naming the authors, but linking the Minister in promoting the book.

On Question, Motion agreed to.