Science and Innovation Strategy - Question for Short Debate

– in the House of Lords at 5:39 pm on 23rd October 2017.

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Photo of Lord Patel Lord Patel Chair, Science and Technology Committee (Lords) 5:39 pm, 23rd October 2017

To ask Her Majesty’s Government what plans they have for making their science and innovation strategy an effective part of their industrial strategy.

Photo of Lord Patel Lord Patel Chair, Science and Technology Committee (Lords)

My Lords, I assure you that the next debate is as interesting.

It is with great pleasure that I open this debate and thank all noble Lords, including the Minister, for taking part. On the speakers list are the names of extremely talented noble Lords with a great deal of experience in the area which we are to debate, and I look forward to their contribution. The subject of the debate is science, innovation and industrial strategy, reflecting on the Green Paper published in January 2017 entitled Building our Industrial Strategy, which identified 10 pillars of industrial strategy that will drive economic growth in the United Kingdom. I will touch briefly on each of the issues and make a few remarks about the latest publication on life sciences and industrial strategy.

The basis of the industrial strategy is, of course, the UK’s strength in science research. This is undoubtedly so. Our universities rank highly in the global league of top 100 universities. For the first time in 13 years, Oxford and Cambridge top the table, with four universities in the top 20 and 12 in the top 100. The Universities of Cambridge and Oxford score highly on research funding as a matrix, but they also rely heavily on—or rather, I should say, gain from—the research funding that comes on a competitive basis from the EU: in Cambridge’s case, it is about a quarter; in Oxford’s case, it is about a fifth.

In the life sciences sector, we have four universities in the top 20—and, similarly, the engineering and technology sector also has the top four universities in the UK. So, yes, we should be proud of our science lead. By the way, in the top 100 globally, we have 12 universities. Seven of them are in the south-east of England, two are in Scotland and only three are in the rest of England—the north of England. That might have implications for where the science funding goes.

When it comes to taking science to innovation, we do not have such a good story to tell. In world rankings for innovation, 51 of the top 100 universities are in the United States, 26 are in Europe and 20 are now in Asia. That is where the current threat of innovation is coming from: Korea, China, Japan and other developing countries. They are the new threats.

I am tempted to consider what a top innovative university looks like. In 1940, Stanford University was regarded as no more than a third-rate school of engineering. Currently, its alumni deliver $3 trillion a year to the economy and employ 5.4 million people. Of the 100 top innovative universities in Europe, the UK has 17, the same as France, while Germany has 23. Of the UK’s 17 universities, four are in Scotland. I am pleased to say that number five in the United Kingdom is the university of which I was Chancellor for 11 years—not any more—the University of Dundee.

All these figures show that we are good at turning money into ideas, but not so good at turning ideas into money. That is what we need to address. Therefore, does the Minister agree that we need to look at ways to support universities that are good at research to become innovative universities? Mr Jo Johnson, the Universities Minister, has suggested developing a knowledge exchange framework rather like the TEP and REF for teaching and research. Can the Minister say more: do the Government plan to do so?

I turn to the document, Building our Industrial Strategy. In 1960, we had the “white heat of technology”, which ended in the demise of the automotive industry and many others. Then we had market competition, in which government spent money on science and left the private sector to innovate. It was successful for a while, but when the financial crisis hit the economy in 2007 and 2008 we had another strategy: rename the department. We got the Department for Business, Innovation and Skills and a new slogan: “New Industry, New Jobs”. Intervention was then followed not by strategy but by an “industrial approach”. The financial crisis, economic stagnation and Brexit has now resulted in this document, Building our Industrial Strategy. It has been well received, shows government commitment and is visionary, with innovation at the heart of it—and succeed it must, because we have nothing else.

But there remain challenges, such as Brexit, with its impact on the economy and the skilled workforce and, of course, the effect of immigration policy. Then there are other challenges, including how to turn science into innovation, which I have already mentioned. The strategy is based on innovation but I see no goals in it for specific innovation, except in sector terms. Why should not there be specific goals of tech-based innovation linked to each of the 10 pillars?

The Government have committed to raise the spending on R&D from 1.7% of GDP to 3% of GDP, comparable to our competitors. Of course, our competitors also have strategies to raise their GDP and, by the time we meet the goal of 2027, if we do, of 3% of GDP, our competitors, particularly in the east, will have moved further along.

The Government have promised £4.7 billion of investment in science and innovation over the next four years and the Industrial Strategy Challenge Fund may act as a catalyst to leverage more R&D from the private sector. However, what evaluation have the Government made of previous policies to be confident that policies to leverage more R&D funding will be successful?

Another suggestion in the document is that the Government will start an institute for battery research, to add to the National Graphene Institute, the Francis Crick Institute, the Rosalind Franklin Institute, the Alan Turing Institute and the Henry Royce Institute. What will be the governance mechanism, how much of the institute will be committed to research as against innovation, and how will it be monitored?

I turn briefly to the report of the Government on the life sciences sector—the life sciences industrial strategy, recently published by Sir John Bell. I add that I am chairman of the Lords Science and Technology Committee, which is conducting the inquiry into the strategy and which will report in due course—no doubt constructively.

The report has been well received and widely welcomed. It is ambitious and identifies the need to increase the science offer; for a growth in infrastructure and an increasing skills base; for regulation to promote innovation; for immigration policies that align with the needs of the life sciences sector; and for the NHS to be both more adaptive to innovations and more innovative. I shall pick out two of those points, because they are connected. One key recommendation is the creation of the Health Advanced Research Programme, or HARP, to create two or three new global industries in the next 10 years, analogous to DARPA, an organisation linked to US defence, which has been highly successful. However, in that case, US defence was its key customer, which wanted to be assured that it could lead the world in defence globally. Is our NHS similarly placed? HARP needs the NHS and the social care system in the UK to be effective, affordable and appropriate to the changing demographic needs of the UK population, and to be recognised as a leader in the world. Do we have an NHS that can be quick to be adapt and be innovative? Current evidence does not suggest that that is so.

The report also recommends greater government support for the charity research sector. That sector in biomedical science is extremely strong, but universities need the support of the Government. Do the Government agree with that? When will they respond to the sector report on life sciences, and when will it be implemented?

Photo of Lord Freeman Lord Freeman Conservative 5:49 pm, 23rd October 2017

My Lords, I congratulate the noble Lord, Lord Patel, not only on securing this important debate but on an excellent speech, which I fully agree with.

I shall concentrate on innovation, especially in the private sector. I should stress the worldwide reputation of the United Kingdom in this field, particularly for the work of Cambridge University, Imperial College and Oxford University. In the last 10 or 20 years, many other universities have joined in the pioneering work, done largely by Cambridge University, of encouraging innovation born out of ideas generated from the professorial—and, in some cases, postgraduate—contributions to innovation. Those three universities are in the top five in the whole world in terms of innovation. I know from my own experience the very high regard which Americans and the American Government have for the work of our universities. Having lived in the United States, I have fond memories of the excellent work of the American Research and Development Corporation, which has been a model in some ways for the work being done in other universities in the United Kingdom.

Twenty years ago, I had the honour to chair the committee at Cambridge University which was examining new, innovative inventions and providing modest finance. That model has been followed by other universities. More universities all over the country should encourage students at an undergraduate—let alone a graduate—level to contribute ideas, seek the university’s support and encourage the support of Her Majesty’s Government. The original pioneering work of some of the original universities has now spread to a great number; in particular, I should mention Bradford, Nottingham, Bristol and Liverpool, which have done an excellent job.

Over the last 10 or 20 years, my involvement outside this House has largely been concentrated on small-scale companies which were trying to innovate new techniques and technologies. Some of them have failed; some have been successful. I pay tribute to the work done by Innovate UK in helping to finance small companies. However, there is a problem because, typically, it can only go up to between £2 million and £3 million. Will the Minister be kind enough to comment on whether there is any possibility of extending the normal three-year period to five years of grant funding, albeit at a fairly modest level?

For much larger support for innovative ideas, Horizon 2020, which is a European organisation to which we belong, typically covers amounts above £5 million. There is therefore a bridge, which is partly not plugged, between that and the £2 million to £3 million which United Kingdom organisations are typically providing. I would very much like to see us remain in Horizon 2020. I see no reason, even with Brexit, why we should have to leave that organisation, and I would like to see us continuing to providing support for it. Our universities and smaller-scale companies would benefit from such continued participation. As I think our former Prime Minister, Lady Thatcher, said, we may be leaving the European Union, but we are not leaving Europe. That is very important.

In conclusion, science and innovation are at the heart of our long-term economic future and should be at the absolute centre of government planning. I congratulate the Government so far and look forward to the Minister’s response.

Photo of Baroness Morgan of Huyton Baroness Morgan of Huyton Labour 5:54 pm, 23rd October 2017

My Lords, I echo the thanks to the noble Lord, Lord Patel, for his excellent introduction to this debate. I am fortunate to serve as a member of the Science and Technology Select Committee under his leadership, which followed the able leadership of the noble Earl, Lord Selborne, who initiated this area of scrutiny for the committee. I draw attention to my entries in the register.

This House scrutinises and discusses this subject matter repeatedly. The future industrial strategy is of paramount importance to the UK economy and the big issue, of course, is implementation. What? How? Where? We will rightly hear a lot today about HE and science but in my brief intervention I want to talk about a component that is often not talked about quite so much—the need for a real, quality, deliverable skills strategy that meets the future economic requirements of the country and does not jump to ticking boxes and obsessing about big target numbers: I think about the 3 million apprenticeships. We have been here before. All Governments want to talk big numbers, but all in different ways have failed to deliver the content, quality and skill sets needed to go forward.

We have, of course talked about this before. In many ways, it went wrong with the Education Act 1944 and our failure to set up technical schools. That established a mindset of academic top dog, and everything else being the poor relations. Like many of us here today, I hark back to the days of ONCs leading to HNDs at strong local polytechnics, which could then be topped up to degree level if wanted. All this was replaced for well-meaning reasons, but the replacement technical structures and qualifications were frankly inadequate. In addition, FE colleges have been woefully underfunded and inadequately staffed for many years. Typically, the recent review of FE colleges looked only at financial sustainability, not skill needs or quality of provision. Employers tell me regularly that they have to retrain young people who come to them supposedly ready for work.

In 2015, the UK Commission for Employment and Skills found that 43% of STEM vacancies were hard to fill due to a shortage of skills. That is the biggest challenge facing London’s tech businesses, while the Tech Partnership says that 72% of large companies and 49% of SMEs are reporting skills gaps, with significant impacts on productivity. Engineering and construction firms are finding the situation increasingly difficult, and that is without Brexit.

The recent productivity figures have to be a huge wake-up call for us all. Put Brexit on top and the need for a complete change of gear in this area and honest appraisal of what is needed is apparent. We spend most of our time and money talking about schools and HE. I give an example of the sort of focus needed by the Government—that is, delivery of technicians. By that I mean workers possessing levels 3 to 5 STEM skills. Technicians are workers who apply proven techniques and procedures to the solution of practical problems. They carry supervisory or technical responsibility and competently deliver their skills across the fields of science, medicine, engineering and technology. They are in very short supply already. Every employer in these fields is desperate. The Government, frankly, are not joining up the dots sufficiently. For example, very little of the advanced learner loans—basically, the only way 24-plus year-olds can get funding for technician awards—are going to level 4-plus courses. In 2015-16, it was £8.6 million out of a total of £162 million.

Paul Lewis at King’s College—I declare an interest as vice-chair of council—has undertaken an interesting and illustrative piece of research on the role of technicians in life sciences. I know that the Minister is particularly interested in this area. The life sciences strategy is, of course, both a strategy in its own right but also an important strand of the industrial strategy. His research found that, as industrial biotechnology, cell therapy and regenerative medicine remain in the relatively early stages of their development and heavily involved in research, the focus has been on graduate and postgraduate skill needs, which are also in pretty short supply. However, sector-level bodies and employers readily acknowledge that any movement in the future to full-scale manufacturing—as we hope there will be —will demand increasing numbers of specialist manufacturing and laboratory technician roles. Significantly, many of the emerging roles in the life sciences sector could, and probably should, be carried out by technicians. These roles are highly routinised but take place in accordance with strict guidelines and standard operating procedures from which people must not deviate. Such roles place a premium on attention to detail, care in following instructions and practical skills—for example, on cell cultivation—rather than on graduate-level theoretical knowledge.

In practice, many manufacturing and lab support roles have hitherto often been filled by graduates. This overqualification can lead to difficulties. The graduates have greater theoretical knowledge than is essential, but they often lack the practical skills required to do the job effectively over a reasonable period of time. They often also become dissatisfied with the job, both with the highly routinised work and the relatively low pay. They may leave pretty quickly, which is frustrating for the employers, who have put the training in.

Apprenticeships could and should help, if planned properly. When it comes to planning and delivering apprenticeships, there are lessons from other specialist sectors, and it is now time to learn from them. We need small numbers. In any geographical area, small numbers make it difficult to get a training provider to collaborate properly under the current funding system. This needs to be planned properly. For example, we should look at centres of excellence, technician training that can cover a range of industries, more distance learning with residential blocks, involving the catapult centres, and so on. The point is that a practical, comprehensive piece of work needs to be done on this now.

I choose this issue of technicians to be illustrative of the wider issues. My plea to the Minister is that collectively we need to roll up our sleeves and deliver a properly thought-out, joined-up skills strategy—not have schools over there, FE here and HE somewhere else, planned by different departments at the moment with different Ministers and different civil servants. We need to try to avoid the big claims and the big numbers and plan a proper, detailed, quality provision that is absolutely essential for our economic future.

Photo of Lord Willis of Knaresborough Lord Willis of Knaresborough Liberal Democrat 6:01 pm, 23rd October 2017

My Lords, I too congratulate the noble Lord, Lord Patel, on securing this debate and on his introduction, which was as excellent as always. He has of course highlighted both the opportunities that arise from the science and innovation and industrial strategies, and the challenge of realising their potential. Like many in your Lordships’ House, I suspect, I was somewhat impressed by the success of Stanford, where the synergy between research and innovation is seamless, focused, well-financed and taken as part of an innovation ecosystem that delivers commercial, health and societal benefits on a massive scale. However, while we can admire what is being achieved at Stanford, Caltech or MIT, trying to replicate their models may prove somewhat challenging, so perhaps we should look at how we can utilise the UK’s own unique strengths to power our own innovation revolution.

We can argue about whether the government strategies are right, but my question is: do we have the infrastructure and, more importantly, the people to power an innovation revolution in the UK? Arguably, the setting up of UKRI was a significant response to this challenge, bringing together under one roof both the traditional research councils and the relatively new Innovation UK. On his appointment to UKRI as chief executive, Sir Mark Walport wrote a letter to all partner organisations—including NERC; I declare an interest as a council member. In his letter he stated:

“Our research and innovation landscape and funding system is world-leading”.

I do not often question Sir Mark, but although he is absolutely right to declare our research base as world-leading—a claim evidenced by the fact that we have four HEIs in the top 20 universities in the world—the global league tables for innovation tell a different story. Despite having a concentration of seven research universities in London and the south-east, our top entry for innovation is at number 13, with few HEIs in the top 100. We are good at research; we are not as good at innovation.

On funding, while UKRI has a £6 billion a year budget for research and innovation and the Chancellor has found a further £2 billion a year to support the industrial challenge strategy, such sums pale in comparison with the United States or China, which spend a significantly higher percentage of GDP on innovation—as do Germany, France and Japan. Indeed, as the noble Lord, Lord Freeman, hinted at in his excellent contribution, this lack of access to capital helps to explain why it is notoriously difficult in the UK to grow our research ideas beyond proof of concept without seeking finance from nations with deeper pockets and less aversion to risk.

However, my principal concern is the gap between research and innovation, and in particular the divide between individuals working in those two communities—that is, scientists and entrepreneurs. It is as though they have a different DNA. What we expect from each group is different and that is a very real challenge for UKRI, which must not say that it is “business as usual” for the traditional seven research councils.

The vision of and for those scientists funded by our research councils must change, and it must change significantly. My own council, the NERC, is 50 years old this year and, although environmental science has grown exponentially in that time and our scientists have made huge discoveries—from the hole in the ozone layer to the disastrous effects on health of sulphur dioxide from coal-powered stations, climate prediction and so on—only relatively recently as a council did we develop an industrial strategy looking at how the NERC science can help find innovative solutions to environmental challenges.

However, as Professor Duncan Wingham, the executive chair elect of the NERC, said at a recent council meeting and in this House last week, for too long our scientists have brought to Ministers a detailed understanding of environmental problems but have not felt empowered to take their research further to offer solutions or to see whether they have commercial or societal benefits, or perhaps have not felt that this was wanted. That is not surprising. Our seven research councils, in addition to funding research in most of the UK’s research universities, support some 18 research institutes, 32 research centres and a plethora of more localised facilities and units. If there is a new discovery, we have a new centre.

Their emphasis is on either research to support national capability or discovery science; it is not on innovation. Perhaps Professor Wingham was not questioning the value of this research—he most certainly was not—but in fact offering a challenge to all the research councils in the new landscape of UKRI not to populate the innovation space with a separate cadre of scientists or entrepreneurs but to encourage existing scientists and research leaders to take their thinking to the next level, which inevitably means working with other disciplines, using the totality of our rich research base to lead innovation and to be part of the solution, not simply asking someone else to find the solution.

If the UK is to deliver on both the science and innovation strategy and the industrial strategy, an early drive by UKRI to redefine the mission for our research communities and the people who work in them is absolutely crucial.

Photo of Baroness Hayman Baroness Hayman Crossbench 6:07 pm, 23rd October 2017

My Lords, I echo the congratulations to my noble friend Lord Patel on securing this debate and on what he had to say in introducing it. That has saved those of us with a short time in which to speak, who have had to cut a great deal from our own speeches.

I should declare my interests as set out in the register, particularly as chair of an academic health science centre, Cambridge University Health Partners.

I welcome Sir John Bell’s work on the life sciences industrial strategy and the ambition for this country that it represents. It reflects the inclusive process, with the whole sector—industry, academia, the health service, the medical charities, pharma companies and biotech—contributing to its recommendations. I also welcome its recognition of the NHS as a key differentiator for the UK in this field going forward, and the importance of integrating the NHS in two ways: as a basis for innovation and discovery, and as a beneficiary of that innovation and discovery.

We now need to focus attention on how to deliver on the recommendations, including the sector deal. These are long-term aspirations. They will take long-term commitment, and it is important that we understand where the accountability for the delivery of these policies will be. Many suggestions have been made about accountability mechanisms, and perhaps the Minister can refer to them in his wind-up speech.

In my time this evening, I want to discuss some of the infrastructures needed to deliver this strategy. One set of infrastructures concerns the position post-Brexit in relation to Europe. This is predominantly about people. Anyone who visits one of the leading scientific labs in this country will see people working there from all over the European Union. We need those people not only when they work here, but as collaborators when they are back in their home countries. It is crucial that their uncertainties be resolved if we are to ensure ongoing success in this area.

There is the question of the large amounts of money coming into research in this country through European funding. The European Medicines Agency, which was located in this country, has been a huge benefit, but it will no longer be located here. We have to understand how that will be smoothly and effectively replaced. There is the question of how the forthcoming clinical trials directive will be implemented here. Of course, there is the general data protection regulation, which we are looking at in the context of the Data Protection Act. So, there is a whole range of infrastructures.

I turn to Cambridge, which is an exemplar. It is a globally recognised life sciences cluster, one of the largest and most important in the UK, as the noble Lord, Lord Freeman, has said. The core of the cluster includes Cambridge University; three nationally leading NHS foundation trusts; outstanding medical research charities, including Cancer Research UK, the Wellcome Trust and the MRC—which recently added a 19th Nobel Prize winner to the cluster’s tally since 2000—and leading life sciences industry partners, including the pharmaceuticals AstraZeneca and GlaxoSmithKline. There are also 431 life sciences companies working in the cluster. Beyond the Cambridge Biomedical Campus there are some 23 science and technology parks, including the famous Wellcome Genome Campus at Hinxton. This is a fantastic resource that will grow, but for it to do so, some very basic infrastructure issues need to be addressed.

This comes back to the problems we encounter in many other areas of life, such as housing and transport. We are not going to get the scientists, technicians and health service employees if there is nowhere in Cambridge they can afford to live. They are not going to be able to travel in from the rest of the eastern region if there are no transport links. Therefore, things like the new railway station, Cambridge South, at the biomedical campus are tremendously important. If we get those right, we can show how investment in an already globally recognised cluster can support and enhance the rest of the eastern region. In particular, we should look at developing technology institutes with a focus on STEM subjects. If we get that right, we can not only nurture the jewels in the crown but create wealth regionally and for the nation as a whole.

Photo of Lord Suri Lord Suri Conservative 6:14 pm, 23rd October 2017

My Lords, it has been my consistent position that throughout the Brexit process, there must be a clear recognition of the importance of economies of scale for our science and technology sectors. The nature of these industries means they stretch across borders to spur innovation. I thank the noble Lord, Lord Patel, for introducing this debate, and my noble friend Lord Prior for responding. I have not heard much about the industrial strategy since the last election, but I hope it includes an appreciation of this point.

I talked about wings in the last speech I made here, and I will reiterate the point. Airbus can compete with Boeing on a global scale only because it is a truly international endeavour. Had France, West Germany and the UK all attempted to build their own companies, they would have failed, as they lacked the continental leverage of the United States. Together, the idea took off and the manufacture of the planes is spread all across Europe. Britain specialises in the wings, which have been tremendously profitable, supported good engineering jobs and built up our expertise. We even now make the wings for Bombardier, whose tariff troubles appear to be coming to a sensible conclusion, as the Minister will no doubt confirm.

Noble Lords will know that high-tech industries with long payback periods and research-intense development are well supported by the EU. Embedded in the agencies and other bodies are services that bring together scientists, researchers and engineers so that nations can together punch above their weight: Euratom, Horizon 2020, Erasmus, the ESA—I could go on. Collaboration is king if we want to compete against titans such as China or the United States, so some of the dogma I see that prevents us safeguarding that frustrates me.

The row over Euratom made very little sense. There is no issue with allowing limited oversight by the European Court of Justice on these matters. This is not social policy, or fundamental fiscal or economic policy. Complex matters of research funding and collaboration will always need an arbitration body. I understand the frustration of some leavers who argue that the ECJ is an interfering and meddling court. In some ways they are correct, but in this area the ECJ seems to be fair-minded and reasonable. If the cost of continued participation is submitting to that court and a high entry fee, I think that fair enough. I support Brexit and see huge benefits, but I find it difficult to believe that any Brexiteers voted to see less science and technology co-operation, and to make ourselves poorer as a result.

This is particularly important for me because I see our post-Brexit future as a country that produces a higher grade of goods, and with a primarily service-based economy. The implications of cutting ourselves off from EU schemes would be disastrous for our prospects. Biotechnology, one of our blooming new growth markets, would be hammered, and swathes of expertise and capital would move to more hospitable places. Lowering regulations or taxes cannot compensate for access to these schemes. Such beggar-thy-neighbour policies would also remove good will from our allies. Will the Minister confirm that he will seek to remain a member of the programmes that I have already discussed—the ESA, Euratom and Erasmus?

Photo of Lord Bhattacharyya Lord Bhattacharyya Labour 6:18 pm, 23rd October 2017

My Lords, I congratulate the noble Lord, Lord Patel, on securing this vital debate and applaud the Science and Technology Committee for producing an excellent submission to Ministers on innovation’s place in the industrial strategy. I declare my interest as chairman of WMG at the University of Warwick. WMG has a strong record of industry innovation partnerships going back many years. It was set up by the then Prime Minister, Mrs Thatcher. We will be the home of the National Automotive Innovation Centre, which will, in the end, have a funding of just over £1 billion, entirely from the private sector, at a British university. We are delighted to be part of the recently announced Faraday Institution. Getting that sort of funding comes only with delivering impact.

It is very welcome that, for the first time in several decades, “industrial strategy” is no longer an anathema. I remember speaking in the debates here that created the Technology Strategy Board, now Innovate UK. It was a hard slog. The current welcome shift in attitude to industry was spurred on by the Prime Minister’s first speech outside Downing Street. The Business Secretary, Greg Clark, has done an excellent job of focusing the industrial strategy on the pillars of future growth. On top of that, the Engineering and Physical Sciences Research Council’s focus on impact, the Nurse review and the inclusion of Innovate UK within UK Research and Innovation have helped move the agenda forward. I fought very hard to get UKRI and Innovate UK together because I thought that was the best way for us to have technology transfer.

However, as the committee’s letter says, we have had many short-term announcements. We have lacked an integrated, long-term implementation. Creating impact is about using assets well, especially to strengthen partnerships, then monitoring results, tracking outcomes and backing success. For innovation, our most important asset is our science and technology base, as everybody says. As has been said, whether judged on Nobel prizes, citations or any other measures, British science is world-leading. For the past two weeks, I have been in China; everybody there praises British science. For the money we spend, the result we get is world-leading.

The Government cannot be criticised for withdrawing funds. Britain’s science spending has been protected. However, we lack business incentives. As the OECD shows, we are at the lower end of research and development tax incentives. Despite that, as Phil Nelson of the EPSRC has said, at least for patents and licences, our current spending is productive. The big problem is that our scientific excellence has not led to industrial success, whether in products, exports, or employment. Impact has to mean growth and making ourselves technical leaders in the global market. We will not get either without more industrial contribution to innovation. We have one of the lowest rates of business R&D, in both firms and collaborative research. The latest data shows further decline in that investment.

Worryingly, our spending is also limited to very few sectors. Pharmaceuticals, automotive, IT and aerospace do over half of Britain’s business R&D. We need to use our strength in science and technology to encourage business R&D in our strong sectors and expand into new fields. Therefore, the strategy needs to address directly the long-term challenges of real businesses. We have done that in the automotive sector: on connected vehicles, road infrastructure and battery technology, there are innovation partnerships between industry and academia, attracting private investment. As far as the Midlands is concerned, we have the Midlands mayor, who is charged with delivering the impact on funding and who will make sure that happens. Whether it is the Faraday Institution centres for research into batteries, looking at industrial impact—not only now but in the future—everything is being linked for the first time.

One of the keys to that approach is seeking real business investment, in cash, not in kind. The majority of the industrial investments in Britain that are talked about are always in kind. Why do businesses such as Jaguar Land Rover support us in this way? First, they know that their industry is in a state of real flux. They spend more than £3 billion on R&D. Firms are aware they must adjust to new regulatory, legal and consumer demands. That acts as a trigger to invest. Next, they know that there is a long-term commitment and investment from academic researchers to work with them to find solutions that will work in a global marketplace.

We cannot go it alone here, because technology is moving so fast and Britain is a small country. We need to collaborate with innovators all around the world or be left behind. So the final element of a successful strategy must be monitoring economic impact over the long term. We need to measure real job creation, increased productivity and economic growth. We need a focused definition of impact. Otherwise, we will end up with research institutes that do not make a practical difference. I strongly support the committee’s proposal of a body to monitor the industrial strategy. We need a real debate about exactly what should be measured and how we know whether impact has been achieved. If we do not do this, there will be a short-term squabble about where the money should go. Within five years, we will not know which investments have made a real difference.

For British industry to compete, we need businesses to commit to innovation. That is their responsibility. Firms have to choose to invest, but we can, and should, do more to make investing in innovation an attractive proposition.

Photo of Lord Hennessy of Nympsfield Lord Hennessy of Nympsfield Crossbench 6:26 pm, 23rd October 2017

My Lords, I declare my fellowship of the British Academy. In this evening’s debate we are dealing with twin themes that have run through the post-war years like a filigree: industrial strategies—the current one is the eighth by my calculation since 1945—and scientific and technological strategies. There have been at least 20 of those, according to a cartography compiled by Dougal Goodman and Darron Stronge for the Foundation for Science and Technology, in which, I should declare, I also had a bit of a hand.

It is interesting that our science and industrial strategies have been run in parallel rather than fused, although it is both cheering and right that science and innovation is the first of the 10 pillars in the latest industrial strategy.

The problems with which both science and industrial strategies have grappled since 1945 have shown a remarkably stubborn persistence. Let us eavesdrop for a moment on the very first: the 1946 Barlow Report on Scientific Man-Power. This is its opening paragraph:

“We do not think that it is necessary to preface our report by stating at length the case for developing our scientific resources. Never before has the importance of science been more widely recognised or so many hopes of future progress and welfare founded upon the scientist. By way of introduction, therefore, we confine ourselves to pointing out that least of all nations can Great Britain afford to neglect whatever benefits the scientists can confer upon her. If we are to maintain our position in the world and restore and improve our standard of living, we have no alternative but to strive for that scientific achievement without which our trade will wither, our Colonial Empire will remain undeveloped and our lives and freedom will be at the mercy of a potential aggressor”.

If we strip out the references to the colonial empire and Joseph Stalin, that, I venture to suggest, could be the opening paragraph of the White Paper which we all await so keenly.

We can pick out three crucial themes from the cataract of post-war reviews and strategies—again, I am grateful for the work of the Foundation for Science and Technology on this. They are these: first, funding. A continuous thread has been the difficulty in meeting the aspiration of successive Governments to raise government spending on science, research and innovation as a percentage of GDP and particularly to persuade the private sector to follow suit—as other noble Lords have highlighted already.

Secondly, commercialisation—the industrialising of our scientific prowess. From the days of Barlow in 1946, there has been a continuous struggle to take the world-class ideas created by UK R&D to the marketplace by converting them into patents which pave the way to commercial opportunities. We have not done well in comparison to most of our competitors.

Thirdly, skills, higher education and productivity. The productivity gap that yawns between ourselves and our chief competitors rings out, tocsin like, as a prime anxiety in all the industrial strategies since the days of the Attlee Government’s Central Economic Planning Staff and the Anglo-American productivity councils established by Sir Stafford Cripps in the years of Marshall aid. It rings out, too, from the latest industrial strategy.

Huge efforts have been put into skills training. The great Robbins Report on Higher Education in 1963 placed eloquent stress on the need for more science and technology courses and graduates. Today, the skills, scientific and technical education elements remain a prime concern, with an enhanced national performance ever more vital in a technologically leaping and ever more globalised world.

There are reasons for hope. We are a country and a people distracted by Brexit, edgy and chippy in our often impoverished national conversation, with too many people looking for things to fall out over rather than things to fall in about. I sometimes think, as an old friend of mine puts it, that we have become a country on permanent grudge-watch. Brexit is in danger of making curmudgeons of us all, yet here is an area—the theme for tonight’s debate—where a good, solid consensus is possible, a terrain where science, technology and industrial strategy meet in what is still a great intellectual trading nation. If we get it right this time, great prizes and improved prosperity await. It is tocsin time again. It is time for a burst of shared national endeavour and more than a little dash of optimism.

Photo of Baroness Warwick of Undercliffe Baroness Warwick of Undercliffe Labour 6:30 pm, 23rd October 2017

My Lords, I thank the noble Lord, Lord Patel, for providing this opportunity to consider the vital importance of science and innovation to the success of the industrial strategy.

As others have highlighted, science and innovation are areas in which the UK excels internationally. With the recent publication of more science and innovation audit reports, we now have a compelling evidence base for the specific innovation and scientific strengths of local areas, covering almost all the UK. Investing in science, research and innovation, doing more to commercialise our science base to drive growth across the whole of the UK, is pillar 1 of the industrial strategy; I argue that all the other pillars rest on it. So it seems clear to me that the science and innovation audit reports will be critical to the success of the industrial strategy. I will say more about this in a moment.

I want first to make a very simple observation. The industrial strategy Green Paper mentions universities 63 times—I am grateful to the Universities UK researcher who did the counting. As UUK points out, this reflects the significant role universities play in their local areas, but it also underlines the fact that universities are a driving force for the future prosperity of the whole UK. Our universities, in all their activities, are intrinsic not only to the industrial strategy but to economic performance more generally. While rooted in their local cities and regions, universities are connected to global growth markets. They maintain thousands of industrial partnerships and they work closely with SMEs in emerging fields. The industrial strategy must make the most of these connections. The industrial strategy presents an opportunity to draw together a number of strands of support for economic growth, but this opportunity has to be grasped.

I said I would come back to the science and innovation audits, or SIAs. The House of Lords Science and Technology Select Committee called for,

“pathways of practical steps ... building on existing research excellence at every opportunity”.

I believe that the SIAs could contribute to the delivery of such a pathway. This body of knowledge about regional strengths in science, innovation and infrastructure is critical to the emphasis on place in the industrial strategy. The SIAs bring together sector and place; I suggest that, precisely because they can be specific about which localities should be at the forefront of which industries, they could be the basis of an approach to investment which combines national coverage with regional focus, through local enterprise partnerships. The industrial strategy could co-ordinate this and also shape the distribution of money spent on innovation through other government agencies, such as Research England, and DfE initiatives, such as the institutes of technology.

The industrial strategy offers an opportunity to make investment decisions that increase the overall funding available to university research and spread this investment throughout the UK. Will the Minister tell us whether the creation of UKRI will support this approach? If so, how? Will UKRI be tasked to ensure that funding reaches all parts of the country? Established industries are dominated by major companies and research-intensive universities. The industrial strategy also presents an opportunity to look beyond the established industries to emerging sectors. I declare an interest here as a member of the council of Nottingham Trent University, and I cite the university’s involvement in the fields of medical technology and advanced materials as an example of the tremendous potential flowing from its involvement in these fields. This has long been a major area of manufacturing in the east Midlands and is one of four major themes picked up in the Midlands Engine SIA.

In what I hope will be a very positive signal on collaboration for the rest of the sector, NTU is partnering with the University of Nottingham on the stimulation of business creation in life sciences through expanding the work of BioCity Group Ltd, which now has four sites across the UK. The university is ensuring a throughput of talent from undergraduate to PhD in life and health sciences, and is looking to ensure that the local institute of technology encompasses medical technology, so that there is a genuine skills escalator locally. NTU also works with medtech SMEs through its European Regional Development Fund programmes to enhance the leadership of some of the smaller local companies, including their ability to embrace innovation. In other words, the university is tying together a number of rather disparate government initiatives and funding streams. If the Government were to adopt a rigorous approach to the industrial strategy based on the audits, it would help enormously. Can the Minister assure us that such an approach will form part of the Government’s thinking?

The additional investment of £2 billion for R&D by 2020, announced in 2016 and restated in the industrial strategy, is welcome as an acknowledgement of the vital role science, research and investment play in economic growth, but it is essential that we do not fall behind. I echo other calls today for increased investment in R&D to put us in line with the OECD average: 2.5% of GDP. The SIAs are the evidence base we need for strategic decision-making on local innovation priorities. They must inform the industrial strategy’s pillar 1—the vital investment in science, research and innovation.

Photo of Baroness Greenfield Baroness Greenfield Crossbench 6:36 pm, 23rd October 2017

I, too, commend the noble Lord, Lord Patel, for giving us the opportunity to speak in this very important debate. The transition from science and innovation to industrial strategy inevitably includes the monetisation of basic science, typically from universities. Here I declare an interest, as I have personally made that journey—from research in the Department of Pharmacology at Oxford to founding, in 2013, a completely independent biotech company, Neuro-Bio Ltd, where I am currently president.

Sir John Bell’s report, Life Sciences Industrial Strategy, covers many areas. However, time permits me to comment only on the section headed “Reinforcing the UK Science Offer”, which recommends that we should,

“work more effectively with industry and support high-risk science”.

Let us consider each of those two goals in turn: first, working more effectively with industry. The difficulty here is the very basic tension between pure and applied research. More than 500 years ago, the 16th-century philosopher and scientist Francis Bacon drew a distinction between experiments that were lucifera, those shedding light, and those that were fructifera, those bearing fruit. Nowadays this fundamental divergence in goals is acerbated by a seeming divergence in agenda between scientists in universities and potential private sector investors.

For example, universities often prefer a licensing deal to parting with intellectual property, which makes them less attractive to entrepreneurs. This is because academic institutions are ideas-rich but capital-poor. But from an investor’s perspective it is like acquiring a leasehold interest in a property development of the building only, not the actual land, and even then not knowing the final height, width, build cost or market value of end site, whereas if they can buy the land they have more scope for control. The answer is for universities not to fear, as they often claim, that the new owners of the intellectual property may risk being unable to continue funding it. To the best of my knowledge, such a scenario happens seldom, if at all. Instead, the public sector needs to realise that one size does not fit all and that bespoke packages based on negotiation are deep in the entrepreneurial DNA.

Meanwhile, things may not even get to the stage of filing a patent. Scientists mistakenly think that in so doing, they will never be able to publish in the all-important gold-standard peer-reviewed journals. The answer is to ensure that all university scientists are aware that so long as a patent is robust and filed, they can publish with hardly any delay. Investors, especially early-stage “angels”, may have little biotech experience, may find the work too high-risk, will look askance at the high burn rate, and be discouraged still further that not enough money is needed to constitute a serious return with an exit that is readily identifiable and realistic—which, to make matters worse, it does not appear to be.

The answer is for the scientist to receive training in presenting their work to the non-specialist in a way that is honest, concise and, above all, compelling. The investor really needs to understand for themselves the risks they are taking in the long term but also the implications if the outcome is successful. The scientists, meanwhile, will be baffled as to why the investors are so concerned about the management structure of a nascent spin-out. After all, they might argue, the telephone number salary quoted for a CEO would pay for several lowly paid post-doc researchers. They certainly would not grasp why investors often say that they put their money on the person as much as the technology. Scientists should realise, first, that having on their team individuals who know how to run a business is really important and that the investors are looking at their personal qualities—their innovative thinking, which in turn depends on character traits such as confidence, courage and sheer persistence. This will make all the difference to the eventual outcome, as it will to their attractiveness to investors.

Yet all too often, universities will kill this goose before it lays its golden egg by paying too little heed to the interests of the scientist and how they can be motivated to work as hard and fast as possible. The answer is to adopt a longer view and not necessarily to prioritise immediate revenue. Rather, it is to adopt the model seen so often in the USA and Israel, where handsome and much greater returns arrive, albeit eventually, from grateful alumni. Clearly, much more needs to be done for the scientists and the investment community to understand each other and their respective agendas. Yet despite this misalignment of cultures, funding science from the private sector offers real advantages, such as fast evaluations with a heartfelt belief in innovation, compared to that from the public sector review bodies, which are often perceived as secretive and lengthy, even nepotistic and frequently risk-averse.

For the second goal—to support high-risk science—let us take an example from my own field. There has been no new drug for Alzheimer’s since 2002, yet over £2 billion is spent globally each year on drugs that are variations on the same old theme but are not really effective. We need to risk a new approach by making use of the 10 to 20-year window of opportunity, once degeneration in the brain is under way but before the cognitive impairments appear. For that we would need a blood marker, as for high cholesterol and hypertension, where the problem can be detected in routine GP visits. An effective treatment can then stabilise cell loss by being given early—before the symptoms are apparent, so that they are never apparent. That would be an effective “cure”. But for such a dream, which is so needed, to be realised we need to understand the basic process underlying Alzheimer’s. For that, we need to work effectively with the investment community, and above all to take risks and be disruptive. Only then will science’s lucifera, which shed light, and science’s fructifera, which bear fruit, be as one.

Photo of Lord Fox Lord Fox Liberal Democrat Lords Spokesperson (Business, Energy and Industrial Strategy) 6:42 pm, 23rd October 2017

My Lords, it is difficult to be innovative in this debate, having heard 10 such erudite and thorough speeches, and possibly because I have already left the creativity window that the noble Baroness, Lady Greenfield, has just ably described, but I will do my best. We should first congratulate the noble Lord, Lord Patel, as everybody has, on securing this debate and on the quality of his intervention. We should be optimistic that this debate is being had, and grateful that all sides of the House are doing so on relatively similar terms, because we will and do need a plan, leaving aside the implicit issues around Brexit—which will enable me not to be chippy or curmudgeonly at all when I talk about some of the other issues that face public life.

The world is changing fast. There is the rise of international competitors, particularly from the East, as the noble Lord, Lord Patel, pointed out. There is the emergence of global technology giants, which stand across borders and territories. The looming shadow of automation, machine learning, robotics and all that are also changing the game and we have to step up. But we should be optimistic that our science and technology background may set us up to do that.

We have an industrial strategy on the cards, yet I often get the impression that when we talk about that emerging strategy, we all say what we want it to be. That wish probably differs across the House, so I thought I might give your Lordships some perspective on how we will judge the industrial strategy when it emerges from its current form, in a White Paper. We need to understand whether it will develop the skills we need; I will come back to that. But will it create sustainable and green growth across the country? Will it deliver 21st-century infrastructure, physical and digital? Will it encourage and improve investment in research and development? Will it nurture excellence while supporting and understanding entrepreneurs and innovators? Does it deliver regional and diverse growth across the country and establish the best financial and regulatory framework? That is the kind of framing we need to bear in mind when we look at that industrial strategy.

Underpinning this are skills. The noble Baroness, Lady Morgan, ably set out the case for them. We need a society that can thrive, and we need that thriving to happen right across society. We are not in that position. As noble Lords will have seen, according to the OECD nearly one-third of 16 to 24 year-olds in the UK have weak basic skills. Mark Walport, when he was still leading the Government Office for Science, gave a similar, damning assessment. High-level skills are not equally distributed across the country. There are big gaps. The UK does not do well in ensuring that people are work ready. Even when they get to work, there has been a decline in lifelong learning, so we have a big skills challenge.

As the noble Lord, Lord Hennessy, pointed out, that challenge has faced many Governments over many years, and we do not appear to be overcoming it easily. The noble Baroness, Lady Morgan, set out the need for an overarching skills and learning strategy. The Liberal Democrats support that strategy and have been campaigning on those grounds. Apprenticeships and T-levels have been offered as a solution, but they are not a unique solution. Without a gear change in delivering the basic skills that people need as a starting point to drive them through to higher levels, we will not meet the challenge.

Turning briefly to research and innovation, we welcome the recognition in the last financial statement that research and innovation need investment to thrive. That was a good step, and we hope it is just one step in a more ambitious investment journey.

The creation of the new unified UKRI has been referred to by a number of noble Lords. I was grateful to hear that the noble Lord, Lord Freeman, sees positive effects from it, and the noble Lord, Lord Bhattacharyya, should be congratulated on his role in helping to bring that forward. There is an opportunity and a challenge in bringing the seven research councils and UKRI together. The opportunity is, in a sense, that UKRI infects the research councils with innovation. I think that was what my noble friend Lord Willis was referring to. The danger is that it is the other way around and we move somewhere down the TRLs, into 1 or 2, and UKRI is dragged into research rather than innovation and development. I would like the Minister’s view on how we keep the right side, if you like, of that continuum because we do not want to lose the innovation we have.

The industrial strategy challenge fund seems to be a good idea, and it would be useful to understand the timetable. I understand that the Faraday challenge will be heading out soon. I urge that we get an early assessment of how that process is working because we do not want to keep making the same mistakes. It looks as if this is a way of tackling big problems, but we would like the Government to keep us posted about how that moves forward. The Government have likened this to DARPA, just as they have likened catapults to Fraunhofers. There is an element of delusion in this. The challenge process is not DARPA. It is not big enough or wide enough and it does not have the support of huge industries. We have to be careful how we describe what catapults do. Catapults have been a welcome introduction into the innovation landscape, and we could benefit if the Government were to put more money in and perhaps declare a few more catapults, but we should be careful in the language we use.

Are we fit for purpose? Do we have an industrial strategy that embraces the challenge and delivers the skills and the landscape that we need because we are going to need it? Industry 4.0 will change everything we do. We will need the skills and we will need to maintain, and further, investment in research and innovation, substituting lost funding from the European Union and adding more. We need to step forward with an overarching sense that this is a mission. Here I agree with the noble Lord, Lord Hennessy, and with what he said in the nuclear debate a few days ago. The nation needs to find its momentum, its push and go, around science. We, as people in public life, should be part of that process of developing that energy.

Photo of Lord Mendelsohn Lord Mendelsohn Shadow Spokesperson (Business, Energy and Industrial Strategy), Shadow Spokesperson (International Trade) 6:49 pm, 23rd October 2017

First, I point to my entry in the register of interests and to the fact that our family office is an investor in UK science and research. I thank the noble Lord, Lord Patel, for securing this debate and for introducing it so well. I also congratulate him on his appointment as the chair of the highly regarded Science and Technology Committee. I have been a huge admirer of his clinical and academic achievements; he is an outstanding figure in this House. I wish him well in that post and wish the committee continued success.

In that vein, I place on record our gratitude to the noble Earl, Lord Selborne, for his excellent stewardship of the committee over the last 11 years. Its reports have never failed to inspire and interest this House. I also thank all noble Lords for their contributions to this debate, which have been absolutely outstanding and quite expert. It shows the importance that Members of the House place on these challenges. There was one point in the speech of the noble Lord, Lord Patel, which I hope the Minister will respond to at the end, about when the Government will respond to the submission of Sir John Bell’s Life Sciences report. It is important for us to get an early indication of that. It is an excellent report that requires a very early response.

We have been through a lot of material about the strength of our research community. Our research base is a global force and our universities produce research of a quality that far exceeds that of our competitors with similar resources and population size. Our public scientific research employs some 100,000 researchers and has a turnover of £8 billion. Private scientific research employs another 150,000. We know the quality; we know the size. But, as the industrial strategy identifies, our problem has been innovation—how we take that tremendous base and move it on. As the noble Lord, Lord Patel, put it wonderfully: we have turned money into ideas but how do we turn ideas into money?

The industrial strategy, in particular its section on this area, is excellent and a very important step forward. I congratulate the Government on it, but it is still extremely worrying to see a number of things inspired by our tremendous research base that we fail to adopt. The story of graphene, discovered in Manchester in 2004, is a very important example. I recently read a research report saying that the graphene sector will have a 34% compound annual growth rate over the next 10 years. As I read through it, the report identified that the country with the largest number of companies who have adopted graphene technology—the market leader—is the United States of America. The growth markets for the use of graphene expected over that period will be in South Korea and other areas in the Asia-Pacific region. We have singularly failed to commercialise one of our greatest modern inventions. That is a very sorry tale.

It also reminded me of the story of two individuals who were considering where they were going to locate a life sciences company to establish the overall solution to Duchenne muscular dystrophy. After looking at where they were going to get the best collaboration and the fastest and strongest access to capital, including in this country, they chose Boston in the United States of America. They raised more money there, in the shortest possible time, than any life sciences company could ever do in this country. We have a real challenge on our hands, which is why I appreciate the industrial strategy and hope that we can really make some huge progress on it.

I have two very quick points to make. One is on productivity. It was only recently that we discovered through the Bank of England that productivity in Q2 this year, measured by output per hour, was just 0.9% higher than a decade ago—which is, quite incredibly, the worst performance for 200 years. The key to our industrial strategy is what it will be able to do for productivity. We have to accelerate massively our attempts to address this challenge, and I applaud and welcome the establishment of a business initiative to try and address productivity, even on a unit basis, which is to be led by the McKinsey alumnus and former director of strategy at the Guardian Media Group, Tony Danker. I wish it much success. It is an important part of this, and I hope that we will see a much broader effort to try and address productivity in the White Paper.

Lastly, the question of governance, implementation and capacity is a crucial area, and I hope that the White Paper will address it in much more detail. In the end we will fail to achieve innovation if we do not have the right institutions, learn the right lessons or have the right leadership. We have had a number of important contributions on this. The noble Lord, Lord Bhattacharyya, commented on integrated long-term implementation, which is extremely important. The committee’s own suggestion of a means, similar to the OBR, of evaluating progress on the industrial strategy is an important one; if we do not measure it, we cannot assess it. We need something that gives a nationwide sense of what the challenge is.

We have to consider the institutions that we have. Do they have the capacity and bandwidth to do what we want them to? This summer I visited Silicon Valley and Stanford, and I can tell you that the reason why Stanford is a great success and a spur of innovation is that it does not impose onerous terms or expect too much from the things that come from its places. The noble Baroness, Lady Greenfield, made absolutely the right point: an American university gets money back in a different form through donations, so our models are not the same, but universities have learned how to make innovation flourish—and it is not about the university’s role and its accretion of value to itself.

There is a lot that has to be learned by our institutions in a very short space of time. We talked about DARPA. The question of whether or not we need such an institution is important, as is the question of whether we have the right range of institutions. In relation to the ones that we have, does Innovate UK have the right money or the right capacity, and can it invest the right money? Surely the Rainbow Seed Fund, the fund that we established to try to promote our research and innovation, is a paltry fund. I must declare an interest: I have co-invested with the fund, which I think is a most outstanding institution. To my mind, the fact that through the fund and others like it we have not invested the billions that are necessary to innovate in our country beggars belief, and I hope the White Paper will address that.

Photo of Lord Prior of Brampton Lord Prior of Brampton Parliamentary Under-Secretary (Department for Business, Energy and Industrial Strategy) 6:46 pm, 23rd October 2017

My Lords, I find myself in the slightly odd situation of being able to agree 110% with what the noble Lord, Lord Mendelsohn, has just said; I do not think there is anything between us at all. I thank the noble Lord, Lord Patel, for tabling the debate today. It has been interesting insightful and opportune, given that the White Paper is coming out in November.

I am afraid I shall disappoint the noble Baroness, Lady Morgan, and the noble Lord, Lord Fox: I am not going to address skills today. Clearly they are utterly critical, and the cultural divide that we have had between academic and technical education has been a disaster for this country since 1944 and probably earlier—I think we are all in agreement on that—but I shall talk more about science and innovation today, if I may.

When the Green Paper on the industrial strategy was launched earlier this year, the noble Lord, Lord Hennessy, asked with a customary rhetorical flourish, “Where is the magic?”. I think he had read eight previous versions of the industrial strategy and, quite rightly, was saying, “What is different about this one?”. I have thought about that a lot. It may lie in our culture, in our great institutions, in our legal system or in our national character. It may lie in the welcome that we have always given to people from different countries. It may lie in that very difficult and shifting balance between social justice and entrepreneurship. It may lie in all those things, but if I had to choose one—if I had to say where the magic was today—I would say our great universities and research institutes.

The story may be apocryphal—if it is, no doubt the noble Lords, Lord Bhattacharyya and Lord Patel, will tell me afterwards—but soon after India became independent in 1947, Nehru asked John Kenneth Galbraith, the great American economist, for advice on how to modernise the Indian economy. The great man is supposed to have replied, “Establish an independent flourishing university sector and wait for 800 years”. Of course you do not have to wait that long, and Warwick and Bath are two universities that are testament to that, but it is perhaps no coincidence that our two oldest universities, Oxford and Cambridge, are ranked first and second in the world. It has been said that in the Dark Ages the monastery kept alive learning, progress and civilisation; in the Middle Ages the centre of gravity moved to the castle; and in the industrial age the factory became the epicentre of economic growth and power. In today’s age, the age of information and knowledge, it is the university that stands centre stage—not some gleaming academic ivory tower but a seat of learning, driving ideas, innovation and science into a connected ecosystem. This is the magic that has created the world’s most powerful economic ecosystem in Silicon Valley, an alchemy that brought together great universities such as Stanford and Berkeley with great entrepreneurs, with enlightened government support—we have already talked about DARPA today—and with intelligent, long-term, patient capital, as my noble friend Lord Freeman stressed in his speech. As the noble Lord, Lord Willis, said, it is bringing together, fusing science and entrepreneurship, that makes Silicon Valley, Boston and those other great ecosystems around the world so successful.

In the UK, the first industrial revolution was ours. The second, the factory age, was ultimately won jointly by Germany, Japan and the US. The third industrial revolution was unquestionably won by the USA. The fourth industrial revolution, which is now upon us, based on AI, robotics, quantum computing and the like, is what we are now playing for. Clearly, the US and China will be at the table, but we must make sure that we are there, too.

Where are we? We have four universities that nearly always figure in the top 10: UCL, Imperial, Oxford and Cambridge. We have 31 in the top 200. The Elsevier report published last month shows that we account for 9.9% of downloaded academic articles, 10.7% of citations and 15.2% of the world’s most highly cited articles. The UK continues to rank number one by field-weighted citation impact.

If we look around the country, we can start with the Crick and the Turing Institutes at King’s Cross, move to Norwich, where I come from, where there are the John Innes and the Tyndall centres, and move up to York, with its extraordinary work on optics and digital infrastructure. Further north, there is Dundee, where the noble Lord, Lord Patel, was such a distinguished academic clinician. Look at its extraordinary record of drug discovery. We can come past Huddersfield, not a place associated with a great university, but it has an extraordinary hidden gem there in rail technology, and down to Warwick.

The noble Lord, Lord, Lord Bhattacharyya, mentioned the National Automotive Innovation Centre, a joint venture between Tata, JLR and the Warwick Manufacturing Group. It is an extraordinary success how Warwick, quite a young university, has developed that extraordinary technology. JLR invests £3 billion a year in research. That is one company with revenues of £25 billion or so. It is an extraordinary commitment to research, and we are very lucky that it does that.

If we come down from Warwick, we find what is possibly the most extraordinary research institute in the world: the Laboratory of Molecular Biology at Cambridge, the birthplace of modern molecular biology, with 11 Nobel prizes to its name. It is led, of course, by a Nobel prize winner, Venki Ramakrishnan, and, of course, we should pay tribute today to Richard Henderson for his Nobel prize this year for his work on electron cryo-microscopy. I note in passing that Richard Henderson shared his Nobel prize with a US and a Swiss researcher, and that that Venki Ramakrishnan was born in Tamil Nadu in India and shared his Nobel prize with two scientists from the US and Israel. Science is international, and respects no boundaries. If we in our country do not accept that and welcome people from abroad, we are cutting off our nose to spite our face.

I turn now to the ecosystem, if you like—the innovation side of the equation. You can look at this through the lens of intellectual property, of royalties, of spinouts, of unicorns, or however you want to measure it. We all know what we mean. The question is: are we capturing for the UK the downstream value added of science, or are our universities instead still to some extent basking in the glory of academic excellence? This is not for one minute to downgrade the value of basic, fundamental blue-sky research, just to raise the question: are we making the most of it? As the noble Lord, Lord Patel asked: are we turning ideas into money?

Historically, the answer has to be a pretty emphatic no. I suppose the most egregious example that I have come across is that of monoclonal antibodies, discovered by two researchers at LMB and humanised by Greg Winter, who is today the Master of Trinity College. Monoclonal antibodies today comprise six out of the 10 best-selling drugs in the world. We hardly make a biologic in this country. Why could we not have just one Genentech in the UK? We have none. As the noble Lord, Lord Mendelsohn, mentioned, graphene was discovered at Manchester University in 2004, yet today we hold just 21 graphene patents out of a total of 2,224. It is now an area dominated by the US, China, South Korea and Japan. I could go on. The British consulate in Silicon Valley says that it fields inquiries from more than 300 companies a year looking to make the move to California. Illumina is based there, with a market cap of $30 billion, based on gene sequencing technology again developed at the LMB.

But that is looking backwards. We are getting much better. UK universities’ knowledge exchange income has increased by 27% between 2010 and 2016, to £4.2 billion. Universities are increasing engagement with businesses, with income from businesses increasing by 6% from 2014-15 to 2015-16, and with 71% of this coming from collaborative research, contract research and consultancy, but that is still nothing like enough.

The knowledge exchange framework announced by my honourable friend Jo Johnson two weeks ago is a start to try to address that issue. We are going to measure universities not just by teaching and research excellence but by how much added value they put into the community. In the US, the Bayh-Dole Act, which came in in the 1980s, fundamentally changed how universities in the United States commercialised their research. Economists say that it was probably the most significant Act passed in the US in the past 40 years. I hope that the knowledge exchange framework will do the same in the UK.

I was very struck by the comments of the noble Baroness, Lady Greenfield, about taking research out of universities. How right she is. Carnegie Mellon University, MIT in Boston or Stanford have a “5% and go in peace” policy. They encourage their scientists to set up spin-outs; if you are not doing that, you are not proper scientists in those places. They take 5% of the equity and go in peace; they do not hang on to all the intellectual property or royalties. A lot of British universities still keep between 40% and 60% of the equity, and they wonder why entrepreneurs find it hard to raise money in capital markets.

I have a much longer speech than I have time to give this evening. We are doing work with higher education innovation funding, the connecting capability fund and, of course, the industrial strategy challenge fund. So the Government are fully apprised of this; nothing has been said in this debate that the Government are not wholly in agreement with.

When it comes to the scale of investment, noble Lords are absolutely right in saying that we are way off the pace. We spend 1.7% of GDP on research and development. The average in the OECD is 2.4%, but Germany spends 3% and wants to spend 3.5%. Our aspiration is to get to the average of the OECD, of 2.4%. We must keep making the argument that returns on investment in this area are as good as you can find anywhere.

I have only one minute left, so I shall end with a point on long-term patient capital. We are making some progress: Neil Woodford has the Patient Capital Trust established in Oxford, but clearly this is an area—particularly in bioscience, where it takes 20 years to bring a new drug to the market—where there is an absence of intelligent long-term capital. I hope again that the industrial strategy will produce that in November and have something to say about that issue.

I thank the noble Lord, Lord Patel, for introducing a fascinating and useful debate, which will certainly help our thinking as we move to the White Paper in November.

Photo of Baroness Warwick of Undercliffe Baroness Warwick of Undercliffe Labour

Could the Minister comment briefly on the role of UKRI in ensuring that investment and funding is spread right around the country?

Photo of Lord Prior of Brampton Lord Prior of Brampton Parliamentary Under-Secretary (Department for Business, Energy and Industrial Strategy)

I have two quick comments on that. First, place is very important. We cannot address this fundamental productivity problem that has been mentioned in the south-east—if this is a golden triangle strategy, we have failed, so place is very important. Secondly, UKRI is bringing together Innovate UK with the research councils, and that is extremely important. I assure the noble Lords, Lord Willis and Lord Bhattacharyya, that Innovate UK is of fundamental importance to this; it would be a disaster if it got captured by the research councils.

House adjourned at 7.09 pm.