Industrial Strategy

Lord Bhattacharyya Excerpts

Monday 8th January 2018 Lords Chamber

[Lord Bhattacharyya (Lab)]

My Lords, I declare my interest as chairman of WMG at the University of Warwick, as set out in the Register of Lords’ Interests. It is fitting that the first debate of the year is on the industrial strategy; 2018 is, after all, the Government’s Year of Engineering. Being an engineer, I shall concentrate just on the engineering sector of industry.

The industrial strategy is most welcome. I am sure that the challenge fund, increased tax credits and the national retraining scheme will make a real difference in the short term. The five foundations are broadly right; the grand challenges are all important. But however welcome, an industrial strategy needs more than good immediate announcements and exciting challenges.

In our previous debate on the industrial strategy, the noble Lord, Lord Hennessy, pointed out that this is the eighth attempt at an industrial strategy since the war—I think that somebody else said that it was the ninth. The sheer number of strategies shows the disconnect between them and demonstrates the core problem of Britain’s approach to industrial policy. We focus on the short term and not the long view. We do not review success, revise targets or refine our approach. We just rip it up and start again from scratch a few years later.

The consequences can be disastrous. We have had many White Papers on skills—just to give one example—but there has been no consistency in implementation and no stability in institutions. We have gone from levy to grant to levy, from training boards to skills councils and back. These changes have often been confusing and chaotic. It is no surprise then that we have a near-permanent skills crisis. With all the money that has been spent on it during the past 20 years, nothing has happened.

I have one big hope for this strategy: that it lasts longer than the others. A short-term industrial strategy can never succeed. You need time to implement it on the ground, time to bed in institutions and time to build partnerships, but we do not give a strategy much time before we decide that it is time for a change of plan. This is especially true for Ministers. We have already lost the noble Lord, Lord Prior, and I think that we nearly lost our Secretary of State, Greg Clark, between today’s opening and closing speeches. I hope that he is still there.

[Noble Lords]

He is here.

--- Later in debate ---

[Lord Bhattacharyya]

Oh, hi.

The turnover of people is matched by changes of policy. For many years, everything was seen as interventionist. Even research and science budgets were reduced—it was not the job of government. I remember that the first thing done by the Blair Government was to put back the science budget because it was in a terrible state. However, the research institutions that worked with industry had closed, so we had to reinvent them. I hope that the next industrial strategy is an update and not a reboot.

Another reason to focus on implementation is to keep our focus on delivery and then fixing where we fall short. For example, we have one of the lowest rates for business R&D, both within firms and in collaborative research. The Government have as a target for total R&D spending 2.4% of GDP in 10 years. It is a good target, and we want to hit it, but in 2004, the target was 2.5% of GDP, also in 10 years. Fourteen years later, total R&D spending as a share of GDP is largely unchanged, and the target is still 10 years away.

Is it a total policy failure? Not at all. Some sectors have made outstanding progress. Automotive businesses in this country disappeared completely. Today, automotive businesses have more than trebled R&D spend in a decade, from £1 billion to £3 billion a year. As a result, exports have doubled in a decade. Ninety per cent of that growth happened before Brexit devalued the pound. Imagine what would have happened if we had stayed in Europe. The challenge is replicating that success. It is the result of years of hard graft. When the great recession hit, the automotive sector struggled to get the help it needed to survive. As I said, “industrial strategy” and “intervention” had been anathema in government, so car makers chose to manufacture one. We started with a sector-wide Automotive Council so that the industry spoke with a single voice. We used this to secure support from government. The greatest success in BEIS today is what is happening with the Automotive Council, with all the industries together working with government. That led to collaborative investment in lightweight materials, low-carbon and connected and autonomous vehicles, all ideas which would completely change transport.

We built collaborative research centres to work on industry priorities, from battery technology and improving welding to data security. Big data analytics are completely changing the way in which cars are designed. Crucially, we persuaded global R&D leaders such as my friend, Ratan Tata, to invest in Britain. That put us in the right position to make a case for further investment, with money from government and industry together. This is where the regional policy comes into being. Our new mayor, Andy Street, and the local authorities—some are Labour, some are Conservative—have come together and we are now in a position to create 30,000 to 40,000 employment opportunities in the Midlands sub-region which had completely disappeared. That was one reason why the £80 million Faraday Institution for battery research was announced by the Secretary of State in October. There is also the business-funded, £150 million National Automotive Innovation Centre at Warwick, which will have a budget of about £1 billion within the next five years. On top of that, because there has been a big skills problem, we decided jointly with the LEP to fund a big apprenticeship centre, which will have 1,000 higher apprentices by the end of this decade.

Unless we have all such bodies joined up and the local authorities and regions working together, nothing will happen. It is the firm foundation that allows us to raise our ambitions. The challenge now is to encourage more business R&D in other sectors and increase our innovation intensity. We can use one successful sector to lead the way for others. In Britain, people used to say, “Oh, well, the automotive industry has disappeared. We should not be a manufacturing nation. We should only be a service sector; we should only be in the financial sector”. Let us now imagine it: the sector that died and lost tens of thousands of people in employment has come back within a matter of eight years. We have the skills in this country; we have the R&D base in this country; we have just to get our act together and it happens.

I shall give another example. The pressure on the automotive sector for lightweight vehicles has led to a challenge for our steel and materials industry. The noble Lord, Lord Prior, knows all about this. We need to reduce vehicle mass by 15% percent; if not, the Chinese will kill us. As a result of low-carbon vehicle targets, the UK steel sector needs net shape facilities. In this sector now, Port Talbot has been rescued without very much money from government, but with government support, including government moral support and, again, making the regions come together, with the Welsh authorities, with a LEP there and various other authorities coming together to save Port Talbot. I am pretty sure that in five years it will be one of the best steel plants in Europe.

We can do this because success breeds success. If we do not do research in that area we will again fall behind the Chinese and the Germans—even the Germans have struggled with the Chinese—and again have a sector where the raw materials will be coming from other countries. This is what this strategy is all about and it leads me to a crucial point. A strategy for the long term does not exist in a vacuum. Our industrial strategy needs to inform the rest of government policy. Our steel industry needs to invest in areas where the car industry has a market for it. All these sectors are not so independent that each can have its own sectoral industrial policy.

I give another example. We need to be very careful when we change behaviour with tax incentives. The Treasury encouraged Britain to buy diesel cars because they have the lowest emissions. Now British cars have the lowest emission tariffs. So what does the Treasury do? It raises duties and overnight the market collapses, because of the perception that it is raising duties because eventually the Government will ban diesel cars. This is another enormous waste, when one part does not know what the other part is doing. I hope that the Government understand that the right hand needs to know what the left hand is doing. It is no use having the integrated strategy that the noble Lord, Lord Heseltine, has mentioned many times if, within the Government, there is no integration. So I welcome this strategy. It is not perfect—nothing is—but it is a very good start and we should give it time in order to make it work.

Science and Innovation Strategy

Lord Bhattacharyya Excerpts

Monday 23rd October 2017 Lords Chamber

[Lord Bhattacharyya (Lab)]

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.

Steel Industry

Lord Bhattacharyya Excerpts

Tuesday 25th April 2017 Lords Chamber

[Lord Bhattacharyya (Lab)]

My Lords, I declare my interest as chairman of WMG at the University of Warwick. When I started my engineering career back in the 1960s, British steel was respected around the globe. From Bessemer’s processes to Goodeve’s BISRA stainless steel, Britain was the home of global steel innovation.

However, no other nation has treated its steel industry the way that we have since. We did not just throw the baby out with the bath-water, we threw away the bath, the taps, the pipes and sewers. First, we had three decades of contradictory, inconsistent and underfinanced industrial strategies, then three decades of no strategy at all. That left us exposed so that the steel crisis hurt British producers more than our competitors. It is a global crisis. There are over 200 anti-dumping measures listed at the WTO against one country alone. We are at 30% global overcapacity and flat demand, yet steel capacity is increasing by more than 5% a year.

The world steel market is clearly distorted. So local action to ensure a level playing field for British producers is essential. I quote a former steel-worker on what must be done. He said that the Government needed to take “three tangible steps”: first,

“ensure low exchange and interest rates”;

secondly, reduce the “excess costs” that British steel faced versus its European competitors; and, thirdly, take,

“urgent, quick action to bring in anti-dumping measures”.—[Official Report, Commons, 21/10/1998; col. 1201.]

Perhaps President Trump has been listening. The insightful former steel-worker was the Minister, speaking in 2001.

More than 15 years later, we still need urgent action. Ministers described their own business rates policy as “bizarre” two whole years ago, but we still have not heard what will change. The Government said before the previous election that British steel-makers pay twice as much in energy costs as German firms, yet last month, we heard that action on the renewables obligation still needs European approval. In strategic industries, when times are tough, the Government need to offer fast relief. If European agreement is needed, why is steel a low priority in our Brexit negotiations?

I hope that I did not embarrass the Minister by citing his speech. I am delighted that he has been appointed to his job: we need Ministers with passion for their brief. Perhaps I may make amends by telling him that he has an ally in No. 10. The Prime Minister’s chief of staff wrote last year:

“We do not have to accept ‘dumping’”,


and has called our energy policy,

“a monstrous act of self-harm”.

He seems keen to deliver the urgent action that the Minister wanted.

If we are to do more than just slow steel’s decline, our industrial strategy must look well past the current crisis. Since the end of the war, British steel has suffered from underinvestment and instability. We have created a short-term, inward-looking industry. In the 1970s, we spent about the same on R&D as France and Germany, but we did not implement the results. By 1980, we had the lowest proportion of continuous casting of any major steel producer. Under Governments of all parties, steel was left exposed and uncompetitive.

Even now, producers struggle with that legacy, whether on pensions—although we hope that that is now sorted out—or on business rates, energy costs or weak infrastructure. Tata Steel invested more than £1.5 billion since buying Corus. I was heavily instrumental in that. Much of it has gone to correcting the errors of the past. When Tata felt that it had to close last year, it was because it was losing £1 million a day. It knew that much more investment was needed. All it was offered by the Treasury was tea and sympathy. However, there has been some change in attitude in the past year.

That is why our steel industry has declined to the point where Canada, Poland and Belgium all produced more than us last year. This is not a case of a productivity gap—British steel workers are productive and flexible. It is very seldom that they have gone on strike. It is a lack of long-termism, investment and innovation which fetters them.

To put that right, we need to do three things. First, we need to focus on future market requirements. Total steel demand is stagnant, but demand for specialised and advanced, lightweight, high-strength steel will only increase. Further, as a mature market, we can anticipate future trends in reuse, recycling and steel waste. Excellence here will encourage foreign investment as carbon emissions come under greater pressure.

Secondly, we need better infrastructure and procurement. Port Talbot’s lack of proper port facilities hampers its exports, but there is little help for steel producers on future procurement by the Government. Finally, we need to do more to make our innovations impactful. We are doing globally significant materials research in the UK, and we need it to reach the market. The promised steel sector strategy should support investment in steel recycling, advanced materials and improved production processes. The research being done now shows that there are opportunities.

At WMG last month, one of our PhD students won the American Association for Iron & Steel Technology prize for best metallurgy paper by a student, for a paper given on peritectic steel. I would explain what peritectic steel is, but I am sure there is no need. The Economist noted last month that WMG’s research on belt casting and advanced materials could reduce energy used in steel production by one-third. We rightly hear of the need for more diversity in British science and technology; both the research projects that I mention are by women. As the Economist says, this kind of innovation is why producers are considering a new steel plant in the UK.

We need immediate action on this crisis. We also need to support long-term investment, anticipate future needs, increase the commercial impact of our material innovation, and protect our steel market against dumping. That is a huge problem, not just here but anywhere in the world. That is why Trump has just introduced anti-dumping measures. We have had enough White Papers; perhaps it is time for a little bit of white heat. To put this right, we must look at the future market requirements: steel demand is stagnant, but demand for specialised and advanced, lightweight, high-strength steel will only increase. Further, as a mature market we can anticipate future trends in reuse, recycling and steel waste. Excellence here will encourage foreign investment as carbon emissions come under greater pressure. Furthermore, we need better infrastructure and procurement. Now that the problem at Port Talbot has been solved, with the unions and owners agreeing on a 10-year strategy, the lack of Port Talbot’s facilities hampers exports, while there is little help to steel producers on future procurement by government.

Finally, we have to do more to make our innovation impactful. We rightly hear of the need for more diversity in British science and technology, so it is worth saying that both research projects that I mentioned are by women. That is the kind of innovation that we need, and perhaps that is why the Government should spend more time not on talking but on white heat.

Higher Education and Research Bill

Lord Bhattacharyya Excerpts

Report: 4th sitting (Hansard): House of Lords
Wednesday 15th March 2017 Lords Chamber

[The Earl of Selborne (Con)]

My Lords, I welcome government Amendment 183, which addresses the issue that the noble Baroness, Lady Young, has just referred to. As chairman of the Science and Technology Committee, I can confirm that we were indeed concerned at the original proposals, some months back now, that Innovate UK should be put together with Research England into a research council, because it was clearly absolutely essential that the business community should have confidence that it had Innovate UK very much at its disposal as its organisation, and it was not somehow going to be subsumed by the research councils to be the commercial arm of Research Councils UK.

I accept that the concerns expressed by the noble Baronesses, Lady Brown and Lady Young, have validity, but I recognise that the government amendments, particularly paragraphs (a) and (b) in Amendment 183, requiring arrangements to have regard to,

“persons engaged in business activities”,

and,

“the need to promote innovation by persons carrying on business”,

go a very long way from where we were some months ago. I, for one, am content to accept these as meeting most of my original concerns.

[Lord Bhattacharyya (Lab)]

My Lords, I draw attention to my interests as declared in the register, and specifically to my chairmanship of WMG at the University of Warwick. I should also mention that I served as a member of Sir Paul Nurse’s review of the UK research and innovation landscape that put all this together.

As peace appears to be breaking out today, I hope that those who laboured for so long in the salt mines of Committee will allow me a few brief words on Amendments 166, 173 and 183. All three will help Innovate UK promote partnerships between business and academia. I can tell your Lordships that that can be a tough job. When I started WMG, we encountered a lot of opposition. Academics are protective of their independence from commerce. However, engineers like making an impact—the bigger, the better—so their curiosity won out in the end.

We know that academic traditions can obstruct business collaboration. For example, grant application writing is a highly prized skill in universities, for a very good reason: critical assessment of research proposals is vital to academic debate. Businesses see this rather differently, especially if they are expected to disclose commercially sensitive knowledge. The Technology Strategy Board was created to address this cultural gap. We debated it here for about four years before it was formed because there were arguments on whether government should intervene and pick winners and many other arguments at that time. But we won and the Technology Strategy Board was created. Of course, this body is now Innovate UK.

Change is constant, so Innovate UK needs leaders who understand the way business and science are changing, as well as the flexibility to create the right partnerships. Amendment 166 would ensure this. Today, every business is multidisciplinary. If you make cars, you need programmers, cryptographers and medical researchers, as well as metallurgists and engineers. Bringing Innovate UK and the research councils under the same roof makes both scientific and commercial sense. Amendments 173 and 183 will ensure both business and scientific knowledge in Innovate UK’s leadership, allowing it to build flexible partnerships with business.

Innovate UK’s role is to act as a catalyst for business collaboration and partnership with academia. However, although flexibility is needed, Innovate UK should not be a bank. It has neither the resources nor the skill set. Instead, it should use its commercial expertise to create incentives to encourage businesses to invest in innovation. Its role is that of a matchmaker, not a moneylender. Its role has to be to improve productivity in this country via scientific research. The amendments in this group will help Innovate UK deliver on that vital task. More generally, the amendments proposed elsewhere today will do the same for UKRI as a whole.

[Lord Bilimoria (CB)]

My Lords, in relation to Amendment 166, I want to emphasise again the importance of having individuals from a business background because, all too often with these initiatives, the Government have the best of intentions but there are people involved who do not have experience in business and have not run businesses, and it is when you run businesses that you realise that innovation and creativity are at the heart of it. I would go further and say that they must come from science-related business backgrounds. Any good business has to be innovative. In my industry—food and drink—you have to be innovative. But the key issue here is having people with business backgrounds at the top table.