The Science Budget

Alec Shelbrooke Excerpts

Wednesday 2nd March 2016 Commons Chamber

[Nicola Blackwood]

My hon. Friend is absolutely right to be proud of the Culham Centre for Fusion Energy. I have visited it on more than one occasion. One of the fundamental proposals that we have made is to increase R and D investment in the UK. If he will listen a little further, he will hear exactly what we have proposed to ensure that the UK remains a world leader in that particular area of research.

With just 0.9% of the world’s population and 3.2% of the world’s R and D spending, we produce 16% of the world’s most cited papers and hold more than 10% of the world’s patents. We have produced 80 Nobel laureates. We have four of the world’s top six universities—I will, if I may, boast that one of them is in my constituency—and we attract more inward investment for research than any other part of Europe. However, it is not enough to be proud of the exceptional impact of our research base; we must also be mindful of the pivotal role that it plays in the goals that we have set ourselves as a nation.

As a Committee, we welcomed the Chancellor’s statement protecting the science budget in real terms, increasing the annual capital budget to £1.1 billion and maintaining the innovation budget at flat cash—albeit with £165 million becoming loans. We are also grateful to the Business Secretary, who gave evidence to the Committee in January, for reassuring us that not only would the ring fence for the science budget remain, but no additional organisations, programmes or spending lines could be added to that budget.

Although we welcomed that assurance, we would like to see those allocations for ourselves. The Business Secretary assured us that those allocations would be finalised in mid-February; it is now March and I am told that the negotiations are still ongoing. Will the Minister please tell the House what the hold-up is, and exactly when those allocations will be made public? We are concerned that as excellent as our research base is, commercialisation, though improving, remains sub-optimal. Crucially, despite the recent spending settlement, UK investment in R and D is internationally low at a time when our competitors are increasing R and D investment.

At 1.7% of GDP, the UK remains 12th among 28 member states for R and D investment; in 2013, Germany invested about 3%, China about 2%, and Israel and Korea about 4.2%. There is a reason why all our competitors are increasing their R and D while we lag behind. It is that R and D investment is proven to increase productivity and innovation growth. Science and innovation spending is not a subsidy, but a strategic investment that creates jobs, increases productivity and attracts inward investment.

[Alec Shelbrooke (Elmet and Rothwell) (Con)]

Does my hon. Friend agree that research, pure research and discovering inventions often lead to some of the greatest creations? There were decades between the discovery of the electron and when we were able to use it, but it now runs every part of our lives today.

[Nicola Blackwood]

My hon. Friend is absolutely right. I often like to quote Lord Porter, who says that there are only two kinds of research: that which has been exploited and that which has yet to be exploited. That is why we must ensure that the entire pipeline from fundamental research all the way through to commercialisation is working at peak capacity.

We must be mindful of the fact that, between 2000 and 2008, 51% of productivity growth came from innovation. We know that Government investment in research crowds in private sector investment, because the latest BIS analysis tells us so. It shows that £1 of public investment will increase private funding by between £1.13 and £1.60. It shows that firms that persistently invest in R and D have 13% higher productivity than those that do not. It shows that every £1 of public investment in R and D raises private sector R and D productivity by 20p each year in perpetuity.

Our top recommendation to Government was to produce a long-term road map to increase public and private R and D investment up to the 3% EU target. That would sit well alongside the national innovation plan, which I understand the Business Secretary is proposing. We are not alone in calling for that increase; other Select Committees and institutions have done so before us. In fact, it was BIS’s own analysis in 2014 that called for the UK to increase R and D investment up to 2.9%, which is the average of our competitors, commenting that those competitors do not appear to get poor returns on their investments.

If the evidence is so compelling, what would such a road map look like? Based on international analysis, if the UK were to invest 3% of GDP in R and D, we would expect a third of that to come from public spending. Policies and the road map would need to be a combination of increasing Government R and D and stimulating private sector investment beyond the life of this Parliament. Although protecting the science budget proper and the ring fence in this Parliament is a good start, we also believe that the policies need to protect the departmental R and D and to make it more transparent and necessary. Departmental R and D has plummeted in some Departments in the past decades; reversing that trend can only lead to better government and will also create all the virtuous effects that we saw in the previous Parliament.

We also need to target private sector investments to scale-ups. The UK has become a country with lots of start-ups, but not enough companies make it through the so-called “mid-cap gap” to become £1 billion valuation quoted companies. Incentives for early-stage investors to build and stay in companies are needed. Options might include increasing the enterprise investment scheme threshold to cover £100 million companies.

There could also be incentives for investors to hold on to eligible research-intensive companies for longer and not to sell them. Those incentives could include reintroducing the capital gains tax taper relief to reward 10 to 15-year exits from investments in such companies. There could also be incentives for pension and institutional fund investors to invest in research-intensive companies, as they tend to have a longer term outlook. A programme such as a capital gains tax break on the dividend returns for funds in proportion to the percentage of the fund that is invested in a research-intensive company might be an option.

We could also look to our immigration policy for possible opportunities. Tier 1 investor visas require individuals to invest £2 million in the UK for the duration of their stay. The Migration Advisory Committee has recommended that those sums should be invested in the public good, such as in hospitals and schools. There is an opportunity here to assemble a portfolio of investment for research to meet that criterion so that our science, technology, engineering and maths ecosystem could benefit from that investment.

The immigration skills charge is a final option that we could propose. We urge the Minister to consider an exemption for the STEM PhD-level certificate of sponsorship from the immigration skills charge. That would boost the STEM PhD employers. Furthermore, PhD-level exemptions already exist in the visa system in recognition of the need to recruit for these posts from the best in the world.

Those ideas are just a starting point, but our message is clear: we believe that increasing UK R and D investment to a competitive level needs to be a matter of national priority, and a long-term road map is the right mechanism to achieve it. Getting the science spending right is about not just how much we spend, but how we spend it.

We also received worrying evidence that not all of our capital projects were operating at full capacity due to inadequate resource allocations. The ISIS neutron source worth £400 million at Harwell is operating for only about 128 days instead of an optimal 180 days due to insufficient operational costs. Similar problems were reported elsewhere, including in the Catapult network. Although we welcome the Government’s commitment to the Catapult network, which is working well, we urge them to consolidate and fully fund the existing network before expanding it. It is simply wasteful not to ensure that we are putting enough resource into the system so that we can realise the full value from all capital investments. That is why we called for a review of all capital and resource allocations to ensure that all future capital investments are allocated the resource necessary fully “to sweat our assets”.

The Business Secretary accepted that problem when he appeared before us, and he assured us that a review was under way to ensure that the situation did not happen again. He committed to send the Committee the results of that review, but we have not received them, so I hope that the Minister can update us on progress today.

The Business Secretary identified France and Finland as the inspiration for the introduction of innovation loans. The Committee would be interested to hear what metrics the Government used to conclude that loans were effective for stimulating innovation. We understand that the Government intend to pilot this scheme. As a Committee, we can only commend a scientific approach to measuring the impacts of different types of instruments before settling on a specific grants/loan mix, if that is the intention, but it would be helpful to hear from the Minister at the outset what hard evidence there already is on which financial instruments work best and what his plans are to build on that evidence before introducing such loans.

Finally, we were crystal clear that on no account must the Government’s proposals for reorganisation of the research councils and higher education undermine the dual funding system or the Haldane principle. In his evidence to the Committee, the Secretary of State said that there would be one response from Government covering Dowling, Nurse and the higher education Green Paper. He could not give us a timeline for that response, however. Given the far-reaching impact of these proposals and the current uncertainty surrounding the Government’s intentions, I hope the Minister can be a little more definitive today. Will he please not only say when the Government will publish their response, but clarify a number of points?

First, do the Government plan to adopt Nurse’s proposal for a ministerial committee and, if so, what form will it take? Will it be a single Minister meeting Research Councils UK, or will it involve Ministers from across key Departments? This will clearly have an important impact in terms of the politicisation of funding decisions. Secondly, can the Minister give us at least some sense of the major concerns raised in the Green Paper consultation process—in particular regarding merging the Higher Education Funding Council for England’s science budget allocation role with Research Councils UK? What specific measures are being proposed to ensure that the dual support system will be safeguarded if these changes go ahead? Finally, what additional costs does he anticipate the implementation of Dowling, Nurse and the Green Paper will incur and will those have to be found from within the existing science budget settlement?

Our goal in this Budget and Parliament should be to unleash the full potential of every local economy in Britain. In an increasingly knowledge-based economy, the pursuit of excellence in research and innovation is at the very heart of effective strategies for sustainable growth, increasing productivity and creating high value jobs. It is not enough just to aim for stability—for maintaining the status quo—especially if policies and spending decisions are based more closely on templates of the past than on analysis of future challenges.

Globalisation means that a single disruptive technology can create a worldwide market shift in what seems like an instant, and our STEM ecosystem needs to be the most agile and responsive in the world if we are to compete. However, we will achieve that agility only if we recognise that we are operating in a global market at home as well as abroad. Some 25% of university research income comes from overseas, largely the EU. Some 50% of business R and D in the UK is from firms headquartered overseas, and R and D from abroad has grown by 59% in recent years. A quarter of top researchers operating in the UK are not British nationals.

Investors and talent need to see the Government instil confidence in the research base, but with the Green Paper, the Nurse review and the upcoming pilots of innovation loan systems, we are sending signals of turbulence and uncertainty. It is time for the Government to step up and make it crystal clear that the UK’s science and innovation is built on a rock-solid foundation. It is time for the Government to end uncertainty over Nurse, Dowling and Green Paper reforms and set out their direction, and it is time for them to demonstrate commitment to creating stability and certainty for science, with a long-term road map for increasing public and private R and D to competitive levels. In that way, we would supercharge the proven, stabilising effects of the ring fence and capital commitment, capture large-scale inward investment and secure our status as a bona fide science superpower.