Examination of Witnesses (Questions 1-19)
LORD PUTTNAM OF QUEENSGATE, MR JEREMY NEWTON AND MR MIKE TOMLINSON
MONDAY 8 JULY 2002
Thank you very much for revisiting us. You were here almost three years ago, but you are very welcome because you will remember how supportive this Committee was of what you were up to, and we are looking down the line now to see what has happened. Lord Puttnam, would you like to say a few words to begin?
(Lord Puttnam) Chairman, may I start by introducing the NESTA delegation. Jeremy Newton is our Chief Executive and has been from NESTA since its birth. Also with us this afternoon is Mike Tomlinson, a member of our education committee and for the past three months head of our Science Year project. Mike, as you will know, was the former Chief Inspector of Schools but prior to that he was also a science teacher, which seems entirely appropriate. I have a short prepared text, which I give purely in self-defence, having discovered how incredibly garbled my evidence appears to be when I read it back.
1. You are used to shouting with a megaphone, no doubt!
2. It is an exciting time for NESTA. We have been up and running for three years and gave out our first tranche of awards a little over two years ago. In that time we have invested in over 200 awards: 90 invention and innovation; 60 fellowships and 60 education projects, with a total value of a little more than £20 million. We have a wide and diverse portfolio across science, technology, engineering and the arts, with a growing number of cross-disciplinary projects. We are starting to see a return on our investments: our awardees have filed 30 new patents; they have registered 25 new companies, and several have attracted substantial additional funding. We have even earned our first royalty cheque from an awardee who has developed a new diagnostic tool for fuel injection engines. Many awardees have created new works of artistic and cultural significance, and our education projects have made exciting inroads into new and, we hope, innovative ways of learning. We have also successfully launched NESTA Futurelab, to pioneer the development of a new generation of educational content for the broadband age. However, we are still in the very early stages of our existence. We are investing for the long term, and it will be a few years before we see the full benefits of our investment policies. As we begin to see the results of our support we are also beginning to learn the lessons from what we are doingacting as an intelligent investor, trying to build on both our successes and our failures. We have more to do, with limited resources, to evaluate our contribution and to share the lessons we are learning, both with practitioners and policy-makers. Given our limited resources, we will only ever be part of the solution, but we hope to be a significant and a catalytic one. I hope that this issue of being a catalytic influence is something that we can return to. NESTA gives a lot more than just money to awardees; we give business advice, mentoring and media support. We believe that this is the right thing to do, and awardees tell us that it is probably the most valuable aspect of working with us. Packages of tailored support increase chances of success, and if we did not provide it awardees would have to spend time and resources getting exactly the same advice from somewhere else. An important feature of NESTA's work is engaging the public and encouraging them to participate in science, technology and the arts. In this, we believe that we have made real progress. Through Science Year, we have engaged with thousands of school students, and the Committee will, I hope, remember its very special session at the Science Museum this spring to launch Science Year's student curriculum review. Our education programme has grown into a highly constructive intervention, with many projects designed to inspire people, especially young people, to consider careers in science and technology. We believe that this is a key part of our role, improving public awareness and participation in science and technology. If we can crack this, we will also make inroads into a number of the other issues we faceoverall skills shortages in the sciences and engineering; making it easier for talented scientists to get the support they need in this country, rather than having to go overseas. There are a number of others, but we believe we have made a good start. However, there is still an enormous amount to do.
3. Thank you for setting the scene. The Times stated that your awards were "a superb collection of the zany, the inspired, the speculative and they might just change the world". Is that what you expected?
(Lord Puttnam) We did not write it, but we were pretty delighted to receive that accolade. It sums up the quality and diversity of the types of things we are supporting.
4. The Royal Academy of Engineering went on and put out a call for comments on NESTA amongst its membership. We have seen them in many guises. They had a large response of 130, and 110 of them had never heard of you. I just wondered what you thought of that. Youbad PR? It is hard to imagine.
(Lord Puttnam) It is hard for me to comment on the Royal Academy of Engineering, but until recently I was a privy council member of the Engineering Council. As you may know, there is some discord within the engineering community. As a result of that the Government has decided, I think correctly, to form a single engineering entity. If I had been able to give one single piece of advice to the Prime Minister five years ago, it would have been, "spend your time being good, as opposed to looking good". I think that we have spent our time very, very well, being good. If to some we have not appeared visible enough, I have no particular regrets, and I would certainly hope that the new engineering body would feel very differently a few years from now. We have gone out of our way to engage with the engineering bodies. They have not proved to be the easiest people to tango with.
5. Do you think it may be more important to engage with the public? In other words, the Lottery has re-branded itself with Billy Connolly, of all people, and David Beckhamand it is all there for you. There are champions for science out there, and even the Royal Academy of Engineering must watch television now and again. Why not dumb it down a little and not just send it to the great and good in the engineering community?
(Lord Puttnam) We had a very good trustees' meeting a month or so ago where we decided for the first time that we had the sort of story to tell that would allow us to start banging the gong. I am not sure we have previously felt confident enough to do that. We also were very conscious of the resources we had and the fact that we could very easily be criticised for spending significant sums on promoting ourselves as opposed to making sure the bulk of the money got into the hands of our awardees. There is now a realisation that we have to make more noise.
6. Lord Puttnam, I have the distinct impression that your ambitions are somewhat bigger than your budget. Indeed, your budget is currently smaller than you anticipated at the outset. Is this down to unfortunate investment, and what have you had to cut in order to live within that budget?
(Lord Puttnam) We have not thus far had to cut anything because we have seen ourselves as very much operating in a trial period. It is also true to say that the original announcement of NESTA was always conceived as a half billion pound endowment, and I would make the judgment that is the sort of sum you need to make significant inroads.
To put that in perspective, because it sounds like a hell of a lot of money, if we were a half billion pound endowment, in the United States we would come in no.67, which is just behind the Kansas City Community Fund; so these are not, on a global scale, vast sums. In the UK it would bring us in at about no.10 or no.11. That is what is basically needed. We have spent the past three years getting our house in order, organising structures and hiring staff. We are extremely happy with our staff: they are good and well-trained, and they are beginning to get on top of their briefs. That has taken time. Frankly, had we accelerated and tried to do it sooner, I would be much, much more concerned about giving evidence to you in the certain knowledge that we have begun to really get our act together.
7. You have spent £1.3 million on non-programme costs. This is 17.5 per cent of your annual income. Are these administration costs or something more than that? It is on the high side for any organisation to spend on administration, if that is what it is. Can you tell us more?
(Lord Puttnam) 9.9 per cent of that is administration and overhead. The balance is the most important sum, and the sum I referred to in my opening statement. It is the money that we are spending out of our resources to support our awardeesmentoring and in a number of other areas. Were I on your side of the table, knowing what I know now, I would urge us to spend more in that area, that 7+ per cent, than we are, because there is no question in my mind that that is where the real value lies for our awardees. When we just hand over money, we do not get anything like the same bang for our buck as when we hand over money combined with expertise and support.
8. You have 48 staff, a number that is more than you initially planned. Are they involved in the mentoring activities?
(Lord Puttnam) They are. We also utilise people outside. That is why the 7 per cent, which is the swing that we are talking about here, is spent additionally to our overheads, because we do hire outside support and outside help, mostly of a very specialist type.
9. We are told by DCMS that they have some sympathy with elements of your bid to get your endowment fund up to half a billion. Do you know which parts of your bid the DCMS are most interested in?
(Mr Newton) One area is the whole business of extending the age range of the people we are supporting, in both directions. We are looking at extending our fellowship programme downwards in terms of the age range to include junior fellowships, and at different approaches to support young teenagers in their development, whether it is in the arts or sciences or both. We are looking very much at people in their early to mid to late twenties, and people just coming out of colleges, universities, arts colleges or film schools, for example, and their early attempts to set up a new business or partnership or a consultancy through some form of graduate incubation scheme. Those kinds of schemes we have specified in some detail, and DCMS are very keen on those and are encouraging us to look at them. The other area is a degree of amplification of our programmes, particularly in the invention and innovation programme. We are finding those projects that we have given a relatively small amount of assistance toperhaps between £40,000 to £70,000the ones that look as though they are really going to be successful need more, inevitably. They are not yet strong enough to survive the venture capital market. Another priority we have been discussing with DCMS is the idea of second-stage funding of projects with real promise. Again, they are very sympathetic to that idea.
(Lord Puttnam) There are two important points worth making. During the three years we have been involved in making grants, the venture capital market itself has changed quite significantly, to the extent that it is almost entirely withdrawn from what used to be termed "seed core" or "early stage" funding. Their argument is not unreasonable; it is that the sheer cost of appraisal has skyrocketed, and therefore to make an appraisal for a tiny business is barely worth their while unless they are prepared to invest at least a quarter of a million or maybe more in it. The niche market that we went into has been abandoned to an extent by the traditional venture capital market.
10. You are practically the only people in it.
(Lord Puttnam) We are literally the only people in it.
11. I will not make any comments about the greed of the venture capital industry! How much do you think DCMS will give you? You have a quinquennial review coming down the tracks. Do you expect that to recommend any increase in funding? If you did not have a significant increase in your funding, do you think that you would be able to continue to operate successfully?
(Lord Puttnam) To answer the second part of the question first, we could operate successfully for a period of time. The thing that has hit us hardest is, I am afraid, the lamentable regulations that require us to invest in the worst-yielding government stock. That has hurt us particularly in the present economic climate. Frankly, if our original regulations had been more flexible, we could have invested the same money equally safely in something that gave us a significantly better return. I am not a seer, and I wish I could judge what the DCMS are likely to do. I would hope that in the shorter term they would meet us half-way, then wait for the quinquennial review; and, if they were satisfied with that, top the endowment up to its originally intended sum.
12. Plus inflation?
(Lord Puttnam) We would like to think so.
13. In the two years since you were formed, you have only awarded £5 million for 81 projects and £4.43 million for 53 fellowships. Why have you not created more awards and given more fellowships?
(Lord Puttnam) We made a judgment quite early on as to the balance. We are not rigid about it, but we made a judgment as to the balance of the sums available each year. We give roughly 30 per cent of the sums available to fellowships, and we are pretty well spent up on that. One of the disappointments, which is worth mentioning, is the degree to which, having set a ceiling, most of the applicants are moved towards the ceilingthe £60,000- £80,000 mark. Part and parcel of our appeal to the DCMS is the opportunity to look, on a regional basis, at what can be achieved by a well targeted £5,000 or £6,000 or £8,000. We think there is another market out there that we are not able to touch because it is really quite cost-intensive to go after it. I think we are spent up on fellowships, in a way that I certainly find satisfying. The Fellowship Committee, under Dame Bridget Ogilvy, feel that they have done a good job and do not feel that there are people that they have turned down who they ought to have been supporting.
14. Does that mean you have underspent on the awards?
(Lord Puttnam) No, I am suggesting we have spent roughly 30 per cent of our total resources on fellowship, 40 per cent on invention and innovation and a further 30 per cent on education.
15. On top of the fellowships, you spent £5 million on 81 projects.
(Lord Puttnam) On top of?
16. Yes, that is my understanding.
(Mr Newton) That splits across both the invention and innovation and the education programme, but I think those figures are probably 12 months out of date now in terms of the actual commitment of money and the new projects that have been coming on-stream. The most up-to-date figures in total are well over 200 awards, approaching a value of about £20 million. There was a steady acceleration of our awards over the first 18 months, as the programmes got going and as we began to contract the new awards and so on; so at the moment we are committing about 100 per cent of the funds that we can and we are not retaining any kind of buffer. We retained a buffer in the first couple of yearswe had two very good years in terms of investment return, where our income exceeded our expectations, and that did create a buffer. However, we are heavily digging into that now.
17. Where are the administration costs coming from, if that is 100 per cent?
(Mr Newton) After allowing for the 10 per cent of core costs. I meant of the money allocated to awards.
(Lord Puttnam) The £20 million I referred to in my opening statement is the 100 per cent of the money that we have spent on awards, of which roughly £8 million has been spent on invention and innovation and £6 million each on education and fellowships. That is where we are at present. There are 60 fellowships in total.
18. On page 11 of your submission under "fellowship, invention and innovation, education" a commitment of 4.43, 4.49 and so on, coming to 20. That is up to April 2002, so there is a difference in the figures you have given us.
(Lord Puttnam) The figures I have got are at the end of June 2002, so my figures are three months ahead of your figures.
19. I would like to see those.
(Lord Puttnam) They will be in our annual report.