UNCORRECTED TRANSCRIPT OF ORAL EVIDENCE
To be published as HC 348- i

House of COMMONS

Oral EVIDENCE

TAKEN BEFORE the

SCIENCE AND TECHNOLOGY Committee

BRIDGING THE "VALLEY OF DEATH": IMPROVING THE

COMMERCIALISATION OF RESEARCH

Wednesday 20 JUNe 2012

sir david cooksey and SIR PETER WILLIAMS

DAVID SWEENEY, PROFESSOR IAN HAINES

and PROFESSOR NICK WRIGHT

Evidence heard in Public Questions 96 - 174

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Oral Evidence

Taken before the Science and Technology Committee

on Wednesday 20 June 2012

Members present:

Andrew Miller (Chair)

Caroline Dinenage

Jim Dowd

Gareth Johnson

Stephen Metcalfe

Stephen Mosley

Pamela Nash

Sarah Newton

Graham Stringer

________________

Examination of Witnesses

Witnesses: Sir David Cooksey and Sir Peter Williams gave evidence.

Q96 Chair: Gentlemen, can I welcome you to this morning’s session? We are extremely grateful to you for coming in. Just for the record, I would be grateful if you would identify yourselves.

Sir David Cooksey: I am David Cooksey, chairman of the Francis Crick Institute. I have been involved in the venture capital business since starting the first UK venture capital fund back in 1981-so quite a long history.

Sir Peter Williams: I am Peter Williams. In my semi-retirement, I am treasurer of the Royal Society. I sit on one or two boards. I am chairman of the National Physical Laboratory and have walked through the valley of death with one or two small companies in the past. So far I have survived.

Q97 Chair: Gentlemen, we recognise that you are both involved in very important institutions, but we have invited you here today as two wise men in the field in your personal capacity. We would be grateful if you could just share information with us from your own point of view and experience. You have both written important works in this area. Had you been doing it today in the current financial climate, would you have made any different recommendations?

Sir Peter Williams: Shall I go into bat first? That is always a difficult question. If you perceive wisdom in the two of us, that is your judgment. You have also got age and distance from past events, so the rose-tinted spectacles come out. On the environment today, the first thing I would like to say is that the reason we are even able to have this conversation today is that the science base in the UK is clearly as strong as it ever was. You can benchmark it internationally against the best of breed anywhere on the planet, and we still backed IAP. We Brits tend to disparage ourselves-witness the hysteria over England’s 1-nil win against Ukraine last night-and we do so at our peril in the world of science. Science is in great shape.

Q98 Chair: The Committee is not doing an inquiry on goal-line technology.

Sir Peter Williams: No; perhaps you should. In terms of whether we would say anything different today from the various reports, I suspect among your catalogue of reports you may not have seen the one David commissioned and I chaired to the Treasury in 1998 on the financing of high technology businesses, which is very much the question that is intimately linked with what you are talking about today.

Were I talking today about the things that we put in this report in 1998 to a committee of Members of Parliament, I would be drawn immediately to that which Government can and cannot do to optimise the chances of traversing the valley of death. You would look immediately at the taxation environment. In 1998, we raised issues of capital gains tax, which, by the way, led to the business assets taper. We had a 10% CGT, so that entrepreneurs were incentivised on exit, not that we want them to exit too quickly; that is a British disease that we need to get away from. I have to say that the CGT environment, while the current Administration are trying hard with things like the Patent Box, probably still ignores some of the basic facts we put before Government in 1998, which are that you must have the most competitive taxation environment in order to attract entrepreneurs to take the undeniable risks in traversing the valley of death.

The other thing we put forward then was what we called emerging growth rebates, which became R and D tax credits. That has run and run very successfully for a decade. If I look at the detail, however, I have dug out the recent BIS independent evaluation of R and D tax credits conducted in 2010: £980 million was committed to the tax credits in that year, split between our original scheme, which was to be focused entirely on SMEs in technology, and larger companies. Larger companies were introduced in 2002. I have to say that, reflecting today, 10 or more years on, that scheme has been highly effective with SMEs. Can we have some more, please? It probably has not conditioned behaviour in R and D of larger companies. They willingly bank the cheques. It is always good news. I sat on the boards of two major plcs who received considerable R and D tax credits during my time as an NED. I do not think you are moving the needle with big companies, but, boy, are you moving the needle with smaller companies. That, I would reflect, has moved positively.

The elephant in the room in all this is not Government; it is the City of London financial services that provide the working capital for all these businesses. There I would say the environment is in current circumstances, inevitably so, less propitious than it was, but, leaving aside current challenges and difficulties, I think there is more risk aversion today vis-à-vis technology-based businesses than there was when David and I started down this track many a decade ago. In your case, David, it was probably in 1980. Those would be my opening reflections, Chairman.

Q99 Chair: Sir David, is there anything you want to add?

Sir David Cooksey: I very much endorse what Peter has said. There are a number of issues I would like to raise. One is that in order to make the valley of death crossable you need to have finance to do it in the first place. If you look at what has happened to the venture capital industry, it has not made the returns over the 30 years I have been involved in it that are needed in order to persuade the City, with their risk-averse nature, to invest in venture capital, which is a very long-term investment they cannot get out of once they are in it. If you look today at the successful venture capital firms, they are the ones that are investing at the later stages of the process, as the company comes up the other side of the valley of death, and the real problem is getting from there to where you see the growth beginning to take place.

What we have got is really an unfinanceable situation, and we have got to look at ways to improve on that. As you know, I have spent quite a lot of time looking at the life sciences industries in particular. What became very obvious to me when I was asked to write the Cooksey review of 2006 on the financing of health research-but I ventured into the whole business of authorisation of drugs at that time as well-was that the model the pharmaceutical industry had been using was broken. The costs of developing a new drug were rising and rising, and the pressure on the price that would be paid for that drug was going in the opposite direction and there was a big squeeze coming. While not many of the pharmaceutical companies have yet admitted it, what they have got is a broken model, which we have got to do a lot about.

I think it was an absolute classic in 2006. That report was commissioned by Gordon Brown at the Treasury, rather than the Department of Health or BIS. When it was published, after a lot of negotiation with the Department of Health, all of the recommendations were accepted on day one. If I look today, six years later, at what has happened, there has been an awful lot of huffing and puffing, but, getting to the end points that I wanted to see, in truth we have made almost no progress whatsoever. There has been a lot of political good will. People in the Department of Health, universities and so on have all wanted to go in the right direction. The MRC and NIHR benefited from hugely increased funding as a result of that report, but it has not yet hit the critical spot to make it work.

Q100 Chair: That leads me very neatly to the next question. Very simply, apart from more tax credits and a better tax system that Sir Peter described, give us a shopping list of actions that Government can take to improve the environment.

Sir Peter Williams: Let’s look at tax. One has to keep a watchful mind on the concept that there is no new money around. We are talking about shuffling the deck. The point I made about R and D tax credits is that the singular omission in the 2010 evaluation was the apportionment between large and small companies. Were that data to be available, I believe it would show that disproportionately the £980 million is going to large companies where, as I asserted earlier, one does not move the needle. Quite readily, the Treasury could redirect getting on for £1 billion much more heavily towards the emerging company sector. While the scheme is reasonably generous as currently embodied, it is not quite as generous as David and I and colleagues envisaged back in 1998. I think a simple resharpening of the pencil on R and D tax credits-my plc colleagues will kill me for saying this, of course-would assist with what you are engaged in today, which is traversing the valley of death.

I doubt you can do much about CGT rates. As to the entrepreneurs that I know, my next door neighbour is Jan Hruska in Oxford, who founded Sophos, an anti-virus software company. Many of you will not have heard of it; it does not sell to the retail user; it sells only to corporates. That is hugely, massively successful. It was founded in Oxford just 20 years ago. Jan has never been motivated since the very earliest days by the exit rates on his CGT bill, but his investors undoubtedly keep a watchful eye on this parameter.

The Patent Box, which is a wonderful concept, is immensely complex and busy entrepreneurs will shove it to the side of their packed desk and not focus on it, so it is not having an incentive. I think in that arena-those two areas we talked about in 1998-there are things, neutral in overall cash terms, that can be done to sharpen the pencil.

In terms of TSB activities, schemes that go directly to the heart of SMEs and trying to incentivise them, frankly, pale into insignificance with the one big item on my wish list, which is that, somehow or other, you can bring pressure to bear on Government to become an intelligent procurer of goods and services with set-aside for emerging SMEs, which has been the norm in the United States for decades. It works. If anything, over the last 15 to 20 years, we have gone in the opposite direction: the perceived flight to safety of a large company rather than risking it on a small supplier. If you think large companies are a flight to safety, try building aircraft carriers for a living. It is time the Government woke up and started pushing a set-aside-style procurement scheme on the US model slap bang into the middle of this sector of emerging companies having recently crossed, or about to cross, the valley of death.

Q101 Chair: Sir David, your report was, as you say, well received by Government-by BIS and the Department of Health as well-but, apart from reminding them that they needed to take some actions to implement your well-received report, is there anything else that you would add?

Sir David Cooksey: Yes. Just picking up that procurement point, procurement is absolutely vital in this area to small companies in the life sciences area. They tend to have longer gestation periods than IT and telecoms companies. The situation on procurement is that, if you look at the requirements Government place on their Departments for making procurement, the qualifications required in terms of the financial size and stability of the companies are such that they positively exclude the sort of companies we are talking about from supplying Government, and that is completely wrong. What we should be looking at is Government being prepared to pay for the prototypes of these companies to get them off the ground and make them work. There is no question about that.

Peter mentioned state aid. If I speak to my colleagues in the venture capital industry in France, Germany, the Benelux countries or Italy, they will laugh at me when I talk about having to wait for state aid approval. They just get on and do it and worry about state aid when Brussels reprimands them. Here, we spend months and months. Look at the catalyst scheme between the MRC and TSB to get TSB into the business of supporting life sciences companies, because it is only very recently that the TSB has paid any attention to life sciences at all. We waited for, what, six or nine months for approval from Brussels? We should have got on with it. It is ridiculous.

There is another area that I find very inhibiting. The Francis Crick Institute is a good example of this, and we are building that: the building will cost about £540 million to complete, and there are lots of other expenses on top of that. We are going to have to pay VAT on those buildings if we have more than 5% commercial activity within them. I might say that includes the canteens-it is completely ridiculous-if you get a subcontractor to come and run your canteen for you. But the point is that what we are trying to do with the Crick is have a much more open relationship with the pharmaceutical and medical devices industries and so on. What we would like to do is invite people who are, yes, commercial in origin but who can contribute to what is going on in the Crick and make the transition of scientific discoveries into good commercial products that will benefit patients. Very often, the way you collaborate best is to bring in some of the people from the commercial sector, but we are faced with the fact that, if we do that, we will probably be charged VAT on the entire building, which adds another £100 million. When you see this going out of one pocket of Government and into the other, it is even more ridiculous that they should insist on it, but those are the sorts of problems we are up against; it is bureaucracy and bureaucracy.

I mentioned earlier the whole business of bringing forward the licensing process. What I call conditional licensing has now become adaptive licensing for new drugs. Everybody welcomed it in 2006 as a concept. There have been lots of discussions, conferences and everything about it; but, somehow, because it requires bureaucrats to take more risk and use new techniques, which are not necessarily proven to the last dot and everything else, you have a situation where that whole process of trying to shorten the approval cycle for drugs has run into a snowdrift because bureaucracy is standing in the way.

Sir Peter Williams: To add just one more comment on my procurement wish list, which is, I think, a fairly obvious one but I would like to draw to your attention nevertheless, Governments of all shades find it extremely difficult to move the elephant in the room in any given direction. The financial sector is its own creature and soul. There is no doubt whatsoever that schemes like Merlin have been well intended to push capital down to businesses. If intelligent procurement and Government contracts pushed real orders resulting in real revenues and real cash flows into emerging businesses, that is the one thing that would persuade investors to buy their shares and back those companies. So procurement has a double whammy: it helps the company directly, and it conditions the market perception of this whole sector.

Q102 Stephen Mosley: Sir Peter, I was very interested in what you were saying about the R and D tax credits. You have outlined that you believe most of those tax credits go to large rather than small companies and we need some sort of rebalancing. But does the particular sector of those R and D tax credits matter? We have seen evidence that some of the biggest beneficiaries of the R and D tax credit schemes are the banks. The 2009 BIS R and D scoreboard shows that HSBC and RBS spent more on research than BAE Systems and Rolls-Royce. Would you consider refocusing which sector or areas of research are funded by tax credits, or would you just talk about entirely shifting all of it from large to small companies?

Sir Peter Williams: There are a couple of questions intertwined there. The first thing is that the 2010 report was interesting and revealing, but it was important in what it did not say and the absence of data. The first thing I would do is put in a pitch to reinstate the R and D scoreboard only. That is a general, publicly available database, which tells you exactly the nature of the R and D expenditures of all these various companies and brings out for anybody with an interest in the field exactly what you have just observed-that banks nominally conduct more research than BAE Systems. Let’s get the facts on the table and bring transparency and openness and make rich databases available to everybody.

With that in mind, it is probably true that the nature of the marketplaces that the credits finally find their way to inevitably is very difficult for legislation to condition. You can never anticipate the inventiveness of the organisations you are dealing with, which is why banks have prevailed so successfully in that sector. When we originally suggested what is termed in this report the emerging growth rebate, it was aimed fairly and squarely, and unambiguously, at emerging technology-based businesses. We went as far as to define an SME in financial terms and to give a definition of technology-based businesses. You are building on Frascati and all the various other pieces of history you can dig up for yourselves.

It is genuinely difficult to ring-fence a sector like that effectively, as we have always found. Legislation always finds that the money leaks out somewhere unanticipated, but I believe that you could make a stride forward by re-emphasising SMEs. Already you have a concession from Brussels-dare I say it?-to define an SME as employing not 250 employees but 500, which is quite a significant size business, so you have plenty of scope to push in that sector. Just get the absolute facts on the table, because if, as I believe to be the case, the great majority of the £980 million goes to big businesses, frankly, they do not need it as much as these emerging companies we are talking about. If you can work out a way of legislating to put it into technology sectors, which I believe you can define accurately enough, that will be even better.

Q103 Stephen Mosley: There are some clear actions there, which is always nice for us on the Committee. One of the problems we hear not just with R and D tax credits but funding in general for SMEs is that, if you are an SME, they are entrepreneurs who are putting all their effort into developing their ideas and growing their business, rather than filling in forms or lobbying to get funding, whereas universities and big companies have got the resources to lobby and to play the system, basically. How would you alter the system to try to ensure that SMEs have a more level playing field when it comes to lobbying, filling in the forms, meeting the right people and finding out about these grants?

Sir Peter Williams: That is a difficult one, because you have accurately hand-sketched a typical entrepreneur, who is busy, unpredictable, somewhat idiosyncratic and off the wall in style and so on. They do not really have any time, philosophically speaking, for red tape; it annoys them. By the way, that also brings in a broader question of regulation and red tape in this country, which, contrary to myth and rumour, has not been reduced in recent decades; if anything, I think it has increased. These are people who do not want to spend much of their day on that.

Equally, if you have a clear, well-drafted scheme, as I believe the business assets taper CGT was prior to Alistair Darling’s last budget, it is pretty simple for a busy entrepreneur to see, when they are contemplating an exit of their business, the nature of the advantages of the scheme in front of them. It is pretty easy for them to see in a SMART award what is in it for them. So make it simple and straightforward. Frankly, an entrepreneur establishing a 20person company in technology, looking at the Patent Box definition, will just stick it to one side. It is far too complicated; it is too wrapped up. It may look wonderful to a legislator in the Palace of Westminster, but, as you say, it does not cut it on the desk of a busy entrepreneur, if indeed they do have a desk. Keep it simple; make sure the financial incentives are abundantly clear and razor sharp; and, above all, make sure there is liquidity. The great thing about R and D tax credits for small companies is that they get real folding money out of it and it keeps them alive for a period.

Q104 Stephen Mosley: That ties in nicely with something Sir David said about the 2006 report. It came up with all these recommendations, but then nothing was done. We have seen evidence from people saying that Governments tend to believe that things must be done, so they keep coming up with these new schemes. All these schemes are being announced. There is a feeling that you have to announce things to be seen to be doing things; but of course it leads to a much more complicated environment and it is a lot more difficult to handle. You said, "Keep it simple." Sir David, do you think that a few good clear and simple schemes are better than having a situation whereby Governments keep announcing things but nothing seems to improve?

Sir David Cooksey: When I say nothing is done, very often the organisation is put in place to make it happen, but the whole system does not allow it to happen. I agree with Peter entirely; keep it as simple as possible. An area I would draw your attention to is the fact that venture capitalists are really only prepared, with very few exceptions, to invest on the upward curve from the valley of death. There is one area where you can get money at the moment, but it is like sucking blood from a stone. Some rich private individuals are still prepared to back really interesting new investments. Quite frankly, whatever can be done to incentivise angels of that type to invest early in companies and to provide that really high-risk capital is, I think, absolutely vital, but, again, they do not want to be tied up with incredibly complicated rules and regulations; it has got to be simple.

It is interesting that Peter was saying earlier that we had agreed with the Inland Revenue back in 1998 on a definition of a small high-technology company. They agreed they would put a wrap around those companies and enable them to identify them. The truth of the matter is that the Inland Revenue, or HMRC, as it is now, have pushed that back and back because they do not like incentives being provided to one particular sector of the economy.

Q105 Stephen Metcalfe: Sir David, I think it was you who said that venture capitalists had not made the returns they had hoped. Is that because they were trying to pick winners too early? Is it because they did not necessarily understand what it was they were looking at? That brings me to the second part of the question, which is: is it important that entrepreneurs understand science? Does science need to understand entrepreneurs, or is it just another business?

Sir David Cooksey: So often, it is the scientist who is the entrepreneur who starts these businesses. There is a certain degree of arrogance about academic scientists who think the business bit is easy. If you look at what happens out there in the real world, scientists often hang on to running companies far too long beyond their capability. Where we have found the greatest success is where we have been able to bring in really good seasoned businessmen to come and work alongside the scientists. They have got to understand the science and so on. It is those two forces working together with good marketing and so on that really make a difference to the performance of the companies.

I think a lot of people going into the venture capital industry have been too willing to put on rose-tinted spectacles and think these companies are going to have a wonderful run into the future and beat Google at their own game, or whatever it is, but the truth of the matter is that penetrating the market, and very often establishing a market for a new product, is a tough business. That is the problem.

Sir Peter Williams: Could I add a comment? I have some data that I dug out for another purpose the other day. Lest you feel that this problem about the returns on venture capital that David has alluded to is solely a British problem, it is not. In the US and EC industry until the end of the 1990s, the upper quartile managers-the best of breed-were getting four or five times money out. The best of breed today are getting 1.1 to 1.4 times money out, so the whole marketplace has got tougher since the turn of the millennium.

Against that background environment, the Royal Society has established a philanthropically-funded enterprise fund, which is basically venture capital but is solely into the science space that our fellows inhabit. Whenever we talk to the fledgling companies we are about to invest in-some are very tiny companies still at the university lab bench-the two issues that always come up are the inability to raise finance and, as David has pointed out, the inability to find an enlightened manager, who is both technologically savvy and business-wise. These people are in great demand. The reason the business angels have such huge value in this space is not just the investments they make and the private money they put in, but they are the exemplars; they are typically people who have walked through the valley of death. They have done it and built their reputation, often several times over. They are a role model, but it is still extremely tough.

Q106 Stephen Metcalfe: You said that the latest data says 1.1 as the return.

Sir Peter Williams: David knows these figures better than I.

Q107 Stephen Metcalfe: I do not need it exactly but the spread.

Sir Peter Williams: When I dug them out the other day, the spread of returns is currently from 0.7 to 1.4 times money. That sounds like a good return to you and me, but to a venture capitalist that is nothing. It used to be five times in the 1990s.

Q108 Stephen Metcalfe: How does that compare with other sectors that venture capitalists might invest in?

Sir Peter Williams: That is the whole of venture capital.

Q109 Stephen Metcalfe: But is investing in science and technology companies at the bottom end or top end of that?

Sir Peter Williams: In the US, I think you would not readily distinguish between technology businesses and others, for the simple reason that they are the home of all the great success stories, particularly in the new economy-Google, Twitter, Facebook and so on.

Q110 Stephen Metcalfe: The other thing that I think is required other than ideas and money is a supply of good, well trained staff-employees, people-which is a really important resource. Are we creating enough of those people and in the right mix with the right skills to be able to support these companies as they emerge?

Sir Peter Williams: I speak as a former chancellor of Leicester university. Having inhabited a few others in the golden triangle, it has got better. Let’s be optimistic about a few things. It has improved. When the challenge seed fund-type schemes came in 10 or 15 years ago, universities started realising that their business schools were not just an adjunct to make money down the road from their main campus but had a value within the university to bring undergraduates into familiarity with business, entrepreneurship and so on. We have made steps forward. In that sense, what can you in Government do? All you can hope to do is create an environment. You cannot be responsible for the fact that there is a deficiency of mechanical engineers who happen to want to found businesses, but you can create an environment, and the environment has improved in the last 20 years.

Q111 Stephen Metcalfe: From the sound of that, there is still some way to go.

Sir Peter Williams: From a low base, yes.

Sir David Cooksey: I certainly agree with that. Universities have taken on the business of business education much more seriously, which I think is positive. I also think that there is increasing mobility in employment. Recently, a company that I chair, which is halfway through the valley of death at the moment, managed to recruit a very senior executive from Thomson Reuters to head it. The fact is that, if you get the right combination of financing and quality of product together, you can attract the right people in these days much more easily than you could 20 years ago.

Q112 Stephen Metcalfe: As that company grows and you require a range of people to support it, are we educating at the right levels? We have a fantastic pure science base-I think we all accept that-but are we creating the right environment that is encouraging people to take on technical subjects-STEM subjects-where they can act as middle technicians and skilled people who will allow a business to grow? Are we creating that framework?

Sir David Cooksey: I think that is always a problem. We do not train enough of those people; I agree.

Sir Peter Williams: If David Sainsbury were with us today, he would undoubtedly point out that the technician class is a forgotten, underrated and undervalued one in this country and has been endemically. I agree with him entirely that in the 1990s we had this obsession with turning everybody in the country into a university graduate without any thought whether the market and demand was there for such people, and at the same time and in the same process, we therefore implicitly devalued what the Germans might term the product of the Fachhochschule, rather than the university. The net result is that you sow what you reap-sorry, you reap what you sow and vice versa. We could get into deep philosophy here. We miss this at our peril. It does not necessarily relate to the value. The people in these small companies are polymaths-they all do three or four jobs-but the technician class for big and growing businesses is sorely in need of more technicians.

Sir David Cooksey: On top of that, if you look at the science base, yes, it is very good; the research base is very good, but we are bad at translating that science base into good business. This is the crucial factor in the thing. It is people who can take the thing forward; it is the bench discovery in the university laboratory, taking it through the clinic to producing a drug that is valuable to patients and the economy. It is the same thing through the engineering base as well. It is the people who can translate good science into good business that is the crucial missing part.

Chair: The chip is still on my shoulder about the denigration of the technician class, but I am in the chair now.

Q113 Gareth Johnson: Sir Peter, at the beginning of your evidence you said that the British science sector was very praiseworthy. I know it is a big question, but what more can we do to ensure that we retain some of the benefits from the UK science sector? It is all very well investing in British companies and so on, but surely we need to ensure that more of the benefits from that remain in the UK and do not go abroad. Do you have any suggestions as to how we can make that happen?

Sir Peter Williams: I have a comment on whether it is either likely or desirable for it to happen. Higher education, like technology business, is basically a global industry today. Undergraduate teaching and taking our young from their school days and transitioning them into more useful and well trained human beings is a vital part of our national needs, and will remain thus. When you look at an average university today, however, particularly the Russell Group, that which dominates their planning and horizon, financially and intellectually, is postgraduate training and research, and that is where their efforts are going.

As soon as you look at postgraduate training and research, you are in an international and totally global industry. An average research lab in Cambridge will be full of Americans, Chinese, Danes, Dutch, South Africans, Australians and Brits, of course. The same is true in the National University of Singapore or Tsinghua in Beijing. That is something I would urge you not to try to roll back, because it is good for humanity and for the planet that that is the case. It is a great way of mixing the future leaders of all nations together, and the benefits accrue to everybody. Putting it more bluntly and financially, the way Margaret Thatcher summarised it is that we do 5% of the world’s research and we need access to the other 95%. The same is true for every other nation, including America, Germany and China. I am not sure that you can easily capture for Britain the research fruits and outpourings of our British research universities, but what you can ensure, if you get more campers across the valley of death and grow more businesses domiciled in Britain, with their employment base in Britain, is that we capture the benefits of everybody’s science base globally.

Q114 Gareth Johnson: How do we do that? You say that we need to ensure we keep British companies based here. We are told that there are lots of instances of foreign companies taking over British industries because it seems more attractive on occasions, but what is it that you think is encouraging businesses to go abroad? What more can be done to ensure that they flourish in the UK?

Sir Peter Williams: I will comment on that briefly. I am sure David wants to come in on this one. It is questionable whether they "go abroad". Let’s take Autonomy and Mike Lynch, which is a brilliant success story. He comes straight out of Cambridge, grows to stardom and FTSE 100 status and so on, and sells off to an American parent. Autonomy has not been packed into containers and shipped to California; it remains British. Moreover, Mike Lynch, if I make a top-of-my-head guess, is going to become a serial entrepreneur; he is going to do it all again several times over in the next few years, with Hewlett-Packard money in this case. This is not a bad thing; it is a good thing for the British economy and for life in this country. I am pushing back on the fundamental precept behind your question.

Sir David Cooksey: I want to take a slightly different line. Going back to the life sciences, you get a company that has gone through in vitro testing. It has picked up a discovery from a university laboratory, formed a company, gone through in vitro and probably animal model testing in this country. It then wants to do in-human trials. The sheer cost, bureaucracy and difficulty of getting that done in this country means that, of the portfolio of companies that I have been involved with, probably more than 75% of them have given up in this country and have gone to do their trials in Philadelphia, Boston or North Carolina, because they can get it done quicker and cheaper and with a system that delivers more coherent results. It is quite difficult to get everybody to work to the same protocol in this country for various reasons.

Q115 Gareth Johnson: Can you give any examples of that bureaucracy? Is there a particular bureaucratic element we have here that you do not have abroad?

Sir David Cooksey: It is because, if you want a multi-centre trial, at each centre you have to go through, first, a separate acceptance that they will do the trial. Then it has to go to the R and D committee to decide whether or not they are going to accept it. Then it goes to the ethics committee at each of those centres. I know Sally Davies and NIHR are trying to get this right, but we are still in a position where it is very bureaucratic, and each of those wants to tweak the thing. This is why I am talking about different protocols and so on. At the end of the day, you can find that the trials are not valid because they have not all been carried out to the same protocol and so on. Having a single portal you can get through, once you have persuaded a senior group of reviewers that this is the appropriate thing to do, means you can get out to five or six centres and not go through the same process time and time again, with huge wodges of paperwork involved in every one, which small companies just cannot manage. It is just beyond them.

Q116 Graham Stringer: I think there is a consensus that Government cannot pick winners; it can create a financial, tax and cultural environment to encourage innovation and business success. There is an exception at the moment with graphene, inasmuch as Government have decided that they are going to put large sums of money into it. Are they right? Are there particular lessons that can be drawn from that? Is it a one-off? I would just be interested to hear your opinions, because it does stick out as a very different approach by Government from the general approach to other companies.

Sir Peter Williams: To answer that, I take you back to the 1980s and something which I guess you might have heard of but probably will not have encountered. I refer to the Alvey report and the Government money that resulted from it, which coincidentally was also £50 million of the day; it was the same in nominal terms. As to whether it is desirable, I will come back to that. Let me talk about process and mechanics. In the typically British style of risk aversion, because it was then a large sum of money, Alvey was scattered in small pieces so that nobody could blow a large sum of money on something that was high risk. The net result is that I suspect for many in this room the name Alvey is entirely new. I commend that you go back and look at the evaluation reports on Alvey. You will see that it made no difference whatsoever to the electronics and IT industries in the United Kingdom in the subsequent decades. If you like, it is a warning signal to Government on graphene.

Should graphene be singled out in this manner? It is a remarkable substance. I used to do research on two-dimensional structures for about five to 10 years of my academic career, so there is no doubt whatsoever that it has the potential to do a lot in everything from biomedical devices, unique catalysts and possibly even ultra-fast electronics. The danger is that, because nobody quite knows what it is going to do and we are risk-averse, we will chop it into quarter-million-pound pieces and scatter one piece per university across the whole of the United Kingdom, and it will vanish without trace. While you are correct in your assertion that Governments can create a taxation, financial and cultural environment and should not pick winners, if you are to do a £50 million graphene programme, I am sorry, Government, you are going to have to try to pick two or three winners and give them not subcritical but super-critical financing, so that you do enable them to be a leader in the facilitation and deployment of this remarkable substance in new applications. You will not get there if you scatter it to the four winds.

Q117 Graham Stringer: Sir David, did you want to add anything?

Sir David Cooksey: No. I totally endorse that.

Q118 Jim Dowd: One reflection on one of the things you said is that in Germany, for example, it is much more likely that you would have engineers rising to the uppermost level, even becoming CEOs, and to the higher levels of management of very large companies certainly in the technological field. That just does not happen in this country. In Germany there is not a separate discipline of accountancy, for example. That is something a manager has to acquire anyway, but, here, companies are run almost entirely by accountants, CEOs, company secretaries and so on. First, do you think that is true as a generalisation? Secondly, do you think that accounts for the fact that R and D in Germany is so much more advanced than it is here?

Sir Peter Williams: Answering your first point purely factually, when I chaired the Engineering Technology Board we ran an annual survey of the FTSE 100 boards. You will be surprised to learn-I have not refreshed this exercise since 2006-that at that time in 20 to 25 of the FTSE 100 boards, the leading executive, sometimes chairman and CEO, sometimes CEO and executive chairman, trained originally in science or engineering. That contrasted with lawyers and MBAs in small single figures and accountants in the low teens. So, as a professional class, scientists and engineers in the FTSE 100 as the leading executives do rather well. It is something that, again, somebody could very simply do the research on and you might be pleasantly surprised. It is a moot point. Somebody doing a first degree in engineering does not make them an engineer, as we all know, but it is a good start.

On the German point, I had the great pleasure a month ago to entertain Hans-Jörg Bullinger, president and CEO of the Fraunhofer-Gesellschaft. He was invited to a seminar at the Royal Society. We had an interesting audience. People from BIS and Hermann Hauser, with his TICs, catapults, or whatever you now call them, came along. It was very revealing to listen to the fount of all wisdom in this whole sector, Hans-Jörg, how the Fraunhofer came about in the first place and how it operates. I will not bore you or detain you today with the details of the story, but I commend it to you. Down the decades everybody, from John Fairclough onwards, has said to Government, "Look at the Fraunhofer-Gesellschaft; there are lessons to be learned." It is a fact that they do not have to debate the issues that we are debating today because they have been through the valley of death as a nation, as it were, and they prosper by valuing and backing engineering with their Länder, federal government, financial institutions, Mittelstand families, scientists, engineers and business folk playing like a team, which is why they are going to win the European championship as well. They are a model, but please, please, check, before we go away reflecting negatively about it, the constituency of FTSE 100 and you will be surprised pleasantly.

Q119 Jim Dowd: So we could have all these benefits as well if all we did was change every single piece of our social structure.

Sir Peter Williams: We might win the Euro as well.

Q120 Jim Dowd: I might win the lottery on Saturday; sure.

Sir Peter Williams: We are different. Let’s play to our strengths.

Q121 Jim Dowd: We have listened to much of what you said earlier about the difficulties in this area in this country. Are there any specific advantages of commercialising research in the United Kingdom?

Sir David Cooksey: What should be an advantage is the City of London, which is a big financial centre, but the problem with the City of London is that it is too short term. Again, that is a big difference between the Germans and the Brits. Quite frankly, the City of London reacts to financial incentives. The problem with it is that it also tends to take financial incentives and apply them to applications for which they were not intended, and then we would lose them because of abuse. I think we have to work out a way of incentivising much longer-term attitudes in the City for getting money into these companies.

Q122 Jim Dowd: What about the potential of the Government as a lead customer promoting it?

Sir David Cooksey: That is where we fall down very badly compared with all our European partners and particularly the United States. The United States requires 25% of all Government spending, direct or indirect, to go to SMEs. You see with the Department of Defense, Department of Energy and various other activities in the United States a huge amount of commissioning of prototypes from these valley of death-type companies. If one looks at, say, the national health service, these companies have to wait until they have grown by exporting their products until they qualify to supply the NHS. If you turn that on its head and require procurement from these smaller companies, it would make a huge difference to the economy of this country and to the success rate of these companies in shallowing the valley of death. It would make a massive contribution.

Sir Peter Williams: I talked about the science base right at the opening. Within that, the stereotypical image of the engineer as the lab-coated scientist or mathematician could not be further from the truth. We Brits are an idiosyncratic bunch; we are rebellious by nature. I think that among the scientific community there are literally tens of thousands of bright scientists and engineers who have this kind of off-the-wall characteristic that would lead them to take this leap into the unknown if there was just some additional carrot, and to me procurement is the low-hanging fruit that this Government can seize and do something about.

Q123 Jim Dowd: On universities generally, should they all attempt to commercialise R and D, or should we be looking to concentrate on a few centres of excellence that specialise solely in that?

Sir David Cooksey: If you go back to pre-1985, the old National Research and Development Corporation-NRDC-had a complete monopoly on any output from Government-funded science, and the universities depended on it. Quite frankly, it suffered from being part of Government and non-entrepreneurial. Yes, it did foster certain things, like magnetic resonance imaging and so on, but so much got lost through the cracks of bureaucracy in the whole thing. I do not think that every university in the country has enough exploitable technology coming from it to justify having a technology transfer department of its own. Some of the big ones do. Obviously, Cambridge, Kings, Imperial and UCL all have plenty to exploit. I think you should see-it is increasingly happening-syndicates of the intermediate universities coming through and using expertise across a broader horizon of universities to get the best of both worlds, which is really what I am saying.

Sir Peter Williams: To add a comment, you will doubtless have heard the words "academic freedom" from others in this Committee. I think you should encourage the pursuit of excellence in science, and that is not uniform and egalitarian across the United Kingdom; it cannot be. There will be what some would term an elite. I just simply term them universities who have a different function. There are other honourable functions of a university than becoming a world leader in some research field. So focus on the research but then try to inculcate in those leading research universities an ethos that says to any individual academic that he or she may indeed focus solely on the lofty intellectual heights of their discipline, if that is what they so wish-that is what I mean by "academic freedom"-but each and every one of them should nevertheless be conscious of the way in which society might benefit from the fruits of their research and scholarship. Do not press it upon them but create an environment where demand pull-through is always better than push. If you attempt to designate universities as technology-rich, research-rich or teaching-rich, you are trying to force artificial distinctions that the natural evolution of excellence in research will take care of for you. What you need is to get ingrained in the psyche of the young that research is not only inspiring and fun, but it can be damned useful and wealth-creating as well, and then let nature take its course.

Q124 Chair: Letting nature take its course means that that list of universities will not be a static one.

Sir Peter Williams: No; it fluctuates with time. We have seen it in our own lifetime.

Chair: Two weeks ago we spent some time in Warwick, for example; 25 years ago you would not have thought that would have been possible. There are some extraordinary achievements there.

Q125 Pamela Nash: Gentlemen, do you think that the abolition of the regional development agencies was the right decision at the time?

Sir David Cooksey: If we are talking about the valley of death, it probably was. The truth of the matter is that the regional development agencies started to get into helping young technology companies, but their performance in that area was woeful, quite frankly, and as a result one could say it did not work. What we have got to do is replace that with something that is more effective and not just forget it. What they were trying to do initially was fine. Most of them walked away from it to a great extent. What we need to do is use those same resources much more effectively.

Sir Peter Williams: Declaring an interest, as it were, I had a Scottish mother, Welsh father and I was born in England. There is one thing that I think could benefit from regionalisation. I admire a number of the things the Scottish Government are doing in fostering a climate, which we have ascribed to Government as one of their main roles. Likewise, the Welsh in the past have done something similar. The issue of the RDAs and their abolition is, if you like, an English question. As David has just said-I agree with him entirely-there was little evidence that the RDAs were prospering in terms of this agenda of the valley of death, which we have been going on about for two or three decades. We need something better.

I also remind people that Britain is about the size of the state of Texas. Why is it that we feel we have to have something different? I was brought up in Yorkshire. For Yorkshire, the south-west and London are so radically different. Can we not work out sensible, adult mechanisms that do not inevitably focus on that which takes place inside the M25 and deploy to strengths, where they are manifest and evident, without erecting structures, committees, regulations and red tape-I am sure there is a better way of doing it-and encourage the Scots, Welsh and Northern Irish to get on with doing their own thing, which by and large they do pretty well?

Q126 Pamela Nash: Do you think that the new LEPs are going to be able to provide a valuable contribution?

Sir Peter Williams: I do not feel competent to comment on that.

Q127 Pamela Nash: Okay; I will let you off. To move on to the Technology Strategy Board, the Government’s support for innovation is now centralised in the TSB. Do you think that is the right approach from the Government?

Sir Peter Williams: I am a fan of the TSB in concept. In fact, in my SET and the City report, I single them out as being worthy of receiving more Government funding and having more clout and influence. I always fear in this country when things become centralised-this goes back to your regional question-that they become risk-averse at the same time. I do not want to trot out anecdote here. The last thing that you want to hear as a committee is anecdote, but I have just a tinge of a fear that they could be doing with-dare I say it?-a touch bolder. It goes back to the picking-winners question. There is such an aversion to picking winners in this country. I say to myself that we are being disingenuous because at the end of the day we want a load of winners. Are we just going to wait until they emerge? The TSB should, surely, be given the luxury and responsibility of placing its best bets wisely, and, if we are here criticising Government for becoming timid and the City for being risk-averse, we have got to show by what the TSB does that it is bold, brave and is not risk-averse. That is my only fear.

Q128 Pamela Nash: What is preventing the TSB from being more bold and taking those risks at the moment?

Sir Peter Williams: It is structured like a plc, which is fine; I have sat on plc boards for four decades. In a sense, it is the right role model. I do not feel the central executive have enough absolute power to just get on with the job. What you want is a CEO and team, backed by directors who both challenge them and support them, who will take these bold moves that all of us, viewing it from the outside, want them to take. They have to be brave and risk failure.

Sir David Cooksey: To my mind, the TSB has been very slow off the mark in the life sciences area. It is only in the last few months that it has put together a team of people to address the life sciences area; so one huge part of the responsibility it had was not being tackled.

Q129 Pamela Nash: Do you think that is just about the rules and set-up of the TSB?

Sir David Cooksey: It is the way it has evolved. It did start with a physical sciences responsibility. Having been given the broader responsibility, it should have got on with it a lot quicker.

Q130 Pamela Nash: Is it your impression that the TSB is adequately resourced to do the work it is doing at the moment in terms of both human and financial resources?

Sir Peter Williams: You can never have too much money in this sector. It is small by comparison with, if you like, the private equity players in this space, and, therefore, being brutal about it, its impact will be commensurately small if we are not careful. So, being risk-averse, which is a potential hazard for TSB itself, and certainly a hazard for Government, will not get us through the valley of death. Government have got to be braver, and that might equate with redirecting more money into the TSB from somewhere else with a zero sum gain, TSB has to be braver and bolder and particularly take care of David’s life sciences point. David is not alone in being critical of their slowness off the mark in the life sciences.

Q131 Pamela Nash: Finally, we received various pieces of evidence that praised the return of the SMART awards under the TSB. Is this something that each of you supports? Do you think it would be beneficial if we expanded this programme?

Sir David Cooksey: The great success of the SMART awards is the fact that they were simple and easy to apply for. You knew what you had got and what was expected of you, which is exactly what a small emerging company wants. I thoroughly commend bringing them back for that reason, as long as they stay that way and do not get wrapped in more bureaucracy.

Sir David Cooksey: Make a bit more razzmatazz when you are giving them away; have a big flash do at the Dorchester with lots of media and the press, the great and the good, and Members of Parliament of course.

Q132 Pamela Nash: Are we not part of the great and the good then? We are separate.

Sir Peter Williams: You don’t know us two.

Chair: Gentlemen, thank you for a very frank exchange this morning. It has been incredibly helpful. When you see the transcript, if you feel there are additional pieces of information you would like to feed in, we would be extremely grateful. Thank you very much for your attendance.

Examination of Witnesses

Witnesses: David Sweeney, Director (Research, Innovation and Skills), Higher Education Funding Council for England (HEFCE), Professor Ian Haines, Executive Secretary, UK Deans of Science, and Professor Nick Wright, The Russell Group, gave evidence.

Q133 Chair: Gentlemen, thank you for joining us this morning. I would be grateful if you would introduce yourselves for the record.

David Sweeney: I am David Sweeney. I am director of research, innovation and skills with the Higher Education Funding Council for England-HEFCE.

Professor Haines: I am Ian Haines. Among other things, for what is supposed to be one day a week, I am the executive secretary of the UK Deans of Science.

Professor Wright: I am Nick Wright. I am the pro-vice chancellor for research and innovation at Newcastle university. I am here to represent the Russell Group universities.

Q134 Chair: With introductions like that, my next comment is: your starter for 10. All the university charters I have seen have some sort of reference to the role of the university in terms of the local economy. How does that work? Is there a conscious effort within the university structures to work with local entrepreneurs and businesses and try to create centres of excellence that work within the regions they are located in?

David Sweeney: Every university, of course, is firmly located in a place. It is typically the second largest employer in the area. Many of its graduates look for jobs in the local area, and engagement with local companies is just part of the scene. Different universities have different missions. Cambridge is quoted as saying, "Research excellence and return to the UK economy should be a common goal." I think that, generally, for Cambridge that involves interaction with large companies and many multinationals, but still with a concern for the local area. So I think we have a diversity of institutions. Some are more focused on the local area than others, but all of them have demonstrated a keen enthusiasm for the benefit of the university and the economy in engaging with business.

Professor Wright: I would support David’s statement. What the Committee should really understand is that over the last 15 to 20 years there has been a considerable transformation in UK universities in respect of the commercialisation of research. The landscape now is very different from what it was 20 years ago. Most research universities, like the Russell Group, have invested significantly in infrastructure to support entrepreneurial things. For example, almost all the universities have incubator suites for staff and students who want to start their own companies. I think most of the big universities have specialised staff whose job it is to go round talking to local companies, to understand their needs and to try to address their needs either through research or more applied work. It is a very diverse landscape, as David alluded to, but huge progress has been made.

Professor Haines: To add a little to that-I think you have covered a lot of the points-it is quite difficult for an international research group necessarily to relate to the local unless they have particular kinds of companies close by. Most universities attempt to have local people on their governing bodies. I would go down to the undergraduate and postgraduate level as well. Part-time students, who are always coming from the local area, tend to give a huge amount of contact between universities and the local companies.

I can think of examples. I have been round universities doing all kinds of jobs in the past. In one materials technology department, I saw a part-time class being run. All these people were working in companies in the polymer materials sector. The tutorials were being run where students were able to bring problems that they had into the tutorial class. I remember that in one particular case an inspector was wandering around the class. At the end of it, he said, "That student got more consultancy value out of it than they could possibly have been charged as a university for what the member of staff told them about how to solve the particular problem they had raised."

Professional doctorates are beginning to grow in the science area; they have certainly grown significantly in the health and psychology area. There is another area where local people can go, at a higher level than the usual undergraduate programmes, and begin to use the interest and knowledge they have gained inside their companies and other organisations and do a doctorate, and finally realise how much further some of their ideas can be developed, commercially as well as academically.

Professor Wright: That is an extremely good point and one that we do not often think enough about in the UK. A lot of the big international success stories of which one is conscious where technology firms have come out of universities-Microsoft, Facebook-came from students, not staff. It is important that people realise the productive role that students have in these sorts of things. I think all universities now offer entrepreneurial modules that students can do as part of their degree courses, for example. That is encouraging a whole wave of student entrepreneurs. In my own university, students form about 40 to 50 companies per year. All of those are in the local economy-in my case, the north-east of England-but this is happening across the whole of the UK and is very important. We have tended in this country to ignore the contribution that students make.

Q135 Jim Dowd: Is it really that surprising, given the fact that the staff are invariably by definition academics? It is not the first thing they look at. The student body is replenished certainly every year, if not more; God knows how often the academic staff are replenished. So it is a dynamic of the organisation, is it not?

Professor Wright: You are absolutely spot on. It is completely obvious, and you can do the maths on it. My university has 5,000 new students a year. We are a medium-size university, but we have a few hundred new staff a year. It is likely that you will get much greater churn. You also have a group of individuals who are at a stage of life when they can afford to take risks, particularly immediately after graduation. They tend to have very little in the way of family encumbrances and so on. So they are in a position in life; they have often got an attitude that encourages risk as well. Actually they are a very productive group of people. But the whole debate in the UK-the frame of much of the evidence you have received-has been about staff-led entrepreneurship and spin-out companies. It is a shame we do not do more in the UK to support students starting companies.

Q136 Chair: I think you were sitting at the back when we were talking to the previous panel. You may have heard us refer to our informal session at Warwick a couple of weeks ago. The relationship that has developed there between the Warwick Manufacturing Group and regional business has obviously been incredibly important, not just to the university but the regional and, indeed, the national economy. Is there not a responsibility on the university sector to look for synergies like that?

Professor Wright: I think there is, but that is already widely understood. Of course, different parts of the UK have different types of industrial clusters, don’t they? I am sorry to talk about my own area, but it is the one I know best. In the north-east of England there are two predominant industrial clusters. One of them is the chemical industry, where I believe that, as in the north-west, we have a very significant proportion of the GDP of the chemical industry in the country. Our university, Durham, Teesside and Sunderland work a lot with local chemical companies. There is a lot of stuff going on.

The other big sector in our area is the marine and offshore sector. Again, our university has a big department in marine engineering. We support the local economy very deeply. It is the same in the south-west. Bristol university set up the National Composite Centre to support the aerospace industry in the south-west. You will see different clusters, but now that every major university is involved in some kind of activity of that ilk, and that is a tremendous thing to happen over the last 20 years.

David Sweeney: I would absolutely take it for granted that in the mission of every university is a commitment to work not just with business and industry but the social and cultural sector. We also have a stream of funding that is hypothecated to support that in the higher education innovation fund. On measures of success, the income to universities has shown a tremendous, 50% increase over the last six years. I think it is absolutely embedded in universities that there is a commitment to society. That has been reaffirmed in the contribution to society of research being taken as part of the method of assessment. It is part of the commitment to students on employability. Student enterprise is very attractive. We have funded NACUE, a charity that supports student enterprise societies and young entrepreneurs, to provide infrastructure, so that universities and students with their enthusiasm can have that harnessed and channelled to a profitable end. I think the incentives for universities are there to do what you describe, and I think universities are enthusiastic about it.

Q137 Sarah Newton: I would like to come back to what Professor Wright said. I represent Cornwall. The University of Exeter has just become a member of the Russell Group. In my lifetime, the community in Cornwall has been transformed by having a university. There was no university when I grew up there. I would very much endorse what you say about the importance of working with renewable energy companies and deep geothermal in the marine environment. It has been enormously beneficial both to the university and the students but also those businesses, because they say that the university is their R and D department and they could not develop without that. So, I can see, even in a very remote part of the UK, away from the golden triangle, world-class Russell Group research going on. That is quite an unusual situation in Cornwall. The Russell Group does attract the vast majority of research funding. To what extent do you think that those institutions have a responsibility in their wider regional economies to enable different sorts of organisations to work in partnership with the Russell Group and benefit from some of that research funding?

Professor Wright: There is a responsibility, and that responsibility is now quite openly acknowledged. Most Russell Group universities have modified, for example, their mission statements and corporate documents. If you read those documents, you will find embedded in the corporate thinking of the university an acknowledgement of that responsibility, which is taken quite seriously. I would like to speak about universities now rather than in the past. In the past, perhaps that was not the case, but my experience now is that that is very much acknowledged. It is good for the universities as well. While it is very important that universities are part of the global research game that you heard an earlier witness speak about, you can float, a bit disconnected, on that global market, if you are not careful. Some degree of regional rooting is quite healthy for the universities as well, so a local connection based on pursuing interesting and excellent ideas, like the ones you talk about, is very helpful as a balancing force with the global push that you also see at big universities. I think it is good for us, but I hope it is also good for the local economies.

David Sweeney: The Russell Group does a tremendous job and it works in partnership, but I would not see that as the focus of the work in Cornwall, for example. The University of Plymouth, with its very strong enterprise offering, is the right university to lead. Exeter is part of that. University College Falmouth, as well as combined university colleges, is involved. You have to be alert to the particular regional needs, rather than trying to craft the regional needs to fit what the Russell Group might offer, and that is exactly what is happening. Plymouth is active in coordinating work that no longer happens because the regional development agency is not there. It is active in Brussels looking at opportunities for structural funds in Cornwall. The university has taken on a tremendous role, led by Plymouth but in collaboration with others.

Professor Haines: I agree with both responses. If I can throw in one negative point about regional issues, I think that London, or the M25 area, is a problem in relation to universities of all kinds working together. The regions have got some reason to do it. In London, there is a tendency for the largest universities to plough their own furrow and not do the same sorts of things as both these-

Q138 Chair: To whose disadvantage?

Professor Haines: I think to the disadvantage of all, including UK plc.

Q139 Jim Dowd: What about the economic health sciences outside the initiatives of Imperial and King’s? Surely, that is a local thing, particularly in an area where, as we heard from earlier speakers, we are lagging seriously behind, largely because of the monolithic nature of the NHS?

Professor Haines: I would agree.

Professor Wright: You are right. In life sciences and wider health sciences, the economic benefits of medical research are not just drugs; they often come out in other ways. The NHS is both an enormous boon to the UK in that respect but also, to a degree, something which inhibits innovation. The NHS itself has got better. There are many initiatives within the NHS to try to encourage innovation, ideas brought both from universities but also from within their own staff, but it is a very big organisation and is very slow to move. I did not hear all the evidence given by the previous witnesses, but I would echo the point made about procurement in the NHS. It is quite bizarre in the modern age that we do not use both NHS and MOD procurement, for example, as an effective tool to encourage innovation.

Q140 Sarah Newton: Going back to the theme of my questions: you are absolutely right that there is a unique partnership in Cornwall between Plymouth and University College Falmouth. I am glad you have reminded the Committee of that. They are in my constituency, so I know them all very well. It is a partnership effort. That is a very good model for us, but it has been suggested to us by other witnesses that it would be better if universities in particular areas were designated with responsibility for the commercialisation of science into companies. You would not have every single university trying to do the same thing, but lead universities in particular areas would be doing that. What do you think about that idea?

David Sweeney: I do not think we do have every university trying to do its own thing. Although all of them have a commitment to supporting business and the economy, they do it in different ways. We already see collaborations happening: Aston, with Oxford’s Isis Innovation and Cranfield with Imperial. We already see universities keen to cut their costs by sharing activity. We have funded collaborations through our higher education innovation fund. Some of them prosper where the universities see mutual benefit, but some of the structural collaborations we have encouraged founder because the objectives of the universities are different. I am all for universities sharing services; we do a lot to support that, but we have to let those grow organically where universities see benefit to themselves and business coming from shared activity.

Professor Haines: Incidentally, that is not to say-this was one of the points made by the earlier witnesses-that having technology development centres that work across universities is not a good idea. To think of every university, especially those that are not terribly active, having a complete office to look after its commercialisation seems to me to be quite a good idea.

Professor Wright: There is an obvious problem as well, which is that universities do research across a broad spectrum. We might one day have an idea in life science and on another day in aerospace, but we have only a very small number of technology transfer staff, so we cannot really maintain the expertise across that broad spectrum. Some kind of collaborative working helps a great deal, and a lot of universities are doing it either formally, through the partnerships that perhaps feature with HEFCE, but also informally. You will find that the universities in your constituency are meeting regularly and sharing information and best practice among themselves in a way that is probably quite surprising to people.

Sarah Newton: Oh, indeed.

Professor Wright: That helps them maintain a breadth of expertise, which I am sure they find very helpful.

Q141 Sarah Newton: Following on from that, it has been suggested to us that the caps on funding by HEFCE for those institutions that are fostering this collaboration should be lifted. I am just wondering what you feel about that.

David Sweeney: I have absolutely no doubt that the cap we have on the higher education innovation fund would, if lifted, lead to more activity, but we have a fixed pot. We gave great consideration to how we allocated the funding. We did withdraw funding from about 30 universities which we did not feel were demonstrating sufficient performance to justify funding, although I have to say that was performance in terms of income; they were doing some great things that were not represented in income. If we want to support the breadth of the UK economy, we want to support the kind of thing that happens in Plymouth and Cornwall and we want to support work with small and medium-sized enterprises, we have to have some kind of cap, given there is a limited budget, to ensure money flows across the breadth of universities. At the moment, on the evidence we have, we have got that right, but we review it every three to four years. If only we could have more money and release that cap, we could stimulate more activity. We know there is a return of roughly £6 for every pound invested in Higher Education Innovation Funding. The highest performers return about £14 for every pound invested in HEIF. We would love to invest more, but times are tough.

Professor Haines: You are talking about the cap at the top and bottom of the funding. Looking at the list of amounts of money awarded to different universities, it would be very unfortunate if an increase in the cap at the top end were to reduce the amount of money going to some universities. Just once, I shall be parochial. My ex-university, the London Met, where I was director of the graduate school-I admit it is not a research-intensive university-was receiving something like £1.5 million from the HEIF, and a university like Coventry receiving something like £2.5 million. It would be a great shame if universities falling into that part of the sector were to lose a significant amount of the money they get to deliver what they are doing, in different ways from those that are at the £2.85 million cap.

Professor Wright: In general, most of the sector believes that HEFCE has shown quite good judgment in HEIF over the years. The important thing is continuity. We cannot recruit technology transfer officers if we have to make them redundant three years later, so continuity is very good and helps everybody. I am not going to embarrass David, but HEFCE has done a very good job with HEIF.

Q142 Caroline Dinenage: Professor Wright, I would like to pick up what you said one question ago about the fact that a lot of ideas are coming up, and there is a lot of potential research fodder there for your students to get involved in. Is there pressure on them to focus their research on the things that are going to be more commercially viable and financially profitable, rather than the things that might purely increase the UK’s research standing?

Professor Wright: Pressure on the individual research students or young researchers or academics?

Q143 Caroline Dinenage: Yes, and the academics.

Professor Wright: I do not think so at individual level, and that is probably right as well. It is entirely reasonable to expect a research university that has a substantial grant income to be regularly producing good commercial outcomes, either spin-out companies themselves or, more importantly in many ways, transferring technology to existing UK companies. If you put that pressure on individuals, I am sure that is not right. If you compare international best practice, I do not think that is an approach followed by any of the competitors we hear favourably spoken of. The system is balanced at the moment. Individuals have the freedom to pursue their research, but universities have the responsibility to find the golden examples among that portfolio and make the very best of them. That is probably the best approach.

David Sweeney: In terms of the incentives behind the science budget, the research councils, funding councils and indeed the TSB talk frequently about the balance of incentives that we are providing. We are all agreed that excellence in research, delivering the seed corn for the future, is the priority. However, it is not the only objective. It is clear from the research councils’ policy and ours on research assessment that the highest quality world-leading work, much of which is theoretical and will lead to a contribution to society well down the line, is the priority for universities and funders, but that is backed up by recognition that more applied and immediate work is often good and will be rewarded.

Q144 Caroline Dinenage: Do you think there is an imbalance between the investment that goes in at a low level of technological readiness stage, or the research stage, and almost a lack of available funding when it comes to the bridging of the valley of death later on? Would that be an issue?

David Sweeney: The way that our dual support system works, with roughly half the money being spent by the research councils on projects and programmes, where it has considered what the grand challenges are, and roughly half the money going to universities as a un-hypothecated block grant, is intended to deliver flexibility to universities in chasing what they think in their engagement with research users-business, industry and the cultural sector-is the most sensible way forward. No one person is taking a decision about the balance. This is a devolved decision between the research councils taking disciplinary views and universities taking views which we insist are informed by the engagement with research users. There are mechanisms in place to achieve a reasonable balance, and I do not think anybody has produced any evidence that our balance is significantly awry. We continue to perform exceedingly well in world-leading research, as measured in citations, and we see multinational companies repeatedly rolling up to this country because of the strength of the research base and wanting to work with us. Although one must always question what we are doing, at the moment there is quite strong evidence that we are in the right area.

Q145 Caroline Dinenage: We seem to hit above our weight in terms of basic research internationally but not necessarily always in commercialisation activity. You do not think that the balance of funding is in some way awry.

David Sweeney: We have to tease out that oft-quoted view. We have done a lot of research. We have had the Centre for Business Research at Cambridge, PACEC-the Public and Corporate Economic Consultants-Library House, as was, and also the OECD working on this. In terms of incentives to universities, the UK ranks alongside the US. We have more spin-out companies per pound of investment in the UK than in the US. Certainly, the US is ahead on licensing; the UK is ahead of the States on building recognition for business engagement into promotion procedures, and both of us wrestle with very similar problems with technology transfer offices. The US complains about inflexible technology transfer offices, as crops up in this country. In terms of the incentives to universities, we are competing with the US. Taking work through to commercialisation is certainly not just about universities and public funding. You have to look, as indeed you are, much more broadly at the environment for taking ideas, as the TSB puts it, from concept through to commercialisation. I am not sure that at my end, the university end, we have an imbalance.

Professor Wright: I agree largely with what David has said. You have to see it in a much broader context. I have spent part of my career in industry-I am an engineer by background-and part of my life in university, so I have seen the problem from both ends. When I was working in industry, the technologies were much more developed than the kind of ideas that typically come out of a university research lab. If I was investing my own money or my company’s money, I would look pretty sceptically at some of the propositions put to me by university research teams, because they are at too early a stage, too preliminary. Most large economies have understood this problem quite well and put in place what you might call a national innovation system of some description. It varies between different countries. In Germany, it works differently from the way that it does in the US. We seem to be the only major economy that thinks we can make this work on fairy dust and good intentions. It is quite perverse. Most countries have put in place a proper system. It does not have to be heavily prescribed; it can be an informal system, but there is a national innovation system of some kind, and we desperately need that in the UK.

Q146 Caroline Dinenage: What form does that take elsewhere?

Professor Wright: It can vary. The Fraunhofer system in Germany is well acknowledged; the US system works quite well. We have to think very carefully about our national characteristics and the way that we work in the UK and tailor that to our needs. I think the previous set of witnesses said much the same thing. This is desperately needed in the UK. We must first understand the necessity for this first of all. It is not an impossible problem to solve; we can easily do it. The Russell Group universities have a pretty strong view about what we would like to see as part of a national innovation system, but unless we put in place a system, we will suffer these problems. The components you would expect to see in that system are definitely support at the early stages from public finance, as David has alluded to, from HEFCE and research councils, but you also need to bring into play things like government procurement and, for example, military procurement, which is what happens in the US. Most small US technology companies receive an enormous amount of money from the American military through various programmes. That is their support mechanism and national innovation system.

Q147 Stephen Metcalfe: You have been talking about a national innovation system. You mention the Fraunhofers. The Government have taken steps towards creating the catapult centres, under the guidance of the TSB.

Chair: We know about the catapult centres. We do not like the name.

Stephen Metcalfe: Yes. It is supposed to be based on the Fraunhofer model, but do I take it from what you said that it is not going to fulfil that role?

Professor Wright: The comparison between the catapult centres and the Fraunhofers is a big topic. There are many more Fraunhofers in Germany than the catapult centres. One observation that Russell Group universities would make is that there is a much closer interaction between Fraunhofers and German universities than between catapults and UK universities, for example, so that is an open question.

Q148 Stephen Metcalfe: But are not catapult centres that have been established so far all established around universities?

Professor Wright: A small number of them have been.

David Sweeney: I do not think the objective is to establish them around universities. These are business-focused organisations, where universities will be stakeholders and will contribute. We have got half a dozen catapults in development. We have different models for the different catapults that reflect the different structure of the industries involved. Good progress is being made in setting them up, but until they have had an opportunity to deliver, it is difficult to say whether they are a significant or small part of the answer.

Q149 Stephen Metcalfe: The jury is out.

Professor Wright: I would disagree with that. I do not think good progress has been made. They are too disconnected from universities. The Technology Strategy Board is not talking to universities about the alignment of strategies. For example, every year we invest in new staff and researchers. That is not being done in a co-ordinated way with the TSB.

Q150 Chair: But if you went down the route of the German Fraunhofer model, you would redirect resource from the research councils directly to the Fraunhofers and not to the universities.

Professor Wright: I do not think we should go for the German model. The German model works fine for them, but they have a very different system. The way that they have designed their national system puts different functions in different parts of it.

Q151 Chair: You want to bolt both bits together. I am all in favour of more money going into research, but you want it to go through the research councils to universities and a separate sum of money to go through the TSB into the catapults. You are inviting a still larger sum.

Professor Wright: Of course. It would clearly be a mistake for the nation to cut off its future by shutting down research funding. That would be a calamitous mistake. At the same time, we need to make much better use of the very large sums of public money that are going through procurement in things like the MOD and NHS, for example. If you are looking for an extra source of revenue, it is staring you in the face.

Q152 Jim Dowd: You were talking about the national approach to innovation. I just want to look at a national approach to providing the correct balance of courses across the higher education sector. Whose responsibility is it-this is a question for anyone who wants to answer it-to ensure that the balance across the nation as a whole in the different disciplines, particularly engineering, science and technology, is provided by the higher education sector?

Professor Haines: Can I start by reminding the Committee that it is demand-led, and the demand is student demand?

Q153 Jim Dowd: So, your answer is nobody.

Professor Haines: It is students who create the demand. There have been a small number of initiatives to support STEM degrees. Amounts of money have been given to professional bodies to press the case and to advertise the opportunities in science and engineering. But we do have an issue, because students are loaned money by the Government to go to a university and apply for a programme. Every science department and faculty I know works incredibly hard going to schools and other places to try to convert people to study science, but, frankly, it is led by student demand. It is very unfortunate at the postgraduate end because such a significant amount of student demand is international, rather than home-based.

Q154 Jim Dowd: This is chicken and egg, is it not?

Professor Haines: Absolutely.

Q155 Jim Dowd: They apply for the courses that are there.

Professor Haines: No, absolutely not. Universities are putting on courses for which there is a demand. Universities are continually closing down courses for which there is not a demand.

Q156 Jim Dowd: So this is not a strategic question; it is just a market question.

David Sweeney: It is a strategic question as well. We have always had student choice as the key element in the courses that universities run. However, we are putting a good bit of effort at the moment into informing students about employment opportunities, wage outcomes and success in getting jobs, in all disciplines, so they can make wise choices. We have had a campaign running for six or seven years working with STEM people in schools, working with universities and professional bodies to try to stimulate students to choose science and engineering subjects at school, and supporting capacity in universities, where perhaps in the short term there is a drop off-in numbers, so they can maintain that capacity until numbers flow again. We have seen some significant successes notably in maths and some areas of engineering, although not in others. There is a strategic approach to encourage universities, who are working with us-I speak very highly of them-to provide opportunities for students. There is a strategic approach, with schools, to persuade students to do STEM subjects, but it is up to students to choose that. We have had some success in this over the last five years, and we need to keep at it for the next 25 years if we are going to produce the skilled graduates in the number and disciplines that the nation needs.

Q157 Jim Dowd: That is exactly what I was aiming at. Individual higher education institutions just work with the funding council on the general strategy of producing students who can make the choice. There is no guarantee that, even if they have got the qualifications to move into science and engineering when they go to university, they will actually do it.

David Sweeney: Nor is there any guarantee if they achieve good science degrees, as many do, that they will go into employment in that area. Indeed, our business scene is considerably enriched by people with numerate skills who go into management positions. We are absolutely determined to stick at encouraging universities to offer a broad range of courses and students to choose to do that, but you cannot keep running courses if repeatedly nobody chooses to do them. There is absolutely a national strategy on this, but it is not directive of individual students.

Q158 Jim Dowd: How much can you factor in the vagaries of one year’s intake compared with the next? Just because in one year there is a fall in the numbers, so there is a financial question for the institution, you cannot simply say that you are going to close down a department simply because you have not got enough students this year.

David Sweeney: There is a shared responsibility with universities. It is in their interests to support things over the medium term, as Nick has pointed out, because stability in research goes alongside teaching. Teaching and research are inexplicably linked. I do not think there is any danger from very short-term fluctuations. There is a danger from medium-term fluctuations. That is what we had, for example, in maths and we set about doing something about it. In computer science, we had a big bubble, and now we are in the rather tricky position that there are poor employment outcomes for computer science graduates. The key question is: do you make this information visible to prospective students in a way that they can understand, and also visible to schools so that careers advisers in schools can help prospective students? In publishing our key information set, which we hope will be available and accessible to those groups as a way to help, we think we are going to help students come to wise decisions.

Q159 Jim Dowd: Is it your estimation that we do have enough science, engineering and technology graduates at the moment, or is it a reflection of the job market, in that it is the market that determines what courses students sign up to? If there are unemployed science and engineering graduates, are we producing too many?

David Sweeney: Science and engineering graduates offer a wide range of skills beyond the particular knowledge in their discipline. I think we need more of them, but it is quite difficult to analyse at the moment, given the state of the economy, what the continued need will be. We talk a lot to the CBI and businesses generally. We have the Council for Industry and Higher Education, where vice-chancellors and captains of industry meet, and we are getting a consistent view from business that they want more STEM graduates. Although there are limits to what we can do to achieve that, that is our intention, recognising that arts, humanities and social science graduates also have fantastic skills and many end up in very senior positions.

Professor Wright: Perhaps I might add one thing. One of the issues is that sometimes it is quite difficult for universities to respond quickly to changes in the demand for graduates. Sarah Newton talked earlier about work in her area around renewable energy. There is a big global boom in renewable energy. Almost all of that renewable stuff is connected with electricity at some time, so there is a big demand for electrical engineers. If you talk to any major infrastructure company, they will tell you that they are desperate for electrical engineers. It takes more or less five years to go through a degree to come into that. You then have to have professional training, and there are not enough people coming through the system quickly enough. It may be that particular industrial sectors industry can make a coherent case to somebody, perhaps David, to encourage a faster response in terms of training more people more quickly. The big danger is that if the companies cannot get the people they need, they are forced to move operations overseas because they simply cannot find enough electrical engineers.

Professor Haines: I realise that the Chair wants to move on, but let me add: I think we have answered this question on the basis of thinking of graduates doing their standard bachelor degrees and further up the scale. There is a major issue about the training of technical staff for a whole range of careers, which we have not touched on.

Q160 Caroline Dinenage: Sorry to jump in, but this is one of my pet subjects. How much are universities doing to communicate with the schools at an early stage to educate kids as to what GCSEs they should take to pursue STEM subjects, for example? In my constituency, we have an issue, where schools are encouraging kids to take a combined science GCSE and that prevents them from taking any of the STEM subjects further up the food chain. At the age of 13 they are almost writing themselves off from some of the careers that you have mentioned, because of a lack of good advice from teachers and other staff around them. At that age, potentially, they are not going to think about their future and what kind of career they may want to go into, but it cuts off a whole lot of other careers.

David Sweeney: Every university I know is substantially involved in schools outreach, and some of that we have funded directly where we have thought-for example, in physics- that there are limits and we need to encourage more. This week, we have seen potential developments with university involvement in A-level curriculums. These things are there. I suspect we could do more of it.

Q161 Caroline Dinenage: It has to be earlier, I think.

David Sweeney: Yes. It is really great to get into primary schools. There is some wonderful work funded by foundations, but it is just an issue of scale.

Q162 Chair: Absolutely. I am going to really push you on this. There is undoubtedly a weakness in our primary schools. We have some fantastic, well-motivated primary schools but a massive shortage of primary school teachers with any science or engineering experience. Last year, I did some work with the Royal Society of Chemistry and the Chemical Industries Association to produce a DVD for primary school teachers to help them explain basic scientific concepts to children. Why not are the universities doing it when they are training our teachers? It is their responsibility.

Professor Wright: I am not sure I understand your point.

Q163 Chair: We have a lot of very inspired young teachers who have no qualifications and training in science and engineering, but the university sector trained them. Why do they not do that work with young teachers to help them manage and inspire people about things around them?

Professor Haines: Part of the reason-it is a rather trite answer-is that there are too many things in teacher training courses that need not be there and need to be removed to make space for this sort of thing. It is a very difficult thing to do. I would not fancy trying to do it, with my experience of teaching science in all kinds of different ways, but that is one of the major issues. Let me throw in one more thing. As well as many more primary school teachers understanding science better and how to teach their pupils, we need much better training of careers advisers in schools, most of whom have an idea that if you are going to do an A-level in chemistry the only thing you can do is be a chemist or use it to get into medical school and become a doctor or get into a veterinary college.

Q164 Stephen Mosley: Changing the subject a bit, we have heard of some blockages that stop academics interacting with business. One is the Research Excellence Framework. Do you think the REF encourages academics to be involved with business, or does it prove a hindrance and, if so, what would you do to change it?

David Sweeney: I am responsible for the Research Excellence Framework. We have incorporated, for the first time, an explicit recognition of the contribution that research makes to society, although there always been recognition. We have pitched the level at which we do that to reflect the importance of basic research alongside work that makes a contribution to society. I look round the university sector now, as people are in the middle stages of preparing their submissions, and I think universities have been galvanised by this, not to alter their research programmes, but to dig out the work that they have done and celebrate it, and to stimulate greater engagement with business and industry, so that research programmes are better informed. I see a more positive attitude, which was the intention, but we have to do the exercise. We have to see what the outcome is and get feedback from the universities on how they felt it was helpful to this agenda, and whether there are issues that we need to resolve. I think we have considerably adjusted universities’ attitudes to research.

Professor Wright: I think that there are some side effects from the REF, but I do not think that is one of them. The REF in itself does not create any obstacles for academics interacting with companies. Generally, successful academics generally see themselves as having a portfolio of work. Some of that work will be fundamental and produce pure blue-skies research papers, which they might submit to the REF, and often they will have a portfolio of more applied work. The important thing is that people need to understand that most successful academics are doing all of these things at the same time; they are both doing pure research but also working with companies. What we really need to do is free up as much time as possible for those people to do productive work, but I do not think the REF in itself is an obstacle to any of that.

Q165 Stephen Mosley: There was quite a discussion with the previous panel about intellectual property. In some ways there is criticism of the universities in not fully using their IP potential. What responsibility do you think universities should have for assessing the value of their IP and making sure that it is out there for use?

Professor Wright: There certainly should be a very strong moral obligation on universities to do so. That situation is one of the things that has improved a lot over recent years. For example, several members of the Russell Group universities banded together into what is called the Easy Access IP consortium. That is quite an innovative arrangement created by Steve Beaumont, a very forward-thinking guy, at the University of Glasgow. It is a system whereby UK companies can access IP from member universities for free, provided it is to the benefit of the UK. That is an excellent scheme. There are other schemes. In the north-east, we have a similar scheme, allowing collaborative working between Newcastle and Durham universities, for example. That has probably been one of the biggest changes in the last five years, but we need more of those kinds of initiatives.

David Sweeney: It is an incredibly strong responsibility, because most of the research is publicly funded, so the intellectual property ought to be deployed for taxpayers’ benefit. We have established over many years, and internationally too, that there is no single model for managing IP that provides an optimal solution. We are very interested in, and support, the Easy Access IP option. You triage the IP at the start and treat that which you think has very high potential differently from the bulk of IP. It depends on the industries you are working with and the way they want to manage their IP. We see universities that work with commercial partners to manage their IP; we see universities that do it themselves. If we could identify an optimal model, we would be further ahead, but nobody internationally has done that. I am pleased that universities are choosing different ways of doing it, so that we can learn from each other.

Q166 Graham Stringer: Professor Wright, if I may, I shall go back to the answer you gave earlier about academics spending half their time with industry and half the time on academic activities. When I have talked to vice-chancellors, they have often said that one of the problems of getting a transfer of good ideas into business and technology is that there is a conflict. Academics want to get their research out and publish it, and you need to be quite secretive if you want to make bags of money out of a new idea. We have not heard that said once in this inquiry. Has the culture changed, or is it just something we are not bringing forward because it is too difficult?

Professor Wright: Those kinds of issues do occur at the level of the individual academic who may have a strong collaboration with a company and the company wants to be more secretive about the work than the academic does. I have been involved in discussions trying to look for a negotiated agreement between the academic and the company. I do not know whether it is a systematic problem. It is a problem that occurs on individual projects.

Q167 Graham Stringer: If you are an academic, you are going to get your reward by citations and lots of papers showing that you are the first in that particular field, aren’t you?

Professor Wright: Earlier you or someone else brought up the example of graphene, which is very interesting. If you look at many of the latest results now coming out where the technology is being applied and people are publishing papers in the top journals in the world-Science and Nature-you will find that a lot of them are being published by industrial companies. Very few of them are UK industrial companies; they are mostly Korean and American. It is clear that many companies consider it to be to their advantage also to publish their results. It is good for the company. Investors in the company want to see that, and it is a form of public relations, if you like. Many companies also want to publish. I know that Rolls-Royce, with which I have worked a lot, is keen to publish papers on its work, and many other big UK companies are as well, so the idea that companies want to hide everything is not really true. A lot of companies want to publish, but what you get are occasional difficulties, which usually can be solved by discussion, and an agreement can be reached. I do not think it is a widespread, systematic problem.

David Sweeney: Nor would I like to stereotype all academics as getting their reward through citations. One of our successes over the last 10 years has been to unlock entrepreneurial instincts in many academics. Where we have academics who want to behave like that, surely we want to encourage it, and they ought to see some of the fruits of success going to them. It is a shared responsibility between the academic, the university that has employed them and, of course, business. We have got to have vehicles for that to happen. I do not think we have a systematic problem. I agree with Nick that occasionally there are tricky issues where we need legal help to find the best way forward.

Q168 Chair: Should that not be reflected in the way academics are assessed?

David Sweeney: It is.

Professor Wright: For example, the promotion criteria in my university are about research and teaching but also about engagement with either companies or the local community in some way.

Q169 Chair: Is that sufficiently reflected in the way the research councils operate, for example?

David Sweeney: I think it is. The research councils are very enthusiastic about academics behaving entrepreneurially.

Q170 Graham Stringer: Researchers are increasingly being asked to justify their work by impact. We have had academics here who say that is particularly difficult to do. Do you think that that emphasis on impact, which nobody can really know-because you do not know what is going to happen in one, two or three years’ time-is in conflict with excellence in research and a focus on absolute academic excellence?

David Sweeney: I do not think individual academics are generally asked to demonstrate their success through impact.

Q171 Graham Stringer: But they are when they apply for research grants.

David Sweeney: No, not at all. The research grants are awarded primarily on the basis of excellence. The research councils have been very clear on that. You will have an opportunity to ask David Delpy.

Q172 Graham Stringer: That is not the evidence we have had here. We have had evidence that people have been asked when applying for research grants to assess the impact. We have had very different evidence about how that is evaluated.

Professor Wright: If you apply to the EPSRC, you provide details of your scientific vision, but you are also asked to fill in an accompanying document which describes the pathway to impact, in the sense of how you are going to help any impact that may be there to flourish. That is probably a reasonable approach. It is not asking the academic to prove there will be impact, it is just saying, "What will you do to encourage it, if anything is there?" That puts an obligation on the academic to disseminate the information and encourage local industries to come and learn about it, for example. This has gone on in the US for a long time. In the US, you will see quite commonly an academic group will have an open day one day a year to which they invite local companies. They will write to 100 local companies and those companies will come and tour the labs for an afternoon. One afternoon a year is not a big burden on a research group. That is the sort of mechanism the EPSRC is asking for. There has been a change, and there are some academics who are choosing to see that in the way that you describe, but what the EPSRC is asking for is something different; it is asking for people to provide an explanation of how they are going to encourage that kind of thing.

Q173 Graham Stringer: This is a real problem, and I not think you can dismiss it. I have heard organic chemists, physicists and all sorts of people complaining about it, so it is a real issue in the academic world. What I was trying to get at is whether that is distorting the work that is being done.

Professor Wright: It probably plays out differently in different disciplines. Some disciplines are more naturally aligned to it than others, aren’t they? There are strong opinions among discipline groups. In particular, organic chemists are well known for their view; other groups are less worried.

Q174 Graham Stringer: Let me finish my point and Jim’s point, which you may want to consider. The largest impact I have seen in encouraging people to get into physics is by having a sexy professor who presents good programmes.

Professor Wright: Absolutely: it works.

Graham Stringer: The demand for physics in Manchester at the moment, particularly from women, is through the roof, so maybe you should think about that.

Professor Haines: From the perspective of UK deans, when I was preparing our response to your consultation exercise, I was quite heartened by the fact that everybody who responded to the particular issue of impact and commercialisation indicated that they would be only too happy if any of their staff said to them, "Look, I have an idea but I need two years to work through it. If it works it will be worth umpteen millions to the university, but it may be that in that time I will not be able to publish in the same way as is important to the REF and the research councils more generally." I do not think there is any discouragement; in fact, there is quite a lot of encouragement to people to look into the commercialisation of their work.

Personally, I do not think the impact agenda is going to have a serious effect on research excellence, but only time can tell. There is no doubt that the last 10 years have seen changes in attitude and in what happens in universities, which right now we would say is all to the good in terms of IP and commercialisation. If you had asked academics 10 years ago if they would have been comfortable with where we are now, quite a few would probably have said no.

If I may make just one plea-we put it in our response, but I make it publicly here-I ask you to ensure that whatever you suggest makes allowance for mathematicians who, however they do their work and however they try to commercialise it in the short term, quite often have a great deal of difficulty and commercialisation is way into the future. I say that as somebody who is not a mathematician.

Chair: The Chairman has a vested interest in mathematicians. We are extremely grateful for your evidence, gentlemen. Thank you very much for attending.

Prepared 26th June 2012