Select Committee on European Union Minutes of Evidence


Examination of Witnesses (Questions 92-99)

MONDAY 12 MAY 2003

MR ANDREW MARRATT AND MR STEVE BATEMAN

Chairman

  92. Good afternoon, Mr Marratt and Mr Bateman. Thank you very much for coming along this afternoon and being patient until the second session. I hope you received some questions in advance.
  (Mr Marratt) Indeed; yes.

  Chairman: We have quite a few questions, so if we can keep our questions relatively short and your responses to the point it would be quite helpful.

Lord Fearn

  93. SMART. What do you understand to be the objectives of the SMART scheme? By what criteria do you rate SMART as "among the best" government schemes.
  (Mr Marratt) We understand the objectives to be to supply funding for firms or even individuals, to help them review and develop ideas for potential commercialisation of research, when those ideas are still at the stage where they are not yet fundable or financeable, at too high a risk stage to be financed by a commercial entity. They are unlikely to be near enough a development stage and to be suitable for any sort of commercial finance, but there is a potential for merit there that it is worthwhile that person be allowed and encouraged or that company continue with that idea. How we judge it to be amongst the best is simply from the evidence we see before our own eyes, coming from our managers through the branch network. An awful lot of companies have heard of it, which is a good start for a government scheme, and quite a number of our managers have heard of it through their own customers having heard of it. It obviously has one very great advantage in that it does a very simple thing: it pays cash to a company with no requirement to pay it back, no income tax, no VAT. It is a very straightforward scheme which is fairly easy to understand, there are various websites promoting it and so on. Whilst there are always complexities and grey areas over the ground rules and areas where people think there could be improvement, at least it does what it says on the tin. It is a SMART award for companies who have a smart thing which needs to be developed.

  94. Is it not popular really and truly because of the figures involved? They can go up to £450,000, can they not?
  (Mr Marratt) Yes, £450,000, but that is in very exceptional cases. We do not see that many go through to the £450,000. An awful lot are in the early development stage, which is the £30,000 stage.

  95. Thirty thousand.
  (Mr Marratt) Yes. As I understand it, there is an initial grant available for a feasibility study and then further grants for when you have actually gone through the feasibility study and on to development stage. That can be at the tens, twenties, thirties, forties £50,000; £450,000 is an exceptional grant which we have seen one customer get. We do not see a lot of those come through.

  96. Who is taking the risk?
  (Mr Marratt) In a sense, with the SMART award, the tax payer is taking the risk. It is fulfilling a market failure in a way, because it is putting money in at a stage where no depositor or shareholder in a fund would be willing to take that risk, but if it goes well, there is a potential of a very successful company.
  (Mr Bateman) Generally there has to be some match funding. The exceptional client I have got the SMART award quite easily in the end, although obviously he had jumped through lots of hoops to get there, but the actual business of getting match funding to put alongside the SMART award money is proving quite challenging.

  97. Are they still asked for security of any kind? Are they asked for that?
  (Mr Marratt) No, not as I understand it with the SMART scheme. It is judged very much on the merit of the idea. One slight concern we might have is that there are some cases where it seems to be judged very much on the merit of the technology without taking quite enough view on the ability of the management—we have heard this from a previous witness—to take the idea through to commercial development. We sometimes see a little evidence that the technology is fine, but did the management ever really have the ability to take it through to final development? That was perhaps not picked up at the assessment stage of the award. These are nice problems to have with the SMART awards when generally we feel it is an excellent scheme, because it is plugging that very, very early stage gap. Yet, because it requires some match funding, there is still a buy-in from the project owner or from the company; it is not just that the taxpayers are funding 100 per cent of the idea, the percentage is dependent on the stage it is at.

  98. How would you improve the scheme?
  (Mr Marratt) The issue of the management skills of the people applying for the SMART award has to be addressed. Of late, we have seen more coming through where there has been apparently less chance of them going all the way through to commercialisation. That is a little warning sign that the management of the company or of the project owners or of the proposer needs to be addressed as well as the technology. Occasionally, just the way the payments are made. At some levels, as I understand the scheme, you have to evidence that you have paid out for the research and development of the product before you can claim the money back from the DTI. There can be a timing issue with the cash flow and payments coming in. If one's banker understands how SMART works and is sympathetic to it, fine. Occasionally that could cause a little bit of a hole. It is something of an issue for a company which may not have the other cash flows to cover it.
  (Mr Bateman) The maintenance of the quality of the scheme is vital in our eyes. When it was first launched the granting of the SMART award was a good endorsement of that technology and of that proposal the bank was about to look at. Increasingly, as a tendency to get greater numbers through the SMART scheme has arisen, that quality has fallen by the wayside and in a sense has perhaps devalued that stamp of achieving a SMART award to some extent. Then it comes back to assessing the management team. If that wider picture were assessed, then perhaps the quality standards and the value of the SMART award would actually be heightened.

Lord Cavendish of Furness

  99. You mentioned that the scheme is based on the merits of an idea. I just wanted to ask whether at that juncture there is any scope for the banks themselves to move towards lending against merits of an idea.
  (Mr Marratt) Yes, if the merits can identify a source of repayment for the loan.


 
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