Examination of Witnesses (Questions 92-99)|
MONDAY 12 MAY 2003
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
(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.
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
(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
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
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 managementwe
have heard this from a previous witnessto 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.