Speech by: Lord Drayson
Venue: Centre for Life, Newcastle

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Good morning.

Last month, I gave a speech in Oxford about the fundamental importance of science to this country – especially to economic growth and job creation.

It was called “Science: where now?”, and I encouraged an audience composed primarily of academics to do more to exploit the comparative advantage that lies in the strength of the UK’s science and engineering base.

Oxford is an important place for me – for both business and family reasons. But an important chapter in my life happened here in Newcastle. With a follow-up speech in mind – “Science: where next?” – and seeking an industry audience this time – I was keen to come up here: the city I lived in during the aftermath of a previous recession; a region whose future is so clearly bound up with emerging technologies.

Using science to grab a dominant share in new markets and address the abiding challenges of this century – like renewable energy and healthcare for ageing populations – requires both excellence in research and the capacity to commercialise. Today, I want to highlight issues around translation, and canvass North East opinion on that score.

But first, a brief account of my Newcastle experience.

I arrived here in 1991. The venture capital investors behind my first business, which created the original scoop-shaped crisp – the “Scoople” – insisted I sell it to a Norwegian firm with a factory in Gateshead.

I wasn’t ready to sell. I’d put my heart and soul into that company for seven years, keeping it afloat during the downturn of the late 80s/early 90s. And, frankly, I wasn’t too keen on moving here to supervise its relocation from Newbury.

In one sense, my expectations were confirmed. I didn’t like working in business for someone else. But in every other sense, they were entirely confounded. I made some good friends, enjoyed the odd night in the Bigg Market, and absolutely loved living here.

Perhaps more important, the impact on me of seeing a city and a region in the midst of a tough economic transition has been long-lasting.

Five years ago, in fact, I reluctantly took the decision – as defence minister – to remove a naval ship from Swan Hunter, because the top management were incapable of delivering it on time and on budget. That was the end for the yard, and a defining moment for Newcastle in its industrial history.

As we now emerge from another recession – longer and deeper than the one I faced – I do believe that, this time, areas like the North East will actually recover faster and more enduringly.

I won’t pretend that things haven’t been difficult. The recovery, both nationally and locally, remains fragile.

I am nevertheless optimistic about the future – and for good reason.

First, because the Government has taken decisive measures to mitigate the worst effects of this downturn. Rescuing the banks was an unfortunate necessity – but we also took steps to minimise the likelihood of bankruptcies and the repossession of people’s homes. We’ve pumped extra money into training so people have the best chance of getting back into work, and avoid the disastrous consequences of long-term unemployment.

Last August, there were close to 87,000 people claiming Jobseeker’s Allowance in the North East. That’s clearly too many, but it’s more than 50,000 fewer than in August 1992.

Second, because we’ve come through the downturn with our science base in a healthy state. Having doubled public spending on research, we lead the G8 countries on scientific productivity. We produce more Nobel laureates than everyone besides the US. We’re up there with the best in a whole range of disciplines.

That science is carried out here.

Newcastle University regularly makes the headlines for breakthroughs in stem cells and regenerative medicine.

Durham has been rated Europe’s top university for space science, and its physicists are involved in developing the James Webb Telescope – the successor to Hubble.

The printable electronics centre at Wilton is pushing boundaries in advanced materials and organic photovoltaics.

My third reason for optimism is the investment flowing into this region.

£200 million from Nissan to produce batteries for low-carbon vehicles in Sunderland.

Up to £100 million from Mitsubishi to develop multi-megawatt offshore wind turbines in Blyth, with £33.5 million for new testing sites from central government and a programme for attracting more investment through One North East.

£20.5 million to expand printable electronics capability in Wilton, as well as new industrial biotech facilities there to develop sustainable biofuels and speciality chemicals.

The business opportunities in the sectors where this region is now concentrating its efforts – the potential for jobs in research, manufacturing and along supply chains – are substantial.

Global growth in healthcare is forecast at between seven and 12 per cent annually.

I’ve seen the lithium-ion battery market valued at over £28 billion by 2020; plastic electronics at £125 billion by 2025; space at more than £400 billion by 2030.

We’re looking at 20,000 UK jobs in plastic electronics; over 40,000 in offshore wind; potentially 100,000 in the space sector.

Easier said than done, of course – and let’s not get carried away. To create the jobs and attract the business, we have to beat the competition.

Last week, I heard an excellent presentation by Michael Porter of Harvard Business School, who argued that the UK has undergone a genuine transformation in competitiveness terms – thanks to investment in education and infrastructure, through fiscal incentives and regulatory simplification, through government support for SMEs.

He warned, however, that the next stage of development will be slower and more challenging. It gets harder and harder to grow, which makes it essential to focus on those sectors where you can be more innovative and more productive than anyone else; essential to treat economic development as a collaborative undertaking – with industry, academia, central and local government all pulling in the same direction.

Now, as a country, we are taking action that’s consistent with Porter’s analysis.

We’re focusing on research infrastructure in growth sectors where we can win. Hence the investment at Blyth, and the European Space Agency facility near Oxford that opened last summer, and the 37-million-pound bio-incubator for drug development at Stevenage.

Hence – from 2013 – a reduced 10-per-cent corporation tax on income from patents to spur innovative firms to base their IP in this country and manufacture here.

On collaboration, we’ve produced detailed roadmaps for how business, the research base and government will get things done together – whether that’s building zero-carbon prototype cars or fast-tracking the testing and uptake of promising new medicines through the NHS.

But what about the growth plans within individual businesses – especially SMEs – to exploit the opportunities now emerging in technology-based markets?

My initial thoughts relate, I suppose, to temperament. I know what it’s like to have the bank manager threatening to wind you up. It’s no small achievement to have made it through the worst global downturn since the 1930s. In that context, it can take a while to move out of survival mode.

The entrepreneur in me, however, recognises that we are now at a critical point in the economic cycle – when market shares change most rapidly, when smart investors are on the lookout for those once-in-a-lifetime deals.

What’s more, we’re in an era where disruptive technologies achieve global scale at unprecedented speed – with the force sufficient to render existing technologies as historical curiosities.

When Steve Jobs launched the Apple iPad at the end of January, he summarised the rise and rise of the iPhone and the iPod Touch. 75 million now sold since 2007. 125 million customer credit cards on file at Apple. Over 12 billion products downloaded – 12 billion in three years!

This is the age of the killer app, and no company – no country – has the future sewn up. The semantic web technologies, for example, which are being developed in UK universities, could pose a major challenge to the likes of Google – unless Google gets there first.

It’s in this context that I want to propose that UK tech companies do three things to boost their prospects. They’re informed in part by feedback on Twitter – ideas I sought on how we better connect researchers and entrepreneurs.

The first concerns people rather than technologies per se. During the six years, business funding of undergraduates and postgraduates doing STEM degrees at UK universities has hovered around the four per cent mark. In 2008/09, we’re talking about roughly 5,000 students from a total of 160,000 who completed STEM degrees.

I think that’s too low. My first degree and my PhD were both sponsored by business – one a car firm, one a food manufacturer. Sponsorship doesn’t normally produce an immediate return, but it brings new skills and energy to a business. It brings new knowledge. It brings important contacts. It can help to keep the exploitation of IP and manufacturing in this country.

The second proposal is also about people and talent. Pick someone in your company, or hire someone – bright, motivated, late 20s – and put them in charge of new business generation. Tell them to identify the strongest universities in your technology sector, visit them, spend time with them and come back with an idea that designed to supersede your current business.

It’s a great way of gauging the pace of technological change in your sector and taking stock of how competitive you really are. And this type of internal entrepreneurship – which could move you forward – is infinitely preferable to watching a rival get there ahead of you.

Eat your own lunch – before somebody else does.

I’ll give you an example from my own experience. Back in the late 1990s, I was concerned that my vaccine company was vulnerable because it had no capability on the diagnostics side. A newly minted graduate with a PhD in engineering changed our fortunes by locating a top research group, harnessing their expertise and addressing the problem. He now has a successful diagnostics business of his own.

The third proposal: secure equity finance for your company.

Just six weeks ago, the JEREMIE venture capital fund opened for business, financed jointly by One North East and the European Investment Bank. It’s a sizable fund worth £125 million, and it’s geared towards SMEs in this region that are seeking to grow.

Furthermore, the UK Innovation Investment Fund will channelling £325 million towards technology-based firms: £125 million in low carbon and clean technologies; £200m in life sciences, digital and advanced manufacturing.

UKIIF is already the largest fund of its kind in Europe, ready to back businesses over the long-term – to support that tiny minority of genuine high-growth companies which are responsible for around half of all new private sector jobs.

So I urge businesses in the North East to switch their mindset towards growth and bid for capital. Go and get that money.

The Government, meanwhile recognises its broader responsibility on innovation.

We recognise, for example, the importance of clustering when it comes to translating scientific knowledge into economic value – the importance of places like the Centre for Process Innovation at Wilton and the Newcastle Science City for medical applications and renewable energy.

The entrepreneur Hermann Hauser is currently reviewing UK technology centres to establish how they should be developed in future to boost productive knowledge transfer.

We have to de-risk the development phase for technologies, and the Hauser review – due later this month – will consider what we can learn from other countries like Germany and South Korea to maximise the impact of investment flowing through the Research Councils, Regional Development Agencies and the Technology Strategy Board.

The de-risking imperative informs additional policy areas – not just the spending on research and the investments in infrastructure that I’ve mentioned, but other levers like R&D tax credits, worth almost £3.9 billion to innovative firms since 2000; the stable regulation of emerging sectors like stem cells; using public procurement to drive demand for low-carbon products and services.

So this Labour Government is truly with you – backing you to succeed.

We cannot leave the job of rebalancing the UK economy to market forces. Government has to make strategic choices in support of science – in support of industry.

Far from being a historical footnote, the manufacture and export of high-value products to the rest of the world is central to Labour’s vision for Britain. Financial services is all well and good, but It’s time to get back to making stuff.

Nissan, Mitsubishi, Clipper Wind are investing here because they appreciate what the North East has to offer: the engineering know-how, the geographic advantage.

But in every case, public investment and political will have played their part.

This Government will continue to go all out in attracting business. We’re not going to leave it to the market.

We get that government must be involved on both the supply side and the demand side. We invest in research – but we also recognise that in markets like healthcare and energy, the Government is by far the biggest customer.

The bigger picture is that economic growth is the best antidote to debt.

What we’re trying to do is spin golden thread from our science base: golden thread in the form of leading-edge products, rewarding jobs, further businesses, and tax revenues to reinvest in science.

Where the natural resource here was once coal, it’s going to be wind. Where production was once obvious to all as new ships left slipways along the Tyne, it’ll now be in the form of turbines rotating out at sea – visible from Tynemouth. Through plastic electronics, it will be in the form of intelligent bandages that measure oxygen levels in a patient’s wound and food containers that flash an alert when their contents are about to go mouldy.

As millions of ultra-low carbon cars join the world’s roads over the next 20 years, the whole point is to produce them in the UK and the high-value components that go into them.

It’s not enough for the UK to achieve its own transition to a low-carbon economy. This a global challenge for science and industry, and we’ve got to come up with the solutions here. We’ve got to make the stuff here.

If we own the future, we get to build the future. And that means jobs.

With the commitment from government to invest in the high-growth sectors where we can win, this region can prosper – but it now needs North East businesses to go for growth.

That’s all I want to say at this point. Let’s move on to your questions and comments, but not without me first thanking the Centre for Life for hosting, One North East for arranging, and all of you for coming along to listen.