"For all the stresses and strains that recessions cause, they also present opportunities for investors and local communities, for businesses and governments with the foresight to prepare for them"
NESTA, London
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Thank you very much and it's a real delight for me to be here this evening. I'm really impressed with the crowd which you've attracted, because this subject is tremendously important.
Let me just get straight to the point. In reading this report, "Attacking the Recession", I have to say that I think it's a brilliant document. It was one of those documents that I read once, and then it started me thinking, and so I read it again, and I found that there was very little in it that I disagreed with. As I went through it, I was nodding and saying, well yes, clearly this is the agenda which we face. And I think that's partly because already the Government of which I'm a part is alive, if you like, to the importance of innovation.
The job that my Department has been championing now for over a year reflects a long-standing belief that the Government has of the importance of science innovation, not least highlighted by the fact that we've more than doubled the science budget. So I think it's fair to say that we have been focused on innovation and the promotion of innovation long before credit crunch became the nation's favourite alliteration.
So I go into reading this paper and this discussion with some confidence, I suppose, because of that track record. But also because of the thought that went into the Innovation White Paper, the view that that reflected which had a major contribution from NESTA – and I think this organisation will continue to have an impact as we take the agenda on innovation forward in these very difficult times.
Indeed, I was up early this morning for a business breakfast at Number 10 where we fulfilled another commitment that we made as part of our support for innovation in delivering the world's first ever Annual Innovation Report. No other Government does this. Every year we will give a benchmarked report on the performance of the UK Government in delivering on innovation, and analysing performance across each of the Government Departments and the RDAs so that people can get a real handle, a sort of one-stop-shop, on the performance of the country and how we track that performance going forward.
I think some of my confidence also comes from having just read the report at the end of a week where the Chancellor has announced further significant support for business, for families, for individuals going into this recession, and because I think that the Government, like NESTA, recognises that for all the stresses and strains and the horribleness, if you like, that recessions – and having been through two myself as an entrepreneur I know they do cause some real nastiness – also present tremendous opportunities, opportunities for investors and for communities.
And, as it says in the Report, the reason that these opportunities arise is because the circumstances of a recession strip away some resistance to change. People realise in a situation of real difficulty you have to get on with things, that there is a cost in delay and bureaucracy, and that gives people the opportunity to do things that in better times would be much more difficult to do.
Now I doubt whether Charlie [Leadbeater] and the other authors had me in mind when they compared their response to this recession to a racing driver attacking a corner, but having tried attacking corners and having quite often got it wrong, it certainly struck a chord with me. The actual thought that you go into this with an attitude which says we will think about the way in which we can use the strengths of this country, the people of this country, to come through this stronger and to come out in a better place, to attack the difficulty, to do the things which we would have to have done anyway – addressing climate change, an ageing population – but to do them in the context of using the opportunities that the recession brings, really struck a chord with me. So the next few years are going to provide a real test of our innovation capability as a nation, whether we can use that capability to mitigate the effects of this recession and to come out stronger.
Now, the Report covers a lot of ground in talking about networks – the social networks through which increasing numbers of people now find work and, I think very usefully, just reminding us all that the internet really hadn't seriously got going at the time of the last recession. This is the first recession that is happening in such an interconnected world, and where the power of the internet to enable people to communicate and network will become even more important in dealing with the downturn.
We've seen from our own data that people are tending to find jobs more easily through their social networks than through what you would regard as traditional means. There are important regional networks that support sustainable economic growth, IT networks that are central to commerce and culture. And I think this is something which is going to require us, both entrepreneurs and Government, to think really imaginatively about how we can use them in dealing with this recession in a way in which we haven't had the opportunity to do so in the past.
Now, I know we want to get to a discussion, so I just want to talk about some of the key things which I think particularly are relevant in my role, and then we go on to discuss them. The first, and I think probably for me the most significant, is the question of whether the Government itself is sufficiently adaptable to handle the multiple problems that are caused by this global downturn. The speed, the ferocity of the downturn has taken everybody, I think, by surprise. Can the Government actually respond to this effectively enough?
Now I think that the way in which the Government has responded decisively to the banking crisis, the way in which the NEC – the economic war cabinet, if you like – has really shown what it can do. But NESTA is right to highlight that the role of Government during a recession increases in such areas as the maintenance of public services, the maintenance of investment in science and R&D because of the pressures on the private sector. Let's be absolutely clear. Our strategy as a Government is to maintain investment in science and innovation as we go into this downturn. It's the only sensible strategy for this country. That's the strategy which we're going to follow.
So there's an urgent need to make sure that we get the maximum possible value out of that investment. We do have to make Central Government much more nimble. We've had a decade or more of growth and during a period of growth, you can afford to move cautiously before deciding on major projects. Frankly, we just don't have that luxury any more. Of course the evidence base has to be there before making important decisions, but we can't afford the economic costs of cumbersome bureaucracy.
We've got to put, I believe, a greater premium on effective decision-making and more reliance on the judgements of those people who are accountable – delegating, if you like, the authority to take sensible risks, because innovation requires risk-taking, and to rely upon people's good judgement in doing that. We have to step up the frequency and effectiveness of joint working across Government. To get rid of the silos between Departments, and make sure that we're getting better coordination between central and regional Government operations.
Pushing ahead with the SBRI scheme is a good indication, I think, of what we're doing here – really challenging Departments to use their procurement budgets to support small business. There's the £100m low carbon vehicle project, where the Government is using its procurement power to encourage the car industry to speed up the development of low carbon vehicles. But we've really got to do more than this. I know that, for businesses, the value of a £1m contract is worth £10m worth of investment, and the Government has a real role in this.
So Britain has got to undertake the research and development now to make sure that we are a global leader in the next generation technologies – low carbon, nanotech, biotech. We've got to make sure that we use our substantial purchasing power to underpin nascent markets in this country – to give entrepreneurs the confidence that they are developing technologies for which there will be a long-term future and that their Government is supporting them through these difficult market conditions.
Now, the second point I want to make relates to finance. The Pre-Budget Report demonstrated our determination to support the cashflow of SMEs in the short term: a billion pounds of bank lending support and a separate one billion pound guarantee facility to do exactly that. But we need to do more to kick start this country's venture capital industry, to get UK funds and UK institutions investing at scale in promising early-stage technology firms.
Looking at this a couple of weeks ago I was really quite surprised that whereas the proportion of venture capital investment going into start-ups in the US was almost 33 per cent of total investment, here in the UK it was only 4 per cent. A much smaller proportion of our total investment is going into those early stages, and that's really hurting UK spinouts.
So we've got a situation where, through more than doubling investment in science over the last ten years, we have a fantastically strong pool of science coming out of our universities. Now we've got to make sure that the investment is there to back it up.
Now, most entrepreneurs know that the best investments are made during a downturn. At the moment, the major investors are having to rebalance their asset allocations. As they're going through this allocation rebalancing, I want us to put in place the opportunity to invest in UK venture capital, so I was very pleased to see, in the Report which came out today, NESTA advocating exactly the same thing: a one billion pound venture capital fund to back innovative start-ups.
Finally, I want to talk about human capital. I agree again with the report – its emphasis on giving people the skills where if they are faced with unemployment as a result of changes in the market, we support them in developing new skills appropriate to a successful future in these growth areas of the economy.
I think boosting entrepreneurship and business skills are key to this. From my own experience, I taught the science of entrepreneurship at the Oxford Business School, and I know the tremendous value that you can give to scientists by arming them with entrepreneurial skills. But I think we can do more as a Government – being more flexible in terms of training provision and getting support from universities. We've just given the go-ahead for a National Academy for Enterprise. The Government's Business Link service is another example of this support.
So I hope I've given you some sense, firstly of how seriously the Government takes investment in science and innovation. It's a fundamental pillar of our strategy. Secondly, I absolutely agree that by attacking the recession and being smart in the way in which we implement initiatives and change priorities to reflect the conditions that we face in this downturn, we can together position the UK to really come through the recession in good shape – to be a world leader in these areas where the UK has real competitive advantage.
I really want to congratulate NESTA for providing me with the opportunity to say some of this stuff tonight, and for getting it so right with this Report. Thank you.
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