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Good afternoon. I would, first of all, like to
thank the South West of England Regional Development Agency and the
Government Office for the South West for organising today’s conference
and for asking me to give their keynote address.
I am very pleased to be here today to talk about
the Innovation Report, which the Government produced last year, and the
challenge of innovation, here, in the South West.
I want to start with an overview of innovation,
why it is such a priority nationally, and what we are doing at the
national level.
There are two fundamental reasons why innovation
is today so vital to our future.
The first is simply globalisation. Trade
liberalisation and a rapid fall in communication and transport costs
mean that the UK has increasingly to compete against countries with
significantly lower labour costs and reasonably well-educated labour
forces. Wages today in China are less than 5% of those in the UK. Hourly
labour costs in South Korea are just over half UK levels, but the
proportion of graduates in the working age population is almost
identical.
The second is that today, technology and
scientific understanding are changing our world faster than ever before.
Developments in information technology, new materials, biotechnology,
new fuels and nanotechnology are generating new waves of innovation and
creating many opportunities for entrepreneurial businesses to gain
competitive advantage.
So on the one hand we have the challenge that
has come from the emerging economies and on the other, the opportunities
created by new developments in science and technology.
So how good is our innovation performance?
Whilst we have some very innovative industries:
at the national level our innovation performance is no better than
average. Although there is no single indicator of innovation, two
measures of technological innovation – business R & D and patenting –
show that the UK’s performance is not good enough compared with our
international competitors. The latest data from 2002 for business R&D
show the UK well behind the US and roughly equal to the EU average, but
I think it is encouraging that after a steady period of decline from
1.5% of GDP in 1981 to 1.16% in 1997, there has been a move in the right
direction, to 1.23% in 2003.
If the UK is to be a key hub in the global
knowledge economy, we must compete in the high added-value areas, which
will create economic growth and prosperity for all of us. This is why
the Government has put so much emphasis on knowledge and
entrepreneurship, and why we want to see the start-up and fast growth of
many more high-tech businesses.
In 1997/98 when the current Government came into
office, the science budget was £1.3 billion. We will have more than
doubled this, in real terms, to £3.3 billion by 2007/8. This has enabled
Research Councils to do a great deal more of research.
We have also set ourselves ambitious goals for
the future in the Government’s 10-year Science and Innovation Investment
Framework and the DTI’s 5-year programme. We want to increase the level
of knowledge intensity in the UK as measured by the ratio of R&D to
national gross domestic product, from its current level of around 1.9%
to 2.5% of GDP by around 2014.
If achieved, this would secure the UK a leading
place among the major European countries and substantially close the gap
between the UK and the USA, the best performing, innovation-driven major
economy.
As well as substantially increasing the Science
Budget, the Government has made other major policy changes in order to
improve our rate of knowledge transfer through such schemes as
University Challenge, Science Enterprise Centres and the Higher
Education Innovation Fund. These schemes have now been merged into one
funding stream, and over the next 3 years we will be spending £187m on
them. These schemes have been hugely successful and we have seen a major
cultural change in our universities with a large increase in spin-off
companies, licensing, patents and contract work for industry.
We have taken major steps forward but there is
still a lot more that we need to do. That is why in December 2003, the
DTI published the Innovation Report, ‘Competing in the Global Economy:
the Innovation Challenge’. This set out an action plan to increase the
level of innovation in the UK economy.
This included new procurement guidelines
designed to make Government a more intelligent customer by using its
huge £109 billion a year purchasing power to drive innovation through
public procurement. It also included tailored help for small businesses
to encourage them to innovate, new innovation missions for the Patent
Office and the Design Council and a new regional focus on innovation
with every English region having a Science and Industry Council.
The Innovation Report also outlined Government
plans for a Technology Strategy to provide a business-driven framework
for identifying emerging technologies where the UK has the research
capacity to maintain a leading position and the potential to exploit
such technology. By focussing on user needs in selected technologies,
the strategy is most likely to be able to address the market failures in
the UK innovation system.
The Strategy will be guided by a Technology
Strategy Board which will be independent of Government and business led
and it will be implemented mainly through two of the DTI’s support
products, collaborative R&D programmes and knowledge transfer networks.
The first call for proposals was announced in April of this year, with a
priority being given to new and renewable energy technologies,
technologies for environmentally friendly transport, advanced composite
material and structures, inter-enterprise (grid) computing, sensors and
control systems, disruptive technologies in electronics and displays,
and bioprocessing. A call had already been made for projects in the
field of nanotechnology.
And last week, following the first meeting of
the Technology Strategy Board a month before, 9 technology areas were
identified as a priority for the November competition:
· Imaging Technologies
· Energy Technologies
· Pervasive Computing including Networks and Sensors
· Design, Simulation and Modelling
· Bio-based Industrial Products and Processes
· Waste Management and Minimisation
· Smart Materials and Related Structures
· Micro and Nanotechnology
· Optoelectronics and Disruptive Electronic Technologies
These technologies all represent exciting areas
of research and can help secure for the UK competitive positions in some
key areas of technology in the new knowledge economy.
And we are giving the Technology Strategy strong
financial support. The Government’s 10 year Science & Innovation
Investment Framework published in July announced an increase in funding
for the Technology Strategy and Programme – £320m between 2005-2008 –
more than doubling the previous budget. This will help to exploit our
strong UK science base and ease the transition of ideas from the
laboratory to the marketplace.
The Technology Strategy will, of course, be
managed in a very different way from the grants of the Research Councils
where grants are selected by peer review by other scientists and they
are evaluated on the basis of the excellence of the science, as measured
by, for example, citation rates. The projects supported by the
Technology Strategy will be chosen on the basis of the priorities of
industry, and evaluated in terms of new products and jobs created. In
this way we hope to avoid the mistakes of the past when poor basic
research projects of little interest to industry were selected on the
basis that they were applied research.
As well as the Technology Strategy, the
Government has in recent years also introduced R&D tax credits for small
and large companies to incentive them to do more research and these are
now worth £600 million per year to businesses.
That brings me on to another key theme of the
Innovation Report, which is the need to support the rate of regional
innovation. The Report proposed a series of steps that the regions and
Central Government can take, working closely together to make the best
use of the resources available, whether nationally, regionally or
locally. For example:
· Science and Industry Councils will be
established in every region. These regional advisory bodies will bring
together business, education and public sectors and will strengthen
strategic thinking on science and technology at regional level and
enable more effective working across regional boundaries. I would like
to pay tribute to the work of Sir John Taylor and colleagues in
developing the Regional Science and Industry Council, which should be in
place by April.
· Another example of how regional innovation will be supported is the
DTI’s new Business Support Products such as Knowledge Transfer Networks
and Best Practice. These will assist the creation and maintenance of
sector or cluster-based networks and link them to key national
organisations.
· Another change we’ve made concerns the Regional Selective Assistance’s
historical objective to increase the number of jobs. This has now been
developed into a new investment grant to include R&D activities, higher
wage levels and investment in training.
· And, innovation and design will be built into locally delivered
business advice, building on the Manufacturing Advisory Service model.
So what’s happening here, in the South West?
You don’t need to look far to find innovative
activity in the South West. Strong R&D can be found in companies like
Tripos UK, in Bude and Aardman Animations and HP Labs here in Bristol.
But, to hold its own, the South West will need
to continuously innovate strongly, not just creating new high-tech
industries such as biotechnology and renewable energies but also, and
very importantly, upgrading traditionally strong areas such as aerospace
and marine.
We recently announced additional
responsibilities for RDAs in supporting knowledge transfer from
Universities, the management of Research and Development Grants, and the
operation of Business Links, which provide much practical support for
innovation in business. We have also welcomed the greater role of
regions in supporting design and early stage technology venture
development in conjunction with national bodies such as the Design
Council and NESTA, and their increased role in Knowledge Transfer
Partnerships, Foresight and the Higher Education Innovation Fund.
Developing innovation takes time, and this new
policy approach is still in its early stages. However, it is very
encouraging to be see how regional activity here in the South West,
working in conjunction with national policy and programmes, is already
leading to improved innovation, benefiting the South West and the UK as
a whole.
The important role played by local Universities
is obviously very great and is, I think, very important. It is
particularly encouraging that the new Combined University in Cornwall is
not only proving to be a very successful collaborative education
project, but also that the twin themes of developing capacity for
research and innovation, and generating a sustainable step change in the
development of Cornwall as a Knowledge-Based economy are at the very
heart of this project.
I am also pleased to note that the region's
Universities have agreed to establish a SW Research Alliance in order to
promote and build the research capacity of the South West Region and to
encourage more intensive business and university interaction on research
and knowledge transfer.
The Bristol University-led ‘3C Research Ltd’, is
one of five University Innovation Centres established by DTI nationally,
to strengthen regional capabilities in innovation, skills and
enterprise, and to facilitate knowledge transfer between Higher
Education Institutions and industry. The project promotes the three ‘c’s
of communications, computing and content technologies. This initiative
builds on Bristol’s strengths in computing, tele-communications, digital
media and e-commerce and sees collaboration between companies including
Qinetiq Ltd, Toshiba Research Europe Ltd and Granada.
Knowledge Exploitation South West (KESW) is a
three-year, £3.7 million RDA partnership with the Higher Education
Regional Development Association South West. It helps businesses gain
access to specialist expertise and new technologies developed in local
universities and colleges.
Excellence South West will be running a series
of seminars in 2005 that offer attendees a chance to share their
business experiences and best practice ideas in subjects such as people
development, continuous improvement and leadership.
The examples I’ve given, and there are many
more, show that the South West is actively taking up the challenge of
innovation. Importantly, they all involve businesses that see the
commercial value of these activities. They illustrate how we can jointly
develop innovation to the benefit of both the Regions and the country as
a whole, through a partnership of business, central government, RDAs,
universities and other regional organisations.
UK science is a major national asset and we
should turn it into innovative products and services to create the
wealth, jobs and quality of life for all that we all want to see. As a
progressive government we want to maintain a dynamic market economy, but
we are also making the public goods investments in education and
science, which are so essential to a knowledge-driven economy.
That is why we have developed and delivered on a
strategy to strengthen the science and engineering base to increase
knowledge transfer and to incentivise user-driven research. It is also
why we have developed a new approach to regional policy, and it is
enormously encouraging to see this new approach being taken forward with
such energy, skill and success here in the South West.
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