Lord Sainsbury of Turville

INVESTING IN INNOVATION

Today science and innovation are central to our economic success. The reasons for this are very simple. At no time since the industrial revolution has the restructuring of global economic activity been so great, with Asia moving from the fringes of the new world economic order to the centre. Barriers to world trade are coming down.

The Chinese economy with wages 5% of ours is growing rapidly. The world’s division of labour is being redrawn. In 1980 less than a tenth of manufacturing exports came from the developing world. Today it is almost 30%. In 20 years time the figure will probably be 50%. Today China alone is producing 70% of the world’s photocopiers, 50% of cameras, 40% of microwaves and 25% of textiles.

At the same time, technology and scientific understanding are changing our world faster than ever before and creating new opportunities. Developments in ICT, new materials, biotechnology, new fuels and nanotechnology are creating a new wave of innovation and new opportunities for entrepreneurial businesses, large and small, to create 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.

To make certain that we were in a good position to meet these challenges and seize these opportunities, 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.

The good news is that the UK is restructuring its economy rapidly and effectively. We lead Europe in knowledge based and high-tech businesses. Knowledge-based business services have accounted for over half of our job growth in the past two decades. Britain has five of the World’s top ten legal firms, helping to account for a £17 billion trade surplus in business services.

The UK’s world-class financial services industry continues to flourish. It accounted for 5.3% of the UK GDP in 2003 employing over 1 million people and generating a trade surplus of £17.8 billion and Britain’s creative industries produced 8% of our GDP, a higher proportion of our total wealth than anywhere else in the world.

However, there is still more that needs to be done if we are to make the U.K., in the words of the Prime Minister, one of the best places in the world for science and innovation, and that is why we have made major policy changes in the last eight years to support new high-tech businesses.

When the present Government came into power in 1997 it was after a period when science and innovation had received very little political attention and had been badly under-funded. That is why our first priority as a Government was to fund properly the science and technology base.

In 1997/98 when the current Government came to power, the science budget was £1.3 billion. As a result of substantial increases in a number of spending reviews, the science budget will have more than doubled in real terms to £3.4 billion by 2007/8. This currently includes £500 million a year for the renewal of scientific facilities in universities, and we now produce a 15-year roadmap for large facilities so we can provide our world-class scientists with a world-class scientific infrastructure.

The Government has also set itself ambitious goals for the future in a 10 year Science and Innovation framework. The Government’s long-term objective for the UK economy is to increase the level of knowledge intensity in the UK as measured by the ratio of R&D across the economy to national gross domestic product, from its current level of around 1.9 per cent to 2.5 per cent by around 2014. If achieved, this would put the UK in a position to secure 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.

A second major objective of the Government has been to increase the amount of knowledge transfer from our science and engineering base. This has been a great weakness of the UK’s innovation system in the past, and the Government has introduced a number of schemes to improve our performance. These have included: University Challenge, which provided universities with seed corn funds; Science Enterprise Centres which have provided access to entrepreneurial skills to science and engineering undergraduates and graduates, and the Higher Education Innovation Fund which provides incentives for universities to transfer knowledge to the economy.

These programmes have been very successful in stimulating more knowledge transfer from universities in terms of licensing, patents, spin-off companies and contract work for industry. To take two figures, the market value of university spinouts floated on the Stock Market in 2004 was £604 million, £100 million more than the Government’s total investment in Knowledge Transfer to date. Today 24,000 science and engineering students are receiving enterprise training, whereas the figure in 1998/99 was 3,000.

A third major objective for the Government has been to encourage more applied or user-driven research, as an increase in it is essential if we are to reach our goal of total public and private research reaching 2.5 per cent of GDP by 2014. To help us achieve this objective we have developed a Technology Strategy Programme to provide a business-driven framework for identifying emerging technologies where the UK has the research capacity to create a competitive advantage. This is the funding we have used to support the rapid developments taking place today in areas such as ICT, biotechnology, stem cells, nanotechnology and aerospace.

We have allocated £320m over three years to this Technology Strategy, and have set up an industry-led Technology Strategy Board to manage it. We have also introduced R&D tax credits for small and large companies to incentivise them to do more research and these are now worth £600m per year to businesses. And we have developed 17 Knowledge Transfer Networks. These are intermediate organisations which act as a link between universities in key areas of technology, such as bioprocessing, grid computing, medical devices and healthcare, and photonics. We are also looking at setting up new ones in Cybersecurity and Biometrics, the Modern Built Environment, Electronics and Imaging.

In addition to a strong science, engineering and technology base, the U.K. has a number of institutions such as the National Measurement Laboratories and the Patent Office which perform essential and highly specialised functions for government, business and researchers. As a result of the Innovation Report we have focused the work of these organisations more on innovation. For example, we have developed a new programme of research, ‘Measurements for Emerging Technologies’, which covers areas such as materials for fuel cell systems, micro and nano-particles, microfluidics and biocompatible coatings, and which means that the laboratories focus more of their efforts on new technologies identified by the Department’s Technology Strategy.

We have also increased the resources put into transferring knowledge into industry through joint industry and government research projects, secondments into and out of the National Measurement Laboratories, and product development consultancies for SMEs.

The management of Intellectual Property, patents, trademarks, copyright and designs, is also crucial for innovation firms. Our IP framework is managed by the Patent Office, and we have given them two new objectives to improve our innovation performance, a major awareness-raising programme and the development of a national strategy for dealing with IP crime.

I would also like to mention the emphasis we have put on science, technology and innovation in our regional policies, with the Regional Development Agencies strengthening research activities essential to regional growth, supporting knowledge transfer form universities, encouraging high-tech clusters, and providing financial support for new high-tech firms. All RDAs now have a Science and Industry Council, and it is encouraging the RDAs are planning to spend £360m on supporting science and innovation this year.

I think it is also worth mentioning in this context the £50m we gave to RDAs early on in the life of the Government to encourage the setting up of high-tech incubators. This had a surprisingly powerful effect. In 1996 we estimated that there were 25 incubators for high tech firms in the country. By 2000 this had risen to a 100 and today we reckon that there are over 270.

Over the same period there has also been a significant increase in science parks. In 1998 there were 39. Today there are nearly 100 with almost 1,700 tenant businesses. These figures are exciting because they show that the Government having provided the right incentives, across the country, cities and universities are responding to the need to create new industries and new jobs.

I also think that the concept of Science Cities, which is beginning to be developed in a number of cities across the country, may prove to be a valuable way of bringing together government, universities and industry at a local level.

The role of science and innovation in Government Departments other than the Department of Trade and Industry and the Office of Science and Technology is also extremely important. More money is spent on R&D in other government departments than in the Office of Science and Technology, and if this spent well, it can not only improve government policies but also have a beneficial effect on industries which they sponsor.

All Government Departments now have to have Science and Innovation strategies, and early on in the life of the Government we set up a Public Sector Research Establishments Fund to encourage knowledge transfer. We have also introduced a version of the SBIR scheme in the U.S.A., which requires that all Government Departments allocate 2.5% of their R&D funds to small high tech companies. This was started on a voluntary basis but was made mandatory by the Chancellor of the Exchequer in the 2005 Budget.

There are also our scientific and technological relationships with other countries. This is a difficult policy area because there are many dimensions to our relationships. We want to collaborate with other countries to maintain our scientific and technological excellence, to improve our innovation performance, as part of our diplomatic arrangements in areas such as climate change, and to help developing countries.

We have over the years greatly strengthened our efforts in this area. There are now nearly 40 posts in over 20 countries, with dedicated science officers plus other posts using science in support of bilateral relations. Before 2001 there were only 11 posts in 10 countries with science officers. Their activities were not co-ordinated but today the global network is co-ordinated through a new FCO division, the Science and Innovation Group. We have also vastly increased the number of International Technology Promoters in the DTI form 4 to 22. Their job is to identify opportunities for UK firms to acquire technologies from other countries and create new partnerships across national boundaries.

In this context I was pleased to announce last week that we are providing £6m to four collaborative projects which will link world-class British Universities with world-class American ones to increase scientific excellence and innovation. These will include the University of Manchester working with the University of Washington, and a wide range of businesses on the development of composite materials for use in aircraft design; Imperial College, London working with the University of Texas, Oak Ridge National Laboratory and the Georgia Institute of Technology on the treatment of cancer and energy research; the University of Cambridge continuing its productive partnership with MIT and a consortium of the Universities of Bath, Bristol, Southampton and Surrey working with the University of California, in the areas of wireless technology, life sciences, the environment and advanced materials.

There is also, of course, an important European dimension to our scientific and technological relationships with other countries. This mainly consists of negotiating the European Framework R&D programmes. The 7th Framework which is currently being discussed is proving to be a very creative process, and as part of our EU Presidency we are pushing hard for the setting up of an independent European Research Council, modelled on the National Science Foundation in the USA, which will give out grants for excellence on the basis of peer review. This, we believe, will not only be a better way of supporting basic research, but will enable the rest of the programme to be more user-driven and focused on creating competitive advantage for companies.

As we enter the knowledge economy we have in the UK the advantage of one of the best science and technology bases in the world, and in the future I think we should take greater advantage of it in terms of wealth creation and improving the quality of our lives.

The Government’s vision for the UK is that we should be a key hub in the global knowledge economy. This means that the UK should be a country famed not only for its outstanding record of discovery but also for innovation, a country that invests heavily in business R&D and education and skills, and exports high-tech goods and services to the world. We also want to be a country with strong science and technological links with the best research around the world, so that we can always stay at the leading edge.

Finally, we should be a country to which talented entrepreneurs and world-class companies come from around the world to do research and set up high-tech companies, attracted by the quality of our research, by the strong links between universities, research institutes and industry, by geographic clusters of high-tech companies, by their ability to raise finance, particularly venture capital, and by our quality of life.

I hope that I have shown today that this Government believes that science and innovation is of crucial importance to the UK’s future success, that we have made good progress in putting in place the best conditions for science and innovation to flourish, that universities and industry are rising to the challenges of the new Knowledge Economy, and that we are beginning to see the first benefits of our policies.