WEDNESDAY 3 JUNE 1998

DR ALAN RUDGE CBE, MR IAIN STURROCK AND MR BRIAN KENT

  380. I was going to follow up on this because every year organisations such as yours have their budget representations to government. What have been your last budget representations, seeking tax incentives from government, for example?
  (Mr Kent) In what way?

  381. To encourage high-tech engineering start-ups?
  (Mr Kent) In terms of the Engineering Council, I am sorry, I do not know.

  382. Could I ask Mr Sturrock, perhaps internationally because you operate in other countries; the United States have tax incentives, do they not?
  (Mr Sturrock) Absolutely.

  383. And do you think there is a similar role within the global system?
  (Mr Sturrock) That is certainly something that global companies look at when they are looking at where to spend their R&D money, the tax breaks they get, and both the United States and Canada give a tax allowance of more than 100 per cent. on research and development. One other aspect that is different that I think is potentially useful for companies exporting, and I think Canada is the only country that does it so far, is that their export credit agency actually allows R&D spend to be counted as Canadian content as far as ruling on projects for financing is concerned. I do not believe other countries do that and I am pretty sure the United Kingdom does not do that, and that is an attractive thing sometimes too to get export orders.

  384. That is helpful. Finally, how successful are technology incubators in assisting high-tech start-ups? Is there a need for more such facilities and who should provide them?
  (Mr Sturrock) I have a view on that that actually is a view that covers several things that have just been said. I think that is a good thing, as are some of the others, but I think the key point that my colleagues have touched on is the accessibility of information to SMEs. There is so much information around and they do not have the manpower actually to find out what is going on all over the place and to tie in necessarily to what is relevant to them. Mr Kent is absolutely right that most of the SMEs can communally look at things on a regional basis but accessibility of the information, that they can rapidly access it and digest it, is perhaps something that government could look at moving forward, maybe as part of the Foresight programme, maybe as something else. Maybe it is websites; I do not know, but I believe that is one of the keys for that and other parts.

  385. Does Mr Kent have anything to say about technology incubators?
  (Mr Kent) The Bank of England were very keen on this. The Bank of England did a report on this and they thought this was a very good idea, and the Bank of England, of course, does have regional representation and people perhaps do not realise that, that they do have their man in different parts of the United Kingdom who is in contact. When I chaired a large conglomerate we did have Bank of England representatives visiting our companies on a regional basis. So they were quite keen on it. It sounds good but I think Dr Rudge perhaps will put it in its context because he has spent his life in this area. But the Bank of England report was a good one and, therefore, it sounded a good idea but, of course, if it was not in my region and I did not know about it, as Iain has just said, so what?

  386. Dr Rudge, did you want to add anything?
  (Dr Rudge) I just say that one should not look at these things as a sort of panacea for problems. No doubt if you were starting a business, a technology-based business, having somewhere that was reasonably set up and made the accommodation and the support services easily accessible to you—you would have to pay for them but they are easily accessible—is clearly an advantage. Therefore, if the capability was there you would take it. But by having more of them it will not necessarily lead to a huge upsurge in successful companies. It is a useful element. For my money it is far more important that you have a flow of people with relevant knowledge. "Relevant knowledge" means that they are trained both in areas of relevance but also trained in a way which makes them more inclined to be entrepreneurs and innovative in a business sense. I think that this and a financial environment which makes it reasonable to take the risk, are the key requirements. It is no different from growing plants. You can imagine if you create a certain environment the plants will grow and you will have amongst them some beautiful blooms, some that will really be successful. If you give them a very harsh environment, very few of them are going to make it. I think we had a period where the environment was pretty harsh and, as a result, we got few blooms.
  (Mr Kent) I think the way we did computer-aided design many years ago and introduced it and gained grants and developed centres that other people learned from was terrific, and I think we did extremely well. It is a rather different subject but we are tackling the millennium bug better than other nations and I think that is good. So when we do get it right we go but I think it is on a regional basis.

  387. We have already published a report on that and perhaps we will be coming back to it before the end of the year. I have a couple of questions on Foresight that I would like to put to you. You say in your submission that one measure of the success of Foresight might be a significant increase in the importance attached by companies to research and development and to their expenditures on research and development. Is there any evidence of increased R&D as a result of the Foresight exercise?
  (Dr Rudge) I am afraid I will have to speak slightly around your question. I was not responsible for your piece of information. Foresight is information. It is information, very broadly-based information, about a lot of areas that should be relevant to the United Kingdom in the future and that was part of the remit. For large companies that information can be readily absorbed because they have the capability of selecting that which they can use. For research councils they also have the ability to make use of it. For smaller companies it is far more difficult, if you look at the nature of the information, to actually go through it, and extract that which is relevant to their activity. I think one of the things we failed to do is that we have a database, which is Foresight, but we have not packaged the information in a way and fed it in a way that can be readily absorbed by smaller companies. So that it is brought down to a level that surrounds their sector, their kind of business. If it were, then I think awareness would encourage, in a general way, more development. I will not use the word "research" but it encourages development. If people are aware and understand what they have to do, and what the threat or opportunity is, they are better placed to invest and make developments. In that sense, I would say it can lead to increased development.

  388. You say in your submission, again, that perhaps the Foresight exercise itself should look at that very problem of transferring this information to SMEs. What can be done to try and improve that communication?
  (Dr Rudge) I believe personally that it is a step that is missing to get the full value out of the exercise. We did not get it out to enough people in a form in which they could absorb it. I think you can make use of intermediate organisations in the United Kingdom, and government could fund the processing of the data into industry sectors, into packages which are small and more appropriate for smaller companies. The dissemination of Foresight, which is something that was not done but could be a very valuable role.

  Dr Williams: Fine. Can we move on? Mr Atkinson?

  389. I have a couple of questions on the LINK scheme. To what extent has LINK been effective in involving smaller engineering companies, for example in fostering new partnerships between large and small engineering companies, and has the effectiveness of the scheme been limited by its emphasis on pre-competitive research? Would it be of greater value if research a little nearer to market was permitted?
  (Mr Kent) LINK has its success stories and I think it would be quite wrong to say LINK has not been a success. I think it has been a success, but you can always learn from this, so I happen to be a supporter of LINK. I do not know how its activities are co-ordinated with other forms of support that are being given. I hate the phrase "trickle-down funding", that some people feel that you throw a million at the top and it percolates down and everybody gets ten grand. I think that is horrendous. I think that is just a way of people avoiding doing the job. I hate the word "trickle-down" funding and I hate this view that some people feel that you throw a million in at the top and it percolates down and everybody gets ten grand. That is horrendous. That is just a way of people avoiding a job. We have to make choices and the Japanese are very good at that. I would rather give £100,000 to one person and nothing to the others than give them all ten grand. The process for allocating the money is crucial and this is where we come in as professionals in order to help this. I would rather give more to a few than spread it around in what sounds a good idea of giving ten grand and go away. Perhaps my one criticism is that we should go down the route of bigger and fewer and have a professional process of sorting that out rather than spreading it around a bit.
  (Dr Rudge) I would always ask the question what is government's role in these kind of activities. For my money the Government input is really to overcome the inertia of getting companies to work together to deliver a new product or service or whatever the object of the LINK project is and bringing small companies together with big companies in a combine. The role of government therefore is overcoming inertia and putting enough money in to get the thing going. I do not think it is government's job to pay for the entire development. That is a personal view.

  390. I have some questions on the EPSRC which I guess Dr Rudge will be wanting to answer. Can you tell us which EPSRC initiatives have been particularly successful in promoting the exploitation of the research base and especially the exploitation of EPSRC-funded research?
  (Dr Rudge) I would not want to repeat all the views I gave you when wearing my EPSRC hat. I believe first of all the principal reason why the EPSRC is spending government money is to generate knowledge and know-how and expertise and to ensure that this flows into the community. It is not primarily a technology transfer operation. I believe it is misleading to look merely at technology and inventions rather than the flow of knowledge which occurs from the money that we use to stimulate the growth of that knowledge and its flow into the community at large. We have done a lot more work in the last few years. For example, if the major output of what we do is actually this flow of knowledge, how does it work? There are three major flows. The first is the post graduates themselves flowing out into industry. The relevance of their training and what they have been working on is a key factor in their research when they get there, influencing their attractiveness to industry. The second flow is the under graduate school. Because if you fund research and knowledge generation in the university it colours the teaching of the under graduates. There is a definite link between what departments specialise in in research and what they teach. That is the second element of the flow. The third flow is the direct interaction of researchers in departments with colleagues in industry on other projects. The two principal ones are the first two and yet there were no statistics drawn to measure how effective this is and what the right level is. We have started in EPSRC gathering the data to demonstrate what the flow of knowledge and expertise is. In terms of taking bits of technology here and there and trying to hawk them around, it has a value, but it is quite small compared to the main flow of knowledge and expertise that we are seeking to sustain.

  391. Right, so what should the balance be between EPSRC funding for research and the exploitation of that research?
  (Dr Rudge) In purely theoretical terms, the EPSRC is concerned with mining new knowledge rather than the exploitation of knowledge as such. That is a thin line to draw because, as you well know, many of these projects involve some of both. But primarily we are generating knowledge and the flow and exploitation should be taking place primarily in industry not the universities.

  392. Would you pay for the creation of an EPSRC exploitation fund similar to the one that the MRC has?
  (Dr Rudge) I would never be against receiving funds to encourage research and development, far from it. But if that funding has to come out of our prime function I would not vote for it.

  393. Finally, what impact has the trend towards awarding more of the CASE awards to industry rather than academic institutions had, first, on the type of research that is conducted and, second, on the value of the scheme?
  (Dr Rudge) First of all, it has been very successful although it is only a small proportion of our total CASE studentship. This is where we allow industry to choose which university they go to rather than give the CASE award to the university and let them decide which industry they go to. It has been very successful. We have done some evaluation to look at the type of work that has been done under these industrial CASE awards and we can find no difference between that which gets stimulated from the university. So it is not a question that industry uses this for short-term development. This is one of the myths that floats around, that industry is only interested in short-term development. They are interested in gaining knowledge and expertise which they do not have, to enable them to generate new products and services, but they do not use these people for development work. So our measure of it is we cannot see any difference between the kind of projects they do and the kind of projects that the university CASE-based students do.

  394. Mr Kent, did you want to add anything?
  (Mr Kent) No.

  Dr Williams: We have come to the end of our questions. Dr Rudge, Mr Kent, Mr Sturrock, thank you very much indeed. It has been exactly an hour. Thank you for giving such a good account of the Engineering Council.