I wanted to inform you of the outcome of this review which we undertook recently. Against the background of work done in the Department during the autumn to sharpen the DTI's strategic focus, Alan Johnson and I wanted to examine the organisational and working methods of our activities on science, innovation and business relations and support, with the aim of achieving effective integration and helping ensure that the strategic focus of DTI appropriately addresses the enterprise, innovation and knowledge economy agenda, to meet the challenge of globalisation.

  In the light of this review, we have decided on a number of actions, aimed at (a) building on the strong brand of the Office of Science and Technology, strengthening science and innovation and ensuring that it is at the heart of the DTI's work; and (b) building on the successful changes already made in Business Group to ensure that it focuses even more on being outward facing, having effective relationships with UK business leaders and having influence within Government. Specifically, we will:

    1.  Pursue further change in Business Group, built around the purpose of identifying the conditions for business success and using this knowledge to promote enterprise by influencing DTI and wider Government policy. We will ensure that the new Enterprise and Business Group is outward-looking and high-powered. We will review the Business Relations function and organisation to ensure that the Department's sector organisation is right for the future. We will also seek the right balance between skilled and experienced sector teams and flexible resourcing to respond to projects and changing priorities. Likewise, the Small Business Service will refine its business model to deliver a stronger evidence base on enterprise issues and stronger influencing capability.

    2.  Create a new Office of Science and Innovation by merging Innovation Group into the Office of Science and Technology. Building on our success so far in delivering the 10-year Science and Innovation Investment Framework and on the successes of our Innovation Group in placing innovation at the heart of the Government's agenda, this new Group will have the twin purpose of: investing to develop further the excellence of the UK's research base; and promoting technological and other business innovation. This will allow more effective coordination between these areas and more coherent communication of our work.

  Sir David King, as the Government's Chief Scientific Adviser, will continue as the head of the Office of Science and Innovation, and Sir Keith O'Nions will be the new DG responsible for the work of the Research Councils and the Innovation Group. Mark Gibson Will remain Director General for the Enterprise and Business Group.

  The changes will support the DTI's purpose of "Creating the conditions for business success; and helping the UK respond to the challenge of globalisation". Through making these changes, we are sending a strong signal of the importance of science and innovation at the centre of DTI's strategy, as well as bringing the transdepartmental role of the whole of the Office of Science and Innovation more into focus. The Secretary of State and I are firmly committed to promoting these messages over the coming months (as evidenced by Alan Johnson's Mansion House speech on 23 February).

  In implementing these changes, which will come into effect on 3 April, we will continue to focus on ensuring that the UK has a business culture that encourages innovation in all its forms. We will also ensure that decisions on resource allocation to the Research Councils continue to be based on excellence in research, and will uphold the progress that has been made since 1997 in investment in excellence in research.

  To help achieve this, we will:

—  Maintain the ring fencing of the Science Budget, including the funding for the Research Councils;

—  Recruit a Director for Innovation whose role will continue the work of the present Innovation Group (reporting to the DG Science and Innovation) and who will have strong business and technical credentials; and

—  Ensure the continued independence of the Technology Strategy Board, maintain the ring fence for the Technology Programme, and seek to increase funding in the CSR.

  I have also sent this letter to Lord Broers, Chair of the House of Lords Select Committee on Science and Technology and Peter Luff, Chair of the Trade and Industry Select Committee.

February 2006