LORD SAINSBURY OF TURVILLE

25 JANUARY 2006

  Q60  Adam Afriyie: A bit more competition, you are saying?

  Lord Sainsbury of Turville: No, not more competition. It is that there is a well-considered view internationally that separate research institutes have the disadvantage that they become obviously specialised science institutions and in today's multi-disciplinary world, basic research increasingly should be done in a multi-disciplinary environment like universities. That is one issue.

  Q61  Dr Harris: I have Oxford, one of the sites earmarked for closure, in my constituency, I should say, but that is embedded within the university, the building, so it is hard to see that argument. You say that there is going to be no impact, or NERC tell you, on their research, but there are redundancies here, so the volume must go down and biodiversity in particular is well recognised to be markedly affected. Do you think in this area, with climate change and other issues impacting on diversity, that we can afford to lose that volume and make these redundancies, even the planned redundancies from 600 to 400? How NERC can think that people, particularly women scientists, are going to relocate hundreds of miles away, in the case of the Scottish centre, is, I think, a bit hard to believe, so on those two issues, the volume and the biodiversity so the loss of capacity, is that not something that questions should be asked about by you?

  Lord Sainsbury of Turville: No, I think the point I was trying to make is that there is not a fall of research in this area, but it is being done in other places, in this case in the universities. The other issue that I was just going to draw attention to is that these institutes have had quite a high proportion of contract commercial research done in them. What NERC has to do is take a judgment on the trends in this and whether this is sustainable over the long term and indeed whether it is high quality—

  Q62  Dr Harris: I understand because you have said that already, but in the reply we got from NERC, when we asked them, "What impact would the closures be expected to have on the expertise available in CEH?", they said, "Because some science would be discontinued, the breadth of expertise would decrease", so even they are admitting something that you are not admitting. If you reduce from 600 to 400, regardless of what is already happening in universities, that is a reduction in capacity. That is just maths.

  Lord Sainsbury of Turville: No, I think what the letter says, from what you say, is that there will be a drop of expertise within CEH. That is not the same as what I was saying, which is looking at what is the total amount of research and expertise across the whole of NERC's portfolio, a very large proportion of which goes through universities.

  Q63  Chairman: Do you think the reduction in terms of the institutes is a trend, Lord Sainsbury? Are we likely to see that across other research councils where the work of the institutes becomes less important as work goes into the universities and should we be concerned about that?

  Lord Sainsbury of Turville: We do not have a policy on this, so this is not a situation where we are, as a matter of policy, pushing this, but I think, if you just observe what is going on and the decisions being made in particular situations, there is a rather clear trend here. For example, the NMIR, the whole question of the relocation where we consulted very much on an international basis, an enormously strong steer was given that the rebuilding should not take place on its current site in Mill Hill, but it should be linked in to a major university, and I think that was probably very good advice.

  Q64  Chairman: But you have a review going on at the moment of all the institutes, so you must have some concerns about their future viability?

  Lord Sainsbury of Turville: Well, I think all I am saying is that I think you will see more cases where people will take the view that, for that area of science, it should be placed within a multi-disciplinary environment if you want to get really world-class science. I think that as a whole is probably the right judgment in many cases, but again I think this is a judgment that the scientists ought to be making within their particular fields and particular areas of research.

  Q65  Chairman: Our last line of questioning is on research and development and knowledge transfer. What conclusions do you draw from the DTI's Autumn Performance Report for 2005 on the success measures to encourage investment by industry in research and development?

  Lord Sainsbury of Turville: Well, I think the latest figures for business R&D were frankly a disappointment. Although the real value of business R&D is still 20% higher than in 1997, it has not grown as fast as the economy. The fall in business R&D in 2004 was due to a 6% reduction in overseas-funded R&D, whereas R&D from UK-owned business increased. The pattern, although the central level is mixed, aerospace R&D increased significantly, whereas R&D fell substantially in the automotive and computer sectors. The volatility of figures means we should not read too much into single year figures but we need to continue our efforts to create the conditions for investment in R&D and business success. This includes using UK trade and investment to market the UK as a location for high value activities including R&D.

  Chairman: Thank you very much.

  Q66  Margaret Moran: Good morning, Lord Sainsbury. That is rather in contradiction of what you told this Committee at the last meeting, in so far as you were saying that you felt at that stage that investment in R&D as a proportion of GDP had bottomed out and was beginning to grow. What do you think are the main factors as to why that has changed? Do you think the measures we have in place at the moment, which you described to the last Committee, are sufficient to reach the target for industry investment in R&D that the Government have set?

  Lord Sainsbury of Turville: As I said, I think it is a disappointment. We have had two to three years where it has been going up; it appeared to have bottomed out and to be going up; and we have had a situation where it has fallen back. Clearly there is a changed situation and that is a disappointment. I think it is important to realise where it has come. It has come in the foreign investment in R&D, and it mainly appears to be in the area of pharmaceuticals. I think we need to do more work to see whether there are any special conditions applying in this area. There is a general sense that pharmaceutical companies the world over have been diversifying their research portfolios around the world. Practically no pharmaceutical company does all its research in its home country. I think we need to do more work on this field.

  Q67  Margaret Moran: Do you think generally a change in approach is needed by the Government now we are seeing this decline, or do you think this is part of a cycle? What discussions are going on to tackle this with the DTI and the Treasury?

  Lord Sainsbury of Turville: I think one needs to say that number of the measures we have taken to encourage R&D have probably not yet fully come through. We have had the R&D tax credits and of course we are doing a lot of work with the technology strategy which I think will encourage more R&D. It is probably true that these have not yet had the time to have a full impact, but, I agree with you, we need to do more work in this area, particularly into why there has been a fall in pharmaceuticals' research, and to see whether we need to adjust any of those policies.

  Q68  Mr Newmark: The one thing that particularly concerns me is the fact that these figures would be much worse and that the distorting figure is the R&D spend on, I think, defence. Defence R&D, I understand, has gone up 13% in real terms. If one stripped out the extraordinary increase, perhaps, in defence R&D, the situation in UK plc in terms of our industrial base would be even worse.

  Lord Sainsbury of Turville: I would be very interested to see where you get your figure for R&D for defence. Defence R&D as a whole has been going down. It is slightly complicated by the QinetiQ situation but I am rather surprised that it has been—

  Q69  Mr Newmark: The source is the DTI 2005 Autumn Performance Report, page 9.

  Lord Sainsbury of Turville: I will have a look at that. As a whole, the situation on R&D truly in defence has been going down. But I will certainly have a look at that.

  Q70  Mr Flello: Good morning, Lord Sainsbury. With the rapid development taking place in China, how can the UK remain competitive in R&D against that?

  Lord Sainsbury of Turville: I personally have been more strongly pointing out than anyone else the challenge that China and India pose to this country—and I have been doing so for many years. I think you need, however, to be rather careful about thinking that the huge growth in wealth in China, which of course is from a very low base, is fuelled by Chinese technology, because it is not at all. It is fuelled by, first of all, wage costs, which are 5% of ours, and, secondly, by huge amounts of foreign direct investment which is, by and large, producing the technology in China which enables them to produce goods. So a lot of the, say, Japanese electronic companies are now producing in China, but that is not with Chinese technology, it is with Japanese technology. It is an extremely interesting question as to what exactly, in world competitive terms, Chinese technology and science is at. For all that, I conclude that we can stay ahead of China in terms of research in technology, but we have to move pretty fast because they will start now going up the value-added chain. They have very good scientists; they have, of course, a lot of scientists now returning from America to China, which I think will enable them to go up this curve very fast; and of course they are ruthlessly selective as far as their universities are concerned. They say, "We want to have 10 world class universities," and if you start from a population of 1.25 billion students, selecting the best people to go to Tsinghua University, you will have some very good students. I think Chinese science, long term, will be extremely good, a competitive threat. As, at the moment, we are obviously way ahead of them, we need to keep moving very fast in terms of science and innovation to stay ahead.

  Q71  Mr Flello: You say you have been saying for sometime about your concerns in the area. Do you think you are being listened to and that action is being taken on your words?

  Lord Sainsbury of Turville: I think now you can see that in the Chancellor's speeches, the Prime Minster's speeches, there are constant references to the threat of China, and indeed India in certain areas, and this is something we have to take enormously seriously. If you go back to the Prime Minister speech on Science Matters, you will see that even at that stage—and that is three or four years ago—he was referring to the developments in India and what was happening in Bangalore.

  Q72  Mr Flello: Do you think industry is taking heed of your words?

  Lord Sainsbury of Turville: I think so, yes. I think it is a general perception. I do not think it is an original perception to me, but, yes, I think they understand very clearly that if we are going to stay ahead we have to move into high-tech added-value areas where we can compete against, as I say, a country where wages are 5% of ours. We cannot compete in labour-intensive areas with that wage differential.

  Q73  Margaret Moran: How effective do you think Research Councils are in promoting an increase in industrial R&D? To what extent is funding based on delivery of results? Secondly, on a separate subject, that of intellectual property rights, do you think that UK plc is maximising the value from intellectual property rights that it should be getting?

  Lord Sainsbury of Turville: I think it is very important to be clear what we require of Research Councils. We require Research Councils to fund world class basic research. I should say that that is seen by most people in the science policy field as being an essential part of having a very vibrant high-tech economy. You do of course also need to do significant amounts of applied research, but that I think we rightly put under the technology strategy in the DTI. The difference between basic research and applied research in this context is that you do them in completely different ways in terms of both managing them and evaluating them. The Research Councils' remit is to do basic research. Each Research Council now, however, has knowledge transfer objectives, and of course schemes of knowledge transfer incentives, like HEIF3, have absolutely revolutionised the culture within universities, so we are now seeing a total change in the performance of universities in terms of knowledge transfer. Whether you look at spin-off companies, licensing, patents, you will see there has been an extraordinary change over the last five to 10 years in the performance of the universities. I think we are beginning to see a real change in the situation. Just to give you one fact to show that: in the last two years, we have had 20 university spin-offs floated on the Stock Exchange. The total value of those spin-offs is £1 billion. It simply is not credible now to say we are not getting a lot of knowledge transfer from our universities. As far as intellectual property rights are concerned, we have made some quite significant changes in the mission of the Patent Office. It used to be that the Patent Office was simply there to administer the system of intellectual property rights. We have said that mission should be extended to cover the field of innovation, so they now have both an enforcement and an educational role—which I think they are rather successfully doing—and we will be asking the new Gowers' Report to look at not the efficiency of the Patent Office, which is very high, but at whether they are providing the best possible service to industry, and that is one of the other issues we will look at.

  Chairman: Lord Sainsbury, as ever, the time has gone by very, very quickly. Perhaps we ought to extend it even further next time. Thank you very much indeed for joining the Committee this morning.