WEDNESDAY 13 JUNE 2007

MR IAN GALLETT, DR LESLEY THOMPSON, DR RALPH RAYNER AND MR RICHARD BURT

  Q300  Linda Gilroy: Do you agree with the comment made that more of this should be driven from the top down?

  Dr Thompson: I think the regional agenda is quite an interesting one, particularly as regional development agencies are no longer looking necessarily to source the science they need from their particularly local area but because they want to compete globally. That is a very interesting new dynamic in the UK, so we want to work to support it, but I think we are all learning as we go along at the moment. I would not claim that there is an easy mechanism but we all just have to put our shoulder to the grindstone and work at it.

  Linda Gilroy: We have mentioned comparisons with the United States but are there any other international comparisons which perhaps might show the way ahead?

  Q301  Chairman: Could I come in here because I am getting increasingly depressed this morning. You said in your evidence, Dr Rayner, that the Government is spending £100 million to create spin-off companies and it is ineffective. That is a very, very strong statement to make. We want to see some evidence of that.

  Dr Rayner: First of all, it is not my comment. What you are seeing is a collection of comments from the membership of IMarEST.

  Q302  Dr Spink: Are you withdrawing from it?

  Dr Rayner: I am not withdrawing from it.

  Q303  Chairman: You are the Vice President of this organisation.

  Dr Rayner: I am, yes,

  Q304  Chairman: So you are disassociating yourself from it.

  Dr Rayner: No.

  Q305  Chairman: Come on, dig the dirt.

  Dr Rayner: The problem is making that funding much more targeted at some of these small niche markets and connecting it to companies, small niche companies in the UK that are active in those markets. In some cases, elements of that funding have been internalised.

  Q306  Chairman: What does that mean?

  Dr Rayner: I mean that it has been used to foster the creation of spin-off companies which are very closely linked to academic institutions and to government laboratories. It has not necessarily found its way to established SMEs.

  Q307  Chairman: SMEs were once spin-off companies, were they not?

  Dr Rayner: They were in some cases, yes, but not in the marine science and technology sector. Very few of the companies in the marine science and technology sector were spin-off companies.

  Q308  Chairman: I am now confused. If we are talking about small emerging companies.

  Dr Rayner: They need support.

  Q309  Chairman: They need support but you are saying that if they get support the established SMEs do not get the support. Why do we want two lots of support?

  Dr Rayner: We want to foster our existing SMEs in niche markets and help them to broaden their penetration of global markets. As I mentioned earlier, it is a collection of small, niche market sectors and we have in the UK a small number of SMEs active in those niche sectors. They are competing with small to medium sized companies in other parts of the world and the market that they are serving is a global market. It is very difficult for companies of that size effectively to create a position in a global market because they are very small scale. The funding should be directed, I believe, towards helping to foster that process, so creating the avenues from academic and institutional research to establish new products and then helping to link the industries, the small industries that are developing those products, to wider export markets.

  Q310  Linda Gilroy: Is the support more of how to develop the business plan and marketing plan rather than on the development of the science?

  Dr Rayner: Penetration of markets is where the gap is. For a large company, that is relatively straightforward because they already have the established infrastructure to achieve it. They have the local offices; they have the proximity to markets. For small businesses working in niche markets, that is not the case. For a small business to go into a new export market is a very, very significant expenditure. They certainly cannot contemplate doing this on a global scale.

  Q311  Linda Gilroy: One of the things you refer to is an unfairness because of the way it works at the moment as between those that emerge from academic and government laboratory settings. What sorts of small businesses that are not supported in that way are struggling to make those leaps into their market?

  Dr Rayner: I would say that most of the small businesses engaged in this area in the UK have rarely, if ever, received any support in this area.

  Linda Gilroy: What kinds of things are they? I can only think of examples from my experience as a constituency MP of things that have worked and are about to work and therefore it is difficult to know what is not happening.

  Q312  Chairman: You are not giving us any examples at all.

  Mr Burt: Perhaps I might answer the question from a different perspective. To spin-out companies, SMEs from academia, it is but one important mechanism. The core route is technology transfer from academia to market-place. One route is spinning out SMEs. Another route is to enable that technology transfer to the existing SME base. The existing SME base, as Dr Rayner says, is very small and very niche. If you looked at marine science and technology, and I exclude oil and offshore at this stage, there is probably less than ten or 12 companies in the UK. That is as a result of 40/50 years of marine scientific research. Those companies have matured and are very well placed to identify production engineer technologies and achieve market penetration to a degree. Certainly penetrating new markets would require assistance. If you take the other model, whereby you identify technology in an academic environment and spin out an SME with it, invariably you spin out an SME primarily based on the science engineers involved in that product. As they move across to industry, they suddenly realise they have no skills in production engineering, no skills in marketing, market penetration and all that goes with the company profile, so they would be asking for different styles of funding from that which an existing SME would. I think there are two different cases there, but the prime driver is: What is the best route for me to bring in technology to the market-place? It can go either of two ways.

  Q313  Chairman: Could we hear from Dr Thompson, because this is your job.

  Dr Thompson: It is our job. Certainly, as a research council, we work both with the university spin-outs but we also work with existing companies. It is hard to work with small and medium enterprises because they are trying to keep going for tomorrow but there are some really good examples of companies that still work for the science base that are not huge companies. I am not a technical expert in this area but I am trying to pull in some areas. Guidance Control System Limited, which is a company which deals with how you can moor next to an oil rig, started off from quite a small company but it still very strongly engages with the science base. When it has a problem, it goes and tries to find somebody, not necessarily somebody whom they know, but who knows somebody who can help. They have just had a recent link with Liverpool University that has really opened up new markets for them, but that is a company that is attuned and will ask questions. The real issue for the UK is how you can support people to go and do that more often—and that is time consuming. How do you support that? We are trying to use our offices to do it but clearly organisations, like all of us sitting here today, have a duty of care to try to make sure there is that natural ebb and flow of information between the science base and industry. The other thing that industry gives is some really important challenges. If you give the challenges back to researchers, they can lead to some really interesting research. It is not about a one-way flow; it is about pulling it back as well. That is how we absolutely get the ecosystem right in the UK but it does mean a concerted effort in supporting these companies. It is hard, if you are a small company, to go and spend an hour in a university. You are not going to unless you have the support from your regional development agencies, you know what a research council is and you know a way you can get help. The mechanisms are there but it is putting the energy into making sure you can get it going. Working with regional development agencies that have identified particular priority areas is probably a smarter way of going than just blitzing all the SMEs, but clearly you cannot pick off all of the areas in the UK that might need support and then do it all to all of them in one go.

  Q314  Chairman: I am less depressed now. Perhaps we could move on.

  Dr Thompson: I am not depressed.

  Q315  Dr Iddon: Professor Thompson, considering the importance of the oceans concerning climate change, in particular, but earth systems in general, do you think the current level of funding by EPSRC for marine science is adequate?

  Dr Thompson: I do not think there is any area in EPSRC's remit where I would ever answer our level of funding is adequate. Within the resources we have, we do the best we can to support high quality science and engineering within our remit and we work hard to try to increase leverage, so working with NERC and working with companies to make sure there is additional funding. Looking to the future, we are concerned that there is an opportunity for working on living with environmental change and that is part of the bid that all of the research councils will be putting into the Office of Science and Innovation for increased funding to enable us to invest more money into that area that is opening up with the development of new technology, with modelling science. Looking to the future, we think that is an important area for investment but we are halfway through the allocation of the science settlement and, until we know how that is settled, we cannot tell you whether we can afford to invest in it or not. But we think it is an important area, and it is a high priority, going forward, for increased funding across research councils.

  Q316  Dr Iddon: I have some figures here for 2006-07 and for the two years after that. For the year 2008-09 it shows there is a decline in funding. Is that a temporary figure?

  Dr Thompson: It is not a decline in funding. The figures you have are the figures when we submitted the evidence. Clearly for 2008-09 we are currently agreeing new grant proposals that we will fund and that will add to the number. Significant parts of that funding, something like 70%, is through responsive mode. How that will stack up as eventual expenditure, I cannot tell you, so I am much happier to say the figures you have for 2006-07 and 2007-08 are firm figures. For 2008-09 there will be additional grants agreed and additional expenditure put out. It is certainly not an intentional decline and, already, looking at things in the pipeline, I think you will see it go up to the 2007-08 level and it could increase beyond that.

  Q317  Dr Iddon: I am sure the Committee is pleased to hear that but, nevertheless, at around £3 million of the £650 million total budget, approximately, it is less than half a per cent, is it not?

  Dr Thompson: It is less than half a per cent. It is the money that we are investing in this area, but other priorities come in and that is our current expenditure level. Ideally we would like to be able to invest more money but we have to use taxpayers' money wisely and that is our current level of expenditure on research. In addition to that, we support training in universities and there is probably an additional £0.5 million a year going into supporting masters courses. But that is our research expenditure currently.

  Q318  Dr Iddon: We have been talking about supporting innovation and technology and transferring that knowledge. Are you able to put a figure on how much you spend on that at EPSRC or is that difficult?

  Dr Thompson: Given the space in which engineering and physical sciences works, separating out knowledge transfer into a separate funding pot does not do it for us, so our research expenditure includes expenditure on KT because it is embedded in everything we do. For instance, I can tell you that a significant number of the grants that make up those values already have collaboration with industry, which adds money to it, so we do not have separate funding schemes. We try to ensure that research and KT happen naturally in trying to encourage it, rather than having a separate pot of money that you access when you have decided you have to have a good KT idea, because it just does not work like that in engineering and physical sciences space. A project was recently approved at Southampton University looking at sensors in partnership with NERC that will go out into the marine environment and sample the water but also sample the marine biological population. That already has three companies working on that project, so we hope that will shorten the innovation circle because they are there watching over the shoulders of the academics. As soon as they see something that they can go and take value and make a new product from, they will be in there exploiting it. That is how we prefer to see it happen.

  Q319  Dr Iddon: By the nature of the marine environment quite a lot of the research you have to fund is applied in nature.

  Dr Thompson: Yes.