RT HON ALISTAIR DARLING, SIR BRIAN BENDER, KCB AND MR MARK CLARKE

24 OCTOBER 2006

  Q20  Mr Clapham: Secretary of State, picking up the point on innovation, I am looking at your Business Plan 2006-08, section 2: Promoting World-Class Science and Innovation. You go on to say that one of the things that could be done is to increase business engagement and demand for knowledge and innovations. It seems to me that this is a terrifically important area, that engagement with industry, that stimulation for them to take on knowledge and innovation, but precisely how will that be done?

  Mr Darling: Brian Bender has just mentioned the Technology Strategy Board which has been set up for a couple of years and will now be an arms-length body precisely because we want to bring business and what is happening with research and development closer together; that is absolutely essential. That is one level that is being done. There are also other levels as well: universities, for example, are getting much better at working closely with businesses. Some of the clusters that are building up in places like Southampton, York, Glasgow, Oxford and Cambridge, Imperial, you name it, they are doing an awful lot more. The Government can stimulate that because we do support that financially but the Technology Strategy Board is a high level way in which we are doing that. I am very struck by the fact that what has worked in places like America and other countries is where you actually get the critical mass of business, science, finance, design, the whole lot coming together.

  Q21  Mr Clapham: Do the RDAs have a part to play in that?

  Mr Darling: Yes, they do. The RDAs are very important. Obviously by definition they are focused on the regions. It is very important that we do not become too London-centric about these things. The RDAs work closely with universities, they work closely with companies and others doing research and they are very important.

  Q22  Mr Clapham: Looking at British business, many of the surveys that have been done over the years indicate that we invest less in R&D than some of our main competitors. What could we do to change that and what are you doing to make sure that changes?

  Mr Darling: There are a couple of things here. One is the shape of our economy over the years has changed. Nearly 70% of it is now services. There are two things I would say about that. Our R&D tends to be slightly different and I am not sure we are managing to capture that information sufficiently because it ought to be reflected in what we do. In relation to R&D generally, the single biggest thing I would draw attention to is the tax credits. I was saying last night to the Royal Society that over the last few years we have spent £1.8 billion helping 22,000 companies helping their research in science, helping them innovate and that is a huge help. It would be a huge mistake, as some people suggest, to get rid of tax credits. Of course there are always going to be arguments as to what exactly is research and development and what qualifies, but that is a very important way of encouraging it. We have nearly doubled what we spent on Science and Innovation in the last nine years and that is having an effect on universities. It also has an effect on companies who can see good things are happening in these universities. Rolls-Royce, for example, offers a number of agreements with universities to do specific research. If you create the right ambience, the right climate, it will be a result. We have had years of underinvestment in this and we have done a lot. Obviously there is still more to do but it is very, very important. This is frankly where the jobs are going to come from in the future.

  Q23  Mr Clapham: It is fair to say that there is a real determination to ensure that there is more investigation in research and development and to do that by stimulating industry in a way that it is going to be directed to invest.

  Mr Darling: I think that is true. Obviously this comes back to the point that was being raised right at the start. Government can do so much but it will only work if you have the universities, the research institutions, the companies, all moving in the same direction. If you look at pharmaceuticals, for example, or aerospace to give another example, these are areas where we have made huge advances through research and these companies themselves are alive to the fact that if they are going to compete in the future they are going to have to do more research and development. Companies need to focus on the fact that you can get by for only so long if you do not do any research and development but sooner or later it will catch up with you. I hope that what the Government is doing complements what business is doing in a whole range of areas but I am absolutely certain that this money—over half of what the DTI spends—is absolutely essential.

  Q24  Chairman: You have said all the usual things. Frankly, there is no answer to this, is there? It has slipped through the fingers of successive secretaries of state.

  Mr Darling: What has?

  Q25  Chairman: The need to increase expenditure on R&D. It is a worry to you surely?

  Mr Darling: Obviously it is important that we increase the amount of money being spent on R&D. What is different is that over the last nine years we have doubled the amount we spend. It is not possible for a government to pass a law to say that company X ought to be spending more money on research and development.

  Q26  Chairman: You have a target in the PSA for research but not for development.

  Mr Darling: Yes, but development is rather more difficult. If we had a target how would one expect it to be enforced? Do we have to walk up to Rolls-Royce and say "I demand that you develop a new engine"? We used to in the old days and say "And we will buy the aeroplane you make", but we cannot do that now.

  Q27  Roger Berry: The DTI's Business Plan on page six, last paragraph, says: "We will lead the innovation agenda across government and the regions, establish four Innovation Platforms across Whitehall with action plans to promote UK wealth creation through linking innovation levers to public procurement opportunities." What is that all about?

  Mr Darling: We have just published the transport part. What it is looking at is how we can help promote or encourage people to innovate in different sectors that we think are important. As I have said on a number of occasions, you cannot do it all yourself within the DTI but there are things that government can do. In Transport, for example, unless the Government spends the money it is not going to come from other sectors although there are things that we can draw on in terms of logistics, in terms of technology and so on. What we are trying to do is to see how government can complement the efforts of people from outside.

  Q28  Roger Berry: How can public procurement opportunities be used to encourage innovation? What plans do you have in mind to use public procurement policy to promote innovation?

  Mr Darling: Transport is a case in point where the main driver that underpins Transport is what the Government spends. Most of it is coming from there. For example, were the Government to go down the road of road pricing, which we are looking into at the moment, the Government will have to procure various things to make that happen. That will clearly influence the market and will clearly influence Transport development. You raise a more general point on government procurement. The Government has massive buying power. The Committee are probably aware that Lord Hollick has been looking at how the Government does use that power. One of the things that concerns me is if you are not careful you can have all sorts of priorities in relation to procurement: there is value for money; more energy efficient; encourage innovation, and so on. If you spread the thing too wide you will lose the impact. We need to concentrate on those areas where we can make a difference, but government placing a contract or causing a contract to be placed can hugely influence the rate at which something is developed or something is brought on. We need to do more to exploit that possibility.

  Q29  Roger Berry: The other point of this interesting paragraph is "four Innovation Platforms across Whitehall". One has this vision of physical platforms. What exactly are these four Innovation Platforms? What do they do?

  Mr Darling: I have a lot of sympathy about some of the words that are used. I have said to the DTI officials that I will give a prize to the first person who can write a submission that does not have the word "stakeholder" in it. So far, the prize is still in my wallet despite my best endeavours. When I too read "platforms" one has a vision of stages being erected around Whitehall with people falling off them. That might be the answer and perhaps we should try that one. What you are looking at is you are bringing people together, you are bringing policies together. It would have been far better if we had phrased it that way. Your point is taken about some of the florid language used in these reports and it is well made.

  Q30  Roger Berry: What are the four platforms? Why are there four and not six?

  Mr Darling: The Transport one we have just published. What we are looking at is how different departments impact upon Transport policies and the development of those policies, their impact on people. That is what it is really talking about. It might be better if next year we actually say that in plain language.

  Sir Brian Bender: The origin of the number and the thinking is the Technology Strategy Board itself. This business-led board recommended these areas as ones that were cross-government and would provide the basis for possible technology development and business benefit. As the Secretary of State said, the one that we have actually gone as far as launching is the one on Transport.

  Q31  Roger Berry: The other three will be?

  Sir Brian Bender: They are in the Technology Strategy Board Report. We can provide the Committee with a note on it.

  Q32  Chairman: I welcome your comments on language. It goes on about "innovation levers" and goodness knows what they are. It is very difficult to read this year.

  Mr Darling: Let me have a list of the top 10 words you do not want to see in next year's report.

  Q33  Mrs Curtis-Thomas: We have Transport as one of the innovative platforms but you are not sure what the other three are. Does Construction strike any bells? Have you got an innovation platform around Construction?

  Mr Darling: I do not think it is.

  Q34  Mrs Curtis-Thomas: I can understand Transport, Secretary of State, or understand enough of it, but what about Construction and Manufacturing?

  Mr Darling: Construction and Manufacturing are things that cover an awful lot of technologies. Clearly they are both very important. I understand too your interest in Construction.

  Q35  Mrs Curtis-Thomas: Have we got a specific platform for them?

  Mr Darling: I do not think that we do. You cannot have a platform for everything after all. There are two things: one is presentational. When next year's report and next year's Business Plan—for which I shall be wholly responsible—being that hostage to fortune I am prepared to offer, we will try and write it with plain English. The most serious point is that what we are trying to do working with business and with others is to identify those areas where one of the by-products of course is to encourage construction and other things, and those areas where I think we can develop either procurement policies or develop policies themselves in terms of what we do will not just benefit this country, but benefit the companies in this country as well.

  Q36  Mrs Curtis-Thomas: What I would like to do is to make a bid for Construction, given that we have a huge public procurement process around Construction and built environment and I am very keen to see many of the objectives around sustainable energy delivered in our public Construction programme. I would be very grateful if some consideration could be given about this very important area.

  Mr Darling: I can offer you some encouragement there. In part of the Energy Review we are looking at how we can reduce our demand for energy in the first place which means we have got to look at buildings that are more energy efficient. One of the things that we need to look at is that when you consider the cost of construction of a building are you prepared to pay more at this stage in order for it to be more energy efficient, or should we go down the traditional route which is basically we take the lowest price and the lowest price usually means that you probably have to spend more on running costs. It is important to encourage this. You are absolutely right to identify the fact that there are many people in the construction field who have very good innovative ideas of how you design buildings, how you improve their efficiency and it is something that needs to be encouraged. I repeat the point that just because you do not have one of these platforms it does not mean that it is not important; it is important. The White Paper on the outcome of the set-up costs will have something more to say about that, as it will about procurement, which of course is tied into it.

  Q37  Chairman: Construction is something to which the Committee may well return at a later date.

  Mr Darling: Understandably so. It is very important.

  Q38  Mr Binley: The DTI has succeeded in reducing the number and complexity of business support schemes sponsored by the Department from about 170 to six, which is quite a remarkable feat it seems to me. I do not know whether your involvement has had that effect or whether it was the responsibility of your predecessor. Business is still baffled in truth by the plethora of schemes run by other departments, in particular local government. The Minister for Industry has pledged a cull of the 3,000 remaining schemes. How will you achieve this? What leverage do you have over those other bodies who are presumably all attached to their pet schemes?

  Mr Darling: Two things: firstly, I cannot claim credit for those previous ones, although constitutionally I am responsible for whatever my predecessors happen to have done whether I knew about it or not, that is the way it is, even ones in different parties. That is the way the constitution works in this country. You are right that business frequently does find itself baffled and even if you have good things if people do not know about it or cannot work their way through all these things you are not able to take advantage of it. We have said that we want to rationalise it. I think we can do it. You correctly identify the fact that I think of the 3,000 something like half of them are the responsibility of local government. The Government does have influence over local government, not least because it pays for a very large part of it, but if you look at these schemes, some of which appeared in a Financial Times article within the last 10 days or so, some of them, for example, provided Christmas lights in three towns and so on. That might be a very worthy thing to do, but I do not know whether it is a business scheme as such that appears to only apply in a few towns, I have my doubts. Whether you are a national government or a local government you have to keep it simple. You need to ask yourself what do we need to do? What would actually make a difference rather than a whole lot of stuff that might be nice to have but I am not sure advances any of the things that we need to advance.

  Sir Brian Bender: Our approach towards this is trying to group what their purpose is and a starting point is to say can we get them into a handful or maybe two handfuls of subject areas like Environment, Innovation, Enterprise, Financial, Skills and so on, and then bear down through each of the providers whether it is a government department or with local government through the RDAs and Government Offices, to see whether they can brigade in that way. But this work is at a fairly early stage.

  Q39  Mr Binley: Let me lead on from that because your first answer on the subject we talked about right at the very beginning: you said you do not rush in before you analyse what the problem is, and yet this plethora of schemes seems to suggest that there has been a lot of rushing in truth. It is very easy to roll out projects but we often do not monitor them and government particularly is not the best at monitoring and understanding what those projects achieve. Can I ask what evidence-based monitoring you have used to be able to concentrate your projects down to the areas that are really going to make an impact in the important areas you target?

  Mr Darling: Two things: firstly, it is self-evident that if you have 3,000 schemes supporting businesses it is too many and you do not need much research to tell you that. It is a commonsense approach. If you are a business somewhere in the Midlands and you are looking for support and someone gives you a list of 3,000 names you throw up your hands in horror. It is not rocket science, it is commonsense and that is what politicians are supposed to bring to this. It is true that once you start going into them there is something called the Effluent Online Club or something. As of today I am not in a position to let you know whether this is a good or a bad thing. You do need to look at these things because clearly there are various things that have been announced over the years where they are announced in response to a particular purpose. That does not mean you abolish them; it may just mean that you make it simpler. As Brian was saying, if you are a business and you say what help can I get to become more energy efficient, it must be possible for us to reduce down to a very small number things the Government can help you with, or the RDA can help you with, so you say do I qualify for that? Can I get it? You can answer it in 10 minutes and not in 10 years.