Skip to main content

Programme for Research: EUC Report

Volume 686: debated on Friday 3 November 2006

rose to move, That this House takes note of the report of the European Union Committee on the Seventh Framework Programme for Research (33rd Report, HL Paper 182).

The noble Lord said: My Lords, first, I express the thanks of the sub-committee to our then Clerk, Anna Murphy, and our then committee specialist, Oriel Petry, for the excellent assistance that they both gave us in conducting the short inquiry that formedthe basis of our report. I also express my warm appreciation to all the members of Sub-Committee B for their diligent work on this inquiry and in producing the report.

Our inquiry into the Seventh Framework Programme for Research was short, because of the pressure of other internal market issues before us at the time. We concentrated therefore on a small number of matters but recognise that there are many other important facets of research, development and innovation in Europe that we were unable to address. Today's debate may provide an opportunity for your Lordships to touch on some of these wider matters. I look forward in particular to the contributions of the noble Baroness, Lady Sharp of Guildford, and the noble Lord, Lord Giddens, who both bring enormous experience to debate on research issues.

Member states of the European Union agree that strengthening the research base and increasing research and development as a proportion of gross domestic product is an important part of the Lisbon agenda aimed at ensuring that Europe can take on the challenges of an increasingly competitive global economy. The European Council and Commission aspire to increasing research and development in Europe from 1.9 per cent to 3 per cent of GDP by 2010, but in oral evidence, the Minister told us that the Commission has now lowered its expectations to an increase of just 2.6 per cent. In the United Kingdom, our figure is around the European average at 1.9 per cent, and two-thirds of that is done by companies. Research in universities and our research institutes makes a further valuable contribution, supported by public funding programmes and by the private sector.

The latest research and development scoreboard published by the DTI recently analysed the top 1,250 global companies by research and development spend and the top 800 UK companies. Eighty-two per cent of global research and development is in companies based in just five countries—the USA, Japan, Germany, France and the United Kingdom—with Taiwan and South Korea growing significantly and China beginning to grow quickly from a verylow base. Sixty-one per cent of all that globalresearch and development is undertaken by the top 100 companies; and 70 per cent of all research and development is in just five sectors—technology hardware, pharmaceuticals, automotive, electronics and software—while aerospace and defence companies are growing research and development fastest. In this country, we are particularly strong in pharmaceuticals and aerospace with research and development in software and financial services companies growing in importance. Remarkably, of the top 800 research and development spending companies in this country, 119 are software businesses. Private sector investment is of course influenced by the general business and taxation environment—including taxation incentives—but also by the research and skills base of a country. It is important that the research skills base is maintained and grown. Our universities have an important part to play in that.

At the European level, the main programmes to support research have been what are called the framework programmes. It has been said to me already today that that is not the most meaningful phrase to use to communicate with the general population, but that is the name given to the programmes. The sixth programme, covering five years, ends on 31 December. The seventh programme, which will cover seven years, comes into full operation on 1 January next year.

The budget for the seventh programme over seven years is some €54 billion—about €7.7 billion per annum. That compares with around €5 billion a year in the sixth programme, a significant increase reflecting the importance attached to it by the Council of Ministers.

Chapter 1 of our report summarises the research and development programmes. There are four broad objectives. The first is to support co-operation between industry, universities, research centres and public bodies to gain leadership in key scientific and technological areas. This is allocated 60 to 65 per cent of the budget. The second is to promote and fund basic frontier research. This will be the responsibility of a new European Research Council, which I shall say more about later. This will take 15 to 20 per cent of the budget. The third is to train and to provide mobility and careers development for researchers through a range of schemes, known generally as the Marie Curie schemes, and will take 10 per cent of the budget. The fourth is to strengthen research and innovation capacity throughout Europe. This will take the final 10 per cent of the budget.

Funding is expected to support nine priority themes, which are set out in paragraph 12 on page 8 of our report. In addition, the seventh framework programme covers the Euratom research framework programme, although the committee did not consider that in its inquiry. We invited and received written evidence from the CBI and Research Councils UK and took oral evidence from the noble Lord, Lord Sainsbury, the Minister responsible for this policy area. In our discussion with the Minister, we covered seven issues, set out in paragraph 18 of our report. Your Lordships will be aware that we took his oral evidence in February this year. That is a long time ago now, and things will have moved on in several areas. No doubt the Minister today will bring us up to date.

On the overall budget, we sought to clarify the likely outcome of the then gap between the Commission’s initial budget proposal for some€76 billion and the likelihood that this would be reduced significantly. The final outcome, as we now know, is a budget of some €54 billion over seven years. This is still a significant increase, which we welcome. In its written evidence to us, the CBI told us that there was little evidence that the research framework programmes have given Europe a widespread economic advantage, and still less evidence of directly attributable competitive gains for UK businesses. In his oral evidence to us, the Minister took a more positive view of the impact and importance of these research programmes, but acknowledged that, although industry still participated in the European programme, he was concerned that participation by industry in the UK and across the EU had reduced in the last five-year programme. Will the Minister reassure the CBI today by giving practical examples of where past research programmes have borne practical results in innovation and products in the market place? It is always dangerous to expect results too quickly, but we are now on the seventh programme and we should be able to convince industry that this really does pay off.

The Minister agreed with the CBI that the largest part of the new programme should concentrate on research aimed at more direct applications andshould be industry-driven. He told us that these objectives would be met by placing industry at the heart of European technology platforms chargedwith identifying large-scale industrial research and development challenges and with developing a strategy—the so-called strategic research agendas—to deal with them. Crucially, the Minister strongly supported the proposal that the most important of those strategic agendas should be taken forward by joint technology initiatives—long-term private-public partnerships. We discuss these very important matters on page 12 of our report.

The joint technology initiatives are a major change in the identification and delivery of improved research that is of more immediate value to industry. We welcome this new approach. It will be criticalto improving the participation of industry in a European research agenda, and to the success or failure of the seventh framework programme, so far as industry is concerned. Difficult though it is, more effort should be made to set clearer target outcomes and timelines on investments through the joint technology initiatives. When we met the Minister, he was unsure what monitoring and reporting systems would be in place for the initiatives. Will he tell your Lordships today whether there has been any progress in this area? He also conceded that businesses believe that the framework programmes are too complex and bureaucratic and that changes must be made. The Government’s response to our report gives more detail on how, in their view, the Commission is seeking to tackle this problem. Is he optimistic that good words will turn into good deeds?

The second broad objective of the framework programme is to promote and fund basic frontier research. To this end, the European Research Council has been established and a scientific council appointed as an academic body to determine the council’s strategic strategy and to ensure that it operates on the basis of scientific excellence. As many of your Lordships will be aware, the scientific council will be chaired by the noble Lord, Lord Patten of Barnes, and two of the 22 members of the council—the noble Lord, Lord May of Oxford, and Professor Wendy Hall of Southampton University—are from the UK. We welcome the establishment of the European Research Council, and the strength of its scientific council is greatly encouraging. It can make a real difference to developing a coherent and productive programme of European frontier research. It is vital that its independence is strongly upheld in the years ahead, and that its decisions will always be based on excellence and merit.

My committee was less persuaded by the Commission’s proposal for the establishment of a European institute of technology. When the proposal was initially floated, it appeared to be modelled on the Massachusetts Institute of Technology. There had been considerable doubts about the idea of creating a top-down academic institution. In his oral evidence, at question 68 on page 11 of the minutes of oral evidence, the Minister told us:

“I think the idea of a European Institute of Technology is quite unhelpful, frankly. We remain very sceptical about it”.

Many commentators emphasised the need to strengthen existing universities and research institutes across Europe in order to ensure that more of them are world class and to strengthen further those that are already world class.

Since we reported, the European Council invited the Commission to bring forward a formal proposal, which was published on 18 October. It aims to have a European institute of technology in place by 2009. In October, the president of the vice-chancellor’s organisation of Universities UK commented that although the proposal is now better defined, they still have some serious reservations. First, will funding of the European institute of technology impact onthe European Research Council’s budget and its priorities? Secondly, what problems will there be if the institute of technology seeks to award its own degrees? Thirdly, will it really add value or will it threaten some of the many collaborations which already exist between universities and industry? What is the present view of the Government on the proposal and what answers would the Minister give Universities UK on its continuing concerns?

The third objective of the framework is to strengthen training, mobility and careers development for researchers within the context of promoting excellence in European research. This will continue to be delivered through Marie Curie schemes in order to develop research skills and training capacity, which we warmly welcome. The UK research councils told us that these programmes have been strongly beneficial to the United Kingdom and have added value at the European level. They had some concerns about the topping up of national programmes and how that is affected by the European scheme. What progress has been made in meeting the concerns of the UK research councils?

The final area of interest to our committee was the relationship between the EU competitiveness and innovation programme, EU industrial policies, structural funds and these research programmes. Each of these is of great importance, but they offer the potential for overlap, confusion, and complexity. The Minister told us that the Government shared our concern. In September, the Commission publisheda European Union innovation strategy—Putting knowledge into practice: A broad-based innovation strategy for the EU. My committee awaits legislative proposals in this area and will look carefully at these matters as well as at the positive benefits that a vigorous and well constructed innovation strategycan bring.

Research and development lie at the heart of competitiveness, improving standards of living and the quality of lives. The framework programmes are just part of responding to the challenges and just part of the solution, but they are an important initiative at the European level and demonstrate the value of strengthening our diverse but large internal market in ideas and research communities. I look forward enormously to the debate. I beg to move.

Moved, That this House takes note of the report of the European Union Committee on the Seventh Framework Programme for Research (33rd Report, HL Paper 182).—(Lord Woolmer of Leeds.)

My Lords, I thank the noble Lord, Lord Woolmer, for introducing this report and for the bulk of the report before your Lordships today. It fell to the Foreign Affairs, Defence and Development Policy Sub-Committee to consider the space and security programme included in the Seventh Framework Programme for Research. Therefore, that sub-committee of the European Union Committee contributed to and has the responsibility for Chapter 3. I am grateful to members of the sub-committee and our clerk, Emily Baldock, for their work in preparing this chapter.

I do not wish to take a great deal of your Lordships’ time, but I have a number of specific questions relating to Chapter 3 that arise from the Government’s response, to which I hope that the Minister may be able to give some answers today. When the original proposals were published, the Government expressed serious reservations on security research. The Home Office published a long paper in consultation with the Ministry of Defence, which stated that it was essential to ensure that the European security research programme did not harm the security interests of member states or cut across either national defence research or European co-operation on defence research, and that there would need to be effective safeguards. The sub-committee agreed with that view.

On the narrow point of the budget, to which the noble Lord, Lord Woolmer, has already referred, I would ask the Minister to clarify the position. In the Government’s response, they note that the political agreement was the same as in the Commission’s revised proposals. But the Government have also stated that they would like to see the budget line for space and security reduced. It is unclear from this response whether there has been any reduction in the budget line for space and security and whether this still reflects the United Kingdom’s priorities on the proposed budget. Clarification would be much appreciated.

As regards security research, the sub-committee acknowledges and welcomes the undertaking given by Commissioner Verheugen in correspondence that the focus should be on civil research. The Government have noted that under the framework programme these moneys cannot be used to fund defence research. However, this does not cover the potential problems of dual-use research, to which the sub-committee’s recommendations mainly referred. We recommended a number of means of monitoring such research proposals, but the Government’s response makes no specific comments on that. I should be grateful if the Minister could state specifically whether they have pressed for the involvement of COREPER and the General Affairs and External Relations Council in accordance with the recommendation made in this report, and for co-operation between the Commission member states and the European Defence Agency.

The Government’s response also refers to the role of the programme committee in which they are to participate. It states that the committee will beable to carry out the function foreseen by our committee. However, there is no indication that the programme committee should consult with, for example, the European Defence Agency. We were seized of the considerable sensitivities that may arise at the prospect of the Commission having any involvement in defence matters, even if that were legally possible.

Having conducted a previous inquiry into the European Defence Agency, however, we are optimistic about its prospects. During that inquiry it was clear that research in some instances may have a dual use. Communications is a prime example, but it would be unfortunate if, by maintaining a too purist view, we encouraged or permitted duplication of effort and cost, or did not use the resources available. The European Defence Agency appears to be a vehicle by which this can be avoided. I would be grateful if the Minister could assure the House that the technologies with a dual use—civil and military—will be identified, and if he could advise us of the current state of co-operation between the Commission and the European Defence Agency on these issues.

My Lords, I pay tribute to the noble Lord, Lord Woolmer, for bringing to the House this extremely timely report. The seventh framework programme reaches its crucial decision point with the European Parliament at the end of the month, so the House now has an opportunity to debate the programme and what we are likely to gain from it. I have to confess that I asked to speak in the debate because before I came into the House—I celebrated my eighth birthday as a Member last week—I was the author of a book on the framework programmes with Professor John Peterson from Edinburgh University. It took us up to the end of the fourth framework programme and was to an extent a definitive text on framework programme workings. Given that my responsibilities on these Benches have been concentrated largely on education, I am afraid that I have not kept completely up to date, so I am enjoying the opportunity to be able to dig back into this area, although, thanks to the Education and Inspections Bill being considered both in this House and the other place this week, I have not been able to give it as much time as I would have wished.

It is interesting to be able to look back and make comparisons between what is now being proposed under the seventh framework programme and what was set out in the earlier ones. In many ways, the shape and processes of the programmes have not changed much. There is still a large element of co-operative, collaborative research where research institutions and companies are asked to get together to form networks across Europe to progress research projects within identified areas of priority. The co-operation element of the budget is still in place,as is the mobility element, which has been an extraordinarily important part of it. That is because moving young researchers to different research institutes across Europe has been of enormous value to all the European institutions. At a meeting of the Foundation for Science and Technology, the noble Lord, Lord Rees, said that when he was a young postdoctoral student the natural thing was for him to go to America, where he met up with other European researchers. He said that, thanks largely to the framework programmes, as frequently as not young researchers now spend time meeting their European counterparts in European centres—indeed, as much as they do at American centres. That is of enormous value to Europe as a whole and particularly to the United Kingdom.

Money is also available for infrastructureand building up capacities under the cohesion element of the programmes, which should not be underestimated. It is important that countries more backward in research should be encouraged to move forward. I believe that when I was writing in the 1990s I had more sympathy with this point than most. A substantial amount of the budget is still devoted to the joint research centres and to the nuclear aspects of EURATOM. There are some questions to be asked about that.

What is new? I am delighted to see on the agenda the European Research Council, which is going to fund basic research. I always thought it anomalous that we were funding applied research at the federal, Commission level in Europe. It has limited immediate knock-on effects and is called “pre-competitive” research. In the United States, basic research is funded at the federal level because its effects are long term and diffuse; they cannot easily be measured. It makes more sense and is more natural to fund such research at the higher levels of government. In the US, individual states, which are the equivalent of the European member states, provide funding for applied research. We argued back in the 1990s in my book that it would make sense for the Community to put more money into basic research, and I am delighted that this idea has got off the ground with the European Research Council and even more delighted that the noble Lord, Lord Patten, is its chairman. We have two excellent representatives on the council board and I look forward to seeing what comes from it. I think that they are going to put particular emphasis on enabling two sets of researchers to carry forward their work. One set comprises young researchers without a track record but who need a leg up and the other is a set of more experienced researchers who want to pursue what are known as blue-skies projects.

Also new are the joint technology platforms and the joint technology initiatives, which pull together industrial capabilities. These put industry in the lead in applied research—or pre-competitive research, which the CBI has said is never competitive research. I shall come back to this in a moment, because I have a few reservations about what is happening and I should like to explore those further with noble Lords.

There is also the new thematic field of space and security, which the noble Lord, Lord Bowness, talked about. I believe that I am right in saying that space research has now been separated from security work. My figures for the July budget show that it is now very much in line with the proposals made by the Commission in May 2006. Over the seven-year period, there is some €1.4 billion for space and slightly less than that, €1.35 billion, for security. It has been agreed that the security elements should concentrate on civil research. This has been a difficult issue for some time. In the 1980s, we got to the point where the defence sector relied more on civil technologies than on defence technologies per se. The degree to which the defence sector now uses developments made in the electronic communications area is enormous, and by the 1980s civilian research was leading the field. The same is true for space and satellite technologies, which are of immense value to the military sector. It is difficult to draw a neat line here. However, I understand what noble Lords are saying and I sympathise with it.

Totally separate from the framework programme but nevertheless being proposed at the same time is what some people call Barroso’s baby; namely, the European institute of technology. There is deep scepticism about this project. We know that it has taken 150 years to develop the Massachusetts Institute of Technology and I am afraid that I do not agree that a virtual institute is the same thing as a physical place. In a way, the whole issue about the exchange and cross-fertilisation of ideas by being able to rub shoulders with others is extremely important, and location plays a part in that. That is why the United States has organisations such as the Santa Fe Institute, which serve to bring people together in one place. So I share in the scepticism expressed by members of the committee about the European institute of technology. We shall have to watch it fairly carefully.

I am sorry that the committee reported as early as May, although the report was not actually published until the end of June. I recognise that it was trying to feed into discussions being held at the time, but some interesting things such as actual decisions on budgets and carrying forward ideas about the technology platforms have been taking place since then. I have to admit that I would have liked to see a slightly more substantial report from the committee covering rather more areas and taking more evidence that it did.

The budget arrived at is very close indeed to the ideas put forward in May. In giving evidence to the committee, the noble Lord, Lord Sainsbury, was quite right to say that it would be about €50 billion. The total is €52 billion, but includes €2.7 billion for EURATOM. So, if you take EURATOM away, it is about €50 billion for the framework programme. That is €7 billion a year spread across 25, soon to be 27, countries. If we all had equal shares, it would be less than €200 million a year each. The UK research budget is now about €3.5 billion if you take together the research councils’ budget and the HEFCE research element. Very little now goes from the Government into industrial research but, if you look at what the Government are putting in here, you see that the UK has done particularly well in the various framework programmes. We took something like16 per cent of the fifth framework programme, so we are looking at about €500 million, which, although it is not big money, is extremely useful—we certainly should not demean it. However, I question where some of that money is going. There remain questions about the joint research centres and whether we need to put as much money into them.

I return now to the question of what benefit the industrial technology platforms bring to the UK. Those platforms aim to bring together the key players—industries, small and medium-sized businesses, financial institutions, national and regional governments, the research communities, such as universities and research centres, and the NGOs. There are somewhere in the region of 10 areas where these platforms are being put forward. They fall into six different categories, including new technologies per se, which cover, for example, work on hydrogen fuel cells and nanotechnologies; the sustainability agenda, which ranges from research into photovoltaics through to water supply; the new technologies applied to public services, including, for example, a technology platform on industrial safety; keeping high technologies at the leading edge, which includes platforms on materials and space technology; and new technologies applied to old industrial fields—the steel, construction and textile industries fall into this category.

The committee endorsed the concept of technology platforms. Paragraph 31 of its report states that it is important that FP7 succeeds in making R&D more industry driven. Paragraph 39 states:

“We welcome the proposal for European Technology Platforms … to implement a strategic research agenda through public-private partnerships … as this is most likely to ensure that the research projects are industry-driven”.

But, in paragraph 40, the committee also callsfor more effective monitoring of the European technology platforms. I endorse that call.

The committee expressed scepticism about what we have got out of these European programmes in industrial terms. I should point out that, without the early developments in the framework programme, we would not have achieved the advances in mobile telephony and European satellite technology that we have made. There are many other achievements that we can look back on—for instance, the developments in biotechnology and the human genome project, in which our participation in the early days played a very important part. The pay-offs have been long term.

There is a great danger that the large companies will dominate some of these technology platforms. This certainly happened in the early days of the ICT programmes. Perhaps one reason why we have seen a fall-off in industrial participation is that they have been tougher on the larger companies.

But it is important to query whether industry is always right. I end by quoting from the evaluation report on these programmes that was carried out for the UK Government. It emphasises the importance of the degree to which some of these pay-offs fromthese programmes are long term. Paragraph 10 of the Targeted Review of Added Value Provided by International R&D Programmes states:

“The literature makes clear that the value of R&D is not confined to (eventual) commercial outputs. ‘Indirect’ payoffs such as expanding the supply of trained graduates may be as, or even more, important to business and society. Framework Programme evaluations permit us to understand the range of types of benefits, as well as participant satisfaction. However, they say nothing directly regarding the extent of the Programme’s impact on UK (or European) competitiveness. The benefits identified are essentially intermediate outputs (knowledge, skills, tools, relationships, et cetera). Of the many Framework sub-objectives, the evaluations reveal that ‘stimulation of collaboration’ is being achieved constantly”.

I come back to the point that I made at the beginning—the value of the collaborative effortsthat have been achieved from these framework programmes.

My Lords, I, too, congratulate my noble friend Lord Woolmer of Leeds and his sub-committee on their report, which is very instructive. I have been in your Lordships’ House for only a relatively short period but I am very impressed by the standards set by the European committee and its sub-committees in the reports they have produced, which are always diligent and mostly always on the ball. As has been said, the Seventh Framework Programme for Research is very important to the future of Europe and is directly connected to the Lisbon agenda, to which I shall refer.

The report is right to endorse most of the proposals for the seventh framework, including the idea of forming a European research council. It is also right to take a jaundiced view of Barroso’s baby, if we are to call it that. If I remember, Mr Barroso has also spoken about having several children in Europe and that he would not favour any of his children over the others. I do not know whether or not Barroso’s baby is one of those children but he seems fond of that kind of analogy.

As for myself, if there is money there, I would prefer to see it spent on something comparable to the research chairs scheme introduced under the Chretien Government in Canada, which was very successful in getting high-level academics back from the United States. There had been a bigger brain drain from Canada to the US than from Europe and this was a very successful scheme. You could have an extensive scheme of this kind in Europe on a competitive basis which would certainly play a large part in elevating the scientific and technological status of European universities and do more than the proposed institute would do.

Of course, a lot more money should be spent on the kinds of things that increase European competitiveness. I hope that the budget review in 2008 will be more than a notional exercise. The framework of spending in the European Union is, frankly, absurd, as we all secretly or otherwise know, because so much is being spent on the common agricultural programme. André Sapir made this point very strongly in the best report that anyone has written on the economic future of Europe, but it did not do him much good in the higher level European circles. Nevertheless, it was a point that should be made and needs to continue to be made.

The seventh framework is closely connected to the Lisbon agenda. I would like to offer a few more critical comments on the whole notion of the seventh framework in relation to the Lisbon agenda, because I am less convinced than other speakers about whether we have got it right. The Lisbon agenda, as everybody knows, has not—to put it this way—been completely successful. It has not given the bite to European competitiveness for which many people hoped. Its fate has been that those countries which did not need it have taken a lot of notice of it. The Scandinavian countries, for example, do not need it because they have already done most of the things in the Lisbon agenda. Those countries which most need it, such as Italy, Germany and France, have tended largely to ignore it. It is significant that the German report, Agenda 2010, which picks up quite a lot of what is in the Lisbon agenda, barely mentions it. So the Lisbon report has not been a conspicuous success. The reasons are linked to issues raised by the way in which funding is proposed in the seventh framework and more widely in Europe.

Just as the Lisbon agenda has not been too successful, as the report says, nor has the attempt to increase research and development spending in Europe. It was supposed to reach a 3 per cent target by 2010, and it is generally accepted that it will not reach that target. The Minister said that in his responses to the interrogation to which he was subjected. Business research and development is supposed to rise to two-thirds of this total investment, which is the case in the US. I do not see it as very likely in Europe, and it is not happening here. The reason is that the business segment that is supposed to elevate the proportion spent on research and development is not really likely to think in these terms. Why should business firms have an interest in increasing expenditure on research and development for its own sake? They would not unless there was market capability, which comes with it. If firms can, they will cut back on research and development if they can still sustain innovation and the marketplace. Because research and development is, for them, an economic cost, even the big companies are likely to outsource it more and more in the future.

The relationship between research innovation and economic development is changing quite radically as the knowledge service economy matures. The model which has been used in the Lisbon agenda and in the seventh framework might be becoming less relevant than it would have been a few years ago.

In the knowledge service economy, a great deal of the leading edge of competitiveness is given not directly by technology and science but by changes in taste and people’s lifestyles—a range of diffuse factors which were not the same when we lived in a manufacturing-dominated economy. It is important to stress the significance of this, because only 30 or so years ago, nearly 40 per cent of the population of this country worked in manufacturing. Now that proportion is down to 12 per cent, and in the United States it is down to 10 per cent. Many of the leading-edge developments are much fuzzier than they used to be. For example, the entertainment industry is a massive part of the American economy. It has a connection to technology, as anyone who has seen the animated films coming out of Hollywood will know, but that connection is quite difficult to puzzle through. We should make a distinction between what I will call old-style research and development and new-style research and development.

The report does not, as far as I know, mention the Aho report, which is a significant emendation of the Lisbon agenda. It says that we must put the stress firmly on innovation rather than research and development as such, because what matters is how research and development is taken up and used in a very different marketplace than that which existed in the past.

Old-style research and development—by which I mean the type done in “silicon valley”, which is not that old—is where you get networks of connections between universities and business, where business sometimes develops in spatial conjunction with universities as it has done in the Cambridge Science Park, for example, and where there is a close connection between technological aspects of knowledge creation and the utilisation of that in the marketplace. I suggest, and the Aho report implies, that we are moving towards a situation in which new-style research and development will be more significant in relation to the changes that are happening with the development of the knowledge-based, service-based economy.

I would like to make three comments about this. First, one should regard all numerical targets as suspect. My noble friend Lord Woolmer said something about targets being increased, but numerical targets do not make much sense, especially when they are covering a generality of countries. It is just not feasible to suppose that different countries will have the same needs in terms of research and development, however that is defined. Moreover, it is almost certain that research and development will become increasingly internationalised. This will also affect what will happen in a particular country in terms of its utilisation. Although the 3 per cent target is a useful notional thing, I do not think it should have any hard and fast significance. It relates to one of the defects of the early version of the Lisbon agenda, which was also full of numerical targets. The Lisbon agenda has become much more effective since it has become contextualised in relation to countries. Different countries have different needs at different times and if those needs are not contextualised, they cannot really be met effectively.

Secondly, one of the major things happening in the world is that companies are developing a global division of labour. As they develop more complex organisation across the world, it seems clear that research and development will become globalised, which will take one further away from the local silicon valley-type model. The main reason for this is the invention of a global patenting regime or moving closer to the development of such a regime. Once that has firm purchase, it will not really matter where research and development breakthroughs come from. They will be able to be utilised by firms across the world; much more important will be how that research and development is utilised.

Thirdly, the knowledge in the knowledge economy is only partially scientific and technological, for the reasons I mentioned earlier. One of the most important emphases in the Aho report is the significance of creativity and of opening up new markets following changes in consumer tastes. Technology is rarely the dominant driving force in those areas. The iPod, for example, which has been a massive success, is based on a technological breakthrough, but the reason it has been successful is to do with lifestyle and taste. It found a niche in the style market for younger people, not only in our society but across the world. If you do not find that niche in a society based on lifestyle—that is what a service-based economy is—you will not be able toget competitiveness out of direct research and development. There is a good cluster of reasons to be a bit more sophisticated about the relationship between research and development and competitiveness. That is important for Europe as a whole to take on board, as well as this country.

Let us take the example of Starbucks. Who knew that the British were somehow, deep in their soul, desperate for really good coffee? Who knew, indeed, that the Americans were? I used to live in America; you could get coffee all over the country and they always refilled your beaker, but it was always terrible. Who knew that the Americans had this latent taste? Spotting those sorts of things will in the new economy give companies a competitive edge. I do not dispute that those things will often be scientific and technological. It is very important for every country to keep a lead in science and technology, but there is far more to it than science and technology alone.

I leave your Lordships with a brief story. It is said that the Americans spent $10 million in the space race trying to invent a ballpoint pen which would write upside down in space. In the mean time, the Russians used a pencil.

My Lords, what a pleasure it is to work on Sub-Committee B. Our Clerk, chairman, advisers and my colleagues are all committed and I thank them for their diligence and companionship. Like my noble friend Lord Giddens, I rather like the seventh framework programme proposal. What I like about it is that it does not treat research and development as something that just happens on its own in isolation—something that takes place in a laboratory somewhere. Of course, the research is essential, but it is not enough for innovation, which comes from a combination of things.

The noble Baroness, Lady Sharp, spoke of collaboration; she is right. We list some of the collaborations in our report, including co-operation between universities, business and industry, research centres, public authorities and consumers. That co-operation is central to innovation—it is “knowledge transfer”, to use the jargon. In addition, there have to be business models which can accommodate the new technology, and there have to be people trained in science. Indeed, the Prime Minister is speaking today about this. What excellent timing by my noble friend Lord Woolmer!

As the noble Baroness, Lady Sharp, said, all this has to work across frontiers. I think the seventh framework proposal largely tries to take all this into account. This is why I think that our committee was right, and the Government were right to welcome it and to welcome the increased funding, which should enable innovation and more productivity in member states.

What did cause me concern was the memorandum from the CBI to the committee which seemed to disagree with this. The CBI somehow wanted proof of this—but it seems to me that the proof is all around us. As my noble friend Lord Woolmer reminded us, more proof appeared on Monday, when the DTI published its R&D international scoreboard. Yet again, this demonstrated the link between R&D spending and growth. The CBI in its evidence is right that participation by industry fell away in the sixth framework, but this has happened everywhere—and, yes, the leeway has been taken up by the universities. But the seventh framework agreement tries to deal with this with the joint technology initiatives, the national mobility programme and the mechanisms to encourage knowledge transfer, which are all designed to involve industry more.

The CBI has concerns about bureaucracy but, as the noble Lord, Lord Sainsbury, pointed out in his evidence, the Commission has published an annexe with proposals which set out what it is going to do about simplification. These proposals seemed sensible to him; they also seem sensible to me. They should make the funding schemes simpler and more flexible. However, there are two areas where one might criticise this proposal. The first is “why bother”, because everything is going to be made in India and China anyway. Secondly, and perhaps more seriously, the seventh framework does very little for the services sector, which is now the major part of our economy.

The view that nothing will be made here anymore is not only cynical but manifestly untrue. Lots of things are made here, but far more of them are made elsewhere—often as a result of our researching them, designing them, developing them, improving them and working on them here. This is a very important part of our industrial base. My noble friend Lord Woolmer asked the Minister for an example, and the noble Baroness, Lady Sharp, mentioned telephony. In this country we developed virtually every aspect of the modern mobile phone and its network—the liquid crystal display, the detector technology, the nipple antenna and the embedded software were all developed here. The phones themselves are made and used elsewhere, but what is of crucial importance to our economy is the trade, not only in the innovative products, but in the services relating to the installation, development and improvements to these innovations. In mobile phones, this has been enormous in our economy.

This part of our manufacturing economy islargely ignored, often misunderstood and probably misrepresented in statistics. It has been and will be important in many other industrial sectors, in molecular biology and genetics and in the creative industries of the 21st century, as my noble friend Lord Giddens said. With our open approach to trade, collaboration and science, this is how the seventh framework programme will be of great benefit to us. It will also make us an attractive place for overseas companies to design, develop and research their new products.

I have raised research and development in the service sector with Ministers before, and I make no apology for raising it again. My noble friend Lord Giddens touched on the matter with his reference to new-style R&D. In his evidence, the Minister spoke of the low requirement for research in the service sector. Retailing is one of our major services, which has been revolutionised by R&D. When I started work in the textile industry, 40 years ago, clothing shops had two ranges—summer and winter. Today, thanks to computer-aided design, tight integration of the supply chain by using modern communication technology, modern transport and distribution technologies, by using embedded information and instantaneous consumer feedback, stores such as Topshop and Zara renew their range every 14 days. These technologies have revolutionised the high street.

By using these modern knowledge technologies, we have changed the lifestyle of many people. That is the kind of lifestyle niche change to which my noble friend Lord Giddens referred. Yet according to official figures, the retail industry spends an infinitesimal amount of money on research. I could make the same point about the financial services industry. A report from the Manchester Business School last year indicated that many service firmsdid not think that they were doing research and development because they regard this as a manufacturing-related concept. A couple of weeks ago, Nesta made the same point. I think that there is a lot in this. I spoke of the international R&D scoreboard that was published on Monday. Banks and retailers made their first appearance this year thanks to the adoption in Europe of the new international financial reporting standards, which require more detailed analysis of spending in the annual accounts. That detail began to show what they were spending on R&D.

As my noble friend Lord Woolmer explained, the whole purpose of the seventh framework is to helpus respond to globalisation. Our response to globalisation is to move up the value chain. As you do, the demands of the customer changes. Higher value products require higher value services, which require greater skill—not only in science and engineering but in the social sciences. This is a matter which needs more study in the seventh framework programme.

On the European institute of technology, the Commission’s more detailed proposals were made after we reported and the Government responded. The Commission’s proposal is to spend €2.4 billion to create a network of research centres which would be called the European institute of technology. Its concern is that Europe’s academic standards are slipping further behind those of the United States and risk being overtaken by standards in China and India. The hope is that by linking a number of research centres and universities located around the European Union, they would help each other to raise academic standards to a level that will rival MIT.

Like the noble Baroness, Lady Sharp, I am not sure about this. There needs to be more clarity of purpose in this arrangement; but there may be an alternative. In his report on climate change, Sir Nicholas Stern argues for a stronger focus on technological co-operation in energy R&D and in the low-carbon technologies. Co-operation in this between 25 nation states would be of great significance and could help Europe to stay in the forefront of the technology of climate change. With this firm purpose, the idea of a European institute of technology might be greeted with a bit more enthusiasm. Perhaps the Minister has more news about this institute, as my noble friend Lord Woolmer asked.

I found it gratifying that the Government’s response joined the committee in generally welcoming the proposals for the seventh framework programme. The Commission has taken steps to tackle our concerns about bureaucracy and governance and has tried to incorporate all the various aspects of business which create innovation. I have tried to point out how it needs to give more thought to incorporating innovation in the services sector. Apart from this, the seventh framework programme is a good project. Public policy cannot create innovation, but it can ensure that the ingredients are there. I think the seventh framework programme does this, and I wish it every success.

My Lords, this has by any reckoning been a most interesting debate on a compelling subject. I thank the noble Lord, Lord Haskel, for making the very interesting suggestion towards the end of his speech about possible European institute of technology usage and function. I echo other speakers in congratulating most warmly the committee chairman, the noble Lord, Lord Woolmer, with all his university expertise and knowledge, and his committee colleagues on their excellent text.

This report encapsulates the critical decision made seven years ago that the European Union should catch up with or indeed overtake other high tech, high research and development areas of the planet in market-oriented research efforts. As we heard, the EU target is 3 per cent of GDP by 2010. It is now reduced to a more realistic figure but let us hope that those figures are left behind as the years unfold.

The member states deliberately chose a most ambitious target for FP7 to be 160 per cent of FP6, and the long-term aims are equally ambitious. This includes Euratom, which some people with more expertise than I have regard as already having a somewhat excessive budget, but that is a separate question. We have a wonderful new jargon phrase, ET platforms. The wonderful spawning of these acronyms when the Commission produces new documentation is always amusing. I phoned an official in Brussels to get advice. He told me, “It is very easy, my friend. The ETBs will function through the SRAs via the JTIs and the ERC will guide the UGs”. I said, “Thank you very much”.

The Government are generally very enthusiastic about these matters except for the Commission idea of setting up the technology institute, as has been mentioned. Of course, as we know, this must be done outside the military field, although dual usage remains an open question, as I believe the noble Lord, Lord Bowness, and others mentioned.

The 75 per cent for funding by 2013 is a very attractive notion for many people who may want to enter these fields for the first time and respond to the Commission’s challenge. I welcome the challenge that the organisers of FP7 will face in persuading industry representatives in the UK that such EU-based funding can produce competitive gains for us.We have many highly competitive, impressive international companies and an extremely impressive and competitive retail sector, but a perpetual trade deficit. Therefore, the scepticism of UK companies about these matters may be less than in countries such as France and Germany. Germany normally enjoys a substantial trade surplus and higher output levels in key sectors than us, higher productivity and a bigger export base in absolute terms. These may not matter in the future if we focus more and more on EU-wide trade figures—and why not? On current figures, we would potentially have a substantial surplus.

I thank my noble friend Lady Sharp for her comments. She has phenomenal expertise gained over many years. As I said, the noble Lord, Lord Bowness, mentioned dual use. That is still very much an open question. I hope that the Minister will have time to refer to it today.

These are early days but we need more examples from the pan-European representatives of industry and trade to give us examples of where EU-based, rather than national only, will give an extra dimension of competitiveness and productivity. The jury is out whenever a new FP starts, particularly this one where the financial base is much expanded. Therefore, the skill in setting up an effective monitoring and reporting-back system will be crucial. Considerable sums will be going to carefully selected projects and recipients. Does the Minister feel that the peer review mechanism will work properly? That question cannot be answered completely at the moment.

I would like to hear more also on what the EU8, plus the two islands, especially Cyprus with its distinct academic background since independence, think about these proposals. We wait to hear more from them. In the week of the Stern report we are bound to welcome the Commission’s inclusion of climate change research in the list of key priorities. Although the new elements in this seventh framework programme are by definition complex, the document establishing these modalities is itself reasonably short and straightforward. As the noble Lord, Lord Woolmer, said, for various reasons there was only one evidence session and a small number of written submissions, with the CBI sounding rather sceptical. However, there were a number of common themes in all the analyses. I hope that the Minister will have time to deal with some of those points.

We noted the scepticism of industry and commercial sources expressed by the CBI and others—the fear of excessive bureaucracy and an absence of that operational simplicity, which is the hallmark of the Lisbon mark 2 ethos. It is important to note that that was adopted by politicians and officials as a philosophy. However, industry has also responded in tangible areas; an obvious one is pharmaceuticals. Even to a layman such as me, that seems ideally suited to the public-private syndrome of research oriented innovation.

In the evidence the Minister also emphasised knowledge transfers, but the concomitant limits thereon if companies seek to protect their findings from competitors is an open question that needs further examination. Those who read the evidence, as I did, will have noted the matters enunciated by the noble Lord, Lord Sainsbury of Turville, such as licences, patents, trademarks, spin-off efforts and contract research. Perhaps the noble Lord, Lord McKenzie, will have time to cover some of those points in his winding-up speech. Can he also give us an update on how the regional development agencies are progressing their own work on knowledge transfers? Will we emulate the example of Japan where the huge amount of research done by big corporations’ research entities has now switched somewhat to placing more emphasis on the universities’ research activities?

In future the Government aim to lay stress on more applied research from these efforts, but will the machinery be in place to achieve this at the often more cumbersome European level? Does the Minister also expect that Community 50 per cent funding will be applied in most instances, or will that be only a maximum from time to time? I recall that the sixth framework programme went only to 35 per cent. Are the officials preparing these programmes still thinking of 15 per cent going through via the European Research Council mechanism, or could it be a higher figure? Equally, would it not be a good idea to increase the ratio for mobility and capacities beyond the mooted 20 per cent?

I imagine it is accepted everywhere now that single teams can come from single countries for ERC funding. That seems to be generally agreed. But the encouragement of what my noble friend Lady Sharp described as young researchers from various countries with experience of previous FPs coming together must be even more important than single country teams.

Is the budget line for civil space and security research still at the reduced figure? That has become clear from the debate, but will the Minister confirm it? Then again, repeating for the third time the question of dual-use research, will that rule out excessive slippage into military areas, perhaps even by accident?

It was hard at the start to secure much enthusiasm from the CBI, as I said earlier, but that has improved in recent months in view of assurances given by Her Majesty’s Government on things such as genuine ERC independence. However, they were understandably keen on the Marie Curie fellowship scheme structure. Will this therefore stand alongside the ETP and the JTI segments for priority support?

Incidentally, does the Minister also feel that the broad single market objectives of the entire single market policy range will be tangibly enhanced by all these new programmes? If so, could he give a putative example of that—perhaps excluding pharmaceuticals, which might be what one would seize on as a potentially good example?

Finally, on the immediate practical outlook, is the EP on track to achieve the FP7 second reading inits November plenary and fit in with the Competitiveness Council’s December meeting for final approval by member Governments? If the over-complicated bureaucratic temptations are alleviated in the application procedures and the subsequent steps, like cost reporting models, does the Minister feel that the Lisbon agenda is going to look increasingly realistic to doubtful industrial and commercial managers, many of whom are resident in this country and share our philosophy? That was expressed and echoed by the remarks of the noble Lord, Lord Giddens.

As the six initial JTI projects go forward, will the public be able to glean through the public media both the initial decision approved by the Commission and the machinery underneath the Commission, and the developmental steps showing, effectively, work in progress?

These new policy areas always take some time to put into action, but I hope the Minister is optimistic that the seventh framework programme, much more dramatic and interesting in appearance already, will open up an exciting new era of a united Europe catching up with higher research countries suchas the United States, Japan and Germany, whichhas a leading economy in the European Union.This will give wonderful opportunities for United Kingdom and other EU scientists, technicians and researchers—the younger the better.

My Lords, I congratulate the noble Lord, Lord Woolmer, on securing this debate today, and apologise to him and to your Lordships for my delayed arrival. I add my thanks for the work he, as chairman, and his sub-committee have done in producing this very useful report. It has exposed some serious issues, many of which have been referred to by noble Lords today, and on which we look forward to the Minister’s responses. This debate is particularly appropriate so shortly after a study by the DTI, to which the noble Lord, Lord Haskel, referred, that showed that Britain is losing ground against countries both within and outside the EU in the R&D race, casting doubt on the effectiveness of government policies to incentivise research spending.

This debate has enabled your Lordships to consider the Commission’s detailed plans for the seventh framework programme for research andtheir potential implications. This is an important framework programme, particularly because of its focus on energy and, in light of the Stern review, climate change. I am sure noble Lords will agree that climate change is one of the key challenges we face, and we need technological developments to help us tackle it.

Inextricably linked to climate change, and one of the foundations of our economy, is electricity generation. We need new technologies to provide new, cheap, clean electricity generation. I am pleased that funds have been allocated to Euratom-related research. The European Atomic Energy Commission is carrying out research to demonstrate the viability of fusion as a future energy option to meet the needs of a growing world population. The relative abundance of fuel resources, the inherent safety aspects and the environmental friendliness of fusion are all reasons why Europe and the large nations of the world are so interested in it. In the area of energy more generally, I am also pleased to see hydrogen and fuel cells being specified by the Government as among their priorities for joint technology initiatives.

I share many of the committee’s views and concerns. I join them in applauding the intention to simplify the programme, reduce bureaucracy and deliver genuine improvements for the participant, including the academic community, while at the same time increasing the involvement of, and support for, industry. The dynamism of the European economy is increasingly dependent on investment in education, R&D and innovation. However, while understanding the assertion that the encouragement of experimentation in research can be undesirably frustrated by demands for justification of every cent of expenditure, there is on the other hand a considerable danger that the remoteness of decision-making on spending from the ultimate provider of funds, the hard-pressed taxpayer, can lead to insufficiently rigorous justification of such spending decisions. Indeed, there has been agreement in the debate today that it is essential that FP7 is transparent and accountable.

While I join the sub-committee in welcoming the increased funding for FP7, then, I do so with an important caveat: increased funding needs also to be efficient funding. One way of trying to form at least a partial judgment on that is to look at historical performance. As the noble Lord, Lord Woolmer, asked, what work have the Government done to gauge the efficiency of the use of money in FP6 and earlier frameworks, and what plans exist to review regularly the use of FP7 money?

Among other serious questions the CBI asked, it mentioned its concerns at increasing the budget so dramatically over FP6 without a sound cost/benefit analysis. We share its concerns that some areas of industry believe that no competitive gain for UK business has been attributed to EU research programmes. We note the Government’s response to that. Will the Minister give an assurance that there will be regular reviews of the extent to which the Commission’s assurances in this regard on FP7 are honoured? What consultation do the Government plan to undertake with regard to concerns expressed in the report and its evidence about national mobility programmes? Subject to that, and to the resolution of certain industry concerns, we welcome the proposal to reinvigorate the Marie Curie fellowship scheme, and would like to see it given equal priority with European technology platforms, joint technology initiatives and the European Research Council.

Will the Minister update the House on the joint technology initiatives, and in particular on whether Research Councils UK has held discussions with the UK industrial and academic communities about the demand for technology platforms, as suggested in paragraph 35 of the report? Also, as the noble Lord, Lord Woolmer, asked, have more concrete plans now been made to put in place monitoring and reporting systems to safeguard these projects?

The CBI mentioned its concern that the European Research Council must serve scientific priorities, as opposed to political ones. It must concern itself with challenges that cannot be tackled at national level, and place a strong emphasis on supporting business needs. The Government’s response to the report indicated that there was provision for a mid-term review by 2010 of the operations of the ERC, which would allow an assessment of the adequacy of procedures to ensure its performance and its independence. We question whether waiting three years or more is necessary to allow a proper assessment of these things. Furthermore, if such a review finds the ERC to be lacking, what step will Her Majesty’s Government take?

I turn briefly to the space and security programme discussed in chapter 3, over which, as my noble friend Lord Bowness mentioned, there are some serious concerns. I look forward to the Minister’s response to them. I note that both the committee and the Home Secretary accept that Commissioner Verheugen’s letter is a,

“significant statement which goes a long way towards alleviating our concerns”.

Has that letter been placed on the official record in the European Parliament?

I note in paragraph 77 the rather interesting wording that the budget line for space and security under FP7 has not yet been agreed but will need to be reduced. What progress has been made, and what steps do the Government plan to take if they are not happy with the outcome? The Government’s response to the report accepts the recommendations made on this issue in paragraph 78. What cross-departmental discussions have been held in Government to date? After all, a joined-up approach is essential on this issue.

The Government said that they were sceptical of the Commission’s proposal to establish a European Institute of Technology. We shared that scepticism, as did the noble Lord, Lord Giddens, and other noble Lords. Nevertheless, the Commission adopted the proposal on 18 October. The proposal, as the noble Baroness, Lady Sharp, mentioned, has changed to a more virtual concept than that which was originally proposed, but it will still involve considerable investment. The EIT must demonstrate beyond any doubt that it adds value, creates new projects, and does not either reinvent wheels or divert funding from other valuable research.

As regards a time frame for FP7, previous framework programmes for research have run for five years, whereas this one is proposed to run for seven years. I would be interested to hear the Minister’s views on the merits of that proposal. Seven years has the advantage that it provides a longer-term investment framework for businesses, but there may be other considerations. There can be no doubt, as the report states, that efforts to strengthen the research base and activity are important for the competitive position of the European Union and of course the United Kingdom, as a member. But we cannottalk about competitiveness without discussing productivity. Redesign of the nuts and bolts of an organisation or an industry is in some eyes just as important as innovation. It increases productivity and thus competitiveness. Blue sky thinking and research need to go hand in hand with improved efficiency of processes and a serious look at the burden of regulation, which can depress productivity. I hope that the Minister will agree with me on this point and inform your Lordships what discussions he has had on this matter during negotiations on FP7. Will he also expand on the extent to which he is comfortable that the competitiveness and innovation programme has been properly integrated with existing programmes, such as the framework programme, the EU industrial policy and structural funds. Is he satisfied that the problems inherent in current initiatives have been adequately addressed?

Finally, in my quest to highlight poor use of English, I draw attention to the phrase “non-report”, which appears more than once in the letter from the then-Home Secretary on page 22. I am sure that this phrase has been used for many years, and I understand the meaning attributed to it, but seen in the cold light of day one surely must agree that it has a certain flavour of Edward Lear, or perhaps more relevantly Hilaire Belloc, about it. I am pleased, however, that there have been no non-speeches today. I thank the noble Lord, Lord Woolmer, for initiating this valuable debate. We on these Benches will be keeping a careful eye on the progress of the FP7 discussions. I look forward to hearing the Minister’s comments on the many questions raised and the assurances sought today.

My Lords, I start by thanking my noble friend Lord Woolmer for introducing his report and for the wide-ranging way in which he did so. I thank all noble Lords who participated in this debate and in the work of the sub-committee. The Government have given their formal written response to the recommendations and conclusions of the sub-committee.

Raising Europe’s innovation and R&D performance is central to achieving the Lisbon goals and the Government support the further development of the European research area through FP7. UK organisations have traditionally done well out of the framework programme. In FP4 and FP5, UK organisations were involved in more projects than any other member state, and in financial terms secured nearly 16 per cent—more than €2 billion—of the overall funding, second only to Germany. So far in FP6, UK organisations are involved in 48 per cent of projects and have secured 14.5 per cent of funding—in the region of €1.74 billion.

The performance of the UK higher education institute sector has steadily increased in recent years. In FP5, UK HEIs were responsible for 46 per cent of UK participations and almost 50 per cent of funding—€1 billion out of €2.1 billion awarded to the UK. In FP6, those figures have risen to 56 per cent of participations and 58 per cent of funding.

UK business participation in FP6 hovers around 20 per cent of total UK participations. Feedback from business suggests that the main reasons for this relatively low level of participation—as referred to by several noble Lords—are increased bureaucracy and decreasing relevance in the scope and focus of the programme, which adversely impact on cost-benefit ratios. The proposals for FP7 go some way to addressing these concerns, and I will say more about that later.

I note the comments of my noble friend Lord Haskel about the retail sector. This is a crucially important sector to the UK and one where traditional measures of R&D intensity may not be generally applicable. Recognising that, a number of strands of work are being taken forward in multilateral fora to consider this issue. Applications developed through research funded by the framework programme can find uses in the retail sector, as my noble friend rightly pointed out. The DTI’s R&D scoreboard shows that some large retailers, such as Tesco, have begun to disclose substantial R&D in their accounts. Technology clearly has an important part to play in the retail sector’s innovation. My noble friend Lord Giddens touched on the issue of the change in the nature of research and innovation.

The committee’s report touched on concerns that some areas of business believed that there was no competitive gain from participating in EU research programmes. However, in a DTI-commissioned study of all UK participants in FP4 and FP5, the majority of responders endorsed the need for funding science and technology at the European level. The survey also showed that the framework programme produces considerable added value for the UK research and policy communities, including: addressing questions that require a critical mass and cannot be tackled at the national level; providing a mechanism to pool resources, facilities and knowledge; and tackling issues of a specific European nature. As I mentioned earlier, the Government believe that the proposed structure and implementation procedures for FP7 go some way to addressing some of the programme’s perceived weaknesses.

The architecture of FP7—with four specific programmes covering ideas, people, co-operationand capacities—provides a clearer focus on the programme’s overall aims: strengthening the science and technology base, improving industrial competitiveness, and supporting EU policy development. The UK’s position paper submitted in 2004 supported the concept of establishing a European Research Council as a way of raising the quality of the best basic research. The proposal for the ERC has been hotly debated in both the European Council and the Parliament, and has found support from all parties. The result is the establishment of an ERC that is autonomous from the Commission and member states and run by scientist for scientists. Funding will be allocated through competition, based on excellence and originality as assessed by peer review. Most noble Lords who have spoken today have supported the ERC, particularly the noble Baroness, Lady Sharp.

The position paper also stressed the need for FP7 to contribute to increasing Europe’s competitiveness and to leveraging increased private sector investment so that research translates into world-leading goods and services. The Government believe that the FP7 proposal reflects UK priorities and recognises the importance of industrial engagement, not least by allocating 65 per cent of the budget to the co-operation specific programme. The UK position paper was also clear that the seventh framework programme should underpin better policy-making at the level of Community by providing quality research to inform policy debates in Brussels and in other member states. The Government believe that FP7 reflects UK priorities in this respect, with clear funding streams allocated to priority areas for policy-making in the coming decade, such as healthy ageing, infectious diseases, obesity, renewable energy sources and climate change, a point raised by the noble Lord, Lord De Mauley.

The Commission has been receptive to the concerns expressed by the Government and shared by industry across Europe about the need to ensure that FP7 is driven by the ultimate end-users of research in industry. It has sought to strengthen the industry input into the policy-making progress through such instruments as the European technology platforms and it is seeking to make FP7 more industry-friendly in its programmes and structures. The Government welcome this increased openness to the needs of industry.

We also welcome the increased effort to engage industrial end-users in establishing priorities for FP7 funding in the co-operation specific programme. European technology platforms can play a key role in identifying a strategic research agenda for their industrial sector. This should also feed into the process of setting the work programmes and defining the fields in which the calls for proposals for FP7 funding will be made. The individual projects undertaken to advance SRAs will be funded through these calls using established FP funding instruments as well as other potential sources of funding.

Joint technology initiatives, which involve FP funding in support of large-scale public/private partnerships, are also driven by industry but go a stage further in terms of integration and combining private sector, national and European level funding. Six possible JTIs have been identified by the Commission but it is not yet clear how many of those will ultimately be funded and on what scale. For example, it is possible that there will be a staggered start, with some JTIs being launched before others. Our expectation now is that the Commission will come forward with proposals on this subject in the first half of 2007.

My noble friend Lord Woolmer and the noble Lords, Lord Dykes and Lord De Mauley, asked about the monitoring processes and about what is being done in practice. Until we see the detailed proposals in 2007, it is not possible to say precisely what the response will be, but it is an important issue with which the Government will fully engage. The Government’s preference at this stage, subject to further information about the scale, scope and structure of individual JTIs, would be for the JTIs on innovative medicines, aeronautics, and hydrogenand fuel cells to be priorities for an early launch.That preference reflects the views of business communicated to us by the concerned sectors.

When considering the effectiveness of programme implementation, it should be noted that the Commission faces a major challenge in delivering the framework programme. It is a large and inherently complex transnational programme, where the desired balance between financial propriety and user-friendliness is not easily achieved. The Commission has already undertaken a programme of short-term actions to improve the delivery of FP6, and that has had a positive impact. It has also made a strong commitment to simplify matters further in FP7. The noble Lord, Lord De Mauley, asked for much more focus on the financial spend and on the monitoringof that spend. There is a need to make those programmes user-friendly and a question over the extent to which there should properly be full accountability.

In its proposal for the FP7 rules of participation, which define the rights and obligations of those taking part in the programme, the Commission has sought to address the bureaucracy associated with it. The main change is an increase in reimbursement rates and the wider use of lump-sum and flat-rate financing. The 75 per cent reimbursement rate for universities is good news because it makes EU funding competitive with national funding. The Commission has also proposed a number of other measures to ease administrative burdens on participants. I shall come to those in a moment.

The noble Lord, Lord Dykes, talked about funding rates. In FP6, the rate of funding for demonstration activities has been increased from 35 to 50 per cent. For research activities, it has been increased from50 to up to 75 per cent. In addition, in the ERC, projects will be funded at 100 per cent.

Issues relating to the easing of administrative burdens include reducing audit and other reporting requirements, ensuring more consistent interpretation of rules, rationalising the number and size of documents, and relaxing requirements surrounding the dissemination, use of and access to the results of funded projects.

Negotiations on the FP7 are drawing to an end and a final deal with the European Parliament is expected in November. A common position text on both the nuclear and non-nuclear parts was agreed at the Competitiveness Council in September. This wasa real achievement, requiring the resolution of longstanding and sensitive issues on human embryonic stem cell and nuclear research.

Human embryonic stem cell research is always a sensitive and complex issue to negotiate, as the acceptability of this field of research varies according to the cultural and religious diversity of individual member states. For that reason, the UK argued strongly and successfully that HESC research should be governed by national law in accordance with the principle of subsidiarity, thus maintaining the agreement reached under FP6. This agreement is a true compromise by all member states and places no further restrictions on HESC research that can be carried out under FP7.

Several noble Lords commented on the budget. The agreement for FP7 sets the budget at approximately €54 billion, equating to roughly€7.7 billion per annum. This was a difficult set of negotiations due to conflicting interests and priorities, but it had a satisfactory outcome for the UK as it sees increases in line with the UK position. Although not as great as the Commission’s original proposal, which sought to double the budget for FP7, it is still a substantial increase over the life of the programme and an increase of around 75 per cent in real termsby 2013.

I should like to touch on the recent proposals to form a European institute of technology, also referred to in the committee’s report. I think it is fair to say that that proposal did not find favour among noble Lords today. The proposed EIT aims to raise the level of innovation and knowledge transfer in all member states by involving partners in the fields of education, research and business. It will seek to draw on both European and international expertise, and is part of a raft of ongoing measures to boost competitiveness as part of the Lisbon Agenda.

The proposed EIT will support a series of autonomous partnerships—knowledge and innovation communities—tasked with carrying out interdisciplinary research and knowledge transfer in fields of key economic and societal interest. Communities will be made up of partners from both the public and private sectors, such as teams from universities, businesses and research organisations. They will be supported by a light-touch, independent governing board, which will define the global strategic goals of the EIT. The Government have been closely involved in discussions and are pleased that the Commission has taken a number of our concerns on board. We are keen to ensure that this proposal adds real value in terms of innovation and knowledge transfer, that it has a clear focus and that it does not overlap unhelpfully with existing instruments.

A number of questions remain on which the Government will be seeking further clarification during the next phase of negotiation. The most pressing concern relates to funding. The Commission has proposed a budget for 2007-13 of approximately €2.4 billion, but it is still not clear where the funding will come from, how market funding will be attracted or how this will impact on other budgetary priorities. This remains a concern for the UK, and we cannot support a proposal with such financial implications without greater clarity, especially where this could prejudge the outcome of a fundamental review of the EU budget. It is important that funds to implement this are found within existing EU resources and are not taken from other existing programmes, suchas FP7.

I was asked a number of specific questions. My noble friend Lord Woolmer touched on the issue of the awarding of degrees. The proposals that have come forward do not include plans for the EIT to award degrees and diplomas without member state recognition.

The noble Lords, Lord Bowness, Lord Dykes and Lord De Mauley, asked about the security research budget and raised a number of issues on that. Security research within FP7 can only be civil research. The UK has been successful in explicitly referencing in all layers of the legal text that civil research is the only research that can be covered within FP7. The UK proposal to separate space and security into two thematic priorities and to reduce the budget in both areas has been reflected in the final decision. However, I can confirm that the budget for security research has been reduced It is now approximately 2 per cent of the total budget for the Co-operation Chapter.

The issue of dual use was raised, particularly by the noble Lord, Lord Bowness, and that has certainly featured much in the negotiations for FP7. For that reason, member states and the European Parliament have successfully argued that a regulatory committee should manage the work programme for this area, thus building confidence that mechanisms are in place closely to monitor the type of research and potential applications of research in this area. In response to the involvement of COREPER in the process, we do not foresee a role for it unless the regulatory committee refers issues to the council.

Several noble Lords spoke about mobility schemes. The noble Baroness Lady Sharp, talked about the importance of ensuring that Europe creates an environment which promotes the careers of individual researchers to allow them to be mobile throughout Europe and to be wherever the best research is being carried out.

On the topping up of national programmes, the main focus remains on the Marie Curie fellowships. The topping up of national programmes, as I understand it, will not take place in the first year, allowing time for further consideration. The Marie Curie budget is recognised as having been successful. On that basis the budget for the Marie Curie fellowships has increased significantly from FP6to FP7.

My noble friend Lord Woolmer asked what we have to show for 25 years of these arrangements and what the FP has ever done for us. That was answered in part by the noble Baroness, Lady Sharp, and by my noble friend Lord Haskel who gave some specific examples. An FP5 project involving 13 partners from six different countries created the world's largest collection of muscular dystrophy specialists to develop new diagnostics and treatments. There are others that can be set out.

In all of this we have to bear in mind that, despite successive increases in the EU's R&D budget, the European funding represents only around 5.3 per cent, 3.6 per cent of total public funding for research in Europe; in other words, about 94 per cent of public funds for research are invested at national level. Given that comparatively small budget, I suggest that the Union’s R&D policy has been remarkably successful in the past 20 years. It is estimated that on average one euro of FP funding leads to a long-term increase in industry value-added of between seven and 14 euros.

The noble Lord, Lord De Mauley, asked about the importance of productivity. Of course, I agree. The data since 1997 show that the UK has made significant strides in closing the gap with, or overtaking, some of our competitors. As he stressed, it is also very important that the CIP programme is integrated with other parts of the budget to ensure that it is a comprehensive and integrated process.

I shall study the record and, if I find that I have failed to answer other questions, I shall write to noble Lords as appropriate. Today, technology and scientific understanding are changing our world faster than ever before and developments in information and communications technology, new materials, biotechnology, new fuels and nanotechnology are unleashing new waves of innovation and creating many opportunities for entrepreneurial business to gain competitive advantage. FP7 has the capacity to make an important contribution to that endeavour.

My Lords, as anticipated, this has been a worthwhile debate. I thank all noble Lords who have contributed. I have a couple of observations to make as chairman of one of your Lordships’ European sub-committees. We are often encouraged to have short inquiries as well as longer ones, but I have yet to find anyone who thinks that the subject in which he is most interested should be covered in a short inquiry. We would love to have more time.

First, almost at the same time, the European Union published its energy paper, and noble Lords will recall the state of the world’s energy markets then. As the public and the House would expect, that also took our attention. I apologise to all noble Lords who feel that we should have spent more time on this. We would have loved to have done so. It is a sub-committee of extraordinary scope and I hope that we shall be able to return to the many issues that were raised.

Secondly, questions were raised about whether the sub-committee shared the scepticism of the CBI. It does not at all. Nevertheless, the view of industry must be heard and we must understand that it says these things. However, if we cannot explain to the public the benefits of the products and outcomes, we will not take people with us. The acronyms that floated around the debate show how easily we can lose touch when communicating with the public. I ask, as the Minister did, that we demonstrate the benefits, because the public wish to know them. They demonstrate the value of action at the European level. We are certainly very supportive.

After seven years on the sub-committee and four years as chair, this is the last time that I shall have the pleasure of introducing a report from Sub-Committee B, as I stand down at the end of this Session. Craving your indulgence, I wish to convey my very warmest thanks to all the Members of the sub-committee with whom I have served and all the officers of the European Union Select Committee of the House. It has been a pleasure and an honour to serve and I look forward to following the exploits of my successor.

On Question, Motion agreed to.