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EU Report: Effectiveness of EU Research and Innovation Proposals

Volume 749: debated on Thursday 21 November 2013

Motion to Take Note

Moved by

That this House takes note of the Report of the European Union Committee on the Effectiveness of EU Research and Innovation Proposals (15th Report, Session 2012–13, HL Paper 162).

My Lords, I beg leave to move the Motion standing in my name on the Order Paper. It is a great privilege to do so in place of the noble Baroness, Lady O’Cathain, chairman of your Lordships’ European Union Sub-Committee B on the internal market. She was responsible for chairing this important inquiry but sends her apologies as she is unable to be here today.

At the outset I take the opportunity to thank the clerks to our committee, and Nicole Mason and Paul Dowling for their marvellous contribution and hard work in having steered this very short inquiry over a three-month period in the previous Session to a successful conclusion. I also take this opportunity to thank members of the then-EU Sub-Committee B, the noble Lord, Lord Elton, and the noble Baronesses, Lady Scott of Needham Market and Lady Buscombe, for their important contributions to the deliberations in the committee at that time.

The committee decided to undertake a short inquiry during a period in which the question of the next multi-annual financial framework of the European Union was being discussed—that is, the Union’s budget. We did that because, as your Lordships will be aware, EU Sub-Committee B has responsibility for scrutiny of matters dealing with the internal market. During the previous Session we began to receive a large number of proposals for scrutiny, which were eventually attributed to funding in that new multi-annual financial framework in a programme known as Horizon 2020, which was dedicated towards research and innovation in the European Union.

It was of course welcome to see so many proposals coming forward from the Commission that related to the question of research and innovation. However, there was some anxiety among noble Lords on the committee that with so many proposals coming forward, it was not entirely clear what the Commission regarded as research and innovation with regard to such a broad range of proposals that would ultimately be dependent on a single pot of funding. It was also not entirely clear how so many proposals could be accommodated in what would ultimately be a limited budget. The period of the inquiry was a mere three months, and we are grateful to all those who took the trouble to make submissions, both written and oral, for consideration by the committee. I must express deep gratitude on behalf of the chairman of the committee to all members of the committee for having worked so hard in that very compressed period of time to conclude this important report.

The report has so far enjoyed a very detailed response from Her Majesty’s Government. I must express the deepest gratitude to Her Majesty’s Government for having dealt with it in such a timely fashion and for having provided a detailed response to many of the recommendations that the committee made. It is regrettable that we have so far yet to hear from the European Commission on the important conclusions that were raised in the report, which was designed to be available to the Commission as it started to consider in more detail the framework for research, innovation and funding over the next cycle of the European Union budget. We understand that that response will be forthcoming very shortly and we look forward to receiving it. However, regrettably, your Lordships will not have the benefit of the Commission’s view on the work of your Lordships’ committee as part of this debate.

Before proceeding further, I remind your Lordships of my own entry in the Register of Lords’ Interests as Professor of Surgery at University College London, chairman-elect of University College London Partners academic health science centre, and a recently appointed UK business ambassador for healthcare and life sciences. I am therefore eligible to apply for much of the funding for research and innovation available in the European Union and would like to make sure that noble Lords are aware of that.

The reason why the committee decided to undertake this important inquiry was that research and innovation is at the heart of what Europe requires to drive economic growth. It is well recognised that research and innovation is at the heart of any successful, vibrant economy. The World Economic Forum recently suggested that we should move away from talking about developed and developing economies and talk instead about innovation-rich and innovation-poor economies. In that context, there has been some concern that, in the economic crisis that continues to face many parts of the European Union and many member states, there might be a temptation for the Commission to decide that a clear and determined focus on funding research and innovation should be sacrificed to use those funds for other purposes. We wanted to assure ourselves that that would not be the case.

As part of our inquiry, we were reminded that the European Union’s principal competitors are deeply committed to research and innovation. One such example is China—an important competitor, which, by 2015, has determined that 2.2% of its GDP will be focused on research and innovation expenditure, some €180 billion a year. The agreed 2014-2020 multiannual financial framework commitment for research and innovation expenditure under the Horizon 2020 programme of the European Union is some €70 billion. We need to put in context the fact that our competitors have recognised and are determined to drive forward innovation in their own economies. Of course, that can be done in part at European level, but it needs also to remain a deeply committed area of activity for each member state as part of the use and setting of its own budgets.

I mentioned a concern about the drift in describing certain programmes and projects as relating to research and innovation as their primary purpose in the hope that they might avail themselves of funding from the Horizon 2020 envelope—the €70 billion currently agreed as part of the proposed budget. Here we need to be clear that there are mechanisms in place, as the new budget goes forward, to secure true research and innovation focus for funding that is attributed to research and innovation activity. In 2009, a declaration made by the Commission, member states, stakeholders and others in the research and innovation community—the Lund declaration—made it clear that, in going forward in the European Union, the focus in research and innovation funding should be to meet the grand challenges facing member states. The big issues such as health, well-being, and so on, should be addressed by big programmes of imaginative research and innovation rather than by defining rigid themes of activity that are somewhat ossified before the funding becomes available and prevent the true purpose of innovation.

The Lund declaration also recognised as a set of principles on which to take forward research and innovation funding in the European Union that the prime, underlying principle on which funds are made available across Europe for competing projects is one of supporting excellence and the highest quality, not compromising those funds in any way for other purposes or any form of political expediency. In that context, your Lordships’ committee came to the clear conclusion that, despite the economic crisis, the European Union should redouble its efforts on research and innovation expenditure. Although the funds finally agreed in the current budget round were not as high as one might have hoped, they are an increase on the funding available for research and innovation in the previous budget, and that should be welcomed.

In terms of practical issues, the first is participation. Here I look much more at the position of participants from the United Kingdom wishing to avail themselves of the important funds available in the Union for research and innovation funding. Our higher education institutions and many of our larger commercial enterprises are well organised and able to develop the partnerships and create proposals that are highly attractive in order to enjoy substantial European funding. In particular, our universities have become adept at developing relationships across Europe to make their proposals of relevance not only to academic communities and society more broadly in the United Kingdom but applicable, and therefore of interest, to similar academic entities and society more broadly among European member states.

However, the large body of small and medium-sized enterprises, some 98% of companies in our country, have found it less easy to interact and develop the successful pan-European alliances necessary to attract substantial research and innovation funding. Yet when we look at the issue in economic terms, there is no doubt that the success of these SMEs is going to be vital to drive economic growth across Europe and help achieve the kind of increase in employment that we all expect these types of businesses to deliver for the broader economy. In this regard, I ask the Minister where Her Majesty’s Government are on ensuring that the mechanisms available within our own support structures for businesses in terms of their application for European funding currently stand. Contact points within the structure of the technology strategy boards seem an appropriate opportunity for a greater focus on helping small and medium-sized enterprises interact more successfully in the future. This can be done first by influencing the calls for proposals that are put out under the banner of research and innovation funding in the European Union—the Horizon 2020 programme; by ensuring that our SMEs are better able to develop European alliances to make their funding proposals attractive as pan-European projects; and by ensuring that they are able to deliver those applications and, if those applications are successful, programmes that have meaningful impact for the European economies. I wonder whether the Minister can comment further on where Her Majesty’s Government are with regard to developing those support structures.

The second practical issue is the basis for the allocation of these funds. We have heard that although the budget will be substantial—some €70 billion over this financial framework—those funds still represent only a fraction of the global expenditure on research and innovation available among our principal competitors. It is therefore essential that a single principle remains at the heart of the allocation of these funds—that is, allocation based on the excellence and quality of the proposals and independent peer review, with no other influence on how those funds are allocated. It is that basis of allocation which has ensured that our own universities and other participants from the United Kingdom have done so well in this funding, and it is the basis on which we can be certain that much of what has been done in previous programmes of research and innovation expenditure in Europe continues to develop strong outputs for the benefit of all citizens across Europe. It was reassuring to learn that the Commission now has appointed a chief scientific adviser with a scientific advisory council. Can the Minister confirm that the Government continue to emphasise among their European partners in the Council of Ministers and in their discussions with the Commission the vital importance of the transparent, objective allocation of funds based on the excellence and quality of applications? They should not stray into using these funds potentially to build capacity in parts of Europe where the science base is not currently strong, which is an important objective that should be achieved through regional development funds, rather than this funding for research and innovation.

We heard some disturbing statistics about the time to grant. This is the time it takes from the end of a call for proposals to grants being made. It averages some 340 days. We found this unbelievable. In the fast-moving area of innovation and research where discoveries are being made every day, a proposal to seek funding for a particular project can remain fresh only for a certain period of time, after which by definition something else must be discovered and that should take precedence. If the bureaucratic process actually to get the funds out is taking so long, that can be a major disincentive to smaller organisations, particularly the SMEs, and to university departments where committing funds to keep staff in place to be able to work on an ultimate research project can be exceedingly difficult. I would be grateful if the Minister could confirm that Her Majesty’s Government will continue to push for a reduction in the red tape. Of course there must be processes in place securely to protect the funding, but we must make sure that they are not so bureaucratic that in the end the purpose of the exercise, which is innovation, is inadvertently destroyed.

Finally, there is an important ongoing need to continue to review the success with which these funds have been applied. It needs to be clearly and objectively demonstrated to the citizens of all European countries that this money, coming ultimately from the taxpayer, is being used to good purpose through a careful assessment, first, of the needs of the projects being supported, and then that what was promised as part of the application process by successfully awarded programmes is being delivered, and that the deliverables which were the focus of so much hope as part of the application process are translated into meaningful impacts and benefits for the people of Europe.

Many other noble Lords who contributed to the development of the report have points to make about other elements in it. I beg to move.

My Lords, at the recent Lord Mayor’s banquet, the Prime Minister said that we were in a global race, and I am sure that he meant a race to the top. Most of us agree that we cannot leave our success or failure to chance or to simple market forces. We need a strategy, one to get us to the top and, of course, a central part of that strategy is research and innovation.

The European Union agrees with that and supports this work, as it has done for many years, through the framework programme currently in its seventh phase which finishes at the end of this year. From 2014 we will have Horizon 2020, which will support research and innovation. The framework has been especially important to us. As the noble Lord, Lord Kakkar, has just told us, our higher education institutions are among the top participating institutions, and this participation has provided an additional 15% on top of the UK Government’s own budget. It is growing and it compensates in cash terms for the freeze in our domestic science budget.

Unfortunately, the successful participation of our higher education institutions in the framework is not reflected in the participation of our private commercial businesses. They comprise only a quarter of the total number of UK participants, and there are very few small and medium-sized enterprises among them. So the purpose of our inquiry was to see how this could be improved: how small private businesses could achieve the same high participation rate as our higher education institutions. The inquiry is seeking to identify the right structures for us to achieve this increased participation.

Basically, what we have said in our report is that we want less complexity in the structure. We want shorter and simpler intermediation, more focus on monitoring outcomes and less on auditing expenditure, and more consultation.

Many of our recommendations are, yes, directed towards the European Commission, and I agree with the noble Lord, Lord Kakkar, that it is disappointing that we have not had a response from them in time for this debate. However, its actions, along with informal observation, seem to indicate that it agrees with our direction of travel.

The response from the Government to our report is encouraging. They agree that the participation of companies and small to medium-sized enterprises in Horizon 2020 has to be supported, facilitated and encouraged by a greater presence in Brussels for those organisations that support them and help them to participate, such as the Technology Strategy Board, the national contact points, trade organisations and chambers of commerce. Many are already represented there, which makes consultation and information transfer with the participating companies shorter, simpler and quicker.

That is especially important because many small enterprises look to this EU money to help compensate for the failures in bank lending. I agree with the Government’s observation that Horizon 2020 needs a “pro-innovation regulatory framework”—indeed, many of our recommendations are directed towards that end. However, my one request is that innovation should be regarded in the broadest possible terms: not just new products and services through science and technology but all the other aspects of innovation that are important to business and in which it invests. These include writing new software, modernising and speeding up the supply chain, design, branding, and developing new business processes and new ways of serving customers. I suggest to the Minister that perhaps one reason why private industry, particularly SMEs, participates far less than higher education institutes in the framework is that, to them, research and innovation is far wider than science and technology. If the Government want business to participate more in Horizon 2020, they must seek to broaden the interpretation of innovation. If the Minister will not take it from me, he may be persuaded by the recent McKinsey report which confirms that.

This does not, of course, detract from the importance of science—it is in addition to it. Indeed, I had the opportunity to briefly discuss our report with the noble Lord, Lord Rees. He is sorry that he is unable to speak in this debate, but he was disappointed that the European Research Council did not feature in our report. He considers that the European Research Council is probably the most cost-effective EU institution supporting research and innovation. Certainly, it mainly supports academic research in universities, but business eventually benefits from that. It has been going for six years and now has a budget of €2 billion. He wanted us to be aware of the excellence of its work and is anxious for us to benefit from it. He said it is as excellent as our own research councils.

I note in the Government’s response that they plan to create much greater awareness of Horizon 2020 through a range of events at all levels. We all say amen to that. However, if you are trying to capture the interest and attention of companies, you must include innovation in the less tangible aspects of their businesses.

I said at the start that we are in a global race and Horizon 2020 has to be part of our strategy to get to the top. That strategy must include all areas covered by the Commission. In our report, we again spoke of our concern about the quality of impact assessments. All parts of our Government and all parts of the Commission rely on these for making informed decisions. So it is essential that these impact assessments should indicate how the issue being assessed impacts on this strategy—how it contributes to our getting to the top. This must be applied consistently across all policy areas. It should also be part of the assessment of costs and benefits. I understand that the Commission is reviewing how to quantify these benefits in an impact assessment. Is there any news on this work? It is important to us. Members of the European Parliament must be taking this seriously because they have set up their own impact assessment unit. We, too, should be making use of this resource.

I have a couple of other points to make. In our paper we speak of public procurement as a means of encouraging demand-side innovation, to use the economists’ jargon. Thanks to the imaginative schemes run by the Technology Strategy Board here in Britain, we have developed a fair way of encouraging companies, large and small, to participate in this. It includes interim grants for small and medium-sized companies. Most small and medium-sized companies are aware of these schemes and many participate. The Commission has its own schemes, which are less successful and more bureaucratic. Can we not try to persuade the Commission to use our schemes, on the simple grounds that they are more effective and, combined, would be more beneficial?

Whenever research and innovation are discussed, intellectual property rights are always a concern. The problem for smaller companies is that protecting their intellectual property rights slows down outcomes: it delays the practical and actual introduction of their innovative services or products. The world of business moves very fast, as the noble Lord, Lord Kakkar, told us. In a perfect world, these companies would protect their intellectual property before it is made public. It is for this reason that our report calls for a more cautious approach to open access, which the Government reject. I hope the Minister understands that in doing so they are slowing down the rate at which innovative products and services are introduced by some firms in this country.

In closing, I thank my chairman and colleagues for their companionship in this inquiry. I give my particular thanks to our staff. I give my thanks also to all who came and gave evidence or sent in written evidence. It has been absolutely fascinating and illuminating—and, I think, worth while.

My Lords, I am the first speaker in this debate who was not a member of the committee. Indeed, I have never served on any of the European committees, but I was persuaded to take part by the chair of the committee, my noble friend Lady O’Cathain. I very much share the regret of the noble Lord, Lord Kakkar, that she is unable to be here today.

To pick up a point made by the noble Lord, Lord Haskel, figures that I have seen recently about what is called, in the jargon of the business department, BERD—business enterprise research and development—show that it is a smaller proportion of the total because research and development in other fields has grown very rapidly, but BERD has continued to grow in recent years. This should not be ignored. Indeed, in 2011 it increased in real terms by 6%. As that normally happens only during periods of economic growth, this is quite encouraging and we should not be too pessimistic about it.

When I put my name down to speak, I was a bit apprehensive that I would very quickly find myself out of my depth and perhaps addressing issues that were outwith the main thrust of the report. I need not have worried. The noble Lords, Lord Kakkar and Lord Haskel, have both raised issues to which I will wish to return.

I am doing this because, when I read the committee’s report and the Government’s response, they threw some fresh light on how institutions within the European Union deal with this hugely important area of research and innovation. It led me to compare the way in which this is done in the Community with what happens in this country, always remembering, of course—as the noble Lord, Lord Haskel, reminded us—that much of the money spent in this country that counts as UK research and development or research and innovation is funded through the Community programme.

First, there is obviously common ground. The procedures for assessing the impact of any proposal for research have developed in recent years often in different ways and at different paces, but the purpose of impact assessments has become increasingly clear both to EU institutions and UK bodies such as universities and the research councils. Simply stated, it is this: they are to help those whose task it is to decide how to spend research and innovation money to make choices that will give the best value for money.

But immediately one comes to a question: what is meant by value? At this point, I should perhaps state my interest. I attended a recent seminar held by the Foundation for Science and Technology, of which I was chairman for nine years and am now the president. The subject of the seminar was:

“Maximising the value of the UK strengths in research, innovation and higher education”.

I thought that this might throw some light on the comparison between this country and the EU. Indeed, the words might have been paraphrased as “the effectiveness of research and innovation proposals”, which appears in the title of this report, but that case relates to the European activities.

Whether it is value that you are talking about or effectiveness, I am inclined to believe that they aim at the same thing. Here, the noble Lord, Lord Kakkar, gave us an interesting point on what he thought might be part of value or effectiveness. That was echoed by one of the speakers in our seminar, who asked the question, “What is the value?”. He answered it by asking more questions: “Is it employment, or productivity, or human capital and skills, or human contentment and health—or is it all these things?”. Some of the participants in the discussion started at the other end and suggested that the purpose of research is the advancement of knowledge and understanding, and that this should in turn lead to the innovation which we all seek.

One feature of our discussion on that occasion was that, although the UK stands very high in the world rankings for research or universities or whatever it is—I shall cite in a moment some figures on that which we were given—when it comes to innovation, we are not so successful, as the noble Lord, Lord Haskel, indicated. I shall come to one or two of the reasons.

However, I turn first to universities. Three or four of our top universities regularly figure in the top 10 of virtually every world ranking of universities. When one looks at a longer list of, let us say, the top 50 universities, one sees that there are very few, if any, in other parts of the European Union. In Europe, we absolutely dominate the university field. It has been suggested to me that this may be because far less research is done in EU universities than is done in universities this country and, therefore, they do not rank as high. I can understand that but it is interesting to note that almost none of them is in the top 50. That may to some extent colour the attitude of some of our partners in the European Union.

Turning to research, the UK has 1% of the world population and produces nearly 8% of research papers, almost 12% of world citations and 14.5% of the world’s most highly cited papers. This is a remarkable record of which this country can be very proud. However, as I said a few moments ago, we are not as good at innovating—not nearly as good as this volume and quality of research would suggest that we ought to be. We discussed the trends that may be giving rise to this. The noble Lords, Lord Haskel and Lord Kakkar, have already mentioned one or two of them, but it comes down to knowledge transfer—that is the key phrase—and the difficulty of transferring knowledge from the research field to the industrial field. The noble Lord, Lord Haskel, was absolutely right to put his finger—as does the report—on the fact that this is even more difficult as regards SMEs. Why should this be? Several reasons have been given. One is the inherent institutional, cultural and financial barriers between universities and business. Another is the great reluctance of businesses in this country, but perhaps also in Europe, to take risks and to realise that introducing the products of new research does involve taking risks. There is a reluctance to do that. I was told that if a firm announces that it is going to undertake a major research programme, its shares immediately fall on the market, whereas one might think that this would be a plus. However, in the eyes of the market it is not; it is a minus. The other tendency, of which we are all very well aware, is that of thinking short term rather than long term. However, some of the results of research and innovation may be a long time coming.

I come to my main point. Many of the speakers at the seminar emphasised the huge importance of impact assessments. These have grown over the years in many different ways. In this country it is virtually universal practice to require researchers to make the best assessment they can of the impact which they believe their research could have. The Pro-Vice-Chancellor for Research at Brunel University said that in the experience of that university the very process of having to support a research application for funding with a carefully composed impact assessment was making applicants look at how their research might be transferred to other fields. He went on:

“If the ‘impact agenda’ was to be effective in ensuring that researchers embedded knowledge transfer at the start of projects, they must understand how business might be able to use their research”.

Those seem to me wise words which should apply universally. However, when I turned to the report—here I pick up the points made by the noble Lord, Lord Kakkar—I noted that paragraph 133 states:

“We … urge the Commission to ensure that analysis of R&I policy and proposals is based on scientific evidence, rather than political considerations”.

I find it quite astonishing that that has to be said. Then we had the Government’s response:

“Funding based on excellence is fundamental to the Government’s national research strategy and we also encourage this approach at EU level, as it is the most cost-effective use of public money”.

Can my noble friend on the Front Bench say what the Government are doing within the institutions of the EU to make that happen, if this still has to be said? After all, this is the second report that the committee has produced; there was a 2010 report where it made these selfsame points. Yet here they are three years later, having to repeat them yet again.

This is now the second or third time that this point has been made about peer review. Nature has shown that the whole process of peer review and so-called excellence of research tends to be highly biased towards the English language and the American literature. Some of the most important discoveries were hardly referenced at all in the English language. The EU takes a very broad view of science across Europe, while the rather mechanical view of some of our British colleagues about the nature of choosing by excellence is too narrow. The EC, quite rightly, takes a political and social view of the breadth of science across Europe.

I do not know enough about that aspect of the European attitude on this but I totally support what the committee and the Government have said about the huge importance of basing their decisions on, as they put it in their response, “scientific evidence”. It went on:

“Moreover, it is important to stress that this evidence must be robust, peer-reviewed and replicated. Policy decisions should not be made on the basis of a single report which happens to support a political objective”.

I have no doubt that we will hear from the noble Lord, Lord Hunt, a little later, but I would be interested to know whether my noble friend on the Front Bench supports completely what was said in the Government’s response to this report.

I will not go on quoting; I have taken enough time. Again, I come back to my reaction to this. I found it surprising and depressing that these things still have to be said and are not accepted as part of the overall process of assessing research and development projects. We have been brought up against the background of the Haldane principle. Why do we not have something like the Haldane principle operating within the European Union? We may have our problems in this country—I have outlined the problems of knowledge transfer—but I shall finish on this note. I am left with an uncomfortable feeling that the EU’s approach to the effective use of impact assessments in helping decision makers to secure the best value for money appears to leave a great deal to be desired.

My Lords, I am also a member of Sub-Committee B so I declare an interest there. I join the noble Lord, Lord Kakkar, in expressing our gratitude to the noble Baroness, Lady O’Cathain, for leading us through this exercise, which was not easy. I express our grateful thanks, too, to our clerk, Nicole Mason, and our policy analyst, Paul Dowling. Additionally, I express my gratitude to the Minister, David Willetts, since I have taken evidence from a number of Ministers over the years and I think that we found his approach very refreshing. He was open in endeavouring to respond to the points that we put to him, and it is worth putting on record that he seems to be doing his best there. However, he is not doing it with the easiest of hands.

I say that in the light of having recently been in Brussels. I had not been there for quite some time and those I met ranged from representatives of the Parliament through to the Council. It did not surprise me that we had not had a speedy response to our document because the people I was meeting seemed to be saying, “Well, we want you to stay in Europe and we’re keen to have you there, but if you don’t want to stay then you will go”. This was a new response, different from any that I had heard before.

One felt also that there were some feelings that we have been withdrawing in a number of areas. The following statistic links indirectly to this question: the UK is entitled to 12% of the officials in the European Union but we are now down to only 4.5% of the people working in Brussels and in related organisations of the EU. If we are trying to get business in there, bidding for research and so on, it helps if we have officials working within the EU and particularly working in Brussels. That was given to us in evidence by some people who have made very successful applications in the past for money. We heard from a representative from Cambridge who has now moved to Brussels and says that having a base there has made a world of difference to what they could get when bidding compared with what was happening to them previously. I say to the Minister that, in the broadest sense, we need to have a look at what is happening with our representation there at official level. What chance do our people stand when going in from a distance, or indeed on the spot, if they do not have British officials who know the ropes, so to speak, and can guide them through the labyrinth that has evolved when it comes to submitting bids?

As others have said, many witnesses have explained that R&I is increasingly a global undertaking. While we might have some misgivings about some of the operations of the EU, its performance generally in this area has been identified by most of the people who gave evidence to us as being a worthwhile venture, to be supported and indeed expanded—subject, of course, to trying to ensure that we are getting value for money and that the infrastructure through which people have to apply for the money operates properly and is properly accountable. It is therefore good to see that the EU R&I budget for Horizon 2020 was agreed and publicly announced this week, at €79 billion. This is one of the areas where our committee can claim some success: we said in one of our recommendations, after the Council meeting in February, that the figure of €70 billion that was on offer was not enough and we thought it should be more. The good news was announced yesterday that it has gone up to €79 billion. We were one of the drops of water that went on to the pebble that has made the change.

I am sorry that we have not yet had a response from the Commission to the other points. I will therefore have to speak primarily to the issues where we have some influence and control, and that relates to the recommendations that impact on the areas where the Government can influence the course of events.

In their reply to us at the end of June to our report that was written in April, they seemed to be accepting that they were content with the €70 billion that had been allocated at that stage. We have ended up now with €79 billion. Reading the letter again, I find that it gives some feeling of complacency—a lack of ambition on our part in trying to maximise the returns that we could get for our people then to compete for research and innovation. I am wondering where the Government stood in that negotiation, and I would like to know if today they could give us some insight into how the figure moved up by nearly €10 billion—a phenomenal increase, really, given the background to the budget negotiations. I would welcome some insight there. I suspect that to a degree it might be related to the way in which, since Lisbon was introduced, the Parliament has been able to take unto itself far greater powers than was ever envisaged in the Lisbon agreements.

It is important for government and for all of us to take note of what is taking place in Europe, with the shift in power and relative strength between the Council and the Commission and between the Parliaments. Indeed, if we are to maximise the returns from our involvement in Europe, it is very important that we review the nature of the relationship that we have with some of our representatives there and that we spend more time with our MEPs. That is a side political issue but it knocks back into the question of how we approach research and innovation.

It is interesting, too, to look at how some of the other countries have responded immediately to the announcement about the budget decision having been reached. I see that the Irish have already set out their stall and are seeking to get at least €1 billion for Ireland. It is a far bigger amount than technically they are entitled to but that is the ambition that they have publicly announced. A number of other countries have already said what they plan to do. We have been waiting for quite some time in working with these processes, so can the Minister give us an indication of our ambition in the claims we will be making? How much money do we anticipate we will be trying to get back in terms of research and innovation? We do not have any clarity on this, whereas others have. Similarly, in looking at the shift in the budget figure, our approach may be somewhat complacent and not as ambitious as some of the other countries, which will be in there pitching very vigorously indeed to get the maximum amount returned to them.

We are of course in an international competitive scene and, in certain respects, as others have said, Europe is starting to fall behind some of the major world competitors such as China, Brazil and India. We have seen that, increasingly, they are maintaining high levels of investment in research relating to business and that in many areas they have a much clearer link with businesses than we have.

I am pleased to see that noble Lords associated with the academic world will be speaking later in this debate. We do extraordinarily well, in relative terms, in finding funding for our universities and our higher educational research areas, and long may that continue. The amount that Europe spends in the academic field of research compared with that spent on research in industry has been declining in recent years, whereas the element that our competitors devote to industry and manufacturing has been going up. However, the UK is even worse than it was some years ago in the division between the money going into research for academia and that going into industry. This is a cause of concern for all of us. If the Government are serious about trying to effect a shift in the basis of our economy, moving away from finance and more towards manufacturing and industry, this is something that needs to be given serious attention.

We questioned the Minister about that and about trying to establish closer working contacts, particularly with SMEs. As the noble Lord, Lord Kakkar, mentioned, SMEs are producing 98% of the business in Europe generally and they also feature very highly in the UK. One point of concern to us was the failure to make contacts with SMEs. In turn, that led some of us to have a look at the nature of the structure in the UK for reflecting SMEs’ views and for trying to link SMEs into government machines and, in turn, into applications for research funding and assistance.

Compared with the Germans and two or three of the other major successes in Europe, we find that we are very far behind. We have a disparate approach, ranging from the CBI to the chambers of commerce and even the Federation of Small Businesses. When I read some of the FSB’s submissions, it almost appeared that it was more interested in attacking Europe and its red tape than in trying to offer assistance to its members in submitting applications for research and improving their performance. The Government have to spend more time looking at the contact points. I think that the Minister, the right honourable David Willetts, was not entirely happy with what was there. Previously, they were underfunded and there were not sufficient of them. Have we made changes and do we have plans to put in further resources to provide that assistance?

I come from a trade union background and the Government are ever anxious to do inquiries into unions whenever they seem to be doing things that are not quite acceptable. I do not accept or support unacceptable behaviour. But in general terms of what the country needs, it is time that this Government, or some Government, look at the basis on which we seek to represent the major drivers of growth and jobs in this country—the SMEs. Can we not find a better way to bring them into a collective arrangement whereby they are given the necessary assistance and support to go forward and try to get—to use the rather foul term—their snouts in the trough of the very substantial amounts of money which should come to this country but which go to some others on a scale that is disproportionate to their entitlement?

My Lords, I did not serve on the sub-committee which produced the valuable report but I served on the Select Committee which approved it. It is one of the most telling and focused reports produced in the past year. The Government’s reply is also remarkably satisfactory, although some issues need to be expanded on and explained a little more. Although the European Commission has not directly responded to the report as yet—I understand that part of the reason for that may have been the uncertainty about the multiannual financial agreement—it has now issued a press release, which seems to cover in general terms most of the points made in the recommendations of the report. At least, the press release addresses many of the issues that have been highlighted in the report.

First, the press release, which was issued on 19 November following the European Parliament’s decision on the multiannual financial framework, indicated that,

“EU-funded research and innovation will do more to improve Europeans’ quality of life and enhance the EU’s global competitiveness”.

It also confirmed that, as regards the money, which I believe still is subject to the imprint of the Council, the Parliament has agreed that some €79 billion should be devoted to this, as the noble Lord, Lord Brooke, has indicated. That is an indication that the Commission has been listening to the committee which produced this report. It is also indicative of the strength of Britain in influencing the direction of European policy.

Central to the report, the second point made by the Commission in its press release is:

“Horizon 2020 is … a centre-piece of the EU’s drive to create new growth and jobs in Europe. Researchers and businesses across Europe can count on strongly increased and simplified EU support”.

That is a very important commitment. We have seen over recent years that, although higher education in the United Kingdom is obtaining support from the innovation and research programme to the extent of 61%, private commercial organisations have received only 24% of that assistance, which is not as satisfactory as we would wish.

The third point that is made in the Commission’s statement is that it will seek to strengthen industrial leadership and innovation, including through investment in key technologies and greater access to capital and support for SMEs. It goes on to indicate by way of example some of the most pressing requirements, including the need to address climate change, develop sustainable transport mobility and make renewable energy affordable. Those are sensible priorities. I declare an interest in that I am chairman of a company that promotes marine energy. It is certainly my hope that that form of alternative energy will be recognised as one that has not only great possibilities for this country but more widely.

The final point that is made on the industrial side of research and innovation is also important in the Commission’s statement. It says that it will help to bridge the gap between research and the market by, for example, helping innovative enterprises to develop their technological breakthroughs into viable products with real commercial potential. That has already been trailed to some extent by the connection between Sainsbury’s and the European innovation project in respect of solar power. Pure research is not the entire target that should be focused on under Horizon 2020. We should focus on how it can be deployed to commercial and economic advantage.

I recognise that there are areas of research in which it would be highly appropriate for pure research to be done. To my mind, that is a necessary part of the message that we are sending out. The need to address health issues is clearly one that we ought to focus on. I cite, for example, motor neurone disease, which as yet has no cure and which widely concerns the medical profession—and not only in our own country. We could, for example, hope that the European Union will watch with great interest the convention that is taking place in Milan in December for motor neurone neurologists from across the world. I believe that 700 will be there. They might, by introducing themselves to find some lines of inquiry worth supporting.

That raises another issue, which is whether the money should go only to the European Union. A number of other countries have participated in programmes of research and innovation, and that is highly sensible. I recognise the competitiveness element, which is important in focusing and directing research energy, but other countries could come in on collective research projects and, by so doing, reduce the overall costs.

We would be happy to hear from the Minister answers to some of the questions asked by the chairman of the Sub-Committee in her letter to the Government following their helpful reply. For example, there is an issue about how the NCPs can be operated more effectively. There is another issue about Brussels representation. That is mentioned, but it is not stated how that will be brought about effectively.

Finally, I very much agree with what the noble Lord, Lord Brooke, said about the need to represent SMEs’ interests and possibilities in deciding what projects should be backed. That is a matter for this country to concern itself with: how to get across with clarity and authority the concerns and demands of small enterprises, which are key to our growth.

My Lords, I am grateful to the noble Lord, Lord Kakkar, for securing this timely debate and congratulate him and the EU Committee on a trenchant and thorough report. I certainly look forward to debating in this House any reports that he makes to us in his new role as an ambassador for healthcare and life sciences.

There are others to congratulate as well, notably the Minister, Universities UK and the UK Higher Education International Unit, as well as other bodies which have been involved in the long-running lobbying campaign to secure a good outcome for research, innovation and higher education in the EU budget negotiations, which were concluded on Tuesday. Although the final figure is less than the €80 billion originally proposed by the Commission, about which the EU Committee is rightly disappointed, it is none the less excellent news for the UK that the budget for research and innovation has been protected in the context of the first overall reduction in the EU budget. However, I have a caveat to that praise in relation to the arts and humanities, to which I will return, as I will be urging the Minister to take further action.

The quality, breadth and depth of research in the UK enable it to secure a disproportionately large quantity of EU research funding, as others have said. Research and innovation is one of the areas where UK interests are most closely aligned with opportunities offered by the EU. The more that the EU invests in research and innovation, the more the UK benefits from EU membership. However, the decision to protect the innovation and research budget in a climate of cuts is also excellent news for Europe. Evidence suggests that each extra 1% invested in public R&D in Europe generates an extra 0.17% in productivity growth. The European Commission has estimated that the current framework programme for research and innovation will create 900,000 additional jobs, and growth in GDP of nearly 1%—growth which equals the total expenditure of all other EU budget lines combined.

In short, the European Union has made the right choice to protect investment for growth. We in the UK will benefit enormously from that decision. So far, under FP7, the UK has received more than 15% of all funding. Only Germany has received more. We are certainly the most successful country by far in applications for European Research Council and Marie Curie research funding. I want to quote one exemplar: UCL. I declare an interest as a council member. UCL is a lead player in EU-funded research and is consistently ranked in the top four HEIs in Europe. It has more than 600 FP7 projects with a total cumulative budget in excess of €300 million. ERC research funding, arguably the most prestigious in Europe, represents half UCL’s research income, which clearly demonstrates excellence across all areas of activity. UCL is the lead HEI in Europe in health-funded research.

The report that we are debating today rightly points out the importance of prioritising excellence. There has been substantial pressure to distribute research funding on other criteria. In my view, it would have been wrong to distribute research funding merely on the basis of geographical factors. Not only would it be unfair, but it would have diluted the economic impact of this investment. The fact that the funding for excellence pillar of the Horizon 2020 budget has been increased is also good news. Further, EU-funded research and innovation enables stakeholders to engage in international collaboration on a global scale. This has positive impacts in Europe and the UK by building a critical mass of knowledge and adds significant value given the global nature of the research environment and the common global societal changes we are all facing.

I now come to my caveat: the arts and humanities. Only last week, the foreign secretary of the British Academy and the president of the All European Academies wrote to the Commissioner for Research, Innovation and Science expressing deep concern that the social sciences and humanities were being marginalised in the development of the Horizon 2020 programme. The amount proposed for SSH research provides considerably less funding than has been available under FP7. The draft work programme foresees bids of between €1.5 million and €2.5 million, which means, on average, roughly four to five successful projects per call across the entire European Union. This is nonsensical. It is bound to have an impact on those bidding, when the chances of success are so small. The presidents are concerned, as well, that there are no structures which embed interdisciplinary work, and I know that the vice-chancellor of Cambridge is raising these issues as we speak with DG Research in Brussels. Will the Minister undertake urgently to talk to the British Academy to understand its concerns so that his department can intervene with the European Commission, should it prove necessary, in order to reassure the social sciences and humanities research community that it will, indeed, be able to contribute to a successful Horizon 2020?

Meanwhile, a new element of the research budget will be targeted at widening participation in research programmes and spreading excellence. It will receive about 1% of funding from the Horizon 2020 budget and will encourage partnerships between strong research institutions and those in new member states through new twinning and teaming initiatives. This will be complemented by much larger structural funds, the receipt of which is now linked to a national innovation strategy being in place.

Although the outcome of the budget negotiations in general is, in my view, good news for the UK and Europe, we cannot afford to be complacent. As the EU Committee points out, if we are to compete with emerging economies, we will have to spend a still higher proportion of GDP on research and innovation. Europe has failed to make significant progress towards meeting the Lisbon goal of investing 3% of GDP in research and development. The EU average is just 2%, while the OECD average is higher at about 2.6%. The UK lags behind, spending less than 1.8% of GDP on R&D. The previous Government had a target to increase this to 2%, but we have made frustratingly slow progress towards that figure.

Meanwhile, as other noble Lords have emphasised, emerging economies such as China and South Korea are increasing investment rapidly and seeing results in improving performance in patent and citation indices. What has happened to that target? What plans do the Government have to raise our game? Does the Minister accept that it would be dangerously complacent for us to assume that we can continue to outperform faster-developing economies when we have much lower levels of investment? As the noble Lord, Lord Hannay, has pointed out elsewhere, the UK has a fantastically efficient research system, more so than the US, as measured by the number of citations for each unit spent. However, it is not at all clear that we can continue to maintain that advantage in the long term.

Finally, the committee is right to identify private sector involvement in R&D as a priority. The UK has an inglorious history of decline on this score. Universities do much to stimulate investment through partnerships with industry, but if we are to maintain our position as a leading economy we need a long-term strategy to address this issue, including by encouraging private firms to participate in European funding projects.

I conclude by asking the Minister to tell the House what plans the Government have to support business, particularly SMEs, to help them take advantage of the opportunities that Europe so clearly presents.

My Lords, I should also like to express my gratitude to the noble Lord, Lord Kakkar, for giving us the opportunity to consider this report today. I congratulate him on giving an excellent tour d’horizon of its contents, which means that I can make a much shorter speech than I had originally planned. I have no interests to declare, other than that I am a member of the EU sub-committee that compiled this report. I take this opportunity to associate myself with remarks that were made earlier. I thank our parliamentary clerk, our policy analyst, the secretariat and others for all the diligent work and help that they gave us during the whole process. We received wise counsels and guidance from many quarters, not least from our chairman, my noble friend Lady O’Cathain. I am sorry that she cannot be with us today.

The very nature of research and innovation means that it seeks to break new frontiers in technology. This inevitably means that it is a keenly fought battleground for new ideas, and as noble lords will be aware, we live in a very competitive world. We have heard that the Horizon 2020 budget, which is to be rolled out next year and which will run until 2020, will be €71 billion—although as the noble Lord, Lord Brooke, mentioned, another €8 billion may be added, which would make it €79. That sounds like a lot of money until—as the noble Lord, Lord Kakkar, said—you look at countries such as China, which are set to increase their spending on R&I to €181 billion by 2015.

If we in Europe are to try to compete with the likes of China on a much smaller grant base, it is essential that we give as much encouragement as we can to involve small and medium-sized businesses in the process. They employ some 70% of our entire workforce, but up to now they have applied for only less than a quarter of all available funding.

Therefore the main point of the report that I will focus on this afternoon is the perceived urgent need to make it easier and more attractive for our SMEs to apply for R&I grants from the EU. One of the reasons for their reluctance to apply for funds in the past is that they see the whole application process as labyrinthine and too bureaucratic. Add to that the fact that they may have to wait up to 499 days—as a worst-case scenario—for their application to be accepted, and then factor in the possibility of late payment, which further exacerbates the time to receiving the grant, and you can see the problem all too clearly. Indeed, my right honourable friend David Willetts, during a very helpful session with the committee, cited a company that was advised that it had been awarded a grant and was so excited and enthused at being told this that it recruited extra staff, but the money was so slow in arriving that it went bust. Paragraphs 100 and 101 on page 35 of the report draw particular attention to that problem.

The committee was also concerned at the lack of flexibility in funding at the end of a given project. By its very nature, innovation is not an exact science and there can often be a time overrun in bringing new ideas to fruition. When that happens, it will inevitably incur extra costs, but there is currently no provision for this in the Horizon 2020 funding package. We believe that the process should be more flexible and that follow-on funding should be made available to help to ensure that projects are completed and achieve full commercial benefit.

The only other point on which I would briefly like to comment concerns the duplication of impact assessments. While they are very important, as noble Lords have said, having them carried out by the European Commission and the European Parliament separately is one level too many. Surely, time and money can be saved by having just one impact assessment board.

I very much look forward to hearing what my noble friend the Minister has to say. Of course, we keenly await hearing from the EU Commission when it responds to the report that we have submitted. I end by expressing the hope that, by 2020, our horizons will be broader, and we will all have benefited from this exciting funding initiative.

My Lords, I welcome this constructive debate, introduced by the noble Lord, Lord Kakkar, on the vital issues of research and innovation for the future prosperity of the UK. This is in the case of the UK working inside and with the EU. I regret, as do many commentators, from the Economist to the CBI, and the noble Lord, Lord Brooke, and as insiders have commented in the EEC, that the debate about the UK’s future membership of the EU reduces significantly the UK’s influence on improving the effectiveness of EU programmes for promotion of research and innovation.

Despite the constructive tone of the report, I am sure that UK SMEs will be pleased that Minister Willetts in the Government’s response highlighted the importance to the UK of the Horizon 2020 future programme, and the public-private dimension of that programme. However, it is surprising that I have now heard one or two speeches by Minister Willetts, and he has never mentioned Europe. There was a big meeting of the Royal Society on the future of science and technology in universities, but Europe was not mentioned. There was mention of the Conservative Party programme on science and technology, but Europe was not mentioned. So I am very pleased at the constructive tone of the Government’s reply in this correspondence.

Everyone, including EC officials whom I have contacted—there may not have been an official response, but I e-mailed some EC officials this week and asked them what they thought about this—agree that the delivery of these programmes could be more efficient and easier for SMEs. I declare an interest as a scientist, working on EC programmes for the last 20 or 30 years, and as a director of a small high-tech company that has received funds from the EC as well as from the UK Government.

The European Commission and European institutions have, of course, transformed many aspects of European science and technology, particularly through their practical and commercial applications. Europe leads the world in practical meteorology. You go to the United States now and turn on a weather channel and they say, “The European weather forecast is the following and the American forecast is this”. You can listen the next day and find out which is correct; for example, the Europeans get the hurricanes right. Europe is remarkably advanced in environmental science. In Beijing, the pollution forecasting for the Olympics was done by a public-private team from Europe. Similarly, in aviation, we know which aeroplanes are the best, and it is the same with advances in nuclear fusion.

I hope that the Minister will take the message from this debate to the Prime Minister that, when he goes to China in two weeks’ time, he should travel on a European aeroplane, Airbus, and make sure that he chooses an airline that has an Airbus with Rolls-Royce engines. That may take a bit of trickery but I can assure noble Lords that there are airlines that do have them. I hope that when he goes to Beijing he will talk about the European prowess in innovation and research and not just leave it to Monsieur Hollande. Time and time again we hear no mention at all by British Ministers of European projects in which the UK is involved, whereas when Monsieur Hollande goes there, one might think that all these European projects were French—but they are not; they are British. We build the wings of Airbus. Enough said, but I hope that the Minister and our colleagues in the Box will take this message away.

This report emphasises how the European Commission has been particularly effective—much more so than the United States in many ways—in identifying new areas of technical research and setting up networks across the EU. One of Boeing’s top aerodynamicists came to a conference this summer in Lyon and was amazed by the new concepts and applications for turbulence over wings developed by European programmes. No academic in the United States has any idea about Boeing’s future plans, but in Europe hundreds of research groups are participating in the Airbus programme. It is a remarkable general programme. However, I received a very mealy-mouthed response to a PQ in which I asked what the effect on our Airbus programme would be of Britain leaving Europe. To my astonishment, the reply was that there would be no difference except, perhaps, to one or two tiny research projects. Leaving Europe would have an enormous impact, and this is something that we should be clear about.

The regional networks are rightly emphasised in this report, despite the Government’s destruction of some of the regional economic programmes which existed before they came to power. The networks that I helped to set up with colleagues across Europe to bring researchers together with industry have been going successfully since 1988. One of the points made in the report is that programmes are funded by the European Commission and then stop. What happens to the people involved? If the various industries and researchers have their own networks then although the EC projects may come and go, the bottom-up network will continue. Some EC officials were reluctant about having these independent networks but now realise that they are actually a good way to fit the pieces together.

The other feature of the EC system is that it is inevitably bureaucratic because it is trying to do things that have not been done before. It is trying to bring people from all across Europe together and introduce interdisciplinary projects. I accept that there will not be much correspondence if you have one project in Swindon that is working on one topic in one lab. But if you are trying to do something across Europe and break new ground, you will have a lot of meetings and letters—because it is worth it and you will get the most remarkable results. There was an effective project on system dynamics in policymaking involving all sorts of disciplines which, noble Lords will be pleased to hear, ended up considering even the fashionable question of defining happiness. We also had interesting discussions about what is wrong with economics, and we had meetings here in Parliament. That is outreach and broadness and it takes a lot of organisation. However, through the extraordinary European office of University College London, all this was handled smoothly and no one complained about bureaucracy. None of these kinds of projects occurs in the United States or any other advanced country.

I asked the CEO of a high-tech SME who was previously a director of a university science park about this issue in order to get an objective view. He agreed about the benefits of EC support for networks but said that there were definitely problems for many individual SMEs. The difficulties included understanding what the grants were and how to apply for them. He said that there were certainly problems about payment and it was important to understand the rules on payments when applying for a grant.

The tenor of this report implies that the big companies can move through it all smoothly and it is just the SMEs which are having difficulties. One of the reasons the SMEs find it difficult is that the big companies delay delivering their share of the contribution. No one gets paid if the big boys do not do their job in time. It is not quite as simple as has been implied, and I have seen that problem for myself.

There is a major gap in this report. While listening to speaker after speaker, I thought that surely someone would mention it, but astonishingly no one mentioned the really surprising thing. The Government and the European Commission have to promote the technology of Europe. They do a pretty bad job of it. If you go to Beijing, as I do quite often—and I came back from Kuala Lumpur last night—you will have 25 trade missions, including the European trade mission, all giving little bits of this and that. Then you have the American trade mission with extraordinarily specialised offices from all the federal agencies. Who will you buy your product from when you have it all explained to you by the United States? The co-ordination behind pushing out European projects is absolutely hopeless, and this needs to be discussed.

We have the UKTI and I am pleased to see that the present Government are promoting exports and supporting UKTI’s budget. However, the department should be working with other European countries. The noble Lord, Lord Oxburgh, and I went to a trade fair in Singapore. If I may say so, there was a pathetic little sideshow by the Brits. It should have been much broader and more European in order to compete with Japan and the rest of them. I hope that that might be something that could be considered. Where we do have European projects, of which the Airbus is a brilliant example, they are promoted because they need to be. Monsieur Hollande does a good job, and let us hope that our Prime Minister will take that point on board.

Another feature of this debate is that our Government should themselves be able to promote these European projects. The United States Department of Commerce has an office not only for promoting US products, but for looking at products for promotion from all around the rest of the world. I do not believe that our Government in Whitehall are even looking at the European projects we are funding, some of which are Brit in origin and some in other countries, to see how we can use them. That is a really important point. Our money is being used to fund technological projects in other countries in Europe, but are we making use of them for our industry? Probably not. This is a broader aspect of the process that needs to be considered.

An interesting aspect of the report is the recommendation to support the Chief Scientific Adviser. I interrupted the noble Lord, Lord Jenkin, earlier in the debate on the question of objective science. I get slightly complicated about objective science because I have been to France, Japan and China where you can see that the nature of peer review is terribly Anglo-US dominated. There is a lot of very important science that is never referenced or seen by these things. The IPCC is perhaps another example. That is particularly true of the humanities where you have all sorts of literature in many different languages. It should be part of the Chief Scientific Adviser’s remit to take a broad view of what the standard of science is across Europe, and the office should also be involved in identifying flagship projects.

Finally, what Europe needs to do is build on the brilliance and originality of its design innovation. The great thing about the UK is that we have a rather anarchic form of originality that does not fit easily into the more Napoleonic systems of administration in the European Commission. It is good that we have a Chief Scientific Adviser from Scotland who understands anarchy, so hopefully she will understand how the Brits can make better use of the EC.

My Lords, I felt inhibited participating in this debate even before that tour de force, delivered by my noble friend Lord Hunt. Like all other participants, I congratulate the committee on its comprehensive report, which has initiated a debate that is definitely one for the connoisseurs but is fascinating and wide-ranging. Everyone who participated in the debate recognised the challenge facing the UK in an increasingly competitive global marketplace. As my noble friend Lord Haskel said, we need a strategy—a coherent strategy—that enables us to succeed by harnessing the undoubted talents that exist in both higher education and public and private enterprise. Importantly, the committee report focuses on the question of SMEs.

As was said a number of times during the debate, higher education managed to get a 61% share of the budget, putting us among the top participating nation states. We need to replicate that success with private commercial organisations. Are we ready to take advantage of the new framework programme, Horizon 2020, which starts in 2014?

In preparing for the debate, I looked at the joint statement, Fuelling Growth: Research and Innovation as Drivers of UK Growth and Competitiveness, published by the Academy of Medical Sciences, the British Academy, the Royal Academy of Engineering and the Royal Society. It says that although we are world leaders in research, that cannot be taken for granted, as international competitors are catching up. It recommends that the Government,

“enhance its support for research and innovation with a long-term vision for the UK’s knowledge economy”,

and build a 10-year investment programme for R&I,

“at the heart of its emerging industrial strategy and plans for growth”.

A couple of other areas are well worth quoting from. One area the statement focuses on is the question of developing skills if we are going to achieve the kind of objectives we want to see in research and innovation. It says:

“Global competition for excellence makes it essential that the UK remains an attractive place for the most talented individuals and teams to work, whether they are from home or from elsewhere in the world. Excellent people will in turn attract commercial investment. With over one million new science, engineering and technology professionals and technicians required by 2020, the supply of high quality STEM skills in the UK will be even more important than it is today. The UK’s ability to nurture domestic talent and attract the best international researchers will be an important component of the response to this shortfall”.

I would welcome the Minister’s response on that particular issue. The statement ends with a plea:

“We advise the Government to develop a stable ten year investment framework for research, innovation and skills in consultation with the research communities in academia, industry and charities. This framework should sit at the heart of its emerging industrial strategy and plans for growth”.

Does the Minister agree with those two key aspects of the joint statement? Do the Government support the views in the report?

I am very interested in the Government’s response on assisting SMEs with what are defined as the national contact points. The committee welcomed the reform of these national contact points. The Minister writes that the national contact points will, collectively, be better resourced and a majority accessible on a full-time basis. Following up on the committee’s concern about engaging businesses and SMEs specifically, the Minister states that national contact points will offer:

“A stronger central support … especially to businesses”.

What exactly does the Minister mean by that? Outcome rather than intention is of paramount importance and it is hoped that this will contribute to increasing the share of participants coming from business and industry.

Many universities have associated business parks and science parks, and provide facilities for SMEs and start-up businesses; I have visited a few of these myself. Surely these business hubs should be the ideal place to encourage participation of SMEs. Unless I missed it, I did not see any reference in the committee report or the Government’s response to the role of local enterprise partnerships, which, after all, are the Government’s replacement for RDAs—something that we did not agree with but they are with us. What is the role of local enterprise partnerships in achieving the Horizon 2020 objectives? Surely they should be a key part of the jobs and growth strategy for encouraging SMEs to participate. The point made by my noble friend Lord Brooke about the role of the Federation of Small Businesses and chambers of commerce in assisting this process is also very important.

My noble friend Lord Haskel made the point that this funding is vital because in part it compensates for the failures in bank lending. Another important point was made by the noble Lord, Lord Kakkar, in his introduction, when he pointed out that innovation is at the heart of what Europe requires, and I liked his suggested new definition of countries as either innovation-rich or innovation-poor. It is an interesting viewpoint.

Throughout this debate we have seen the importance of funding. Although everybody has welcomed the increase, the point has been made a couple of times that if you compare the European contribution of something like €79 billion with the Chinese one, it is a cause for concern. When it comes to how long it takes for money to be received through this project—whether you take the 340-day average or the worst-case scenario that the noble Earl, Lord Liverpool, pointed to—surely that is a concern, even if one accepts the complexity of some of these projects. My noble friend Lady Warwick pointed out the importance of the funding and that we are nowhere near to meeting the Lisbon goal of 2% of GDP.

Another interesting point was made by my noble friend Lord Brooke when he talked about the UK attitude to Europe and whether we like it or not—and many of us do not—the fact that we now seem to have such a sceptical or ambivalent attitude towards Europe is being reflected in the European attitude towards us. He quoted the worrying statistic that now only 4.5% of EU officials are British.

The questions that the Minister has to address, apart from the specific ones that have been put to him by noble Lords, are: do we have a coherent strategy? Do we have a long-term vision for research and innovation? Do we have the policies that will encourage SMEs to become more active? Can we ensure that the policies we have will enable us to make the maximum use of the Horizon programme? I look forward to the Minister’s response.

My Lords, it has been a stimulating debate. We have travelled far and wide—to Kuala Lumpur, Singapore and China—and I will cover most if not all of the questions in my response. Before I go further, it would be remiss of me if I did not pay tribute to the excellent introduction to this debate provided by the noble Lord, Lord Kakkar, and congratulate him on his recent appointment as UK business ambassador for health and life sciences—which, again, underlines and illustrates what we hope is the continuing promotion of British and European interests abroad. It is also appropriate for me to pay tribute to the chairmanship of my noble friend Lady O’Cathain. What I am sure would have been her forthright and robust contributions to today’s debate have been missed. I am also always mindful of the fact that while our debates on Europe may take place under various watchful eyes, they are under the watchful eye, too, of the chairman of the EU Committee, the noble Lord, Lord Boswell, who remains my noble friend. I join other noble Lords in thanking the members of the committee for their excellent report and the comprehensive way in which they have dealt with a variety of issues which I shall seek to address.

The report examined in great detail the issues surrounding the EU’s major funding programmes for research, development and innovation and made a number of important recommendations. As several noble Lords have pointed out, the Government have responded and we have had various exchanges in this regard.

The report is aimed at ensuring that these programmes, which will be responsible for spending some €70 billion over the next seven years, from 2014 to 2020, are as effective as they can be. Many of the recommendations were addressed to the European Commission and, like all noble Lords who have spoken today, the Government look forward to seeing its response in the near future.

On the UK’s track record of participation in EU research programmes, one point which emerged clearly from the report was the major opportunity that the EU’s existing and future funding programmes have offered, and will continue to offer, to UK researchers and research institutions. The UK is already a very strong player in the EU’s current framework programme, FP7. It receives, as several noble Lords, including the noble Lord, Lord Haskel, pointed out, 15.4% of the total funding available, which puts us second only to Germany among our European partners. The UK also participates in more successful projects than any other country: 41.2 % of all grant agreements in FP7 to date include at least one UK partner. Research-intensive UK universities have been particularly successful in this regard and are actively engaged in Europe. Several universities—Birmingham, for instance—have Brussels offices and now derive a substantial proportion of their external research income from EU sources. The value of presence on the ground was a point made by several noble Lords and our universities are certainly taking this forward.

The noble Lord, Lord Kakkar, in his excellent contribution, stressed the importance of the assessment of programmes and their delivery. In this regard, I want to highlight to your Lordships’ House several notable success stories. For example, the Nobel prize-winning work undertaken at Manchester on graphene, an ultra-thin, ultra-light and superconductive material with potential uses ranging from energy storage and high-speed computing to improved tennis racquets, was partly EU-funded. Jaguar and Rolls-Royce are collaborating with Queen Mary College and innovative UK SMEs in a project aimed at turning waste heat from engine exhaust gases into electricity, meaning reduced carbon dioxide emissions and better fuel consumption. ARM Ltd has successfully participated in a series of EU research projects which have helped underpin its global leadership in providing microchip designs for a broad range of digital technologies. I say to my noble friend Lord Maclennan that the Jaguar and Rolls-Royce example underlines issues and challenges that we are looking at in terms of environment.

On the quality of the UK research base, the UK does well because of the excellence of the research conducted here. An indicator of this strength is provided by the distribution of grants by the European Research Council, which funds groundbreaking research on the basis of Europe-wide peer review. Among all the ERC grant-holders, the UK ranks well ahead of both Germany and France. This quality provides a firm basis on which to build even stronger engagement in the future. I agree wholeheartedly with the praise of the noble Lord, Lord Haskel, for the European Research Council, which plays an important role in all these EU research programmes, and from which, as I have already illustrated, the UK has done well.

The noble Lord, Lord Kakkar, and others referred to Horizon 2020. The process of negotiating the new seven-year Horizon 2020 programme has been long and complex but the political agreement that was reached between the Council and the European Parliament represents, in the Government’s view, a good deal for Britain. It retains the primacy of excellence as the factor for deciding who receives funding. I know that we have discussed this issue but I assure my noble friend Lord Jenkin that excellence is the key determining factor in this regard. The programme is structured round a limited number of key societal challenges such as health, climate change and energy security. It also provides a range of support right along the innovation chain, from blue sky research through to large-scale demonstrators of new technologies. It seeks to embed and mainstream the insights from research in the social sciences and the arts and humanities—I know that was a concern of the noble Baroness, Lady Warwick—another area of UK strength across the programme, as she rightly pointed out. It will allocate increased levels of dedicated funding to innovative small and medium-sized enterprises. I agree with the important point that the noble Lord, Lord Haskel, raised about applying a much broader interpretation of research and innovation. Horizon 2020 will make provision for other areas of support and for new business models.

The noble Lord, Lord Kakkar, and others referred to red tape. One of the key challenges and issues for the implementation of the programme remains that of reducing red tape and administrative overheads. We should not look at this just in a European context. As someone who spent many years in the private sector before joining your Lordships’ House—indeed, during my time on the Conservative Back Benches I continued in business—I know that red tape is not just an issue that government must tackle but one with which many businesses across the board have to grapple. The rules that set the conditions for participation in the Horizon 2020 programme contain welcome simplifications, which is something for which we have pushed. The Government will monitor in particular the European Commission’s performance in delivering on its commitment to reduce the time taken over funding decisions by 100 days. My noble friend Lord Liverpool pointed out that it is all very well securing the funding but asked what is the point of bidding for it if, by the time it arrives, the business has closed. That is a very important point on which to reflect.

As regards Horizon 2020 funding, within a smaller overall multiannual financial framework for 2014-20, spending on research and innovation is one of the few areas to increase. This is in recognition of the potential for spending in this area to contribute to sustainable growth and jobs and add real value to the investments made at national level: a point underlined at the European Council meeting last month.

I turn to business participation. As several noble Lords have pointed out, in looking at UK participation in EU funding programmes, I have thus far focused on the performance of our UK universities. I am aware that UK business participation in the framework programme has not always been as strong as we would have liked. There are several reasons for this. I have already referred to the levels of bureaucracy and red tape associated with EU funding. I assure all noble Lords that we shall work with the Commission to address this in Horizon 2020. Indeed, the committee’s report specifically highlighted this as a major concern.

The Government also need to enhance their support to potential participants. The Department for Business, Innovation and Skills and the Technology Strategy Board have therefore been working on the implementation of new national support services for Horizon 2020. A new TSB-hosted website and helpline service will be ready in time for the launch of the first competitions for grants in December. I turn to some specific questions in this regard. The noble Lord, Lord Kakkar, referred to the key role of SMEs. The Technology Strategy Board has a key role to play through the national contact points system in prompting opportunities for SMEs. It is welcome that funding will be allocated on the basis of excellence, as I have already mentioned. For the first time, individual SMEs will be able to receive funding, so they will no longer be required to find out about partner organisations. This, we feel, should help participation and make it easier for SMEs to participate themselves.

The noble Lord, Lord Young, also raised the issue of the national contact points. Full-time employees of the Technology Strategy Board will be better integrated with the technology innovation structures, the knowledge transfer network and the Enterprise Europe Network to provide a better co-ordinated service. He also raised the important point about the role of local enterprise partnerships. The TSB is in the process of developing relationships with the LEPs, including a focus on their innovation agenda. This includes drawing attention to the opportunities available for EU funding, notably via the structural funds.

The TSB’s recruitment of the new Horizon 2020 national contact points is under way. The TSB is also actively looking to establish a presence in Brussels early in 2014 that will further help to improve the support it provides in increasing business access to Horizon 2020 programmes. Furthermore, we are working to strengthen communications strategies to ensure that information about Horizon 2020 and the opportunities which it offers is available to all those who might have an interest in participating. I fully take on board the important point made by several noble Lords about having presence on the ground. Again, I underline the Government’s commitment to encouraging that. When I was discussing this debate with officials, I raised the obvious point that while it is all very well having the funding, if you do not know about it then it is a difficult chore. Therefore, the communication strategy that the Government are seeking to put behind this will, we hope, also encourage wider and greater participation, especially at the SME level.

Several noble Lords also mentioned the barriers to innovation. It is essential that European funding programmes for research and innovation foster the emergence of new industry sectors and jobs. The committee’s excellent report rightly drew attention to issues that affect the exploitation of the outputs and outcomes of the projects funded. One such was the EU regulatory environment. For instance, there is little point in working on disruptive technologies if the regulatory framework or regime favours existing technologies. More generally, there are concerns about EU regulations or differences of approach between EU countries which make it excessively difficult, at times, for business to bring innovative products to the market. The noble Lord, Lord Haskel, spoke about the importance of the demand side in innovation, particularly in public procurement. I am glad to report that Horizon 2020 will in fact introduce a new SME instrument aimed at pulling innovations through into the market place.

I turn to promoting innovation-friendly regulation. My right honourable friend the Minister for Universities and Science has been actively promoting a more innovation-friendly regulatory environment in Europe, working with key partner countries. We are now seeking to build on this momentum and to provide and promote a greater role and higher profile for scientific advice in policy and decision-making, drawing on the expertise of the chief scientific adviser to the EU and the Commission’s in-house joint research centre.

We have heard a lot about what some noble Lords suggested was the diminishing influence of Britain in Europe. I do not agree with that point. As the noble Lord, Lord Hunt, pointed out, it is notable that the Commission’s chief scientific adviser, Professor Anne Glover, is indeed British. I use that word deliberately. She may be Scottish but she is British as well, and long may that be the case.

The noble Lords, Lord Brooke and Lord Hunt, raised the issue of representation on the ground in the EU. I must point out that in this policy area, notwithstanding how many British representatives we have at the moment, one of the important things to realise about Europe is that while officials there are of course promoting national interests, there are also the wider interests of Europe. We certainly take the view that we must establish good working relationships with all Commission officials. The only thing I would point out in support of this point, which was also well made by my noble friend Lord Maclennan, is that the success of our relationship is perhaps underlined by the fact that Her Majesty’s Government have secured many of our key negotiating objectives within Horizon 2020.

I shall deal with a small point as an aside. The noble Lord, Lord Brooke, and my noble friend Lord Liverpool raised the issue of the actual funding amount. Because this was preset, the actual funding remains and is then adjusted, so the figure of €79 billion that we are hearing being quoted has been adjusted for inflation. It is important to point out that distinction.

I turn to the launch of Horizon 2020. The package is now largely agreed and waiting for formal adoption at the end of this year. Officials are working closely on this point. Indeed, in a “hot off the press” moment, I was informed as I was coming in to the debate that only this morning the European Parliament agreed in its plenary session in favour of the Horizon 2020 package. This will now pass to the Council of Ministers and we are currently awaiting the date of that meeting. We will continue to work with all UK stakeholders and our partner countries in preparing the ground for the formal launch of the programme, drawing up work programmes, for instance, and engaging with potential participants to ensure that they are fully aware of the opportunities on offer. A series of promotional events is planned, with BIS holding a formal high-level launch event for Horizon 2020 on 31 January next year. I am of course happy to share the details of the programme as it is agreed.

I shall touch on a few other questions that were raised. The issue of impact assessments was mentioned. As I said, excellence will remain a key part of this. My noble friend Lord Liverpool raised a concern over duplication of the European Parliament’s role as well as the role of the European Commission. That is something that we have taken up and we are assured that, rather than duplicate this, the role will be perceived as being complementary in nature.

I have great respect for my noble friend Lord Jenkin and 99% of the time I find myself agreeing with him on the matters that he raises. He referred to the political criteria currently being used and asked why certain issues have to be raised again. One of the things that I grew up with in personal, business and indeed political life was that if you believe in a particular point, if you believe in something such as the importance of excellence and the importance of reiterating a point, and you wish to provide some constructive input to your friends, you keep reminding them of it. However, for many years applications have been assessed on the basis of an independent peer review. The principle is now fully accepted and written into the Horizon 2020 legislation. As I have already said, the principle of excellence is manifest in the European Research Council, which is widely acknowledged and which supports world-class research.

My noble friend Lord Maclennan raised an important point about the EU research and innovation programme and the importance of participating and perhaps broadening it more internationally—I agree with him on this point—where there is mutual benefit to be had. Again, this will be an important feature of Horizon 2020. My noble friend also asked various questions about the committee’s reply to my right honourable friend David Willetts’s letter of 19 July. The TSB is actively looking to establish a Brussels presence, as I have already said. The issue of British nationals in the DG was raised. Up to 59 currently work in the research directorate-general. The noble Baroness, Lady Warwick, raised concerns about humanities, which I hope I have addressed and reassured her about. There were a couple of other small questions which, if I may in the interests of time, I shall write to noble Lords about.

Before the noble Lord reaches his peroration, I wonder whether he could address a specific point. Because of the urgency of the position with regard to the arts and humanities, will he undertake to talk to the British Academy about its concerns?

I assure the noble Baroness that that is already happening: officials are talking on the exact point that she has raised. I do not think that it is happening in real time but I assure her that an ongoing conversation is taking place.

The noble Lord, Lord Hunt, raised various issues concerning China and the representations made there. My right honourable friend the Prime Minister is visiting China. Through UKTI, we have an established presence in China—in both Beijing and Shanghai—and we continue to promote not only UK interests but European interests as well.

The noble Lord, Lord Hunt, also suggested that I could perhaps use my influences in relation to the Prime Minister’s travel plans. I can only share my experience as someone whose in-laws are in Australia. When I go there, I try to book the A380 simply because it is an easier way to travel, and I shall certainly seek to share my experiences on that front.

Both the noble Lords, Lord Brooke and Lord Hunt, asked whether the Government are committed to research and innovation and whether we believe in it. I can do no better than pay tribute to my right honourable friend David Willetts, the Minister for Universities and Science. The noble Lord, Lord Hunt, said that he has not been mentioning the EU much, but perhaps I may give a direct quotation. He said:

“Driving research and innovation in the EU is central to putting our economies back on the road to a sustainable and competitive future … This is one of the areas where we can benefit the most from constructive engagement with our European counterparts. Some of the most exciting and innovative research projects have been the fruits of greater cross-boundary cooperation and mobility”.

I can assure the noble Lord of one thing. My right honourable friend is well known to him. I represent his interests and his department, and that is a view that he shares quite publicly. I shall certainly review his speeches and get back to the noble Lord, but perhaps I may also say that that particular sentiment is confirmed within the committee’s report.

It is vital that this opportunity is seized across the board both by the well established participants in the EU’s recent programmes and by newcomers. The UK has been a major player to date in EU research funding programmes, and the Government are totally committed to ensuring that participation is further strengthened in the years ahead.

My Lords, I thank all noble Lords who have taken the trouble to contribute to this very thorough and thoughtful debate, in which important issues have been raised. I think that it has demonstrated the deep commitment of your Lordships’ House not only to pursuing questions with regard to research and innovation, which are vital for the future of our nation and, indeed, for the future of all European nations, but to continuing to scrutinise and encourage the further development of programmes within the European Union. Those programmes can be brought to bear not only for the benefit of the people of our own country but for the benefit of the citizens of Europe more broadly.

Motion agreed.

House adjourned at 6.33 pm.