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October 20, 2010

Today I gave David Willetts flowers. Have I gone mad?

Before the CSR announcement, Evan Harris warned us not to be deceived by the spin. Other journalists at the press conference looked at me with bemusement. But there I was, handing over a bunch of liliies and roses. Even I thought I maybe was going a bit loopy.

Like everyone else, I’m relieved the settlement wasn’t worse. But even so, it would still be perfectly possible to argue this is not a day for flowers.

Day-by-day spending on science will be flat for the next four years, a real terms cut of 9 per cent - more if inflation is higher than the government is promising (not unlikely given the beneficial effects of higher inflation on debt and growth). Capital spending will suffer deep cuts, a particular threat to the STFC’s range of capital projects. Defence spending is down. Apart from health and green stuff, spending across the other government departments on science will almost certainly be seriously down. Even if the Technology Strategy Board does OK, its dancing partner in regional hi-tech spending is almost certainly going to be down a lot. We don’t know what will happen to R&D tax credits. And looming over it all is the Browne Report, which could if implemented badly leave many universities seriously short of cash.

But despite everything, there is reason in the floral madness.

The country simply is a lot poorer than it was, or thought it was. Science has to accept some of the pain of adjusting to that reality. Looking at this settlement, there’s no reason for thinking it’s worse than things would have been under Labour. And the consequences don’t look too awful.

Big capital projects are by their very nature things that take years to plan, years to implement and should generate benefits for years. So the capital cuts we are looking at effectively mean deferring some important things, and possibly in due course deciding to do something else instead. Annoying, but not unreasonable.

The flat cash settlement for day-to-day spending is also not obviously badly damaging, especially as it is ring-fenced. One way for universities to respond would be with a pay freeze. With unemployment rising, why not?

In other words, flat cash doesn’t necessarily mean less science, it could just mean less in the pay packets of scientists.

Yes, Browne is a big, big uncertainty but there is still time for the Coalition to make it work.

Meanwhile, underneath the surface something very important has happened.

Since the election there has been a question mark where the Coalition’s strategy for growth should be. George Osborne managed to get through his emergency budget without explaining where growth would come from. Meanwhile, it was far from clear that the Department for Business Innovation and Skills was in fact the ‘Department for Growth’ that it is now being touted as. Back in the summer, Willetts and Vince Cable could not even bring themselves to utter the sounds “TSB”.

None of that was a surprise. The last time we had a Conservative prime minister, there was no TSB, or anything like it. Growth was supposed to come from a private sector loosened from the ties of red tape and taxes. Public spending on “near market” research was banned. There simply was no role for the state in developing a hi-tech economy.

Even when this approach softened rhetorically and intellectually under Michael Heseltine in the later years, the money was never there to actually make a difference.

In the months after the election, we found ourselves in no man’s land. On the one hand, Osborne resisted the temptation to revert to 1980s-style rhetoric on growth. Even when announcing the cuts in Corporation Tax, the justification was in terms of international tax competition and winning inward investment, not a more general claim that low taxes would lead the private sector to grow more rapidly.

On the other hand, There was no explanation of where growth would come from, nor any explanation of what the state’s role was in trying to stimulate that growth. Pre-election talk of a rebalancing the economy towards hi-tech industrial sectors evaporated.

Well, now we’re past that. As of today, the Coalition does have a view on the place of science and innovation in generating growth. It’s there in Osborne’s speech and the CSR book. The two themes of today were “fairness” and “growth”. And wherever “growth” was, “science” was not far behind. Science has come into the centre of the Coalition’s thinking about growth.

“I’m a great fan of the TSB,” Willetts said today. What a change that is from three months ago.

Near market research? Yes, Conservative ministers will be spending hundreds of millions a year on that.

In my view, this is smart politics for the Coalition. It doesn’t matter that the Coalition’s approach is increasingly similar to Labour’s in this area. Come the election, it will be Labour that has to differentiate itself from the government’s position.

More importantly, the greatest hazard the Coalition faces in getting re-elected is a lack of growth. The country is about to go through a painful time. Bad as it may be, it will edge towards the intolerable if the economy does not pick up. With growth - new jobs, rising wages, a sense that things are getting better. Without growth - intensifying bitterness.

Despite all the promises, the Coalition can have no confidence in achieving the sunny scenario. It depends too much on the global economy and other things out of their control. Geoffrey Howe, who never cut as deep as Osborne, was rescued by a global boom. But no one’s expecting another one of those in the coming years. No wonder Mervyn King is talking about a sobre decade - the governor of the Bank of England thinks we’ve got no choice.

So the Coalition has to plan for the gloomy, no-or-feeble-growth scenario. In that case, a strategy for growth will become not just an economic but also a political necessity. Even if the growth hasn’t arrived yet, voters will need to be convinced that the Coalition is doing the right things to deliver growth eventually.

Now the Coalition is beginning to develop an answer to that challenge - and one that is quite different to Margaret Thatcher’s. Science, technology, innovation - from today on the Coalition will argue that these are an important part of our engine of growth, and areas that the government has to support, and that it is indeed investing in them.

But although this is good politics for the coalition, it is not an altogether confortable place for Willetts to go. There are too many Conservatives who distrust this kind of talk. Asked today about the change from the 1980s, he said, “I’m here to look forward, not back.”

“One thing that has changed is the level of empirical evidence. Our research base clearly is the most productive in the advanced Western world. And evidence is now coming in of economic returns to science. The empirical research has been very helpful.”

That is exactly what he will need to say to recidivist Conservatives such as the Adam Smith Institute. Look at the evidence. The world has moved on.

So it was no act of madness. This is what the flowers were for. For getting us out of no mans land. For leading Conservative economic thinking into the 21st century. For matching new rhetoric with real action in terms of limited cuts in science. And all in the space of a few short months.

Thank you, David Willetts, for making my day.

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