Theresa May and Tim Montgomerie show David Willetts' ideas are becoming the new normal for Conservatives

by William Cullerne Bown

Whether she ever gets to be Prime Minister or not, Theresa May's speech on Sunday deserves to be remembered.

For 30 years, economic orthodoxy in the Conservative party has been in thrall to the convictions of Margaret Thatcher. But Sunday looks likely to be remembered as the day the party finally moved on. If so, Conservatives will have David Willetts to thank for it.

For more than a year, Willetts has waged an intellectual and political campaign to slaughter the muddled yet sacred cows of the 1980s such as "no picking winners". It has taken courage, for at the beginning he understandably feared a backlash from the right of his party. Thanks to grammar schools, he knows how pitilessly any mis-step may be punished. But the backlash has not materialised and Sunday was the day his argument for an industrial strategy went mainstream within his party. For May did not simply name-check the Willetts' approach. The Home Secretary made it a central plank of her vision for Britain. 

This is what May actually said:

"In the longer term, we need to build on the work the Chancellor has already done through local enterprise partnerships and enterprise zones, as well as the efforts of David Willetts in the Business Department, and expand our nascent industrial strategy. Now, before you think I’m about to reach for the beer and sandwiches, I’m not talking about failed seventies-style corporatism. Nor am I talking about a different type of big government. I’m talking about a more strategic role for the state in our economy. Let me give a few examples of what government could do.

First, it should map out the established and developing industries that are of strategic value to our economy, so policy can be designed to promote those industries. We effectively do this on an ad hoc basis in trade negotiations and when we make tax changes – mostly for the financial services industry – but we should do it on a wider and more systematic basis, working with our best businesses in key sectors. That’s how we’ll improve our record in infrastructure, skills and training, and research and development.

Second, and building on this work, government should identify the training and skills capabilities we need, and tailor its policies accordingly. It could encourage the establishment of more technical schools. It could work with schools and business to get more young people studying science, technology, engineering and maths. It could fund deep discounts in tuition fees for students who want to study degrees like engineering, where we have a shortage of skilled workers. This kind of planning already takes place in the immigration system, with a shortage occupation list in key sectors, so I don’t see why we shouldn’t apply the same logic to our own workforce.

Third, government should identify geographical clusters of industry – like biotech in Cambridge, the semiconductor industry in the South West of England, or the Formula One corridor in Oxford, Warwick and Birmingham – so we can help develop these clusters further, put British businesses at the forefront of industrial innovation, and create thousands of new jobs.

Fourth, government should change its approach to public procurement, so we can strike a better balance between short-term value for the taxpayer and long-term benefits to the economy. I don’t mean we should always award contracts to British companies, regardless of price or quality, but we could produce a clear framework that explicitly takes into account the effect of procurement on British jobs, skills and the long-term capacity of our economy.

And fifth, we should pursue a relentless campaign to support entrepreneurs and wealth creators. This might mean traditional solutions, like granting generous tax exemptions for start-up businesses. But imagine if, as our public service reforms develop, we broke down the artificial divide between private and public sectors and allowed hundreds or even thousands of organisations to provide public services. Not only would we be improving those services, we’d set free world-beating British education and health providers who could use their expertise to win business in foreign markets. As George Freeman, who’s done a lot of thinking in this area, says, “we need a recovery that allows us to unlock the full enterprise potential of the best of our public sector.”

To those who say this is wrong, this is about picking winners, I say it’s no such thing. It’s about the state taking a strategic role, deploying our funds and resources in the wisest possible way. It’s about doing everything we can to get Britain trading its way out of trouble and towards prosperity."

This is not just endorsement of an interesting idea. It is commitment. And in May, Willetts' cause has found an articulate communicator. There is something about her no-nonsense way that cuts through the abstractness of the issues. She manages to make this sort of policy sound exactly like what it actually is - plain common sense.

On Monday, Tim Montgomerie, the influential founder of the ConservativeHome website, welcomed May's speech in his Times column, endorsing also the need for an industrial strategy.

Further battles lie ahead. It is still for David Cameron and George Osborne to decide whether they are prepared to match the vision of an industrial strategy with the corresponding resources. Can they imagine, for example, giving the Technology Strategy Board anything like the budget it would command in comparable economies, a good £1 billion a year or more? But for now we can reflect on a momentous Sunday. The economic debate in Britain is unlikely ever to be the same again.

How not to read George Osborne's big speech on science

by William Cullerne Bown

Usually when there's a big speech on science from a minister, I sit down and read it carefully and tease out the issues it raises. But today I made the mistake of actually going to listen to the Chancellor give his first speech on science. This made a powerful impression on me and threatens to overwhelm my usual textual caution. So I thought I'd post a quick reflection now and then come back to the full speech in a day or two.

The most revealing part of the morning was the Q&A at the end, because here we got a vivid impression of the man himself and how he sees science and technology fitting into his economic responsibilities. I was struck by how engaged he is. He has clearly been thinking about the issues and - at the right level of granularity - has no hesitation in throwing the government's weight behind something that seems important.

There are a thousand details to be worked out in terms of exactly how the government uses its muscle. There was nothing in the speech, for example, to rival the comprehensive vision set out by Vince Cable in his February leaked letter. But the basic principle is there. And that, for a Conservative Chancellor, is news.

Hats off to David Willetts, I say. His intellectual spadework is I think paying off. 

How to read Vince Cable's big speech on industrial strategy at Imperial College

by William Cullerne Bown

The longer growth remains elusive, the greater the pressure on the government to make us believe that they know how to get things going again. Critical to that job of persuasion is credibility in hi-tech. As Vince Cable delivers what has been billed as a major speech on growth, here's how the key players currently stand:

Vince Cable - From his letter to David Cameron, leaked in February, we know he favours a strong industrial policy.

David Willetts - In two long and thoughtful speeches this year, he has slaughtered the Conservative Party's scared cow of "no picking winners" and set out a moderately right-wing case for what he calls an "industrial strategy" and which the rest of us would - on the evidence so far - call a "technology strategy".

George Osborne - No sign yet that he intends to try to make good on his pre-election promises of rebalancing the economy between sectors. But when he surfaces to make a speech, he often drops a hundred million or so on science. Just don't mention the cuts.

David Cameron - Still wedded to wildly overblown rhetoric undermined by the paucity of hi-tech action emerging from Number 10. But there's still the 4G spectrum auction to come...

Join me as a I discover whether, six months after that letter, Cable has managed to wring any hi-tech progress out of his Coalition "colleagues". 

***

11 September 2012 00:01

Department for Business, Innovation and Skills

Industrial Strategy speech given by Vince Cable, Imperial College, London, 11 September 2012

Check against delivery, they used to say...

I think "industrial strategy" is an important bit of phrasing. Willetts has been using it. I suspect this is partly because the term the rest of the world uses for this discussion - "industrial policy" - feels too Tony Bennish to much of the Conservative Party. But it also means that the policies that emerge don't actually have to comply with what economists would think of as a proper industrial policy. While at the same time, the distinction is so slight at the linguistic level that enthusiasts for casual for a real industrial policy might miss it altogether. Very adroit.  

Two days ago we bid farewell to the Paralympics which brought the curtain down on a great summer for Britain. There are lots of explanations for this success story. Let me add mine.

This year we have had a unique opportunity to showcase the very best this country has to offer – creative talent, sporting prowess, our ability to organise and stage a major global event – and we have exceeded all expectations.

Our athletes achieved what they did because of their years of commitment and planning. They committed to countless hours of training, continuous rigorous competition, a ceaseless search for small improvements – all in pursuit of Olympic glory, even though it lay years away.



I was initially a sceptic but, the Games themselves have delivered an outstanding result for the UK because of years of planning and investment in pursuit of a clear and ambitious vision.

I think there is a read across to the way we approach our economic future. We need to take the same approach: a clear, ambitious vision; the courage to take decisions that bear fruit decades later; openness to new opportunities as they develop; focus on the things we do best; and an enduring commitment far beyond the normal parliamentary timescale.

I think this is all quite important. Run an empire? The culture in Westminster has deteriorated so badly in recent decades, the art of politics trumping the art of governing, that the government can seem incapable of almost anything. The Olympics has shifted the goalposts.

For example: how do we respond to the long-term challenge of major structural changes in the global economy – the rise of the East, the aging of the West, environmental sustainability.

Some will always say the best thing – the only thing – the Government can do is get out of the way, laissez-faire. This ignores not just the recent success of the Olympics, but the successful experiences of countries as diverse as Finland and Germany. Indeed, so many other countries who have successfully shaped their economic future, including countries like the USA where the rhetoric of markets often obscures the reality of long term planning and good organisation.

Like Willetts, Cable deploys the US example of indutrial policy as a shield against right-wing critics.

I have made it clear how much I disagree.

The Government shapes the British economy with its decisions every day.

Through its spending on skills and universities, on research, on technologies, and on infrastructure. Through what it buys, and how it goes about buying it, the regulations it sets, the markets it oversees, and tax policy. Through the support it offers to businesses to export and to invest here in the UK.

Ignoring this reality is not a policy – it is just negligence.

Indeed it is. Negligence watched over by the Treasury for 30 years.

But just as bad would be to approach all our possible interventions in an ad hoc way, subjecting every policy decision to a short term tactical decision. There is not a serious and successful major company in the world that would proceed in such an unplanned way.

A popular mantra is that government should be more like business. In many respects it should. Good businesses make plans, have clear strategies, and through this make tough choices about where to put their resources.



I know – I spent years at Shell helping them to plan for a diverse range of energy scenarios. My colleagues preparing 30 year projects for development or refining , could not simply say “let’s see what the market does” – their job was to be ahead of the market and where possible, shaping it.



By contrast a combination of businesses that needs long term certainty, with a government that refuses to make and stick to long term plans, leads to economic weakness and instability.

It is what having an industrial strategy is meant to deal with and why it is so important. There are two basic propositions. The first is that it necessary to plan for the long term. The second is that the government can and must work together to deal with genuine market failures, where the benefits of education or the costs of environmental damage – for example – are underestimated by markets.

These "two basic propositions" are a bit abstract and remote. They make me worry that Vince hasn't really got anywhere since February. Surely he'd be more concrete if the government was actually planning to change direction a bit?

Industrial Strategy



None of this detracts from the need to create an environment in which entrepreneurs find it easy to start and grow a business or from the need to pursue demand management policies which stimulate growth and maintain financial stability. But a government that fully delivers on this approach, I have described would nevertheless mark a break from the past.

Well, an industrial strategy/policy would indeed mark a break with the past. But I'm not sure yet whether Vince is actually going to describe such a thing here.

The truth is that, Britain has for a long while been regarded as an outlier in how purist we are about taking a proactive approach to our economy. ‘Naïve’ is the word I often hear from business about the traditional consensus.

Yes.

So a co-ordinated industrial strategy will not be a quick fix. Nor is it risk-free – by its nature, it cannot be. A good industrial strategy allows for failures, and recognises that innovation may strike in an unpredictable place – we must be ready for that too. But as the credit crunch showed there are huge risks to taking a complacent, hands off approach. And as our thriving automotive and aerospace sector show I strongly believe the potential rewards are substantial.

We have identified several fronts on which government action can have a real and early impact. These are: access to finance partnerships with sectors; support for emerging technologies; creating a pipeline of skilled workers; and finally government procurement and the development of supply chains. I want to focus on each of these in turn.

OK. That is more concrete. Somewhere off, that word "pipeline" is making me wonder - surely he doesn't mean manpower planning? And although I agree it is potentially really, really important, the word “procurement” just makes my heart sink. I’ve spent 20 years writing about ministers who promise to use government procurement to stimulate hi-tech sectors, and nothing has ever come of it. 

Business bank



The first area where Government will be taking urgent action to secure our long term industrial success is in the approach to access to finance. We are living with the aftermath of a disastrous banking collapse. Big firms, by and large, are able to raise short and long term finance via capital and equity markets. Many successful smaller companies finance themselves through cash flow. Others bravely launch businesses financed, as the wags put it, by ‘friends, families and fools’.

Er, I don't think calling Business Angels "fools" is very helpful. 

But many businesses face real issues in raising finance. The latest SME Finance Monitor shows that in the last 12 months, 33% of businesses who applied for a loan were rejected. The big banks including the semi state owned banks are preoccupied with repairing damaged balance sheets. So we need more competition and more diversity of supply.

There is also a real shortage of long-term, patient capital for businesses.

Try and secure a loan for more than 5 years or venture capital, and options are very limited, especially for innovative, high growth potential firms.

We are acting to tackle these issues. Launching the Funding for Lending scheme which lowers the cost of funding for banks that increase their lending. Running schemes such as the Enterprise Capital Funds and the Enterprise Finance Guarantee to help early stage businesses, without a track record or collateral, to access venture capital finance or bank finance. And stimulating the development of non-bank finance sources through the £1.2bn Business Finance Partnership.

The big banks have launched the £2.5bn Business Growth Fund providing equity.

But it’s essential we increase diversity in the supply of finance and institutions which provide a coherent relationship banking service to viable growing businesses. This is why we are working on setting up a government-backed institution.

In the UK such a bank could operate through alternative providers such as the new challenger banks like Handelsbanken, The Co-Op and Aldermore and non-bank lenders boosting their lending capacity as well as corralling existing provision such as co-investment and guarantees to support business expansion.



We are currently establishing the scale and modus operandi of such a body. The measure of the institution’s success will not be the scale of its own direct interventions, but how far it shakes up the market in business finance and helps to ease constraints for high-growth firms. As such, it will play an important role in supporting our industrial policy including existing innovations like the Green Investment Bank.

This sounds more like a "mechanism" than actually a "bank". The fact that I am starting to feel as though I am wading through a swamp of elision and obscure distinctions suggests there is not going to be much in the way of government action in this speech. But what does seem clear from the caveat about "the scale of its own direct interventions" is that the Treasury has not agreed to sanction much money going into this scheme. Given that the Treasury has pumped tens or even hundreds of billions into the established, failing banks, that is really quite a disappointment.   

Sectors



The second strand of our industrial strategy is to build a collaborative strategic partnership with key sectors. The examples I often give are aerospace, automotives, and life sciences, but the list runs far longer, and could stretch from our existing strengths in creative industries and professional and business services to our early lead in the rapidly changing electronics systems sector.

These committees are necessary. You can hardly make a sectoral strategy without involving the sector. But they are not sufficient. A strategy does not consist of talking. 

On a global scale there is fierce competition – between companies and countries. We are committed to compete while being an open economy. We are not economic nationalists and welcome foreign investment. Protectionism isn’t part of our vision of an industrial strategy.



To revert to the Olympics analogy, the task is to compete on the global arena – not design some domestic game we hope we can win alone.

Different industrial sectors require varying degrees of government support and collaboration. At one end of the spectrum, much of the economy does indeed flourish on its own. Here our efforts are best placed on making UK a good place to do business, with attractive policies on taxation, regulation, free and efficient markets.

At the other end are sectors that require a long-term, strategic partnership with government.

The Automotive Council and Aerospace Leaders Group are models of what I have in mind.

In both cases the case for intervention and partnership is clear cut and demonstrated Aerospace demands very long time horizons and there are literally trillions of pounds worth of orders for civil aircraft alone over the next 20 years or so. Britain will not get a decent share of there orders and maintain its status as having the world’s second largest industry without sustained investments in R&D. And, of course, this is an industry where government and business have long been intertwined.

Well yes, but that undermines the point Cable is making. Support for civil aerospace product development continued on a large scale unabated even under Margaret Thatcher. It has always been the exception to the rule. It is no evidence that this bunch of ministers is doing anything different.

Automobiles is another, perhaps surprising success story with £6bn of investment committed on the last two years, for the first time in decades a trade surplus. This is down to our companies – mainly foreign investors- but they make it clear that they value government as a partner supporting, low carbon vehicle development, for example research in intelligent mobility and support for building up supply chains.

I'd like to know more about all that.

Today my Department is publishing a new analysis of UK sectors, which sets out those areas where government support will be focused. All sectors which invest over a long time scale, demand a constant flow of new knowledge, skilled engineers and scientists, and often have an intimate relationship with government regulation.

Interesting.

The focus is firstly on advanced manufacturing, as with aerospace, automotive and life sciences. The second is knowledge-intensive services which now account for over 12% of GDP and 14% of exports like higher education, creative industries and professional business services. A third group are industries – the information economy, construction, energy, including green energy – which provide key inputs to our internationally traded activities.

I keep looking at that list and I can't see much that's wrong with it. It's sort of obvious, as it has to be, but also quite distinctively British. The financial sector is missing, or does maybe "professional business services" actually include insurance? Clearly the creative industries do not rely on a constant flow of scientists and engineers, but I'm carping.

These specific areas offer significant growth opportunities for the UK economy, benefiting from the long term trends like globalisation.



To give clarity to this approach we will develop and deliver a number of partnership sector strategies in the coming year. The aerospace sector is already well advanced, and a strategy for automotives will follow.



Early next year we will also deliver strategies for the non-health life sciences, including looking at agri-tech to build on our strengths in food and drink sector – as well as for nuclear; renewables; and oil and gas industries.

These will be followed by plans for the information economy building on the success of TechCity, and education exports by the spring; and construction and professional business services by next summer. We will also publish a progress report on implementation of our life sciences programme one year on.



We will keep an open mind – ready to respond as new sectors develop and new opportunities emerge. This is a plan for the long term and we must learn from success and from failure, and evolve our strategy.

OK. Well to say it again. It's all very nice having ministers talking to companies and writing stuff down. But if the government does not come up with new money, then there are not actually going to be many new jobs.

Technologies



One of the most powerful levers at our disposal is the potential of innovative technologies.



Supporting the emerging industries of the future requires us to address some of the market failures involved, especially during the development phase, and to ensure there is a pipeline of skilled people to work in them. Ground-breaking technologies are often too risky or resource intensive for individual companies to nurture on their own so government has an important role to play in accelerating the journey from pure academic research to its commercial applications.

For example, we need to think in new ways about how to harness Britain’s technological comparative advantage in algorithms, which we see in cryptography at GCHQ, private sector IT research and even financial engineering in the City.

And again. The government already spends billions on the R bit. But the D bit of R&D is massively more expensive. You cannot credibly promise more government support for development, as Vince does here, without pulling into view a truck loaded with cash.

Worse, Vince isn't even acknowledging the problem and so the whole speech starts to look shallow. But we know that in fact Vince isn’t shallow on this. His February letter proved that. So why can’t he bring himself to deal with the awkward spending issues? Answer: Because he doesn’t want, or doesn’t know how, to deal with the fact that Osborne and Cameron don’t agree with him and won’t loosen the purse strings.

The Government Office for Science is updating its Foresight report on Technology and Innovation Futures, taking a fresh look at technologies with the potential to support sustained economic growth in the UK over the next 20 years. The report has identified a number of technologies – from synthetic biology to graphene, intelligent sensor networks to service robotics – which can have a material effect on future growth rates.

This we already knew. It's important because it allows the Coalition to sign up to a vision that was not created by Gordon Brown.

The Technology Strategy Board is now concentrating on supporting these nascent disruptive technologies with the potential to grow into new industries in ten years. As it becomes clear what will be the new disruptive technology, we will be ready to adapt our strategy to reflect the new world.



Already, 70% of the companies backed by the TSB are start-ups or small firms, and that will continue as the new research programmes take shape.



So far, the TSB has identified three areas with significant economic potential for the UK. We have already announced a competition for synthetic biology, launching on October 8, to win a share of £6.5m funding. I can confirm today that two further competitions will launch on October 8, offering a share of £1.25m for energy efficient computing, and £1m for energy harvesting for autonomous sensing, developing the technology to underpin the intelligent sensor networks highlighted in the Foresight report.

These are good. But just look how little money is involved.

I can also announce today that the TSB - along with our research councils and others - will establish an Innovation and Knowledge Centre in Synthetic Biology.

Ditto.

The TSB’s work reinforces the government’s decision to invest over £200m to set up the Catapult centres, a national network of elite technology and innovation centres. These centres will support the development of core technologies in disciplines such as high value manufacturing and cell therapy; offshore renewable energies and satellite applications.

Other investments we have made include £60m to create a new UK Aerodynamics centre; £50 million of new investment to support the commercialisation of graphene; £145 million to invest in high performance computing to fund software, data storage and wide bandwidth networks; and £180 million in an Integrated Translation Programme to support the commercialisation of innovations in the life sciences sector.



I want to ensure that such investment represents not just burst of ministerial enthusiasm but commitments over future parliaments and spending reviews. Key to this will be expanding the role of the TSB as resources allow.




Another very welcome name check for the TSB. But the way in which it has displaced the research councils in ministerial speeches should be disturbing RCUK.

 Skills



We also need a long term commitment to world-class skills.

The Government has – rightly – focused on apprenticeships. We have made significant progress. We have seen a 63% increase in the numbers of apprenticeships in 2010/11, and nearly 400,000 new starts in the first three quarters of 2011/12. But, we cannot rest on our laurels and Doug Richard will report in next month with ideas on how we can get even more value from apprenticeships.



I agree we need a more highly skilled workforce everywhere. So in principle, I’ve nothing against apprenticeships even as I remember that they are massively cheaper than higher education and hence a convenient way of mopping up unemployed youth. But I worry that much of the training lacks quality and in the end I don’t think apprenticeships can solve the low skills problem. The way to get French or German standards of plumbing in the UK is to do what they do – make plumbing a restricted profession. Good plumbers in the UK are constantly undermined by cowboys – cowboys that are not tolerated on the Continent.

At the heart of our strategic thinking is the need to give employers more direct control of how the Government funding on vocational skills is spent. Clearly, they know better than anyone the long term skills needs of their workforce.



We have therefore launched an Employer Ownership Pilot scheme, which is giving businesses access to £250m funding for vocational training. Employers, working together in sectors or with supply chains, have put together a wide range of innovative proposals to design and develop their own training programmes.



I can announce today that 34 bids have been successful under round one of the scheme, securing £67m in public funding and, importantly, generating £98m in private investment.



In total the successful bids are expected to support nearly 11,000 new apprenticeships, including 4,400 for 16 to 18 year olds, and 27,000 vocational courses such as NVQs. In addition, the successful bids will offer some 49,000 training opportunities such as work experience placements.



I can confirm today that we will be launching round two of the scheme, to potentially allocate the rest of the £250m budget, in the autumn. The second round will test in more depth the value of employer ownership in terms of boosting productivity and growth.

Some of the best bids came from many of the sectors I have mentioned – such as construction, advanced manufacturing and automotive.



One of the biggest long term challenges will be the supply of engineers. We are chronically short at present. I take encouragement from the fact that this year’s applications to university have engineering as the subject most in demand. But we need much much more.



Well, you know, why not do something about it then? The government provides huge subsidies for HE. If it says “train more engineers”, it has the levers to make sure universities do precisely that.

The decision – announced in the aerospace strategy - to fund jointly with industry 500 Masters Degree places in aerospace engineering between 2013 and 2016 is an example of how we will have to work together to dismantle the barriers to growth arising from skills shortages in the priority sectors.

That all sounds useful. And, thankfully, nothing like manpower planning.

Procurement



Why does nothing ever come of ministerial promises on procurement? Because the Treasury never lets go of the narrow value-for-money criterion. And Whitehall lacks what Cable earlier called the Olympic spirit, the talent, the vision and the will to do anything other than snatch what looks like the cheapest bid. Please Vince, show me I’m wrong to be so cynical.

But we understand, too, that government has a responsibility to take seriously the role that public procurement plays in creating business confidence to take long-term investment decisions.



Procurement regime rules are set at European level. To maximise the benefits from a single procurement market across Europe, we are pressing for some changes in it. But there is a constraint on our freedom of action outside the defence sector. There and elsewhere, value for money is also a key concern. Nonetheless, there is scope for using public sector spending to shape markets and influence supply chains.

That is why we are overhauling the way the government procures services, to give businesses, particularly SMEs, greater clarity. In April we published £70bn of future government contracts, planned in 13 sectors, over the next five years. For example, I held a roundtable with the rail sector earlier this year – an area where we are making substantial investments.



We are also assessing what the 13 pipelines tell us about the strategic capabilities required in the future. For example, the information on the construction and infrastructure pipeline was used to identify a demand for tunnelling capability. Consequently, Crossrail has launched a tunnelling academy to boost workforce skills in this area: an approach that could be replicated in other sectors. We are collaborating with industry to identify other capabilities - an early candidate that has emerged is high voltage cabling, and work is ongoing to seek out others.



Clearly we need to strike a balance between buying strategically with an eye on long-term capability and saving money in the short run by going for the cheapest off-the-shelf options. Either way, government can and should be a responsible customer, developing a considered, long-term relationship with our supply chain, and that is what we intend to do.




All too vague for me, I’m afraid. I don’t see anything changing here.

Conclusion



So these are the contours of the Industrial Strategy that we will work with industry to round out in the months ahead – a new approach, but one based on sound principles.

A spectrum of systematic support for sectors; clear choices and backing for core emerging technologies; continued efforts to boost skills; and extracting the maximum value from the government’s position as a market-shaping customer. It will be backed by strategic deals with business and a cast-iron commitment, right across Whitehall, to identifying and dismantling the barriers to growth.



Woooah. “Strategic deals with business” – it may just be a slip of the pen but that sounds positively Mandelsonian, and expensive, and - despite all the committees - ad hoc.

These are the building blocks of the pragmatic, sophisticated industrial strategy that will generate the confidence needed for businesses to invest for the long-term.

***

Conclusion

That final para rounds up some genuinely important themes, but overall this speech doesn't really outline an industrial strategy because the oomph of government commitment is missing. Most obviously this is in the area of spending, but it's other things too. Theres no mention, for example, of market regulation. The UK legislation aims to promote competition and consumer choice - not stimulate new world-beating industries. 

The contrast between this lack of commitment to the UK's knowledge infrastructure and the real efforts (such as sacking an awkward Transport Secretary) being made by the government on physical infrastructure are striking (as I told the Today programme this morning). 

With regards to spending, health, defence and other forms of consumption – as well as the banks of course - have been protected by the government. Investment in the future has been cut, through the research councils and the now defunct Regional Development Agencies. That remains the bottom line on the government’s priorities. I like Vince's emphasis on stability, but sticking with the cuts made in hi-tech spending means there is almost nothing there to stabilise. And remember, the budget of the TSB on which so much ministerial rhetoric now rests, is tiny compared to the support for technology development in France or Germany.

To look at this pessimistically, we could say it’s been more than two years now. The Coalition has had plenty of time to sort out where it stands on hi-tech growth and not much is yet really happening. The sale of the 4G spectrum is starting to look like the last chance saloon for this lot.

More optimistically, we could say that the kind of  networking, thinking, strategising discussions that are starting to go on are an essential pre-requisite for a genuine industrial strategy. The job David Willetts has taken on in trying to change Conservative thinking in this area is mammoth, so perhaps we should not be surprised that progress is slow. And if the Cameron and Osborne do at some point in the future opt in, then at least we're in a better position then to spend our money wisely. 

How to read David Willetts' second big speech on industrial policy

by William Cullerne Bown

Back in February, Vince Cable set out his Liberal Democrat view of the need for a tech-oriented industrial strategy, in his famous leaked letter. Now it is David Willetts turn. Join me as I discover whether the Conservatives are ready to join Labour and the Lib Dems in backing the thing Margaret Thatcher and three decades of Treasury mandarins have abhorred - an industrial policy.

*** 

What's the good of government?

Minister of State for Universities and Science (attending Cabinet)

24 May 2012, University of East Anglia

[Check against delivery]

The simple action of cutting and pasting this speech into my word processor has alerted me to the sheer length of it. 5429 words I am told. This, and the title, are raising my hopes.

Back in January, I described how Willetts was gently leading the Conservatives into new terrain by setting out a case for state support for hi-tech.

"David Willetts’s speech on hi-tech policy on 4 January takes his party further into what Thatcher saw as the swamp of state support," I said. "For, despite the spending decisions of October 2010, until now no Conservative minister has attempted to articulate a convincing rationale for the state’s involvement in hi-tech."

Today I see an even bigger speech than the one in January, both in terms of length and scope. I am hoping that the speech will extend the new thinking from the centre right on innovation..

What calories tell us about fairness between the generations

It is a great honour to be invited to give this lecture. It is an opportunity for me, a free market Conservative, to explain the useful things Government can do.

Yep, there's the ambition. A Conservative who takes the time to explain "the useful things Government can do" is taking chances with his support within the party. The central tension in all this is between an industrial strategy and the risk of a backlash from the Right. But by taking us right back to the fundamental role of government, Willetts is rooting his argument in some political first principles.

Especially when this government is having to get a grip on the public finances, as anyone would with the deficit we inherited, there is a particular need to step back and be clear about what Governments can do and why. I am not going to start with abstract principles and then deduce the consequences for public policy. That sort of argument does not persuade people any more, if it ever did. Instead I am going to start by counting calories. 

Successfully cute.

Calories are a universal measure which enable us to get to the human fundamentals behind calculations of money, tax and benefits. Anthropologists have studied primitive tribes of hunter-gatherers in New Guinea and the Amazon, measuring the calories individuals consume as against the calories they obtain by hunting and gathering during their lives. When you are a young child you are a net consumer of calories, as any parent knows. Then as the children grow older they do some hunting but still can’t meet their full calorie needs themselves: mankind goes for diverse food of high nutritional value which is quite hard to obtain so you need a long time learning how to catch fish or which berries are poisonous. Then in adulthood you become a net producer of calories. As their physical powers decline older people become once more net recipients of calories collected by others. So out in the Amazonian rain forest at this moment a 40 year-old hunter is probably carrying six fish back to his tribal encampment thinking he has done a hard morning’s work but after he has given two fish to the kids and two more to his elderly parents there will only be two left, one of which he will give to his partner though at least she will provide in return for the sweet potatoes she has been collecting. 

Experts like Ronald Lee also calculate the ages of these transitions to being a net producer of calories and then back to being a consumer. They reckon that in these tribes you become a net producer of calories at around the age of 16 to 18. You are a net contributor through your adult years becoming again a net recipient of calories obtained by others when you are about sixty years old. These are ages which we might recognise. 

He's got me. And I suspect his university audience. This is fascinating. 

This observation about tribes in the Amazonian rain forest therefore tells us something rather important about the modern welfare state and its roots in fundamental features of human existence. Most income tax is paid by people in middle age and publicly financed services like education health care and benefits go particularly to people aged under 16 or over 60. During their lives each member of the tribe of hunter-gatherers is both a contributor and a recipient. On average when they die the transactions over their lives should net out at perfect balance. At any one moment you might be paying in or be a dependant but overall it balances. This is what holds human society together: if we were born able to fend for ourselves from the first day then none of this would have developed. This cat's cradle of exchanges and obligations is, at any one moment, a shift of resource from one generation to another. But equally, if we look over the life cycle, it is how any one generation can spread its own consumption through its life. 

Well, he is the one who wrote the book on intergenerational equity. (Note to self: do not mention tuition fees...)

The family is the most important of these exchange mechanisms, though it matters to us all far more than that. We do things for our children and our elderly parents because we love them. But in doing so we are also protecting a network of reciprocal altruism by which we hope we will get support from our children when we are old. It is also the logic of the modern welfare state. At any one moment it can look like a device to take from people earning a lot to those with less. But on a longer view it enables us to shift our individual consumption to times when our earnings are less. But the exchanges across the generations can also be thought of as a mechanism for us to reallocate our own income over time. A toddler cannot go into a bank and borrow the full amount for their education because as the economists would say, capital markets are imperfect. We need the welfare state to do some of this for us.

This is the logic of our reforms of higher education.

Oh God. Now he's mentioned tuition fees. I really don't want to have to go into this again. But what can I do? I promise to be quick...

Students do not pay fees upfront: unlike many countries we provide loans for this on terms far better than commercial.

Er, maybe, maybe not. Unlike a commercial loan where the deal is contractually guaranteed, the loans students are getting from the government aren't. So the government can change the terms if it feels like it. For example, in 15 years time when it runs out of money and the bill for all those unmet repayments starts to become clear.

In fact it is more like a requirement to pay back through a 9% higher rate of income tax on earnings above £21,000.

No it isn't, precisely because the terms of the repayments can be changed by the government at will. It's actually more like borrowing from a loan shark with unbelievably powerful heavies. 

In general going to university does boost your earnings so it is reasonable to expect graduates to pay back out of their earnings.

Agreed.

If they are in low paid jobs then they do not pay back.

Or maybe they will. If the government changes its mind.

It is a good example of the smoothing of income and spending over the life cycle which is just what Government can and should do. 

It could be an example of that. We'll know in 30 years time if future governments play their part. Or it could be a great example of an intergenerational mugging. And that's without mentioning the CPI Effect, through which the new tuition fees policy transfers money from students to pensioners. The point is that while Willetts general observation about the benefits of the welfare state are valid, the application of those principles to tuition fees isn't. 

That's it. Done. Not one word more from me on tuition fees.

In his classic paper on pensions the Nobel prize-winning economist Paul Samuelson said, “Giving goods to an older person is figuratively giving goods to yourself when old.” The modern welfare state is part of this reciprocal relationship. That is why everyone gets understandably angry if they think people who have not paid in and not participated in the network of obligations are claiming the benefits. These networks extend beyond families to wider groups. In my simplified example everyone had the same life course but actually there are many uncertainties – you don’t know exactly when you will be unable to hunt any more or exactly how many children you will have. It is efficient for these risks to be pooled. And by and large the nation is the biggest pooler of risk we have got. Provided we are clear about the risks we are expecting Government to take on and why, the welfare state can carry out a very valuable function indeed. 

The trouble is that welfare is an expression which is half-American and half-English and this generates a lot of confusion. The idea of the welfare state was originally popularised in Britain in the 1930s, as a contrast with what was called the Nazi warfare state. Welfare then meant wellbeing so the idea was that British governments saw their role as being to serve their citizens whereas Hitler used the German people as cannon fodder to fight his wars. But in America welfare has the more specific meaning of means-tested non-contributory benefits which you get without paying in to the insurance pool; they are in contrast to contributory social security which has much more popular support and legitimacy – and gets far more public spending. The danger is that all the negative associations which in the US go with a specific form of means-tested welfare payments are attributed to a far wider range of public programmes which we have in every modern economy including the US itself.

That's really interesting. I didn't know that.

Sometimes people fear that we are not committed to maintaining the basic principles of the welfare state with tax financed education and health and pensions. Let’s be clear: those programmes of the welfare state which shift spending between the different stages of the life cycle and pool shared risks make sense and Conservatives therefore back them. They are part of the exchange between the generations of which we can be proud. As I argue in my book, The Pinch, the contract between the generations is fundamental to society be it a tribe of hunter-gatherers or in the modern welfare state. There is a Conservative case for the welfare state. But of course, the welfare state always needs reform – to reflect our values and changing circumstances. It's why we have to raise the pension age as life expectancy is increasing so fast.

Well, I was 15 in 1979 and remember the period when Margaret Thatcher's comment that "There's no such thing as society" seemed a touchstone of Conservative values. And I don't read, for example, Iain Duncan Smith's speeches. But that's the first convincingly argued Conservative defence of the welfare state that I've ever seen.  

How economic growth changes things

The classical political tradition assumes a static world without economic growth. But if there is growth you can argue that the next generation is going to be better off than us and so our obligation to help them is weakened. We can load more obligations onto future generations confident they can take the burden. I do not agree with this approach. Disraeli was right when he criticised a opponent because “He seems to think posterity is a pack-horse, always ready to be loaded.” Politics falls into disrepute when citizens think Governments are just shifting problems out into the future and never tackling them today: this Coalition can be proud of our long term reform agenda. 

[no no no, my lips are sealed]

We can hope that future generations will be richer than us but this does not excuse us from our obligation to them. We enjoy the fruits of investment by earlier generations who were poorer than us and we have a similar obligation to generations coming after us. The Victorians did not build their sewers and public buildings out of cheap plaster because we would be richer than them and could afford to do our own rebuilding. Instead they built for future generations despite hoping that future would be richer than them. As the African proverb has it, “The world was not left to us by our parents. It was lent to us by our children.” 

When we were working out the science budget in the last comprehensive spending review I appreciated the argument that we were beneficiaries of a great tradition of British scientific enquiry and had a duty to pass it on in good shape to the next generation, and not to be remembered as the generation that undermined it. It is also of course one of the most powerful reasons bringing down the deficit. 

We are beginning to see a role for government. It helps to sustain the contract between the generations. This contract provides the mutual insurance pool from which we can all draw. And as we have benefitted from the extraordinary engine of modern economic growth we have an obligation to ensure it still works for generations coming after us. 

You can think of this obligation not in terms of income but in terms of assets. We have an obligation as a minimum to maintain the assets of our society – natural, physical and human. That was Margaret Thatcher’s famous observation that, “we do not have a freehold on the Earth only a full repairing lease.” So growth achieved by consuming not investing, and by destroying the environment rather than improving it, is no growth at all. This line of argument leads economists like Dieter Helm to argue for a full measure of assets so we can check we are indeed growing them not destroying them. It's why sustainability matters so much. The work you do here measuring climate change is of course an important part of that. 

The challenge we face is very stark. What if we are not passing on to the next generation valuable assets they can develop but liabilities and costs which will burden them? One very vivid measure of this is the £1 trillion of government debt that has now accumulated – roughly half of it during the 13 years of the last Government. There is only one right way of easing this burden on future generations. We must get a grip on public borrowing and get the economy growing. 

There are few things more important we can do for our future and for future generations than get the real economy right. Whilst we over-estimate the power of Government to change things in the short term if anything we underestimate what it can do in the longer term. This is what industrial policy is all about and in the rest of this lecture I want to set out how the Coalition’s thinking has developed here. We are having to do so much to reduce the budget deficit that the scale and ambition of our developing industrial strategy is being overlooked. But both parties in the Coalition understand the importance of rebalancing the economy to investment and exports away from borrowing and domestic consumption: it is a crucial part of our shared mission.

And, after a fascinating and enlightening preamble, off we go.

The basic framing here is important. First, when Willetts says "the scale and ambition of our developing industrial strategy is being overlooked" he is both contesting Cable's assertion in his February letter that "there is still something important missing - a compelling vision of where the country is heading beyond sorting out the fiscal mess" and at the same time moving a step further away from the established language of the Conservative right.

Second, "Rebalancing the economy" is a phrase the Coalition parties return to again and again. But the kind of rebalancing that is being implied keeps shifting. In this case, Willetts is referring to Mervyn King's formulation. This is critical to the political debate as it has become a widely-accepted axiom of economic policy. It sounds like a strategy, but actually is more a statement of the country's predicament; it tells us nothing about how to achieve the goals. As such, it is quite different from the thing that most people have in mind when they think of rebalancing and which reflects the historical moment in which the phrase emerged - a desire to put casino bankers in their place and prioritise people and firms that make things. 

Industrial strategy

Raising the growth rate in a mature Western economy is one of the hardest challenges facing any Government. That is why it is so tempting to believe that a boom fuelled by borrowing represents an increase in the underlying growth rate. This is an illusion to which Governments succumbed in the 1980s and again in the last decade. We will not fall for such mistakes again. That is why we are raising standards in education and skills. That is why we are tackling the financing of companies especially small companies where classic models of bank finance appear to have broken down, not least because of barriers to entry facing new banks. That is why we are clearing away the barriers in the jobs market or the planning system for example which obstruct growth. This is Government getting out of the way. But we cannot just remove barriers – we have to be builders too. This is where our industrial strategy comes in. 

We must not be crippled by a fear that any industrial strategy cannot possibly work because it must mean repeating the mistakes of the 1960s and 1970s. I am the proud possessor of a copy of the 1965 National Plan. Looking at it now one is struck by the extraordinary and absurd detail of the calculations for the future performance of particular sectors. This was sheer hubris. Nobody can or should plan like that. That is why I entered Government assuming that industrial policy begins as governments trying to pick winners but soon becomes governments rescuing losers. Vince Cable and I agree that in an economy threatened by low growth Government can and must deliver an industrial strategy. Michael Heseltine is helping us do just that. Most of what we are proposing is what they already do across America. 

This adds two important additional defences to the case Willetts made in January. First, he is arguing for an industrial policy on tactical grounds, which should allow more Conservatives to at least tolerate it. Second, the personal arc implies that strategically Willetts himself retains doubts.

Mind you, any good work with the backbenches there will be undone by saying he agrees with the loathed Vince. 

Today I want to focus on a crucial part of that, our strategy for high tech growth, drawing on my particular responsibilities for science and innovation. Promoting the technologies of the future has already emerged as one of the crucial themes of the review of industrial policy launched by George Osborne in the Budget. There are three elements to what we are doing.

That sounds plausible but actually obscures an important point. It's not clear in fact that there is any appetite for industrial strategy in the government beyond hi-tech. That was confirmed by Cable's letter.

1. Securing the research base

We start with the securing the research base. It benefits from ring fenced cash protection for current spending of £4.6 billion a year over this Parliament. I detect an anxiety that we are not supporting blue sky research but let me be clear that we do. The Research Councils distinguish between responsive mode grants which start with an approach from a researcher and challenge grants which are in streams of funding specifically for national and global challenges, though of course here smart original ideas are rewarded too. Across the research councils overall, approximately two-thirds of spending is on responsive mode and one third is on directed mode. 

The Government can bear the big risks of scientific innovation, which are too great for any individual company. It is another example of that risk pooling I talked about earlier. Then, as we lower the risks of new technologies, companies step in and do their bit. 

It is right that scientists should range freely and do blue sky research. Civilised advanced societies should support that sort of activity. But there are utilitarian arguments too. Even the purest blue sky research is likely to end up with practical impact, though nobody can predict what that will be in advance.

Well, obviously the government has actually cut spending on the research base. But it is still an articulate Conservative defence of a substantial area of public spending.

2. Creating stronger links between academic researchers and business

We cannot just support pure research. Our second task is to make stronger links between academic researchers and business. Cutting-edge science often requires technological developments for research and these can themselves generate new applications. For example, the fundamental advances in DNA have both driven and depended on technological advances in genetic sequencing. Britain has great strengths in this area with firms like Solexa Sequencing, now part of Illumina, and more recently Oxford Nanopore. Both of these businesses are spin offs from academic research which received public funding. 

We are now broadening the training of researchers so they have more opportunities than ever before to experience the world of business. The Research Councils have increased their investment in collaborative training which involves private, public or charity research partners by a fifth. 

Earlier this year, for example, I announced around £60 million of investment for the BBSRC's Doctoral Training Partnerships, which will give the next generation of researchers an opportunity to take up professional internships in business. Today I can announce a new programme of manufacturing fellowships that were first outlined in the Growth Review. The EPSRC has initially awarded four prestigious fellowships to scientists making the transition from industry to academia: from Qinetic and IBM to Exeter, BAE to Cranfield and Talecris Biotherapeutics to UCL. Each fellow will lead a £1 million research programme with clear commercial potential, lending their business expertise to enhance collaboration with the science base. EPSRC will also be funding additional manufacturing fellowships, to enable business access to state of-the-art technologies.

Two things strike me. First, 90 per cent of the links we're interested in are existing businesses that go and get what they need from academics, not spin outs. And second, this passage seems to have a lot about research council money in it. 

3. Systematically identifying new technologies

These initiatives quite rightly encourage individual initiative but we also need a systematic look at the technological advances on the horizon. That is the third element in our policy. In July 2010 we published a Foresight report, Technology and Innovation Futures: UK Growth Opportunities for the 2020s. That report revealed a clear pattern with technological advance in four areas neatly summarised as BNIC – Bio, Nano, Info and Carbo which I set out in a speech in January. They provide a useful framework to make sure we do not ignore major new technologies. One of the most exciting developments is the convergence of technologies, for example linking advance in information technology and in biological sciences – dry and wet coming together. One reason why we need to sustain our broad science base is so we can make these connections. And we must never overlook the role of the humanities and social sciences here. So for example rapid advances in haptic technologies – using touch-based interaction – require us to understand human behaviour as well as physical science. 

I can report today that I have commissioned the Government Office for Science to review and refresh their earlier report: it should be available in the summer so it can feed in to the development of our industrial strategy. It would be surprising and indeed rather worrying if this new report were radically different from the one we published two years ago – it would suggest we had no reliable handle on developments in science and technology. But we have to remain alert to new developments. 

Public funds are inevitably limited so exercises like this enable us to fund the work with the greatest potential. So the Technology Strategy Board then assesses which of these technologies are likely to have the great commercial potential and backs them in particular – energy efficient computing and energy harvesting are particular priorities. 

This harks back to the original motivation for the first technology foresight exercise in the UK back in the mid-1990s. That was to give Whitehall some strategic grip on the issues so that ministers could fight back when Lord Weinstock banged the table and said he wanted another £20 million for his latest project, and it was vital to the country's hi-tech future. Even though it's only two years old, the 2010 foresight exercise was a Labour one. The Coalition - understandably - wants its own report to guide future spending decisions. 

In another priority area, synthetic biology, I'm pleased to make two announcements. The TSB, together with the BBSRC, EPSRC and ESRC, is investing up to £6.5 million to encourage businesses to explore new industrial applications for synthetic biology. Separately, the EPSRC is leading on a £6 million grant to a consortium comprising Imperial, Cambridge, Edinburgh, Newcastle and King's to develop a new platform technology for the production and commercialisation of new products. 

One of the many reasons why people are sceptical of industrial strategy is the false dawns promised as new technology developments never quite happen. I do wonder why we aren't yet flying in to work on our personal jet-packs, having seen Sean Connery's James Bond use one in Thunderball in the 1960s. But sometimes we can deliver what used to be science fiction - those automatic doors in Star Trek slid open because stage hands operated pulleys but the technology soon caught up. Every week I get to see the most amazing advances in our laboratories and research labs which give me confidence we can remain at the cutting edge of new technologies. 

At Fylingdales on the Yorkshire Moors we can track an object the size of a tennis ball 3,000 miles out in space. Earlier this month I opened the new robotic labs in Bristol which are probably the largest and most sophisticated in Europe. A robot picked up a packet of crackers. Not much new there I thought, until it was explained that it had picked the packet up to get it in its eyeline so it could read the name on the packet and respond to instructions from the user to collect a particular item. 

Two weeks ago I attended the handover of a piece of British and European kit for the James Webb telescope so sensitive that when it is in orbit, it could see the light of a single candle on one of the satellites of Jupiter. We are sometimes so cool and sceptical that we lose our capacity for wonder at what science and technology right here in Britain can achieve. Our Foresight reports enable us review these developments systematically. 

Government playing a creative role to drive innovation and generate output 
All this adds up to Government playing a creative and constructive role working with researchers, universities and business to promote innovation and achieve the greatest possible economic value. Increasingly I think of this less as the passing of a baton in relay race and more as a partnership in which both Government and business and other players are all active at the same time. With my combined responsibilities for universities and science all within BIS we can harness the power of Government to play a far more constructive role than I would have envisaged two years ago. It is what they do not just in Germany or South Korea but in the USA too. We should not let myths about free market America inhibit us from doing the same here. 

Again, America will make it harder for Willetts to come under attack from the right.

There are some basic steps we can take which are far more effective than I imagined two years ago. So here is Industrial Strategy 101. We set up a leadership council probably co-chaired by a BIS minister and a senior industry figure in which researchers, businesses perhaps regulators and major public purchasers come together. We use it to get them talking to each other frankly. Then we commission a trusted expert to prepare a technology road map which assesses where the relevant technologies are heading over the next five years or so, what publicly funded research is going in to drive it, and what business is likely to do. Just this exercise, with no increase in public funding, can transform behaviour. Some of the big companies for example might have a HQ abroad and it means British managers and indeed BIS ministers can show to head office what we are doing and so encourage more investment here. It can encourage businesses sitting on piles of cash to invest when they see how it fits in alongside investment others are committed to putting in. I have done it with, amongst others, space technologies, regenerative medicine, high-performance computing, and now with synthetic biology. Only last week Vince Cable and Mark Prisk, who do something very similar with big advanced manufacturing sectors, showed how triumphantly effective our approach can be. Their work with the Automotive Council was crucial in giving GM the confidence to invest more in the UK. 

That all sounds good to me. But, as Willetts himself hinted earlier, it's not really Industrial Strategy 101. Maybe it's Technology Strategy 101. But there's a big difference between those two things.

But even this is not enough on its own. Here are ten further new things we are doing as part of our high tech industrial strategy.

1. We are creating seven Catapult Centres linking business and public funding for new research projects.
2. We are introducing one of the world’s most generous tax incentives for R&D with tax credit worth up to 225 per cent.
3. We are changing the tax reliefs for investment in start-ups so academics can stay in academia and work part time for a company and still enjoy tax relief.
4. We are liberalising the rules so research councils fund co-operative research groups like Imanova in Hammersmith in which UCL, Kings, Imperial and MRC together take over and run a medical research facility.
5. We are using inducement prizes to reward innovation through a new centre opening at NESTA this year.
6. We are using procurement to encourage innovation by increasing spend through initiatives like the Small Business Research Initiative.
7. We have brought back the Smart awards first introduced by David Young to help start-ups with the cost of getting proof of concept and proof of market so they can get commercial investors in.
8. We have backed venture capital with public investment in to the tune of £200m over four years through the Enterprise Capital Fund programme.
9. We are developing improved access to publicly funded research so individuals and companies can get more out from the research we finance.
10. We are backing clusters like Harwell and Daresbury which are now enterprise zones, Tech City, and of course the excellent Babraham and Norwich research and innovation campus clusters here in which we are investing an extra £70m.

These are all new initiatives for growth and innovation which this Coalition is implementing. It is not an exhaustive list either. There is a lot more going on. Now we are applying this approach to our biggest manufacturing sector which can also gain a lot from applying high technology. That is the big sprawling part of our economy encompassing food and drink manufacturing and agriculture.

That also all sounds good to me. But even though I'd missed some of these things, I don't yet feel there's anything in this speech to get me agreeing with Willetts idea that the world hasn't noticed the scale and ambition of the Coalition's industrial strategy. 

The other half of the life sciences agenda

Almost exactly six months ago the PM gave a powerful speech on life sciences. It reverberated across the sector and I know it has registered with companies headquarters in Japan, the US and Switzerland as well. That focussed on the role of life sciences in human health. But there is the other half of the bio-sciences – from animals to agri-foods. 

It draws on many of the same scientific advances notably genomics as human health. It also has important links to human well-being. The epidemics of the future may be zoonotic – the result of a pathogen in crossing the species barrier and attacking humans. We still do not do enough to link veterinary science and medical science in a shared research endeavour of comparative clinical science. And the security of food supplies is a real challenge as the population grows and climate change threatens some traditional agricultural areas. We really would be failing to deliver on our obligation to future generations if we left them with a public health crisis and a deterioration in food supplies. 

That means sophisticated scientific research. We all like to think of food and agriculture as natural. But the only reason we can feed ourselves now is generations of scientific research, selective breeding and industrial advance – our Industrial Revolution proceeded in parallel with an Agricultural Revolution. 

We are experiencing a period of scientific revolution now. Advances in rapid gene sequencing technology allow for the identification of desirable traits that can give rise to an accelerated natural selection process. This science of genomics has great potential to revolutionise plant breeding and crop development in future. GM is already a part of this in many countries. Here, there are still decisions for us to take – and I realise people have different views. But well-informed decisions require evidence. The scientific experiments going on at Rothamsted and elsewhere are essential for gathering that evidence. The independent regulators say that the risks are tiny. Whatever our personal views on GM, everyone must surely want to protect the integrity and freedom of British science – and allow these experiments to proceed. 

I think this is definitely an area where the Coalition can scientist friends far beyond the disciplines concerned. Labour's shadowy abandonment of GM under pressure from green activists after public investment of hundreds of millions of pounds was weak and shameful. 

One reason for the anxiety around GM is the belief that our food just grows naturally. It's a bit more complicated than that. Compare Apple and the tomato. Apple is one of the great innovators. A lot of sophisticated science and engineering goes into an iPad or an iPhone. We like to think of the humble tomato as vey different. But the modern tomato is equally the product of generations of scientific advance which has developed genetic traits that give it the colour, taste, and shape we want as well as the capacity to stay ripe for longer. Since January this year, according to Google Scholar, well over 1,000 academic publications on tomato genetics have been published. We should all be a bit more willing to take pride in this scientific achievement rather than ignore it. 

Agri-science challenges our assumptions in another important way too. One of the challenges to the case for a high tech industrial strategy is that high tech is always going to be a small part of the economy and the real challenge is to raise the performance of the basic bread and butter sectors. The OECD definition of a high tech sector is one which devotes more than 4% of turnover to research. This does mean that most of the big sectors of most economies are not defined officially as high tech. But this ignores the pervasive effects of advances in general purpose technologies which are the very ones we are trying to back in our high tech growth strategy. One of the biggest single drivers of American productivity growth in the past decade was a transformation of performance in retailing, notably Walmart. It may not be officially high tech but it was using advances in IT systems that certainly were in order to transform its performance. The same can be true of agriculture and food manufacturing which can gain enormously from advances in biosciences. And it is not just us who gain. Some of the poorest parts of the world facing rapid climate change depend on rapid advances in agri-science to avoid famine. That is why our partnership in BIS is not just with DEFRA but also DFID who offer enlightened support for agricultural research. 

This is the point I was making above - that the key links between business and universities are the low-tech ones.

Because of the importance of this, I am announcing today very substantial grants from the BBSRC worth £250 million to our leading research institutes. They include £14.5 million for the world-class Genome Analysis Centre here in Norwich. Here is an example of what this is all about. At the moment we can grow just over 12 tonnes of wheat on a hectare of land in the most productive and efficient parts of the country. The BBSRC have set the challenge of getting that up to 20 tonnes of wheat by 2020. It really will be the next Agricultural Revolution. The research we are funding will help make this happen. 

Two thirds more wheat. That seems like a lot.

This commitment by Government to research in the biological sciences is only a first step however. We need to do much better at linking our upstream research to the practical needs of farmers and the food industry. We will be working with them and DEFRA to ensure this research is applied as effectively as possible. I know that industry is keen to work with us to do just this.

Farmers, not the Environment. You see how Defra's research priorities have changed again. We're back to where we were before it went all climate-y.

Conclusion

So we have ended up where we started – producing and consuming calories. But I hope that in the course of this lecture you have seen how these basic human needs show what Government can do. We are not detached and above the fray. Instead we are engaged, creative and constructive. 

I've made five announcements today: the £250 million of BBSRC grants; the EPSRC manufacturing fellowships, each worth £1 million; the two separate investments in synthetic biology; and a refreshed report from the Government Office for Science on future technologies, to inform the evolving industrial strategy. 

That's a lot of stuff.

We are backing the risk takers, and are willing to take a risk ourselves. As Government is an insurance pool, we can take bigger risks than any other player. It is this attitude to risk that I will consider in a lecture at Imperial next month. Meanwhile I thank you for your hospitality and congratulate again on your research network here which brings together the university, the hospital and institutes. It is one of the finest in the country and we can all take great pride in it.

CONCLUSION

Willetts is quite explicit about where the government is at. He calls it a "developing industrial strategy" and goes on to say, "Vince Cable and I agree that in an economy threatened by low growth Government can and must deliver an industrial strategy. Michael Heseltine is helping us do just that. Most of what we are proposing is what they already do across America."

In other words, Cable and Willetts are arguing for the government to adopt an industrial strategy. But the big power brokers - Cameron, Osborne and Clegg - have yet to declare their hand. All we have at the moment is the latest attempt by the government to come up with a growth plan that is not still born. 

What Willetts has done is to set out a political framework for an industrial policy that Cameron and Osborne could adopt. All right, the policy approach itself - so far as it is possible to discern what is still evolving - is probably going to be better described as a technology policy. But that politically necessary elision should not blind us to the other qualities of this speech. It is thoughtful and not a little courageous. Bringing the words "industrial policy" back in from the cold would be a significant step.

So when Willetts talks about "the scale and ambition" of his plans for industrial policy, it's both false and true. It's false in the policy sense - the government doesn't actually have an industrial policy at the moment. But it's true in a political sense - the scale of the change in party ideology he's aiming for is genuinely ambitious.  

This is high politics being played out, partly in the open. To those who think the Cameron revamp of the Conservative Party was all spin, it would be a blow. Here you would have the abandonment of an authentic piece of economic ideology. So, like Willetts, I'm surprised it's being overlooked. Even this speech seems to have hardly registered.

Compared to this, the January speech feels like a clearing of the decks. He had to deal with the rhetoric left over from the Thatcher period, picking winners for example. The arguments now are more forward looking, deeper, stronger and more polished. Not much has changed in the overall thrust, but the idea of a tactical retreat to industrial policy in order to get growth going may make it more palatable to some parts of the Conservative party. 

It leaves me wanting to know what Peter Lilley thinks, what younger avowedly free-marketeer Conservatives think, what Conservative Home thinks.

But most of all, of course, I want to know what George Osborne thinks.

Defining the front line

by William Cullerne Bown

"So we will continue to campaign for the key recommendations of this report: government should come clean about its financial chicanery and open the books, secure the much-vaunted loan repayment terms in statute, and restore direct grant funding of universities for mainstream teaching activity. The battle for education is far from over, and these are its new fronts."

These were the words of the NUS president, Liam Burns, in his foreward to the new report on the government's higher education reforms by Andrew McGettigan for the Intergenerational Foundation. They are unambiguous. The report outlines some problems and some remedies. And both the analysis and the prescription for what the government should do are being endorsed by the NUS. Some 18 months after suffering the biggest defeat in its history, the NUS has dusted itself down and worked out what the "new fronts" are in its campaigning.

This is of more than passing interest to both universities and teenagers. The Coalition's new settlement for HE is unstable because the public sees fees of £9,000 as too high, because the one thing Ed Miliband has definitively done is to set Labour against it, because it is impossible to see the post-Nick Clegg Liberal Democrats supporting it, and because - as the report outlines - the finances of the scheme itself are shaky. The next election could easily lead to another volte face in policy, and the NUS is one of the major institutions that can shape the debate that eventually determines that new policy.

So let's pause for a moment and look at where the ideas picked up by Burns have come from - the idea that the Coalition's policy is essentially one of financial chicanery, the objective of securing the terms of graduate loan repayment in statute and the belief - against every austerity lecture - that restoring block grants to universities for teaching is practical. 

Financial chicanery

The financial chicanery that Burns refers to was originally laid out by Andrew in a series of six articles that I commissioned for Research Fortnight last year entitled The Third Revolution. We've had a lot of requests for these articles so I'm going to list their PDFs here:

1 The truth about Middlesex   7 September 2011, on how the government was positioning itself to privatise universities

2.1 'Demand would be enormous'   21 September 2011, on how universities could start to finance themselves with bonds 

2.2 Borrowing greatness   5 October 2011, on how bond finance has inexorably driven up tuition fees in California

3.1 'A dodgy PFI scheme'   16 November 2011, on the basic mechanics of the macro financing of the new loans scheme, and the problems that follow

3.2 Shifting the risk   30 November 2011, on the government's four options for reducing the risk losses on the student loan book 

3.3 Into the shadows   14 December 2011, on the murkiest of those options - monetisation.

In total, the series ran to about 20,000 words. We billed it as "a major series investigating how new forms of capital and constitution are set to reshape higher education in England" and events have shown it living up to its hype. 

The series' first contribution was to the government's decision to abandon its plan for a white paper on higher education. "The truth about Middlesex" not only explained how the government was preparing to enable the privatisation of many universities, especially those constituted as Higher Education Corporations. It also demonstrated with forensic strength how universities like Middlesex would be driven to leap into the private sector. Once this trajectory had been dragged out of the shadows, the government quickly lost its stomach for the fight it could see coming.

The financial chicanery was laid out in the last three articles. These went beyond the intrinsic complexity and uncertainty of the new arrangements, already well known at the time, to explain how the Treasury's need to manage the huge financial risk involved could easily become the central driver of the whole of higher education policy. Burns has now recognised the centrality of this issue.

Securing the terms of graduate loan repayment in statute 

While Andrew was digging away on the macro finances last autumn, I turned my attention to "the deal" being offered to undergraduates. I was horrified by the grotesquely misleading financial advice being offered to would-be students by the government and the naively co-opted moneysavingexpert.com. I eventually found myself in correspondence with the Student Loans Company, Office of Fair Trading and government departments over the terms of the agreement to be signed by students to get their loans. It became clear that there was no intention on the part of the government to contractually commit to the generous deal being apparently promised by ministers. The deal, it transpired, was not a deal.

"Thanks to the heedless rush to steer nervous students into the new system, we may therefore be in the early days of another great British mis-selling scandal to add to the various pensions and insurance debacles. Only this time the victims have had their legal redress taken away in advance," was how I put it in November (and the deteriorating economic outlook has only served to increase my concern that graduates will end up being ripped off). Again, Burns has now made this a central issue for the NUS. 

Restoring block grants to universities for teaching is practical

Of course, the NUS needs no help to argue that grants are better than loans. But still, the question of whether it is practical to restore the block grant in an age of austerity remains critical. Amazingly, even if you are an ultra deficit hawk, the answer is yes, it is doable. Andrew's report draws on the idea of the "CPI Effect" that I outlined last September, badgered the OBR to study, and on the back of their estimates returned to in February.

In other words, all three of the central issues cited by Burns can be traced back to the work we did at Research Fortnight last year.

Conclusion

Well by now you know that part of the point of this article was to blow our trumpet at Research Fortnight. But that is only part of it. Because the very fact that so much of this work was done by what remains a tiny set up is troubling. Where was Universities UK? Where were the mission groups? Where were the higher education academics? Where were the think tanks? There's an association of people who provide financial advice to students. What happened to them?

For the 20 years or so that I've been writing about universities I've been willing to accept that, in their different ways, UUK and the mission groups have the interests of everyone in higher education in mind. No longer. Yes, there are many well-intentioned individuals in those institutions. But over the past two years there has been too much silence, too ready a willingness to trade the interests of students for the interests of the universities. UUK and the mission groups have put themselves in a narrow, sectional position. No student or parent or politician can trust them now to provide anything but a very partial picture.

What we need now is some new institutions. We need a charity to promote the benefits of higher education as a whole, and speak for it. We need something like a think tank. We need to reconnect the sadly isolated HE academics with the policymaking world. Above all, we need to start telling the public the whole truth.

How to read Vince Cable's letter on industrial policy to David Cameron

by William Cullerne Bown

Vince Cable's letter to David Cameron about industrial policy has stirred up a storm over the Royal Bank of Scotland. But banking was only number four on Cable's list of priorities. At the top was support for hi-tech. Join me as I decode what Cable was really trying to achieve in his letter...

***

PRIME MINISTER. DEPUTY PRIME MINISTER

INDUSTRY POLICY

Department for Business Innovation & Skills

The Rt Hon Vince Cable MP

8 February 2012

That date gives us the context - this is preparation for the Budget and its core is the age old battle for a bigger departmental budget.

 

I know you have been giving some thought to the subject of industry policy, as I have, and I want to share my views with you.

From Vince we expect that kind of thinking. But Dave?

Michael Heseitine has been particularly helpful in encouraging creative thinking.

Hezza - like Cable - had ambitions for industrial policy but never escaped the limitations of his department's tiny budget. He banged on about SMEs because he didn't have the money to play with the big boys.

The term "Industry policy" has acquired a bad reputation in the UK as a result of misguided and clumsy interventionism in the 1970s: "picking winners" (often, losers); state subsidies; "economic planning". There were however more successful, albeit different, experiences in France, Germany, Korea, Japan and Singapore. One of the messages I hear from business — this last week in a long conversation with Ratan Tata and Cyrus Mistry — is that we have swung too far in the opposite direction.

Also my view. And that of everyone I tweet with. And of David Willetts recently. And seemingly of George Osborne before he actually got into Number 11.

We have united the Government around an economic strategy which attracts widespread support: restoring fiscal credibility which enables loose monetary policy; an export drive centred on emerging markets; a warm welcome for inward investors; an ambitious infrastructure plan; a strong commitment to business-relevant skills and apprenticeships; universities put on a sound financial footing for teaching, research and business engagement; and a better process for stemming and cutting red tape. Our Growth Review has identified numerous action points and policy changes as with the planning system — which could speed up growth in the medium to long term. In all of these areas, we are agreed on the way forward; the priority now is implementation.

ie "Dave, we're mates, right."

I sense however that there is still something important missing - a compelling vision of where the country is heading beyond sorting out the fiscal mess; and a clear and confident message about how we will earn our living in future.

That should hit home at Number 10. Just as the Big Society takes the political edge off welfare cuts, the government needs a positive economic message to balance the negative one of austerity.

After the best part of a decade in Shell I know enough about the difficulties of long term planning not to be seduced into believing that we can predict the economic cycles and market driven competitive forces of the future. But that experience did teach me the importance of thinking a decade or two ahead, beyond the electoral angle, which our top industrialists are clamouring for. We can be more strategic, and the economic backdrop will increase demands that we are ambitious.

In other words, the government's failure to stimulate growth with the tactical moves of the past two years makes a credible long-term strategy for growth more important.

Recent bad news from Bombardier, BAES and Rio Tinto Alcan will not be the last, with potentially difficult announcements from General Motors and the knock-on from the possible loss of the Typhoon contract.

A reminder to Number 10 that this is not just about economics. The bad news filters through to the stuff the politcos really care about - bad PR.

None of these can be blamed on the Coalition, but the policies we inherited have played a role: notably, our procurement rules in the case of Bombardier, but also our planning rules in the case of Pinewood Studios being denied planning permission. Together they point to a lack of strategic pro-growth thinking in previous administrations, which we must now address.

Again unifying the Coalition partners around bashing Labour.

Market forces are insufficient for creating the long term industrial capacities we need. Despite the biggest devaluation since the War, improvement in the UK's trade balance has been disappointing.

This sort of candour has been missing from public statements.

The Labour boom and bust hollowed out the supply chains on which exporters and inward investors depend. And while controversy rages over bankers bonuses, the much bigger problem is the lack of confidence businesses have in their ability to find affordable financing for future investment. All in all, we must lay out a strategic vision for where our future industrial capabilities should lie, and how to deliver it.

Planting government expenditure firmly in the enabling rather than picking winners camp.

So much for analysis and criticism (including self criticism).

Self-criticism? I can't see any of that.

What is to be done? I have five suggestions.

First the Government can show more leadership in identifying and supporting key technologies.

Well done Vince.

Cable needs more budget. And hi-tech is indeed his strongest card. It's what has the resonance and glamour for the voters. As Number 10 well knows with all its Tech City spin.

We have a fantastic scientific tradition in this country, and technology leadership must drive economic activity in the future. This government has done some good things — protecting science spending, launching the first wave of "Catapult" centres, supporting the growth of Tech City and shifting resources towards STEM subjects and Apprenticeships. But our actions are, frankly, rather piecemeal.

Indeed they are.

There are lots of individual funding decisions that lack support in other policy areas, or are not followed through systematically.

Oh yes. Right again.

The Technology Strategy Board, which works with business to deliver priorities, is operating on a shrinking core budget and thereby missing valuable opportunities.

That sentence is great news for the TSB.

There are gaps in the UK innovation system, notably a lack of support for large scale demonstration of new technologies.

That makes it sound so logical. But demonstrators can be very expensive. Get into that game and you could need to increase the TSB budget by not 100 per cent but 1000 per cent.

All of this calls for a stronger steer from government to build certainty and hence the confidence to invest. So a better resourced operation is needed, explicitly bringing together the Government's technology priorities, and making the right links with other levers across government.

This is starting to look like a cogent letter full of joined up thinking. The other levers do need to be pulled.

Second, and more controversially, we should be willing to identify British success stories, as identified through success in trade, and explicitly get behind them at the highest political level.

BTW Who is this actually controversial with any more? Where are the big beasts of the Conservatives stomping about and saying "No picking winners"?

Without in any way picking winners, it is possible to identify some loosely defined sectors which merit close attention and backing:

"advanced" manufacturing and related services For example, the aerospace and automotive sectors are each an important UK success story. Beneath these industries are broad supply chains and key relationships with other growth areas like composites and plastic electronics. But overcapacity in the European car industry, and the potential retreat of BAE and EADS from UK production, are putting this at risk. We have structures in place to discuss these challenges — the Automotive Council and the Aerospace Leaders Group — but must soon decide how much support we can give. I do not support us propping up clearly failing enterprises. But when commercial decisions of international companies might cause the decline of a wide industry, we need to plan how to develop a proper strategic partnership that retains capabilities in this country.

Well that insight into where EADS and BAE are going has put the frighteners on me.

Digital/creative industries: In this area of huge potential there are a lot of quiet success stories, largely without direct government help; the UK leads the world in e-commerce for example. We have taken important early steps, including the rollout of superfast broadband and copyright reform. But the Creative Industries Council which Jeremy and I have established is identifying serious problems which make global-champions like ARM the exception rather than the rule. Despite fantastic SMEs, we have produced no Amazon, no Google and no Intel. Key issues are in finance and skills, including how our equity markets function that leave too few potential giants to expand organically rather than sell up.

Yes, but what can the government do? Bit vague there.

Traded services are crucial to rebalancing the economy towards exports. These include professional and business services such as architects, consultants, accountants and lawyers; tourism; higher and further education; large parts of the financials sector which were largely blameless in the crisis. As the global economy expands these will become ever more important. But the government does not yet have a clear strategy for how to address the pressing issues, such as how to design our immigration cap for rapid global growth, or improve future language skills.

Plausible.

Energy industries and low carbon: in recent years the oil and gas exploration industry feels it has been taken for granted, despite generating vast investment and supporting impressive supply chains with unexploited potential (shale gas). We need to remain sensitive to the Scottish dimension, with the perception that Alex Salmond cares and London doesn't. While we are making moves to promote the next generation of renewables (nuclear and offshore wind), there is as yet little attention given to supply chain issues. We also need to make stronger links between policies to reduce energy use - like the Green Deal and smart meters - and jobs and growth. And the UK has the potential to create a leadership position in a number of important areas of the low-carbon transport revolution.

This is the kind of area where you could blow billions on demonstrators. But a word of warning. I'm told by venture capitalists that deals in "cleantech" as the sector is known have fallen off a cliff in the past six months because investors have been spooked by a perceived lack of government commitment to ensure the revenue for clean power generation will be there in the years to come.

This list of sectors is not, of course, exhaustive. It is meant to illustrate areas where we need a more strategic and proactive approach using all of the government's policy levers — rather than simply responding to crises after they have developed, or waiting to see what the market dictates. Further analysis of future trends — such as the demographic transition, and the need for future infrastructure — ought to yield other significant areas that demand a similar strategic approach.

Third, a connecting thread is the need for strategic and long term thinking about supply chains and the role played in them by public procurement decisions. This should extend to all areas where the government exercises significant influence, such as in energy or other regulated sectors. There is some positive thinking about the NHS and Life Sciences but no connected approach across Government.

It is striking that after the recent disinvestments, pharma is not in the above list. It always used to be in these sorts of lists.

Ratan Tata and Vincent de Rivaz, among many others, express great frustration about lack of joined up thinking in this area. We must now achieve thorough implementation of the decisions that we took before the Autumn Statement to move policy in a new direction. This will be very challenging. It will require sustained engagement by Ministers, careful management of specific cases coming forward and ultimately nothing less than a change in mindset and capability across the public sector. I recognise the difficult of balancing strategic procurement and cost cutting, not least in defence, and welcome the leadership Number 10 has shown here. Where we know big investment decisions are going to be made (such as in rail, nuclear, offshore energy etc), we need to put in place a strategy actively to plan how we will strengthen the supply chain, develop the skills needed in this country, and provide certainty to business.

I'm pessimistic about procurement. Yes, in theory it could make a big difference. But I can't remember a time when hi-tech ministers didn't say it was crucial and promise to do something about it. It definitely goes back as far as Waldegrave. The Treasury never budges on its value-for-money thing and implementation would be outside the Whitehall skill set.

Fourth, the banking crisis casts a long shadow. Not only does there remain considerable pro-cyclical behaviour, but we also inherited from Labour a banking industry structurally ill placed to serve the needs-of productive businesses. We badly need an initiative that gives business confidence that expansion will not be choked off by the banks. My suggestion is that we recognise that RBS will not return to the market in its current shape and use its time as ward of state to carve out of it a British Business Bank with a clean balance sheet and a mandate to expand lending rapidly to sound business. We should be willing to use such an institution to support our other industrial objectives, such as supporting exports and sectors identified as of strategic importance. But this will take time and in the meantime we have to get the state banks lending to business, especially SMEs.

It's sort of weird that the tens of billions the exchequer might give up to do this is somehow more plausible than, say, an extra £300 million a year for the TSB, which was top of Cable's priority 1. On the BBC, Robert Peston says "Business Bank" idea has already been ruled out, but there is certainly a lot more talk about "short-termism" in the City coming out of this government now than there was a year ago.

We must also consider creative non-bank channels: the Taskforce led by Tim Breedon that I have established is examining every opportunity to build more sustainable markets for business finance in the future. That will report in the next few weeks. In the immediate term, we should be examining how the funds allocated to credit easing could channel credit through entities that have trusted relationships with businesses, or service provider's to the business community. We should be bold: in the private sector, it is normal to pilot schemes and not be afraid to risk failure: we need to adopt a similar approach in how we launch innovative policy experiments to find effective alternatives to banking as a source of credit. These are not terribly expensive but could turn out to be instrumental both in supporting the recovery and in rebalancing the economy.

Finally, the economy will continue to struggle while the construction industry remains so depressed. By contrast the big recovery in the 1930s was driven by a combination of new industries (cars and chemicals) and construction: estates of semis and lots of council housing. Construction provides plenty of jobs and supports UK supply chains, including innovative products, ranging from new more sustainable construction materials to energy saving technologies. I strongly welcome the Housing Strategy that Number 10 developed last autumn. Galvanising the housing construction market would have a much wider economic impact in stimulating innovation and growth, and I absolutely agree that it should be an important priority. There is a particular problem with financing; the housing associations, which could drive recovery, are unable to mobilise funds on any scale. We should have the same level of commitment across Government to getting housing moving as is beginning to happen for infrastructure.

These are some brief thoughts on big and complex issues. I welcome that Number 10 has been exploring other options, and am keen that we work together on this.

Unfortunately, the Number 10 innovation guy has so far failed to get his boss to go beyond glam gadgeteering in Shoreditch.

I would welcome an opportunity to discuss with you and colleagues how to make headway on industrial policy and what the next steps should be.

VINCE CABLE

***

MY VERDICT

A grown up plea for grown up policies that will require a lot more money. Sadly, there is no sign of the can't-do attitude at the Treasury changing and Cable is likely to suffer the same fate as Heseltine and be remembered as well-meaning but ultimately irrelevant.

At the outset of the Coalition, all the hi-tech stuff coming out of Cable and Willetts was about the science base; the TSB didn't get a look in. But then something changed. It is striking that in this letter there is no mention at all of the science base or research councils. This makes me worry that scientists are losing the battle to be seen as part of the growth agenda. If so, it is only a question of time until politicians start to think about taking money away from the research councils and giving it to the TSB.

Fear and the HEFCE grant letter

by William Cullerne Bown

The annual grant letter sent to HEFCE by BIS today includes the statement:

"we are reiterating our overarching warning that we may transfer HEFCE grant for 2012-13 or future years back to the Department to meet unanticipated pressures, such as student support costs resulting from any over recruitment".

This reminds us that, for all the measures HEFCE has in place to deter over-recruitment, BIS is concerned that too many students may still end up demanding student loans and ratcheting up the national debt.

This problem of keeping total spending on undergraduates (including loans) under control may become a more pressing issue if the government does indeed scrap the promised higher education bill, for three reasons.

First, as Andrew McGettigan points out, without new legislation there is nothing to stop any suitable student demanding a loan from the government.

Second, as Andrew Fisher points out on WonkHE, the core/margin mechanism the government is using to drive down prices depends on the soon-to-expire system of teaching grants:

"Things like core/margin ...  rely entirely on HEFCE’s existing statutory powers to place conditions on grant. Take away the grants ... and you have no power to impose core/margin.

Delay is possible, because currently all the major players have enough HEFCE grant to keep them in line, but as the cuts come in the regulatory system will implode without a new Bill."

Third, the universities are "kept in line" in part via the financial memorandum they sign each year with HEFCE. But now that they are getting much less money from HEFCE, some are already beginning to whisper about rejecting the memorandum or demanding wholesale changes.

OK. So we make a bonfire of the higher education bill. Then what?

by William Cullerne Bown

Question. If the promised higher education bill is toast, then how much of the agenda laid out in the white paper actually remains possible within the existing legislative framework?

For example:

• Are there limits to how far David Willetts can push marketisation policies like AAB and core-margin?
• What can still be done for private providers?
• How far can HEFCE's remit be changed by reinterpreting existing texts?
• Can HEFCE stand by while universities go bust, especially the many new universities who are financially vulnerable to the market but were established as higher education corporations?
• Can HEFCE continue to impose its will on those universities to whom it no longer provides much money?

Answers (and more questions) please in the comments section.

How to read David Willetts' big speech on growth

by William Cullerne Bown

I have waited a long time for this speech.

Back in October 2010 I gave David Willetts a bunch of white lilies and roses. That was the day the Coalition announced that science would get a flat cash settlement, with the deep cuts reserved for capital spending.

It was also the day George Osborne started name-checking science in his plans for growth. And the day David Willetts said, "I'm a big fan of the TSB."

Reading the runes I concluded that the Conservatives had turned a corner in their thinking on science and technology in the modern economy. Hence the flowers.

Looking back at what I wrote then, it was disturbingly prescient:

"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."

Fifteen months later of course it has become clear that the gloomy economic scenario is the one we face, and the political imperative to be convincing on growth has correspondingly strengthened. New money has been found for graphene and other marvels that tick both the economic and political boxes. But one thing has been missing. The speech to flesh out this new thinking. That delay generates its own questions about the depth of commitment to the new direction. But now Willetts has delivered the speech, a long work that runs to over 20 pages on my printer. Join me to find out how it measures up to the truly huge political and economic responsibilities now resting on it. Is there enough here to believe the Conservatives will be credible on hi-tech - and hence all - growth at the next election?

***

Department for Business, Innovation and Skills   (National)

CHECK AGAINST DELIVERY

In a speech at Policy Exchange, Universities and Science Minister David Willetts argued that our greatest national assets - our universities, our science facilities and researchers - are the best single hope for making our way in the high-tech world of the future, creating jobs and opportunities and boosting high tech economic growth.

This little paragraph of course was not in Willetts' speech. It is a bit of fluff dreamt up after the fact by someone at BIS. How do I know that? Because the speech was made at Policy Exchange and did not appear on the BIS website until after Research Fortnight started asking questions. Why should you care? Because this lends credence to the suggestion that there is a split in BIS on growth between Willetts and his (largely nominal) Lib Dem boss, Vince Cable; Willetts avoided having to negotiate with Cable over the speech by keeping it off the departmental radar until after the fact.

Economic Growth

Growth is the Coalition's highest priority for 2012.

Remember, you read it here first. But it is still a gigantic shift in the political environment, providing an opportunity that scientists and hi-tech firms have yet to wake up to.

It is going to be a year of serious economic challenges. We are better prepared for them than most because we took tough decisions on the deficit early on. We have set out our plans for getting a grip on public spending and we are sticking to them. That will enable us to bring down the enormous deficit we inherited.

It is no surprise that Willetts restates the government's core austerity narrative right at the beginning. The day you start doubting this is the day the next election starts to go down the tubes.

Sorting out the mess in the public finances itself helps get the economy moving as it helps to keep interest rates low. But that is not the whole story. There are a host of ways in which the Government is supporting growth by raising the performance of the economy: cutting red tape, a tax and benefit system that rewards work, high quality education and skills, reforming the planning regime so that our new infrastructure can be built expeditiously. George Osborne and Vince Cable are driving forward such an agenda across Whitehall in the Growth review.

What this list is missing is something like "industrial policy". But exactly what form of words the government is going to use to complete the list is presumably what this speech is all about...

That list of our growth policies applies horizontally across most sectors of the economy. Investing in energy or transport or better schools is a good thing without taking any view about whether the future of our economy is manufacturing or life sciences or financial services. There is widespread wariness of so-called “vertical” policies that focus on particular sectors and technologies and it is very understandable.

...and here we go.

The more specific the return, the greater the chance that it can be financed privately. Moreover, we fear governments do not have the knowledge to back particular technologies and have made a mess of such policies in the past. Governments picking winners can easily become losers picking Government programmes.

The rational bit of the Thatcher approach, stripped of the ideological conclusion that the government should therefore abandon this area of spending.

Recent British Governments have therefore preferred generic growth policies rather than vertical ones which focus on particular sectors or technologies.

True. Labour also did not do industrial policy.

These are essential foundations but it only takes you so far and today I want to show how much further the Coalition is going and why. Soon you find that you are having to take some kind of view about specific sectors and technologies too. Which source of energy do you encourage? When it comes to transport which places do you link up and why? The Jubilee line extension has been great for London but I well remember how its original impetus in the 1980s came from the need to provide access to Canary Wharf: if it had been a link to a manufacturing centre not office blocks for financial services it might have been seen as a much more controversial example of industrial policy. We have achieved an extraordinary surge in apprenticeships but I am struck by how many commentators believe they should be in particular sectors such as engineering or life sciences: indeed part of the appeal of apprenticeships is their historic association with such sectors.

Governments find themselves making decisions about allocation of resources and we should not pretend we do not. The Coalition’s pledge to rebalance the economy depends on taking such a view. Indeed when money is tight these type of decisions are even more acute. And in the rest of this speech I want to set out how we do this in our strategy for the UK’s science and research base and how it can help generate high tech growth.

Now I'm excited. This is on the money.

People do of course ask: "So where is the growth going to come from?" Nobody can know for certain. But that does not mean that we do not have the faintest idea. A lot of it will come from our established, high performing sectors which continue to innovate and improve productivity. We can discern already some of the scientific discoveries and technologies that will shape our future. Today I want to set out what we are doing to secure this future for us and I am grateful to Policy Exchange and the Campaign for Science and Engineering (CaSE) for the opportunity to do so.

So here we have the limit of Willetts' ambition. In contrast to the preceding passage that was about growth generally, we are now narrowing down our focus to consider the role of science in that. From an economic point of view, that is problematic because science-push is not generally the kind of approach we want to industrial policy; market pull is better. But the role of science is nonetheless a topic that needs to be addressed.

This tackles that deep-seated anxiety about the prospects for the younger generation in the global economy of the future. When you ask people what worries them most it is that their children will not have the same kind of opportunities in life as we have had. I understand that fear - indeed I wrote a book about it.

I suspect he could have added, "We see this fear in our polling at Central Office."

But our great national assets - our universities, our science facilities and researchers, our extraordinary accomplishments in the arts and humanities - are the best single hope for making our way in the high-tech world of the future. They might not solve all our economic problems next year, though they can help even with this. But if properly nurtured they can ensure that Britain will be up there as a leading location for research in the physical and life sciences and beyond.

Again, science-push-ey.

Britain can be the preferred location for companies’ R&D.

Possibly from a research base point of view. But that is only one factor among many for global corporations. And at the moment the case for expanding R&D in the emerging market nations revolves around quite different factors such as market access, cultural understanding, political acceptability. Even if our research base is great, global firms are still going to spend the coming decade diversifying their R&D portfolio - to the detriment of the UK. Just being better at science will not stop more Pfizers, more Shells.

We can have world-class industries using cutting edge technologies. We can have a prosperous future with a role in the world.

Our research base

Our research community is the most productive in the world. In the words of the recent Elsevier report, “The UK is the clear leader among all eight comparator countries (Canada, China, France, Germany, Italy, Japan, UK, US) on citations per unit spend on Gross Expenditure on Research & Development.” With 3% of the world’s researchers, we generate 6% of the world’s academic articles, 11% of citations, and 14% of the most cited papers, second only to the US. Quite simply we have more articles per researcher, more citations per researcher and more usage per article than researchers in US, China, Japan and Germany. We can be proud of this achievement.

Yes but. The point is we're spending a lot less of our money on industrial R&D than the competition, and a lot more on academic research. We want to reverse that trend. But the worse we do on the industrial front, the better we'll look on this comparison.

It is very broadly based too. The Elsevier report states: “ Relative to the world average, the UK has generally a well rounded portfolio, with a strong and increasing emphasis in clinical sciences, health & medical sciences, social sciences, business and humanities.” They identify no fewer than 400 research areas where we have a distinctive research strength, and many of them are world-class. It is quite extraordinary for an economy of our size to have strength in so many different areas. No other country of our size has achieved this. It is particularly important as so much research is increasingly interdisciplinary.

This, by contrast, is important.

Our goal is nothing less than to ensure we have a continuing presence in the key areas of scientific research. We should not have the illusion that we can lead in all the scientific and technical advances of the future. But such chauvinism is unnecessary. What we can aim to have is the absorptive capacity to understand and draw on scientific and technological advances across disciplines and across the world.

I think this is a slightly odd use of "absorptive capacity". It's an economic term, referring to the capacity of the economy to absorb new advances. But can he really mean that here? Our commercial base is so narrow now that there are huge industries that we don't play in at all, and hence there will be many advances we can't effectively exploit. So I think what Willetts here means is a kind of absorptive capacity in academia, so that we're intellectually abreast of key advances, even if our industrial weaknesses mean we remain incapable of acting on much of that knowledge.

Having said all that, this seems a reasonable task for the research base.

This broad research base emphatically includes the arts, humanities and social sciences. They are all part of the science and research ring fence. Increasingly for example research in the physical sciences is linked to human behaviour – not just designing a low carbon vehicle but understanding what makes people choose to drive it – or not. In allocating research funding I have therefore followed the advice of the learned societies and others that we should not shift the balance of funding between the main disciplines. Eric Schmidt of Google caught the mood in his MacTaggart lecture when he said that this arts v sciences debate really ought to be dead and buried and instead we should recognise how complementary they are. I like the idea that instead of just thinking about STEM, Science, Technology, Engineering, and Maths, we should add the Arts so it becomes STEAM.

But do we have a shortage of Arts teachers? Or of people suitably qualified to write TV scripts? Even if both the arts and sciences are now merely handmaidens to Google's insatiable quest for power, the distinct problems that prompted us to talk about STEM seem to remain.

One reason our research is so good is that ministers have so little scope to interfere. Our science and research programme budget of £4.6 billion is not just protected in cash terms, it is also protected by the Haldane principle that Ministers do not decide on funding for particular research projects or particular university departments. It also rests on the gold standard of peer review. We are talking here about free enquiry where you are judged by your peers not by the minister for science nor the government as a whole nor by academic patronage. This last protection is underestimated. We do not have a baronial system in which ageing professors dispense posts and patronage and younger academics have to defer to them for decades as they patiently wait their turn.

Or rather, we don't have it as badly as they do on the continent. Patronage is real in the UK.

One reason why so many young researchers from across Europe choose to work in the UK is that opportunities for them are much greater here. We will continue to support and monitor the compact on conditions for young researchers, especially women for whom the requirement to be mobile around the country with little allowance for family responsibilities can be particularly onerous. I welcome the latest initiative by HEFCE to make better allowance for maternity leave in assessing researchers’ output for the Research Excellence Framework.

We must continue to sustain our research base in tough times. If you look at the decisions the Coalition has already made you can see how committed we are to science and research. In fact I can confirm the Government’s aim is quite simple if very ambitious: it is that we should be the best place in the world to do science. This ambition is about more than money. It is about respect and celebration of the spirit of scientific enquiry with everything from world-leading science journals and lively science writing to world class museums and events. It is something Government has to practise too with science advisers in every department, the Foresight horizon-scanning enquiries of the Government Office for Science and evidence-based policy drawing on latest advances in science such as behavioural economics. It also means:

• Tackling the pernicious effects on scientific enquiry of the current law on libel.

• Continuing to keep our country open to leading scientists who wish to work here and making a big contribution to global science projects such as managing the Square Kilometer Array and the key role of our scientists in CERN and in the JET and ITER projects for nuclear fusion.

• An ever wider interest in science with growing attendance at our burgeoning science festivals and Fairs, extensive coverage of science on the BBC and the media more widely.

• More students doing science at school, college and university, with new science departments opening as Lancaster University are doing in Chemistry.

• Imaginative exercises in citizen’s science such as Galaxy Zoo which started in Oxford with volunteers classifying new galaxies.

• World-leading Learned Societies such as the Royal Society, which has just celebrated its 350^th anniversary and a network of leading charities such as the Wellcome Trust and Cancer Research UK backing scientific research and enquiry.

I quite like this objective of making the UK the best place to do science. And even as I'm trying to say "But yes it is about money too" I'm also agreeing that it's not just about money. But let's not kid ourselves. We have some pretty deeply ingrained anti-science and technophobic strands in our culture, ranging from many greens to everyone who cops out by saying they are just hopeless at maths. 

It does of course also mean proper funding for science and research. I realise that there are always pressures for more and we cannot afford to do everything we would like to do. Nevertheless, as countries around the world face budget pressures, our ring- fenced cash-protected science and research funding budget is a good settlement in tough times.

My conviction that this was a decent settlement for science has ebbed in the past 15 months. Most obviously, inflation has been allowed to get out of control, making the flat cash bit much worse than was promised. But there are another set of distinctly Willetts-ian, intergenerational reasons. Economists at the OECD and elsewhere have emphasised that even while countries like the UK cut public spending overall they need to invest more in the knowledge economy. And the bits of public spending that are being protected - the NHS, overseas aid, defence - are all forms of consumption that are regrettably tainted with party political advantage for the Conservatives. So I think we should be doing more now to give the next generation a decent life, rather than loading them with extra burdens (eg via the tuition fee reforms).

The breakdown of current spending is between four main areas roughly as follows. £1.6 billion goes direct to universities in recognition of research excellence. £150 million goes through Higher Education Innovation Funding to reward universities that have knowledge exchange with the wider world, especially contributing to economic growth. £100 million goes direct to the Learned Societies (the Royal Society, the Royal Academy of Engineering and the British Academy) to fund leading researchers and also make small grants for particularly worthwhile research projects.

The Research Councils and the UK Space Agency between them spend the remaining £2.75 billion. The Research Councils divide this into two main categories - responsive funding and directed funding competitions. They estimate that about two thirds of their funding is in responsive mode and a third in directed mode. The directed mode focuses on the grand challenges such as energy, living with environmental change, our ageing population and lifelong health and well-being. Blue skies research can however be covered by both categories - our contribution to CERN is directed to a very specific project but is also pretty fundamental. And Research Councils do respond to bids for funding for some quite applied research.

Research Councils devote a lot of time and effort to identifying significant ground-breaking areas of research that they should support. They scan the horizon to try to ensure we have a coherent and broad research base in this country. They work with business and Government to identify these priorities. But there comes a point when the Research Councils have to think about impact and priorities. I know this is controversial – and I do receive mass letters from aggrieved sections of academia who fear the Research Councils have failed to recognise their special significance. But it has to be done and the Councils try to do it in an open way that commands the consent of the research community they serve. We must never end up in the position where an individual researcher with a novel idea judged to be of real academic merit is excluded from funding just because it does not fit some preordained plan.

I agree with this para, however contradictory it may be.

Today I am releasing reports on the impact of this Research Council funding. We are familiar with how American research funding helped with the creation of great American businesses like Google. But we have similar examples here. The UK’s largest software company, Autonomy, was started by Dr Mike Lynch at Cambridge University in 1996 based on work conducted during his PhD supported by the Engineering and Physical Sciences Research Council in the UK. Autonomy was sold to Hewlett Packard in August 2011 for over £7 billion. The EPSRC have just been recognised by Proctor & Gamble for their globally best in class support to P&G by a government body. Innovations in solar energy panels and offshore renewable energy are being supported with substantial research funding.

• Impact doesn’t just mean commerce. Professor Theo Farrell, an ESRC/AHRC Fellow undertook an assessment of the British Army’s performance in Operation Moshtarak, a 2010 offensive to clear the Taliban from central Helmand Province in southern Afghanistan. The resulting classified report was briefed to Army chiefs, and has informed doctrine development and pre-deployment training.

Our ring-fence protects research activity. When money is tight we had to give current spending on activity high priority. That is one reason why for the first time the ring fence includes the main forms of current spending on science and research. But the ring fence excludes capital as there is some discretion in the timing of major capital projects. The Government does however understand the importance of investing in science capital as is shown by George Osborne’s excellent decisions over the past year to invest a further £470 million in science capital in top of our original plans. That will go on new facilities, the e-infrastructure needed for world class science, and the further development of our National Campuses at Harwell, Daresbury, Norwich and Babraham. This will bring together world class facilities and researchers and the companies that can benefit from them - contributing further to our high value added growth agenda.

Yes, the door is certainly open for eye-catching new projects.

Much of the money from the Research Councils as well as from other sources flows to our universities. In some countries like Germany research tends to happen outside universities - in their Max Planck institutes for example. We have our own outstanding independent research institutes as well, from the Institute for Fiscal Studies to the Institute for Animal Health. The new Crick Institute will be a world leading centre for life sciences. But by and large publicly funded research in Britain is likely to be conducted in our universities. That in turn puts them at the heart of our high tech agenda. Only the other day Professor Eric Thomas, the President of UUK, perhaps influenced by too many Dickensian Christmas cards, told me that if the British economy has been a stagecoach stuck in the mud then our universities are one of the horses that can pull it out. He is absolutely right.

Important, and often overlooked.

We currently have 12 universities in the top 100 and 32 in the top 200 according to the Times Higher Education rankings. It is 19 in the top 100 and 30 in the top 200 according to QS.

Oops. We have now segued seamlessly away from the role of unis in generating growth across the entire economy to a into a separate topic, higher education as an industry in its own right. Again, it's all important, but off the main argument.

And in the Shanghai rankings it is 10 and 19. The exact numbers and individual universities vary according to the different weighting in the different schemes. But all the university rating agencies agree that only the US does better than we do. Today I set our ambition of aiming for the number of our universities in the top 100 to grow. When you look at our relative weaknesses in these league tables it tends to be teaching and external income.

?! Weeeeeelllll OK. This gives the unis ranked, say, 20-30 in the UK something to aim at, which is not bad in itself. But what about the other 80 or so unis, or even more importantly the entire system we have of higher education? The danger with something like this is that it becomes a basis for assessing the success or failure of the current wave of reforms, and for that it's entirely unsuitable. Nonetheless, if the AAB+ thinking is pursued then Willetts will be shifting more money to the kind of unis that could mean the "target" (no date) is achieved.  

These are the areas where we need to raise our game even more. We are not managing decline we are investing in success. A crucial reason for our controversial changes to the funding of teaching in universities is to ensure they remain well funded even when money is tough. There is no more fair and progressive way of financing university teaching than to expect graduates earning over £21,000 to pay back for it.

We are fortunate in having one of the strongest networks of universities in the world. Part of its dynamism has been the ceaseless process of creating new institutions as well as the capacity of existing institutions to grow and develop. University College London was created as a secular alternative to the Oxbridge duopoly. Then we had the great civic universities, the Colleges of Advanced Technology, the plate glass universities and the polytechnics. We have also had new research institutes, campuses, and science parks. That process of creating new institutions should not stop even when times are tough and there is no spare public money. We have to bridge the gap between limited public funding and continuing strong demand for higher education and research.

Globalisation is still at its early stages when it comes to Higher Education. The next round of new institutions may well link existing British universities with international partners. The surge in international investment in science and technology would make this a key part of the mission of a new foundation. It might be that today’s institutions propose a new campus or a new international partnership. Or it might be new providers wanting to enter with different models. Today I can announce therefore that the Coalition is inviting proposals for a new type of university with a focus on science and technology and on postgraduates. Local economic partnerships, universities, businesses and international partners can come together to put forward proposals for new institutions.

?! It is good to see the minister recognising the global opportunities in front of the UK in HE. But how does that lead on to a new science postgrad uni here? Anyway, there seems a lot unsaid here. Who are all these people who want such a uni?

There will be no additional Government funding. This time we will be looking to private finance and perhaps sponsorship from some of the businesses that are keen to recruit more British graduates. For example, we will not be diverting funding from support for undergraduate students. It is an opportunity to seize the new freedoms which we proposed in our White Paper last year. We already have a lot of interest and we want to move this to the next level. As proposals are developed we will be able to identify any specific obstacles that need to be removed including by legislation where necessary. A major city might wish to offer a site as Mayor Bloomberg has just done so successfully with his competition for a new graduate school in New York. We will be discussing with the interested organisations how best to carry this initiative forward. I am confident that with ingenuity we can grow our research base and our universities even when times are tough.

On the question of public funds, this is all murky and contradictary. Despite the protestations, it seems to me that via LEPs, land grants, research council funding etc there could potentially be quite a lot of public cash on offer.

Linking the research base and the wider economy

Now we're back on the main track.

There is enormous scope for universities to go further and build even stronger links with the wider economy. They are after all at the heart of the innovation clusters which will drive our economy in the future. Their external income has increased to £3 billion. But there is more we can do.

We have our own challenges. We have relatively low rates of paper co-authorship between industry and academia. We generate just 2.2% of global patents. Business spend on R&D, at £16 billion, is low as a percentage of GDP. This problem has been debated for a long time. The great economist Alfred Marshall wrote in 1919:

“the small band of British scientific men have made revolutionary discoveries in science; but yet the chief fruits of their work have been reaped by businesses in Germany and other countries where industry and science have been in close touch with one another.” (Alfred Marshall, Industry and Trade).

We are tackling this age-old problem that we are good at generating great ideas in our universities but less good at turning them into the products and businesses of the future. And we can point to successes such as ARM, Autonomy, Rolls Royce, GSK Jaguar Land Rover and many other companies which have exceptional links to our universities. But we need more of them. We are reforming IP and backing open innovation in our universities. We are liberating them from the idea that the only measure of their contribution to the wider economy is setting up a tech transfer office and then counting patents. We are extending Innovation vouchers to encourage more small businesses to draw on the resource available in our universities. There is still untapped potential in universities that can be drawn out by organisations like Imperial Innovations or Isis Innovation. I can announce today that our ambition is for university knowledge exchange income from external sources to grow by 10% over the next three years.

Despite the impression from the Marshall quote of having taken in all the economic thinking on the subject in the past 100 years, this is terribly thin. Yes, Britain has a longstanding problem exploiting its discoveries. But why? Go back another half century before Marshall and it was already evident that, compared to France and Germany, we were putting more of our capital into stocks and shares and less into productive industry and agriculture. We have systematically been investing our capital in the wrong things, and in a system called capitalism that exacts a heavy price. In this context, setting a target for university knowledge exchange income is like picking a grain of sand from a desert of failure. The desert is still there.

The classic model expects venture capitalists to be following what is happening in universities and to invest in the IP after the university has spun out a company. This is the conventional sausage machine and it can work on some occasions but it is not widespread or straightforward. We have expected venture capital firms to finance early stage start-ups much further upstream than is realistic. Then we beat up on ourselves that our venture capitalists do not take risks they do in the US when even there the model is rather different.

In the US Federal funding comes from a wide range of agencies - the National Institute for Health, the National Science Foundation and of course DARPA, the Defense Advanced Research Projects Agency. They can support research closer to market than Research Councils do. What Americans mean by defence is whatever is necessary for national greatness including ensuring a capacity in any blue skies technology. And then the SBIR the Small Business Innovation Research programme means American start-ups have a chance of getting Federal contracts for their innovative products even as they are still developing them. All this means that you can get federal funding to see you through from idea to product. This eases the pressures on venture capitalists. America does have a much bigger venture capital sector and it is a great advantage to them. But we should look behind the rhetoric at what has been called America’s “ hidden developmental state” explained here by Professor Mazzucato. The land of free enterprise has an innovation and research system which depends on federal and state government just like everywhere else in the Western world.

Er, everywhere else except the UK from Thatcher until the TSB.

The Technology Strategy Board bridges this gap between the Research Councils’ funding for activities in universities and fully commercial development by business. They are working with Research Councils and aligning their funding where that is possible. A crucial weapon in their armoury will be Smart Awards which provide proof of concept and proof of market funding for businesses, then support for the further development of prototype products. Often SMEs are caught in a Catch 22 dilemma where they cannot leverage investment until they have this proof but they haven’t got the relatively small sums you need to pay to get the proof. It was David Young who first introduced Smart Awards in the late eighties to bridge this gap. They were very successful. The very achievement of getting a Smart Award was a signal to perhaps an angel investor that this was a project worth investing in. Under the last Government they were dissipated amongst different RDAs and lost their brand name. Now we are bringing them back as a nationwide scheme run by the TSB.

Sensible.

These Smart awards span all sectors. But as well as these broadly based schemes we also have to spot specific areas of scientific and technological advance. Nobody can know for sure what are going to be the big technologies of the future but that is not a reason for inaction. Let me now explain the three stages of our high tech policy as we look out for the future prospects.

Identifying key areas of scientific and technological advance

This is starting to sound very like a science-push approach, not to individual products but to the question of where to allocate public funds and put all the non-financial oomph government has.

There is a big difference between business sectors and technologies. They overlap but are not the same. We have some crucial business sectors that are seen as high tech – such as aerospace or space. We also have perhaps less glamorous business sectors where innovation is increasingly important – delivering social care, agriculture, utilities, transport and distribution. Part of Britain’s weak productivity performance has been low levels of investment and innovation in some of these sectors. But they can be transformed by absorbing new technologies – the warehousing and distribution of goods around the UK has been transformed over the past twenty years by new IT systems. Increasingly satellites and space-based systems will transform the accuracy of the spreading of fertiliser and patterns of planting in agriculture. These changes will happen not as the result of technologies developed specifically for say the agricultural sector but as a result of the application of technologies developed elsewhere. They may well be general purpose technologies that spread widely across the economy as electricity or satellites or the internet have done. We need to judge the technologies that will matter in the future. We may not get it right - we won’t always - but we have to try. We are not picking individual business sectors but Government is backing the development of specific key technologies.

OK. So now he's said it: "We are not picking individual business sectors but Government is backing the development of specific key technologies." What he hasn't done is to provide any kind of rationale for that stance. If the ultimate aim is to support economic growth, and choices have to be made, why wouldn't a government take a view on business sectors?

In the US they developed a neat way of summarising the big technological advances – the National Science Foundation called them Bio, Nano, Info, and Cogno or BNIC for short. We have heard about the BRICs, the countries where the future growth will come from: the BNICs are the technologies it could well be coming from. This has been a theme of American science policy for over a decade now and it has generated some rather overheated debate about the possible convergence of these technologies. There may be something in this. We can see for example the “wet” biological sciences linking ever more closely with the data processing capacities of “dry” IT as a “ new biology” emerges. Other countries have conducted similar exercises. The High Tech Strategy for Germany lists the following cross–cutting technologies: nanotechnologies, biotechnology, microsystems technology, optical technologies, materials technologies and production technologies.

We did our own exercise and published the results last year in a report, “Technology and Innovation Futures: UK Growth Opportunities for the 2020s”. It was very British, inductive not deductive, listing the main areas of technological and scientific research over the next decade, drawing on consultations with the academic community. Our experts in the Government Office for Science identified 53 specific future technologies and innovations. They then put them in the following broad categories:

Biotechnology and Pharmaceuticals;

Materials and Nanotechnology;

Digital and Networks;

Energy and low carbon technologies.

Overall our horizon scanning broadly matches that of the world’s biggest scientific power. America’s Cogno and Info very roughly come together as our Digital and Networks. Unlike the US we identify a distinctive low carbon technology area so the C in BNIC could stand for Carbo instead.

(Oh come on. Surely the acronym is BINCo!)

These lists are inevitably imperfect. They change. But they are important. They act as a check on eccentric or lop-sided decisions by making sure we have a clear overview of the main areas we need to invest in. If we are to live up to our ambitions we need coherent programmes for investing in these broad areas of research. That is what we are doing.

Judging whether to back specific technologies as they get closer to market

Then as you get closer to market you try to back in particular the technologies which have the greatest potential. This is where the TSB has to exercise a professional judgement on what to support. The TSB’s job is to help “turn today’s emerging technologies into tomorrow’s industries.”

Oh, now I get it. The TSB is the one that has to decide which business sectors to back. This means: a) Coalition ministers are safe from right-wing attacks on an "industrial policy" that "picks winners"; b) we throw away all the non-financial weapons in the state's armoury.

Rigorous scrutiny of the cost-effectiveness of investment is necessary. The TSB and BIS apply some crucial tests. The key criteria for backing a technology are that we must have an academic and research presence; the business capability to develop products and services based on the technology; and a good chance of a sizeable global market.

On that basis the TSB identifies technologies where they see particular potential for the UK. Their most recent assessment suggests for example particularly promising technologies for us are synthetic biology, energy efficient computing and energy harvesting.

The TSB is also setting up a network of elite technology innovation centres, now called Catapult Centres. We have already created three, and I can announce today that the fourth will be in the area of satellite applications. This will provide business with access to in-orbit test facilities to develop and demonstrate new satellite technologies. It will also provide access to advanced systems for data capture and analysis, supporting the development of new services delivered by satellites. These could be in a wide range of areas such as distance learning and telemedicine, urban planning, precision agriculture, traffic management and meteorology.

Practical leadership from Government

Then Government can help drive forward the development and application of key technologies. I tend to follow quite a standard model for doing this because it seems to work. I first discovered it in the space sector, where a Space Leadership Council was formed in March 2010. It had been set up by Paul Drayson when he was science minister in the last Government. It has been the basis for a template used more widely in BIS – not just by me but by Vince Cable and Mark Prisk as well.

You start by convening a group which has to include leading academic researchers, Research Councils, agencies sponsoring commercialisation like the TSB and of course businesses themselves. They discuss what is happening so everyone can understand the links between the research agenda and commercial opportunities. You ask if they would like to meet again and they normally do. Then you set it up a bit more formally as a leadership council usually co-chaired by a BIS minister and someone from industry. The Council then commissions a technology road map. It is usually written by an expert advised by a group and gives a rough idea of the technological changes that the industry and researchers are expecting over the next five to ten years. So for example Professor Sir Keith O’Nions, Rector of Imperial College kindly prepared a space technology road map last year. That is a basis for everyone to take decisions on where to invest. Some of this may fall to government but business has to make a matching investment in return. That it rests on an agreed plan makes that easier.

This kind of model is being applied right across BIS. As well as in the space sector this sort of activity is also being led in for example the automotive, aerospace, and life sciences sectors. I can announce today that I am setting up further such leadership councils in e-Infrastructure and in synthetic biology. These are not instruments for ministers to impose their will on reluctant sectors. Nor are they devices to increase public spending. We act as conveners bringing together the key players and driving forward investment and innovation. Sometimes the simple fact that such a group exists increases the confidence of a key new sector.

Hmm. So actually the government is opening the door to using its non-financial weaponry in selected business sectors. So in what way is this not an industrial policy, albeit a puny one that dare not call itself by that name?

A check list for our high tech strategy.

Now let’s finally just review how we are doing in living up to the challenge of these important high tech sectors. We can work through the BNIC [BINCo!] list.

Bio is covered by the life sciences strategy which the Prime Minister launched a month ago. It is an ambitious agenda for keeping and strengthening our position in this crucial sector. Our progress is going to be reviewed by two formidable outside experts – Professor Sir John Bell and Chris Brinsmead. But it isn’t the final word. I will continue to work with Andrew Lansley and the Treasury on new ideas for the future. So for example we announced a Bio-medical Catalyst Fund with the Medical Research Council and the TSB backing ideas as they traverse the so-called “valley of death” from research lab to commercialisation. There is £180 million of public money in this fund but it could be even bigger if we could entice some corporate venture funds in as well. That is something I want to see.

It makes sense to siphon off NHS cash, as the spending there is protected.

Bio is not just human health. We have great strengths in biological sciences more widely. After the elimination of Smallpox thirty years ago the UN celebrated the global elimination of a second virus last year. It was rinderpest which affects cattle and other ungulates and blighted agriculture in Africa and elsewhere. British scientists based at the Institute of Animal Health played a key role in this. We have great achievements in crop science too. At the moment we get on average about 9 tonnes of wheat per hectare. The target set by the BBSRC is to get to 20 tonnes per hectare within 20 years. That would be nothing less than a second agricultural revolution and it is essential to feeding the world as wheat provides a fifth of the calories consumed by mankind.

Synthetic biology has been driven by developments in next generation sequencing, DNA synthesis, and systems engineering. It is a potential platform technology with possible applications including bio-energy, industrial biotechnology and chemicals. I have asked leading researchers and business experts in a group chaired by Dr Lionel Clarke of Shell to produce a synthetic biology roadmap to set out the timeframe and actions to establish a world leading synthetic biology industry in the UK. They should report in the Spring after which we intend to convene a new Synthetic Biology Leadership Council to look at how we can deliver that road map.

The very term nano-technology was popularised by Federal agencies in the US. It covers a range of technologies across a range of markets. I have convened the key players to sketch out its future relevance to the UK. It is clear graphene is one very significant example of nano-technology. We are committed to establishing a Graphene Global Research and Technology Hub which will provide access to specialist facilities and expertise. TSB and EPSRC have been working together on this.

Info and cogno cover many things. The rapid growth of Tech City is a classic example of what can be achieved by sustained attention from the very top of Government.

Er, I'm not sure how much the government can be said to have actually achieved in Shoreditch yet. But it's certainly a classic case of how Number 10 likes to wrap itself in the shiny new.

Behind it lies our national capacity in high performance computing. We were in danger of losing our position with very few of the world’s most powerful 500 computers. Increasingly research today involves handling large data sets – be it from CERN, meteorological data, the Hubble telescope, the sequencing of individual genomes, or indeed just keeping up with the academic literature itself with more than a million academic papers in the life sciences published every year. There is more to computing capacity than raw power: software matters too. So we have invested an extra £165 million to ensure our researchers have access to powerful computers and the software to harness them. We also commissioned Dominic Tildesley of Unilever to report on the significance of e-infrastructure for business. I am releasing his report today. It sets out very clearly practical examples of how business can use high powered computing. Companies like Jaguar Land Rover or Rolls Royce need to be able to model completely the functioning of a motor car or a turbine. The more you can do virtually the more rapidly you can test and introduce new products. That is why they say that to out-compete you must out-compute. We will act on his recommendation of an e-Infrastructure Leadership Council to ensure there are strong links between academic research programmes and business applications.

Then Carbo is low carbon energy. We already have sponsored research on low carbon cars. The TSB’s investment in low carbon vehicles in partnership with the EPSRC played a significant role in Nissan’s decision to base the production of the entirely electric LEAF model and its advanced batteries in Sunderland. High on our agenda now is nuclear fission and fusion after a challenging report from the Science and Technology Committee of the House of Lords. We will be considering it carefully to ensure we get most advantage from our historic strengths in these sectors.

This is a very quick review but it is clear that the Coalition is committed to a high tech future for our country and is doing everything possible to secure this future source of growth.

Conclusion

Today I have set out 8 steps to high-tech growth:

1. set the Government’s goal that we should be the best place in the world to do science;

Good

2. released a series of reports showing what the research sponsored by the Research Councils is achieving;

Meh

3. set out our ambition to have more universities in the world’s top 100;

Dubious

4. announced that we have invited proposals for new types of university with a focus on science and technology and on postgraduates;

Mysterious

5. announced our ambition for universities’ knowledge exchange funding from external sources to grow by 10% over the next three years;

Useful

6. announced that the next Catapult Centre will be in the application of satellite technology;

Useful

7. announced that I am setting up leadership councils in e-Infrastructure and in synthetic biology;

Useful

8. and released a new report on e-infrastructure strategy.

Should go somewhere useful.

The critics of our economic policies focus on arguments about a short-term stimulus but what really matters is long term growth. That is what our high tech enterprise strategy is all about.

Not with 8 key points like that it isn't. We started with "Growth is the Coalition's highest priority for 2012" and ended up with this list of tippytoes? Fortunately, this is actually a very bad summary of the speech, which had a lot more substance than these 8 points suggest.

Times like this have persuaded many of us that it is necessary to back the technologies of the future so that we can rebalance our economy. Every Government tries to do it. The only question is whether you recognise it and do it properly or whether you just let it happen as the aggregate of the host of decisions you have to take anyway.

These three sentences read like a defence against the Conservative Right. First, there is no alternative (er, check with Maggie on that one). Second, it's nothing new (it is). Third, it's just a question of management (ie not ideology). It's telling that this is the key argument he feels the need to restate at the end.

This Coalition, faced with the crucial challenge of sustaining growth after the deepest recession since the War, has a strategy for high tech enterprise. We can be proud of it because it is coherent, serious and rests on a commitment to the future of our country and its economic base.

Rt Hon David Willetts MP
4 January 2012

***

Conclusion

David Willetts is the minister for universities and science, and this is a speech about universities and science. From that point of view, there is little to criticise it for. The problem for the government is that having some sensible policies for academia does not equate to having credible policies for hi-tech growth. That is a much bigger objective, requiring broader arguments and bigger moves. We didn't get any of that in this speech, and that is why the important claims in the final paragraph that I would very much like to be true are not justified.

Some 15 months on from the crunch spending decisions, a lot still seems unresolved. This is a speech that Cable does not seem to have signed up to. Cameron's interest is all spin. Osborne is ideologically gnomic. Clegg has never shown any interest. And the shadow of Thatcher seems still to hang over this speech, darkening passages here and there and leaving the core argument confused and unfulfilling. Clearly Willetts has no intention of using words like "industrial policy", but with the moves he has made he has already rejected the standard arguments against industrial policy. One danger from this intellectual drift is that if the economy buckles further we will end up with policies aimed at bailing out struggling sectors rather than building new ones.

Yet this does mark yet another step away by the Conservatives from the Thatcher position and towards sanity. It doesn't live up to the claims it makes at the end, but it does take us closer to them. For that reason, it should be welcomed.

So where are we? In austerity, the Conservatives have an essentially negative core narrative. They seek to take the edge off that with a positive narrative of growth, to the extent that Willetts tells us this is now the "highest priority for 2012". Within the growth narrative, the party has recognised the political importance of hi-tech. Cameron is dabbling with Shoreditch and Osborne is starting to chuck some money science. This speech is an attempt to establish credibility at the policy level.

It falls short both as an intellectual exercise and in demonstrating political commitment. On the intellectual front, there is almost no attempt to explain why the approach laid is appropriate to the task. Rather, what we are offered is a series of steps forward from where we were a year ago. These are welcome in themselves but fall a long way short of coherent commitment to hi-tech growth. (By contrast, check out the Aho Report produced for the EU by the former Finnish prime minister as far back as 2006, which also eschews picking winners but manages to be comprehensive and committed.)

And then there's the lack of commitment. There have been big cuts in funding, nor just in academia but also in the TSB's dancing partner for much of its hi-tech investment under Labour, the Regional Development Agencies. The bits and bobs dribbling out of Osborne's speeches don't nearly make up for these big hits. It cannot be said too often that our best scientists are currently planning for cuts, not expansion. Money aside, government has many levers it can pull and the sectoral committees Willetts is setting up are mere talking shops.

The task for scientists and hi-tech firms now is to steer, with a careful combination of carrot and stick, a government that is both interested and vulnerable into a policy that is genuinely coherent and committed. Find some more graphenes for ministers to fund, but remember that this is only tactics. We still need to force through a shift in Conservative economic strategy - and will never get a better opportunity.

Now there's market pressure for you - just FOUR universities cut tuition fees

by William Cullerne Bown

OFFA has revealed today that just FOUR universities have cut the cost of their first degrees to squeeze in under the £7,500 tuition fee threshold set by the government.

The four are the University of Chester, the University of Cumbria, the Institute of Education and Teesside University.  Sparsholt College is the one college to have reduced its fees.

These are the only institutions to have cut the price of their main undergradaute degrees for 2012 despite the introduction of the new "core-margin" policy intended to create a competitive market in higher education and drive down fees.

While 24 universities have agreed revised access agreements with the Office for Fair Access, most of them have only cut the cost of foundation courses or revised the subsidies they offer students. Bursaries (which don't reduce average fee levels) are out, fee waivers (which do) are in.

Across all the institutions that revised their access agreements, OFFA reports

• an increase of £37.4m in fee waivers
• a reduction of £13.8m in bursaries and scholarships
• a reduction of £2.1m in outreach and retention measures.

So the first results of the government's core-margin policy seems mixed. The market moves made by the government seem to be having relatively little effect so far. Yes, the amount of money being leant to students by the government is going to go down a bit. This will reduce the losses on the loan scheme for the government and make the whole thing a bit cheaper for the Treasury. But students won't be saving so much because fee waivers are often replacing bursaries. And many financial advicers think bursaries are better for students than waivers.

Ministers say it's only a start. But for now at least, the effect of the core-margin policy seems to be, er, marginal.