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HM Treasury Science and Innovation Strategy 2001

1.      Direct expenditure by HM Treasury on science, research and innovation is limited to a small amount spent on economic advice and analysis and statistics, as set out in Section A.  It is the Treasury’s role in the development of the economic framework, policies to encourage innovation and maximise the benefits of scientific research to the wider economy that will have a greater impact than direct spending by the Treasury.  Section B provides details of the Treasury’s wider role in encouraging science and innovation.

Section A: HM Treasury expenditure on Science and Innovation

2.      The Treasury’s own direct science and technology expenditure is relatively small, some £200,000 each year which is largely spent on economic advice, for example, research commissioned from the London Business School on corporate failure and rescue mechanisms and interaction with the banking sector. We act as enablers, providing stimulus to innovation by creating the right economic environment for science and technology to flourish, and by creating the framework for public services to improve value for money.  

3.      Further details of our future plans across the full range of our responsibilities are in our Departmental Report (www.hm-treasury.gov.uk/drep/ar2000.pdf).

4.      The Treasury draws on a wide range of data from external sources. National Statistics have a key role, especially in Treasury’s macroeconomic work; we therefore maintain close links with the Office for National Statistics (ONS). Our work on better public services requires a wide variety of data on inputs, outputs and outcomes.  The inputs are marshalled through Departmental systems which Treasury has a key role in specifying. We have an increasingly systematic approach to data gathering on outputs and outcomes: data gathering and collation in these areas is generally managed by Departments and monitored through Public Spending Agreements (PSAs) and Service Delivery Agreements (SDAs).

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5.      The Treasury has highly diverse needs for other types of data ranging from data on the macroeconomic situation in other countries (prepared against internationally recognised frameworks) to information on conditions in individual markets (which can come from a variety of sources, including for instance, trade associations). Given this great diversity of data, the Treasury is placing increasing emphasis on effective knowledge management.

6.      We have long placed great emphasis on ensuring that the Treasury’s staff have the appropriate analytical skills to deal with these data. We have a well-developed Treasury Development Programme, which includes modules on issues such as finance and accounting, numeracy and statistics, macro- and micro-economics. We also employ a substantial number of high-quality professionals – especially economists, statisticians and accountants.

7.      In accordance with the ‘Adding It Up’ report of the Performance and Innovation Unit, the Centre for Management and Policy Studies in the Cabinet Office and the Central Operational Research and Economics (CORE) Team in the Treasury have been working together to provide a joined up system of guidance for appraisal and evaluation, with a single gateway. The intention is for the Little Green Book to provide this, linking to more detailed guidance in particular areas, such as social research. The Evidence Based Policy Fund was launched in June 2000 to support cross-cutting and/or speculative research additional to Departmental research programmes.  The first tranche was themed on child poverty and public services, productivity and public services and rural development/environmental trade-offs.

8.      The Treasury places a high value, and will continue to put increasing emphasis, on evidence as part of policy formulation, but this requires appropriately qualified staff.  Staff shortages are being addressed by direct recruitment of graduates, alongside civil service-wide recruitment processes.

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9.      Through a range of networks with international and national organisations and our own activities, Treasury is able to maintain awareness of developments in relevant fields:

• regular internal seminars: we hold regular seminars with internal and external speakers on a range of topical and theoretical issues; these are often based around in-depth papers produced by the Productivity and Structural Issues team;
• external events: staff are encouraged to regularly attend external events, conferences and seminars to develop their knowledge and provide a platform for the Treasury to demonstrate its work;
• regional visits allow Treasury officials to meet key public and private sector players in the nations and regions of the UK;
• sponsorship of conferences;
• publishing pamphlets and books on a range of issues;
• supporting research organisations and activities;
• receiving Foresight papers and participating in the Financial Services Foresight Panel.

Risk assessment

10. The risks relating to Treasury’s objectives are assessed as part of its business planning process. For more details see www.hm-treasury.gov.uk/docs/2001/risk_man_2102.html

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Section B: HM Treasury’s policy objectives relating to Science and Innovation

Our S&T policy objectives

11. The Government's central economic objective is to achieve high and stable levels of growth and employment.  The Treasury plays a key role in delivering this objective and will work with other Government Departments (including the Department of Trade and Industry) to:

• achieve greater economic stability. This is the essential foundation for achieving long term growth and high levels of employment. The Government has accordingly put in place a framework for conducting monetary and fiscal policy to deliver low inflation and sound public finances which together provide the best possible climate for investment and employment;

• improve the performance of the economy in the public and private sectors. The Treasury has set out a clear strategy to close the productivity gap between Britain and its main competitors, focussing on competition, enterprise and innovation, skills investment and public sector efficiency;
• improve the effectiveness and efficiency of public spending and the quality of service it buys. Public spending accounts for almost 40 per cent of national income, so it is important to obtain value for money.

12. The Treasury has a wide interest in ensuring that the UK science and technology sector has an economic environment in which it can thrive and in which innovation is positively encouraged. Furthermore, the Treasury ensures that value for money is maximised in spending by Government Departments on science and technology. 

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Structure and role of the Treasury

13. The Treasury monitors departmental spending on science and innovation through spending teams which oversee the work of each Department.  In most cases, there is a single spending team for all large Departments. Some spending teams oversee the work of two or more smaller Departments.  The Enterprise Team acts as the spending team for the Department of Trade and Industry, and has lead policy responsibility within the Treasury for science, innovation and enterprise. The Enterprise Team sits within the Enterprise and Growth Unit in the Finance, Regulation and Industry Directorate. 

14. The Enterprise Team aims to assist in the creation of a more enterprising society, in which more firms of all kinds – both new and existing – have high ambitions and can achieve their potential. 

15. The Enterprise Team does this by, for example:

• Ensuring that public funding concentrates on excellence and rewards exploitation
• Encouraging universities and public sector research establishments to increase their ability to manage and exploit intellectual property effectively
• Encouraging more innovation in business.

Spending Review 2000

16.    As part of the spending review carried out in 2000, a cross-cutting review of ‘Science and Research’ was carried out, chaired by a senior Treasury official with representatives from other Government departments and external advisers from the university and private sectors.  The review examined publicly funded science and engineering research and made a number of recommendations, which were taken forward in the Spending Review and the Science and Innovation white paper, “Excellence and Opportunity”, produced by the Department of Trade and Industry.  A copy of the review can be found on the Treasury’s website at: www.hm-treasury.gov.uk/sr2000/associated/science_231100.pdf. A further cross-cutting review of Science and Research was announced by the Chief Secretary in June 2001.

17. The Treasury set the overall budgetary framework for science policy when it announced a substantial increase in science funding in the July 2000 spending review. This will see the Science Budget increase by an average of 7 per cent a year in real terms over the next three years. The Treasury will continue to work with other Government departments, particularly DTI’s Office of Science and Technology, on the detailed implementation of the science settlement. 

18. Public Service Agreements (PSAs) were agreed between the Treasury and DTI as transparent commitments which the Government can be held accountable for, and which will be closely monitored.  The PSAs relating to science and technology are:

• Improve the overall international ranking of the UK’s science and engineering base, as measured by international measures of quality, cost-effectiveness and relevance;
• Increase the level of exploitation of technological knowledge derived from the science and engineering base, a demonstrated by a significant rise in the proportion of innovating businesses citing such sources.

19. The Treasury and DTI jointly commissioned John Baker to investigate the commercialisation of research in Public Sector Research Establishments (PSREs) in 1999.  The Office of Science and Technology and the Treasury are now working with other Departments and Research Councils to implement changes which will assist and incentivise the exploitation of research outcomes emerging from the public sector.  The Treasury is providing funding to Partnerships UK as a contribution towards the science and technology commercialisation unit.  The unit will provide guidance and advice to public sector bodies in the exploitation of their research.

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Other interests

20. Because of our specific interests in the financial services industry we need also to be aware of developments in that sector.  We do so by direct contact and liaison, and by keeping abreast of the Foresight programme on financial services.

21. As with all policies, the Treasury will be monitoring the effectiveness of Government initiatives in the area of science and technology as they are implemented over the coming years.   These evaluations will inform future policy development and spending priorities.

22. The Treasury’s interest covers the following three broad areas of support: renewing the research infrastructure and setting the budget for science research, knowledge transfer and creating the right environment for innovation.

23. With knowledge generated at public expense there is an imperative to ensure not only the advancement of knowledge but, where possible, the exploitation of that knowledge for the wider economic benefit of the UK.  To encourage knowledge transfer and innovation, the Treasury will promote the exploitation of research generated in the science base.

24. The Treasury also takes a leading role in developing the wider innovation agenda in the UK, through tax measures aimed at boosting R&D across all businesses (we are consulting on the details of a new tax credit for research and development undertaken by large companies) and through support for venture capital aimed at encouraging innovation, such as the UK High Technology Venture Fund and the University Challenge Fund.

25. The Treasury will also continue to contribute to the UK’s promotion of innovation in Europe through the European Research Area, the Framework Programmes and the European Community patent.

26. Innovation initiatives across Government will continue to be monitored by the Treasury to assess their effectiveness in order to inform future taxation and expenditure policy.

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Evaluation process

27. The Treasury recognises the importance of assessing quality, relevance and progress of policies.  For example, the Treasury has worked with the Inland Revenue on commissioning consultants to carry out an economic assessment of the market impact of Venture Capital Trusts and the Enterprise Investment Scheme.

Our approach to stakeholder dialogue and communication

28. We consult with the relevant industry sectors to identify their concerns and issues through formal fora.  We also maintain regular dialogue with business and universities through extensive discussions and, for example, a programme of mainly informal visits through the Contacts With Industry scheme.  Details of the scheme can be found at www.hm-treasury.gov.uk/contacts/index.html                  

29. We publish the results of our activities.  Recent significant publications include the Baker Report (commercialisation of public sector research), the Trotman Report (measures to assist small businesses), the Williams Group Report (financing high-technology businesses), the Myners Report (institutional investment), reports of cross-cutting reviews carried out during Spending Review 2000, and supplementary budget papers (for example, on productivity).

HM Treasury

July 2001

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