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SPEECH BY BARBARA ROCHE MP, FINANCIAL SECRETARY TO THE TREASURY, AT THE CONFERENCE ON COMMERCIALISING PUBLIC SECTOR RESEARCH, 14 APRIL 1999

Introduction

1. I am delighted to be here this morning at this first conference on commercialising public sector research.

Setting the scene

1. Today's conference is aimed at improving the extent to which publicly-funded science is translated into viable business ideas and enterprises. The Treasury's interest in this area arises in two ways:

- it builds on the key policy of making better use of public assets through public private partnerships.

Government's approach to science

1. One area that offers huge potential for the development of new partnerships between public and private sectors is science.



2. Innovation, research and development are key drivers for long-run economic growth. It is in all our interests, both economic and social, to get what we can out of our R&D. Consider the experience of MIT in Massachusetts and Stanford in Silicon Valley to see what can be achieved by new partnerships between business and research establishments.



3. And that is why the Government is so committed to science.



4. You only have to look at the outcome of the Comprehensive Spending Review to see that. Last year, we announced an additional £1.1 billion to fund the upgrading of the science base. This included a £600 million Joint Infrastructure Fund - in partnership with the Wellcome Trust - to modernise essential underpinning infrastructure for universities' scientific research. This sum was swelled by a further £100 million in the recent Budget.



5. Last year, we also announced our innovative £50 million University Challenge fund to provide seed venture capital funding for commercialising university research.



6. In the Pre-Budget Report in November last year, the Chancellor announced the creation of a new £25 million Science Enterprise Challenge to endow up to 8 new Institutes for Enterprise in universities. These will bring enterprise and business skills into the science curriculum, and equip scientists to commercialise their work.



7. Yet encouraging science is not simply about the university lab. We are committed to science every step of the way from the classroom through the laboratory to the marketplace.



8. University Challenge, in particular, shows how our enthusiasm for science and for the contribution of science to the economy is widely shared in Britain. The Challenge Fund was over-subscribed with high quality bids and in this year's Budget, the Chancellor committed a further £15 million to fund more high quality proposals this year and to fund a second round of bids.



9. These are clear commitments to improving our science base. But this far from being the end of the story. In fact, it's the beginning of our determination to start working with the private sector to encourage the exploitation of research. We have now asked John Baker the chairman of Medeva plc, and of today's conference, to lead a study on the commercialisation of government funded research. This will report in summer.

Making Better use of Public Assets

1. The government is committed to making better use of public assets. Some public assets are surplus to requirements, and we are encouraging departments to dispose of these. There are other assets such as intellectual property which can't be sold or which require further investment to enable them to achieve their full potential. Making better use of these assets is clearly in the interests of economic efficiency, with benefits flowing to both the public and private sectors. The whole economy will benefit from higher capital intensity and better productivity.



2. And so the Government's Wider Markets Initiative is looking at how the public and private sectors can work better together to make better use of public assets.



3. The breadth of potential projects is vast. This reflects different problems and different motivations in very different settings. Improving the quality of public services. Getting value for money. Providing incentives for effective business management. Correcting under-investment. Sweating public assets. Optimising capital investment flow. This diversity calls for the development of new approaches to enable public and private to work together.



4. To succeed, this approach makes a number of demands on the public sector. First, we need to understand the need to encourage and to motivate. Second, we need to understand and take to heart entrepreneurial government, thinking more widely and creatively about enterprise in Government. And thirdly we need to bring about a cultural change, so we identify and embrace a commercial culture to seek out new opportunities.



5. Of course, these demands are just as much applicable to Treasury as any other area of the Government. We must take a constructive role in the process rather than being the Vinnie Jones of Whitehall. We are building in incentives for the public sector to make better use of assets, for example by allowing departments to keep revenue streams. And we are giving greater autonomy for departments through devolved responsibility for project development.



6. A positive, constructive and enabling role. I hope this and other similar conferences are further examples of our commitment to making this initiative a success.

Commercialising Public Sector Research

1. Links between university research and business are well advanced. But there are many research institutes and agencies run by departments and Research Councils, the so-called Public Sector Research Establishments or PSREs - the organisations represented here today.



2. Your organisations and the role they play is, perhaps, less widely understood than that of the universities but potentially very important for the economy. PSRE expenditure accounts for a significant portion of all Government research and development spending.



3. PSREs vary from the largest such as the Defence Evaluation Research Agency (DERA), which alone accounts for some 16% of all Government R&D expenditure, to very small bodies such as the Medical Research Council's Biostatics Unit.



4. A few are household names: Ordnance Survey and the Met. Office. Other have achieved recent publicity such as the Roslin Institute, which created Dolly the cloned sheep. For the most part however, PSREs lack the profile and commercial capability deserving of their often world-leading edge work.



5. In terms of commercialisation we have positive and not-so-positive experiences to build on. Some years ago, DERA was responsible for the development of Liquid Crystal Display (LCD), the income from which still helps to support the agency. But more could have been done to secure the value from LCD and both the agency and the British economy lost as a result.



6. But lessons have been learnt. Scientists in DERA have more recently developed revolutionary "flat speaker" technology which allows high quality sound to be produced by speakers no thicker than a piece of card, and at very low cost. And now a British Company, NXT, has developed the technology and is bringing it to market.



7. Up to now, as a result of legal uncertainties, DERA and other trading funds have had their ability to commercialise their research through equity joint ventures severely restricted leading to lost opportunities.



8. I can announce today that we have taken steps to rectify the situation and to clarify the powers of trading funds. Trading funds have the powers to develop equity joint ventures. We are today issuing a guidance note setting out the detailed considerations for trading funds which have been agreed with the NAO following advice from Treasury Counsel.



9. Another trading fund, the Forensic Science Service is using its know-how and experience gained through the criminal justice system to design drug and other tests for use in industry and elsewhere. And the Radiocommunications Agency now has a joint venture to exploit its know-how in spectrum management in international markets which has won contracts in Russia, India and Egypt.



10. By making better use of publicly-funded research and development these projects and others like them stimulate the creation and development of leading edge British companies and high quality employment.



11. Of course technology transfer and commercial exploitation need to be compatible with the government's core regulatory and other responsibilities and they must not compromise the requirements of propriety and accountability.



12. More often however, we fail to develop perfectly sensible innovations, or to meet with success in turning the public investment in PSREs into viable commercial propositions because technology transfer is left either to chance, or to the dedication of individuals prepared to swim against the tides of institutional inertia and disincentive. So the emphasis going forward needs to be on:

- spreading the existing good practice;

- removing the obstacles to best practice.

1. In short we must, as we have begun to in universities, do more to create the conditions for commercial exploitation in PSREs and their funding bodies. I have already referred to how departments can now retain the receipts from their commercial activity. So every agency now has some incentive.



2. And as a said a moment ago, as a result of our initiative, another important group of PSRES - Trading Funds - have had a constraint removed from their ability to enter joint ventures to commercialise their research.



3. But there is more to be done and it is important that we use the conclusions of today's conference to inform John Baker's study which will help us take the next steps towards turning the public's investment in research, science and knowledge generation into benefits for the British economy. Our aim is to learn from leading edge British and US experience in technology transfer and commercialisation and to help all of our PSREs follow their lead.

Conclusion

1. We are committed to doing what we can to create an innovation economy. It is vital that we engage with public sector scientists and their funding bodies and with the private sector intermediaries and other companies who play their roles in turning knowledge into viable business opportunities.



2. We will do this through the PSRE study and the conference. I look forward to our work over the coming months and to ensuring that the next steps we take are the right ones for Britain's future.

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