HL Deb 04 July 1983 vol 443 cc447-92

3.7 p.m.

Lord Gregson rose to move, That this House takes note of the Report of the Science and Technology Committee on Engineering Research and Development (2nd Report, 1982–83, H.L. 89). The noble Lord said: My Lords, I beg to move that this House takes note of the report of the Select Committee. When this subject was chosen for inquiry by Sub-Committee II of the Select Committee, I am quite sure that your Lordships' committee did not realise the wide interest that would be created. The committee received written evidence from over two hundred bodies and individuals, and heard oral evidence from 27 groups. To read and assimilate this great weight of evidence constituted a monumental effort, and I pay tribute to the hard work and perseverance of the committee Members. To the very many people who contributed, or who acted as hosts during the visits of the committee. I express the committee's thanks, and its appreciation of their efforts.

Manufacturing industry is fundamental to the economic well-being of the peoples of this nation, and engineering is the core technology which either participates in, or supports every part of, the manufacturing sector, and, in addition, it is an essential feature of the agriculture and extractive industries. It is, therefore, of crucial importance that we should have a technologically advanced and successful engineering activity.

There are some ill-informed individuals who suggest that we can sit back and let our manufacturing industries wither, and that we could provide for our present standard of living, or even an increase in that standard, by turning our efforts largely to the service sector. Your Lordships' committee finds that proposition quite untenable for a country that has to import about 40 per cent. of its foodstuffs and most of its raw material. The Minister of State for Industry put the whole question in context when giving evidence to your Lordships' committee. I can do no better than quote him. He said: Manufacturing industry provides about 25 per cent. of our GDP and 25 per cent. of jobs but it provides 75 per cent. of our visible trade exports. If we were to replace the contribution made by manufacturing industries to the balance of payments, we would need to increase our exports of services by £60 to £70 billion a year. To do that we would have to increase our share of world exports of services quite dramatically from under 10 per cent. to over 50 per cent. and that is really a wholly impossible task at the moment. So without manufacturing industry Britain could not survive.

This was further reinforced when the right honourable Lady the Prime Minister, in the debate on the Address last week, stressed the link between the prosperity of our people and the performance of our industry and commerce. Few would now question that British manufacturing industry and engineering activity have been in decline, compared with many other nations of the world, for many years—some would say for at least 100 years. During that time there have been many reports drawing attention to this sad state of affairs, which have long been ignored. In the first quarter of this year, for the first time in history, our import of manufactured goods exceeded our export of manufactured goods by the wide margin of well over half a billion pounds; and we are now only held away from a disastrous overseas trade balance by the temporary bonanza of North Sea oil. In these circumstances, it is no longer tenable to report that a major problem exists and then for those reports to lie gathering dust on the shelves of Whitehall. The time has come for action—and, your committee believes, action more vigorous and far reaching than any taken by Governments in the past.

As I stated earlier, engineering is the core technology to our manufacturing industries, construction and communications, and agriculture and extractive industries, including North Sea oil, the very thing that is at present holding us away from economic disaster. A successful economy therefore requires considerable engineering strength. To be strong, engineering has to be backed by vigorous research and continuous product development. As we have stated in the report, basic research in the United Kingdom is providing a relatively satisfactory level of achievement, although some of that research may be too remote from the market place to have any immediate value.

What causes intense concern is the state of applied research, particularly product and manufacturing development. With lack of profitability and a shrinking product base, much of the British engineering industry can no longer finance adequate product development. This is the problem to which we addressed ourselves in the report. We must derive considerable encouragement from the fact that the Prime Minister, in the debate on the Address, committed this Government to substantial support of new technology to launch new products and to bring about new research by the universities, the Government and industry in combination. I think that your committee's report points to the actions that are required to bring into being the advances suggested by the Prime Minister.

There are, in total, some 34 recommendations and comments. Your Lordships will be pleased to learn that I do not intend to refer to all of them. However, I should like to comment on the five principal groups of recommendations in the report. These are: firstly, better use of the nation's resources in accordance with strategic guidance from Government and some form of selectivity in those areas of industry and those products on which this country should concentrate; secondly, financial assistance for manufacturing industry by pump-priming from private and public sectors; thirdly, managerial commitment in manufacturing firms and a strengthening of their engineering workforce; fourthly, more use by industry of the resources of British universities; and, finally, organisation of support for innovation.

I deal first with better use of the nation's resources. If one theme dominated the large amount of evidence that your Lordships' committee considered, it was the need for industrial strategy backed by technological strategy. One has to indicate, in the first place, where the nation's industrial effort can be most profitably concentrated and where Government help can be most effectively applied. Your committee believe that the option of letting industry grow and contract in an international free market, without associated Government policy, is no longer viable. It is our belief that in such circumstances British industry would continue to contract because of the pressure of imports from competitors in economies that are structured by strategic guidance and assistance. In addition, the compass of modern industry is far too wide for a nation the size of ours to be able to do everything. Since the quantity of research and development is limited by resources and we must raise the quality of the work done, we must make a conscious selection of industries and products where we desire to succeed. We must therefore be selective.

It would be a mistake to suggest that strategic guidance and selectivity could be in the form of compulsion. Unless management and workforce are committed to the introduction of new products and processes, no amount of cajoling will produce results. Moreover, since accurate judgment of the market is vital to success, the primary responsibility for direction must come from industry and not from Government. Nevertheless, involvement of Government at most levels is now so great that they must be party to the exercise.

There are many organisations which could contribute to strategy. The committee consider that it would be unnecessary to suggest that a new body should be created for this purpose. It seemed to us that the National Economic Development Organisation had the right structure to promote a constructive dialogue in the ultimate; but it would, of course, require considerable consultation with bodies such as the Requirements Board, the Engineering Council and the Advisory Council for Applied Research and Development. But, of course, NEDO is not the only forum. What is important is that discussions should take place and a strategy should be defined.

The second group of recommendations concerns the problem of financial help in innovation. As I said earlier, lack of profitability and a shrinking product base create considerable problems for the ongoing financing of innovation, and your committee heard considerable evidence of the problems that exist and many suggestions for solutions, ranging from doing nothing to a complete planned economy. We were greatly encouraged to hear that consideration was being given within the City to new approaches for private sector funding to overcome some of these problems, since the flow of funds to industry for investment in R and D is absolutely crucial to break out of the Catch 22 situation of low profit, leading to low investment in R and D, leading to a shrinking engineering industry.

Your Lordships' committee have recommended that the Bank of England should take a lead in arranging discussions within the City to further these ideas. In connection with financial help for innovation, we also received a good deal of evidence regarding tax assistance. But it is really very difficult, without resorting to negative taxation, to see the further potential of beneficial tax treatment in this area. Almost all research and development expenditure already attracts full tax relief in the year in which it is incurred, and many of the companies most in need of development funds are not earning sufficient taxable profits and would therefore obtain little immediate benefit.

In parallel, there is another problem of using tax for this purpose. That is the total lack of selectivity of the tax treatment approach. There is, however, one area where tax assistance could be helpful, and that is in relation to the possible new City initiatives that I mentioned earlier. It relates particularly to the potential for tax incentives for additional financial investment separate from the main balance sheet of a company; the so called "off balance sheet financing". Your Lordships' committee recommend that the Department of Trade and Industry and the Treasury should study the possibility of extending the legislation which, since our report, was proposed in the Budget earlier this year.

In the Stock Exchange we in this country have the oldest and most highly developed system for financing industry in the world; but there is one aspect of this system where we seem to lag behind most of our competitors, and that is on the disclosure of R and D spending by companies. Your Lordships' committee consider that it is important to encourage the early identification of those companies likely to respond to a high level of R and D expenditure. This would enhance their rating in the City as subjects for investment or loan financing and other support and, in this way, would encourage intelligent appraisal of such companies' long term prospects.

A company which is making such investment should be entitled to a better rating by the City than suffering disfavour because of the impact of such expenditure on profits without the cause being known. The Companies Act 1981 recommended voluntary disclosure, but this is simply not happening. Your committee recommend that the Secretary of State for Trade and Industry should use his powers and modify the disclosure requirements of the Companies Act by statutory instrument.

It will be apparent to everybody from the situation of the decline of British manufacturing industry, shrinking product base and the deteriorating trade figures, that time is not on our side; but time is of the essence. It is also clearly obvious that the vicious Catch-22 situation of low profits, leading to low R and D funding, cannot be rectified wholly by new schemes of finance from the private sector, nor would the time scale satisfy the urgent requirements. There is therefore a requirement for more Government pump priming to break the vicious circle.

Even without the debilitating effect of years of under-funding of industry, we are not assisting engineering R and D at anything like the rate of our principal competitors, and even without attempting a catching up exercise we need to increase assistance by at least three times. Let me add that that is only a tiny fraction of the amount we spend on assisting agriculture through the lunatic spending of the EEC.

A quick view of the statistics would indicate that we have comparable spending with our competitors until we realise that by far the great majority of our spending is within the Ministry of Defence for defence purposes and it is in the civil or commercial activity where we lose out in world trade. That is where our spending is so far below that of our competitors. Let me make it quite clear that I am not criticising the amount we spend on defence R and D since export of defence equipment is one of our most successful overseas trading activities. It is a good example of when sufficient is spent on R and D a good product is developed which can command an extensive world market, and I might add that the majority of this is financed by the Government. We should also understand that this R and D is for the purpose of the development of defence equipment, and the fact that the spin-off to civil application is comparatively small is totally irrelevant. If we had the same comparative level of expenditure for civil or commercial R and D, then we would not need the debate in the House this afternoon.

The Department of Industry's Support for Innovation, which is the source of funds mainly relevant to engineering, is a very small fraction of Government R and D expenditure. Of the gross Government R and D expenditure within industry in 1979–80, 81 per cent. went into defence, 12 per cent. into civil aerospace, 2 per cent. into energy and only 4 per cent. into other industry, trade and employment. The amount spent by Government in support of civil R and D is too small; the amount spent by Government within industry is pitifully low. Your committee have again gone into a great deal of detail suggesting ways that assistance in the civil sector could be improved and the various bodies involved that could be strengthened. Sufficient for me to say today that such money should be spent within an agreed strategy and agreed selectivity.

I now turn to the third group of the recommendations, and that concerns management in engineering. There can be no improvement in manufacturing industry, the quality of engineering, nor innovation without a dedicated management. The Finniston Report went into this in considerable detail and I opened a debate in your Lordships' House on the report in the last Parliament. Since that time, the Engineering Council recommended in the report has been set up and your committee wish it well in its future endeavours.

Ultimately, nothing in this or any other report will improve the performance of British engineering if the skills and enthusiasm of management are not provided. The United Kingdom has to regain the market superiority which it used to enjoy, and industrial success is conditional on the ability of British management to perform better than their competitors.

Your committee believe that the remedies lie mainly within industry itself—and with company shareholders—and they stress the importance of a well-conceived management development programme in any sizeable company, if its future is to be properly safeguarded. We hope this question will receive the early attention of the Engineering Council and we also believe that the Fellowship of Engineering should also keep the question constantly under review.

Fourthly, your committee also spent considerable time inquiring into the interface of industry and the university; and although, in general, we would suggest there is room for a good deal of improvement, your committee recognised that while the primary function of higher education is of course to educate, not to act as an industrial adjunct, there are enough sources of mutual benefit to the university or polytechnic and to industry to make collaboration between them worthwhile, notwithstanding the benefit to the country as a whole. In addition to their teaching role, basic research is the university's main contribution; but your committee dismiss any suggestion that the universities should be confined solely to this. They should be encouraged to make their basic research more market orientated and encouraged to carry out development work where this is appropriate, and to provide technical assistance particularly to the smaller companies.

Funds should be allocated through industry. There is a need for such funds to be directed through industry to allow these activities to take place relative to the market place. The American example of "industrial affiliate" programmes in universities is also worth consideration.

The most important recommendation that your committee make in this area is to highlight the need in this country for more centres of excellence of high technology on a graduate and post-graduate level. Your committee recommend that at least six universities should be earmarked to support research and development on this basis and that the Department of Industry, in consultation with the Department of Education and Science, should channel special funds into them or into associated research institutes. There are many research associations in this country; but very few of them are attached to universities. This is not the case with our major competitors and I think the industry/university interface here suffers because of this. Again, we recommend that this money should be channelled through industry in order that industrial commitment and market considerations are guaranteed.

During the course of our inquiry, the Prime Minister requested that a study be carried out by the Advisory Council for Applied Research in conjunction with the Advisory Board for Research Councils into the links between industry and higher education institutions in research and its applications. Because we considered this working party could study this important subject in much greater detail, and because of the important implications for the effectiveness of the university/industry interface, the committee have confined their recommendations on this topic to a few general conclusions in the hope that the ACARD report will put flesh on these bones and will identify practical means of bringing universities and industry closer together.

The report was published at the end of last week and I must say that, on a first reading, I was disappointed; it is not the engine of change that would help to bring the 18th century culture of some of our universities face to face with the realities of the fourth quarter of the 20th century. I think that it is academic biased and it fails to address itself to the most important and critical problem—that of the small and medium-sized companies, where there is an abysmal record of contact and co-operation with higher education. But of course such a report deserves further study, although I now wish that the committee had completed its inquiries into this question and had reported itself.

The final group which I want to mention this afternoon concerns organisational support for innovation. Several witnesses and organisations—notably the Engineering Professors' Conference—argued for engineering to be removed from the responsibility of the Science and Engineering Research Council, and for a separate engineering research and development council to be established.

On the other hand, the CBI and the Royal Society cautioned strongly against driving a wedge between scientific and engineering research and, although your committee sympathised with the engineering professors' concern at being the poor relations in the distribution of SERC grants, we decided that the view expressed by the CBI and the Royal Society should prevail; although your committee felt very strongly that SERC should increase considerably the miserable 24 per cent. that it now spends on engineering R and D.

The Royal Society went on in its evidence to recommend the concept of an engineering development council in parallel with the SERC in order to improve our poor record of carrying through research to commercial exploitation. This was also a feature of the Finniston Committee's report. Your committee accepts this concept, but rather than propose that yet another body should be created, the Research Requirements Boards of the Department of Trade and Industry should be considerably strengthened and adopt the role of an engineering development council.

The Finniston Committee also highlighted the poor record of inward licensing of technology into the United Kingdom compared with our major competitors. Inward licensing of technology was the basis of the so-called economic miracle of Japan. This question is now an urgent priority and should be considered on an urgent basis for the engineering development function of the requirements boards.

I have dealt with the major groups of your committee's recommendations. I have not attempted to deal with the report in detail and I am sure that that is not what your Lordships would have wanted. I have confined myself to the highlights and to addressing some of the important questions.

In conclusion, can I say that as a country we must spend more on research and development, and particularly development in support of our manufacturing industry. The Government must assist industry by pump priming in well chosen areas. The vicious circle of low profits and low R and D has to be broken. The committee does not see how engineering industries can improve their profitability enough in world markets where Government subvention is normal unless the British taxpayer helps to get R and D started. Without R and D there will be lower profits in future and lower tax returns. We must invest now in the country's future prosperity.

The recent depressed economic conditions, combined with neglect over many years, has had a very serious effect on our engineering industries. Some people counsel that we need do nothing but await a phoenix to rise from the ashes. I would only remind those people that it took 500 years for the phoenix to arise from the ashes. We do not even have five years if we are to redress the neglect of at least 100 years.

I look forward to the debate and I also look forward to the Government's reply, although I realise that they will not yet have had time to answer any of our comments in detail. This is an important subject involving considerable public interest, and I would request that when the Government reply they do so in a written paper which would be available for further discussion. I would also request that they produce that written paper quickly, as time is of the essence.

In opening the debate I thanked the people who came forward with a vast quantity of evidence and your committee for the inordinate amount of time that it spent on considering this mound of evidence and its wise counsel. I should like to conclude by thanking the four specialist advisers—Dr. Allen, Dr. Trier, Mr. Pavitt and Mr. Lawrence—for their expert assistance. Last—but certainly not least—our thanks go to our clerk and his staff, who bore the brunt of the tidal wave of paper and who assisted us to produce the report which I hope meets with the approval of your Lordships. I beg to move.

Moved, That this House takes note of the report of the Science and Technolology Committee on Engineering Research and Development.—(Lord Gregson.)

3.45 p.m.

The Earl of Bessborough

My Lords, I should like to say immediately that the noble Lord, Lord Gregson, was the most admirable chairman of our subcommittee and we had most interesting and, indeed, enjoyable discussions under his chairmanship. He has humour, and he was able to keep us going over this very long session. Some have said that this committee was more like a Royal Commission in the weight of the evidence which we received.

But before I make any of my own comments on the report, which of course I endorse, and before proceeding further, I should like to join with the whole House in congratulating my right honourable friend the Prime Minister on being elected a Fellow of the Royal Society. This was announced in The Times today. We all know what a great contribution she has made as a scientist and lawyer, as a Secretary of State for Education and Science, and also as Prime Minister. In my view, the fact that she has now been elected a Fellow of the Royal Society means that she is confirmed as the Minister for Science, which I understand in fact she is.

As so often happens in these debates, I feel that I have been here before; it is rather like one of J. B. Priestley's time plays. Exactly 20 years ago, as a junior Minister for Science, I made my maiden speech on the Robbins Report on higher education, and then we discussed the need for more what we called QSEs; that is to say, qualified scientists and engineers. The ACARD report on improving links between higher education and industry, which the noble Lord, Lord Gregson, has mentioned and which has just been published, reminds me very much of what was said 20 years ago. If I remember rightly, the Robbins Report was four volumes, whereas in the present case the material is contained in three, amounting to nearly 1,000 pages and covering well over 1,500 questions.

Then—and this is another time element—almost exactly 10 years ago in 1973, as chairman of the committee of inquiry into the research associations, I produced my own report, the main conclusions of which I am glad to say the noble Lord, Lord Gregson, agreed should be endorsed in the present report in which it is stated that these associations perform a role in the creation and application of industrial technology which is out of proportion to their size; and that their effect on science-based industries is of great importance.

I recognise of course that the Production Engineering Research Association, of which the noble Lord, Lord Gregson, was in fact chairman, considered that its current level of financial support was inadequate—I suppose both in so far as industrial as well as governmental support were concerned. While endorsing a very great deal of what the noble Lord, Lord Gregson, has said, I should like to make a few further personal comments on our proceedings.

I was particularly interested to hear what the admirable Dr. Duncan Davies, the former Chief Engineer and Scientist at the Department of Industry, said about the need for international co-operation, and the desirability of tie-ups such as between TRW and Fujitsu as well as between Siemens and Fujitsu. I agree with Dr. Davies that such collaboration seems inevitable in view of the increasing number of products now made in a totally international market.

Just something about France. Again Dr. Davies said that one thing that strikes you about the French—I did not say this but Dr. Davies did—was that they combine their resources better than we do, that they all come from the same school (the Ecole Polytechnique or the Ecole Nationale d'Administration) and that they are better at making selective decisions naturally and in concentrating resources.

Something else Dr. Davies said—and I am told that it is perfectly in order that I should quote witnesses before our committee—was that the French always told a good and consistent story, and were proud of it. Their programme for La Télématique was something all polytechniciens will tell you about. I agree with Dr. Davies that we have a lot to learn from the French—and I say this not merely because I am half French myself! We had some discussion about French activity in the promotion of information technology. There seemed some confusion as to how much the French were in fact spending in the telecommunications sector and elsewhere. I think it was Mr. Edwards of the CBI who said that he very much doubted whether our funding could be compared in quantity with what was being done in France. He said that the commitment to electrotechnology and electronics by the French Government has been, in his own words, "pretty tremendous". All the same, he did not think that the CBI could complain that the British Government were not saying enough about it, but he thought that the funding should be greater.

On the other hand my honourable friend Mr. Kenneth Baker, the Minister of State for Information Technology, for whom I have the greatest possible respect, made it clear to us that it was very hard to find out exactly how much the French really were spending, and I think he hoped that we might tell him. Perhaps later on we shall.

Incidentally, our visit to the technological university at Compiegne in France was of great interest. I would draw your Lordships' attention to all that Sir Henry Chilver said in his evidence. He is of course now chairman of ACARD, the Advisory Council on Applied Research and Development. He spoke to us about co-operation between the Cranfield Institute for Science and Technology—and I am glad to see that the noble Lord, Lord Kings-Norton, is taking part in this debate—and not only Compiegne but also Aachen University in West Germany, both of which we visited, and also what he told us about the discussions which Cranfield are having with MIT in the United States. Joint degrees are, in my view, important, as also is the joint innovation which is taking place in a number of directions, particularly in mechanical engineering but also in biotechnology on which there is a joint Cranfield-Compiegne unit.

I was also glad to hear Sir Henry Chilver—for whom we must all have the highest regard as one of my right honourable friend the Prime Minister's closest advisers—say that we were taking part actively in EEC collaborative research meetings within the framework of the EEC's CREST committee. I have for many years wanted to see more and more European technological co-operation but recognise that often it is preferable to conduct this on a bilateral, trilateral, or, shall I say, selective multilateral basis within the European Community, bringing in sometimes European countries outside the EEC such as Sweden, Switzerland, and Austria, as in the so-called COST projects.

One word about the requirement boards. I was a little disturbed to hear my old friend Sir Hugh Ford, now vice-president of the Fellowship of Engineering, admit that there was criticism of the boards. However, I was glad to hear him say that in his own experience if you went to the boards with a well prepared case the boards worked extraordinarily well; and he cited an outstandingly successful case which involved large sums of money for the development of a straining frame for plastic materials.

I also regretted to hear the evidence of Mr. Edwards, the deputy director-general of the CBI, when he said in answer to Question 854 that he did not feel the boards, now reduced in number, had been a resounding success. He also did not think it necessarily the fault of the boards themselves but felt the attitude of industry itself to some of the research proposals was one reason. The CBI also made the point that too many strings should not be attached to the provision of finance. Mr. Edwards did not, as I understood him, see the requirement boards as providing the major solution to our problems.

A short word about science parks. I was particularly interested, as I think the noble Lord, Lord Gregson, was, in the evidence given by Professor Crawford of Aston University about the way in which the Stanford Research Institute developed in California, which I have visited, and the way it became separate from the university but nonetheless continued to have a strong organic relationship with it. I hope very much that Professor Crawford is succeeding in setting up his own park in association with Aston University in Birmingham. I certainly look forward to visiting it too.

In the newer technologies such as microelectronics, robotics, computer-aided design and information technology generally, we were glad to hear from Dr. Roith, the present chief engineer and scientist of the Department of Industry, that the present Administration had taken major initiatives and that in those areas there had been a considerable increase in funding. There has. But he also said that in regard to optoelectronics and other areas of informatioin technology, such as the fifth generation computer, and problems arising from the Alvey Report, that he realised that much money would be needed, and that it was in those places where some of us would like to see new initiatives.

In regard to robotics, I hope that my noble friend Lord Cockfield, the Chancellor of the Duchy—and I congratulate him on his appointment—feels that the funding is sufficient. It was disturbing to read very recently—many of your Lordships may have read this—that the Japanese have 11 robots for every one of ours; the Americans have five; the West Germans three; and even Sweden, with a fraction of our population, has 1,500 robots to the United Kingdom's 1,152. We must clearly have fallen behind in this area.

I do not know whether this is because the unions consider that the use of robotics will increase the number of unemployed, and that they have influenced the Government in some way. If so, I think that the unions are wrong, because if you study an in-depth investigation into American industry you will find, my Lords. that in those industries and in those areas in the United States where robots are most in use, their—perhaps you may say paradoxically—unemployment is the lowest because these firms are doing well and expanding and increasing their manpower in various ways and in peripheral areas. I hope that the recent exhibition in Birmingham has made firms in this country more conscious of the advantages of installing robots. I hope my noble friend Lord Cockfield will assure us that he thinks that present Government spending is sufficient on robotics.

In so far as private funding for new technologies is concerned—to which the noble Lord, Lord Gregson, referred—I found our meeting with Sir Nicholas Goodison, chairman of the Stock Exchange, Sir Donald Barron, chairman of Midland Bank, and Michael Richardson, of Rothschilds, particularly interesting, and especially what Mr. Richardson said about the idea of creating a research and development trust fund with possible consequent tax benefits. Mr. Richardson brought a paper with him on the setting up of such a fund and told us that the inspiration came—Lord Gregson must be gratified by this—from the questions which we sent him. I hope that in connection with our conclusion No. 7 on page 69 the Government will carefully study this proposal.

In regard to spin off, we were all particularly interested in our meeting with my noble friend Lord Trenchard who was a Minister of State in both the Department of Industry and in the Ministry of Defence. The report of that meeting in December last year (which starts at about page 600 of volume II) is well worth reading. We can obviously learn a good deal from the United States in regard to spin off from defence into civil industry. It is wise of my right honourable friend the Prime Minister to move Ministers from industry to defence and vice versa. When I was Minister of State at the Ministry of Technology, which, curiously enough, still existed in 1970, I was responsible in certain areas for both civil and military R and D procurement. Although I thought the Ministry of Technology set up by the Labour Government was too large, nonetheless, I am sure that there are advantages in close links between the two departments.

In conclusion, I should like to pay a special tribute to my honourable friend Mr. Kenneth Baker, the Minister of State—who I know is staunchly supported by my right honourable friend the Prime Minister—for all he has done to persuade British industry to be more enterprising in taking up new research projects. It was Sir Henry Chilver who told me—no doubt the noble Lord, Lord Kings Norton, will confirm this—that at Cranfield, as soon as he let be known that certain research and development in a given area looked promising, first the Americans would ring up the same day and say that they were taking the next plane over and the Japanese would come a week later; whereas British firms might sometimes delay several weeks before coming to look at what was being done. This is distressing. However, I hope that my honourable friend the Minister of State in another place, and indeed Ministers in your Lordships' House. will renew their efforts vis-à-vis British industry, and that we may catch up, compete and also co-operate on more equal terms with our friends in other parts of the Western world.

3.54 p.m.

Lord Baker

My Lords, may I first thank the noble Lord, Lord Gregson, for introducing this debate and for so giving us the opportunity to discuss the report of his Committee on Engineering Research and Development. As the first Member of your Lordships' House who is not a member of the committee, may I congratulate the noble Lord, Lord Gregson, and his committee on the mammoth task that they have undertaken and completed so successfully.

The three volumes of this report, in which I have been immersed for the past two months—the report itself, the written and the oral evidence—form a fascinating document. It will provide the student of the history of industry with a rich statement of the position in this country in the last quarter of the 20th century, but nothing could be richer than the remark in Appendix 3, an historical interlude which states: The Cambridge Mathematics Tripos might have proved an excellent seed-bed for engineering talent had not the social and cultural background of its graduates directed them [elsewhere]". If the Mathematics Tripos failed so signally, it makes me wonder about that lush garden in Cambridge which nourished me so delightfully for three years in my youth (it did the same thing some generations later for the noble Baroness, Lady Platt, and, of course, for the noble Viscount, Lord Montgomery of Alamein, who I remember so well as an undergraduate) and to which I returned many years later to cultivate for 25 years, and to increase it. If I may digress a moment longer, our historian might be interested to know that engineering has been taught in Cambridge for just 200 years without a break since Isaac Milner gave his first course of lectures in experimental philosophy in 1783.

The committee has produced a most excellent report. I agree with virtually all the recommendations. There is only one which I deplore, and to which I shall come later. I should like to mention two minor recommendations which pleased me very much. One is the suggestion that more engineers should appear on the boards of companies. This I support, and I hasten to remark that my feelings do not come from any experiences I have had with companies of which I am or have been a director but from years of effort trying to persuade directors to adopt new design methods that we have produced, or new projects or new products. We have had to do so in the face of such ignorance of engineering that the directors dare not even admit to their ignorance.

The other minor point I should like to mention is that it goes without saying that I support most warmly the recommendation that a greater proportion of funds for post-graduate work should be channelled into engineering. That would have a far-reaching effect. It would benefit the economy far beyond the immediate results of post-graduate work. It would involve more very able men in the solution of engineering problems and innovation. These men will never regret being introduced to such fascinating work in place of the pure research that they might have done if the additional funds had not been available. When university post-graduate work is over they will, I hope, leaven our manufacturing industry, which has been so grossly negligent of its staffing problems in the past.

As I have said, there is one section of the report that I deplore and on which I shall concentrate. The noble Lord, Lord Gregson, has already mentioned it. It comes in the section on "Organisational Support for Innovation", on page 61. It is the treatment of the proposals from the engineering professors, and it really is a surrender to the pure science lobby. The engineering professors, when all is said and done, are pretty close to the problem. They have asked that engineering be removed from the Science and Engineering Research Council and for a separate Engineering Research and Development Council to be established that can work to its own guidelines. The committee did not support this view, although they rather patronisingly said that they sympathised with the engineering professors in being poor relations in the distribution of the Science and Engineering Research Council grants.

It appears from paragraph 26.3 that the decision was taken on evidence given by the CBI and the Royal Society. I think that the CBI evidence can be dismissed. It seemed to me a rather questionable economic argument that it was better to save money even if by so doing one became less efficient. The Royal Society objected that any measure that would drive a wedge between science and engineering research was wrong. Since reading the report I have been trying to imagine the shape of a wedge, and where it could be driven, arising from the award of grants from different Government committees. Over the weekend I made inquiries from my old department and I found that, of the £1¼ million received in the last year in grants and research contracts, 44 per cent. only came from the research councils. Does the committee feel that the other 56 per cent. tended to drive a wedge between the engineering department and the Cavendish Laboratory? It seems to me a preposterous suggestion.

There are other points arising out of paragraph 26.3—the interdependence of science and engineering—about which I have reservations and to which I will return later. The links between science and engineering seem to me good enough. The Royal Society embraces engineers as well as scientists—and I must declare that I am a Fellow of the Royal Society. Any engineer worth his salt will be watching carefully for any scientific advance which he can apply to his design work; and scientists are never slow to make use of the aids to their work such as scanning electron microscopes and computers produced by engineers. But, in any case, I cannot see their awareness being influenced by the source of the money which makes their work possible. I am at a loss to understand this argument, and I hope that the committee will be able to enlighten me.

Your Lordships will realise that scientists and engineers are entirely different animals. There is some confusion because their school education is much the same and they use the same tools; and there is recent confusion, for the layman at least, mainly of transatlantic origin, where every exciting engineering development is greeted as a triumph for science. The scientist is preoccupied, is engaged, with unravelling the mysteries of nature, and his whole world, his whole life, can be described as in research; while for the engineer (if he becomes involved in research, which he may not) the research is a mere incident in his real activity of innovation and the creation of new tools, structures and machines for the use and convenience of man.

I like to remember the remark of one of my most distinguished predecessors at Cambridge, Sir Alfred Ewing, in his presidential address to the British Association in 1932, when he was worried about the advance of mechanisation. I do not know what he would think of our three million unemployed today. He said: I cannot think that man is destined to atrophy and cease through cultivating what, after all, is one of his most God-like faculties, the creative ingenuity of the engineer". It is now recognised that scientific research, in which we all agree this country excels, can do nothing of itself for the economy. It cannot cure our awful unemployment problem: it is only of help when it is transmuted, transformed, through engineering into useful ends. As the committee says in paragraph 1.7: A successful economy therefore requires engineering strength; and to be strong engineering has to be backed by vigorous research and continuous product development". Here, I take it that the reference is to engineering research, but it does not matter from where the research comes.

In my own career, on two occasions—once for a period of two years and, 20 years later, for a period of three years—I and my team acted, worked, entirely as scientists carrying out scientific research, discovering the behaviour of a family of man-made structures; but we used exactly the same techniques which, in the first place, a zoologist would have used and which, in the second place, physiologists would have used. We were obtaining information on the behavour of structures under load or under stress; but this was relatively straightforward work compared with what we were leading up to, what we were obtaining the data for—and that was the synthesis, the development, of new design methods so that improved structures could be developed. It does not matter from where the research comes, or who does it, so long as it is there to be useful to the engineer.

This brings me to the written submission of the Royal Society. Perhaps it is not proper for me to examine critically evidence published in Volume III of the report—evidence by bodies kind enough to come here at our invitation to help the committee—but I think I must make this reference to complete my contribution to the debate. Perhaps I will be forgiven in this instance for I find that 25 per cent. of the Royal Society committee who drew up the evidence had been pupils of mine and, later, colleagues. I do not know whether to be proud of this or ashamed at my inefficiency at putting my ideas across to my pupils. Moreover, I was once a part of the scientific establishment. For 27 years (and does it not sound terrible?), for more than a quarter of a century, I presided over the council of the School of Physical Sciencies in the University of Cambridge. In those years, I came to know my scientific colleagues intimately. I came to admire their individual genius and their devotion to their calling, which was so intense that sometimes it frightened me; and also their skill at seeing that they received at least their fair share of any support that was available.

To move at last to the written evidence of the Royal Society, with a great deal of which I agree, what worries me there is the insistence on an integrated approach to science and engineering. There may have been a time some generations ago when this was possible at the undergraduate level, but since, fortunately, engineering departments are learning how to encourage real design and a real interest in development and innovation, that time has gone. But at the post-graduate level and beyond, no!— emphatically, no integrated approach.

When the engineering professors are given their own awarding council—they have put up such a sound and reasonable case that I hope our committee will reconsider their decision and will urge the authorities to see that it is done without further loss of time—and when they stand on their own feet, as it were, I suggest that they leave out the word "research" from their title and have a plain "development committee", or at most a "design and development committee". This suggestion may displease some of the engineering professors, but the opportunity should be taken to see that the engineer comes of age, as it were, and becomes quite independent. Engineering can claim an honourable place in the academic world or in any other world on the strength of its rigorous discipline and creativity. It needs no props from science. It needs full co-operation from science or anyone else working in related fields; but it stands on its own, and it is the bulwark which may save this country from its awful social problems.

The discipline in engineering comes from the fact that the engineer, within tight limits of cost, must produce something new and useful which will work. When it does not work it cannot quietly be buried in the pages of a scientific journal: the failure is there for all to see. When it does work, the satisfaction of standing back and looking at what one has helped to create is indescribable.

4.14 p.m.

Viscount Hanworth

My Lords, I should like to echo what the noble Lord, Lord Baker, has just been saying about engineering. As I develop my speech I think you will find that I feel exactly the same as he does. I believe that there is a tendency to put much too much emphasis on research and development instead of the product development, and it is at that stage that the engineer is absolutely vital. We are very, very good at inventing things, but very poor at developing them to the product stage. I think that if there is a criticism of this report it is that it fails to take that fully into account.

I should like to congratulate the Select Committee on their choice of subject. I always thought that the old Commons Committee spent too much of its time upon looking into subjects which had been discussed already almost ad nauseam. The Lords Committee has so far chosen those subjects where a detailed investigation was important and the subject had not so far received adequate attention.

Most of us realise that this country is dependent for its survival on its manufacturing and exporting ability. Unlike France or Turkey, we do not grow enough food and we have to earn money from abroad to buy it, and many other things as well. This of course makes the "fortress" policy, or something like it, proposed by some of the Left, a nonsense and really a non-starter.

This country's pre-eminence in the last century was to a great extent due to our engineering expertise. I even remember saying not so very long ago that firms still believe that Britain made the best engineering goods in the world and it was the customers' misfortune if they did not buy them. How wrong they were, unfortunately, sometimes on both counts.

I do not believe at this moment that it is profitable to analyse too far the causes of our failure to keep our dominance in this field. However, it is perhaps interesting to make an analogy with a company. The fight to get to the top is comparatively easy; it is much more difficult to remain there, and once on the downgrade it is even more difficult to arrest the slide. Marks and Spencer once told me that at one time they thought they were an efficient firm. Since then they have had improvements made in almost every area and they now realised that they were not efficient. No firm can be completely efficient so long as it is composed of fallible human beings. It can be said that in this rapidly changing world what was right yesterday can hardly be best today. We should always have an attitude of divine discontent.

I cannot help departing from this theme for a moment because there is a very important analogy in political terms where there is so urgent a need to improve our own parliamentary and democratic system. We still shelter behind being the Mother of Parliaments, the best judicial system in the world. We also support our unions for perhaps being the ideal—or some do, at any rate. The rats, or rather the inevitable process of decay, by exploitation have bitten into all of them; and that of course is the same in the engineering field.

It cannot be overstressed that we are still very good at producing new ideas. Our failure is in production development. The classic example, of course, is radar, which during the last war had to be sent to America to produce the usable equipment. Yes, I know that it was wartime, but much the same has applied ever since. One of the causes of this sitution has been the low status of engineers, which was, of course, the reason for the Finniston Report. For a long time engineers and designers have been almost second-class citizens. At one time or another scientists, accountants and marketing men have found their disciplines an easy road to the boardroom and further promotion; not so for engineers. It has been a "non-U" profession which has found it difficult to attract enough really able recruits. First-class design staff with a broad outlook which must take into account production needs can hardly be paid too much. Their training is also all-important.

Research associations are mentioned in this report. I consider they have a vital role to play, being so near to the grass roots. The amount of money invested in them by the Government is peanuts, and a few years ago it was decreed that they should beome more self-financing from contracts placed on them for R and D. On the face of it that was a right decision, but—and, yes, it is a very big "but"—the results of the contracts are likely to remain a commercial secret to those usually large firms who pay for them. Bearing in mind the importance of the small firm and those who need spoon feeding to change to modern techniques, I believe that we are now missing out in an area which is potentially vital to this nation's recovery.

High technology is most attractive, but I question whether the high technology that people think about will really produce the value of exports that we need, and I very much doubt whether it will make much of a dent in our unemployment. No, my Lords, I fear that it is much more the down to earth engineering that is required to make the impact that we need.

I have not had time to read the report in the detail it deserves, and not at all, I am afraid, the detailed evidence. Case studies, however, seem to me an important approach, as they are in all schools of business management. I think that the relative failure of our machine tool industry could provide some useful lessons. For years, we have tried to prop it up on a minor key. Why have these efforts produced no major progress in fighting back to our original pre-eminent position? This is something which, so far as I know, the report has not considered in any detail, and it might provide just the kind of lessons that we really need.

If I am right in thinking that the area which is most crucial is product development and not R and D as such, then it follows that universities, who are most important, must get down more than they would wish, or more than they have done in the past, to the "nitty-gritty" of commercial life and of detailed engineering design.

Some 15 years ago I attacked our universities for their ivory tower attitude, particularly in the arts. I then said that they seemed to believe that, whatever they taught, however badly they taught it and however irrelevant it might be to the needs of the community, it was self-justifying because it was taught at a university—an intolerable point of view, discounted now, but I think a shadow of it yet remains. If we are to use the universities, with their enormous potential, this shadow must be rooted out completely. In this connection, I would say that, having taken the mechanical science tripos at Cambridge, the best education I received and the best training of the mind was undoubtedly at the Army Staff College. I am sure that the findings of this report should be taken very seriously. Many of its recommendations must be implemented, but in the final analysis it is people's approach to the problems which is just as important. You can take a horse to the water, but he still may not drink.

4.24 p.m.

Viscount Montgomery of Alamein

My Lords, like other noble Lords, I welcome this report on engineering research and development. This afternoon, the noble Lord, Lord Gregson, gave us a splendid summary of his recommendations and made some interesting proposals. I am glad to say that I agreed with everything he said. I also agreed very much with the remarks made by the noble Viscount, Lord Hanworth, and my short intervention will very much echo his observations.

I should like to mention one specific point and one general point. The specific point concerns demonstrator or pilot projects, to which reference is made in paragraph 16.11 at the bottom of page 53. In doing so, I think that I should declare an interest, in that I am a director of a large group of industrial manufacturing companies in the electrical and mechanical engineering field. All engineering plant requires full-scale demonstration to prove reliability in service. This is particularly so for overseas sales, where references must be established in any international tendering procedure. Existing systems may be all right for projects or developments of modest size, and indeed many products have been developed and will continue to be introduced by British enterprise. But in the energy field, particularly power generation, where the investment required is very substantial, the existing mechanism is probably not adequate. A good example is the nuclear reactor, where no one doubts the need for public funding.

During a time of investment by the energy industry, technical advance takes place since equipment is ordered for the home market. But at the present time, with economic restraint limiting investment, the development of new processes with consequent pilot plant opportunities tends to decline. This lack of continuity will deprive our nation of the seed corn for the future.

Other developed countries in Western Europe are funding demonstrators and the United Kingdom would appear to be lagging behind. The USA has been particularly successful in this field, and in this context it is worth mentioning the Electrical Power Research Institute, which comprises the US utility companies and other bodies. Their 1980 annual report shows that 1.6 billion dollars was spent on demonstrators, of which 500 million dollars came from the EPRI and the rest from other sources, particularly the US Department of Energy. If we do not take action to increase development, British industry will lose its technological edge in the future.

I put it to noble Lords that Government research establishments are at some disadvantage here, as they are remote from the market place. As a result, they have difficulty in setting up the discipline of commercial and product relevance, such as occurs naturally in manufacturing groups. The problem facing the Government, therefore, is to bring public money to bear in an effective and co-ordinated manner, and I hope that Her Majesty's Government will give this aspect of the report further consideration.

My general point concerns education, about which other noble Lords have already made some remarks. Do we really have a large enough percentage of national resources devoted to technical education? Are boys and girls, when selecting A-level courses, encouraged to make careers in manufacturing industry and, therefore, to follow maths and science courses with a view to studying engineering? It always seems to me that the liberal arts continue to attract the highest proportion of students. This point was indeed made by the noble Viscount, Lord Hanworth.

I was privileged, as he has already said, to be an undergraduate under the noble Lord, Lord Baker, when he was in charge of the engineering faculty at Cambridge. I am very glad to be speaking after, not before him, so that he does not have, once more, the chance to correct the inadequacies of my work. The noble Lord, Lord Baker, has said on a number of occasions—I paraphrase his remarks—that engineering is about producing useful solutions that work. However brilliant our technological innovation, Britain will always need a flow of engineers, particularly production engineers, who tend to be in the shortest supply, to turn ideas into reality.

British industry has to supply equipment that will have continuing sales at home and overseas, where we face increasingly strong competition. Engineers can be turned into management, but not vice versa. We shall always need more engineers than are available. This requires initiation at high school age—no later.

4.31 p.m.

Lord Kings Norton

My Lords, I had the pleasure, as a member of the committee whose report is before your Lordships this afternoon, of seeing the noble Lord, Lord Gregson, conduct the inquiry upon which the report is based. I should like to follow the noble Earl, Lord Bessborough, in paying a tribute not only to the great knowledge of the research and development field which the noble Lord, Lord Gregson, displayed but to his skill in conducting this inquiry and eliciting the knowledge which was vouchsafed to us by our witnesses. The result is a comprehensive document of great value. I hope that both Government and industry will implement the report's recommendations, even if there is some slight adjustment of them as a result of the limited criticism which we have so far heard.

I have described the report as comprehensive, and indeed it is. But since its publication I have come to the conclusion that in one area of research and development perhaps we should have probed more deeply. I want to deal with that area and with no other, despite the temptation to follow some of my predecessors this afternoon down a number of fascinating avenues.

On page 66 of the report there are two paragraphs, under the heading "British Standards", which indicate the importance of standards in guaranteeing the quality of our goods. The specification of British standards is the business of the British Standards Institution, and in my judgment the BSI does its work very well. But it is no use specifying quantities, whatever they be—lengths, volumes, pressures, volts, amperes—unless they can be measured. The whole fabric of specification, which gets more and more complex in its variety and level of accuracy, depends utterly on our ability to measure—depends utterly, that is, on the science of metrology.

The developing demand, with advancing technology, for the measurement of new quantities and for greater accuracy in the measurement of old ones, means that research and development in measurement itself must be sustained at a very high level in this country if British industrial products are to be specified and measured with the high accuracy demanded by international competition. I have found, in discussing this area of research and development with others, some difficulty in getting their appreciation of its basic importance in sustaining the quality of our manufactured goods, so perhaps your Lordships will allow me to give a couple of examples.

My first example is the calibration of altimeters for aircraft. In today's busy air lanes, aircraft are typically separated by only 1,000 feet. If this safety margin is to be confidently preserved, altimeters must be extremely accurate, particularly at heights such as 30,000 or 40,000 feet where the air density is low. The level of calibration accuracy in the manufacturers' laboratories must therefore be high, and the manufacturers' own calibration apparatus must consequently be measured against a central standard apparatus of unimpeachable integrity. This unimpeachable standard is at the National Physical Laboratory at Teddington. It is, as a result of steady research and development, the most accurate barometric apparatus in the world, and at the same time highly automated and computerised for speedy operation.

My second example is the control of radiation in the treatment of cancer. I understand that radiation directed at a malignant tumour must be within 5 per cent. of a specified dosage. If it is more than 5 per cent. too high it can burn healthy tissue, and if it is more than 5 per cent. too low it can be less than completely effective and so permit recurrence of the growth. Here the performance of hospital apparatus needs to be calibrated against a basic standard, and again the basic standard apparatus is the result of work at the National Physical Laboratory, where it is located and where it is continuously used.

Realising—I regret, belatedly—the importance of this basic structure of metrological research and development to British standards and British industry, I paid a visit recently to the National Physical Laboratory, and the director arranged for me to see something of the laboratory's work. I did indeed see the barometric department upon which altimeter accuracy depends, and much else beside. I saw the laboratory concerned with pressure measurement where pressures from one billionth of a unit pressure up to one billion times that unit pressure—a range which scientists call 18 orders of magnitude—can be measured. I learned about the extraordinary measurement of colour which can ensure that one manufacturer's plastic bath will match in colour another manufacturer's ceramic basin. Indeed, I learned enough to reinforce ten times my previous view that basic metrological research and development is of major national importance.

But when I questioned the staff on the speed at which they can supply their service to industry and on the new work which they need to do, I was worried. I was forced to conclude that despite valiant and successful efforts to computerise, automate and mechanise, the National Physical Laboratory is short of staff. I do most sincerely hope that when the noble Lord, Lord Cockfield, replies he will be able to give us some hope for a significant increase in the National Physical Laboratory's staff and apparatus.

It is not an expensive place. When one thinks, for example, of the expenditure on research and development for defence equipment, to which the noble Lord, Lord Gregson, referred, the cost of reinforcement of the National Physical Laboratory facility, which stands behind defence equipment specification, seems very small indeed. I should like to see something like a 25 per cent. increase in NPL professional staff to speed up the service, because some manufacturers feel that they have to wait much too long for the essential calibrations they require. I should like to see a 25 per cent. increase in staff, not only to speed up the service but to man the new work which is absolutely necessary if British standards are to compete with the best abroad.

I have not been able to pay a visit to the National Engineering Laboratory near Glasgow, where, on a smaller scale, work on some engineering standards of the same sort is done; but I believe the situation existing there is a similar kind of situation as the one at the National Physical Laboratory.

In the two paragraphs on page 66 of the Engineering Research and Development Report, to which I referred at the outset, two documents are referred to: a report from the influential Advisory Committee on Applied Research and Development, called Facing International Competition, and the Government's White Paper in response to it, called, Standards, Quality and International Competitiveness. Both of these documents emphasise, rightly, the vital importance of British Standards to British industry. Incredibly, neither refers to the absolutely vital necessity of sustaining the research and development at the NPL and the NEL without which the standards could not be maintained. In fact the reference in the ACARD report to the laboratories is superficial, and in the White Paper, which announces, the Government's determination to enhance the status of standards". the laboratories on which the whole structure of standards depends are not mentioned at all.

The most effective contribution the Government can make to the enhancement of the status of British Standards is significantly to expand their support for the research and development programmes of the NPL and the NEL, and I recommend emphatically that they do so.

4.42 p.m.

Baroness Platt of Writtle

My Lords, first of all may I say what a great privilege it has been to be invited to sit on the Select Committee for Science and Technology and to take part in the fascinating technical questioning and study leading up to the publication of the report on Engineering Research and Development which is placed before your Lordships' House this afternoon. I also pay tribute to the chairmanship of Lord Gregson, which was excellent, and I would endorse the points he made this afternoon. Being of a hardworking nature himself, he made sure that we worked hard too in eliciting the vital evidence from many stimulating and well-qualified people, and then led us with great stamina to hammer out our agreed report, which I hope your Lordships will agree too is of value to the nation in a field crucial to its industrial future.

Most people are anxious about our industrial decline, and I quote from the first page of our report: The product base of the United Kingdom is shrinking at an alarming rate in terms of home manufacturing and of overseas trade. Too little has been done to encourage the exploitation of science and technology in engineering industry. The prominence of the United Kingdom in the field of original research and in the development of prototypes is not matched by its follow-up development so that, too often, other countries manage to develop this country's research and to reap the financial benefits. My Lords, many of you may have seen in one of the colour magazines yesterday that this is no idle threat, as it mentioned that the number of engineering firms in the top hundred 15 years ago has halved by this year. Many people go on to say, "Never mind, we shall have to concentrate on our service industries in the future", and feel they can relax, particularly perhaps in the warmth of an English summer afternoon when the low pound is attracting more tourists to Britain than usual. Paragraph 1.6 should destroy that complacency, and, as Lord Gregson has already quoted, paragraphs 1.6 and 1.7 underline the urgency of our report.

We then addressed ourselves to the problem outlined in paragraph 1.8. In our hearing of evidence we heard of many efforts made by Government departments and Government-financed research laboratories to make sure that the results of the millions of pounds spent on national research were available to private industry for commercial use. Industry itself carried out research amounting to£3¼ billion spent in 1978 on research and development, of which nearly 80 per cent. was performed by large firms.

When I worked in industry, research and design departments tended to operate in a somewhat isolated and academic situation and to present their completed design to the production department, who struggled to produce it, and then on completion it had to be marketed. Today, I am thankful to say that design teams are far more closely integrated, so that senior production and marketing men are involved in the design team and research and product design and development are far more market-orientated, resulting in considerable economy in production, so that the right product is more likely to arrive in the market at the right place and at the right time for selling.

It is the satisfaction of the customer that must be the key driving force in research and development for production if we are to regain our position in the markets of the world and if firms are to regain their profitability and be able to employ more people again. It is vital that young engineers should be always conscious of the pressures of the international market place throughout their education—in that I agree with my noble friend Lord Montgomery of Alamein—and that the research and design team should see the selling of the product and its subsequent serviceability and economy in use as their target too.

One of the problems that was highlighted during our hearings was that of communication of the results of expensive and successful research, perhaps pure research, or research conducted primarily for defence needs, to small firms who might be able to apply it most valuably in their products and sell them internationally. My right honourable friend Mr. Kenneth Baker placed considerable emphasis on the work done in this field by the Department of Industry through its Small Firms Technical Enquiry Service, and this is excellent. It has now been in action for a year, and I hope up-to-date statistics would show that its work has expanded considerably as part of the Government's emphasis on assistance to small firms—my noble friend Lord Cockfield may be able to show us that in his reply—where the potential lies for industrial expansion and future employment.

This is a field where information technology and swift electronic data retrieval should be developed to the full and broúght to the notice of small firms. That is never easy, because they are often short on technological expertise and are not aware of the information available and how to get at it. Above all, they are so busy keeping their heads above water in financial terms and actually selling and servicing their products that the excellent information services often pass them by.

I remember, in taking evidence, asking about the development of special army uniforms to combat thermal stress in hot climates. My recollection was that the research was carried out to reduce the sweating experienced by tank crews. I asked whether it was available, for instance, to firms developing sports-wear, and it was not. This is a small example of how possible commercial spin-off is not being considered. It seems to me that pressure has to be continually applied in all quarters, whether at Ministerial level or through senior engineers and scientists in Government and research departments, so that that chasm—and it is a chasm—is effectively bridged between the brilliant technologist deeply involved in his or her research and the commercial entrepreneur struggling to keep ahead internationally in the markets of the world. I am glad that the enthusiasm of my right honourable friend Mr. Kenneth Baker continues to be active in the seat of power at the Department of Industry: he needs as many allies as possible.

Another line of communication that is vital is a financial one. The afternoon when my noble friend Lord Caldecot gave evidence was an optimistic one, as he, himself a distinguished engineer and President of the Fellowship of Engineering, outlined how Finance for Industry, of which he is chairman, tried to pick promising technological research, often of a high risk nature, and back it on a long-term basis. That is what is required. The field is a very difficult one, where people of long experience and expertise in the financial field need also to be capable of distinguishing the potential Frank Whittle from the crank or the smooth operator, and of envisaging the possible future commercial spin-off from a project in its very early stages.

On another occasion we were pleased, too, to hear from the chairman of the Stock Exchange that there are more technologists available to advise on the financial viability of engineering research and development. But there is still a long way to go. We make a particular point of this in paragraph 20.2 and in our conclusions on the contribution of management.

Government, too, are putting considerable money and encouragement into this field and ACARD—the Advisory Council for Applied Research and Development—has produced an excellent report on R and D for public purchasing. We very much supported its guidelines for the methods of support of research. When a programme of work supported by the public sector is capable of leading within five years to equipment or expertise which can be marketed outside the United Kingdom public sector there should be private sector participation in the planning, direction and funding of the work. Such participation should normally extend to control and a substantial degree of funding if export sales and sales to other United Kingdom purchasers are likely to exceed the requirements of the public purchaser concerned. Civil Servants are of their nature cautious and less likely to be commercially orientated. The influence of industry and the market place must be allowed full play.

My final point is the importance of industrial influence on university research. The shortage of money in industry and universities might bring about at least a shotgun marriage, although I hope the relationship would be more co-operative and mutually understanding than that and will lead to applied research being more market orientated and, as a further spin-off, students being more aware of the importance of the market place.

In other countries academics in universities and businessmen are on far more cordial terms and spend periods of exchange far more easily and naturally than we in this country. We make a particular point of this in Recommendation 22 and, indeed, want to see changes in the superannuation rules to facilitate this valuable mobility. On the same theme, we were particularly impressed with the contract research and independence from public finance of the Cranfield Institute. As the noble Lord, Lord Kings Norton is present, I welcome that and congratulate him and Sir Henry Chilver on the work that they do. We should like to see other universities following suit, in Recommendation 20. We welcome too the setting up of science parks which bring university research and commercial activity closer together, to their mutual benefit.

The three books of this report are a bargain at the price if they do what we hope in helping engineering research and development to press forward Britain's profitability in the international market place. In the report we welcome the setting up of the Engineering Council as a result of the Finniston Committee report last year. The aims of the council are very similar to those of the Select Committee. I say that with some feeling as a member of the Engineering Council. I was present this morning at one of its sub-committees where the kind of recommendations in this report are really being put into action.

I should like to make a plea that your Lordships also join the club. I hope that you will read the report and with your Lordships' enormous collective influence see that its recommendations permeate into the corridors of power, whether in Government departments, research establishments, universities or industry and commerce. I hope too that the Government will take this matter very seriously and translate it into action. Its theme cannot be emphasised too strongly or too often. If its aims are achieved it could have the effect we so much desire of putting Britain back on the map in the market places of the world, increasing her industries' profitability and putting men and women back into jobs.

4.55 p.m.

Lord Hunter of Newington

My Lords, I beg leave to be absent from the latter part of this debate. There are family reasons why I have to he elsewhere this evening.

I feel very privileged, as someone from an entirely different background, to have been concerned with this penetrating inquiry into engineering under Lord Gregson's chairmanship. One has learned at lot, not least of which is that when one digs deep the basic problems have a remarkable similarity to other fields. The one aspect to which I should like to refer briefly is education and research—in particular the role of the universities—and wander with perhaps a little trepidation into different kinds of research.

Since the founding of the University Grants Committee in 1919 the universities have been funded under two principles: the quinquennial system and the block grant principle. There have been great discussions about the first; but we have been told only recently by the Government that the intention is to have a triennial system in the future. There has been little discussion about the second but it concerns us most. The idea behind the block grant principle is that universities submit to the UGC, and the UGC submit to the Government, the case for funds, which is itemised. But when the grant is given by Government or by the UGC it is on one lot, giving the UGC, and in their turn the universities, freedom within their programme over a period of years to spend in the way that seems best. This was done to preserve and promote academic freedom and initiative. Since the beginning it has been consistently the view of the universities that this freedom is necessary to healthy developments. It seems to clash with some of our proposals.

Until 1963, when the noble and learned Lord the Lord Chancellor was Minister of Science and Technology, the UGC was a committee of the Treasury. When the UGC was transferred to the Department of Education and Science attempts were made to continue as much financial freedom as possible, but the UGC funds were then subject to Government audit. What happened was that the sums of money became so large that the old somewhat informal arrangements could not be continued.

The second main source of funds was the Science Research Council, recently renamed the Science and Engineering Research Council. Those funds were competed for. Over the years the Science Research Council steadfastly maintained that the sums of money given to the Engineering Council were more than adequate for the research programmes of merit which came before them. In many universities there have been faculties of science and engineering and some would maintain that over the years science has had the prior claim. The post-Robbins development, with great increases in undergraduate student numbers, affected the situation because undergraduates' education received priority for funds. However, the UGC has always maintained that the basic equipping of engineering departments has always been adequate.

Looking back on this story one can see that after the second world war the universities had certain kinds of developments. It is true that engineering departments, almost without exception, had industrial contacts, but very few working relationships. The view was widespread that the two prime functions of universities were to teach undergraduates and to carry out research, which was of course the vital necessity for academic promotion. As your Lordships will see from the report, the consequence was that the ratio of engineers to scientists in Britain was 2:3; in contrast to that in Germany of 3:1 engineers to scientists. In the United Kingdom, science has had a higher academic and social status and been strongly supported by the research councils. In the United Kingdom, in contrast to the United States and elsewhere, a great deal of research and development was done in Government research establishments, with varying degrees of contact with industry and often only modest contacts with the universities.

Perhaps I could briefly contrast the engineering situation with the medical one over the same period. The first major medical development commenced in 1943 with the earmarking of £1 million by Sir John Anderson for medical development in universities. Much of this was used to develop full-time clinical departments, and there was agreement that the staff of the departments had health service contracts which were honorary but they continued to have responsibilities for patients; in fact a symbiosis was created. The consequence was that, in contrast to engineering, the developments in clinical medicine —practical medicine—were totally interlocked between the health service and the medical schools. The situation did not arise where staff, without clinical responsibilities, could hold senior posts, as has occurred, I believe, in engineering, where staff, sometimes with little practical industrial experience, did hold senior posts.

Unfortunately, the medical situation is not of easy application to the engineering scene. What does one do? The report makes important recommendations about the future. In fact it says that the block grant principle cannot or should not apply. It says that day-to-day co-operation and living together with industry is necessary to develop engineering and to train the staff. It says that the funds for this purpose should be available from industrial sources. It says that the Department of Industry, in consultation with the Department of Education and Science, should channel special funds into the universities or into associated research institutions. Of these solutions I much prefer the second, so that the fund is distinct from UGC funding. This procedure is very well established in the case of Science Research Council units and Medical Research Council units.

In engineering, dynamic flexibility is necessary. If the unit is no good, it should go. The terms of appointment and contracts of staff which are needed have been well worked out in management schools and post-experience centres within the universities. To attempt to do this through the UGC is not satisfactory. First, the UGC does not have the expertise to do it. Secondly, I believe that there would be an immediate conflict with the triennial and block grant systems and with the appointment system, which are still of course of the greatest importance in other parts of the universities—in the arts and social science schools, for example. I believe that the movement of staff from institutions, universities, research establishments and Government institutions should be easy, so that, as I have said, the traditional university terms of appointment could not be used.

Under these circumstances, if this opportunity is given and resources are made available, I think that five or six universities might well choose themselves, as they are the best. Perhaps they should not be chosen by the UGC but they should get UGC basic support in accommodation and equipment when they have proved their ability in this field.

5.3 p.m.

Lord Ironside

My Lords, I think that this debate is significant because it is the first one to follow the debate on the Address, and I think it concentrates our attention very much on one of the important subjects—that of the Government's resolve to, promote growth in output and opportunities for employment by encouraging industry to be adaptable and efficient, and to compete successfully". The right reverend Prelate the Bishop of Norwich picked out part of this phrase to illustrate the points he was making on the youth opportunities plan when he spoke in the debate on the Address on 29th June, but I wished he had gone further. Yes, "growth in output" and "opportunities for employment" do go together, as he said, but I think only through encouraging industry "to compete successfully". These are the key words. If there is any single factor which affects the ability to do this it is engineering endeavour and the commitment to engage continuously in engineering research and development activities, which allows industry to bring the right products and designs to the market at the right time.

However, first, I should like to thank the noble Lord, Lord Gregson, for permitting me to attend the committee meetings and to take part in the inquiry, and to visit Aachen and Compiègne. He knows of my involvement in the contract research and development industry, and I am very grateful indeed to him for allowing me to join him in his deliberations. May I say that if this report on engineering research and development is as well received as his previous report on electric vehicles, I think he will have done another good service to industry. The interest which I have to declare is that I am employed by a company whose laboratories are in the north-east, and that my experience concerns the public sector markets.

In seconding the Motion for the humble Address, the noble Baroness, Lady Airey, paid, I think, a nice tribute to the inventiveness and genius found in the north-east. Names from there like Armstrong, Swann and Parsons have served the nation very well indeed. I think that people from the north-east will continue to do so for very many reasons.

In the contract R and D business one is always treading new ground in search of tomorrow's product, unlike the manufacturer, whose skill is in factory repeatability to time, cost and performance targets, which is the key to his success. But the biggest dilemma facing the manufacturer now, I think, is the choice of product. Some of them may have the ideas and resources to innovate successfully; but, equally, others may not; and the committee's main concern, quite rightly, has been over discovering the patient's condition, what is affecting his health and what tonic should be administered to bring him back to the pink of condition again.

I think that the evidence exposes very well what is affecting the patient's health, and I think that what has come to light is that the consumer is in a very much stronger position now than ever before, and we see consumer protection growing. Product liability, for example, is hovering over the manufacturer's head, and we shall hear more about that.

I think we have to realise that manufacturing processes and products have now been made so sophisticated through the use of robotics and automation that only excellence in engineering R and D will allow industry to compete. We should not be surprised, therefore, at the appearance of new patent law, the advance of copyright into the engineering field, tighter engineering standards, greater access to information and data and the concern for the engineering profession and the status of the engineer. As Lord Gregson has an interest in phoenixes, I should just like to say that we shall place quite a lot of reliance on the Science Reference Library for information and data in the future. I am sure that he will be glad to know that the Science Reference Library is now rising from the ashes which lie between Euston Road and Phoenix Road.

It all adds up to one thing for this country: that the highest accolade will be awarded to industry only if it is able to write "Designed and made in Britain" on the product. Just to be made in Britain has become a glory of the past, and I would hope that the Government might be able to look at ways of allowing British manufacturers to shout the odds for "design", which now counts for a lot in the eyes of the customer. Under the 1981 trade descriptions legislation dealing with origin markings on miscellaneous goods, for the manufacturer in clothing, domestic electrical, footwear, and cutlery businesses to indicate origin, which depends on the "last substantial process of manufacture". Perhaps there should be here a place for design origins, to establish a mark of quality at what I might call the front end.

The committee has examined the role of Government, universities, and other organisations, and it has taken evidence from a representative of the European Commission's Research Directorate in Brussels. I should just like to touch on this aspect, since it is clear that we do not suffer alone in the field of engineering R and D. In fact the Commission has just published—at the end of May—its proposal for a research, development and demonstration strategic framework programme, which I think can best be described as an enabling instrument to intervene more effectively with research action programmes, the first one of which, in the non-nuclear energy R and D field, was published just a few days ago, though I understand that it has not yet been deposited here. I expect that the Select Committee on European legislation, and Sub-Committee F, under the noble Lord, Lord Kings Norton, will very shortly be looking at this programme.

The framework programme is a fairly lengthy document—I have it here—but one phrase, in characteristic EEC English, spells out the purpose behind it: To allow industry in Europe to adapt quickly enough and become more competitive rather than being outdone by more efficient competitors and, forced onto the defensive, being obliged to protect itself by adapting when it is too late". That, I believe, supports the committee's feelings completely. The programme is also an attempt to streamline and perfect the intervention machinery of the Community, but the lesson here for us is, I think, that strategic guidelines are definitely needed for engineering R and D. A plan would be too rigid.

If there is one factor that stands out in regard to the framework programme, it is that, next to energy, the money will be spent—or it is proposed that it should be spent—on promoting industrial competitiveness. Energy will consume 63 per cent. of the 600 million European units of account—which is the total of the programme—and industrial promotion will consume 18 per cent. The other point is that the framework programme is essentially a comprehensive programme, which includes demonstration as well as research and development; and the importance of demonstrators has already been drawn to our attention by the noble Viscount, Lord Montgomery. This means that the customer can then see the new product working.

As I say, a plan would be too rigid. In fact, the international field of which Brussels is just a part, is well supported by the Government, and this is something which is not really brought out in Table 7.1, on page 30 of the report. However, it is another way of investing in engineering R and D, because some of the money comes back into British companies. What is not really shown in Table 7.1, on page 30, is what this investment is, and what is spent in the United Kingdom.

Looking at the 1980 United Kingdom subscription to the European Space Agency, to CERN, and to EMBO, one sees that it totalled £71 million—and only the European Space Agency contribution is included in the figures under the heading of "Space" in Table 7.1. In addition to this, the investment in the EEC R and D sector can probably be equated to 25 per cent. of the 1981 spend of £124 million, which is around £31 million; so the total international spend comes to about £102 million. What comes back into the United Kingdom must be less than this, but I do not think it is much less. Some people say that it is about 50 per cent. less; but, whatever the figure, it is not enough, and I believe that we must strive to have the figures increased if we possibly can.

However, we are of course dependent upon the type of treaty that we have. The CERN Treaty has no mandate to encourage industry; only the mandate to encourage knowledge. On the other hand, the European Space Agency has a mandate to encourage industry. The international agencies have sophisticated procurement machinery, and British companies have to work hard for the business, but it shows, I think, the advantages of public purchasing power in setting standards of technical excellence.

I have not said anything about the universities, but I believe that their role is very important. The pursuit of knowledge is recognised, but I think that many of us in industry wish that they caught their prey earlier, and that it was not chosen in such a random fashion. Industry and university can get closer together through better communication, but in my mind there is no doubt that the science park has helped each of them to satisfy their aspirations: industry to get at the founts of knowledge, and universities to be more entrepreneurial.

But what alarms me slightly is to see that in the Cambridge science park, started by Trinity College, and now occupied by some 24 firms—all of which are listed in the brochure which the science park has published and circulated around the place—over 50 per cent. of the firms are foreign owned. Surely the intention is to see that British firms are making use of science parks, and I wonder whether there is a need for the vice-chancellors to look a little more carefully at the rules that they lay down for their tenants. Perhaps Dr. Sloman, who is chairman of the vice-chancellor's committee, will read in Hansard what I have said this evening about this matter, and I am sure that he will look at the question very carefully indeed.

The role of Government is more critical, because the intervention is more direct, but I believe that the machinery needs to be streamlined and perfected along the lines that have been proposed by the committee in its recommendations. The question about selectivity is important, and I think that the arguments put forward by the committee are very sound.

What I think must be remembered is that the ideas for technical advance are born in fertile minds, and that the contract research organisation often finds itself in a lead position on a technology, but because it has no source of manufacturing profits, it is without a partner to put up the balance of the money needed on top of the available Government support. I believe that this stregthens the case for the near-100 per cent. grant for important proposals. Furthermore, the normal assumption is that the approach would be coming from a company seeking "support for innovation" through the requirements boards, but I very much support the recommendation that they should take a more positive approach to promoting projects in key areas and should not just wait for proposals to come forward from industry.

I hope that this debate will set the scene for some years ahead, and I am grateful to the noble Lord, Lord Gregson, for introducing the Motion. What I think is clear is that a framework strategy for engineering R and D, including demonstration, which is designed to strengthen British industry, and which helps to generate saleable products for the markets at the right time, is a must. I hope that the Government's response will be encouraging, and that their resolve to make British industry adaptable, efficient and able to compete successfully is realised.

5.20 p.m.

Lord Spens

My Lords, I rise with some trepidation today to address you because I am not an engineer, nor a scientist. I feel very much the amateur among the professionals who have spoken. I find myself the mouthpiece of a Consortium on Planning Research that was formed only in the autumn of 1981. We decided fairly quickly to submit a paper to the Select Committee. It came rather late, and I am most grateful to the noble Lord, Lord Gregson, for accepting it. It appears in volume III on page 72.

The consortium consists of 18 members who are corporate planning directors or senior planning managers in public companies and nationalised industries. But they do not at present represent necessarily their companies' views. It is still all very experimental. The consortium is the brainchild of a university professor and two of these corporate planning directors. I was involved having originally consulted the university professor as to the possible effects of the development of micro-electronics on employment, since when we have kept in touch. He consulted me about the creating of the consortium.

I have written my own brief today although I was given two or three briefs by members of' the consortium. It is the only way that I can understand what I am about to say. I have been asked to stress the importance of, among other things, expert systems, testralogic and heuristics. I have delibertely used those words to illustrate what I think is a major problem that is arising. I refer to the problem of communication between the experts and laymen like you and me.

I give another example. According to the minutes of our meeting only a few days ago, we agreed to prepare a paper on structural framework for a national planning approach including such factors as the hierarchy of concepts, the need for adequate definition, the problems of objectives, and techniques for achieving flexibility. The consortium, as I say, came together only in the autumn of 1981 and was therefore not known to the Alvey Committee, set up in March 1982. Yet I do not think that I am boasting if I claim that the consortium represents, however unofficially, a forum for discussions of what Alvey refers to as IKBS, or intelligent knowledge based systems. I quote from chapter 4 paragraph 4.1 of Alvey on page 32: An intelligent knowledge based system is a system which uses inference to apply knowledge to perform a task. Such systems can be envisaged handling knowledge in many areas of human thought and activity from medical diagnosis to complex engineering design, from oil technology to agriculture, from military strategy to citizen's advice.". I wish to emphasise the next sentence of this quote: The development of such knowledge based systems is widely regarded as the best means of expanding the application of information technology to activities which today's computing technologies cannot approach.". Your Lordships' Select Committee supports the recommendations of the Alvey Committee which include IKBS in its programme. It was encouraging to hear the statement by the noble Lord, Lord Trefgarne, on 28th April when he said that the Government had accepted the Alvey Committee Report and were going to contribute to its financing. The consortium believes that it can contribute a bit to your Select Committee's conclusions and recommendations, in particular, the first mentioned by the noble Lord, Lord Gregson, relating to better use of resources.

I wish to emphasise speed and to give a personal example. The noble Lord, Lord Miles, in a maiden speech here on 19th June 1979, produced a microchip, for the first time, I think in this Chamber. The next day, in a debate on unemployment, I argued that the chip was going to create a lot of unemployment very quickly. That was only four years ago. I take another quote from Alvey on page 14: The rate of technological advance is so rapid that it is recokoned that around half the products which are on the market today did not exist three years ago". The speed is absolutely fundamental at the moment. It is overtaking us, and we have to be able to cope with it. We are failing to realise some of the benefits that these modern tools are creating. Individual R and D operations are throwing up not only new advances in the particular industry concerned but also methods of obtaining those advances that could and should be shared by all of us. This needs co-ordination which can come through a consortium like ours provided that the companies concerned are prepared to allow the exchange of experiences of its members.

I am now going to stick my neck out and try to define those technical words that I used earlier. Expert systems are computer programmes designed to solve problems. They have built into them the necessary insight, logic and learning through memory to enable diagnosis, formulation of plans and taking of decisions. They may have been around for some time in individual offices without being recognised as something special. Their speciality is that they perform specialist tasks just like a human specialist, but they are at all times explicit and easily communicated to anyone else. For example, where a human expert has, say, "green fingers" he may not be able to explain to others the reasons why he does things. The expert system will do that. At any stage a system can produce probabilities as well as other possibilities.

I remember, at one of our early meetings, the representative from ICI talking about a new expert system that he was developing, and saying that he was testing it on the identification of birds and that it was working very well. You put into the system various observations about the shape, colour, or whatever, of a bird and eventually the probability that it was one bird rather than another came out from the system. The expert system may use testralogic to sift the available information, which can also be achieved sometimes by other means, first to discard that which is not pertinent and to bring forward only that which is still pertinent to the particular diagnosis. A "slimmed down" field of information will then be presented, as a result of which a decision can be taken.

For example, after the computer has been loaded with information, it may be asked questions to which each answer, however dressed up, will be either, yes or, no—the only thing the computer can do is to say, yes or, no. If three questions are asked in succession, there will be eight possible answers, but by using testralogic we can probably slim these down to not more than four, because the other four will not be pertinent to the series of questions.

Finally, heuristics will bring the human element into the operation, if used, because heuristics are the ad hoc rules of thumb or hypotheses that we use to make an intelligent guess at the solution, not necessarily always, but when the decision maker thinks he can afford so to do. I hope that I have got those definitions right.

The point of all this is that an expert system does not give away trade secrets if the relevant information has not been put into it. But the shape of that system might well, with very little modification, be adaptable to something entirely different. And this is where exchanges of experience in a consortium could produce better systems or systems which could be used for entirely different purposes.

I apologise if I have been giving a lecture on this matter but, as I have said, I have been trying to understand what I am trying to say! What I am leading to is a new concept of planning. Planning is nowadays a bit of a dirty word, specially for those who believe in leaving it to the market forces. But expert systems have made planning as we used to know it quite out of date. I should like to quote from our own consortium's paper which appears on page 74 of volume III. At paragraph 3.2 it says: we believe that one aspect of planning which may be inadequately conducted is the way in which both government and industry still appear, largely, to plan on a single line forecast basis, with perhaps certain contingency funds and provisions to cope with change. It could be of advantage if government were able or prepared to promote the technique of considering alternative futures, so that both they and companies could test the robustness of their strategies to change". Modern planning techniques no longer have to use the rigidity of single line forecasting, but can introduce the ideas of alternative scenarios, with apparently incompatible views within the same policy framework, leaving the eventual decision to be taken only after one or more courses of action has proven to be dominating.

Thus, looking at the very top, the Chancellor of the Exchequer could have the views of the CBI, the TUC, the Institute of Directors and the National Federation of the Self-Employed and Small Businesses and anyone else you can think of, plus the various departmental views, all put into the computer and the computer would sift those views out according to the particular policies which he wants to use. Moreover, if that is done there should never be a case for the Government having to make a U-turn because it will have been indicated in the computer much earlier on. As a postscript to all that—and I hope that I am not being insulting to any one—I want to repeat a remark made to me very recently by a member of our consortium who found himself involved with the latelamented—although I do not know whether it is latelamented—Central Policy Review Staff. He said to me that the trouble with the CPRS was that it only used the tools of the kindergarten.

Other subjects at which our consortium has looked or is looking, include the availability of information. Is it produced in the most helpful way? Certainly a very recent circular from Her Majesty's Stationery Office on Business Data Packages is causing us some concern, and we are taking the matter up with HMSO. Another matter is the importance of adequate communications systems and their structuring, especially between Government and industry, and the use of strategic audits as a means of assessing the validity of various strategies.

A glance at the composition of the Alvey Committee and the many firms, universities and other bodies which it consulted, shows that there is an absence of industrial users with the exception of ICI. For example, none of the following members of our consortium was consulted: British Aerospace, British Shipbuilders, BNOC, BOC, Sperry Univac and Reed International. We have also liaised with the British Technology Group. They are all users of the new technology but they were not consulted by Alvey. We believe that a body such as our consortium has a place in this. I should like to suggest that our consortium provides a nucleus from which a body of consumers of the new advanced information technologies could be formed. It has already met some four or five times and has a programme of work to be developed; all it needs is some form of official recognition. I hope that the noble Lord the Chancellor of the Duchy of Lancaster will be able to say that he will recommend us to the Department of Industry where I think there is to be a new directorate set up to deal with this matter.

5.37 p.m.

Lord Bruce of Donington

My Lords, the House will be most grateful to my noble friend Lord Gregson for having so adequately summarised the principal portion of the report that has been produced by the Select Committee. The contents of the Select Committee's report are of very considerable importance to the nation as a whole at this time. This is perhaps underlined by the fact that there has been almost complete unanimity among those of your Lordships who have addressed the House this afternoon, because all noble Lords have been absolutely convinced of the importance and the extent of the work that has been accomplished by the committee.

The difficulty about reports of this kind is that they are so good and so comprehensive that the general public at large are very rarely informed of their contents. This report is in many ways sensational in that it underlines something of which perhaps the general public are not yet fully aware: first, the very serious state into which our manufacturing industry has fallen; secondly, how vital it is that our manufacturing industry be increased in its scope and activity; and, thirdly, the disastrous consequences that would follow if that were not to take place.

One has no need to go into the figures again as regards the disastrous decline in manufacturing production in this country, particularly over the last four years, the decline of investment and the parlous state into which the nation has been placed as a result of this. Sometimes we tend to think (and in many ways quite properly so) of defence purely in terms of military, naval or, perhaps more recently, nuclear might, and we tend to give overriding priority to all expenditure of resources—both monetary and human, scientific and technical—in the defence sphere as being part of the natural order of things which strike at the very vitals of the nation's security. What we sometimes forget is that industry itself is a vital part of the country's defensive capability because, speaking in terms of conventional warfare, since nuclear warfare is unthinkable, one thing that the second world war proved is that a manufacturing base, a highly industrialised base, was indeed vital, and may have been decisive, in our ultimately achieving the victory that was gained with our allies. Therefore, the report emphasises the vital nature of the expansion of British industry, and indeed of the expansion of investment in British industry, of which of course research and development itself is an integral part.

The second vital point brought out by the report—one which tends to be obscured in a wealth of statistics that have been provided in the appendices but which nevertheless has been referred to in the report itself—is where we stand in the international league in devoting certain proportions of our resources to research and development. Perhaps I may remind those of your Lordships who were not on the Select Committee itself of the figures that were produced, which are reproduced at page 291 of Volume II of the committee's report. In regard to research and development our position in the league can readily be assimilated by looking at Appendix 2 on page 291 where the gross expenditure on R and D in terms of dollars per head of population is shown. That is one yardstick that is used. The figures are as follows: 114 dollars per head in the United Kingdom; 208 in the United States, 128 in France, 180 in Germany, 126 in Japan, 154 in Holland, 182 in Sweden, and 219 in Switzerland.

When it comes to personnel engaged in R and D, per 1,000 of the labour force, we find that the figure for the United Kingdom is 6.5; in the United States there is a provisional figure of 5.8 which covers research in science and engineering only so it is not strictly comparable; in France it is 9.8, in Germany 12.2, in Japan 10.4, in Holland 10.8, in Sweden 8.7 and in Switzerland 14.5.

I am not for one moment suggesting that either one or both of those criteria are the only criteria by which research and development should be judged. But I say, and I invite your Lordships to agree, that nevertheless they are an indication of the rather poor extent to which this country has devoted its resources to R and D as compared with our competitors. As my noble friend Lord Gregson pointed out in his opening remarks—and, indeed, other noble Lords referred to this—of the research and development that we do in fact incur, 81 per cent. is in respect of defence, with only a very minor amount—some 4 per cent., as is revealed in the report—devoted to industry outside aerospace and energy.

This is a position of the utmost gravity and noble Lords should please be assured that I seek to focus on this not to gain any party advantage; I seek to draw attention to it because it is a problem which the Government must face, because they are likely to be the Government for the next four or perhaps five years; it is in the country's interests, in the interests of those of us on this side of the House and on that side and in the interests of the population at large that they tackle this problem, and tackle it thoroughly. It is also in everyone's interest that the Government understand the real nature of the problem and do not merely take the observations that are offered from all sides of the House as something to which a party political response has to be made.

My noble friend Lord Gregson made what I thought was a very constructive suggestion. He suggested that the Government ought to make a written response to this report and its annexed documents in order that their attitude may be made public and unequivocal. I reinforce that suggestion, not because I wish in any way to diminish the significance and the importance of the reply that will be given to this debate by the noble Lord, Lord Cockfield—we shall await his observations on the report and on the debate with the very greatest interest—but, without wishing to downgrade his reply in any way, because he may have prepared a good deal of it in advance, I still think that it was a very wise suggestion, and I hope the noble Lord will convey to his colleagues that the subject is of sufficient national importance for a considered reply to be given in detail by the Government to what is one of the most important and comprehensive reports that has been presented to your Lordships' House for some considerable time.

The Government find themselves in some difficulty. I am not trying to pick a party argument with the noble Lord. Essentially, the Government believe in the policy of free enterprise and have stated so publicly, and I take it that it is permissible to refer to it without offence. Fundamentally, they believe that if industry is sufficiently freed from all the shackles of Government and all the other restrictions, this is a problem which it ought to be solving itself and that Government ought not to be helping it at all. We know that, under the impact of the realities of the world as they exist, this ideological approach becomes blunted at the edges because the position becomes untenable.

Your Lordships will remember—and the noble Lord, Lord Cockfield, will remember it very well since he was the adviser to the then Chancellor of the Exchequer, Lord Barber—the taxation incentives, which have been referred to in this debate as being an aid to investment, being granted in the form of 100 per cent. capital allowances on capital expenditure incurred on plant and machinery, in which that part of capital expenditure spent on research and development was also included. For the first time, 100 per cent. capital allowances for tax purposes were given in respect of qualifying research and development, together with capital expenditure on plant of all kinds at that time.

Noble Lords will remember that the response from industry—not all industry, but industry by and large—was so abysmal that Mr. Edward Heath, the Prime Minister as he then was, addressed the Institute of Directors in August 1972 in bitter terms, and railed at them, saying, "We have given you all the incentives that we can and still you will not invest". The Government have, I think, assimilated the fact that, in spite of the forces which are supposed to be generated by enterprise, initiative, and thrift in industry and the inventive genius of our people, in practice that theory does not work and Government intervention becomes necessary.

However, it is not purely Government intervention in the sense of providing financial support that is required. I have no doubt that the noble Lord can produce, and possibly will—and the House will listen to him, as always, with interest and respect when he recites this—the amount of money that is being spent by Government in support of research and development. He may even be in a position to give the House particulars of future financial support which the Government are going to bring forward.

However, the real thing required from Government is not merely financial support. It first of all has to be financial support in respect of priorities, not merely acting as a stopgap in certain areas as and when difficulties appear. What is really lacking, as indeed the Select Committee points out, is a central strategy by the Government in furthering research and development in the United Kingdom. When I say "central strategy", I have in mind something to which I think the noble Earl, Lord Bessborough, referred obliquely when speaking about the experience of France. I am not referring particularly to the French Commissariat du Plan, but to its successor, and the whole ethos in the French Government which is directed to co-ordinating a drive in certain directions—not forcing industry, but supplying that necessary punch in policy which, after all, if I may put it to the noble Lord, is the prime function of Government.

In exactly the same way, if I may draw another example of which I am sure the noble Earl, Lord Bessborough, is aware, there is in Japan the Ministry of International Trade and Industry—MITI, as it is called—whose functions in co-ordinating the activities within Japan's mixed economy and in assisting dynamically to formulate a strategy for the whole of the nation in conjunction with its industrialists have been conspicuous in their success.

What I am venturing to put before your Lordships—and I am trying not to be dogmatic, but I feel it deeply—is that from this Government in their term of office, on the assumption that they are going to be here for their term of four to five years, what the nation requires, in the light of the parlous state into which very mistaken policies have pushed it, is now more than an amende honorable; it needs a real strategy. At the moment what we have is a strategy of cuts, cuts in all types of public expenditure—except of course on armaments; except of course on the armed forces; except of course on the police force; except of course on the Common Agricultural Policy, and one or two other favourite planned projects of the Government. A series of cuts. The noble Baroness, Lady Platt of Writtle, whose activities and expertise in the educational field are so well known, referred to the education aspects of the matter. What happened when the Government came to consider Aston and Salford, which play a vital part in the production of trained engineering personnel? They cut them.

Surely what we have to do in the national interest is not only to plan a strategy, but within that strategy to plan the priorities. So often one gets the impression—if the noble Lord will forgive me—of a series of packaged compromises being arrived at, usually dominated by the Treasury, in which all demands from the various departments for funds to sustain their own activities ultimately get into a Dutch auction without any really constructive thought being given to where planned public expenditure should take place. This is one area to which the Government should address themselves urgently.

One has a feeling that it was perhaps a mistake to abolish the Think Tank. Think Tanks can be awkward, in that they sometimes say "No" to Prime Ministers who do not like to be argued with. The Think Tank whose function is mainly to say "Yes" to what the Prime Minister proposes is not always the best thing. In this particular field, independent views would be welcome.

What we on this side of the House would ask for is a Government rethink of their own part in promoting research and development in this country. It should be a radical rethink which endeavours to look the facts in the face; which endeavours to draw the reasonable conclusions from them; which is prepared to take Parliament into the Government's confidence as to the decisions that they are going to reach, so that we can have a really constructive debate as to what ought to be done. With the expertise of individual Members of your Lordships' House, including those who have spoken this afternoon, so readily available, it may well be that the more specialised Members of your Lordships' House can be of considerable assistance to the Government in this.

This does not mean that management in private industry has no responsibilities, that it should not be required to make the effort that is so necessary and ought to be part of the overall Government strategy. Some noble Lords have referred to small and medium type businesses and to the handicaps under which they labour when it comes to questions of research and development. But they also have a responsibility, as anyone in the merchant banking or normal banking businesses well knows, although I am not in them myself. I am referring to lack of proper presentation to those who are prepared to provide finance for research and development; the lack of adequate forecast projections; the lack of any feedback from any market research that has been done, and the lack of any projected cash flows that are likely to ensue on the assumption that the forecasts are correct and that funds are provided.

Indeed, some of the larger firms also neglect a proper presentation of their case to Government departments and to sources of finance. They, too, have a responsibility. They also have this responsibility with which no Government can help them. As is generally known and as several of your Lordships have pointed out this afternoon, there is far too little use of production engineers in the research and development process, particularly at the stage which immediately follows after development into production. There is too little use of production engineers even at the invention design stage because there are several ways normally of designing, some of which result in a far cheaper product and some of which, without any improved performance, are complicated to manufacture and present service problems afterwards.

So there is the responsibility on private industry, the responsibility on management, but the responsibility on Government still remains. First, there is the responsibility to think out and then present the strategy, as they see it, to Parliament. Secondly, there is the responsibility to be quite sure that some of the decisions that are made in relation to economies in public expenditure do not, as in the case of education, strike once again at the very vitals which they are supposed to protect.

If the report presented by the Select Committee helps the Government to achieve that objective, as I sincerely hope it will, and if the Government respond positively not with slick answers, not in terms of propaganda, but with patient thought and equally patient presentation and comprehensive arguments, then the authors of this report will have done the nation a very great service indeed.

6.4 p.m.

The Chancellor of the Duchy of Lancaster (Lord Cockfield)

My Lords, the Select Committee has produced a valuable and thoughtful report. I have listened with great interest to the speech of the noble Lord. Lord Gregson, who chaired the Committee and to the speeches of other noble Lords who have contributed to the debate this afternoon. The noble Lord, Lord Gregson, started by saying that he did not realise the wide interest which would be aroused by the Select Committee's inquiry. It is perhaps a tribute not only to the importance of the subject, but also to the Select Committee and to the noble Lord who chaired it, that the report should have aroused this wide interest.

Perhaps I might start by dealing with the speech of the noble Lord, Lord Bruce of Donington. The noble Lord seemed worried about the future prospects of this Government. Let me assure him that we shall be here not for the next four or five years but for many years beyond that, and I trust therefore that on that assurance he will sleep soundly in his bed tonight. The noble Lord referred to what he described as the disastrous decline of manufacturing industry in this country. This is not the right occasion on which to indulge in a general debate on the economic state of the country. We had that discussion during the debate on the humble Address, but when one is considering the position of manufacturing industry and its fortunes there are four relevant factors which we ought to keep in mind.

First, there is the impact of the recession from which all countries have suffered and from which, fortunately, we are gradually emerging. Secondly, there has been the excessive rise in costs in this country, particularly during the decade of the 1970s when our total gross national product went up by 350 per cent. while our output went up by only 17 per cent. In dealing with this matter also we are showing real signs of success. There has been a big increase in productivity in the last few years and the competitiveness of British industry has improved significantly.

Thirdly, there have been mistakes of Government policy in the years before 1979 and they are matters that we have also dealt with. Fourthly, in some areas there has been a lack of enterprise and a lack of quickness of adaptation to change on the part of industry itself. I do not wish to pursue these matters at greater length this evening. All I would say is that we live in a period of great changes. What we need is a determination to seize all the opportunities which present themselves in every field, to remove obstacles wherever we find them, to improve our productivity, to reduce our costs and to encourage and reward enterprise and initiative.

Perhaps with those introductory remarks I may turn specifically to the report of the Select Committee itself. We entirely accept that a healthy engineering industry, in common with other industries, must be backed by vigorous research and continuous product development if it is to remain competitive. We entirely support the Select Committee in its view that industrial research and development is best financed from the profits of industry, and industry needs a climate of confidence to encourage investment and innovation. Our policies are devoted to creating that climate, and we are succeeding.

While there is a broad agreement on objectives, the same cannot always be said of some of the specific proposals the Select Committee makes. Thus, the Select Committee has called for a national strategy for industry and technology and that approach has received some support from the debate this evening. The committee invites the Government to designate those sectors and technologies on which industry should concentrate. We cannot agree with this approach. Experience does not support the view that Government can successfully take decisions of this kind. Only industry has the intimate and detailed knowledge of the markets and of the opportunities. It is industry which will reap the rewards of success and pay the penalty of failure. Only industry can take the decisions needed.

However, there arc many areas where we share the Select Committee's approach. Government have a role to play and we have demonstrated our willingness to support the efforts of industry to adapt to new technology and develop new products and processes. This rÔle is particularly important where profitability is low and demand is reduced in the recession.

May I pick out a number of examples where Government have helped. First, this year the Department of Trade and Industry will spend over £300 million on industrial research and development. Over two-thirds of that money will go directly to industry. There is additional support under the provisions of the Industry Act for projects that will create or retain employment or encourage industry in the assisted areas. Much of this support benefits the engineering industry.

Second, the "Support for Innovation" programme. I was glad to see that the Select Committee has endorsed this. The programme has been strengthened and extended. The focus is on enabling technologies which can be applied across a wide range of industries and to a large number of products. The programmes can be deployed flexibly to support firms with worthwhile applications in any manufacturing sector. Last year the maximum rate of grant was increased from 25 per cent. to 33⅓ per cent. of eligible costs. The programme has now been extended to include grants for market assessments and help in setting up full-scale production.

Funding has been increased: a further £185 million has been added to the programme over the next three years. This includes £100 million allocated to the Small Engineering Firms Investment Scheme—a particularly successful scheme which the Government have reintroduced. We have also, as the committee would wish, greatly increased our support for industrial research and development. Help under the Science and Technology Act 1965 has quadrupled from £57 million in the last year of the Labour Government to £230 million in 1983/84. This is an increase of 135 per cent. in real terms.

A significant number of the Select Committee's recommendations are addressed to improving the interface between universities and industry. The Government agree with the Select Committee that the promotion of the science, engineering and technology departments in all kinds of higher education institutions is of fundamental importance. We pledged ourselves in our manifesto to, accelerate the transfer of technology from the university laboratory to the market place". The Select Committee welcomed the study carried out by the Advisory Council for Applied Research and Development and the Advisory Board for the Research Councils. The report resulting from that study was published last week. The prime conclusion was that the initiative for forging new and productive links should lie mainly with the higher education institutions. The noble Lord, Lord Gregson, referred to the report and expressed some concern about it. The Government are considering carefully the recommendations made in that report, and conclusions will be published in due course.

The Select Committee has endorsed the findings of the Finniston Committee, which reported on the status and training of engineers. Following that report, Government facilitated the establishment of the Engineering Council; and other actions are in hand. In his Statement on the education and training of engineers in July 1981, the Secretary of State for Education and Science gave support to greater emphasis on engineering in schools. In certain cases, the Department of Education and Science can provide financial support for the development of links between schools and industry. The Department of Trade and Industry is actively promoting greater awareness of technology in schools—for example, through the "Micros for Schools" campaign.

The Government want to see engineering degree courses which are more in line with the needs of industry. The Secretary of State for Education and Science is encouraging the inclusion of practical experience so that future engineers are equipped to undertake engineering as it is practised in the real world of production.

Also, the Select Committee made several recommendations designed to stimulate the flow of private funds into research and development of new technology generally. The Government fully support this approach. The Committee pointed out that high interest rates were a disincentive to risk investment in research and development. They are of course a disincentive generally; and it has been a key objective of Government policy to bring interest rates down through prudent fiscal and monetary policies.

The Select Committee's suggestion that some development expenditure could be funded separately from the main balance sheet of a company is under active consideration by the financial institutions involved. As a matter of interest, the National Research Development Corporation, now part of the British Technology Group, has been connected for several years with off-balance-sheet funding of development expenditure.

Another Select Committee suggestion was that a development fund, offering tax incentives to investors, might be a desirable instrument for channelling private sector money into a range of high risk projects. The Business Expansion Scheme—the extension of the previous Business Start-up Scheme—could well provide many of the tax incentives for which the Select Committee is looking.

Perhaps, I may now refer to points which were made in a number of individual contributions. My noble friend Lord Bessborough made a very interesting and wide-ranging contribution. I fully support the points that he made about the need for international collaboration in technology. That collaboration must be fully guided by commercial considerations and the need for trade to follow the technological collaboration. The Government give a great deal of help in the setting up of the arrangements—for example, with Japan and with our Community partners—working closely with firms which are interested. We watch very carefully what governments in other countries are doing; and there are lessons that we can learn. But we must always be careful that we do not necessarily follow too blindly what other people are doing. The French, for example, are particularly skillful in presenting their programmes to best advantage without necessarily spending more money.

Collaboration within the European Community is of increasing importance. There are several interesting prospects now being discussed. My noble friend also asked whether I was satisfied with progress on, and funding in relation to, robotics. There is still a lot of ground to be made up in the United Kingdom; but there is now a growing awareness in British industry of the importance of this technology.

The Department of Trade and Industry has set up the Robots Advisory Service, and there is support for both the installation and the manufacture of robots. I hope that firms will make more use of the help that is on offer here. Increased use of robots is vital: they not only increase output but also raise quality. The countries with the largest populations of robots have the lowest levels of unemployment.

My noble friend drew attention to the Alvey programme. He will be pleased to hear that the programme has now been agreed and will be an important form of collaboration between the Department of Trade and Industry, the Ministry of Defence, the research councils and industry.

The noble Lord, Lord Baker, commented on the Select Committee's recommendation not to support the proposal to set up a separate engineering research council but rather to look to the requirements boards to fulfil this role. The increasing emphasis given to engineering by the research council was marked last year by the change of name to the Science and Engineering Research Council. The Department of Trade and Industry now works increasingly closely with the Science and Engineering Research Council, and they are making many extremely successful joint programmes between the requirements boards and the councils.

My noble friend Lord Montgomery spoke of the funding of pilot models for feasibility demonstrations. This was recommended by the Select Committee as providing a means of ensuring the launching and continued updating of advanced technology projects. The Government agree with the committee on the value of demonstrations projects. In the field of energy, mentioned by my noble friend, they are already fulfilling a useful role. Demonstration projects have been widely used in industrial energy conservation through the energy conservation demonstration project schemes administered jointly by the Department of Trade and Industry and the Department of Energy.

The noble Lord, Lord Kings Norton, drew attention in a most interesting contribution to the importance of research and development into accurate measurement, and to the valuable work of the National Physical Laboratory. The standing of the NFL, both nationally and internationally, is very high indeed, and deservedly so. The laboratory has the largest share (some 35 per cent.) of the resources devoted to the laboratories of the Department of Trade and Industry, and the department takes advice from the strong team of industrialists and academics on its requirements board to make sure that the programmes are adequate and relevant to the needs of industry. But it is important that industry should itself be involved in the development of measurement technology and in calibration. Routine calibration is increasingly provided through the British calibratiion service, in which NPL accredits over 100 laboratories nationwide to undertake calibrations to a consistent and accurate standard. This method of operation reduces the resources needed in government so that government scientists can concentrate on the more difficult and demanding measurements.

My noble friend Lady Platt of Writtle asked about the small firms technical inquiry service. I am pleased to be able to tell her that this scheme has been an outstanding success, with over 2,500 firms having used the service. The Production Engineering Research Association has played an important part in that success—a matter in which the noble Lord, Lord Gregson, can take justifiable pride.

My noble friend and others drew attention to the importance of spin-off, not just from defence research but also from all areas of government research. I can assure your Lordships that the Government attach great importance to getting the best value from all research, and we are giving renewed attention to this particular topic. Careful study of what other countries do, notably the United States, suggests, however, that, pound for pound, they do no better than ourselves.

The noble Lord, Lord Hunter of Newington, spoke with concern of the funding of education and research, and the implications for engineering. Restraints on funding will of course lead to some pressure on research activity. However, the Government have shown themselves ready to inject additional funds where particular needs are identified. Examples of this are the extra resources made available to help universities attract new blood, particularly in the sciences and technology, and to enhance research and teaching on subjects related to information technology. This will strengthen research in the departments concerned.

My noble friend Lord Ironside drew particular attention to the importance of design. His remarks are particularly apposite, since this is Design for Profit Year; and I draw your Lordships' attention to the campaign now being run by the Department of Trade and Industry, with support available for small companies for design consultancy.

The noble Lord, Lord Spens, referred to a research and development consortium which had been formed in 1981 and which made a late written submission to the Select Committee. Those concerned with the implementation of the recommendations of the Alvey Report will be taking expert advice when and where it proves appropriate. When decisions on this are taken, I am sure that the experts in the fields of advanced information technology mentioned by the noble Lord, Lord Spens, will be considered.

I have not been able to answer every single point which has been raised in the debate but I assure your Lordships that everything that has been said will be most carefully considered and taken into account. The Government will be formally responding to the Select Committee's report. Preparation of the response is well advanced and should be available very shortly. In the meantime perhaps I may conclude by making this one brief comment. The success of a nation in material affairs, in its economy and its political institutions, is a reflection of its qualities of mind, its intellect, imagination and courage. Research and development, whether in the universities or industry, is one of the channels through which those qualities are harnessed to our material needs. The report of the Select Committee is an important contribution in that direction and is to be much welcomed, not least on that account.

6.30 p.m.

Lord Gregson

My Lords, may I first thank the noble Lord the Chancellor of the Duchy of Lancaster for that reply on behalf of the Government. May I say on behalf of the Select Committee that we look forward with some considerable interest to the detailed reply which will eventually be issued by the Government. I thank noble Lords who have taken part in the debate for their contributions on this subject. It is significant that a report of this nature, which I consider to be of considerable importance, could be debated at the level at which it has been debated this afternoon only within this building. In effect, that points to the value of this Chamber in discussing these subjects to that degree. I thank all noble Lords who have taken part.

On Question, Motion agreed to.

House adjourned at twenty-nine minutes before seven o'clock.