HL Deb 28 January 1991 vol 525 cc488-519

5.22 p.m.

Lord Shepherd rose to move, That this House takes note of the report of the European Communities Committee, A Community Framework for R&D (17th Report, 1989–90, HL Paper 66).

The noble Lord said: My Lords, no one would question the importance of research and development to the national well-being, or to the Community as a whole. Sub-Committee B decided it would undertake an inquiry into the Commission's proposals for the third Community framework programme for research and development. I trust that report has been helpful to the Government.

I wish to express appreciation to the Select Committee on Science and Technology for allowing three of its members to sit on Sub-Committee B. Those members provided a great deal of information and wisdom during our inquiry. I wish to mention in this regard the noble Lords, Lord Butterworth and Lord Sherfield, and the noble Baroness, Lady Lockwood. I also wish to express my appreciation to our specialist adviser, Professor Roger Williams of Manchester University, and to our clerk, Simon Burton. I hope that, having left that committee, he will find satisfaction in his new responsibilities.

I wish to thank in particular all the witnesses who provided us with the highest quality of evidence. The House is indebted to those witnesses for the information and evidence that they provided.

As I am no longer the chairman of Sub-Committee B, I hope I may say a few words about the quality of the reports that are produced by Select Committees and the way in which your Lordships' House treats them.

The report we are discussing was printed on 26th June—I hope noble Lords will listen to what I have to say. As I have said, the report was printed on 26th June of last year. It comes before the House on 28th January, some six months later. In December I was offered a debate on this report as the first item of business on this day. I do not object in any way to the nature of the business which has preceded this debate. Having been a chief whip some 26 years ago, I understand the difficulties and strains that are placed upon the chief whip in the ordering of business. However, I believe the position of this debate raises a question about what I would call the status of Select Committee reports.

The European Communities Committee has a duty to scrutinise all the proposals of the Commission. That is a heavy task. Taken at its easiest level, it requires a mass of reading to be undertaken. Some proposals can be cleared relatively quickly and the committee can offer rapid support for such measures. However, some of the Commission's proposals require an inquiry. Such an inquiry may last days and sometimes weeks. The proposal that we are discussing today required an inquiry that lasted for months.

The House should be indebted to noble Lords for the way in which they support Select Committees. However, the witnesses are the major contributors to reports. They not only give their time but they also involve themselves in considerable expense in the preparation of their evidence. It is also right to say that Select Committees incur the expenditure of considerable sums of public money. Not all the reports of Select Committees are submitted to your Lordships' House for debate. Only those that are considered by the Select Committee in question to be of major public importance are debated in this House.

I suggest most strongly that Select Committee reports should be given a higher status in relation to discussion on the floor of the House. In a sense the reports are treated adversely when compared with Starred Questions. At least Questions are subject to a date which is a spur to government departments to reply to them. I hope that the Minister will convey my suggestions to the noble Lord the Leader of the House, I suggest that we should ask the Procedure Committee to establish a rule which would give these reports a higher status. I make two suggestions in that respect. First, I suggest that in the minutes of your Lordships' House there should be a separate heading for the reports. I believe that at present they are lost in the list of debates for which no day has yet been named. Secondly, and more importantly, the reports should be debated within one month of their publication. There is a duty placed upon our committee to scrutinise the Commission's proposals. If that scrutiny is to have any real effect on Ministers, a debate, if required, should be held at the earliest opportunity. It should not be held, as in the case of this report, some six months later.

The report before the House relates to the Commission's proposals for the third Community framework on research and development. The framework is of a wider compass than previous programmes. The details of the six strategic lines are set out in paragraph 6 of the report. We considered these strategic lines and we agreed with them. I understand that they have been approved by the Council of Ministers. The details of the strategic lines have also been considered by the committee. We reviewed them all with the exception of energy. We have corresponded with Ministers and have obtained a satisfactory response. Consequently, the Council of Ministers has now agreed to those details.

The process of inviting for tender can now proceed. The committee is glad that the programmes are now proceeding along the lines of the report.

In regard to funding we have no dissent. The Commission wanted more; the CBI wanted more; Her Majesty's Government wanted less. Therefore, it must be about right.

In its evidence the Commission advocated that there should be provision for research into the Community's economic and social cohesion. That is an important area for research but your committee has serious reservations. We note that funds are available from structural funds. In the view of the committee that is right. However, if they are to be included within the framework programme we strongly recommend that any project should be tested and judged against the scientific and technical excellence of the proposal. I trust that the Government share that view.

The committee examined the administration of the programme, which is set out in Parts 2 and 3. It is a complex web of consultation and decision making between the Council of Ministers, the Commission and the European Parliament. On the face of it it looks cumbersome and bureaucratic. However, in my view it is hard to see how it could be otherwise although we believe that some areas of improvement are possible.

The committee fully supported the criteria for co-operation, under which it is open to industrial companies, universities, and public and private research institutes to make bids together. However, two member states have to be involved and in some specific programmes EFTA countries may be involved provided again that two Community states are involved.

That creates some difficulty. In order to provide a tender to justify funding a great deal of detail is required. There was evidence before the committee that in some cases that is very time-consuming and costly to those who apply and fail to obtain support, a particular cost being that of travel. Your Lordships' committee therefore strongly recommended that a system of pre-screening based on broad outlines should be instituted. If the Commission is interested greater detail could then be provided to justify funding. We believe that that would encourage smaller organisations to apply.

We spent some time considering evidence regarding the criteria on which the Commission would adopt projects. There was some division of opinion among the witnesses, based more on priorities than on direction. However, in the end a consensus emerged. The committee concluded that the Commission should support projects that fell within the following categories: first, those directed towards the development of common standards; secondly, those aimed at solving Community and international problems such as those of the environment; thirdly, those too costly for any member state to undertake on its own; and, fourthly, those projects in respect of which there would be an added value in performing them at Community level rather than at national level.

The reasons for those conclusions are set out in paragraphs 84 and 89. I would isolate only one; namely, the question of common standards, which increasingly becomes critical to the single market. We reported on it previously in our earlier reports and stressed the need for common standards, most recently in our report on air traffic control equipment. I hope that the Government support those recommendations.

Your Lordships' committee also expressed much concern about what is called "near market research." We understood the Commission's and the Government's anxiety that funding on research should not be seen as a subsidy, which would be contrary to the Rome treaty. However, we feel that the calls of industry on this matter should not go unheeded. The problem is that there is no clear line to distinguish near market research from other research. The committee rejected the rigidity of the Commission's definition (set out in paragraph 36) that funding should be cut off at least three years before the project was ready for the market. We urged the case for more flexibility. The Commission has stated its intention to support demonstration projects and should be encouraged to do so. I understand the Government's anxiety, but this is an important industrial matter. It is very complex. I urge the Government not to have a completely closed mind on the subject and to understand the anxieties of industry and the Community interest as a whole.

Your Lordships' committee also took evidence on procedures and the evaluation of projects. Anyone who has been involved with the research councils knows what a difficult subject this is since research is not exactly finite, and very large sums of money are involved. The programme we are now discussing amounts to some £4.2 billion. The Commission admitted that in the early days it was open to severe criticism. However, much has been done to improve the standards and procedures. However, in paragraph 104 we thought it right once again to draw the Commission's attention to the continuing need for proper evaluation, for keeping projects to plan, for closing down projects not proven worthwhile and directing funds to more promising areas. The committee strongly recommended that 1 per cent. of Community research funding should be set aside to provide a proper base for the cost of that evaluation. Again, we should like to have the Government's reaction.

The committee approved the setting up of a committee to provide advice. However, in our view evaluation is best performed by what is called peer review.

I should like to make one last point on procedures. The committee has already acknowledged the steps being taken by the Commission to tighten up its procedures. We welcome the appointment of expert committees and have made some recommendations regarding membership. We believe that more scientists should be employed by the Commission. The committee would welcome assurances that recruitment procedures are sufficiently flexible to attract scientists at all levels of administration.

We believe that the Commission would also gain much by a closer relationship with the various research councils. The present informal arrangements are set out in paragraph 111. There is a case for a more formal relationship between research councils and the management committees. Government officials clearly have a place there, but the committees should be strengthened by the appointment of members drawn from industry and the scientific community. Here again we should like the Government's reaction.

From time to time, as a consequence of evidence placed before it, your Lordships' committee has found it necessary to report on matters which may appear domestic—in this particular case how the Government and the Treasury treat funds received in the United Kingdom for various reasons and purposes connected with research and development. That subject has been raised before in this House. In the course of the inquiry we became very disturbed about the effect on research and development in future years should the Government's present policy be continued.

In trying to ascertain what happens the committee came upon two related principles—additionality and attribution. The principle of additionality as it relates to structural funds is enshrined in Community law which states: In establishing and implementing the Community support frameworks, the Commission and the Member States shall ensure that the increase in the appropriations for the funds provided for in Article 12(2) of Regulation (EEC) No. 2052/88 has a genuine additional economic impact in the regions concerned and results in at least an equivalent increase in the total volume of official or similar (Community and national) structural aid in the Member State concerned, taking into account the macro-economic circumstances in which the funding takes place".

This provision is intended to ensure that receipts from Community funds, in this case structural funds, are in addition to public expenditure, not in lieu of it; nor should the allocation of Community funds lead to a cut in public expenditure.

The Court of Auditors keeps a watchful eye on additionality, and when considering the case of funding for transport infrastructure in its 1988 report, it concluded: In the FR of Germany, Ireland and the United Kingdom, however, the Court's enquiries showed that there was no demonstrable link between the receipt of Community funds and higher spending on transport infrastructure projects". On the other hand, the principle of attribution is not enshrined in Community law and its interpretation is therefore more subjective. It appears from evidence summarised in Part 3 that the Treasury attributes funds received under Community research and development programmes to individual departmental budgets and in the following annual public expenditure round adjusts those budgets to take account of those Community funds.

Each department has to decide for itself what to do to make the adjustments required by the Treasury in order to take account of the Community funds. Thus, a body which receives Community support can find that if it also receives support from central government in the year following the receipt of Community funds the support received from central government is reduced. In turn, that can have an effect on additionality, but such a reduction can mean that the Community funds received are not fully additional to those national government funds available to individual applicants and may not be additional at all.

The committee has considered carefully the evidence given by HM Treasury and others concerning the principle of additionality and the practice of attribution. The committee concentrated on those issues as they arose in the United Kingdom because it is not clear what the practice is in other member states; though the committee is aware that both tine Court of Auditors and evidence given to the previous inquiry into transport infrastructure identified particular member states in addition to the United Kingdom where there had been criticism concerning these issues.

The most disturbing aspect of the system operated by the Treasury is that it is not independently monitored. The Treasury has made a number of assertions: for example, that in anticipation of Community receipts destined for the public sector, departmental budgets are set higher than they would otherwise have been and that 30p to 35p in every pound of Community funding for research and development is truly additional. But such matters are dealt with under the public expenditure survey procedures and are not open to scrutiny by Parliament or any other external body.

The committee see two problems arising from the Treasury operating in this way. First is the Treasury's claim that attribution is an institutional matter. The Treasury is treating attribution of Community funds as if it were solely a matter for Whitehall, but any matter involving the United Kingdom's relationship with the law-making machinery of the Community deserves scrutiny, notably by Parliament. Whether the arrangement is appropriate in terms of domestic public expenditure is also a matter for scrutiny by Parliament; most suitably by the House of Commons in its scrutiny of departmental votes. Such "inter-nalisation" of the attribution of funds destined for projects supported by research councils also undermines the principles under which research councils operate at arm's length from central government.

The second problem with the Treasury system is that it can often seem to recipients of Community funds that a non-additionality principle operates. Their success in obtaining such funds will appear to lead to a subsequent cut in the budget of a department from which they may—I stress, may—also receive money and possibly a cut in their receipts of United Kingdom public funds, via what the Treasury calls a cascade effect.

The committee is grateful to the Treasury for attempting to explain the system in evidence before it, but a great deal of work still needs to be done to convince the research councils and universities that they will not be substantially disadvantaged by the operation of attribution. In fact, there is no general understanding of how the system operates, or even recognition that it operates at all. The Treasury must make good that failure to communicate, perhaps by organising a series of meetings at key centres of research across the country but, above all else I suggest, before Parliament itself.

In addition to doubts about the Treasury's explanation of additionality and attribution, the committee is seriously concerned by the system itself. The Treasury appears not to have taken into account how little it is able to shape policy in Brussels and is insufficiently sensitive to the limited influence that the United Kingdom has as only one voice among twelve. The Treasury does not appear fully to recognise that as successive framework programmes become more important existing public expenditure controls may lead to a growing distortion in the science and technology budget, despite the best efforts of industry, universities and the research councils. One example would be when a university receives Community funds for a project but subsequently finds that central government funds for a project judged to be of higher national importance are cut. Thus, the ability of the science community to set priorities for projects will steadily diminish.

There are also doubts about the effective level of additionality of Community funds. The Treasury suggested that in the case of research and development 30p to 35p in the pound is truly additional, but has given no evidence to justify its choice of this or any other particular figure. In my view the Treasury should produce evidence if that figure is not to be seen as completely arbitrary.

The committee is also concerned that, according to the Treasury, it is a global figure, which implies that for some projects no Community funds are truly additional. The committee notes that the figure was given in relation to those funds primarily going into the private sector, as much of the money under the research and development programme surely will. It finds curious—I should like to hear the Minister's explanation—the Treasury's decision that the private sector includes universities. I find that very difficult to understand.

The Committee is also concerned to find that the situation may well be just as bad in the public sector, for which the Treasury has produced no comparable figure of the level of Community funds which are truly additional. But there is at least one case in the public sector where the level of additionality is unsatisfactory. That is reflected in the Court of Auditors' report which concluded that Community aid for transport infrastructure in the United Kingdom was treated as "appropriations in aid" of the Department of Transport Vote.

One final unsatisfactory feature of the present system is that the Treasury has not interested itself in how other countries handle these matters. There may be little occasion in general for the Treasury to be aware of foreign practices in regard to public expenditure controls, but the case is altered when practices in other countries bear on circumstances in the United Kingdom, as happens with the framework programme. The committee urges the Treasury to remedy that situation by investigating practices elsewhere, in so far as they touch upon the additionality question, and to publish the results.

The committee believes that these matters have not previously been so fully ventilated before a committee of Parliament. The confusion and worries brought out by the evidence to the committee are likely to grow as the Community programme, including framework programmes, increases in importance. More importantly, the committee strongly disapproves of the Treasury practice, on its own figures, of only allowing 30p to 35p per £1 of Community funds for research and development to be truly additional. There is clear evidence that research and development in the United Kingdom is already under-funded, as the Select Committee on Science and Technology pointed out. The Treasury's policy only makes matters worse, thus operating against national interests and the needs of industry.

Although the committee accepts that Community funds may not be 100 per cent. additional, in the view of your Lordships' committee the present figure appears to be far too low. This is a matter on which we wish to hear from the Minister. It is a matter of the gravest national concern, in particular for those concerned in research and development. I beg to move.

Moved, That this House takes note of the report of the European Communities Committee, A Community Framework for R&D (17th Report, 1989–90, HL Paper 66).—(Lord Shepherd.)

5.53 p.m.

Lord Butterworth

My Lords, I was one of the three members of the Select Committee on Science and Technology who assisted Sub-Committee B in its inquiry into the framework programme. I should like to express my appreciation of, and admiration for, our chairman, the noble Lord, Lord Shepherd, and congratulate him on the excellent way in which he steered our committee over what proved on some occasions to be a remarkably complex subject.

I should like to confine myself to two areas: first, the choice of subjects to be covered by the different framework programmes; and, secondly, the procedures and practices of the Treasury in dealing with those problems. While there is a general conviction that we ought to be involved in European research programmes, some scientists, frequently very able ones, consider that applications to the Community are not always worth the candle and are too much hassle. First, one has to find a European partner. Secondly, one can only receive a proportion and generally not more than 50 per cent. of the grant needed to carry out a piece of research. Thirdly, overheads are not adequately covered. Finally, the success rate of applications is small, much smaller than the success rate of applications to the major research councils.

On the other hand, the European Community programmes will increase United Kingdom research effort by at least £250 million over the next seven or eight years. Generally, research councils and researchers are anxious that the best value for money should be obtained. Scientists and institutions should use their best endeavours to obtain grants from Brussels, not only because over the years the amount of research money allocated by the Community is likely to be an increasing proportion of the total of public money spent on research, but also because European projects will increase the opportunity for interaction with European colleagues in the selected fields and open up an important entry to additional research data. Therefore it is important that we should become more fully involved, making the system as efficient as possible and obtaining the maximum assistance and support from it.

Concern was expressed to the committee that scientists and research councils do not have sufficient influence in identifying the areas to be covered by the different framework programmes. The Community prefers to work through civil servants—its own and those of individual member governments—for it wants to be seen to be acting independently and not simply projecting a consensus of the opinions of different funding organisations. There are plenty of contacts between our scientists and the officials at Brussels at an informal level but a more effective impact could be achieved if the research councils were formally represented on the different advisory committees; for example, CODEST, one of the most important committees, where at present the members are all chosen on an ad hominem basis.

As the noble Lord, Lord Shepherd, explained, Sub-Committee B on a number of occasions recommended and continues to recommend that the Commission must employ more scientists at all levels. A consensus emerged in the committee that projects should fall within four broad categories. The essential point about those categories is that all are attempts successfully to apply the principle of subsidiarity. It is important in the selection of the areas to be supported that the principle of subsidiarity should be applied. On the other hand, it was the view of the committee that in certain areas the framework programme went too far. The committee recommended that the funds should be applied to small and medium-sized enterprises and should promote the Community's economic and social cohesion. I shall return to those words "economic and social cohesion". They are quite important.

The support of small and medium-sized firms is economically important. There are special funds in the Community earmarked for small and medium-sized enterprises and for economic and social cohesion. Those of us who take an interest in the Community recognise the phrase "economic and social cohesion". It is European nonce language for the possibility of establishing funds—I shall not call them slush funds—for the poorer member states of Europe, for stimulating convergence as a prerequisite of economic and monetary union and, as some would add, as one of the steps towards a European federation.

Under the heading "objectives" I wish to mention near-market research. It is rigorously excluded from the aims of European research. Professor Fasella interestingly defined near-market research by stating that the cut-off point in time is at least three years before the project is ready for the market or, in money terms, when one must invest in the final development at least as much as one has already invested to reach that point.

The Commission does not support such research because Article 92 of the treaty on state aid prohibits subsidy disguised as research funding. In Britain our policy is not to support near-market research because we consider it to be the responsibility of industry. It is our view that industry should be encouraged to spend much more money on research. Your Lordships have already heard that our committee did not accept the European definition of near-market research. It considered that the Commission should be more flexible having the power to undertake near-market research so that it could deploy funds in that way when appropriate.

That view has important economic consequences. If member states refuse to support near-market research, and if industry—perhaps because of the cost—does less than it should, the ability of the Community to compete with the United States or Japan may be impaired. Perhaps we in the United Kingdom also have been too harsh in the extent of our withdrawal from near-market research. Perhaps our research policy should also become more flexible in that respect, enabling appropriate projects to receive government support even though they are near-market.

I turn briefly to the rules and practices of the British Treasury because they may exert an important influence on the whole planning and strategy of British research. The Community considers that the research funds which it makes available to member countries should be additional to their expenditure and not in lieu of it. Additionality applies to all research grants received from the European Community. In the application of the structural funds a regulation of 1988 specifically makes that requirement.

Our Treasury treats receipts for research from the framework programme differently from the way in which it treats receipts from the structural funds. Therefore, as regards grants from the framework programme full additionality is not allowed. The Treasury justifies that different treatment on the ground that: the Government needs to control the public expenditure consequences within the same system and according to the same principles as apply to all other forms of public expenditure; for all public expenditure comes from the same pool of resources and represents the same burden upon domestic taxpayers". In pursuing that objective the Treasury varies the nature of public expenditure controls according to whether European Community receipts go to the public or to the private sector.

Community receipts for research and development come almost wholly from the framework programme. The UK contributes about 20 per cent. of the total of that programme, which is approximately the same as its contribution to the Community budget as a whole. We receive about 20 per cent. of the total distribution of the framework programme and, therefore, roughly break even. However, approximately 90 per cent. of what is received goes to the private sector. For that purpose the Treasury classifies universities as being within the private sector. It states that for this reason additionality in the framework areas must be treated differently from the way in which it is treated in the structural areas.

The Treasury witnesses assured us that receipts from the structural fund are taken into account when departmental programmes are set. Provision for a department which has received a grant from the structural funds can, therefore, be maintained at a higher level than would otherwise be afforded. To that extent true additionality is recognised in its consideration of structural funds. However, when funds are received from the framework programme the Treasury applies the principle of attribution; it attributes such funds to a specific government department. Presumably, funds received by higher educational institutions for basic research are attributed to the DES and funds for industrial research are attributed to the DTI.

In the year in which funds for particular research are received they are truly additional to the researchers. But in the public expenditure round of the following year the government department to which the funds have been attributed may find that its grant is reduced. In fact, the Treasury witnesses confessed to the committee that as regards the framework programme the system is designed to claw back between 65p and 70p in every pound of funds received. Therefore, only 30p to 35p in the pound is truly additional as far as the government department is concerned. The Treasury witnesses emphasised that the clawback is discretionary. At the public expenditure round the relevant government department can always argue that if the clawback is operated hardship and difficulties may be created.

However, because present Community research policy puts more emphasis on pure and basic research, our research councils fear that if the system is operated with full vigour the DES may lose so much grant that it may have to recoup by passing on the cuts to the research councils. Therefore, it could happen that the greater the success of our scientists in obtaining European funds, the more likely it is that British research programmes and their priorities may be blighted and warped. The greater the difference between our research priorities and those of the Community, the greater the danger of the disruption of domestic science priorities.

A very important point is that because this system—preventing full additionality in the case of research grants —is part of the public expenditure round, it is operated, as it were, behind a curtain. It is a bureaucratic exercise not subject to normal parliamentary checks or control and not within the scrutiny of the Comptroller and Auditor General. Your Lordships will find in the Treasury's supplementary written evidence to us a splendid sentence which states: This is an institutional matter involving discussions between the Departments concerned, the Treasury and the Cabinet Office". That is, behind the curtain.

The Treasury was not aware of how other European countries applied additionality to research grants. Certainly in France civil servants often helped scientists to prepare their applications to Brussels and anything received is regarded as truly and properly additional.

The man on the Clapham omnibus would expect that the contributions made by HMG to Europe would become vested in and owned by the Community and that any grant made by the Community to a British scientist would be truly additional. My friend on the bus would be surprised to learn of the existence of Treasury rules, the operation of which are subject to no democratic controls and are designed to claw back from government departments a large part of the funds which the Community has made available for British research with the object of reducing the burden on the British taxpayer—the man on the Clapham omnibus.

6.12 p.m.

Lord Kirkwood

My Lords, I should like to comment mainly on two aspects of the report: on the funding of research projects in the Community framework programme and on the quality of the work. Before doing that, I should like to say how welcome will be this third framework programme to the scientific community if the funding is indeed additional to domestic funds. I speak as a technologist who has been involved in obtaining a research grant in the second framework programme. There appear to be some important improvements with successive programmes, most notably in the attempts to evaluate the completed work. I understand that the UK has been much involved in trying to rectify that.

I do not think one can quarrel with the criteria used in selecting projects. Among those is the requirement that the work should be too costly for one member state to undertake alone, and that there should be some added value in performing it at Community rather than member state level. On the question of added value, I know this was intended to refer to the technical and scientific content of projects, and that must always be of the highest priority. However, given that, I feel we should not disregard the more intangible benefits as being of added value which can arise from individual scientists, technologists and engineers from different member states coming together, getting to know one another better, and getting to know each other's strengths and weaknesses in a partnership which allows strengths to be drawn upon and weaknesses supported or overcome. This can be to their collective benefit. What is true of individuals, may also be true of institutions from different states. Therefore, the total benefit obtained is greater than the sum of the parts. This is described in the report as strengthening economic and social cohesion in the Community, as we have already heard, and to my mind it is too much underplayed as a valuable objective for the framework programme.

I wish now to turn to funding and the terrible twins—additionality and attribution about which your Lordships have already heard. There is apparently confusion among everyone, even among those directly involved, as to exactly what the terms mean and how they are applied by the Treasury. Given the serious consequences they might have for research in the UK, especially in universities and polytechnics, it is vital that their operation is understood and is transparent —a point raised by the noble Lord, Lord Butterworth—and that any misunderstandings are removed. The concepts of additionality and attribution are summarised in the Select Committee's report in paragraph 26. Very simply stated that paragraph appears to mean that Community research grants successfully obtained by UK participants are attributed to the budgets of the appropriate government department. This attribution will cascade down within the department to lower levels, such as research councils, and so reduce the amounts they can spend on their own projects. Consequently, EC funding is not fully additional to those funds already made available for UK research by the Government.

To the extent that there is attribution, there is no additionality in funding. As the present chairman of SERC, Sir Mark Richmond, remarked in evidence to the committee: The principle leads to research councils being debited for a programme that they played no part in assessing. That is a very good summing-up of the situation. Not only is this bad politics, it offends against a basic principle of good management.

There is a further problem in funding, as regards the universities and polytechnics. This is what has been called "the double jeopardy situation" by NERC. It refers to the fact that EC grants never cover 100 per cent. of research costs, and such grants to HEIs would have to be topped up from the UK science budget—that is, by the research councils themselves for projects they may not have supported.

The other question that I wish to discuss arising from the report is the quality both of the assessment of the programme and the projects submitted to the Commission, and the evaluation of the results from the work done. There have been widespread complaints that the scientific and technological community has had little input into the programme. Politics plays too large a part in establishing the direction of research and in the success of particular research proposals. I feel that there are grounds for concern here, even if the problem is more perceived than real. For that reason I would support the Select Committee's recommendation for more scientists to be involved on the advisory committees. The Commission must be encouraged to elicit views from a wider scientific audience, not just from research councils but from scientific and engineering institutions and from individuals. This could also help in the communication of the Community's research programme to the general scientific public. There is much misunderstanding and ignorance about the activities of the framework programme among the scientific public.

There has also been some criticism that the refereeing of projects in the framework programme is of a lower standard than in the research councils and in SERC in particular. Whether this is true or not, it would certainly help to restore confidence if there were a wider pool of referees and the names of those referees were known. There is always suspicion when there are referees whose credentials are not well-established.

The report also recommends that research councils should have a formal input into the advisory committees responsible for developing the framework programmes. This would seem to make good sense in order to establish some co-ordination of national and European research strategies, particularly if attribution is developed to any extent. However, it has been pointed out that if the same people are allowed to dictate programmes both in the national and in the European arenas, a degree of plurality is lost in the source of research funding. There is always the danger that proposals in areas of unfashionable science, even those of intrinsic merit, can be rejected by the same people at Swindon and then at Brussels. This must be guarded against.

I believe that your Lordships' Select Committee has produced a useful report which highlights important issues of which this House should take careful note.

6.21 pm
Lord Beloff

My Lords, the noble Lord, Lord Shepherd, went out of his way to ask me to take part in this debate, obviously searching for someone who was neither a scientist nor a European to give, as it were, the ordinary Back-Bencher's view of the distinguished labours of his committee. I am pleased to begin by congratulating him and his colleagues upon their achievement.

The delay in our discussing the report, to which the noble Lord, Lord Shepherd, referred, has enabled the report to be overtaken or supplemented by another document from the other place, the Report of the Select Committee on Education, Science and the Arts entitled Science Policy and the European Dimension. Many of the issues, and most of the witnesses, which appear in the report of your Lordships' committee appear again in that volume. As a student of British government rather than of science, I find the comparison between the two documents of very considerable interest.

It is clear that the capacities, scientific background and knowledge of members of your Lordships' committee were very much superior to those available to the other place, with one or two exceptions. On the other hand, the habits of another place—the way in which it operates—make it easier for Members of that place to challenge outright some of the more absurd claims of official witnesses. The trouble with your Lordships' committees is that they are composed not only of specialists but of specialists with very good manners. We are in an area where good manners may actually be a disadvantage.

That aspect becomes obvious in the case of the behaviour of the Treasury, to which all the previous speakers have referred. In the past few years there has been a great deal of research by historians and social scientists as to the reason for Britain's relative industrial decline. I have spent the last 20 or 30 years of my professional life in research relating to that topic. The conclusion to which I came some time ago—I think it has been imparted to your Lordships before, but it is relevant today—was that we can dismiss the usual Correlli Barnett stuff. It is not the fault of the trade unions, the public schools, or the hereditary aristocracy; the main drag on Britain has been the Treasury. The Treasury control of the machinery of government in Britain is the main reason why, as the noble Lord, Lord Shepherd, reminded us, science is underfunded, as it was between the wars, and one of the main reasons for our weakness in defence.

As was shown in the report—it has been referred to by my noble friend Lord Butterworth and other speakers—one finds the Treasury claiming that its particular rules for controlling public expenditure behind the backs of Parliament and the public are themselves not subject to challenge; they are something which must be taken for granted, like the law of gravity or the law of diminishing returns. There is no reason for that. No doubt successive generations of Treasury civil servants are indoctrinated with this kind of belief from the moment they enter the portals of the Treasury. They are also indoctrinated—and I thought this was even more shocking in the case of the Treasury's evidence—with the belief that knowledge is not important, that only the rules are important.

The question of what other countries do with funds which come from a common source—whether they practise additionality or attribution, or steal the lot and put it in the pockets of some Minister or his favourite—is of vital concern to the British taxpayer as well as to the British scientific community. Having been asked this question, first, by your Lordships' committee and later on—and therefore with plenty of warning—by the committee in another place, for the Treasury to say that it knows nothing about what goes on abroad is so scandalous that I think it should be noted by your Lordships' House, and I hope it is noted by my noble friend the Minister.

There is an obvious remedy. I hope that one day this House might have a select committee to look at the Treasury, which would be a very good subject for investigation. I have formed the view that no one should be admitted to a senior post in the Treasury who has not had experience of some duration in another walk of life, someone who has met a payroll, to use an American phrase, who has run a business or acquired serious scientific or technical qualifications. As long as we let young administrative trainees imbibe, first, the rules, and then the view that they do not need to know anything, we shall have this kind of situation.

As noble Lords have pointed out in this connection, the main problem arises from the dispute about additionality and attribution, and it is particularly serious because of the absolutely absurd claim that the universities are part of the private sector. There is only one private university, and I happen to have taken part in founding it. All the other universities receive most of their money from the Government and could not operate without grants both from the University Funding Committee and from the research councils. Therefore, for the Treasury to argue that it is putting money in the private sector as though it were somehow or other adding to the profits of some joint stock company is a piece of nonsense which it should never have been allowed to get away with.

However, we are not here to improve the way in which our affairs are run; we are here to look at the impact the framework will have on the scientific community. If the financial arrangements are such that those who ultimately receive research funds, earmarked by the Community for research projects of a European interest, are liable to lose funds for projects to which they or the research councils would attach greater importance, then it raises the question whether we should contribute 20 per cent. to the European fund or whether it would not be better to have the financing of research in the hands of our own research councils. Where a piece of research clearly required a European partnership the research council could initiate that partnership. There is not much point in taking money out of one pocket and putting it in the other if the other pocket receives very much less than what was put in the first one.

I do not dispute that there must be matters where a partnership between a British and a continental institution for research—whether inside or outside the Community is another matter—is likely to be important. Skills are different; knowledge is different in different countries; expertise is different, and there may always be areas where such trans-national research is important. However, after reading the report and the evidence to the committee I feel that the attitude of the Commission—not staffed by scientists, as has been pointed out—indicates that research is a good thing across the borders; that in some way it contributes to what one might call the European mood. That is a matter for politicians, perhaps for civil servants or the media; it is not something which scientists, who are concerned to discover the truth and find out its practical applications, should rank very highly.

My final point relates to the references made to the bureaucratic difficulties of applications to Brussels, and especially the difficulty of being unaware whether the proposal is likely to result in a grant until a very late stage, to which I attach considerable importance. That is a specific problem. Although I am not a scientist, some of my best friends are and, as anyone who knows scientists knows, a great deal of their time is spent filling in forms applying for grants rather than at the bunsen burner or whatever it is they now use. Anything which cuts down the necessity for heads of departments or of research institutions being taken away from their research and which can help to minimise bureaucratic formalities should be considered with the greatest care.

In the report the committee have raised matters of great concern, both to those worried—as we all should be—that we rank so low in the list of advanced industrial countries regarding expenditure on scientific and technical research; and those who believe—which is why I began with my King Charles' head—that the only way to keep our governing institutions right is to point to weaknesses wherever and in whatever field they appear.

6.35 p.m.

Lord Ezra

My Lords, I associate myself with the tributes rightly paid to the noble Lord, Lord Shepherd, for the way in which he presided over the inquiry whose report we are presently debating. I have the honour to succeed him as chairman of Sub-Committee B and he has set a challenging and daunting standard.

I support what the noble Lord said in his preliminary remarks, which were also echoed by other noble Lords who have spoken, regarding the length of time it has taken before we are able to debate this important report. In making my final preparations to speak in the debate, I was astonished to find that the evidence we heard from the responsible Minister was given in 1989; we are now in 1991. I should have thought that the recommendations made in reports of this kind should be debated by the House within a limited period of time.

The question to which the sub-committee first needed to address itself was the validity of conducting research at the European level. We were not in any doubt about the importance of that. To that was attached the principle of subsidiarity, to which the noble Lord, Lord Butterworth, specifically referred. In other words, the research that we do at Community level should be such that it is better done there than at national level.

The amount of research expenditure as between Community and national level demonstrates that the great proportion of the research we do is at national level—over 90 per cent.; the remaining 10 per cent. is largely at European level, and a small proportion is at what one might call the global level.

There is little doubt that we can gain considerably, particularly with the approach of the single market, from more European research. The committee was right in relating most of its inquiry to facilitating that research once it had been agreed upon. There was general agreement also on the six strategic lines that were selected for the third framework programme. There was agreement that the programme should have started before the second framework ended to ensure some degree of continuity. I was personally concerned that the one area in the third framework programme in which research expenditure seemed to have diminished was energy. The way in which the energy scene has developed and the environmental implications of the improved use of energy indicate that that is an area to which more effort should be given.

The timescale is also important. When we asked Mr. Hogg, the Minister, about this in November 1989 he said, "Yes, but we devoted more expenditure to energy when the crisis was on". Of course he was referring to the last crisis. By the time we debate the report we are in another crisis, and there will be many more crises before we are finished. Therefore, we should look carefully—especially in present circumstances—at the proportions provided for energy research.

There has been some criticism, no doubt partly justified, regarding the so-called Brussels bureaucracy. In any distribution of funds, whether done at national level by the Treasury or at European level by the European Commission, there is bound to be the intervention of paperwork. The amount of that paperwork should be reduced as much as possible.

I was struck by a remark made by Sir Mark Richmond, Chairman of the Science and Engineering Research Council, to the House of Commons Select Committee, to which the noble Lord, Lord Beloff, referred. He stated that those who took the trouble to learn the Brussels system found it a rewarding place in which to gain support.

A certain amount of criticism is levelled at Brussels by those who do not take the trouble to learn the system. I can speak from my own experience when I was involved in the affairs of the coal industry. We had to contend with the European steel and coal community and I used to make special efforts to understand the Luxembourg system as it then was. I used to go there frequently and those visits paid off considerably. We were not consulted as to how the system should operate at that time because we were not part of the Community and we might have had different ideas, but we were faced with the fact that it existed. It is important to understand the system and ensure that it works properly.

I do not wish to repeat what has been stated so cogently and vigorously by noble Lords who have spoken on the problems of the additionality and attribution systems. All that I can say is that the Treasury experts admitted that the system can give rise to confusion. I do not know whether it gave rise to confusion in their minds, but it certainly gave rise to a good deal of confusion in the minds of everybody else. The Treasury has many qualifications and qualities and one of them is the ability to devise inoffensive words to describe unpleasant operations. That can be likened to the practice of the ancient Greeks who used to use pleasant words to describe unpleasant natural phenomena in order to placate the gods. Here, the simple word "attribution" means that what we had committed ourselves to provide in addition, we shall remove. That is what the matter comes down to as far as I can see.

We cannot tell whether the calculated 30 pence or 35 pence in the pound finds its way into additional research because the operation is done behind closed doors, as has been mentioned. One might ask why the amount is only 30 or 35 pence. Why is the remaining 60 or 65 pence taken away and where is it taken to? A Select Committee in the other place looked at that question. It was pointed out that the effect of the practice of attribution on UK research priorities could contribute to the cumulative underfunding of research in the UK. In other words, there is an arrangement within the Community to which all countries contribute. We contribute 20 per cent.; we get back approximately 20 per cent. Instead of that 20 per cent. flowing into the research effort in addition to what is voted for national research, a large part of it disappears. The seriousness of that situation has been emphasised and I hope that the noble Lord, Lord Hesketh, will be able to explain how this very odd system can be justified.

The problem with which this matter is connected is the general level of UK expenditure on research and development. Some years ago an excellent report was presented by the noble Lord, Lord Sherfield, on the subject of civil research and development in the United Kingdom. Many noble Lords will have taken part in that debate. What then emerged very clearly was that we were lagging noticeably behind our competitors in Western Europe, let alone in other parts of the world, in the proportion of funds that we devoted to research. It was pointed out that whereas the Federal Republic of Germany, France and the Netherlands devoted 1 per cent. of GDP to research, in the United KIngdom it was 0.7 per cent., and that figure included a large amount of defence research.

In July 1990 the SERC compared UK research with the German and French research effort and it found that the amount of expenditure in the UK amounted to no more than three-quarters of that conducted in France and no more than half of that conducted in Germany. Therefore, in the intervening period we do not appear to have caught up. In order to bridge the gap to some degree we ought to have respected entirely the additionality principle to which the UK is totally committed—and yet that commitment has been breached. Therefore it becomes a very serious matter.

The noble Lord, Lord Beloff, in his admirable speech, referred to the fact that the phenomenon of underfunding of research is not a new one. He mentioned the situation between the wars. The situation goes back further than that and could be prolonged into the future. I should like to quote from the Royal Society's year book 1903.

Expenditure by the Government in scientific research and science institutions, on which industrial prosperity so largely depends, is wholly inadequate in view of the present state of international competition". I hope that when the report is written in 2003 the same words will not be used, but I fear that in the very little time that is left, that might be the case.

6.45 p.m.

Lord Williams of Elvel

My Lords, the House will be grateful to my noble friend Lord Shepherd, first, for chairing the committee that has produced such a distinguished report and, secondly, for his work over the last three years as chairman of that committee. He is retiring by rotation and the noble Lord, Lord Ezra, will be taking over that position. It is only proper that your Lordships should mark with a certain amount of gratitude the work that my noble friend has undertaken on behalf of your Lordships.

I am sympathetic—I shall say no more—with my noble friend's remarks on the status of the report of your Lordships' committee. It is somewhat odd that there has been such a time lag between publication of the report and the debate. I have been penalised by the system of publishing reports—and I have drawn the matter to the attention of the noble Baroness who is at present sitting on the Woolsack—because a Motion appeared under No Day Named but the report which had a number, and which I wanted in order to quote in a debate was not available because it was reserved for a press release. As a Member of this House I thought that I was being deprived of a document that I should have had. Therefore, I am sympathetic to what my noble friend said about according reports from committees of this House a somewhat special status.

The background to the report and to the debate has been described by a number of noble Lords. The noble Lord, Lord Beloff, mentioned the fact that we have been overtaken by a report from a Select Committee of another place which shows that domestic spending on civil scientific research was planned for—and that fact is confirmed by the Cabinet Office review in July 1990. As the noble Lord, Lord Ezra, pointed out, it shows that civil research and development in the United Kingdom is still badly underfunded compared to that of our European competitors. Indeed, the chairman of the Science and Engineering Research Council made the same point both to the Select Committee of another place and our own committee. By way of background, it is worth noting that, although funding of research and development domestically may be falling in real terms, United Kingdom financial support for the European framework programme is growing. We are starting to shift resources from domestic research to the European framework supported research. Admittedly, only about 7 per cent. of government expenditure on civil research and development goes into the European Community programmes, but that expenditure is nevertheless growing while our domestic programme is in decline. There is a lesson to be learnt from that.

I come to the report itself. We join the noble Lord, Lord Ezra, in welcoming the third framework programme. We believe that there is a body of research which is best done at European level. We respect the principle of subsidiarity but we believe that some things are properly done at Community level and by the Community as a whole. The CBI is on record as saying that that role should be larger than it is at present. However, as my noble friend Lord Shepherd said, others believe that it should be smaller. Perhaps the balance is about right, but we shall see.

I accept the criticisms of the noble Lord, Lord Beloff, about bureaucracy. It is much better that we should have less rather than more bureaucracy. On the other hand, I believe, along with the noble Lord, Lord Ezra, that the Brussels system is not well understood by some of our people, particularly scientists and the research councils. I agree with the Select Committee of another place that if the scientific community were closer to the corridors of power in the Commission the results would be very much better and to its advantage. Our research councils could conveniently be part of the advisory process that forms part of decision making in the Commission. That would be to our advantage.

Many noble Lords have discussed the position of the Treasury. When listening to the noble Lord, Lord Beloff, I assumed that in attacking the Treasury he was, in the proper traditions of the House, attacking Treasury Ministers rather than Treasury officials. It is wrong of us to attack officials. There is parliamentary accountability. Indeed, I have not noticed the noble Lord, Lord Beloff, withdrawing his support from any Chancellor of the Exchequer over the past 12 years, although Chancellors of the Exchequer have been responsible for the Treasury, against which the noble Lord takes such umbrage.

On attribution and additionality, I have nothing to add to the arguments brought forward both by your Lordships' Select Committee and by the Select Committee of another place. The noble Lord, Lord Kirkwood, summed it up very well. He said that, to the extent there is attribution, there is no additionality. The Government appear to have baffled both Houses of Parliament. I have no doubt that the noble Lord, Lord Hesketh, will be able to explain in words which are comprehensible to all your Lordships exactly how the principles of attribution and additionality work and how they will be to the general advantage of the Community and ourselves. We look forward with great interest to his explanation. The report is absolutely right in saying that Parliament must be given powers to scrutinise what is happening. That cannot take place behind closed doors. It is far too important for that.

I turn now to the procedures for the evaluation of projects. I am not entirely convinced about the principle of peer review as recommended by the report. It may be the right system, but I do know that in the accountancy profession in the United States peer review is the way of assessing performance. However, it gives rise to enormous problems of professional jealously and professional nit-picking. I wonder whether that is the right framework in which to evaluate procedures under the framework programme. I accept that there must be an allocation for set-aside for evaluation procedures. Perhaps 1 per cent. of the funding is the right amount.

The noble Lord, Lord Butterworth, referred to near-market research. I have spent just over a week finding out exactly what is meant by that term. The more I look at near-market research the more I come to the conclusion that it is an extremely complex and difficult subject. We should be more flexible, but it occurs to me that it is almost a question of being flexible product by product or project by project. For one product there may be a three year gap between the research point and the market point. For a second product there may be a 10 year gap and for a third a one year gap. All I am saying is that we should look at the possibility of flexibility. Let us not draw a total line at three years. I would not wish to advance any major conclusion without a much more serious study of the subject.

The report also raised the question of the wide range of government departments involved in relationships with the Community. The noble Lord, Lord Hesketh, as a Minister at the Department of Trade and Industry, is responsible for the European programmes. The Department of Education and Science has responsibility for the domestic programmes. The DES is the lead department on some of the projects under the framework programme. Indeed, a number of other departments are involved.

The Select Committee of another place recommended that when the Minister from the DTI goes to Brussels to discuss these matters, he should be accompanied by a Parliamentary Under-Secretary of State from the Department of Education and Science. I wonder whether that is the right way to handle the matter. Perhaps we should look again at the possibility of having a Minister for Science with an umbrella role over the multitude of research operations and the five research councils.

A major problem was pointed out by my noble friend Lord Shepherd and the noble Lord, Lord Butterworth. It is a problem with which we shall have to grapple more and more as the Community programme grows larger. The problem is causing a great deal of debate within the scientific community. How do we dovetail the European priorities in research with the national priorities in research? That is a fundamental problem which we need to discuss very seriously. If research councils are to be obliged to cut their budgets on what they regard as being priority projects in order to receive funds on what the EC regard as priority projects we shall certainly face trouble, European Community projects, even framework programme projects, may not fit in with our national priorities. It is an issue which your Lordships, Members of another place and those in the scientific community will have to debate at some length. I do not see a way of getting that dovetailing right at the moment. I am sure it will be a problem for us in the future.

We must return to where we started. The proportion of our gross domestic product devoted to civil research development is insufficient. Civil R&D has been consistently underfunded. Until we have grasped that political fact and until the Chancellor of the Exchequer, who is responsible for the Treasury, grasps that political fact we shall continue to decline as an industrial society.

I conclude by quoting John Mulvey of Save British Science, who welcomed the report of the committee of another place. He said: It illustrates that everyone who looks at these problems, be it ourselves, the Royal Society, the House of Lords or now a House of Commons Committee, all come to the same conclusion. How many more reports have to be written before something's done and before it's too late?

7 p.m.

The Minister of State, Department of Trade and Industry (Lord Hesketh)

My Lords, I have listened with great interest to the debate. I should like to respond to the remarks made by the noble Lord, Lord Shepherd, in introducing his most thorough presentation of the issues as he saw them. He referred to the fact that we are debating the issues today even though several months have elapsed since the publication of the report. He most generously referred to the difficulties experienced by Chief Whips. I very much appreciate the point that he and other noble Lords made with regard to the position of debates and the priority which such reports are given. I do not believe that the noble Lord would expect a Minister of the Department of Trade and Industry to try to supersede the Procedure Committee of your Lordships' House or the wisdom and enterprise of the Chief Whip's office. Therefore, I do not intend to follow either course. I shall simply pass on the message.

A number of important and stimulating points have been made. The Government welcome this opportunity, albeit a rather belated one, to discuss the report by the European Communities Committee on the EC's research and development framework programme. I beg the indulgence of the House. I intend to take some time to respond to the report as this is the first opportunity that the Government have had to do so. It would therefore be appropriate for me to congratulate the committee on its thorough and painstaking inquiry into the European Community dimension to R&D.

Events have moved on since the publication of the report last June. Detailed negotiations are now well under way on the substance of the specific research programmes. These will put into effect the provisions of the third framework programme, which is the main focus of the committee's inquiry. Although these negotiations have lasted longer than one would have hoped, there is now a good possibility that all the programmes will be adopted and calls for tender issued by this summer. Common positions on three programmes—environment, telematics and marine sciences—were agreed by the Council on 21st December. The UK has participated actively in the negotiations in order to try to ensure that the content and management arrangements for the various programmes reflect our own priorities and objectives as far as possible.

A number of themes have emerged from the discussion this afternoon: the scale and size of the framework programme; the balance between Community research and national programmes; and the effectiveness of EC collaborative research in increasing the Community's industrial competitiveness. I shall try to deal with these in due course, after I have outlined the Government's response to the key conclusions and recommendations of the report.

The aim of funding R&D programmes at the Community level is, of course, to promote greater collaboration between member states' organisations —both industrial and academic, private sector and public sector—and thereby to contribute to the added value of research and development carried out in the Community. A number of the most important programmes are aimed specifically at increasing the EC's industrial competitiveness. I welcome the report's conclusion that the third framework programme should help to achieve that goal. I also welcome its statement that the level of funding for the third framework programme is pitched at a satisfactory level and that the split in funding between the various fields of research reflects priorities which match our national priorities.

Europe's international competitiveness will only be improved by funding the best projects which Community researchers can deliver. In view of the finite resources available, the Government believe that the overriding criterion for approving project proposals must be that of scientific and technical excellence. In addition we must avoid the unnecessary overlap or duplication of work conducted by member states themselves or through other international means. The provision of funds to organisations from the less favoured regions in the interests of so-called economic and social cohesion in the Community must therefore, as the committee rightly recognises, be subordinate to this objective, especially since there are separate mechanisms for assisting the weaker areas of the Community.

Likewise, small and medium-sized enterprises (SMEs) should not automatically expect preferential treatment, though they certainly have a part to play in the carrying out of highly innovative research. As a result, the Government encourage firms of all sizes to participate in EC framework programmes. We also support the actions which the Commission has taken to promote the participation by SMEs in the framework programme, where it is appropriate for them to do so.

As to whether the Community should support near market research, which many noble Lords mentioned, we have consistently held the view that framework funds should be used for pre-competitive research; in other words, for research into technologies which will underpin the development of whole families of products, rather than to help firms with the actual development of commercial products or processes. That includes demonstration projects. But these should primarily be designed to prove the capability of a particular generic technology or have a connection with the development of common standards or codes of practice. Near market research should be principally a matter for individual firms themselves. In any case, there already exists the EUREKA mechanism which, with the aid of government support, encourages trans-European collaborative research nearer to the market. It is important that the roles of the Community and of national governments are not confused and that their activities in support of R&D are not duplicated. The Government accordingly do not share the committee's view that near market research should be funded under the framework programme and explicit reference is made to this in the Framework III decision.

I should like now to deal, not least in my capacity as Treasury spokesman in this House, with the criticisms in the report directed at the way the budget for EC R&D is attributed to individual departments. After today's debate, I could suggest that it is possibly the reformation and renovation of the Treasury that has been proposed from certain sides of the House.

The main thrust of the committee's concern is that public expenditure control—which the committee and witnesses who appeared before Sub-Committee B recognise as being important—may have a harmful effect on our R&D effort; and that these controls may distort the priorities of the scientific community. I hope to explain to the House why the Government do not accept that this is so; and I shall, of course, also deal with each of the more specific conclusions of the report.

There is a very basic reason why the Government cannot accept the committee's conclusion that public expenditure control of the cost of EC R&D worsens the funding of R&D in the United Kingdom. It is that the 1990–94 framework programme will result in at least an additional £250 million of publicly funded support for our national R&D effort.

However, before I deal with that issue—namely, the issue of attribution—it is important that I should give more detail. I recall the points made in the supplementary explanatory memorandum which my predecessor as Minister with responsibility for Community R&D submitted to the committee on 22nd November 1989 and which the committee published with its report. The bottom line is that resources are finite. The United Kingdom's contribution to R&D expenditure financed through the Community budget comes from the same pool of resources and represents the same burden on domestic taxpayers as does direct funding of R&D by government departments.

The approach which the Government have adopted is therefore designed to ensure that public expenditure resulting from EC activities is evaluated and controlled on the same basis as other public expenditure and to contain the consequences for UK public expenditure of significant pressures for growth in Community spending. By doing so, and by placing responsibility on departments for Community expenditure on R&D, our aim is to maximise the quality and value for money of EC R? to seek as effective control as possible of spending at the Community level; and to ensure, as far as possible, that the Community's R&D effort complements rather than duplicates domestically funded R&D.

Community R&D has been a particular area of growth, as several noble lords pointed out. As was explained in evidence to the committee, the fundamental principle of public expenditure is that departments are required to bid, and to make a case on value for money grounds, for any expenditure in excess of planned, predetermined levels. Contributions to European Community programmes are no exception to that principle.

The case for additional spending is considered in the annual public expenditure survey. It may be helpful if I outline what is involved, in view of the committee's concern about the basis for the Treasury's evidence that the 1990–94 framework programme will produce £250 million of additional support for R&D in the UK over the next seven to eight years. The attribution arrangements establish the extent to which our contribution to Community R&D has risen above predetermined levels. That means, first, establishing a benchmark against which growth of EC spending—and of our contribution to it—can be measured. The benchmark is, broadly, the level of spending in 1984.

The Government are prepared to accept that the Exchequer should bear that cost. The discussion in the survey is about the spending over and above that level.

The consequence of our agreement to the 1990–94 framework programme—a decision which required unanimity—was an increase of £750 million over planned levels of public expenditure, because of an increased contribution to the Community budget; but £250 million of that new public expenditure can be met within the benchmark which I have mentioned; and the Government are prepared to accept at least an increase in public expenditure of that level. The reason why that £250 million is the measure of the minimum increased spending on R&D in the UK is merely that we can expect to receive about the same amount from the framework programme as we contribute to it—about £750 million. That addition must be set against the possible reduction, at the outside, of £500 million in direct spending on R&D by government departments.

Thee figure of £250 million—or, as is sometimes said, 30p to 35p in the £1—for additional spending on R&D in the United Kingdom relates solely to the 1990–94 framework programme. That framework programme was the subject of the committee's inquiry. But, as the 1990–94 framework programme comes on stream, it will overlay spending which will continue from the 1987–91 framework programme. The United Kingdom is concurrently contributing to and receiving the benefit of that programme. So, in addressing the committee's conclusion that 30p—35p in the £1 is too low a figure for additional spending on R&D, it may be better to consider the impact of Community spending, and of the attribution arrangements, in relation to framework programme expenditure as a whole rather than in relation to the 1990–94 programme alone.

On that basis, in 1991 the United Kingdom's total contribution to Community R&D expenditure is, in round terms, some £200 million. The contribution which the Government are prepared to accept without corresponding adjustments to domestic expenditure — what I referred to earlier as the Treasury benchmark —is currently about £100 million a year. Of the further £100 million which we currently contribute to the Community's R&D, about £40 million reflects expenditure which is not tied to any department's special responsibilities, or which is offset by receipts by public sector bodies. The discussion in the survey, therefore, concentrates on the extent to which we should meet the remaining £60 million a year cost by an adjustment to departmental expenditure. It is by no means a foregone conclusion that there would be a reduction of that amount. But, on an annual basis, the additional overall spending on R&D in the United Kingdom is in fact much more than the 30p—35p in the £1 which the committee concluded was too low.

Lord Ezra

My Lords, we are much indebted to the Minister for his long, detailed and careful response. It is difficult to follow and we shall all have to read it. If the 30–35p is not correct, can we be told why the figure was given to us by the Treasury?

Lord Hesketh

My Lords, I did not say that it was incorrect. I said that there was an assumption that the figure could be better.

It has been the practice of successive governments not to go into the detail of survey discussions and I hope that your Lordships will understand that I do not intend to go down that path, but it is worth pausing for a moment on the science budget. As the committee, and witnesses who appeared before it, are keenly aware, the 1990–94 framework programme will involve more Community support for research in the area of basic science. It follows from the attribution arrangements that the implication of that growth for the domestic science budget would have been an important factor in the Government's consideration in the 1990 survey of the appropriate size of that budget. The outcome of those deliberations was published in the Autumn Statement. The outcome was that the 1991–92 DES expenditure plans for science (including expenditure financed by EC receipts paid directly to research councils but excluding non-voted public expenditure by the Institute of Plant Science Research) will be £928 million, an increase of £28 million over the equivalent figure for this year. A sizeable element in this year's expenditure relates to the heavy concentration on special items of capital spending. When that factor is taken into account, the expenditure plans for 1991–92 allow provision for science to be maintained in real terms.

In addition to the scale of spending, the committee expresses concern at the risk of distorting the priorities of the scientific community. I note that the burden of the evidence given to the sub-committee concerned the potential distortion of priorities rather than any actual distortion which has taken place, and that there was acknowledgement of the justification for the public expenditure arrangements. However, in considering the risk of distortion we should note also the considerable correspondence between domestic and Community priorities for R&D and that the arrangements for attributing to departments responsibility for particular aspects of Community research are designed to ensure that any adjustments which need to be made as a result of EC expenditure will take place, as far as possible, in the areas which are benefiting from that Community expenditure. That is not to say that there will not be occasions when there is conflict between domestic and Community priorities and the potential for distortion of those of the scientific community. The Government are alive to the risk. It is for just that reason that the public expenditure arrangements provide the scope and flexibility, within the public expenditure survey, for a thorough consideration of the implications for domestic expenditure of Community R&D.

It is because of our public expenditure control arrangements, which place financial responsibility on departments, that we have framework programmes which correspond with our own domestic priorities for R&D. Departments have been closely involved with the development and negotiation of framework programmes. That close involvement by the United Kingdom has been successful in securing successive framework programmes which involve a level of spending which we could agree, and a balance of spending which broadly corresponded to our R&D priorities. Having secured that outcome, it seems to me to be entirely reasonable that we should consider whether there should be some adjustment to domestic expenditure to ensure that domestic and community spending complement rather than duplicate each other. Not to have such an examination, with the possibility of the scaling back of direct domestic support for R&D, would be a recipe for duplication and waste.

The committee is concerned that the public expenditure arrangements might lead to applicants who successfully bid for Community funds having their central government grant cut. That view seems to be based in large part upon a belief that the arrangements for attributing part of the cost of Community R&D are connected to the receipt of Community funds and to an adjustment of departmental programmes to take account of those receipts. As was made clear in evidence to the sub-committee, and as I have explained today, public expenditure control is directed to the cost of the UK's increased contribution to the EC budget as a result of the framework programme, rather than to the UK's increased receipts. At the global level, both public and private sector receipts are available to be spent in full. They more than offset any reductions in central government expenditure which might be made because the UK's contribution to the EC budget in respect of R&D exceeded predetermined levels. Thus, there is a powerful incentive to seek Community finance. The evidence is of UK researchers both seeking and receiving substantial support from the Community budget.

Perhaps I may pick up the point which the Committee make about universities being treated as within the private sector. The noble Lord, Lord Beloff, also drew your Lordships' attention to that point. There is no special treatment here. Although they receive substantial support from central government and from the Universities Funding Council, the universities are independent institutions and are classified to the private sector for all purposes in national accounts.

With regard to information requirements the Committee consider that the arrangements have not been explained clearly to interested parties and that the Treasury should explain the operation of the attribution arrangements more widely. The Treasury, in fact, circulates substantial, detailed guidance annually to departments about the operation of the arrangements and the expenditure consequences for departments. The Treasury is always ready to provide such further explanation as departments require. I am sure that the Committee's inquiry and report will also go a long way towards explaining the overall working of the public expenditure arrangements which apply to Community research and development.

However, at the end of the day it is for departments, not the Treasury, to decide the allocation of expenditure in their programmes and the detailed implications of the public expenditure arrangements for research institutes. I know that sponsoring departments are always ready to provide considerable guidance about sources of EC funds and applications for them.

As to the Committee's concern about the monitoring of public expenditure control, I have explained that the consideration of the implications for the framework programme is a part of the public expenditure survey process. The Government's decisions on the appropriate levels of public expenditure are published in the annual Autumn Statement. Further detail is given in the departmental reports which this year will replace the departmental chapters of the public expenditure White Paper. The annual review of government funded R&D gives more detailed information about public expenditure on R&D including, from the 1990 review, the indicative UK contribution to the EC budget in respect of R&D.

On the spending side, therefore, there is a great deal of information. The same goes for receipts from the Community. Public sector receipts are normally brought, intentionally, to Parliament's attention in departmental Votes. Indeed, it was just this practice which gave rise to the Court of Auditors' criticism of transport infrastructure receipts, to which the Committee refer, as did the noble Lord, Lord Shepherd. The Court mistakenly concluded that the treatment of these receipts as appropriations in aid indicated that they were not additional. In fact, as was explained to the Court of Auditors and to the sub-committee, gross expenditure on the Vote had been set at a level which took account of EC receipts. To allow a further increase in expenditure, on account of the receipts, would therefore be double counting. Recording the receipts as appropriations in aid, in keeping with normal practice, identifies for Parliament the extent to which the gross expenditure on the Vote is financed by the Community budget.

Finally, in relation to Treasury matters, the committee's report asked specifically about other member states' practices; a point also referred to this evening. It is not at all obviously or necessarily the case that practice in other member states has a bearing on circumstances in the United Kingdom, though I can assure your Lordships that the Treasury is not uninterested in practice elsewhere. But the fact is that there are differences in the circumstances of member states; and detail about the full scale of receipts from the EC budget, and their treatment in other member states is difficult to come by. There is great diversity in member states' planning and control mechanisms. Indeed, some member states appear to be content to operate on the basis of broad targets for the public sector deficit and have a much less detailed planning and control system than our own.

However, it is noteworthy that the majority of member states treat receipts from the EC budget in a way which is at least similar to our own treatment of them; that is, in one way or another they are taken into account in setting domestic programmes which, as a result, are higher. As for contributions to the EC budget, no other member state has a formal mechanism for considering whether increases should lead to reductions in domestic spending. But if they do not have a formal mechanism for doing so it still seems that a number of member states allow for just such a possibility.

For example, in France there is no formal mechanism but increases may be taken into account in decisions about domestic spending, particularly in areas of the budget where France can expect to benefit from EC funding. That possibility also exists at least in Germany, the Netherlands and Belgium. In the case of Belgium, there is no formal mechanism, but the initial calculation of departmental budgets involves foreseen expenditure on EC programmes leading automatically to a corresponding reduction in domestic spending on the sector for which the additional contribution was destined. So, in spite of greatly differing circumstances, UK practices in fact find interesting similarities and parallels in other member states.

Those practices are designed to ensure that there is proper examination of the consequences of growth in the Community budget in the proper context for such an examination—the survey. The Government would not accept that they should do otherwise. I suggest that there are signal benefits in that approach. They include rigorous examination of Community spending, encouragement to departments to seek value for money from the EC budget, and to try to shape that budget in ways which meet our own priorities.

What our arrangements do not mean is a worsening of the support for R&D in the UK. On the contrary, there is substantial additional support for it. Nor is there any automaticity in reductions in departmental programmes, but there is a cutting out of duplication and waste. While the onus is on departments to make the case for additional spending, the survey arrangements mean that the Government can look very carefully at the domestic implications of EC spending, including any mismatches which may arise between domestic and Community priorities for R&D.

The report also refers to the need for the European Commission to improve and streamline its procedures for the selection of projects. We entirely agree and have been pressing the point for some time. It is clearly imperative that bureaucracy is kept to the minimum, consistent with ensuring the thorough and objective assessment of project proposals. The Commission is well aware of the importance of making the procedures as clear and simple as possible; to this end they have made substantial efforts to produce publicity and guidance material.

The report raises the crucial issue of project evaluation which was also mentioned by various noble Lords this afternoon. The United Kingdom has taken the lead in insisting that that should be given high priority. There are encouraging signs that the Commission recognises the need to adopt a more rigorous approach than perhaps has been the case in the past. I am sure that the noble Lord, Lord Kirkwood, will be pleased to hear that.

I should also like to say a few words about the report's suggestions for improving the scientific advice available to the European Commission. Again, the noble Lord, Lord Kirkwood, and others, drew this to your Lordships' attention. It is right that the Commission should have adequate and up-to-date scientific information so that it can establish sensible priorities for the R&D programmes. However, I am not aware that the Commission is suffering from a lack of specialist advice in this respect. A host of formal and informal channels exist through which the Commission obtains this information. The director general of the Commission which has main responsibility for the programme also employs a significant proportion of scientists and technical experts. The head of one of them is himself a scientist.

Perhaps I may touch very briefly on a few of the points which I have not yet covered and move on to the universal criticism that all noble Lords have placed before your Lordships' House this afternoon. It was best summarised by the noble Lord, Lord Beloff, who to some extent insisted that the Treasury was the root of all evil. He went so far as to make a clear statement that, given the choice between knowledge and rules, there is only one answer. In his case, and I believe in that of many other noble Lords in the House this afternoon, knowledge is better than rules and the nation would be a better place for it.

The noble Lord, Lord Williams of Elvel, pointed out that for 12 years the noble Lord, Lord Beloff, had supported Chancellors who may have paid too much attention to the rules. However, I like to think that the Chancellors of this Government are learning from the advice of the noble Lord, Lord Beloff, and attend to knowledge.

In summing up, I reiterate that this report has made a most useful contribution to the debates surrounding the role of Community R&D and the United Kingdom's interest in this programme. However, it is often the case that even constructive criticism, such as is contained in this report, can overshadow what is already being achieved. The Government are grateful for the report and are grateful that your Lordships have expressed today their feelings and the findings of the report.

7.30 p.m.

Lord Shepherd

My Lords, I propose to be brief. I thank all noble Lords who have participated in this afternoon's debate. It has been most useful. I wish to thank the noble Lord, Lord Hesketh, for his contribution from the Dispatch Box. I hope he will understand when I say that I am a simple fellow. I was confused by the Treasury evidence, even after reading it two or three times, and I am still confused by it. However, I shall read the Minister's speech to see whether the new figures that he mentioned make any difference to the Treasury evidence.

I am grateful to the Minister for the undertaking he gave as regards the comments I made at the beginning of the debate about the way Select Committee reports should be treated. On the complexity of his argument in regard to attribution and additionality, it is interesting that, had the Select Committee sent this report to the House for information, we would have received a reply from the Government, but as we have brought the report before the House for a debate—we have waited six months to do so—we have had to wait for an announcement and a defence by the Minister of the Government's position. In such a complex matter we should find some way by which the Government's response to a Select Committee's report could be made available prior to the debate. That would result in a much more satisfactory debate and a much more satisfactory understanding of the Government's position. I shall say no more on that matter. It is a matter for the House itself to take up. The matter will not go away and I leave it to the noble Lord, Lord Ezra, and Members in another place to pursue this important subject. I hope that the House will accept the Motion.

On Question, Motion agreed to.