HL Deb 22 March 1995 vol 562 cc1286-310

7.21 p.m.

Lord Walton of Detchant rose to move, That this House takes note of the report of the Science and Technology Committee on International Investment in UK Science (Fourth Report, HL Paper 36).

The noble Lord said: My Lords, perhaps I may say at the outset how much I look forward to hearing the maiden speech of the noble Lord, Lord Methuen. If one were to believe some of the comments of politicians, industrialists, scientists and journalists which all too often appear in the public and scientific press, one could not help feeling depressed about some aspects of British science and perhaps, above all, about British science and development.

There are still too many doom and gloom merchants about who appear to have been nurtured on a literary diet of Burton's Anatomy of Melancholy. How pleasant it is, therefore, to be able to report a splendid success story. The investigation carried out by Sub-Committee I of your Lordships' Select Committee on Science and Technology, a study which I was privileged to chair over a period of many months, has clearly shown that the United Kingdom continues to be a favoured recipient of international investment in science. Chairing that sub-committee was a most illuminating and enjoyable experience and I confess that, from it, I learnt a very great deal of which I was previously unaware. That success story is one little recognised, I believe, by all too many scientists, industrialists and, indeed, politicians. But it is one which deserves to be trumpeted abroad.

At this relatively late hour I can do little more than to highlight some of our principal findings and recommendations, while, at the same time, sounding a few salutary warnings about action which must be taken if the present reasonably happy situation is to continue. However, before doing so, I should like to pay an especially warm tribute to our Clerk, Andrew Makower, for his energy and drafting skills, to the many individuals and organisations giving evidence, both written and oral, to us, and to our specialist advisers, Dr. Peter Collins of the Royal Society and Dr. Paul Whittingham.

So why do I say that the report paints a major success story? The facts are clear. In 1992–93, international investment in UK science brought in £1.1 billion in industrial R&D funded from overseas, plus £135 million to the universities in research grants and contracts, and at least a further £129 million in fees from overseas science and technology research students (postgraduates £59 million, undergraduates £70 million). Hence, those aspects of science and technology represent invisible exports worth about £1.4 billion a year. Such a figure must be compared with the £12 billion spent annually on all forms of R&D in the UK. Some universities and their departments depend heavily on income from overseas contracts and student fees, and in some fields UK industrial research is almost wholly dependent on the activities of companies of overseas origin. One has only to mention the way in which such investment has, indeed, helped to revive our once ailing car industry.

In addition to money, international involvement makes an incalculable intellectual contribution, as our report says, to keeping the UK in the front rank of scientific nations and gives British scientists a network of contacts around the world. As one of our witnesses said:

"Knowledge is international and universal research must be global. That is the general atmosphere in which we like to work".

Some, of course, have said that, by locating R&D facilities in the UK, by making research contracts with British universities and by placing sponsored professors and research students from overseas in leading departments in this country, foreign countries and companies are engaging in the overseas exploitation of UK brains. One of our witnesses went so far as to say that having a research postgraduate student was rather like having a "human hoover" going round one's department. Those are concerns which we firmly reject, concluding that while UK science is entitled to receive a fair price for research carried out and a fair return on its intellectual property, there is no place for scientific protectionism. The magnitude of the UK's achievement in the field can be assessed from the fact that 40 per cent. of all United States overseas investment in science and 42 per cent. of all such investment from Japan comes to the UK, while this country in the European Union is also by far the largest recipient of research grants and contracts from the EU's science budget. When we examined the factors responsible for such investment, we discovered that the position of English as an international language is important, but the single factor above all most responsible was clearly shown to be the sheer excellence and capacity for innovation of British science. Interestingly, the cultural environment of the UK is another significant factor, mentioned particularly by Japanese witnesses some of whom said rather charmingly, "We laugh at the same jokes".

In making his apologies which he asked me to pass on to the House, the noble Lord, Lord Butterfield, wished me to draw particular attention to the letter that we received from the Counsellor for Science and Technology of the British Embassy in Tokyo who wrote to me on 24th January. He commended our report and said:

"There is no doubt [from my experience in this country] that the success in attracting Japanese investment stems from the UK's high reputation in basic research. The report correctly recognises that competition from Europe and north America is increasing considerably and it is essential, if we are retain our attractiveness to foreign companies, that British science remains at the top of the league".

The investment which we identified covers a very wide field of science. Not surprisingly, the British pharmaceutical industry, which I once referred to in a debate in your Lordships' House as being the jewel in Britain's industrial crown, has been one of the leading recipients of such investment. Indeed, as the Secretary of State for Health, in launching "Prescribe UK" (a joint government/industry campaign designed to encourage pharmaceutical and biotechnological inward investment in this country) pointed out last December, about £10 billion has been spent in the UK over the past decade on pharmaceutical and biopharmaceutical research and development—that is about 8 per cent. of the entire international pharmaceutical industry's global research and development budget. One-third of all European biotechnology companies are located in the UK, and this country is one of the top four exporters of modern medicines in the world, accounting for around 12 per cent. of international pharmaceutical trade.

It is also notable that in a recent survey by the Best in Britain Bureau, 80 per cent. of overseas investors in the UK said that their UK operations were performing better than, or comparable with, their other overseas operations. There are, of course, many other examples which I could mention, but I have highlighted pharmaceuticals as one of the leading players in the field. It is also encouraging to see that investment of varying types and in varying amounts has come to a large number of different institutions in this country. In the universities, not surprisingly, Oxbridge, Imperial and University Colleges and the other London colleges situated in the so-called golden triangle have in some respects been pre-eminent. But the committee was interested to note for example—these are only a few examples—that the Universities of Edinburgh, Southampton and Glasgow have also done well, while in relation to European investment, my former University of Newcastle-upon-Tyne came third in the relevant league table in 1992–93 after Cambridge and London.

But while I have highlighted much encouraging evidence, plainly this country must not rest on its laurels as there is growing competition from many other nations. We noted that in the Far East the so-called Asian tigers are cultivating their science bases and are attracting inward investment in science which might have come here. And there are several other concerns on the horizon. I and my colleagues on the sub-committee were much encouraged to hear from the Chancellor of the Duchy of Lancaster in his recent statement relating to the funding of UK science that this will be increased modestly in the coming year, though naturally, as always, those speaking for science across a wide field would have wished to have more, which they could have used most effectively in expanding and developing the UK's science base.

My committee was in no doubt that as soon as circumstances allow, substantial additional funding for the science base is crucial, both in the universities and in the research councils, if Britain is to remain pm-eminent. The recent decision to cut university funding by 1.5 per cent. is somewhat alarming. But in particular there are growing concerns over the question as to whether the facilities and equipment now available in scientific laboratories in UK universities are keeping pace with those of our overseas competitors, even in the developing nations of the Pacific Rim.

Speaking in another capacity, as the chairman of the Hamlyn Foundation National Commission on Education, we drew attention in our report Learning to Succeed, published in November 1993, to the serious current imbalance in the funding of various educational sectors in the United Kingdom, pointing to the fact that, because of the generous—in international terms—maintenance grants awarded to students in higher education which this country has provided over many years, our expenditure per capita on the higher education sector is far higher than that of most of our major industrial competitors.

In that report we made detailed suggestions about how this imbalance could be corrected by moving towards a greater dependence on private funding for higher education, not through the present, I fear, unsatisfactory student loan system, but by an alternative method of providing loans repayable through the tax system over a prolonged period. I do not have time to go into detail today, but it is clear to me and to my colleagues on the commission that gradual replacement of student maintenance grants, and a contribution to fees, by some such system would free additional funds to enrich the science base, to enhance the quality of facilities and equipment in science departments of our universities, and to broaden access to higher and further education in line with developments now occurring in competitor countries.

We are also satisfied that the Office of Science and Technology should be urged to extend the Government's bilateral relationships with Japan to other countries around the Pacific and should encourage academic/industrial research consortia linking the UK and the Far East. There are indeed encouraging signs that this is beginning to happen. The Government should also continue to seek suitable opportunities to host international scientific facilities and should at least maintain their funding for the Royal Society, the Royal Academy of Engineering, the ODA and the British Council in supporting and facilitating travel overseas by British scientists. It is crucially important that these and other measures be taken to support the efforts of the universities to maintain this country's present position as the European destination of first choice for travelling students from key countries in the Far East.

There has been something of a decline in the past two years in overseas student numbers in science, and some other ominous trends give cause for concern. It is also clear that the interests of the science base and of the British taxpayer must be safeguarded by full costing, prudent pricing and adequate international property rights and licensing arrangements; we welcome evidence that British universities are becoming increasingly competent in these matters. While we have firmly rejected any suggestion of scientific protectionism, we believe that the Committee of Vice-Chancellors and Principals should consider promulgating recommendations relating to the maintenance, and indeed improvement of the quality of experience available to postgraduate students in science, and should also consider drawing up guidance for firms, whether foreign or domestic, and for university departments on the issue of handling sensitive know-how and information being derived from a contract or from scientific collaboration. It follows that the CVCP, in consultation with the Treasury, should devise a standard formula for costing and pricing research contracted from a university by a government department and a means of enforcing it.

And our report embraces a number of vitally important messages for British industry. With a few notable exceptions, we were told that UK companies when investing in British science seek a rapid return, whereas overseas companies take a much longer-term view, accepting that industrial exploitation of scientific discoveries may not be possible for 10 years or even more. As I have often said, in medicine, today's discovery in basic laboratory science brings tomorrow's practical development in patient care. We urge British industry to abandon short-termism and to be much more farsighted in its approach.

Finally, we believe that the Government should keep the regulation of biotechnology and of other scientific activities under review as science progresses and should ensure that if in any respect the UK/EU regime is stricter than that in any other major competitor country, this can either be modified or at least be fully and explicitly justified. We stress that the Government must surely continue to treat all companies conducting R&D in the UK as UK enterprises for purposes of access to public R&D support, and that the Inland Revenue must be particularly careful in devising and administering company taxation so that when conducting its current industrial finances initiative it does not inadvertently create incentives to place R&D outside this country. We also believe that the Government should consider offering pump-priming funding for developments aimed at attracting international investment in science which could be awarded by competition among university departments on the basis of a business case.

Finally, may I urge all of those with an interest in this topic of crucial importance to the future of Britain's scientific and industrial development to study our report with care, and in particular the appendices which contain much invaluable statistical information. I believe there are many lessons to be learned from these figures which will prove helpful in the future. UK plc is doing well in international investment in science, but there is much still to be done if we are to maintain and even, we hope, to improve that position. I beg to move.

Moved, That this House takes note of the report of the Science and Technology Committee on International Investment in UK Science (Fourth Report, HL Paper 36).—(Lord Walton of Detchant.)

7.39 p.m.

Baroness Perry of Southwark

My Lords, the report opens an interesting window of reflection on the value of internationalism in many aspects of our national life—academic, scientific and, crucially, industrial. I should like to pay particular tribute to the skilled chairmanship of the noble Lord, Lord Walton, which enabled our committee to focus so finely on particular aspects of great importance to the national economy. As he said, the report beam close reading in that regard.

There is no doubt that in the totality of international investment in R&D the UK has a generous market share. International and multinational companies choose to put the "R" in particular into the United Kingdom. The resulting benefits to the UK are in part thrown into relief by the efforts of other countries, such as Spain, which are attempting to develop a science base and match our achievements in attracting international investment. That is clearly perceived by other nations less fortunate than we as a key market advantage. I fear that sometimes we take some of the benefits that we enjoy too much for granted.

Of course, at the most simple, and most important, level a great deal of money is attracted into the UK in invisible investment through investment in R&D. Our committee found that something like £2 billion comes into the United Kingdom through such R&D. That is a sizeable proportion of our total invisibles and therefore very important.

More than that, the investment in R&D sustains our own science base. Most of all, it sustains the skilled research community—the highly skilled men and women who conduct the research and who might otherwise become part of the brain drain and be attracted to work outside the UK. They are a very important resource for the country and international investment helps to keep more of them here and to keep our science base alive as part of our national wealth.

As the noble Lord, Lord Walton, said, our committee rejected entirely the negative aspects of fear which some people expressed that these Japanese "Hoovers" might somehow steal the nation's silver and take our best ideas away with them. I am convinced, as was the committee, that we gain as much as we lose. Of course there will be international exchange, but in giving some of the silver of our ideas we gain in return the silver of other countries' ideas, expertise and skills. That must be good for the United Kingdom. The importance overall to our industrial and academic science base is impossible to over-estimate.

It is worth pausing for a moment on the question which the report raises about why this investment comes our way. Certainly language plays a part, but nowadays there are many other countries with high-powered investment in science where English is also spoken. There is no particular reason inherently why we should attract investment purely on the basis of our English language.

I believe, as we say in the report, that above all else it is the strength of our human base which attracts international investors. It is a tribute to the universities of this country that they have consistently produced some of the most skilled and creative scientific researchers in the world. Time and again in the evidence given to the committee the quality of our human science base was mentioned as a reason for international investment. I believe that it is still true that in this country we have more Nobel prize-winners per head of population than any other country in the world. That is a national resource which we would do very ill to throw away. It is not easy to maintain that resource. The universities of this country need the support and understanding of this country in their attempts to maintain that very high quality output.

It is worth reflecting for a moment that while the narrowness of our education in the sixth form and undergraduate years is criticised, often with good arguments, nevertheless that undoubtedly plays a part in producing this highly skilled postgraduate and post-doctoral research force. Before we throw out the baby with the bath water and rush for a broader curriculum perhaps we need to analyse more closely what it is that produces our high quality scientists and researchers and make sure that that is retained in any revision of the curriculum in the upper years of the secondary schools.

I commend particularly to your Lordships the section in the report which deals with what we have called, on the basis of the comments of one of our witnesses, the strategic research alliances which universities in this country have formed with multinational and overseas companies in research and development. Overall, that effort in strategic research alliances amounts to an investment of the order of 150 million dollars in British universities by overseas companies. It is an extremely important aspect of our British life that we are able to achieve that. Again, it is the quality of our research which interests international companies. It is an arrangement which builds up long-term relationships which are important to our own industrialists wishing to trade abroad. The loyalty, friendship and knowledge of British skills which is built up through the strategic research alliances carries through into all aspects of trade.

There is another and equally important form of inward investment which we deal with in the report. That is the inward flow of overseas students to British universities. The noble Lord, Lord Walton, has already mentioned our recommendation 5.7, but I wish to dwell on it for a moment. We ask that the Government should support the efforts of the universities to maintain this country's position as the European destination of first choice for students travelling from key countries in the Far East.

Only last week—it seems longer than that, but it was only three days ago—I returned from the British cultural fair in Taiwan. In the last five years our market share has grown from only 34 Taiwanese students coming to the UK to study to over 6,000 this year. Next year, in terms of offers of places, the figure is closer to 8,000. That is phenomenal growth in that market in one of the pearls of the Pacific. Predominantly, those overseas students study science and technology.

That is tremendously symbolic and an outward and visible sign of the relationship between this country and Taiwan, in trade as well as in cultural and educational matters. The Taiwanese themselves recognise that. Almost every industrialist and business person to whom I spoke in Taiwan commented on the growth in numbers and said that this was re-establishing their strong links with the United Kingdom. It is one way in which we are able to trade and do business together.

I should declare an interest here as I chair the Department of Trade and Industry's export group for the education and training sector, and say without apology that it is my personal ambition to see the United Kingdom double our share of the global market in overseas students. We simply cannot afford to lose out in that race. I am convinced that the flow of students towards a particular country is part and parcel of the way in which trade and industry are built up. We have been losing out in the international global student market for the past 30 years. We might expect to lose out to large countries such as the United States, with its power and extensive higher education system, but we are now falling behind both France and Germany. That seems to me to be throwing away our natural linguistic advantage in so many countries.

In Kuala Lumpur a few months ago I walked past a large new German institute of technology which attracted students from all over that part of South East Asia. There was a large advertisement across the front saying: "All courses taught in English". That was a German institute but, recognising that English is the international language of science, it was prepared to do all its teaching in English. I should like to see a British institute there attracting even larger numbers of students. It is worth working hard towards that because when those young students study science and technology, they build lifelong friendships and loyalties. They become senior industrialists, politicians or senior civil servants in their own countries. Every industrialist or business person states that there is all the difference in the world when trying to seal a business deal overseas if the person behind the desk or across the table says, "Of course, I received my higher education in the United Kingdom". You know that you are half-way home.

The will is there. We should not diminish the success story. We are very successful in attracting inward investment both in science and in students. I wish to see us become even more successful because I believe that in that area of our national activity the goals and the prizes to be won are very great indeed.

7.50 p.m.

Lord Methuen

My Lords, it is with some trepidation that I address this House for the first time. This debate is particularly relevant as I have for some 35 years worked in British industry as a professional engineer rather than a manager. I have had the privilege and the pleasure of working, among others, for two of the top United Kingdom technological companies—IBM (UK) Ltd. and Rolls-Royce plc; the latter firm from which I have recently retired. That was just as well because I do not think that the Rolls-Royce manager's handbook covered the situation of one of their employees being a Member of this House!

As an electrical engineer, I have been involved in the practical application of computers to industrial and engineering applications for some 25 years. During this time I have seen enormous increases in the capability and performance of computers, and quite remarkable reductions in their real costs. I hope to be able to apply the knowledge acquired over that period for the benefit of this House.

I think that it is appropriate that the debate takes place, as announced by Mr. Waldegrave in the other place, during National Science Week. In spite of the contractions that have taken place over the past few years in the UK manufacturing industry, it remains essential that we attract young people into careers in science and technology, as the future of our country is dependent on those industries and their competitiveness. Some people seem to think that such careers are dull and uninteresting, but I have always found it very satisfying when, after perhaps much hard work, what one has designed actually begins to take shape and becomes what one intended, even though much further development work may be required. Obviously most projects are a team effort, but that does not detract from this good feeling.

However, all these projects take place against a background of investment into fundamental research, followed by a product development cycle which is becoming increasingly shortened due to market forces. The subsequent support of the product in the field may continue for many years. In the aerospace industry the total product cycle time may thus cover some 50 years from the initial design concept until the last aircraft is retired.

In the UK, the aerospace industry has achieved its position with development budgets considerably smaller than those of its American competitors. As private companies, the industry has to be profitable and is not always competing on a level playing field.

Within the European Union, certain loss-making competitors are substantially supported by their governments. Those companies are in partnership with US companies which are also direct competitors of companies in this country. Hence, those companies are indirectly funded from within the European Union.

Further, there are US government-funded initiatives such as the Integrated High Performance Turbine Engine Technology programme, which was commenced in 1988 and is due for completion in 2005. This programme aims to give quite startling improvements in engine performance. The results of this programme are equally applicable to both military and civil aircraft. Three US agencies and seven US aero-engine companies are participants in that initiative.

The UK aerospace firms must invest in equivalent projects—once one falls behind in this technological race one can never catch up. Hence, Government support for both basic and generic research is essential in addition to company funded research. Obviously a beneficial tax regime affects the choice of location where such company funded research is carried out in either a university or industrial environment.

Rolls-Royce, for instance, works with some 14 United Kingdom universities on a broad range of projects including aerodynamic and aerothermal engineering, composite materials, production methodologies and advanced computing techniques. Some of the past research and development has been funded by government launch aid for specific engine projects, and that launch aid is now being repaid, while continuing to fund current research and development. One major project has been located in Canada due to its advantageous tax regime. That feature was brought out in evidence to the Select Committee.

One of the features of the aerospace industry, both from the airframe and engine manufacturers' point of view, is the highly interactive nature of the various collaborative alliances which exist between the participating organisations on both a national and international scale. A company may collaborate with an organisation on one project, and yet be in direct competition on another. This point was made in evidence to the committee concerning the difficulties of maintaining commercial confidentiality over such projects with many diverse partners spread throughout the world.

Increasingly, we shall see greater international integration and co-operation on high technology projects where a single organisation cannot now afford the development costs. That is applicable both to American and English companies. Many companies require offset deals as part of their purchase of such requirements and our financial regimes for research and development must take that into account.

7.56 p.m.

Lord Porter of Luddenham

My Lords, it is a privilege to follow the noble Lord, Lord Methuen, and a pleasure to hear that thoughtful and valuable maiden speech. He is a distinguished and experienced engineer—a rare species in your Lordships' House—and he has demonstrated tonight what a valuable contribution he will make in future, especially in matters of interest to your Lordships' Select Committee on Science and Technology.

The main conclusion of the Select Committee whose report has been so clearly presented by the noble Lord, Lord Walton, was unequivocal. International investment in science is a good thing. If there were any fears about foreign scientists on British soil, or British science being planted on foreign soil, none was found in the evidence given to the committee. All agreed that science is, and always has been, one of the most international of human activities.

Indeed, it is questionable whether there is any such thing as the UK science which is referred to in the title of the report. There are of course British scientists—UK scientists—as there are German and Japanese scientists. But there is no such thing as a British science which is different in any fundamental way from the science of other countries.

From time to time the Egyptians, the Chinese, the Europeans and the Americans—roughly in that order—have excelled in science; but it has always been one science shared by all. Likewise, few discoveries can be credited to a single person or even a single nation. Science advances on a broad front which is manned by scientists across the world.

Of course, outside the international fellowship of science, there is sometimes some suspicion of foreigners. If I may stray for a moment, it is well known how a committee of the Royal Society, which included Benjamin Franklin, was set up to consider the best shape for lightning conductors. It concluded that they should be pointed. That view was opposed by George III because Franklin was not only a foreigner, but a supporter of the, revolutionary factions across the seas in France and America. King George therefore decreed that the lightning conductors should be fitted with knobs, and he had them fitted to the conductors on his palace. The president of the Royal Society disagreed and was, of course, removed from office at the next election. The matter was never really settled and we await the ultimatum from Brussels as to whether British lightning conductors should have knobs on.

The Select Committee naturally paid attention to the profit and loss account of foreign investment in British science. As we have already heard, its report shows that our income from that investment is considerable—£1.4 billion annually. Most of that goes to fund industrial R? but in 1992 at least £260 million went to British universities, about half of it to fund university research and the other half as fees from overseas science and technology students. That is a very valuable contribution indeed.

My own research was supported for many years by the British research councils, but partly because of the present drift towards short-term, so-called wealth creating, activities, my research group at Imperial College would not survive today without international investment. That investment comes partly from Europe and partly—indeed, the largest part in my case—from Japan. Nothing but good comes of that. It is good for our overseas colleagues; it is equally good for us; and it is good for the advancement of science itself.

There are two further points that I wish to make very briefly tonight. The witnesses to the committee, when asked how international investment begins and how it could be increased, emphasised again and again the importance of personal contacts and friendships between scientists working in the same field. Some of us serve as advisers and members on the overseas research councils themselves. The liaison work of the Royal Society and similar institutions, which has been referred to by the noble Lord, Lord Walton, and which is mostly funded by the Government, is absolutely vital in the matter. Those relationships are usually more effective, less expensive to set in place, and more permanent than official delegations. The noble Baroness, Lady Perry, made the point as well; and I hope that the Government will give every possible support to the organisations which are encouraging the exchange of ideas and scientists between countries. It is not an expensive undertaking.

The second point, made by a number of witnesses, was that we should not look to such exchanges merely as a means of raising money. When students or research workers return to their own country, they have learnt some of our ways in education and research, and equally we have learnt from them. They are far more likely to be able to collaborate with us in future, as the noble Baroness, Lady Perry, emphasised. That is an important part of the overall balance sheet that we must consider.

The chairman of the Committee of Vice-Chancellors and Principals argued that money is not even the most important result of international investment in science. He said: The export of educated people, whether they are PhD students or post-doctoral workers, is probably as big, if not a bigger, source of transfer of ideas and knowledge, compared with the commissioned research that might be done". We are often told of fears that because our science is so good and our development of it so bad, we are in a vulnerable position which arouses fears that our science will be exploited by industry overseas. That attitude again arises from a poor understanding of the international nature of science. The global network is now so complete that a good industrial company will be exploiting discoveries from across the world. British science, good as it is, forms only a small proportion of world science. Industry, likewise, forms a small proportion of world development. If we confine ourselves to British science and technology only, we shall be the big losers.

The economic reasons for doing science ourselves in the United Kingdom and for international collaboration are that a British company cannot exploit any science—foreign or British—without having its own scientists and technologists who are active in the field and members of the international club. That is the best reason of all for international investment, both inward and outward, in science.

8.6 p.m.

Baroness Gould of Potternewton

My Lords, I should like to join other noble Lords in thanking the noble Lord, Lord Walton, for initiating the debate. I congratulate him and the Select Committee for preparing the report on international investment in science. It is significant that the debate was arranged to be held during the annual National Science Week. I also wish to offer my congratulations to the noble Lord, Lord Methuen, on his maiden speech. Since it is not long since I made mine, I understand his fear and trepidation.

We wholeheartedly support the encouraging findings of the report and its recommendations. In giving that support we wish to make a number of observations, although it is absolutely impossible to cover the complexity of all the points that were raised.

Reading a report of this nature shows how wrong Julian Huxley was a hundred years ago when he stated that: the great tragedy of science is the slaying of a beautiful hypothesis by an ugly fact". Rather, in this modern world scientific progress is essential to ensure the health, prosperity and security of nations. Science, therefore, has to move closer to the centre of the global, economic, social and political agenda, working within that global framework but at the same time being able to respond rapidly and vigorously to competition.

Recommendation 5.4 of the report rightly calls for links and bilateral initiatives with the East and the Pacific Rim, referring to the emerging competition from the Far East, Japan, Taiwan, South Korea and Africa. Without wanting to appear in any way negative, I would like to make some remarks about that competition. I would not wish it in any way to diminish from the success story that the report portrays. As the noble Lord, Lord Walton, said, however, we must not rest on our laurels.

Sir Denis Rooke, former chairman of British Gas, when addressing the conference of the British Association for the Advancement of Science, said: The Leaders of Japanese Business tell me that they send their brightest young scientists to Europe, and particularly to the UK, to work here and to pick up the latest scientific developments. It is on that intelligence that they can then build, creating profitable new products … ahead of market perceptions and thus setting the trend for the future … It is precisely in that determined and innovative application of science and related technology that we are lagging behind as a nation". Another thrust to that criticism was given by the Vice-Chancellor of Edinburgh University, Sir David Smith, when commenting on the short-termism of British industry and comparing attitudes. He said (and I paraphrase): while Japanese companies are prepared to give us large grants, too often British companies will only offer such support when we have something in sight of development. The Japanese appreciate that they must have access to British technology to be where the market is going to be in the next century. But as the noble Baroness, Lady Perry, said, these criticisms have to be balanced against the expertise that we receive from the presence of students from other countries in our universities. This philosophy is also to be found in the commitment of countries like Japan to national research and development.

Japan and Germany have been improving the quality of publicly funded basic science, as well as experiencing a rapid expansion of business-funded applied research and development for industry. The research and development spending in the UK has, however, declined over the past five years, and government spending on R&D has declined as a proportion of that spending. In 1985–86 the Government provided £5 billion out of the £11 billion that was spent on R&D. By 1992–93 that was down to £4.3 billion out of £12.2 billion. It is not that all R&D should be government funded, but it is essential that we lift the total national investment in the nation's science base. The reality for too many British scientists is that competition to get financial resources, grants and contracts is part of life in the community of science. They may sometimes appear to be pessimistic, but they have to refer to their own experiences.

A woman worker in cancer research in June Goodfield's account of laboratory life, An Imagined World, points out that, everywhere in science the talk is of winners, patents pressure, money, no money". The report is right to express concern at the projected fall in real terms of the science budget in 1995–96, as heralded in the Forward Look of Government Funded Science, Engineering and Technology 1994. That reduction is exacerbated by a fall in research expenditure by the HEFCs in 1994–95. We hope that the Government will note Recommendation No. 5.3 that such expenditure be revised upwards, and the warning that international investment will be attracted to British science only so long as British science remains strong. The Forward Look document also, in referring to the private sector, implies that if the Government withdraw support, then the shortfall will be met by the private sector.

According to OECD figures, in 1980–91 industrial investment in R&D in the UK grew by 9 per cent. That compares with 16 per cent. in the USA, 28 per cent. in France, 20 per cent. in Germany and 56 per cent. in Japan. It is disappointing that only one British company, Glaxo, is in the world's top 50 in spending on R&D, ranking 42 on the world stage.

In 1992 the Central Statistical Office reported, in its review on civil research, that British business expenditure was at an all-time high of £7.8 billion. That is good news, but it is still only just over 1.25 per cent. of GDP, compared to 1.4 per cent. in France; 1.7 per cent. in Germany; 1.8 per cent. in the USA; and 2.1 per cent. in Japan. The Prime Minister was right to make the observation during a visit to Japan in 1993 that, we have under-valued science and the application of science". The Government have the responsibility not only to look at their own level of support but also—as I believe they now do to a greater degree—to recognise their role in encouraging and facilitating international investment. Initiatives such as the Innovative Manufacturing Initiative and the decision that the dual support transfer is to be revised are welcome. But again, the Select Committee is right to say that neither represents an increase in public funding in science.

Similarly, the bilateral initiatives with Japan, Korea, and Taiwan, among others, as outlined on page 27 of the report, are welcome. But these are the very countries with which we are in competition. While it is important that these bilateral initiatives should be built up, note must also be taken of the wise words of the report that it is our hope that by creating constructive relationships now, the destructive effects of future competition may be avoided. Chapter 2 of the report identifies that 10.9 per cent. of the total annual UK intramural R&D spending is funded from overseas sources, as other noble Lords have said. Eighty per cent of that is received by UK industry; the universities receive 9 per cent.; and the remaining 11 per cent. goes to research councils and to the Government.

It is also interesting to note the level of funding given to industrial science by overseas controlled companies, not necessarily from overseas funds, with the particularly important addition of Japanese investment over the past five years, to add to the already established pattern of American and European investment.

The report poses the important question, as was mentioned by the noble Baroness, Lady Perry, as to why international companies wish to invest in UK science. While it is clear from the evidence that no generalisations can be made, the main factors appear to be investment research aimed at developing products for a particular market; co-location with production; corporate strategic research which does not rely on location; the willingness of academic researchers to make relationships with industry; and, importantly, the English language as the international language of science. But the most widely quoted reason, as the noble Lord, Lord Walton, reminded us, was sheer excellence and the capacity for innovation. That identifies once again the theme of this report; namely, that that excellence must be maintained and built upon.

Now, very briefly, I should like to mention universities. As the research grant and contract income for all the UK universities and all disciplines has risen, so a bigger proportion has come from overseas—some 12.2 per cent. of that total. That is again a success story. It might be a little disturbing that the number of universities that are seen to benefit from that is still far too small. Hopefully it can be expanded.

Chapter 2 of the report also identifies the other useful source of income for universities; namely, fees from overseas students. The details given graphically show the keenness of the competition, and the increase in students from the Far East is encouraging. The decision by the Government that non-EU students should be charged full cost fees was a particular blow to students from the Commonwealth. On a recent visit to the West Indies it was clear that science and medical students, while acknowledging their preference for British training, were having to go to America, where the fees are cheaper. We hope that full support will be given to the recommendations of the committee on the ways in which universities should respond to the competition from other countries if we are not to lose our share of the student market. I hope that the noble Baroness, Lady Perry, is successful in her aim to double that share.

Finally, I regret that I do not have time to comment on other important aspects that the report discusses, such as the funding of research councils; the disturbing trends on regionalisation of investment; outward investment; the arguments for tax credits for R? or the fascinating concept of intellectual property.

To sustain the level of UK international excellence and international outlook of our science base, it is essential that long-term perspectives are taken, by the Government, by industry and by the universities. Dr. Richard Roberts, one of the two Nobel Prize winners in 1993, described Britain as an "unbelievably fertile ground for ideas". This report, and the implementation of its recommendations, will be crucial elements in developing those ideas and in developing further international collaboration.

8.19 p.m.

Earl Howe

My Lords, I begin by thanking the noble Lord, Lord Walton of Detchant, for his committee's report on international investment in UK science. This is an important subject, not only in the context of UK science but also as a contributor to the economic well-being of the country, a point that was made by many noble Lords this evening. I am grateful to the committee for providing government and the wider scientific and industrial community, and this House, with an opportunity to examine and discuss the issues that it raises.

I join other noble Lords in congratulating the noble Lord, Lord Methuen, on his excellent maiden speech. I am tempted to say that it was a Rolls-Royce of a speech. He rightly pointed out how fitting it is that we should be debating a scientific subject during National Science Week.

This is the second National Science Week, following the success of SET7 last year. A huge variety of events are happening around the country, all designed to raise the profile of science and technology. On Saturday, for example, the inhabitants of Canterbury saw a re-enactment, in period costume, of Pascal's 17th century experiment to weigh the atmosphere. In true Gallic style this was done with the help of a 48-foot glass tube filled with red wine.

I hope that some noble Lords will be taking part in the second mega-lab UK experiment by looking under their flower pots and paving stones in search of those unwelcome antipodean guests, the New Zealand and Australian flatworms. The findings reported from all around the country will help us to build up a picture of the extent of this potential threat to our agricultural lands. This was, of course, the subject of a recent question from the noble Lord, Lord Beaumont, which shows that your Lordships' House often leads in science matters. Hence, although a House of Lords debate may not be as eye-catching as some other events, it is a signal of the importance of science in our national life. I am grateful to the noble Lords who have contributed today for their continuing and thoughtful attention to this subject.

A number of important points have been raised in the Select Committee's report and in the debate. I shall aim to comment on the main points today. There will, of course, be a full response to the report in the normal way, when the Government have been able to consider the recommendations further.

The report's overall message is that international investment in UK science is first of all significant in volume, and, secondly, to he welcomed and encouraged. The Government welcome the committee's recognition that international investment in UK science is a significant invisible export worth, according to figures released by the Central Statistical Office last Friday, some £1.6 billion in 1993. This is indeed a British success story. It is a tribute to the dedication and continuing high quality of the UK's scientists and engineers and to their success in promoting and maintaining scientific connections at the international level.

The Government are also pleased that the committee, having looked at the balance of the arguments, has declared itself in favour of overseas investment in UK science. The Government agree that, while the UK should certainly not sell itself short in the services which it provides to overseas investors, there is no place for scientific protectionism. As my noble friend Lady Perry rightly said, there can be no doubt that the quality of UK science would be impoverished, and the range of opportunities open to our scientists reduced, without the flow of personnel and ideas which international investment promotes. This in turn would lead to a diminishing of inward investment, and of the financial benefits to UK science and the UK economy more widely. The Government therefore agree that we must seek to retain and enhance the attractions of the UK as a target for international investment in science.

The noble Lord, Lord Walton, stressed one point in your Lordships' report; namely, the strength of the UK science and engineering base as a major factor in attracting overseas investment. This country has a range of world-class science and world-class science-based industry. We have particular strengths in chemicals and pharmaceuticals, and in genetics. As my noble friend Lady Perry rightly said, we produce first-class scientists across the range of disciplines who are dedicated and innovative in their research. The Government are fully committed to maintaining and enhancing the health and vibrancy of our science and engineering base.

Despite a difficult public expenditure round, with strong competition from other priorities, the funding council allocations for research are substantial and represent a fair share of available funds, and the science budget for 1995–96 is over 30 per cent. in real terms above its value in 1979–80.

The noble Baroness, Lady Gould, referred to a decline in government spending. The resources available for science in 1995–96 in real terms are 2 per cent. higher than in 1993–94 and we have maintained spending at its previous record level. That shows the high priority accorded to science. In fact, because of the decrease in inflation expectations compared with this time last year the science budget in 1995–96 will buy over £30 million more in science. This gives the Office of Public Service and Science a strong platform for taking forward with the scientific community the important policies set out in the science, engineering and technology White Paper, Realising Our Potential.

As my right honourable friend the Chancellor of the Duchy of Lancaster emphasised on 2nd February, in his speech on the allocation of the science budget in another place, our concern continues to be to target as much of the science budget as possible into leading-edge science. This will allow us to support areas of emerging importance such as genetics and biotechnology, as well as the all-important underpinning disciplines such as chemistry, physics and mathematics. We are also continuing to place emphasis on support for top-class people, and to encourage the growth of interaction between the science base and industry and commerce. All those measures will further strengthen our science and engineering base.

The noble Lord, Lord Porter, stressed the importance of getting international collaborative relations right. The Government agree that there are many benefits to be secured from international collaborations in science and engineering. In these activities, as in so many others, two heads are often better than one. By developing such collaborations we can reap benefits from discussing ideas jointly with other experts, who may well bring a different perspective which will enrich our own expertise and knowledge. Research collaboration can lead to development, and subsequently to commercial joint ventures or similar arrangements. That collaboration at the research phase can lead to significant commercial benefits which might not otherwise be achieved.

Collaboration is a form of partnership and the benefits must flow to both partners. We must therefore go into collaborative ventures of this kind with care and forethought. Done properly, collaboration can give substantial benefits; done badly it leads to losses. It is important in this context for universities to recognise the value of intellectual property rights and to protect their activities appropriately. Questions such as who will have access to new knowledge for future research must be addressed, as well as finding the right contract conditions to attract external investment. As your Lordships' report brought out, there is no simple rule to be applied here. Diversity in intellectual property exploitation is therefore a strength.

The report recommends that the technology foresight teams should also give due weight to research which may be of interest to users worldwide. I can assure your Lordships that the foresight teams have been assessing market and technological opportunities on the basis of global trends and prospects.

The noble Lord, Lord Methuen, stressed the importance of maintaining high-quality, basic, strategic and applied research. That is the mission of the research councils. Their role is not to become short-term problem-solvers for industrial customers, whether in the UK or elsewhere, but to train highly skilled men and women and to conduct research at the frontiers of knowledge. The councils are being encouraged to develop productive relationships with users in order to enhance the UK's industrial competitiveness and quality of life; but that in no sense implies a parochial approach. The Government agree with the committee that the research councils should continue to adopt an international focus in pursuit of their remits.

The noble Baroness, Lady Gould, drew attention to the development of links with the Pacific Rim. The Government regard collaboration with the emerging economies of the Asia-Pacific region as key to the UK's international science policy. Your Lordships may he interested to hear that the UK/Japan and Asia Pacific Advisory Group published its second report, on collaboration with the Republic of Korea, on 8th March. The report was launched in the presence of my honourable friend the Minister for Science and the Korean Minister for Science and Technology, both of whom warmly welcomed the report's recommendations. A high-level round-table will be held later this year in Seoul to discuss scientific and technological issues of mutual priority. The group's next report will focus on collaboration with the People's Republic of China.

The noble Lord, Lord Porter, will be pleased to hear that the Government continue to believe that the exchange of people is an integral part of international collaboration. The Government will therefore continue to support exchange schemes and scholarships administered by the British Council and the Royal Society. I also warmly welcome the proposal to extend the Department of Trade and Industry's Engineers to Japan Scheme, administered by the Royal Academy of Engineering, to cover industrial secondments in the Republic of Korea.

The Government agree that travel funds are important for active British researchers. This plays an important part not only in broadening the knowledge and experience of our scientists and engineers, but also in sowing the seeds of international investment in UK science through contacts made in other countries. In recognition of that the Government are maintaining their funding of support in 1995–96 by the Royal Society for overseas travel by British scientists. They also made available an additional £100,000 to the Royal Academy of Engineering to fund secondments of academic engineers to industry, be the companies UK or foreign-owned. In addition to that, the British Council is currently supporting visits by British scientists with partner organisations for over 800 joint research projects within Europe and Japan. The Welsh Office is also supporting travel and subsistence costs of university researchers in Wales to enable them to visit Japan. In this way it is hoped to develop links with Japanese researchers working in the same fields.

My noble friend Lady Perry mentioned the inflow of overseas students studying in the UK. I agree that overseas students make an important contribution to UK science, not only in terms of the financial revenue which they bring with them, but also, importantly, in the contribution which they make to the advancement of knowledge.

The noble Lord, Lord Walton, said that there has recently been a decline in the number of overseas students in science and technology. In 1992 there were around 100,000 overseas students, including 33,900 at postgraduate level studying in the United Kingdom at higher and further education institutions. That is a record high; an increase of some 45,000 since 1983–84. Almost one-third of all overseas students in the UK are coming from countries in the Far East.

The Government agree with the committee that we must continue our efforts to attract overseas students, particularly in the face of growing competition from other countries keen to share in the benefits which they bring. The Government provide substantial support for overseas students including those in the science and technology fields. That includes offering a range of scholarships and awards to attract students to this country. Those totalled 21,000 in 1992–93 at a cost of £150 million. All of the Pacific Rim countries remain a high priority and several key country programmes are each worth well over £1 million a year.

The committee signalled particularly the position of students from Hong Kong wishing to study in Britain after 1997. The basis for Hong Kong students after 1997 will clearly change. But I am pleased to say that the Foreign and Commonwealth Office proposes to put in place a new and generous programme for Hong Kong under their British Chevening Scholarship scheme. The scheme already operates in mainland China.

The committee found, taking evidence from a variety of sources, that there are various factors in play in the choice of destination for overseas students. Important among these is the strength of the science base, and we have the natural advantage of the English language, as many noble Lords mentioned. We must also however do our best constantly to ensure that the quality of the student's experience remains high, if we are not to lose out to our competitors. The Government therefore seek to underpin the good work of UK institutions in welcoming and supporting students from overseas, and a government booklet for overseas students is about to be issued which explains the further and higher education systems in the UK and what the students can expect of those systems. I am pleased to be able to say that the British Council, funded by government, has a code of practice which further and higher education institutions have agreed. It particularly addresses overseas students' needs and how they may best be met by institutions.

The noble Lord, Lord Walton, mentioned the desirability of hosting scientific facilities in the UK. We are alive to that possibility. A good example of this was the initiative by the Office of Science and Technology, Medical Research Council and the Wellcome Foundation to attract the European Bioinformatics Institute to Cambridge. The UK will continue to bid to host further international scientific facilities where appropriate and will examine each case on its merits against the UK's strengths in the field.

In seeking to attract interest from overseas in UK science there is clearly a role for our embassies and high commissions as well as for the British Council. UK scientists themselves, through their work in international collaborations, do much to promote British science. But we need to back that up with support in raising awareness of what this country has to offer, not only in terms of its science, but also in terms of favourable economic conditions for overseas investors.

The Government echo the concern that the overall scientific effort should be appropriate to the demands placed on it. As mentioned in the report, there has recently been an interdepartmental review of our overseas science and technology work. In line with a key recommendation of the review, a small steering group has been set up to guide the operation and management of the overseas science and technology network. A key role of the steering group will be to ensure that science continues to be given appropriate priority by the UK's representatives abroad.

Promoting the world-class standing of much of the UK's science and technology was also a recommendation of the review. That is being taken forward by a sub-group of the steering group. It has already resulted in the production of a major brochure on UK science and technology for wide dissemination by our posts overseas.

The Government welcome the committee's endorsement of government policy towards foreign-owned firms and access to government support. Your Lordships will be aware that last week the Government relaunched the LINK scheme—one of the major mechanisms for collaboration between industry and commerce and our academic research scientists. The LINK initiative is an excellent example of how companies can play a part in research projects supported by the Government to the benefit of both parties. In LINK, multinational companies are able to participate and receive government grants, provided that they have a significant manufacturing and research base in the UK, and the benefits of the research are used for wealth creation within the UK or European Union. The latest figures show that between 15 per cent. and 20 per cent. of the companies participating in LINK projects are foreign-owned companies.

The Department of Trade and Industry made available £3 million extra for LINK, matching an additional £3 million made available through the science budget. That is specifically to take forward the outcomes of Technology Foresight. We are now inviting industrial matching of those funds to bring total funding for LINK to £70 million in 1995–96.

The Government agree that a strong local science base can be attractive to international investors. The higher education funding councils for England, Scotland and Wales and the Department of Education for Northern Ireland are responsible for strengthening and maintaining the science base to work with industry in a variety of ways. For example, all the higher education funding councils have elements in their funding formula that reward universities' collaborations with industry, and which do not discriminate between UK and foreign-owned companies.

The noble Lord, Lord Walton, rightly emphasised that providing the right financial climate is key to attracting inward investment. We believe that the overall fiscal regime is broadly a match for those available overseas. The UK's main rate of corporation tax (33 per cent.) is the lowest among the major industrialised countries. The UK also has a lower rate of 25 per cent. for companies whose profits do not exceed £300,000. Our aim is to create a neutral tax regime which avoids distorting investment decisions. And it remains the Government's view that low tax rates and a broad tax base, with few special reliefs, provide the best framework for sustainable, long-term growth.

The committee was concerned that international investment in UK science is not part of the common currency of science policy discussion. I hope that through this debate, and in due course through the Government's response to the report, it will be clear that it is an important component of government's strategy for science, engineering and technology. Some of the examples of the policy initiatives which I have quoted today should, I hope, have gone some way to allaying these concerns. The Government's role is to encourage and facilitate both national and international investment in UK science. The committee has generally endorsed existing government policy and has provided thought-provoking and valuable recommendations for other policy actions. The Government will provide a formal response to the report in due course. But we are most grateful to your Lordships for the benefit of the committee's views and the views of those expressed today.

8.40 p.m.

Lord Walton of Detchant

My Lords, I am sure I speak for all the Members of your Lordships' Science and Technology Committee in saying how grateful I am to those who have contributed to this excellent debate. I thank the noble Baroness, Lady Perry, for her kind remarks and say how much the sub-committee would agree with the comments which she stressed about the crucial role played by the inflow of science students from overseas. They function as ambassadors for British science on returning to their own countries, all too often seeking investment from their countries in science in Britain, which I believe is one of the most important factors contributing to the success which I reported upon this evening.

I am glad, too, that she stressed the crucial importance of developing partnerships with overseas countries, not least—it was good to hear the noble Earl stress this point—relating to the developments now occurring through discussions between government, on the one hand, and the so-called Asian tigers of Taiwan, South Korea, Singapore and Hong Kong, on the other. In a recent newspaper report someone referred to the "tiger pups" of countries which are beginning to develop their science base; namely, Thailand and China. I can only say that the People's Republic is certainly in this respect some pup. But it was good to hear that the Government are now embarking on discussions with that country, where clearly a great deal of scientific expertise is emerging and a great deal of scientific development is likely.

I join other noble Lords in congratulating the noble Lord, Lord Methuen, on his outstanding maiden speech. He brought to bear his engineering expertise and his industrial experience in contributing so usefully to this debate. I cannot believe, on looking at his comparative youth, that he could possibly have retired. But at least it will allow him the opportunity to devote much more time and his considerable energies and capabilities to enriching and enlivening the work and the debates in this House in the future. We look forward to hearing from him on many more occasions.

Turning to the comments of my noble friend Lord Porter, it is absolutely right that science is international. Virtually every discovery made in science builds upon the developments which have been achieved in many different parts of the world. He referred to an issue upon which I do not believe the noble Earl concentrated in his reply. We send out yet again that message to British industry that it is crucially important, as the noble Lord, Lord Methuen, said, that it discards its policy of short-termism in investment and scientific R&D and follows the examples set by so many overseas companies in taking a long-term view.

We must remember that wise saying of the great American, Oliver Wendell Holmes, who said that science is a first-rate piece of furniture for a man's upper storey if he has common sense on the ground floor. Application of scientific discovery with common sense and its exploitation in industry must be the lesson for the future. The noble Lord, Lord Porter, did well to remind us how crucial are the personal relationships built up by scientists across the world. It was good to hear from the noble Earl that travel funds through the organisations that he mentioned will be maintained to allow these personal relationships to be nurtured in the future.

The noble Baroness, Lady Gould, in her most detailed speech, make the very important point that global economic and social issues must be taken into account and that we must remember how important it is that science should be able to respond rapidly to global competition. She, too, stressed the importance of long-term views as distinct from short-termism. It was right that she should have compared the R&D expenditure through government funding in this country with that of our many other competitors, though the same kind of figures could be quoted in many other areas of activity across a very broad field.

Turning to the remarks of the noble Earl, perhaps I may say how grateful we are in the sub-committee for the general welcome, which he expressed so clearly, of government for the recommendations and findings of this report. It is good that it has been debated in National Science Week. It is also good to hear that the Government are welcoming the whole idea of overseas investment in UK science and support our view that protectionism should have no part in the future. We are happy that he has been able, through the work of the Chancellor of the Duchy of Lancaster and his committee, to maintain the funding of the science budget for 1995–96. We would simply wish that he should pass on the message to both Chancellors concerned that science could effectively use more funding in the future in order not only to maintain but develop the science base.

There is no doubt that one of the concerns expressed to us very widely across the field was that there is a danger that the equipment in the universities and in many of our major scientific centres may be lagging behind the kind of facilities that may be available in those countries of the Pacific Rim. As he rightly said, we must maintain a high quality of experience for those overseas students if we are to continue to attract them to work in British science, engineering and technology.

I heard what the noble Lord, Lord Porter, said about George III and Benjamin Franklin. I cannot forbear quoting another famous American, Thomas Jefferson, who said, I believe in an aristocracy of merit based upon a democracy of opportunity". That is what we must strive for in British science as being one of the principles that we must examine for the future. That is why it is crucial, as the noble Earl said, that the funds available should be targeted to leading edge science.

We look forward to the Government's formal response but I can only say in conclusion that, on behalf of the sub-committee, I am very grateful for the welcome which the noble Earl has given to our report.

On Question, Motion agreed to.

House adjourned at thirteen minutes before nine o'clock.