Plenary, 03 Feb 2005

Meeting date: Thursday, February 3, 2005

Official Report 756KB pdf

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Enterprise Grant Awards

The next item of business is a statement by Allan Wilson on grant awards—the Scottish Executive expertise, knowledge and innovation transfer programme and the small and medium-sized enterprises collaborative research scheme. The minister will take questions at the end of his statement and there should be no interventions.

Research shows that research and development is a crucial component of high productivity levels in businesses. If we are to succeed in our first priority of growing the economy and meeting the aspirations that are set out in the refreshed "A Smart, Successful Scotland: Strategic direction to the Enterprise Networks and an enterprise strategy for Scotland", we must improve Scotland's R and D performance. As a result, I am keen to use this opportunity to report to Parliament on developments with two of our new support schemes that have been set up to help us to progress this key economic development issue.

First, however, I want to put the issue into context. In Scotland, we have a great science base that punches well above its weight in the United Kingdom. The quality of our research is world class and our performance in the commercialisation of that research is improving. Although we have only 8.5 per cent of the UK population, a comparison with UK higher education institutions shows that, in 2002-03, Scottish HEIs filed 17 per cent of all new patents and 17 per cent of all HEI licences and created 12 per cent of all UK academic companies with HEI ownership.

As a result, an important element of our "A Smart, Successful Scotland" strategy is to utilise this tremendous asset by increasing the flow of ideas from our universities into the economy. That is the push side, as it were, of the academia-business interface. However, where we need significant improvement is on the pull side of the equation—the demand from industry. We need to encourage our companies to work with the science base to help to make them more competitive in an increasingly global economy.

Business R and D in Scotland has doubled since 1997. Although that is to be welcomed, we started from a very low base and we still lag behind England and our competitors in Europe and beyond. The gap is clear: only 4.9 per cent of UK business R and D was undertaken in Scotland in 2002.

I think that we are all agreed that that represents a major challenge for Scotland. It is one that the Executive intends to meet. Over recent years we have introduced or extended several support mechanisms to assist in this work. The small firms merit award for research and technology, or SMART, support for products under research, or SPUR, and SPUR plus have provided £50 million of support to 500 or so companies over the past 10 years, and we have seen record levels of interest in the schemes this year. Almost all our successful technology companies, such as Wolfson Microelectronics plc, Rhetorical Systems Ltd and Optos plc, have had some such support at some stage. The new R and D plus grant scheme that is operated by Scottish Enterprise is beginning to make an impact too.

We introduced the proof of concept fund, which assists researchers to bring discoveries to the marketplace. The fund has delivered 146 projects over the past five years. We are investing £450 million in the intermediary technology institutes, which will ensure that there is business-focused R and D in the life sciences, techmedia and energy sectors.

To complement the range of measures that are already in place, we introduced two new initiatives last year: SEEKIT, which is the Scottish Executive expertise, knowledge and innovation transfer programme, and SCORE, which is the small and medium-sized enterprises collaborative research scheme. They have a combined budget, over three years, of some £9 million. The schemes are aimed at encouraging more Scottish companies to become involved in R and D and at increasing co-operation between our businesses and our science base.

The SEEKIT programme supports universities, research institutes and other public sector bodies to put in place the infrastructure that is needed to facilitate co-operation in R and D and productive knowledge transfer between the Scottish public sector science base and our companies. SEEKIT funds large projects, often costing more than £500,000—usually with co-finance from the European regional development fund.

The key objectives of SEEKIT are to increase the competitiveness of SMEs through their engagement with the science base; to encourage productive knowledge transfer links between the science base and business; and to help to effect wealth creation from the science base. The scheme supports a wide range of knowledge transfer and outreach activities that are intended to have a measurable impact on the business performance of Scottish SMEs.

We are on course to meet our target of funding 10 SEEKIT projects in 2004-05. To date, we have completed five SEEKIT grant awards and a further two have been offered but not yet officially accepted. In total, we have made offers totalling some £2.4 million. The University of Stirling innovation park has been awarded £309,000. The university to SME technology transfer programme—a joint project between the Scottish Optoelectronics Association and Scottish Enterprise—has been awarded £182,000. The sum of £487,000 has been awarded to Heriot-Watt University for its project RADIKAL—research and development, innovation, knowledge, adoption and liaison; and £570,000 has been awarded to the University of Strathclyde for the Strathclyde entrepreneurial network.

I am also pleased to be able to announce today that the fifth SEEKIT award has been made to the University of Stirling innovation park to extend its original project in conjunction with the University of St Andrews. The £264,000 award will help the university to provide improved research, innovation and knowledge transfer support to SMEs in central Scotland. Total expenditure on the projects that have been approved so far will amount to over £4 million.

While SEEKIT assists public sector research bodies to work with Scottish companies, SCORE helps SMEs to fund specific collaborations with the science base. An SME or group of SMEs with a specific technical problem can assign part of the required research to a public sector research body and SCORE will help to pay for it. Financial support is available up to a maximum grant of £35,000 per project.

The objectives of SCORE are to help to increase the level of R and D that is undertaken by Scottish SMEs and to increase their competitiveness through support for product or process development; to encourage increased co-operation between enterprises and research organisations; and to help to effect wealth creation more widely from our science base. SCORE has been designed to be easy to apply for and to have a quick turnaround time, and it has been well received by SMEs. Even at this early stage, the uptake has been encouraging—established SMEs and new start-ups have taken advantage of the flexibility that the new scheme offers. Our target is to make 15 awards this year and we are already on the way to achieving that. We are considering 15 project proposals, eight of which have been supported to date.

Since we publicised the first SCORE award—which was made to Cyclacel Ltd last June—I am pleased to announce that we have made a further seven grant awards. More than £250,000 has now been awarded under the scheme. Grants have been made to Cyclacel, which will work with the University of St Andrews; Ice Robotics Ltd, which will work with the Scottish Agricultural College; Compound Semiconductor Technologies Global Ltd, which will work with the University of Oxford; Crystal Consortium Ltd, which will work with the University of Paisley; Midland Valley Exploration Ltd, which will work with the University of Glasgow; PRI Ltd, which will work with the University of Stirling; Bugstop Ltd, which will work with the Scottish Agricultural College; and Axiope Ltd, which will work with the University of Edinburgh.

Those SCORE projects involve companies that operate principally in the oil and gas, life sciences, optoelectronics and environmental sectors and which use a range of different technologies. It is encouraging that seven different universities and research institutes are already participating actively as research partners in SCORE projects, that three of the companies are forming new links with their research partners and that only one of the supported projects involves a spin-out working with its parent university.

The importance of collaboration between universities and business was underlined in the findings of the recent Lambert review, to which we will respond shortly. Even though they were devised prior to that review, our two new innovative programmes are fully in line with its recommendations. We like to think that we in Scotland are again ahead of the game in developing new and constructive ways to tackle such issues.

We recognise that all the projects under the two schemes are at a very early stage, but I am confident they will deliver a wide range of benefits for Scottish companies and our economy generally. The task is difficult and long term. No single measure will provide the solution, but I hope that members agree that the addition of SEEKIT and SCORE to what is already a wide-ranging portfolio of support will help us to develop the capacity that Scotland needs for the future. I look forward to reporting on progress in the years to come.

I realise that that was a fairly dry presentation on a complex area, but I look forward to answering as best I can any questions that members have. If I am unable to answer them immediately, I will certainly provide the information that is sought by letter.

The minister will now take questions on the issues that were raised in his statement. I will allow around 20 minutes for that before I move on to the next item of business.

That was an interesting statement. We agree that R and D is vital, as there is a proven correlation between R and D and having a high-wage, high-productivity and highly competitive economy. Now that the Executive's initiatives are under way, when does the minister expect us to close the gap on the United Kingdom's R and D performance and what is the short-term target for spend on R and D in Scotland as a percentage of gross domestic product?

That was a good question. As the member knows, we are some way behind our counterparts in the rest of the UK and elsewhere in Europe, but we are closing that gap. Recently, there have been very encouraging signs in relation to the additional R and D that takes place in the private sector, which adds to the extensive public sector research that is carried out in our higher education institutions and other research bodies.

I understand that the target for spend on R and D that the European Union is aiming for by 2010 is 3 per cent of GDP. The member will probably know that. It would be great to be able to say that I hope that we will achieve or surpass that target before then, but Mr Mather will be acutely aware of the difficulties in making such predictions. I hope to improve our performance against England year on year as a first step towards making substantial progress. I also hope to reach our European Union target, which is set against other countries in the Organisation for Economic Co-operation and Development, by the 2010 target date.

On behalf of the Scottish Conservatives, I welcome the minister's statement and thank him for advance sight of it which, with all the acronyms and figures, was extremely helpful.

The minister was right to identify research and development spending as a key concern. Of course, the situation is not helped by the structure of the Scottish economy. We have a large public sector, a large service sector and a shrinking manufacturing sector, which does not help emphasis on R and D, because we would expect the manufacturing sector to invest more heavily in R and D than the other sectors would.

The awards that the minister announced are welcome, but I have two questions for him. Is he aware of the report "Comparison of Exploitation Performance of Scottish Universities with US Institutions", which Edinburgh Research and Innovation Ltd has just published? That report shows that the accumulated value of the research in all Scottish universities is equivalent to that of only one major US university, such as Harvard University or the Pennsylvania State University. It also shows that, in terms of value for money, the performance of Scottish universities vis-à-vis their equivalents in the US is encouraging, and I would be grateful if the minister would acknowledge the success of Scottish universities in that respect.

Does the minister accept that a key problem in the commercialisation of research is a lack of readily available venture capital in Scotland? Does he also accept that, to have more venture capital, we need more venture capitalists and that, to achieve that, the Scottish Executive must promote policies that are conducive to individuals of high net worth locating and staying in Scotland?

I am interested in the north American comparison. In 2002, which is the last year for which comparative figures are available, Scottish expenditure in business R and D was 0.77 per cent of GDP compared with the north American figure of 1.87 per cent. Interestingly, Sweden comes out top of that list. As Murdo Fraser can see, we have some way to go before we catch up with north American levels or those in other parts of Europe, but our position in that league table is improving year on year and has already surpassed Italy's position, for example.

On the second question, it must be said that, in the short time in which I have been Deputy Minister for Enterprise and Lifelong Learning, reports to me about the availability of venture capital in Scotland have varied. If one speaks to venture capitalists and banks that are involved in venture capital lending, they undoubtedly will say that cash is available. Through our proof of concept fund, which stands at circa £40 million, and our co-investment fund, we are trying to supplement whatever capital is available in the private sector to ensure that no project that can be proven to be commercially realisable goes by the board in its pre-development phase as a consequence of an absence of venture capital. Those funds are substantial pots of public money that supplement private capital in that arena. Through R and D plus and the new projects—SEEKIT and SCORE—other grants are available to ensure joint working between our science base, our research base and the wider business community and to ensure that no commercially realisable project goes to the wall because of an absence of support finance.

I thank the minister for early sight of the statement. The Greens welcome awards for innovative businesses, but will the minister tell us to what extent sustainability plays a part in the conditions of award?

SEEKIT sets a number of sustainability benchmarks against which projects are assessed. Those include productive knowledge transfer; marketing; strategic integration with other related activities, which has a read-off into more sustainable development; durability and feasibility, which are critical to a project's long-term sustainability; partnership and leverage; innovation; value for money; knowledge transfer capacity building; and, interestingly, support for rural enterprises and developments. Around a fifth of all Scots work in a rural environment, so having additional job creation stimulated through SEEKIT and collaboration between the science base and business will lead to a more sustainable future for business development in those areas.

I, too, welcome the minister's statement. All of us welcome any extra help for research and development in our universities. There is no doubt that in Scotland we have some of the finest universities in the world. In the University of Edinburgh's campus at King's Buildings, we have one of the best science parks in existence, which is doing a huge amount of good work. I was not aware of the project on which Axiope Ltd is working with the University of Edinburgh and would be grateful if the minister's officials could provide me with information about that.

I would like to know exactly what such projects are doing for employment. This morning we heard that the Executive is trying to create new jobs; this is another way in which it is doing that. Can the minister indicate how many new jobs are being created in science as a result of the SCORE and SEEKIT projects that he has announced today?

As I said in my statement, it would be premature for me to claim that X new jobs had been created and were being sustained as a direct consequence of the measures. However, the pipeline of support measures that we provide to commercialise our research base is designed to ensure that there are commercial spin-offs that will create sustainable employment across the country.

As all members know, we compete in a global economy. Our research and science base is critical to our ability as a nation to do that. Unless we have this additional investment and are able to spin out to commercial success the innovative ideas and research in our higher education institutions, we will fall behind the rest of the world in job creation and employment sustainability. It is vital to Scotland's future economic performance and, consequently, to future employment creation that these schemes are available to business and higher education institutions throughout Scotland. I will endeavour to find out how many jobs the schemes support in various sectors and to provide members with that figure.

I am pleased to hear the minister give such positive news on policies with which I was associated in a past life, such as the co-investment fund, the proof of concept fund and the intermediary technology institutes. The minister and the chamber know of my interest in renewable energy and coal by-products. Can the minister provide me—either now or at a later date—with information about renewable energy projects that are in the pipeline, especially projects relating to further-from-market technologies and by-products of the use of coal for power generation?

I will be happy to provide the member with the details that she requests. As Christine May is aware, we hope that the energy development ITI that was established in Aberdeen will be able to develop new technologically innovative projects in the renewable and wider energy sector that will spin out to commercial development and job creation. I am not aware of any reason why technologies based on, for example, clean coal, co-firing technology or combustion technology more generally cannot be accommodated within the £450 million or thereabouts that is set aside over 10 years for the ITIs. I hope that that process will of itself lead to innovation and technological spin-offs in the energy sector and in particular in the renewables part of that sector.

I am sure that the minister recognises that we will have to do a lot of work to get a greater share of the world's R and D work on alternative energies and clean technologies. Has he conducted a study of our share of that R and D compared with the share that is being achieved by our competitors, which also want to be the renewable energy capital of Europe?

What steps is the minister taking to attract private sector energy-related research to Scotland? Shell has written to me to confirm that by the end of 2005 it will have invested £1 billion globally in developing renewables, but it will not spend one cent in Scotland. Some offshore companies are taking cash out of the North sea but refusing to invest in R and D in Scotland.

Last week, I was at the Pilot meeting in London with the Secretary of State for Trade and Industry and the minister of state in the Department of Trade and Industry. When I inquired into the Scottish R and D spend in the energy sector, I was pleasantly surprised to learn that the figure of £15 million represents a huge increase from the 2001 level of only £6 million. There has been a considerable increase in the R and D spend in the energy sector in Scotland. Scottish R and D spend in the sector is £659 per employee. That is admittedly a bit behind the UK figure of £822, but it is interesting that it is approximately 80 per cent of the UK figure; in most sectors the Scottish spend per employee is only about 50 per cent of the UK figure. That substantial increase in R and D spend represents a success story in the energy sector, which is largely but not exclusively based in the north-east.

As far as renewable energy development is concerned, the marine technology fund that we have established, and which we are discussing with the DTI how best to spend, offers tremendous opportunity for developing our marine renewable energy resource. We hope to have a statement on that in the near future. If wave and tidal power can be developed, Scotland is well placed to be the marine energy capital of Europe. Large companies have invested substantial sums of money and that investment has been supported by public funds in order to develop the technology. I would say that if the companies—some of our largest energy companies and engineering companies—that are currently doing the work in Scotland, which is on a par with anything else that is going on anywhere else in Europe or indeed the world, cannot do it, it cannot be done. I hope that the next two or three years, which will be critical to the development of marine energy technology, will show that it can be done and that Scotland will be the centre of that development.

I will give ministers a minute to change places before we move to the next item of business.