39
Examination of witness
Professor Sir Ian Chapman.
Q1 The Chair: Welcome to this morning’s meeting of the Science and Technology Committee. We are undertaking a one-off evidence session about UKRI, and we are very pleased to have as our witness Sir Ian Chapman, the chief executive of UKRI. I will start by declaring an interest. I am an emeritus professor of engineering at the University of Cambridge and have held a number of UKRI grants.
Sir Ian, as we all know, UKRI has just launched its new strategy. You are moving from counting inputs, such as grants awarded, towards clearly defined outcomes from funding. It is also reclassifying funding across the three buckets of discovery, applied and growth-driving research investment. Which outcomes do you want to focus UKRI on and over what timescale? How will UKRI’s behaviour change to prioritise outcomes? Moving to the next part of my question, how are you going to measure and publish what you have achieved? These are all quite big questions, but, as a start, would you like to consider those?
Professor Sir Ian Chapman: They are very big questions, Lord Mair. Thank you. In terms of the outcomes, if I come back to the top of our strategy, which is our mission statement, it is to advance knowledge, to improve lives and to drive growth. Fundamentally, everything that the organisation does is pivoted around the three clauses of that mission statement.
When I talk about outcomes and securing value for the country, that value is not just economic benefit. There is huge value in advancing knowledge and our understanding of the world. Generally, that sort of foundational breakthrough research acts as the underpinning for everything that follows, so the advancing knowledge part is an outcome in and of itself.
The application and improvement of the social fabric of the country, of people’s lives and of regional inequity are all also outcomes. Then there is the obvious outcome of benefit to the economy and how we help drive it, which then allows us to reinvest more into the research and innovation that provided that growth in the first place. The whole thing is a symbiotic relationship, and we are always looking for a mutualism between those three legs and how we help to reinforce, because they are not disconnected. They have to be a system. They have to be interconnected.
The timescales, as you alluded to in your question, are completely different for those things. UKRI should be making investments on the multi-decadal timeframe, but also trying to achieve outcomes and outputs on a quarter timescale. This is about planning for decades but executing in quarters. As an organisation, we have to be able to tension those things in our head. It is no good for us to say, “Everything that we invest in will be decades away”. The organisation, in its different guises, has existed for over 100 years. Of course, the MRC is more than 100 years old. You cannot say, “Everything is decades away”. We have been investing for decades.
Self-evident is that the proof of our labours and those long-term investments have, for sure, yielded benefits to the country, both socially and economically, and we should be proud of that. That is what we are for as an organisation, so we should be able to both think long term and also generate outputs in the near term.
You talked about behavioural change, so let me try to address that somewhat. The organisation has felt itself to be a distributor of money for many years. We see ourselves as a conduit of public money out into our partners, who then do the research, innovation and exploitation.
I want us to go beyond thinking about just distributing money and into how we generate value for the country. We are, after all, a public body. We are spending public money. We are here in service of the public. We should be constantly thinking about how this generates value to the public, and value in the wider sense of what I have just talked about—the value of advancing knowledge and improving lives, and economic benefit.
It is about elevating our relationship with our partners away from the transactional relationship whereby we run a competition that is massively oversubscribed, use a peer review process, choose some people to be recipients of that money and then give them some money, and they go and do some research, towards a more strategic relationship where we are working with partners to make sure that we deliver outcomes for the public, whose money it is, after all. It is more of a genuine partnership rather than a transactional one. That is going to be a change of culture and behaviour inside the organisation. We see pockets where that works brilliantly and is done really well, and I would like to do that across the whole of our remit.
The third thing on behavioural change inside the organisation is to extend that partnership to not only include the practitioners of research and innovation, who we see as our main partners at the moment, but also to have strategic relationships with co-investors, be that private capital, philanthropy or big primes, so that we are crowding more money into the system.
We should not be having this constant debate about how we distribute our £9 billion a year and how we cut that pie up. I want us, as an organisation, to be going and finding more eggs and more flour, baking a bigger pie, and then discussing how we distribute that, and not just thinking, “How do we cut up the £9 billion?” Of course, that is a necessary thing to do, but we should not be exclusively focused on that.
We should be thinking about how we enrich the whole system and, frankly, use our heft and the scale that UKRI has. In my view, there are two primary reasons why UKRI is important. One is that we have this incredible breadth and remit that allows us to connect to the system and do genuinely interdisciplinary, large-scale projects that could not be done in isolated councils. That is the first benefit.
The second benefit is that we then have heft, which should allow us to connect more private capital into the system and to grow the ecosystem, which helps everybody. It is a rising tide, and I feel that we should be doing more of that catalysing that helps the whole economy and allows us to invest more into research and innovation.
The Chair: How do you envisage measuring and publishing what you have achieved?
Professor Sir Ian Chapman: My view on measuring is that these things are multi-layered and hierarchical. We are now at the point where we have a clear mission statement. We now have from DSIT five clear objectives for the organisation, which hitherto had not been in place. Underneath those objectives, we have a set of goals that the organisation is trying to achieve, as elucidated in the strategy document that we published yesterday. Beneath that, we have KPIs, again published yesterday. We went through our objectives and the high-level aggregate measures that the organisation is held to account against over five years and one year.
Below that, I have about 50 management key results inside the organisation, which, for an organisation of our scale, feels about right to me. These are the 50 biggest, most important things that the organisation will aim to achieve in the year. They all have a responsible owner and I can hold that person to account against the delivery of those metrics.
All of that is open domain and we will continue to publish quarterly how we are getting on against all of those measures, with the aggregate ones usually on a long-time base. In terms of the 50 measures over the course of a year, we can, on a quarterly basis, say, “This is how we are getting along against those”. There are different time bases and aggregations, but that multi-layer of measurement and output is very necessary for an organisation such as ours.
The Chair: Presumably, that will be part of your need to improve the flow of data and the analytical capacity of UKRI. Is that what you are saying?
Professor Sir Ian Chapman: Yes, that is true. I think UKRI does a pretty good job. The Gateway to Research is a very good vehicle to find out where our investments have gone and how they have been used. We can, for sure, improve it. We had a number of investments that were off-system. As an organisation, we have been going through an exercise to try to put all of our data, both historically and going forward, into a new version of Gateway to Research that openly publishes our entire portfolio, apart from those that are commercial in confidence and we are not able to publish, but that is a small minority.
We are now at the point where 90% of that data is loaded into the system. We expect to start privately beta testing that tool next month. I hope that, around October, we will start publicly beta testing it so that people can start to interrogate our databank of where all of our investments are going and where we are spending public money. Ultimately, everything will be available through that, certainly by the end of the financial year, and we will start testing this imminently. I am really quite excited about that, because I do think that, since it is public money, you should see where the money goes, and so we are just going to be totally transparent about where our entire investment book goes.
Q2 Lord Stern of Brentford: Ian, thank you very much for coming. I am a professor at LSE, not retired, and I have benefited from some ESRC grants over the years.
I wanted to ask some questions about the operation of the bucket system. You need classifications to organise what you do, but there are a number of dangers. One is rigidity of interpretation, particularly in terms of whether this is delivering on government priorities. It is quite hard to answer those questions. Questions of rigidity and narrowness are difficult ones, and I think you need a cheerful approach to leaky buckets.
Around this table, you have active researchers in biology, medicine, engineering and economics. We have all been involved in research over the years. Certainly, in my own subject, the overlap between curiosity and wanting to do stuff that is useful is constant. If I look back on my own career, it is very hard to distinguish between those two things, and yet you have these first two buckets. The Government set out their industrial strategy and have a list. There is a temptation to confine yourself to that list and not use a bit of your own imagination.
We all know that, the further down the hierarchy you go, the more rigid the actions. That is the way that hierarchies work. If we are to overcome that really serious problem of wanting to have merged, leaky buckets and to avoid narrowness of interpretation, that leadership has to come from the top. If we are going to be strategically flexible, it is the top that gives the lead on that, so that, lower down, people have the confidence.
I am sorry for the long preamble, but how do you see that problem of leading in a way that avoids really serious issues around rigidity and narrowness in the bucket system?
Professor Sir Ian Chapman: Thank you for a very deep question. This is fundamental to get right. I totally agree with that. There has to be a play and a fungibility between these buckets. I am a firm believer that you should, as an organisation, have a clear mission statement that is a golden thread through the organisation, from top to bottom, with total clarity about what the organisation is for, what our purpose is and who we are serving.
I am not sure that that was imbued entirely through UKRI. I would describe it slightly as Brownian motion, with people energetically moving in many directions. I want to put a strong guide field on that, so that we are all heading in the same direction. That clarity of mission statement and a link between your strategy and your spending is really important for an organisation, so that everybody knows why you are making the interventions that you are making.
Your point that you must have a flexibility and a fungibility between however you carve up your financial ledgers is apposite. Again, you are on the money that you can bake in a fungibility only by the behaviours of the leadership team. I really do believe that the potential problem that you are describing is best tackled by leadership, behaviour and culture inside an organisation, not by financial ledger system.
In terms of what I have tried to bring about since I joined the organisation, I had so many people inside the organisation say to me, “We want complete clarity of what you want from us. We want the delegations and accountability, and the tools that we need to do the job, to be clear”.
The three threads that I am working on internally are real clarity about strategy, purpose, mission and goals, and giving people the tools that they need to do the job. That is a big improvement in our processes and systems, and that is going to be ongoing for the next few years before they are really deeply fit for purpose. I am sure that we will probably discuss that today.
The third and perhaps most important is a clarity about delegations and accountability. We have done a complete rewiring of our delegations manual internally. I hope that my executive chairs—and you would have to question them about whether they do feel this—now have greater clarity about what they are delegated to do, how fungibility applies to them, how they can use the budget at their disposal to achieve the right outcomes and, rather than being bound by what is in a ledger, doing the right things, and can then imbue that delegation down into their staff.
The root of your question is that you must have a culture that allows you to do the right things and not be constrained by your financial ledgers. That is a leadership problem. It is something that we have to be constantly working on, but I would just reassure you that we are very cognisant of and putting a lot of energy into it.
Lord Stern of Brentford: Fungibility is not quite strategic flexibility. That is a more positive thing. Let me give you one example. Suppose you have some great medics working in a practical, applied way on developing some treatments or vaccines, or whatever it might be. You have concentrated a lot on the UK. If you are developing a vaccine, I hope that you would not count returns in Africa as a footnote and say that what really matters is returns in the UK. That is the kind of thing where rigidity is a real problem, particularly as “UK, UK, UK” keeps drumming through all this when we know that one of the joys of being a researcher is that your horizons are much broader than that.
Professor Sir Ian Chapman: There is the social benefit there, but the economic benefit will not be realised if we do not think in an international mindset anyway. If we are selling to ourselves, we do not grow the economy. That is just recirculation of our money. You have to be exporting into an international market. Essentially, everything that we do has to be international. By concept, we have to be thinking about how we either improve lives and benefit on a global scale, or create companies that can scale on a global scale. There is no point in thinking about company growth in the UK, where it is 1% of the market. It is not a big enough market to be targeting. Everything that we do has to be thought through via that international lens.
One thing that I meant to say in answer to your first question was about interdisciplinarity. The UK system is set up for interdisciplinarity. If you think about where our money goes, we preferentially put money into the university system rather than into single-purpose research organisations, and do so disproportionately compared to many of our peers. The US or Japan would put more money into single-purpose national labs compared to us, pro rata.
Putting money preferentially into universities means that we are investing in institutions that are set up to do interdisciplinarity. They cover a gamut of research topics, so they are uniquely able to do interdisciplinary research. Because that is a strength for the UK system, our funding system should mirror that and we should be putting as much money as possible into interdisciplinary and convergent science research.
One of the big things that I am very optimistic about with the move to the bucket system is that we are not tying to disciplines. We are not just investing all of our money into silos by discipline. There is a bit of that, for sure, in the discovery science, where you want to support disciplines, but we are also deliberately putting significant chunks of money into deliberately interdisciplinary subjects. In the life sciences bucket, for instance, there will, for sure, be engineering and physical sciences. There will also be arts and humanities in it, and economics and social sciences. How we pull together deliberately interdisciplinary teams is one of the main things that we are focused on.
Lord Stern of Brentford: Will you assess the heads of the research councils in part in terms of their strategic flexibility and their ability to foster interdisciplinarity?
Professor Sir Ian Chapman: Yes, entirely.
Lord Stern of Brentford: Do they know that?
Professor Sir Ian Chapman: They absolutely know that.
The Chair: We come on to the all-important subject of grant application process. Your strategy that you just published talks about your new ambition to reduce grant processing times by at least 50% by 2031. Baroness Willis has some questions about that.
Q3 Baroness Willis of Summertown: I should also declare an interest. I am a professor of biology at Oxford. I also hold a current UKRI frontiers grant from NERC, so just to note that.
You have rightly been very outspoken about the need to reform the grant application process, which is highly wasteful of researchers’ time. I see the problems getting worse and worse in terms of the percentage of grants that are being awarded, given the number of people applying. What steps specifically are you taking to reform the grant application system? How can we track the progress on you doing this?
Professor Sir Ian Chapman: I will answer your question in two ways. First, on the time from start to finish of the process, our median time at the moment is 189 days from submission to award of the grant, although there are many months in prep before the grant is submitted. In many fast-moving research fields, this is just too slow for us to be keeping pace with the dynamics in an international market, so we have to shorten that. We have to find a way to continue high-quality probity and robust standards, but more quickly.
You will see in the strategy that we are setting ourselves deliberately ambitious targets here of going down to less than half of that time. The organisation gulped when I set that, but we need an ambitious target to drive us to be much quicker at responding to what researchers need. They cannot wait six months for us to decide whether we are going to invest in a subject. That is just too slow, so the cadence does need to increase without sacrificing the rigour in the process.
Baroness Willis of Summertown: How precisely are you going to do that? The peer review process itself is notoriously slow, so I am interested to know which bits you can shave back on.
Professor Sir Ian Chapman: We are going to talk to the community at great length, because it is not just us. It is not just UKRI sitting in isolation and thinking up a better way of doing this. This has to be done through collaboration with the users and with our partners.
We have a number of ideas and things that we are looking at. The UK Government were one of the first—and many have now copied—to set up a meta-science unit to do experiments on better ways of funding science. That has been going for a couple of years now. This year, we have now set up a number of experiments on distributed peer review, as an example, on desk rejection and on augmented AI as part of the process, and we are doing all of that in shadow.
We are collecting good control data of, “This is what the normal peer review process gave us, and this is the shadow version of it”, and we can compare like for like and have proper evidence, not just hypothesis. This year will see us do a number of experiments like that, at scale, across our very large portfolio, which give us proper evidence to then know what the most fruitful pathways are to take time out of the process.
At the same time, we are also thinking about other interventions that we will have to make in the system. The peer review process, as it has existed for decades is, frankly, not fit for purpose for the future.
Baroness Willis of Summertown: I keep hearing that it is broken. People have said that to me many times as well.
Professor Sir Ian Chapman: The advent of AI compounds this, but it was already not really fit for purpose, because we were sinking so much high-quality researcher time into this process. That will get worse as the application volumes go up, and they will go up with the availability of AI. I do not think that it is useful for us, as a big investor, to stand like King Canute, pushing back on the tide. We have to adapt and change. The whole community has to change. It is not just about UKRI. It is about everybody in the system acknowledging that change is coming here, and embracing it and not trying to say, “It has to be like it looked 30 years ago”.
What does that mean? As I said, this is to be discussed with the community. We do not have fixed, firm views on this yet, but one could imagine that it will be a combination of three things. One is controlling application volumes as an upstream measure. That might mean pre-emptive and proactive use of demand management of entry into the system.
Baroness Willis of Summertown: Would that be by the universities themselves?
Professor Sir Ian Chapman: It could be. Again, it is not hard and fast, and I imagine that it will be dependent on competition and the nature of the call. It is not prescribed; it will vary.
Another is expanded, programme-led commissioning, so that we have a tighter scope on the objectives that we are trying to achieve, perhaps focusing on fewer but larger in some areas of our portfolio, again to minimise the bureaucracy in the system. That is the first thing.
On the downstream measures, one is increasing assessment capacity. Again, there are many things that you could do there. We could expand the triage that is done by our staff. At the moment, our triage knocks out almost nothing and is only on a compliance check. We do almost no quality triage, whereas, when you are applying to a journal, the journal will knock out up to 70%. It will just say, “We are not even going to send that to peer review”. It does a quality triage. We do not really do any of that. Of course, that means having people to make those decisions, but we could do a greater level of triage than we currently do.
We could increase our use of distributed peer review. We have a pool of reviewers. We do not have to go and find them, which takes a lot of time in the system. It is also very scalable, so you can do big calls with lots of applicants, because you know that you have the reviewers a priori.
We could use greater augmentation of AI in the assessment process. I am not saying that we will go away and just use AI, but we could use augmentation of AI. There are lots of interventions that we could make there.
The third part is strengthening our decision confidence. What do I mean by that? Again, the MRC, for instance, is doing experiments this year on reverting back to more in-person interviews as part of the process. Most investors and venture capitalists who are investing at scale go and talk to the founders. They look into the whites of their eyes. If you are hiring an employee, you typically talk to them. You do not just rely on the CV. Bringing some in-person part to the assessment process then allows us a greater verification of maybe the other measures that we have taken upstream of that, so that we continue to have robust processes.
It is going to be a combination of all of those three things. It will be different on different calls. For sure, that has to be a collective with our sector and our users. We are not going to determine that in isolation.
Baroness Willis of Summertown: Can I just go on, then, to AI itself? You mentioned it. Tom Adeyoola, CEO of Innovate UK, told us that, “We are going to have to rebuild the whole application process from the ground up because of the existence of AI”. He also made the point that, “ChatGPT can pass a grant application today”. I am sure that many people have tried to write a grant application just to try the system out, and it is alarmingly good when you see what is coming out. There is this question of whether this whole grant writing and application process is going to become obsolete in the age of AI. This is where Tom was saying that this is a big problem. That was a year ago. How far have you got in getting to grips with this problem? Will we see a reformed system online and, if so, when?
Professor Sir Ian Chapman: How far have we got with it? As I said, we are doing a number of experiments this year. We need data and evidence. Otherwise, you are working on hypothesis. We are collecting data. We have now started doing many of these experiments. By the end of the financial year, we should have completed a whole load of experiments and will have data to talk to the community about in an evidential way, which is how we should proceed, not just based on hypothesis. Until we have collected that data, we are not planning to make any radical change to the system, because we are doing so without good data. We have to get through that bit first. That is the short answer to that.
I think that what Tom said is completely correct, particularly for the research councils that are largely interfacing with universities. There are a number of universities, which have a number of researchers, so you have almost a fixed pool of likely applicants. For Innovate UK in particular, the number of companies that could apply is as big as you want it to be. The lowering of the Coulomb barrier, decreasing the barrier to entry, and providing more tools to more companies to apply means that we expect their volumes to really go up significantly. We do have to do things differently. I am sure of that, but, until we have data, it is hard to know precisely which direction to head in.
Q4 Baroness Jones of Whitchurch: You have talked a little bit about the meta-science unit and quite a lot of ideas that are flowing from that in terms of different ways of doing science and science funding. On the other hand, you have a lot of very clever people, but with very entrenched views around how science funding should take place. You have talked about taking the community with you, but can you say a little bit more about that? We have already seen examples where people are pulling back from some of the ideas that you have been generating. It does require taking everyone with you. How are you going to really do that to make sure that, going forward, it is a happy ship and not a lot of very anxious and unhappy people?
Professor Sir Ian Chapman: I would start with the wondrous parts of the job and the less fun parts of the job. I have now been in for 10 months, and my favourite part of the job is seeing the incredible richness of the portfolio into which we invest. We really do matter to this country. We matter to the planet. We matter to society. The research and innovation that we do is phenomenal, and it is so exciting to be a part of that.
However, for every five great ideas that come to us, we invest in one. That means that there are four great ideas in which we do not invest, and that is hard. It is hard in the system. It is hard for us. My people take that really seriously. There is emotional damage to them every time they have to say no to people. It is hard for the recipients of that, because you cannot be a researcher or an innovator if you are not properly committed to your work. You get so many knockbacks, so many failures and so many things that do not work, but you just have to rip through your core; you have to believe in it. When you then do not get an investment, you take that personally. There is personal cost to that, and we feel that. That happens to us as an organisation all the time, and so we do care deeply about the impact that we make. That is the downside of the job.
You are entirely right that, whenever you make change—particularly change in a sector with a level of precarity, which is true of our research and innovation sector at the moment—that change can feel daunting and dangerous to people. I am a researcher and I believe in evidence. I do not believe in religious belief when we are making these decisions. You cannot have a conviction of, “We must do it that way because that is how we have always done it”. That is not acceptable to me. That is not a defence. We have to work on the basis of evidence as to what the best thing is for the country to get the right outcomes. If that means change, it means change, and then we have to go through change. My rationale is to present evidence as to why we are making changes that we make.
Q5 Lord Willis of Knaresborough: Given that a significant amount of investment is coming from abroad, and particularly from America, how much do they guarantee that you will deliver rather than you just doing it based on the idea of goodness?
Professor Sir Ian Chapman: I am sorry, but could you reframe the question? I did not quite understand.
Lord Willis of Knaresborough: What I am interested in is countries abroad, and particularly the United States, as well as countries in Europe, but possibly also China. Does their investment determine your priorities?
Professor Sir Ian Chapman: No. We are a public body. Our priorities are set at the highest level by the Government. Government have expectations on us as to what they want us to deliver.
When we are choosing where to make investments within that framework, we start with, “What is the UK’s competitive position? Does the UK have a reason to secure a greater share in this sector? Do we have a reason to win? Do we have a right to win in a sector? What is our competitive position?” and, building on that, “What is our absorptive capacity in our supply chain? Can we scale this? Is it a technology that we can scale? What is the opportunity for leverage? How do we bring additionality to our money? What is the timeliness? Are we trying to swim after a wave as it is already breaking on the shore when we should be trying to catch it in deep water? What is the social benefit? What is the regional benefit?”
We have lots of lenses when we are making an investment decision. It is never just on leverage or on co-investment, particularly when that co-investment is dominated by international capital. We decide what is important, and then we go look for additionality, not the other way around.
Q6 Lord Winston: Thank you very much indeed for coming along to talk to us today. I have a couple of quick questions. I should just declare an interest as a member of Imperial College, where I have a chair. I am a fellow of the Academy of Medical Sciences and honorary fellow of the Royal Academy of Engineering. Can we ask you about what percentage of your applications are funded as a result of the application?
Professor Sir Ian Chapman: Roughly speaking—I will just give you a high-level number—it is about 20%, but that varies by research council, and varies temporally by year. By the way, that is all published, so we are very happy to share all of that information with you. Roughly speaking, it is about one in five, or 20%.
Lord Winston: One of the issues is that a lot of people who are applying have really very good credentials but are not going to be successful. Do you track the people who are not successful with the application? How far can you go to look at that, either financially or, indeed, in terms of science?
Professor Sir Ian Chapman: The answer to that is that I think we need to do more. We collect the data. The data on all of the unsuccessful applicants exists in our databank. There is a rich database there that we can do more to exploit. We can look at trends that are emerging in the applications that do not succeed, but that tells us a bit about the future.
There are many reasons that a panel may recommend not to invest in things. In some cases, it could be that it is too much risk. There could be a perception among panel members that this is too unlikely to succeed, but that is useful data. That is telling you something about emerging trends in a field, and we should throw it away at our peril. We should use that data to identify things that are coming down the track, such as a novel technology that has promise.
We can also interrogate more about the peer review. Quite often, particularly at the high novelty end, you will get a set of peer reviews, two of which say, “This is revolutionary and could really advance the field”, and maybe two that are more cautious and say, “There is high risk in this”, and give lower marks. They may both be right, but there is something to be said about thinking about the mindset of the reviewers and the comments that they make, and we could do more to scrape information from the written commentary than we do to assess future prognosis and opportunity.
You are right to highlight that there is a great database there, and that is all captured. It is all in our databank, so we do have that information, and we could do more to interrogate what it is telling us than we do at the moment.
Lord Winston: That is very helpful, thank you.
Q7 Baroness Willis of Summertown: I want to come back again, but this time it is about the funding of universities and how that affects the scientific research that is able to be done in the UK. As we all know, and particularly with the UKRI, much of the excellent science is, in effect, cross-subsidised by the universities, which are under severe financial pressure themselves. What role does UKRI have in mapping out the impact of change within higher education and, in particular, departmental or university closures on the UK’s research capacity? This is moving quite quickly up the serious agenda, as it were. Is there any co-ordination between UKRI, DSIT and DfE to look at what we are losing strategically, and what that is going to do to our R&D capacity in the UK?
Professor Sir Ian Chapman: You are entirely right to point out that this is not a thing that UKRI is in sole control over. I do think that ownership here sits with the Government. Even the Government are a combination of DSIT from the research angle, DfE, and even DWP from the skills angle, so there is a confluence of departments involved in this.
On the arm’s-length bodies part, there is UKRI, but there is also the Office for Students, so there are many actors in this system to worry about the precarity and sustainability of the higher education sector. For sure, we are not able to fix all of it on our own. I would say that, even in the short time that I have been in UKRI, I have seen the co-ordination of those different actors improve and there is much more concerted effort and collective determinism to make sure that we are thinking of that problem collectively and not just worrying about our part of it, because that is surely not the right way to proceed. It has to be holistic. I would say that that is improving, but I would not contend that we are entirely over all the details and helping as much as we could
Baroness Willis of Summertown: Do you think that there should be one central organisation or body that can oversee what is going on and do the horizon scanning? With this devolved model of research funding and all the departments, things are falling between the gaps, and I wonder whether UKRI should be thinking about being in that role.
Professor Sir Ian Chapman: I do think that there needs to be ownership in the centre. I do not necessarily think that that should be us. I do not think that we are a big enough actor in the system to be the determinant, so it is probably a question for the Government about whether that sits in DfE or in DSIT. For sure, both have absolute skin in the game and have to work in concert. That is probably a question for them.
In terms of the domains and the health of particular domains, that is absolutely written into the responsibilities of the research councils. In terms of what we described earlier—the buckets and the approach that we are taking to interdisciplinarity—I should be absolutely crystal clear that, within UKRI, the research councils remain the bastion of the people. The people still sit in a research council. They are still domain and delivery experts. Even if they work on projects that are deliberately interdisciplinary, they still care deeply about the health and the rigour of their domain. They are responsible for the health of their domains and for that interlocution with our partners to make sure that we do not have gaps in the system. That is a role that UKRI takes very seriously.
Q8 Lord Winston: One thing that has always been a problem is the joining up of different research areas. For example, there has sometimes been a problem in the research councils. Do you think that that is now sorted out, given that we are no longer just biologists, physicists or chemists? Do you think that there is sufficient interaction in the way that we award grants?
Professor Sir Ian Chapman: It is improving all the time, and great credit to UKRI. Since its instantiation, that has been a real focus. Perhaps “competition” is not the right word, but there was some territorial behaviour between the councils, because they were, in effect, competing for the same source of money from the Treasury. The fact that that is now in one organisation has alleviated that competition or territorialism.
Probably the best thing that I have experienced since joining the organisation is that the senior team desperately want to be a college. They want to work together. They want to be one team. They realise that all of the disciplines are healthier and better by working together. I am now seeing that more and more of the investments that we make are interdisciplinary by writ, which is a great thing and a good outcome from the creation of UKRI. I think that that will grow and grow, so I am very positive about that.
Q9 Lord Ranger of Northwood: Sir Ian, thank you for your time today. It is very interesting to hear what you are saying. Just before I ask my question, it sounds like you are looking for a significant, in your words, culture shift in the organisation. I would be interested to understand how the type of people who you have in the organisation will be reflected in generating that type of culture shift.
You have also said that Innovate UK should back fewer companies with larger rewards and deeper due diligence, and then move into that concierge-type relationship, so not just, in your words, planting seeds but backing saplings. This echoes much of what was said in our Bleeding to death report, which I am sure you have probably heard about and seen that we produced last year. Can you expand on the process that you envisage in terms of how companies would be appropriate for Innovate to back? What criteria are you intending to use? Do you also see a change in the type of people who might be looking at the investments?
Professor Sir Ian Chapman: Let me just make a note of all of that. There were about 10 questions there, so I will do my best to go through them. On culture shift to start with, and the people who we have as an organisation, it is worth reminding ourselves as to the constitution of UKRI, in that people often think that we are a funder and that we distribute money. First, we are research-performing. There are 6,500 researchers inside UKRI. To contextualise, that is like Oxford or Cambridge, so it is the same scale of researchers as a high-quality university. People forget that UKRI does perform research as well.
In addition to that, there are 2,500 people who run our investment decisions, both into companies and into research grants. Those people come from different places. Some have come out of universities. Some were active researchers and have moved into portfolio and project management. Some come from a commercial background, and that blend is a good thing.
Culturally, the organisation is skewed towards thinking about the novelty and the excellence of the research, which is good and absolutely a function that we must do as an organisation. I do not think that we do quite as much thinking about the translation of that research into product and into companies, and helping companies to grow.
We also probably do not have enough skills on the commercial and entrepreneurial end and thinking about the connection to the supply chain and the absorptive capacity in the country to export this. There is work for us to do, and that will require some onboarding and retraining inside the organisation, so both an upskilling of some of the people we have and probably bringing in skills where we are a bit deficient inside the organisation.
As to which companies to back, we are making a change within Innovate UK, and moving away from what I would describe as investing in projects and, instead, investing in companies. That is a shift in mindset. It is thinking about the whole value proposition, not just the excellence of the research. It is also thinking about, “Do we have excellent research that is internationally differentiated and also has market opportunity, where there is also additionality of the public investment to other investment, which will probably also make a place difference, where there is also supply chain and absorptive capacity?”
We are thinking about all of those questions before we make an investment into the company: “Is it the right team? Do we have the right founders? Do we have a good chance of success? Are we backing high-growth potential and not just backing indiscriminately?” There is more thought going into this, and we are not there yet. We have only just announced this change in thesis in March, and so it is still early days in the genesis of this change in behaviour.
You are quite right to identify that that will mean a change in skills and make-up of the organisation. We previously did a lot of connection of small companies to opportunities for small grants and, therefore, spread very thinly. The shift to this model means that we will still do some connection, but we will have to do more on the diligence and more on the assessment of the company’s growth potential, which will mean a bit of a shift in the capability inside UKRI.
Lord Ranger of Northwood: I appreciate that you are probably having to walk a tightrope as you move through this change in terms of what it means for the people in the organisation. Just hearing your words at the beginning, you mentioned that the organisation was or is seen as a distributor of money, but it also does research and now needs to go and find those private-sector partners to co-invest with. There is potentially quite a spread of skills now required, which does mean, potentially, a different blend of people.
Coming back to venture capital-type skills, what do you think Innovate UK and UKRI need to do to gain that expertise? How is it going to bring those skills in, so that Innovate can get to a point where its grants are trusted as a gold standard for technological due diligence, or does it need to be the gold standard? The challenge that I see is the amount of risk you want to take in terms of those investments. Researchers may sometimes be looking at gold standards, but investors are looking at risk and return.
Professor Sir Ian Chapman: There are probably three parts in that question as well. First, I do not think that we are going to become an investor. I do not want us to get into the territory of venture capitalists. It is not our business. We should not be making equity investments. We should be enabling. We talk about this velocity programme deliberately. Previously, Innovate would give a grant that might last a year or 18 months, and then there is a cliff edge. The money stops and the company has to bid for another grant. They might get another grant, and it becomes quite lumpy. It gets a step profile of funding, which is not great for your cashflow when you are a small or newly formed company, so that is hard to work with.
We are trying to move to more of a concierge service, where you tell us the milestones. If we make an investment and you meet the milestones, then the next tranche comes, and then the next tranche comes. I deliberately used the word “velocity”, for two reasons. First, there is a pace to that. There is a change in the cadence. Secondly, as you ramp up in velocity, you can reach critical velocity, at which point you do not need us. The private sector will take over because we have diminished the risk, and then private capital will invest in that.
We should not be making equity investments, and we should not be playing in a place where the risk is low enough for private capital to play. I definitely want us to stay out of the place where private capital would naturally invest, because we are not additional, and we should not be doing that.
How do we bring in the skills? We do it by working with the people who make investments in that space—the British Business Bank in the public sector, the Office for Investment, UKGI, and the National Wealth Fund. There are many actors in the public system, and we have to work together.
Another joy for me in the last 10 months has been seeing a much more concerted approach to that in Government. We meet, as a group of public finance institutions, every month or six weeks. It is chaired by Jim O’Neill, who is Second Permanent Secretary in the Treasury. It is taken really seriously. All of the chief execs of those bodies always attend. There is much more connection and genuine collaboration and working together on projects than there has been historically.
It is a really good thing to bring together all of those bodies, which have distinct roles. In fact, in essence, your report said, “Why not merge them?” The first step is just getting them to work together really well and knowing what their part is in the system. If they are working collaboratively, it achieves the same thing as you were advocating, I would contend.
On your last point about diligence, I do feel that there is more that UKRI can do to help provide high-quality diligence, such as a grant from Innovate UK or some kind of kitemark or watermark that we can provide into the private capital system, where that has a mark of respect and trust from a technical side. It does not say anything about the company or the founders, but just the technology.
Let me expand on that a little bit. Think about our network. We have, give or take, 10,000 technical experts inside UKRI. Within our centres, institutes and catapults, there are another 40,000 technical experts. Every year, we invest in, roughly speaking, 50,000 people in universities. That is 100,000 people. We have an expert on anything from quantum technologies to Roman history. We have an expert on anything, so I am keen that we use that connection and that portfolio of brilliant people. Investors should then not need to have to go and find these people, because we know who they are; we invest in them; we know where the expertise lies. We can play a role in helping be a diligence engine for private capital and then reducing somewhat of the friction and the barriers to making investments into UK companies.
Lord Ranger of Northwood: Do you think that that is a specific service that you might seek to offer?
Professor Sir Ian Chapman: It is certainly our intention.
Q10 Lord Duncan of Springbank: In your description in answer to Lord Ranger, it sounds like UKRI is not just evolving; it is a fundamentally different entity. Would that be a fair description?
Professor Sir Ian Chapman: I think that it is an evolution. I would not want to be hyperbolic about it. With every change, if you go at a rate that people cannot accommodate, the change will fail. You have to go at a rate that people can accommodate, and particularly the people—the staff—who run the organisation and who deliver. If you go at a rate at which they cannot accommodate change, the change will not stick and will not work, so I do feel that it has to be an evolution.
I come back to what I think Lord Mair asked me. I talked about my view on the purpose of UKRI. It is an oversimplification to think of it as just the co-ordination of the different councils and research strands, and trying to drive more multi-disciplinarity and interdisciplinarity. That is a good thing and absolutely was a purpose of the creation of UKRI, but I do think that there is more beyond that, where, by giving an organisation that heft, you can do more to raise private capital into the system and help create the vehicles that then invest in the companies that come out of that portfolio. You can do more as a diligence engine for the country. You can do more to, as I think I said, get more flour and eggs that make a bigger pie and a bigger impact for the public purse. That is hard to do when you are siloed up.
UKRI had to go through some foundations and some integration, and we now have the foundations that the last chief exec put in place to be able to take on a bigger role.
Lord Duncan of Springbank: Would it come as a surprise to learn that we have received a significant amount of critical comment on the changes?
Professor Sir Ian Chapman: It does not surprise me. As I said, change in a precarious system is difficult.
Lord Duncan of Springbank: Are you not troubled by that?
Professor Sir Ian Chapman: I believe that we are doing the right things.
Lord Duncan of Springbank: Just returning, then, to the notion of companies, not projects, you did say that you did not see any value in seeking equity. Why not?
Professor Sir Ian Chapman: I do not think that it is our role. If we are in a world where we are making equity investments, private capital should do that. There is four times as much private capital as public capital, and we should not be getting into the space that either dilutes or prohibits, potentially, private capital from making investments.
Lord Duncan of Springbank: You need not be competitive. You could do both. It could be private capital, and the government investment could be treated as an equity investment, which would then bring that into the Exchequer. That is a choice being made.
Professor Sir Ian Chapman: The question of return is important. This is a subject that we are looking at. We are actively looking at the way that we manage intellectual property that is developed through our grants and our investments, and the terms and conditions upon that IP.
My view on this is that, if we give rise to high-growth potential companies and incentivise them in the right way so that their growth happens in the UK and provides high-quality jobs and revenue, that is the return that I am seeking. That money goes into the Treasury and then the economy grows, and the economy can then support greater investment in research and innovation.
Lord Duncan of Springbank: I can accept that. You said that you were looking at it, but you have already ruled out the equity investment.
Professor Sir Ian Chapman: We have not ruled it out. We are going through an exercise to look at that. I do not think that that is where we will land, but we will have to solicit a wide range of views on that before we make a determination.
Lord Duncan of Springbank: Looking at this in a broader context, you have a number of potential investors within the government family, whether it be the national investment bank or other departments. How do you liaise and co-ordinate with them? Their priorities may not be yours, so how do you create a co-ordinated government response that gets a co-ordinated government benefit?
Professor Sir Ian Chapman: I keep saying nice things about government approaches to things, but I will continue in that vein. The industrial strategy, in its current instantiation, has felt more co-ordinated and more of a whole-of-government effort than many of the predecessor industrial strategies, in my view. Having been in the system for the last decade, we have tried this a few times.
In the past, it has felt like the domain of the business department. It now feels like this is the domain of all departments, and that all departments are signed up to it and playing their part, which means that there is more alignment and everybody does feel it incumbent upon them to play their part in delivering against the industrial strategy of the Government, which I think is a good thing.
Lord Duncan of Springbank: Who co-ordinates across Government?
Professor Sir Ian Chapman: The Treasury and the Department for Business and Trade are the co-ordinating voices in that, but, as I say, all government departments really do feel that they have to play their part in that.
Q11 Baroness Willis of Summertown: STFC funding is an area where, as you can imagine, we have had quite a lot of letters coming in. As we understand it, the STFC has to make savings of £160 million because of these projected cost increases for running its large facilities. We also understand that the decision as to what to prioritise has now been taken, with some large UK facilities losing out in order to prevent cuts to the purer sides of the research. Could you just set out how UKRI made the decision as to what to prioritise in this instance?
Professor Sir Ian Chapman: First, we identified a serious cost pressure. It would be irresponsible management not to address that cost pressure. We cannot continue down a road where we are exceeding budget year on year and making the situation worse, so it is right and responsible management to deal with that in good time.
Secondly, we have done this through a broad and wide consultation. We had 10 big consultation events. We had written input from the 48 principal investigators who are recipients of STFC grants. We had 30 different advisory panels, council meetings and science boards across the last few months in order to arrive at a decision.
That decision does involve difficult choices, for sure. In order to reach budget compliance, we were faced with the situation where we may have had to turn off facilities immediately in order to come to a budget-compliant position. We did not think that was the right answer for the country. It would have immediately degraded our international competitiveness. It would have taken away facilities that underpin so much of the science and technology that happens in the country and would have been a very deleterious thing to do.
To avoid that, UKRI has liberated an extra £135 million in addition to STFC’s budget over the next three years so that we can spend more money in the near term in order to bring the budget into a sustainable position over a four-year period. Rather than forcing it in year 1, we are doing it over four years. That gives us a pathway to a smooth transition whereby we can protect the high-quality discovery science that gives us renown; we can protect the brilliant people who go on to support the economy more broadly as well as discovering new things and advancing knowledge; and we can keep open our three largest multidisciplinary facilities, which underpin a lot of the interdisciplinarity that we were talking about in earlier questions. That is everything from life sciences to materials science, so a broad gamut.
We have challenges in order to walk that pathway. We will have to reduce our costs. We do think that operational efficiencies are achievable, particularly in the three big multidisciplinary facilities: the ISIS Neutron and Muon Source, the Diamond Light Source and the Central Laser Facility. We think that we can operate more efficiently and realise some operational savings.
As well as delivering operational savings, we are going to be seeking income generation. Again, I cannot justifiably say to the STFC team, “Go and generate more revenue tomorrow”. It just will not happen. They need a runway and a pathway up to that. We are giving two years of time to change the way that we interact with our industrial users and our international users and to do more cost recovery and revenue generation, to take the pressure off the public purse.
To contextualise that, by the way, the increased revenue that we are talking about is £29 million in four years’ time against a core budget of £840 million. It is not that I am saying, “Go and win all your money commercially”. It is 29 out of 840. That feels realisable to me. It is a challenge, but it is not an incommensurate challenge.
The combination of those two things, realising efficiency savings and driving increased revenue, will then put us on a pathway to a sustainable footing with this extra £135 million from the other research councils, all of whom agreed that this is the right thing to do for the country despite the fact that it means that they have to defer projects. They will have to defer projects into future years to liberate funding in the near term.
That is the pathway that we are walking. It is not a comfortable pathway. None of these is an easy decision, but we think it is the right thing to do.
Q12 Lord Drayson: I should declare an interest as a science entrepreneur and therefore a director or shareholder of a number of science-based companies that have collaborated in research programmes that have received grant funding.
Sir Ian, you have described very effectively to the committee the change that you are leading within the organisation and you have described the culture shift and the behavioural change. Would you agree that transparency is an important value in managing such a cultural change?
Professor Sir Ian Chapman: Would it be too churlish to just say yes? Yes, of course.
Lord Drayson: You agree.
Professor Sir Ian Chapman: Yes, absolutely.
Lord Drayson: You have mentioned the serious cost pressures and the budget compliance issues. Of course, UKRI has to operate within the budget that is set by the Treasury. It would be really helpful if you could answer with transparency my questions relating to this issue, which I think you would agree has not reflected well on UKRI over the last six months.
The net effect of the allocation decision is that, because STFC’s budget did not rise to meet the higher costs caused by geopolitical change, changing energy prices and changing exchange rates, STFC and the physics community have lost out. What was the motivation for the decision to prioritise funding to other areas of science to fill this shortfall? Who took that decision?
Professor Sir Ian Chapman: We have not prioritised other areas of science to meet this shortfall. The STFC budget is essentially flat. That is not anomalous. Most of the councils have essentially flat budgets. The additional money into research and innovation is targeted at the uplift in QR. That goes with inflation. The quality-related research that gives unrestricted money to universities is going with inflation.
Equally, there are a number of infrastructure investments in what we call bucket 2. We are building a new national supercomputer. We are running the R&D missions accelerator programme. There is the local innovation partnerships fund. That is where the incremental money has gone. The councils all essentially get flat budgets. It is not that I have given more money to other disciplines rather than STFC.
Lord Drayson: There has been a decision as to how the cost overruns that have affected large facilities have been spread across the other research councils. The decision has been taken on the allocation of budgets and how the partitions have been set up. Given that this is not a new problem for STFC, who took the decision that the overrun would effectively land on the physics community rather than being spread more broadly across all the research councils?
Professor Sir Ian Chapman: I still do not agree with your hypothesis that the physics community is being disproportionately hit. As I said, all of the domains—all of the councils—have a similar cost pressure on their portfolios.
Lord Drayson: Do you agree that the physics community feels that it has been hit?
Professor Sir Ian Chapman: Yes.
Lord Drayson: Why does the physics community feel that?
Professor Sir Ian Chapman: The process that we have gone through has been difficult. We asked people to consider unpalatable financial scenarios whereby they may receive a reduction in funding of 20% or even 30%. Those are very difficult things to consider. I wrote an open letter last week, when we communicated the news on this, to say that I understood that this was a difficult question to be asked.
It happens to us at every spending review. We always get asked, “What would you do with less money? How would you prepare for a portfolio under financial constraint?” We find those difficult questions to answer, but they are the right questions to ask because it allows you to see very acutely your areas of focus and priority.
Lord Drayson: Sir Ian, I am sorry to interrupt you, but you are not really getting to the nub of the problem, if I may say so. There has been a decision taken. We all accept and the physics community accepts that difficult decisions have to be taken. The point that I am trying to get clarity on is how the decision was taken, who took the decision and why the decision has been taken in the way that it has. You will have noted the concerns that have been raised by the Science, Innovation and Technology Committee at the other end of this building relating to this process.
I really want to get to an understanding from you, particularly given the time that we are going through in terms of politics generally, on where the responsibility for this decision lies. Is it with UKRI? Is it with DSIT? Which Minister is it? Is it the Treasury?
Professor Sir Ian Chapman: I will step right back to the start. If you look at HERA, the way we make funding allocations at spending review is that all the research councils make a recommendation to the UKRI executive. The UKRI executive then makes a recommendation to the UKRI board, which then advises the Secretary of State, “Within this funding envelope, this is how we would apportion the money between the councils and between the projects”. That goes to our Secretary of State and the Treasury for approval.
Once the Treasury and our Secretary of State have approved our spending review allocation, we publish that in an explainer, which we did in December last year. That sets the envelope; it sets the budget context for the different buckets, the different councils and the different programmes.
Within those councils and programmes, it is an operational matter for UKRI. UKRI decides how to use that. The Government decide, “This is the STFC budget”, but the decisions within the STFC budget are operational matters. UKRI will then decide how to use the budget within the council. Does that answer your question?
Lord Drayson: What happened at the STFC council in December?
Professor Sir Ian Chapman: You will have to give me more context for your question.
Lord Drayson: The issue relates to the minutes of the council meeting in December. What happened?
Professor Sir Ian Chapman: There was a council meeting where we were describing the new budget allocations to the council and saying, “This is the settlement from the Government. This is how it will be distributed between our buckets”. Some draft minutes came out, which indicated that money was being moved from discovery research into applied research. That was not the case. It was an erroneous statement made by one of our officials. I absolutely take responsibility for that.
There was an earlier question about alignment in the organisation, management and leadership to make sure that people are all on the same page. We were only a few months into a new chief exec. I had clearly not elucidated the changes that we were making as well as I ought to have done to my staff, so we made a change to some draft minutes and updated them, which is normal practice for minutes.
Lord Drayson: Speaking as a former Science Minister, in the spirit of the transparency that you are communicating as a core value of UKRI, were there political factors at play?
Professor Sir Ian Chapman: No.
Lord Drayson: There were absolutely not.
Professor Sir Ian Chapman: No.
Q13 Lord Stern of Brentford: My question is in the same spirit but with a different perspective to Lord Drayson’s questions. Budget allocations should depend in part on best estimations of rates of return—not narrowly, not solely, but you would hope that they would have a strong influence within other issues. I want to ask about estimations of rates of return, briefly I hope, in terms of methods, the estimates themselves and allocations. I will give you all of them and then you can take them as a group.
It is not easy to estimate rates of return for R&D. It is in the nature of the beast. There is the scope, the uncertainty and the length of time. All those things are not problems. They are the essence of the whole story. It is hard, and I recognise that. For transparency, 20 years ago, as Second Permanent Secretary at the Treasury and head of the Government Economic Service, I was in charge of the Green Book. This goes beyond the Green Book, as we all know.
First, are you comfortable with the methods that are being used in DSIT and Treasury?
Secondly, I want to ask about the estimates themselves. DSIT is rather cheerful about the statement that the benefit-cost ratio is about 8:1, as it has estimated it. Other estimates, rather than benefit-cost ratios, in terms of rates of return have been 40% or so. These are numbers that I am sure you use and are familiar with.
That leads immediately to another question. If those rates of return really are embodying benefit-cost ratios of 8:1, if you really believe it and the Treasury really believes it, we should be spending far more on R&D than we do. Is there something wrong with the ratio of 8:1? I have been in the Treasury. I have looked after serious bits of it. I know all about budget constraints. If you really believe in 8:1 or the 40% estimate of the rate of return, should not we be spending much more?
Finally, how do you use rates of return in allocation within your budget? If the average is 8:1, there are presumably some above and some below. That is the nature of averages. Are you shifting towards those with higher rates of return? Are you using more granular information from these kinds of analysis in your allocations?
Professor Sir Ian Chapman: There are a number of things to pick up there. You are entirely right that investing in research and innovation is a very uncertain business and there is a lot of judgment and expertise involved in it. That is why UKRI exists, in large part. Indeed, HERA says that these decisions should not be taken by Ministers; they should be taken by experts, which is why we have an arm’s-length body full of experts to make these difficult decisions.
As I said to Lord Winston earlier, the hard bit about being in UKRI is that, for every five great ideas, we leave four on the table. That is difficult. It is hard. Our prescience may be no better than other people’s. The exact rate of return in a very uncertain field in a sector that probably does not even exist yet is hard for anybody to determine. There is a bit of historical data in this, but there is also a large part of subjectivity and judgment involved in knowing where to make decisions.
As a counter to this, you say, “Do we have the experience and the expertise to do this?” Look at the country’s industrial strategy. In that, you will find engineering biology as a growth sector and a big opportunity for the UK only because the research councils were investing in synthetic biology 25 years ago. You will find quantum computing, which again is only a growth potential and high-growth sector for the UK because the research councils have been investing in quantum concertedly for 30 years.
We make long-term decisions and we take risk. There was an NAO report into the risk appetite within UKRI and whether that balance is correct. That is a good challenge to us. Are we taking enough risk? Are we betting on the technologies of the future? Somebody has to. If not us, then who?
The root of your question about whether you can rely on a Green Book BCR is right. Lord Willetts did a study into the business case process as applied to research and innovation and whether it was fit for purpose. There were a number of recommendations that came out of that, including related to the economic analysis, what stock we should put into an overall aggregated 8:1 figure and whether we should try to drive greater granularity.
I think we ought to, and that requires us to look at things, as I have been describing in this session, around the absorptive capacity of the supply chain, market opportunity and the UK’s competitive position. We have to make assessments against all those in order to ascertain whether it is an 8:1 market opportunity for the UK or across the sector internationally. There needs to be greater granularity into that, but it is not easy. For sure, it is not easy.
Lord Stern of Brentford: Can I just ask a two-hander on granularity? Do you have breakdowns of the 8:1 by different bits?
Professor Sir Ian Chapman: I would be overcommitting to say that we do across the whole of our portfolio. For larger interventions, we will write specific business cases, which then do an economic analysis for that specific business case and do not rely upon an aggregate number.
Lord Stern of Brentford: You do not do it strategically.
Professor Sir Ian Chapman: It would not be true across every part of our portfolio.
Lord Stern of Brentford: Do you have them for the big areas?
Professor Sir Ian Chapman: For our quantum programme, we absolutely will have a BCR for that £1 billion spend on quantum. I do not think that exists across our entire portfolio, nor, indeed, do I necessarily think it ought to exist. Trying to break down discovery research into that model is probably not profitable. We may waste a lot of time and energy on metrics that we have low confidence in anyway.
Can I come back to how we decide where to put the money and the application of that into allocations? I have forgotten who asked it, I am afraid, but in response to an earlier question I talked about the alignment across government behind the industrial strategy. We are a public body. We are here in service of the public. You should expect us to be aligned against a whole-of-government approach to industrial strategy. If the whole of the Government have said, “These are the high-growth sectors of the country. These are the sectors where we have most economic potential benefits”, of course you should expect UKRI to align behind that and play our role in delivering that.
Allocations to industrial sectors are very much weighted by the industrial strategy. That is the right thing to do. If it is a whole-of-government approach, it has to be a whole-of-government approach.
Lord Stern of Brentford: Just as a brief follow-up, I agree with you about this industrial strategy being more coherent across Government. Given my advanced age, my memory goes back to George-Brown and all that. This is more coherent, but, if you want to claim some credit for UKRI—and you should—that industrial strategy was led in many ways from the Treasury and the Council of Economic Advisers through my colleagues at the LSE, John Van Reenen and Anna Valero, whose ability to do this over the years was built up by support from UKRI, ESRC and so on. Over time, there is a return from your work in building the strategies themselves.
It would be very good if at some stage you could come back to us—you have so much on your plate that I do not want to insist on it being soon—on how the returns for different kinds of activities are broken down. If you take the 8:1, the people who calculated it must have done a look across the whole waterfront. Otherwise, how else could they have done it?
Professor Sir Ian Chapman: That is absolutely true.
Lord Stern of Brentford: There will be some granularity in what you have already. It would be nice to know a bit more.
Professor Sir Ian Chapman: I am very happy to do that.
The Chair: Perhaps you can come back to us in the future on that one. I am very conscious, Sir Ian, that you have been answering lots and lots of our questions. We have a few more, as you will probably appreciate. I hope you are all right to stay a little bit longer than the allocated time.
Q14 Lord Drayson: I want to take us back to the STFC problems, I am afraid. It is absolutely fair that the speed of change in the world with science and technology presents new challenges, and it is great to hear the way in which you are aiming to effect this speeding up in the way in which UKRI operates to meet that challenge.
What concerns me is that the problem that has arisen with STFC is not a new problem. It is a problem that has existed for as long as STFC has existed. We have experienced significant changes to the fundamental budgets of STFC, and solutions were put in place, going back to 2009, to ensure that the result of what is now happening to physics would not take place. Given that UKRI was brought in to provide better co-ordination of research spending, why did not UKRI see this coming?
Professor Sir Ian Chapman: I would contend that we did see this coming, and that is why we have taken action.
Lord Drayson: Why was all the rather upsetting decision-making taking place at speed, with all the issues that took place at the end of last year, if you saw this coming?
Professor Sir Ian Chapman: We wanted to do this with the community. You say that decisions have taken place at speed, but we have taken seven months to do this. We have consulted very widely, as I answered earlier to Baroness Willis.
Lord Drayson: Surely that was in response to the controversy.
Professor Sir Ian Chapman: Not at all, no. That was our plan, which is what we said to the community.
Lord Drayson: This was your plan.
Professor Sir Ian Chapman: Yes, it was the plan to consult with people about how to make these decisions. It is not easy to say to folk, “There is a cost pressure. We have to make decisions”. It is not easy to ask people to think about perhaps unpalatable financial scenarios, but those are the right things to do in order to make difficult decisions.
You cannot make difficult decisions without good evidence. We collected evidence; we understood the impact. There were people who were very worried about deep cuts to discovery science. That has not transpired. Discovery science within particle physics, astronomy and nuclear physics reduces by 2.7% across four years. This is not a deep cut.
That was only possible after the collection of evidence and the understanding of international impact. We went through a process to do that, in the way that we said we would. We took as long as needed; we did not take longer than needed. People are affected by this. We wanted to reach conclusions as quickly as possible but, at the same time, not rush those conclusions. We took as long as we needed to consult widely.
Lord Drayson: What have you learned from this, as the CEO?
Professor Sir Ian Chapman: I have learned that we probably could have done better at contextualising this at the start. If we had outlined the context better at the start, I would hope that there would have been less fear or a less hyperbolic reaction to the exercise.
Lord Drayson: Who are you saying had a hyperbolic reaction?
Professor Sir Ian Chapman: I am saying that this has led to great uncertainty in the community. You described that the physics community feels like it has been cut, and it is a “feels”. If you look at the evidence, if you look at the numbers in our budget explainer, the budget for physics increases. There is more money going into quantum physics. There is more money going into AI. The STFC budget has not decreased; it is flat. It has not been cut. It is not decreasing. There is an emotional response that we could have done better to contextualise up front.
Lord Drayson: This is really quite important. In terms of learning for the future, STFC is going to be hit by similar problems in the future. You have put in place, if I may say so, a sticking plaster to the problems caused by the failure to see this coming previously. Given the nature of geopolitics, the pressures on the budgets of large facilities are going to be volatile. Going forward, how are you going to avoid having to do what you have just had to do all over again in the pretty near future?
Professor Sir Ian Chapman: The whole point of what we have just done is to put us on a sustainable basis. As I said, we are liberating extra budget from across UKRI in order to make a change over a period of time so that we can put STFC on to a sustainable basis. You are right that there is cost pressure. Through this exercise, we have identified the cost pressure through good forecasting of what that cost pressure looks like.
The forecasting quality of UKRI is really exceptional. If I give you an example, we are about to lay our accounts in Parliament for the financial year just gone. Across a budget of £9 billion, we landed to within £30 million. That is 0.3%. Our forecasting is very good and very accurate. We use our allocations very well. I have high confidence that the forecasting is good.
When you see a forecast four years out that shows you a pressure, you should react to it. That is what we are doing.
Lord Drayson: It is the unforeseen events of the future, largely caused by geopolitical changes, that disproportionately have an effect on the cost of STFC compared to the other research councils.
Professor Sir Ian Chapman: I do not agree with that statement. Imagine other research councils. For instance, EPSRC has a big AI programme. If electricity goes up, that affects the electricity cost to data centres and AI provision. Right now we have a spike in the oil price. NERC uses a lot of oil to run its ships and planes. Geopolitics affects all the councils.
Lord Drayson: What was wrong at STFC compared to the other councils, then, which you are saying are able to cope with these unexpected changes?
Professor Sir Ian Chapman: STFC, unlike many of the other councils, has a high commitment fraction because of the workforce. We have a large headcount of researchers in STFC. They are employees. That is a commitment on our side as an employer to those individuals. If you look at the headcount change over the last four years, STFC and Diamond together have increased headcount by more than 800 people over a four-year period. That creates a cost pressure. Those people have a salary. It is a commitment. The commitment fraction increased, which put an additional cost pressure. As a result of the exercise that we have gone through, we will have to reduce headcount, but that is in the context of headcount going up by 800 over four years.
Q15 Baroness Jones of Whitchurch: I want to take a slightly different tack now. We are going through a political reset at the moment. We have a Prime Minister in waiting who is talking about growth in every postcode. To what extent is UKRI looking at the implications of all this? We already have a number of universities, particularly around the northern cities, that are doing great collaborations with their local communities, local businesses and so on. I am imagining that the new Prime Minister is going to want to encourage those sorts of innovations and joint collaboration.
To what extent do you see it as your responsibility to be part of that and to have place-based funding in addition to juggling all the other priorities that you have already described? This could be an additional one. It may be that you are already operating on that basis. To what extent will you be place-based and part of the devolution agenda that is coming?
Professor Sir Ian Chapman: Yes, UKRI takes that very seriously. If you look at how our investments have gone over the last few years, over the last spending review period, London and the greater south-east received the smallest percentage increase. Every other part of the UK received a larger percentage increase, the largest being Northern Ireland and the south-west, for what it is worth. There were over 50% budget increases in those two regions.
UKRI has very determinedly diversified where our money is going. The north of England now receives about 20% of our budget. As a comparator, across all of Whitehall it is roughly 12%. UKRI is investing more into regions and devolved nations than we have done historically. In absolute terms, that is an increase of more than £1 billion outside the greater south-east. We have taken that very seriously.
However, there is a lag. When you put investment into a place, it takes a few years before the benefit from that investment really takes hold. There is a benefit lag, but I would also contend that the benefit is not so acutely felt by those places because the approach that we have taken historically has been to do a little bit of lots of things in lots of areas. Rather than specialising, aggregating and saying, “We will do quantum technology at scale in one place”, we have done it in a very distributed way. Rather than saying, “We will do infectious disease in one place”, it is done in a distributed way.
Like I say, the organisation has really taken seriously the need to use all our muscles as we go forward. As a country, we are trying to lift a heavy weight. We are trying to say, “Let’s target economic growth greater than our G7 peers can achieve”. On what basis are we doing that? We must have a basis for that target and we must have an asset that we are trying to use to achieve that. For sure, we will not achieve that if we do not use all our muscles. You do not lift a heavy weight just with your bicep; you use your whole body to do it. We must use all parts of the country in this endeavour, and we collectively have to address the regional disparity that does exist. UKRI has a role in addressing that disparity. We take that very seriously, but one way in which we could do that better is with greater focus in places.
To that end, as part of this spending review, we created the local innovation partnerships fund, which was a deliberate co-creation with places. It was not us deciding what to invest in regions; it was a co-creation with mayoral combined authorities, city regions and the devolved nations to say, “How do we work in concert to specialise in a few things in your region and then do that concertedly?” The rest of the UKRI machine—investments in talent, investments in infrastructure, investments in commercialisation—can then come in behind a specific focus. Identifying the focus was the first part, and that is what we have been doing with places over the last 12 months.
The Department recently took the decision to devolve that budget in the future. We have gone through this co-creation work with MCAs and with devolved nations. In the next spending review, the money will go directly to the places rather than routing through UKRI. We have established this much tighter collaboration with them to enable that.
Baroness Jones of Whitchurch: How much money is in that particular fund?
Professor Sir Ian Chapman: It is a relatively modest fund. It is £500 million across the four-year spending review compared to the total budget of £38.6 billion. It is only a bit over 1%. However, I view that very much as catalytic. Like I say, there is £9 billion into skills and talent, but, by knowing where the focal place is, we can then align the skills investment into a region behind the topic of focus. There is a significant amount of money going into infrastructure. We can do the same thing there. Although it is a small amount, I view it as catalytic.
Baroness Jones of Whitchurch: It is a small amount, from what you have described, but is there going to be more impetus to do more of that in the new regime?
Professor Sir Ian Chapman: I will have to wait for the new Administration. As I said, my own personal view on this is that to lift a heavy weight you have to use all your muscles; you have to use every part of the country. We do see that there is regional disparity in the prosperity of different parts of the country. We have to play our part in addressing that. Collectively, we have to address that, if we are going to grow the economy.
Q16 Lord Willis of Knaresborough: First of all, thank you very much indeed for your contribution today and, indeed, the confidence and commitment that you have to your role. Dealing with some of our members has been useful for you and useful for us.
Dame Ottoline Leyser, your predecessor, talked about making sure every pound achieves multiple outcomes for the UK. Is there a concern that the jam gets spread too thin, if we try to use research grants to achieve too many objectives at once? Would it be better for researchers to be clearer at the beginning about what each grant is trying to achieve rather than just waiting down the line?
Professor Sir Ian Chapman: Yes, it is a very good question. The phraseology that I have heard Ottoline use in the past is to seek triple word scores. That it is a good analogy because, if you were going to lay that word anyway in a game of Scrabble, would not you be better off laying it in a place that gets you more points? To that extent, when you are going to make an intervention because it is the right thing to do and it advances knowledge, improves lives or drives growth, if you can make that intervention in a way that brings additionality, why would you not, frankly?
It is an important role for UKRI to identify where you can get additionality from investment, which achieves what you set out to achieve but also achieves other ancillary benefits. To that extent, I wholly agree with the thesis from Ottoline. It is ancillary rather than primary.
Primacy should be to make the interventions that make the biggest difference to your original mission. Does this bring greatest novelty and excellence to advancing knowledge? Does it make the biggest difference to improving people’s lives? Does it give you the greatest benefit to the economy? That should be primacy. If you can then get ancillary benefits, why would you not? We should absolutely be seeking those too, but they are ancillary.
Q17 Lord Berkeley: Just looking at regional issues again, Innovate UK gave a lot of small place-based grants to companies in specific regions. Is that going to change? Is there any fear that Innovate UK’s due diligence will find that all the promising companies are in the same few places? This is an ongoing issue that many people around the country have. You mentioned it in a previous answer, but it is very important to get the balance between the regions absolutely right and equal.
Professor Sir Ian Chapman: Yes, I totally agree with your nervousness around this. I should just point out that today businesses outside the greater south-east are, roughly speaking, two-thirds of our portfolio of businesses. Two-thirds of them are outside the greater south-east; only one-third are inside the greater south-east. That shows you how the land lies today.
That does not mean that we should ignore the fact that the greater south-east is a great engine for the country, but, in line with Lord Willis’ last question, we should absolutely be thinking about the additionally. In the most recent speech from Andy Burnham, he pointed out the example of the connection between Manchester and Cambridge on life sciences as a good example to pursue. That is absolutely right. Fabulous discovery research happens at the University of Cambridge. By doing that in a deliberate partnership, you are asking, “How do we translate that discovery research into application and manufacturing capability in the north-west?” We can do more of that.
This is what I was talking about earlier: the role of UKRI as a steward of the whole system. How do we make sure that the brilliant discovery research that happens in the greater south-east—it is an engine for the country, and we should not turn our back on that—gives benefit locally into other regions of the country?
Lord Berkeley: Andy Burnham had a rethink about his statement about the importance of Manchester and mentioned that there are a lot of different regions across the whole country. It was a bit of a naive thing to say. That is my interpretation. There are a lot of other regions that I hope he will not ignore—I am sure he will not—and the same applies to you.
Professor Sir Ian Chapman: Yes, I agree entirely.
Q18 Lord Duncan of Springbank: I want to follow on from Lord Berkeley’s question. There is an incoming Prime Minister who has a very different approach from his predecessor, one would assume, and you will therefore need to be able to factor that into your planning. It is perhaps premature since he is not yet Prime Minister, but that might have a significant impact upon how you might look at the country as a whole. Would that be fair?
Professor Sir Ian Chapman: Maybe I am being naive, but I think that UKRI has already, for many years, been on this journey of thinking about how we use all the devolved nations and the parts of England, all the regions, to deliver against a national mission. It has to be a UK mission.
You have seen that in the way the funding distribution has shifted and has changed. There is a genuine belief inside the organisation that regionalisation and making sure that we use all our muscles is the right thing to do. To that extent, we are wholly aligned with the incoming Administration. We may have different nomenclature or verbiage, but the intent is very much the same. How do we use every region, every part of our nation and all the devolved nations to make sure that we make the biggest impact for our people?
Lord Duncan of Springbank: Presumably, you do not do that right now. Where universities and where recipients are centred is already established. From what I understand, the incoming Prime Minister wants to move from a model where there are existing recipients to a model where those people are spread to different places. That would be the logic that I take from his statement.
Professor Sir Ian Chapman: Yes. Of course, there is an incumbency and our system rewards excellence, but our system goes beyond just rewarding excellence. We do think about place, social impact and supply chain absorptive capacity. Those things are not necessarily in the place where the discovery research happens. We are making interventions that enable that and help that to happen.
The example that I just gave of the partnership between Cambridge and Manchester was initially funded by Research England. We made an investment to enable that partnership, which is absolutely about taking brilliant science and growing a supply chain and a manufacturing capability elsewhere in the country. We should do that a lot. It is important to the growth of the country.
Q19 The Chair: You have been extremely diligent answering our many questions. My final question is around priorities. What does success at UKRI look like for you? What is the one thing that you would like to look back at the end of your tenure and say you have achieved?
Professor Sir Ian Chapman: This is a very good circular question because it takes us right back to your first question, when we were talking about the purpose of the organisation, its mission and the culture and intent of the organisation.
Success for me is real clarity that we are here to seek a mutual symbiosis between discovery research, application and improving people’s lives and growing the economy. UKRI exists to do all three of those things and must do so in concert. One is not at the exclusion of the others. They are a system. They all have to work together and pull in the same direction.
That is our job. We should not think of one part as more worthy than the other parts. They have to work in concert. I want the organisation to feel complete clarity about that, to know which way we are going, to be aligned and to know who we are here to serve and what we are here to achieve.
Secondly, we have brilliant people inside UKRI. The single best thing about taking the job is finding the talent inside the organisation. They are such altruistic, dedicated and committed people who want to make a difference to the country, and it is a joy to work with them. I feel that there is a great incumbency on me to give them the tools, delegations and clarity of accountability to let them do their jobs as efficiently and effectively as possible. There is a lot of inertia and entropy in our system, and stripping that out will be a great service to the community. That is something that I am trying absolutely earnestly to do.
The third thing is around culture. We have talked about it in this room. As an organisation, we are conditioned to hold ourselves to account on inputs. How many pounds have we spent on a programme? How many people have we trained? These are inputs, not outputs. I would like us to be much more focused on the outputs and the outcomes that we have achieved for the public. That is a cultural change.
The second cultural change would be to bring a bit more of an entrepreneurial mindset to the organisation, which, as I said, historically has been focused, very necessarily, on the novelty and excellence end of the three legs that I talk about. I am not saying that we should not do that. We absolutely should do that, but we should also think in a more entrepreneurial way about how we can bring extra investors into the system, which helps everybody. It provides a rising tide, more eggs and more flour, and gives us more resource to do more with what is such an amazing asset for the country.
I fundamentally believe that research and innovation is the biggest asset that this country has and that we should use it to its absolute fullest. At the moment, I feel there is quite a latent potential there that we could do more to exploit. I know none of those is very specific, but those are the cultural and behavioural changes that I am hoping to bring to UKRI in time.
The Chair: Thank you very much. That is a very positive way to conclude an extremely informative session. Thank you for answering all our questions. We wish you very well in your tenure at UKRI. We will now close the session.
