Oral evidence - EU membership and UK science - follow-up

Members present

Earl of Selborne (Chairman)

Lord Borwick

Lord Fox

Lord Hennessy of Nympsfield

Lord Hunt of Chesterton

Lord Mair

Lord Maxton

Baroness Morgan of Huyton

Baroness Neville-Jones

Viscount Ridley

Lord Vallance of Tummel

Baroness Young of Old Scone

________________

Jo Johnson, MP, Minister of State for Universities, Science, Research and Innovation, Department for Business, Energy and Industrial Strategy (BEIS) and Department for Education (DfE); and Gareth Davies, Director General, Business and Science, Department for Business, Energy and Industrial Strategy (BEIS)

Q45 The Chairman: Could I welcome you, Minister, and Mr Davies? Thank you very much for coming back. We are rather geographically challenged—there is a long distance between you and me—but I can see you clearly. We are being broadcast and televised so I would ask you, Minister, to introduce yourself and Mr Davies, for the record, and then if you would like to make any opening statement before we go into questions please feel free to do so.

Jo Johnson: Thank you very much. It is a pleasure to be back before the Committee. I am Jo Johnson, Minister of State for Universities and Science and I am with Gareth Davies, director-general of research and innovation in the Department for Business, Energy and Industrial Strategy. I will take the opportunity to make a short opening statement. Since I was last before you, which was shortly before the referendum, things have obviously moved on quite significantly. I recognise that the result of the referendum has introduced many challenges for the science and higher education sectors, but it has also created new opportunities, and I am glad that we will have the opportunity to discuss both before your Committee today.

I wanted to highlight that I thought your report, which I read again this morning, was an excellent summary of the issues, and I am really grateful to the Committee for its very thorough work in exploring the complexity of the issues involved in our relationship with the European Union science and research funding streams. I thought it was a helpful contribution to our understanding as Government of the nature of the issues we are dealing with. I also wanted to put on record some of the assurances that we have tried to provide to the sector in the weeks following the referendum to deal with not all but some of the uncertainty that has arisen as a result of it. Very briefly, and most importantly, they relate to the Horizon 2020 funding stream and the guarantee that the Treasury provided in its statement on 13 August that it would be good for any commitments and payments due to UK researchers and institutions that might fall due after the point of Brexit. That concern—the so-called shortfall—accounted for the considerable bulk of inquiries that the department had received following the referendum result. That guarantee of Treasury funding has helped lift quite a significant proportion of the uncertainty.

The other areas in which we provided guarantees relate to the ability of EU students to continue to access the student loan book, and we did that pretty quickly off the bat in relation to the 2016-17 academic year, which has now started, and in October we added to that by saying that EU students would be able to access the student loan book for the duration of their course of studies if they were to start courses commencing in the 2017-18 academic year. Taken together, the funding and the access of EU students to the loan book were two of the most important pieces of the jigsaw. We recognise that there are other outstanding issues, in particular relating to mobility and the rights of residents, and I am sure we will come to those issues in the Committee’s hearing. Thank you.

The Chairman: Thank you very much, Minister. I can assure you that your short-term assurances—and they were short-term—on Horizon 2020 and the like were very much welcome, as indeed I know the science community welcomed them. As you say, challenges have been presented to science and higher education, to say the least. Do you think this is an opportunity to make a signature statement about how we, as a country, should establish ourselves assertively in the international science community? Should we, for example, host a major international research facility emphasising our new place in the world after Brexit? Do you think there are other bold ideas so we can no longer be reacting to short-term problems and challenges to demonstrate to the international science community that the UK is a place to do science and come and work?

Jo Johnson: Yes, it gives us an opportunity to look at how we do science and innovation and to position ourselves for the future as a country that is determined to stay at the cutting edge of science. We are already host to a number of important research facilities and we are continuing to develop our networks. The Square Kilometre Array, the radio telescope outside Jodrell Bank in Cheshire, is a good example of a new, exciting facility. We could point also to the Francis Crick Institute which will formally open next month, or the dementia institute that is under way at the moment. These are globally significant institutes which are new and will keep us at the cutting edge of science for decades to come.

I was up in Birkenhead on Merseyside earlier this month for the keel-laying of our new polar research ship, a £200 million vessel. That is going to be delivering state-of-the-art marine science. That is a piece of infrastructure which will be floating the world’s oceans, particularly around the poles. Again, that will be at the cutting edge of science for decades to come. We continue to analyse all the opportunities to make more such commitments when they present good value for money.

The Chairman: I take that as a very positive response. You are certainly prepared to look at proposals that we should indeed be hosting international science facilities over and above the ones you have mentioned.

Jo Johnson: Yes, absolutely.

The Chairman: Even if there will be a cost to it, as there invariably is to the host.

Jo Johnson: We definitely see value in being the host of globally significant research facilities. You can see it in the way they create ecosystems around them of businesses, spinouts and all the spillover activity that comes from having brilliant people doing science in your community. Yes, we value them but, clearly, you have to analyse each one on a value-for-money basis and make sure that the contribution cost the taxpayer makes will generate a sufficient return.

Q46 Lord Hunt of Chesterton: One of the ways in which scientists interact across Europe is through networks. We had a presentation last week at the Royal Society on polar issues and what is very interesting is that the Russells have a co-ordination centre for polar research and this, as it is at the moment, includes many countries outside the EU—America, North Africa, Japan and so on. They said, which was rather interesting, that they would continue to run this as a co-ordination activity, to which the Brits would be very welcome but of course the Brits would get no money. At the moment we can bid into the funds. As you know, comments have been made generally that a lot of our scientists and engineers are not as international as they should be. I believe that one of the important aspects of negotiation will be how we participate in these co-ordination activities.

It is about 20 years since the Royal Society had a meeting on co-ordination of research in the UK with Europe. May I say—I was a bit surprised you did not say it—that many of these existing international research facilities have strong business connections? In our paper for this meeting, fusion was one of them, and of course fusion is an important science but it is also important for the private sector, which we are investing in significantly. I have to declare an interest as being involved. What do you think about co-ordination? Will we be able to lead this or encourage British scientists and researchers to continue working?

Jo Johnson: Yes, we recognise that collaboration is an extremely important part of how science is done, and the frameworks that the EU is operating through, the Framework programmes, Horizon 2020 and its successor programmes, have been important drivers of collaboration. We continue to look for opportunities around the world to develop new relationships where we can. We are looking, for example, at a proposal under development in the US, which I believe John Womersley, chief executive of the STFC brought to your attention, for the Deep Underground Neutrino Experiment, DUNE. That is an example of an international collaboration with an important science power that we are actively looking at as an example of our continuing desire to drive collaboration wherever it will be useful.

Baroness Neville-Jones: That was a very encouraging statement, Minister. Can I conclude from that that you would support the view that if we are not to become takers in a lot of these activities we need actively to be makers and need to be on the front foot ourselves, drawing activity to us rather than seeing it go elsewhere? That means being, I would dare to suggest, more active than we have been in the past in creating opportunities for science to take place on British soil. Take the polar ship, which is a very exciting development and will go on its maiden voyage, will it not, to the Antarctic? Could something not be built from that by way of increasing our presence in polar and Antarctic science, which is very important from the point of view of the climate?

Jo Johnson: Yes.

Baroness Neville-Jones: That is an example, but it is a more general proposition I am putting to you.

Jo Johnson: Do we want to be on the front foot and more active? Yes, that is definitely the case. The industrial strategy gives us real opportunity to do that. We are on the record in believing that science and innovation need to be at the heart of the new industrial strategy.

Baroness Neville-Jones: Will you seek scientific input into it?

Jo Johnson: Science and innovation will be at the heart of it, yes. We are getting a lot of input into it from the science community. We welcome it. We have had many excellent submissions from learned societies as to how exactly they see an increased role for science and innovation and how they see the industrial strategy as a big opportunity for the community that we should not miss.

Q47 Lord Fox: I was going to ask this question later but it comes under the industrial strategy. First of all, what is an industrial strategy? You say “industrial strategy” rather than “strategies”. Secondly, what is the process? It seems to be floating around a number of centres with the Chancellor, your department and George Freeman’s exercise all seeming to have fingers in it. Can you perhaps lift the veil slightly on the process for this thing to emerge?

Jo Johnson: Yes, I can do that. As a process, it is not for an industrial strategy to be dropped on the world from 36,000 feet without any consultation or the involvement of people who have important views. We are in a process now of gathering evidence and views from all the relevant communities—the research and business communities, employees and employers—to bring together a significant body of evidence. The first point is we are not going to drop it from government without any discussion. We are in the process now of trying to think very carefully about what a modern industrial strategy needs to be. We propose to produce a discussion paper around the time of the Autumn Statement later this year. We propose to follow that up with a policy paper. The discussion paper will raise a series of questions which we will then consider further and we will follow that up with a more considered response from the Government in the new year of 2017. That is the process.

The work is being led by the Department for Business, Energy and Industrial Strategy, in which I am a Minister. Obviously, there are other extremely important players across government, not least No. 10 and the Treasury, but the pen is being held, as it were, in BEIS. What is an industrial strategy? There are many different versions of industrial strategy. This Government are developing their vision for industrial strategy. As I said, we do not want to pronounce now from on high until we have had a good chance to thrash through these issues, but it will not be any surprise to the Committee to know that we strongly believe that an industrial strategy has to be about making sure we have the skills base, the capacity to absorb research and innovation; it has to be about having the hard and soft infrastructure—we have to have the roads, the ports and the broadband—as well as the education and healthcare systems, and it has to be about science and innovation, so making sure, as I said, that we have a world-class research base that will keep us at the cutting edge of discovery for years to come. Those three broad elements are important.

We also have to ensure that we are continuing to create a business environment that will be attractive to inward investment and that will enable us to have competitive companies creating jobs and opportunities. That means preserving a feature of the last few years of the Administration: a deregulatory mind-set committed to continuing to reduce red tape and drive down taxes. Those sorts of broad principles are the ones informing our work as we gather evidence from relevant bodies.

Lord Vallance of Tummel: All this seems UK-centric. Does the strategy also look at the position of the UK elsewhere, including the trading opportunities?

Jo Johnson: Yes. Our export performance is clearly an important part of what is motivating this Government, like previous Governments, to focus hard on how we can make our economy more highly performing. The newly formed Department for International Trade—a bespoke department now—emphasises this Government’s commitment to getting our trading performance in better shape.

Lord Vallance of Tummel: Will that have an input into the strategy, or vice versa?

Jo Johnson: I think it will be iterative and, yes, it most certainly will have an input into it.

Q48 Lord Borwick: Minister, many people are worried about future discrimination against British companies and firms when applying for funding from the EU. You have asked for people to report to you any such discrimination. Have you received any such reports? What would you do about it if and when you do?

Jo Johnson: We did set up a structure to enable us to capture the anecdotal reports we were receiving about discrimination against UK researchers and UK institutions. As I said earlier, we set this up early on in the summer before we made the Treasury announcement about the funding guarantee on 13 August. The bulk—about two-thirds—of submissions we had to the email system we set up related to those funding issues. We feel we have addressed roughly two-thirds of those. The remaining third of the 132 emails we had dealt broadly with the uncertainty people felt about their status in the country and whether they could continue to stay and what sort of welcome they would have if they were to choose to do so. While a lot of those issues remain outstanding we have provided a very high-level assurance from the Prime Minister that their status would be unchanged by the EU referendum result, so long as other EU countries did not change the status of UK nationals residing in their countries. We recognise there are still outstanding issues on that front.

Lord Borwick: Those are fears of future discrimination rather than fears—

Jo Johnson: We have not had hard, concrete evidence of actual discrimination, as with previous witnesses before your Committee. The EU Commission has been exemplary in sending out reassuring messages to echo the messages that we, as a Government, are sending out. The research and innovation Commissioner, Carlos Moedas, has been extremely helpful in that respect. I might remind the Committee about the two assurances he gave in a speech at the ESOF Conference in Manchester, which I also attended. He said, “For as long as the UK is a member of the EU, EU law continues to apply and the UK retains all rights and obligations of a member state. This, of course, includes full eligibility for funding under Horizon 2020”.

The second assurance was, “Horizon 2020 projects will continue to be evaluated based on merit and not on nationality, so I urge the European scientific community to continue to choose their project partners on the basis of excellence”. That was exactly the kind of message we needed the Commission to send out. I understand it has had significant effect. Obviously, we are vigilant and we want to make sure that discrimination does not start creeping in around the edges the longer this process goes on. The Commission has been exceptionally helpful in making sure there continues to be a level playing field for the time being.

Lord Borwick: It looks as though this commitment by the Treasury will not cost them anything. We do not know yet.

Jo Johnson: Let us hope not.

Baroness Young of Old Scone: Could I explore a little further the aetiology of the way in which people involved in some of these projects approach the planning of their lives, as it were? Increasingly, it will be difficult to know whether we are seeing people shy away from being involved in our research effort because of the longer-term uncertainty. A young research graduate maps out their future as doing a postgraduate piece of work, possibly in collaboration with an industrial partner; seeing that as a way of getting into the job market for the future; being involved in longer-term programmes that, at the moment, are not given any assurance because they are not part of the transitional arrangements, and then, complicating that, all the issues about residency, families and the longer-term ability to stay in the UK. I wonder if I can press the Minister to tell us whether you think any of the current assurances we have had will be buttering parsnips for these people, who probably are shying away because they cannot see they have a longer-term future, because many of the assurances are pretty short term.

Jo Johnson: In all my meetings with stakeholders I always ask them for any evidence of greater than usual churn of academics or talented people of one sort of other leaving the UK at a greater than normal rate or of fewer applications coming in than they might usually expect. I am keen to get any evidence of this sort of exceptional kind of churn that might be linked to the referendum, but I have not yet been provided with any. Gareth, do you have any?

Gareth Davies: As ever on this issue it is a problem because the data is so lagged, so we will not have the next set of data until March 2017. However, we use the Horizon 2020 national contact network to try to get qualitative data about what is happening. It would not be a surprise if applications dipped in the immediate days after the referendum but since then we have seen the rate of referrals go back to pre-referendum levels. Again, I would not want to rest too much on that information but as you try to triangulate between different data sources—the meetings the Minister is having and the evidence coming through the contact point network—you start to see a return to the pre-23 June levels of applications for Horizon 2020.

The Chairman: Baroness Morgan, would you like to come in on this point?

Baroness Morgan of Huyton: I was going to come in on the immigration point, in general.

The Chairman: Shall we come to that?

Q49 Baroness Neville-Jones: Minister, you say, and it is reassuring, that the applications dipped and then they have gone up again. That is, on the face of it, good news. Professor Philip Nelson is very concerned about this. He did say to us that there had been some rather unpleasant stories and he included in that people being invited to leave a consortium which had been formed. My worry, I think, is not so much the discrimination that we will hear about but the decisions that we will not hear about; the people who decide not to come—as much for family reasons as anything else—unless they get assurances that this is really not going to be a problem. The serious loss is the networking and the very senior people, some of the stars. The stars can go anywhere, so we have to have a really attractive proposition, and that must not include doubt about their status and their family’s status and their freedom of movement.

Jo Johnson: We are keen to provide as much reassurance on this as we possibly can. We have had the Prime Minister herself address this question. I do not want to repeat the assurance that she gave but I would also point out that many EU nationals who are already in this country—if I recall correctly, the proportion is four-fifths—have indefinite leave to remain by virtue of the fact that they have been in this country for more than five years.

Baroness Neville-Jones: I am talking about the future.

Jo Johnson: I would point them, for the time being, to the Prime Minister’s statement.

Baroness Neville-Jones: That takes us so far.

Jo Johnson: It takes us as far as it does. I think she said she had every expectation of being able to guarantee their status and would only envisage doing so in the event other countries discriminated or started to change the rules for UK nationals.

Baroness Neville-Jones: You make it a matter of reciprocity rather than a matter of national decision.

Lord Hunt of Chesterton: You have quite rightly emphasised Horizon 2020 but, as we see in our paper here, there are a lot of other activities going on, partly connected with small companies. I met a person running a small consultancy in Britain. His contract with the EU stopped in July because they were working on environmental problems across Europe and they did not want to have any Brits in this. Why should they, because we are leaving? The other point is that people are discussing beyond 2019-20. Many research plans are much longer term. As far as I understand it, the only promise we have is that it will go until 2020. There is some indication of the Treasury continuing Horizon 2020 projects beyond 2020 but what about all these other projects? Again, I declare an interest: I have a small company and we have EU projects, although none at the moment. There are many small businesses across Britain working and using EU contracts. Will those continue to be funded? We cannot keep focusing on the Royal Society and 2020, although I am a fellow of the Royal Society.

Jo Johnson: I would say, regardless of the relationship we end up having with the EU funding streams you mention, we will continue to be an attractive country to partner with in science, and our businesses will continue to be attractive as partners in these kinds of projects too. We need to be confident. We have been a science power since long before the EU came into existence. I am sure, whatever relationships we end up having with the EU, we will continue to be competitive as a science power in years to come, and the Government will provide what support they can to ensure that is the case.

Q50 Baroness Morgan of Huyton: Can I take us back to immigration and nationality, which will not be a surprise to you? As a Committee we have heard consistent and extremely strong messages from higher education, and particularly from industry, about talent now more than ever being the most important issue, particularly international STEM talent and postdoctoral talent. We want to know more clearly when we will hear stronger reassurance to those here now about working rights and immigration status. How do you think we could now send signals to those considering coming in the future? As Baroness Neville-Jones said, it is not about the next couple of years, it is people thinking about five, seven or eight years hence, who are thinking about coming to be postgraduate students and would normally be thinking about then staying to work here but will now be thinking, “Is this a good idea?” and “Should we be going somewhere else?”.

In particular, do you agree that the messages and mood music people hear are extremely important even before we get to the hard policies? I understand the difficulties about timing on the hard policies. Bluntly, how can you get that understood across government? It is fine to say the Prime Minister has given this assurance but, let us be candid, some of the messages that came out of the conference about foreign workers were deeply unhelpful, and although they were then retracted you hear that all over the place. I am sure many of us end up saying, “If you read this, they have pulled back from it”, but it is deeply damaging to the general feeling people have about whether Britain genuinely will be open in the future to talent coming here.

Jo Johnson: We completely understand that science, innovation and business are global, and that it is important that we have an ability to attract the brightest and best; everybody who can add real value to the activities being undertaken in our research and business communities, and so on. We completely agree with you on the need to send out a positive message in that respect. I am glad you understand the difficulties in making harder commitments; these are decisions which have to be sequenced very carefully in the context of the broader national interest at stake in the whole of the negotiation. We understand that science is global, that there are huge benefits from our ability to bring in brilliant scientists, technicians, and so on, to work in this country, and we want that to continue.

Baroness Morgan of Huyton: How do you think you can get that understood more clearly across government?

Jo Johnson: I think it is clearly understood across government. When you look at the statements from other government Ministers there is a clear recognition that these are global activities. Our ability to be part of this global market for the most highly talented is a crucial part of our ability to continue to generate the extraordinary returns we see on our science expenditure. We spend 3% or 4% of global research spend yet we generate 50% and 60% of the most highly cited articles. That is in part because we fund excellence and we are pretty ruthless about the projects we fund, but it is also because we have brilliant people in this country using the public funds we provide to huge effect. That extraordinary return on our investment is because of the leverage we generate through talent.

The Chairman: Lord Mair.

Lord Mair: I have no further questions; Baroness Morgan has covered them.

Viscount Ridley: I have a follow-up on something Baroness Morgan said, and I will maybe make a suggestion. Next time you are sending a memo to your equivalent in the Home Office, perhaps you could point out that the opinion-poll evidence is quite clear on this: the British people have concerns about unskilled immigration but are extremely enthusiastic about skilled immigration; that is to say, scientists, engineers, entrepreneurs, et cetera. Ipsos MORI had a recent poll showing that. I feel that distinction has not quite sunk in at the Home Office, but I might be wrong. You do not have to say you are going to send that memo but it is a suggestion.

Jo Johnson: The Home Office will be opening a consultation on its proposals around non-EEA migration, so I think everybody is at liberty to send their submissions in. If you feel they have not had the message enough, you are most welcome.

Viscount Ridley: It would be great coming from you.

Lord Hennessy of Nympsfield: Minister, can I put three things together? You have quoted the Prime Minister saying she wanted to ensure a positive outcome for UK science. You also gave those figures that always cheer us up about the proportion of world scientific papers and so on, and you expressed confidence that we will continue to be competitive as a science hub as we were before we went down our aberration of 43 years in the EU, as it turns out. I am not one for benchmarks—I think they are mainly nonsense on stilts—but can I offer you a thought? One of the tests of our success in coping with all this will be, in 2030, 10 years after we have come out, whether those statistics you have just quoted still hold. At least we have to maintain that if not surpass it. Would you like to pledge that is what the Government should aim to have as a position by 2030? We can call you back as Prime Minister by then to give us evidence.

Jo Johnson: Those statistics are exceptional and, as I said, they are testament to the extraordinary strengths of our science, research and innovation communities, which we want to preserve. In any new world we want to ensure we continue to have high rates, for example, of citations for UK research publications; we want to continue to punch above our weight. It would not be right for me to pin my shirt to a particular number, but if we continued to strongly out-perform our GDP share in global research that would be a measure of continuing success.

There are other interesting ones as well, other than looking at citation numbers. It is worth looking at whether we are continuing to take leadership roles in significant international collaborations linked to science and research and continuing to see our scientists working with the best and brightest minds wherever they are in the world. It will be important that we continue to see very strong levels of inward investment linked to R&D, as we do at the moment, and it is important that we continue to have a skills base, as I said before, with high levels of absorptive capacity so that we have the capacity to use the R&D we are supporting through the public purse. Those are all the kinds of benchmarks we want to use to help us ensure that, whatever the new relationships we put in place in the post-Brexit landscape, we continue to drive the outcomes we want from our investment in science and research.

Q51 Lord Maxton: As has been mentioned, the private sector is a very large investor in research. It depends on technology, as part and parcel of that research, because science depends upon decent computers able to do the sums rapidly. What is the impact on the private sector of Brexit? If you are a major pharmaceutical company or a major computer company, why would you go for a small market, which is what Britain is, as opposed to a large market outside, particularly when you have the pound declining in value, which means that costs of everything are going up if you import? Microsoft, for instance, has already said it is putting its prices up by 22%. How does the private sector deal with all this?

Jo Johnson: It is vital that the private sector plays its part in driving up our overall levels of R&D as a country. As the Committee knows well, we are at about 1.7% of GDP, public and private combined, as against an OECD average of 2.4%. The public sector is about 0.5% of that. We want to support the private sector in continuing to invest. We do it through the R&D tax credit system, which is increasingly popular—and costly for the Government to provide, by the way. We want to put in place the overall business environment that means it sees the UK as a great place to set up operations, and we do that in many, many ways.

Your Committee heard that the science and pharma community in particular sees a potential upside in a post-Brexit world. GSK pointed to some of the opportunities that might arise from our ability to look, from first principles, at some of the regulatory structures and frameworks that currently govern us and govern science; the activity, in particular, of pharmaceutical companies. Your Committee was right to look at the five broad areas which, again, looking from first principles, might be possible: animal research, GM research, clinical trials, data privacy and the REACH chemicals framework. Those are all interesting areas where we can look again from first principles and say, “Is this the right approach?”, whilst of course recognising that there are huge advantages from harmonisation and the regulations that the EU has provided and that there are benefits to us from being part of those sorts of broad frameworks. The private sector has a huge part to play in making Brexit a success.

Lord Vallance of Tummel: Prior to the referendum we had the chief technology officer of Siemens AG here to give us some views. If I boiled them down he said that, all other things being equal, he would prefer to see investment in R&D within the European Union rather than outside it, so that if we moved to being outside the European Union we would be rather less likely to get investment from Siemens and, no doubt, from other major German and other companies than would otherwise be the case. That implies that to attract the same kind of level of investment as we have now we have to produce an even more attractive environment than we have at the present. How would you tackle that? The things he is interested in, of course, are the free movement of staff, and the networks that go with them.

Jo Johnson: Can I ask Gareth to start with that and then I will come in?

Gareth Davies: What is really important here is to look at the different drivers behind some of the inward investment decisions that different corporates make. You are right that, obviously, market access and size of markets can be an important criteria. Often it is also the strength of our underlying science and research base. I was speaking recently with the Minister from Singapore for the Economic Development Board. Singapore is a much smaller country than the UK but with fewer trade and access relationships through free trade agreements than we have. However, they are very successful in attracting some of the major global, advanced manufacturing firms, such as Rolls-Royce, in particular. The reason for that is a combination of the talented workforce they have, particularly in STEM subjects, and the strength of their underlying science base, particularly around engineering and mathematics. There is a real question, coming back to the role of the industrial strategy, around how Britain prospers as an economy outside the European Union. We need to look at a range of things in front of us: where we have our sectoral strengths, the underlying strength of our science base and infrastructure and, as the Minister said before, the talent coming through and how we develop our own talent pipelines as well as ensuring we continue to attract talent globally.

Lord Vallance of Tummel: I should perhaps declare a past interest as a member of the supervisory board of Siemens, so I have seen the way that they look. It is not just that; it is partly to do with regulation. You know that regulation is predictable within the market of the union as a whole; you do not know whether it will be predictable in the future. You do not know what sort of markets you are going to access. It is the whole of that environment. You need to look very, very carefully, if you are going to attract inward investment, at what the terms are and how you can give companies, such as Siemens and others, reassurance that this is not going to be difficult, and it will have to be better than it is today.

The Chairman: Before you come back on that, would Lord Fox like to come in briefly?

Lord Fox: You are making that point and using your very good example of Singapore, where the absence of regulatory friction is really helpful for companies. Where might you see areas of friction that you can remove to ease people’s ability to set up in this country?

Gareth Davies: The Economic Development Board in Singapore is excellent and we continually look to learn from it; the way in which they can corral different agencies of government is impressive, and the speed at which they can give offers to new inward investment opportunities is great. There is a fundamental trade-off here, which I think came through when Dr Patrick Vallance was giving evidence to you a few weeks ago, on tailoring the regulation so we can make the most of our underlying comparative strength and attract great international companies and inward investment opportunities versus the need for standardisation for market access. As we work our way through the negotiations we will need to think, sector by sector but as a whole for the country, what the right balance is for Britain’s national interest. There are some important decisions there.

Lord Hunt of Chesterton: Singapore is a very good country but it has a terrible environment. It has the highest rate of childhood asthma of almost anywhere in the world because they have uncontrolled shipping and so on. It is not all easy. A significant part of the UK’s research is associated with government agencies—I used to run the Met Office—and it seems to me we have had no clear picture about how the government agencies will be used effectively in this strategy. In fact, I am afraid to say, the Government chief scientist takes a very agnostic view—unlike previous ones—of his role in relation to government agencies, which surprises me. That is a very important part of our investment. Are we going to continue to have very significant public sector research laboratories, as they do in Germany? In Germany it is an extremely important part, and we have been privatising ours. I just ask that question. How are they going to be developed? Are you going to encourage continuing strong links between the UK public sector laboratories and institutions and those on the continent? It is a very important way in which you drive technology.

Jo Johnson: Yes, we continue to see a very important role for these agencies and I do not envisage this having any impact on that in any way.

Gareth Davies: I completely agree. On the work that, say, the Met Office is doing, which is incredible environmental science, Dame Julia Slingo, again when giving evidence, was saying that she has been proactively asked to participate in EU collaborations post-referendum rather than having to force her way in. I think there is still that demand from the EU to work with the excellent science base we have, both in the universities and our public sector research institutions.

Lord Hunt of Chesterton: It would be quite good to mention it sometimes in your documents.

Gareth Davies: Point taken.

Q52 Baroness Young of Old Scone: Can we talk about money? The Treasury assurance that Horizon 2020 awards that span the exit would continue to be funded was welcomed. That raises two questions, I think. The first is where the money will come from. Will it be one of these wonderful government, “Now you see it, now you don’t”—the left hand and the right hand—transfers from existing science and innovation budgets, or is it genuinely going to be new money? Secondly, it is of course only a transitional arrangement and the big question is: if there is a €3.4 billion gap between what we gave and what we got out of European research and innovation budgets how is that going to be met for the future? Is there going to be a guarantee that that in fact will be met from UK sources? What is your reaction to those two points and are you asking the Treasury for guarantees of funding on both of them?

Jo Johnson: On the first of those, yes, this is new money, so it is not money from the existing science ring-fence; it is additional resources beyond the 26.3 billion we have already committed for the period 2016-17 to 2020-21. It is an additional commitment from the Treasury to underwrite EU research funding. Beyond that, no commitments have been given because, as you know well, we are still in the business of determining exactly what our future relationship to those funding programmes will be. At present, there are no further commitments beyond that.

Baroness Young of Old Scone: The Prime Minister has given a commitment to a positive outcome for science. It would be quite difficult to see a positive outcome if €3.4 billion was missing.

Jo Johnson: We will have a positive outcome for science from these negotiations and in our new relationship—I am confident of that—but it is going to be a process that takes time to conclude. The Prime Minister’s letter to Sir Paul Nurse, written immediately after she took office, makes clear that she sees science and innovation as at the heart of this country’s future success. You can assume that it will have the Government support that matches that commitment.

Baroness Young of Old Scone: Are you are pressing this point with the Treasury?

Jo Johnson: Of course we want to ensure that we continue to support good outcomes from our science and research base.

Baroness Young of Old Scone: I do not think that was the question I asked. I asked whether you were pressing this point with the Treasury.

The Chairman: I think you have your answer.

Baroness Neville-Jones: Minister, there is a very close relationship between the scientific and research community and your department. I suppose it will now be rebuilt with the Education Department in its revised structure. Neither of those two departments will be, I take it, a lead department in the Brexit negotiations. My question to you is one that preoccupies the science and research community in this country: how their voice will be heard and how the important issues that arise will be really understood by the Department for International Trade but particularly by the Department for Brexit doing the negotiation. Do you have a plan for bringing the negotiators and the scientific community together, first of all, to prepare the dossier? Secondly, will there be any chance of there being scientific advice fed in during the course of the negotiation?

Jo Johnson: Yes, we are working very closely with colleagues across government, so in the FCO, the new Department for International Trade, colleagues in the DfE—I am also a Minister in the Department for Education with my universities hat on—as well as with Ministers and the Secretary of State from the Department for Exiting the European Union. We are going to meetings together with representatives from the research and innovation communities. I have had meetings with the heads of all the learned societies, with the Secretary of State for that department, David Davis, Lord Bridges and Robin Walker, and we continue to work together to try to ensure that the science and research community’s voice and interests are properly represented in the Government’s overview and understanding of where our national interest lies in these negotiations.

Baroness Neville-Jones: Have you invited comment from them?

Jo Johnson: Tomorrow, for example, I am giving evidence jointly with Robin Walker, the Parliamentary Under-Secretary from that department before the Commons Science and Technology Committee. It is an example of the joined-up working between the Department for Business, Energy and Industrial Strategy and the Department for Exiting the European Union.

Baroness Neville-Jones: Thank you. That is very reassuring.

Q53 Viscount Ridley: Minister, in your opening remarks you mentioned there were opportunities as well as challenges in Brexit, and you have since elaborated the point on pharma, GM, REACH and so on. You have also said that science and innovation will be at the heart of the industrial strategy and that there is a discussion paper coming shortly. Perhaps I could suggest a couple of specific things that could be in it: changing the role of Government in business innovation if the UK is not under state aid rules or doing without VAT charges on buildings cohabited by businesses and universities. Are these the sorts of specific things that you will be considering?

Perhaps I could follow that up with a more general question, which is the extent to which you are happy with the idea that the industrial strategy will be about picking technological winners if not corporate winners. I think we are all allergic to picking winners between companies but your predecessor, David Willetts, was quite keen on eight great technologies that we should champion. Perhaps you can think about that general point too.

Jo Johnson: On the opportunities point, you are right, there are broadly three big areas of opportunity for the community post-Brexit and you have mentioned two of them, picking up on points I made, around the regulatory environment and around making sure science and innovation is at the heart of the industrial strategy. I would add a third to that list, which is we now have an opportunity from first principles to think strategically about how we want to fund our international collaborations in science and research. I think this was a point which the Committee heard also from people who gave evidence before it at one of its previous hearings. We can look, again, from first principles, at where can we, to best effect, deploy the funds we want to make available for collaborations.

On analysing the role of Government in business innovation—

Viscount Ridley: Without state aid rules.

Jo Johnson: There will continue to be regimes governing government subsidies of one form or other to business in whichever scenario we might find ourselves. Even if we are no longer part of the EU state aid system, which I am not saying might the case—it may or may not be the case—we would still be governed by the WTO’s subsidies and countervailing measures regime, which would, to a certain extent, mean that we would not be able willy-nilly to subsidise or support businesses. As a general point of principle, the Government want to create a framework in which businesses can compete on level playing fields; they do not want necessarily to get into the world of persistent subsidies for individual companies or individual sectors. I am going to ask Gareth to take the point about VAT, if I may.

Gareth Davies: Sure. This has been raised with me a number of times, and I think there has been a range of different institutions—most recently, Crick would be one of them and, similarly, some of the major facilities we have been funding through the capital consultation process over the last five years. As ever with VAT and EU rules, complexity is the order of the day here. As you know, when you go over 5% that starts to trigger the flip from zero rating to 20% rating. These are all issues we will need to look at in the round. I come back to these choices and trade-offs we face, because there are specific issues facing science and more general issues facing the negotiation around the benefits of tailoring the rules and regulations for the comparative advantages we have as a country versus the benefits of market access and standardisation. As officials working through this process with colleagues in the Department for International Trade and the Department for Exiting the European Union, we will need to work through some of those issues, and we are spending our time now auditing the fact bases so that we can then make a clear assessment of the choices and trade-offs for Ministers.

Viscount Ridley: Can I press you a bit further on the “picking winner technologies” point? Are you a Willetts-ite in this respect?

Jo Johnson: I think it is not for Ministers to set down which technologies the community should best invest in and invest the science and research funding we make available to it. My broad approach is to make sure we get the best possible funding settlements for the sector, in answer to an earlier question on which I was probed, so make sure that, within the resources available to Government generally, science is getting properly supported, and then the general principle of letting people who know about the science decide where best to spend those resources. We allocate money to the research councils; that is a ministerial decision. Once those decisions have been made we want the research councils themselves to determine their research priorities.

Viscount Ridley: The Haldane principle is intact, in that sense?

Jo Johnson: It is entirely intact and we are using the opportunity of the Higher Education and Research Bill to entrench it further.

Lord Fox: A brief follow-up on that: how does that then superimpose into industrial strategy? By definition, are you saying all industry is in the purview of the strategy, or are you going to focus in on particular industrial sectors?

Jo Johnson: One of the principles we are taking for the industrial strategy is to say, “Let’s not go against the grain of existing strengths”. One of the first principles of strategy is to use your strengths, and we have many strengths as an economy. We have strengths in advanced manufacturing, in all manner of business and services and in creative industries, so let us use our strengths and support those areas, but we are not in a business of identifying particular winners within sectors.

Baroness Neville-Jones: Minister, do I understand you to be saying that the eight great technologies are now disappearing as a guiding principle of where the Government is going and where it is putting the emphasis?

Jo Johnson: No, I would not be as categorical as that. They were a useful tool when they were announced in 2012, but even at the time they were announced they were never intended to be an exhaustive, permanent 10 commandments. The world moves on and many interesting fields of scientific discovery have emerged since 2012. New focuses of energy are materialising all the time. Artificial intelligence, for example, I do not think was one of the eight greats. We would not want to set in stone for the next 30 years something set down in 2012 as the focus of our future science and innovation strategy.

Baroness Neville-Jones: Robotics was. I see.

Q54 Lord Mair: Minister, you mentioned the Higher Education and Research Bill. Does Brexit have implications for the role and shape of UKRI?

Jo Johnson: Yes, I think it makes it more relevant than ever. The science and innovation community would benefit from the kind of strong voice that it will represent. Observing John Kingman’s work as its chairman in shadow form, he has been immensely effective on behalf of the community in making the community’s voice heard strongly across Government. That role will become even more important as time goes by. As we seek to forge strong, new, international collaborations around the world, having a body such as UKRI representing a very significant chunk of government investment in research and development will be extremely helpful to science.

Lord Mair: If the UK was outside the single market and no longer under state aid rules, how might that change the way Innovate UK operates?

Jo Johnson: Viscount Ridley touched on this in his question about funding for innovation. That remains to be seen. We see Innovate UK as an integral part of UKRI. I have received a letter from the Committee, via Earl of Selborne, which I responded to a few weeks ago. We really see Innovate UK as having a key role to play in making sure we are getting the most from the investment in R&D and that the R&D community is aware of the needs of business. It is a bit early to say, at this stage, how its role in supporting business might change, but we see it as playing a vital role in that respect.

Lord Vallance of Tummel: You said that the industrial strategy will play to our strengths but presumably it will address our weaknesses as well. Perhaps you could say a little about what you think those weaknesses might be and what, if any, have been brought about by moving out of the European Union?

Jo Johnson: We have existing weaknesses which we need to address, irrespective of how our economy evolves in respect of Brexit. The skills base needs upgrading, and our productivity is a fifth of the G7 average. We have growth which is very variable across the country. We want to make sure that our industrial strategy addresses existing as well as future challenges. The skills base is foremost among them.

Lord Hunt of Chesterton: Going back to the industrial strategy, when we had our meeting a couple of weeks ago there was an interesting discussion about the German approach. They have this so-called 4.0 Industry/internet of things, and so on, which is a very strong programme which means that different companies, industry and the science community will operate in quite a different way. I have been to the German embassy and heard a presentation from your department, and there still seems to be no strong movement in that direction. Lord Willetts was explaining this. The second point I wanted to make was that when I asked colleagues at Rolls-Royce how is it that a significant amount of research is now going on in Berlin—I hear this all across Europe, including Rolls-Royce Germany—they say, “The German Government is giving us a lot more subsidy”. I wondered if the question of Government support and this question of a new strategy of technology and industry working together will be part of your own strategy.

Gareth Davies: Shall I come in on that? That is critical. A lot of the role of the industrial strategy will, as you say, will need to build on where we see our strengths. You were asking previously around the scientific input into this. We have been working with the British Academy and the Arts and Humanities Research Council to ensure we have scientific input on the history of industrial policy in this country and internationally, which we think is critical.

On the specific points around Rolls-Royce and research, we operate in a global market now for research. UK companies will always look internationally before locating either new research facilities or new projects, and we are constantly in competition with Germany, parts of the US, Singapore—I have touched on before—and we need to be competitive. That will touch on a range of things. I will touch on a combination of the underlying science and research base, and we see that around Cambridge and the LMB and the way in which that attracts inward investment from the life sciences industry. The Minister has touched on talent and there is Government support for early-stage research and development.

On roles in particular, we have set up the APC, the Advanced Propulsion Centre, which is around taking new technologies in engine design and helping to commercialise them. This is a long-term commitment. One of the issues we hear often from business is not wanting year by year support but multiple years. This is over 10 years. It is those sorts of interventions that can help anchor research and development.

Baroness Neville-Jones: At Bristol. Is that right?

Gareth Davies: Partly Bristol and up in the West Midlands—Derby—as well.

The Chairman: Finally, Lord Hennessy.

Q55 Lord Hennessy of Nympsfield: Does Brexit mean a new role for scientific advice within Her Majesty’s Government? We are repatriating a great deal of regulation. I was a remainer, like you, but I can sense an element of liberation in some of this stuff coming home. Does it mean this is the time to review the role of the chief scientist and, also, the chief scientists across Whitehall? Not least because in all these wonderful trade deals we are going to get, the scientific element is pretty crucial. Are you looking at that in the round, afresh?

Jo Johnson: I think we have a very effective network of chief scientists across the various departments, led by Sir Mark Walport, and they are providing very helpful input into this process. The network is not under review, as I understand it.

Gareth Davies: No, but I know he is obviously working around what the new demands on the network will be and has been working with the permanent secretary in the Department for Exiting the European Union, both in the actual negotiation itself and, more generally, in any future environment, on to what regulations might be domestic rather than European in the future. Defra is an obvious example of a department that may need additional capacity.

Lord Hennessy of Nympsfield: May I add to that a personal question? I have been thinking about British politics and government and every generation puts science and technology and R&D at the heart of everything, and yet we never know where to put it in the machinery of government. You are peripatetic, almost a mendicant, and now you are split between two departments. Why is it that we cannot work out where science and technology should be? You are in a long line of these rather sad and weary Ministers who take their portfolio from one semi-welcoming Ministry to another.

Jo Johnson: I am not sad or weary. In fact, science has stayed where it is in the Department for Business, in one of the two growth departments of government. It is universities that have moved over to DfE. I have another office about 80 yards away in DfE where, with my universities hat on, I think about many of the same issues.

Lord Maxton: Is the problem that Lord Hennessy is advising that you think in a five-year timescale, because that is when the next election will be, whereas science and technology, obviously, thinks in a much longer timescale than that?

Jo Johnson: We are setting up this new body, UKRI, through the Higher Education and Research Bill, which is going to provide some capacity for the strategic, long-term thinking that we really need. Take, for example, capital allocations. As a department, BIS has often been criticised for the manner in which it has allocated capital. It is said to be too short-termist, insufficiently evidence based, without sufficient regard for value for money, and so on. We are putting in place now a structure with UKRI that will enable us to take a really rigorous approach to capital allocation for science for the first time, and I think that is a demonstration, through this Bill, of us putting in place a solution to some of the problems that you point to around where science sits in Whitehall for the first time. That is why I think the community should get behind it.

The Chairman: An absolutely final word from Baroness Neville-Jones. This really is the final word.

Q56 Baroness Neville-Jones: Minister, I wanted to go back to what was being said about international trade deals in the future. Quite a lot of expectation is being reposed in the trade deals that the UK will be able to make. Do you accept the proposition that modern trade deals are going to be about technology and services—things other than classic tariff activity on manufactured goods—and that, therefore, our negotiating objectives should be ones that advance the modern economy and the scientific and research input into it? Will that be a priority and will there be advice going into the negotiating hand for that purpose?

Jo Johnson: Yes, I think, is the answer to that, but it is really for another department to comment in more detail.

Baroness Neville-Jones: That is exactly our worry: it does not happen because it is another department. These things are whole of Government.

Jo Johnson: Yes, of course, we want to be ambitious in the trade agreements we strike in the new world with what may be our new ability to do that, subject to whatever arrangements we arrive at. Being ambitious means having agreements that reflect the nature and the interests of our economy.

Baroness Neville-Jones: That is right. The Cabinet committee system is set up to be able to do that.

The Chairman: Minister and Mr Davies, thank you very much. It has been a most informative session. As you know, we are going to do a follow-up report to the pre-Brexit report, which we will produce in a month or so. I am fairly confident that our follow-up report will be positive, as you have been today, setting out how science might help inform and plan the industrial strategy, and indeed settle some of the concerns which are inevitable after the turmoil in this area since Brexit. Thank you for your very positive response today. You have given us a lot to think about. As always, there will be a record which you will have an opportunity to correct for inaccuracies. Thank you very much indeed.