Written evidence submitted by the European Space Agency (LEA0105)

 

Executive Summary

The UK makes most of its investments in space through the European Space Agency (ESA), which is not an EU entity but a separate inter-governmental organisation of which the UK has been a member since its foundation in 1975. The UK’s investments in ESA, in EU space programmes and in its national space programme have all increased in recent years due to the strong socio-economic returns of those investments; but the balance between them is now likely to change, giving the UK some choices.

On the plus side, ESA provides a ready-made mechanism for UK industry and academia to collaborate with international partners across most parts of the space sector; and ESA’s structure allows member states to change their level of participation quite flexibly, programme by programme. The UK could therefore increase its contributions to ESA as a way of compensating for a reduction in the opportunities to participate in the space elements of EU programmes such as Horizon 2020.

On the negative side, the recent drop of roughly 10% in the value of Sterling relative to the Euro means that the UK’s planned contribution to ESA programmes over the next three years (which is due to be set at the ESA Council at Ministerial level in December 2016), is likely to be substantially reduced unless action can be taken to compensate for this by increasing the Sterling amount.

Brexit also has an adverse impact upon staffing. About 60% of ESA personnel in the UK are from EU countries and although ESA staff are covered by a separate Host Agreement, this does not extend to the contractors who form about 40% of the workforce, or to the right of staff and contractor family members to work in the UK. Uncertainty and a sense of alienation is having detrimental effects upon staff recruitment and retention across the UK space sector (which is by nature the most international and collaborative of sectors) and this extends to ESA personnel as well.

ESA actively encourages inward investment to the Harwell Campus in Oxfordshire, where the number of space companies has grown in six years from five to 68. A third of these companies have foreign origins and there has been a focus on attracting companies from the USA, who can use a UK location as a base for accessing Europe. ESA also has a successful Business Incubator at Harwell, which has nurtured 55 companies since 2010, many of which involve foreign entrepreneurs or investors. This “space cluster” is of value to ESA because it increases engagement and multinational collaboration with ESA programmes. Brexit makes Harwell a harder “sell”, so fresh incentives are needed to offset this problem.

The UK is thus in a position to offset the negative effects of leaving the EU by taking action to increase its contributions to ESA (both short and longer term); by increasing incentives to companies that are considering setting up at the Harwell campus; and by making clear commitments to support the employment of staff from EU countries and the employment and other rights of their families.

Background

  1. The European Space Agency (ESA) is a not-for-profit, inter-governmental organisation that is not part of the European Union but is governed by its own international convention. Headquartered in Paris, it has 22 member states including the UK, plus Canada as an associate member. Other countries such as Slovenia are in the process of becoming associate members.

 

  1. Not all ESA member states are members of the EU (Norway, Switzerland); and not all EU member states belong to ESA.

 

  1. ESA does have close relations with the EU; of ESA’s total budget of about €5.25Bn, roughly a quarter comes from the EU, mostly to support the development of the Galileo satellite navigation system and the Copernicus earth monitoring system. The relationship is complex but essentially ESA acts as the R&D and technology development agency for major EU space programmes.

 

  1. The other 75% of ESA’s budget comes from its member states, which subscribe in varying amounts to its many different programmes. ESA is one of the few space agencies worldwide that is active in almost all aspects of space (for peaceful purposes). Whilst its core space science programme is mandatory most others are optional, meaning that member states can participate to a greater or lesser degree according to their own priorities.

 

  1. The largest part of the UK government’s dedicated investments in space is made through ESA (about 75% or 322M€ in 2015). The rest is distributed between the EU space programmes (notably Horizon 2020) and the UK national programmes. (NB: there are also investments into other EU programmes that may have a space component, such as the SME Instrument or calls in areas like transport, energy or the environment, which make some use of space-enabled systems and therefore provide a source of funding for some of the UK’s space-related industry and academia).

 

  1. The UK is a founding member of ESA and has always been one of the “big four” contributors to the Agency, along with France, Germany and Italy. Until recently there was a so-called “UK anomaly”, whereby it was the only one of the four that contributed significantly less than the others in relation to its GDP, did not participate in two of the biggest programmes (launchers and human space flight) and had no physical ESA establishment in its territory.

 

  1. The relatively low level of UK contributions to ESA began to be resolved following the UK’s Space Innovation Growth Strategy (IGS) initiative from 2008 onwards, which led to several important developments:
    1. the UK government increased its contributions to ESA by more than 20%;
    2. this included participation in the human space flight programme and the Principia mission of Tim Peake;
    3. an ESA facility was established at the Harwell Campus in Oxfordshire, inaugurated in July 2015 as the European Centre for Space Applications and Telecommunications (ECSAT);
    4. activities at ECSAT focus on telecommunications and integrated applications (i.e. the application of space-based solutions into other sectors), reflecting the UK’s strong interest in the most commercial ESA programmes and those which have the biggest impact on economic growth.

 

  1. At the 2012 ESA Council at Ministerial Level (CMin12), the UK became the largest contributor to ESA’s programme of Advanced Research in Telecommunications Systems (ARTES), ahead even of France. The Director of Telecommunication and Integrated Applications, Magali Vaissiere, is also Head of the ECSAT establishment and is resident in Oxford.

 

  1. A study of the socio-economic impact of investment in the space sector by London Economics concludes that whilst space investments overall are estimated to provide a return on investment of about 6:1, those in satellite telecommunications (the mainstay of ECSAT) provide direct returns of 12:1 and total returns (including spill-overs) of 21:1. The study also noted  evidence that “the returns to membership of ESA increase with the duration of continued membership, highlighting the importance of consistent funding to maintain momentum.” (London Economics, Return from Public Space Investments, Final Report, October 2015.)

 

  1. ECSAT is also the base for ESA’s Climate Office and of some activities in robotic exploration and technology development. There is potential for expansion of these activities, for instance into climate-related services and into the application of robotics and autonomous systems to non-space markets (e.g. automotive, UAVs, surface and sub-service vessels).

 

  1. ESA has a successful Business Incubator at Harwell (“The ESA BIC”), which has nurtured 55 high-tech companies in the past five and a half years. Mostly start-ups, these companies have a very high survival rate. This is due in part to the provision of funding support for each company to the tune of €50,000 to be spent on specific activities such as protection of Intellectual Property and training in Investment Readiness. The BIC is co-funded by ESA and the Science and Facilities Technology Council (STFC).

Impact of Leaving the EU: issues and opportunities

  1. Given the above background, the most immediate impact relates to the setting of the ESA budget for the next three years, which is decided at the ESA Council at Ministerial Level on 1-2 December 2016 (CMin16). The issue at this stage is to compensate for the recent fall in the value of Sterling against the Euro, which has the effect of reducing the size of the UK contribution to the ESA budget because this is set in Euros. The fall in value as of mid-July 2016, compared to the value of Sterling at the time the UK contribution was determined (i.e. before the EU Referendum result) has been about 10%.

 

  1. If this budget shortfall is not reversed, the UK will be in the unfortunate position of either having its contributions to all ESA programmes reduced below the level that was planned, or of having to make tough choices about heavy cuts in some programmes in order to maintain its position in others. As the UK participates in many programmes (notably Science, Telecommunications, Earth Observation, Human and Robotic Exploration, Technology and Navigation), this would be a thorny problem.

 

  1. Longer term, the opportunity exists for the UK to increase its participation in ESA programmes in order to offset the reduction in the ability of UK entities to participate in EU space-related programmes, especially Horizon 2020, Galileo and Copernicus. To some extent this could be done even at CMin16; but a more deliberate approach could target the next CMin (likely to be held in 2019), for the subsequent planning period.

 

  1. The limited funding currently available for the ESA BIC at Harwell creates an opportunity to counter some of the negative impact of Brexit upon inward investment. A modest increase in the funding for this ESA programme (via ESA itself and/or via STFC) could bring disproportionately large benefits, by enabling more start-ups in the UK, many of which bring in foreign entrepreneurs and investors.

 

  1. Another immediate impact of Brexit is upon staffing. Within the UK, ESA has about 90 people at ECSAT in Harwell and this number is planned to grow to 100 this year and potentially 120 subsequently. Room exists on site for a possible extension to the building, which could accommodate a doubling in the level of ESA activity and employment.

 

  1. About 60% of ESA personnel in the UK are from EU countries and although ESA staff members are covered by a separate Host Agreement, this does not extend to the contractors who form about 40% of the workforce, or to the right of staff and contractor family members to work (or in some cases even to remain) in the UK.

 

  1. All the major organisations on the Harwell Campus have noted that the current uncertainty and sense of alienation among foreign staff is having detrimental effects upon staff recruitment and retention. The science and high-tech sectors require international collaboration and space is the most internationally collaborative of all. There is some evidence that the negative human effects of Brexit are extending to ESA personnel. We anticipate that it will become increasingly difficult to attract ESA personnel to ECSAT from other establishments around Europe; and some individual employees have already expressed a desire to return home or to transfer to ESA establishments in other countries. This problem might be addressed through amendments to the ESA Host Agreement, which is awaiting ratification.

 

  1. This problem of staff retention is exacerbated by the high cost of living in Oxfordshire (one of the highest in the country). This is especially acute for lower paid personnel such as Young Graduate Trainees, Research Fellows and contractors: yet without enough of these, many ESA programmes would falter. One focus for UK action could therefore be to provide ways of increasing compensation for these lower paid personnel and/or reducing their cost of living (e.g. companies in London typically pay a “London Weighting Allowance”.)

 

  1. ESA actively encourages inward investment to the Harwell Campus in Oxfordshire, where the number of space companies has grown over the past six years from five to 68. A third of these companies have foreign origins and there has been a focus on attracting companies from the USA to use a UK location as a base for accessing Europe. This “space cluster” is of value to ESA because it increases engagement and multinational collaboration with ESA programmes. Brexit makes Harwell a harder “sell”, so fresh incentives are needed to offset this problem. An example is the recent announcement by the Chancellor of a reduction in corporation tax; other considerations might be actions to speed up planning consents for new buildings on the campus and additional resources for UKTI and the Oxfordshire Local Enterprise Partnership, which have both been helpful in stimulating inward investment.

July 2016