Science and Technology: Economy

Baroness Bowles of Berkhamsted Excerpts

Thursday 31st October 2024 Lords Chamber

[Baroness Bowles of Berkhamsted (LD)]

My Lords, it gives me pleasure to commence the winding-up speeches on this debate. I congratulate the noble Viscount, Lord Stansgate, on bringing it to us and the noble Baroness, Lady Freeman, on an excellent maiden speech.

We have had a great debate, showing how important science and technology are today and the far greater economic contribution they could make, as the noble Lord, Lord St John of Bletso, said. My noble friend Lady Northover pointed out that it is all about interconnections. I was expecting to congratulate the noble Viscount, Lord Hanworth, on reminding us of the importance of mathematics in all these scientific projects and so forth, which I do agree with. I am sure that the Minister will not be surprised that I look forward to the Procurement Act and that it will be one of the topics I will speak about. If there is not a supportive environment for the procurement of new innovation for small enterprises, we will lose out, in AI and elsewhere, just as we did to the US super-corporations on internet technology when once we were ahead.

For 30 years, my career was in scientific research on semiconductors and then as a patent attorney. I was working with companies that were highly successful and some which struggled to make a breakthrough, despite great innovations. It is that which drove me into politics, where I have now spent 18 years looking at finance and the economy, including in industry. I come back to the same point: lack of procurement is preventing scale-up and better commercialisation of our technical innovation. It prevents a greater contribution to the economy, in particular for exports, and it prevents us closing the productivity gap.

I will focus on three linked things that are blocking innovative companies and scale-up: the treatment of start-up and growth companies, under which competitive tendering for round after round of piecemeal grants and loans sets them up for failure; the closed shop of government procurement, tied up with frameworks that ask discriminatory questions and favour incumbents; and the fact that the Government have become a systematic expropriator of early-stage intellectual property, killing instead of growing innovative companies.

Why is it that we have a trail of breadcrumb grants via our innovation agencies—including catapults, Innovate UK and small business research initiatives—with each grant expensively competed for at every stage in time consumption, but never leading to public procurement? In many instances where a lot of public money is spent on procurement, this is closing the door on making that expenditure bring multiple returns.

As various think tanks have highlighted, first public procurement is the ticket that enables growth companies to create exports—far better for our economy than those businesses relocating to the US or selling out equity in their innovation to other countries. That pattern has even hit Rolls-Royce and its small modular reactors, losing 20% equity to other countries.

In the US, they use a programme, From Innovation to Procurement. More entrants start than finish, but there is procurement at the end, which launches commercialisation. It is still competitive to enter, but the succeeding companies can progressively get on with the real job, instead of spending half their time applying for the next grant.

In our system, there is no promise of procurement: indeed, little chance, because of the procurement frameworks and the incumbency factor. An innovative growth company cannot positively answer the questions about previous alpha and beta delivery in the way incumbents can, so it falls at the first hurdle. How are innovators and emerging technology companies expected to grow to export level with that approach? Additionally, the incumbents essentially have a procurement fast track and get asked to support innovation programmes, which then allows them to learn from and ultimately undermine new market entrants.

Returning to the grant process, if you look at the contract clauses for the breadcrumb grants, for just a £50,000 early-stage development or proof of concept, there are clauses requiring the recipient of the grant to give to the relevant government body and its partners free, perpetual, irrevocable and royalty-free licences, together with the right for the Government to grant sublicences to anyone to use all the information, data, results and conclusions arising from the project. In other words, all the IP generated is as good as lost to competitors.

I know some people think those clauses just mean reading and benefiting from the reports, but it is far more. It is licensing use and licensing performing the invention. It is undermining patents and IP and allowing the Government to license competitors at the procurement stage. I have shared the clauses with the Chartered Institute of Patent Attorneys and it concludes the same as me.

It is so unfair, on many levels. The breadcrumb grant has never been a commercial rate for the work performed and, due to the UK’s own, rather short-sighted, Subsidy Control Act, never covers the full cost. Why should a measly £50k that forces high-tech entrepreneurs to work for free or below minimum wage rates—I can provide figures that prove that—entitle use and sublicensing rights of IP that could be worth £1 million or more were they not undermined by such a clause and that may have been the bedrock of success for the innovative company had it not been expropriated to competitors.

Yes, real innovation can happen in a matter of months. But, like a jeux sans frontières competition, innovative companies face repeated grant application hurdles. In a game of chance, does your presentation fit a set of part-time assessors’ preferences, complete with marking down smaller businesses for factors such as not having the top and most costly accounting or risk-tracking software? I have seen it all.

Solving this is not rocket science. First, use a staged programme system, with end-stage procurement like in the US. Secondly, stop poaching early-stage IP to put in the hands of competitors and incumbents. There are fair licensing provisions that can cover large bills and contracts and prevent vendor lock-in. Thirdly, maybe look at treating innovative company IP and intangible assets as collateral for loans alongside grants. Fourthly, give those IP assets an export market opportunity weighting in assessments, instead of eliminating applicants out of fear of lock-in. Fifthly, recognise that value for money assessment must incorporate risk for growth, and that sometimes ends in failure.

Every project cannot be run like this, but even a relatively few smaller ones would make a big difference. If we do not make public procurement truly open to growth companies, great economic opportunities for getting more bang for your procurement buck are being missed. While I celebrate with other noble Lords the strength of science and technology in the country, I hope that the Minister can find ways that penetrate into procurement in the big spending departments to bring about the economic transformation that is there for the taking to bring money back to the Treasury.

King’s Speech (4th Day)

Baroness Bowles of Berkhamsted Excerpts

Monday 22nd July 2024 Lords Chamber

[Baroness Bowles of Berkhamsted (LD)]

My Lords, I declare my interests in the register, in particular as a director of the London Stock Exchange. Like other noble Lords, I welcome the new Ministers to their place. I also welcome the gracious Speech and will participate on several Bills, but now, I want to mention some extras.

First, will the Government bring forward the consultation on a UK captive insurance regime that was in preparation before the election? Captives fit well with City expertise, and we could service the UK market and attract international business.

Secondly, will the Government fix the glitch in cost disclosure presentation that has ravaged the listed investment company sector? Lost investment, largely for real assets such as infrastructure and renewable energy, is now at £30 billion and counting. The noble Lord, Lord Livermore, was supportive in the last Parliament, including of the Bill of the noble Baroness, Lady Altmann, which would have dealt with the issue.

This Session, I have got the draw to introduce a PMB. It will be based on the hugely supported joint industry response to the relevant statutory instrument consultation. The focus is on recognising the role of markets in setting the value of these listed investments and of going concern status in the making of FCA rules and legislative interpretation. Will the Minister meet me to discuss these solutions and how to end the disaster that is hitting a third of the FTSE 250?

Thirdly, do the Ministers appreciate the need to change public procurement methods to meet the Chancellor’s plans for growth, especially for growth companies that could multiply their earnings and British prosperity through export? Presently, the procurement process can retard rather than help growth, which I will explain. Very little government or local authority procurement is from small or growth companies, and even when capable of building revenue, they are pushed into further innovation grants rather than accelerated to commercialisation.

Risk aversion is prevalent in both public and private procurement, with default to incumbents and big business. The old saying of “nobody is sacked for buying IBM” is now for buying Google, Amazon, Microsoft or CrowdStrike. It could have been so different for Graphcore and Darktrace if that were not the case, and now their wealth generation is lost to the UK.

On the public side, system integrators—consultants —do the procurement that used to be in the Civil Service. In addition to risk aversion, the system integrator model also destroys its intellectual property, or ends with system integrator ownership, stripping new companies of their basis for growth and export opportunities.

In future, AI will play a big part in public sectors, including transport and infrastructure, where government or local authorities are the only procurers. There are innovative, homegrown companies that could scale and export solutions, including to the US, but with present systems, it is unlikely they will be procured or stepped up to sustainable commercialisation.

Interested US entities say to those companies, “Show me your first UK deployment and then I’ll buy in”, but UK procurement does not happen, so the technology goes up for sale, or the company relocates to the US to get deployed and stays for stock market listing. The US attraction is about procurement as much as it is about investment.

Regulators have the same “big guys” bias: happy smiles if you use the US giants, wrinkled brow and big due diligence demands if you try smaller or newer. Maybe after CloudStrike, the systemic risk will be recognised, not to mention the competitive distortion.

Procurement failing to support growth is a systemic issue needing a co-ordinated response across departments. Will Ministers therefore meet with me and interested parties such as the ScaleUp Institute to examine the evidence and possible remedies?