7 Baroness Warwick of Undercliffe debates involving the Department for Business, Energy and Industrial Strategy

Mon 13th Jun 2022
Tue 23rd Jun 2020
Corporate Insolvency and Governance Bill
Lords Chamber

Report stage (Hansard) & Report stage (Hansard) & Report stage (Hansard): House of Lords & Report stage
Tue 16th Jun 2020
Corporate Insolvency and Governance Bill
Lords Chamber

Committee stage:Committee: 1st sitting (Hansard) & Committee: 1st sitting (Hansard) & Committee: 1st sitting (Hansard): House of Lords & Committee stage
Tue 9th Jun 2020
Corporate Insolvency and Governance Bill
Lords Chamber

2nd reading (Hansard) & 2nd reading (Hansard) & 2nd reading (Hansard): House of Lords & 2nd reading

Fuel Poverty

Baroness Warwick of Undercliffe Excerpts
Monday 13th June 2022

(2 years, 1 month ago)

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Lord Callanan Portrait Lord Callanan (Con)
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My noble friend makes a very good point. There is a lot of diplomatic action going on with organisations such as OPEC, precisely in the terms that he alludes to. We are also, of course, attempting to produce as much oil and gas as we can from our existing British North Sea fields as well.

Baroness Warwick of Undercliffe Portrait Baroness Warwick of Undercliffe (Lab)
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My Lords, I declare an interest as chair of the National Housing Federation. Some 150,000 housing association residents currently have their heating and hot water delivered via communal or district heat networks. Can the Minister confirm that the Government will make the £400 energy grant available to residents on heat networks, who have seen some of the largest fuel price increases in the country?

Lord Callanan Portrait Lord Callanan (Con)
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The noble Baroness makes a very good point. Heat networks are another of the difficult areas we need to address as part of the consultation we are doing. I also point out that we are, of course, taking powers to regulate heat networks, which are currently unregulated, in the forthcoming energy Bill, because it is an area that we need to expand in this country and there is no protection for those residents currently on heat networks, either in housing associations or in the private sector.

Motor Sector: Export Markets

Baroness Warwick of Undercliffe Excerpts
Monday 14th September 2020

(3 years, 10 months ago)

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Lord Grimstone of Boscobel Portrait Lord Grimstone of Boscobel (Con)
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My Lords, the Government are working very hard to achieve a successful negotiation with the EU which will benefit our manufacturers, but I would draw the attention of the noble Baroness to the Japan FTA which we signed on Friday, to show what can be done. It allows UK auto manufacturers to access lower tariffs and tariffs that will, over a number of years, reduce to zero on a number of auto components such as road wheels, suspensions, systems and clutches. For some specific car parts, including speed indicators, the tariffs will reduce to zero.

Baroness Warwick of Undercliffe Portrait Baroness Warwick of Undercliffe (Lab)
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My Lords, is the Minister aware that there is a problem not only with exports but with imports, where the UK is a manufacturer of leisure vehicles such as caravans and mobile homes? This issue was brought to my attention by a member of my extended family who runs such a business in the Midlands, and I declare that interest. Germany has supported a boom in its leisure vehicle industry, with the reduction of VAT on parts, and as a result it has become increasingly difficult to purchase parts for the UK’s industry, which currently has such potential for expansion. To avoid a serious drop in production and sales, and potentially in UK staycations, will the Minister consider whether such an incentive could be provided in the UK to support a similar rule here?

Lord Grimstone of Boscobel Portrait Lord Grimstone of Boscobel (Con)
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My Lords, the noble Baroness makes a very good point and I am aware of the great enjoyment that these vehicles give to people throughout the United Kingdom. I do not have the details of those matters, but I will write to the noble Baroness with them.

Science Research Funding in Universities (Science and Technology Committee Report)

Baroness Warwick of Undercliffe Excerpts
Wednesday 9th September 2020

(3 years, 10 months ago)

Grand Committee
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Baroness Warwick of Undercliffe Portrait Baroness Warwick of Undercliffe (Lab)
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My Lords, I declare my interests as set out in the register. I am pleased to have the opportunity to consider this report, which sets out so succinctly the issues that need to be addressed to sustain the UK’s international excellence in research. I would be remiss not to compliment the committee on the clarity of the report, which starkly highlights the dilemma facing our universities in delivering the success of the UK’s research base.

It has taken some time to get here, as other noble Lords have said—the report was published in August last year—but given what has happened in the interim, this is an opportune moment to seek to influence the Government’s thinking in advance of the spending review in a couple of months’ time. I pay tribute to the determination of the committee’s chair, the noble Lord, Lord Patel, in pressing for time for this debate.

The report makes it clear that the UK is home to some of the world’s most respected researchers and that our universities are recognised globally as some of the best places to conduct scientific research. In 2017, the Government recognised this in their industrial strategy White Paper by setting a target of investing 2.4% of GDP in research and development by 2027—a big ask.

The report helpfully reminds us that 62% of research in UK HEIs is publicly funded. It also reminds us that this publicly funded research is, in fact, underfunded and cross-subsidised by the entrepreneurial success of each university, including the recruitment of international students. The financial and social consequences of Covid-19 have hit universities hard and some of these sources have dried up. The Government have promised to increase spending on research in the UK. The package recently announced by the Government is a response in part to the decline in international students. The overall decline is not yet clear, but can the Minister assure us that the 80% support offered will be sufficient to fill the gap?

In setting the conditions for the distribution of the package, will the Government ensure flexibility so that universities can allocate funds where they think best, in line with local needs and an institution’s priorities? I echo the comments of the noble Lord, Lord Willetts, on the breadth of research in our universities. I urge the Government to boost collaboration with local partners, such as local government, local businesses and public services, in which so many of our universities excel.

A major issue highlighted by the report is the need to address the falling full economic cost return on research. I echo others in asking the Minister what steps the Government will take to improve the financial resilience of university-based research and innovation activities. Will they assist in persuading funders to increase the contribution they make to the cost of research? What plans do they have to halt the outflow of research talent as universities are forced to end research projects? How will the Government help to address the loss of early career researchers, who are so fundamental to maintaining the stream of long-term research?

I will make one final point on the future of our links with the European Research Council, in particular its funding for discovery research, which is so important for furthering the UK’s status as a science and technology superpower. Access to the ERC requires full association, as opposed to third-country status, so the current apparent impasse on the wider negotiations is worrying. I realise that the negotiations about full association with Horizon Europe are separate from the UK’s wider negotiations, but can the Minister assure the Committee that our negotiators will seek to ensure that the wider challenges with the UK-EU negotiations will not lead to tensions that might endanger our access to the ERC?

Research and innovation are essential to diversify our economy and drive growth and productivity. Now more than ever, could be Government forgive themselves if they did not heed the clear messages in this report?

Corporate Insolvency and Governance Bill

Baroness Warwick of Undercliffe Excerpts
Report stage & Report stage (Hansard) & Report stage (Hansard): House of Lords
Tuesday 23rd June 2020

(4 years ago)

Lords Chamber
Read Full debate Corporate Insolvency and Governance Act 2020 View all Corporate Insolvency and Governance Act 2020 Debates Read Hansard Text Read Debate Ministerial Extracts Amendment Paper: HL Bill 114-I Marshalled list for Report - (18 Jun 2020)
Baroness Drake Portrait Baroness Drake (Lab) [V]
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My Lords, I refer to my entry in the register of interests and shall speak to Amendment 13 in my name. In this group the Government have brought forward helpful amendments to seek to prevent bank debts and other financial lendings that are accelerated during the moratorium from gaining super-priority status. This is a welcome change. However, serious risks remain of gaming to give current or future lenders access to super-priority, avoid pension liabilities and incentivise insolvency over rescue for certain creditors.

Amendment 13 would remove the exemption which payments in respect of pre-moratorium debts arising under a contract or instrument of financial services have from the payment holiday and from super-priority in the event of an insolvency process. Notwithstanding the Government’s amendments, real concerns remain that lenders may be able to circumvent their intent by the drafting of their lending agreements; the definition of accelerated debt could be sidestepped so that lenders can continue to bring forward debt and benefit from super-priority. It is unclear, for example, whether on-demand debt that is called during the moratorium would be caught by the definition of accelerated debt and debts accelerated prior to the moratorium would continue to be granted super-priority.

Adding to these concerns is the width of the definition of financial institution debt which would qualify for super-priority, covering intra-company loans, for example. In addition, finance debts due prior to or in the moratorium continue to be exempt from the payment holiday. Debts due to the pension scheme are not, would not be payable and would be outranked in subsequent insolvency. That exemption and the super-priority given to that financial debt, which are permanent provisions within the Bill, will inevitably lead to novel forms of moral hazard when it comes to pension liabilities.

This is a fast-track Bill containing permanent, major changes and scrutiny has consequently been fettered, but government Amendment 80 in this group gives a power enabling the Secretary of State, by regulation, to change the definition of moratorium debt and priority pre-moratorium debt. This is a welcome concession by the Government, because it implicitly recognises the arguments that many noble Lords have made that it allows the Government to respond to actual experience of gaming and perverse behaviours. Will the Minister confirm that the intention of Amendment 80 is to allow the Government to quickly address the risks other noble Lords and I have identified when they emerge and to change the definition of moratorium debt and priority pre-moratorium debt in response? Will the Government commit to monitor closely the impact of the provisions on moratorium debt and priority pre-moratorium debt, and to consult relevant bodies on the real concerns around super-priority status, the definition of accelerated debt and the implications for pension scheme debt?

Baroness Warwick of Undercliffe Portrait Baroness Warwick of Undercliffe (Lab) [V]
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I added my name to Amendment 13 and I set out in Committee my concerns about the Bill. As I said then, I fully support the intention behind it—that the disruption caused by Covid-19 should not be allowed to trigger the failure of otherwise financially viable companies—but I was anxious, and I remain anxious, that some of the permanent and far-reaching proposals would be damaging to pension funds and to their members in the longer term. I assumed that this damage was unintended and was caused by the speed with which this package of protective measures had had to be introduced, and I am pleased that the Government have gone some way to acknowledging this in the amendments they have brought forward.

Other noble Lords have set out in detail the problems that the Bill would cause as currently drafted. I emphasise just one point in relation to defined benefit pension schemes. The stability and effectiveness of the current system in dealing with insolvency has depended on unsecured pension debts ranking side by side with debts owed to other unsecured lenders. This has underpinned all valuation funding and covenant discussions. The super-priority status granted by the Bill to finance debts in an insolvency following a moratorium undermines that stability and endangers members of affected pension schemes, while preventing the PPF acting effectively as creditor. As I said in Committee, it also undermines the role of the regulator. However, the Government have clearly made efforts to address these concerns and go some way to addressing the issues raised by me and other noble Lords. I have been convinced that the Government want to make this work and will ensure that the PPF has access to and influence on discussions about recovery plans.

The Secretary of State will have access to considerable Henry VIII powers in the Bill and will be able to intervene swiftly if it seems that restructuring plans and insolvency procedures are being abused, to the detriment of pension scheme members. So in thanking the Minister for the way he has responded to the concerns we in this House have expressed about the Bill, I urge him to stay alert to any attempts to undermine the assurances he has given that the position of pension scheme members will not be weakened, and that their lifeboat—the protective umbrella of the PPF—will not be undermined in any restructuring and insolvency discussions.

Baroness Bowles of Berkhamsted Portrait Baroness Bowles of Berkhamsted (LD) [V]
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My Lords, I draw attention to my interests in the register. I support Amendment 13 and what has been said already about it. I am a signatory to that amendment, but I shall concentrate on Amendment 14. The Times this morning reports that Intu, owner of shopping centres, is seeking a standstill on loans from its banks, otherwise it will go into administration. Without commenting on the merits of the case, save to mention that coronavirus has stopped rent payments, the facts are writ large: it is all in the hands of banks.

The idea of a moratorium is as a formal standstill, a breathing space for a company to trade out of its problems, get back on its feet or at least find a way to reorganise without the situation deteriorating due to a feeding frenzy of creditors, each trying to get at the assets before someone else does. For all essential suppliers other than financial institutions the moratorium terms are that they must continue with normal supply, with no demands for up-front payments or elevated prices that would destroy cashflows and undermine the purpose of a moratorium. But not for banks: they have no constraints and are free to demand accelerated payment. So there is a feeding frenzy exclusively reserved for the banks.

Corporate Insolvency and Governance Bill

Baroness Warwick of Undercliffe Excerpts
Committee stage & Committee: 1st sitting (Hansard) & Committee: 1st sitting (Hansard): House of Lords
Tuesday 16th June 2020

(4 years, 1 month ago)

Lords Chamber
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Baroness Drake Portrait Baroness Drake (Lab) [V]
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My Lords, I refer to my entry in the register of interests. I shall speak also to Amendments 39, 63 and 64.

I fully support the Government’s desire to assist companies in bouncing back from Covid-19, but it is neither necessary nor desirable that such a policy should seriously weaken the position of defined benefit pension schemes and the Pension Protection Fund in the event of an insolvency or restructuring. The Bill does this in several ways: by granting super-priority status to unsecured banking and finance debt, ranking it above pension scheme debt if a company is not rescued, which introduces material detriment to the level of recoveries the PPF, acting as creditor for a scheme, can achieve through insolvency proceedings; by finance debts getting preferential treatment over pension scheme liabilities by continuing to be payable during a moratorium; and by the new moratorium and restructuring plan processes not triggering a PPF assessment period or a pension scheme’s Section 75 debt, weakening the position of the scheme and the Pension Protection Fund, which would not have a seat at the table for key creditor and restructuring plan discussions and would be denied a meaningful voice on employer liability to the scheme.

The Minister wrote yesterday and indicated that the Government will bring forward amendments on a number of matters, for which I thank him. We have yet to see the text of those amendments, but I will seek to reference the Minister’s letter in what I say.

Amendment 20 removes amounts payable in respect of pre-moratorium debts and other liabilities

“arising under a contract or … instrument involving financial services”

from the exemption from the payment holiday during a moratorium and the super-priority provisions in the event of an insolvency process. Amendment 39 does the same in Northern Ireland.

There is nothing in the Minister’s letter that indicates the Government’s intention to give further attention to their decision to give such a wide range of finance debts elevated status and preferential treatment over pension scheme liabilities. We have today heard his statement on accelerated finance debt, but I will continue to press my amendment.

It is difficult to comprehend the Government’s reasoning for liabilities under financial services contracts, extremely widely drafted in the Bill. It would include unsecured lending such as shareholder loans and intercompany loans, including from a director or parent company, as well as arm’s-length regulated activities and bank debts, all getting preferential treatment over pension scheme liabilities. Others have asked similar questions in respect of SMEs and workers.

As drafted, it would allow finance parties to accelerate all debt so that the entirety of the lending would be payable under these provisions and benefit from super-priority on insolvency. There is a real risk of gaming. The noble Lord, Lord Hodgson of Astley Abbotts, and the noble Baroness, Lady Bowles of Berkhamsted, articulated such examples so brilliantly in the first group debated. From what I heard during that debate, I welcome the Minister’s statement that accelerated debt will not now have super-priority status, which addresses in part—but certainly not in whole—the purpose of my amendment.

During a moratorium, these financial debts would continue to be payable, pension scheme deficit contributions would not and the trustees could not call on any contingent assets that would otherwise be triggered by non-payment of deficit contributions. Priority for finance debts would remain. The Law Society has said:

“the Bill would create an incentive for lenders without effective security to allow the rescue of a company through a moratorium to fail, so as to force it into administration or liquidation and achieve super-priority.”

I say this without sight of the Government’s amendments, but there may remain a perverse incentive that undermines any preference the trustee or PPF may have to rescue the company.

Worryingly, liabilities imposed by the Pensions Regulator on the company for breach of moral hazard rules, such as contribution notices and financial support directives, also rank behind these financial debts. This is not addressed in the Minister’s letter. Will the government amendments address this concern?

Amendment 63, through an amendment to the Pensions Act 2004, provides that both the start of a moratorium and an application for a meeting of creditors to consider a restructuring plan would trigger a PPF assessment period and a scheme’s Section 75 debt. Amendment 64 applies similar provisions to Northern Ireland. This would enable the PPF to act as the creditor of the scheme, which would have an improved standing and vote. These are key protections that currently exist.

In his letter yesterday, the Minister advised that the Government will bring forward amendments that will: during a moratorium, give the PPF rights to information and the right to challenge the actions of the directors and/or the monitor; on a restructuring plan, provide that both the PPF and the Pensions Regulator will be entitled to receive copies of all the information sent out to creditors; and, on both procedures, grant the ability to provide creditor rights to the PPF, subject to appropriate constraints.

I welcome that the Government have recognised that the pension trustees, the PPF and regulator need the rights and authority to engage effectively during the moratorium and restructuring plan discussions, but it is unclear how meaningful those engagement powers will be without seeing the actual amendments and to what extent they will be broadly comparable with or weaker than the current safeguards available.

It will also be important to understand how any government amendments address the serious risk that the new restructuring process could give rise to the systemic dumping of DB pension schemes by companies that are financially underperforming. The restructuring plan procedure can compromise creditors’ claims and standing. It allows for a cross-class cram down and there is much speculation that this could be used to cram down the pension scheme. I ask the Minister how the government amendment would address that concern.

The relevant legislation, which gives the PPF creditor rights, is chiefly the Pensions Act 2004, which puts in place a careful framework that supports action to rescue distressed companies, while protecting the interests of pension scheme members. It does this by triggering a PPF assessment period at the start of the insolvency proceedings that aim to rescue an employer. The PPF steps into the shoes of the trustees by acting as creditor for the debt owed to the scheme. This legislation has proven effective and has delivered better outcomes.

As drafted, the Bill directly undermines that carefully structured framework. It will be important to understand how and to what extent the Government’s amendment rows back from that consequence. The 2004 Act provisions were a product of the failure of successive Governments to protect pension scheme members under UK insolvency laws. It would be regrettable if, through this Bill, history repeated itself.

The Minister’s letter sent yesterday and his statement on accelerated finance today are a significant step forward, but they do not eradicate all the key risks that many noble Lords are so deeply concerned about. I ask the Minister if, before Report, he will reflect further on the concerns that I, and no doubt others, will express today. I beg to move.

Baroness Warwick of Undercliffe Portrait Baroness Warwick of Undercliffe (Lab) [V]
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My Lords, until recently, I was a member of the board of the Pension Protection Fund. I will speak to Amendments 20 and 63. Like my noble friend Lady Drake, I have yet to digest the contents of the Minister’s letter from yesterday evening and we have yet to see the actual amendments, but I want to set out my concerns, so that they can be tested against the concessions he has made.

I fully support the policy intention behind the Bill: to help otherwise financially viable companies avoid the prospect of failure, as a result of the unprecedented disruption that Covid-19 has caused. However, alongside its temporary measures, the Bill includes permanent measures—the moratorium, the restructuring plan and changes to creditor status—that will be far-reaching. On the current drafting, there will be consequences that have the effect of reducing the protection and rights of underfunded pension schemes and the Pension Protection Fund when companies are in financial distress—protections that have been carefully built up and developed over 16 to 17 years.

Amendment 20 removes financial debts being exempt from the moratorium payment holiday and the granting of super-priority to those debts in the event of a company entering into an insolvency process. Amendment 63 provides for the triggering of PPF creditor rights and a scheme Section 75 deficit at the start of a moratorium and of restructuring plan discussions.

We cannot overestimate just how serious this is. For many years, the covenant position of defined benefit pension schemes has been based on unsecured pension debt ranking side by side with debts owed to other unsecured lenders. This has underpinned all valuation, funding and covenant discussions. The super-priority status granted to finance debts in an insolvency following a moratorium removes that base. It weakens valuations and funding arrangements and is detrimental to members of pension schemes and to the role of the PPF acting as creditor. It also affects the scheme trustees. The liabilities of the scheme—the pension promise—are usually significant and payable over a significant number of years. Unlike other unsecured creditors, trustees are not in a position to manage the exposure to the scheme’s debt by ceasing to deal with their employer. Therefore the Bill dramatically enhances the interests of the finance lenders and weakens the interests of the pensioners and future pensioners in an insolvency situation.

Corporate Insolvency and Governance Bill

Baroness Warwick of Undercliffe Excerpts
Baroness Warwick of Undercliffe Portrait Baroness Warwick of Undercliffe (Lab) [V]
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My Lords, until recently I was a member of the board of the Pension Protection Fund—PPF—so, like my noble friend Lady Drake, I want to focus on the impact of the Bill on defined benefit pension schemes.

I recognise the intent and urgency behind the Bill. Businesses have been asked to take extraordinary measures to help control this terrible virus, and we need to ensure that viable businesses survive and get back on their feet. Defined benefit pension schemes and their members want to know that sponsoring employers will ensure that member benefits are secured over the longer term. However, there is a significant shake-up of insolvency, and some of the changes, however well intentioned, could have unintended consequences.

The PLSA and others have highlighted potentially serious consequences for underfunded DB schemes and the PPF. The PPF plays a vital role in protecting defined benefit schemes and enjoys broad cross-party support. We need to ensure that it can continue to perform the role that Parliament has given it. Some provisions in the Bill might make that difficult: they could reduce the ability of the PPF and pension schemes to have any influence in a company restructuring; they could push schemes and the PPF further down the creditor pecking order; and they could affect the amount that schemes and the PPF might otherwise receive in recoveries.

I want to focus on two things. The Bill proposes a new moratorium to provide struggling businesses with some breathing space to speak to creditors and to try to find a way to continue as a going concern. If a company becomes insolvent within 12 weeks of a moratorium ending, some pre-moratorium debts will be granted super-priority in the insolvency. At present, these are on a par with pension debts but under the proposed change they would rank above pension debts. By elevating unsecured debt finance over other unsecured creditors, there could be a serious detrimental impact on DB schemes and the PPF. It stands to reason that if some creditors get priority status and so, in the event of insolvency, get more, others will get less. Also, those with finance debts and super-priority could start to game the system, as the noble Baroness, Lady Bowles, pointed out—for example, by taking equity in a company or accelerating all debts and loans to bring them into super-priority status.

Neither the moratorium nor the restructuring plan appear to count as qualifying insolvency events, so there is no provision, as happens now, to trigger the start of a PPF assessment period or the Section 75 debt. Therefore, as my noble friend said, neither the scheme nor the PPF have a seat at the table when important discussions about the company’s future are happening. That does not seem right or fair.

This matters. There are still more than 10 million members in about 5,500 DB schemes in the UK, the majority of which are already in deficit. Recoveries from insolvent employers are a vital income stream for the PPF: 12%, or about £3.8 billion, of its current assets have come from recoveries, helping it to protect members and reduce the strain on levy payers. The change in the Bill could mean that the PPF needs to raise more levy than it would otherwise have to do from other, solvent businesses.

I believe that these issues could be remedied without a major impact on the overall intent of the Bill. To protect pension schemes and their members, the Government should not let other unsecured creditors—banks or hedge funds, for example—leapfrog up the creditor queue. They should build into the moratorium and restructuring plan appropriate safeguards to ensure that the voice of the PPF is fairly represented so that, as now, the PPF can exercise schemes’ creditor rights and represent their interests. Suggestions such as those must surely be worth considering in Committee.

I support the overall intent of the Bill but I want to make sure that it does not undermine DB schemes and the retirement funds of their members throughout the country. The Minister said at his helpful briefing yesterday when I raised this matter, “Watch this space”. I hope that that means that officials can work with the PPF and others to find solutions.

Science and Innovation Strategy

Baroness Warwick of Undercliffe Excerpts
Monday 23rd October 2017

(6 years, 9 months ago)

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Baroness Warwick of Undercliffe Portrait Baroness Warwick of Undercliffe (Lab)
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My Lords, I thank the noble Lord, Lord Patel, for providing this opportunity to consider the vital importance of science and innovation to the success of the industrial strategy.

As others have highlighted, science and innovation are areas in which the UK excels internationally. With the recent publication of more science and innovation audit reports, we now have a compelling evidence base for the specific innovation and scientific strengths of local areas, covering almost all the UK. Investing in science, research and innovation, doing more to commercialise our science base to drive growth across the whole of the UK, is pillar 1 of the industrial strategy; I argue that all the other pillars rest on it. So it seems clear to me that the science and innovation audit reports will be critical to the success of the industrial strategy. I will say more about this in a moment.

I want first to make a very simple observation. The industrial strategy Green Paper mentions universities 63 times—I am grateful to the Universities UK researcher who did the counting. As UUK points out, this reflects the significant role universities play in their local areas, but it also underlines the fact that universities are a driving force for the future prosperity of the whole UK. Our universities, in all their activities, are intrinsic not only to the industrial strategy but to economic performance more generally. While rooted in their local cities and regions, universities are connected to global growth markets. They maintain thousands of industrial partnerships and they work closely with SMEs in emerging fields. The industrial strategy must make the most of these connections. The industrial strategy presents an opportunity to draw together a number of strands of support for economic growth, but this opportunity has to be grasped.

I said I would come back to the science and innovation audits, or SIAs. The House of Lords Science and Technology Select Committee called for,

“pathways of practical steps ... building on existing research excellence at every opportunity”.

I believe that the SIAs could contribute to the delivery of such a pathway. This body of knowledge about regional strengths in science, innovation and infrastructure is critical to the emphasis on place in the industrial strategy. The SIAs bring together sector and place; I suggest that, precisely because they can be specific about which localities should be at the forefront of which industries, they could be the basis of an approach to investment which combines national coverage with regional focus, through local enterprise partnerships. The industrial strategy could co-ordinate this and also shape the distribution of money spent on innovation through other government agencies, such as Research England, and DfE initiatives, such as the institutes of technology.

The industrial strategy offers an opportunity to make investment decisions that increase the overall funding available to university research and spread this investment throughout the UK. Will the Minister tell us whether the creation of UKRI will support this approach? If so, how? Will UKRI be tasked to ensure that funding reaches all parts of the country? Established industries are dominated by major companies and research-intensive universities. The industrial strategy also presents an opportunity to look beyond the established industries to emerging sectors. I declare an interest here as a member of the council of Nottingham Trent University, and I cite the university’s involvement in the fields of medical technology and advanced materials as an example of the tremendous potential flowing from its involvement in these fields. This has long been a major area of manufacturing in the east Midlands and is one of four major themes picked up in the Midlands Engine SIA.

In what I hope will be a very positive signal on collaboration for the rest of the sector, NTU is partnering with the University of Nottingham on the stimulation of business creation in life sciences through expanding the work of BioCity Group Ltd, which now has four sites across the UK. The university is ensuring a throughput of talent from undergraduate to PhD in life and health sciences, and is looking to ensure that the local institute of technology encompasses medical technology, so that there is a genuine skills escalator locally. NTU also works with medtech SMEs through its European Regional Development Fund programmes to enhance the leadership of some of the smaller local companies, including their ability to embrace innovation. In other words, the university is tying together a number of rather disparate government initiatives and funding streams. If the Government were to adopt a rigorous approach to the industrial strategy based on the audits, it would help enormously. Can the Minister assure us that such an approach will form part of the Government’s thinking?

The additional investment of £2 billion for R&D by 2020, announced in 2016 and restated in the industrial strategy, is welcome as an acknowledgement of the vital role science, research and investment play in economic growth, but it is essential that we do not fall behind. I echo other calls today for increased investment in R&D to put us in line with the OECD average: 2.5% of GDP. The SIAs are the evidence base we need for strategic decision-making on local innovation priorities. They must inform the industrial strategy’s pillar 1—the vital investment in science, research and innovation.

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Lord Prior of Brampton Portrait The Parliamentary Under-Secretary of State, Department for Business, Energy and Industrial Strategy (Lord Prior of Brampton) (Con)
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My Lords, I find myself in the slightly odd situation of being able to agree 110% with what the noble Lord, Lord Mendelsohn, has just said; I do not think there is anything between us at all. I thank the noble Lord, Lord Patel, for tabling the debate today. It has been interesting, insightful and opportune, given that the White Paper is coming out in November.

I am afraid I shall disappoint the noble Baroness, Lady Morgan, and the noble Lord, Lord Fox: I am not going to address skills today. Clearly they are utterly critical, and the cultural divide that we have had between academic and technical education has been a disaster for this country since 1944 and probably earlier—I think we are all in agreement on that—but I shall talk more about science and innovation today, if I may.

When the Green Paper on the industrial strategy was launched earlier this year, the noble Lord, Lord Hennessy, asked with a customary rhetorical flourish, “Where is the magic?”. I think he had read eight previous versions of the industrial strategy and, quite rightly, was saying, “What is different about this one?”. I have thought about that a lot. It may lie in our culture, in our great institutions, in our legal system or in our national character. It may lie in the welcome that we have always given to people from different countries. It may lie in that very difficult and shifting balance between social justice and entrepreneurship. It may lie in all those things, but if I had to choose one—if I had to say where the magic was today—I would say our great universities and research institutes.

The story may be apocryphal—if it is, no doubt the noble Lords, Lord Bhattacharyya and Lord Patel, will tell me afterwards—but soon after India became independent in 1947, Nehru asked John Kenneth Galbraith, the great American economist, for advice on how to modernise the Indian economy. The great man is supposed to have replied, “Establish an independent flourishing university sector and wait for 800 years”. Of course you do not have to wait that long, and Warwick and Bath are two universities that are testament to that, but it is perhaps no coincidence that our two oldest universities, Oxford and Cambridge, are ranked first and second in the world. It has been said that in the Dark Ages the monastery kept alive learning, progress and civilisation; in the Middle Ages the centre of gravity moved to the castle; and in the industrial age the factory became the epicentre of economic growth and power. In today’s age, the age of information and knowledge, it is the university that stands centre stage—not some gleaming academic ivory tower but a seat of learning, driving ideas, innovation and science into a connected ecosystem. This is the magic that has created the world’s most powerful economic ecosystem in Silicon Valley, an alchemy that brought together great universities such as Stanford and Berkeley with great entrepreneurs, with enlightened government support—we have already talked about DARPA today—and with intelligent, long-term, patient capital, as my noble friend Lord Freeman stressed in his speech. As the noble Lord, Lord Willis, said, it is bringing together, fusing science and entrepreneurship, that makes Silicon Valley, Boston and those other great ecosystems around the world so successful.

In the UK, the first industrial revolution was ours. The second, the factory age, was ultimately won jointly by Germany, Japan and the US. The third industrial revolution was unquestionably won by the USA. The fourth industrial revolution, which is now upon us, based on AI, robotics, quantum computing and the like, is what we are now playing for. Clearly, the US and China will be at the table, but we must make sure that we are there, too.

Where are we? We have four universities that nearly always figure in the top 10: UCL, Imperial, Oxford and Cambridge. We have 31 in the top 200. The Elsevier report published last month shows that we account for 9.9% of downloaded academic articles, 10.7% of citations and 15.2% of the world’s most highly cited articles. The UK continues to rank number one by field-weighted citation impact.

If we look around the country, we can start with the Crick and the Turing Institutes at King’s Cross, move to Norwich, where I come from, where there are the John Innes and the Tyndall centres, and move up to York, with its extraordinary work on optics and digital infrastructure. Further north, there is Dundee, where the noble Lord, Lord Patel, was such a distinguished academic clinician. Look at its extraordinary record of drug discovery. We can come past Huddersfield, not a place associated with a great university, but it has an extraordinary hidden gem there in rail technology, and down to Warwick.

The noble Lord, Lord, Lord Bhattacharyya, mentioned the National Automotive Innovation Centre, a joint venture between Tata, JLR and the Warwick Manufacturing Group. It is an extraordinary success how Warwick, quite a young university, has developed that extraordinary technology. JLR invests £3 billion a year in research. That is one company with revenues of £25 billion or so. It is an extraordinary commitment to research, and we are very lucky that it does that.

If we come down from Warwick, we find what is possibly the most extraordinary research institute in the world: the Laboratory of Molecular Biology at Cambridge, the birthplace of modern molecular biology, with 11 Nobel prizes to its name. It is led, of course, by a Nobel prize winner, Venki Ramakrishnan, and, of course, we should pay tribute today to Richard Henderson for his Nobel prize this year for his work on electron cryo-microscopy. I note in passing that Richard Henderson shared his Nobel prize with a US and a Swiss researcher, and that Venki Ramakrishnan was born in Tamil Nadu in India and shared his Nobel prize with two scientists from the US and Israel. Science is international, and respects no boundaries. If we in our country do not accept that and welcome people from abroad, we are cutting off our nose to spite our face.

I turn now to the ecosystem, if you like—the innovation side of the equation. You can look at this through the lens of intellectual property, of royalties, of spinouts, of unicorns, or however you want to measure it. We all know what we mean. The question is: are we capturing for the UK the downstream value added of science, or are our universities instead still to some extent basking in the glory of academic excellence? This is not for one minute to downgrade the value of basic, fundamental blue-sky research, just to raise the question: are we making the most of it? As the noble Lord, Lord Patel asked: are we turning ideas into money?

Historically, the answer has to be a pretty emphatic no. I suppose the most egregious example that I have come across is that of monoclonal antibodies, discovered by two researchers at LMB and humanised by Greg Winter, who is today the Master of Trinity College. Monoclonal antibodies today comprise six out of the 10 best-selling drugs in the world. We hardly make a biologic in this country. Why could we not have just one Genentech in the UK? We have none. As the noble Lord, Lord Mendelsohn, mentioned, graphene was discovered at Manchester University in 2004, yet today we hold just 21 graphene patents out of a total of 2,224. It is now an area dominated by the US, China, South Korea and Japan. I could go on. The British consulate in Silicon Valley says that it fields inquiries from more than 300 companies a year looking to make the move to California. Illumina is based there, with a market cap of $30 billion, based on gene sequencing technology again developed at the LMB.

But that is looking backwards. We are getting much better. UK universities’ knowledge exchange income has increased by 27% between 2010 and 2016, to £4.2 billion. Universities are increasing engagement with businesses, with income from businesses increasing by 6% from 2014-15 to 2015-16, and with 71% of this coming from collaborative research, contract research and consultancy, but that is still nothing like enough.

The knowledge exchange framework announced by my honourable friend Jo Johnson two weeks ago is a start to try to address that issue. We are going to measure universities not just by teaching and research excellence but by how much added value they put into the community. In the US, the Bayh-Dole Act, which came in in the 1980s, fundamentally changed how universities in the United States commercialised their research. Economists say that it was probably the most significant Act passed in the US in the past 40 years. I hope that the knowledge exchange framework will do the same in the UK.

I was very struck by the comments of the noble Baroness, Lady Greenfield, about taking research out of universities. How right she is. Carnegie Mellon University, MIT in Boston or Stanford have a “5% and go in peace” policy. They encourage their scientists to set up spin-outs; if you are not doing that, you are not proper scientists in those places. They take 5% of the equity and go in peace; they do not hang on to all the intellectual property or royalties. A lot of British universities still keep between 40% and 60% of the equity, and they wonder why entrepreneurs find it hard to raise money in capital markets.

I have a much longer speech than I have time to give this evening. We are doing work with higher education innovation funding, the connecting capability fund and, of course, the industrial strategy challenge fund. So the Government are fully apprised of this; nothing has been said in this debate that the Government are not wholly in agreement with.

When it comes to the scale of investment, noble Lords are absolutely right in saying that we are way off the pace. We spend 1.7% of GDP on research and development. The average in the OECD is 2.4%, but Germany spends 3% and wants to spend 3.5%. Our aspiration is to get to the average of the OECD, of 2.4%. We must keep making the argument that returns on investment in this area are as good as you can find anywhere.

I have only one minute left, so I shall end with a point on long-term patient capital. We are making some progress: Neil Woodford has the Patient Capital Trust established in Oxford, but clearly this is an area—particularly in bioscience, where it takes 20 years to bring a new drug to the market—where there is an absence of intelligent long-term capital. I hope again that the industrial strategy will produce that in November and have something to say about that issue.

I thank the noble Lord, Lord Patel, for introducing a fascinating and useful debate, which will certainly help our thinking as we move to the White Paper in November.

Baroness Warwick of Undercliffe Portrait Baroness Warwick of Undercliffe
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Could the Minister comment briefly on the role of UKRI in ensuring that investment and funding is spread right around the country?