Oral evidence: The science budget, HC 340Tuesday 13 October 2015

Oral evidence, 13 October 2015.

Witnesses

Bernard Ross, Chief Executive Officer, Sky Medical Technology Limited, James Bromley, Chief Operations Officer, SwiftKey, and Dr Paul Beasley, Head of Research and Development UK, Siemens, gave evidence.

Chair

Can I welcome you all to this panel? Thank you very much for making time to come and give evidence to our inquiry. This is our last session of oral evidence so it is very important to us that we hear from those of you who have not only sometimes received innovation funding but are also on the receiving end of various changes of public policy. I hope that in answering questions you will feel free to comment exactly as you think, and will not feel in any way that you need to constrain your views. Can I start by asking each of you to outline what public funding for innovation and research has meant to you? We have had lots of people giving evidence about statistics and policies. What we are really after at the moment is to hear from business how the Government’s policy on innovation has helped stimulate the innovation sector, particularly in your businesses. Dr Beasley, would you like to start?

Dr Beasley

Siemens for a vast period of its history invested in its own internal research, in our corporate technology divisions, which are currently based outside the UK. It is only over the last five years that we have started to investigate the opportunities the UK has to offer. Since then we have found it really interesting, and in doing that we have set up strategic relationships with a number of UK universities. We are now starting to understand the ecosystem of the UK. It has taken a long time for us to get to grips with the funding mechanism of the ecosystem and how collaborative programmes work, but now we are very interested in developing that further and utilising the partnerships with universities for collaborative programmes through EPSRC grants and Innovate UK grants, bringing research together with our companies and also attracting funding from our headquarters in Germany to the UK to play a part in those programmes.

Chair

What was it about the UK innovation landscape over the last five years that changed and made you as a company decide to change your strategy and start to investigate and invest in UK R&D?

Dr Beasley

Globally, technology is expanding at a great rate, and as a business we have to be more flexible and agile in identifying the products of the future. The model of just having a corporate technology group is very restrictive. We buy and sell various businesses and we need to react to that as well. Once the decision was made on a global scale to look at various research networks, and as the UK has a reputation for world-class researchers, it was natural that we started to look here.

Chair

Do the decisions that the Government make on long-term investment in science matter to you? Does that change your decisions at headquarters level?

Dr Beasley

Definitely. Siemens is a global business, and almost every day we are approached by various countries to invest in research in those countries, and with very attractive funding packages. Of course, we like to focus initially on excellence, but if those packages become very attractive R&D funding is globally mobile and it can move around to suit.

Chair

Mr Bromley, would you like to add to that?

James Bromley

SwiftKey has been going for six years. In our early period of trading we received about £100,000 of what was at the time TSB grant. It was very important to the business, when it was the two founders with very little investment. Since then we have also made pretty substantial, for us, use of the R&D tax credit rebates, but one challenge for us is that there is a cap on the total state aid we can receive as a business. That is linked to our funding, which is under EIS, so we are now quite quickly at the point where we are not able to apply for any of those grants; otherwise, the funding we receive from venture capital under EIS is not able to operate. It has been very positive for us, but we are at a stage where we are largely outside anything other than the ability to use the tax credits.

Chair

What has been your experience of engaging with TSB, and then Innovate UK? Have they known what they are talking about? Have they been overly bureaucratic? Have they been largely effective? What do you think?

James Bromley

I engaged with them for the first time only three or four months ago. Prior to that, for a relatively long period of time we were not particularly engaged, mainly because we were very limited in what we could do because of our total state aid, if you label it in that manner. I found Ruth to be every engaged and direct about how she wanted to see things move forward. The obvious challenges come in many different shapes and sizes, and clearly the different companies that want to engage range dramatically from a large corporate to us, who are significantly smaller—at the moment.

Chair

Mr Ross?

Bernard Ross

We have been going for roughly the same period of time. I founded the company and we are now up to about 25 employees. We have had total grants funding of £1.5 million; we have had R&D tax credits over that period of time of £1 million; and we have attracted equity investments of £15 million, so we have been quite well funded. What we have been funding is a platform technology used in medical markets to save lives in hospitals by DVT prevention and a whole range of other products. It is platform technology. What we have found in working with TSB, through to Innovate UK, with SBRI grants, biomedical catalyst and also Smart awards, is that generally we are interacting with people who, once we win the grants, understand what we are trying to achieve and work with us. Usually, they are individuals who can add to our business on a project-by-project basis as well. Sometimes we find it is difficult for us to communicate the benefits of a specific project, so sometimes we fall short and do not win the grants, but that is usually because we have failed to communicate properly where the added value of the project is rather than the assessors not being on the ball, or maybe it is a combination of the two.

Chair

To go back to your figures, you said you had had £1.5 million from Innovate UK.

Bernard Ross

From TSB and Innovate UK.

Chair

And £15 million from private sector investment.

Bernard Ross

Yes.

Chair

Do you think you would have had that £15 million if you had not had the £1.5 million?

Bernard Ross

No. I was going through that in my mind while looking at the kind of questions I might be asked today—you can forget the chronological order of events when you are busy running a business. When we started off, the first funding we got, other than my pocket, was a grant, from a Smart award at the time. That triggered us to build a prototype—a concept—of what the technology could do. It also enabled us to negotiate a research contract with one of the universities in the UK to help us—a three-year programme of research. Then I had to go out and juggle a little bit to raise the equity finance. I raised £500,000 at that early stage to fuel the research project and the early product development. Getting the grant funding when there was nothing other than a blank piece of paper enabled the whole ship to start off in the first place. Moving on, we got more investment in. Investors are keen that you focus on very key areas. They want you to focus on just one or two things and do them very well. If you have a bunch of bright people who can see a huge range of opportunities in other areas, you have to find a way of keeping them focused, but at the same time let them be creative and move the technology on to different areas. The likes of SBRI have been superb in enabling our team to look at adjacent opportunities which are now driving revenues; they have gone from fundamental research through to product development and clinical development and they are now generating revenues. Early stage research and intermediate research is now in products being exported to China, Canada and Japan.

Chair

Is that a picture you recognise, Mr Bromley? If you had not had that initial TSB engagement, you would not have had the later engagement from other sources.

James Bromley

Yes. It is slightly different, in that the funding was very small and very early, which meant that it did have that impact. When you had two founders, it allowed them to continue working on the project for three or more months, and then they went out to raise. It is absolutely critical. It is also very dependent upon, in the example of new companies being born, the funds available to the founders. In different walks of life, some people have easier access to some of those funds. For this business it certainly was. The ongoing impact of the efficiency with which we can conduct our R&D because of the tax credits is really important when you then go out to raise, because there is efficiency in transferring cash and equity into tangible output.

Carol Monaghan

Mr Ross, you spoke about the investment you got; you said you feel you have been well funded. How easy do you think it is for businesses to identify and then access sources of funding? I am thinking in particular of possibly new ventures starting out.

Bernard Ross

I have to be a bit balanced here. It is a challenge to spend time looking at funding sources and then diverting attention, when you are a very small team, back to running the business, utilising the funds and making best value. When you are going out and continually looking for additional pots of money it is a distraction from growing the value of the business. You have to balance that against venture capital investors who would not necessarily look for a broad spectrum of applications of the technology in parallel, which means that in some respects you could be slowed down, so it may be best to look for smaller pots of money over a longer period of time. That is where Innovate UK is very helpful, in that you can look at increasing the financing of your business on a project-by-project basis and say to your shareholders, “We’ve got this opportunity. The risk to you is this, but the benefits could be this, and also we are getting some support from the UK Government because they can see the opportunity for the UK as a whole.” The combination of the two along the way is probably what is going to give the best value to shareholders and to the business.

Carol Monaghan

Dr Beasley and Mr Bromley, is that a picture you recognise?

Dr Beasley

Yes, definitely. We are in a much more fortunate position than these guys and are able to put resource aside. We spent a year to 18 months going round talking to the individual funders—the universities. It was quite interesting to go to universities to talk about individual projects and then try to scope something out. These guys are coming out with, “Have you heard of this particular scheme?” They can be very creative, particularly if they want to get a product up and running, but it certainly took us quite a bit of time to get our heads round the actual ecosystem.

James Bromley

Speaking generally for smaller start-ups in the tech sector, the biggest issue is that it is a lottery whether you get an award, so you have a really difficult decision to make. Do you invest your valuable time and attention in entering the lottery and creating reports for what you hope is the correct application, or do you speak to funders and try to progress that route? The important thing we need to consider is that, if you are in Silicon Valley, the time you spend writing the application is probably enough to have half a million from someone who is going to take a very small equity slice as a result, so the ease with which a company can ascertain whether it has a likelihood of being successful in an application is very important, if you want to encourage the right companies to apply—certainly small companies.

Carol Monaghan

The Dowling review has come up with some ideas for simplifying the process. Do any of you have any ideas you would like to highlight, or ideas of your own, that might make the process more straightforward?

Dr Beasley

The thing highlighted by the Dowling report that has caused most friction for us generally is around intellectual property. The Minister mentioned earlier the desire for intellectual property. When you are looking to invest in a university and establish a research programme, you bring the problem and fund it. The last thing you expect is to have an additional charge for the patent coming back at you. It is very difficult. We have been in negotiations with some organisations for over a year. In that time I could have done the research somewhere else, got the result and moved on. We need to look at that in the round because generally, if the university holds the patent and has to pay the maintenance fee for it over a period of time because industry is not taking it up, what is the benefit of investing in that patent in the first place? The desire for universities to chase IP is a little difficult to understand, particularly when there are orders of magnitude more investment coming from industry than from intellectual property.

Chair

What do you think is behind that particular problem? Is it lack of expertise in universities? Is it a desire to get maximum profitability out of IP and a short-term horizon, or is it that they are not experienced enough and there is not enough expertise?

Dr Beasley

Yes, experience in that particular area. As their patent portfolio grows, the maintenance fees go up. Of course, if industry is not willing to take it up that is a burden they will have to take on. The US followed this model for quite some time and they are now reversing it. Here, if you work with consultants as part of a funded programme, they tend to offer the intellectual property to industry in order for them to operate and take advantage of that intellectual property.

Carol Monaghan

Do either of you want to add anything to that or are you happy with it?

James Bromley

I would add just two things. You will be aware that a number of companies operate to support people making grant applications. I have worked with one, not through SwiftKey, called GrantTree. That has been very effective in providing wider advice than simply applications, but that does seem to be an unprescribed field as a business looks to make a grant application. The other thing I have been made aware of more recently is the opportunities around EU grants and investment. It seems as though it’s got a whole lot more complicated for small companies as they try to understand where they should be making applications.

Bernard Ross

State aid caps are troublesome, particularly when they seem to be imposed by European legislation, as I understand it. I am nowhere near an expert on that. It is problematic. On the grant application process and dealing with grant bodies, Innovate UK has done a tremendous job in taking it from where it was at the early stages to where it is now. Continual focus on the commercialisation strategy, and giving companies who apply for grants the instruction they need—a go to market strategy—is quite important as well. The product cannot be just research. How is it going to benefit the UK and all of us?

Chris Green

How straightforward is it for a business to identify and access sources of funding for innovation?

Bernard Ross

I think we have done quite well at it. If you have someone within the business to devote the time and energy to it, it is there for you if you spend time to look for it. When you have very early companies who have to prioritise their time, it becomes problematic. A lot of different organisations seem to interlock and overlap in some respects outside Innovate UK, but Innovate UK seems to be particularly straightforward in that respect.

Chris Green

So Innovate UK is pretty good.

Bernard Ross

Yes.

Chris Green

But outside that the innovation ecosystem is rather complicated.

Bernard Ross

There are a lot of five-letter acronyms. I can manage three, and that’s about all.

Chris Green

I suppose that each of these different areas may have a particular interest in what they are enthusiastic about, but someone with a start-up business not familiar with the innovation ecosystem, so to speak, just does not know where to begin. It can be incredibly confusing, and you are busy trying to develop your product.

Bernard Ross

That is absolutely right. I am working with the founders of a company that is even smaller than ourselves, at a mentor-type level. They spend an awful lot of time trying to find out which acronyms are genuinely barriers and gatekeepers rather than introducers and facilitators, particularly in healthcare.

Chris Green

One of the things about the internet and Google is that you can search and find so many different options that you just do not know where to begin. Mr Bromley, have you had a similar experience?

James Bromley

As you say, you can search with Google—other search engines are available—and struggle to ascertain where you should spend your time. You can engage with specialists, who certainly for me, outside SwiftKey, have been a very good way through the maze, but it has become a lot more complicated. When SwiftKey started five years ago, it was TSB that was relevant for an internet start-up business, and there were not as many different places where we could apply.

Chris Green

At a previous Committee meeting we reflected on the fact that the innovation ecosystem is incredibly complicated and there are all kinds of different sources, so a front end for people with ideas would be quite handy: “Here is the entry point and you can be directed from there.”

James Bromley

Yes, but with some degree of scoring as to your likelihood when applying. If we are a very strong applicant for a grant of £100,000 but there is a one in 50 chance, we will probably not prioritise our time to make that application, even if for us there is a relatively high sum behind it. Without that knowledge, probably a lot of companies will decide not even to try to work out that ratio, or gain advice on it, because it is time not well spent.

Dr Beasley

I think it can only get worse with a lot of the regional funding through local enterprise partnerships having their local priorities as well. It will be interesting to see how all of that develops, particularly the tensions between the research councils and the local enterprise partnerships.

Chris Green

At a recent meeting, it was highlighted that different regions within Germany will have a Minister for science or innovation. If we go through this devolution process, perhaps Greater Manchester will have someone specialising in it and therefore you would have yet another route in, so we have to look at access.

Chair

Mr Ross, I was interested in your comment that you had done an analysis to find out the good acronyms and the dodgy ones—the ones that just act as gatekeepers or barriers. We are quite interested in this. I am very upset by Professor Dowling’s diagram, which I have somewhere in my pile of papers, that looks like a spider’s web of different organisations in the innovation landscape. Would you like to name and shame some acronyms which are troublesome for you?

Bernard Ross

Am I allowed to do what the Minister did and say I do not want to prejudice your inquiry?

Chair

Or that now would not be an appropriate time to comment. No. You can write to us afterwards if you like, but it is in the public domain.

Bernard Ross

I would not mind doing that.

Victoria Borwick

Do you have any particular grounds for believing that the funds available from Innovate are sufficient or insufficient to make the most of the assets created?

Dr Beasley

From a large business perspective, we are very interested in the challenge-based funding calls. I think they have been very successful, so increased funding in that area would be very welcome.

Victoria Borwick

It is a very welcome point. Does anybody else have any views on that? Dr Beasley, do you want to say a bit more?

Dr Beasley

We have used that very successfully to attract funding from headquarters. It has the benefit of lowering the threshold of interest for additional funding from industry. It also gives the opportunity to seek out start-up businesses to bring them into those sorts of development programmes. I mentioned before that we have university partners. We try to work with our university partners to utilise the system and draw the initial concept development worked up at the university through the valley of death into something that could be a product.

Victoria Borwick

Do you have a view as to possible further activities you might pursue if more funding was available?

Dr Beasley

Siemens is a very broad business. Certainly, a lot of our business overlaps with the eight great technologies, so there is a lot of coincidence there to fund research in energy and transport systems. There is a whole range of things we could start to do, not just at a small scale. Many of the challenges going forward will be cross-subject areas—cross-theme areas. The recent internet of things call was very interesting for us. It was a shame that we were given only three months to bid for a £10 million programme, which is crazy. It can take you that long to get the contract in place in order to take it forward. The hope is that some of the larger themes can be drawn into that, and a little more time to put in some of these larger programmes, maybe with better quality bids as well, could be advantageous.

Victoria Borwick

Does anybody want to add anything on Innovate UK?

James Bromley

I don’t think so. There is an ongoing challenge with the different sizes of business trying to access these funds. When Paul said it could take three months to get a contract run, I thought that a company could be born and die in that period, on the small side. I do not know whether there is an easy answer to that, but it is definitely not one size fits all.

Victoria Borwick

What about the National Physical Laboratory? Does anybody have any views on funding from that? How important is it to you?

James Bromley

No.

Dr Beasley

No.

Victoria Borwick

If more resources are needed to cross the valley of death between inspiration and commercialisation, who should be providing them? What resources do you think would be needed to help that link through industry or Government?

Dr Beasley

There is a balance between the two. Both industry and national facilities or organisations can benefit from those. Investment in particular local programmes can grow not only, say, a particular product for a business but also capability in the local university; it adds opportunities to spin out businesses around the university.

Victoria Borwick

That is fine for a large business, but I go back to some of the smaller businesses where I see the problem that there are fantastic ideas but an issue about getting them to market for a variety of reasons, using whatever metaphor you want to describe it—valley of death or not—whether it is funding, innovation or whatever. Do you want to talk briefly about that?

Bernard Ross

We are in healthcare; we have a medical device that increases blood flow, as I mentioned earlier. A very important part of what we have to fund is clinical trials. That is probably a really good example of where there is that huge gap. There is a huge gap as well between what you need to create for a health economic business case and what the clinicians are looking for and the payers are looking for. If, as a very early stage company, you create a clinical study that has all the parameters clinicians are going to be happy with, you may fall short when it comes to the extra bit that you need in the health economics area. That is frequently neglected.

Victoria Borwick

On the healthcare sector, obviously you can sell wherever you wish. Do you find that the NHS is open to new technology or difficult for new technology? We are Science and Technology, and if we think artificial barriers are being put up by other departments it is only right we should flag them up. In the technology business are you selling better in this country or abroad? Who welcomes your innovation?

Bernard Ross

The trick is that you are going to have to tell me when to stop. I am going to start now. We have created a phenomenal environment with EIS, R&D tax credits, grants and various other things that really are phenomenally supportive of innovation. We have an NHS that could be used as the first market, the first customer, for new products that could then be exported all over the world. Should we be asking the organisation we use to save our lives, our children’s lives and our parents’ lives to stop doing that for a moment or two and try out this new product? We want that because then we get the first customer. That is exactly what we have been able to do. Even the National Institute for Health and Care Excellence has set up a medical technology evaluation programme which is there to champion early products, innovative products, within the NHS for that specific reason—the benefit of patients; they may have lower levels of clinical evidence but in all probability they are going to do a lot of good. When I was younger, if you went on to a hospital ward you would see a group of nurses having a cup of tea and a chat. Nowadays, on a hospital ward if you can find the nurse he or she is generally moving at speed, so the ability for people in the NHS to learn new things and new ways of doing things is somewhat limited, because frequently they do not have the time. There are challenges in the NHS.

Victoria Borwick

To go back to the position today, which is about getting a product to market, is the NHS a good customer, or are there other preferred customers?

Bernard Ross

We have found that the NHS can be an early adopter of new technology. You have clinicians, nurses and staff and a whole range of managers who want to do the best for their patients, so we can get our products adopted. You have to join the dots, but it can become seamless when you go from research, innovation, commercialisation and into the NHS. Getting those early reference centres in the NHS, which we have been able to do, could be better. Perhaps it could be helped; it could certainly be improved, but it is there if you persevere. That has enabled us to get reference centres to export to many other countries because of the first customer being the NHS, and also private hospitals in the UK.

Victoria Borwick

Are the rest of you reasonably confident about the valley of death which was described so eloquently by Dr Beasley earlier?

James Bromley

In the online tech sector the valley of death is normally between the R&D hitting the marketplace, and then consumer adoption and eventually monetisation of that adoption. People have long talked about the UK having somewhat of a deficit in the middle funding there. I think it is improving, but the ability to move incredibly fast but then take a long bet on adoption to be a global player, as opposed to monetising a small market, is a challenge now. Being able to use your funds efficiently becomes very important, for which reason the R&D tax credits work incredibly well for us. There are improvements we can make there which fiscally would make very little difference in terms of cost, but would make a great improvement for individual companies. At the moment, they are conducted on an annual basis at the end of the financial year. Typically, you may not get your R&D tax credit for 15 months after you first start incurring the cost, at best. It has to be said that they are very efficient in the way they are processed and they are paid very quickly, which is great, but moving to a model that is more like VAT, which is quarterly, even if there was an ability to pull back if there was a disagreement at a later stage, would be very important. Many businesses in the early stages of funding have runways where £500,000 could be the difference between running for nine months or three months. That would be a very limited cost to anyone, but a massive benefit to the companies.

Graham Stringer

If you were a combination of Jo Johnson and the Chancellor of the Exchequer, how would you target public funding to improve our performance on innovation? How would you change the current system? Do we have a perfect system?

Dr Beasley

I do not think we have a perfect system yet. There are things we need to iron out. I mentioned intellectual property. That is really one for big business to try to get programmes up and running quickly. The knowledge economy is a global business. Currently, we have a world-class research network, which hopefully we can maintain. I am emphasising the need to maintain the base and the generation of original ideas. Some additional funding in the valley of death, the innovation space, to take those ideas and be able to commercialise them is probably where I would tend to focus, certainly in the short term. I am sure my colleagues will agree that growing small businesses is very difficult. Similarly, we need to take a gamble on some of the innovative technologies coming through quite rapidly now, and where the risk can be reduced, there is definitely interest to do that in areas of the world that support it.

Graham Stringer

Could you make a prediction? Do you think there will be more private sector money going into innovation, or do you think people will sit back and wait for the public sector to put in more money?

Dr Beasley

Certainly for business, there is a need for some sort of stability. The introduction of the impact agenda and the industrial strategy five years ago was quite important for us to convince headquarters that there was strategic importance in any investments they made, and we could grow that. The possibility now that some of that would be reversed and that there is potential for a cut would call into question future investment in this particular area.

Graham Stringer

That is answering a slightly different question, isn’t it? I assume a standard level of public sector funding. Do you think that private capital is going to put more money into science and innovation or less over the coming months? Is it going to wait for the public infrastructure in science investment to improve and go on the back of that, as appears to be happening in antibiotics? The development of antibiotics has slowed almost to a halt and they are waiting for an initiative, which has actually happened, where the Government say, “Why don’t we put this money in and do it this way?” Which do you think is going to happen?

Dr Beasley

When ideas come up that have an opportunity to be developed and investigated, interest from industry will be there, particularly if there are opportunities to support that development. If there is a supportive ecosystem, I can see industry continuing to take an interest. In the particular case of healthcare and antibiotics, there are special cases associated with that, and the cost of developing those technologies, but for some of the smaller businesses making small pieces of equipment that are critical to various industries, where the technology has been developed interest will still be there, as long as the ecosystem is there to support it.

Jim Dowd

Can I look at the role of public expenditure on its own vis-à-vis research and innovation? What do you feel is the correct balance between the amount of public money spent on one and the other?

Bernard Ross

To me, it seems to be a continuum. If either end dries up, you get stalemate and everything stops. If you do not have investment in fundamental science, you will not find out what can be commercialised. I do not have the actuarial qualifications to be able to say investing in which, at what level and what priority would give you the best results. The only answer I can see is to do it all.

Jim Dowd

Indeed. Wouldn’t we all, always? What about supporting pure research, which is very unlikely to be supported by commercial business interests? Is that not where the balance should lie?

Bernard Ross

We have had a total of £2.5 million of Government support. This year, I am paying £500,000 in national insurance; in 2019, I will be paying, God willing, £19 million in corporation tax.

Jim Dowd

This is just on your salary, is it?

Bernard Ross

I wish. The company will be paying £19 million-odd in corporation tax and about £3 million in NI. You can see that from a relatively small investment we can develop something quite substantial. If that is ploughed back in part in helping companies such as ourselves, as well as paying for roads and everything else we need to pay for, we have to put it into fundamental research, because without understanding how the body’s vascular system worked in the first place there is no way that the clever guys who invented our technology would have known that stimulating specific nerves at a specific point would have such tremendous benefits to the human body. You cannot take any of it away. Where is the balance? I don’t know.

Jim Dowd

Does everybody agree with that?

Dr Beasley

I completely agree. You have to invest wholly in the research base to generate the new ideas. In the 1970s and 1980s many new ideas were commercialised overseas. It really depends on what you want to do with that research base. Do you want to do that? Do you want to create the ideas but then commercialise them overseas? There has to be a balance. The businesses we have in the UK have strategic relationships with universities, not just to look at product development; we are now also looking at fundamental research development to take many of the products we are looking at today and see how we can continue to progress them and have a product business going forward five or 10 years. There are small technologies coming through, such as graphene. By adding that to existing products, you can prolong the lifetime or improve the performance of existing products in a very short space of time. We are now getting involved, not just on technology development but also on product development with universities.

Matt Warman

Could the private sector be doing more to increase the UK’s overall spending on research and development? Conversely, what do you think would happen if the Government cut back on what they spend on private sector investment?

James Bromley

If there was a cut-back in some of the incentives, for internet businesses there is a real decision as to where you base yourself. As we have seen recently, companies can operate in and pay taxes in different ways in many different jurisdictions. For efficiency in converting capital to research and output in the UK, the tools that are made available to us are good, but this is a global stage and it is moving incredibly quickly. To pick up the last question, you have to benchmark the amount you want to assist by how you see the global competition evolving, not just in the UK, certainly in the tech sector. Any suggestion of hesitation when people are making plans would make it very difficult for companies to consider where they base and how to continue raising funds.

Dr Beasley

I completely agree.

Bernard Ross

I totally agree with everything that has been said. When we have headline figures, such as, “UK Government investing £500 million in this and £1 billion in this in science and technology,” it helps people overseas to see that the UK is serious about where it is putting its money. We have just attracted a £3 million equity investment from a Japanese company. The reason is that they like the idea of what is happening in the UK, in preference to or perhaps as well as investing in their own markets. That kind of statement at a high level is surprisingly effective.

Matt Warman

It sounds like you all think that the balance between public and private investment is pretty good at the moment.

Dr Beasley

You have to fold into that the fact that we have a world-class research network. My colleagues in Germany are chasing the money; they are for ever saying, “Oh, well, we get a better funding model in Turkey,” but the fact that we have a very high quality research base as well, and an attractive method to access it, is exciting and interesting for us to continue to invest.

Matt Warman

In a sense, what is holding back increased private investment is a lack of increased public investment.

Dr Beasley

I would say it is a long-term strategy. If you feel, after you have made the investment, that every x number of years the strategy is going to change, there will be some hesitation. It has taken five years for us to get into a position where we have re‑established a research centre in the UK.

James Bromley

In terms of your question about whether it is enough, I think the SEIS and EIS schemes have been absolutely brilliant for tech businesses, but there is one major issue: they have a lifetime cap. It has been under revision, but it is a very serious issue. As businesses like ours grow to scale they need to continue raising funds. They cannot access funds, yet they are still risky—although not too risky. By nature of the fact that we are an R&D-focused business, it will have inherent risk, and you would expect and deserve that incentivisation for investment. To commend what is being done with EIS and SEIS is correct, but there are some dark clouds looming for a number of companies who are reaching their lifetime limits.

Chair

Dr Beasley, in a way you have answered why you transferred R&D investment to the UK, so this is probably for Mr Ross. Why are you here and not in Silicon Valley?

Bernard Ross

Me?

Chair

Go on.

Bernard Ross

It was for personal reasons as much as anything else. You balance it. Britain is a good place to be. Before this I worked raising funds on the east coast of America to acquire globally pharmaceutical assets from university, and then setting up companies in the States listed on the stock exchange. I was raising money on the east coast, doing M&A in California and licensing technology from Japan. I fancied being home a bit more, so setting up a company here was good. Why do we stay here? Access to capital has improved in the UK. With access to earlier stage capital, because of EIS and SEIS, we are able to grow here as well. With Innovate UK and access to other funding, it is not a bad place to set up and maintain a business. We have to make sure that in our case the business is not sold too early and that there is the ability to build up a very large company in healthcare in the UK, and keep it in the UK. I believe that environment is in place, and we should keep it.

Chair

Where are you based?

Bernard Ross

In Daresbury Innovation Centre.

Chair

Do you find that access to capital outside the capital, London, is as good, or is it mainly London-centric?

Bernard Ross

I come down to London every week. We have offices just west of London in High Wycombe as well, because this is where they keep the money.

Chair

You find that access to finance is centred on the City.

Bernard Ross

We have got funding from outside London. That was a bit of a flippant remark. I should not have said it—apologies. By and large, the country is tilted in this direction somewhat, but there are other areas where you can access capital: Liverpool, where I live, and in Manchester, Leeds and Sheffield, but they are smaller pots.

Chair

Mr Bromley, as a tech start-up what are you doing?

James Bromley

We are incredibly proud to be British. When the company started five years ago it was a very different environment. We had some early support from the Technology Strategy Board, and we were helped greatly by some of the organisations to move us to a more global stage. I have a few observations. When we create any materials we write in American English because that is our main audience; the most popular country for using our product, which is a keyboard that you can install on your mobile phone and makes it easier to type, is in America. We have opened an office in San Francisco and we have people based in Silicon Valley, so we have tried to straddle both. The really important thing we need to understand is that there are now North American companies based in London that we are aggressively competing with for staff. They have a different tax and funding structure from ours. Our big challenge as we go forward is not where we are based but how we are corporately structured against some of those Goliaths.

Graham Stringer

I asked a question earlier about what you would do if you were George Osborne or the Science Minister. You did not indicate that tax benefits compared with North American competitor companies would be an advantage, but that was a very interesting answer. I would like you to expand a little.

James Bromley

I was referring to the number of high-profile companies that trade in substantial volume in the UK and repatriate revenues to different elements of their companies without participating in the taxation system as one might expect, rather than as the rules might be written in the UK.

Chair

We might follow up that point, but we have come to the end of the session. Thank you all for coming before the Committee at what was short notice. We are very grateful to all of you. It has given us an important perspective in our inquiry which we have not had yet. We have had Innovate UK here, who told us about their work, but it is always very helpful to hear from people on the receiving end to check out the facts. Your answers have been very to the point and have given us a lot to think about. I am very grateful to all of you for taking the time this afternoon. Oral evidence: The science budget, HC 340 2