Get SET for action

The UK economy faces a paradox. On one hand, we have been enjoying significant, real-term increases in funding across the whole of science, engineering and technology (SET). The UK has the opportunity to maintain its position as one of the leading nations in scientific research, an opportunity I hope the government will seize in announcing the outcome of its Comprehensive Spending Review in mid-2007.

Furthermore, London remains one of the pre-eminent financial centres, perhaps the most important outside the US, with the London Stock Exchange — at least while it remains independent — one of the world's leading exchanges, facilitating the raising of capital and the trading of securities for companies from 59 countries. It is globally pre-eminent in trading and is the source of Europe's largest pool of liquidity.

Currently, there are 1,664 main market and 1,500 Aim companies quoted on its markets, collectively worth more than £4.4 trillion, having raised over £20bn in 2005 alone.

Yet, when we look at the funding of SET-related businesses, the position becomes much less encouraging. Today the FTSE 100 contains, at most, 16 SET-based companies (including biopharmaceuticals and engineering, petrochemicals and other industries whose technology is core to their business).

The contribution of our much-vaunted IT industries to the national economy as a fraction of GDP is less than one twentieth of the corresponding figure in the US. It would appear that, away from bioscience and the defence and aerospace industry, the UK has lost much of its ability to translate scientific leadership into wealth creation.

There is a further dimension to this paradox. The opportunities today for the successful exploitation of scientific knowledge have rarely, if ever, been greater.

Since the 1980s our universities have begun to match their research prowess with a greater degree of commercial understanding and awareness. Patents are today as much the outcome of good science as publications. Spin-out companies surround the campuses. Climate change is creating enormous commercial opportunities, as well as challenges, to our future. The UK venture capital industry is the most significant in Europe. All the ingredients are there to achieve an economy with a wide range of strong, SET-related industries.

What we lack, however, is the clear evidence that we can grasp such opportunities and turn them into the industries of the future.

That is why the Engineering and Technology Board (ETB) asked me to chair a group, drawn from technology businesses, venture capital and financial institutions, to look at wealth creation from SET.

In our final report we looked at relations between SET and the City. We published this in November after a public debate at JP Morgan Cazenove.

I will just mention two key conclusions. Financial institutions have a critical role to play. We urge the Association of British Insurers, the National Association of Pension Funds and others to consider carefully the potential compatibility between their members' immediate responsibilities to their clients and their undoubted opportunity to create lasting benefit to the economy as a whole by enlightened investment in the industries of the future.

We seek nothing less than a major cultural change in the UK financial community's attitude to technology companies. We believe the current flight from equities damages, rather than enhances, pension scheme members' long-term interests and the UK economy, with a knock-on effects for technology business investment.

We believe government policy can help in a number of ways and we concentrate on two. First, our report fleshes out the case for encouraging institutional investors and charities, including universities, to fund venture capital by providing appropriate tax incentives.

Second, the government should review its approach to public procurement to encourage innovation and better value for money for the taxpayer and provide opportunities for technology SMEs to grow. It is vital that government makes progress on procurement.

I am glad to say that the ETB intends to continue, encouraged by the major engineering institutions, to work on this agenda. I hope you will participate in the debate to encourage and achieve change.

The full report can be downloaded at