Baroness Morgan - Microsoft UK Innovation Day
London - 8 May 2008
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Good afternoon. I'm delighted to have this opportunity to explain the Government's new approach to innovation, as set out in the recent white paper.
The white paper is called "Innovation Nation" because our ambition is for Britain to be the best country in the world to run an innovative business or public service.
Quite simply, innovation is essential to our economic prosperity and quality of life. And the white paper, I believe, signals a more sophisticated understanding of innovation at the heart of government.
Today, I'd like to offer a brief overview of innovation policy before focusing on technology and the IT sector.
Britain's record on innovation
Now, it's worth emphasising that Britain already has a strong record on innovation.
Our research output is world-class - second only to the US, and ahead of the entire G8 on productivity and efficiency measures.
Our longstanding commitment to fundamental research attracts R&D investment from the likes of Boeing, Pfizer and Microsoft itself.
The UK exported £75 billion worth of knowledge services last year - an increase of 170% on a decade before and testament to our prominence in financial services and the creative industries. We remain the world's sixth largest manufacturer - worth £150 billion a year.
But current performance is no guarantee of future success. Other countries are fast developing their research capabilities, intent on gaining a bigger share of global R&D.
Looking forward
What Britain needs, therefore, is a coherent approach to innovation which ensures that every sector of the economy can grow. An approach that's increasingly open, demand-led and supported by government.
Through regulation, government can create markets for new products. It can set targets for the use of efficient technologies - whether for renewable energy or digital broadcasting.
Government can also help to improve risk management and performance measurement, so fledgling companies are better at attracting venture capital. We can provide effective guidance on issues such as intellectual property and make it easier for business to forge links with the research base.
Above all, the Government is the UK economy's biggest customer. It spends some £150 billion a year on procurement. That includes roughly a third of all spending on construction - and 55% of all UK spending on IT. Early adoption by government offers huge opportunities for cutting-edge firms.
DIUS as champion of innovation
The white paper sets out how we intend to harness this power for Britain's benefit, and encapsulates the vital role of DIUS.
Our responsibility - and here I include wider family of organisations linked to my department, like the Technology Strategy Board, the Intellectual Property Office and the Design Council - is to champion innovation in both the public and private sectors.
I will illustrate this in a moment, but I must stress that the other aspects of DIUS' work are just as critical.
Innovation relies on the long-term health of the research base. In the current spending period, we're increasing the science budget by 17.4%, and directing funds to support research on key issues. These include health, global security and the digital economy - a multi-disciplinary programme embracing the majority of research councils.
Equally, innovation depends on a highly-skilled, creative workforce. Hence our efforts to re-orient training around the needs of companies and individuals. Helping universities and businesses to work much more closely in the provision of high-level skills. Encouraging companies of all sizes to publicly commit to training their staff through the Skills Pledge, Microsoft among them.
Innovation in the public sector
Before focusing on the technology sector, I do want to mention our agenda for innovation in public services - because it signals the greater breadth of our ambition.
Again, our track record is strong: the BBC, NHS and Open University are all models for provision elsewhere. More recently, congestion charging, Sure Start children's centres, and the Government Gateway allowing secure online transactions have continued that tradition.
But now, the challenge is to harness innovation from the front line. To introduce targets that create incentives to innovate rather than prescribing how services should operate. And to take encourage greater risk-taking, for an essential truth about innovation is that you never implement the ideas that work without trying some that don't.
With support from DIUS, every government department will prepare its own Innovation Procurement Plan - to apply their considerable purchasing power for innovative ends.
There will be a new Public Services Innovation Laboratory to investigate radical ideas for the design and delivery of services. DIUS will be convening a network of senior civil servants to promote an open model of innovation. And the National Audit Office will reviewing innovation and risk management in central government to see where we can improve.
Over the current spending period, we have allocated over £2.5 billion specifically to drive innovation in public services.
This investment will be used to develop new approaches, ensure services are environmentally and demographically sustainable, and reward frontline staff for pursuing fresh ideas.
The IT sector
I now want to focus on the technology sector and IT in particular.
IT is central to national productivity, both in its own right and as a pervasive technology. It is a key means for accelerating innovation, and improving public services.
The UK computer sector and related activities have grown steadily over the last two decades. Today, it accounts for around 3% of national GDP - against 2% in France and Germany, and 1.6% in the US.
And though around 50 firms dominate the UK software and computer services market, there are an estimated 95,000 smaller companies, many highly innovative.
It's also a market where globalisation's impact is glaring. IT services off-shored to low-cost countries. The rapid exploitation of ideas that originate in this country or among British innovators.
It's important that we create an environment that supports highly-skilled onshore jobs. That we make the most of ideas generated by a Tim Berners-Lee or iPod designer Jonathan Ive.
So what are our proposals for strengthening this crucial part of the UK economy? I want to briefly describe three main areas of activity.
Supporting business
First, we want to provide greater opportunities for SMEs to bring innovative products and services to market.
In the public sector, Alistair Darling expressed his wish in the budget that SMEs should win 30 per cent of government procurement in the next five years, and leading venture capitalist Anne Glover is currently assessing the practicality of that goal.
I'm very keen that the Small Business Research Initiative starts to match the success of the equivalent programme for high-tech SMEs in the US. DIUS will work with other government departments and the Technology Strategy Board to reform the SBRI, refocusing it on technology-based research.
It's also important to help smaller businesses access the benefits of external knowledge and collaboration. We're looking to develop a voucher system enabling SMEs to make initial engagement with, say, a university or FE college. To help companies with the costs of innovation and promote a culture of working with the research base.
And we're doing more on the investment side. UK venture capital funding is slightly larger than rest of Europe combined, but only a tiny proportion of small businesses use equity as means to grow.
There are, of course, several government funding streams, including the UK High Technology Fund, which has invested £124million in 243 early-stage companies.
But through business support, we can help innovative companies to better meet the expectations of investors and achieve higher yields from their intellectual property.
Technology Strategy Board
Second, the work of the Technology Strategy Board will be crucial in many areas of innovation and knowledge transfer.
The TSB is launching a new strategy on Thursday, setting out an investment programme worth £1 billion in partnership with the research councils and regional development agencies.
It will be doubling its portfolio of Innovation Platforms over the next three years, which involve business, academia and government working together on major challenges like reducing transport carbon emissions and information security.
It will continue to invest in a range of Knowledge Transfer Networks, with a new creative industries network in the offing. Again, the purpose here is to identify technological priorities, foster collaboration and accelerate innovation in specific fields, like digital communications.
The TSB has also just launched a £10million call for proposals, targeted specifically at the creative industries, with collaborative projects on digital technologies, and dedicated funding for SMEs.
Skills
The third point is about ensuring the technology sector has the skilled workforce it needs.
IT employment is increasing at between five and eight times the UK average. Around 150,000 entrants to the IT workforce are required every year for the next decade to meet growth and replacement demand.
As I've already stressed, DIUS is intent on unlocking talent. This clearly begins in school, where we are working closely with the Department for Children, Schools and Families and others to nurture the scientists, technologists and engineers of the future.
Making sure young people have the opportunity to study three sciences at GCSE - an essential grounding for technology-related degrees at university.
Funding over 18,000 science and engineering ambassadors to inspire and excite young people.
Introducing better advice and guidance on the growing number of routes into STEM-based careers: the new IT Diploma, which starts this September; a massive growth in apprenticeships over the next decade; more foundation degrees; accredited qualifications created by employers themselves; and, from 2010, the School of Design Innovation, developed with James Dyson.
Like innovation itself, these efforts require collaboration. DIUS will be leading a cross-Governmental project on labour market needs for STEM skills. And our new Higher Level Skills Strategy, currently out for consultation, is focusing on increasing graduate employability - including "soft skills" like teamwork and problem solving - and on boosting the involvement of the HE sector in workforce development.
We will only succeed with full engagement from employers. e-skills UK, the sector skills council for the IT and telecoms sectors, plays a critical role in ensuring that companies of all sizes can recruit employees with the necessary skills and access the right training as their business needs evolve - particularly through the Government's flagship Train to Gain programme.
e-skills is already shaping the skills and education landscape - through involvement in the IT diploma, the IT Management for Business degree, and its Revitalise careers initiative. And I would particularly highlight the development of computer clubs for girls, which are helping to break down stereotypes and correct gender imbalances in the workforce.
IT in learning
There is one final theme I'd like to touch on today, for IT is critical to lifelong learning, a main priority for DIUS.
Becta, the Government's lead agency for ensuring that technology is applied effectively across education, has found much high student satisfaction where schools and colleges are "e-confident". Becta is currently working, for example, with FE colleges to harness the full benefits of IT.
Elsewhere, my colleague Paul Murphy has become the first cabinet minister for digital inclusion, and I'm delighted Microsoft has recently launched its Digital Literacy Curriculum to help disadvantaged groups learn basic computer concepts and skills.
This is entirely in the spirit of a quiet revolution in informal adult learning, which DIUS is currently investigating. Again, we're examining how government can support an incredible array of activities - private and collective - which fulfil the basic human desire for intellectual stimulation and self-improvement, and which are often inspired by learners themselves.
Conclusion
In closing, I would simply reiterate our goal of achieving a true innovation nation.
As we take forward the policies and programmes I've discussed, DIUS will be compiling an annual innovation report to evaluate progress in strengthening Britain's innovation capability.
I hope that we can continue to rely on your support in this broad endeavour.
