House of Commons North East Regional Committee Industry and Innovation in the North East of England First Report of Session 2009–10 Report, together with formal minutes, oral and written evidence Ordered by the House of Commons to be printed 9 December 2009 HC 169 [incorporating HC 625 of Session 2008-09] Published on 18 December 2009 by authority of the House of Commons London: The Stationery Office Limited £0.00 North East Regional Committee The North East Regional Committee is appointed by the House of Commons to examine regional strategies and the work of regional bodies. Current membership Ms Dari Taylor MP (Labour, Stockton South) (Chairman) Mr David Anderson MP (Labour, Blaydon) Mrs Sharon Hodgson MP (Labour, Gateshead East & Washington West) Mr Denis Murphy MP (Labour, Wansbeck) Phil Wilson MP (Labour, Sedgefield) Powers The North East Committee is one of the Regional Committees, the powers of which are set out in House of Commons Standing Orders, principally in SO No.152F. These are available on the Internet via www.parliament.uk Publications The Reports and evidence of the Committee are published by The Stationery Office by Order of the House. All publications of the Committee (including press notices) are on the Internet at www.parliament.uk/parliamentary_committees/emid/emid_reports_and_publicat ions.cfm Committee staff The current staff of the Committee are: David Weir (Clerk); Anwen Rees (Inquiry Manager), Emma Sawyer (Senior Committee Assistant); and Ian Blair (Committee Assistant). Contacts All correspondence should be addressed to the Clerk of the North East Regional Committee, Committee Office, 7 Millbank, London SW1P 3JA. The telephone number for general inquiries is: 020 7219 0654; the Committee’s e-mail address is: [email protected]. Industry and innovation in the North East of England 1 Contents Report Page Summary 3 1 Introduction 7 Background to the Committee 7 Inquiry 7 2 Manufacturing Industry in the North East 9 North East Economy 9 Place of Manufacturing Industry within the Region 10 Role of One North East 12 Additional responsibilities 13 One North East’s Budget 14 3 Innovation 16 Department for Business, Innovation and Skills 16 White Paper: Innovation Nation 16 Industrial activism 17 Innovation in the Region 18 Role of NEPIC and NETPark 19 Role of the Renewable Energy Industry in the North East Economy 20 Wind technology 20 Low-Carbon Vehicles 21 Carbon Capture and Storage 22 4 Current Economic Climate 25 Regional Economic Situation 25 Access to Finance 26 Banks and their approach to lending 26 Enterprise Finance Guarantee Scheme 27 One North East 29 Response Groups 30 Regional Minister 31 5 Stimulating Innovation 33 Research and Development Investment 33 Innovation Step 35 Government Funding 36 Business Support Products 37 Centres of Excellence in the North East 38 European Institutions 39 Private Investment 40 Inward Investment 41 Planning 41 Infrastructure 41 2 Industry and innovation in the North East of England Incentives 43 6 Skilled Workforce 45 Skill Levels 45 Enterprise Skills 46 Attracting and retaining higher engineering skills 47 Skills Activism 49 Train to Gain 50 Apprenticeships 52 Machinery of Government 53 Whitehall’s engagement with the region 54 Conclusions and recommendations 55 Formal Minutes 60 Witnesses 61 List of written evidence 62 Industry and Innovation in the North East of England 3 Summary Manufacturing plays a fundamental role in the economy of the North East of England. This needs to be appropriately valued. According to some employer’s associations manufacturing is under-resourced by central Government in favour of industries, such as those in the public and financial sectors. The belief expressed was that Government’s industrial activism policy will help to rebalance this with a fresh focus on the importance of manufacturing. This will be supported by manufacturing industries in the region continuing to innovate to attain and thus maintain global competitiveness. This opportunity exists and is being pursued in the development of a new generation of industries that develop and utilise renewable and fossil-fuel based technology in a clean and sustainable way. Innovation is essential to the UK’s future prospects. The UK’s world-class research base and product development is regularly lost because of a funding gap that exists between research, innovation and product development. It is clear that some products that are invented in the UK are developed abroad, leading to a loss of benefit for the economy. Thus the UK’s research capabilities need to be matched by a financial system that supports the development of ideas into new and innovative products, processes and services, in and for the marketplace. Government has a serious role in supporting this activity and persuading banks and venture capitalists to respond in a pro-active manner to this essential need. A concern was expressed in reference to the serious difference in the amount of research and development investment that occurs in the North East, in comparison with funding within the ‘golden triangle’ bounded by Oxford, Cambridge and London. The Government needs to examine with urgency the means by which bids for research and development are rewarded, with a view to ensuring an appropriate balance across all the UK’s nations and regions. The North East has the potential to be a global leader in the development of renewable and clean energy. The work done at the New and Renewable Energy Centre (NaREC), supported by Newcastle University, has helped put the region on the map with regard to offshore wind energy by the testing of wind turbines. A welcome was expressed for the work done in developing greener vehicles with the research and investment conducted by Nissan, supported by Sunderland and Durham Universities, in the production of an electric car and battery. The North East Process Industry Cluster (NEPIC), with the University of Teesside and research-based industries is developing a leading role in the development and production of biofuels and bioresources. Major research has been done and opportunities exist for clean-coal technology with the necessary carbon capture and storage—supported by Teesside and Newcastle Universities. The belief is the Government must act quickly to support this development, and the delivery of all green energy, as a window of opportunity exists for pioneers to emerge in this field of renewable energies. The fact is that the UK faces serious competition in this field from China. The type of low energy organic lighting and low cost flexible solar cells at NETPark are amongst those that could be lost to other countries. The Government’s prime role is to establish clear policy 4 Industry and Innovation in the North East of England priorities. This will engage private investors in the new and emerging renewables and clean industry. A concern tabled was that the present economic turmoil had presented serious barriers to those who want to invest in the region. Incentives to counter the financial insecurities that exist need to be available if the positive development of renewable and clean industries and all manufacturing is to take place. The Government has responded in part to this by its policy focus on industrial activism. Learning from continental Europe, where communities often benefit directly from the proximity of an onshore wind farm should be explored by Government, for example, by reducing energy bills. A further barrier reflects planning regulations. The clear request from industrialists is that planning frameworks should be clear, simplified and efficiently completed. The Government should take a lead by establishing clear national and regional strategies. This will achieve an effective response by industry. Concern was expressed about some of the poor transport links that hamper investment, as does the capability of the National Grid which must be improved to create the capacity for the connection of new energy facilities. Like all regions, the North East has been adversely affected by the economic downturn, but witnesses have stated that it is better placed than most to emerge from it. Every business sector has been affected, but the effects have been worse for some than for others. The ability of businesses to access adequate finance remains a significant issue: witnesses spoke of bank lending practices making it more difficult for businesses to access finance, thus putting them at risk. Once again it was thought that Government must insist that banks work more closely with the region’s business groups to ensure that lending practices and charges are appropriate and supporting North East business through the current economic climate. One North East has taken positive and effective steps to provide support for business, ensuring that collaboration between companies in the north and south of the region and the universities takes place, achieving good outcomes. Witnesses welcomed the co- ordinated approach it has taken with the Government Office for the North East, Business Link and Jobcentre Plus in co-ordinating marketing and promotional efforts. One North East is the first Regional Development Agency to adopt this approach, and has allowed much-needed help to be quickly accessed by those requiring support. A lack of clear communication by the Government resulted in confusion about the lending opportunities available under the European Finance Guarantee Scheme. The request made was that when such schemes are introduced to assist business during the current economic climate, adequate pre-briefing and pre-training takes place before they are rolled out to the industry. Constant reference was made to the belief that low skill levels act as a barrier to economic participation and hinder productivity. The North East has a lower proportion of adults qualified to Level 3 and 4, and of those without qualification, than is the case for England and Wales as a whole, although the position has been improving in recent years.