Chi’s speech at a Sceptics in the Pub event on the North East and Innovation

It’s great to be here in the Bridge Hotel and thank you for inviting me. I’ll start by wishing you all a Happy New Year before I go on to talk about the likelihood of regional happiness this year.

But I also want to say that I know little about you, my audience. I always try and do a little research on who I’m going to be speaking to. Skeptics in the pub is an instantly intriguing name but the website gives little away.

I know many sceptics, some of whom spend considerable time in the pub, others are sceptical about the point of going out at all…

The fact that you spell sceptics with a ‘k’ suggests American influence.

Perhaps you are also influenced by Socratic or Sophist scepticism and I can look forward to a philosophical grilling after I speak.

In as far as scepticism seeks evidence before assertion, I am a great supporter.

My previous employer, Ofcom, took great pride in developing evidence-based policy.

And we certainly need more of that in Parliament.

But when scepticism drifts towards Nihilism – which can happen – then it does humanity a disservice.

Even, or perhaps especially, in these difficult times it is better to work to build a less imperfect world than to simply criticise the work of others.

Though rest assured I will be criticising this Tory-led Government.

These are difficult times.  Especially for the North

On Tuesday the Financial Times showed how the gap between the economy and living standards of the north and the south is growing ever wider.

The percentage of the UK economy represented by the North East is falling whilst London pulls ahead.

So in the North East, Gross Value Added per head is 77% of the national average, employment has fallen by 3.3% since Mar 2008 and house prices have fallen by a quarter

In London, Gross Value Added per head is 171%, employment has risen by 2.9% in the same period and house prices have only gone down by 4%.

Over the holidays I was reading A N Wilson’s The Elizabethans – which I recommend.  In it he describes how the Queen turned to the Council of the North, based in York, to address the political and economic challenges of the first Elizabethan North South divide.  The Council was established in 1484.

The Financial Times points out that since then, the only time the North has grown faster than the South was during the Industrial Revolution.

Now as someone who grew up the North, worked in engineering for 23 years and is now the  MP for Newcastle Central and the shadow Minister for Innovation and Science this is a matter of intense personal and professional interest.

Profoundly important I would hope all of us in the room.

So I’d like to speak about the regional economy, and the role of innovation and Government.

And also the change we need for a new kind of economy and why the North East and Newcastle can be at the forefront of that change

I’d also like to hear your views.

 

Labour and the economy

The Labour Party is in the process of a policy review.  After one of our worst electoral defeats it wouldn’t make sense for the Party to write a whole new manifesto without discussion and debate internally and externally.

But it does put  us at a disadvantage in setting out our policies.  Though not what we stand for.

When it comes to the most pressing challenge today, the economy, Ed Milliband recently stated quite clearly what he wants to see:

An economy that creates long-term value based on investment and commitment.

Better-quality jobs that reverse the decline of middle-class incomes, and set firms up to compete on the basis of skills and quality.

And a sustainable economy, diverse enough to protect Britain against external and fiscal shocks, with environmental sustainability built in rather than bolted on.

Because, as he went on to say:

The  values of the British people and the values of the best in British business, are not reflected in the way our economy works.

We must reshape our economy for new demands and to create new opportunities. We must build a New Economy which encourages good companies to deliver shareholder and social value.

This Government describes that as an attack on business.  As someone with a Masters in Business Administration I can say that if that is an attack on business, then so were the text books on my course.  Business has been talking about corporate social responsibility for decades. But this Government does not recognise that.

As Chuka Ummuna, Shadow Secretary of State for Business Innovation and Skills, recent said:

The Government is making the wrong choices for our economy in the short term, choking off the recovery. But it is also making the wrong choices for Britain in the long term too.

Take the green economy – critical to our future growth. Where other countries are powering ahead, our Government’s lack of ambition and mixed messages are deterring investment.

Last year, the UK slumped from being third in the world in terms of investment in green growth, to only 13th place. The respected US Pew Environment Group blamed this on the uncertainty surrounding government policy.

Now I believe in a renewable, sustainable industrial future for this country.

In areas of future growth, such as green technologies, Government must create, shape and support domestic markets so that our businesses can be among the first to grasp these new and exciting opportunities.

In this way, the transition to a post carbon economy becomes an opportunity to be embraced, not a burden to be resisted. It can provide the spur and the focus for radical innovation in goods and services, to serve growing global as well as domestic markets.

Government has undermined developments in carbon capture and storage technology – the technology which enable us to use the centuries worth of coal still under our feet. But the Government cancelled the UK’s first carbon capture demonstration project at Longannet and are failing to set out plans for the other three projects we were expecting.

What message does this send to potential investors?

And the debacle over Feed in Tariffs – the chaotic implementation of an ill thought out and arbitrary change has had a direct impact in Newcastle. Many  Carillion employees spent Christmas facing redundancy.

 

Regional economy and inward investment

So what do we need to be doing in the region?

Well firstly let’s look at what we are doing right. In 2009 there were eight and a half million overnight tourists visitors in the North. Tourism contributed £3.9 billion to the regional economy in 2009 and supports 65,000 jobs.

Those tourism figures were boosted by an incredibly successful campaign funded by the Regional Development Agency.

That wasn’t state management or picking winners as the Tories sometimes suggest. That was public sector support for private enterprise, filling a gap.

Thousands of small businesses in the hospitality sector couldn’t do that on their own and don’t have the time or the resources to organise themselves.

But intelligent government investment and support where the market has failed, or where there is no market, or where the playing field is tipped against new entrants, will be at the heart of Labours future business and economic policy.

Tourism is just one regional success story.

As part of my role as a board member of the Parliamentary Office of Science and technology I recently visited a leading research university in Japan where I shook hands with what they claimed was the world’s most advanced robot.  The software controlling it was developed in collaboration with Newcastle University.

And we see that Nissan has just announced another record breaking year.

The region is head and shoulders above the rest of the country in low carbon vehicles. Thanks to the Labour government’s support.

Overall the past 12 months, exports have brought twelve billion pounds into the region.

That’s a 21 per cent higher than the previous 12 months

Now yes, a strong pound has been helping exports nationwide.

Across the country exports are only up 15% compared to that 21% in the North East.

Want to guess our fastest growing export market? Russia.

These figures speak to the fact that the North East still has a strong manufacturing base, and a focus on trade and exports.

The steel and chemicals industry in the North East are strong. The region is globally recognised as a leader in marine engineering and services.

If Britain is to rebalance its economy – and we must do that – then the North East should lead the way.

 

Innovation & the North East

160 years ago the North East was leading the UK into the first carbon Industrial Revolution, one of the most innovative regions in the world.

Sir Charles Parsons established his engineering works in Newcastle and invented the multi-stage steam turbine – the iphone of its day – which literally helping to power Britain into a new era.

Then in the nineteen seventies and eighties our industrial base was destroyed by a combination of three factors.

Global economic change

Bad management and industrial relations

The Thatcher Government’s scorched earth approach to industry

The North East and other regions were left dependent on the public sector.  We lost a generation of manufacturing talent.

However, as any business technologist knows skipping a generation of technology means that you lose the revenues and opportunities of that technology.

But it does not necessarily mean you are badly placed to profit from the new.

I saw this particularly when I was working in telecoms in Nigeria.

Nigeria had little fixed telecommunications infrastructure but that only encouraged it to leapfrog to the next generation technology – mobile – even more quickly.

In the North East we already have some fantastic facilities already with NAREC – the National Renewable Energy Centre – in Blyth. The Centre for Process Industries on Teeside.

Both set up with the help of One North East.

But even last year the new Institute for Research on Sustainability opened here in Newcastle.

And hopefully, Science Central will now follow, with the support of Newcastle City Council.

What I want to emphasise is we do have the possibility of  commanding the strategic heights of the new industries.

But that requires an effective partnership between the public sector, the private sector and Higher Education.

It is vital that there are structures in place to support collaborations and partnerships across these sectors.

One North East did excellent work not just investing in businesses, places and people but in building networks and knowledge banks, not just regionally, but globally

I don’t pretend that it was perfect, but I think its chaotic abolition was wrong and not motivated by reason or evidence

So we need to put in place new, formal or informal, structures.

For example we need to consider what our Universities can do to encourage and support economic growth. Professor Brink, Newcastle’s Pro Vice Chancellor, talks very eloquently of the role of the Civic University in supporting skills, communities and business.

But I know that for too many of the young people I meet Newcastle University is more a block of real estate then an open door to a productive future.

Government HE reforms will make things worse, I want to see the University working to actively to ensure that innovation is at the heart of everyone’s future in the North East’s. I’m glad to see that the new Newcastle city administration is already emphasising innovation and skills.

 

Government support for innovation

But the primary public sector agent in supporting innovation is the Government.

Innovation is the engine of growth, yet this Government took eighteen months to publish a strategy on innovation.

Though in their first budget they cut science spending by 12% and capital spending my a massive 40%.

When the innovation strategy finally came it was in two parts, an economics paper which I recommend as a pretty comprehensive assessment of the drivers of innovation.

And then a policy paper, which had almost nothing in it. A few reannouncements.

No game changer, no plan to build a new innovation environment, no leadership vision to match the rhetoric.  Not even the re-instatement of Labour’s long term investment framework for research, which would demonstrate a long term commitment to science which in turn reassures investors.

When our international competitors, many of whom have sharp deficit reduction programmes of their own, are increasing their investment in science and innovation by three, five or eight percent.  We are going to be slipping behind.

 

Four levers

As the Shadow Minister for Innovation and Science, I am leading our policy work in this area, as part of our on-going policy review.

As I see it, there are a number of levers that an active government can and should use to help create the right environment for innovation.

The first is ensuring competitive markets – making sure that there is a level playing field for small businesses and start-ups. Lowering barriers to entry in key markets.

Future markets such as renewables,  are not competitive, because they don’t exist. Here government has a duty  to ensure  a level playing field.

Secondly, finance. Using its power as the biggest purchaser in the country to leverage private sector investment in green technologies for example.

Direct government finance of R&D is an important part of ensuring a science base from which we can grow.  Large and innovative companies tell me they do their R&D here in the UK because of the ability to link in with great public sector research institutions – our Universities.

And for every pound the government invests in science, private companies invest £1.74.

But Government can support innovation and the move to a sustainable economy by other means as well as direct finance.

Tax  incentives such as the R&D tax credit and the patent box which reduces taxation on revenues from new patents.

Thirdly, investing in infrastructure.

Small companies developing new markets may not have the time or resources to put in place vital infrastructure: a test bed for wind turbines for example, or the massive steel press that the new nuclear power industry needs.

And finally, I think we all agree that there is a role for government in skills.  Education is a long term investment, and we need to be investing in the skills of the future today.

So four levers to support innovation.

Which is this Government using? Well they are continuing Labour’s R&D tax credit. And they are promoting some measures to bring industry together to support private sector investment. But as their strategy document shows, it is very limited.

 

Conclusion

So that is an overview of our likely approach.  But unless there is an unexpected election for the next few years we are going to have to seek to build our innovation infrastructure and the North East’s industrial base despite rather than because of Government policy.

A strong Opposition can make a real difference.

For example we  have exposed the Government’s failure to support science in the UK. And that is pushing them to be more creative and vocal in their science agenda.

But on a regional level we need to use the regional organisations and structures that are left to us now the RDAs are no more.  The LEP should be working closely with forward looking local councils.  Newcastle City Council is consulting on its economic policy and I hope innovation will be at the heart of that.  We should use the European regional structures and ensure we get our regional development money.

Despite the difficult economic times, despite this government’s industrial incoherence, despite their vicious cutting, I believe that the region has the opportunity to be at the forefront of a new green industrial revolution: in the same way that we were at the forefront of the first industrial revolution.