Economy, Trade, and Rural Affairs Committee

Croeso nôl i gyfarfod Pwyllgor yr Economi, Masnach a Materion Gwledig. Symudwn ni ymlaen nawr i eitem 4 ar ein hagenda, a dyma ail sesiwn banel ein hymchwiliad undydd i ymchwil a datblygu. Rŷn ni'n clywed tystiolaeth gan gynrychiolwyr addysg uwch, Prifysgolion Cymru a rhwydwaith arloesi Cymru. A gaf i, felly, groesawu'r tystion i'r sesiwn yma? Cyn ein bod ni'n symud yn syth i gwestiynau, a gaf i ofyn iddyn nhw i gyflwyno eu hunain i'r record? Efallai y gallaf ddechrau gydag Amanda Wilkinson.

Thank you, Chair. Amanda Wilkinson; I'm the director at Universities Wales.

Roger Whitaker.

Roger Whitaker, pro vice-chancellor for research, innovation and enterprise at Cardiff University, but here on behalf of Universities Wales.

And Lewis Dean.

I'm Lewis Dean, I'm head of the Wales innovation network. WIN is a network of all of the Welsh universities and it's part of Universities Wales.

Thank you for those introductions, and perhaps I can just kick off this session with a few questions. What are your views on why Wales does not receive its population share of UKRI funding and what can be done, and by whom, to actually address this? Amanda.

I'm happy to open that up. I think, historically, we've had lower levels of core funding for research and innovation. We had a long period where we weren't in receipt of innovation funding at all, in terms of our core funding, and that was, obviously, problematic for us. But in terms of how the model works, roughly speaking, for every research contract that you're able to secure, you have to find 30 per cent of the value of that contract from other resources. So, you know, there is an issue in terms of the availability of core funding, and QR funding in particular, to support that base and allow us to draw the contracts that we are very capable of winning from UKRI.

Anyone else on this? Roger.

Thank you. I think there are probably multiple factors, but I think it's worth drawing attention to QR funding. One of my hypotheses is that we're not receiving a population share of UKRI funding, in part due to not receiving population share of QR funding, and to explain that, QR funding is really vital for the lifeblood of universities; it's the means through which we can create time and support for people to bid into UKRI, and also have the facilities through which we can deliver the grants as well.

Just to quickly add on that, I think Paul Nurse's review highlighted that the end-to-end funding of research and QR funding is vital for that means. Research projects do not start with funding from UKRI, they start before that; there needs to be proof of concept and preliminary work goes on. So, really, that QR funding is vital for that whole research life-cycle.

In terms of spending on research and development, Bangor University has told us that there is significant regional disparity, which reflects the urban-rural composition in Wales. What are your views on this and what, if anything, can be done and by whom to actually address these disparities?

Shall I kick off?

Amanda, yes.

So, I think we do have some advantage in terms of the spread of our universities across Wales and that is a considerable strength for us in terms of looking at the urban and rural anchors we have in place to deliver research and innovation, and I do think that that really matters. I'm happy to provide further detail on this. We did some economic impact work that looked across all the regions of Wales and, indeed, down to subregional level and that showed that universities have impact even if they're not located in that area. So, there is nothing that would stop, for example, Cardiff University delivering benefit to industrial partners in north-east Wales or other areas of Wales. So, I think we've got a really good mix and a really good place base, but there's also nothing that stops universities delivering across Wales in terms of R&I impact. And we can look at seeing whether we can get a breakdown of that for you. I mean, I would mention regional investment funding, but I can leave other colleagues to talk about that, because, clearly, we have had an impact in areas of Wales as a result of replacement structural funds not really sufficiently meeting R&I requirements.

If you have carried out some work on regional disparities, we'd be very interested to see that work as a committee, so we'd be very grateful if you could pass that information on to us.

Great.

Thank you. Roger.

I think it's worth looking at the main core funding of research to answer this question. It's well accepted that QR funding is well principled, it's based on quality and volume, and I think colleagues across the sector and Bangor University appreciate that model because it has integrity. Welsh Government, of course, through the Higher Education Funding Council for Wales, provides research Wales innovation funding. It seems to me that, actually, there is a dynamic going on within that funding that does support the regions. So, if we take the research excellence framework data on headcount of researchers and look at the investment of research Wales innovation funding to Bangor, that is just over £6,900 per researcher, where, in Cardiff, each researcher receives just over £1,600 equivalent. So, actually, there's over a fourfold investment towards that region, when you look at this through the research perspective, which is the power behind research and innovation.

Lewis.

I think it's worth also highlighting that universities are working with growth deals in their local areas, and some of those growth deals, clearly, have been established for longer than others. So, I think there is good work going on at regional level throughout Wales from the universities.

Okay. And, Amanda, you obviously mentioned that having universities located in different parts of Wales can be useful and, of course, higher education institutions can act as anchors for research and development, but to what extent does this result in public funding being channelled towards areas where universities are based, potentially excluding the wider private sector across Wales, in your view?

So, I don't think there's any reason why that should be the case, and if you look at impact and you look at impact data, then those impacts will be felt across Wales in terms of that work. We've seen that. We had three Queen's anniversary prize winners this year from Wales—I want to say out of 18—which just really speaks volumes for the fact that research in Wales delivers impact, because those prizes are really focused on impact, and we had three winners, Bangor, Aberystwyth and Swansea. So, I think in terms of impact, we are definitely UK leading on impact, and I'm sure that colleagues can say a little bit more about that.

And as I said before, there's absolutely nothing that stops a university, as we have done, working with industry wherever it's located. I think the important thing is that we have, particularly with the stream of innovation funding that we've now had, I want to say since 2019, colleagues—that then gives us a bit of capacity, really, to engage in work with industry. That stream of funding is very important to us.

Okay. Anyone else on this? Roger.

Thank you. Just to follow Amanda's point there around impact, I think it's perhaps an undersold element of Wales just how good we are in terms of impact and transferring science and innovation through to and affecting in the real world, so to speak. Speaking from Cardiff University's perspective, we are the top across devolved nations by REF 2021 for research impact, which is slightly hidden, perhaps, but very important. I feel HE and the sector that we have in Wales—we are close to centres of industry, we have that coverage. We also do map on to the growth deals and have relationships that are strong there. I would also, perhaps, argue that post COVID we do have a step change in how we behave and interact through digital means as well as being physically co-located. So, the infrastructure that we have, the importance of that, the importance of broadband, mobility and transport is really important to the sector.

Lewis.

To just give a little bit of detail on that, a report commissioned by the Learned Society of Wales and co-sponsored by the Wales innovation network, which examined the impact case studies submitted to the REF 2021 exercise, highlighted that 42 per cent of the 280 case studies had economic impact, and 70 per cent had impact in Wales. But, actually, what we saw through that was there was impact on multiple levels, so both locally around the university, across Wales, and then also at UK level and worldwide as well. So, we're seeing Welsh universities working with a really broad range of partners, and in most cases multiple partners in those impact case studies, to develop the impact from their research and innovation.

Thanks. I'll now bring in Mike Hedges. Mike.

Diolch, Gadeirydd. The first question is: to what extent do the innovation strategy and delivery plan provide a sufficient framework for universities and industry choosing where to conduct research and innovation?

Who'd like to start on that? Amanda.

I suppose what I would say is that the consultation process we were engaged in along with other stakeholders regarding the innovation strategy was one of the better consultation processes that we've been engaged with, and it was a very consultative and robust process. I think the innovation strategy—it gives us a structure, and other colleagues, Lewis in particular, can talk about how we're looking to build on that strategy in terms of delivery by universities.

I think there is strong complementarity between the missions of the innovation strategy and the positioning of universities; I think there's good overlap. I think one point to reaffirm is the value of innovation; it drives competitive advantage, but also basic research feeds into innovation, so making sure we keep that chain connected is really important. Chemistry drives the battery composition that drives the electric vehicles, and so hard science can soon find its way into really purposeful impact. So, that element is important to us. I think as a strategy it gives the universities flexibility to deliver in different ways as well against those missions, based on specialisms and expertise from across the sector.

And as WIN, we are responding to this strategy, so our work is partly shaped by the strategy. We have networks around net zero and public health, for example, working into some of those key areas, drawing together representatives from across the universities in Wales, and looking at how we can work together on R&I. I think it's important to point out, of course, that if academics are applying for external funding, there are clearly other strategies that apply as well. I think there is a complementarity between those. Increasingly, research and innovation funding is being allocated on mission basis rather than disciplinary basis, and I think that's where we're really able to draw that cross-disciplinary strength that we have in Welsh universities, particularly working across all of the universities to address those missions both in the Welsh innovation strategy and responding to the strategies of external funders.

Thank you for that. Who sets the agenda for conducting research? I'm going to talk about mobile devices. I mean, if it hadn't been for PNP doping, we would never have had mobile devices, but we all remember having a Nokia phone and we all remember having a BlackBerry, all of which have gone out of manufacture, or very close to out of manufacture. So, how do you, working with industry, know where we need to go; and PNP doping, why bother? Our transistors were working fine, weren't they? So, how do you decide how to innovate? Some of these major innovations have really driven economies across the world.

Thank you. So, I think a really important component is making sure we have really strong disciplines in terms of expertise—experts, who in the course of their research can ask the curiosity-driven questions, could also be heading in a particular direction, but spot something just on the corner of the world view, and can actually say, 'Well, this is really important. This will have a really transformative step change.' So, that element is really important, and as universities it's really important that we provide an environment where that can happen, but at the same time, we're porous to industry and commerce and can work in partnership around some of these areas, where we can generate new IP.

Anyone else on this? Amanda?

So, I do think what's going to be important—. We need to keep a weather eye on what's happening elsewhere in the UK, so we, for example, know that we've had a report on spin-out delivered to the UK Government. If the UK Government accepts that report, that will result in, for example, higher innovation funding to universities for a lower spin-out take. That could transform what we're able to do with industrial partnerships and so it's going to be important from a Wales perspective that we're able to look at that and we're able to operate in the same way, because that allows for the sort of porous interaction with expertise that we're able to provide in the university that I think Roger was alluding to. So, I think there are some real policy-making levers here that we need to think about.

I'm going to make two comments that you may respond to or not. The first one is that life sciences has been a huge growth area and mainly driven by university researchers and then fed into the economy. I always think back to the comment by Henry Ford,

'If I had asked people what they wanted, they would have said faster horses.'

I think those are excellent observations. The latter comment from Henry Ford really captures the spirit of innovation and actually being able to think differently. It is about providing an environment where thinking is challenged, where you can work in partnership with different organisations. I think the sector in Wales is actually moving in a very positive direction with respect to this. Examples would be UKRI, EPSRC, and place-based innovation acceleration awards. Wales is involved in three out of 10 of those that have been awarded across the UK, and those are very important in bringing industry and experts together to think about problems in different ways, as well as to translate research into deliverables.

Thank you, Mike. I'll now bring in Vikki Howells.

Thank you, Chair, and good morning to our second panel. I've got some questions around funding for universities, looking at external sources of funding as well. I'll start with a quote from our predecessor committee, which found, in 2019, and I quote,

'considerable under-investment in Welsh Government funded research and innovation activity in Wales even as investment levels increase at the UK level and in England and Scotland.'

They said that in turn this

'under-investment will make it more difficult for Welsh universities to meet the challenge of needing to win more external funding competitions.'

So, I'd like to ask our witnesses what, if anything, they feel has changed since 2019.

Just by way of overview, we have had the reintroduction of innovation funding—RWIF funding, as we call it in Wales. So, that has been very welcome. I should say, of course, though, that the funding landscape moves around us all the time. It is quite a competitive environment and we are at risk again of that drifting away. We did receive significantly more one-off funding during COVID than our counterparts across the border in England, and that was very welcome at a particularly crucial time.

What I would say, though, is that post COVID what we're starting to see is this return to core funding, which really is setting us up to lag behind again, and I think the key issue is that the baseline QR has remained flat. For all the reasons we've mentioned in answer to other questions, that remains extremely problematic for us.

I think the other key issue is the impact of structural fund withdrawal, which, as colleagues will know from the variety of things we've said and the evidence we've given in terms of other inquiries, has been a very serious challenge to us.

I'd like to mention the importance of place. I feel there has been a wider recognition in the funding landscape of the importance of place. The excellence, the networks, and indeed the culture element has been recognised, not least by UKRI in particular. UKRI have introduced a place-based toolkit for all their programmes across all their research councils. They are very engaged and come to Wales and meet us as a sector very regularly. This is an agenda that I feel is really quite precious for Wales. Indeed, we are showing our competitiveness here by the aforementioned place-based impact acceleration funds, which are multimillion pound in scale. We're the only location in the UK with two Strength in Places awards as well, and so it's a platform on which to build.

Lewis, do you have anything to add?

I just wanted to highlight the Wales innovation network and it being a proactive initiative by the universities to come together to pool their expertise and knowledge and to ensure that universities are more competitive in that increasingly competitive UKRI funding space. I think we have started to see, through our seed funding small grant programme, for example, which has provided research networks with opportunities to bid into funding, some really promising initial results, with relatively small amounts of seed funding turning into some quite large applications. I think that also, as Roger said, reflects UKRI's increased engagement with place and thinking about both the research excellence but also the broader aspects of place on their funding portfolio as well.

Thank you. I'll move on to a question about the Diamond review. That recommended that we maintain quality-related funding at the 2016 level of £71 million per annum. The QR funding for 2023-24 has been announced at £81.7 million, but that's a real-terms cut of £5.3 million. We have also heard from the British Heart Foundation estimates that pro rata QR funding in Wales should be around £100 million per annum if compared with England. So, I'd like to ask what you think is the impact on Welsh universities’ ability to compete for external funding. What representations have you made to the Welsh Government regarding this?

It's part of our core representations to the Welsh Government, and colleagues will see a much larger examination of this in our submission to the Senedd on the budget process for 2024-25. We think, on a population basis, that we're looking at about £44 million lower than England, £68 million lower than Scotland. Those are not small sums and, for the reasons that we've already articulated, when you've got to find effectively 30 per cent for every research grant that you accept, having proportionate QR puts us on a level playing field with those others in the UK system who are bidding for those funds.

As I said earlier, QR is absolutely fundamental to the lifeblood, to give that time and facilities for collaboration and for investigation. We are cross-subsidising research to an eye-watering extent—20 per cent to 30 per cent, as has been mentioned. We're not recovering costs on that, and the business model that we have in the sector means that, effectively, it's international student fees that are making up that balance. So, just to emphasise that, with that model, our international reputation is really critical.

Do you have anything to add, Lewis?

No, nothing further from me.

Thank you. One final question from me, then, just to ask the panel if there are any other barriers or challenges for universities in accessing external funding that they think we should be aware of, and how they think those challenges can be addressed, and by who.

If I may, I'll just return to the point made earlier, that we are cross-subsidising significantly from our international fees, and that allows investment into research. By and large, for home students, we are not in a position to provide cross-subsidy from the fees that we receive from that direction. So, thinking about this systemically, thinking about our positioning as a sector, we really do need to make sure we're in a position to maintain a really strong, buoyant reputation for international students on the world stage as a country.

I think it's important to note, as Amanda stated earlier, that funding is not awarded at the full economic cost. In the case of public funding, that's probably between around 70 per cent and 80 per cent, and for some charitable foundations, it is significantly lower than that. The other aspect is match funding components. A range of grant programmes will ask for match funding from institutions, which is a further financial investment by the universities. Without that ability to invest in that match funding, universities will have to make the decisions about which grants they're able to apply for.

Do you have anything else to add?

We're very dependent on international student recruitment, and I think that point's been made.

Thank you, Vikki. I'll now bring in Luke Fletcher.

Diolch, Cadeirydd. I'm just thinking now of the relationship universities have with business. Something we've been told is that relationships tend to be quite ad hoc between business and universities and that more often than not it's on businesses to reach out to universities. Do you think that's a fair assessment? I'm just wondering how proactive universities are in their reaching out to businesses. Are there good practices in Wales, for example, we might not know about of universities dealing with businesses proactively? Roger, do you want to start?

I'm very happy, thank you, to report on that. In large organisations, sometimes it can be difficult to establish front doors into those organisations, and it's important that we strive to do that. Speaking from example in Cardiff University, there is a wide breadth of interactions and partnerships ongoing. At the high level, we have managed partnerships that are strategic with a range of organisations—Airbus, DSV, Siemens, Dŵr Cymru, Amgueddfa Cymru, the Office for National Statistics—and we work closely with the Cardiff capital region as well. Investigators also will bump into people and will have relationships that we need to manage. I see it as a very buoyant activity at the moment. I think if there's any constraint, it's probably around the resources that we have available to do more in terms of interaction with businesses. We also are moving to models where we're working on a much more porous basis with businesses, with businesses being co-located, for example at Cardiff University social science park, in the same building as the academic unit, and also the integration with academies, with the Data Science Academy working with industry, and the National Software Academy, again, working very closely with industry.

Amanda, do you want to come in?

If you look at the higher education business and community interaction survey data, which is UK data, then Wales performs fairly strongly in this area. I hate to keep coming back to it, but through structural funds, we did run some cross-university collaborative projects such as the knowledge exchange skills scholarship, which was about how we got Master's students into small businesses, working on real-life projects. This was a project based in Bangor but run across all the Welsh universities. The way in which a project like that helped us to develop, both within the institution but within the business was quite transformational, and similarly with ASTUTE, another programme that we run across universities. And withdrawing that infrastructure, which is obviously what we're having to do at the moment, is not a small issue for us. So, I think, in terms of what we do across all the Welsh universities, getting some sense that we're able to maintain some of that infrastructure, which is why we fought really hard on the issue of regional investment, really does matter.

The data shows we perform quite strongly. We're also quite good in the start-up space, so we have a really high number of graduate start-ups for the size of the sector—5 per cent of the UK sector, 13 per cent of graduate start-ups—and good longevity on those start-ups as well. The issues there will be the same as the issues that you'll hear from all sorts of similar businesses—you know, availability of investment capital—but for us also, in some areas, frankly, the extent to which we're running out of incubation space is also a problem. So, there's a whole cluster of issues that sit around the agenda you're looking at today that are worth looking at in terms of capacity constraint to do more in this space.

So, with some of those issues, then, what would be the top issues for you, and how would you resolve them?

For me, I do think we need to look at the incubation space in some areas that we have available. Aberystwyth will tell me that their incubator is nearly full. Going back to some of the questions that were raised earlier about rural and urban, that incubation space is, for example, nearly full. So, I do think there are some key issues for us at that end. But I think also, particularly as business faces its challenges and the speed of technology advances, some of those big infrastructure projects that we had—. Maybe being able to save some of that infrastructure will do us a lot of good, because then I think we could do some other really quite interesting things. Some of the key questions that we might be able to collaboratively address around the adoption of robotics in small advanced manufacturing businesses in Wales could be really quite crucial, given the way some of that is going; also the feed-through to skills from R&I, which we haven't mentioned, which is absolutely crucial for industry and for adoption of R&I, and colleagues could say some more about that. But the link-up with skills is also absolutely crucial here. We have run some one-off spot projects with some investment from the funding council that I thought were really interesting, which were industry, university and FE collaborations in this space, around sector. Anyway, I'm going on a bit. But, it's just—. I think I've got about three really important areas there, but there are probably five things that would make a really big difference in all of that.

I don't know if Lewis wants to come in before I come back with another question.

I just wanted to—. I'd made a quick note here of 'planned serendipity', and I think that feeds into Roger and Amanda's point. You don't necessarily see relationships between business and academia all happening through the same route, all taking the same course. The work on REF case studies illustrated that. There are multiple pathways to impact. Where we can ensure that there are those opportunities for businesses and researchers to interact in multiple different ways, I think we get the most strength, and we do see that, as Roger was pointing out, through the science parks, through incubator space. There are examples where universities will—. So, universities will offer, for example, continuing professional development training that provides a service to business as well. And then I think there will always be those serendipitous and strong relationships that form in particular areas. So, for example, the work that the University of Wales Trinity Saint David does with Belron on windscreen technology is a very specific example where a strong relationship has built up over many years. So, I think universities across Wales are doing multiple different things to ensure that that planned serendipity happens.

I can see the time, Chair, so I'm happy for my other questions to be written questions. So, I'll hand back to you.

There we are. Thank you very much. I'll now bring in Sam Kurtz. Sam.

Diolch yn fawr, Cadeirydd. Good morning, panel; thanks very much for joining us this morning. I'm going to focus around collaboration between higher education and industry, if that's okay. For whoever wants to pick this question up first, how would you describe the overall current level of collaboration between the higher education sector and industry, and where is there scope for improvement and how could this be taken forward?

Do you want me to—?

By all means, Amanda, thank you.

Other colleagues can perhaps make this real. I think there is extensive collaboration between HE and industry. As we've previously said, Wales is strong on impact, but that doesn't mean that we don't need to keep extending. We do need to keep extending this; it's vitally important for our economic future that we do do that and that we're able to do that. Some other colleagues here might be able to talk about some things we're seeing, for example, in England around the connecting capability fund, for example, and some ways in which that could be pump-primed.

I think I—. We need to be innovative in terms of the way we engage, if that makes sense. And I do think that the new commission allows us the opportunity to do some of this differently—so, how do we work with FE, how do we work with some of their business contacts, how do we do the sorts of things I've just described in relation to tying up R&I and skills. So, I do think we've got great examples of where we've done this on a spot basis, but I think that it could be more systemised.

Okay, thank you.

I would say that, on this front, I think, there's real buoyancy and energy behind this, with lots of evidence from place-based impact acceleration, which needs business and HE to come together. I would look also to Media Cymru, CSconnected, new models and approaches. The cyber innovation hub is a case in point. It's not just down in the south-east corner. AberInnovation is, arguably, one of the leaders in the UK around agri-tech, and has a real reach there, and then up to Bangor with M-SParc as well, and all the work going on in Swansea, particularly around energy systems, around ASTUTE, manufacturing work. So, actually, I feel it's part of Welsh DNA to co-create, and it's something we need to build on.

Okay, thank you. Lewis.

Yes, building on what Amanda and Roger have said, I think there are really innovative partnerships and ways of working in Wales already, as recognised by our success in, say, the Strength in Places fund, and the EPSRC place-based IAAs. Where we—. In England, there has been connecting capabilities funding awarded by Research England, which allows innovation to take place in this space, has allowed learning to be generated in that space above and beyond the work that is done funded by higher education innovation funding. There's some interesting lessons from there. I think we have learnt a great deal, but it is the scope and capacity to fund those. As Amanda pointed out, a number of these interactions and collaborations were funded from structural funds and are no longer funded there.

Okay. Thank you. I asked the previous panel—and it's an extension of this question, really—around the commercialisation and the day-to-day benefits that people feel from R&D, and how we can link the two together more so that the public know of the ownership that they have involved with R&D and they know why R&D is necessary. The previous panel said with agreement that more needs to be done around communicating the benefits of R&D. I'd just like to know your thoughts on that. Lewis, I'll start with yourself.

Sure, yes. I think this is a key challenge for us. Public models of engagement with R&D show a real range. There are a stubborn 15 per cent to 20 per cent of public audiences who are simply not interested, and I think we need to be realistic about what can be accomplished, but I think there's real opportunity for us as a sector, working with industry, working with Government as well, to really show what can be done when we all work together. But I think we need to think—. Again, drawing on best practice, we need to think creatively about how that can be done. A simple kind of deficit model in which you go and tell people how good it is doesn't necessarily work; we need to really think about how we can do that creatively, and really think about what messages resonate with people. They don't necessarily just need to be told it; let's think about how we can show that. And part of that is through the impact that Welsh university R&I has. We've got some really great case studies there.

Okay. Thank you. Roger.

Just to add, on the case study front, I think we've got an enormous array of really interesting ways that people might not—. They might be surprised, actually, to learn of the way in which science connects to innovation and it follows through to things that happen. And also—

Sorry to cut across there. If we have those case studies, then, how do we better engage the public as to the benefits of R&D, R&I? How do we better tell the story so that academia and investment in R&D isn't seen in isolation as to the day-to-day tangible benefits that people may feel in their day-to-day lives?

I think we need to do a piece of work around that and have some resources as well to take that forward, because, as Lewis has said, the trap we might fall into is telling people, rather than having them engaged and participate.

Okay, thank you. Sorry for cutting across there, Roger, as well. Amanda.

I was just going to say 'schools'. So, we can come back and give you—. I'm aware of time, but we can come back and perhaps just talk to you about what the universities are doing at schools level. I think it starts there in terms of developing that wider understanding of what research means for lives.

Okay. Thank you very much. And then just my final question around the research Wales innovation fund provided to universities to support knowledge exchange activities between universities and industry, I was just wondering, panel, your thoughts on the impact this fund has had on collaboration to date and is the funding level sufficient to deliver the scale of change needed. I'm not sure who wants to kick off there. Roger, in the middle.

Happy to. The funding's highly successful. It's providing direct interventions to support a multitude of different ways in which we can really deliver. My fear is the scale of the fund, untapped potential, and also our parity with England, for example, in that space, in terms of funding.

Okay. Thank you. Lewis.

Yes. So, we can see from the HEBCI data that's collected from the Higher Education Statistics Agency that improvements in those community business interactions have taken place in Wales since the reintroduction of RWIF. We need to be cautious about that because it is stochastic; things do change within that. But, I think, yes, we are seeing some great work that's going on across the range of knowledge exchange activity in universities, thinking about commercialisation, but also entrepreneurship and enterprise and public and community engagement through that as well. Yes, I would back Roger's point that, obviously, in the Reid review, it was recommended that it would be at £25 million annually, and we're not seeing even that level yet.

Okay, thank you, Lewis. And Amanda.

No, that's fine.

Nothing? No. Thank you, Chair. Thank you, panel.

Thank you, Sam. I'm afraid time has beaten us, so our session has come to an end. Thank you very much indeed for being with us this morning. Your evidence is very useful for our inquiry. A copy of today's transcript will be sent to you in due course, so if there are any issues with that, then please let us know, but once again, thank you very much indeed for being with us. We'll now take a short break to prepare for the next session.

Wel, croeso nôl i gyfarfod Pwyllgor yr Economi, Masnach a Materion Gwledig. Fe symudwn ni ymlaen nawr i eitem 5 ar ein hagenda, a dyma'r drydedd sesiwn a'r olaf yn yr ymchwiliad heddiw i ymchwil a datblygu. Rydym ni'n clywed tystiolaeth gan gynrychiolwyr o wahanol sectorau busnes: Media Cymru, Canolfan Ymchwil Gweithgynhyrchu Uwch Cymru, a'r Hyb Arloesedd Seiber. Gaf i felly groesawu'r tystion i'r sesiwn yma? Cyn ein bod ni yn symud yn syth i gwestiynau, gaf i ofyn iddyn nhw i gyflwyno eu hunain i'r record, ac efallai gallaf ddechrau gyda Justin Lewis?

Hi, everybody. I'm Justin Lewis. I'm the director of Media Cymru.

Pete Burnap.

Hi. I'm Pete Burnap. I'm director of the Wales Cyber Innovation Hub.

Andy Silcox.

Andy Silcox. I'm the research director, Advanced Manufacturing Research Centre Cymru.

Thank you very much indeed for those introductions. Perhaps I can just kick off this session with a few questions. We're interested, of course, in how universities and businesses actually work together in terms of research and development here in Wales. Can you explain what, if any, engagement you've had with the Higher Education Funding Council for Wales, UKRI and Innovate UK? Justin.

Well, we are funded by UKRI through Media Cymru. We were fortunate enough to win a £22 million investment from UKRI. We also get investment from industry, Cardiff capital region and a little bit from Welsh Government as well. So, we engage with them very regularly. We engage with UK research councils very regularly. We previously have got funding from other research councils as well, and continue to get funding from those. So, we have a lot of engagement with them. We're very familiar with how they work, what their requirements are, the way they think about the world.

Okay. Pete.

So, similar to Justin, lots of different funding mechanisms through there. On an individual level as well, I sit on a top-level strategic advisory team with the Engineering and Physical Sciences Research Council, specifically around digital security and resilience, which was set up in the last year or two. I'm also a regular member of funding and review panels as well, so, well aware of the intricacies of how funding decisions are made and how those panels are run. And actually, during the last research excellence framework, we found out that Cardiff University's computer science and informatics department had received more Economic and Social Research Council funding than any other computer science department in the UK, which was quite an interesting thing to find out. So, yes, as I say, other than that, significant funds from various funders, from UKRI, and HEFCW have actually put a significant amount of infrastructure funding into our cyber defence laboratory.

Andy.

So, we're part of the high-value manufacturing catapult, so we have a funding model of a third, third, third. So, one third of our funding comes directly from UK Government through the catapult. The other third is direct commercial work with industry, and then the final third is through collaborative R&D. So, our main source for that is Innovate UK. We do an awful lot of Innovate UK programmes, but also a lot of Welsh Government funding for that through that third.

Okay. Justin, you mentioned earlier that you've successfully won £22 million of funding from UKRI. How did that come about, and can you perhaps outline your experience of applying for funding and the interaction you had with UKRI?

Well, it was extremely hard work—that probably goes without saying. It's very competitive funding, and we were also aware that no special favours would be given to where you were coming from. Indeed, because compound semiconductors had been successful in the previous year, if anything, that probably worked against us. So, we knew we'd have to work extremely hard, and we also knew we'd need to put together—. Because we were a creative industries bid, that's quite unusual, I think, for this funding pot. Most of the funding from this particular funding pot has gone to more traditional areas of tech, manufacturing, the healthcare sector, and so forth. So, we knew we'd be a bit unusual.

That meant we had to put together a large consortium. The consortium was a 23-partner consortium. We did that at speed as well, but the other thing we knew was that we'd have to get significant commitments in match funding from our industry partners. And, for us, that was a massive challenge. I think we went in with the goal of getting £10 million in match funding from industry partners. We actually got £20 million in match funding from them, but that was absolutely essential to be competitive. It was actually at that moment, when we reached that figure, that I knew we had a very serious bid that would be competitive.

But that was where I think the really hard work lay, in making sure we got that commitment, because from UKRI's point of view, they want to see that their money is being multiplied in various ways. So, being able to show that was absolutely vital. It also helps, I think, that there's increasing recognition now of the importance of the creative industries to the UK economy. It produces more gross value added than automotive, aerospace, oil and gas, and life sciences combined. Sixteen per cent of businesses in Cardiff are creative industry businesses. It's a huge part of our economy now, and I think that growing realisation helped.

What was gratifying, I think, is that this is the first successful, really large R&D funding for the creative industries in the UK, and it's fantastic that we were able to bring it to Wales. So, that was gratifying. But all of those factors, I think, were part of that: the need to bring up good partnerships, a consortium. There are probably some other things I would say also about the university involvement too, but I’ll leave that for later.

And how did you find your interaction with UKRI?

I think they have very particular rules of the game. You have to kind of get inside the way they think about the world, I think, very clearly, and I think that’s been fine. I think interactions with all the UK research councils are not without their challenges. There are complexities to the process, and I suppose one of the advantages we have within universities is that we are used to that. We are used to complex application processes. UKRI is no less complex than any others. But I guess we kind of knew that came with the territory, and we were asking for a lot of money, so you expect to be put through complex procedures.

Yes, sure. Okay, thanks for that. Do you have any concerns that, in terms of public research and development funding, the needs of industry are actually overshadowed by the needs of higher education institutions?

Shall I just quickly answer, and then I'll leave the floor to my colleagues? I think in our case, that's absolutely not the case, because Media Cymru is an entirely industry-focused project. All of our work is working with industry; it's not squirreled away into obscure bits of research at the university. It's very, very industry focused. And I'd go further, really, and say that it would have been too difficult, really, for any of the companies in the creative sector—. I mean, our creative sector is made up of small businesses, fundamentally small businesses—at best SMEs, but mostly small SMEs. And none of them would have the capacity to put something like this together, which we were able to do. But we were also able to create a kind of ecosystem of support for industry. That's very much what Media Cymru is, it's an ecosystem to help companies do R&D, to develop new ideas, and to innovate. And a lot of the money that we get goes straight back out to them, either directly in the form of grants, or indirectly in the form of support we give them. The universities, I think, have begun to realise that they can play a really important role as conveners, collaborators of bringing industry together in Wales, particularly in an economy that is based on mostly small companies. So, it has played a really important role.

I guess my substantive post is within a university, but I've also spent six years leading AI for cyber innovation at Airbus, so I've worked in a large corporate setting, and I'm also co-founder of a spin-out company, so I'm also working at the SME end. So, I've got multiple different perspectives. I think, from my perspective, as Justin's alluded to, it's about delivery. So, in terms of having access to funding in a way that can deliver value, it is a challenge to get that into the hands of smaller companies, in my experience, particularly due to capacity. Small companies tend to be at the cutting edge, running, getting things in place to pay the bills. However, there's a critical mass of expertise across Welsh universities, so it does logically make sense to put the money into those hands, of people who can help deliver it.

When I was at Airbus, really the interest was in, 'What's the value to Airbus of engaging with that R&D process?' So, that's the key challenge, I think, to ensure that industry and academia and the funding that goes into that collaboration is aligned to the needs of academia, of course, in terms of their goals and objectives, but the key is the alignment to industry need. So, what is industry going to get out of this? And then I'd go broader: what's Wales plc, UK plc, going to get out of this? How is this going to drive commercial ventures? And I think things like Innovate UK are very much set up to support that. It is really, 'Here's some funding to take you to the next level.'

The main challenge, I suppose, that I experienced at Airbus and also as a co-founder of an SME is the capacity at the SME level to draw down that funding. But either at SME or at large industry level it requires match funding to be put into it. So, public funding is available to universities to draw down with no cash investment, although universities do put significant costs aside to cover overheads—they only get 80 per cent of the total costs—but for industry to draw it down, there needs to be a cash match, and that, at the moment, is particularly difficult, I guess. So, that priority to enable them to have access is slightly different.

Andy.

From a manufacturing point of view, I would say that the opposite is true, really. Everything we do is a pull from industry. As Pete's alluded to, that's very good for the larger companies; for SMEs, that's more difficult, then, to access. So, there's an imbalance, perhaps, between larger companies and smaller companies being funded. But, in terms of being overshadowed by the needs of academia, I would say that the opposite is true in the manufacturing sector, for sure.

Yes, okay. Thanks for that. I'll now bring in Mike Hedges. Mike.

Diolch, Cadeirydd. In Wales, we've got the four-region model, as I'm sure you're aware. Is there an appropriate balance of public research and development funding across the regions of Wales, obviously adjusted for population?

Justin.

Well I suspect that if you look at UKRI funds, probably not. But I suppose they would say that that, perhaps, isn't their job; their job, I suppose, is to fund excellence where they find it. So, inevitably, I think there probably are going to be disparities there. When you're competing for very, very competitive funding awards, nobody's going to give it to you because of where you are, necessarily. You need to show that you can provide very, very good value for that investment and you need to show appropriate levels of expertise. So, where you get concentrations of expertise, particularly within certain sectors within Wales, inevitably, that's going to be an advantage for them in bidding for those funds at that level. So, I think that's probably built into the way our current system operates. For better or worse, that's the way the system works.

Thank you for that.

Anyone else on this? Pete.

I guess, to go back to my previous point about ability and capacity to deliver, naturally, I think research funding needs to go to the places where it can be delivered. And I guess, if you look at Wales, there will be a natural distribution of funds into areas where there is a critical mass in academia or large industry to deliver. I think there are possibly opportunities to look across the regions in terms of smaller scale industry support. For example, I believe that there is generally a push to get more knowledge transfer partnerships, KTPs, into the hands of smaller companies that could benefit from them. So, there are always opportunities, I think, to look at how the support to access those kinds of things could be distributed.

Thank you. Just going back 40 years ago when I was an undergraduate, Swansea University was a leading developer of finite element analysis in use in civil engineering, and what's now become the University of Wales Trinity St David is a world leader in stained glass. So, you do have areas of advanced development outside Cardiff. I don't expect you to comment on that, but I just wanted to make that point.

Higher education institutions often act as anchors for research and development. How do we ensure that the whole of an area benefits from it, rather than a small area around a university?

Basically, it's having the accessibility to funding. It's the institutions going out and working with companies all over the regions and not just being stuck within their own 30-mile radius. Since we set up in north Wales, it's easy to slip into just delivering on your doorstep. You get plenty of activity, people coming through your door and it's easy to go straight to that and help those companies closest to you. So, it takes a lot of effort on behalf of the universities to go out and widen that reach across the whole of Wales in the more remote regions.

I think that, in Media Cymru, we are really strongly committed to making sure that, if you like, the benefits and the prosperity don't—. And here, proximity to the university isn't really the issue; it's more where most of the industry is and most of the industry is concentrated in Cardiff, but we are very keen that the benefits from our R&D investment spread beyond that. So, we have programmes that are specifically designed to guarantee that we do not focus our efforts necessarily there, but that it goes beyond, throughout the Cardiff capital region and throughout the rest of Wales. So, we set up workshops, we set up training centres and we distribute our funding to make sure that it is distributed across Wales.

But that's something that I should say that we are committed to, because we think that's the right thing to do, but that's not necessarily something our funder is committed to. So, UKRI, I think, are less concerned about that. It's something that we happen to be concerned about because that's part of our way of thinking, but it's not necessarily built into the funding mechanism.

Sure. Pete.

I guess, just to touch on cyber and digital in particular, these are not bounded by physical premises. So, actually, some of the work that we're doing in the sector is looking at innovative short skills programmes and development of new commercial ventures that can help cyber security and digital efficiency across sectors. Agri-tech, in manufacturing, offshore energy, et cetera, which spans the breadth of Wales, can be supported through the activity that we're doing.

One thing that has changed the picture slightly in the last 12-18 months has been the flow of funding through the shared prosperity fund. So, when we had Welsh Government funding to go out to SMEs, you could take a whole-Wales approach, but now that funding has been regionalised and if it's not a certain local authority's priority, then you don't do anything in Powys, for example, and yet you'll do lots in Flintshire. So, that access for manufacturers across Wales to the funding that's available at the moment has been quite skewed by the shared prosperity fund.

Okay. Thank you, Mike. I'll now bring in Luke Fletcher. Luke.

Diolch, Cadeirydd. Just thinking about the research agenda for a moment, what is the main driver of research agendas when it comes to universities dealing with businesses and industries? So, for example, is it driven by the business needs around current products, or is it driven more by the desire to find new products? What is that key driver?

I think, for us, it's very much driven around industry needs now and ahead of time. Obviously, we live in an era of acute digital disruption, particularly in my section of the creative sector. Sectors' business models are being completely changed. We need to be ahead of that.

I guess I'm also aware that, in the creative sector, you need to create to keep prosperity going, and we've been very successful in Wales, as I say, in the film and tv sector—all sorts of productions are now made here, but there's a danger that we become a show-and-go economy, where we make fantastic productions for Hollywood studios or for the public service broadcasters but none of the wealth stays here. So, we're very committed to investing in innovation that allows intellectual property to stay with our companies here, whether it's a new format, whether it's a new bit of technology, whatever it is. For us, it's about thinking ahead and about thinking about what will sustain the economy in our sector in the future. That's very much our goal, and I think most of our research, I guess, is around that goal.

In cyber and in digital, there's a bit of a mix. So, just to give an example, a recent programme was the data innovation accelerator that was helping SMEs based in south-east and north Wales to understand better the data assets that they had, and whether they are suitable and ready to do innovation with those data. So, that was on existing products in iterating those to drive them forward into the digital transformation era.

And then, the other side is future looking. So, for example, Cardiff University has set up recently a set of research institutes, one of which is digital transformation, which is trying to draw together the critical mass of expertise across the university, which is no mean feat, into things, for example, in health tech and med-tech and transportation sustainability so that it can be outward facing and looking at cross-sector industry needs, in terms of digital transformation, and then, bringing expertise on AI and cyber security, for example, together with academic expertise in clinical applications, business operations and organisational change, et cetera, to try and create the next generation of solutions, as well. So, it's very much a mix.

Andy.

For us, our work is, I would say, 10 per cent product focused and 90 per cent process focused. And the driver, in terms of process innovation, is still around productivity. That is the be-all and end-all. We just happened to have hit a sweet spot at the moment. With the energy costs now going through the roof, that's now focused people's minds more on the sustainability element and how to change a process to be more energy efficient. So, that's become more of a driver for us, but still companies are coming to us for productivity solutions—that's why.

So, I suppose that's why I'm trying to suss out the areas. Is there sometimes a bit of a conflict or gaps—maybe 'conflict' is too strong a word, but these gaps where perhaps universities and higher education institutions might want to put investment and where businesses themselves might want to invest?

There may be instances where that's true. For us, it's absolutely not the case, because I suppose that all of our R&D activity is done in partnership with businesses, so we're not going to go in any direction that they don't want to go in. And it's very much guided by their agendas, and I think it had to be really. When we got our first big tranche of R&D funding, we probably had about 100 one-to-one conversations with people in the industry to ask them what they needed in terms of R&D and R&D support, and that formed the basis of what we did. So, I think, in terms of what we do, and probably this applies across the board, we are very, very industry focused; we're not doing blue-skies, maybe-this-could-happen-type research that may not have any application. There's always going to be a bit of that in R&D, even if you're a business, but it is very, very focused on what is going to create sustainable growth for our sector over the next years.

I agree. I think there are examples where there'll be that tension and perhaps there'll be a focus on fundamental research for blue-sky reasons, but I guess, in terms of cyber and the areas that you've got here in manufacturing and creative, I think the sectors are very driven by what the industry needs, and, therefore, the academic institutions that are heavily engaged in this are there for that reason—they're mindful of the fact that they want to do applied research that is going to have an impact. So, these are examples, I suppose, where you've got that. There are, inevitably, other examples where they're not quite there yet or there are different drivers in academia to what there are in industry, aren't there?

So, by and large, then, that relationship is quite tidy—it is working.

Absolutely, yes. Certainly speaking from the cyber perspective, it's very tight, very driven; you've got multiple institutions, academic and industry, working together—large and small. But, again, that takes time as well. This has been developed over a number of years to get that tight; it didn't start that way.

So, I imagine there's a framework in place for where that collaboration might not be as good as it is in cyber or in media that can be learnt from. So, where does public funding factor into a lot of this innovation work at the moment?

I think public funding is really important in the sense that if you're investing in R&D and innovation, you're investing in your future economy. All successful economies around the world are successful where they invest in R&D. If there's one generally agreed way to guarantee economic growth, it's to invest in that kind of area. So, I think it's tried and tested. The capacity of the private sector to invest in that is limited, and there are whole areas, particularly with certain kinds of economies, and in the creative economy that's especially so—. Most of the companies we work with don't have R&D budgets—they don't have innovation budgets. They're not going to be able to do this unless we are able to give them support to do that. So, I think public money is crucial from that point of view, but I think it comes back in the form of economic growth. I think that's the key; that's, if you like, the path that we're all following.

Very much a chicken-and-egg scenario.

Yes.

So, one final question from me, then, and it's open to everybody, on public finances. Are there any changes that you would like to see in terms of how businesses are able to access public finances for research and development, or of how we can make it easier, essentially, for businesses as well as then raise awareness that some of this is available?

Yes, there is this issue of, particularly for small business, if you want to access public funding for subsidy reasons historically, you need to add a cash match into it. So, typically, if you're a small company, you need to put 30 per cent, or around that, into it. So, speaking with my co-founder hat on now of a spin-out company, accessing that with very little money in the bank is a massive challenge.

On the question as to how you solve that, I don't know, because we don't want to be dependent on grants again, we don't want to be going down that road of giving grants to get public R&D that doesn't lead anywhere. However, there is a question of is that necessary. Are there ways in which we can look at reducing the amount of actual cash matched that a start-up company needs to put in to draw down, for example, an Innovate UK grant or anything else? Could that be looked at in terms of reducing it, or being kicked down the road a little bit, for example, give them easier access to funding initially that they can pay back later? So, I think there are a variety of things to look at, but the big barrier I would see is smaller companies, and bigger companies, to come to Justin's point about the shortage of cash at the moment to invest in R&D, and the amount of money that needs to be put in to draw down public funds.

You're right, there are multiple models that you could look at in terms of supporting R&D in businesses. One option has just come into my head now. How would you feel if the Government maybe took a stake or, I don't know, the development bank took a stake in the business it has invested in to be able to recoup some of those funds?

That's a model that could be looked at as well. You've already got the Development Bank of Wales that will invest in companies, but again that needs private equity match to come in with it, which is a barrier for start-ups, smaller companies, again. So, it comes back to that point of how can there be a use of public funds that puts less of a burden on smaller companies finding cash match to put into it.

And just to echo that, I think the real issue, and this is across the board, is that an awful lot of our support mechanisms are really designed for larger companies, they're not designed for small companies, and I think we need to find a way of shifting that. That's not easy, because it's complicated, but right now if you're a smaller company, it's just very, very difficult to do what you need to do to get access to that.

The only other thing, just to pick up on what Pete was saying, is that the new subsidy control legislation that replaced the state aid regulation has not been especially helpful in this respect. It is just as, if not more, bureaucratic than the legislation it replaced, and that is not helpful in terms of small companies gaining access—particularly SMEs, actually, where match funding is now actually probably more of a requirement than it was before.

I'd echo both of those points. The bids process for funding is also a barrier. It's a lot of time and money that you sink into preparing those bids. The other thing, and this is an anecdotal observation, is that, effectively, when a bid goes in, the bid is judged on the innovation, it's judged on the deliverability, and it's judged on the impact. I feel there's an overemphasis on that impact and, for a small company, that's a very difficult statement to make. When you start a programme, saying how many jobs this will create and how many jobs it will safeguard is a finger in the air, and yet a bid is assessed more on that, and it's a pass or fail on that more than the innovation. That balance, for me, is wrong. It's also a factor that is never audited afterwards. We never go back and look at, 'Did it create those five jobs we said in the bid?' And so I think that's skewed slightly.

Diolch.

Diolch, Luke. I'll now bring in Sam Kurtz.

Diolch yn fawr, Cadeirydd. Thank you very much, panel, for joining us this morning. A question that I've asked previous panels is about the link between R&D, R&I and the tangible real-world benefits that the customer, the consumer, we as lay people, will find. The very first panel agreed that the communication element of that needs to be improved in a way that's saying why we need to have R&D so that we feel those tangible benefits in real life. I just wonder if I could pick your brains on your thoughts around that and whether that is an agreement that you make with the initial panel, or if you have different views on it. I'll start with you, Justin.

I absolutely get your point. I think that the whole world of innovation and R&D is not an obvious one to make the headlines, if you like, unless you get some very, very dramatic breakthrough. The day-to-day world of it is not sexy in communication terms. So, it is a challenge. But, equally, I suppose the key is—and I think most people do get this—that if you are going to have a successful economy, you have to invest in it, and I think people do get that. The other thing is that I think we need to be comfortable with failure. R&D as a process is going to involve things that don't end up working. Otherwise, it wouldn't be R&D, it wouldn't be experimental. So, again, I think we have to find a way of communicating that and being comfortable with it. But I take your point; it is a challenge. In our sector, we think a lot about communication, obviously, and we try and find ways to do that that are successful. But you're right, I think it is a challenge, because unless you get a very, very dramatic, big innovation that has immediate impact, these things take time. The time it takes to go from the innovation to a successful business model to employing more people and all those things—that takes a while, it's not an immediate process. And slow processes are less dramatic and easier to communicate than quick processes.

I agree, and I think case studies are the thing there. We don't do particularly well at going back to the origins—you know, Justin's story there—of where stuff started. For example, everyone loves Facebook, everyone loves Netflix—well, they didn't just appear; that was a mix of entrepreneurship and significant investment in that right from the offset, not just the platforms themselves, but the technologies that sit behind them, the fact that it's delivered over Wi-Fi. All of this came from early-stage R&D investment. So, I just think it's something about how can you tell a story that engages the public around other successful R&D outcomes, but also the other stuff. There's lots of stuff going on in the world now around missions into space and flying planes across the world on cooking oil; that happened because of a tonne of failed experiments, but the future is what it is because of that. So, I think just telling the right stories that the everyday person on the street can engage with is absolutely necessary.

Andy, do you have anything to add?

I'd echo those points. We don't do enough of a retrospective on the R&D that we do and tell those stories, like Grand Designs Revisited—every three, five years, this is where we are. We don't do that. We do the programme, close the book and move on to the next one, and that's probably a failing of us as researchers. We do have a little bit of a contradiction in that we want to tell the world about it and many of the programmes are covered with heavy intellectual property agreements and non-disclosure agreements and we simply can't. The ability to share that learning widely isn't as free as it could be.

Thank you. I'm content with the other questions being answered in writing. Thank you, panel.

Thank you very much. I'll now bring in Vikki Howells.

Thank you, Chair, and good morning to our panel. I have some questions on the Welsh Government's strategies. I'd like to begin by asking to what extent you think the innovation strategy and delivery plan provide a sufficient framework for universities and industry choosing where to conduct their research and innovation.

For me, the Welsh Government is a shining beacon. I did this job, effectively, for 10 years back in England. The support the Welsh Government gives and the progressive support it gives to companies, I think, is excellent. The innovation team across Wales really do create a supportive structure for companies wanting to bid into Welsh Government funding. So, yes, I personally think it's a shining beacon. I do far more work with SMEs here than I did back with the catapult centres in England.

I think the thing I took from it most was the real focus on applied research with outcomes, and I think that's really, really important. In terms of accessing public funds, I think there is a gap there. Just to bring that to life a little bit, if you look at UKRI, a lot of the funding that comes from there is very much low technology readiness levels—so, experimental, trying to prove and demonstrate concepts. Obviously, under the same banner of UKRI, you have Innovate UK, which is an accelerator, but actually, you need to demonstrate you're at a certain point before you can draw down that funding. There is a gap, then, in being able to do applied experimental research. I thought the focus of the innovation plan—I think the No. 1 thing in there was around that applied research element—was really, really good. The other element was around experiential learning for the next generation. That's going to be massively important. Things like cyber, things like manufacturing are not that easy to see. So, actually, experiential learning and being in a workplace and seeing all that and inspiring people is really, really important as well, and, I think, to use that beacon term, that's going to be a massively important thing for Wales going forward.

The only thing I'd add is the need for us to think about translating strategy into processes that work—I don't want to labour the point—for small companies that don't actually have R&D innovation capacity. That's not an easy thing to do, because it means you can't necessarily have a direct funding model. Just giving a company money and saying, 'Off you go, go away and do something amazing' isn't necessarily the best route, and similarly with skills. So, I think we need to find a way—and this is not easy—of giving both skills support and R&D support to small companies. That probably involves intermediaries. The universities are one—there could be others—that will create, if you like, support mechanisms that allow them to do that.

I do think there's a piece there of quite a complex puzzle, just to acknowledge the fact that we live in an economy where most companies are small companies, because often there's an attraction towards the big company, where we get an immediate big hit, where you get 1,000 jobs or whatever it is, but, actually, that's not the way that most of our economy works. So, we need to find mechanisms, both in skills support and in R&D, that work for that.

If I could just add another point to that in terms of processes. It's not necessarily directly related to innovation plans, but on the point of processes, procurement, at the moment, is a nightmare for smaller businesses being able to easily access R&D funds for small, innovation-based projects. There are large research pots that sit there, and it's really, really difficult to be able to very quickly say, 'That's an innovative company, we want to engage them'. And that limits both the ability to deliver on that public value quickly, and the company being able to quickly get business. It feels to me like public funds are coming in shorter bursts at the moment, with the shared prosperity fund being a good example. You've got to spend these things quickly, and you've got to deliver quickly, and procurement is getting in the way of that at the moment. So, anything we can do to alleviate that and make procurement a bit easier would be awesome for innovation, particularly in the small industry sector.

The second question, if I may. Innovate UK has just been mentioned there. The Welsh Government has set targets for 3 per cent of Innovate UK's budget to be invested in Wales by 2026, and for that to rise to 5 per cent by 2030. I'd like to ask the panel, firstly, if they're aware of those targets, and then, secondly and most importantly, what needs to be done to meet these targets, or more generally to increase UK-level public sector investment in Wales.

Obviously, there's a whole political question around this, which is not for me to really talk about, which is to do with negotiations between Governments. But in terms of winning competitive funding, if we want to win more competitive R&D funding from the UK Government to Wales, we have to back people in a position to win it. I think that's just a reality. Not all parts of all universities will be in that position, so to some extent we have to look at what we're good at, and then we have to think about how we develop that, and invest a little bit to make sure that things that we're good at attract investment to Wales from the UK, as many of us have done.

Just two points from me. I mentioned earlier, but I can't stress it enough, that in order to draw down Innovate UK funding, smaller companies are going to have to put a cash match in. That's got to come from somewhere. There isn't really an easy answer at the moment, and that isn't going to change. You're not going to boost applications very quickly if that can't change.

The other thing I think Andy alluded to earlier is bid developments and actually writing applications. I became aware, actually, the other day, with my spin-out hat on again, that you can get pretty good bid development support for around £3,000. That will get you to being able to write an Innovate UK smart grant. It's not a lot of money, actually, but for a smaller company it is. So, it's whether there's anything that can be done there to help Welsh SMEs to have access to that sort of tried-and-tested Innovate UK-style grant writing.

Also, in the same discussion, I found out that once small companies have got one Innovate UK project, they're actually quite successful at getting a second and a third. So, it's almost like a snowball effect then. So, anything that we can do to help with bid development and access to that direct cash necessity, to add or alleviate that somehow, would make a big step forward, I think, in terms of Innovate UK funding coming to Wales, given the size of small industry in the nation and the composition that it makes up of the overall industry.

So, in terms of awareness, yes. So, the AMRC Cymru was set up to address this problem. The amount of Innovate UK money that's gone into manufacturing in Wales is very, very small by comparison to the UK. One of the big issues is the fact that the Innovate UK funding is weighted to larger companies, and, as we've said, Wales isn't full of large companies. So, small companies access Innovate UK funding on the coat-tails of big companies like Airbus and their programmes have been part of those bigger programmes. If you're not in that circle, you'll never get access to it. So, how do we bring it down to a level that smaller companies can access that money? I don't know the answer to that. The blue zone initiative at the moment is very promising; we're putting a couple of things through that at the moment that failed at an Innovate UK bid level, but are now being funded through that blue zone Welsh Government funding. They're great projects, they scored really highly, but it's a super competitive world, Innovate UK bidding, so 83 per cent, 84 per cent, 85 per cent projects still don't get through. So, yes, hopefully that's starting to redress the balance.

Thank you. I can see the time, Chair, so I'll conclude my questions there.

Thank you very much indeed, Vikki, and yes, our session therefore has come to an end, but can I just take this opportunity to thank you for being with us today? Your evidence will be very useful for us as far as the inquiry is concerned. A copy of today's transcript will be sent to you in due course, so, if there are any issues with that, then please let us know, but, once again, thank you for being with us today.

We'll now take a break to prepare for the next session.

Croeso nôl i gyfarfod Pwyllgor yr Economi, Masnach a Materion Gwledig. Fe symudwn ni ymlaen nawr i eitem 6 ar ein hagenda, sef dyfodol dur yng Nghymru. Mae'r sesiwn heddiw yn dilyn y cyhoeddiad ynghylch cytundeb Llywodraeth y Deyrnas Unedig ar becyn cymorth gyda Tata Steel a thrafodaethau'r pwyllgor gydag Ysgrifennydd Gwladol Cymru a Gweinidog yr Economi. Rŷn ni'n clywed tystiolaeth gan gynrychiolwyr o'r undebau llafur Unite, undeb Community a'r GMB heddiw. A gaf i croesawu'r tystion i'r sesiwn yma? Cyn ein bod ni yn symud yn syth i gwestiynau, gaf i ofyn iddyn nhw gyflwyno eu hunain i'r record, ac efallai gallaf ddechrau gyda Charlotte Brumpton-Childs?

Do I need to press it or is it—?

No.

Good afternoon, everyone. Thank you for inviting me. I'm Charlotte Brumpton-Childs, and I'm the GMB national officer responsible for steel.

Peter Hughes.

Yes. I'm Peter Hughes, I'm the regional secretary for Unite here in Wales.

And Alasdair McDiarmid.

Alasdair McDiarmid, I'm the assistant general secretary of Community trade union.

Thank you very much indeed for those introductions, and perhaps I can just kick off this session with a few questions. Can you first of all outline what you understand to be Tata's plans to implement its agreement with the UK Government, and its timescales for actually implementing them? Alasdair.

Yes, absolutely. So, Tata and the Government announced their deal on 15 September. I think all of the unions are completely united in condemning that deal. We think it's completely unacceptable. The deal itself is acceptable, the way the discussions between Tata and the Government were conducted was unacceptable, with absolutely no trade union involvement at all. We had assurances from the very highest levels of Tata that no decisions would be made prior to full consultations with the unions around the technology choices, but, of course, the 3 million tonne electric arc furnace was central to the deal that was announced. The way that the announcement came out—leaked into the media—was hugely distressing for our members and very problematic, and the whole thing, really, was a complete shambles. So, that's what happened.

We expected them to announce their 45-day consultation on their devastating proposals, with 3,000 job losses included, on 1 November. Thankfully, they held off, under serious pressure from us, to allow the process with our expert consultants around reviewing their plans and looking at alternatives to run its course. We've now had that report. The unions have taken a position, we've presented our plan. We're now in consultations with Tata Steel—constructive consultations, I would say—and there is no timeline, at this stage, for implementing any proposals at all. Obviously, in our view, the discussions should take as long as they take. If they're going to be meaningful, that's what has to happen. We do believe we have a really credible alternative proposal. Tata have indicated they want to talk to us about it, and ultimately what we want to happen is to have a serious conversation and a negotiated solution, because we do want to find an agreement and we do believe there is an agreement to be had, and a just transition that can be achieved with the right will on all sides.

Can I just add to what Alasdair said?

By all means, yes.

I think the disappointing thing from the three unions was the lack of consultation during the talks between the UK Government and the company. The company have always said to us—and correct me if I'm wrong here—that they will always engage with us when we're talking about future developments. The lack of consultation during that time then, all of a sudden, 'This is a done deal—we're going to be looking to close the heavy end, we're looking to be closing the blast furnaces, we're looking to be closing downstream activities in Llanwern', potentially having threats at Trostre, supply chain, and bringing coil in from all over the world when we're looking to go green, was a big massive shock to us, to be honest with you.

When you're looking to drive forward, we always want to be in consultations with companies. We always want to talk about companies. Everyone's got a plan. We might be slightly different on what we believe is a plan, but, ultimately, everyone wants to protect Port Talbot for as long as possible. We believe that Port Talbot can be the green capital of Europe with the right investment and the right technologies, but, ultimately, Tata need to talk to us and, unfortunately, at the start of all this, they didn't.

Anything to add?

Yes. I think just in terms of the Tata plan as was announced—and the details have been drip fed through the media, so we've had to piece it together before we had a proper meeting with the business—it lacks ambition. It doesn't secure steel making for south Wales or the wider UK market. It really narrows the grade and quality of steel that we can produce and the range of steel products that we can produce.

I think one of the key concerns for the trade unions is that there's not a plan for sustainability within the business or a plan for ambition or growth. You'll have seen the announcements from Nissan in the last few days about the commitment to build some electric cars up in Sunderland. Tata Steel currently supply the automotive industry. We're not sure if, under the Government and Tata plan, that would still be able to be the case, because of the quality and grade of steel needed for those applications.

So, the key thing that the trade unions have been talking about over the last couple of weeks since the announcement is how do we turn a need for transition into an ambitious plan, moving forward, for south Wales and for the wider steel industry, because that's what it needs.

And Alasdair, just to confirm, I think you mentioned earlier on that you are now engaging with Tata Steel. What does that actually mean, from your perspective?

Well, so, we've been through a process with our experts. After the announcement was made of the deal, we requested the support of our independent experts, Syndex, which the company granted. We reaffirmed our red lines with our experts, which have been the same red lines since we first started the decarbonisation discussions with Tata in 2020, which are that we must protect the future of steel making at Port Talbot in any decarbonisation strategy, the future of all the downstream operations must be protected and there must be no compulsory redundancies. And they did a huge amount of work for us, picking apart the company's plans and developing alternatives along with the unions.

We then met as a multi-union body, all of the unions on this panel. We had a discussion about all of the different options that our experts had presented. We agreed a plan, which is the plan that has now been published and you can see on the Community and GMB websites if you'd like to look, and we can talk about it more today; I'm sure we will. And then we presented that plan on behalf of all the unions to Tata Steel to a very high-powered delegation from India, led by Koushik Chatterjee and T.V. Narendran. We presented the plan. They received the plan well, I think it's fair to say—we had a good debate—and we agreed with them to enter into a process of constructive dialogue, and that's what's been happening ever since that time.

Our experts have been engaging with their technical team, digging into the finances, the assumptions, the capital expenditure requirements presented within our plan. That work is ongoing. We have more meetings this week. We have a European Works Council meeting today and tomorrow with Tata Steel. We have a steel committee meeting tomorrow, and that process is ongoing. It is something that we think the company is taking very seriously. They are looking very carefully at our plans, and they’ve always said—and the Government’s also said as well, to be fair—that this is a meaningful consultation. There is a provisional agreement between Tata and the Government, but it’s not set in stone. Both parties have always said to us that, if credible proposals come out of the consultation process, then it is possible to amend that deal, and that’s obviously what we’re looking to achieve, because the current proposal on the table, as reported in the media, is completely unacceptable.

And do you have any indication of when a formal announcement might be made?

I think, where Tata are at the moment, we don't know, unless my colleagues know any differently. I think it's the uncertainty for the workforce that's the biggest strain on everyone in Port Talbot and the surrounding areas, and Llanwern. How long is a piece of string? It was sort of drip fed to us early in September, drip fed to us on 1 November, and then, ultimately, there's the total uncertainty of the whole workforce, which is unfair on them.

I think, following the meeting that we had with the people from Tata on 17 November, where we presented the Syndex plan and that dialogue started, we're not trying to rush this process, because quick decisions can often be bad decisions. So, while it's absolutely correct, as to what Peter's saying in terms of the uncertainty of the workforce, I think that it can be viewed with a certain level of comfort that we're not rushing into the formal consultation, because I think that's an indication that the business are taking really seriously the credible alternative that the trade union's put forward.

Just very briefly, you asked when will a formal announcement be made; I don't think there is a date, and I'd be very disappointed if there was a date, because, as we see it, we're in a meaningful consultation. This is a dialogue—we're looking very seriously at our alternative plan with the company, and the commitment we always have from the company is that consultation lasts as long as it takes. As long as there's something to look at, as long as there are meaningful, credible proposals that need to be investigated, then that consultation will continue. So, it lasts as long as it takes. There shouldn't be any date, and we do not believe there is any date, when announcements will be made.

And just one more question from me, for Alasdair, actually: a spokesperson for Community has been quoted in the media saying that most of Tata's management team oppose its current proposals, and that industry experts believe they are doomed to fail. Can you perhaps expand on those comments?

I can't recall the exact quote, but, to be quite honest, that is absolutely right. As you'd expect in a situation like this, lots of people talk to us, at local level, at national level, and I think you'd be hard pressed to find any manager in Tata Steel, or many managers in Tata Steel, that think the right thing to do is to close down our heavy end, make thousands of people redundant, cut our order book, cut our capacity and make us completely reliant—technology reliant—on a scrap supply chain that doesn't exist yet. So, that is absolutely true, and I'd stand by that.

I would say as well on the industry experts' front, again, we have lots and lots of experts, industry voices, experienced people who want to talk to us and share their views about what's happening because everyone's concerned that this is not the best approach for Port Talbot or Tata Steel. It's the cheapest and easiest approach. We're putting all of our eggs into the electric arc furnace basket. We've never operated EAF before. There isn't an EAF in Tata's empire. Nowhere in the world is there an EAF of that size that they want to put the level of metallics in that they do to supply the order book for Tata Steel UK. So, it's an extremely risky approach, and the general consensus across the industry is that it's the wrong one, and that's why we need an alternative, and we do believe we have a very credible alternative, a deliverable alternative, a fully costed alternative, actually, that is ready to go, and that's what we're discussing with Tata.

I'll now bring in Luke Fletcher. Luke.

Diolch, Cadeirydd. I'm just thinking in terms of the Syndex report. It seems, at least from the outside, that Tata listened in that respect, when you put it forward. From you guys' perspective, how well do you think Tata are actually listening to some of the arguments you guys are putting forward? Also, how are the UK Government reacting? Are they also listening to some of the arguments that you guys are putting forward?

We've not engaged with the UK Government and they've not tried to engage with us, as far as I'm aware.

Not at all.

Not at all, no. So, the way it has been presented to us is that the Government have said, 'This is the pot of money', and then the company are free to decide what their transition plan is. I'm not sure if that reflects the details of the conversation that was had, but that's how it has been explained to me so far. There's been no Minister from the Government reaching out to talk to any of the trade unions about this decarbonisation plan or to discuss our alternative.

In terms of, 'How well are Tata listening?', just to be really explicit about where we are in the process, the trade unions had the Syndex plan presented to us on 8 November and decided to support that as the plan, moving forward. On 17 November, we met with the people from Tata who were representing both Tata Steel Global and Tata Steel UK, and they listened really intently. They asked questions that, I think, indicated that they were taking it seriously, what we'd put in front of them, and they've now taken that away to have conversations with Syndex. We understand that they're talking to them on nearly a daily basis about the different parts of the plan that we've put forward to really understand the detail, and the level of detail, that we've put into that. So, they haven't overtly said anything positive or negative about the plan, but they are discussing it at length and in detail, which we think is a good sign.

And the experience would be the same for Unite and Community.

Yes, I think that's right. We have had no engagement from the UK Government, which is very disappointing, but, perhaps, not surprising. As Charlotte said, and I said earlier, I think Tata are taking it very seriously. I think there is a level of trust and respect when it comes to our expert consultants, Syndex. They are widely respected right across the industry. We've worked with them since 2014 in Tata on a whole host of restructurings, divestments and so on. In any major strategic development in Tata in the UK or in the Netherlands, it's always Syndex that we've used to advise us. They've had full access, Syndex, into the company's plans, their finances, their order book, their commercial strategy portfolio, investment strategy and so on, so they have all of the details. There are many of them working on this project as well, and they've put together a really serious, really credible plan, which stacks up and can be delivered. I think the company accepts that. There might be disagreements within that, but they do know it's a credible plan and they do need to take it very seriously, and I think that's what they're doing and that's why we want everyone to get behind it.

Peter.

I think, for the UK Government part of it, my two colleagues are correc—in terms of the Government, they haven't spoken to us and they're not speaking to us, nationally, about their plan. I think the UK Labour Party might be slightly different, because, obviously, we know where we are in the cycle and everything. Procurement is key to all of this. Where are we going to drive forward? How are we going to invest in the UK? Is steel demand going to go up in the next five years? Everyone knows it's going to go up in the next five years. Why, then, do we not drive this forward? We need proper procurement legislation to go through that protects jobs in Port Talbot. That could be the green capital of Europe. That'll be supplying the rest of the UK for years to come if the investment is right.

If the UK Government just want to invest a small of amount, which the plan originally was—. I've never known any government give £500 million to potentially make, originally, 3,000 people redundant. I've never heard of anyone—no-one—that has ever given £500 million to make 3,000 Welsh workers redundant. I'm from the steel industry; I worked in Shotton in north Wales for the best part of 15 years. Even when they made redundancies in 2001, we went to the Government and there was funding there, and, on the back of that, there were jobs guaranteed. In this plan, there are no jobs guaranteed. So, when you're talking to a UK Government that are quite happy to give £500 million to make 3,000 people redundant, what we're seriously saying is, 'Think again'. There's a procurement plan in place and there are future developments in place. Steel is going to go up by 25 per cent in the next 10 years. We want to be able to make it here in the UK—here in Wales. This needs to be the capital of steel, like it always was and like it always should be.

I think that's particularly why it's disappointing that the UK Government haven't engaged at all. So, in terms of the deal that has been struck, then, I take it—

There's not a deal that has been struck, just to be clear.

It's a proposal.

The proposal, sorry, yes; fair point, we've got to correct the terminology there. But, in terms of the proposal that's on the table, are you confident that there's enough flexibility in that proposal to make the changes that you might want to see from the Syndex report, or other changes around actually producing steel here?

I think, long term, £500 million, believe it or not, might sound like a lot of money, but it's only a drop in the ocean when you talk about what we need to be investing in the steel industry. There's a long-term plan to invest in the steel industry. There should be a bigger plan to grow our steel industry, and a part of that is making sure that the right investment goes into Port Talbot. I don't believe that £500 million is enough. What we want to make sure of is that there is a long-term sustainable future, and that's not just electric arc; it might be direct reduced iron. I think the key to all this is making sure that the blast furnaces remain open until the end of life and that we're still producing steel until at least 2034, until that's in place in 2034, so that we can make steel here in the UK so that we can supply the likes of Trostre and Llanwern and Shotton up in north Wales to make sure that we have the correct supply chain and not rely, like Alasdair quite rightly said, on third-world imports, coming either from the Netherlands or from India and being dumped on the docks in Port Talbot. Now it's a free port—and rightly so, and that's great for investment there—what are the tax implications of dumping steel into their area?

On Llanwern and Trostre, I think all three unions, as well as industry experts, have raised concerns around the impact that this proposal will have on those two sites. Could you just explain a bit more for the committee what that impact will be?

Yes, no problem. We've got lots and lots of concerns about the proposal. A lot of it is based around the 3 million tonne electric arc furnace proposal. We think that's the wrong proposal; that will lock the UK into an output of nearly a million tonnes less of finished steel than we currently produce—down to about 2.5 million tonnes. That is a no-return, no-regret situation, because we've got a hot strip mill—that's the bottleneck at Port Talbot—that can roll about 3.5 million tonnes. If you've got a 3 million tonne EAF, regardless of whether you keep a blast furnace going up to the point that the EAF is built, it's very unlikely that that would continue, because you've got the 3 million tonne EAF, which, more or less, fills your hot strip mill.

So, the problem we've got is that it will reduce the steel output that we currently have in Port Talbot and that puts pressure on a lot of the downstream operations—Llanwern in particular, as that threatens the cold mill. The closure of the cold mill is one of the aspects of Tata's proposal that is extremely difficult, and that threatens the future of Llanwern works in general. But, on top of that, having an EAF in itself is a massive problem, because you cannot make all of the substrate for all of the grades of steel that we currently make by recycling steel in electric arc furnaces—you just can't do it. Maybe the technology will catch up in a few years' time, but it's not there today. You currently cannot make the substrate that we currently need to make all of the grades of packaging steel that we currently make in Trostre, and it puts a massive, massive question mark on the future of Trostre works, and there are 700 jobs there. Whether or not you feed Trostre with coil from abroad, that still puts a massive question mark over Trostre, because we don't believe that that's sustainable in the long term. Similarly, you cannot make all of the high-spec grades of automotive steels, particularly the exterior panelling for the automotive industry, through electric arc furnaces.

So, again, these are some of the highest value products that we currently make in Tata Steel. So, you're not just reducing the output and the order book and giving up market share to imports, we're also giving up some of the most profitable parts of the order book and giving them to someone else. So, it really is exporting jobs and exporting emissions, and perhaps we'll come back to that. But a big electric arc furnace is a massive, massive problem; it's hugely risky, it's completely putting us at the mercy of a UK scrap steel supply chain that doesn't exist. We don't have it. You always hear, you know, that we have 11 million tonnes of scrap in the UK and we export 8 million tonnes of it and we can just stop exporting that and stick it into electric arc furnaces. That's just not the case at all. We currently do not have anywhere near enough scrap at quality to feed a huge electric arc furnace in Port Talbot, and even if we did, we'd still need to invest in scrap-processing facilities, probably something like £100 million in a steel scrap-shredding machine to supply the finely shredded scrap that we're going to need for Port Talbot to supply the full range of steel. So, a 3 million tonne electric arc furnace, it's a massive problem, and it locks us into that technology for the future.

Before I hand back to the Chair, did anyone else want to come back in? Charlotte.

Yes. Alasdair's absolutely right in that the plan, as read from the Government and Tata, offshores our jobs, and it offshores our carbon responsibilities. It does not green the steel that will be rolled through our mills, it just means that the raw materials and the carbon-rich processes that go into creating that steel will be done elsewhere. The globe is not in a net better position because we've offshored those jobs and offshored those carbon emissions, but Port Talbot will face a huge loss if we allow those jobs to disappear from our communities and from that area. There are some that may say that keeping the blast furnace open will mean that we're not cutting our carbon emissions, and so I just wanted to make that point really clear: it's not going to cut emissions ferrying steel halfway around the world to land in the free port, be rolled through our mills and be called British steel when it won't be. The slower and more meaningful transition that is being proposed through the Syndex report will ensure that we safeguard our jobs, we avoid any compulsory redundancies, we can continue to hold the market share that we have, and allow a just and fair transition for the workforce and for the communities that rely on the steel industry.

When you're talking about downstream activities, you're talking Trostre, Llanwern, Corby, Hartlepool and Shotton in north Wales, it's imperative that main blast furnace No. 4 is kept open, because that supplies the high-finish high-quality steel for those plants. But, likewise, there shouldn't be any redundancies whatsoever, compulsory or voluntary. That should be our starting point. Whether we like it or not, these are well-paid jobs, and you look at the area that those jobs are coming from in Port Talbot, we had Ford closing fewer than 18 months ago, 1,800 well-paid jobs; Biomet's closing at the start of next year, 600 very well-paid manufacturing jobs. There should be something coming in to replace those jobs on a manufacturing park, especially because it's a free port, and they should be looking to—whether that's offshore wind or offshore whatever, that park should be making sure that it's manufacturing using steel that is actually made in Port Talbot, procured in Port Talbot, and not, like Charlotte says, from around the world coming in and just re-rolled.

Thank you, Gadeirydd.

Diolch, Luke. I'll now bring in Vikki Howells. Vikki.

Thank you, Chair. I've got some questions around the implications of exclusively using those electric arc furnaces, and Alasdair, I can see that this is something that you feel really strongly about. In fact, you pre-empted some of my questions, so I was going to ask about the availability of scrap steel in the UK for those electric arc furnaces. You've already said there, Alasdair, that we're producing 11 million tonnes in the UK, but 8 million tonnes is exported, and that you don't feel that it's viable for us to assume that we can just stop exporting all of that. Could you explain that in perhaps a bit more detail to us, as to why you feel that that is not a possibility?

Yes. So, we are the biggest per capita exporter of scrap in the world, the UK. As I said, we export 8 million tonnes out of 11 million tonnes. A lot of it goes to places like Turkey, where it gets turned into steel and then sent back to us in consumer products and so on, which is a nonsense, but it's not as easy as just flicking a switch and stopping that entire industry; it is an industry that's been around for a long time. You have five big players in the industry who obviously have a major interest and are doing very well, thank you very much, out of the current situation. So, it's not going to happen by itself. It may well need legislation; it may need some level of scrap export controls, which is something that other countries, the EU and the US, are looking at. So, it is a major issue; there's no easy solution.

Tata will need millions of tonnes of scrap to put into an electric arc furnace, particularly if they go against what we want to do and introduce this 3 million tonne electric arc furnace. But as things stand, even though there's all this scrap going around, there isn't enough; even if we stopped exporting everything, there isn't enough quality scrap to put into that electric arc furnace. So, we need to completely start from scratch and build a domestic inward-looking scrap supply chain, and we're a million miles away from that. So, we need the scrap supply chain, but on top of that, we also need scrap-processing facilities, and the biggest issue, which is a huge investment, is a scrap shedding facility, which you'd have to have for Port Talbot. It will need—. I can't remember the figures, but it's several hundred thousand tonnes' worth of finely shredded scrap that they would need to put into electric arc furnaces to make some of the higher end products, and it just doesn't exist.

So, the idea that we would close down our heavy end—close down our heavy end in the next few months, perhaps—and bet the house on a supply chain that doesn't even exist seems absolutely crazy to us. And actually, it may never happen, and we could easily end up in a situation where we've closed down all of our steel-making facilities in Port Talbot, and then a year goes by, two years go by, we still don't have this scrap supply chain in place, and Tata never build the EAF, and that is a danger. There's a huge, huge risk around building a 3 million tonne EAF, and that's why we don't support it, and that's why certainly Community and GMB are favouring a staged approach to the transition, where we built a small EAF in the short term, supplemented by blast furnace No. 4, and then we either add another EAF or a different technology in the fullness of time. We need to keep our options open and manage our risk. It's very, very important.

Can I just add something, please?

That's really useful detail. Before I move on to my second question, could I just check with the other Members of the panel whether they agree with that assessment?

I think everywhere in the UK potentially is moving to electric arc furnaces. Scunthorpe, we know, is moving to electric arc furnaces, and British Steel actually is looking to build another electric arc furnace up in Teesside. So, the availability of scrap is key to this, and having the right shredding facilities and the right infrastructure to make sure that is in place. But we need to make sure that we're not a net exporter of scrap, which we currently are. I think it was—someone quoted before—8 million tonnes go out every year. It's a ridiculous amount of scrap that goes out, but it's got to be the right scrap; it's got to be sorted, it's got to be shredded, it's got to be making sure that what goes in—. Because if you put bad stuff in, you get bad stuff out. It's common sense. But it's making sure that the scrap facility is there. And part of that then is making sure that we've got long-term stability for that, and when we talk about long term, we talk about DRI, we talk about other technologies that might be coming in, but the steel industry is growing. I might be slightly different to my two colleagues; I believe we should have a bigger electric arc furnace, we should be building DRIs, and making sure that long term, the future of a growing industry is a growing industry.

We should hold Tata's feet to the fire. They've come here, they've had all the good years, they've made money down the years. All of a sudden now, they're not making money, allegedly. But there is a way that we can make money. There is a way that Wales can be the capital of green steel in the UK: long term, making sure the procurement, making sure that the investment is right in that, making sure that they invest long term. And when you say 'scrapping facilities', there should be a scrapping facility at Port Talbot; even if they're only ever making a smaller electric arc, you need decent scrap to go in to make decent steel coming out.

Alasdair's right in his assessment of the way that the Syndex report has analysed that. I think that it's indicative of a wider issue that we've got with the UK Government's approach to the UK steel industry, in that we’re having piecemeal conversations with separate organisations and employers, and things like a DRI facility or a scrap-processing and scrap supply chain would be best looked at with a UK-wide approach rather than 'Let’s look at what Tata need', and then, 'Let’s look at what British Steel need', and then, 'Who’s supplying Liberty Steel?' and trying to piece all of those different bits together.

I think it’s indicative of the UK Government’s lack of industrial strategy over the last 13 years. I worked at the steelworks in Scunthorpe before I became a full-time union official, and so have felt first-hand the impact on families and communities of rolling from crisis to crisis, from financial issue to financial issue. And what we need from the UK Government—and the Welsh Government have been hugely supportive of our call for this—is a wider strategy, not just for the UK steel industry, but for manufacturing, and an industrial strategy moving forwards. Procurement pulls in part of that. We’ll come on to talk about the transition board, I think, so I won’t pre-empt that question there, but that’s the sort of thing we need to see: what does the community need? What does the UK need and what do our future infrastructure projects need, and how do we fit all those pieces together to protect our jobs and our communities?

Thank you. And my second question is on the long-term future of the steel-making industry in the UK. Peter, you said there that all the steelworks are moving to electric arc furnaces, but if that's the case, surely there's a possibility that the UK will be left without any primary steel-making capability. And I'd like to explore with the witnesses, if that happens, what would you say the impacts will be for our nation economically and also in terms of our security?

I think—. I did touch on it, you're right. I think if you don't make virgin steel, you are at the beck and call of third-world importers coming into the UK. Virgin steel is primarily what you probably do need to use in electric arc furnaces. Part of it needs to go into electric arc furnaces. And Charlotte's point there, where she said quite correctly, whether this should be a UK Government or a—. We’ve got a steel-making facility that supplies everybody. But I think Tata have the opportunity—we’re talking about Tata specifically here—to keep the blast furnaces open until their end of life, which is 2034 or 2032/2034, depending where you are, and making sure that they do invest in future technologies; making sure that they do not just put all those eggs in one basket of the electric arc furnace.

We know that the steel industry is going to grow. We need to be part of that and I think by making sure that you are making virgin steel, that is the key driver in everything. It protects our livelihoods, it protects the downstream activities, it protects the viability of the downstream activities, which we touched on before, Luke, but it also makes sure that we are in a situation where we can make the high-value steel, which protects jobs and livelihoods.

Could—

Yes, just very briefly. I'm very conscious of time, so if you can be as succinct as possible.

Yes, just to add to that, we've always said—the unions—that having our ability to make virgin steel is a matter of economic security as a strategic industry. I'm very pleased that the Labour Party recognises that—it is very important. But the point I wanted to add to what Peter just said actually is around green credentials. We have to be able to make our own steel from raw materials to go green. If we don't do that, we still need to import pig iron, we still need to import hot briquetted iron; there isn't a surplus of that in the world—there certainly isn't a surplus of green HBI and pig iron. You're going to import it from places like Russia, Ukraine and the middle east, which is dirty steel and doesn't do the environment any good.

But also, we'll be competing with European steel makers that are greener than us if we just go down the EAF-only route, which have EAF with DRI, with OSBF. And when it comes to a carbon border adjustment mechanism or any other carbon tax, we're going to be dirtier if we go down the EAF route than our main competitors in Europe, and that's going to be a major problem. And we're going to find ourselves in a situation where our EAF producers are competing with EAF producers in Turkey who have had their markets displaced by blast furnace-based steel from China and India and are exporting EAF steel into the UK that is just as green as ours, and that's going to be a major problem for us. So, we need to show some ambition if we're going to be sustainable.

I just want to make one very quick point. If you look at any of the decarbonisation plans that are going on across Europe with the major steel manufacturers in Italy, Germany, Turkey et cetera, they're all pursuing a hybrid approach with an electric arc furnace plus either open slag blast furnace or DRI, and exploring that technology at the same time. There is no other steel manufacturer outside of Tata—and I know British Steel have proposed something similar—that are pursuing an electric arc furnace-only approach, for all of the reasons that we've been setting out today.

Thank you, Vikki. I'll now bring in Mike Hedges.

I was a steelworker in Port Talbot back in the late 1970s, early 1980s, and I've also been a member of all three unions who are represented here at different times. What about the cost of electric arc? Aren't you totally dependent on electricity prices? Even if you have a medium or long-term deal, when that deal comes to an end, aren't you in serious danger of becoming uncompetitive very quickly?

I think the key to all this, like you said quite correctly, Mike, is energy prices. Our competitors in Europe have a fixed cost, whereas we are just on the open market. A lot of Tata's losses last year can be put down to the high energy costs and the high electricity costs. You are right, we are relying on the grid. We have taken expert advice, and the grid can supply electric arc furnaces into Port Talbot, where they're looking to build it, but it all comes down to the Government to make sure that we match countries like Germany and France, which have already implemented a price cap. So, why aren't the UK Government going to do something similar? It depends how much you want business in the UK. If you want business in the UK, make it attractive to companies to build and stay here. And that's got a lot to do with the energy prices.

We lost the aluminium industry in the whole of Britain, a large chunk of which was in south Wales, because of high energy prices. But moving on to discuss decarbonisation, you haven't mentioned using hydrogen instead of coke to reduce the iron oxide to iron.

Charlotte, you wanted to come back in first of all.

Yes, just on the energy piece, quickly. I think it comes back to the point that I was making earlier about needing a joined-up industrial strategy for the UK, because we need projects like Hinkley Point C, we need projects like Sizewell C, we need Wylfa to happen to be able to manage our electricity prices in a more meaningful way. The Government announced earlier this year the industry supercharger for electricity prices. That's been watered down and is still going to be massively uncompetitive compared with our European counterparts. There is already a steel manufacturer in the UK that operates an electric arc furnace that hasn't been able to run it for large parts of this year because of the high energy prices that we're currently facing.

Could you pick up on the use of hydrogen instead of coke to reduce iron oxide to make iron?

Was the question whether you can use hydrogen?

Yes.

Yes, and we should be using hydrogen. Hydrogen will be the key to decarbonising the UK's energy grid as a whole anyway. The scale required for a hydrogen DRI blast furnace is not currently proven but is well under way in terms of the research and technology. We believe that it will be available within the next three to five years, and that's why we're proposing a staggered approach to decarbonisation, to take advantage of all that work that's currently being done, and maintain those jobs and those livelihoods through that process. But, absolutely, hydrogen needs to be in the mix for the energy future for us to be able to genuinely green our heavy manufacturing industries.

Hydrogen gives off water as a by-product, which does not cause any problems, and also hydrogen reacts at least as well as carbon in order to reduce the ferrous oxide to iron. I would have thought that that would be one of the things you'd be shouting loudly about in terms of, 'Let's keep on iron making, and then on to steel making, and using hydrogen rather than carbon to do it'.

Alasdair, you wanted to come in on that.

Yes. That's absolutely long term where we want to be: to be making steel using hydrogen, probably through DRI. But the technology isn't quite there yet, and certainly the supply of hydrogen at quality and scale is not there either. It's possible to make steel through DRI using natural gas and then we can transfer to hydrogen when the supply is there, but we're not there yet. Within the plan presented by the unions and prepared by Syndex, we do say that absolutely our aspiration is, long term, we want DRI and hydrogen facilities, perhaps in Port Talbot, possibly somewhere else—Teesside, Scunthorpe, wherever—and that could be a facility that could supply the whole of the industry with green iron, because everyone needs it and it is of strategic importance. But we haven't costed that into our plan because that's a longer term aspiration that isn't necessarily technologically there as yet.

Perhaps we could talk a little bit about the costings, but under the Syndex plan, we believe we can get to a positive EBITDA measure of profitability between now and 2032, but it will require a bit more investment, because there will be perhaps an electric arc furnace or an extra open slag bath furnace facility, as well as some of the investment costs for keeping the blast furnace going up until the 2030s. That's going to amount to just over £600 million, which might seem a lot, but it's just under £40 million a year over eight years, and certainly that's something that we believe the Governments should support. Obviously, they're supporting the investment in electric arc furnace already. We believe they could support investment in further low-carbon steel-making technology, and so we think that that level of investment is about right. If you added a DRI plant to that, then that would be several hundred million more pounds, and that's not quite where we are yet. But we have fully costed the proposal getting us to 2032 and beyond, and I think that's very important, because it's not just ideas in the air that are aspirations that aren't grounded in reality; it's a real plan with real finances and forecasts and investment figures attached to them.

Mike, I think the key to all this is we know green steel premiums are going to go up. Everyone who's building stuff will want green steel, because it will attach a green premium. So, it's making sure that we're at the forefront of that. Demand is going to outstrip supply, so it's imperative that we do invest in green technologies, that green steel making is the future, and that we're making sure that Port Talbot is at the forefront of that.

I'm with you on that, very much so. This is the last question from me. It's coming back to something that somebody said, I can't remember who: you can't get the quality steel. If you're going to be using 'old steel', and you're going to use an electric arc furnace, you will not be able to produce the specialist steel. I think somebody again said that specialist steel is where you get a higher value steel being produced. Is that really a serious concern to you, as much as it is to me?

One of the key criticisms that we have of the UK and Tata plan is that their plan is to rely on a highly commoditised product, i.e. steel that can be made in Turkey and in Italy using electric arc furnace. CBAM won't apply because it will be green steel, and we're going to be competing in a market that we're already on the back foot with in terms of energy prices and such. So, you're right, reducing the portfolio and removing our ability to be able to make specialist steel, even for a few years while the transition happens, will be giving up market share that will be really hard to get back. Trostre supplies Heinz with their baked beans tins, for example; Heinz aren't going to wait four years while Tata figure out how to do it a different way, they're going to find another supplier, and that might never come back to Wales. So, that is a key component of our criticism of the unambitious and—we think—unviable plan that the UK Government and Tata have put forward.

Thank you, Mike. I'll now bring in Sam Kurtz.

Diolch, Cadeirydd. Thank you, panel, for joining us this afternoon. All three of you at different points have mentioned industrial strategy, energy costs, procurement. I'm just wondering what other wider UK and Welsh Government support could be provided to the steel industry, specifically looking at the lens of Port Talbot. Charlotte.

The transition board is a good avenue to look at what the Welsh Government specifically can influence and support with. I think, in terms of the wider steel industry, that has to be sat in the UK Government, because we believe in a joined-up approach to industry and manufacturing and securing our jobs. If you talk about the floating windfarms, we should have a fabrication yard in Port Talbot within the free port to fabricate the jackets that are needed for those windfarms. We can make that steel in the UK to go into our offshore windfarms, for example. That sort of work isn't done at a Government level. They don't look at it with that sort of joined-up approach. We find that incredibly frustrating. The transition board needs to be looking at jobs. It doesn't need to be a talking shop for what sort of training facility we can build to put people through courses to then go off into the world. We need to be looking at what jobs are we going to create for this community and for this area to ensure that it is a just and fair transition. Peter and Alasdair have rightly said that these are good, well-paid jobs. When I started my apprenticeship back in 2006, I applied for that job because I was told that's a job for life, and I believe that the kids in Port Talbot are told a similar thing when they look at applying for a job on the steelworks. We need to make sure that that's still true and appropriate, because there are loads of opportunities here, but we need to be onshoring our manufacturing capability, investing in our energy infrastructure, investing in our manufacturing infrastructure, to ensure that the opportunities that come with net zero are benefiting our local communities and our local areas.

I think the key in all this is the procurement side of it. Only 58 per cent of steel used in UK infrastructure projects at the moment is made in the UK. So, you do the maths; 42 per cent comes in from around the world—

Do we have capacity to make that 42 per cent?

I think we do. I think there's a capability, if we invest. With the right investment we've got a capability to do it. The Biden administration quite clearly put something in place that infrastructure projects in the US only use US steel. Why haven't we got that? That would protect thousands of jobs in the UK. There should be something, then, when you look at the training aspect, like Charlotte said, upskilling people, upskilling everyone who works there, because ultimately when you come into the steelworks—I was exactly the same as Charlotte—it was a job for life. It's a job for life. You started there and it's a job for life. Most of my friends still work there. Most of my friends still are in Shotton steelworks, and they've been lucky enough to work there for 35 years. I would like to say that people starting an apprenticeship there today can still say the same thing in 35 years. Part of it is procurement, legislation to ensure the use of UK steel, and part of it is the training aspect.

Last year there was 118 million tonnes of steel that we could make in this country that was procured from overseas, which is 20 per cent of the total £603 million that we spend as a country on procuring steel. That is a huge lost opportunity for the industry. There's no doubt about it.

Sorry to cut across, but did you say that we can make that?

We can make it. That's 20 per cent of the steel we procure that we could make and that we don't.

So, how could we make that? What is required for us to be able to make it?

We can make it.

We need our steel industry to be more competitive. That's the issue.

There's 120 million—I've got the figures in front of me—of procured steel that we can't produce in the UK and that are produced elsewhere. So, that's 20 per cent we don't procure from the UK because we can't, but there's 20 per cent that we don't procure from the UK but we could. We don't advocate demanding that UK infrastructure projects use UK steel, because that's illegal, apart from anything else, but we do think that there should be targets and there should be a stated preference for UK steel wherever that's possible. It's long been an issue for us, over decades, really—certainly since I started working for the union—the way that the French and the Germans use social and environmental clauses in their procurement tendering to favour their home industries and give proper weighting to jobs and skills and emissions and so on in their procurement tendering processes. Why don't we do that? It's just incredible that we don't, actually.

But I think, in terms of industrial strategy, what I'd like to see most of all is a long-term view, and a consensus across political parties, actually, because, ever since the steel crisis—or one of the steel crises, but the major steel crisis that happened in 2015—when we lost 5,000 jobs in a month, and we, as an industry, with the employers and unions, laid out the priorities for the industry, they're still the same now: it's still procurement, it's still energy prices, it's still Chinese dumping, it's still unfair trade in general, and it's still the costs of dealing with decarbonisation. And we haven't really made a lot of progress on these issues over those years. So, we really need to take a long-term view in this country, like they do in Germany, for example, because, industrial strategy—. You can't have industrial strategy that lasts a year, or even a Parliament; it needs to be long-lasting and have everyone buying into it and not tearing it up as soon as there's a change of Government.

I'm just coming back to the figures you gave—20 per cent, was it, that you mentioned, right at the beginning of your contribution? And you said 'We could be using that.' What is the matter as to why we aren't using it? Is it capacity? Do we have the capacity to create that additional percentage? What is the reason for the import of steel that could be made in the UK?

Well, there's a lot of different reasons for it. I think those people who procure steel often go for the cheapest option, often go for the easiest option, go for the option that they've always used. And there's not a lot of visibility when you go down the supply chain. So, you have your original equipment manufacturers—they might procure a bit of steel, but, then their sub-contractors procure steel and there's less visibility, and, then, at the level below, there's less visibility still.

So, there's been a lot of work over the last few years around trying to get an idea of what steel is used by the Ministry of Defence, say, by the highways agency, whatever, but it's very difficult to get a clear picture of that. And the reason is that once you go down, dig into the supply chain and get lower and lower and lower, it gets lost, and people don't do what they should be doing, which is trying to get the best value for the taxpayer, which is to use taxpayers' money, essentially, to put back into the UK, as we see it.

Okay. Charlotte, coming back to you on the mention of the transition board—. Sorry, did you want to come back on that point?

Yes, just quickly. It's right to say that we should be using our procurement processes more effectively, and the Government could do more. So, the World Trade Organization rules prevent us just saying, 'You have to use UK steel', but that 20 per cent that we can produce and provide, we need to make sure that our environment for the steel industry makes it competitive. So, because we've got higher energy costs, and because we've got an ageing kit that hasn't been invested in appropriately in some instances, it's sometimes cheaper to ship the steel halfway round the world to supply those infrastructure projects.

So—

And we could also—just quickly—we could mandate that procurement to do with national security and defence contracts is made with UK steel. We can do that under the WTO rules.

Okay. So, with the 20 per cent—. If energy costs were fixed, like they are on the continent, that could be one of the reasons that we could get into that 20 per cent, by having a more competitive domestic industry.

That would make a big difference, yes.

I'm just trying to figure out—

And, like Alasdair said, taking advantage of things that we can do within the WTO rules like having a greater weight on the social and economic benefits to the local area of procuring that steel here, in terms of the tendering process.

And if the Government made it a critical national infrastructure as well.

Okay. Charlotte, you mentioned the transition board as well. I'm just wanting to pick your brains as a panel with regards to the transition board—I think you're attendees at the board rather than members—and your thoughts on that. And, then, specifically around the previous evidence we've had from the Secretary of State for Wales with regards to the offer to Welsh Government of being on the transition board, just your thoughts on that. I'll start with Charlotte since you've—

So, I don't personally sit on the transition board; it's Tom Hoyles for the GMB. So, I'm going to read—I sent the question to Tom—if the committee don't mind. So, we're obviously not in formal consultation with Tata yet. So, at the moment, we see it as a proactive forum to try and head off some of the issues that might be thrown up in any transition. We don't recognise the scale of job losses that Tata, or we don't accept the scale of job losses or that any compulsory redundancies need to take place in order to decarbonise the steel industry, so we've not taken a more formal position on the board in part so that we can reserve the right to walk away if we don't think it's in our members' interests to remain there. That will become more clear as the situation develops, and we hope that Tata take on the proposals in the Syndex report so that we can avoid compulsory redundancies and also keep the options open for UK steel making.

In terms of whether we're being listened to or not, at this stage, they've only had one meeting, so that's difficult to tell. I think they're there today, actually, possibly right now. But, as our colleague who spoke at the meeting reiterated, our priority for Port Talbot is jobs, jobs, jobs, and I made that point earlier, and the proof will be in the pudding in terms of how many jobs are created to offset the losses. What usually happens in a situation like this is that the major employer leaves and the jobs that are lost are not replaced in any substantive form. So, as a union, we think as much of this money needs to be pushed towards projects and activities that generate jobs in the area. A just transition is a jobs transition, and, if we see the money spent on glorified skills funds that replicate other government programmes or prop up other government initiatives, then GMB does not believe that meets our view of a just transition or offers taxpayers value for money. We believe that that's achieved when people are put into quality, well-paid jobs that have longevity and add value. It's about outcomes, not processes, and it's about jobs not training courses. I can't tell you the amount of times I've had a conversation with someone that says, 'Well, if the steelworks closes, you can just go work offshore, on a windfarm', as if that's a comparable or similar job, because it just isn't, and some people might want to do that, but we've got to make sure that we've got comparable jobs and we're not just putting warehouses up and replacing highly skilled, highly paid jobs with those that are not.

Can I be a bit cynical about why the board was set up? I believe—. Obviously, Tata had been in conversations with the UK Government. Obviously, the UK Government then believed there potentially could be job losses. A taskforce was set up when Ford went, and Ford was looking to make people redundant, and I believe this was set up on the premise that potentially there was going to be up to 3,000 job losses at Port Talbot. I think that's why the three unions met with—. We met at the Houses of Parliament with David Davies, and we made sure that—. We don't want to be part of anything, because we don't want to sit—. We'll go there as observers; we're not going to sit on a board that already has a fixed outcome before we actually get to that position. We believe that there is viability in Port Talbot, and the long-term strategy for the free port should be manufacturing jobs first, not the likes of big warehouses coming in and making use of the free port as it is. We believe high-paid, high-skilled jobs should come into the Port Talbot area, especially manufacturing jobs attached to the steelworks.

Okay. Thank you. Alasdair.

Yes. The same as my colleagues, really. We're there as observers rather than full members by choice; we're not going to get into conversations about mitigating thousands of job losses because we don't accept that, and nor will we accept that. Of course, we leave the door open; we want to be part of any process that's likely to be necessary to support our members in the future, but that's not where we are today.

I would say, though, that we do need to learn lessons from the past. The last time we had a major situation where we had to support a whole community, really, was in Teesside when Sahaviriya Steel Industries collapsed back in 2016. We had a taskforce then. I think there was maybe half the money available, but it wasn't fit for purpose. We surveyed our members three years after the event, and they all had training coming out of their ears—any training they wanted, 'Do this and that at the college', fine—but the reality was that, when they were working at SSI, the vast majority of them were earning over £30,000 a year, and, three years later, it was less than a third. So, the problem is the quality of the alternative options out there, and those jobs are just so important for Port Talbot that we need to protect them, and that's the bottom line, because there aren't viable alternatives for people to go to.

The last thing I'd just say is this: there's £100 million there, and, under our plan, we think that a lot of that money should go back into the business, because we're not going to need to mitigate 3,000 job losses under our plan, and that money should be invested on securing the future for thousands more people within the business.

Thank you. Thank you, Chair.

Okay. Thank you, Sam. Our session has come to an end. Thank you very much indeed for being with us today. Your evidence will be useful for us as a committee in continuing to scrutinise this matter going forward, so thank you for being with us. A copy of today's transcript will be sent to you in due course, so if there are any issues with that then please let us know, but, once again, thank you for your time.

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