Scottish National Investment Bank Bill

Overview

This Bill aims to set up a Scottish National Investment Bank.

This bank will not be a traditional retail bank that can be used by the public. It will serve businesses that want to innovate and grow, but struggle to get finance in traditional ways. The bank’s aim is to help grow Scotland’s economy in line with Scotland’s Economic Strategy.

Scottish Ministers will set out major priorities for the bank.

The bank will be both a public body and a public limited company (PLC). It’ll be independent from the Scottish Government. The bank’s board will set out how it intends to achieve the priorities set for it.

The bank should be up and running by 2020.

You can find out more in the Scottish Government document that explains the Bill.

Why the Bill was created

Businesses in Scotland often find it difficult to borrow money over a longer term (from 10 years). This is called ‘patient finance’. If they find it hard to borrow money, the economy cannot grow as easily.

The First Minister announced plans to set up a Scottish National Investment Bank in the Programme for Government 2017 to 2018. This was partly based on advice from the Council of Economic Advisers.

It said that national investment banks play a big part in supporting economic growth across Europe.

You can find out more in the Scottish Government document that explains the Bill.

The Scottish National Investment Bank Bill became an Act on 25 February 2020

Bill is at Introduced stage.

Introduced (27 February 2019)

Bill is at Stage 1 stage.

Stage 1 (26 September 2019)

Bill is at Stage 2 stage.

Stage 2 (19 November 2019)

Bill is at Stage 3 stage.

Stage 3 (21 January 2020)

Bill is at Act stage.

Act

Scottish National Investment Bank Bill as introduced

Related information from the Scottish Government on the Bill

Why the Bill is being proposed (Policy Memorandum)

Policy Memorandum Scottish National Investment Bank Bill Policy Memorandum Scottish National Investment Bank Bill

Explanation of the Bill (Explanatory Notes)

Explanatory Notes Scottish National Investment Bank Bill Explanatory Notes Scottish National Investment Bank Bill

How much the Bill is likely to cost (Financial Memorandum)

Financial Memorandum Scottish National Investment Bank Bill Financial Memorandum Scottish National Investment Bank Bill

Opinions on whether the Parliament has the power to make the law (Statements on Legislative Competence)

Statements on Legislative Competence Scottish National Investment Bank Bill Statements on Legislative Competence Scottish National Investment Bank Bill

Information on the powers the Bill gives the Scottish Government and others (Delegated Powers Memorandum)

Delegated Powers Memorandum Scottish National Investment Bank Bill Delegated Powers Memorandum Scottish National Investment Bank Bill

Scottish Parliament research on the Bill

Have your say

The deadline for sharing your views on this Bill has passed. Read the views that were given.

Committees involved in this Bill

Lead committee: Economy, Energy and Fair Work Committee

Delegated Powers and Law Reform Committee

Who examined the Bill

Each Bill is examined by a 'lead committee'. This is the committee that has the subject of the Bill in its remit.

It looks at everything to do with the Bill.

Other committees may look at certain parts of the Bill if it covers subjects they deal with.

Who spoke to the lead committee about the Bill

First meeting transcript

The Convener

Agenda item 2 is evidence taking from a number of witnesses on the Scottish National Investment Bank Bill. I welcome to the meeting our first panel: Benny Higgins, strategic adviser on the establishment of the Scottish national investment bank; and Paul Brewer and Alan McFarlane, former members of the advisory group on the implementation plan for the SNIB, as I think we will be shortening the name to. Thank you for coming in this morning.

First of all—and I think that these might be questions for Benny Higgins—what went into the development of the implementation plan? Have its 21 key recommendations been adequately reflected in the bill that is before Parliament?

Benny Higgins (Advisory Group on the Implementation Plan for a Scottish National Investment Bank)

On the first of your two questions, our reasonably large advisory group drew skills and experience from various parts of the Scottish economy and business sector. One of our key advisers was Mariana Mazzucato, whose work on mission-related patient capital investment was a key part of what we were pursuing.

More important, we had a very large number of sessions with different participants and actors across the ecosystem in Scotland. I personally sat through many dinners, breakfast meetings and other sessions that attracted a huge number of people and which ensured that we could listen very carefully to what people thought were the issues that needed to be tackled. As we went through the implementation plan process, we were able to start test driving some of our thoughts. That approach proved to be very successful and gave us a good understanding of the issues that people thought had to be tackled, and we have carried much of that process into where we are now.

As for the 21 key recommendations in the plan, all of them have been accepted. However, I am perhaps not best placed to talk about the details of the bill; others are probably more qualified in that respect, and I think that you have already heard from some of them. From my perspective, though, the approach chosen in the bill is relatively light, which means that it will not get in the way of implementing the recommendations. I would just point out that not all of the recommendations are covered in the bill, which is enabling legislation that will allow us to do everything that we need to do.

The Convener

Do the other two witnesses wish to comment?

Paul Brewer (Advisory Group on the Implementation Plan for a Scottish National Investment Bank)

I think that Benny Higgins has covered the matter very fully.

Alan McFarlane (Advisory Group on the Implementation Plan for a Scottish National Investment Bank)

The broad thrust of the group’s discussions is reflected in the bill, but, of course, the detail will be everything. No doubt some aspects of that will be the focus of the committee’s own discussions. Working through that detail will be critical.

The Convener

Thank you.

Dean Lockhart (Mid Scotland and Fife) (Con)

Good morning, panel. Other recent Government initiatives such as the Scottish growth scheme have made a supply of money and capital available to the economy, but uptake of those kinds of financing schemes has been insufficient, because of a lack of demand in the economy itself or an insufficient number of growing businesses to access the supply of finance and capital. Will that lack of demand continue to be an issue and, if so, how will the bank address it?

Paul Brewer

It is difficult to talk about supply and demand across the whole system of investment, because they vary a lot at different levels. You need different interventions at the microfinance level, where businesses are still developing their capacity to raise finance; indeed, often their understanding of what financiers are seeking requires to be developed before the finance can be raised. In comparison, with companies going into their second or third phases of financing, it will be a matter of investors looking very closely at their performance and products, investing larger amounts of money and taking greater risks.

If we can generalise broadly about Scotland, I would say that microfinance, business angels, the Scottish Investment Bank and so on compare very well with activities in any other jurisdiction that has them—Scotland is particularly strong on the angel investment network. However, once companies are getting into their second and third phases of growth, there are far fewer indigenous investors and companies have to look more widely for finance. That is not a bad thing in itself, but it means that those companies are competing in a much more crowded market.

Therefore, there are areas in which we need to stimulate demand or support companies to create demand that financiers will respond to, but there are other areas in which there are gaps, particularly for companies that are growing beyond the Scottish Investment Bank’s capability to invest and which are looking for larger sums.

Alan McFarlane

Your question touches on one of the reasons why it is fundamentally a good idea to form this type of institution. Making funds available for a particular period and expecting demand for those funds automatically to be there is not how life works; instead, we are talking about forming an entity that is here for the long term and which is demonstrably patient, evergreen and continuing.

One of the things that is very striking about the British Business Bank’s website is its recognition of having to make it clear to people what is available. It is great to have a programme at a particular time and hope for uptake, but there are no guarantees in that; having an enduring and continuing entity, which makes it its business to let everybody know that it is available, is a big step forward. Mr Lockhart is right that it would be great if there was more uptake, but I would not say that that damns anything.

Benny Higgins

Your question is very good. Obviously, a supply of capital does not solve anything unless there is sufficient demand.

I see the creation of the bank as doing more than adding an important new piece to the ecosystem in Scotland. There is also an opportunity for Scotland to use the bank as a catalyst for starting to unclutter the landscape and ensure that other parts of the apparatus—specifically Scottish Enterprise, Highlands and Islands Enterprise, the developing south of Scotland enterprise, other Government departments and various other bodies—work together properly. The next couple of years must be the time when we get all the pieces of apparatus working together in an uncluttered way. We have got to stop finding refuge in complexity and look for simplicity. There has got to be more effective collaboration than there has been.

We have a lot of strengths in Scotland—an obvious one is the university sector—but far too many of our great research projects that move into development get trapped at the micro capital level. That is because there is insufficient understanding of and support for how to use different kinds of finance equity and debt. The bank in itself will not solve demand—origination will come from some of the other parties that I mentioned—but we need to use the bank as a catalyst for resolving the issues. We have a great opportunity to do that; it would be a missed chance if we did not.

Dean Lockhart

That brings me on to the next question. You have touched on interaction with other agencies. The question of demand raises another issue. The bank will be a supplier of capital, but its reach can only go so far; getting the underlying stimulus, changing the culture and generating a more enterprising economy will need more than a supply of capital. How do you see that being done in order for the bank’s mission to be successful? How will that interaction with the other agencies work in practice? Will demand and origination still sit with Scottish Enterprise and the enterprise agencies? What part might the bank have in stimulating demand?

Benny Higgins

We are working very closely at project level. To an extent, we are running a shadow bank, using the resources that are available from the building Scotland fund and other pools of resource. The Scottish Investment Bank that exists as part of Scottish Enterprise will come across. Origination will take place, but not in the bank itself.

We need to distinguish between the small and medium-sized enterprise sector and the long-term patient capital projects that will be mission related. The bank will work more on the origination in relation to the mission-related projects, while SMEs will be covered by the existing agencies, principally, and Government departments.

As the committee probably knows, the British Business Bank basically funds funders. That ability will be open to the Scottish national investment bank, so some such funding will take place. However, we also want to ensure that the bank provides direct investment. The origination engine will be other parts of the apparatus, which is why we need to work closely.

We are working hand in glove with Scottish Enterprise, as we will be with HIE for the rest of this year. As Alan McFarlane said, the devil is in the detail. It is easy to say where origination lies and that we need to work hand in glove—that sounds straightforward—but we need to work out precisely how we do that; that is what we are doing. Steve Dunlop, who is the relatively new chief executive of Scottish Enterprise, has shown his commitment to ensuring that our working relationship and collaboration get us to the right place.

Alan McFarlane

I used to work for one of the predecessors of the proposed bank. I hope that the committee will find it useful to hear that this work rests on 40 or 50 years of experience. As some of you will know, we have had the Industrial and Commercial Finance Corporation—it is now called the 3i Group—which was partly owned by the Bank of England. There has also been the Scottish development fund, under the Scottish Development Agency. Before George Mathewson left the SDA, he brought in some people who were specialists in investing in small businesses.

Dean Lockhart mentioned demand. Demand in the early 1980s was affected by the rapidly changing economy, and a lot of it involved management buy-outs. Some people might remember the Carron steelworks at Falkirk, and Scottish Development Agency finance and the private sector were instrumental in helping to buy out at least three divisions. There are not many examples of that today. Demand is changing because of technology, marketing and some of the other industries in which we are active.

I think that Dean Lockhart’s question was how cyclical is the economy and how cyclical is demand, but I am afraid that I cannot help on those points. However, if we have a permanent institution, the likelihood of being able to match supply with demand rises. To this interested layman, it seems that the net effect of having a financial body that, ultimately, is not part of SE and which acts as a serious long-term investor will be good. It is highly likely that the bank will stimulate demand; the extent of that demand is the question.

Dean Lockhart

We can come back to the issue a bit later, because I do not want to hog the meeting, but my question was about structural issues, in relation to the missing middle. The committee has heard evidence that although we have many microbusinesses and a couple of very large businesses in Scotland, we need to scale up our support for the missing middle. The bank might be part of the answer, but it seems that a wider restructuring of the landscape is necessary in order to grow that missing middle. Perhaps we can come back to that issue later.

The Convener

Do any of the panellists want to comment now?

Paul Brewer

I would add only that Benny Higgins’s distinction between investment in the SME sector and the mission-oriented element is very important. In the areas on which the bank will focus in order to make a real difference to our economy, it will need to bring in considerable expertise and to work as part of the whole ecosystem. Whether it is in low carbon or digital and data—in which we have fantastic academic expertise—the bank will need to work with academia, existing businesses and other investors to bring in considerable expertise, so that Scotland is seen as a place with a fertile investment environment. That is a different environment from the environment that supports SMEs, so the bank will need expertise in both areas.

Gordon MacDonald (Edinburgh Pentlands) (SNP)

Over its first 10 years, the bank is to be capitalised with about £2 billion. What impact could that have on the Scottish economy?

10:15

Benny Higgins

I do not know the precise answer but, if we deploy £2 billion in the area of the market that has been referred to a number of times—in supporting the opportunity for SMEs to scale up—that can feed ambition. We need to have SMEs that are prepared to go from being microbusinesses to being more credible small businesses and then bigger businesses.

The hallmarks of successful economies in the 21st century will be focusing on carbon neutrality, automation, artificial intelligence and machine learning and responding to demographic changes. Scotland is well placed on some of that but not as well placed on other aspects. We have a good track record on renewables, but we have not industrialised the impact of what goes on in universities on data, robotics and automation, which is a great basis. As I said, the bank can play a part in opportunities to make such SMEs grow. On the demographic challenge, we start in a difficult place, because our demographic challenge is harder than the average. The bank needs to make contributions so that we are better placed.

The sum of £2 billion represents 1.3 per cent of gross domestic product; that is about in line with the figure for many national investment banks around Europe—particularly in smaller advanced nations, of which we must consider ourselves to be one—and is not unreasonable.

In the longer run, we will look at ways to leverage investment. Direct leverage would require a dispensation from the Treasury, but there are other ways of using the capital for leverage—through co-investment, guarantees and so on.

The impact is difficult to speculate on but, if we can manage to use putting £2 billion into the economy as the catalyst for getting the rest of the framework in place, it will give us a wonderful opportunity to make a big difference.

Gordon MacDonald

Will the £2 billion act as leverage for private investment in companies and other organisations?

Benny Higgins

One thing that is common is co-investment; that is what the Green Investment Bank did. There are many examples that encourage us about what the new bank will do. We have talked to such banks around the world—we visited KfW, we went to see the Irish bank and I will soon go to see the Finnish bank, which does similar things. We must look at and learn from other organisations.

Co-investment is one way in which we can create markets. The private sector’s risk appetite is such that it will not invest in some of the long-term mission-related projects, because of the timelines that are involved. We hope that an anchor investment from the Scottish national investment bank will encourage more investment. That is there to be played out.

Alan McFarlane

The money is not entirely incremental. A report last year from Scottish Enterprise, which I am sure it sent to the committee, showed that £538 million of deals were done in Scotland and that the figure has been on an upward trend since 2012. The sum of £2 billion is £200 million per annum over 10 years. I do not wish to disagree with the chair of the advisory group—Benny Higgins is right—but it could be argued that the denominator is not the £170 billion that is Scotland’s gross national product but 10 times that number.

To return to a question that Mr Lockhart asked, the approach could be significant if it is targeted, but it cannot be a blunderbuss. A key mission for the bank’s board of directors, when constituted, will be to work that out.

To take the point about the middle, let us assume that there is a group of companies in Scotland for which £10 million would be the appropriate financing. I will be clear about the leverage that we are talking about. Traditionally, leverage means borrowing money against your own balance sheet, but that is not intended for the bank—the bill explicitly forswears that. Leverage will therefore mean influencing others to behave differently from how they otherwise would have behaved. There is clear evidence from Scottish Enterprise that the Scottish Investment Bank has been quite good at that already, through the co-investment fund. That is a solid foundation for optimism.

However, if the bank provides only £10 million for each company, it would be supporting only 200 hundred companies and would be ignoring the mission-related stuff. If those companies were the missing middle and were constituted differently, that would represent great success. That is what I mean by the detail in the numbers; it is the ambition measured by the actual funds available.

That is another version of the question that was asked earlier: what do you get for your £2 billion and what will the impact be on the economy? I am not sure that I can do much better than the answer we gave earlier. We are working on what the bank’s key performance indicators should be. One has to remember that we have to get back to the national performance framework, which outlines what we are trying to achieve in Scotland. The bank should play its part in delivering that.

Royal assent will probably be received around this time next year. By that point, we will have a chair, a board and an executive team. We still have a lot of work to do and have to start to develop the key performance indicators. However, at this juncture, we are not trying to project the number of jobs or businesses that will be created. We know that we need to create more jobs and businesses in Scotland, and that we need to help the microcap companies to become midcap companies and the midcap companies to become bigger businesses. This is a great chance to make a big impact in that respect.

Angela Constance

To be clear, I am not asking you to look into your crystal ball. Bearing in mind that reasonably solid work has been done that demonstrates, for example, that every £100 million of capital investment can support 1,400 jobs, there must be some sort of modelling, projections or aspirations about the ballpark figures on job creation and supporting businesses.

Benny Higgins

We do not have those projections at the moment.

Paul Brewer

It is really important that our starting point does not put a huge short-term burden of expectation on the deployment of resources, because the bank’s whole purpose is to take a long-term view. When the bank is subject to regular scrutiny from ministers and their teams, and the periodic independent scrutiny that is proposed, it is important that there will be real thought about the balanced set of measures that will be looked at.

For example, with regard to jobs, it would probably be seen as a success if the bank in its early days funded another unicorn, such as a Skyscanner, yet that would lead to relatively few jobs. It would be a big economic success, and it would help the sector in which it operates to have high prominence and pull people into new jobs, but it would not create a lot of new jobs in itself. If the bank supported a more effective approach to care of the elderly through its investment, that would probably be likely to involve a high number of jobs per pound invested, because that sector is very people intensive.

The measures against which the bank will have to be accountable will have to cover quite a wide spread. If you were to start out with an expectation in the early days of such targets as jobs created, incremental GDP that has been generated or taxes put into the economy by the companies that are operating, for example, it would be difficult to target in a way that would be constructive to the bank’s mission for the first few years until you could see how it was delivering. On the other hand, you will have to have robust scrutiny to make sure that it is delivering.

Alan McFarlane

I will start with the annual report of SE and the Scottish Investment Bank, which I presume went through an auditor before it was published. It says that it invested £43.5 million in 2017-18 in 147 Scottish companies. This bank will have a run rate of £200 million per annum, so if we call it £50 million, that is roughly four times more. That is where the demand question will come in. Are the companies there? Patience will be a virtue. Based on the whole book, not that one year, SE claims that a £300 million portfolio—that is the only number that I can extract from its accounts that equates to asset value—led to turnover of £400 million, which would be a factor of 1.25. Therefore, if £2 billion went in and delivered 1.25, Scottish GDP would not be £175 billion but nearer £180 billion.

A significant proportion of that turnover was export, some of which would be export to the rest of the United Kingdom, which is 3,400 jobs. Therefore, SE’s numbers suggest that £88,000 of investment generates a job. I do not know whether that was its investment or leveraged via others, but the baseline must be the existing effort. The working assumption is that more is better, but it must be targeted, a propos the demand point.

Angela Constance

Okay; I thank you for that.

Alan McFarlane

You can thank SE for that.

Angela Constance

I am all for us having the courage to take a long-term view, as long as we are setting our ambitions high enough.

My final question is about something that I am sure the panel is well aware of, which is the good solid business case for getting more women into business. The committee has had a ream of evidence made available to it that addressing the gender balance and the number of women-led companies could have a positive impact, such as adding £13 billion to our gross value added. In the initial thinking about the bank’s strategic purpose, what consideration has been given to targeted endeavours that would see growth in the number of women who participate in business in Scotland?

10:30

Alan McFarlane

I think that that is just a given these days. It is the best people in the best jobs. There is no notion now that any candidate would be debarred from a job, let alone debarred from entrepreneurial backing, on the grounds of race, creed, colour or gender. I do not want to be dismissive—I completely agree with you—but much has been achieved and only more can be.

I am optimistic that some of the demand will come from all walks of Scotland’s population. If you are suggesting that a key element of the mandate should be that that is taken as a given, that would be a good thing. I am not implying that that notion is redundant but, in my day-to-day life, I do not see those barriers in any way operating any more.

Angela Constance

Organisations such as Scottish Women in Business and Women’s Enterprise Scotland are able to demonstrate that, quite often, women face a lot of additional barriers to accessing finance for their companies, and assumptions about the types of businesses that they lead. Do you think that, in order to increase the number of women in business, consideration should be given to having a strategic focus on women in business, bearing in mind that that should not just be about rebranding what has not already worked?

Alan McFarlane

Since that evidence exists, yes. We all work in different industries. Some are way more integrated than others and there may well be other areas that we wish were up with best practice. Since the evidence is clear, it would be great to put in the bank’s mandate that it should be open to all. Openness in society is one of those things that we hold dear. It would be even greater if the outturn was that way.

If you look at the British Business Bank’s reporting, it is very hot on that area—that is, who it invests with, its staff make-up and so on. All that I am trying to convey is that, in many parts of the economy, why would anyone deny themselves access to the very best talent?

Benny Higgins

I will pick up on that, to reinforce everything that Alan McFarlane has said. There will be a broader question of what ethical code the bank will pursue. As I have said a number of times already, we have the opportunity to use the bank as a catalyst to make a larger change than simply creating a greater supply of capital—that, in itself, is a good thing, but the bank is also a great opportunity for us to change things.

We will be setting out to make sure that the bank embraces diversity in its broadest sense. You need to remember that, apart from all the moral reasons for pursuing diversity, cognitive diversity makes institutions better. It is the right way forward—it has got to be—and we have to lay down some markers about how we want to go forward in Scotland.

Andy Wightman (Lothian) (Green)

Before I ask about governance, I will follow up Gordon MacDonald’s line of questioning on investment. It is my understanding that the capitalisation of the bank up until 2021 will be provided through financial transactions. The rules, which are set by HM Treasury, are that those transactions can be used only for the provision of loans or equity to the private sector. Paragraph 17 of the policy memorandum says:

“The Bank will lend solely to the private sector. It will not lend to public institutions including local authorities, government agencies or arms-length bodies.”

That is helpful. Thank you.

Much of the provision on the bank’s governance is set out in company law, which is overlaid by the statutory provisions in the bill. Parliament will also have a role. I want to ask about ownership. The bill makes it clear that ministers would be the only members of the bank. In Germany, for example, the Länder account for 20 per cent of the membership of that country’s national development bank, KfW. Is there a role for other bits of government—particularly local government—in the national investment bank? Have you thought about that?

Benny Higgins

We considered different models. We believe that the best way to serve the Scottish economy in the long run is to have clear and unequivocal ownership by the Scottish Government. We looked at alternatives, but we concluded that that is the best model.

Andy Wightman

Can you supply us with more information on your evaluation?

Benny Higgins

We can probably come back to the committee on that; we can certainly look out some of the papers that we considered. However, we had extensive conversations about ownership models, and we judged that a bank that is 100 per cent owned by the Scottish Government is the right answer.

Andy Wightman

Okay. Thanks.

Alan McFarlane

The obvious difference is that some Länder have populations of upwards of 5 million: we must look at the economic unit in which the bank will operate. The structure in the UK now is that the British Business Bank can operate in Scotland—it already has on its website a number of examples of Scotland-based companies that it supports. Therefore, I think that diversity—I think that you were implying diversity not only in ownership, but in operation generally—is quite well served.

We must also remember that a lot of the angel investment in Scotland comes, in essence, through the public purse, through tax relief. Therefore, I am content that there is a huge amount of diversity in public sector involvement across the SME sector’s activity in Scotland.

At this stage, an obvious suggestion might be that HIE, SE or others should have stakes. About 20 minutes ago, Benny Higgins commented on the benefits of focus: I consider that, for where we are now, those benefits outweigh the benefits of multiple ownership. I would never say never to multiple ownership, but today the argument is strongly in favour of a single point of ownership and contact.

Andy Wightman

I clarify that I was not suggesting multiple ownership or involvement of bodies such as Scottish Enterprise that are governed by Scottish ministers. My question was purely about local government.

Another part of the bank’s governance would be the so-called advisory group. It has been discussed, but it will not be on a statutory footing—the bill says nothing about it. The Royal Society of Edinburgh has advised against giving the body a significant role, and others have questioned what role it might play and whether there might be a clash with the role of the bank’s board. Will you elaborate on the thinking behind the proposal for an advisory board? If that board is to play a significant role, should it be set out in the bill?

Benny Higgins

I will start and my colleagues can perhaps join in. First, we must be very clear about the advisory group, and just take a step back. There will be a strategic framework, which I see as being an envelope within which the bank will operate; we seek to create an envelope that will allow the bank to be operationally independent. The bank will have a board and an executive team to pursue its aims within a risk appetite that would be set out in that envelope, but some reserved matters would go back to ministers.

The genesis of the advisory group was the belief—as we found when we talked to people—that it is important to have a voice that can advise ministers on the bank’s operation and how it is pursuing its strategy.

I am fully aware of the duties of directors, but the question is how effective they will be in terms of what is being set up.

Alan McFarlane

That goes back to the point that was made about the calibre of the folks whom you want to have to implement the project. In a sense, the greatest power is resignation. They must be people who are independent minded to the maximum amount, who agree with the principles that are being promoted, who agree with the work and who take responsibility for carrying it forward. They will receive the mandate from Scottish ministers and then say “We’ll get on with this, but we’re accountable.”

All that we are hearing is that disclosure by public companies now is getting ever bigger: disclosure on gender equality, on economic and environmental impacts and on pay disparity. I presume, but I might be wrong, that the new entity will be expected to report on the companies in which it invests. The best standards of disclosure now are extremely high, so anyone taking on the responsibility of signing that Companies Act document to say, “I will sign the annual report and accounts of this organisation” is—I repeat—undertaking to adhere to a degree of transparency that I understand is not currently available through the accounting models that are applied to Scottish Enterprise and similar public bodies.

At this juncture, it is important to understand that, fundamentally, the project is about building the capability to do the right thing for the Scottish economy. In about a month, I will visit the HIE board to talk through what we are doing and what opportunities there will be for HIE. We think that it is really important that the bank should have the opportunity to participate in investments across Scotland, so the agenda outside the central belt will be important. We are not yet in a phase in which we are executing that change, but it is clear that it is an important part of what we have to do.

Jamie Halcro Johnston

Angela Constance touched on the role of women and the need to make sure that the structure of the bank is such that it provides opportunities for women. How can you ensure that other aspects of diversity—I am thinking, in particular, of young people, small business owners, ethnic minorities and the third sector—will, as well as having been involved in the consultation, be represented in the bank’s future activities?

Benny Higgins

As Alan McFarlane, Paul Brewer and I said earlier, as we move forward, we have an important chance to make sure that all those areas get appropriate investment. We cannot imagine that the bank will solve every problem, but it will be a critically important additional piece of apparatus.

I come back to the point that the creation of the bank also provides an opportunity for us to ask how HIE, Scottish Enterprise, the new south of Scottish enterprise agency and Government departments can start to pull together in a different way to ensure that we tackle all the issues that have been mentioned.

The Deputy Convener (John Mason)

As you will gather, the convener has had to leave to attend another committee meeting, so I will convene the meeting temporarily. As Angela Constance has already asked her questions, we will move on to Jackie Baillie.

Jackie Baillie (Dumbarton) (Lab)

Evidence that has been given to the committee suggests that the mission approach will be complex to introduce and difficult to operate and evaluate. What is the panel’s view on that?

Benny Higgins

I do not agree with whoever said that.

Jackie Baillie

It was not you, clearly.

Benny Higgins

No, it was not.

There is an argument for us not having very many missions at the start. This might not be the best analogy but, this time next year, we want to give birth to a bank that will develop over the decades ahead of us. There are tectonic shifts taking place in the world economy, and they must be reflected in how we manage the Scottish economy. Carbon neutrality, automation and demographic change are the obvious candidates.

We therefore need to create a process that allows the Government to understand where the mission focus for the bank should be. That mission focus will change over time, and, as I have said, there is an argument for not having too many missions. Carbon neutrality is a very obvious focus and I think that, as we go through the process of deciding which issues to focus on, that will be one of them.

We have to ensure that, with the investments that we make, we find refuge in simplicity, not complexity, and in doing the right thing. The other issues that I have mentioned will be strong candidates, too, alongside, for example, social housing, which is an important part of what needs to be done in the Scottish economy. In all the businesses that I have been part of, we have tried to find simplicity as far as possible; it is easy to have complexity, which can often be a refuge, because it can be a place to hide in. We must not hide in complexity—we have to make big decisions, get them right and move on with a clear strategic focus. It is in our own hands to keep all this simple.

Paul Brewer

You always start with complexity when you are trying to prioritise limited resources in areas where there is huge scope to deploy them, but the determining missions for the bank will be incredibly important from two dimensions. The first is their relevance to achieving the national performance outcomes that you are aiming for, and the second is their effect in that respect. I agree with Benny Higgins that deciding what to prioritise might be difficult, but if you start with too many missions, you will probably underachieve in all of them.

I remember the Green Investment Bank causing great frustration in its early days over the things that it was not investing in. It did not invest in green technologies, for example, and it was very focused on investing in projects that brought technology into reality. That was probably the right decision in light of the effect that the bank had. It made a very significant difference at scale to the flow of finance into offshore wind, whereas many of the technologies that it was being strongly encouraged to support were part of a great span, many of which succeeded and many of which did not, and if it had put resources into those technologies, it would have drawn off a huge amount of its capability. The national investment bank will have only limited resources, and it will be effective only if it prioritises where it places them.

Alan McFarlane

Investment is about choice, but there are a lot of competing options. One difficulty is that the term “mission” is undefined—by which I mean not in the bill but in wider life. We have no common grasp of what we mean by it. Certainly, as Benny Higgins has indicated, there are a few commonly agreed missions without the term “mission” having been agreed.

It is slightly naughty, but I think that the best way of approaching this is to think about what you do not want to do. If there were, say, still a coal mine in Scotland, and it wanted to expand, would SNIB invest in it? If Ineos got the chance to frack, would you fund a community organisation that wanted that to happen? Obviously, some of those questions answer themselves, but then there are the more ticklish issues, such as oil supply. If somebody in Scotland made the best vaping cigarette, would you invest in that? My experience of ethically based investing and working with clients from all religious and philosophical backgrounds on how such an approach might be implemented is that such questions are generally problematic but individually usually much easier to deal with.

The British Business Bank has a very good mission and, when we frame the missions in Scotland, we could take some of the ambitions such as having a less carbon-intensive economy and indicate how those two aspects might interact. However, this matter must be left to the bank’s board and management to decide, because it will be their job to deal with the friction between optimism and the reality of what is available to be done and to turn that into wealth and job-generating businesses. It is the most patronising answer that I can give you, but it is absolutely true as far as day-to-day activity is concerned.

Jackie Baillie

So you would not put anything about the mission on the face of the bill, because you would want to retain the flexibility to deal with that over time. However, you have said that the whole thing needs to be owned by Parliament, too.

11:00

Alan McFarlane

It is a classic example of where the dialogue will occur through the annual report and accounts of the organisation, and the dialogue between its shareholder and the company that is created by those shares.

As Benny Higgins said, you start with one or two missions—all the consensus of all the consultation indicates that people are broadly behind that—and indicate how friction happens and where tension occurs between the Government will and the practice of the bank in its day-to-day investments. I am a great believer that friction creates heat but also light, and that that is the way to go forward.

You can start with, “If I ruled the world, it would be great if all this happened,” but we both know that it is not like that. Nonetheless, it would be appalling not to have high ambition at the outset. The question is how much ambition in what form, and how it hits the road between the board of directors, the executive and the shareholder.

Jackie Baillie

The objects in section 2 are subject to resolution. One would not anticipate the objects—however they end up—changing often, if at all. That is fair enough. The mission will be more flexible, and will be reviewed. Are you clear that that should not be subject to the same process?

Benny Higgins

I have no decision-making power.

Andy Wightman

I am asking for your view.

Benny Higgins

I am expressing my opinion that this makes perfect sense.

Andy Wightman

That is fine.

Alan McFarlane

Paragraph 11 of the financial memorandum, which is what I thought that Mr Wightman was talking about, although I now know that he is not, refers to the “mission-based approach” and highlights the vastness of the aim, which is

“to support transformational change across a number of ‘grand’ socio-economic challenges”

We should not set out to make hard-and-fast rules about that. The point is that the missions are the direction of travel to make sure that we do the right things in the economy. I mentioned earlier that we have been in dialogue with other national investment banks. We must be careful not to try and be like any one of them in particular, because the bank must be bespoke for our needs in Scotland. In particular, KfW is an interesting case study, but it has been around since after the second world war. It is a huge institution and it is probably not the best place for us to look for most of our learnings. There are better comparisons in other, similarly small, advanced economic nations.

It is inevitable that there will be examples of investments that we make that serve different missions, such as a crossover between carbon neutrality and automation. However, the purpose of the missions is to give us guide rails to allow the investment strategy to unfold within the operationally independent bank.

Paul Brewer

On that subject, the bank’s resources come in two forms: one is the capital and the other is the people. We absolutely need people who have the knowledge, experience and capability to have an impact through investing in the missions. I cannot anticipate what the bank will do, but I would be surprised if it makes hard allocations of capital between the missions, because it is about getting the maximum overall outcome. However, the people who bring the expertise to the missions will all speak to one another and, although the missions might overlap, I suspect that overlapping investment is unlikely to be an issue.

John Mason (Glasgow Shettleston) (SNP)

Now that the convener has returned, I will continue. Another word that has been used is “ethical”. That has been mentioned already this morning. The thought is that the bank will invest in an ethical way. However, the word “ethical” is difficult; at least, let us say that people understand different things by it. What do you understand by the bank investing in an ethical way?

Alan McFarlane

A good place to start is the principles for responsible investment, which the United Nations has promulgated across the investment industry. Those principles fit in with the UN sustainable development goals, which I am sure are very familiar to committee members. Then there are the ethics of upholding the law and the questions about openness and society.

To answer your earlier question, it is not possible to have a bank where there is a silo of carbon neutral, a silo of this and a silo of that. It ties in with the shareholder and client making clear the outcomes that they desire and saying, “Evidence your path towards those and evidence the manner in which you are conducting yourself.”

The classic example is that some religious traditions prohibit interest but others do not. Different religious traditions have different attitudes towards some health products. Investment people are familiar with dealing with the client’s mandate. If the Scottish ministers can say that the UN sustainable development goals are a really good, broad framework, plus some other things, that will help a lot to guide the board of the institution as to how to conduct itself.

John Mason

However, you can imagine someone standing up in Parliament and saying that the bank is claiming to be ethical but a particular decision is not ethical. Is the answer just that it will be reviewed at the end of the year?

Alan McFarlane

It is unanswerable, because we are dealing with axiomatic assumptions about ethics, not an investment question.

Benny Higgins

We will document an ethical code for the bank, so that will be documented. That will not prevent arguments about whether that code has been followed.

John Mason

That might be a topic that we will come back to. I will leave it for now.

To wrap up on some practical questions, one or two people have suggested that we have quite a tight timetable to get the legislation passed, get things into effect and get the board in place. Do you have feelings about that? Are you relaxed about where we are?

Benny Higgins

When I speak to all my colleagues who are involved in the project, there is an awareness that it is a tight timetable, but there is also a degree of confidence that we can push through. The first vote will be scheduled for September, the second will probably be in November and the final vote will be in March. In parallel with that voting schedule, state aid consideration will be going through. It is independent but not unrelated, so we are reasonably confident that the bill will get to royal assent by this time next year.

In parallel, we must build a bank, not just get a bill through. We must get the people involved and the business set up. We are going through detailed design authority meetings. The process of looking for a chair is just about to kick off. Finding a chair will unfold into finding the rest of the board, a chief executive and other senior executives. I do not take it for granted that that will be a straightforward process. Let us say that I am hopeful that, if we get going now, we can follow through and get it done in the schedule to which I have just referred. It is not easy. There are some unknowns. My concern is more about getting the right people, because the organisation or institution will ultimately be as good as the people who run it.

John Mason

Thank you very much.

The Convener (Gordon Lindhurst)

Thank you very much to all our panel for coming in today. I will now suspend the session to allow for a change of witnesses.

11:16 Meeting suspended.

11:22 On resuming—

The Convener

We move to the second panel on the Scottish National Investment Bank Bill. I ask members to declare any interests that they may have.

Angela Constance

In the interests of transparency, I declare that I am in the process of joining the board of Common Weal. It is a non-financial interest, but given that one of the witnesses is from that organisation, I thought that I should declare it.

The Convener

Thank you. I welcome Robin McAlpine, director of Common Weal; Eilidh Dickson, policy and parliamentary manager at Engender; and Ray Perman, who is a fellow of the Royal Society of Edinburgh.

The rationale of the bank is to improve Scotland’s innovation performance and to enhance the access of small and medium-sized enterprises to finance. What do the panel members think of that rationale? Also, are they satisfied with the objectives of the bank, as set out in section 2 of the bill?

Robin McAlpine (Common Weal)

We are happy with the bill. This project has been close to our hearts for a long time and we have been following it closely. I feel confident about how it has been taken forward.

The most important thing for me is that we avoid looking at it too much from the producer side. For example, the objectives are useful in outlining what the bank is going to do, but it must be demand led and we must encourage people to come forward. The objectives are broadly right; we just have to make sure that there is sufficient demand in Scotland to meet them. That is partly about signalling that the objectives are what the bank is looking to support.

All the way through, I have been quite clear that missions will change and adapt and must be interpreted openly as we go along. I would have liked to see a little more emphasis on lending to the public sector, assisting the finance of public infrastructure and working with local authorities, housing associations and others. In a couple of places, the current wording of the bill implies slightly more than I would have liked that the bank will be just an SME bank.

However, broadly, we are happy with the bill. As I said, the key thing is about stimulating demand, being helpful and flexible and developing the right suite of lending to ensure that demand comes forward and that it signals the kind of projects and work that we hope people will come forward with.

Eilidh Dickson (Engender)

We are slightly more concerned about the objects that are listed in the bill, not necessarily because there is anything wrong with them but because they focus primarily on the core economic aspects of the bank rather than the social wellbeing and environmental impact that the bank is supposed to have. The bank is supposed to be about doing something different and releasing untapped potential, but that does not translate into the objects as they are currently listed. We believe that, without an equality and non-discrimination objective, there will be no radical change in the way that things are currently done in the economic development field.

Ray Perman (Royal Society of Edinburgh)

Our position is set out in our written submission. We are broadly supportive of the bank’s objectives. We think that they should be clear. We disagree with Robin McAlpine on investment in infrastructure, because a decision was taken early on not to incorporate the Scottish Futures Trust, which deals with infrastructure, into the bank, so there should be a clear division between the two. The bank will not do any lending—although it is called a bank, it is an investor rather than a bank.

Broadly, we think that the objectives are clear, although we have reservations about the mission-led side of things. I agree with the point that Alan McFarlane made in the previous evidence session that the bank should start off with a single simple mission and maybe build on that later, rather than start with a weight of expectation that might be difficult to meet.

Dean Lockhart

I asked this question of the previous panel. We have had previous policies and initiatives from the Scottish Government to supply capital and finance to the Scottish economy but, as Robin McAlpine referred to, there has not been sufficient demand. The previous witnesses seemed to think that the bank can play a role in increasing demand, but I am not entirely convinced by that, because the bank will not originate or go out and find business; its job is to supply money to business that is found by other agencies. Overall, how can we stimulate demand for finance? How can other agencies deliver businesses to the bank so that the bank can finance them?

Ray Perman

You are absolutely right that, as Benny Higgins alluded to, the bank will not originate deals and will therefore have to work closely with those agencies and private sector bodies such as the commercial banks to bring people forward and stimulate demand to take up the capital. It is important that the bank makes links between the existing economic agencies and other stakeholders at the beginning.

I will give an example from the UK. I was chair of an advisory group to the department for business in London for eight years. In 2005, we set up an organisation called Capital for Enterprise to do the sort of things that the British Business Bank does now. Capital for Enterprise did not have a particularly grab-me name. It had a pretty high profile in the investment industry but, generally, among companies, it was an unknown quantity. Merely renaming it with a much clearer name as the British Business Bank—although the bank has now expanded its activities—gave it visibility, which was important. Just the publicity around renaming what is currently the Scottish Investment Bank as the Scottish national investment bank and then building on that foundation to expand it could have a positive effect.

11:30

Eilidh Dickson

I agree that there is some work to be done on awareness raising. There will be a role for the precursor funds in that regard.

I disagree that we should be looking at and building on what we already have, because the current structure of economic development in Scotland does not reach everybody. Ms Constance already referenced the potential GVA of women’s businesses in Scotland, and we know that that will not necessarily come from sectors that are prioritised in the Scottish Government’s economic growth strategy.

It also has to be about looking at other sectors, other ways of doing it and other types of business, and dismantling some of the additional barriers that are in place for people who are looking to access finance but who might not have a traditional business. They might be working in childcare or the care sector in a business without a huge amount of growth potential, so they might be discouraged even from seeking funding in the first place from the private and public actors that already exist.

Robin McAlpine

Early on, we were driven to develop the proposals through conversations with a lot of small and medium-sized businesses. One of the things that we came across again and again was that they were scared of banks—that may or may not be fair, but I think that there is a lot of fairness there—and saw them as predatory. It was a period in which a lot of small businesses had come out the wrong side of lending arrangements with banks. On top of that, we talked to other businesses that, in my eyes, had viable business proposals, but the lending horizons—the terms on which or periods for which the banks were willing to lend—were not conducive to encouraging those businesses to come forward.

It will be important to say, “This bank’s sole purpose is to support you—it is not a profit-generating bank and we are not going to extract profit. Our only purpose in existing is to help your business to grow and become better, and to be long-term partners with you.” Simply sending out that message will have a positive effect on a lot of businesses that are nervous about bank borrowing and are not coming forward for that reason. Those concerns are probably even stronger in the social enterprise and co-operatives sectors, which we should want to grow substantially in Scotland.

An important factor with regard to there being a fund here or a grant or pocket of money there is that the bank should be here in 100 years. It should become to Scotland what Germany’s national investment banks have become, which is a fundamental, permanent part of the German economy that people assume will always be there to support long-term development activity. As well as getting lending terms right, creating the right lending horizons for small businesses and making all those things work, the message that that is how we want the bank to work will build demand.

I genuinely believe that to be the case. We are already talking to people in small businesses and telling them that the bank and its opportunities are coming, and people are showing an interest. One of the most important things that the bank can say is that it will be a place where people can build their business over time, that it can be trusted, that it will work with businesses as a partner and that people should look again at ideas that they had in the past and were perhaps nervous to develop. That is the first and most important thing that the bank can do.

Dean Lockhart

We heard evidence from the previous panel that the bank’s investment policy will be merit based—that investment will be made on an individual, case-by-case basis and that there will not be pro rata distribution of investment around Scotland’s regions. Is that the right approach?

Ray Perman

It is absolutely the right approach. There is a danger in pro rata allocation. We saw that in the UK with the regional venture capital funds that were set up in the early 2000s along the lines that you suggest—that is, regions were given an allocation of money. Some regions ran out of money—they had more demand than supply—while other regions had a shortfall in demand. In one case—I think that it was the south-west of England—the costs of administering the fund were greater than the amount invested. The National Audit Office produced a coruscating report on the running of those funds.

The money should be held centrally, but it should go where the demand is. Stimulating demand in areas that have not traditionally come forward with investment propositions is a very important job, and it should be done, but just to arbitrarily allocate the money in advance of seeing the demand will, I think, be counterproductive.

Robin McAlpine

I agree. A theme that I will probably mention a couple of times is the bank sometimes being seen as a one-stop shop for fixing everything, when it will just be a source of funding. As such, it should be giving the right kinds of packages to the right kinds of projects. It will not invent or direct the projects, and it will not travel around the country saying, “We’re going to invest here.” It has to be demand driven. Getting different regions of Scotland to increase the demand pool is a different task, and it is a task for local authorities and the local arms of Scottish Enterprise.

As for lending, I accept that it is one thing at a time and that this will not happen quite yet, but we really do not want small businesses largely borrowing from a central bank in the centre of the town. We need a local banking network that creates the kind of support that small businesses need. If you are a hairdresser, you will need to cash up and therefore you will need a relationship with a good banking network. We would argue that we should not assume that every microbusiness will go to the Scottish national investment bank for lending purposes and that we could do with a better local banking network. We will be coming forward with proposals for a mutual or public local banking network not only to sustain banking services in the communities in Scotland that are losing such services but for the sole purpose of making it clear that having a long-term relationship with a nearby bank is the best solution for a lot of small businesses. The national investment bank can play a very important role in supporting and capitalising, but it cannot do everything.

I absolutely agree that Scotland has a problem with differentials of investment in different regions—indeed, I see that everywhere I go—and it is important for the bank to monitor in regional terms where its investment goes. However, it must be driven by demand, and if there is demand failure in a region—if people there are just not coming forward—that needs to be addressed by the rest of the public agencies that are supposed to be working in economic development. The bank has to lend on the basis of the business cases that are brought to it, and if they do not come, that will not be a failure on the part of the bank.

Eilidh Dickson

We do not have a position on whether the bank should take a regional approach, but one question that we would ask is: how will merit be assessed?

Gordon MacDonald

Before I ask my own questions, I want to go back to demand. The RSE’s 2014 report “The Supply of Growth Capital for Emerging High-Potential Companies in Scotland” says:

“Banking regulations have introduced more stringent risk criteria

and

”reduced access for small companies to conventional overdraft or term lending arrangements”,

which have

“had a significant effect on the capitalisation of early-stage companies.”

As a result,

“Growth aspirations have had to”

depend on

“equity investment.”

Is that the gap that the Scottish national investment bank is trying to fill? Are the criteria that were highlighted back in 2014 still applicable today, and, if so, are they suppressing demand?

Ray Perman

Gordon MacDonald

That is why I am taking the average of 3 per cent over four years.

Ray Perman

However, the two figures that you gave for the higher return may have been impacted by the fact that those particularly successful investments were sold that year. Other years may have a lower rate of return because there were not successful investments in that year.

Taking a longer-term view, the bank should aim to cover its cost of capital and its running costs but not to make an enhanced return, or it would not fulfil the expectations about taking risk or putting capital into areas that are currently undercapitalised.

Andy Wightman

I want to follow up Ray Perman’s point about loans. The bill makes it clear that the bank will be empowered to provide loans, but the question of how much the bank should make loans as opposed to investment is not covered anywhere. Your response to the first question about not making loans was your view, in effect, but do we have any indication of what is expected?

Ray Perman

Making loans is an expensive business if it is done on a micro scale, because the loans need to be processed and monitored and the money needs to be got back. I do not think that the bank will be set up to do that on any big scale. It cannot compete with the commercial banks and should not do so. I wholly take Robin McAlpine’s point that commercial banks have not done themselves any favours by how they have behaved, particularly towards small businesses, and in their activities generally over the past 10 or 20 years. However, expecting the Scottish national investment bank to replace bank lending is unrealistic.

The bank could make a difference in specific areas of lending in which there is deficiency at the moment. I have given the example of the Scottish growth fund, which is essentially a mezzanine fund—it makes loans, but in specific cases for growing companies. That has been quite successful and the Scottish national investment bank might want to build on that example.

Robin McAlpine

May I come in on that point? The world is filled with countries that have large mutual banking networks—the hard private commercial banking model in the UK has done nothing but create risk and massive profits and all sorts of problems. It was said that the banks have not done themselves any favours; some of the commercial banks have acted criminally in the past 15 years.

It is important to have a sense of scale. The bank will not transfer everything straight away. It will have £2 billion over 10 years, which will not change everything. I emphasise that this is the first step in creating an institution that should exist for many generations, as far as I am concerned. We should be more open minded about where it will go to; we may have a quite different lending framework in the future.

On the point about equity versus loans, I agree that microbusinesses and even most small businesses benefit from being near their banking and being close to people. One of the biggest failures in the banking network is the breaking of the long-term relationship between small businesses and the lending managers by a lot of banks. Those supportive and positive relationships helped small businesses to grow, but they are losing trust because of what they have read about how the banks operate.

The first thing to say is that the Scottish national investment bank is a bank, and it must operate like a commercial bank—I have said this over and over. If it starts to subsidise loan rates to below something that looks broadly like a fair market, it will get into trouble with European Union competition laws, so it cannot heavily subsidise interest rates to increase or decrease rates of return.

However, the bank could create a suite of lending and equity investment packages that are tailored to the demand that comes forward. For example, a housing association or a small community housing project might wish to borrow—if it can—mortgage style over 30 years; it would find that quite difficult to do with the existing commercial banks. We have modelled that costing; the Scottish national investment bank could lend over 30 years at rates that would comfortably come in under European competition rule problems but would enable mass public rental house building in Scotland, not by subsiding but by offering different forms of loans.

The bank could give other kinds of loan—there are examples—when it thought that, for example, a medium-sized business had a solid business proposal. If it recognised that the business’s investment was to be heavy and the time that it would take for the business to grow such that it got the returns might be a little longer, the bank could provide a phased package in which loan repayments started a bit lower and climbed over the relationship period.

On gender, the bank might very well give weight to certain public goods—for example, if it wanted more enterprises to be led by women. It might give a slight weighting to enterprises that did certain things that were particularly good for the economy. However, the loans must be commercial and the behaviour must still be roughly in line with the broad market.

The most important thing will be that the bank listens incredibly carefully to its customers and potential customers. It must arrange its lending or its equity into packages that are best suited to the enterprises and projects that it lends to. Once it does that, it will compete not by being cheaper but by being better and more aligned to the businesses’ needs. The bank should be intended to maximise not profit but development; that is where the value will come from.

Andy Wightman

Robin McAlpine touched on a point that I raised with the previous panel. Benny Higgins made it clear that the bank will not be prohibited from lending to the public sector, but it is not expected to do so. That view is probably predicated on the idea of lending to existing public organisations, such as local authorities. However, there are state-owned enterprises, such as Sweden’s Vattenfall, that have been around for 100 years, so the idea that we will not fund enterprises that are designed to transform the energy system, for example, just because of the ownership model seems strange. In the private sector, we have one of the biggest forms of patient capital—pension funds, which play a huge role in investing in housing across Europe. What are the panel’s views on the scope for and role of the bank to invest in public-led enterprise?

Robin McAlpine

I reiterate that there is a big opportunity. The public sector is a reliable and stable repayer of its loans. I promise that I am not applying to run a bank but, if I did, one of the first things that I would look at is the enormous scope for patient lending to public house building in Scotland. I repeat that we have costed that; with borrowing over 30 years, high-specification houses could be built and rented at below market rates, without public subsidy.

I am very happy with the bill. It is broadly fine, but it might need a few tweaks. We did not make an awful lot of comments about the bill, and I have a high degree of confidence in the team that is doing the building work. We are very relaxed about the bill, because I think that the work is going well.

However, we would definitely have gone further on governance. When we wrote down our first proposals, the dotted line from the advisory group did not go to the ministers but went straight to the board, and I would still like that change to be made. The group should be advisory, not instructive. Although the ministers will be the shareholders, the bank will be a limited company, so the board will have all the legal responsibility for the successful operation of the company. The minister will be able to fire the board if they are not happy, but they will not be a member of the bank’s governing executive.

That is a wide range of views. Jackie Baillie, did you have a follow-up question?

It is almost certainly legally necessary that the bank has a mission. We did the original proposals on this, and one of the most significant barriers that you have got to get over is European Union competition laws. One of the three ways that the bank will get round those competition laws is to be mission driven rather than profit driven. If it is not mission driven, it will appear profit driven, and that will be more problematic in Europe. Saying explicitly that the bank must be mission driven is part of the structural set-up that enables it to take a unique place in the marketplace. As a result, that is essential and necessary.

My key concern is that we do not mistake being mission driven for simply asking, “Have you made Scotland carbon neutral yet?” It should be about things that move us in the direction of the mission, not necessarily about things that achieve it. I absolutely take the point about not loading the bank with missions and expecting it to do everything, but what if it says, “We want to invest in green energy and in women-led enterprises, and we want to anchor businesses in Scotland”? The last is something that I see as a mission, because the fact is that we have too many successful businesses that grow to a certain scale and sell out, and then the intellectual property moves abroad. One mission, therefore, should be to anchor medium-sized and growing enterprises in Scotland.

The point is that the bank can have multiple missions, just as long as no one is pretending that it is supposed to achieve and complete them by some given deadline. I think that it is capable of following more than one mission at a time in its lending decisions, but it is not the Scottish Government—it is not meant to change everything all by itself. I am quite relaxed about how the term “mission” should be interpreted, and the bank should be, too, and I really hope that politicians give it some leeway and do not attack every lending decision when it starts to make them. After all, not every decision will make every person happy.

Eilidh Dickson

We support the mission-driven approach, but we are slightly concerned that that approach has not yet been sufficiently articulated. It is not clear what a mission would look like, how long its lifespan would be, the technicalities of it, what would happen if multiple missions overlapped or contradicted each other and so on. Even the process for recalling them is not set out in the bill or, indeed, in the policy memorandum, and some work needs to be done to ensure that we all know what is being talked about.

The success of any missions specifically for women depends on how gender can be mainstreamed into the process, which is another reason for articulating the process better. We have recommended that the bill include an equality and non-discrimination element and that the mission process refers to the core objects to ensure that everything is singing from the same hymn sheet. If that does not happen, we might, in responding to a mission, end up with the objects falling by the wayside or with a concentration on the SME or lending elements of the bank’s decision making instead of on the large-scale challenges.

Jackie Baillie

I am curious as to whether you think that some of the missions should be set out in the bill, or included in the strategic framework in order to give ministers and the bank flexibility. After all, some of the big, strategic core objects can get lost if they are not fed right through the process. Perhaps the missions are one level removed from that—I do not know—but the issue that we are grappling with is what should or should not be in the bill.

Ray Perman

We would be more comfortable with their being in the strategic framework, rather than in the bill.

Eilidh Dickson

If missions are supposed to be medium to long-term challenges but not permanent aspects of the bank’s development work, they should probably be set out in the strategic framework, but the process needs to be articulated.

Robin McAlpine

If the bank is going to be here 100 years from now, I hope to goodness that we will still not be sitting here, saying, “Let’s try to get women an equal place in the workplace.” I assume that the missions will change, and I do not think that you will want to change them by having to put in place primary legislation that amends the bill. The bill should mention public good very broadly, but what that will mean for any given generation will, I think, change.

Jackie Baillie

It is safe to say that neither you nor I will be here in 100 years’ time.

Finally, to wrap this up, I note that Robin McAlpine has talked about public good. I do not know whether you saw that I explored with our previous panel of witnesses how they would assess that sort of thing. Assessing social costs and benefits is, for me, at the heart of economic appraisal, but I have to say that I was not convinced by the answers that I heard. For example, there has been no discussion of substance about the Treasury’s approach through the green book. How are we going to measure some of this stuff in order to decide where to invest? Have you provided any information to the Government on that?

Robin McAlpine

In our original work, we conceived of this as a bank that would look in many regards like a commercial bank, which would mean that people would come to it with requests for equity investment or loans, and we suggested that each request be assessed against broad mission statements about what the public good was. If, for example, providing more affordable and high-quality public rental housing was in the public good, something that moved in that direction would meet that goal.

We suggested that the bank should be reasonably subtle about it and say that those things would give additional weighting. I absolutely agree that missions will conflict. It would be nice if everything was endlessly neat and tidy, but it is not; there will be occasions on which an encouraging, developing Scottish business will source a product from a place that we would prefer to be a little more ethical.

12:15

I do not think that the bank should say, “You are a great Scottish business that is growing and creating genuinely high-quality jobs, and broadly you are doing public good, but there’s this one part of your business that isn’t, and until you do X or Y we are not going to lend to you.” That would be a mistake. That is why I say that we need a little bit of leeway, and that in conversations with people that the bank is lending to, it should say, “Okay, we will lend to you but could you look at your procurement of that element of your business, because, in time, we think that that will be seen as a strong negative against your enterprise.” I do not think that the bank should be saying, “Until you source only ethical cotton for whatever you are doing, we will definitely not lend to you.”

That is my view; people need a degree of leeway. We thought that the best option would be to give additional weightings to enterprises that meet certain types of goal. For example, one might say that in an absolute head-to-head, a woman-led enterprise might be given a little more weighting than an alternative bid that looked almost identical in every other way. Rather than being dogmatic about it, the bank says, “We incline more to lend to your enterprise, the more we judge it to be hitting our missions,” rather than “Here’s a tick box. You’ve crossed the threshold. You now qualify.”

Ray Perman

The short answer is that we have not given much thought to that at the moment. The committee will be aware that Scottish Enterprise and the Scottish Investment Bank have a methodology for gauging impact. Social Investment Scotland, which Jackie Baillie set up when she was communities minister 20 years ago, has a different but good and thorough methodology. It is important that the bank consults widely on the methodology that it is going to use and collects and monitors the figures in order to give an indication of the impact of the investments that it makes.

Eilidh Dickson

Part of the success of the bank will be the extent to which it can mainstream gender into all of its activities, not just through the recipients of the finance. I talked about the wider impact that treating care as infrastructure investment could give us. That is not just good practice; that is a legal requirement that the bank will face. Data will be a key part of that, and we know that the current actors are not great at collecting, publishing and disaggregating their data. The bank will have to work on that very quickly, as part of its monitoring criteria.

There is good practice. The Scottish Government is working on a gender index as part of its alignment with the European gender equality index from the European Institute for Gender Equality. It would be good if that piece of work could align with those metrics in some way, and more generally.

The Convener

We have very brief follow-up questions from Andy Wightman and then Angela Constance.

Andy Wightman

On the question of the mission in section 11, it is not intended that the mission-setting process or the mission itself should be subject to a resolution of Parliament. Do you think that Parliament having a role in agreeing those would add to or hinder the process? Should there be parliamentary scrutiny of the mission or should it be left to ministers?

Ray Perman

The RSE has not made a statement on that, but personally, I think that it would enhance the credibility of the missions if there were a resolution of Parliament behind them.

Robin McAlpine

I agree. The missions will not be changed on an annual basis—we are probably looking at five-year time frames. I cannot see that taking the missions through Parliament once every five years would add a lot to the process. The missions would have to align to Government objectives and, inevitably, governments and strategic objectives will change. I am a fan of democracy; if the Parliament gets behind the missions, that would be a good thing.

Andy Wightman

I have a brief question on equalities if there is time, convener.

The Convener

We will move on to Angela Constance and come back to that if we have time.

Angela Constance

I have a few questions for Ms Dickson.

Tapping into all the talents is not just the right thing to do, it is the smart thing to do for businesses and our economy, so I want to pick up on some aspects of Engender’s written submission. You can correct me if I am wrong, but my impression is that you feel that the equality impact assessment was a bit of an afterthought.

Eilidh Dickson

We have pretty major concerns about the equality impact assessment for the bill, not least that it is not formatted like an equality impact assessment. An impact assessment should be a process for gender mainstreaming, as we were discussing earlier. It is not just a bureaucratic, tick-box exercise.

The idea is that the policy is articulated, research is done, and changes are seen as a result of applying the information that has been garnered. We had two consultation processes, an implementation plan and several announcements before the equality impact assessment was even published, and that was alongside the bill as already drafted. There is very little evidence that the equality impact assessment has informed any aspects of the bill. We see no reference to equality or the securing of equality intentions in the bill as it is drafted.

I should also say that the equality impact assessment that was published does not cover all the protected characteristics. It covers only two, and even then, it is in particularly niche strands of the bank’s activities and not the wider economic impact that I have talked about a bit.

We are pretty convinced that, in order to meet even the basic legal requirements set out in Equality and Human Rights Commission guidance, the equality impact assessment will have to be redeveloped. The missing sections will have to be added and the whole process of analysis will have to be redone.

Angela Constance

Obviously this committee’s role is to raise that with the Government, as appropriate. Do you have any on-going involvement with the Government to get the equality impact assessment into shape?

Eilidh Dickson

We are speaking to officials about that.

Angela Constance

Thank you. You also spoke about anchoring in the bill’s core purpose and principles a meaningful commitment to equality, and that being referenced back into the strategic framework and the approach taken by the missions. Where do you think there has been a lack of consideration of that in the work that was done to design the bank and in the bill, which could be improved on?

Eilidh Dickson

We responded to both of the Government’s consultations on the bill—the recent one and the initial consultation, back in 2017, which was before I started working at Engender. However, that work was done across the women’s sector.

As consulted on, the implementation plan had a much broader intention, which seemed to find its way into the consultation on the bank’s social role. It does not speak specifically about gender, but there was a notion that the bank’s vision should be about untapped potential, responding to climate change and some of the other big social issues that Scotland faces at this time. That does not necessarily seem to agree with the bill. As I have already said, the bank’s objects focus narrowly on the economic aspects of the bank’s work. To some extent, that is understandable, but we have lost that wider vision of how all the different policy areas interact and should interact when the bank is in operation.

The bill will be strengthened by having that purpose or vision, and we have recommended how it could be further strengthened. We need something that entrenches why we are doing this, why we need something radically different and why we are not just returning to the same actors and making tweaks around the edges.

I have also made recommendations that relate to the bank’s objects. Equality and non-discrimination are not included in the bill, and that does not translate through to meaningful action. The EQIA is a pretty good example of how the public sector equality duty has worked only so much.

Close the Gap has done some excellent work on compliance with the public sector equality duty. Having a legal duty for the bank will keep it at the top of everyone’s mind and will allow for the underpinning of the development work that will have to straddle all the bank’s different activities in the future.

Angela Constance

You touched on methodology issues such as how assessments and measurements are done and your understanding of merit. Will you say a bit more about how, in a practical sense, diversity and merit are two sides of the same coin that do not necessarily pull apart from one another like polar opposites?

Eilidh Dickson

Sure. If we were to start from the basis that everything is currently merit based, as the previous panel hopes is the case, we would not be in the situation that only 28 per cent of public executive directors are women. The figure should not be as low as that—it is just over a quarter. We have a wealth of evidence, some of which I refer to in our written submission, on the ways in which equality is good for growth, but the reverse is not necessarily always true.

I do not know whether that answers your question. Perhaps I have not picked up on the avenue of thought that you would like me to expand on.

Angela Constance

I was keen to give you the opportunity to pick up on some of the issues that were raised earlier. However, I am conscious of time, convener, and, in the interests of equality, I am also keen to hear from the men on the panel.

Robin McAlpine

I have no disagreement with that, and I defer on the legal aspects.

In the long term, we must use the full power of Government and all its agencies to tackle the issues. What worries me and makes me a little nervous—this coming from a leftie like me—is that people might think that the national investment bank can fix those issues on its own. It cannot—it will be a source of funding. It can fund in a way that is more conducive to addressing the issues, but it cannot fix them on its own. Those are perfectly reasonable suggestions about how it can do it better. The only thing that has worried me in its development is people saying, “Great—now we’ve got a national investment bank, that’s Scotland decarbonised and gender equal.” No—we have a source of finance that is more conducive to making those things happen, but we cannot take our foot off the pedal on any of the other issues.

Ray Perman

I do not dissent from anything that Eilidh Dickson said. I certainly agree with the point that, if something is in legislation, it gets done, and, if it is not in legislation, it often gets overlooked.

John Mason

I would like to press a little bit more on some aspects that we have touched on.

On the balance between the objects and missions, the objects include

“investing in inclusive and sustainable economic growth”,

which is pretty vague. The Conservatives might take that as meaning, “Focus on the economy and throw away the environment,” while the Greens might take it as, “Focus on the environment and throw away the economy.” Do we need something a bit more specific in the bill? We hope that it will go through all the political cycles and remain fairly consistent. Are you convinced that we need no more detail in the bill?

Eilidh Dickson

Inclusive growth is referred to a lot, appearing in the economic strategy and other related policy frameworks, but it has not been defined. There is an Organisation for Economic Co-operation and Development definition that is sometimes relied on, but there is no sense yet that we have a clear direction for what we mean when we talk about inclusive growth. Do we mean “everything”? Do we mean “everything” sometimes? Do we mean “gender” sometimes? Do we mean “placemaking” sometimes? “Inclusive growth” is not sufficient in itself to guide that kind of work.

John Mason

Can we rely on what comes below the bill to look after that, or should we have a bit more about it in the bill?

Eilidh Dickson

We should place the social and environmental impacts that the bank could have in the legislation, otherwise who is to say whether it will still deliver them in 10 years’ time?

John Mason

Mr McAlpine, you seem relaxed about not having too much in the bill.

Robin McAlpine

Yes. The recommendation of the Committee on Climate Change has the word “growth” in it, but, in 100 years, we will not still be growing in the way that we are growing now. I could take up that issue.

I will put it simply: we could have a lengthy national debate about the meaning of the public good now or later, or we could do both. This is an autopilot thing. We will not find a perfect definition that will last for the next 100 years, so we can press the button and go on. I am relaxed about this because—Eilidh Dickson is right—different Governments will have different interpretations, and the definition will change. Such is democracy.

12:30

With the governance structures and the instruction that the bank is arm’s-length and has a long-term horizon, I am currently reasonably reassured and relaxed that the bank has enough leeway to respond to changing political imperatives while maintaining a more long-term strategy, which the bank itself will set.

I would love to come up with some sort of proposal that would create a set of objectives and missions that would be agreed on by everybody for the next 30 years, but that is not realistic. There will be an on-going negotiation, which I think is healthy.

Personally, I am caught between the fact that putting more on the face of the bill now may restrict what the bank does and the fact that putting less on the face of the bill now may mean that it does less to maintain the public good benefit of the bank that I might like to see. I do not think that there is a final answer to that. As I said, it is a political negotiation for today, tomorrow and the day after that as well.

John Mason

I understand that the Royal Society of Edinburgh is very strong on the idea that there should be just one mission to start with.

I asked the previous panel whether it is the case that the missions are all quite distinct from each other and that we should consider them separately or whether it is more the case that they all overlap with each other. For example, a couple of the German bank’s missions are climate change and environment and globalisation and technological progress, which I see as very much overlapping. How strongly do you feel that there should be only one mission? My fear is that we would concentrate on the low-carbon economy and ignore inclusive growth, thereby getting the balance wrong.

Ray Perman

You are right that all those missions are important and universal, and that there is a tremendous amount of overlap. I go back to your earlier point that the bill should not be prescriptive and that the missions should be set in the strategic framework and reviewed from time to time. The basic mission of getting more investment into companies and more economic growth—however we define that—in Scotland is the right single mission to start with. To overlay on that mission the transition to a low-carbon economy and the amelioration of the effects of an ageing workforce and other missions would be to load too much on to the bank in its early stages. We should start simple and see how we get on.

John Mason

You are arguing not that we should just forget about those issues but that they should be put on the back burner or to the back of our minds, or something like that.

Ray Perman

I am certainly not arguing that we should forget them, because they are very important. I might be arguing that they are so important that we ought to give additional thought to how they could be achieved. However, expecting a new institution to do all of those things from day 1 is probably unrealistic.

John Mason

That is a fair point, and it touches on timescales. My final question is whether the timescales are realistic for setting up the bank, getting people in place and ensuring that the board is properly representative.

Ray Perman

We are not close to the detail in the way that the previous panel was. However, Benny Higgins seemed to be fairly relaxed about the timescale, and we must take the view that he is right and that the bank can be set up in that time.

The Convener

I thank our panel very much for coming in today. We will now move into private session.

12:34 Meeting continued in private until 12:54.

7 May 2019

Second meeting transcript

The Convener (Gordon Lindhurst)

Good morning and welcome to the 16th meeting in 2019 of the Economy, Energy and Fair Work Committee. I ask everyone to turn electronic devices to silent mode. We have received apologies from committee member Jamie Halcro Johnston.

Agenda item 1 is a videoconference on the Scottish National Investment Bank Bill with Professor Mariana Mazzucato, who is director of the institute for innovation and public purpose at University College London, and is a member of the Scottish Government’s Council of Economic Advisers; and Laurie Macfarlane, who is head of patient finance at the institute. I welcome both of you.

I will start with a question to Professor Mazzucato. You have been involved in the Scottish Government’s Council of Economic Advisers and the implementation plan advisory group. Are you satisfied that all 21 recommendations of the implementation plan have been adequately reflected in the Scottish National Investment Bank Bill?

Professor Mariana Mazzucato (University College London)

To be extremely frank, I am not as familiar with the bill as I probably should be, but I am quite satisfied with the process that has been followed. We have just been in Scotland, where we did a masterclass on the bank. We spoke especially about issues that arise when one has a mission-oriented public bank, as opposed to a normal public bank. There are many public banks in the world, and many of those are part of the problem rather than part of the solution; they end up being just handout machines. We must therefore ask how missions are set and how the full power of Government instruments—from procurement to grants—can be used in fuelling multiple solutions to achieve a mission.

Scotland is very well set to have a mission-oriented bank because things such as the national performance framework are in place, which can be very important in devising the metrics to know whether the bank is doing its job over time. Metrics on additionality are needed to ensure that the bank is making things happen that otherwise would not have happened, as opposed to its simply taking the place of the private sector when that sector is not doing its job.

Laurie Macfarlane (University College London)

Obviously, the implementation plan recommendations cover many areas, including the setting up of the institution and what it will do once it has been set up. Naturally, we would not necessarily expect to see everything that is in the implementation plan included in the bill that will establish the institution.

The Convener

The committee has received submissions on the bill. Andy Wightman has questions about some points that have been raised in them.

Andy Wightman (Lothian) (Green)

Welcome to the meeting.

As Laurie Macfarlane has rightly said, the implementation plan is about establishment and development of the bank, but we are considering the bill. Section 2 of the bill is entitled “The Bank’s objects”. People have said to us that the objects are too vague. For example, section 2 says:

“the Bank’s main object is giving financial assistance to commercial activities for the purpose of promoting or sustaining economic development or employment in Scotland.”

Should that be the bank’s main objective? I refer to the word “commercial”, in particular. I am aware of Professor Mazzucato’s work in the area. A lot of investment by the state has been in things that later became commercial, rather than in commercial things. Do you have any comments on the bank’s objects, as set out in the bill?

Professor Mazzucato

Yes—when we were on a panel there were questions on that from the audience, and that was the reply that was given. We encourage that approach: it makes sense that the public sector should not lend to the public sector, because financing can be done through transfers between departments. It is important to use the bank to provide patient, long-term, committed and mission-oriented finance to private sector organisations and to third sector institutions, such as social enterprises.

In the modern age, many global problems, including the energy challenge and the health challenge, are being invested in through philanthropy, by public institutions, by private institutions and by civil society organisations. That is what is needed—fuelling of multiple solutions to problems, by different actors. We call it a cross-sectoral, cross-disciplinary, cross-actor investment process. I encourage the committee to keep provoking on that point.

Jackie Baillie

Absolutely. For example, we have been talking closely with your organisation CivTech. It is interesting, because it is all about thinking about how the structure of the welfare state can be a funnel through which innovation happens. Currently, there is a myth that the silicon valley part of a country—whether it is a silicon valley, a silicon roundabout or whatever—is where wealth and value are created, and that wealth is then handed out to citizens through the welfare state, redistribution through taxation or just a hand-out to citizens.

The idea is to make Scotland an interesting laboratory for re-imagining healthcare and for thinking about achieving sustainable cities and regions. That would become the funnel through which innovation would happen. There would be no dichotomy between the welfare state and innovation—they would be brought together. My perception is that Scotland is having really interesting conversations about that. I would scale up those conversations so that they become one of the ways in which the missions are set and managed.

Gordon MacDonald (Edinburgh Pentlands) (SNP)

The bank will be funded by investment of £200 million a year by the Scottish Government. How does that level of capitalisation compare with that of other development banks in the UK—the Development Bank of Wales and the British Business Bank?

Professor Mazzucato

You have recommended that investment be made in an ethical way. What do you mean by that?

Professor Mazzucato

The Convener

I am sorry—do you want to make one last point?

Professor Mazzucato

The bank is a wonderful experiment in Scotland, to see precisely what it would be like to transform our imagination of what the public sector is for.

The Convener

Thank you very much, Professor Mazzucato and Laurie Macfarlane. That concludes the session.

14 May 2019

Third meeting transcript

The Convener

Agenda item 2 is continuation of our stage 1 consideration of the Scottish National Investment Bank Bill. I welcome to the meeting our first panel this morning: Professor Lynne Cadenhead, chair, Women’s Enterprise Scotland; Linda Hanna, managing director, Scottish economic development, Scottish Enterprise; and David Alexander, chief executive and co-founder, Mydex CIC. To those who have not given evidence before, I point out that the microphones are operated by the sound desk, so there is no need to press any buttons. If, as the discussion develops, you wish to come in on a question, please indicate as much by raising your hand.

I will move on to the first question. Some of the submissions that we have received express the view that the broad mandate set out in the bill under the bank’s main and ancillary objects fails to enshrine either the Scottish Government’s vision for the bank, as set out in its implementation plan, or the socioeconomic and environmental objectives that were expected from the consultation process. Do you share that view? Are you satisfied with the objects that are set out in the bill, or do you think that they are somewhat vague and open to interpretation?

David Alexander (Mydex CIC)

We think that an opportunity has been missed as far as the objects are concerned. The vision was set out very clearly but, unfortunately, as we see in so many walks of life, plans and visions are sometimes not implemented, and an opportunity gets missed.

I think that the objects need to be tighter and more explicit about what the intention is. If that does not happen, it might leave the bank open to failing to achieve its mission and vision. I have some thoughts on what the bill should say in that respect, if the committee would be interested in hearing them.

The Convener

Do you want to give us just an indication? Obviously, witnesses can write to the committee after an evidence session if they wish to add to their evidence.

David Alexander

It is very straightforward: the main object of the bank should be to provide capital, including long-term or patient capital, to enterprises that support and enable the achievement of ministers’ mission of achieving sustainable and inclusive social and economic benefits. At the moment, I do not think that the bill says that or supports that aim.

Patient capital means equity investments as well as loans. There is enough of a commercial loans market out there, but we are talking about significant infrastructure investments in both the digital economy and the physical economy. The Scottish national investment bank presents a massive opportunity to underpin and support that work, but that is not set out in the bill at the moment.

The Convener

Do any of the other panel members wish to comment?

Professor Lynne Cadenhead (Women's Enterprise Scotland)

There is a sense in the early-stage investment community that there is a lack of clarity in what it is proposed that the bank should do. We are particularly concerned about the bank’s ability to fund females in business and about there being a focused opportunity to fund female entrepreneurs. We are in discussions with people who are involved with the Scottish national investment bank, and they are very open and willing to having further conversations, but there is still a little bit of work to do in that respect.

Linda Hanna (Scottish Enterprise)

With regard to what the bank is being set up for and what is required in the economy, we can see that the bill adds to what needs to be done. The reference to

“inclusive and sustainable economic growth”

in the objects and the focus on getting more finance into the system are absolutely needed and will help some of our ambitions for the economy. As has been set out, the bill provides clarity, and given the long period of time over which the bank will be set up, there will be some flexibility to attune it to the economy’s needs as required.

Dean Lockhart (Mid Scotland and Fife) (Con)

Good morning, panel. My first question is about the demand for the finance that the bank will provide. As we have seen, there has not been sufficient demand from business in Scotland to take up finance through other policy initiatives such as the Scottish growth scheme. Is there enough underlying demand in the economy for the significant level of finance that will be provided by the bank?

Secondly—and this is perhaps a question for Linda Hanna—what steps or different approach will Scottish Enterprise take to stimulate that additional demand in the economy?

David Alexander

There is overwhelming demand in the market for the finance that will be provided by the Scottish national investment bank; the issue is that, as currently envisaged, it is not the right type of finance. We need patient capital, not five-year loans underpinned by a commercial rate of interest. What we need are long-term equity investment, long-term loans and convertible loan notes that can take equity and deliver significant returns to the bank through dividends.

Mydex CIC is a community interest company, and in the 12 years that we have been around, we have pretty much funded ourselves through social investment. We have tried to raise capital for the sorts of infrastructure projects that we deal with and which try to improve public services, remove form filling, ensure inclusion and work with people, and we have found that incredibly challenging. The Scottish Government has led the way on programmes to try to improve the lot of Scottish citizens as well as public services—CivTech and the Scotland can do forum are really good examples of that and have been really positive initiatives. However, the type of funding that we need to equip the whole of Scotland with the infrastructure necessary to remove form filling and risk from the delivery of public services and thereby strip out 45 to 90 per cent of the operating costs of delivery is just not there. Everybody just wants to lend money for three to five years, and nobody wants to make investments or provide proper patient capital. If you constitute the bank correctly and offer that sort of funding, there will be an overwhelming demand from people who actually want to pay it back.

As a CIC, we want to make returns and deliver dividends. We are not asking for a handout—we are just running infrastructure projects and trying to change the way the economy works.

Professor Cadenhead

I absolutely agree with David Alexander. All our research shows that there is significant demand among female-led businesses for finance, and significant ambition among women to grow their businesses. In fact, the female entrepreneurs we talk to tell us that access to finance is the most significant barrier that they face. The issues are not only the type of finance and the need for patient capital but the need to develop opportunities for funding that are more appropriate for female-led businesses, such as loans that include childcare breaks. We also need to overcome the problem of having to grant security against loans. It is a step too far for a female entrepreneur to put the family home down as security. We need to look at the type of money that is available.

Linda Hanna

Scottish Enterprise sees demand: we run the Scottish Investment Bank and, in our portfolio, we see a fairly healthy pipeline for our different funds, both loans and equity.

The Scottish-European growth co-investment programme that we run has had a slower start, so we know that switching to new things, particularly at such scale, can be challenging. However, the Scottish national investment bank is about patient capital, so we will learn what that looks like. We have done three deals through the SEGCP, which tells us that there is a market for that finance. However, we need to ensure that we switch on that market.

We believe that the Scottish national investment bank is ambitious but achievable, and that it is what the economy needs. As Lynne Cadenhead and David Alexander said, the additional £200 million over 10 years will provide an opportunity to look at different routes to funding. However, we also need to think about how we switch on parts of the market that the current product offering may not be serving in the way that it needs to in future.

On Dean Lockhart’s question about demand, Scottish Enterprise sees the opportunity of the bank as not just being about the £200 million, although I know that that is what is often talked about. We see the bank as a catalyst. There is already work being done on the back of the enterprise and skills review to look at how the system could work more effectively and how the ecosystem works, not just in the public sector but in the private sector, social enterprises and the third sector. The Scottish national investment bank coming on stream is an opportunity to look at how the whole system works, and to drive demand in that way.

If it would be helpful, I would be happy to describe the ways in which we are already looking at stimulating demand and how we will do so in future. I could also send in examples.

Dean Lockhart

You have anticipated my next question. The advisory group told us that the bank will not act as the originator of funding opportunities. It will provide the funding and it will be up to other agencies—largely Scottish Enterprise and others—to stimulate demand and find businesses for financing. What reforms will Scottish Enterprise make to stimulate extra funding? Will you need more staff and a higher budget to achieve that?

Linda Hanna

I should say up front that we are working closely with colleagues in the Government on both the setting up of the Scottish national investment bank and how the transition will work. It is very much a team approach, involving not only the Government and SE but other partners.

We are looking at what it will take to develop that pipeline, and we are already putting some things in place. One example is the work that we are doing in manufacturing. On behalf of the Government, Scottish Enterprise has been leading the work around the manufacturing action plan that the First Minister launched a number of years ago, and the national manufacturing institute will be coming on stream.

We are also in the process of setting up the advanced manufacturing challenge fund, which will help to provide regional facilities and capability so that businesses can take advantage of new manufacturing techniques. As businesses get ready, that will drive demand, either for capital investment or for taking people on, to where the finance will come from. There are things that will be in place that we will invest in, and then we will work with those businesses to drive demand towards the bank and help them to get ready.

I am an optimist and I am confident that a combination of important things are going on in Scotland. You are scrutinising the SNIB bill today, but on the back of the enterprise and skills review and the work that has been done with business gateway, Scottish Enterprise, HIE and others, the Enterprise and Skills Strategic Board is looking to rationalise and simplify, so that access is better and digital technology is used in a different way.

That combination will be important. It is about the whole system working and all of us—I do not just mean Scottish Enterprise—are working very hard to make that real. I am confident, because I see that reality in the Scottish Government’s expectation of those things, with people like me and my colleagues in other agencies to make that work. That will ensure that we can deliver the business services that business needs and connect that into new instruments such as the SNIB.

Jamie Halcro Johnston

You are already looking at ways to evaluate that and at how the relationship works.

Linda Hanna

I am not aware that we have put an evaluation in place to do all of that yet.

The Convener

We have a brief point from David Alexander. I am conscious of time and that a number of committee members want to come in.

David Alexander

I can send a lot more information, but I am deeply concerned. From the analysis that we do, working on the front line with 14 clusters across Scotland, we already see at least five or six overlapping initiatives in each local cluster with many of the same organisations involved. That is where the targeted advice and support should be made available and consistently delivered. Yes, it can integrate with the SNIB, but I am very worried about trying to centralise that kind of support. There have to be contact points that join the dots. Otherwise, we will have a Venn diagram on steroids, with everybody trying to provide advice.

That is a real risk, because each of the communities that we work in is different although the themes—the community empowerment act, local implementation plans, health and social care partnerships, integration joint boards—are similar. Constant turmoil and change are the only constants that we find out there. We are trying to transform that, and if another initiative means that the process has to go to the centre, I think that there will be a problem.

Jackie Baillie (Dumbarton) (Lab)

I am going to appropriate the phrase “Venn diagram on steroids”. I quite like that.

I want to turn the discussion back to an issue that David Alexander raised earlier and to the suggestion of lending solely to the private sector that is in the financial memorandum. My view is that that is certainly against the spirit of the implementation plan. Does the panel believe that restricting borrowing in that way, and not opening it up to the third sector or community enterprises, is perhaps a little short-sighted?

David Alexander

I absolutely agree. What is different about a community interest company? We are limited by shares. We decided to be mission and asset locked because we want to deliver transformation and change in how services are delivered and citizens empowered. We need capital to make that happen. We deliver services and work across the public, private and third sectors, but we need funding. Why are we any different? Why should a community interest company that has decided to commit itself to a social purpose be treated differently from somebody who says, “I am only here to make money for my shareholders. That is my profit imperative”? All the time, we see so much money going into start-ups, which look fantastic and then get sold off to big American commercial organisations, so that there is no economic, societal or employment growth.

As much as economic growth is needed, we need to support the third sector, which delivers significant chunks of public services and support to the Scottish population and is growing the economy. Social enterprises, such as community interest companies, are designed specifically to help to deal with intractable, complex issues that need long-term commitment.

Professor Cadenhead

Again, I agree with David Alexander. Women’s Enterprise Scotland is a community interest company and a lot of the enabling and supporting organisations that help our entrepreneurs and companies to grow are social enterprises, such as community interest companies. Strategic funding and investment should be made available to them.

Linda Hanna

The Scottish Investment Bank’s current investments through our range of schemes are not just in private limited companies. What “private” means should be explored, because sometimes it means just that a company is not public sector and could be one of a range of types of company. We already have community-based projects in the schemes that we operate on behalf of the Scottish Government.

Jackie Baillie

However, that is not currently spelled out. My understanding about the reason for the restriction is that the bank will be resourced initially only by financial transaction money. If we were to take that wider approach, the expectation would be that the Government would put in other sources of funding that would not be similarly restricted. Linda Hanna is nodding, so I assume that that is the case.

I will tease out the commercial issue, which David Alexander has already answered. The wording in the financial memorandum and the bill is that the objective is to fund “commercial activities”. Terminology may again be the issue, because many projects have a societal or environmental benefit but are not necessarily for profit, which is what is implied by the term “commercial activities”. David Alexander, do you want to see the language tightened up, so that we can ensure the broadest possible scope?

David Alexander

I ask for a better definition, because “commercial” means one thing in one world, another in another world. A simple example is that removing the need for form filling by Scottish citizens to access public services could save 45 per cent of the transaction cost of the services and therefore release money into front-line staff delivery. That is a commercial business case, because it would mean that the services could do more with less. At the moment, such examples are not even being considered, although the bank’s vision is to help to improve society and the economy.

Our community interest company is committed to removing friction, risk, effort and cost from the provision of transactions and services and to investing 65 per cent of our surplus in the social purpose of empowering the people of Scotland. I ask people to consider that the word “commercial” is about the mission of making things better, faster, cheaper, more efficient and fairer.

Jackie Baillie

That is helpful. I will ask the other witnesses a slightly different question because, if we want that broader scope, the limitation that is imposed on borrowing by financial transaction money becomes unduly restrictive. Should the bank be able to issue bonds or public shares, or should it be able to borrow only from Scottish ministers?

Linda Hanna

How the Scottish national investment bank is set up is a matter for the Scottish Government. There is a broader issue about the system, which I will go back to. The Scottish national investment bank will be part of the system and we need to think about it in that context. There is still an opportunity to look at where the use of financial transactions or loans that might be less commercial in the long term sits best in the system and what will be the best way for Scotland to use them in the future. That will be part of the conversations that we will have with the Scottish national investment bank.

Jackie Baillie

I suppose that this is all a matter for the Scottish Government, ultimately, but I am asking whether your professional advice would be to encourage the Government to leave it open to the bank to offer bonds and public shares.

10:15

Linda Hanna

That is not a matter on which I would give advice. I do not have deep expertise in that area.

Professor Cadenhead

I do not feel appropriately qualified to comment on that, either.

That investment will feed back into people’s communities, improve their infrastructure and remove friction, risk, effort and cost from their lives. Why would they not want to invest in the bank?

John Mason

Thanks for that. I just wanted to clarify that point.

The main thrust of my questioning is about the advisory group, on which various submissions have been made to us. Some people think that, if the link is too close, the advisory group could be too involved in the running of the bank, while other people think that it will be too far away and that it should perhaps have fixed representation on it, whether from trade unions or people from different regions. What are your general feelings about the advisory group? Where do you see that going?

David Alexander

Linda Hanna

The group will be really important. We are talking about something that is long term—at least 10 years—and the missions have still to be identified. As a result, the group will have a real opportunity to bring diversity of thinking to the matter, with different people going on to and coming out of the group as the bank moves forward over time. The governance will be the governance, but I think that the advisory group will be able to provide some independent thought, real depth of expertise and a knowledge of research and views on the thinking that is happening elsewhere. That approach can flex as the bank decides where it is going and separately from the governance. I therefore think that it is quite an important part of the bank’s construct, as it can reflect not only the progress being made with the strategic framework and what the bank is doing but where the bank wants to go with regard to the economy.

John Mason

Thank you very much—that was helpful.

I want to move on to some of the financial implications. Again, different views have been expressed in the evidence that we have received on how quickly we might expect the bank to break even. If patient capital is involved, it will take quite a long time for that to happen, but the suggestion is that the bank should break even fairly quickly, which is something that the Royal Society of Edinburgh is uneasy about.

There is also the issue of the costs involved. As someone else is going to ask about remuneration, I do not want to touch on that matter, but can you say something about the general costs of the bank? I think that the Scottish Government is going to have a sponsorship unit linked to the bank, which will cost £1 million a year. It has been suggested that that is a bit too much. What is your overall feeling about the projected costs? Are they too high or too low, or are they realistic?

David Alexander

With any new institution that is formed, there is always the risk of duplication of effort and overlap, and I commend to the Parliament a look at the existing service providers that could perform many of the bank’s proposed functions today in Scotland. Instead of creating a whole new institution, we should think of it very much as a virtual organisation, as is the way of the world at this time, and using existing service providers in Scotland, such as Social Enterprise Scotland, to underpin many of the operational delivery components would be a good thing. Any number of bodies could deliver some of the back-office services.

My big worry is that the timescale for making a return on investment and for the bank to be self-sustaining is completely unrealistic and that it will be driven down the path of commercial loan making and competition with the commercial market. The bank is meant to be different. We should be committing ourselves to a long-term programme that ultimately delivers money back into the Scottish economy and the Scottish Government and which becomes self-funding, but that will not happen overnight.

John Mason

Can you put a realistic timescale on that?

David Alexander

I think that you would be happy if the bank broke even in 15 years. That might be blasphemous but, in reality, I think that it should be delivering returns within 15 years.

John Mason

Is it possible for politicians just to sit here and wait for, say, 10 years? That is two parliamentary terms.

David Alexander

“the Bank to raise capital from a range of public and private sources”,

and that

“the Articles of Association ... will protect the ... ownership of the Bank.”

The Scottish Trades Union Congress evidence says:

“Being established as a public-limited company wholly owned by Ministers ensures that the Bank is publicly-owned and privatisation would require primary legislation.”

Why do you think that another model would be better than the plc model?

David Alexander

That is a slightly weird question. I believe that a community interest company model would be appropriate for the bank—that is, an asset and mission-locked bank. There is nothing to stop a community interest company from becoming a plc but remaining a CIC.

I have a more fundamental point to make about why what is needed is a CIC structure that is asset and mission locked. The mission of the bank has to be protected. A plc that slides into private ownership, even if Parliament has to vote for that, will be driven down a market forces route, and the idea that we must let market forces survive is an illusion. The bank is meant to be an important lever in the Government’s approach to improving Scotland and its economy and society. If the bank is mission locked, that will protect it for the future. Also, there will be a massive benefit in the bank being a CIC: it will have to reinvest 65 per cent of any surplus that it makes in its mission, which will build up the capital base that it needs to continue investing.

If you intend to sell the bank off to somebody else at some time and you float it off as a CIC—as a plc that is covered by the community interest company regulations—that will protect the mission lock, which means that only people who are committed to the vision will invest in it. The worst thing—the travesty—would be if the Scottish national investment bank ended up as another privately owned bank as it slipped down the side and started being measured by purely commercial measures.

Gordon MacDonald

Andy Wightman

I am not talking about the mission of the bank. I am talking about mission-oriented finance. The various missions are set from time to time.

David Alexander

I am convinced that the missions should be in the objects as an explicit part of the purpose of the bank.

On the second question, so long as adequate parliamentary time is given to the discussion of the mission, there is an opportunity for real debate about what the mission should be. There will be an opportunity for it to survive Parliament, given John Mason’s point about return on investment and timescales. If the bank is to deal with intractable issues and to support finance, there needs to be proper debate. Once the decisions are made, they need to transcend Parliament. That might not please ministers, but there needs to be accountability for the mission, or it might end up becoming a bit of a political football. The missions need to be debated in Parliament.

Linda Hanna

The operational matters relating to the missions are set out in the bill. The bill sets out what the bank intends to do, and it provides the flexibility to allow the missions to change over time, and for how they will be reported to Parliament.

Andy Wightman

When ministers set a mission, the only obligation on them under section 11 is to

“lay a copy of it before ... Parliament”.

An obvious one relates to the low-carbon economy and tackling climate change. Collectively in Scotland, we have been doing quite a lot of work in that area. The current global marketplace and policy environment provide us with opportunities, and, given the number of our capabilities—whether it is those of companies or universities—we can build on the work that has been done and accelerate it.

Professor Cadenhead

It will not surprise the committee to hear me mention inclusive growth. We have to look back at some stark statistics on female-led businesses. Business gateway figures show that there is a 50:50 gender balance in respect of women starting up businesses. However, as they move through the growth pipeline, the figure moves down to about 20 per cent. As they move into account managed companies at Scottish Enterprise, the number of female-led businesses is around 3.6 per cent. I know that more work has been done on that and that the figures have improved, but, whatever way we look at them, the statistics that we have for female-led businesses in Scotland are shockingly poor.

In addition, a very harsh statistic is that, in the United Kingdom, only 1p in every £1 of venture capital investment goes to female-led businesses. The bank has a significant opportunity to transform funding opportunities for female-led businesses.

David Alexander

I am sorry, but my suggestion is far more mundane. I completely support the point that Professor Cadenhead makes, but I would like the need for form filling to be removed in Scotland. I would like every citizen in Scotland to be equipped with the ability to prove who they are and what they are entitled to and never to have to fill in a form again.

Andy Wightman

Okay. I think that people in Estonia can do that, can they not?

David Alexander

Not quite. People are dependent on the state, and I would like them to be independent. That is about personal data infrastructure.

Andy Wightman

My second line of questioning is about equalities. Professor Cadenhead raised the issue of women entrepreneurs. Equality is not mentioned in the bill, and we have received evidence from Close the Gap and Engender that the equality impact assessment is not up to scratch. The Government has to produce an equality impact assessment, but it is not formally one of the documents relating to the bill that have to be laid in Parliament. To what extent should the bank have a mission to overcome inequality in its broadest sense in Scotland?

Professor Cadenhead

It is essential to create a balanced society with diversity of thought that allows everybody to participate and contribute to economic growth. Close the Gap and Engender have done a thorough analysis of the EQIA, and I broadly accept all their recommendations. Equality needs to be enshrined in the bill—that is really important.

Andy Wightman

Where would it best be enshrined in the bill: under the bank’s objects, performance or mission? Maybe you could come back with further thoughts on that.

Professor Cadenhead

I will do so, but we certainly need to ensure that relevant KPIs are set.

Going back to what David Alexander talked about, it is all related to an annual impact report and reviewing and looking at trends over time. We desperately need a gendered enterprise index in Scotland, to enable us to look at the data and track the statistics so that we can see on-going trends. The bank could help with that.

David Alexander

I ask the committee to consider the definition of “equality”—equality for whom and for what?

Andy Wightman

I think that that is set out in the Equality Act 2010.

David Alexander

I understand that, but I do not think that there is equality of access. Many people whom we know who work in the third sector are women, and people of all different sorts are trying to set up social enterprises to do good. They will not have equal access through the bill, because the bank will not support the third sector and social enterprises. Assuming that we can clarify that definition, equality of access to what the bank represents would be a good thing. If we broaden access to what the bank can offer, it will support a more diverse population of people. Not everybody is trying to produce a high-tech start-up or a start-up that they want to flip to sell to Google. A lot of people who are more socially driven are trying to transform services in this country, and they need funding and support.

Colin Beattie (Midlothian North and Musselburgh) (SNP)

Obviously, the bank will be a public body that will be accountable to taxpayers, and it will have to evidence value for money, but it will also work in the financial sector. Financial sector salaries tend to be fairly good—in some cases, they are fairly extravagant. The opinions in the submissions that the committee received in relation to salary levels and how they are going to be determined varied quite a bit. We have to get the right people or the bank is not going to succeed, but does getting the right people require the payment of high salaries? I am interested to know what the members of the panel think.

10:45

David Alexander

There is a flawed assumption that everybody is motivated by money. I worked in corporate life and had a very good lifestyle, but I got to a point when I decided that, with a lifetime of experience, I needed to do something more. If you specify the talents, the skills and the attitude of the person that you are looking for, you will find people who have the necessary skills and ability to be part of the bank—they will not need to be dragged out of the financial services sector and treated like gods.

You have to start by setting out the mission and the role and then do a search on that basis. You will find young and old talented people who want more and to do something different, and they will also have the skills that you need. I would counsel against offering eye-watering salaries and bonus schemes. Instead, make a really positive statement about the Scottish national investment bank being run by the people of Scotland for the people of Scotland. You should insist on talent but make it plain that you are not paying eye-watering salaries.

Colin Beattie

Would we be relying on a degree of altruism in the market?

I know of no investment bank or venture capitalist that does not have some sort of portfolio rulebook that says that they invest only in certain things. For someone in the VC market, that rule would be what makes them the most money in the fastest possible time—the biggest return. The Scottish national investment bank aims to improve society, so it would be entirely within the remit of the Scottish ministers to put a block on certain investments if they wanted to do so.

I do not know whether that should go in the bill; I am just giving the committee my personal opinion. However, why would anyone back something that made things worse?

Colin Beattie

Do the rest of you have a view?

Professor Cadenhead

The ethical approach is the right way to go. Parliament can seek guidance from other organisations, as it will be hard to define that approach closely in the early stages. We all have to accept, right at the start, that we will not be able to do some things and that there will need to be flexibility in relation to how the bank and what it does evolve over time. Ethical investment is the way to go.

Nowadays, different organisations that invest in other funds are also asking for diversity and inclusion plans before they invest. Diversity and inclusion plans are also important.

Linda Hanna

We already run a portfolio in the Scottish Investment Bank, and we already have ethical considerations: we look at diversity, inclusive growth, progressive workplace practices in the companies and organisations that we invest in and, depending on the fund, what the restricted sectors are. We carry out diligence on that basis. That approach already exists. We are part of the economic development landscape—as SNIB will be—and I expect that those investment bank funds will move to SNIB. We anticipate that that practice will continue.

Angela Constance (Almond Valley) (SNP)

There are several important workstreams that need to be carried out well, such as the appointment of board members and the development of the strategic framework, the ethical statement and so on. We know that the timetable is tight, but, if the bill passes, the bank should be fully operational by 2020. Is that achievable? Also, given the tight timescales, can the detailed work be done to a high quality?

David Alexander

Andy Wightman

I want to follow up a point that Linda Hanna made about the Scottish Investment Bank. I am unclear about the extent to which the funds that are devoted to that will be rolled into the Scottish national investment bank. It seems to me that they are two separate things.

Your website talks about the companies that the Scottish Investment Bank invests in. It says:

“We’ll invest alongside private sector investors into early-stage and expanding companies with high-growth potential that will deliver economic impact to Scotland.”

Clearly, some companies will meet that definition and the SNIB might fund them. However, I understand that the Scottish Investment Bank has invested in the Isle of Harris distillery, and I do not think that the Scottish national investment bank would invest in the alcohol industry.

An approach that involves long-term, patient capital is different from an approach that involves high-growth companies, which is what the Scottish Investment Bank is concerned with. Do you agree?

Linda Hanna

The Scottish Investment Bank has a range of products that we serve Scotland with. Some of them involve direct investment and some involve co-investment, which you mention. Others involve our supporting things in order to crowd in other funding. All those funds will transfer into the Scottish national investment bank, so those mechanisms will continue to exist.

Andy Wightman

You support an alcohol distillery, and I cannot see alcohol distilleries being central to the mission of the Scottish national investment bank. Is it the case that, if all those funds are rolled into the Scottish national investment bank, there will be some loss of the kind of support that is currently provided to commercial activities?

Linda Hanna

The Convener

Before we get into discussions about whether whisky is good for the health of the nation, we are out of time. I thank our witnesses for coming in today.

11:02 Meeting suspended.

11:06 On resuming—

The Convener

Welcome back. We will continue stage 1 of the Scottish National Investment Bank Bill. I welcome Matt Lancashire, who is the director of policy and public affairs at the Scottish Council for Development and Industry; Flora Hamilton, who is the director of financial services at the Confederation of British Industry; and last, but not least, Helen Martin, who is the assistant general secretary of the Scottish Trades Union Congress.

I will start with a question that I put to the previous panel. Many of the submissions that we have received express the view that the broad mandate that is set out in the bill on the bank’s main and ancillary objects fails to enshrine either the Scottish Government’s vision for the bank, as set out in its implementation plan, or the socioeconomic and environmental objectives that were expected—by some—from the consultation process.

Are you satisfied with the objects that are set out in the bill or would you—as some have—characterise them as being a bit vague and open to interpretation? Are they fine as they stand?

Helen Martin (Scottish Trades Union Congress)

We would like to see more of the ethical and social ethos coming through in the objects of the bank. Object 1, for example, is about

“promoting or sustaining economic development or employment in Scotland”.

It does not seem that it would be a big change for it to include the words “or fair work in Scotland”, or “or quality employment in Scotland.” That would give a greater sense of the need for the bank to be not just about jobs, but about the right sorts of jobs, and about the fair work approach that the Scottish Government has been developing and working on.

It would also be right to see the ethical commitment included up front as an end in itself. Otherwise, we could be bogged down in very narrowly defined economic objectives that fail to include the wider social benefit that is required, which was a core reason for the development of the bank, in the first place.

I also wonder about the balance of the mission-oriented approach and where the missions fit into the core ethos of the bank. The status of those missions is not clear to me. Are they additional to the core focus or are they the core focus in and of themselves? The question in my head is this: will the bank be able to invest in things that do not fit the missions but fit wider economic growth priorities, or is it about delivering the missions? That is not clear from what I have looked at.

Flora Hamilton (Confederation of British Industry)

If the vision is for the SNIB to be a catalyst for private investment and achievement of growth in the Scottish economy, it is absolutely crystal clear that the objects need to clarify the roles of the bank, which are investment across early-stage investment for scale-up companies, and the mission-led and long-term patient capital investment that is needed to tackle societal challenges. The objects need to cover all that. We think that that focus, with flexibility and wide scope, is key to delivering growth in the Scottish economy.

Matt Lancashire (Scottish Council for Development and Industry)

I agree with most of what has been said.

The bank’s three objects remain clear and distinct. They are: to remove barriers to patient capital—providing equity finance, in terms of venture capital, has to be one of the purposes of the bank; to support increasing productivity and improve our relatively low levels of innovation; and to support research and development investment.

If R and D investment is connected to ethical, low-carbon and environmental aspects of innovation, that will be fantastic, but we cannot look exclusively at those types of investment. Many organisations out there, across broad industries and sectors, need long-term patient capital if we are to increase our productivity.

Everything has to link back to productivity. People talked about outcomes in the earlier part of the meeting; one of the outcomes has to be an increase in productivity, which is at a low level. Can we sit here and say that that will be done just by investing in low carbon, in healthy ageing and in the bank’s third mission, which I have forgotten?

I would like to add a fourth mission. We will probably come on to talk about the fourth industrial revolution. There could be a fourth mission to invest in data, robotics, software engineering and all the aspects of those that are upon our global economy right now. Could we add a mission to encompass a range of sectors in the fourth industrial revolution in order to lead us to increased productivity, innovation and so on?

Andy Wightman

From Flora Hamilton’s response to the convener, I am a little unclear about what she sees as being the main purpose of the bank. According to the bill, the bank’s

“articles of association must state that the Bank’s main object is giving financial assistance to commercial activities for the purpose of promoting or sustaining economic development or employment in Scotland.”

As things stand, that is proposed to be the bank’s main object, and if the bill passes into law, that will have to be the main object. Do you agree with that object, or should it be phrased differently?

Flora Hamilton

CBI members agree with that object. I was trying to clarify the different roles that will fall from that object and where the bank’s activities could be placed, as laid out in the implementation plan. If we are to tackle the productivity challenges in the Scottish economy, we need to look at three distinct buckets of activity: funding for entrepreneurial businesses at start-up stage; funding for scale-up for the mid-tier businesses, where real economic growth lies; and long-term patient capital to go into projects that sit within the specific missions that are outlined for the bank.

Three missions have been identified. Scotland becoming carbon neutral by 2045 is a distinct mission, and a Government target has been set in that regard, so that is a long-term mission.

However, long-term missions are quite distinct from the investment that needs to go into scale-up growth. In the previous part of the meeting, the example was given of investment in Scottish whisky. That is about funding growth, and that is where jobs and prosperity lie for communities across Scotland. We see distinct differences between the three roles of the bank.

Andy Wightman

Okay. That is of some assistance, I think.

Last week, Mariana Mazzucato stressed that one of the main roles of a national investment bank is to provide patient capital for innovation, which is often not funded by the private sector, although the private sector will often rely on it in years to come. I therefore wonder about use of the word “commercial”. The bill says that the bank’s object is to give

“financial assistance to commercial activities”.

Does that express the full potential of the Scottish national investment bank? In the past, the state has invested in technologies that did not become commercial for years and years, until the private sector began to turn them into commercial opportunities.

11:15

Helen Martin

That speaks to the tension at the heart of the bill. There is, in the whole project, an element of tension between long-term aspirations about patient capital, and short-term requirements for supporting growth companies and innovation in society. A key concern for us is that that contradiction is being built into the bank’s functions in a variety of ways.

There are examples around the globe of investment banks putting long-term patient capital into transformative technologies and inventions in nanotechnology, telecommunications and renewable energy. That is where we need to drive commercial activity.

Andy Wightman

I want to finish with two brief questions. First, under section 11, the bank’s missions will be set by ministers in

I return briefly to the question of stimulating demand in the economy for the additional financing. We see that a much larger scale of financing will be available, but we can also see that there was insufficient demand from business to take up funding from the Scottish growth scheme, for example. We have spoken to the SNIB team, who do not see the bank’s role as being that of originator or as a body that identifies the businesses to finance; it will rely on existing enterprise agencies for that job. Do those agencies therefore have to significantly change the way that they operate in order to find the businesses to access that finance?

Matt Lancashire

That is probably not a question for me to answer; the chief executives and chairs of the enterprise agencies might give a better answer. If there is a case for stimulating demand and there have been issues with other programmes and initiatives, it makes sense that the agencies should work with partners from both business membership organisations and academia, where a lot of innovative thinking and knowledge happens. We should not forget regional approaches and regional economic groups, which can drive that demand and activity. There is an argument for putting more focus on such work, but how the enterprise agencies do it is entirely up to them.

Helen Martin raises some valid points. We are touching on some of the structural issues involved in setting up the bank. There are implications under EU state aid rules and Government fiscal rules. The CBI calls for the SNIB to be given the widest possible scope in order for it to achieve its objectives. We need to look at how we can stretch private investment and the things that touch on that. It is a very complex landscape. Not impinging on those funding rules will be one of the challenges that the bank will face. That will have an impact on how it raises its capital.

Jackie Baillie

I am not sure that that is the case, but I will come back to you on that in a moment.

Matt Lancashire

It goes back to needing further clarity on what the bank can invest in, which sectors it can invest in—whether that is the private sector, the public sector or a range of sectors—and what ethical investment means. On those issues, the bill lacks the clarity that it needs before the bank becomes fully operational.

I do not want to speak about the public sector alone, but it is a massive part of our economy and our society, so we have to take a look at it. Across the public sector, there is plenty of innovation that could be commercialised in different sectors and forms, so it makes sense to take the opportunity to widen out the scope of the bank to public sector organisations. However, we have not yet had the clarity in the bill to make a call on the matter and move the discussion forward.

The universities issue worries me, because they play a massive part in our R and D and innovation structure in Scotland. Where is their involvement? How do they progress with their innovations? We all know that we are great at coming up with ideas, but we are not the best at commercialising them, so where is the connection between the investment bank and the R and D knowledge that is coming out of universities, which are part of the public sector? That part of the bill requires more clarity, so that we can all give a more considered response to the question.

Jackie Baillie

That is very helpful.

I come back to state aid because, to my knowledge, the funding of a community enterprise has never been a state aid matter. The Government is only capitalising the bank with financial transaction money at the beginning. That is a choice that it is making. The Government could choose to provide additional capital, for which it has increased borrowing limits, which would give that wider scope much more prominence and allow funding of the kind of innovation that comes from universities.

Flora Hamilton

It is about how we bring that together and channel the funding in particular ways.

John Mason

The advisory group has been mentioned—some of the witnesses have made comments about it. What should the relationship be between the advisory group and the board of the bank? For example, would it be good or bad for the chair of the advisory group to be on the board as well?

Helen Martin

The governance of the bank is very important, because, as Matt Lancashire rightly said, the bank will be independent of Government. It will be given its missions—hopefully, those will be democratically decided—and it will then go away and work on them. I would like the bank’s governing body to be well designed to ensure that it has good governance principles at its heart. For me, those principles would mean that that structure would include representatives of wider interests. For that purpose, it would be key for us to see a seat for workers on the board, but it would also be appropriate for someone from the wider advisory group to sit on the board. That would give it a broader perspective and would reflect the wider discussions of the advisory group, whose membership would include a mixture of civic society organisations, businesses, universities and the other groups that have been mentioned, such as trade unions in their broader role.

John Mason

You do not think that it would compromise the advisory group to be partly involved in decision making.

Helen Martin

No. That question is put to us a lot in trade union land, and we debate it endlessly. Should trade unionists sit on boards and be involved in the decision making, when they are also potentially challenging the employer’s decisions? At this point, we have pretty much decided that it is worth being involved in that decision making and having that clear ability to shape and truly participate, as an equal, in those decisions. It is a very different relationship from that of simply offering someone advice.

It is not hugely clear whether the advisory group would offer advice to the minister or to the board of governors; actually, the advisory group should advise both. Having a member of the advisory group on the board, along with a seat for workers, would be an important way of bringing in that wider perspective.

John Mason

The previous panel suggested that the articles of association should mention the advisory group. That is not in the bill, but the preference of one witness at least was that the advisory group should be in the articles of association. Do you think that it should be?

11:45

Flora Hamilton

It would make good sense for the advisory group to sit in the articles of association. We have not debated that in detail at the CBI but, having listened to the previous evidence session, I think that that would make good sense. If the advisory group is to have the role of feeding back and providing independent monitoring and advice to the Scottish Government, it would make sense for it to sit in the articles of association and to be identified as fulfilling that role.

Recently, the Rose review considered the lack of access to funding for female entrepreneurs across the United Kingdom. An expert on your earlier panel gave their view on that. The bank could act on some of the recommended initiatives focusing on female entrepreneurs that are coming out of the Rose review, because the amount of funding that reaches female entrepreneurs and growth businesses is shockingly low. The bank could have an important role in addressing that. By addressing it, we will find further growth in the Scottish economy.

Angela Constance

Mr Lancashire, do you have anything to add, or shall we move on?

Matt Lancashire

Within the equality impact assessment, there was a commitment to the principles of fair work first. It is important to mainstream that fair work commitment throughout the bank; creating quality employment for workers across the economy should be at the heart of everything that the bank does. The United Nations “Guiding Principles on Business and Human Rights” are another way of thinking about ethical investment; that is already in some of the documentation around the bank. A lot of building blocks are already there. It is about putting the strategy around them and understanding what that means if we are going to do it in a strategic, sustainable, coherent and holistic way.

Matt Lancashire

If, at the moment, an oil and gas company is delivering carbon into the environment, does the bank not invest in it when it comes up with a solution for a technology that reduces carbon in the environment? How do we judge that? What is the ethical approach? Could we exclude that solution from investment because it comes from a big oil and gas company? We need clarity on what that means, because excluding businesses that might be transitioning, or doing different things that need the investment that could push our economy forward, would be a dangerous step to take. Although the ethos of the bank might be to invest in low carbon and net zero emissions, does that mean that we cannot invest in mature industries and sectors that are looking to transition with the technologies and innovations that they have? We must be careful about that aspect of the investment bank’s role.

The Convener

I thank our panel for coming in today. Please feel free to write to the committee if you have further thoughts on some of the issues that have been raised.

12:07 Meeting continued in private until 12:55.

21 May 2019

Fourth meeting transcript

The Convener

Item 2 is stage 1 of the Scottish National Investment Bank Bill. We have with us five witnesses. Graeme Sands is business banking, corporate and mid-market director at Clydesdale Bank; Andrew Castell is a partner in Par Equity; Jock Millican is investment director at Equity Gap; David Ovens is chief operating officer at Archangel Investors; and David Grahame is chief executive of LINC Scotland. I welcome all five of you.

I will start with a question about supply of capital. It has been suggested in evidence to the committee that the supply of capital in Scotland is increasing, with more funds being available from the private sector. However, there seems to be a lack of demand in the market. Does the panel agree with that? If so, what are the reasons for it? How will the Scottish national investment bank be able to overcome the lack of demand for capital in the Scottish market?

Graeme Sands (Clydesdale Bank)

Good morning, convener and the committee.

Rather than give the committee an anecdote, I will outline some statistics. I recently looked at the “SME Finance Monitor: Q4 2018” report, by the French consulting group BVA BRDC. It looks at statistics for SME borrowing across the whole United Kingdom; there is no reason to think that the outcomes in Scotland would be any different. The report’s conclusions are interesting. Of every 10 applications for finance from small and medium-sized enterprises, seven received precisely what they asked for. One out of 10 took a facility that was not exactly what it had asked for, and two did not get a facility or—as with a small proportion—declined to take the facility that they were offered. In answer to your question about whether there is a lack of supply or of demand, those statistics indicate that there is a little bit of a lack of demand.

On the second part of your question about what is driving the lack of demand, there are many different views. Clydesdale Bank has landed on the view that the nature of the economy is changing. There is an old-fashioned notion that people come forward for finance for things like plant and equipment, or because they are going to put in place a new production line from which they will make a profit. However, as Scotland’s economy in particular gravitates toward services, it is not clear that businesses necessarily have as much demand for finance as they used to have. It is certainly becoming clear that they have a different type of demand from what businesses had 20 or 30 years ago.

Those are my bank’s answers to the two questions that you posed, which are very useful questions in the context of the bill.

David Ovens (Archangel Investors)

I will give a different perspective: I will challenge the premise that there is a lack of demand. I do not think that there is a lack of demand in Scotland—the problem is rather that there is a lack of joined-up supply. Demand is most overt in the market in which Archangel operates, which is businesses that are at the very early stages. That demand emanates from a number of sources—from competitions such as the converge challenge to the great research and development that is coming out of our universities.

Funding and financing in that market is challenging, because it requires great patience to take a business from initial financing through to the point at which it can access alternative forms of conventional finance. Typically, Archangel would invest at a very early stage in a company’s development, but will assume that we will be the lead investor throughout its journey, which might last in excess of 10 years. That journey will take the company to the point at which it can access other forms of capital—perhaps the type of capital that Graeme Sands and his colleagues would be able to provide. The challenge is to address specific market failures along the journey, and to ensure that the SNIB comes in as an institution that will address those market failures.

The Convener

Can you clarify your view on what Graeme Sands said? As I understood it, he said that there is more demand for services, or a drive towards creation of service businesses rather than manufacturing businesses that—for want of a better phrase—create actual things?

David Ovens

The bulk of the companies in the technology sector in which we invest manufacture things—they are product rather than service companies. As I articulated, the challenge is that not enough of those companies make the journey from the earliest stage to more conventional capital demand. We need to address that issue in the market. There is demand for companies that make things and produce innovative technology, but there is currently inability to take those companies from the very early stage, through commercial maturity, to the point at which alternative supply sources are available.

The Convener

I will let Graeme Sands back in briefly, and then bring in David Grahame.

Graeme Sands

I will clarify my earlier comment. In talking about the change in capital requirement, I was referring to a move away from heavy manufacturing and plant equipment. In many cases, the businesses need research and development capital. Ultimately, they make things, but the pathway towards that type of manufacturing is very different to what we might have expected to see 30 or 40 years ago.

David Grahame (LINC Scotland)

We are talking about a really important and complex area. We need first to distinguish between “need” and “demand”. Need is huge, but the ability to convert that need to fundable demand is a big issue, so we need to unlock that if we are going to release economic potential.

Demand can be inhibited by a number of factors. The most basic issue is lack of awareness of what is available and how to go for it. However, confidence can also be a factor, as businesses tend to come and go depending on how uncertain the times are.

In addition, at any point in the cycle the nature of demand can be out of step with available supply. An important requirement of SNIB is that it be well informed and agile in order to enable it to respond. It will also need to be extremely well integrated with all sorts of other agencies in order to manage the demand flow properly.

LINC is currently a major originator source for the Scottish Investment Bank. Over the past three years, our network has taken 255 deals worth £167 million to the SIB. That involved the SIB putting in £44 million while we put in £123 million; leverage and co-investment are very important. However, we know that we are not funding anything like everything that is coming forward.

The Convener

I will bring in Dean Lockhart, while we are on the subject of demand.

Dean Lockhart (Mid Scotland and Fife) (Con)

I have a follow-up question about demand. We have heard from the SNIB itself that it will not originate funding opportunities—it will rely on other entities such as Scottish Enterprise and LINC Scotland to do that, rather than going out and finding businesses to fund. Given the significant additional capital that will be available, do the existing enterprise entities have sufficient resources to deal with such a step up in the amount of available funding? Are they set up to meet that demand?

Jock Millican (Equity Gap)

It is important to be clear about how they will bring businesses forward and whether, from our perspective, those are investable businesses. We would want to see that they are investable rather than just viable; there is quite a difference between the two.

The British Business Bank has four objectives, including to increase the supply of finance and to create a more diverse finance market. What impact has the bank had in Scotland?

Jock Millican

The impact of the British Business Bank has been fairly limited, so far. It has had some involvement in Scotland, and it is increasing its presence here, along with the amount of opportunities that we are able to look at with it. It now understands the Scottish infrastructure model better and is able to work better with us on that front. However, we have still to do a lot more with it.

David Ovens

The British Business Bank is focused more on investing in funds than on core investment capital. As I alluded to a couple of minutes ago, the British Business Investments regional angel programme, for example, which is now competing almost directly in Scotland with the Scottish co-investment fund, is a replica of that fund model, in which co-investment capital is provided alongside funding from the private sector partner.

Graeme Sands

It is useful to remember that, historically, the Scottish co-investment fund has addressed only the equity side of funding. To a degree, that is also true of the British Business Bank’s initial expansion. We should not forget that the British Business Bank also provides the enterprise finance guarantee scheme, which is a tremendously substantial way of crowding in—if we want to use that phrase—debt funding into businesses and ensuring that they get greater access to bank capital.

As we begin to think about how the Scottish national investment bank is established, it is important—certainly from my perspective—to ensure that we think about equity and debt. For example, does the mechanism of something like the Scottish co-investment fund work equally well for debt in the future? It might well do, or we might consider that something like the British Business Bank already substantially addresses that aspect.

Gordon MacDonald

The British Business Bank’s “Annual Report and Accounts 2018” highlights its regional funds in the north of England, the midlands, Cornwall and the Isles of Scilly, and states that they

“are now delivering critically-important debt and equity finance to boost their respective regional economies.”

Is there any particular reason why it has not focused so much on Scotland?

Andrew Castell

I say, based on a conversation that I had with someone from British Business Investments last week, that that is a back-handed compliment. The bank is, essentially, focusing on regions where it sees a real need for its intervention: it does not see Scotland as being in that category because of the success of what has been happening with SIB and Scottish Enterprise.

Colin Beattie (Midlothian North and Musselburgh) (SNP)

The target rate of return for SNIB will be established before it is actually vested. What level of target rate of return would you expect a bank with the characteristics of SNIB to achieve?

Graeme Sands

First and foremost, Clydesdale and Yorkshire Bank is strongly in favour, in principle, of a Scottish national investment bank. Nonetheless, I point out that, although the “Consultation on the Scottish National Investment Bank Bill” uses words such as “bold” and “ambitious” and states that the bank is designed to address third-sector and other wider socioeconomic concerns—on page 7, it suggests that the bank must look at different types of financing—it also states that the bank must be “commercial”. That is in addition to achieving an ambitious rate of return. It will be incredibly hard for the bank to achieve all those aims in combination if, as we would suggest, its remit keeps it clearly away from existing commercial opportunities.

We are asking SNIB to go to places that the commercial market does not currently go, presumably because of risk or for reasons of patience and long-term capital. However, we are also asking it, as part of a very broad remit, to improve Scotland’s economy. I wonder whether it is necessarily wise to establish an aggressive rate of return, or to establish a rate of return at all, ahead of the establishment of the bank’s missions.

Jock Millican

A key term in the bill is “patient capital”, and that is where the focus needs to be. The bank will be about providing long-term capital—there will be returns from some elements of that, but not from all of it. It would hamstring the bank very badly to set out an ambitious rate of return at an early stage.

Colin Beattie

Did the British Business Bank not set a rate of return of 2.5 per cent, which it has exceeded? It must have had a basis on which to set that target.

David Ovens

For all the reasons that my colleagues have outlined, a positive internal rate of return over a period of a time would be a successful outcome for the bank. In addition, we should not lose sight of the fact that the bank is being set up as an institution that will be a cornerstone of the economic foundations for the nation. Financial return is one measure of success, but the economic impact should be equally important in that regard.

Colin Beattie

The message that I am getting is that the target rate of return should not be too ambitious in the first place. I see that you are all nodding.

Graeme Sands touched on the issue of additionality and the need for SNIB to avoid competing with existing products on the market. Is that achievable, given the mission that SNIB will have? Is it achievable for SNIB to avoid competing with the multitude of financial sources that currently exist in the market?

David Ovens

Yes, and that should be SNIB’s defining mission. To go back to the core objectives of SNIB, the driving mission is to create an institution that will drive economic performance in Scotland. It will do that on the one hand by supporting SMEs through market failure, and on the other hand by driving economic imperatives and missions that are set from time to time by ministers.

I will look at the market failure aspect first. The early-stage equity investment market in which we operate is very much an area of market failure. We are incentivised to invest in that area through various tax breaks from the UK Government, such as the enterprise investment scheme. However, that incentive would not in itself be enough to drive sufficient capital into that area of market failure, and the activities of the Scottish co-investment fund are therefore vital in leveraging our activities in that respect. That fund is additional to private capital—it is bringing in private capital rather than competing with it.

Secondly, I turn to the missions for SNIB. One of its missions, as the implementation plan articulates, concerns the transition to a low-carbon economy; it sets targets on petrol and diesel to be achieved by 2032, which is 13 years off. It would be very difficult to persuade conventional private capital to take a 13-year view on a return, but it is sensible for SNIB to intervene in that area. It is additional in that sense—it is not going to leverage out private capital.

Colin Beattie

Do you envisage that, rather than pursuing entirely different products, SNIB may have a role in supporting some of the existing capital investment into the country?

David Ovens

Where SNIB can crowd or leverage in private capital, that will be vital to its role. What it should not be doing is competing with conventional sources of capital from Graeme Sands and his colleagues at the Clydesdale Bank.

Colin Beattie

It is easy to say that SNIB should not compete with existing products on the market. What kind of products should it go for?

David Ovens

The area in which we operate is very equity driven. We might think about the funding journey for a company: for the first 10 or 15 years of its life, the relevant asset class will, 90 per cent of the time, be equity—that is the instrument that addresses the early market failure. As the company develops, other forms of financing may become relevant. However, with regard to the long-term patient capital that is really the driving mission of SNIB, equity or quasi-equity will be the relevant asset class 90 per cent of the time.

Graeme Sands

Another way to think about it is not just to look at particular financing products but to consider a company’s life cycle and what it needs during different events in that cycle. One important point—I cannot recall if it is referenced in the consultation paper, but it has certainly been referenced in subsequent discussions—is the transition from early-stage equity to later-stage equity and then to debt finance. Those transition points are often quite hard, for a wide variety of reasons that I probably do not have time to go into here. That is an event in a company’s life cycle that it may need support with. It is not about different commercial products per se, but the fact that those products are not necessarily available during those events.

More widely, I think that no one would suggest that, even in relatively efficient capital markets, there are not gaps in certain areas from time to time. The Clydesdale and Yorkshire Bank would simply suggest that the missions that are set out for SNIB should clearly identify what those gaps are, and clear evidence should be provided rather than relying on anecdote. We would be happy to work with SNIB in the future to help it to set out and explore those gaps.

Colin Beattie

Does anyone else on the panel have a view on that?

David Grahame

That has pretty much covered it. There are a lot of gaps—the staircase of finance is not complete. There are certainly issues beyond our level before companies get to conventional funding, and SNIB could provide leadership in that area. By getting that right, the bank would also lever in new finance, quite a lot of it from outside Scotland.

John Mason (Glasgow Shettleston) (SNP)

We have talked about the commercial focus that the bank has to have, but we have also heard about the desire for socioeconomic and environmental returns. Does the public limited company model fit in with that? It is proposed that SNIB should be a plc. The Government looked at other models—Scottish Enterprise is a statutory body, for example, so its missions are set in statute rather than being left to the articles of association and so on. Are you comfortable with the plc model? Can it work?

10:30

Andrew Castell

David Ovens

Archangels was established as an investment firm in 1992, and we got the University of Strathclyde to undertake that study in 2015, so it effectively took a 20 to 25-year view of what we had done. That goes back to the point that we have to be patient when it comes to the financial return. For us, a successful financial return comes within about 10 years.

Returning to what the SNIB is all about, we were generating an economic impact along the way without necessarily generating a financial return for ourselves. The output of the University of Strathclyde report was that, for every £1 of investment from Archangels, we were able to generate around £9.50 of gross value added to the Scottish economy. Over that period, we generated around £1.2 billion of economic value added to the Scottish economy through the investing activities of Archangels; our portfolio companies created 4,000 jobs; and every £1 that we invested created £14 of turnover. A lot of the economic activity that has been generated by what we do goes beyond the financial returns that we are hoping to generate in due course.

John Mason

That kind of creates a problem in relation to the whole GVA thing. Basically, everybody who comes to the committee claims that, for every £1 we invest in them, we will get £7, £8, £9 or however much back. Are you convinced that we can measure that kind of figure fairly, reliably and solidly? The return that your business or any business gets can be measured very exactly.

David Ovens

GVA is a recognisable methodology. Companies create jobs and generate turnover and profits. The GVA methodology is subjected to tweaks and subjective views, but it is fairly standard, recognisable methodology that provides at least a baseline of the impact.

Jackie Baillie (Dumbarton) (Lab)

I wish to touch on the vision and objects that are contained in the bill. Some of the witnesses from whom we heard previously suggested that both the main and the ancillary objects do not quite capture the Scottish Government’s vision, which was set out in the implementation plan—nor, indeed, do they capture the expectation that the bank will serve environmental and socioeconomic purposes. Are you satisfied with the objects, or do you think that they may be slightly vague as they stand?

David Ovens

I think that the objects in the bill reflect the fact that, constitutionally, the SNIB is going to be an enduring institution that will drive economic activity in Scotland. There are also various ancillary objects. The missions that go on behind it are going to change over time, and the institution will be subject to whatever Administration is in power and to whatever the macroeconomic position is at the time. It is not necessarily right to enshrine specific missions within the constitutional objectives of what the SNIB is trying to do.

David Grahame

The objects are generally satisfactory if they are taken in conjunction with the ancillary objects, which add a bit more clarification. From what I have seen previously, there will need to be a fuller understanding of what is meant by “commercial”. We certainly do not think that that means just private enterprise.

Jackie Baillie

So, clarification is needed to expand the point that social enterprises and the third sector could be included. You think that that would be helpful in this context.

David Grahame

Human nature is a little bit like water: it finds the easiest path. We can already see from the building Scotland fund, which is set out on the website as the precursor to the Scottish national investment bank, that three areas have been identified: housing, commercial property and business-led R and D. I would be interested in seeing where the gap has been identified for those three things. Is it an equity gap, a debt gap or a mezzanine gap? What is the evidence for the gap on those three things? It is probably true that some banks will not lend to business-led R and D, but that is not the case with our bank. On the other hand, we are not a great fan of lending against housing. Hopefully, that level of specialisation indicates some level of professionalisation in the provision of finance.

Perhaps the gap is on the equity side—I do not know. It is not entirely clear that the missions, as they are being set out, are sufficiently supported by evidence of a gap or that that gap is clearly articulated. As we have all said, there will be gaps in the market—we all believe that; we just want to see what they are, what the opportunity is and how the Scottish national investment bank proposes to fill them.

10:45

Jock Millican

Changing missions and objectives frequently will not help the bank to operate well. It would not be right to make a change to the mission according to each whim that comes along. It needs to be a long-term, patient operation.

Jackie Baillie

When you say “long-term”, you are thinking about 10 years or more.

Jock Millican

Yes. Absolutely.

Gordon MacDonald

I want to ask about the funding of the bank. According to the way in which it has been set up, it will get an average of £200 million a year from the Scottish ministers. I think it was Andrew Castell who mentioned that the SNIB will be more like an investment trust than a bank. Part of the problem lies in the Treasury’s recognition of it as a department, not a bank. Should the Treasury recognise the Scottish national investment bank as a bank, and should the SNIB be allowed to issue bonds or public shares?

Andrew Castell

Graeme Sands will probably mark my homework here, where appropriate, but I would say that you should be careful what you wish for. If you make the SNIB genuinely a bank, it will require capitalising and regulating as a bank, and those things cost money.

There is a related question about diversifying the sources of capital. As soon as you start taking other people’s money, you are in a different place in terms of how the entity is controlled and how its governance works, the question being whether ministers and the Scottish Parliament could control it as they would if they were the sole shareholder and funder.

Nonetheless, those things can be done over time. The Green Investment Bank is an example of a bank that started off state funded and then got spun out and privatised.

Gordon MacDonald

Those were fairly clear answers.

I will move on to another topic that we have been exploring: the proposal that there be a group to advise ministers, who will be the sole shareholder of the bank. The implementation plan, I think, suggests that the chair of the advisory group should be a non-executive board member of the bank.

The bill makes no provision for an advisory group; it is just something that has been suggested. What are your views on such a group? Would it be useful? Should it be incorporated either in a section in the bill or through something in the articles of the bank?

Andrew Castell

When it comes to the governance of any kind of undertaking, the fewer groups whose instructions you are expected to follow, the better. As regards the articles of SNIB and the enabling bill and so on, it should be very clear that the bank answers to ministers. Everyone knows, then, what the line of communication is.

11:00

As I understand it, the advisory group is as you have just described it, in that it is there to help ministers understand what SNIB is doing, what it might need to do, and so on. That channel of communication should therefore be between ministers and the advisory group. I think that it would confuse matters to enshrine the group’s status in the constitutional documents for the institution. That is simply because it may be that, over time, ministers feel confident enough that they do not need a bunch of people whispering in their ear about X, Y, and Z and can look after the bank themselves.

Andy Wightman

To be clear, if such an advisory group were to be appointed by ministers—no such provision having been made in the bill—you would not wish the chair of that group to be sitting on the bank’s board.

Andrew Castell

There could be very good reasons for that to happen, but that can be dealt with, as the appointment of directors to the board is in the gift of Scottish ministers. If they decide that they would like the chair of the advisory group to be a non-executive director of the bank, it can happen. I do not think that you need to make provision for that in the articles.

Andy Wightman

Are there any other views?

Jock Millican

I concur with those of Andrew Castell. It is very important that the advisory board does not directly influence the bank, but does that through ministers.

David Grahame

There could be an opportunity to get some wider value from an advisory group. If all that it did was channel a variety of opinions to ministers, it could be a sort of rolling consultation medium or focus group. If it were well structured and well led, its bringing together a whole host of people who would not normally sit down together and interact would hopefully lead to some better understanding.

Of course an advisory group would be entitled to feed through independent views. On occasions when the group came to a joint understanding of things that it wished to put to ministers regarding performance or future development, it could give a very powerful message.

Andy Wightman

I will pick up on a few things that were said earlier. Graeme Sands, you said that you thought that we should de-emphasise commerciality in the bank, yet that is at the heart of the main statutory article. Could you clarify that view?

Graeme Sands

In our written consultation response, we emphasised that we do not believe that the bank should compete with existing commercial options. We discussed that at some length. The deputy convener asked a question about the early years of SNIB’s establishment and the commercial expectations for it.

Our view is that, if the Scottish national investment bank is going to step into areas that are already covered by commercial equity or commercial debt finance, that is not desirable. That is not SNIB’s objective, and it would be unlikely to lead to the best outcomes for taxpayers.

It is a matter of the level of emphasis. I fear that, if we emphasise aggressive rates of return, especially in the early years, or if we emphasise a very commercial model, it could be hard to sustain the Scottish national investment bank as an entity. Clydesdale Bank is very supportive of its establishment, for all the long-term reasons that are set out in the consultation document. We see a danger in trying to make the organisation too commercial too quickly.

Andy Wightman

That is helpful.

I will move on to the subject of missions, which are central to the concept of the bank, and to the advice that has been given to ministers by Mariana Mazzucato and others. Provision is made in section 11 of the bill for setting missions. By their nature, missions will be cross-sectoral. As one of you observed, they are reliant on not just what the bank does, but what a lot of other people do.

Some months ago, I visited a business involved in an innovative heating technology that can potentially contribute to rapid reductions in fuel poverty levels. The business was on the point of leaving Scotland and moving to Zürich in Switzerland, until it got a contract from a housing association. That is the kind of example that I have in mind among a portfolio of investments that might help to tackle the big challenges around fuel poverty or indeed low carbon. That is what I have in mind when we talk about missions. Is that the kind of mission that you understand by the term? Do you have others in mind?

David Ovens

Let us consider the transition to a low-carbon economy as a mission, bearing in mind the premise that SNIB is primarily a financing organisation. As Graeme Sands indicated, the missions need to be evidence based. I think that all of us around the table would agree that the transition to a low-carbon economy, based on evidence, is a good thing that SNIB should be supporting.

We then need to recognise that getting from A to B will take a long time for that mission, and it will be a challenge to leverage in private conventional capital. In that sense, we are addressing a market failure. SNIB has to be focused when it comes to the financing.

As David Grahame said, other agencies can be involved in the other aspects. As far as personnel are concerned, there is Scottish Enterprise, and social enterprises could be involved in all aspects. I see SNIB’s role as being at the heart of the financing aspect of that mission-led approach.

Graeme Sands

Building on that, and getting more specific, it might be that the real problem in the example that you outlined, Mr Wightman—I am not saying that it is, but it could be a problem—lies in a lack of confidence in public sector or quasi-public sector procurement. That might be a useful place for the Scottish national investment bank to deploy guarantees.

If it were up to me, I would try to make the missions very precise. For instance, the mission might be to address a lack of public sector procurement confidence in small companies or smaller businesses that are trying to transition from active technologies to a low-carbon economy. I am simply using this as a hypothetical example. Let us say that we have seen a market gap—a lack of guarantees—so one of the bank’s missions would be to provide guarantees that close that market gap and achieve the end aspiration. That is the level of specificity or detail that I would hope to see from the Scottish national investment bank’s management in executing the missions.

Andy Wightman

However, the missions, as they are described in the bill, are to be set down in

“a document describing the socio-economic challenges that the Bank is to seek to address.”

Parliamentary approval is required if the bank’s objects are to change, but the missions are to be set by ministers and communicated to the bank, with a copy of the documents to be laid before the Parliament.

Do you see merit in providing Parliament with a role in scrutinising the missions, and possibly even in resolving to agree or disagree with them?

Andrew Castell

Much would depend on the style of government. We have touched on this a few times. One of the challenges around any kind of patient institution is that there are fairly lengthy timescales during which any number of lumps of rotten fruit will be flung from the media or wherever else. If missions are subjected to quality control—considering how they are formulated, the time spent working out how to measure success and what success looks like, and how to communicate clearly to the agencies and entities that are responsible for delivering them—that will increase the chance of each mission being successful rather than ending up as just another initiative that petered out because no one knew what they were supposed to be doing.

If greater involvement by MSPs—rather than just leaving the Executive to it—were to result in better-quality missions in terms of how they are framed, that would seem like a good idea to me.

David Grahame

At the parliamentary level, we suggest scrutiny and comment rather than full approval, which might be too cumbersome a process. Although ministers set down the bank’s missions, there is a flip side. I think that I am right in saying that, under section 12 of the bill, the bank has to come back with proposals for how it will fulfil its missions. In our parlance, that is asking the bank to produce a business plan, so there could be some discussion on how, and by whom, such a plan should be approved.

Andy Wightman

Section 12 is quite interesting. It states:

“The Bank must send a mission report to the Scottish Ministers … within 3 months of receiving a document … explaining how”

“intends to respond to the strategic missions”.

Three months is a very short turnaround time; one would hope that the bank would get an advance briefing of a new mission. The provision does not strike me as encapsulating the production of a business plan or anything like that—it seems to require quite a high-level explanation, in very broad terms, of how the bank intends to go about fulfilling the mission.

David Grahame

I think that it would depend on the level of approval that ministers would want. If they want line-by-line approval, the time period may have to be longer.

Andy Wightman

Are there any other thoughts?

Andrew Castell

I would not like to be on the receiving end of a three-month deadline to report on how I am going to implement a mission for a multi-agency project. If I was sitting in the bank and there was a narrow focus on the bank alone being 100 per cent responsible for delivering against the mission, three months might be just about enough. However, if I had to liaise with half a dozen other parties, it would sound like a very short time period indeed.

That brings me back to the point that a high-level approach is better with this type of bill. It would not be helpful to set random—and possibly not very carefully thought out—deadlines and timescales in the bill.

Jamie Halcro Johnston (Highlands and Islands) (Con)

Does the panel feel that existing capital investment is focused more on the central belt and in urban areas? Conversely, what funding mechanisms exist for rural businesses, and how well are such businesses currently catered for?

Jock Millican

It depends. The vast majority of businesses that we are looking at are high-growth businesses that have quite often come out of universities. There is therefore an emphasis on those areas where the universities are, which is where the talent is. We tend to focus on those areas, but we also look at businesses from all over the country to see whether they are appropriate for us. Some businesses come from the universities and set up in regional areas. We have just been looking at a business that came out of a university and is now setting up in Oban; whether we invest in it is another question, but we are looking at it quite seriously. If a business comes forward, I do not think that there are any constraints in what we look at based on region or area.

David Grahame

We have operational groups in the Highlands and in the Borders, both of which were set up locally by people with a view to giving something back. To be fair, they have struggled to find demand in those areas. Support for the stimulation and development of demand is important, but that is a role for other agencies rather than for the bank.

Jamie Halcro Johnston

Is it a role for the enterprise bodies and local authorities?

David Grahame

Yes. Our colleagues in Highland Venture Capital are quite frustrated. They have been there for a long number of years, and they have one investment in the Highlands, with all the rest in the central belt.

Andrew Castell

It brings me back to what I said earlier: there are plenty of viable and perfectly sensible businesses, but they will not always be of interest to people with a venture capital mindset, who really want high-growth and high-value creation potential. Those high-value businesses, by their very nature, generally require highly skilled and highly qualified staff, who are available in great numbers in the central belt but in rather smaller numbers in, say, Fort William.

11:15

Dean Lockhart

I have a general question. Is there a national investment or development bank model overseas that we should look to as an example of best practice, or should each bank be tailored to the individual needs of each economy?

Jock Millican

As one or two of us mentioned earlier, the Scottish Investment Bank model is viewed with envy across the rest of the world. We have people who have been working with the World Bank to institute that exact model in other parts of the world. From the co-investment perspective, we have a very good model in Scotland. With regard to SNIB’s wider remit, things may be done differently elsewhere, but I am not aware of any specific examples.

David Ovens

I completely echo those comments. Again, I make a plea that you do not change any aspect of the Scottish co-investment fund as it currently operates. However, we should look to the British Business Bank and other institutions and pull out some of their initiatives. The British Business Bank is currently using the enterprise capital funds model for investment in venture capital funds. It invests in the funds, and then sets a target for them to invest geographically. That is a useful initiative to which SNIB could look in the future, particularly in relation to the further stages of a company’s funding journey.

The Convener

As there are no further questions from committee members, I thank the panel members for coming in to provide us with their views and their short forms for various matters, such as the “mezzanine gap”; I had not heard of that before.

11:16 Meeting continued in private until 12:19.

28 May 2019

Fifth meeting transcript

The Convener

Under agenda item 3, the committee will take evidence on the Scottish National Investment Bank Bill. I welcome our two witnesses: Rob Hunter, director of strategy, Development Bank of Wales; and Kerry Sharp, director, Scottish Investment Bank, Scottish Enterprise.

The British Business Bank has been in operation for around five years. One of its goals was to change the structure of finance markets for smaller businesses in the United Kingdom. What has been the impact of its activity in Scotland and Wales? Are the banks that you represent involved with the British Business Bank, or have they had much interaction or contact with it? Does Kerry Sharp want to comment on that?

Kerry Sharp (Scottish Enterprise)

We have a really good relationship with the British Business Bank, which undertakes quite a number of activities, many of which are focused on Scotland as well as elsewhere in the UK. It is particularly active in Scotland on the start-up loans side and on the enterprise finance guarantee—the bank debt guarantee—scheme.

We often engage with the British Business Bank to try to understand the breadth and scale of its activity, but it records things slightly differently from how we record them, including in capturing all the private sector leverage that it achieves through the deployment of its fund. That makes it quite difficult for us to compare the numbers. However, it is very active on those two instruments in particular and, from the statistics that we see, we think that Scotland gets its fair share.

I have a couple of questions on structures. What is the difference between the Scottish Investment Bank and the Scottish national investment bank, other than the insertion of the word “national”?

Kerry Sharp

There is quite a lot of difference. As you are aware, the SIB is part of Scottish Enterprise at the moment. Our focus is on early-stage risk capital and lending of up to maybe £5 million. We also deliver the energy investment fund, which is a low-carbon focused, mission-led fund for the Scottish Government.

It is a very different model from the one that is proposed for the Scottish national investment bank. In effect, we cannot say that we are not capitalised; we are. In the 18-month lead-up to the launch in October 2017, we achieved a commitment from the Government of an additional £154 million. Since the launch, we have received commitments of a further £430 million for the bank. Significant sums of money have been committed.

We have about 15 funds and we go to the Government with a business case for each fund, using the Treasury five case model. That is approved by the department, and then the money is released to us through the life of the fund. It is a different operating model. We do not have the autonomy to make the decision as to how to deploy the money on our own; we have to do that through Government departments. I have to say that, for us, it has worked exceptionally well.

Gordon MacDonald (Edinburgh Pentlands) (SNP)

There is a thing about connecting the Development Bank of Wales, or the Scottish national investment bank for that matter, to the people and showing that it is making a difference. Rather than making 20 large-scale investments a year, for example, the finance is being spread across the nation and businesses across the region can identify with what is going on and share in that success. That is crucial.

One of the interesting things—I know that the British Business Bank has said this about our rise—is that we are exceeding our target. I am not saying that microfinance is a loss-making area—I am trying to think of a better way of putting it—but you will not get a huge return on investments. In Wales, we have found that the default rates are a lot less than we had originally modelled for, which enables us to revolve the funds and invest more in those activities.

Microfinancing is a crucial part of the bank. That takes us back to the point that there is not a single market gap. Market gaps exist across the spectrum from very small people who need a couple of hundred pounds to buy a sewing machine or whatever it might be to get them into business, right up to the large scale £5 million and £10 million investments. The gap exists across sectors, too.

Jackie Baillie (Dumbarton) (Lab)

Uptake of Scottish-European growth co-investment funding has been slow. I think that the SIB said in a previous submission that that is because the fund is new and different, and it will take time to educate companies and investors. Ms Sharp, will you update us on progress in delivering the programme? Are there lessons that the SNIB can learn from your experience?

Kerry Sharp

The Scottish-European growth co-investment programme—SEGCP for short, which is slightly easier to say—has been slower than we would have liked it to be. We have done three deals, and investment of about £1.53 million has leveraged in £8.5 million. We are about to do two more deals—they are imminent, although I had hoped that they would be done by today’s meeting—that should see us deploy about £1.7 million and will lever in another £5 million.

We nearly did a couple of other deals. In one case, the company managed to raise the funding that it needed, so it did not need our money. In another, the company decided to go into sales mode rather than fundraising mode. We have about 120 inquiries on our books, and we are actively working on 30 or so, for which we are making introductions and supporting companies with their business plans, pitches and the like. Uptake has certainly been slower than we would have liked it to be. However, the SEGCP was always a niche fund—the objective was to support only five, six or seven companies a year.

That said, we have learned that it always takes longer than expected to get a new initiative going, even when we think that we have planned enough for delays. Without a doubt, Brexit has played a negative role in respect of uptake, both from the investor side and the company side. We speak to a lot of investors that are based across Europe that have a relationship with the European Investment Fund, and some are nervous about where they invest their money at the moment. Likewise, we have found that when we encourage companies to speak to European investors, given the role of the EIF in the programme, Brexit is causing them to think a little more.

You asked what lessons the Scottish national investment bank can learn, which probably brings me back to my comments about the need to be clear what the market gap is and about taking a flexible approach. A benefit of the way in which the current system is set up is the relationship with the EIF and its fund managers, but that can also be a downside, because the approach is quite particular and there are deals with investors that are not eligible. More flexibility in the instruments that are used would be useful.

Jackie Baillie

You said that investment is uncertain because of Brexit. That is interesting, because my understanding, from the announcement in the programme for government, was that the fund was being set up to counter some of the impacts of Brexit.

Will you remind us of the amount that you expected to spend? If my memory is right, it was £10 million in year 1 and another £10 million now—and that was just SE’s contribution; the drawdown would have been much more significant. We are well short of that.

Kerry Sharp

That is correct. We had a £50 million commitment from the Government, which we then committed to the programme, so we are, indeed, well short of that.

The fund was not set up to counter Brexit. Our relationship with the EIF allowed us to access funding that will certainly be available until Brexit, but we do not yet know whether it will be available after that. The proposition was that there was a window of opportunity for us to access the funding; the longer we delayed, the smaller the opportunity of the funding being available would be. Through the Brexit negotiations, we will see whether we will be able to continue to access the funding.

Jackie Baillie

My recollection is that the fund was announced in the programme for government as part of a package of measures that were designed to make the Scottish economy more resilient to Brexit. I remember the fund being the centrepiece of the announcement, which is slightly at odds with what you are saying, so perhaps what we heard was a measure of political spin rather than anything else.

Kerry Sharp

I certainly cannot comment on that. I do not recollect the statement at all, so I cannot say anything, I am afraid.

Jackie Baillie

How much of a step change in the market will the SNIB make by providing the patient capital that is envisaged?

Kerry Sharp

The bank’s focus will be on providing the level of capital to change the market dynamics and on identifying evolving gaps, which will, I think, have a transformational effect on the economy. The challenge with the way in which we operate now is in the amount of budget and funding that is available, so the Government’s commitment over such a long time will allow the bank’s team to look forward and to make different choices.

We have certainly identified, from the energy investment fund, the need to be ambitious and very patient, and to take a different approach when we are dealing with new technologies and emerging markets. The bank will be able to focus a lot of its attention and funding on making substantial investments in order to change our economy.

We are very comfortable with our level of failure and write-offs, but I know that some people will say that the write-off figure could be higher, if we are making a real difference in the market. Clearly, we are not keen on losing money; we are trying to make money.

Colin Beattie

What about the DBW?

Rob Hunter

The DBW has a very similar story. We do not have a set target return on investment, which I am quite pleased about. We tend to negotiate a projected ROI case by case because, as I said earlier, we create a business case for every one of our funds. We negotiate with the Welsh Government on the sort of return that it is looking for from the fund. Once the fund goes live, we manage the portfolio of investments for that fund in order to deliver the agreed ROI.

I am not sure whether it is critical that an organisation has a positive or negative ROI after aggregating all the figures. We are playing in the very difficult part of the market. If there were very high expectations for the ROI, there would be a great temptation to start to take on less risky and more market-facing investments. That would just displace the market. We want to crowd more funders into Wales rather than to crowd existing funders out of Wales.

My answer to the question is very similar to Kerry Sharp’s. I think that our target ROI is currently forecast to be positive by about 0.7 per cent. However, as I said, the target is not set in stone.

The other important issue from our point of view—which might or might not be a difference—is that our operating costs are covered through the fees that we charge on the funds. We do not have any Government subsidy for our operating costs; we have to stand on our own two feet and fully cover organisational operating costs. That is also factored into the calculations.

10:30

Colin Beattie

Is it right for the SNIB to have a target rate of return from day 1?

I do not think that that is the break-even timeline; I think that it is the timeline for covering the operational costs—for the bank to be self-funding rather than self-financing, which is being set at 10 years or so.

Colin Beattie

I was talking about operational costs; I am sorry that I was not clear.

Kerry Sharp

That is no problem.

We have covered our operational costs for a large number of years. It is certainly possible for the SNIB to do that. Clearly, that will depend on what its costs end up being. Given what they are proposed to be at the moment, I think that that timeline is entirely achievable, given our activities alone, plus the activities that we know will move in and all the new things that the bank will do.

Colin Beattie

How long did it take you to become self-funding in relation to operational costs?

Kerry Sharp

I do not have the answer to that. Staffing costs in the SIB are around £3.3 million at the moment. Given that our activities have grown over a number of years, we have obviously grown. Our income over the past five years has been, on average, £20 million. I cannot tell you when we started to cover our costs, but it was quite a long time ago.

Colin Beattie

Rob Hunter said that the DBW covers its running costs from fees. How long did it take to get to the point where the DBW was covering its costs?

Rob Hunter

When I started in the role, one of the first jobs that I had to do was to co-ordinate the production of a financial model for the business, which brought together all the funds and all the costs and projected how much in funds we would need over the five-year period to generate enough fees to cover our costs. The figure came out at £154 million over the first five years. Interestingly, by the time we reached June or July 2017, we had received commitments to all but £23 million of it. Because that figure was relatively small in the grand scheme of things, the minister at the time said, “I’m not signing the bank off until we’ve given you a commitment to the full amount,” so we had a commitment for the final £23 million a week before we launched. In other words, it was at launch that we stopped receiving any Government grant.

On the question of demand, we genuinely could not have predicted that we would raise £430 million of additional commitments to funds in the two years since then. When we produced the first business case, we thought that raising the £154 million would be a tough ask. What has happened is testament to the fact that, if things are done properly and with the gravitas that one would want for such a long-term, national institution, the amount of interest that the bank generates from other players generates its own demand. Looking forward, I would say that our operating costs are probably covered for at least the next seven or eight years, based on our existing funds.

Andy Wightman

On the subject of costs, one of the issues that we have discussed is remuneration. We have had mixed views on the matter. Some people feel that the Scottish national investment bank should operate a remuneration policy that is consistent with what the financial sector does, while other people take the view that, as a public body, its pay levels should reflect public sector pay levels. What is the position in Wales?

Rob Hunter

I know that this will sound strange, but the answer to that question is probably that we do both those things—our approach is to reflect pay in the financial sector and pay in the public sector. I will go through our process for setting our salaries. We are not on civil service salaries. A very small element of the staff of the organisation are on local government pensions, but the figure is now less than 10 per cent, and that scheme has not been open to new people for about seven or eight years.

Our salaries are market tested, independently, every three years. We use two benchmarks: the financial services industry and the non-financial services industry. We have certain specialists, particularly on the equity/deal-doer side. In effect, we are a fund manager. We contract out some funds, but we deliver the vast majority ourselves. The pinchpoints for the higher salaries relate to the equity staff, and we look at those.

I will come back to a comparison with Government shortly, but our salaries are pretty attractive for the non-financial services people and the non-equity/deal-doer people. We have adjusted our salaries for the people who deal with equity, but we recognise that we cannot offer the stellar bonuses that people who work in the private sector can get. It is high risk, but it is high return. We recognise that, in attracting those people into the business, we must have a much wider offering. We are a great place to work. Our mission is to do great things—to improve the economy and the conditions of people who live in Wales—which is a great thing to get up in the morning to come to work to do. We offer a good work-life balance. Our targets are challenging, but they are not impossible to meet. In effect, we are developing an employer brand to get into the harder-to-reach areas.

Our pay is also tempered by Government pay. We have an independent review, but all our pay awards have to be signed off by Welsh ministers, so we must make sure that we pay sensible salary levels.

I was recently involved in a piece of work in which we did a direct comparison between the pay in the bank and the pay in the Government. When you compare pay to pay, there are two big differences. One is that Government employees have a final salary pension scheme. Taking the Welsh Government’s figure, last year, that involved an average employer contribution across the piece of 23.6 per cent, and we know that, this year, the contribution has increased right across the public sector. The figure was being understated by 6 per cent, so the Treasury has put on another 6 per cent. That adds another 30 per cent to a civil service employee’s pay. On average across the piece, our employer contribution is around 10.8 per cent, and we also have an incentive scheme, which is no more than 10 per cent of our total pay bill.

It is spooky but, when we compare like with like and look at the average pay per grade, the salaries are almost identical in real terms. The difference is how we divvy that up and how we put it out there in the sector in order to attract the right people. People in the financial services sector are used to working in an incentive-based environment. When we are trying to deliver the funds, such an environment is a useful tool.

We always ask investee companies whether they have tried to access the market. That simple test comes right at the beginning, and it is driven by the history of the organisation and its deployment of EU funds, in which that is a condition. We are clear that we are not here to compete with the banks or the private sector. Indeed, we have a good working relationship with the banks. Banks often come to us with a deal that they want to do and that they believe has a strong business case but where there is a problem of security—the banks can secure only a certain amount of the loan. Particularly in Wales, that is often a result of property values being low. A bank will come to us and say, “We’ve got a £1 million deal and we’d be happy to lend £600,000,” and then we step in behind the bank with a £400,000 subordinated loan, which gets the deal off the ground. It works both ways. Banks will come to us and we will bring deals to the banks.

Kerry Sharp made an interesting point in that regard. For some of our work, there is no KPI that we can measure, although I wish that we could, but that work is testament to the fact that we are not crowding out investors. Quite often, particularly with the bigger deals—we find this with the patient capital stuff and the large-scale investments that are getting into the £8 million to £10 million area—a company comes to us with a business plan or proposal that is not investor ready. The teams will put enormous effort into getting the thing investor ready, at which stage the people involved will rush off to an investor and do the deal away from the bank.

We get a fair bit of that, and it is a difficult issue. If you look at the Welsh economy, you will see that that is exactly what you want to happen, because it allows us to deploy elsewhere the funds that we have been given in order to grow the economy. However, for those staff who are incentivised or target driven, it can be a little upsetting when it happens.

I wonder whether Kerry Sharp has anything to say about additionality and the Scottish Investment Bank. I think that you mentioned a client who turned down your money because they got money elsewhere.

Kerry Sharp

Yes, through our SEGCP. We are very much targeted at achieving additionality, and private sector leverage is one of the things that we record and which we try to maximise at every possible point. Our role in the market is to be gap funders, but the issue sometimes is the time when that funding is available. Time can be of the essence, and we can move very quickly with some of the private sector partners that we are close to. It is all about different levels of additionality in the market.

Virtually everything that we do is done with co-investors or co-lenders, so we are not doing things on our own, and the vast majority of those projects are, in the main, brought to us by others who feel that they have a gap that they want us to fund. Just now, we have very strong additionality, and I would expect the Scottish national investment bank to operate in exactly the same way, too.

Andy Wightman

Who identifies the gaps that you mentioned—the lenders or the clients?

Kerry Sharp

Both. If the client cannot raise the funding that they need, they will come to us directly and ask for help from our financial readiness team, which I mentioned earlier. Its number 1 role is to get funding from the private sector, and only when it cannot do that will it look to colleagues to see what other support can be given. However, lenders or investors who want to support businesses but who cannot provide the level of funding that they need will also look to us to co-invest or co-lend with them.

Andy Wightman

Do you recognise Mr Hunter’s point about the private sector perhaps not lending because it does not have enough security? Would that be a typical instance in which you would consider stepping in?

Kerry Sharp

Yes—certainly through our debt fund. The issue could be the level of security, the length of term that is needed, or that they cannot afford to start to repay for a couple of years. We are very flexible in our moratoriums, which will provide interest or capital holidays. The future projections could be racier than some of the banks or others might be interested in.

The vast majority of what we do is on the equity side. There, the gap is usually to do with the level of capital that the investor is willing to put at risk not being enough for the deal to go ahead. We need our businesses to be properly capitalised. There is no point in investing in a business that does not have enough capital to get to the next value inflection point. If there is not sufficient capital to be deployed, our partners or co-investors will come to us and ask us to invest alongside them.

Angela Constance (Almond Valley) (SNP)

Good morning to our guests. The implementation plan for the Scottish national investment bank says that, when investment decisions are being made, the broader approach of taking into account economic, social and environmental factors as well as commercial factors needs to be taken. Does the Scottish Investment Bank take that approach now? What attempts are made to have a balance between commercial factors and other aspects in measuring performance?

Kerry Sharp

We absolutely look at a lot of different levels. As I touched on earlier, we have been looking to grow the market on the risk capital side for a number of years, and that has been done successfully. That is now performing best regionally across the UK, and Scotland is punching at or above its weight on the early-stage side. We monitor closely the size of the overall market and strip out the large deals of over £10 million—the outliers—to see the underlying market and ensure that it is still healthy and growing. That is one element that we look at.

We also carry out evaluations, which is really important from the point of view of the role that we play in the market. The evaluations, which are qualitative and quantitative, try to work out the gross value add, including jobs and various other elements that are obviously important for an economic development agency. They also speak to investors, companies and other market players and ask questions about the role that we have played in the market, whether we have filled gaps, and whether we have been additional, for example. That allows us to consider the success of the fund, whether what we would like to be delivered in the market has been delivered, whether we can make improvements, whether the approach is fit for purpose, and whether any changes need to be made to make the approach more relevant and useful to the market.

The other level is the financial performance, which we touched on earlier. We do not have a target rate of return, but we have to act commercially, so we seek to maximise individual returns. It is therefore important for us to monitor the income that we bring in from our exits and to do all that we can to try to maximise that.

Angela Constance

You have outlined how market factors and financial returns are evaluated. If anyone had to randomly pick any investment decision that the Scottish Investment Bank has made and ask about broader social factors or environmental impacts, for example, would you be able to articulate a response to demonstrate its impact and explain how it was measured?

Kerry Sharp

I would not be able to do that for every single decision. That is work in progress for us. For a number of years, we have worked closely with colleagues to record some of the important factors—for example, women-led businesses and ethnic minorities. We have had a couple of general data protection regulation challenges, which we are just working through, but we are still developing our approach to that.

Overall, that is one of the things that we are strongly focused on as a business. Scottish Enterprise as a whole is very clear about the need to record social factors as well as environmental factors, and we are putting in place the tools to allow us to do that consistently across all our different areas of activities, right down to a company basis or a project basis.

Rob Hunter

Yes, definitely. Like Kerry Sharp, we operate a balanced scorecard within the business, which we use to look at things from a customer perspective, the finance perspective, the delivery perspective and so on. We operate that on a day-to-day basis.

I think that you are asking about a balanced scorecard approach that involves consideration of not only financial returns but socioeconomic returns. We are developing that this year as part of our KPI measurement, which will be in place this year and will be reported on next year.

Jamie Halcro Johnston (Highlands and Islands) (Con)

I will ask about the regional perspective. The DBW has four offices across Wales, and I know that the Scottish Government has been considering options for a physical location, or physical locations, for the Scottish national investment bank. Consultation on that is under way. Mr Hunter, what are the pros and cons of having those offices spread out across the regions of Wales?

11:00

Rob Hunter

A few years ago, I produced the pan-Wales strategy for locations across Wales. It is available on our website, if you want to see it. We and the minister were extremely keen that we would be a development bank for the whole of Wales, but we were a Cardiff-centric organisation with a few satellites outside of that area. We have generated a headquarters office in Wrexham, which will have in the order of 52 to 55 members of staff. We are well on track to reach the target earlier than we originally forecast, so that is going well.

Cardiff will still be our biggest office physically, as the majority of the businesses are in the south-east of Wales, but the mix of staff between Wrexham and Cardiff has been designed to ensure that we have a presence that is consistent with the business demography in those regions. That will drive up investment levels, which we are already seeing in north Wales. We have an office in Llanelli, which is in south-west Wales, and we are about to open a small office near Llandudno, which is in north-east Wales, so we will have people on the ground. That is important, because there is a thought that banks retrenching, moving away or closing branches—so that they are no longer as close to the businesses—is a new thing, but actually the business decisions have been removed from those branches for probably a very long time and most of the investment decisions are made remotely in an HQ office somewhere else.

One of the unique selling points of our organisation is that we are a friendly face—we meet our clients face to face and build a relationship with them, and will continue to do so. That is extremely important.

We have 22 unitary authorities in Wales and we noticed that there were pockets of very low investment activity. About three years ago, we set ourselves a specific target to increase the investment in the five lowest-performing local authority areas by 10 per cent in a year. The target changes every year because the unitary authorities that are in the bottom five will change every year. Last year, the combined growth of those five authorities was about 64 or 65 per cent, which was very positive and it raised the bar, so we have to do more next time. From our point of view in Wales, it is crucial that the organisation is not seen as a bank for Cardiff or as Cardiff-centric. It is certainly not that, as we now have very good reach right across Wales.

Jamie Halcro Johnston

You were testing my knowledge of the geography of Wales when you mentioned the different offices.

Jamie Halcro Johnston

Your suggestion is that we should make sure that the footprint covers as wide an area as possible.

Rob Hunter

Yes. A hugely important lesson that we have learned is about having telepresence in our offices. The one thing that we do not want is for people to travel for three hours to go to a half-hour meeting, so having a state-of-the-art telepresence—I am not necessarily talking about the gold-plated stuff—and getting everyone to use it is important. Again, it is about carbon footprint and making best use of individuals’ time. We have put pretty much state-of-the-art equipment in all our main offices.

Kerry Sharp

I agree entirely with Rob Hunter. The Scottish Investment Bank is pan-Scotland, so we operate across the whole of Scotland. We have staff based in virtually all SE’s offices—if I remember rightly, there are 12 offices. Most staff are in the three main hubs, in Glasgow, Edinburgh and Bellshill, but there are people far and wide. It is important to be close to the businesses, the advisers, the projects and the communities we work with.

We work closely with Highlands and Islands Enterprise and we will work closely with the south of Scotland enterprise agency when it is up and running. We ensure that we are available, from a finance point of view, to interact with companies, account managers and other colleagues in HIE.

I agree with Rob, too, on the need for technology of a good standard, to enable us to have Webexes, online conference calls and the like, so that we can be available consistently and continually.

Jamie Halcro Johnston

Do you see that improving when the Scottish national investment bank is up and running?

Kerry Sharp

A decision has to be made about where the head office and any other offices will be. There is the potential for co-location with SE, HIE or others. There needs to be a cost-effective way of ensuring that staff get out and about. As Rob Hunter said, there is no point in someone spending all their time—carbon footprint aside—in the car or on a train.

Ideally, staff would be based in different locations. Of course, that brings a staff management dimension, matrix structures and everything else, but it is important to ensure that companies have full access to the bank. Just as Rob said that the Development Bank of Wales is for the whole of Wales, I am sure that the Scottish Government would say that the new Scottish national investment bank is for the whole of Scotland.

Rob Hunter

It is also important to encourage flexible working. The idea that everyone goes to a very big office at 9 o’clock in the morning and leaves at 5 o’clock in the evening is changing dramatically. The Development Bank of Wales encourages people to work from home. We have people based right across Wales who work from home for a reasonable amount of their time, so that is another resource that we can tap into. With excellent Skype connections through laptops, it is much easier to communicate and stay in touch with people as they work remotely.

The Convener

Finally—and very briefly, I hope—Andy Wightman has a question.

Andy Wightman

I want to put our question on governance to Rob Hunter. The Development Bank of Wales is a plc. The bank, or its predecessor, was established in 2000. Have your objects changed since then, or are they as they were in incorporation?

Rob Hunter

They are pretty much as they were when they were incorporated at that time. I know that there is an on-going debate about whether the organisation should be a plc. I think that being a plc works—it is very much a known quantity, it has got a very—

Andy Wightman

Sorry to interrupt, but I am not particularly interested in the plc aspect; I am interested in the objects. Chapter 2 of the Scottish National Investment Bank Bill has the statutory objects for the SNIB. You probably have not had the time to look at that, but I would certainly welcome any comments on those objects if you have any.

Secondly—I am being encouraged to be brief; I apologise, convener—who is the shareholder of the Development Bank of Wales?

Rob Hunter

It is Welsh ministers. I think that one share is with our chief executive officer. The Welsh Government is the majority shareholder.

The Convener

You can submit additional comments in writing after the session, so do not hesitate to do so.

That is all the time that we have this morning. Thank you very much for coming.

11:10 Meeting continued in private until 12:54.

4 June 2019

Sixth meeting transcript

The Convener

The next item is another evidence session on the Scottish National Investment Bank Bill. I welcome Derek Mackay, the Cabinet Secretary for Finance, Economy and Fair Work; David Wilson, programme director, Scottish national investment bank directorate; Rachel van Kempen, head of finance and resourcing, Scottish national investment bank directorate; and Fraser Gough, parliamentary counsel office, Scottish Government.

I invite the cabinet secretary to make a brief opening statement.

The Cabinet Secretary for Finance, Economy and Fair Work (Derek Mackay)

Good morning. The publication of the draft bill is a significant milestone in the creation of the bank, laying the foundations for it to begin investing in businesses and communities across Scotland from 2020. The bank has the potential to transform Scotland’s economy, as has been shown by the widespread support for the bank and the excitement that it has generated.

The bill gives a clear basis for establishing the bank, ensuring that it is commercially minded and publicly accountable. The work that has been done so far to establish the bank, including developing the bill, is the product of collaboration with stakeholders from across Scotland’s economy and society. Consultation and discussions with stakeholders have been crucial to the progress that has been made towards meeting the ambitions for the bank that are set out in the implementation plan. Certain key decisions are still to be taken before the bank becomes operational, including decisions about the products that it will offer, its structure and the scope of its missions.

Key to success will be the way in which the bank acts and evolves over time when it is operational, and I therefore welcome the committee’s role in furthering public debate on the bank. In the evidence that it has received, the committee has heard a constructive discussion on aspects of our proposals, and we will continue to engage widely, including with this committee, as we finalise our proposals to ensure that the bank can truly transform Scotland’s economy.

The Convener

There was a period when the UK Government was not keen on the notification process, because it did not think that it would be relevant or appropriate in light of the Brexit negotiations and Brexit itself. However, given the extension, the UK Government is now minded to forward our case, so we will pass that on to it for the interest of the European Commission.

Contingency plans are in place if there is a change in circumstances, such as Brexit happening. I will not go into all that, but I understand that the UK Government has arrangements in place for where we would send notification if it was not to the European Commission.

Gordon MacDonald (Edinburgh Pentlands) (SNP)

Evidence to the committee has suggested that there is not the level of demand in the economy that was envisaged. Rob Hunter, from the Development Bank of Wales, suggested that the £200 million that is envisaged to be invested each year is about the right level for Scotland. What are your feelings on matching the supply and demand of funds? Would it be right to invest £200 million a year under the current circumstances?

Derek Mackay

Clearly, we will have to consider how we finance the bank and the capitalisation of it from year to year, as resources allow. We have set out the £2 billion capitalisation over the 10-year period, but exactly how we profile that will be determined by the resources that we have available from budget to budget, within that aspiration. We have already announced the building Scotland fund and precursor funds to the bank being established, and those are being administered. Other funds will come from other places, such as the Scottish Investment Bank, which will form part of the finances. I would not set it out as rigidly as £200 million a year because, as I say, the profile may vary naturally from year to year.

We want to ensure that there is demand—folk queueing up at the door, if you like—so that people take advantage of the financial products that will be available. To stimulate that demand, we want to engage the enterprise agencies, the Scottish Futures Trust and the banks as appropriate. The purpose of the new bank is to give additionality rather than to crowd out the financial products that banks currently provide. We recognise that there are gaps in the economy and the market, and we want to focus on those to try to stimulate demand. The attention, coverage and awareness that the bank will, we hope, enjoy and we will encourage and stimulate will ensure that there is demand. The bank will have a transformational nature, as it is about trying to provide patient finance and capital, which is different from the products that banks have traditionally provided.

For all those reasons, there will be demand. We may have to stimulate that by raising awareness, and then success will breed success. I have described the investment pattern, which will vary from year to year, so that we can respond accordingly.

Gordon MacDonald

Again on demand, the committee heard from Rob Hunter that the Development Bank of Wales had an aim of reaching £80 million of investment by 2022 but that it achieved that in the first two years. Is there any reason why the demand profile in Scotland should be any different from that in Wales?

Derek Mackay

No. The economies are clearly different and some of the challenges that we face will be different. How we choose to target the missions will be different; it might be really good for us to target scale-ups or high-growth companies. We are learning from Wales and from the British Business Bank and the Green Investment Bank, but what we are doing is different from all of them and is unique to Scotland’s economic circumstances and landscape. However, I hope that we can have the same type of demand and investment.

With other investment funds that I am familiar with—the committee will be very familiar with them—Brexit uncertainty is having an impact, with investment plans being deferred and people sometimes being unwilling to co-invest. If the Brexit economic uncertainty is resolved and we get beyond the current phase, there will be even more demand for such products. That view is based on the evidence that I have seen that current financial tools are not being deployed and investment is being deferred because of uncertainty and a lack of willingness to co-invest.

Gordon MacDonald

The British Business Bank has recently established a new demand development unit. I know that the Scottish Investment Bank works closely with the British Business Bank. Is there anything that we can learn or copy from that new unit?

Derek Mackay

We will of course take the good practice from that. In my early days as finance secretary, I engaged with the British Business Bank. We do not want to crowd out the BBB, either—we want it to keep investing in Scotland and supporting Scottish business, so we are about additionality. However, we can of course pick up on that practice. We will have missions that are specific to Scotland’s economy, which is how we will achieve additionality and focus. However, if there are practical measures on raising awareness, particularly in relation to targeting small and medium-sized enterprises or scale-ups, that will be useful.

Having convened Scotland’s banking and economy forum, I am trying to ensure that we have good relationships with the banks and that we use an intelligent approach to provide resource or finance where that is not totally there at the moment. We will learn from the British Business Bank and the unit that it has created.

10:00

Dean Lockhart (Mid Scotland and Fife) (Con)

We have heard from those who are setting up the bank that it will not act as the originator of funding opportunities, but will rely on referrals from the existing enterprise agencies, Scottish Enterprise and Highlands and Islands Enterprise. Given the significant additional funding available from the bank, will the resources, budget and staffing levels of the enterprise agencies increase to cope with the additional work?

Derek Mackay

We have still to fully decide on who and what transfers, and what resource is where. I want to look closely at those issues to avoid duplication—a matter that Dean Lockhart has mentioned in the chamber. We do not want duplication or clutter; we want a potent, targeted, national investment bank that will leave the enterprise agencies and the SFT with their functions. We will look closely at how we align our efforts, organisations and staff. We are also working right now on a single point of entry for business support. It is about decluttering.

Rather than framing the question around whether the bank will bring costs of administration that will add to those of the enterprise agencies, we will look right across the infrastructure and landscape and ask what fits best where and how we can address duplication to ensure that we get maximum output from public finances.

Dean Lockhart

The Enterprise and Skills Strategic Board was set up two years ago to further align the activities of the enterprise agencies. Will that board therefore sit above the bank and oversee its activities to ensure the full alignment that you talked about?

Derek Mackay

That is a good question. As well as a board, the structure and governance of the bank will include ministerial accountability and parliamentary scrutiny, and Audit Scotland and the advisory group for ministers that I am proposing will also be involved. The strategic board provides advice on all enterprise agencies. The proposal is that the bank will be a public body and a plc, so its relationship to the strategic board will be different, but it would be wrong to assume that the strategic board will take no interest in the bank. I am trying to make the lines of accountability for the bank clear and not too cluttered. The strategic board might be able to give advice on the landscape of the agencies, and I will give that further thought. I do not want the bank to have to respond to too many sources of leadership, when the purpose was to declutter and to bring things together. I think that the strategic board will continue to provide recommendations on how to bring the Government’s agencies together. Mr Lockhart is familiar with that issue.

Dean Lockhart

My final question is on demand. The Scottish growth scheme was set up a couple of years ago to invest up to £500 million in the Scottish economy. Can you give the committee an approximation of how much has been funded under that scheme to date?

Derek Mackay

I would rather do that in writing so that I get the figure right. I committed to give the committee an update, and I will give you line-by-line, portfolio-by-portfolio investment figures.

As Mr Lockhart is aware, a number of the schemes took a wee while to set up. Some of that is down to demand, and—as I touched on earlier—some is down to investment plans being put on hold or the lack of co-investment. Am I still confident that the half a billion pounds to which we committed in the programme for government will be allocated over the period? Yes, I am. However, if it is helpful, I will write to the committee so that you have the amounts allocated to date for each portfolio. I know that I committed to giving that update.

The point is fair. I go back to the earlier point about stimulating demand and raising awareness. We want to learn the lessons, so that there is almost a queue at the door as we get ready to go.

Andy Wightman (Lothian) (Green)

I have a technical question. Scottish ministers already own Scottish Water, David MacBrayne Ltd and so on, so why is it necessary to establish the bank via primary legislation? If the Government wished, it could set up a bank without legislation.

Derek Mackay

I am happy to turn to the lawyer to explain why, but civil servants are good at saying, “It is because you have to, minister.” It is more technical than that.

Essentially, legislation gives us the basis to instruct. It also gives the bank its enduring nature if it sets out the parameters and functions, and it gives us the ability to capitalise, by way of resources.

That raises the question of what is different from what we had before. It is about the scale of the bank. If we get the dispensations, the bank will have further financial flexibility, which the agencies that we currently have do not enjoy. There are benefits from establishing the bank in legislation.

Fraser Gough might say more about the legal underpinning.

Fraser Gough (Scottish Government)

Part of the issue is the democratic imprimatur behind the bank. We are talking about an institution that will be vested with large sums of public money. Therefore, in a democracy, it is attractive for the Parliament to have the opportunity to shape the institution. Instead of the Government going away and drawing up the articles, the Parliament has, through the bill process, an opportunity to influence the bank’s structure and operation.

Are you saying that ministers do not currently have the power to capitalise such an institution?

David Wilson

Yes.

Andy Wightman

Thank you.

Recommendation 1 in the implementation plan is to establish a national investment bank with a vision to

“provide finance and act to catalyse private investment to achieve a step change in growth for the Scottish economy by powering innovation and accelerating the move to a low carbon, hightech, connected, globally competitive and inclusive economy.”

I do not think that we will find much disagreement with that. However, witnesses questioned whether that bold vision has been translated into the language of section 2, which sets out the objects that will be in the bank’s articles of association.

Questions have been asked about the object of

“investing in inclusive and sustainable economic growth”,

which is in section 2(2)(a). Just this week, the Poverty and Inequality Commission said that the Government needs to define exactly what that means and say how it can be measured.

Have you had further thoughts about the bank’s objects, cabinet secretary? Do you think that they faithfully reflect the vision in the implementation plan?

Derek Mackay

I am content that we will achieve the vision for the bank through the objects and, of course, the missions, which will be crucial. Section 2(2) sets out the ancillary objects, which cover the areas that you mention. They are:

“(a) investing in inclusive and sustainable economic growth,

(b) promoting and developing the activities of enterprises, where lack of financial investment is holding back economically viable commercial activity,

(d) creating and shaping markets through the provision of patient capital,”

and

“(e) contributing to the achievement of the Scottish Government’s economic policy objectives”,

which include not just boosting competitiveness but tackling inequality.

The bill says that you will send a document to the bank when setting, modifying or ending missions. I think that the missions are designed to be fairly long term. Will you give an indication of what proportion of the bank’s resource will be devoted to the pursuit of missions as opposed to other financial products that it may develop routinely?

Derek Mackay

That is a good question. I do not want to set a percentage. I suppose that that issue will feature in the investment strategy and the business plan. I expect the missions to be transformative and to absorb a lot of the bank’s energy and resource. We will direct the bank to engage in missions. That is not to say that every single investment will be exclusively part of the missions, but we will expect the missions to direct the energies of the bank.

We will get further information from the investment strategy and the business plan, which the bank will lead on. It will be for ministers to review that.

Andy Wightman

I am looking not for a specific percentage but for an indication. I am looking at the paper that was produced by Mariana Mazzucato and Laurie Macfarlane for the Government in March 2019. Much importance is being attached to mission-orientated finance. Do you see the mission-based finance as a substantial part of the bank’s activity?

Derek Mackay

I do. I said that I think that the missions will absorb the bank’s energy and resources—I expect that to be a real focus of its work.

Andy Wightman

That is helpful. Thank you.

We have had discussions about ethics. Do there need to be legislative provisions on the bank’s ethics, or are you content to leave that to the board?

Derek Mackay

I do not support either of those options. I do not intend to legislate specifically on defining things as ethical, but there will be an ethical statement. However, I will not just leave that to the board. Although it is appropriate for the board to lead on the ethical statement, ministers should review it. Naturally, ministers will engage in relation to that. I am sure that ministers will want to give a view on the shareholder framework document—and even at an earlier stage—and on what we feel is the spirit of ethical investment in practice. That said, as a public body, the bank will be bound by, for example, the public sector equality duty and the Gender Representation on Public Boards (Scotland) Act 2018—there is existing legislation that is relevant to a public body.

It might. It is possible, and even likely, but it will depend on what the bank invests in; when there is a financial return; the state of the economy at the time; where there is success, whether that is around the bank’s missions or around its investment profiles; and what we choose to do around the economic cycle.

Angela Constance (Almond Valley) (SNP)

Cabinet secretary, you are probably aware that Engender and Close the Gap have raised serious concerns about the equality impact assessment, saying, in essence, that it lacks substance and is incomplete and that the analysis is somewhat “cursory”. How do you intend to interfere to rectify that matter?

Derek Mackay

At this stage, ministers and, indeed, Parliament are perfectly entitled to work on creating the bank, so I do not see that sort of thing as interfering at all. I have seen the evidence from Close the Gap and Engender, and officials are meeting organisations to go through their concerns and to ensure that what they have to say shapes and informs future work.

As I touched on earlier, the bank will, as a public body, be duty bound to follow the duties that are set out in the bill. Perhaps some of the elements of equality or of the duties have not been expressed in the bill, simply because those things are de facto required of any bill or any public sector body. It is therefore expected that all of that will be delivered and complied with without any reference being made to it, because it is the legal position as set out in the public sector equality duty and other duties in the Equality Act 2010.

Further work on socioeconomic deprivation will be carried out under the fairer Scotland duty assessment. I understand that the findings of that work will be published at the end of the summer and will also feature in the various strands of work that have yet to begin.

Between our engaging with the organisations to ensure that we get this right and our directing the bank, targeting what it does and pointing it in a certain direction, I will want to ensure that we cover issues such as having an inclusive approach, ensuring inclusive economic growth, sustainability and equality and tackling inequality. I think that those things will feature in the missions and the shareholder framework document, and I also expect them to be set out in the remuneration policy, the investment strategy, the business plan and the ethical statement. It is right that they will feature in those documents, which ministers will review.

I will pick up two issues that have been covered before I ask my allocated question. I welcome the cabinet secretary’s invitation for the committee to interfere and I view that as positive encouragement to do so. Does he have in mind a role for the committee or do we have a blank sheet to do what we will?

Derek Mackay

I am totally open, accountable and transparent to the committee. As always, it is no holds barred from Jackie Baillie.

Jackie Baillie

You do not let me down; you will therefore be able to look with interest at our report.

In a reply to Gordon MacDonald, you touched on stimulating demand and the challenge that Brexit poses, and you pre-empted my next question. The Scottish-European growth co-investment programme has managed to allocate only £3.25 million out of a total of £200 million. Has Brexit caused the slow take-up of that funding?

With the Scottish-European growth co-investment programme, we have to comply with the rules on what it is appropriate to use those resources for. As finance secretary, it has always been my position not to lose any resources. If people will not take the financial products that we have, we will look at how to amend them so that we can provide further support to the private sector. However, Brexit uncertainty has been raising its head ever since the referendum and having a material impact on the investment decisions of companies and potential investors.

Jackie Baillie

It is just that you introduced that fund in the light of all that.

The cabinet secretary has mentioned the advisory group, and I want to ask more about that. A variety of witnesses have given us views. Some want the advisory group to be more separate and stand alone, and others want it to be more involved. How do you see the advisory group operating? Am I right that it is intended to advise ministers rather than the bank?

It gives you the link that you were asking about—not from the advisory group into the board, but from the board to the advisory group. The important point about the advisory group is that we want it to be reflective of Scotland and its key economic interests. It cannot be totally comprehensive and cover every sector, but we want the group to be informed, and for it then to inform ministers.

I think that the proposal will provide that direct relationship with ministers. We want the group to act as our advisers on the wider economy. We also have the link from the board through the non-exec director. They would be outnumbered, however, by all the other members on the group. We have been considering a membership of, I think, around 20.

David Wilson

It is about that.

Derek Mackay

We are open to that, and I think that that would be quite representative.

John Mason

We have heard a variety of thoughts and comments regarding membership. It has been suggested, for example, that nurses and social workers might be on the advisory group. That would not be a traditional expectation of or requirement for a financial institution, but that would mean that there would be wide involvement in the advisory group, including from many people who would not have a financial background. Is that your thinking?

Derek Mackay

Yes. I would not want to create representative posts for a sector, but the mission is for the group to be as representative as possible. That goes back to Angela Constance’s point about equality, representation and who populates the group. We will consider how it is formed as we work towards its operation. I can provide the committee with further information. Those matters are obviously not for the proposed legislation before us, but they absolutely relate to the operation of the bank.

John Mason

That is helpful.

On a slightly separate point, you explained earlier that one of the reasons for setting up the bank in the legal way that you have chosen is to give it longevity, so that it can go through political cycles. We have used the word “patient” a lot. You have mentioned being a patient stakeholder, and we have been discussing patient capital. Are you optimistic that the politicians—I am thinking of people such as Jackie Baillie and Dean Lockhart—will be patient, or do you think that, on day 1, they will immediately ask for a high rate of return and criticise you if they do not get it?

Derek Mackay

Those are very unkind comments to other committee members—although the analysis is probably 100 per cent fair: ministers and the bank should be held to account.

That brings us back to an earlier point: that the aim is not necessarily to raise revenue for Government, nice as that would be. It is about helping us to transform the economy and to provide financial support where it does not fully exist at the moment, while targeting some issues where that could really help us out.

Let us take an area such as renewables. If the bank levered in finance to the renewables sector to capitalise on our wonderful natural assets and their ability to create clean, green energy, that is the kind of investment that would be transformational.

We will all be enthusiastic about the bank’s creation and we want to get it right. The bank will be held to a very high standard, and that is admirable.

The Convener

Speaking of Dean Lockhart.

Dean Lockhart

Thank you, convener. I am both patient and enthusiastic, cabinet secretary.

I want to address a couple of issues to do with missions. In previous evidence sessions, there was some confusion about whether all the bank’s lending would be mission based, or whether it can lend outside of its core missions across all sectors, as the Scottish Investment Bank currently does. Will the cabinet secretary please clarify that?

Derek Mackay

We have published the illustrative missions, which, arguably, are quite wide. However, they are also focused, in that they focus on inclusive and sustainable economic growth.

To answer the question directly, the bank will be able to allocate resources outwith the missions, but that will be for the bank to decide. Such lending will need to be within the bank’s ethical statement, investment strategy and all the other considerations and burdens that we will put on it. Because we will not be micromanaging the bank’s individual investments, it is not inconceivable that it will invest outwith the missions, albeit within those other policy parameters.

Dean Lockhart

Let me give you an example that was raised in previous evidence sessions. Would investment in the oil and gas sector be consistent with a low-carbon mission for the bank?

Derek Mackay

It depends what the bid for funding is. Let us say that an oil and gas company wished to diversify from extraction into renewables or emissions reduction. It goes back to my earlier point. As long as the bid meets the other policy requirements, an investment can be made outwith the specific missions. It will be down to the nature of the application and the investment that is sought. The bank will also be looking for a balanced investment profile.

We then come to a wider debate about the bank’s ethical statement and the restricted nature of what the bank may or may not invest in, on which we may have a view. We are talking about the legislation to create the bank, so I do not want to speculate too much about what the bank may or may not invest in. Some of those matters will be for investment strategy or the ethical policy.

Dean Lockhart

I will share that with you, as it assisted me. I see that I have got Mr Wightman excited at that prospect.

With regard to the statute, it is what it is. There are changes that we can make in policy and to the mission but, if there were to be a much larger change to the bank, that would require primary legislation and we would have to return to Parliament.

Andy Wightman

I am not particularly excited about you sharing your briefing, although that would be useful; I am more excited about the prospect of—

Derek Mackay

I said that I would share the chart, not the briefing.

Andy Wightman

Yes, although it would be good if you could share briefings with the committee in advance of each of your appearances before us.

Derek Mackay

I suspect that it would make all of our lives much easier.

The Convener

Not necessarily, but thank you for the offer to share a chart with us. I think that that is the first time that we have had that offer from a cabinet secretary.

As there are no other questions, I thank the cabinet secretary and his team for coming to the meeting. We will now move into private session.

11:03 Meeting continued in private until 11:48.

11 June 2019

7 May 2019

14 May 2019

21 May 2019

28 May 2019

4 June 2019

11 June 2019

Economy, Energy and Fair Work Committee Committee's Stage 1 report

This report was published on 4 July 2019.

Find out what else the Economy, Energy and Fair Work Committee is doing.

What is secondary legislation?

Secondary legislation is sometimes called 'subordinate' or 'delegated' legislation. It can be used to:

bring a section or sections of a law that’s already been passed, into force
give details of how a law will be applied
make changes to the law without a new Act having to be passed

An Act is a Bill that’s been approved by Parliament and given Royal Assent (formally approved).

Delegated Powers and Law Reform committee

This committee looks at the powers of this Bill to allow the Scottish Government or others to create 'secondary legislation' or regulations.

Read the Stage 1 report by the Delegated Powers and Law Reform committee published on 27 March 2019.

Find out what else the Delegated Powers and Law Reform Committee is doing.

Debate on the Bill

A debate for MSPs to discuss what the Bill aims to do and how it'll do it.

Stage 1 debate on the Bill transcript

The Deputy Presiding Officer (Linda Fabiani)

The next item of business is a debate on motion S5M-19061, in the name of Derek Mackay, on the Scottish National Investment Bank Bill.

14:53

The Cabinet Secretary for Finance, Economy and Fair Work (Derek Mackay)

It is with great pleasure that I open this stage 1 debate on the Scottish National Investment Bank Bill.

The bill being considered today lays the foundation for an institution that will be a cornerstone of Scotland’s economic architecture—one with the capability and commitment to reshape our economy, making it more inclusive, innovative and internationally competitive.

As a mission-oriented lender, the bank will contribute to the major societal challenges that are facing us all today. In particular, as the First Minister has set out, the bank will make a significant contribution to our work on tackling the climate emergency. I will come on to that in more detail later.

We want this bank to be a valuable asset to the Scottish economy for generations to come. For that to be the case, the bank will have to protect and grow its portfolio of investments, recycling one decade of success into the next. The bank will therefore make investments that support sustainable and inclusive growth across Scotland and it will be held to account for its delivery against the missions that are set for it. It will also seek to make a sufficient return on its investments to enable it to cover its operating costs and not be reliant in the long term on the Scottish Government and therefore the Scottish taxpayer.

In 2017, the First Minister asked Benny Higgins to provide a blueprint for the Government on how to establish an institution capable of transforming Scotland’s economy. The implementation plan that he produced articulates a clear, ambitious vision for the bank and provides a detailed road map for creating an institution that can deliver against that vision. I personally thank Benny and his team for their ambition and rigour in producing the implementation plan.

Our proposals for the bank have been strengthened through extensive stakeholder and public engagement. We have run two public consultations over the past few years, and more than 300 people attended a series of eight stakeholder events held across Scotland over the summer. Throughout that engagement I have been struck by the level of excitement about our vision for the bank and its potential to transform Scotland’s economy. I thank those who engaged with us in creating the bill, thereby helping to lay the foundation for a bank that will deliver for businesses and communities across Scotland. We will continue to engage widely as work to establish the bank progresses.

I thank the Economy, Energy and Fair Work Committee for its thoughtful and constructive scrutiny of the bill. The committee recommended that the Parliament agrees to the general principles of the bill—which is a relief—and it made a number of very helpful suggestions. In recognising that the bank must be

“independent but accountable and permanent but adaptable”,

the committee demonstrated a clear appreciation for the type of institution that we collectively wish to create. The Scottish economy enjoys significant strengths in employment, in our proportion of employees in the United Kingdom who are paid the living wage, and in the growing demand for our exports, which all demonstrate our economic resilience.

However, it is important to acknowledge that there remains significant work to do to release the untapped potential in Scotland’s economy. The 2019-20 programme for government sets out ambitious and progressive sets of proposals. The measures include increased investment in skills and in physical and digital infrastructure. Those measures can improve productivity, boost exports and help to make Scotland a globally competitive place to do business.

Business investment levels are low, and their potential for growth has been curbed. Scotland’s business expenditure on research and development and innovation performance is behind that of other European nations. Our productivity growth in key sectors, although outperforming that of the UK, remains modest. Those factors point to the need for a new investor in the Scottish economy—one with patience and the strategic oversight to reinforce and enhance Scotland’s position as a dynamic and innovative economy.

The case for establishing the bank is even stronger today than it was when it was first announced in our 2017 programme for government. Patient and strategic investment will be vital if we are to mitigate some of the damaging impacts that are forecast as a result of the UK exiting the European Union.

Earlier this year, the First Minister acknowledged that Scotland, like the rest of the world, faces a climate emergency. This year’s programme for government set out our response and lays the foundations for a new Scottish green deal. The Scottish national investment bank will also have a role to play, and the First Minister has confirmed that the bank’s primary mission will be securing the transition to a net zero economy.

It is vital that the bank is an institution that complements the existing investment landscape in Scotland—one that crowds in, rather than crowds out, private sector investors. We believe that capitalising the bank to the tune of £2 billion represents an ambitious yet achievable level of funding. It enables the bank to have a transformative impact on the Scottish economy while ensuring that it does not displace the activity of existing private sector lenders.

Dean Lockhart (Mid Scotland and Fife) (Con)

Can the cabinet secretary confirm what percentage of the bank’s initial capitalisation will be in the form of financial transactions money from the UK Treasury?

Derek Mackay

It is well understood that a substantial amount of that will be financial transactions in the early years. We will look at expanding the products. I would object to the language of that being the Treasury’s money; I would argue that it is Scotland’s money—and we will of course be reinvesting it in Scotland. It is true to say that the bank will be largely financed through those financial transactions, which are available to be spent in the private sector, particularly on investments such as those that we have been talking about.

As highlighted by the implementation plan, the £2 billion that is being committed to the bank over the next 10 years equates to 1.3 per cent of Scotland’s gross domestic product and is therefore in line with the level of capitalisation that is committed to comparative institutions across the world. Indeed, in its stage 1 report, the committee has acknowledged that our commitment to capitalise the bank with £2 billion over 10 years represents “a good starting point”.

The bill is an enabling piece of legislation. It places a duty on Scottish ministers to establish the bank as a public limited company, and gives ministers the necessary powers to capitalise the bank. The bill also enshrines a role for Parliament by ensuring that parliamentary approval is needed before making any changes to the provisions of the bank’s articles of association. I am pleased that the committee has been supportive of the general approach that we have taken.

The recommendations set out in the committee’s stage 1 report are welcome and constructive. I have provided a written response to the committee, accepting many of the recommendations. For the benefit of the members who are present, I will briefly set out some key parts of that response.

The Government has accepted the committee’s recommendations that the bank’s role in achieving social and environmental value alongside financial returns be clarified. Consequently, we are considering potential amendments to the ancillary objects that would give effect to the recommendation, and I want to engage with members on that.

We are also considering the committee’s recommendation that the bank not be given a target rate of return for its first years of operation. Although we recognise that the principle behind that recommendation is constructive, its implications need to be fully considered. I have already mentioned the need for the bank to become financially self-sustaining. A commitment to a rate of return may also be necessary to meet the state aid requirements that apply to the bank. However, we will give the matter further consideration.

When giving evidence to the committee on the bill, I committed to engage with the Parliament in the development of the bank’s missions and I am pleased that that proposal has been welcomed. I will engage and work collaboratively with members across the chamber in looking at the missions. I engaged on a similar cross-party basis on the national performance framework, which I know was welcomed by members across the chamber.

We have also accepted the committee’s recommendation to consider potential stage 2 amendments to provide for a process by which Parliament can be formally consulted on future missions.

The committee made recommendations regarding the role and membership of the advisory group. The Government has accepted the recommendation that the chair of the advisory group should not be a member of the bank’s board. I also clarify that the role of the group will be to advise ministers, not the bank itself.

We have, however, concerns about providing for the advisory group in the bill, as doing so may prove overly prescriptive as to the mechanisms by which Scottish ministers seek advice. I am, however, keen to hear members’ views on the matter in the light of the proposals for the advisory group that we have now published.

The establishment of the Scottish national investment bank will be a substantial good for the economy and, therefore, the people of Scotland. Today’s debate is a key staging post along the way to creating a long-standing institution in the Scottish economy, which is capable of driving the positive changes that we all want to see.

I look forward to the debate.

I move,

That the Parliament agrees to the general principles of the Scottish National Investment Bank Bill.

15:04

Gordon Lindhurst (Lothian) (Con)

What’s in a name? The Scottish national investment bank certainly has “Scottish” in it, and the intention is that its reach will be national and its purpose will be investment. However, it is not a bank; at least, not a retail bank.

As one witness told us:

“Essentially, SNIB is an example of that great Scottish invention, the investment trust—it is not really a bank.”—[Official Report, Economy, Energy and Fair Work Committee, 28 May 2019; c 11.]

The bill to enable the bank that is not really a bank is not quite the whole story either. As the cabinet secretary indicated, much of the detail is to be found elsewhere, in the articles of association and various other supporting materials, strategies, plans, frameworks and charts, and some of those documents are still in draft form or will be left for the bank to devise. I shall not try to cover everything that the committee had to say about the bill and those other component parts; instead, I shall focus on some aspects: patience and purpose, inclusive growth, and missions.

What is it that the bill imposes a duty on the Scottish Government to establish? It is both a public limited company and a non-departmental public body. The bank will be an unusual body, expected to act commercially while at the same time seeking economic, societal and environmental returns. Like the British Business Bank, the plan is for it to become a funder of funders and to crowd-in other investment. The emphasis will be on long-term, or what is called “patient”, capital, informed by a mission-led approach.

Hopes for what the bank can achieve are vertiginously high, but we must look beyond short termism and the limited perspective of the electoral cycle. As one witness put it,

“We are constantly faced with people trying to rewire the building with the power still switched on.”—[Official Report, Economy, Energy and Fair Work Committee, 21 May 2019; c 15.]

That might also be applied to Westminster at the minute.

Another witness cautioned against criticism in the first few years, advising that

“Most of the bad news comes early … The lemons ripen before the plums.”—[Official Report, Economy, Energy and Fair Work Committee, 28 May 2019; c 13.]

If I may add another metaphor to the mix, we were also told that

“There will be red ink spilled in its annual reports and accounts every year until 2023 … if you want long-term patient capital, you have to have long-term patient investors.”—[Official Report, Economy, Energy and Fair Work Committee, 7 May 2019; c 25.]

The economist Mariana Mazzucato underlined the importance of finding the right partners—those who are able to subscribe to the mission-orientated ethos. Rather than “just handout machines”, she favoured public banks that pick

“the ‘willing’, not ... the ‘winners’”,

and she told us that

“The Bank is a wonderful experiment in Scotland to see precisely what it would be like to transform our imagination of what the public sector is for.”—[Official Report, Economy, Energy and Fair Work Committee, 14 May 2019; c 3,13.]

The committee was not convinced the language of the bill matches that aim for the bank to be transformative. We asked the Scottish Government to reflect on the wording of the objects that are set out in section 2—the cabinet secretary has already referred to that. We also invited consideration of how non-financial returns can be anchored in the bill.

How do we measure success? The use of a balanced scorecard was mentioned in an earlier document—the implementation plan—but it does not feature in the bill or anywhere else. The Scottish Government has said that it will lodge amendments at stage 2 to address those points, and the committee welcomes that undertaking.

The bill’s equality impact assessment should also be mentioned, because it was not so well received by some. The Scottish Government has now issued a fully revised assessment—the full detail in the revised assessment can, of course, be read elsewhere.

That brings us to the theme of inclusive growth—a term that is frequently used in policyspeak but is subject to considerable interpretation; the committee has highlighted as much in numerous pieces of work this session.

Research published in June by IPPR Scotland on behalf of the Poverty and Inequality Commission stated:

“The Scottish Government and its agencies could be clearer and more consistent in their definition of inclusive growth and demonstrate how this applied definition translates into practice.”

The Poverty and Inequality Commission concluded that

“inclusive growth appears to be more of a concept than something which results in a tangible outcome.”

It found it “heartening” that inclusive growth was to be built into the bank from the start, but it wanted to ensure that the agenda

“penetrates into the heart of economic policy making”.

The committee recommended that the Scottish Government give careful consideration to those research findings, and, in particular, how it can translate the theory into a clearer vision with tangible delivery. Our concern is that, without clarity, the bank could focus only on financial returns. Therefore, we welcome the positive response in the form of the fairer Scotland duty assessment—yet another document in a crowded field—which recommends that

“the Scottish Government review the ancillary objects contained within the Bill ... utilising its position as a ‘cornerstone in Scotland’s economic architecture’ to shape an economy that is diverse, democratic and which enhances societal wellbeing.”

That is perhaps a slightly long-winded quote, but it is one that is worth sticking with. If one reads the quote carefully, one sees that, in its own circuitous way, the Scottish Government is telling itself that it should listen to the committee—of course, the committee can only heartily agree.

The final issue that I wish to touch on concerns the bank’s vision and the setting of its missions. There will be missions to meet major societal challenges such as carbon reduction and the provision of social care. Such missions will call for multiple solutions from multiple sectors by multiple players. Professor Mazzucato said:

“I encourage the committee to keep provoking on that point.”—[Official Report, Economy, Energy and Fair Work Committee, 14 May 2019; c 4.]

Indeed we shall. We called for the Parliament to have an input to the formulation of the missions. There should be not just a round-table approach—useful as that can be—but a formal consultation process that is akin to the mechanisms that have been devised for climate change and planning legislation. The Scottish Government said that it

“will give consideration to bringing forward amendments to this effect”.

I rather hope that that is a non-committal way of committing, but maybe I am misreading the coded language of bureaucracy.

It was Bob Hope who said:

“A bank is a place that will lend you money if you can prove that you don’t need it.”

What is envisaged for the SNIB runs very much counter to that caricature. The bank is intended to be a public bank that drives transformative change. It is intended to be independent but accountable, and permanent but adaptable, with a long-term patient view. To that end, the committee set out 19 recommendations in our report. Our balanced scorecard reads that roughly half have been accepted, a couple have been declined and the rest are under review, which reminds one, in relation to investment, of the three options that are set out in the parable of the talents.

As I have said, there are several areas in which the Scottish Government has undertaken to lodge stage 2 amendments, and we will study the detail of such amendments in due course. We look forward to further engagement on the Parliament’s role in framing the bank’s missions. On that basis, we recommend that the general principles of the bill be agreed to. I look forward to listening to other contributors to the debate.

15:13

Dean Lockhart (Mid Scotland and Fife) (Con)

We agree with the objectives underlying the establishment of the bank, and we will support the motion. We agree that Scotland needs more long-term patient capital, that firms that are looking to expand need more support and that we need transformational change in Scotland’s economy.

Just last week, we had confirmation that Scotland’s economy is contracting—the rate of growth is half that in the rest of the UK economy. Productivity continues to lag in the third division, and wages and tax revenues are falling further behind those in the rest of the UK, which is resulting in Scotland having a record fiscal deficit that is higher than that in any other country in Europe.

The need for transformation to reverse Scotland’s decline into a low-growth and low-wage economy is clearer than ever. Development banks can make such transformational change; there are clear examples in Singapore, Germany and elsewhere. However, such change can happen only when the development bank is part of a coherent economic policy framework and when there is absolute clarity on strategy and objectives.

That was recognised in the chamber last year, when we first debated the bank and all members agreed to an all-party motion that said that

“a cluttered policy landscape can lead to confusion, a lack of alignment, duplication and weakened accountability”.

That is our overriding concern with the bill. Rather than being about the bill itself, which is enabling legislation, our concern is about the policy context in which the bank is being introduced and the on-going confusion, clutter, duplication and lack of alignment that characterise the Scottish Government’s approach to the economy and which mean that there is a real risk that the bank will fail to meet its ambitious objectives.

Section 2 of the bill states that the bank must invest in inclusive economic growth but, time and again, evidence that was given to the committee showed that there is fundamental confusion over the policy of inclusive growth. According to Scottish Enterprise, what the concept means to one person is different from what it means to another. It said:

“There is no single measure of inclusive growth”.—[Official Report, Economy, Jobs and Fair Work Committee, 14 November 2017; c 22.]

A representative of Highlands and Islands Enterprise said:

“I agree that inclusive growth is difficult to measure”,—[Official Report, Economy, Energy and Fair Work Committee, 10 September 2019; c 36.]

and a leading economist made the observation that we do not have “a firm handle” on inclusive growth.

If inclusive growth is to be a central part of the bank’s objectives, the Scottish Government must clarify precisely what it means and how it will be measured, not just for the bank, but for other enterprise agencies, so that they are all aligned in their economic targets.

John Mason (Glasgow Shettleston) (SNP)

I wonder whether the member overstates the case slightly. There is broad agreement on a lot of things. For example, Scottish Enterprise and HIE have not been very good at bringing women into growing businesses and encouraging them, and I think that everyone across the chamber agrees that that is part of the inclusive growth that we want to see.

Dean Lockhart

When Mr Mason was a member of the committee, he heard evidence from many witnesses that inclusive growth as a concept means different things to different people. I am a great believer that, if we cannot measure something, we cannot manage it. I think that partly explains why there is confusion about the bank’s objectives.

The guidance that I am talking about does not need to be in the legislation itself; it can be in the form of public guidance to all enterprise agencies. We look forward to the cabinet secretary clarifying what the centrepiece of his economic strategy actually means.

The committee also heard concerns about the costs involved in setting up and running the bank. In its evidence, the Royal Society of Edinburgh said that the £25 million annual running costs were “very high”. That £25 million is in addition to the £120 million operating costs of the other enterprise agencies, which means that the Scottish taxpayer is spending £150 million a year on running costs for those agencies before a single penny is invested in the economy.

We need to ensure that we see a real return on that investment along the lines of the one that the British Business Bank delivers for the UK Treasury. It has a target rate of return of more than 2.5 per cent. Again, that target does not need to be part of the formal legislation, but we need to have clear targets to monitor the medium and long-term performance of the bank once it is up and running. I agree with the cabinet secretary that the targets should apply only once the bank is up and running.

Another fundamental question that the Scottish Government has failed to adequately address is whether there will be sufficient demand in the economy for the additional funding that is offered by the bank. It has also failed to adequately address the related question of whether the existing enterprise agencies are fully resourced to identify the new investment opportunities. We saw those problems arise in the context of the Scottish growth scheme, which has invested only a quarter of the money that was promised, because there was not sufficient demand in the underlying economy to pick up the £500 million that was promised.

The committee also heard evidence that the bank will not act as the originator of funding opportunities. That means that it will have to rely on the existing enterprise agencies, which will be operating under their existing budgetary and resource constraints. That raises the question whether the existing enterprise agencies are properly resourced and fully able to deliver the transformational increase in business investment that is required. We are yet to see convincing evidence from the Scottish Government that it has a delivery plan in place, either through the bank or through the enterprise agencies, to identify that transformation in demand in the economy. The cabinet secretary also needs to confirm whether the enterprise agencies’ budget will be increased to deal with the extra demands that are placed on them. HIE told the committee that, to prepare for the SNIB coming on stream, it has hired one additional person, which does not strike me as a transformational change.

In later stages, we will seek assurances from the Government that it will avoid calls for a series of restricted areas of investment by the bank. We will also seek assurances that the bank will not be used to prop up failing business or declining sectors; that the bank will avoid duplication with the multitude of enterprise agencies and initiatives, which one witness referred to as a “Venn diagram on steroids”; and that the bank will continue and expand the co-investment programmes that the Scottish Investment Bank has successfully pioneered.

I turn to the bank’s strategic missions. The programme for government announced that the bank’s

“primary mission will be securing the transition to net zero”,

and that

“A key element of the Bank’s work will be to help to shape and develop commercially-investable low carbon markets.”

We agree with those missions. Again, however, we need to see the detail on how they will be delivered, given that, over the past 12 years, the Scottish National Party has failed to deliver economic benefits and jobs from low-carbon markets.

The Scottish Trades Union Congress made that point clearly earlier this year when it highlighted Scotland’s negative trade balance in the low-carbon sector. We import £230 million more in the low-carbon economy than we export. I look forward to hearing from the cabinet secretary about how the Government will avoid repeating past mistakes in relation to the development of low-carbon markets.

We will lodge amendments to bring the bill into line with best practice and with the way in which the British Business Bank operates. That will include adding in a requirement in section 12 for the Government to consult and seek agreement with the bank’s board of directors before any change is made to the strategic missions. We believe that the Scottish national investment bank should operate independently and that any change to the missions should be made only following such steps.

We will support the bill to establish the bank at stage 1, but we call on the Government to provide assurances, in the bill and otherwise, to address the concerns that we are outlining today.

15:21

Richard Leonard (Central Scotland) (Lab)

In this afternoon’s debate, the Scottish Labour Party is making the case for the active state, the innovative state and the developmental state. That is our guiding principle; that is our call to action in considering the bill.

We and the people of this country do not simply want a residual state that is reactive and steps in only at the point of market failure. We need a different allocation of resources than would simply be delivered by the market. That is what the establishment of a Scottish national investment bank should be about.

The purpose of the bank that we must create with this legislation cannot simply be about the best rate of financial return alone. It must be ethical; it must take account of the strategic interests of the wider economy, such as the urgent need to tackle climate change; it must be empowered to help build a more equal and a more democratic economy; and it must be on the side of the people.

We live in an economy that is too often unjust and is in too many areas inefficient—with long hours and low wages, with inequalities and, all too often, discrimination in the labour market and with low rates of capital investment and low rates of productivity.

We will tackle the productivity gap in our economy only if we tackle the production gap in our economy, and we will do that only if we tackle the investment gap. A properly resourced national investment bank is the right way to begin to address that gap.

The Scottish Labour Party wants intervention that is developmental, not defensive, and that is industrially radical, not industrially conservative. We want to lock in the public ownership status of the bank so that there can be no repeat of the Green Investment Bank sell off. This Parliament must learn the lessons of that initiative.

In the bill’s accompanying financial memorandum, the Government claims the bank’s level of capitalisation to be “both ambitious and achievable.” There is little doubt that it is achievable—of course it is—but it lacks ambition. Some £2 billion to capitalise the bank over 10 years might seem like a lot, but it would represent a rise of less than 1.4 per cent per year in overall Scottish business investment. In its plans for a UK-wide national investment bank, Scottish Labour proposes that £20 billion should be made available over 10 years for industrial investment in Scotland. That would make the kind of transformative step change that the Scottish economy needs.

In recent weeks, I have argued that the restrictions on Scottish Government borrowing powers should be lifted. I believe that that rule should also apply to the Scottish national investment bank, as the Scottish Trades Union Congress has called for in its submission.

Scottish Labour welcomes object (c) in the bank’s articles of association as listed in the bill, which is

“promoting and developing the activities of small and medium-sized enterprises”.

However, unless the Government amends its economic policy objectives, object (e), which sets the bank the goal of

“contributing to the achievement of the Scottish Government’s economic policy objectives”

will mean that the bank’s investments will be in pursuit not simply of small and medium-sized enterprise development and the nourishment of indigenous industrial growth, but of mobile foreign direct investment. The inevitable result would be that the Scottish economy would be not less, but even more of a branch plant economy as a result of the new bank’s creation. We must guard against that.

On governance, of course the bank should be answerable to ministers. However, it should be answerable and fully accountable to the Parliament, too. Its strategic framework, the setting of its goals and performance objectives and their monitoring must be subject to parliamentary scrutiny and therefore public as well as ministerial scrutiny.

The main board and the advisory board should be gender balanced and should reflect the diversity of our society. Both boards should contain trade union and industrial voices in significant measure. Those should not be token seats; they should involve meaningful representation.

We need to set clear guidance on maximum salary ratios in the new bank, so that the ratio of the chief executive’s remuneration—not just their salary but their overall remuneration—should be limited, perhaps to no greater than 20 times that of the lowest-paid worker, and arguably significantly less.

In “The General Theory of Employment, Interest and Money”, John Maynard Keynes rightly said:

“When the capital development of a country becomes a by-product of the activities of a casino, the job is likely to be ill-done.”

Scottish Labour therefore welcomes an alternative to the model of dispersed ownership and share listings, and an alternative to the model based on financial institutions looking for a quick return and the ever-constant threat of takeover. Everyone is agreed that we need longer time horizons and more patient capital. We need industrial interests to predominate—not the commercial interests of the City of London. We need to rebalance our economy and tackle the highly centralised UK economy.

We will not solve every problem in the Scottish economy with this bill and the establishment of a national investment bank for Scotland. We need to make sure that the bank is not another Government proposal that overflows with spin but underwhelms on substance. Nonetheless, the bill represents a starting point on which we can improve. We can establish a bank that is accountable and that has clear objects, the overarching aim of which is to build the economy from the bottom up. We can establish one that is financing the just transition from a carbon-based economy to a non-carbon based one. Such a bank would promote democratic forms of ownership, including co-operatives and employee ownership. We can establish a bank where the right voices and values sit at the heart of it—not just at the start, but in the long term—by building that into the legislation.

I ask the cabinet secretary to hear those views and to respond to them positively. Listening to Parliament and agreeing to radical reforms and constructive suggestions would be a sign not of weakness, but of strength. I hope that the Government is listening and that it is prepared to act.

15:29

Andy Wightman (Lothian) (Green)

Greens support the establishment of a Scottish national investment bank. We have an economy that has, over the past 40 years, been run in the interests of private capital rather than in the public interest; an economy where the return to labour over the past 20 years has declined in relation to the return to capital; and an economy where the public sector at a local level has been in retreat and has lost the means, the will and the courage to take its proper role in the economy to advance the public interest. It has therefore been refreshing in recent years to see an increasingly positive case being made for an economy where the public interest is placed more at the heart of economic policy.

I pay tribute to a range of thinkers who have advocated the creation of such a bank. They include the New Economics Foundation, Friends of the Earth Scotland, Common Weal and the move your money campaign, whose 2016 report “Banking for the Common Good” outlined a vision of what a state investment institution could do and the role that it could play in Scotland. In the context of the bill, such thinkers include Mariana Mazzucato, whose 2013 book “The Entrepreneurial State: Debunking Public vs Private Sector Myths” debunked many of the myths around the role that the state can play in the economy. Her evidence to the committee was both refreshing and encouraging.

We know that public investment banks can work. In the debate that we had on the subject in May 2018, the then cabinet secretary Keith Brown noted that countries including China and Germany are confronting key social and environmental challenges in that way. He cited the example of the German KfW bank, which supports small and medium-sized enterprises, export promotion, environmental protection, innovation and international development.

In this context, other countries provide examples of far more sustainable models of banking in general, such as the German Sparkassen, which are 431 locally owned savings banks that own the eight Landesbanken and work with the German state investment bank KfW, which the cabinet secretary mentioned, to make loans. In 2012, the Sparkassen provided 45 per cent of all long-term business lending in Germany, which was more than double what was provided by German commercial banks.

There is a lesson here that we need to learn as a matter of urgency because, as Professor Mazzucato said in The Spectator last year:

“many of the businesses we are told are value creators are actually value extractors”.

In an interview in New Statesman in the same week, she pointed out that the financial services industry was never even included in GDP until the early 1970s because many such services are no more than transactional and they add nothing to economic activity.

In recent weeks, Greens have set out the broad parameters of a Scottish green new deal, and central to that is the need for investment in a new green economy. The role of the Scottish national investment bank should be central to delivering that. With that in mind, we would like to see some changes to the bill, including the following.

We would like a clearer articulation of the bank’s purpose. The Economy, Energy and Fair Work Committee remains to be persuaded that the language of the bill fully matches the ambitions for the bank to be transformative. The original vision for the bank in the implementation plan was a bank that would be responsible for

“a step change in growth for the Scottish economy by powering innovation and accelerating the move to a low carbon, high-tech, connected, globally competitive and inclusive economy.”

Personally, I do not agree with those words, but the point is that no vision is set out in the bill, and that needs to be addressed.

Derek Mackay

Does the member accept that the enabling legislation takes us so far in ensuring that the foundations of the bank are provided for in law, but that there is far more scope for that transformative language, vision and purpose to feature in all the other documentation that will drive the bank? Arguably, its absence from the legislation is due to the nature of legislation, but it must be there in the other associated documents to drive the transformation that Andy Wightman and others seek.

Andy Wightman

There is an important debate, which we can have at stage 2, about how much of that language might be included in the bill. I take the point. The bill is very much a framework bill—it just tells ministers to set up a public limited company—but I think that we can do more in the bill to reflect some of the ambition that, as has been noted, it will deliver.

On climate, as the cabinet secretary noted, the First Minister stated in the programme for government:

“Securing the transition to net zero will be the Bank’s primary mission.”

We agree with that, and it is therefore vital, in our view, that that objective is set out clearly in the bill, both in section 2, on the bank’s articles of association, and in section 11, on missions. I would be grateful if the cabinet secretary or the minister could comment on that in winding up.

Another area in which we would like to discuss some changes is section 1. The bill provides that the sole member of the bank shall be the Scottish ministers. The cabinet secretary will be aware that the German public development bank KfW is 80 per cent owned by the federal Government and 20 per cent owned by the states. Given the vital role that local government plays and will continue to play in tackling climate change and promoting economic development, there is a good argument for local authorities to have a stake in the bank. I would welcome the cabinet secretary’s view on that.

On missions, we of course agree that the transition to net zero should be incorporated, but we also believe that it should be a statutory mission that is in the bill. More generally, it is notable that, although any changes to the bank’s articles of association, which are set out in the bill, can be made only with parliamentary approval, the missions are to be set solely by the Scottish ministers with no parliamentary involvement. The cabinet secretary said that he intends to lodge amendments that would allow Parliament to be consulted on those missions. However, we think that any mission should be subject to parliamentary approval and a vote, just as changes to the memorandum and articles of association will be.

On ethics and equalities, the committee highlighted the poor quality of the equality impact assessment and pointed out that, although an ethical basis for investment was recommended in the implementation plan, there is no such provision in the bill. We suggest that that could be overcome by the incorporation of an ethics and equalities committee in section 9.

Greens support the bank and the bill. There is more work to be done, but we will vote for the motion at decision time.

15:36

Willie Rennie (North East Fife) (LD)

The impact of Brexit is hitting investment, jobs and living standards. We saw that in the woeful Scottish GDP figures that were released last week, which mirrored the figures for the rest of the United Kingdom—and Brexit has not even happened yet. That shows why, for the sake of our economy, jobs, livelihoods and public services, we need to stop Brexit.

In Scotland, opportunities to invest in the talents of our people through education and mental health services have been missed. Government initiative after Government initiative has failed to deliver a kick-start to the economy. The Scottish national investment bank must be different—not least, for the sake of the planet.

The programme for government rightly committed to putting the transition to net zero emissions at the heart of the bank’s work, but that primary mission must be properly reflected in the legislation that underpins the bank, and in the breadth and depth of its work. As we have heard, the committee concluded that the language of the bill leaves something to be desired. The committee was not persuaded that the bill

“matches the ambitions for SNIB to be transformative.”

As Friends of the Earth Scotland has pointed out, the bill does not mention climate change once. The bank is to focus not just on fixing market failures but on creating and shaping new markets and tackling societal challenges, and there is no bigger challenge than the climate emergency. The bank needs to help to drive the transition away from carbon-dependent industries. It should be able to take a distinct approach to risk management, with an appetite for absorbing some of the risk to which developing green industries are vulnerable.

The promise to begin investing in 2020 needs to be kept. The Scottish growth scheme took forever to pay out a penny, but the climate cannot wait. We know how important it is that we turn the situation round in the next few years. We know that the Scottish Government is going to have to step up a gear after Parliament yesterday agreed to Liam McArthur’s and Claudia Beamish’s bid to strengthen the interim emissions targets.

Other countries are already investing accordingly. We have heard about KfW, the national investment bank in Germany, which once focused on post-war reconstruction and which now includes addressing climate change and environmental issues among its central missions.

Under my party’s plans, the Scottish bank would be complemented by a new UK-wide green investment bank. We set one up before, only for the Conservatives to sell it off. The replacement would channel investment into zero-carbon infrastructure for power, heat, transport and afforestation. I want the UK to be the green finance capital of the world.

The principles of the Scottish national investment bank have been outlined. The bank is expected to pay the living wage. However, I would be grateful if the cabinet secretary could provide reassurance that the bank will not provide finance to companies that do not pay the living wage. I do not want to see a repeat of what happened with Amazon, which was given millions of pounds of public money while a blind eye was turned to the needs of its workers. It is expected that the bank will develop a code of ethics that goes beyond regulatory requirements and adopts a best-practice approach. Will payment of the living wage be incorporated into that code—and not just for the bank’s own workers? Could that be included in the bill? Healthy employment practices lead to a healthier economy.

Derek Mackay

In aiming to be helpful, it is right to propose many things that might not necessarily fit in the primary legislation. Definition of the living wage might be one such matter. However, we should consider including it in other places in order to achieve the desirable outcome of payment of the living wage, although it might not be appropriate to put it in primary legislation.

Willie Rennie

I know that we are due to have a discussion about the bank, during which we can perhaps go into the detail of why it would not be appropriate to put that requirement in the bill. I am grateful to the minister for giving us that guarantee—such as it is.

In the course of promoting inclusive growth, the bank, like the rest of us, will be faced with the challenge of automation and what it means for jobs in the future. The issue has been brought into focus again this week, when Dame Deirdre Hutton, the head of the Civil Aviation Authority, said that Thomas Cook Group was

“operating on brochures whereas everyone else has moved on to barcodes”.

The demise of Thomas Cook will lead to a fresh focus on the future of our high streets. More customer-facing jobs will go and there will be more empty units.

FSB Scotland has suggested that the bank should, under its inclusive growth mission, support efforts to protect the vibrancy of our local communities for the long term. It could focus on areas where there are low levels of entrepreneurship, low economic activity and high unemployment—areas that the FSB says struggle to attract the private investment that could transform their fortunes because it is less certain that they will generate returns. We cannot halt the march of technological progress, but we can take steps to ensure that everyone benefits from it.

We will support the bill at decision time.

The Presiding Officer (Ken Macintosh)

We move to the open debate.

15:42

Annabelle Ewing (Cowdenbeath) (SNP)

I am pleased to have been called to speak in the stage 1 debate on the Scottish National Investment Bank Bill. It is a landmark bill, because it will see Scotland join the growing number of countries that have set up their own national investment banks. It has been recognised that the drive to do that has, in part, been led by the need, following the financial crash of 2007 and 2008, to re-evaluate how best to fund projects that will be transformative and which will support innovation, given the retreat of many commercial banks from capital investment.

At the same time, there is also a demonstrable need to secure long-term investment in small and medium-sized enterprises in order to promote growth in areas that fall within the mission that has been set forth, given the general disinclination of commercial banks to lend to what are deemed to be less-attractive prospects from a short-term commercial perspective—that is to say, the commercial banks are not prepared to provide so-called patient finance.

The bill will provide for the setting up of a Scottish national investment bank as a public limited company to be established in 2020. It is an enabling bill and hence—as has been said—it will be required that much of the detail be developed outwith the bill. Although I understand that that is frustrating for some of those who have made submissions, as with any enabling framework bill, a balance must nonetheless be struck.

However, it would be helpful if the cabinet secretary could provide some more detail on exactly how the provisions of the articles of association—the key document—are to be developed from here on in, and on how they can be subjected to appropriate scrutiny. Although I understand that the articles of association represent a legal agreement between the bank and the Scottish Government, an appropriate mechanism to ensure meaningful engagement must be found. That should also apply to the general principles that underpin the investment policy.

On the proposed objects of the bank, concerns have been raised that the vision that was set out clearly in the implementation plan is not elaborated on in the bill. I am pleased to note that the cabinet secretary has undertaken to lodge amendments at stage 2 that will ensure alignment between the objects of the bank, the vision that is set out in the implementation plan and the anchoring of non-financial returns in the bill. It must be recognised that although there must be a financial return because it will be a bank, there must also be a so-called balanced scorecard that factors in wider economic, social and environmental returns.

It has been stated that the proposed capitalisation of the bank is £2 billion over 10 years. Again, there are differing views on that, with some people arguing that it is not enough. However, as has been said, it is worth noting that the sum represents about 1.3 per cent of GDP and therefore falls well within the parameters of international practice in that regard, in which there is a range from about 0.5 per cent to 1.5 per cent of GDP. Benny Higgins, who developed the implementation plan, has said that

“£2 billion strikes a decent balance between aspiration and impact.”

Of course, it cannot be overstated that in the current devolved set-up, in which Scotland does not have access to all her resources and we have limits on our borrowing powers, any initiative such as setting up the national investment bank must be affordable within the devolved settlement.

As far as the estimated running costs of the bank are concerned, the Royal Society of Edinburgh has queried whether running costs of about £25 million, in the context of administering an annual fund of £200 million, are of the right order. Perhaps the cabinet secretary could reflect further on that in his summing up.

The debate that has taken place thus far on governance issues has focused to a considerable degree on the make-up and role of the advisory committee. Although the membership of the committee should be drawn widely, it is important that it be clear that the advisory committee is to advise Scottish Government ministers, and not the bank directly. It will not be a bank by committee. Rather, for the bank to be successful, it must have the operational independence that is necessary to ensure that it can function successfully and do the great job that we all hope it will do.

As I said at the outset, the new Scottish national investment bank will be pivotal in securing a transformative impact on Scotland’s economy. It is clearly intended to provide additionality and not to duplicate the existing landscape of enterprise bodies, the Scottish Futures Trust and local government. Although many key issues remain to be developed, it is heartening to note that the Government has engaged widely and is committed to continuing such wide engagement, as the issues are worked through. I very much welcome that approach and I look forward to further detailed information from the finance secretary over the coming weeks and months.

As the finance secretary has said, the new Scottish national investment bank will allow things to happen in our country that otherwise would not happen—for example, the transition to a low-carbon economy; our seeking to tackle the demographic challenges that we face from an ageing workforce and health inequalities; and reflection on Scotland’s challenges that result from our geography and our regional diversity. I find that to be a very exciting prospect, indeed. I am happy to support the bill at stage 1.

15:48

Tom Mason (North East Scotland) (Con)

A new investment bank, such as that proposed today, has the potential to grow our economy and provide for the economic development of our towns and cities. With that in mind, I am supportive of the bill. I do not just look forward to the opportunities it can provide, but will try to keep one eye on the challenges that should be addressed during its latter stages in order to make the bank as successful as possible.

Since the bill’s introduction earlier this year, the Scottish Government has changed the bank’s remit to focus on environmental issues and, given the salience of such issues, it is easy to understand its reasoning. It is right that we continue to increase our efforts to ensure the highest standards of environmental protection, so the move can be welcomed. However, it is vital that business sectors that invest in renewables, for example, are able to work with the bank even if their original area of practice does not fit within the model.

I am thinking of a number of companies in my region that are involved in the fossil fuel industry but are expanding their investment into greener energy solutions. Such firms, which are not all multinational giants, should not be excluded from working with the bank if they could contribute to reducing emissions over the long term.

Another issue lies in where overall control of the bank’s mission sits. It is currently proposed that ministers can dictate to the bank its objectives, and there is no requirement for any consultation on those with the Economy, Energy and Fair Work Committee, Parliament as a whole or the directors of the bank. It is important to include in the bill the need for such discussions, as it would be unfortunate if, at any point, the bank was obliged to follow the political instruction of ministers rather than economic best practice. I note that the Economy, Energy and Fair Work Committee highlighted that in its stage 1 report on the bill, and I hope that ministers will respond in a constructive fashion.

Another vital consideration is the nature of the current stated mission of the bank. Ministers have indicated that they want the bank to be quite interventionist in certain areas of the economy. That is a valid viewpoint, but I am concerned that it is trying to be all things to all people. Although it is important to consider how we deal with climate change or our ageing population, preferential treatment for certain sectors over others could undermine the fundamentals of the economy. I hope that the minister will give that further thought.

Concerns have been raised about the expectation for the bank to be self-sustaining within five years. The committee has taken a significant amount of evidence on that and it appears that ministers are being quite generous with their predictions. The idea of the cost of a project spiralling out of control will be entirely unfamiliar to the Scottish Government, but I urge ministers to think carefully about how to manage expectations over the next few years.

I worry about a landscape that has been described by Jim McColl as “too cluttered”. In the past few years, there have been a number of arm’s-length organisations trying to provide investment for businesses. Whether through Scottish Enterprise and its Scottish Investment Bank or the Scottish growth scheme, which was the previous idea for a business investment bank, the Scottish Government has taken a number of swings at it, but it has not worked out yet—I hope that it will this time. The growth scheme has not even managed to get close to investing half of the £500 million that was promised in 2017. There is a serious question here and ministers need to have a good answer: what will be different this time around?

The Scottish national investment bank is an idea with merit, but a number of challenges need to be resolved before the bill is passed if the bank is to fulfil its potential to grow our economy, create jobs and boost living standards. I do not doubt ministers’ intentions, but more work is clearly required.

In that spirit, I look forward to seeing amendments lodged at further stages of the bill to address the issues that the SNIB faces. I hope that ministers will be receptive to such changes and I look forward to working together to make them happen.

15:53

Alex Neil (Airdrie and Shotts) (SNP)

The civilised debate in this Parliament is a great contrast to the pantomime down the road in Westminster.

The success of the Scottish national investment bank will be judged on how it tackles the central challenges of the Scottish economy. We rely far too heavily on a small number of sectors for our entire national wealth, as the food and drink, oil and gas and service industries account for about two thirds of everything that we produce in Scotland. We need to expand our product, service and company base. In many sectors, we rely too heavily on a small number of companies for a high proportion of what is produced.

We now almost have a situation in which we can count on the fingers of two hands how many companies are headquartered in Scotland. As we know, if more companies were headquartered here, that would produce a far bigger spin-out than if we relied on branch activities. All those things are extremely important.

We rely heavily on a small number of products, services and companies for most of our exports from Scotland. The key central challenge is to diversify our economic base. We need more companies, more SMEs and bigger companies, more companies headquartered in Scotland, more companies exporting, and more companies involved in research and development.

It is interesting to compare ourselves with countries such as Finland and Norway, as well as bigger economies such as Germany. They have all had successful national and regional investment banks almost since the war. In Finland, more money is given in the form of credit guarantees and other facilities to their exporters than there is given in the whole of the United Kingdom by the UK Government. That shows the scale of where we have to get to in order to be as competitive as Finnish industry.

A good example is shipbuilding, which we gave up far too easily many years ago, apart from what is left on the Clyde and at Rosyth. Through their national investment bank, the Finns have a vibrant shipbuilding industry and many other such industries. Through their innovation agency, the Norwegians are building up to diversify over time from oil and gas into a range of new, high-tech industries.

Scotland’s record on research and development is appalling. The UK’s record is appalling. The average level of business research and development in the UK is less than 50 per cent, as a percentage of GDP, of what it is in Europe. The level of research and development in the private sector in Scotland is less than half the UK average because of the heavy concentration of industry in London and the south-east.

A key challenge for the national investment bank will be to increase finance to exporters as well as increasing the level of research and development to help us diversify into new jobs and industries. On top of that, there are many other opportunities that we need to pursue.

Let me just say a word about the money. On first looking at the idea, I thought that, although £200 million is not to be scoffed at, against the scale of the challenge, it looks to be fairly modest. However, a key role of a national investment bank is to leverage in funding from elsewhere. The worst thing that can happen is that the investment bank takes on all the risk while other people benefit. We will be able to leverage in many investments from the pension funds and other funds. The whole point is not the £200 million a year. If we manage to at least double that in the early years, and increase that ratio further in the later years, we are talking about an additional £400 million to £500 million a year. Once the bank gets a track record, people will come to it with new ideas and demands for funding. It will grow in the second half of the 10-year period into spending and requiring much more than the original capitalisation plans because there will be opportunities. The return to the Scottish economy could be very high indeed.

I come to the opportunities and looking to the future. Many mentions have been made in the debate so far of the fantastic global opportunities. We should not narrow ourselves down to the European Union, which is the slowest growing part of the global economy. We should go out there and be global and international. That is where the big markets and the market growth are.

Let us look at artificial intelligence, some of which resides in the chamber.

Let us take the health sector. If we develop an expertise and invest heavily in the application of artificial intelligence in diagnostics in the health service, we can be a world leader in that field and, at the same time, help our health service.

If we look at life sciences, particularly animal life sciences, we see that Scotland’s opportunities are transformational.

If we look at information technology, we see that one of the massive, growing industries is the provision of cybersecurity for Governments and businesses. We do not need to be physically in Australia in order to provide cybersecurity services to somebody in Sydney or Melbourne. We can do it from Glasgow or any remote part of Scotland; we can serve a worldwide market. The opportunities are endless.

It is a great pity and tragedy that this Parliament did not do that earlier, because, 20 years down the line, we could have had a booming Scottish economy, which would have topped the European and global leagues. For our country and people, that is what we should aim for.

16:01

Jackie Baillie (Dumbarton) (Lab)

Tempting as it is to note that Alex Neil was looking in the mirror when he was talking about artificial intelligence, I will, of course, resist.

As an idea, a Scottish national investment bank is not all that new. The Scottish Investment Bank already exists in Scottish Enterprise, and investment in business has existed in different forms for years.

Time after time, intent on a bit of nation building, of which the SNP is so fond, successive ministers and First Ministers have announced the Scottish national investment bank. It has probably been announced at least nine times over the past nine years: first, by John Swinney, then Alex Salmond; Keith Brown had a look in; Nicola Sturgeon followed; and now even Derek Mackay is in on the act. However, it could not be legislated for earlier because, until now, the SNP Government did not have the capital to make it fly.

Now, it is all hail the financial transactions money from the UK Government. At first, the SNP denounced it. Keith Brown talked about it as just “loan funding” and “funny money”. Of course, it is just loan funding, but now it is the welcome money that will capitalise the bank.

However, all £500 million needs to be paid back. Therefore, I want the cabinet secretary to tell us how the repayments are profiled, how much they will be and what their timeframe will be. We need to understand in totality what it will mean to the Scottish budget.

Make no mistake—I am in favour of a national investment bank. As we heard from Richard Leonard, Labour proposes to capitalise the bank with 10 times the resources that the SNP promised. However, I want to know that we are doing it in the most efficient manner possible—getting the biggest bang for the taxpayer’s buck.

The economy committee, of which I am a member, looked at the bill proposal, but the Finance and Constitution Committee considered the financial memorandum. First, I want to follow the money, as my mother always taught me to do. The bank will be capitalised up to 2021 by £500 million of financial transactions money from the UK Government, and £1.5 billion of Scottish Government money will be provided from 2021 to 2028. That is the investment part of the equation, which is straightforward.

Now, let us look at the cost. Here is the headline figure that we have not properly understood. By 2023-24, which is when the Government expects the bank to cover its costs, the taxpayer will have borne a cumulative loss of at least £80 million. Dean Lockhart uses the figure of £150 million. Whichever it is, it is a significant sum. That £80 million is to cover new staff, a chief executive, a chair, the Scottish Government sponsor unit and estate costs, and that is before the bank starts to cover its operating costs. In a time of continuing austerity, that is a sizeable sum of money to lose. Let us think about what that money could buy—almost 3,000 nurses or almost 2,000 teachers. We must think carefully about what we are doing.

The Royal Society of Edinburgh, in a very thoughtful submission, noted that the projected annual running cost of £25 million to oversee an investment fund of £200 million is “very high” and needs to be reviewed.

Let me ask a fundamental question of the cabinet secretary. Money is already distributed through the Scottish Investment Bank, the Scottish Futures Trust and other Government-controlled agencies. What review has taken place of the experience, efficacy and impact of those existing arrangements? Are those arrangements any good? I know that Derek Mackay is dying to answer but I will just finish. Does the cabinet secretary know whether they are any good? That will inform whether what he is about to do with this bill is the right thing. Can he tell us why this approach has been taken in the bill and what additionality the new bank will provide? That information is important for us to know as we go forward.

Derek Mackay

I thank Jackie Baillie for the question. I will make a brief intervention at this stage; I may say more in summing up. I think that there will be a requirement for that on-going review, especially to work out what the final legislation should look like. I have said that I will engage with Parliament, so it is right to have an on-going review of what is provided by other parts of the public sector and by banks elsewhere in Scotland. We need to keep that under review and, to address the point about clutter that colleagues have made, we need to look at what financial products are available and which other parts of the system come together. We will then return with a comprehensive plan on how that will look in a whole-system approach. However, that is a fair challenge.

Jackie Baillie

Although I welcome that recognition from the cabinet secretary, my concern is that we have not done that review in advance of passing legislation and spending taxpayers’ money, and we are not quite sure whether this bill will do the trick. I am happy that he will do the review, but I want it done now rather than some years down the line, because it is important for us to understand whether the bank’s additionality will compensate for the cumulative multimillion-pound loss in the first five years.

A key issue is stimulating demand. Is the cabinet secretary confident that there will be sufficient demand, given that the Scottish growth scheme, which was announced to considerable fanfare, has distributed a fraction of the money intended? These questions all need answers from the cabinet secretary—

Alex Neil

Will the member give way?

Jackie Baillie

No, I do not have enough time.

If there is another more cost-effective way of achieving the same end, we should consider it. I am with Alex Neil when he speaks about the potential return, but we need to be convinced of that rather than just hoping that it will happen.

To turn to some of the other issues that have been raised, I particularly want to focus on the views expressed by Engender and Close the Gap. Both organisations said that the equality impact assessment was limited in scope, lacked analysis and was quite poor. Although the cabinet secretary has revised that equality impact assessment, which is welcome, it is still difficult to retrofit equality into policy that has already been developed.

There is a wealth of international evidence that gender equality is a necessary precursor to economic growth. If we want the bank to deliver for women and women-led businesses in Scotland, that needs to be a core part of the strategy and implementation. It should be on the face of the bill—that view is shared by many—as should the vision and the objectives of equality and non-discrimination, along with socioeconomic and environmental outcomes, so that we influence the bank’s lending policies and governance right from the very start.

There will undoubtedly be many amendments to come and I look forward to challenging the cabinet secretary further during stage 2.

16:08

John Mason (Glasgow Shettleston) (SNP)

Once again, I find myself speaking in a debate on an issue that came from the economy committee, of which I was a member when the report was prepared. Sadly, I am no longer on the committee, but I am happy to take part in the debate. There was clearly broad agreement on the subject among committee members, which perhaps there was not in last Thursday’s economy committee debate on pre-release access to statistics.

As has been said, this is very much an enabling or framework bill and the question has arisen whether there should be more detail in it. We have faced the question previously with legislation such as the Land Reform (Scotland) Bill and the Islands (Scotland) Bill.

Too much detail in a bill can be difficult to update as circumstances change. On the other hand, too little detail could give ministers or, in this case, the bank itself too much freedom to drift away from the intentions of Parliament. We need to get the balance right as we move to stages 2 and 3.

I think that having a bank such as this is a great opportunity. We heard clear evidence at committee from a number of countries, including Wales, about how it could be a real asset to the economy.

As we noted at paragraph 48 of the report,

“The Bank ... will not take deposits”,

nor will it borrow from anyone other than the Scottish ministers. However, we might wish to revisit that in the longer term. I believe that there are a number of individuals, and possibly also organisations, who would be keen to invest in Scotland’s economic development through a bank such as the national investment bank. In fact, I have had individuals asking me personally whether it will be possible for them to invest in it.

The bank is intended to provide patient finance. That could be by way of loans or equity, but it would not be through grants, and it would not be to bail out struggling companies. I realise that the concept of patience is not always well known to politicians, who usually want to see the whole health or education system turned around between one First Minister’s question time and the next. As in business, there are likely to be failures as well as successes, as the convener has said and as the committee heard—bad news may well come sooner than good news. I hope that we can all commit at this stage to being patient and not jumping to criticise the Government of the day if the first investment were to go belly up.

I will move on to some specific topics that have aroused interest, starting with the matter of setting a target rate of return. The committee said in its report, in paragraphs 201 to 203, that the rate of return should not be the be-all and end-all, and that evaluation of the bank should be wider and include social and environmental impact. We suggested that we should be particularly careful in the early years—say, the first two to three years—and we recommended that a target should not be set or applied in the short term. I was therefore particularly interested in what the Government said about that in paragraph 40 of its response of 26 August.

I think that there is agreement that, as paragraph 43 of that response says, the bank needs

“to cover its operating costs”.

There have to be

“sufficient financial returns”

to repay the Treasury, and there must be

“sufficient returns to grow its asset base ... enabling future rounds of investment in Scottish companies and communities”.

As paragraph 45 of the Government response says, we do not want an unintended consequence involving decision making focused on the short term.

Paragraph 46 of the response makes the extremely important point that if the bank does not have a target rate of return, it might be more susceptible to political pressure to be a lender of last resort to distressed companies. There might also be issues with state aid rules, whether those are decided by the European Commission or by the Competition and Markets Authority.

Moving on to ethics, the economy committee asked the Government to consider including an ethics committee in the bill. In paragraph 61 of its response, the Government says that ethics might be best considered

“as a main Board duty”.

I get the point that ethics should be central to the whole organisation. However, on balance, I would like to see a committee that specifically focused on that topic, which could then take a considered position to the main board. It would not be a particularly bad thing for the respective chairs of, say, the ethics committee and the investment committee to put slightly different arguments before the main board for a decision to be made. However, I am more relaxed about whether that needs to be set out in the bill.

On sustainable growth and the environment, there have been a number of briefings for today’s debate, including from Friends of the Earth, the Scottish Council for Voluntary Organisations and Social Enterprise Scotland, emphasising the importance of the environment and other issues. It seems to me that there is broad agreement on the need for environmental issues to be included, although, as we saw yesterday during the debate on the Climate Change (Emissions Reduction Targets) (Scotland) Bill, there are differences as to how far people want us to go and how quickly.

There are clear concerns about what the term

“inclusive and sustainable economic growth”

might mean. I do not think that many of us want unlimited economic growth with no strings attached. Perhaps the more difficult question is where all of that should be written down. Should it be in the bill itself, as some people suggest? Unlike normal legislation, the bill deals with a company, and there need to be articles of association, which gives us the option of having more detail. Articles of association can be changed only by agreement of Parliament, so they seem to be a good place for laying out what we want.

However, as far as I can see, the wording in the draft articles on the objects of the company is exactly the same as the wording in the bill. I would have thought that there might be an opportunity for the articles to be expanded beyond what the bill states and for them to give more of the detail that many people are seeking. I wonder if the Government is open to that.

Derek Mackay

Will the member take an intervention?

The Deputy Presiding Officer (Christine Grahame)

The member is in the very last few moments of his speech, so probably not. You had better just do a last sentence, Mr Mason.

John Mason

My last few lines are as follows.

I hope that we can all support the bill today and the creation of the bank. I am sure that there will be much more debate over the detail later on.

The Deputy Presiding Officer

Cabinet secretary, I am sure that you will have time to comment in your summing up.

16:14

Jamie Greene (West Scotland) (Con)

I am very pleased to speak in today’s debate, which has been interesting.

The old adage is that you wait ages for a bus to turn up, then three come along at once. The same has to be said for the Scottish Government’s strategy on supporting business: we have been waiting for something such as the national investment bank since Derek Mackay’s party took office. Going back as far as 2009, John Swinney talked about

“creating a vehicle that would enable us to provide the necessary long-term support and investment in the Scottish economy.”—[Official Report, European and External Relations Committee, 28 April 2009; c 1128.]

That was very admirable of him. In 2014, he said that he had not shelved the proposition of a business development bank but was still searching for a way to develop one.

Five years later, here we are in the chamber debating stage 1 of the Scottish National Investment Bank Bill. I am supportive of the concept of national investment banks, because I think that they have a place in modern economies. We have talked about Germany and some of the successes that other countries have had with such financial vehicles.

To be fair to the Government, this vehicle is probably the right one for the purpose. However, the devil will very much be in the detail. A bank such as the proposed Scottish national investment bank goes against what banks normally do and, probably, what Governments do. Governments are generally asked to step in when markets are failing. I hope that the aim of the new bank will be entirely different, and I hope that it will genuinely shape and steer the markets, rather than simply correct failures.

Derek Mackay

A number of members have raised the point, so I will make the position clear, if that is helpful. The intention is that the bank will be based on an economy-shaping model, as opposed to having the aim of—as it has been described by others—supporting failing businesses. The bank should help businesses that have viable futures, and it should help to shape our future economy. That will be the spirit of the bank.

Jamie Greene

I am pleased to hear that. It is a very positive move.

There is certainly a theme coming through in the stage 1 process about protection of the environment, social inclusion and sustainable development, which we hope will sit at the heart of the bank’s investments.

However, ultimately, we are talking about taxpayers’ money, so the money must still be invested in viable opportunities that will offer some return, even if it is not a direct and obvious pound-for-pound return. There is nothing wrong with the concept, but it is still unclear from the papers that we have how the bank will achieve that. We have seen other schemes: the Scottish growth scheme aimed to provide £500 million in loans by 2020. We are not in 2020 yet, but we know that the amount that the scheme has invested to date is substantially below that figure.

It is true that an investment vehicle such as the investment bank cannot be measured by the conventional tools that are used by Governments or investors. It will be challenging to put a number on the success or otherwise of the bank. As John Mason said, we might need to be patient.

Availability of credit, although it is a tool, is not the only tool. Finance cannot overcome poor market conditions, skills deficits and factors that are way outside our control. We might argue that the Government could already have played a more vital role over the past decade in fostering innovation, growth and skills.

After First Minister’s question time today, I held a timely meeting with members of the Ayrshire Chamber of Commerce. Some of the people whom I met at that round-table meeting are entrepreneurs who run small businesses. They are the sort of people whom the bank should help. I met entrepreneurs including Alix, who runs her own make-up company; Ruth from Ardrossan, who runs a photography business; and Gemma, who runs a wedding and events company.

I was really buoyed up by the enthusiasm in the room for promoting small businesses, taking on people and growing the economy of Ayrshire. I told them that I would be speaking in today’s debate about a new national bank that would promote SMEs, create and shape markets and develop enterprise when clearly commercial models are failing them. They said that that is all very well and good, but asked me to ask the Government where it has been for the past decade, and how much longer they will need to wait for support to be made available to them. I hope that we can work through the process swiftly and get the bank established.

I turn to technical aspects of the bill, in the short time that I have left. I say, meaning no disrespect to the people who have drafted it, that I am pleased that it is just stage 1, because there are many holes in the bill. I hope that members from across the chamber will work constructively to get it to a good place when it comes back.

On page 1 of the bill, the bank’s main object—something that Andy Wightman alluded to—is stated as

“giving financial assistance to commercial activities for the purpose of promoting or sustaining economic development”,

which is okay if we can decipher what that actually means.

The bill also says that

“the Bank may do anything for the purpose of its objects”.

It says that it can borrow only from the Scottish ministers, that the Scottish ministers will appoint the executive and non-executive directors, and that the directors will determine their salaries while the Scottish ministers give direction on all of the above.

The Scottish ministers will set the mission through the ingenious method of sending a document to the bank. The bill goes into great detail about how they might do that. The bill also says that

“The Scottish ministers may capitalise the bank”.

It is only when we get to the very end of the bill that we find the only activity that will require parliamentary approval. That is the

“Procedure for modifying entrenched provisions”—

so it is already looking like a marvellously non-political and independent organisation, is it not? I raise that issue because I think that it is important for the bank to have independence, which it requires in order to make decisions that are right for it as a bank, and that it is not simply under the political will of ministers.

I conclude by saying that there is potential to create, with the bill, something that is very interesting and worth while. However, the ministers who are responsible for it must ensure that it is not just a box-ticking exercise or a half-cooked plan. I support the setting up of the bank and I hope that it succeeds, but my reaction is the same as that of many folk: I will believe it when it delivers.

16:21

Pauline McNeill (Glasgow) (Lab)

I welcome the proposed new Scottish national investment bank and this stage 1 debate. The bank will not be focused on profit-seeking and will be able to respond quickly to Scotland’s investment needs.

There could, however, be a missed opportunity, as many commentators have said, because it does not have nearly enough capital. Jackie Baillie was right to say that we need to get the equality commitments put up front in the bill.

The Scottish Council for Development and Industry has said that the level of capitalisation—£2 billion over 10 years—does not match the scale of the ambition that is proposed, and that meeting that ambition could be challenging.

I want to talk about why housing should be a key mission for the Scottish national investment bank. I will reference an interesting forthcoming report from the think tank called Common Weal. Let us not forget that it was housing finance that led to the sharp practices in the mortgage market, which led to the crash that deprived many people of their housing options. It is my opinion that we have to steer away from seeing housing purely as a profit-driven and commodity-based part of the economy, and instead look to its primary purpose of creating homes. One of the key missions of the bank should be to build high-quality social housing.

Dr Craig Dalzell from Common Weal has written in his forthcoming report:

“The current approach to housebuilding is deeply flawed and largely revolves around the private housebuilding market whilst the politics of social housebuilding is limited to setting arbitrary targets of houses to build without much thought to quality, location or other infrastructure.”

I agree that one of the bank’s missions should be to build sufficient high-quality publicly owned rented homes—not just as a safety-net for people in need, but to exceed the baseline ambition and to provide homes that are desirable and cheaper than those in the private sector.

I am sure that people who follow the housing debate do not need to be convinced that housing is an important part of the economy because of the skills that it requires and the infrastructure that it brings. By guaranteeing security of supply and legislating to fund only the highest-quality housing, the approach could act to stabilise the private rented sector and raise the quality of housing overall.

In Labour, we want to see a strategic plan for the housing sector that is focused on improvement of quality. It seems obvious to me that, given yesterday’s debate on climate change and emissions reduction, a key infrastructure project for quality homes would be to aim to introduce carbon-neutral housing as standard.

Another reason why I believe that housing should be a key mission of the bank is that the majority of people who are not able, or do not want, to buy a house are almost wholly reliant on the private sector. More families with children are living in the private sector, and they are experiencing dramatic rent increases in many parts of the country, which causes them hardship. In turn, that increases the risk of an increase in the number of adults and children who live in poverty.

There is therefore an excellent case for a mission relating to housing. According to Homes for Scotland, Scotland is building at only 80 per cent of the level that is required to meet housing need and demand. I am sure that we all agree that good housing is central to a healthy population and a vibrant economy. It makes sense that the investment bank’s funding could be used to construct the highest-quality housing in order to ensure that we drive up the quality of housing in the private market as a whole.

We support the Government’s plans to retrofit all buildings, so that they have a C-rated energy performance certificate by 2040. However, retrofitting existing buildings is often extremely costly, so we need to ensure that new buildings are built to the highest standards.

Scottish Labour’s housing commission was tasked with considering whether a national housing agency could be an asset to the economy. The agency could be tasked with, among other things, taking a strategic approach to identifying gaps in provision, having powers to make compulsory purchase orders to create new communities, and co-ordinating provision of the skills that are needed in the sector. We will say more about that when our report is published.

Overall, there is a very strong case for saying that a national approach to house building could identify gaps in the housing sector. Many organisations, including Common Weal, support a form of national agency. More than a year ago, Homes for Scotland identified that such an agency could play a strategic role in ensuring that we retain the necessary skills for infrastructure building, which includes housing.

A move towards high quality and passive carbon-neutral homes, will allow us to tackle several problems—not least, the scourge of fuel poverty. At the same time, that would make serious inroads into decarbonising Scotland and meeting our climate change targets. Making social housing a viable option for more people through investment by the Scottish national investment bank will mean that factors such as high heating costs could be practically eliminated. Although we might not think of housing as part of a national investment bank’s strategic plan, there is a strong case for one of the bank’s missions being about housing.

Derek Mackay

Will the member take an intervention?

The Deputy Presiding Officer

No. The cabinet secretary is always picking the wrong moment; he will just need to deal with the point in his closing speech.

Continue, Ms McNeill—you are in your final minute.

Pauline McNeill

I apologise to the cabinet secretary.

Building high-quality social homes should be part of the mission of the investment bank. I hope that the cabinet secretary would have agreed with that idea, had he been able to intervene. Decisions on where homes are built must be guided by a demand-led strategy.

16:27

Joan McAlpine (South Scotland) (SNP)

We need not look far for evidence of systemic inequality across the UK. A wealth gap is increasing due to a toxic partnership of discredited economics and Westminster ineptitude. There is geographic inequality as well as social inequality. I will concentrate on the regional divide, on which I hope the Scottish national investment bank will focus in the future.

Southern Scotland has one of the lowest recorded levels of regional economic wealth among comparator regions across northern Europe. Citizens in the inner London west region, where Westminster is situated, are on average 10 times better off than my constituents. Inner London is, of course, the richest region in northern Europe.

Such disparity is not found only in Scotland. Regions across the UK have been starved of investment by a metrocentric financial system that does not work in their interests. Across the world, growth is focused on cities, which, in turn, attract more investment and talent. That is great for people who live in a city, but I represent a region that does not have a city and I feel strongly that no part of Scotland should be left behind.

That is why I welcome the Scottish Government’s attempts to address geographical disparities, particularly through the south of Scotland enterprise agency, which is being set up, and the adoption of place-based inclusive growth as part of Scotland’s economic strategy. My ambition for a national investment bank is that it complements such initiatives.

I do not sit on the Economy, Energy and Fair Work Committee, but I sat on the Economy, Energy and Tourism Committee in session 4. I remember being struck by figures that showed how difficult it is for SMEs in the rural south of Scotland to access capital, either from the private banking sector or through public agencies. I am extremely pleased that the Government is responding to that in a number of ways. It is vital that the bank, like the new agency, helps to dismantle all barriers to sustainable growth in the south of Scotland, which is a region with so much potential and talent. Although the bank has both a national and a regional remit, I am gratified that there is specific recognition that variations in productivity across Scotland must be addressed.

We have heard that the bank has an unusual nature and departs from the status quo, which is a good thing. It will be underpinned by statute and the detail will be contained in articles of association. It will be a uniquely Scottish institution. We already know that greater long-term or patient capital is needed for small and medium-sized enterprises to grow, and that is certainly the case in my region.

I was struck by the wide and thematic approach that the committee took to scrutiny of the bill, reflecting the bank’s mission-orientated approach, which is to not just fix market failures but, in the words of the economic adviser Mariana Mazzucato,

“create and shape new markets aimed at tackling modern societal challenges.”

I note that the bank has gained widespread support among stakeholders. CBI Scotland said:

“The development of the SNIB could be a leap forward for the Scottish economy that boosts global competitiveness, supporting ... innovation and growth.”

Social Enterprise Scotland said that it has “huge potential” to transform our economy.

I am particularly pleased to note that the bank will be open for business in 2020. It cannot come quickly enough.

Scotland has a rich, almost unparalleled history of groundbreaking invention and innovation, and it is currently home to several world-class universities and centres of excellence. There is no shortage of home-grown talent and it is time for Scotland to punch above its weight in developing that talent.

Because so much could be achieved, much is at stake, so it is extremely important that careful scrutiny is given to any weaknesses or deficiencies in the bill or the proposed structure of the bank. I echo the comments that were made earlier about the inadequacy of the equality impact assessment.

The committee has reported on ethical investment and other matters, on some of which we have had further detail today. All of that bears further reflection and consideration.

To critics of a uniquely Scottish solution to address inequality and stimulate growth—of whom there do not seem to have been many in today’s debate—I say that I agree with others that it is extremely important that we work through local knowledge. I very much welcome the establishment of the bank.

The Deputy Presiding Officer

We move to the closing speeches.

16:32

Rhoda Grant (Highlands and Islands) (Lab)

Scottish Labour welcomes the Scottish National Investment Bank Bill, but it does not go far enough. It lacks a strong objective for the bank and it lacks ambition on the part of the Government.

The bank will not be adequately capitalised: £2 billion over 10 years is not enough to create a step change in our economy. It is a level that is achievable, but not one that is ambitious, as Richard Leonard said. The Scottish Labour Party would look to finance the bank to the tune of £20 billion over the same timeframe, which would bring about a step change in the economy. A sum of £2 billion amounts to only £200 million a year. Given that, as Jackie Baillie pointed out, the set-up costs are likely to be around £80 million, that would leave very little for investment.

The Scottish Council for Development and Industry welcomed the sum but contrasted that level of capitalisation with the scale of ambition that is set out in the vision to transform Scotland’s economy. Unite was not convinced that £2 billion represented a sufficient level of capital investment to deliver significant economic change and cited several examples of projects that would have taken up almost the whole of the bank’s budget.

The Royal Society of Edinburgh was also concerned that the level of capitalisation could restrict the number of potential missions that the bank could have. It suggested that the scale of investment of £200 million a year over the first decade was

“not enough to provide investment across three or four missions—such as demographic issues and/or transition to low carbon economy”.

Pauline McNeill mentioned the need to build more housing for social rent. It would cost more than £3 billion to build 50,000 such homes. That is more than the entire proposed budget for the bank.

Derek Mackay

Does that not speak to the point that all the other figures are excluded when the bank is taken in isolation? In fact, £3 billion has been committed to build 50,000 homes, which target the Government is on track to meet. When considering the totality of the investment in our infrastructure, we must look at the global figures and not just at what is allocated through financial transactions or elsewhere for the purposes of the Scottish national investment bank.

Rhoda Grant

Indeed, but if the investment bank is to fulfil the ambitions set out for it, it requires more capitalisation than that already put forward by the Government. Take the example of climate change and the move to a carbon-neutral economy, which almost all speakers mentioned. That new and growing sector needs to be supported, yet the bill is silent on that, as many speakers pointed out. Currently, too many jobs in the low-carbon sector are going to overseas competitors. In order to make a just transition to a net zero economy, we need to grow the number of jobs in the sector and compete with overseas companies. We also need to innovate and develop new low-carbon industries.

Reaching net zero will mean that traditional high-carbon industries will decline—that will happen—but our economic wellbeing and the wellbeing of the workforce in those sectors depends on workers being retrained and securing jobs in zero carbon sectors, especially where skills are transferable. No one should be left behind if we are to meet the ambitions that the Parliament agreed to yesterday.

Many speakers talked about lending criteria and who the bank should lend to. It must work for all our economic generators, but it will specifically not lend to the public sector. It must, however, include other sectors, such as the third sector, co-ops and community bodies, because those are different businesses, which, it could be argued, provide a much greater economic impact in their local communities. If the bank is not to lend to public institutions, how will it be able to make an impact on areas such as housing, which Pauline McNeill emphasised in her speech?

The challenges of the 21st century cannot be met by the private sector alone. If we are to address climate change, digitisation and the like, we need new models of public ownership and finance. We must support our home-grown industries—Richard Leonard cautioned against chasing foreign investment. Alex Neil made that point, too. Our economy depends on a few large companies and very few of them are headquartered here. They could move away at any time.

The lending criteria must embrace fair work principles. The Scottish national investment bank should ask ethical questions of companies and customers to determine whether they are appropriate to lend to. Willie Rennie talked about the living wage and whether it would be appropriate to include that in the bill. I believe that it would be. The living wage will not change—it will keep step with the times and increase as required. There is no reason why high-level ambitions, such as our climate change targets and the like, cannot be in the bill.

Dean Lockhart talked about inclusive growth. It is important to include that in the bill. He said that inclusive growth cannot be measured, but we can measure what it is not. This week, the Government published a report called “Longitudinal Educational Outcomes (LEO) from Modern Apprenticeships”. It showed that “males earned more than” women “across all occupational groupings”, and that that difference in earnings ranged “from £300 to £9,700”. In addition, people

“from the 20% least deprived areas earned £4,500 more than those from the 20% most deprived areas.”

That is what measures of exclusion look at, so we should be able to identify inclusive growth and do it. As Richard Leonard said, gender balance on boards is a positive step towards addressing that. Gender balance on boards will be reflected in the workforce.

Scottish Labour supports the development of a national investment bank, but work is needed in order to ensure that it is built on a solid foundation, which the bill certainly is not. We will use the amendment stages of the bill to create a Scottish national investment bank worthy of that name.

The Deputy Presiding Officer

Before I call Mr Halcro Johnston, I welcome back to the chamber Mr Rennie and Mr Neil, who were not present for the beginning of the closing speeches. They are old hands, so they should know that that is required.

Jamie Halcro Johnston rose—

The Deputy Presiding Officer

Please sit down just now, Mr Halcro Johnston.

No matter how senior members in here might be, they should note that the rules apply to everybody. I do not see any notes of explanation from Mr Rennie and Mr Neil for why you both came in late. No doubt they will appear later and will corroborate each other. I look forward to reading those and, in particular, your apologies to Ms Grant for failing to hear the beginning of her speech.

I will call you now, Mr Halcro Johnston.

16:40

Jamie Halcro Johnston (Highlands and Islands) (Con)

Thank you very much, Presiding Officer. I am sure that members in the chamber are united in their disappointment in those scamps. [Laughter.]

The legislation on the Scottish national investment bank has been long awaited. As Jackie Baillie suggested, and as Graeme Roy of the Fraser of Allander institute pointed out, the bill represents about the eighth time that the Scottish Government has tried to establish something of this nature in the past 12 years.

Scottish Conservatives have been consistent in calling for more action to grow the Scottish economy, which has lagged behind the rest of the United Kingdom, so attempting to improve business support in this regard is to be welcomed. Ministers will be aware that there is a good deal of support for many of the bill’s aims. However, much of the detail on the delivery of the bank falls outwith the direct scope of the legislation, so we can only hope that the Scottish Government will continue to consult and engage as we move forward.

The Economy, Energy and Fair Work Committee’s convener, Gordon Lindhurst, highlighted the body of work that it has conducted in the area and, as I am a member of that lead committee, I also feel obliged to do so. In addition to our direct work on the bank, which has led to the stage 1 report, we have touched on many elements of business finance in the course of several inquiries. As part of our current budget scrutiny we have produced work on topics from business support to the role of business gateway, the enterprise bodies and regional selective assistance, a great deal of which I commend to the chamber.

It is vital that any consideration of the Scottish national investment bank looks at our current framework of business support. We know that there are significant issues around the growth scheme, and the committee’s reports have suggested a number of ways in which Scotland’s business support landscape should be improved.

We might also look at the examples—both positive and negative—provided by the Scottish Investment Bank, which was established with similar aims of providing long-term support and investment in the Scottish economy. We do not expect the new bank to be a panacea but, with the right organisation and support, it can be a positive actor in our economy.

In my region of the Highlands and Islands, which has varying local economies and priorities, having the right approach and the right institutions focused on regional development is vital. Organisations such as Highlands and Islands Enterprise have long experience of navigating the business environment there. It would be a loss if such local institutional knowledge were to be diluted by the new bank’s engagement in the area. We have seen examples of a regional focus in the Development Bank of Wales, which has a number of offices around the country. The Scottish Government has rejected that model, and the cabinet secretary gave his reasons in his evidence to the committee. Derek Mackay said:

“the bank can reach the parts that other banks cannot.”—[Official Report, Economy, Energy and Fair Work Committee, 11 June 2019; c 27.]

Despite his appallingly plagiarised slogan, I accept that there are differences between how the two banks will operate.

Derek Mackay

I could come up with another one.

Jamie Halcro Johnston

I am glad that the cabinet secretary has not intervened with a new slogan. However, I ask him to remain open minded to ensuring that the Scottish national investment bank is accessible to and engages with all parts of Scotland—even the more remote parts, as are found in my region.

We will work to get the bill right. In committee, the cabinet secretary indicated his hope that the parliamentary process would lead to further improvements to the Government’s proposals. I welcome that approach and hope that he will honour it.

That leads me to consider some of the other speeches and ideas that we have heard from around the chamber. My colleague Tom Mason set out both the opportunities and the challenges of creating a new institution. He also spoke about the remit, objectives and the mission of the bank, which are areas that will be crucial not only to its success but to its wider role in Scottish society. He echoed points that have been made on the changing remit of the bank and questioned how it would treat businesses that are moving towards more environmentally conscious models. He also covered many of the financial elements that we have explored in committee.

Richard Leonard spoke about the mission of the bank and its make-up—its board and the like. Although I respect his opinion, I think that he is looking to create an idealised bank, which would be unworkable in future.

Jamie Greene pointed to the difference that long-term investment priorities will make to the Government, and to the need to look at what success means in the context of the wider economy. He also explored the lessons of previous development funding models, particularly the Scottish growth scheme, and he made the important point that availability of credit alone cannot make businesses thrive while significant gaps remain in growth and innovation in Scotland. As we have seen, any real progress will depend on the wider business environment, and the Scottish Government has much work to do in that regard.

Alex Neil made a barnstorming speech, promoting global Britain, global Scotland and opportunities outside the EU. He certainly garnered a lot of support from members on the Conservative benches. “The opportunities are endless,” he said, and of course he is right.

Jackie Baillie was also right. She highlighted the important role that financial transactions from the UK Treasury will play in helping to finance the bank. Dean Lockhart also raised that in an intervention, and he outlined the need to manage expectations around the bank. As he said, it must not go too far in yielding to competing ambitions the original objective of providing patient capital into the Scottish economy. We have heard that there needs to be a clear focus as well as work across agencies and other bodies at both the Scottish and UK levels. The risk is that the bank will serve to duplicate work that is currently carried out by other organisations.

As Dean Lockhart noted, none of those concerns is new. They were all raised in the debate in May last year. However, the problem of managing expectations has grown since that time, with the list of ills that the bank is supposed to address getting ever longer.

In committee, we have heard evidence on costs. Time and time again, witnesses questioned the assertion that the bank can be self-financing from 2023-24. There seems to be some tension between the desire for patient capital and the hope of quick and easy returns. There are also real concerns about how the bill’s provisions on the bank’s mission will impact on its operational independence and the timescales that are involved in reporting. With amendments being expected at stage 2, it will be interesting to hear ministers’ responses.

As has been highlighted today on the Herald website, this is a vital time for the bank to be created. I think that £135 million of Scottish Government money, which is taxpayers’ money, has been written off to prop up failing companies, so it is vital that we get this right.

We can all agree on the importance of the organisation that exists behind public sector financial support. I hope that, as the bill moves forward, the Scottish Government will maintain a clear vision around its core objectives. The concept of the bank has potential, and in that regard the bill is welcome. We have raised a number of real and valid concerns this afternoon and the bill will undoubtedly benefit from further scrutiny. It will have our support today, but a willingness to consult must continue beyond the process around the bill. The Scottish Government must ensure that it works with the committee and other members to make the bank a body that can have a real and positive impact in driving forward investment and improvement in those areas where the Scottish economy is underperforming.

The Deputy Presiding Officer

I call Derek Mackay to close for the Government. Cabinet secretary—you have until 5 o’clock.

16:48

Derek Mackay

Thank you, Presiding Officer—including for that very generous allocation of time, which might be explained by my having not been allowed to intervene on some members earlier. I note that you have rebuked some members about their attendance, although it was a wee bit less of a rebuke than those that we have seen at Westminster of late. The debate that we have had here in the Scottish Parliament is a useful contrast with debates at Westminster. It shows how we are getting on with the day job and trying to deliver the transformational interventions that will support our economy.

It has been a consensual debate, although members were quite right to go through their issues with the bill, of course. I want to respond in a spirit of collaboration and co-operation, as we move on to stages 2 and 3. I will respond to and reflect on as many comments as I can.

It is important to say that many of the considerations that members mentioned might not be for the bill or primary legislation, but can be covered in a range of documents that will be important to the bank. The documents include those on its missions, its articles of association and its mission reports, which will be the bank’s response on the missions that have been set for it. There will also be the shareholder framework document, the business plan, the investment strategy, the ethics statement—many members have commented on its content—the annual report on investment performance and the independent review of performance. I reassure members that there will be many appropriate places in which to set the direction that Parliament wants.

We need to consider fully the appropriate balance between addressing points that many members have made about accountability, direction and transparency and the need for operational independence to ensure that the bank is a success.

Gordon Lindhurst

I trust that the cabinet secretary enjoyed Alex Neil’s pantomime, and that he shares my scepticism about John Mason’s crocodile tears as he said that he is “sadly” no longer a member of the committee when, just last week, he said that he had been “promoted” to another committee.

On a serious point, both those members referred to better organisation in economic terms in relation to national investment banks in European countries. Does the cabinet secretary agree that, although the SNIB is a good start, we will need to do a lot more, because in Scotland—and more widely in the UK—we are not so good at planning for and working on such things as other countries appear to be?

The Deputy Presiding Officer

That was a lengthy intervention, but you have time, cabinet secretary.

Derek Mackay

I will certainly reflect on that point. We are looking around the world at best practice on investment strategies and national investment banks in terms of scale and intervention. As the Economy, Energy and Fair Work Committee’s convener knows well, we have leaned heavily on the work of Professor Mazzucato.

Mention has been made of potential investment in artificial intelligence, and of the intelligence in the chamber. I suggest that, on occasion, some members of the Opposition engage in artificial objections. I am not referring to Jackie Baillie in particular, but I will come back to her comments on the investment bank.

Jamie Greene rightly spoke about current business support. We should not lose sight of the important point that many businesses do not need to wait for the bank’s support and that we should signpost them to the support and products that are available. Right now, the Government’s enterprise family is still attracting investment and new jobs, and is encouraging scale-ups and start-ups in Scotland. Many of those interventions are to be welcomed. The Scottish Investment Bank has been working successfully. However, with the new bank, we want something that is transformational and at scale. As a number of members have said, it is about an all-Scotland approach. We have a supportive business environment that is bearing fruit, but we want to accelerate that through the Scottish national investment bank.

I do not want to get into the debate about one committee being more important than another, because I have to attend both the Economy, Energy and Fair Work Committee and the Finance and Constitution Committee to give evidence. However, points by the economy committee’s convener were well made. I hope that he appreciates the response to the committee: more is to follow. Let us not lose sight of the fact that we are dealing with the legislation to create the bank, and that other operational matters will be dealt with in the fullness of time.

Alex Neil

I will help the cabinet secretary to use up his time. When the Scottish Development Agency was formed, back in 1975, it was given a function that was very similar to that of the proposed national investment bank. However, a number of the agency’s early investments, which were high-risk investments, ended up in failure. As a result of the media and political reaction to that, the agency basically closed in on itself and gave up taking risks. I stress that the bank will not add the value that it can and should add if it is not prepared to take reasonable risks because, if there is no risk, other people will invest anyway.

Derek Mackay

I agree with those comments. Of course, we want every investment to be a success, but with risk, some will not succeed. However, it is right to set out the missions to transform our economy in a way that responds to the agenda that we have set in relation to the economy, the environment and our desire to have a highly skilled workforce.

We will focus on more than just the financial returns—a key point that was made by Gordon Lindhurst. The bank will have the mission focus that several members have emphasised.

Dean Lockhart touched on running costs, as did other members. There will be more to that than what is in the financial memorandum. We will refine the operating costs and ensure that Parliament is made aware of them.

We will also look at the entirety of the enterprise landscape to ensure that it is structured to address concerns about duplication. The bank should provide additional rather than substitute finance. We will ensure that traditional banks in Scotland continue to do their job, too.

Questions were asked about expanding successful programmes. We will also try to look at that. Richard Leonard talked about the scale of ambition for the bank. We have to think about what is affordable as well as what we want the bank to achieve.

Roseanna Cunningham has just joined me on the front bench: I note that the just transition commission will be very helpful in advising us on what the new economy will look like when we are setting out the bank’s missions.

Several members asked whether I intend to engage fully and to refer to Parliament in relation to the missions. Yes—I will. John Mason asked me whether I will engage on the articles of association. Yes—I will engage on that, too. Will I listen to Parliament? Of course I will.

Andy Wightman asked about the sustainable model and how we will grow the green economy. There is much in that respect that we should pursue through the national investment bank.

We have an optimal model to deliver the vision for the bank. I will engage further on the question of parliamentary consultation. I look forward to the cross-party work in which I have committed to participating.

Willie Rennie raised Brexit. We have tried to focus on what we can do here, but Brexit is—of course—the main threat to the economy in Scotland right now. Willie Rennie spoke about the transformational nature of the bank and the scale and pace of delivery, and asked questions about social conditions, such as the living wage, to which I will give further thought.

Annabelle Ewing made a very thoughtful speech that emphasised the strength of patient finance and investment, and the importance of the fact that the bill is enabling legislation. She also raised the importance of the composition and purpose of the advisory group. She quoted my slogan—Jamie Halcro Johnston was worried about me plagiarising other people’s slogans, but this was mine—that success will be allowing things to happen that would not otherwise have happened if this financial institution were not there. Annabelle Ewing was very kind to recall my words on that.

Tom Mason made a very helpful point on diversification and transition to support sectors that want to move to a low-carbon agenda. We should support them using the functions and products of the bank. The bank can make a difference in combining funds and addressing particular needs and demands.

Alex Neil gave a very powerful speech on the ability to transform the economy if we get the bank right. He also spoke about the benefits of bringing more companies to Scotland—their headquarters, domestic bases, skills and talent. There have already been some such success stories and announcements made through our economic strategy.

Jackie Baillie raised legitimate questions on the repayment profile of financial transactions: I will be happy to get back to her with further detail on that. Reviewing the tools that we have is an on-going process in order that we can respond to what business and industry need, as we lead up to operational delivery of the bank. I would not describe the operating costs of the organisation as money lost. If the bank gets it right, it will have a transformational impact on the economy, and that operational cost will be money well spent.

Jackie Baillie

Will the cabinet secretary take an intervention?

Derek Mackay

I have only one minute left, so I have to decline Jackie Baillie’s request, on this occasion.

John Mason spoke about not being overprescriptive in matters such as the committee structure of the bank. I will look for reassurance in relation to matters that members are interested in. To reinforce the point that I made to Jamie Greene, if there are companies that want financial support right now, there are many products that can currently be deployed to support our business community to thrive and succeed.

Pauline McNeill covered housing, which will be absolutely critical. I hope that she welcomes the fact that the precursor funds have been used to support housing. I hope that that will continue.

Joan McAlpine spoke about the widespread support for the bill and the bank, which is appreciated. That support is why we want to take it further.

Many members also spoke about the opportunity that we have to invest resources to achieve our climate change ambitions, which have been discussed recently in Parliament.

We have an ambitious programme: the enabling legislation will allow us to build the bank in the ways that members have described. It is a major intervention, so I look forward to support from across the chamber as we continue to progress it in this cross-party and collaborative fashion, in order to make a success of the Scottish national investment bank.

26 September 2019

Vote at Stage 1

MSPs agreed that this Bill could continue

Changes to the Bill

MSPs can propose changes to a Bill – these are called 'amendments'. The changes are considered then voted on by the lead committee.

The lists of proposed changes are known as a 'marshalled list'. There's a separate list for each week that the committee is looking at proposed changes.

The 'groupings' document groups amendments together based on their subject matter. It shows the order in which the amendments will be debated by the committee and in the Chamber. This is to avoid repetition in the debates.

How is it decided whether the changes go into the Bill?

When MSPs want to make a change to a Bill, they propose an 'amendment'. This sets out the changes they want to make to a specific part of the Bill.

The group of MSPs that is examining the Bill (lead committee) votes on whether it thinks each amendment should be accepted or not.

Depending on the number of amendments, this can be done during one or more meetings.

First meeting on amendments

Documents with the amendments considered at this meeting 19 November 2019:

First meeting on amendments transcript

The Convener

Agenda item 4 is consideration of the Scottish National Investment Bank Bill at stage 2. We are joined by Derek Mackay, the Cabinet Secretary for Finance, Economy and Fair Work. I welcome the cabinet secretary and the two officials accompanying him. We will move straight to the marshalled list of amendments.

Section 1—Duty to establish the Bank

The Convener

Amendment 25, in the name of Dean Lockhart, is grouped with amendments 48 to 56.

Dean Lockhart (Mid Scotland and Fife) (Con)

Good morning, cabinet secretary. My amendments 25 and 48 to 56 would change the name of the bank from the Scottish national investment bank to the Scottish development bank. Amendment 25 is a probing amendment.

10:00

I propose the name change for a number of reasons. First, it would better reflect the bank’s fundamental purpose and role. We have heard a lot of evidence at committee about the bank’s proposed role and responsibilities—it will not only invest in markets, products and services but be involved in initiation and development. That means that, quite rightly, the bank’s role will be much wider than merely passively investing in markets, products and services. The name change would also futureproof the bank’s role as it develops over the many years to come.

The name change would reflect best international practice for banks of the same nature. The leading transformational banks across the world include the KFW in Germany, which is referred to as a development bank. The transformational banks in Singapore and China were also referred to as development banks, and that is also the case with the Industrial Development Bank of India.

The name change would also avoid confusing the bank with the Scottish Investment Bank, which has existed for a number of years and has a distinct, set role, as the cabinet secretary will know.

The phrase “investment bank” has negative connotations relating to the financial crisis. In that regard, constituents have raised with me whether they should approach the investment bank, in light of their concerns that it might want part of their business in return for any financial assistance that it might give. Changing the bank’s name would address those concerns and make the bank more accessible to the markets and businesses that it sought to help.

I hope that there is some consensus in the committee on my proposal to change the bank’s name, given that the concept of a development bank was first put forward by John Swinney in 2014 when he proposed the establishment of a business development bank.

It is important to recognise that there would be some minor administrative costs in changing the bank’s name, but I believe that they would be immaterial when compared with the bank’s proposed operating costs, which are estimated at £25 million a year. I believe that the most important thing is to get the name of the bank right at the outset, recognise the full development role that it will have in the economy and ensure that it gets maximum buy-in from all stakeholders.

I look forward to the cabinet secretary’s response to my amendments.

I move amendment 25.

Andy Wightman

I am fairly open minded about the matter but, having heard what Dean Lockhart has said, I am not convinced that the case has been made for a name change. I am relaxed either way about the bank’s name, and I will remain relaxed, regardless of the outcome of the committee’s vote. If there is a strong case for changing the bank’s name, I am happy to hear it. However, I am not persuaded that Dean Lockhart has made a particularly strong case, although I am open to the debate. I am keen to hear what the cabinet secretary has to say on the matter.

The Cabinet Secretary for Finance, Economy and Fair Work (Derek Mackay)

As committee members will be aware, the Government announced plans in its 2017-18 programme for government to establish the Scottish national investment bank, and I think that the name is now well established. Since that announcement, we have held two public consultations, commissioned and published an implementation plan and undertaken extensive engagement with stakeholders and the wider business community. That engagement included a series of events over the summer across Scotland and in London—the events were chaired by Benny Higgins and attended by more than 300 stakeholder representatives.

As we know, the bank will be a cornerstone institution in Scotland’s financial landscape, and the name was chosen to reflect its profile and our intention for it to invest in businesses and communities right across Scotland.

As members will recall, during its evidence sessions, the committee heard about the importance of raising awareness of the bank and engaging with stakeholders and the business community. We want to ensure that there is demand for the bank, and work is already under way to develop a pipeline of investments for when the bank opens.

For reasons of clarity and continuity, I urge members to resist amendment 25. In all our engagement, we have found that the name “Scottish national investment bank” is understood, and we propose to stick with it.

The Convener

I ask Dean Lockhart to wind up and indicate whether he wishes to press or withdraw amendment 25.

Dean Lockhart

I remain unconvinced that the label “investment” is the right one to describe the bank’s purpose. The substance of the evidence that we heard is that the bank will be very much involved in the development of markets, products and services. However, I have given due consideration to the cabinet secretary’s remarks and I will not press amendment 25.

Amendment 25, by agreement, withdrawn.

Section 1 agreed to.

After section 1

The Convener

Amendment 1, in the name of Jackie Baillie, is grouped with amendment 16.

Jackie Baillie (Dumbarton) (Lab)

Amendment 1 aims to put the purpose of the bank on the face of the bill, rather than simply in supporting documents, in order to ensure permanency. If we agree—and we do—about the bank’s important role in transforming Scotland’s economy, let us set out its purpose not only in the articles of association, but right at the heart of the bill. That would make it clear that the bank’s focus would not be solely on economic returns but would also take into account social and economic aspirations.

Amendment 16, in the name of the cabinet secretary, is remarkably similar to amendment 1, so we are not that far apart. However, I prefer to have the bank’s purpose at the heart of the bill, rather than in the form of a direction to put it in the articles of association. I hope that the cabinet secretary will agree with me.

I move amendment 1.

Derek Mackay

Jackie Baillie has helpfully moved the Government’s thinking on in respect of the issue, and I hope that, in turn, she will see a refinement that can be taken forward. My amendment 16 and Jackie Baillie’s amendment 1 would both reintroduce into the bill the vision for the bank that is articulated in the implementation plan.

The Scottish Government has always been clear that that vision will be realised across our work to establish the bank. The bill is only one part of that, which is why it was not included in the bill as introduced. However, having carefully considered the points that were made in the committee’s stage 1 report, we have reconsidered that omission, and amendment 16, in my name, would require the bank’s articles to set out the vision for the bank.

That approach has a few advantages over the approach that amendment 1 takes. A company’s articles of association are its constitution. Should Scottish ministers, as shareholders, consider the company to be acting outwith the bounds of its articles, we would be able to engage with the bank to address that; ultimately, we would have legal recourse.

Through its usual scrutiny powers, Parliament would have some oversight of the relationship between Scottish ministers and the bank, including in relation to how Scottish ministers exercise their role as shareholders. By proposing to locate the “purpose of the Bank” in primary legislation rather than in the articles, amendment 1 lacks clear carry-through to the bank’s constitution. Stating the vision in the articles allows some flexibility in future arrangements. If amendment 16 is agreed to, the process for updating or refreshing the vision, should that be required in years to come, would be that set out in section 20. Parliament would get to vote on any proposed changes, but there would be no requirement for primary legislation, or for its demands on parliamentary time, which, in this case, would be disproportionate.

In the interests of transparency, we included the entire text of the vision in amendment 16. However, it could be easily argued that certain parts of the vision should be updated, even since its initial publication, which was less than two years ago. As an example of why a vote on proposed changes might be necessary, the reference to “low carbon” could be changed to “net-zero emissions”—a point that we may well consider ahead of stage 3. For those reasons, I respectfully request that Jackie Baillie does not press amendment 1, and that members support amendment 16.

Dean Lockhart

I agree with both Jackie Baillie and the cabinet secretary, whose amendments are similar in effect. On balance, the formulation in amendment 16 gives a bit more flexibility for the bank’s vision, or purpose, in future, so we will support amendment 16.

The Convener

I ask Jackie Baillie to wind up and to press or withdraw amendment 1.

Jackie Baillie

I listened very carefully to the cabinet secretary and I am glad that we have managed to move the Scottish Government’s thinking on. I still prefer amendment 1, but in a spirit of consensus that I hope will continue throughout the meeting, I am prepared to withdraw amendment 1 in favour of amendment 16.

Amendment 1, by agreement, withdrawn.

Before section 2

Amendment 16 moved—[Derek Mackay]—and agreed to.

Section 2—The Bank’s objects

The Convener

Amendment 17, in the name of Andy Wightman, is grouped with amendments 3, 4, 4A, 26, 57, 27 to 30, 58, 18, 5, 31 and 59.

Andy Wightman

Amendment 17 seeks to delete the ancillary objective in section 2(2)(a),

“investing in inclusive and sustainable economic growth”.

The committee is familiar with the issues around that terminology; over the past few years, it has questioned the definition of “inclusive economic growth”. It is my view that the terms have no real meaning and should not be used in relation to the objects of a public bank. It is as simple as that; members will no doubt take a view.

I support all the amendments in the group with the exception of amendments 26 and 57, in the name of Rhoda Grant, as what they propose is effectively achieved by amendment 4.

Amendment 27, in the name of Rhoda Grant, refers to “sustainable growth” and thus in my view suffers from the same problem as section 2(2)(a), which my amendment 17 seeks to delete. Amendment 30, in the name of Jackie Baillie, has the same problem.

Amendment 28, in the name of Rhoda Grant, is interesting but perhaps superfluous in relation to the existing objects in paragraphs (c) and (d) of section 2(2). I am interested in what Rhoda Grant has to say.

Amendments 18 and 5 are similar; I prefer amendment 5, in the name of Jackie Baillie.

I move amendment 17.

The Convener

I call the cabinet secretary to speak to amendment 3 and the other amendments in the group.

Derek Mackay

Although I will be as brief as possible, you will appreciate, convener, that there are a number of amendments in the group.

Amendment 17, in the name of Andy Wightman, would remove the object of

“investing in inclusive and sustainable economic growth”.

It will not surprise Mr Wightman to hear that I do not support his amendment. Inclusive and sustainable economic growth is a key part of Scottish Government policy. I also point out that the bank will be investing in propositions that can command some rate of return and by definition it will be investing in economic growth. Of course, we want that growth to be inclusive and sustainable.

Amendments 3 and 4, in my name, give effect to a number of the recommendations made by the committee at stage 1 that the Scottish Government has subsequently accepted. We have been clear throughout our work to establish the bank that it will deliver a range of financial, social, environmental and economic returns.

We considered carefully the recommendations made by the committee concerning anchoring non-financial returns in the bill and the alignment between the vision for the bank and its objects. Amendments 3 and 4 respond to those recommendations. In particular, amendment 4 responds to the climate emergency that the First Minister declared earlier this year. It provides for a link to the world-leading climate change legislation that the Parliament recently passed.

In practice, amendments 3 and 4 will require the bank to take social and environmental wellbeing into account in its investment decision making, including whether a prospective investment would contribute to or negatively impact on environmental or social wellbeing, for example.

Amendment 4A, in the name of Maurice Golden, would further support that goal, and I am pleased to support it, subject to taking the opportunity at stage 3 to address some drafting concerns.

10:15

I also welcome amendment 26, in the name of Rhoda Grant. Amendment 4, in my name, refers to supporting

“the transitions required to meet the net-zero emissions target”.

Amendment 4 intends to capture the range of transitions that we know are needed across various sectors of our economy if the target is to be met. Amendment 26 clarifies that the bank should also promote the just transition principles, and I am happy to support it.

Amendment 57, in the name of Rhoda Grant, also refers to the just transition principles. That seems to duplicate provision elsewhere, and I ask Rhoda Grant not to move it for that reason.

Further, although supporting the just transition principles will be one of the key means by which the bank will deliver environmental and social returns, it will not necessarily be the only means. It is worth while keeping those elements separate so that they each speak to all the bank’s activities.

Amendments 27 and 28, in the name of Rhoda Grant, and amendment 30, in the name of Jackie Baillie, seem only to duplicate objects that are in the bill. For that reason, I ask members to reject them.

I turn to amendment 29, in the name of Jackie Baillie. We will debate fair work on several occasions this morning. For clarity, I intend to support amendment 47, in the name of Willie Coffey, which provides for a fair work direction to be issued to the bank.

As Jackie Baillie will be aware, employment law is reserved. For that reason, as well as to ensure a tailored approach to fair work, a duty to issue a fair work direction was included in the South of Scotland Enterprise Act 2019, rather than a definition of fair work itself. The direction will define fair work for the purposes of that direction and it does not give a legal meaning that can be cited in other legislation. Therefore, amendment 29 lacks legal meaning and, regrettably, I cannot support it.

Further, the procurement legislation cited in amendment 29 applies to a narrow set of circumstances and defines a living wage as

“remuneration which is sufficient to ensure an acceptable standard of living.”

Requiring that the bank checks that measure against the entire workforce of an enterprise, which might include workers who are based outside Scotland, is unlikely to be possible in practice. That is in no small part because the measure contains a degree of subjectivity that would require a lot of local and workforce-specific knowledge to accommodate.

Amendment 58, in the name of Rhoda Grant, clarifies that the bank should contribute to the achievement of the Scottish Government’s social and environmental, as well as economic, policy objectives. I am happy to support amendment 58.

Amendment 5, in the name of Jackie Baillie, and amendment 18, in my name, seek to provide for a new object for the bank relating to its contribution to promoting equalities. As the committee heard at stage 1 and as Jackie Baillie has rightly been pursuing, there is an opportunity for the bank to make a substantial positive contribution in that respect. There are well-evidenced issues regarding access to finance for women-led businesses in particular, and the bank will be subject to the public sector equality duty and the Scotland-specific duties under the Equality Act 2010. Amendments 5 and 18 seek to reinforce that.

There are two reasons why I consider amendment 18 to be preferable. First, its reference to

“promoting the advancement of equality and non-discrimination”

gives the bank a clear remit to engage beyond its own activities to seek to influence the wider sector.

Secondly, the drafting of amendment 5 risks the bank being seen as responsible for the elimination of discrimination, which it cannot achieve on its own. The bank must certainly contribute to that, and the drafting of amendment 18 recognises that.

For those reasons, I ask Jackie Baillie not to press amendment 5 and to support amendment 18. If there are further points that we can work on together in that regard, I assure Jackie Baillie that I will be happy to engage with her on those matters.

I cannot support amendment 31, in the name of Jackie Baillie. The amendment would provide for a new object for the bank of “meeting regional investment targets”, which the bank itself will set. I have spoken previously about the importance of the bank serving all of Scotland and not just the central belt. I suggest that the approach that Jackie Baillie appears to be promoting in amendment 31 is not the right one.

The committee raised the issue when taking evidence from stakeholders back in May. It heard from Robin McAlpine that

“it is important for the bank to monitor in regional terms where its investment goes. However, it must be driven by demand”.

Ray Perman from the Royal Society of Edinburgh also said that taking a merit-based approach, rather than making pro rata allocations of investment to regions,

“is absolutely the right approach.”—[Official Report, Economy, Energy and Fair Work Committee, 7 May 2019; c 33, 32.]

Mr Perman highlighted the experience in the 2000s of regional venture capital funds in England, where some regions had a shortfall in demand that meant that the money could not be committed. Ultimately, the then UK Government moved to national level funds to address that.

Jackie Baillie’s amendment 31 does not reflect the evidence that the committee received or lessons that have been learned elsewhere, and I do not support it. However, I understand the intention and drive behind the amendment.

I turn to amendment 59 in the name of Claudia Beamish. Although I appreciate the intention behind amendment 59, it reads like a duty to be placed on the bank, rather than an object that sets out the bank’s purpose as an organisation. There is a need for some clarity here and amendment 59 risks starting the development of an exhaustive list of elements that the bank should take into account in its decision making. The objects of the bank is not the right place to do that.

Further, amendment 4 would require the bank to “promote environmental wellbeing”, which would clearly encompass biodiversity. Amendment 58, in Rhoda Grant’s name, clarifies that the bank will support the Scottish Government’s environmental objectives. Supporting biodiversity is a key part of that. If Claudia Beamish were to return at stage 3 with an amendment that was more complementary to those provisions, I would be willing to consider it carefully. However, I would be reluctant to support amendment 59 as it is currently drafted.

I urge members to support amendments 3, 4 and 18, in my name, amendment 4A, in the name of Maurice Golden, and amendments 26 and 58, in the name of Rhoda Grant.

The Convener

Thank you, cabinet secretary. Dean Lockhart will speak to amendment 4A, in the name of Maurice Golden, and the other amendments in the group.

Dean Lockhart

For the reasons that the cabinet secretary has mentioned, it is important that one of the bill’s objects specifically promotes the circular economy as part of a just transition to a low-carbon economy.

On amendment 17, in the name of Andy Wightman, I recognise the issues with the definition of inclusive growth, having heard evidence in the committee on the subject. However, it is important to reference the bank’s objects, including sustainable economic growth and inclusive growth.

We can agree to amendments 3 and 4, in the name of the cabinet secretary, because we agree with their sentiment. The issues that are covered in amendments 26 and 57, in the name of Rhoda Grant, are already covered by amendment 4, which, on balance, we prefer.

We can agree to amendment 28, in the name of Rhoda Grant, which would insert

“promoting and developing the activities of Scottish business”

into section 2. That would be a helpful addition.

Amendments 29 and 30, in the name of Jackie Baillie, are covered by amendment 47, which we think is a better formulation of the objects.

We will agree to amendment 58, in the name of Rhoda Grant.

Amendment 18, in the name of the cabinet secretary, would insert

“promoting the advancement of equality and non-discrimination”

into section 2. We prefer that wording to the formulation in amendments 5 and 31, in the name of Jackie Baillie, so I will be voting in favour of amendment 18.

Rhoda Grant (Highlands and Islands) (Lab)

My amendments 26 and 58 add ancillary objects to the articles of association.

Amendment 26 seeks to enshrine the principles of a just transition in the bill. There has been some discussion about the bank’s missions, and it is clear that dealing with a climate emergency will be a top priority. However, we all know that that comes with challenges and, as we move to a zero-carbon economy, we must not leave anyone behind. We have to deal urgently with the climate emergency, but we cannot do that to the detriment of those who are already disadvantaged.

We hope that the bank will play a crucial role in the progression to a zero-carbon economy. In doing so, it should also embrace the principles of a just transition. Amendment 26 will put that aspect into the bill. It is different to the Government amendment 4, because it is about promoting a just transition rather than being only about investing in it. I ask members to reconsider and support that amendment.

Amendment 57 is similar, in that it would place

“social inclusion and environmental wellbeing”

in the ancillary objects. With the right lending criteria, the bank could transform the lending landscape for socially just projects in Scotland, unlocking vital finance for the just transition to a zero-carbon economy.

Amendment 27 would add “growing the Scottish economy” to the ancillary objects, and amendment 28 would add

“promoting and developing the activities of Scottish businesses”

to the objects.

Amendment 27 would ensure that the bank embeds an overarching principle of

“growing the Scottish economy in a sustainable manner”

in order to secure Scotland a long-term and prosperous future.

So far, short-term investments or quick economic fixes have failed the Scottish economy. The bill should make reference to “growing the Scottish economy” and supporting Scottish businesses.

Amendment 28 says that the bank must support Scottish businesses. Other lending streams, such as regional selective assistance, have all too often focused on foreign businesses, creating a volatile economy. The Scottish national investment bank should become an opportunity for home-grown businesses to capture investment that they have struggled to gain in the past with other agencies.

Although our research and development is globally competitive, we fall down on bringing it to market and benefiting from the manufacturing of a product, which often goes overseas. Home-grown businesses are more likely to stay in the country and investment in them will have a longer lasting impact.

Amendment 58 will ensure that “social and environmental principles” are factored in along with the economic objects for the bank. It is easy to see where the bank would look to boost the economy, but we must also make sure that it safeguards social and environmental principles. The bank must be ethical and hold itself to the highest standards.

The Convener

Jackie Baillie will speak to amendment 29 and the other amendments in the group.

Jackie Baillie

If we want to deliver fair work and avoid contributing to widening labour market inequalities, amendment 29 is essential.

As the cabinet secretary knows, about 470,000 people in Scotland earn less than the living wage. Therefore, the bank should not invest in enterprises that make the statistics worse. The Scottish Government rightly talks about having a living wage nation. We should express that commitment in the bill.

However, I hear what the cabinet secretary says. I will consider amendment 47, but if it does not provide sufficient comfort, will he be open to discussing the matter further prior to stage 3? If he is, on that basis, I will not move amendment 29.

I will not move amendment 30, because it is covered by amendments elsewhere.

Amendment 5 is to insert

“advancing equality and eliminating discrimination”

into section 2. There is a subtle but important difference with the cabinet secretary’s amendment 18, which is to insert

“promoting the advancement of equality and non-discrimination.”

The formulation in amendment 5 is much better, because it is about the clear integration of the ambition to advance equality in all aspects of the bank: in its recruitment, in its operational processes, in the setting and implementation of missions, and not just in its lending decisions.

The Scottish Government recognises equality as an overarching principle, but that is not included in the bill. If we do not include it properly now, we run the risk of it not being a priority or being considered at a late stage in the process.

If members need further convincing, they should consider the inequalities that operate in the labour market now: the gender pay gap of 5.7 per cent and the employment rate for disabled people of 45 per cent, which is half the rate for non-disabled people.

Amendment 5 is the stronger amendment. I urge members to support it, rather than the cabinet secretary’s formulation. There is precedent for it. The saying goes that imitation is the sincerest form of flattery. I copied the wording that the Scottish Government used in the Social Security (Scotland) Act 2018 and in the Equality Act 2010.

Amendment 5 would make the objectives more robust and would apply to every action of the bank. I had hoped that, given that I faithfully copied the Scottish Government’s own wording when I wrote amendment 5, the Government would at least agree to that amendment, but there we go.

10:30

I am happy to have further discussions with the cabinet secretary. I understand that he welcomes the direction of travel and will ensure that it happens. I just want to ensure that that is the case because the Highlands, for example, have suffered from underinvestment, with the majority of the investment going to the central belt. We do not want the Government’s investment bank to take that approach.

The Convener

I call Neil Findlay to speak to amendment 59, in the name of Claudia Beamish, and the other amendments in the group.

Neil Findlay (Lothian) (Lab)

My colleague Claudia Beamish is at another committee, so I will speak to amendment 59 on her behalf.

Amendment 59 seeks to require investment decisions to consider how the financing and lending activities would

“contribute to the protection and enhancement of biodiversity, including the marine environment.”

We know that we face a climate and environmental emergency. The rate of species loss is of great concern. The amendment simply asks that the bank considers how its activities would impact on-going efforts on biodiversity and improving our environment.

The question is, that amendment 17 be agreed to. Are we agreed?

Members: No.

The Convener

There will be a division.

For

Wightman, Andy (Lothian) (Green)

Against

Baillie, Jackie (Dumbarton) (Lab)
Beattie, Colin (Midlothian North and Musselburgh) (SNP)
Coffey, Willie (Kilmarnock and Irvine Valley) (SNP)
Halcro Johnston, Jamie (North East Scotland) (Con)
Lindhurst, Gordon (Lothian) (Con)
Lockhart, Dean (Mid Scotland and Fife) (Con)
Lyle, Richard (Uddingston and Bellshill) (SNP)
MacDonald, Gordon (Edinburgh Pentlands) (SNP)

The Convener

The result of the division is: For 1, Against 8, Abstentions 0.

Amendment 17 disagreed to.

Amendment 3 moved—[Derek Mackay]—and agreed to.

Amendment 4 moved—[Derek Mackay].

Amendment 4A moved—[Dean Lockhart]—and agreed to.

Amendment 4, as amended, agreed to.

Amendment 26 moved—[Rhoda Grant].

The Convener

The question is, that amendment 26 be agreed to. Are we agreed?

Members: No.

The Convener

There will be a division.

For

Baillie, Jackie (Dumbarton) (Lab)
Beattie, Colin (Midlothian North and Musselburgh) (SNP)
Coffey, Willie (Kilmarnock and Irvine Valley) (SNP)
Lyle, Richard (Uddingston and Bellshill) (SNP)
MacDonald, Gordon (Edinburgh Pentlands) (SNP)
Wightman, Andy (Lothian) (Green)

Against

Halcro Johnston, Jamie (North East Scotland) (Con)
Lindhurst, Gordon (Lothian) (Con)
Lockhart, Dean (Mid Scotland and Fife) (Con)

The Convener

The result of the division is: For 6, Against 3, Abstentions 0.

Amendment 26 agreed to.

Baillie, Jackie (Dumbarton) (Lab)
Wightman, Andy (Lothian) (Green)

The Convener

The result of the division is: For 7, Against 2, Abstentions 0.

Amendment 18 agreed to.

The Convener

I call Jackie Baillie to move or not move amendment 5, which has already been debated.

Jackie Baillie

I will move the amendment, but I welcome the opportunity for discussion with the cabinet secretary.

Richard Lyle (Uddingston and Bellshill) (SNP)

You want to have your cake and eat it.

Jackie Baillie

Absolutely. [Laughter.]

Amendment 5 moved—[Jackie Baillie].

The Convener

The question is, that amendment 5 be agreed to. Are we agreed?

However, the balanced scorecard is not referenced in the bill or in any of its accompanying documents. That is cause for concern, as non-financial returns must be anchored in the bill. Therefore, I lodged amendment 32, to put the balanced scorecard in the bill.

Amendment 68 makes the point that the meaning of “performance”, as it appears in section 13, should also include “non-financial performance”. That would have the effect of ensuring that the bank, when it makes its annual performance return to Scottish ministers, reports on its whole performance, rather than simply on the financial performance of its investments.

While building the economy, the bank must take a holistic approach to all aspects of our society’s needs, and amendments 32 and 68 would help to ensure that it does just that.

I move amendment 32.

Jackie Baillie

I hope that amendments 45 and 46 are fairly straightforward.

As it stands, the bill contains no detail on the indicators that will be used to report on the bank’s progress towards achieving its missions. We believe that the success of the bank should not be measured purely in terms of commercial success and economic returns; rather, the bank should also use wellbeing indicators that reflect its approach to investment. For the bank to have its full socioeconomic and environmental impacts, non-financial returns must be measured and scrutinised. Aligning the bank’s investments with national outcomes and the national performance framework is the right approach—I hope that the cabinet secretary agrees and supports amendment 45.

I hope that he also agrees with amendment 46. I know that it is quite detailed, but amendment 46 is all about the data. If you care about it, measure it. The Government’s own equality impact assessment demonstrates the lack of available data and research on equalities in finance, so the approach could make a difference in how the bank operates.

10:45

We could have a debate about the public sector equality duty and how effective it is. I have to say that the regulations are too vague and too high level. People are setting their own outcomes and are, as a consequence, failing to protect people who have protected characteristics. Amendment 46 offers an opportunity for the bank to be world leading by ensuring that it collects equalities data to inform its investment decisions.

I hope that the cabinet secretary will also support amendment 46.

Andy Wightman

I broadly agree with amendment 46, in the name of Jackie Baillie. It would be excellent if the bank were to be the first public institution to do what the amendment intends. However, I have some questions. Subsection 5(a) refers to collecting information on “the Bank’s investment outcomes”, which would be quite a complex and long-term task—it might even not be possible—but subsection 5(b) and 5(c) are about internal matters to do with employment and recruitment of staff, and subsection 5(d) concerns the products that the bank offers. I wonder whether the drafting of the amendment should be revisited to ensure that it makes greater sense.

I was preparing for the stage 2 process and noted that section 14(4)(a)(i) makes reference to

“performance in relation to ... The Bank’s mission statement,”

At the risk of embarrassing myself, I say that I am not sure that the bill states anywhere that the bank shall have a mission statement. Is that an oversight? I have made the point, although I could be wrong.

Dean Lockhart

I am happy to support amendment 32, in the name of Rhoda Grant, on having a “balanced scorecard”. That would address a number of issues that have been highlighted by members about social and other impacts of the bank, beyond its economic impact. If we agree to amendment 32, amendment 68, in the name of Rhoda Grant, will not be needed, because the details that would be required on non-financial performance will already be covered by the need for the “balanced scorecard”.

Although I understand the sentiment behind Jackie Baillie’s amendment 45, which seeks to add that the bank’s performance should be measured against a national planning framework, it would be too onerous for the bank to have regard to all the targets that would be set out in a national planning framework. Instead, the bank should be held to account by reviewing its implementation of the strategic missions.

On amendment 46, the imposition of a requirement on the bank to collect detailed disaggregated information would be onerous. It will already have to comply with equality legislation. We must be careful not to impact on the operational independence of the bank. That would be covered by the “balanced scorecard” that we could agree to.

The Convener

If no other member wishes to speak, I hand over to the cabinet secretary.

Derek Mackay

On a point of accuracy on technical matters, although Dean Lockhart did not use the acronym, “NPF” can stand for the national performance framework or the national planning framework, which he referred to a couple of times in his remarks. I am sure that he meant “national performance framework”. I am so well sighted on both because when one has had ministerial responsibility for both, one has to reflect on the difference between the two. For accuracy, I point out that we propose to align the bank’s delivery with the national performance framework.

I will make a technical confession: Andy Wightman is right. We will be happy to return at stage 3 to the technical matter that needs to be tidied up—the point on the mission statement. I think that that is a score draw on technical issues between the Government and committee members.

In the stage 1 report, the committee called for non-financial returns to be anchored in the bill. I am pleased to discuss the amendments that aim to achieve that. As members will be aware, the implementation plan stated that the bank should consider “social and environmental returns” as well as economic returns

“when making its investment decisions.”

Rhoda Grant’s amendment 68 clarifies that the performance of investment should include non-financial performance. Members will be aware that section 13 of the bill will allow ministers to require the bank to provide particular information on its investment performance. Amendment 68 will apply also to that provision by clarifying that ministers will also be able to require specific information on the bank’s social and environmental returns. I am therefore happy to support amendment 68.

Rhoda Grant’s amendment 32 would require the bank to prepare and update a “balanced scorecard” that would have regard to performance on economic, social, environmental or any other financial or non-financial impacts. I will support amendment 32. As members will know, it is already intended that the bank will adopt a balanced-scorecard approach to measuring the impact of its investments. The Government has committed to working closely with the bank on developing that approach.

Jackie Baillie’s amendment 45 would mandate that performance against the national performance framework be reviewed and published at least every five years, along with the review of performance against missions and objects. I am happy to support amendment 45, subject to the opportunity to address at stage 3 some drafting concerns that we have. However, I certainly support the intention of amendment 45.

For practical purposes, however, I clarify that it would not be appropriate for the bank to be measured against every aspect of the national performance framework, given the framework’s inherent national focus. Not all the national indicators could be used to determine confidently how the bank’s activity alone had performed: for instance, many indicators use data from nationwide surveys, with no further breakdown.

Many indicators might also simply not be appropriate for measuring the bank’s performance. For instance, there is a national indicator on measuring perceptions on access to the criminal justice system, which is unlikely to be relevant for measuring the success of the bank's investments. Therefore, amendments regarding measuring performance against the national performance framework need to be considerate of that and allow for flexibility.

I encourage members to support amendments 68, 32 and 45, and I would be happy to engage further with Jackie Baillie on the measurement issues. I appreciate the point that Jackie Baillie is trying to address with amendment 46, but there are issues in current collection and use of information that the bank can learn from and address in its early days.

However, I am concerned that amendment 46 is quite prescriptive for inclusion in primary legislation. I appreciate the reasons why Jackie Baillie has focused on gender, but I am concerned about the proposed longevity of the provision and what use it would be in responding to issues that might be identified in the future. Again, I would be happy to work with Jackie Baillie on the detail of what the amendment proposes, and to return to the issue at stage 3.

The Convener

Thank you. I invite Rhoda Grant to wind up and to press or seek to withdraw amendment 32.

Rhoda Grant

Dean Lockhart said that he thinks that amendments 32 and 68 propose the same thing, but that is not the case. The “balanced scorecard” will be introduced to the bill by amendment 32. Amendment 68 refers to the reporting to the Scottish Government that is already in the bill, and which refers to performance. Amendment 68 would make it clear that reference to performance in reporting back to the Scottish Government includes financial and non-financial performance. Amendments 32 and 68 therefore propose separate things. I would appreciate Dean Lockhart’s support for both amendments.

On amendment 46, it is important that the bank gathers information, particularly information that is disaggregated by gender, because we have seen a disbalance in the past: investment that has gone to women has not been the same as that which has gone to men.

If we are going to create a truly equal society and close the gender pay gap, we need to measure what we are doing towards that. I am not sure whether Jackie Baillie is minded to bring the matter back at stage 3, but I think that it is hugely important to have it in the bill.

Amendment 32 agreed to.

The Convener

Amendment 33, in the name of Rhoda Grant, is in a group on its own.

Rhoda Grant

Amendment 33 would create a new section after section 2 that would require the bank to prepare a minimum ethical standards document. The document would be subject to affirmative procedure. As we debate and create the Scottish national investment bank, it is clear that we want it to maintain the highest ethical standards. Banks have, in the past, failed to do that, which is why we must do more than hope that the Scottish national investment bank does so. We must ensure that it does so: amendment 33 would put that in the bill.

I move amendment 33.

Dean Lockhart

I have highlighted the importance of the operational independence of the bank. I understand the sentiment behind amendment 33, but I think that it would be overprescriptive and difficult to work, in practice.

Derek Mackay

Amendment 33, in the name of Rhoda Grant, would require

“the Bank to prepare a document setting out minimum ethical standards for investments”.

It would also require that that document be laid before Parliament and be subject to parliamentary approval. As I discussed with the committee during my stage 1 evidence, it will be for the bank to communicate its approach to investment through its investment strategy and ethical statement, which will rightly be for the bank’s board to establish. It would be normal policy for public or private sector investors to set out which sectors or activities they would exclude or restrict in terms of their investments. The Government will want to give a clear steer to the bank on what it feels should inform that ethical statement; to that end we have commissioned the Ethical Finance Hub to prepare advice based on best industry practice.

For the bank to function effectively and successfully as an ethical lender, it is right that it develop and take ownership of its own ethical stance. It is also important that the organisation ensures that that is fully embedded in its policies and procedures, in its approach to delivering on the missions that are set by the Government, and in its corporate culture, values and behaviours. The bank will communicate and account for its approach in its annual reports.

It is important to underline that, as sole shareholder of the bank and setter of its missions, the Government of the day could act to reinforce its expectations if the bank were found wanting, in either its policies or its conduct. In turn, Parliament of course has the power to scrutinise how the Scottish ministers exercise their right as shareholder and sponsor. For that reason, I do not support Rhoda Grant’s amendment 33.

Finally, I am not sure whether the intention is that only the bank’s initial ethical statement would require approval, or if it is envisaged that Parliament would be involved each time a statement was amended. The bank’s minimum ethical standards policy will need to be able to evolve as new sectors and risks emerge. I would not want us to put in place a process that could risk stymieing the bank making changes during a recess, for example, or that could, in the case that Parliament did not approve a position, leave the bank’s investment strategy uncertain.

In striking the right balance between political involvement and operational independence, Parliament should have in its view ministerial oversight of the bank.

For those reasons, I ask Rhoda Grant to seek to withdraw amendment 33. I will, of course, be happy to share with her and with Parliament our thinking on the possible content of ethical standards as that develops: now that we have a chair designate for the bank, that discussion can deepen as we get closer to vesting day. There is absolutely willingness on the part of the Government to engage further on the matter.

The Convener

I call Rhoda Grant to wind up, and to press or seek to withdraw amendment 33.

Rhoda Grant

It is really important that the bank has minimum ethical standards that are overseen not just by the bank but by the wider public. If only Scottish ministers have oversight, then something going wrong would surely rebound on them. Having those ethical standards open to scrutiny by Parliament would be better and would create confidence in the bank’s maintenance of them.

However, I have listened to what has been said, and do not think that I have support for amendment 33, so I seek to withdraw it and will take the cabinet secretary up on his offer to discuss the matter further, with a view to bringing it back at stage 3.

Amendment 33, by agreement, withdrawn.

The Convener

We will take a short break.

11:00 Meeting suspended.

11:08 On resuming—

Section 3—General powers

The Convener

Amendment 34, in the name of Neil Findlay, is grouped with amendments 60 to 63 and 35 to 37.

Neil Findlay

I declare an interest as chair of the Public and Commercial Services Union parliamentary group. I will speak to amendments 34 and 61 to 63.

Amendment 34 seeks to ensure that the bank operates to the highest ethical standards in relation to tax avoidance and tax evasion. Tax avoidance arrangements are defined in section 63 of the Revenue Scotland and Tax Powers Act 2014, which states:

“An arrangement (or series of arrangements) is a tax avoidance arrangement if, having regard to all the circumstances, it would be reasonable to conclude that obtaining a tax advantage is the main purpose, or one of the main purposes, of the arrangement.”

Tax evasion is much simpler—it is the deliberate attempt not to pay tax.

Members of the public are expected to abide by the law, and the spirit of the law, and to pay the taxes that they owe—they are penalised if they do not do that—and companies should be no different. The public are sick to the back teeth of seeing multinational companies making huge profits and paying little or no tax.

Recently, I read an article in the press that said that Amazon, in a good example of such behaviour, paid more tax to Fife Council in the form of rates than it did to the Treasury in the form of corporation tax. The Scottish national investment bank should not be lending to companies that are engaged in such activities. It should be encouraging good corporate governance and responsibility, which includes paying the taxes that are owed. The bank should not be lending to tax evaders or avoiders.

I turn to amendments 61 to 63. The bank should also play a leadership role in shaping the economy and demonstrating how, through its lending policy, it is seeking to drive a fair work agenda that encourages and enshrines rights and responsibilities. It should do that by a policy of deliberately prioritising lending and indeed refusing to lend to enterprises that do not pay the real living wage or create precarious work that denies workers basic rights and prevents them from getting a mortgage, sick pay, holiday pay and so on because of the uncertain nature of their work, including zero-hours contracts. It should refuse to lend to companies that use payroll or umbrella companies that are set up deliberately to rip off the taxpayer and the company’s workers. It should fail to engage in lending to companies that fail to recognise trade unions, which we know are best placed to guarantee the rights of workers. We all know that unionised workplaces are safer, have better pay, more stable workforces, better staff retention and fairer working conditions. For those reasons, we should pass the amendments and ensure that the bank becomes a model of ethical lending.

The cabinet secretary said previously that the bank would have a fair work direction. That is all very well, but we have seen in the past what happens with that. For example, during the passage of the Procurement Reform (Scotland) Act 2014 in the previous parliamentary session, we were told that many issues, such as those around blacklisting, the living wage, zero-hours contracts, community benefits and so on, would be covered in guidance. However, we know that the guidance is not worth the paper it is written on—once the bill was passed, everything remained the same: we saw companies that blacklisted workers getting contracts for the Dundee waterfront, and anti-trade union activity at the Dumfries hospital.

Earlier, the cabinet secretary said that the bank’s activities and employees would be covered by the public sector equality duty. If that is the case, the bank should also be covered by the public sector pay policy.

I move amendment 34.

Jackie Baillie

Amendment 35 is about consulting local authorities. I lodged the amendment because if we consult local authorities ahead of investing in a particular area, we will ensure that the bank’s lending is being put to its optimum use. That has the potential to ensure that local authorities could put in place complementary activities and development plans. It is right to ensure that there is consultation with the key people on the ground, so I hope that the committee will accept amendment 35.

Amendment 36 was debated at stage 1. The committee had a strong view that the bank must invest more widely than in the private sector alone. I want the bill to maximise the impact of the bank by developing a financial institution that allows particular organisations, such as co-operatives and social enterprises, to secure finances. I appreciate that some in the voluntary sector consider that to be too restrictive, so, if members are minded to support amendment 36, I will seek to add to the provision at stage 3, to widen it to third sector opportunities.

Dean Lockhart

Amendment 37 is a probing amendment that I lodged to seek the Scottish Government’s views on whether restrictions will be imposed on the bank board’s freedom to decide how and where it will grant financial assistance under section 3 and what those restrictions might be. Our approach is that the bank should have operational independence to decide on areas of investment according to the missions to be achieved. I therefore invite the cabinet secretary to comment on whether he intends to impose restrictions on how and where the bank can invest and whether he will allow the bank to have operational independence to decide the best areas of investment according to the missions set out in section 11.

11:15

Andy Wightman

I have three points on the amendments in group 6. I welcome Neil Findlay’s amendments 34 and 61 to 63, but I would like him to address in his closing remarks the reference in amendment 62 to companies having contracts with an umbrella company, because I am not entirely clear why that would be deemed to be a bad thing. He mentioned a few bad practices, but it would be helpful for me if he could elaborate on that.

On amendment 35, I have a later amendment on non-executive appointments in relation to local authorities. The question that I have about amendment 35 is how it would impact on questions of confidentiality if the bank was considering supporting proposals that were before it. I am not clear how any bank, whether private or public, could consult local authorities on what could be commercially sensitive matters.

On Dean Lockhart’s amendment 37, I am not clear about subsection (2) of the proposed new section after section 3, which states:

“The articles of association must provide that the Bank’s board is not limited in the areas”.

I am not sure of the definition of the word “areas”. Dean Lockhart mentioned the operational freedom of the bank, which, of course, the bank should have, but it will be a public bank that will be financed, at least in the short to medium term, by public money. The bank will therefore be constrained in what it can do by both the eventual act and the articles and memoranda of association; and it will be constrained in so far as ministers see fit by directions that the shareholder gives. It therefore seems to me that amendment 37 is unnecessary and unwelcome.

Derek Mackay

Jackie Baillie’s amendment 35 would set out in the bank’s articles of association that the relevant local authority must be consulted before investment could be provided in its area. I am clear in my intention that the bank will be a national institution that will invest in businesses and communities in every part of Scotland and it will be up to the bank to decide where and when to invest. However, to help achieve that, we will engage with local authorities and enterprise agencies to ensure that we attract demand right across the country. Local authorities will have a critical role alongside other key partners in ensuring that businesses and communities get the support and advice that they need when engaging with the bank.

I am also mindful of the debate that we have had around Business Gateway and the understanding of place and economic strategy. However, requiring local authorities to be consulted before any investment is not the best way to pursue that agenda, because it would place an unnecessary burden on local authorities to expect them to liaise with the bank on every project in their area and it would risk delaying the provision of finance to an otherwise successful applicant to the bank. Given that the bank’s investments will be merit based, that also brings into question how it would be handled if a local authority were to suggest that an investment should not be made. For those reasons, I cannot support amendment 35 and I ask members to consider that.

Amendment 34, in the name of Neil Findlay, aims to restrict the bank from providing finance to organisations involved in tax avoidance or evasion. In fairness, Neil Findlay has made the point that tax evasion is an illegal activity and that the bank would not engage with organisations that perpetrated it. Standard due diligence on the part of an investor will identify cases where tax evasion has been found. If an organisation undertook tax evasion after the bank had provided it with finance, standard contractual practice would ensure that the bank had the right to seek repayment of its investment.

I have some concerns about the application of the provisions relating to tax avoidance in amendment 34. I do not take the issue lightly, but I am concerned that amendment 34 would be counterproductive in its attempts to deal with the problem.

Amendment 34 would require extensive investigations into the tax arrangements of a prospective customer before the bank could make any investment. That work would likely have to be contracted out to specialist firms at significant expense. Standard practice is that the applicant for finance covers due diligence costs, so the effect would likely be to penalise smaller companies and, in particular, small and medium-sized enterprises, which would find that burden prohibitive. Those are the very types of organisations that the bank is set up to support, and I am sure that Neil Findlay would not want to unfairly impact SMEs that act lawfully in that way.

I hope that members are assured that if an organisation is found to have engaged in tax evasion, that will be detected and will prohibit it from future engagement with the bank. I expect the bank to manage risk in a way that will allow it to consider when further due diligence might be required. I urge Mr Findlay to withdraw amendment 34 for the reasons that I have set out.

Amendment 36, in the name of Jackie Baillie, sets out that the bank may provide finance to co-operatives, community benefit organisations and social enterprises. The Government has previously clarified to the committee that third sector bodies, community interest companies, social enterprises and co-operatives may seek financing from the bank. I am happy to state that again for the record.

I was on course to support amendment 36, but I note that the Scottish Council for Voluntary Organisations and Social Enterprise Scotland have raised concerns about it, and in particular that it might be “unnecessarily limiting”—I think that Jackie Baillie recognised that point. If Jackie Baillie is willing to not move the amendment, I am happy to consider how that point can be addressed in other ways, but I do not wish to support the amendment as currently drafted on the basis of the issues identified by SCVO and Social Enterprise Scotland. I am happy to continue working on that with Jackie Baillie, who mentioned adding to the provision. The offer is there to see what that addition looks like and how else we can address the matter.

Dean Lockhart said that amendment 37 is a probing amendment. It would mandate that only the bank’s board could make decisions about the provision of finance. It would allow ministers to propose restrictions, but it would require that those would have to be approved by a resolution of Parliament before they could come into effect.

We have already discussed amendment 33, in the name of Rhoda Grant, which was similar in effect to amendment 37 and would have provided for the bank to have minimum ethical standards for investment, and for those to be approved by Parliament.

When discussing amendment 33, I said that it is normal policy for investors to set out which activities they would exclude or restrict in terms of their investments. However, the Government will want to give direction to the bank on what it feels should inform that ethical statement. To that end, we have commissioned Ethical Finance Hub to prepare advice that is based on best industry practice.

In line with those comments, I do not support amendment 37, in the name of Dean Lockhart. However, I appreciate the intention behind it of ensuring that the bank has sufficient certainty when planning its investment activities, and I am happy to engage with him separately on how that can be provided to the bank.

Amendments 60 and 61, in the name of Neil Findlay, would prohibit the bank from investing in companies on the basis of their remuneration policy or use of zero-hour contracts.

Although I share Neil Findlay’s enthusiasm for embedding fair work practices in Scottish businesses, the approach that he has set out in the amendments to achieve that goal is blunt. It fails to take sufficient account of the many companies in Scotland that want to be fair work employers but require support to achieve that aspiration.

As I said during my remarks on amendment 29 in group 3, the living wage as defined in the Procurement Reform (Scotland) Act 2014 is not the same as the real living wage. Further, there is some inherent subjectivity in the term, which would make enforcing amendment 60 challenging.

It is important for the bank to take a supportive rather than punitive approach to promoting and encouraging fair work. My view is that it is better to help an organisation pay the living wage by supporting it through investment that enables it to grow, improves its employment practices and creates new jobs.

These amendments would potentially exclude employers that we would otherwise wish to support from seeking finance from the bank. For example, as currently drafted, the amendments would mean that a small company in which the owner pays themselves from dividends would not be eligible for support.

Finally, it has to be recognised that not all zero-hour contracts are exploitative—we of course do not support exploitative zero-hour contracts—and there are some cases in which staff prefer them. In those instances, I do not agree that the employer should be prohibited from accessing finance from the bank as a consequence.

There also appears to be an issue of practicality and enforceability, particularly for businesses that employ staff in other countries. I therefore cannot support amendments 60 and 61, for the reasons that I have set out.

Looking ahead to the group on the fair work direction, this would enable the bank to take a much more nuanced approach to how it supports the implementation of fair work practices—one that recognises the many businesses that want to adopt fair work practices and supports them to achieve that ambition. In addition, by making the bank subject to a fair work direction, we would also ensure that it supports businesses to introduce the full range of fair work principles, including investment in skills and training and reducing their gender pay gap.

Amendment 62, in the name of Neil Findlay, would restrict the bank from giving finance to a company in a contract with an umbrella company. I heard Neil Findlay’s reasoning; however, I am concerned that amendment 62 puts us in the position of judging companies on their structures and not their actions. The reason I make that point is that umbrella company structures are used for a range of entirely legitimate purposes that the bank may come into contact with. One clear example is in management buyouts. The bank may well wish to support management buyout initiatives in certain circumstances that can see companies grow and innovate. Umbrella company structures can be used to support or undertake a buyout, but amendment 62 would effectively block that sort of investment: I do not think that that is the intention behind the amendment. If the bank were not able to support companies that make use of umbrella companies, that could limit the number of viable investments the bank could make.

The final amendment in this group, amendment 63, concerns trade union recognition. It would appear to seek to prevent the bank from investing in companies that have refused a request by employees to have their interests represented by a trade union under the terms of the Trade Union and Labour Relations (Consolidation) Act 1992. I have concerns that the drafting may be wider reaching than that. This Government fully recognises the need to enhance workforce engagement and increase collective bargaining in the workplace. That is why in our most recent programme for government we have committed to working with the Scottish Trades Union Congress to increase the number of workers covered by collective bargaining.

My concerns with amendment 63, however, are similar to those that I highlighted in relation to amendments 60 and 61; namely, that it requires the bank to make a sweeping judgment about all companies, rather than taking into account local conditions and individual circumstances, even in the narrower reading of the amendment. The amendment does not allow the bank to make informed decisions about the companies that it can and cannot invest in, and I urge the committee to reject it. I am happy to engage further with Neil Findlay on this, because I think the amendment has some unintended consequences.

Neil Findlay

The Convener

The result of the division is: For 1, Against 8, Abstentions 0.

Amendment 35 disagreed to.

Amendment 36 not moved.

Section 3 agreed to.

After section 3

Amendment 37 not moved.

Sections 4 and 5 agreed to.

Section 6—Directors: appointment

The Convener

Amendment 64, in the name of Jackie Baillie, is grouped with amendments 19, 65 and 6 to 8.

Jackie Baillie

I shall be very brief. Amendment 64 was lodged because the draft bill stipulates only that

“directors are to be appointed by the Scottish Ministers.”

There are no specific requirements to have trade unions represented on the board. Ensuring diverse governance arrangements and a specific role for trade unions would result in better outcomes for not just workers but, ultimately, the economy. I note that amendment 65 has the same effect. I will, therefore, support all the amendments in the group, and await the cabinet secretary’s comments.

I move amendment 64.

Andy Wightman

I will restrict my remarks to amendment 19. The cabinet secretary said a few moments ago that local authorities will have a critical role in the affairs of the bank. There are banks in other countries, such as KFW in Germany, that include regional authorities—the länder—as full members. Rather than section 1 stating that the bank

“has the Scottish Ministers as its only member”,

my preference would be that it also included local authorities as a member. However, that raises some difficult technical problems, so I have left it to one side.

Instead, I have focused on section 6, which relates to the appointment of directors to the board. Amendment 19 provides that

“at least two non-executive directors are to be appointed by Scottish local authorities”.

Local authorities are critical partners in economic development and I think that their perspective and experience should be made available to the board of the bank. They would be able to exercise the power to appoint two non-executive directors every four, five or six years—however long the term of appointment is, which is governed elsewhere in the bill or the articles of association. Local authorities would not be directly involved in the affairs of the bank, but they would have a stake in it and the interests of local government would be reflected, at least in part, in the appointments that they chose to make. I think that amendment 19 is straightforward and I look forward to hearing what members think.

Rhoda Grant

Amendment 65 requires that directors have knowledge of industry and of workers’ points of view. The amendment ensures that views from both areas will be represented on the board of the bank and makes provision for the Scottish ministers to consult with representatives of trade unions and organisations representing business. That will ensure that the bank engages with those organisations and it should encourage buy-in from them. I would expect the bank to have knowledge of business, but it is also important to have buy-in from organisations representing businesses. Such organisations often do not have a good understanding of trade unions and workplace issues, so the amendment would ensure that there would also be representatives on the board with that understanding. Jackie Baillie’s amendment 64 also does that. I will listen to the committee’s views on both the amendments.

Derek Mackay

Amendment 6 is a technical amendment that will ensure alignment between the bank’s articles of association and the Commissioner for Ethical Standards in Public Life in Scotland’s code of practice. It provides that the maximum cumulative term for a non-executive director will be eight years, as specified in the code of practice.

Jackie Baillie’s amendment 64 would require the Scottish ministers to appoint a representative of a trade union to the bank’s board. The bank’s directors will be responsible for ensuring the success of the bank, and ensuring that appointed directors have the right skills and experience is, of course, fundamental to that. Although gaining the perspective of trade unions will certainly be of value to the board, that is best achieved through stakeholder engagement rather than by appointing individual representatives. As directors of a public limited company, directors of the bank will ultimately have fiduciary duties and can be held accountable for the failure of the company. That would also apply to any representative. Any deviation from the practice of appointing non-executive directors to the bank’s board on the basis of merit would risk undermining the capacity of the Scottish ministers to hold the board to account for its performance. For those reasons I do not support amendment 64, although I have sympathy with its aims.

Jackie Baillie is right to say that amendment 65, lodged by Rhoda Grant, is a compromise—it is a more appropriate amendment. It will ensure that the Scottish ministers take account of the interests of workers as part of the wider skill set that non-executive directors should be required to have. Businesses will also be a crucially important community of stakeholders for the bank, so I whole-heartedly support their inclusion in amendment 65 to ensure that their interests are also considered as part of the bank’s governance. I urge members to reject amendment 64 and to support amendment 65 for the reasons that I have given.

I recognise that the intention behind amendment 19, in the name of Andy Wightman, is to give local authorities a stake in the bank, but what is being proposed will not achieve that aim. Rather, it will muddy lines of accountability by confusing the bank’s governance structures. The bank’s board must be accountable only to the Scottish ministers for its performance in delivering against the strategy that they have set for it. Making specific board members accountable to other organisations—

Andy Wightman

I am not suggesting that the directors should be accountable to Scottish local authorities. Those directors will be appointed by Scottish local authorities, but once they are in post, they will be directors of the company and will be governed by the same lines of accountability as the other directors. I want to be clear on that.

I thought that I made it clear in my remarks that I am not seeking to provide local authorities with a direct stake in the bank. That was the intention behind amendment 1. I am still interested in that, but I am not moving in that direction at the moment. Amendment 19 is about the power to appoint. Once those directors were appointed, the lines of accountability would be exactly the same as for all other directors.

Derek Mackay

I appreciate that point of clarification, but I am still of the view that it would be inappropriate and overly restrictive for local government to have places on the board, as described by the member. However, I welcome the clarification, because there is an important distinction between who appoints board members and to whom they are accountable.

It will be important for the Scottish national investment bank to engage with local authorities on the issues that I mentioned earlier, such as the economic strategy, the nature of investment and the focus on place.

The proposals captured in amendment 19 are at odds with the wider governance structures of the bank, which have not been set up to give local authorities a wider role in that corporate governance. In all other respects, the Scottish ministers retain the role of sole shareholder. I think that that is only right and it also suggests that amendment 19 is not suitable in isolation. That is why I cannot support amendment 19.

I turn to amendments 7 and 8. I am sure that many members would agree that it is prohibitively restrictive to set out key aspects of the bank’s pay and conditions in legislation, particularly given that it is an institution that will help to shape our economy for generations to come. We are in the process of designing a pay and reward structure for the bank that reflects the fact that it will be both a financial services institution and a public body. We are benchmarking against similar institutions, such as the British Business Bank and the Development Bank of Wales, to arrive at a package that is competitive but not excessive. That is in line with the recommendation made by the committee at stage 1, on the basis of the evidence that it had heard from stakeholders.

The bill includes a direction-making power in relation to remuneration in section 8, which can be exercised if necessary. However, in practice, if it is to remain effective, the bank must have the ability to determine what is an appropriate pay and reward structure for staff. The bank will only be as good as those who work for it, so it is vital that it has the flexibility to recruit and retain staff with the skills and experience to deliver the bank’s ambitious remit. Placing qualifiers around the bank’s pay and reward structures will remove that flexibility. I therefore ask members to vote against amendments 7 and 8.

11:45

However, I wish to address a couple of specific points. We intend to offer a defined contribution pension scheme, a proposal that is designed to recognise the unique type of institution that the bank will be within the Scottish public sector. I do not see that as setting a precedent for wider public sector settlements.

A defined contribution pension scheme is not without precedent in the Scottish public sector. For example, Business Stream, a subsidiary of Scottish Water, uses such a scheme. The use of incentives is common practice within the comparator public sector banks, so our proposals remain in line with recommendations in the committee’s stage 1 report. The incentives will be administered annually but paid out over an extended period of up to four years, and only on the achievement of measurable impact against mission and objective-based targets.

I hope that this explanation is helpful for members and I am happy to provide updates as the policy develops.

Neil Findlay

The bill says nothing on the future pay, pensions and rewards and devolves all of that to the board and chief executive. The national investment bank will be established as a non-departmental public body and form part of the public sector landscape in Scotland. As such, the terms and conditions should at least match those applied across the public and governmental sector, including on pay, access to a defined benefit pension scheme and any other rewards. Remuneration must be aligned with Scottish ministers’ pay policy and fair work practices. A defined contribution scheme does not align with what is being offered elsewhere.

The investment bank should not repeat the past failures of the banking sector in its lending, for example by engaging in irresponsible lending or other dodgy practices that we have seen over the years, and it should also avoid following the lead of those commercial banks in downgrading the pensions of their staff. We should be offering the same as in other areas of the public sector that are covered by ministerial pay policy, which means that staff should be covered by a defined benefit scheme.

In the example that the cabinet secretary has given, it appears that he has had his officials scouring the landscape to find an example of a pension scheme that fits this proposal, and all they could come up with is a single one in Business Stream. His argument does not stack up.

Jackie Baillie can now wind up and indicate whether she wishes to press or withdraw amendment 64.

Jackie Baillie

I will start with amendment 64 and pick up on something that the cabinet secretary said, because I am sure that he did not intend to use this phraseology. He seemed to suggest that trade union representatives were somehow without merit.

I see that he is shaking his head; I am pleased to see that.

I am happy to withdraw amendment 64 and support amendment 65. There is no problem with Andy Wightman’s amendment 19. He will appreciate that councillors who sit on health boards are accountable to those boards, not to their local authorities, so the cabinet secretary’s argument is invalid.

I support the cabinet secretary’s amendment 6, as I do amendments 7 and 8 in the name of Neil Findlay. Neil Findlay’s amendments are necessary because of the Scottish Government’s current direction of travel. I thought that we had seen enough of bankers’ bonuses. I hear what the cabinet secretary has said—he might call it incentive pay—but if it looks like a bonus and it behaves like a bonus, it is a bonus, and calling it something different does not hide that fact.

Defined benefit pension schemes are the norm throughout public sector pay policy. This will be a public bank, not a private bank, and as such, it should conform to public pay policy. I therefore urge the cabinet secretary to reflect on that in his discussions with the civil service trade unions. In the meantime, I ask members to support amendments 7 and 8.

Amendment 64, by agreement, withdrawn.

Amendment 19 moved—[Andy Wightman].

The Convener

The question is, that amendment 19 be agreed to. Are we agreed?

Members: No.

The Convener

There will be a division.

For

Baillie, Jackie (Dumbarton) (Lab)
Wightman, Andy (Lothian) (Green)

Against

The Convener

The result of the division is: For 2, Against 7, Abstentions 0.

Amendment 19 disagreed to.

Amendment 65 moved—[Rhoda Grant]—and agreed to.

Section 6, as amended, agreed to.

Section 7—Directors: tenure

Amendment 6 moved—[Derek Mackay]—and agreed to.

Section 7, as amended, agreed to.

Section 8—Remuneration

Amendment 7 moved—[Neil Findlay].

The Convener

The question is, that amendment 7 be agreed to. Are we agreed?

Members: No.

The Convener

There will be a division.

For

Baillie, Jackie (Dumbarton) (Lab)
Wightman, Andy (Lothian) (Green)

Against

The Convener

The result of the division is: For 2, Against 7, Abstentions 0.

Amendment 7 disagreed to.

Amendment 8 moved—[Neil Findlay].

The Convener

The question is, that amendment 8 be agreed to. Are we agreed?

Members: No.

The Convener

There will be a division.

For

Baillie, Jackie (Dumbarton) (Lab)
Wightman, Andy (Lothian) (Green)

Against

The Convener

The result of the division is: For 2, Against 7, Abstentions 0.

Amendment 8 disagreed to.

Section 8 agreed to.

Section 9—Committees

The Convener

Amendment 20, in the name of Andy Wightman, is grouped with amendments 38, 39, 21, 40, 66 and 67.

Andy Wightman

It is clear that, to some extent, the amendments in the group seek to achieve the same ends, and I am relaxed about where we get to. I am aware that we might get to a muddled position, but I am sure that we can clarify that at stage 3.

I am not particularly taken by amendment 38, in the name of Rhoda Grant, which would introduce a statutory duty to set up four committees. For example, I think that the investment and ethics committees could run together. However, I am quite relaxed about it, and will be guided by members as to which options are most attractive.

My fundamental point with amendment 20 is that it is important that there is a statutory duty for the bank to have an ethics committee, which would be complementary to the audit and risk committees that are already set out in section 9. There will be an ethics statement, which has been an important part of the debate about the bank, and it is not very problematic to insist that that be prescribed in the legislation.

In relation to amendment 38, I think that it would be quite normal for a bank to have remuneration and nominations committees, and those might be matters that the board wants to reflect on. As I said, members might take the view that we should prescribe those things, too, but I am quite relaxed about that.

In relation to amendment 67, in the name of Jackie Baillie, there was some debate about the advisory group and who it would be advising. Amendment 67 is helpful in that regard, because there has been a lack of clarity. Although there might be some details in the amendment that need a bit of work, the sentiment is important and I will vote for it.

I move amendment 20.

12:00

Rhoda Grant

I will speak to amendments 38 to 40 and 66, in my name.

Amendment 38 ensures that reference to all six committees should be placed in the bill. The bill already lists the audit and risk committees, but the others also warrant a mention in the bill.

Amendment 39 is an alternative. All six committees should be listed in the bill but, arguably, the ethics committee is the most important and should be at least equal to the audit and risk committees. If the committee were not in agreement that all six committees should be listed in the bill, members will agree with me that the ethics committee should be.

Amendment 40 puts the purpose of the ethics committee in the bill, and amendment 66 requires the bank’s directors to confer formal functions on the remuneration, nominations and investment committees.

Jackie Baillie

I will be brief. The advisory group will deliver vital support to the bank in setting missions and directing investment decisions. In turn, the advisory group must be well supported by the bank to carry out its duties. The bill should ensure representation from trade unions on governance advisory structures. Amendment 67 reflects the committee’s thinking and, specifically, the recommendation to enshrine the advisory group in the bill.

Dean Lockhart

With regard to amendment 67, we agree that it would be helpful for the advisory group to be embedded in the legislation. Likewise, I am relaxed about amendment 20, but I think that it is overly prescriptive to set out in primary legislation the names of the individual committees and how they will be established. A better formulation would be a requirement on the board of directors to create such committees as it deems appropriate to deal with those matters and to allow the board of directors to set up committees to do that.

Derek Mackay

I turn first to those amendments that would place a requirement on the bank to establish a committee that is responsible for overseeing its approach to being an ethical investor. I appreciate that members are keen to ensure that the bank operates effectively as an ethical investor. I share the view that that is important. The Scottish Government has already taken steps to support that. We have committed that the bank will produce an ethical statement. We have also committed that the bank will align its activity with the United Nations guiding principles on business and human rights and the UN global compact.

However, as the committee has heard from a number of stakeholders during stage 1 scrutiny of the bill, the governance arrangements and operational structures that are put in place for the bank must be determined by the bank. That not only ensures that the bank can develop an effective and flexible response in the context of the bank’s wider operational structures but creates a clear and distinct relationship between the bank and its shareholders.

Providing specifically for an ethics committee might not be the most effective means of infusing ethics into the bank’s decision making around its investments. All members should be thinking about ethics. Feedback from stakeholders suggests that divorcing ethics from the main board risks sidelining or compartmentalising that issue. As the amendments that have been lodged show, there are a number of possible approaches to that. I encourage members to avoid a muddle by heeding my advice.

A further option would be to have ethical investment as a board-level responsibility. It is important that we put the right conditions in place—through the shareholder framework, the missions and the bill—for the bank to develop as an ethical investor, rather than trying to provide the precise mechanisms for it to adopt.

Although I respect the intention behind the amendments, for those reasons I cannot support amendments 20, 39, 21 and 40. There is an appetite for more detail on how, in practice, the bank will approach its role as an ethical investor. As the establishment of the bank progresses, we will have conversations with the newly appointed chair of the bank on that issue, to provide that assurance to members.

I also urge members to reject amendments 38 and 66, on the basis that the bank requires the operational flexibility to determine its internal governance arrangements. The committees that are referenced in amendment 38 mirror those that are mentioned in the shareholder framework document that I shared with the committee in May. The committee’s stage 1 report recommended that the Government consider providing for the establishment of such committees in the bill. However, it remains our view that writing the bank’s governance provisions into legislation risks straitjacketing it into arrangements that might be ineffective in practice, without giving it the opportunity to make simple adjustments. I therefore think that it would be wrong to set all that out in primary legislation.

Andy Wightman

The cabinet secretary has said that it would be wrong to set out such provisions in legislation, but section 9 does precisely that. Section 9(2) says:

“The articles of association must require—

(a) that the Bank have—

(i) an audit committee, and

(ii) a risk committee”.

If it is appropriate that the bill specifies the committees that should be in the articles, I do not see how there can be an argument against incorporating reference to other committees. If there is an argument against incorporating in the articles an investment and ethics committee or an ethics committee, the same argument would surely apply to the audit committee and the risk committee. I am not sure what the cabinet secretary’s precise argument is on that point.

Derek Mackay

I will come back to the very specific matter of the advisory group which, for the reasons that we have debated and heard about from Jackie Baillie, I support.

There are specific reasons for the requirement to have an audit committee and a risk committee. The thrust of this argument is about whether to have an ethics committee. What I am trying to express is that the bank’s ethical approach should be integral and central to it, and it will be set out in different places. I do not see the need to separate it out into a sub-committee of the main board. It should be central to the operation of the bank and of the board, and should be shared by all members at the highest level. I am not looking to separate it out or to micromanage the whole structure of the bank, but there are very specific reasons for having an audit committee and a scrutiny committee. I wish to return to the advisory group point later.

The other reason for not being too rigid in primary legislation is that we might have to return to these matters. What if we wanted the nature of the bank to change? Are we seriously suggesting that the Parliament should have to consider that in primary legislation? For those reasons, I do not want to be overly prescriptive.

After the stage 1 debate, the committee asked the Government to consider how the advisory group could be reflected in the bill. Amendment 67, in the name of Jackie Baillie, proposes the inclusion of such a group in legislation. The implementation plan recommended the establishment of a group including representatives of stakeholders and wider society to advise ministers on the bank. As members will be aware, the Government had already intended to set up an advisory group, but amendment 67 now sets out a requirement for it in the legislation.

In our response to the committee’s report, our view was that an advisory group was not a matter for legislation. However, if it is the Parliament’s view that, for the avoidance of doubt, such a group should be provided for in the bill, we would be willing to support that, subject to having the opportunity to make refinements and adjustments at stage 3. On that basis, I would be happy to support amendment 67.

The Convener

I call Andy Wightman to wind up and press or withdraw his amendment.

Andy Wightman

I intend to press amendment 20.

I am a little bit confused by the cabinet secretary’s response. He suggested that there was an alternative way forward, but no amendments on such a course have been lodged. He argued that ethics should be central to the board and not separated out. I agree with that, but the fact that we set up—or required the bank, in its articles, to have—an ethics committee would not mean that that was being separated out; it would simply highlight the importance and significance of ethics. The bill makes similar provision for an audit committee and a risk committee.

The cabinet secretary also argued that we should not be overly prescriptive but questioned what would happen if the articles were to change. That is covered in section 10. All the articles of association that are prescribed in the bill can be amended or repealed only in line with section 20, which requires a special resolution of the bank’s members that has been

“laid before, and approved by resolution of, the Scottish Parliament.”

There is nothing novel about that. The bill already provides that amendments to the articles must be approved not just by the Scottish ministers but by the Parliament, which I think is perfectly appropriate.

The question is, that amendment 39 be agreed to. Are we agreed?

Members: No.

The Convener

There will be a division.

For

Baillie, Jackie (Dumbarton) (Lab)
Wightman, Andy (Lothian) (Green)

Against

The Convener

The result of the division is: For 2, Against 7, Abstentions 0.

Amendment 39 disagreed to.

Amendments 21, 40 and 66 not moved.

Section 9 agreed to.

After section 9

Amendment 67 moved—[Jackie Baillie]—and agreed to.

Section 10 agreed to.

Before section 11

The Convener

Amendment 22, in the name of Andy Wightman, is grouped with amendments 23, 9, 10, 42, 41, 11, 24 and 43.

Andy Wightman

Amendment 23 is consequential to amendment 22, so I will set it to one side.

The Scottish Government’s programme for government stated:

“We confirm in this Programme that its primary mission”—

that of the Scottish national investment bank—

“will be to transition to net zero”.

Therefore, that is not simply the Government’s intended mission, or the first of a series of missions; it is the bank’s “primary mission”. The bill does not make any reference to primary, secondary, tertiary or quaternary missions; it simply talks about there being missions. However, on the basis of the Government’s own statement, it regards the transition to net zero as a “primary mission”—in other words, not as the bank’s first mission but as one that is more important than any of the others. At least that is how I interpret the statement, which is fairly unambiguous.

12:15

It is therefore my view that it would be appropriate—although this is a departure from the way in which the bill is structured—to set out in the bill what I refer to as a “strategic mission”. Amendment 22 states:

“The strategic mission of the Bank is to undertake investments that will facilitate the transition to a net-zero emissions economy.”

I anticipate objection to that wording on the basis that, if it is to be a strategic mission, we will soon—or one day, I hope—have achieved it, and the mission will no longer be relevant. That is a criticism, because the bill would then have to be amended. The challenge that we face is so profound that I agree with the Government that net zero should be its primary mission, which should be set out in the bill. When we achieve the target in 10, 15 or 20 years, it will be relatively straightforward to bring forward an amending bill; perhaps other things will need to be changed at the same time.

Amendments 10 and 11, which are concerned with consultation, raise a separate question as to how missions are set. I agree with those amendments. It is important that Parliament has the opportunity to scrutinise the missions, and perhaps the relevant committee should have the opportunity to debate, call evidence on and make representations to ministers about them.

However, in my view, the bill is deficient—as I indicated in my earlier remarks—in that, although it requires in section 20 that the Parliament should approve any proposed changes to the memoranda and articles, it does not provide for any parliamentary oversight of the mission-setting process. Derek Mackay’s amendments 10 and 11 provide for consultation, but my amendment 24 would require that such additional missions should be approved by resolution of Parliament. I believe there may be a drafting error in my amendment—it should refer only to “additional” rather than to “strategic” missions.

I do not think that that is a great deal to ask—it is already the case, for example, with the national planning framework, which we debated in the Planning (Scotland) Bill. It would be a simple resolution, and Parliament would have had the opportunity to undertake some scrutiny as outlined in amendments 10 and 11. It seems straightforward and logical that Parliament should then resolve to either accept or reject those changes.

Although I hear Jackie Baillie’s argument, amendment 42 duplicates amendment 10 to an extent. I look forward to listening to Dean Lockhart’s arguments for amendment 43; I am broadly content with it, although I have some questions.

I move amendment 22.

The Convener

I call Jackie Baillie to speak to amendment 9 and other amendments in the group.

Jackie Baillie

I will be brief. Amendment 9 is necessary because the missions need to be linked to the bank’s objectives. There is little in the bill about how the missions will be developed—if I was being generous, I would say that it is a bit vague—and the approach to developing them needs to be coherent and consistent. In addition, amendment 9 will ensure that equality—which we have to discuss as an ancillary objective prior to stage 3—is mainstreamed through all the missions so that gender is considered at the earliest and highest levels of mission setting.

In drafting amendment 42, I have again opted to flatter the Scottish Government, this time by copying its approach to its own Gaelic-language plan; there is therefore a legislative precedent for the approach, which I think is elegant. It is similar to the cabinet secretary’s amendment 10 but, as that amendment does not appear to have regard to any resolution of the Parliament, my preference is quite naturally for amendment 42.

The Convener

I call the cabinet secretary to speak to amendment 10 and the other amendments in the group.

Derek Mackay

Having met the Opposition spokespeople to discuss the matter, I have tried to find a way through the issue of engagement on missions. The process by which missions are to be set for the bank has—rightly—been a subject of debate throughout the parliamentary process for the bill. Professor Mazzucato said:

“meaningful public participation in the selection process of missions is essential”,

and the Government has always recognised that. We have been extensively engaging with stakeholders to develop the first set of missions, and recently I held the discussions that I just mentioned, following the committee’s work at stage 1.

I will speak to my amendments 10 and 11 before turning to those of other members. We have accepted the committee’s recommendation at stage 1

“that the Parliament should be formally consulted on those areas that will set the long-term focus of the Bank’s work”,

and my amendments 10 and 11 give effect to that commitment.

Amendment 10 provides that a statutory public consultation must be undertaken before a mission is set, modified or brought to an end. The statutory consultation must last for at least 40 days, and it will begin when ministers lay before the Parliament a statement that describes their proposal.

Amendment 11 requires ministers to lay before the Parliament a statement that describes how the consultation responses shaped the final set of missions that was provided to the bank. By introducing that process, we will ensure that the missions emerge from a thorough public consultation process and so cannot be arbitrarily set or modified at any given point. That will give the bank certainty in carrying out its activities.

I turn to other members’ amendments in the group. Jackie Baillie’s amendment 42 is similar in effect to my amendments 10 and 11. The important thing here is that the Parliament has an opportunity to influence the development of the missions. That will be achieved through meaningful discussions on the content of the missions and through the Parliament seeking assurances that they will contribute to our addressing major challenges that face Scotland. In my view, my amendments 10 and 11 will achieve that best, by allowing for flexibility in how the Parliament considers that it should influence the development of the missions once a proposal has been presented to it.

Amendment 42 would require a final proposal to be presented. That might be appropriate, but my amendments 10 and 11 will also enable consultation to happen earlier in the development of missions, which will increase the scope for their content and subject matter to be influenced by the Parliament’s view. For those reasons, amendments 10 and 11 are more appropriate than amendment 42, which I respectfully ask Jackie Baillie not to move.

I turn to Andy Wightman’s amendments 24, 22 and 23. I do not support amendment 24. As I said, missions will be set between Scottish ministers and the bank. The strategic planning of Scottish Enterprise and other public bodies is not subject to approval by the Parliament; in the case of Scottish Enterprise, the Government sets out guidance for it to consider when it determines its priorities. For the Parliament to approve the bank’s missions would be a departure from normal practice and would blur the Parliament’s role in holding ministers and public bodies to account. I fully endorse the Parliament retaining a role in meaningfully influencing the development of the missions, and amendments 10 and 11 will achieve that by providing for the Parliament to be consulted and allowing flexibility in how the Parliament thinks that it can best have input on mission development.

I regret that I cannot support Andy Wightman’s amendment 22. The Government has already announced that the bank’s primary mission will concern the just transition to net zero carbon. It could be decided that that mission should be updated to reflect the latest policy priorities and stakeholder views, and the Government is providing for an extensive and meaningful consultation process to enable that. Under Andy Wightman’s amendment 22, primary legislation would be required before changes could be made. That would create an unnecessary process, so I do not see value in supporting the amendment.

I accept that the fact that we might achieve a mission is not a reason not to have it there, but I have other reasons for not supporting amendment 22. It is expected that the bank will work towards addressing multiple challenges that Scotland is facing, and it would be odd for only one of them to be accounted for in the bill. We have consulted on two other missions, on adapting to demographic and technological changes and on improving places across Scotland. Given the bank’s wider purpose and the importance of those issues, I do not agree that one mission should be singled out in the bill.

Furthermore, the Government has already agreed that support for the transition to net zero emissions ought to be anchored in the bill, and amendment 4 was lodged to achieve that. It is more favourable to have an additional object of

“investing to—

(i) promote environmental wellbeing, and

(ii) in particular, support the transitions required to meet the net-zero emissions target”

than it would be to create a statutory mission.

That is because the bank will have to consider that when making any potential investment. For example, when considering a prospective housing investment, it might consider the energy efficiency of the housing stock to be constructed or whether district heating initiatives are being considered. That additional object created by my amendment 4 fully supports a consistent approach across the bank’s activities to support the transition to net zero emissions. Although it would be unacceptable for the bank’s missions to change frequently, enshrining them in legislation would add an unnecessary level of inflexibility when it came to modifying them when the time was right.

Amendment 41, in the name of Dean Lockhart, would create a duty on ministers to consult and “reach agreement” with the bank’s board before missions are set, modified or ended. I appreciate the principle behind amendment 41 but I cannot support it as currently drafted and I will explain why. It is entirely sensible that the bank’s board be consulted on any proposal for setting, modifying or ending a mission. That will help to protect the bank from having too many missions or being set unrealistic missions and it will give the bank greater agency when undertaking its work. I intend for a consultation with the bank to happen regardless, through establishing a Government sponsorship unit and shareholder agreement. Given the novel and innovative mission-oriented approach, I am happy for that to be included in the bill. However, giving the bank a veto over setting, modifying, or ending a mission is unsuitable, particularly as proposals for missions will already have been subject to widespread consultation, including with the Parliament. For that reason, I ask Dean Lockhart not to move amendment 41, but I will be happy to work with him ahead of stage 3 to address the issue that it raises.

Amendment 43 from Dean Lockhart would allow the bank to propose the setting, modification, or ending of a mission. I will support amendment 43. Ministers will, of course, consider any proposal that they receive from the bank, but it is reasonable to guarantee such an approach.

Amendment 9, in the name of Jackie Baillie, would add a positive duty on Scottish ministers to outline how the missions set for the bank would contribute to the bank’s objects. Amendment 9 is a sensible amendment, although I have some concerns about its wording. If we have the opportunity to address those concerns at stage 3, I will be happy to support the amendment now.

To sum up, I encourage members to support amendments 9, 10, 11 and 43.

The Convener

Thank you. I invite Dean Lockhart to speak to amendment 41.

Dean Lockhart

As the cabinet secretary said, amendment 41 would require the Scottish ministers to consult and seek to “reach agreement”—those are the key words—with the bank’s board on any changes to the bank’s missions. Over time, the board will have the best informed view of how the bank can implement policy and address the grand challenges. It will be important for the board to be consulted by the Scottish ministers if there is to be a change in mission and the board will be able to determine and advise the Government whether any mission or policy change is within its powers to deliver.

I understand that the cabinet secretary is concerned about the board having a veto. I am happy to revisit the drafting of amendment 41, but as drafted it would not give the board a veto: it would be a duty on the Government to seek to “reach agreement”. However, at the end of the day, if agreement was not reached with the bank’s board, the ministers would still have power to change the mission. Let me address the cabinet secretary’s concerns by saying that we are not seeking for the board to have a veto in that regard.

The Convener

Thank you. If no other members wish to speak on the group 9 amendments, I will allow the cabinet secretary to come back briefly on that point.

Derek Mackay

Our strict reading of amendment 41 is that what it proposes equals a veto, so we cannot support it. However, I am happy to return to the issue at stage 3 to reach mutual agreement about what we are trying to do in section 11, to enable matters to be referred to the board but not to give the board a veto. If we can agree on that, then I hope that we can find appropriate wording for an amendment.

The Convener

I invite Andy Wightman to wind up and to press or withdraw amendment 22.

Andy Wightman

I have a few brief points. I did not speak to amendment 41, but I think that it is important that missions are things that the member of the bank—the sole shareholder—decides on, so agreement with the bank’s board is not appropriate.

12:30

Dean Lockhart referred earlier to “grand challenges”. I do not think that that is a reference to a television programme. Grand challenges are a new element in the landscape of the Scottish national investment bank, and I learned what some of the draft grand challenges are from stakeholders, who—as with many Government initiatives—appear to be far better sighted on the intention of ministers than we legislators are.

There is a serious point here. The bill talks about missions—they are deemed to be important enough to be in the bill—so if, as I understand from the flow charts that I have seen from stakeholders who are more involved in the matter than I am, the grand challenges sit above missions and are, therefore, more important than the missions, perhaps the bill should have a section on them, too. I would like some exposition—perhaps not now, but before stage 3—about what those grand challenges are and how they fit in. If there are to be grand challenges within which the missions need to sit, that will prescribe what the missions can be. If missions are important enough to be set out in the bill and to consult Parliament and others on, it is self-evident that the grand challenges should also be consulted on.

I made an error when I talked about amendment 24. The word “strategic” should have been in there. Section 11 is all about that.

The Convener

There will be a division.

For

Wightman, Andy (Lothian) (Green)

Against

The Convener

The result of the division is: For 1, Against 8, Abstentions 0.

Amendment 22 disagreed to.

Section 11—Setting missions

Amendment 23 not moved.

Amendment 9 moved—[Jackie Baillie]—and agreed to.

Amendment 10 moved—[Derek Mackay]—and agreed to.

Amendment 42 not moved.

Amendment 41 not moved.

Amendment 11 moved—[Derek Mackay]—and agreed to.

Amendment 24 moved—[Andy Wightman].

The Convener

The question is, that amendment 24 be agreed to. Are we agreed?

Derek Mackay

I thank Jackie Baillie for lodging amendments 12 and 44. The bank’s contribution to the promotion of equality is clearly an important issue and I welcome the opportunity to speak about it today.

Amendment 12 provides for the bank to develop an equality strategy and amendment 44 would ensure that the bank’s performance was assessed against that strategy. The provisions in amendment 12 are focused predominantly on gender equality, which is understandable given the well-evidenced issues in access to finance for women-led businesses and the recruitment and retention of women in the finance sector. Those issues should be taken seriously.

The bank will have a significant opportunity to deliver positive returns for women in particular, and it must endeavour to establish from the start best practice that can contribute to wider sectoral change. That is one of the reasons why the bill makes the bank subject to the Gender Representation on Public Boards (Scotland) Act 2018.

We have already made commitments that will support the bank to promote gender equality. We have committed that the bank will become a signatory to the women in finance charter, which aims to address the gender imbalance at all levels across the financial services sector. Further, orders will be laid to make the bank subject to the public sector equality duty and the Scotland-specific duties resulting from the Equality Act 2010. I recognise that Jackie Baillie referenced those.

The Scotland-specific duties will place a number of requirements on the bank, including requirements to report on its gender pay gap and occupational segregation, publish gender-disaggregated employee data, implement gender mainstreaming, develop equality outcomes and report on progress towards meeting those outcomes. I am concerned that there is a large amount of duplication between those duties and amendment 12. In addition, through the public sector equality duty, the Equality Act 2010 requires public authorities to assess their policies against all the relevant protected characteristics rather than focusing on gender, although I appreciate that Jackie Baillie’s amendment mentions that the strategy should consider other characteristics.

Given the importance of the issue, I am happy to undertake to work with Jackie Baillie before stage 3 to seek the best possible outcome, if she is content to withdraw amendment 12. If she is keen to push it to a vote, we have some concerns about the way that the amendment is expressed that we would wish to address at stage 3. For example, subsection (2)(b)(i) seems to require the bank to take steps to “ensure gender equal outcomes” in the delivery of investment to enterprises. That requirement would arguably be too prescriptive were it to apply to the bank’s own investments, but the current drafting suggests that it could apply to business investment more widely. It would clearly be impossible for the bank to achieve that.

I disagree with Jackie Baillie. It is not a question of whether gender equality should be at the heart of the bill—it should be. The question is how, and on that basis I am happy to work with Jackie Baillie to make further progress before stage 3.

The Convener

I ask Jackie Baillie to wind up and press or withdraw amendment 12.

Jackie Baillie

For

Baillie, Jackie (Dumbarton) (Lab)
Wightman, Andy (Lothian) (Green)

Against

The Convener

Amendment 47, in the name of Willie Coffey, is in a group on its own.

12:45

Willie Coffey

The purpose and effect of amendment 47 is simply to align the new institution—the Scottish national investment bank—with the Scottish Government’s commitment to fair work practices. It will require ministers to issue a direction to the bank within a year of the new section coming into force. The direction must make it clear that the bank must

“seek to promote fair work in exercising its functions”.

The intention is to ensure consistency with the implementation of fair work across the public sector landscape. The amendment also provides that ministers must consult the bank and those who represent the interests of workers and businesses in Scotland.

I hope that the amendment will be viewed as an appropriate measure that reflects the importance of fair work in a proportionate manner, and that the committee will support it.

I move amendment 47.

The Convener

As no other member wishes to speak on the amendment, we turn to the cabinet secretary.

Derek Mackay

I thank Willie Coffey for lodging amendment 47. It is my firm view that the bank will be able to have a significant impact on the advancement of fair work principles among employers in Scotland. The effect of amendment 47 is to place on Scottish ministers a requirement to set a fair work direction for the bank. That is similar to the requirement in the South of Scotland Enterprise Act 2019. It will be important that the approaches that are taken to the directions are closely aligned while being tailored to the specific activities of each organisation. We have committed that the bank will be a fair work employer, but even more important, perhaps, is the bank’s potential to embed fair work practices across the Scottish economy through its role as a cornerstone institution. I share that ambition, and for that reason I support the amendment.

The First Minister has committed that, by the end of the current session of Parliament, we will extend fair work criteria to as many funding streams, business support grants and public contracts as we can. Amendment 47 will ensure that the bank aligns with the commitment to fair work first, under which employers are asked to commit to investing in skills and training, no inappropriate use of zero-hours contracts, action to tackle the gender pay gap, genuine workforce engagement and payment of the real living wage. We have discussed all those matters this morning.

It is important to be ambitious in setting a fair work direction for the bank to enable it to support business to adopt the full range of commitments. It is important to recognise that the bank will engage with a wide range of organisations and businesses and, as I mentioned earlier, some situations will require a tailored approach. For instance, a small business or a developing social enterprise might be unable to deliver each of the commitments at a certain point, but it might be worthy of support. The bank will be able to use its position to encourage improvement in practices over time for the benefit of the organisation and its employees. To set out in a direction how that might be handled will be helpful to the process.

It is essential that, during the development of the direction, ministers engage with appropriate organisations, such as the STUC, and the bank in order to ensure that the direction’s effectiveness is maximised. Amendment 47 sensibly provides for that.

I urge members to support amendment 47 and give the Scottish Government the tools to ensure that the bank participates fully in helping to embed fair work practices across Scotland’s business community.

The Convener

I call on the deputy convener to wind up and press or withdraw amendment 47.

Willie Coffey

There is no need for me to wind up, convener, given what the cabinet secretary has said. I press the amendment.

Amendment 47 agreed to.

Sections 15 to 21 agreed to.

Schedule—Application of public bodies legislation

Amendments 48 to 54 not moved.

Schedule agreed to.

Sections 22 to 24 agreed to.

Section 25—Short title

Amendment 55 not moved.

Section 25 agreed to.

Long title

Amendment 56 not moved.

Long title agreed to.

The Convener

That ends stage 2 consideration of the bill. I thank the cabinet secretary and his officials, Max McGill and Graham Watson.

12:50 Meeting continued in private until 13:01.

19 November 2019

Delegated Powers and Law Reform Committee Stage 2 report

Find out what else the Delegated Powers and Law Reform Committee is doing.

Scottish Parliament research on the Bill prior to Stage 3

Scottish National Investment Bank Bill as Amended at Stage 2

Additional related information from the Scottish Government on the Bill

Revised explanation of the Bill (Revised Explanatory Notes)

Revised Explanatory Notes Scottish Investment Bank Bill Revised Explanatory Notes Scottish Investment Bank Bill

More information on the powers the Scottish Parliament is giving Scottish Ministers to make secondary legislation related to this Bill (Supplementary Delegated Powers Memorandum)

Supplementary Delegated Powers Memorandum Scottish National Investment Bank Bill Supplementary Delegated Powers Memorandum Scottish National Investment Bank Bill

Scottish Parliament research on the discussion of the Bill

Debate on the proposed amendments

MSPs get the chance to present their proposed amendments to the Chamber. They vote on whether each amendment should be added to the Bill.

Documents with the amendments considered in the Chamber on 21 January 2020:

Debate on proposed amendments transcript

The Presiding Officer (Ken Macintosh)

The next item of business is stage 3 proceedings on the Scottish National Investment Bank Bill.

Members should have with them the bill as amended at stage 2, the marshalled list and the groupings.

When we come to the first division of the afternoon, the division bell will sound and there will be a five-minute suspension to allow us to call members to the chamber. That first division will last for 30 seconds, but thereafter the first division in a group will last one minute.

Any member who wishes to speak in the debate on any group of amendments should press their request-to-speak button as soon as possible after I call the group.

Section 1A—The Bank’s vision

The Presiding Officer

We turn to the marshalled list and group 1, on the bank’s vision and objects. Amendment 4, in the name of the cabinet secretary, is grouped with amendments 30, 30A and 31 to 33.

The Cabinet Secretary for Finance, Economy and Fair Work (Derek Mackay)

I am pleased to open this afternoon’s deliberations on the bill in a consensual spirit—as is usual for me. We will support a number of amendments in the group.

Amendment 4, in my name, will make a change to the statement on the vision for the bank. It will update the reference to a low-carbon economy, so that the statement will refer to a “net-zero emissions” economy, to align with the Climate Change (Emissions Reduction Targets) (Scotland) Act 2019, which the Parliament recently passed, and the amendments that were made at stage 2 to the bank’s objects.

Amendment 30, in the name of Maurice Golden, will make technical changes to the bank’s objects, as amended at stage 2, to ensure that they have the intended legal effect. We will support amendment 30, and I am grateful to Maurice Golden for his work on the issue. We will also support amendment 30A, in the name of Claudia Beamish. We are grateful to Claudia Beamish for her collaborative approach on the amendment.

I regret that I cannot support amendment 31, in the name of Jackie Baillie, on technical grounds, as we have concerns that it relates to reserved matters. I make clear that the Scottish Government strongly supports increasing the number of workers in Scotland who are covered by collective bargaining. We are working with the Scottish Trades Union Congress to deliver that. The percentage of workers who are covered by collective bargaining is one of the indicators that we use to measure performance against the Scottish national performance framework.

I assure all members that, despite our not being able to support amendment 31, my expectation is that the bank will contribute to the promotion of collective bargaining. The Scottish Government is committed to doing everything that it can to promote collective bargaining, within the limits of its legal powers. We will support the bank to contribute to that agenda, including in its promotion of fair work. I hope that that gives Jackie Baillie some assurance. I will be happy to work further with her on the issue, but I ask her not to move amendment 31, for the reason that I have given.

We will support amendment 32, in the name of Jackie Baillie. Promoting the fair work agenda will be a key part of the bank’s work. For that reason, at stage 2, we supported the addition of provision for a ministerial fair work direction. Amendment 32 is drafted in such a way as not to exclude organisations that are improving their working practices from accessing bank financing.

The Government will support amendment 33, in the name of Jackie Baillie, which will refine the wording of the bank’s ancillary object to promote

“the advancement of equality and non-discrimination”,

which was added at stage 2 by an amendment in my name.

Amendment 33 finds a compromise between the wording inserted by the amendment in my name and that of an amendment on the subject that Jackie Baillie lodged at stage 2. In particular, amendment 33 addresses our concern at stage 2 that if we agreed to the amendment in Jackie Baillie’s name, the bank might be seen to be entirely responsible for eliminating discrimination. Of course, the elimination of discrimination is a worthy goal, and the bank can contribute to achieving it, but such a goal can be achieved only by the actions of many different actors. Amendment 33 provides a better formulation, and I am grateful to Jackie Baillie for her joint working on it.

I move amendment 4.

Maurice Golden (West Scotland) (Con)

Amendment 30 is a technical amendment that ensures that the amendment in my name that was agreed to at stage 2, which requires the bank to support “circular economy initiatives”, has the intended effect. I thank members for their cross-party work on the amendment.

We will support amendment 30A, in the name of Claudia Beamish, which is about promoting biodiversity.

Claudia Beamish (South Scotland) (Lab)

Amendment 30A proposes a further addition to the bank’s ancillary objects, as set out in section 2, by amending Maurice Golden’s amendment 30, on the circular economy, about which I feel very positive.

Amendment 30 will expand the bank’s ancillary object of promoting “environmental wellbeing” by highlighting the promotion of biodiversity as a particular aspect of environmental wellbeing. It will mean that, when investment decisions are made, consideration will have to be given to how the financing of activities, or lending to or investing in them, will contribute to the promotion of biodiversity.

We face a climate and environmental emergency. Everyone knows what the “State of Nature 2019” reports said about the risk of extinction to many species, so I will not go into detail on that today. Current efforts to protect endangered animals and plants are insufficient to meet 13 of 20 agreed United Nations targets by 2020 in Scotland, and Scottish Natural Heritage states that it is unclear whether the Scottish economy is operating within safe ecological limits.

15:00

Looking after the natural environment is an investment in the future and will, I believe, ensure that the bank’s investments make strong public-good returns. The approach might also help to promote the physical and mental wellbeing of employees, through the creation of a range of green spaces and other efforts.

The bank can take biodiversity into account in a number of ways. As an example, the Scottish Government has highlighted the bank’s evaluation of the impact of its activities on biodiversity through the use of its balanced scorecard approach to performance reporting.

We can see that other countries’ failure to include biodiversity as a mandatory criterion meant that it could be sacrificed—sometimes, ironically, in favour of low-carbon projects. Regretfully, that was the case with the Green Investment Bank, which approved biomass projects that resulted in the clear felling of wetland forests in Europe and America. We must learn from those errors, and that is one of a number of reasons why amendment 30A is important. We must look to more positive examples, such as the European Investment Bank, which includes protection of biodiversity in its criteria.

References to the nature and climate emergencies must work in harmony.

I thank the Scottish Wildlife Trust and Biofuelwatch for their help with my stage 2 amendment, which I withdrew. My thanks also go to the cabinet secretary for meeting me to discuss the issue ahead of stage 3 and for offering support.

I urge members to support amendment 30A, to ensure that the ways in which we tackle the climate and environmental emergency are absolutely interlinked as the Scottish national investment bank moves forward.

Jackie Baillie (Dumbarton) (Lab)

I am pleased to speak to amendments 31 to 33, which are in my name.

Amendment 31 would require the bank to ensure that its investment decisions promote collective bargaining. We know that collective bargaining contributes to delivering a fairer economy for the workers of Scotland. In the Scottish Government’s own fair work action plan, it made a clear commitment to promote collective bargaining, stating that it will

“Support union access to workplaces, encourage adherence to existing agreements and support the development of new collective agreements as an integral part of Fair Work First.”

I fully support that approach. Indeed, in the programme for government, we see a commitment to

“working with the Scottish Trade Union Congress to increase the number of workers covered by collective bargaining.”

Therefore, I assumed that I was pushing at an open door. How disappointing that that was not the case.

I cannot help but observe that, if the Scottish Government is truly committed to promoting collective bargaining and to increasing the number of workers who are covered by it—as it says that it is—it should put its money where its mouth is and support amendment 31. Otherwise, the danger is that that commitment becomes meaningless.

I am not sure whether the cabinet secretary is right about rejecting amendment 31 on technical grounds, but in the interests of consensus, I will live to fight another day. Alongside the Scottish Trades Union Congress, I will take up his invitation to ensure that the bank promotes collective bargaining.

Amendment 32 covers fair work and payment of the living wage. The Scottish Government rightly talks about making Scotland a living wage and fair work nation. I completely agree with that ambition. How serious we are will be measured by whether we commit today to including living wage and fair work provisions in the bill.

The cabinet secretary knows all too well that about 470,000 people in Scotland earn less than the living wage. The bank should not in any way encourage practices that would see that number increase. It is therefore imperative that the bank is required to promote the living wage in any investment decisions that it takes. We need to reduce the number of workers across Scotland who are languishing on a wage that does not meet the rising cost of living.

Amendment 33 requires the bank to promote the advancement of equality in its investment decisions. After some to-ing and fro-ing at stage 2, I am glad that the cabinet secretary has seen the light and come to a positive compromise that will ensure that the bank will make a substantial contribution to equality.

I urge members to support amendments 32 and 33, and I look forward to meeting the cabinet secretary, alongside the STUC, to give practical effect to amendment 31 on collective bargaining.

Graham Simpson (Central Scotland) (Con)

I want to make a few comments on behalf of the Delegated Powers and Law Reform Committee, which should not take up too much time. I will concentrate on amendment 32, in the name of Jackie Baillie, because it mentions fair work.

As members will know, the committee places the need for appropriate parliamentary scrutiny at the heart of its work. Committee members were, therefore, somewhat concerned that the fair work direction, as added at stage 2, would allow ministers to define fair work without any parliamentary scrutiny whatsoever. The Scottish Government provided some context on what the definition of fair work was likely to include—

Neil Findlay (Lothian) (Lab)

I know that Mr Simpson is a great champion of parliamentary scrutiny. However, when the Transport (Scotland) Bill went through Parliament, the Government introduced into it an entire member’s bill on the workplace parking levy without any parliamentary scrutiny. How did the member vote on that occasion?

Graham Simpson

That is an absolutely ridiculous comment from Neil Findlay. As he knows, the context for my remarks is that I am speaking as the convener of a committee. I am surprised at him—as a former member of the Delegated Powers and Law Reform Committee, he should know how these things work.

I reiterate that the Scottish Government provided some context on what the definition of fair work was likely to include. It said that it is

“work that offers effective voice, opportunity, security, fulfilment and respect; that balances the rights and responsibilities of employers and workers and that can generate benefits for individuals, organisations and society.”

I will come back to that definition in a minute.

Nevertheless, last week, the committee sought a guarantee from the Government that the Parliament would have an opportunity to scrutinise the definition of fair work to be adopted in the direction. After a flurry of letters between me and the cabinet secretary, the committee was delighted to receive such an assurance.

The committee has no specific comments on amendment 32, but I place on the record my own view of that definition of fair work, which is that it could mean anything to anybody. When we make law we need to be absolutely clear about what it means, which is why I will vote against amendment 32.

Mike Rumbles (North East Scotland) (LD)

I would not normally call Jackie Baillie reticent or withdrawing, but I say to her that, if she were to move amendment 31, Scottish Liberal Democrats would certainly support it.

Despite what Derek Mackay said, it is clear to me that there is no disagreement that collective bargaining, as defined in section 178 of the Trade Union and Labour Relations (Consolidation) Act 1992, is clearly a reserved matter—there is no dispute about that. However, how can promoting a reserved issue be regarded as a reserved issue? It simply cannot.

I therefore ask Mr Mackay to give a little more explanation of that point in his closing remarks. I think that he must be somewhat timid in that regard—there is something that I never thought that I would accuse him of. I am willing to be convinced otherwise if he is able to do so, but I am fairly sure that simply promoting a reserved matter cannot itself be regarded as a reserved matter.

Dean Lockhart (Mid Scotland and Fife) (Con)

I will speak to amendments 31 to 33, in the name of Jackie Baillie. However, before I do so, I take this opportunity to thank the cabinet secretary and other members across the chamber for their constructive engagement during the passage of the bill. The fact that we have a modest 58 amendments before us today reflects the constructive approach that has been taken by the cabinet secretary and members in agreeing to the changes that were made at stage 2.

On amendments 31 and 32, I share Jackie Baillie’s objective of supporting businesses that promote fair work, the living wage and collective bargaining. However, imposing such requirements in legislation, as part of the bank’s objects, could prevent the bank from investing in companies that aspire to become fair work and living wage employers but which require the bank’s support in the first place to achieve those objectives.

It is important that the bank is able to freely invest, as the Scottish Investment Bank does, in companies that are looking to make the transition to the fair work and living wage agenda. The amendments could exclude businesses that the bank could otherwise help on that journey. We believe that there are better ways to promote the fair work agenda outside the scope of primary legislation. For those reasons, we will not support amendments 31 to 33.

We will, however, support amendment 4, in the name of the cabinet secretary; amendment 30, in the name of Maurice Golden, to which he has spoken; and amendment 30A, in the name of Claudia Beamish.

Neil Findlay

Often in Parliament, we are told that the Government would take action if only it had the power to do so. How many times have we heard that said? The bill was made in Scotland—in this Parliament—and is being pursued by the Government. In it we have the power to make provisions on collective bargaining and the living wage in relation to the bank, but the Government is saying, “We’re no gonnae do that.” That is nothing to do with the Parliament not having the power; it is to do with the Government not following through on its rhetoric that it adheres to a workers agenda.

The Parliament has the power—and the Parliament includes all the Government’s back benchers. I am looking at Tom Arthur, for example, who is the chair of the Scottish National Party trade union group. Those members have a decision to make today. Will they use their powers to pursue a workers agenda in Parliament, or will they go along with the timidity of the finance secretary?

Derek Mackay

On the only contentious issue in the group, which relates to amendment 31 and collective bargaining, if Neil Findlay will forgive me, I will take legal advice from our legal advisers, not from him, as that puts us in a strong position in relation to the legal enforceability of any bill that we pass. I am sure that I will come back to Neil Findlay’s ability to accurately amend and apply the law when we debate later amendments.

I did a considerable amount of work with all Opposition members who were willing to engage with me. On many occasions, that led to enhanced drafting of amendments in a way that we could support. The evidence of that will be seen in how the Government votes on the amendments today.

On this issue, and on others, Neil Findlay has not engaged with me and, therefore, has not crafted his positioning. That leaves me wondering whether he is more interested in posturing than in delivering legal changes and effective legislation. I am sure that, at the end of the process today, we will deliver a world-leading national investment bank that is ethical and responsible and which speaks to the issues of the day. I think that we will do that with a lot of consensus in the chamber, which is something that Neil Findlay struggles with.

I am advised that the drafting of amendment 31 means that it is outwith the scope of our devolved competence. Otherwise, I would have supported it. I share the aim of promoting collective bargaining, which I discussed, alongside the First Minister, with the STUC just last week. We will take forward actions that will do exactly that, including those relating to the fair work direction, the Scottish business pledge and other issues. We will progress that work, and, as I have said, the area is covered in the national performance framework. However, it is not appropriate to insert such a provision in the bill by amendment.

Jackie Baillie said that she will not move amendment 31 if I commit to work with her and the STUC to progress the issue, and I am clear—categorically—that I will do that. However, I am afraid that the advice that I have been given is that amendment 31, as it stands, is outwith our devolved competence, so I advise members to vote accordingly.

Amendment 4 agreed to.

Section 2—The Bank’s objects

Amendment 30 moved—[Maurice Golden].

Amendment 30A moved—[Claudia Beamish]—and agreed to.

Group 2 is on investment practices. Amendment 5, in the name of the cabinet secretary, is grouped with amendments 34, 8 to 12, 1 and 36.

Derek Mackay

We all want the bank to act as an ethical investor, and the bill process has helped us to explore the best way to achieve that. Amendment 5, along with the other amendments that we are supporting, achieves that outcome. It provides that the bank’s board must set ethical standards for the bank. Those standards must align with the bank’s objects and mission, and the bank’s board is responsible for ensuring that they are implemented.

That approach will give the bank ownership of its ethical approach and operational flexibility in how it implements the approach. However, we have commissioned drafting advice on minimum ethical standards from the Ethical Finance Hub, to inform the bank’s eventual approach. That should give members and stakeholders assurance that the bank will not invest in activities or sectors that undercut its objects and missions.

Amendment 34, in the name of Rhoda Grant, covers some of the same ground as my amendment 5. However, it does not provide for the same alignment with the bank’s objects or missions; nor does it anchor that responsibility at board level.

I have concerns about amendment 36, in the name of Rhoda Grant, which seems to follow on from amendment 34. It would require the bank to publish an annual report detailing any of its investments that

“have not met the minimum ethical standards”

required of it by amendment 34. In combination, the two amendments imply that the bank could set out minimum ethical standards for investment but then ignore them. The amendments would also allow the bank to invest in ways that did not meet the standards as long as it then detailed what it had done and why, in an annual report. On that basis, the purpose of the amendments is unclear and they potentially have unintended, counterproductive consequences.

For those reasons, I urge members to support amendment 5, which I consider to be stronger, and I ask Rhoda Grant not to move amendments 34 and 36.

Amendments 8 to 12, which were lodged by Neil Findlay, were debated and voted on at stage 2. As I said earlier, when the Government could not support amendments at stage 2, I offered to work with members to address any concerns. Neil Findlay did not take up that offer. His amendments are identical to those that he lodged at stage 2, so I will briefly restate the reasons why the Scottish Government is opposed to them.

Amendment 8 seeks to prohibit the bank from supporting any company that

“enters into a tax avoidance arrangement ... or ... carries out tax evasion.”

I set out at stage 2 that tax evasion is an illegal activity and that the bank will not engage with organisations that evade tax. When a company commits tax evasion after it has received investment from the bank, standard contractual arrangements will allow for the money to be recouped.

The Government’s record shows that we take the issue of tax avoidance extremely seriously. However, amendment 8 is impractical and risks disproportionately impacting on small and medium-sized enterprises that seek finance from the bank. It would require the bank to conduct extensive due diligence into the tax affairs of every company that it considered investing in. Due diligence costs are usually borne by the company that is seeking investment.

Amendment 9 seeks to prevent the bank from investing in companies that do not pay the living wage. However, the living wage as defined in the Procurement Reform (Scotland) Act 2014 is not the same as the real living wage. I consider that we should support businesses that are working towards paying their staff the living wage rather than exclude them. The fair work direction that we will set for the bank can address that issue in a flexible way and is therefore a better approach.

Amendment 10 would prohibit the bank from investing in companies that make use of zero-hours contracts. This Government opposes the inappropriate use of zero-hours contracts. We are developing our fair work first policy and are engaging with key stakeholders, including the STUC. There is a general debate about how such contracts can benefit the employer and the worker. However, amendment 10 assumes that all zero-hours contracts are exploitative, so it is too blunt and inflexible.

Amendment 11 would restrict the bank from giving finance to a company that

“enters into a contract with an umbrella company”.

That makes the error of judging a company by its structure rather than by its conduct. Umbrella companies are legitimate structures in the eyes of the law. Some companies may act inappropriately in that respect, but it is unfair to paint all umbrella companies with the same broad strokes.

Amendment 11 would likely be highly restrictive. An umbrella company structure is, for example, frequently used in management buyouts, and the bank might want to make investments to facilitate management buyouts.

Amendment 12 concerns trade union recognition. The Scottish Government is committed to increasing workforce engagement and furthering collective bargaining. However, the approach in amendment 12 is similarly blunt to that taken in Neil Findlay’s other amendments.

Amendment 12 would restrict support to companies whose workforce was big enough to be eligible for trade union recognition. Even if that is not intended, that may well be the practical effect. It could also preclude investments in companies in which workers had not sought trade union recognition and therefore a company had not even refused to give that.

Collectively, the amendments in the name of Neil Findlay risk too many unintended consequences. We have tried to address the shared objectives behind those amendments by supporting amendments elsewhere and by supporting the requirements for the fair work direction to be issued to the bank. I urge members to reject amendments 8, 9, 10, 11 and 12.

Amendment 1 is similar to an amendment that was lodged and then withdrawn at stage 2 by Jackie Baillie, but it is a helpful redrafting and I am therefore happy to support it.

I move amendment 5.

15:30

Rhoda Grant (Highlands and Islands) (Lab)

I will speak to amendments 34 and 36, in my name, and the other amendments in the group. A publicly owned Scottish national investment bank must maintain the highest ethical standards. In the past, banks have failed to do that, which is why we must ensure that the Scottish national investment bank does it. We need to ensure a commitment to minimum ethical standards from the very outset.

I lodged amendments to that effect at stage 2, and I listened to what the cabinet secretary said at the time. I then lodged these amendments, which take account of his comments. Amendment 34 ensures that the bank, through its articles of association, must draw up an ethical standards framework that outlines its minimum ethical standards, which will be open to scrutiny by the Parliament.

The cabinet secretary stated at stage 2 that the bank must develop and take ownership of its own ethical stance, and amendment 34 allows for that. However, like any other aspect of a publicly owned company, the bank’s ethical stance must be open to scrutiny, and that scrutiny is missing from the Government’s amendment 5. I believe that my amendment is better than the Government’s and should therefore be supported.

Amendment 36 foresees that there may be times when the bank’s investments do not meet its ethical criteria, and amendment 34 stipulates that the bank must explain its reasoning and the steps it will take to remedy any damage that is caused. It also allows those decisions to be scrutinised and the bank to be held to account.

I support the amendments in this group that were lodged in the names of my colleagues Jackie Baillie and Neil Findlay. It is important that a publicly owned bank that is investing public money should adhere to the highest standards, and those amendments will ensure that it does.

Neil Findlay

I declare an interest as the chair of the Public and Commercial Services Union parliamentary group and as a member of Unite the union. On the issue of engagement, the cabinet secretary made no effort whatsoever to engage with me on any of the amendments. That is entirely the same valid point that the minister makes. [Interruption.]

The Presiding Officer

That is enough.

Neil Findlay

In relation to the drafting of legislation, we also get advice from the Parliament on whether it is competent. We do not just take what the minister says at face value.

Amendment 8 is about the ethical standards that the bank operates in line with, in relation to tax avoidance and evasion—the definition of which is in section 63 of the Revenue Scotland and Tax Powers Act 2014. In the committee, I highlighted the case of Amazon, a company that paid more tax to Fife Council in the form of rates than it did to the Treasury in the form of corporation tax. That is simply wrong.

The Scottish national investment bank should not lend to companies that engage in such activities; rather, it should encourage good corporate governance and corporate responsibility, which includes paying the taxes that are owed. The bank should not lend to tax evaders or avoiders—we should make that clear and up front in setting the tone for the ethical approach to lending that the bank will adhere to.

In the committee, the cabinet secretary claimed that that approach would place financial burdens on small and medium-sized businesses that seek investment, but I believe that that is a complete red herring. If that approach to lending was made clear from the outset, companies would soon realise that, if they were involved in such avoidance or evasion practices, they need not apply for funding, as those practices would be exposed when they attempted to apply for funds.

Amendment 9 indicates that the Scottish national investment bank will play an important role in the Scottish economy through its lending policy and will be able to exert leverage over those companies that apply for financial support. It will do that by driving the fair work agenda, which enshrines both rights and responsibilities. It should do that by positively prioritising lending to companies that pay the real living wage to their employees, as a minimum, and by making it clear that it will refuse to lend to enterprises that do not pay the real living wage.

The Scottish Government talks a good game about its fair work agenda and, as I said earlier, regularly claims that it does not have the powers to embed such issues in legislation. Well, today, we have those powers. Today, we can take action to advance the living wage. Members have the opportunity to do so by voting for amendment 9.

The aim of amendment 10 is to ensure that the bank does not lend to companies that employ people on precarious contracts and deny them their rights.

On amendment 11, the bank should not lend to companies that use payroll or umbrella companies that are set up deliberately to rip off workers and the taxpayer. We know about the practices of umbrella companies, particularly in the construction industry. They are a scam, and the Scottish national investment bank should not fund or encourage them.

It should also not lend to companies that fail to recognise trade unions, which we know are best placed to guarantee the rights of workers. Unionised workplaces are safer and have better pay, more stable workforces, better staff retention and fairer working conditions. On amendment 12, the Scottish Government’s fair work action plan states that it will

“Continue to support strong trade unions ... Promote collective bargaining ... Promote Fair Work in the collaborative economy”

and

“extend Fair Work criteria to every type of grant, funding stream, and business support budget open to us”.

Here is a great opportunity to do just that. Here is a funding stream. Here is a business support budget—money given to a public sector bank. Will we today see the Government show that it is willing to take action to support its rhetoric? This is a tremendous opportunity to use the levers of Government to promote strong trade unions and collective bargaining and to extend fair work criteria to grants and business support.

Jackie Baillie

I am pleased to speak to amendment 1, in my name. The Economy, Energy and Fair Work Committee had a strong view that the bank must invest more widely than in the private sector alone. I want the bill to maximise the impact of the bank by developing a financial institution that allows organisations such as co-operatives, social enterprises and the third sector to secure finances.

We know that social enterprises and co-operatives play a key role in regenerating some of our most hard-pressed communities. By enabling the bank to invest in them, we help our economy to achieve inclusive growth. I hope that members will support amendment 1.

Claudia Beamish

I speak in support of amendment 1, in the name of Jackie Baillie, which says that the bank may give financial assistance to third sector bodies. As Jackie Baillie has highlighted, one such body could be a co-operative. I declare an interest as a member of the Scottish Co-operative Party group of MSPs. Rural and urban co-operatives in many sectors enable member empowerment and support for inclusive action. I ask the cabinet secretary whether he will commit to meeting me and some of those who represent the co-operative sector to take forward discussions about this.

Dean Lockhart

I propose to address amendments 8 to 12, in the name of Neil Findlay, which are intended to prohibit the bank from investing in companies that do not pay the living wage, companies that employ workers on zero-hours contracts, companies that engage umbrella companies and companies that do not recognise trade unions. All of those issues were previously debated at stage 2.

The Scottish Conservatives have a number of difficulties with those amendments, as was debated at stage 2. The bank should not be prevented from investing in firms that aspire to become living wage employers, recognise trade unions or promote the fair work agenda. In fact, investment by the bank may be the transformational change that enables those companies to achieve those very objectives. In all those cases, small companies would be penalised if they could not access financing from the bank. That would be inconsistent with the bank’s overall objectives of increasing economic growth in Scotland and investing in fast-growing SMEs.

We support amendment 1, in the name of Jackie Baillie, which clarifies that the bank may give financial assistance to third sector bodies, including social enterprises. That is an important amendment, which will bring social enterprises into the financing remit of the bank.

Amendments 34 and 36, in the name of Rhoda Grant, would impose an obligation on the bank to publish a report each year, setting out whether any of its investments—out of thousands of investments each year—have not met minimum ethical standards. We believe that amendment 5, in the name of the cabinet secretary, sets out a better formulation for ensuring that the bank’s investments are made in a manner that is consistent with agreed ethical standards. It would impose an obligation on the bank’s board to have in place proper processes to ensure that the bank’s investment decisions are made in accordance with the agreed ethical standards. Therefore, we will support amendment 5 but not amendments 34 and 36.

The Presiding Officer

I call the cabinet secretary to wind up.

Derek Mackay

I have just a few comments to make, Presiding Officer. I will make a further point on Rhoda Grant’s amendments. It may well be the case that the investment strategy can be reviewed by ministers, as can the ethical statement. There will also be an annual report on investment performance. Therefore, there will be scrutiny by ministers, and, of course, ministers are held to account by the Parliament through committees and in other places, including through questions. I imagine that the Parliament will want to hold the bank to account as well.

The way in which Rhoda Grant’s amendment 36 is drafted almost creates an escape clause—“You can give us reasons why you haven’t kept within our ethical approach if you publish them in a report”—whereas my amendment clearly puts the responsibility on the board. We expect the board to live within the ethical strategy and, as I said, there are many routes to holding the board to account for that ethical strategy, having appropriate governance arrangements and allowing the bank to have operational independence. There are also areas in which we will want minimum ethical standards to apply, but, fundamentally, investments should be made in line with the missions of the bank, which are already set out as we build the bank. Further, we have agreed at stage 2—its consideration will be completed today, at the end of stage 3—a process by which missions can be changed only through consultation.

I would argue that there is a very strong ethical investment approach in the bill, with strong governance arrangements that ensure that responsibility rests appropriately with the board.

I make the point to Neil Findlay that every other Opposition member managed to find me to make the necessary drafting changes to amendments that would achieve the outcomes that they wanted to achieve. We will not agree on every point, as some of the amendments will show, but, where we have shared objectives, we have been able to craft amendments that can be supported by the Government and members of the Opposition.

That sense of constructiveness was absent from Neil Findlay’s comments. He said that today is “a tremendous opportunity”. I do not think that he shares my view that today is a tremendous opportunity to build a bank to be proud of; I think that Neil Findlay thinks that today is a tremendous opportunity to promote himself. That is really unfortunate when the work that we have done with other Opposition members is crafting a bank that we can all be proud of. Some of the unintended consequences—

Neil Findlay

Abstentions

Baillie, Jackie (Dumbarton) (Lab)
Baker, Claire (Mid Scotland and Fife) (Lab)
Beamish, Claudia (South Scotland) (Lab)
Bibby, Neil (West Scotland) (Lab)
Boyack, Sarah (Lothian) (Lab)
Fee, Mary (West Scotland) (Lab)
Findlay, Neil (Lothian) (Lab)
Grant, Rhoda (Highlands and Islands) (Lab)
Gray, Iain (East Lothian) (Lab)
Griffin, Mark (Central Scotland) (Lab)
Johnson, Daniel (Edinburgh Southern) (Lab)
Kelly, James (Glasgow) (Lab)
Lennon, Monica (Central Scotland) (Lab)
Leonard, Richard (Central Scotland) (Lab)
Macdonald, Lewis (North East Scotland) (Lab)
McNeill, Pauline (Glasgow) (Lab)
Rowley, Alex (Mid Scotland and Fife) (Lab)
Sarwar, Anas (Glasgow) (Lab)
Smyth, Colin (South Scotland) (Lab)
Stewart, David (Highlands and Islands) (Lab)

The Presiding Officer

The result of the division is: For 98, Against 0, Abstentions 20.

Amendment 5 agreed to.

Amendment 34 moved—[Rhoda Grant].

The Presiding Officer

The question is, that amendment 34 be agreed to. Are we agreed?

Members: No.

The Presiding Officer

There will be a division.

For

Against

The question is, that amendment 8 be agreed to. Are we agreed?

Members: No.

The Presiding Officer

There will be a division.

For

Baillie, Jackie (Dumbarton) (Lab)
Baker, Claire (Mid Scotland and Fife) (Lab)
Beamish, Claudia (South Scotland) (Lab)
Bibby, Neil (West Scotland) (Lab)
Boyack, Sarah (Lothian) (Lab)
Fee, Mary (West Scotland) (Lab)
Findlay, Neil (Lothian) (Lab)
Finnie, John (Highlands and Islands) (Green)
Grant, Rhoda (Highlands and Islands) (Lab)
Gray, Iain (East Lothian) (Lab)
Greer, Ross (West Scotland) (Green)
Griffin, Mark (Central Scotland) (Lab)
Harvie, Patrick (Glasgow) (Green)
Johnson, Daniel (Edinburgh Southern) (Lab)
Johnstone, Alison (Lothian) (Green)
Kelly, James (Glasgow) (Lab)
Lennon, Monica (Central Scotland) (Lab)
Leonard, Richard (Central Scotland) (Lab)
Macdonald, Lewis (North East Scotland) (Lab)
McNeill, Pauline (Glasgow) (Lab)
Rowley, Alex (Mid Scotland and Fife) (Lab)
Ruskell, Mark (Mid Scotland and Fife) (Green)
Sarwar, Anas (Glasgow) (Lab)
Smyth, Colin (South Scotland) (Lab)
Stewart, David (Highlands and Islands) (Lab)
Wightman, Andy (Lothian) (Green)

Section 6—Directors: appointment

The Presiding Officer

Group 4 is on directors and staff of the bank. Amendment 2, in the name of Andy Wightman, is grouped with amendments 13 to 15, 28 and 29.

Andy Wightman (Lothian) (Green)

Amendment 2 is substantially the same as an amendment that was defeated at stage 2, but I believe that the principles that underpinned that amendment are important, which is why I have brought the matter back at stage 3.

At stage 2, the cabinet secretary said that local authorities will have a critical role in the affairs of the bank, which I welcome. However, in many other countries, local authorities and regional authorities have a much fuller role in banks—for example, in Germany, the role of the Länder in the KfW, of which they are full members.

Section 1 of the bill provides that the sole shareholder of the bank shall be the Scottish ministers. Throughout the process of the bill, my preference has been to include local authorities as members of the bank, but that raises some difficult technical problems, so I have consistently left the matter to one side.

Instead, amendment 2 provides—fairly straightforwardly—that

“at least two non-executive directors are to be appointed by Scottish local authorities”.

Scottish local authorities are critical partners in our economic development and should play a much bigger role in it: we will soon hold debates on that in relation to other bills. Their perspectives and experience should be available to the board of the bank. Through amendment 2, local authorities would be able to exercise the power to appoint two non-executive directors every four, five or six years—however long a term of appointment would be, which is governed elsewhere in the bill and in the articles of association. The local authorities would not necessarily need to appoint councillors, but would be free to appoint anybody whom they saw fit. For example, former chief executives of local authorities would be good representatives on the board.

Under amendment 2, local authorities would not be directly involved in the affairs of the bank, but would have a stake in it through their interest in the board. The interests of local government would be reflected, at least in part, in the appointments that it might make.

Amendment 2 is fairly straightforward, so I look forward to hearing what members think about it. I will support all the other amendments in the group.

I move amendment 2.

Rhoda Grant

Amendments 13 and 28 are tidying amendments. Amendment 13 would leave out a change that was made by my amendment at stage 2. Its provisions would be replaced by amendment 28, which will reposition them alongside other sections that are about ministers’ functions. It is imperative that non-executive directors have experience and knowledge of the issues that workers and businesses in Scotland face. Therefore, the amendments provide for the Scottish ministers to consult representatives of trade unions and industry when making appointments.

Neil Findlay

I will speak to amendment 14. The bill is silent on pay, pensions and rewards for staff at the bank, and it devolves responsibility for those important matters to the board and chief executive.

The Scottish national investment bank will be established as a non-departmental public body. It will be part of the public sector landscape and will be covered by the public sector equality duty. The terms and conditions of employees should at least match those that are applied across the public and governmental sector, including on pay, access to a defined benefit pension scheme and other rewards. The bank should be aligned with Scottish ministers’ public sector pay policy and the fair work agenda. A defined contribution scheme does not align with what is offered elsewhere and would mean lesser pensions for staff.

The Scottish national investment bank must not be allowed to repeat the failures of the banking sector in its lending practices, its customer care or any of the other dodgy practices that we have seen over the years, and it should not replicate the commercial banks in downgrading the pensions of its staff. It should offer the same pensions as are offered in other areas of the public sector that are covered by pay policy, which means that staff should be covered by a defined benefit scheme.

The cabinet secretary had his officials scurrying around to try to find an example to justify a pensions downgrade, and they came up with the rather obscure example of Business Stream, which is a subsidiary of Scottish Water. If that is the only example that he can find to justify the case, it is a very thin case indeed. The answer is not to ignore the overwhelming majority of public sector pensions and to have a race to the bottom, but to provide Business Stream and SNIB staff with the same quality of pensions as others and to level the playing field.

If members vote against amendment 14, they will condemn staff members—their constituents—to a lesser pension than those of other public sector workers.

On amendments 14 and 15, across the Government and agency sector, payments of performance-related bonuses have for a long time been omitted from pay awards. Recruitment and retention supplements are used, particularly in core Scottish Government roles, and golden hellos and other such incentives have been introduced in other areas, including teaching and social work. Those are regularly reviewed through market pay comparisons in order to ensure that the case is robust, and to reduce the risk of equal pay claims.

The Scottish national investment bank staff who transfer from Scottish Enterprise will have their terms and conditions protected: those terms are the basis for a fair package for all Scottish national investment bank staff. We do not want to create a two-tier workforce; colleagues working side by side on different contractual arrangements will create division within the workforce, which would not be good for the bank’s culture or its image. Performance bonuses and target-driven incentivised pay for senior executives and staff will repeat the mistakes that we have seen in the commercial banking sector. We need to learn lessons from that.

16:00

Derek Mackay

Before I speak to amendment 29, I will deal with the other amendments in the group. Amendment 2, in the name of Andy Wightman, is similar to an amendment that he lodged at stage 2. I understood from his remarks then that his proposal is meant not to give local authorities a direct role in the bank but to provide a means for their interests to be represented. As I said then, the idea of local authority interests being directly represented on the board is not reflected in the wider governance structures of the bank. There are other more appropriate routes by which they can engage in wider economic matters.

The board will be responsible for ensuring the success of the bank, and will be held accountable for its performance on that by Scottish ministers and, through them, Parliament. The bank will operate as a public limited company that has a recognisable governance structure and arrangements between the board of directors and the shareholder. Therefore, I cannot support amendment 2.

I support amendments 13 and 28, in the name of Rhoda Grant. They are technical amendments that simply move to the appropriate place in the bill the provision that will require ministers to have regard to the interests of workers and businesses when appointing non-executive directors.

Amendments 14 and 15, in the name of Neil Findlay, are similar to amendments that he lodged at stage 2. I set out at that time the reasons why the Scottish Government opposes the proposal. Our primary concern is that providing for elements of the bank’s remuneration package in the bill would cut across the operational independence of the bank.

The bank is a unique organisation in Scotland’s public sector landscape, requiring staff with specialist skills and experience, so we should recognise that a particular approach to the bank’s remuneration package will be required. The proposed approach is informed by the experiences of the British Business Bank and the Development Bank of Wales, in line with the recommendation that we received from the committee in its stage 1 report.

Members should also note that section 8 of the bill includes a direction-making power in relation to remuneration, which can be exercised if necessary. Further, there is the power in section 14A to issue fair work directions to the bank.

We also note that there are technical deficiencies in the drafting of amendment 15. It refers to schedule 5 of the Freedom of Information (Scotland) Act 2002, but that act does not have a schedule 5.

I urge members to vote against amendments 14 and 15.

Amendment 29, in my name, is a technical amendment that clarifies that the Commissioner for Ethical Standards in Public Life will regulate the appointment of non-executive directors to the bank’s board, but not the appointment of executive directors.

Dean Lockhart

Amendment 2, in the name of Andy Wightman, would require at least two non-executive directors to be appointed by Scottish local authorities. I agree with Mr Wightman that local authorities are critically important partners in economic development, and that their perspective and experience should be available to the board of the bank.

However, that will be best achieved through stakeholder engagement and consultation, which is already hardwired into the legislation, rather than by giving various stakeholders the power to appoint directors to the bank’s board. Having two directors appointed by local authorities would risk confusing the bank’s governance structure, would confuse the accountability of the board of directors and would undermine the capacity of the Executive to hold the entire board to account for its performance. Under Scottish law, directors of a public limited company have a direct fiduciary duty to act in the best interests of shareholders, which would cut across the interests of local authorities.

Amendment 15, in the name of Neil Findlay, would require the remuneration policy of the bank to be hardwired into primary legislation. That would impair the operational independence of the bank to design a proper remuneration structure that is appropriate for a financial services institution that is also a public body, and which must be able to attract the right people to make the bank and, more important, its investments a success. We favour the approach that was proposed by the Economy, Energy and Fair Work Committee at stage 1, based on a wide array of evidence that it heard from stakeholders, to benchmark the bank’s remuneration policy against similar structures that are used by the British Business Bank and the Development Bank of Wales, in order to arrive at a package that is competitive but not excessive.

For those reasons, we cannot support amendments 2 and 15. We will support amendments 28 and 29.

The Presiding Officer

I call Andy Wightman to wind up.

Andy Wightman

Dean Lockhart said that by passing the amendment, we would confuse the governance and accountability of the bank. He referred to the fact that, under existing law, directors have a fiduciary duty to shareholders. That is correct. He argues that my amendment would “cut across” that, but it would not, precisely because directors have a fiduciary duty to shareholders. Regardless of who appoints non-executive directors, their fiduciary duty under the law is to shareholders, which in this case will be the Scottish ministers. Dean Lockhart has put forward a non-argument; it is the argument that was presented by the cabinet secretary earlier. The directors will have a duty, regardless of who appoints them, to discharge their duties in accordance with the articles and memorandum of association, and in the interests of the shareholder—the Scottish ministers. Nothing in my amendment 2 would affect that.

I am disappointed by the response, but not surprised.

The Presiding Officer

The question is, that amendment 2 be agreed to. Are we agreed?

Members: No.

The Presiding Officer

There will be a division.

For

Against

Adam, George (Paisley) (SNP)
Adamson, Clare (Motherwell and Wishaw) (SNP)
Allan, Dr Alasdair (Na h-Eileanan an Iar) (SNP)
Arthur, Tom (Renfrewshire South) (SNP)
Ballantyne, Michelle (South Scotland) (Con)
Beattie, Colin (Midlothian North and Musselburgh) (SNP)
Bowman, Bill (North East Scotland) (Con)
Briggs, Miles (Lothian) (Con)
Brown, Keith (Clackmannanshire and Dunblane) (SNP)
Burnett, Alexander (Aberdeenshire West) (Con)
Campbell, Aileen (Clydesdale) (SNP)
Carlaw, Jackson (Eastwood) (Con)
Carson, Finlay (Galloway and West Dumfries) (Con)
Chapman, Peter (North East Scotland) (Con)
Coffey, Willie (Kilmarnock and Irvine Valley) (SNP)
Constance, Angela (Almond Valley) (SNP)
Corry, Maurice (West Scotland) (Con)
Crawford, Bruce (Stirling) (SNP)
Cunningham, Roseanna (Perthshire South and Kinross-shire) (SNP)
Davidson, Ruth (Edinburgh Central) (Con)
Denham, Ash (Edinburgh Eastern) (SNP)
Dey, Graeme (Angus South) (SNP)
Doris, Bob (Glasgow Maryhill and Springburn) (SNP)
Dornan, James (Glasgow Cathcart) (SNP)
Ewing, Annabelle (Cowdenbeath) (SNP)
Ewing, Fergus (Inverness and Nairn) (SNP)
Fabiani, Linda (East Kilbride) (SNP)
FitzPatrick, Joe (Dundee City West) (SNP)
Forbes, Kate (Skye, Lochaber and Badenoch) (SNP)
Fraser, Murdo (Mid Scotland and Fife) (Con)
Freeman, Jeane (Carrick, Cumnock and Doon Valley) (SNP)
Gibson, Kenneth (Cunninghame North) (SNP)
Gilruth, Jenny (Mid Fife and Glenrothes) (SNP)
Golden, Maurice (West Scotland) (Con)
Gougeon, Mairi (Angus North and Mearns) (SNP)
Grahame, Christine (Midlothian South, Tweeddale and Lauderdale) (SNP)
Greene, Jamie (West Scotland) (Con)
Hamilton, Rachael (Ettrick, Roxburgh and Berwickshire) (Con)
Harper, Emma (South Scotland) (SNP)
Harris, Alison (Central Scotland) (Con)
Haughey, Clare (Rutherglen) (SNP)
Hepburn, Jamie (Cumbernauld and Kilsyth) (SNP)
Hyslop, Fiona (Linlithgow) (SNP)
Halcro Johnston, Jamie (Highlands and Islands) (Con)
Kerr, Liam (North East Scotland) (Con)
Kidd, Bill (Glasgow Anniesland) (SNP)
Lochhead, Richard (Moray) (SNP)
Lockhart, Dean (Mid Scotland and Fife) (Con)
Lyle, Richard (Uddingston and Bellshill) (SNP)
MacDonald, Angus (Falkirk East) (SNP)
MacDonald, Gordon (Edinburgh Pentlands) (SNP)
MacGregor, Fulton (Coatbridge and Chryston) (SNP)
Mackay, Derek (Renfrewshire North and West) (SNP)
Mackay, Rona (Strathkelvin and Bearsden) (SNP)
Macpherson, Ben (Edinburgh Northern and Leith) (SNP)
Maguire, Ruth (Cunninghame South) (SNP)
Martin, Gillian (Aberdeenshire East) (SNP)
Mason, John (Glasgow Shettleston) (SNP)
Mason, Tom (North East Scotland) (Con)
Matheson, Michael (Falkirk West) (SNP)
McAlpine, Joan (South Scotland) (SNP)
McKee, Ivan (Glasgow Provan) (SNP)
McKelvie, Christina (Hamilton, Larkhall and Stonehouse) (SNP)
McMillan, Stuart (Greenock and Inverclyde) (SNP)
Mitchell, Margaret (Central Scotland) (Con)
Mundell, Oliver (Dumfriesshire) (Con)
Neil, Alex (Airdrie and Shotts) (SNP)
Paterson, Gil (Clydebank and Milngavie) (SNP)
Robison, Shona (Dundee City East) (SNP)
Ross, Gail (Caithness, Sutherland and Ross) (SNP)
Russell, Michael (Argyll and Bute) (SNP)
Simpson, Graham (Central Scotland) (Con)
Smith, Liz (Mid Scotland and Fife) (Con)
Somerville, Shirley-Anne (Dunfermline) (SNP)
Stevenson, Stewart (Banffshire and Buchan Coast) (SNP)
Stewart, Alexander (Mid Scotland and Fife) (Con)
Stewart, Kevin (Aberdeen Central) (SNP)
Swinney, John (Perthshire North) (SNP)
Todd, Maree (Highlands and Islands) (SNP)
Torrance, David (Kirkcaldy) (SNP)
Watt, Maureen (Aberdeen South and North Kincardine) (SNP)
Wells, Annie (Glasgow) (Con)
Wheelhouse, Paul (South Scotland) (SNP)
White, Sandra (Glasgow Kelvin) (SNP)
Whittle, Brian (South Scotland) (Con)
Yousaf, Humza (Glasgow Pollok) (SNP)

The Presiding Officer

The result of the division is: For 31, Against 86, Abstentions 0.

Amendment 2 disagreed to.

Amendment 13 moved—[Rhoda Grant]—and agreed to.

Section 8—Remuneration

Amendment 14 moved—[Neil Findlay].

The Presiding Officer

The question is, that amendment 14 be agreed to. Are we agreed?

Members: No.

The Presiding Officer

There will be a division.

For

Baillie, Jackie (Dumbarton) (Lab)
Baker, Claire (Mid Scotland and Fife) (Lab)
Beamish, Claudia (South Scotland) (Lab)
Bibby, Neil (West Scotland) (Lab)
Boyack, Sarah (Lothian) (Lab)
Fee, Mary (West Scotland) (Lab)
Findlay, Neil (Lothian) (Lab)
Finnie, John (Highlands and Islands) (Green)
Grant, Rhoda (Highlands and Islands) (Lab)
Gray, Iain (East Lothian) (Lab)
Greer, Ross (West Scotland) (Green)
Griffin, Mark (Central Scotland) (Lab)
Harvie, Patrick (Glasgow) (Green)
Johnson, Daniel (Edinburgh Southern) (Lab)
Johnstone, Alison (Lothian) (Green)
Kelly, James (Glasgow) (Lab)
Lennon, Monica (Central Scotland) (Lab)
Leonard, Richard (Central Scotland) (Lab)
Macdonald, Lewis (North East Scotland) (Lab)
McNeill, Pauline (Glasgow) (Lab)
Rowley, Alex (Mid Scotland and Fife) (Lab)
Ruskell, Mark (Mid Scotland and Fife) (Green)
Sarwar, Anas (Glasgow) (Lab)
Smyth, Colin (South Scotland) (Lab)
Stewart, David (Highlands and Islands) (Lab)
Wightman, Andy (Lothian) (Green)

Against

Adam, George (Paisley) (SNP)
Adamson, Clare (Motherwell and Wishaw) (SNP)
Allan, Dr Alasdair (Na h-Eileanan an Iar) (SNP)
Arthur, Tom (Renfrewshire South) (SNP)
Ballantyne, Michelle (South Scotland) (Con)
Beattie, Colin (Midlothian North and Musselburgh) (SNP)
Bowman, Bill (North East Scotland) (Con)
Briggs, Miles (Lothian) (Con)
Brown, Keith (Clackmannanshire and Dunblane) (SNP)
Burnett, Alexander (Aberdeenshire West) (Con)
Campbell, Aileen (Clydesdale) (SNP)
Carlaw, Jackson (Eastwood) (Con)
Carson, Finlay (Galloway and West Dumfries) (Con)
Chapman, Peter (North East Scotland) (Con)
Coffey, Willie (Kilmarnock and Irvine Valley) (SNP)
Cole-Hamilton, Alex (Edinburgh Western) (LD)
Constance, Angela (Almond Valley) (SNP)
Corry, Maurice (West Scotland) (Con)
Crawford, Bruce (Stirling) (SNP)
Cunningham, Roseanna (Perthshire South and Kinross-shire) (SNP)
Davidson, Ruth (Edinburgh Central) (Con)
Denham, Ash (Edinburgh Eastern) (SNP)
Dey, Graeme (Angus South) (SNP)
Doris, Bob (Glasgow Maryhill and Springburn) (SNP)
Dornan, James (Glasgow Cathcart) (SNP)
Ewing, Annabelle (Cowdenbeath) (SNP)
Ewing, Fergus (Inverness and Nairn) (SNP)
Fabiani, Linda (East Kilbride) (SNP)
FitzPatrick, Joe (Dundee City West) (SNP)
Forbes, Kate (Skye, Lochaber and Badenoch) (SNP)
Fraser, Murdo (Mid Scotland and Fife) (Con)
Freeman, Jeane (Carrick, Cumnock and Doon Valley) (SNP)
Gibson, Kenneth (Cunninghame North) (SNP)
Gilruth, Jenny (Mid Fife and Glenrothes) (SNP)
Golden, Maurice (West Scotland) (Con)
Gougeon, Mairi (Angus North and Mearns) (SNP)
Grahame, Christine (Midlothian South, Tweeddale and Lauderdale) (SNP)
Greene, Jamie (West Scotland) (Con)
Hamilton, Rachael (Ettrick, Roxburgh and Berwickshire) (Con)
Harper, Emma (South Scotland) (SNP)
Harris, Alison (Central Scotland) (Con)
Haughey, Clare (Rutherglen) (SNP)
Hepburn, Jamie (Cumbernauld and Kilsyth) (SNP)
Hyslop, Fiona (Linlithgow) (SNP)
Halcro Johnston, Jamie (Highlands and Islands) (Con)
Kerr, Liam (North East Scotland) (Con)
Kidd, Bill (Glasgow Anniesland) (SNP)
Lochhead, Richard (Moray) (SNP)
Lockhart, Dean (Mid Scotland and Fife) (Con)
Lyle, Richard (Uddingston and Bellshill) (SNP)
MacDonald, Angus (Falkirk East) (SNP)
MacDonald, Gordon (Edinburgh Pentlands) (SNP)
MacGregor, Fulton (Coatbridge and Chryston) (SNP)
Mackay, Derek (Renfrewshire North and West) (SNP)
Mackay, Rona (Strathkelvin and Bearsden) (SNP)
Macpherson, Ben (Edinburgh Northern and Leith) (SNP)
Maguire, Ruth (Cunninghame South) (SNP)
Martin, Gillian (Aberdeenshire East) (SNP)
Mason, John (Glasgow Shettleston) (SNP)
Mason, Tom (North East Scotland) (Con)
Matheson, Michael (Falkirk West) (SNP)
McAlpine, Joan (South Scotland) (SNP)
McArthur, Liam (Orkney Islands) (LD)
McKee, Ivan (Glasgow Provan) (SNP)
McKelvie, Christina (Hamilton, Larkhall and Stonehouse) (SNP)
McMillan, Stuart (Greenock and Inverclyde) (SNP)
Mitchell, Margaret (Central Scotland) (Con)
Mundell, Oliver (Dumfriesshire) (Con)
Neil, Alex (Airdrie and Shotts) (SNP)
Paterson, Gil (Clydebank and Milngavie) (SNP)
Rennie, Willie (North East Fife) (LD)
Robison, Shona (Dundee City East) (SNP)
Ross, Gail (Caithness, Sutherland and Ross) (SNP)
Rumbles, Mike (North East Scotland) (LD)
Russell, Michael (Argyll and Bute) (SNP)
Simpson, Graham (Central Scotland) (Con)
Smith, Liz (Mid Scotland and Fife) (Con)
Somerville, Shirley-Anne (Dunfermline) (SNP)
Stevenson, Stewart (Banffshire and Buchan Coast) (SNP)
Stewart, Alexander (Mid Scotland and Fife) (Con)
Stewart, Kevin (Aberdeen Central) (SNP)
Swinney, John (Perthshire North) (SNP)
Todd, Maree (Highlands and Islands) (SNP)
Torrance, David (Kirkcaldy) (SNP)
Watt, Maureen (Aberdeen South and North Kincardine) (SNP)
Wells, Annie (Glasgow) (Con)
Wheelhouse, Paul (South Scotland) (SNP)
White, Sandra (Glasgow Kelvin) (SNP)
Whittle, Brian (South Scotland) (Con)
Wishart, Beatrice (Shetland Islands) (LD)
Yousaf, Humza (Glasgow Pollok) (SNP)

The Presiding Officer

The result of the division is: For 26, Against 91, Abstentions 0.

We move on to group 5, on a gender equality strategy. Amendment 35, in the name of Jackie Baillie, is grouped with amendment 37.

Jackie Baillie

I am pleased to speak to my amendments 35 and 37.

The Scottish Government recognises equality as an overarching principle, but equality was not included in the bill as introduced. Members of all parties know that if equality is bolted on later, we run the risk of it not being a priority or it being considered much too late in the process to make a meaningful difference.

The committee received evidence that other public investment banks have successful gender equality strategies. Scotland should ensure that the bank starts its life on the right footing by sharing in that positive practice.

The strategy will enable the bank to consistently advance and mainstream gender equality throughout its investment and staffing policies and any other programmes or policies that it develops. That will ensure that gender equality is an aspect of all the bank’s work and is not merely an add-on.

The strategy will assist the bank in meeting its legal obligations under the public sector equality duty. That is important, because research shows that there has been a significant decline in performance of the duty since its introduction. Today, the Scottish Government and this Parliament have the opportunity to create a financial institution that discourages discrimination, advances equality and sets the standards for future legislation.

I will turn to amendment 37, because it is all about the data: if we care about something, we should measure it. The Government’s equality impact assessment demonstrates the lack of available data and research on equalities in finance, so my proposed approach could make a difference to how the bank operates. Reporting on the impact of the strategy will enable visibility and accountability, helping to ensure that the bank remains a leader when it comes to gender equality, as well as providing vital data.

To date, public bodies have had limited success in gathering and utilising intersectional gender disaggregated data that relates to employees, service design and service delivery. Amendment 37 presents an opportunity for the bank to break that trajectory and integrate positive data practices, right from the beginning. I urge members to support amendments 35 and 37.

I move amendment 35.

Derek Mackay

I am happy to say that the Government will support Jackie Baillie’s amendments 35 and 37.

Throughout the bill’s passage, Jackie Baillie has raised the bank’s contribution to advancing gender equality. I am grateful to her for her work on the subject and for working with the Government after stage 2 to develop amendments 35 and 37. I also thank Engender and Close the Gap, who contributed their experience and expertise to this work.

At stage 2, Jackie Baillie lodged similar amendments, but I was concerned that some of their provisions were too prescriptive and that there was too much duplication between them and the Scotland-specific equality duties to which the bank will be subject. I am pleased that those issues have been addressed in amendments 35 and 37, which should support the bank in its compliance with the Scotland-specific equality duties with regard to gender. By giving the bank flexibility in how it undertakes that work, the approach in the amendments complements the scope and timing requirements of the Scotland-specific equality duties.

Those duties, of course, cover all the protected characteristics. For clarity, I will say that it is anticipated that the bank can make a positive contribution to advancing equality in a number of areas. Amendments 35 and 37 take an exceptional approach by focusing on gender equality. In the Government’s view, an exceptional approach is warranted in this case. There is a clear and well-defined evidence base that shows that women-led businesses face issues when they seek finance and that women are underrepresented in the financial services sector. The bank can help to address those issues. Therefore, I encourage members to support amendments 35 and 37.

Dean Lockhart

I will be brief, in the interests of time.

On the basis of evidence that stakeholders gave to the Economy, Energy and Fair Work Committee, we will support Jackie Baillie’s amendments 35 and 37, which will require the bank to prepare a gender equality strategy and report to the Parliament on it every two years.

The Presiding Officer

I call Jackie Baillie to wind up and to press or withdraw her amendment.

16:15

Jackie Baillie

I welcome the approach and the co-operation of the cabinet secretary. I thank Engender and Close the Gap for their work in ensuring that we have pushed the legislative envelope and can make progress on equality in the bank’s lending practices. I will press amendment 35.

Amendment 35 agreed to.

Section 11—Setting missions

The Presiding Officer

Group 6 is on strategic missions. Amendment 3, in the name of Andy Wightman, is grouped with amendments 20, 21, 21A, 21B and 22 to 25.

Andy Wightman

Amendment 3 is a slightly modified form of an amendment that was lodged at stage 2.

The committee was concerned that missions set by ministers would not be subject to a great deal of scrutiny, so I welcome the cabinet secretary’s amendments on setting strategic missions. As set out in the bill, missions were not subject to any scrutiny, but the cabinet secretary’s amendments to section 11 today rectify that and provide an appropriate balance between the interests of the Scottish ministers as shareholders and their interests in terms of their accountability to Parliament.

Amendment 3 is a straightforward amendment that puts in the bill the fact that there must be

“a strategic mission for the Bank stating that the Bank is to undertake investments that will facilitate the transition to a net-zero emissions economy.”

We know that that is already the Scottish ministers’ intention—that is fine and we welcome that. However, given that the transition to a net zero emissions economy is the most urgent task facing the globe, and facing governance across the world, it is appropriate to have that requirement in the bill so as to remove any doubt whatsoever that it is just one more strategic mission among many others. That is particularly so in light of the fact that the transition to a net zero emissions economy will take some time, but is of considerable urgency.

I move amendment 3.

The Presiding Officer

I call the cabinet secretary to speak to amendment 20 and the other amendments in the group.

Derek Mackay

I will speak to my amendments 20 to 25, and to Dean Lockhart’s amendments 21A and 21B, before I turn to Andy Wightman’s amendment 3.

Amendments 20 to 25 are all technical amendments. Amendments 20 to 22 divide up section 11, which had become too long as a result of stage 2 amendments. Amendment 20 covers the process by which the Government can set, modify or end a strategic mission for the bank, and it includes a clarification that missions can address both socioeconomic and environmental challenges. It better describes the challenges that we expect the bank to address through its missions. Amendment 23 is consequential to amendment 20.

Amendment 21 moves the consultation process for the setting, modifying and ending of missions that was agreed at stage 2 into a section of its own. It also puts it beyond doubt—because lawyers like such things to be spelled out—that the consultation that is done before the bill receives royal assent counts as consultation. That means that we can get the first missions in place in time for the bank’s establishment.

I am sure that Dean Lockhart will explain in more detail his amendments 21A and 21B. They address the issue that I raised regarding Dean Lockhart’s stage 2 amendment, which in effect risked giving the bank’s board a veto over the missions to be set for it. Amendments 21A and 21B, however, are perfectly sensible and I am pleased to support them.

Amendment 22 clarifies and moves into a section of its own the process, which was agreed at stage 2, for the bank’s board to propose that a mission be set, modified or ended.

Amendment 24 corrects a misplaced term in the bill.

Amendment 25 concerns the review of the bank’s performance in relation to the national performance framework. It tidies up, at a technical level, a stage 2 amendment by Jackie Baillie. I agree that the bank’s performance should be reviewed with reference to the national performance framework. I thank Jackie Baillie once again for collaborating on that issue, so that it is now best accounted for in the bill.

I appreciate the motivation behind Andy Wightman’s amendment 3, which is to provide for a mission regarding the transition to a net zero emissions economy, but I cannot support the amendment for the following reasons. As recommended by the committee in its stage 1 report, I intend that all proposed missions for the bank will be subject to consultation, and that is now set out in the bill. Andy Wightman’s proposal to include a mission in the bill would bypass that step and would not afford the Parliament or other stakeholders that opportunity.

Amendment 3 is also likely to be, in effect, an inflexible provision. I point out to Mr Wightman that the language that was used in the implementation plan in 2018 is now quite outdated in comparison with the terms of the Government’s current climate change targets. That makes the point that it would be inappropriate to include the mission in the bill. It is not inconceivable that further changes might be required sooner than we might have anticipated. If that were to be the case, the Government has provided for a meaningful consultation process, so that this will be done in a transparent and robust way, while retaining a greater degree of flexibility.

The Scottish Government has already very clearly committed to the idea that supporting Scotland’s just transition to net zero by 2045 will be the bank’s primary mission, which has been informed by extensive stakeholder engagement. In particular, the mission references a just transition, clarifying that transitioning to net zero should be done in a way that maximises economic and social opportunities, builds on Scotland’s existing strengths and mitigates arising societal risks. That is not covered by amendment 3. For those reasons, we cannot support amendment 3.

The Presiding Officer

I call Dean Lockhart to speak to amendment 21A and the other amendments in the group.

Dean Lockhart

The Scottish Conservatives welcome the cabinet secretary’s amendments 20 and 21, which include a requirement to undertake a public consultation in relation to any change or modification to the bank’s strategic missions.

Amendment 21A, in my name, would require that, before they made any change or modification to those missions, the Scottish ministers would have to

“first consult, and seek to reach agreement with, the Bank’s board”.

That would mean that those who will be most closely involved with implementing the bank’s strategy and are most knowledgeable about its operation—in other words, its board of directors—would have prior rights of consultation on changes proposed by the Scottish ministers, giving the board the chance to improve or modify such changes. That is in line with best practice followed elsewhere—for example, in the British Business Bank’s shareholder agreement—and it would give the board assurance that the Scottish ministers would consult it first, before making significant changes to the bank’s direction.

My amendment 21B provides that the bank’s board need not be consulted on the first set of missions that the Scottish Government proposes, because those would be subject to public consultation.

Amendment 3, in the name of Andy Wightman, seeks to hardwire into the bill a requirement that one of the strategic missions of the bank is the transition to a net zero emissions economy. The Scottish Conservatives agree with the sentiments of that amendment. On the basis of all the announcements that the Scottish Government has made to date, we fully expect that to be one of the bank’s core missions. However, the fact is that—as the Economy, Energy and Fair Work Committee has agreed—strictly speaking, the setting of the missions is an executive function that is within the powers of the Scottish Government under section 11. It would therefore not be appropriate for such a mission to be set out in the bill. That said, the Scottish Conservatives look forward to the cabinet secretary’s confirming, in the weeks ahead, that a net zero emissions economy will be one of the core missions of the bank.

Amendment 22, in the name of the cabinet secretary, is based on an amendment that I lodged at stage 2, which would have allowed the bank’s board of directors itself to submit to the Government proposals to change the strategic missions of the bank. As the board will be the body that is most closely involved in implementing the bank’s strategy, it will be important that it should be able to make its own proposals to the Government to update or change the bank’s missions to take account of developments that the board sees in the business and financial landscape and in its implementation of the strategy.

For those reasons, the Scottish Conservatives will support amendments 20 to 25, but will not support Andy Wightman’s amendment 3.

Baillie, Jackie (Dumbarton) (Lab)
Baker, Claire (Mid Scotland and Fife) (Lab)
Beamish, Claudia (South Scotland) (Lab)
Bibby, Neil (West Scotland) (Lab)
Cole-Hamilton, Alex (Edinburgh Western) (LD)
Fee, Mary (West Scotland) (Lab)
Findlay, Neil (Lothian) (Lab)
Finnie, John (Highlands and Islands) (Green)
Grant, Rhoda (Highlands and Islands) (Lab)
Gray, Iain (East Lothian) (Lab)
Greer, Ross (West Scotland) (Green)
Griffin, Mark (Central Scotland) (Lab)
Harvie, Patrick (Glasgow) (Green)
Johnson, Daniel (Edinburgh Southern) (Lab)
Johnstone, Alison (Lothian) (Green)
Kelly, James (Glasgow) (Lab)
Lennon, Monica (Central Scotland) (Lab)
Leonard, Richard (Central Scotland) (Lab)
Macdonald, Lewis (North East Scotland) (Lab)
McArthur, Liam (Orkney Islands) (LD)
McNeill, Pauline (Glasgow) (Lab)
Rennie, Willie (North East Fife) (LD)
Rowley, Alex (Mid Scotland and Fife) (Lab)
Rumbles, Mike (North East Scotland) (LD)
Ruskell, Mark (Mid Scotland and Fife) (Green)
Sarwar, Anas (Glasgow) (Lab)
Smyth, Colin (South Scotland) (Lab)
Stewart, David (Highlands and Islands) (Lab)
Wightman, Andy (Lothian) (Green)
Wishart, Beatrice (Shetland Islands) (LD)

Against

Adam, George (Paisley) (SNP)
Adamson, Clare (Motherwell and Wishaw) (SNP)
Allan, Dr Alasdair (Na h-Eileanan an Iar) (SNP)
Arthur, Tom (Renfrewshire South) (SNP)
Ballantyne, Michelle (South Scotland) (Con)
Beattie, Colin (Midlothian North and Musselburgh) (SNP)
Bowman, Bill (North East Scotland) (Con)
Briggs, Miles (Lothian) (Con)
Brown, Keith (Clackmannanshire and Dunblane) (SNP)
Burnett, Alexander (Aberdeenshire West) (Con)
Campbell, Aileen (Clydesdale) (SNP)
Carlaw, Jackson (Eastwood) (Con)
Carson, Finlay (Galloway and West Dumfries) (Con)
Chapman, Peter (North East Scotland) (Con)
Coffey, Willie (Kilmarnock and Irvine Valley) (SNP)
Constance, Angela (Almond Valley) (SNP)
Corry, Maurice (West Scotland) (Con)
Crawford, Bruce (Stirling) (SNP)
Cunningham, Roseanna (Perthshire South and Kinross-shire) (SNP)
Davidson, Ruth (Edinburgh Central) (Con)
Denham, Ash (Edinburgh Eastern) (SNP)
Dey, Graeme (Angus South) (SNP)
Doris, Bob (Glasgow Maryhill and Springburn) (SNP)
Dornan, James (Glasgow Cathcart) (SNP)
Ewing, Annabelle (Cowdenbeath) (SNP)
Ewing, Fergus (Inverness and Nairn) (SNP)
FitzPatrick, Joe (Dundee City West) (SNP)
Forbes, Kate (Skye, Lochaber and Badenoch) (SNP)
Fraser, Murdo (Mid Scotland and Fife) (Con)
Freeman, Jeane (Carrick, Cumnock and Doon Valley) (SNP)
Gibson, Kenneth (Cunninghame North) (SNP)
Gilruth, Jenny (Mid Fife and Glenrothes) (SNP)
Golden, Maurice (West Scotland) (Con)
Gougeon, Mairi (Angus North and Mearns) (SNP)
Grahame, Christine (Midlothian South, Tweeddale and Lauderdale) (SNP)
Greene, Jamie (West Scotland) (Con)
Hamilton, Rachael (Ettrick, Roxburgh and Berwickshire) (Con)
Harper, Emma (South Scotland) (SNP)
Harris, Alison (Central Scotland) (Con)
Haughey, Clare (Rutherglen) (SNP)
Hepburn, Jamie (Cumbernauld and Kilsyth) (SNP)
Hyslop, Fiona (Linlithgow) (SNP)
Halcro Johnston, Jamie (Highlands and Islands) (Con)
Kerr, Liam (North East Scotland) (Con)
Kidd, Bill (Glasgow Anniesland) (SNP)
Lochhead, Richard (Moray) (SNP)
Lockhart, Dean (Mid Scotland and Fife) (Con)
Lyle, Richard (Uddingston and Bellshill) (SNP)
MacDonald, Angus (Falkirk East) (SNP)
MacDonald, Gordon (Edinburgh Pentlands) (SNP)
MacGregor, Fulton (Coatbridge and Chryston) (SNP)
Mackay, Derek (Renfrewshire North and West) (SNP)
Mackay, Rona (Strathkelvin and Bearsden) (SNP)
Macpherson, Ben (Edinburgh Northern and Leith) (SNP)
Maguire, Ruth (Cunninghame South) (SNP)
Martin, Gillian (Aberdeenshire East) (SNP)
Mason, John (Glasgow Shettleston) (SNP)
Mason, Tom (North East Scotland) (Con)
Matheson, Michael (Falkirk West) (SNP)
McAlpine, Joan (South Scotland) (SNP)
McKee, Ivan (Glasgow Provan) (SNP)
McKelvie, Christina (Hamilton, Larkhall and Stonehouse) (SNP)
McMillan, Stuart (Greenock and Inverclyde) (SNP)
Mitchell, Margaret (Central Scotland) (Con)
Mundell, Oliver (Dumfriesshire) (Con)
Neil, Alex (Airdrie and Shotts) (SNP)
Paterson, Gil (Clydebank and Milngavie) (SNP)
Robison, Shona (Dundee City East) (SNP)
Ross, Gail (Caithness, Sutherland and Ross) (SNP)
Russell, Michael (Argyll and Bute) (SNP)
Simpson, Graham (Central Scotland) (Con)
Smith, Liz (Mid Scotland and Fife) (Con)
Somerville, Shirley-Anne (Dunfermline) (SNP)
Stevenson, Stewart (Banffshire and Buchan Coast) (SNP)
Stewart, Alexander (Mid Scotland and Fife) (Con)
Stewart, Kevin (Aberdeen Central) (SNP)
Swinney, John (Perthshire North) (SNP)
Todd, Maree (Highlands and Islands) (SNP)
Torrance, David (Kirkcaldy) (SNP)
Watt, Maureen (Aberdeen South and North Kincardine) (SNP)
Wells, Annie (Glasgow) (Con)
Wheelhouse, Paul (South Scotland) (SNP)
White, Sandra (Glasgow Kelvin) (SNP)
Whittle, Brian (South Scotland) (Con)
Yousaf, Humza (Glasgow Pollok) (SNP)

The Presiding Officer

The result of the division is: For 30, Against 85, Abstentions 0.

Amendment 3 disagreed to.

Amendment 20 moved—[Derek Mackay]—and agreed to.

After section 11

Amendment 21 moved—[Derek Mackay].

Amendments 21A and 21B moved—[Dean Lockhart]—and agreed to.

The Presiding Officer

Does the cabinet secretary wish to press or withdraw amendment 21, as amended?

Derek Mackay

I press amendment 21.

Amendment 21, as amended, agreed to.

Amendment 22 moved—[Derek Mackay]—and agreed to.

Section 12—Reporting on missions

Amendment 23 moved—[Derek Mackay]—and agreed to.

After section 13

Amendment 36 not moved.

Amendment 37 moved—[Jackie Baillie]—and agreed to.

Section 14—Review of performance

Amendments 24 and 25 moved—[Derek Mackay]—and agreed to.

After section 14

The Presiding Officer

Group 7 is on equal pay review. Amendment 38, in the name of Jackie Baillie, is the only amendment in the group.

16:30

Jackie Baillie

It is the last group, and I am pleased to speak to amendment 38, in my name.

We are now in a new decade, yet the gender pay gap today is still as high as 5.6 per cent. The only way that employers can be sure that they are providing equal pay is to carry out an equal pay review. An equal pay review is the methodology that is used to uncover unequal pay, yet we see complacency among employers. Research by Close the Gap on employer action on the pay gap found that, although 94 per cent of employers surveyed had an equal pay policy, less than one third had undertaken an equal pay review, and only 3 per cent had taken any action to address pay gaps. Requiring the bank to do an equal pay review would be a really positive step and would be vital in ensuring that the bank overcomes the issues around unequal pay and the gender pay gap that have characterised other financial institutions. By agreeing to the amendment, members will make a difference to closing the gender pay gap, and I commend the amendment to the chamber.

I move amendment 38.

Derek Mackay

I am happy to say that the Government will support amendment 38, in the name of Jackie Baillie. Carrying out periodic equal pay reviews is a sensible proposal for the bank to consider. An equal pay review can help an organisation to ensure that its pay policy is being implemented fairly and to address one of the contributing factors to a gender pay gap. We know that there are gender pay issues in the Scottish and wider UK economies, and that the financial services sector has particular experience of such issues. It is therefore important that the bank keeps its house in order. Amendment 38 will contribute to that work, and I encourage members to support it.

Dean Lockhart

I will be very brief. Amendment 38 ensures that the bank will, from time to time, conduct a review on equal pay. The amendment is in line with existing legislation and the proposal was supported by the Economy, Energy and Fair Work Committee at stage 1.

The Presiding Officer

I call Jackie Baillie to wind up, and to press or withdraw the amendment.

Jackie Baillie

Consensus has broken out, Presiding Officer. I press amendment 38.

Amendment 38 agreed to.

Section 19—Meaning of State aid rules

Amendments 26 and 27 moved—[Derek Mackay]—and agreed to.

After section 19

Amendment 28 moved—[Rhoda Grant]—and agreed to.

Schedule—Application of public bodies legislation

Amendment 29 moved—[Derek Mackay]—and agreed to.

The Presiding Officer

That ends consideration of amendments. As members may be aware, at this point in the proceedings, I am required under standing orders to decide whether, in my view, any provision of the bill relates to a protected subject matter—that is, whether the bill modifies the electoral system or franchise for Scottish parliamentary elections. It is my view that the bill does no such thing and therefore does not require a supermajority at stage 3.

21 January 2020

Final debate on the Bill

Once they've debated the amendments, the MSPs discuss the final version of the Bill.

Final debate transcript

The Presiding Officer (Ken Macintosh)

The next item of business is a stage 3 debate on motion S5M-20514, in the name of Derek Mackay, on the Scottish National Investment Bank Bill. I invite members who wish to contribute to the debate to press their request-to-speak buttons now.

16:33

The Cabinet Secretary for Finance, Economy and Fair Work (Derek Mackay)

I am delighted to open this stage 3 debate on the Scottish national investment bank.

The Economy, Energy and Fair Work Committee heard about the bank’s potential from many stakeholders during its stage 1 evidence sessions, not least from Professor Mariana Mazzucato, who told us that the establishment of a Scottish national investment bank has the potential to

“transform our imagination of what the public sector is for”.—[Official Report, Economy, Energy and Fair Work Committee, 14 May 2019; c 13.]

Since the bill’s introduction, members have worked together to create legislation that provides a strong statutory foundation for the bank. I particularly thank the members of the Economy, Energy and Fair Work Committee, whose thoughtful scrutiny of the bill led to valuable and informed amendments. I also thank the other members who have been involved in the bill’s passage for the constructive approach that they have taken to developing and strengthening the bill. Finally, I am also grateful to the many stakeholders who contributed to the bill. The bank must speak to all Scotland, and I am confident that we have meaningfully engaged to allow that to happen.

Establishing the bank is about being ambitious for Scotland. I am pleased to see the determination that has been shown across the chamber—indeed, across the country—to ensure that we build a bank that can become a cornerstone institution in Scotland’s economic landscape.

The bank has the potential to transform Scotland’s economy and society. As the vision for the bank now sets out, this is an opportunity to

“catalyse ... a step change in growth for the Scottish economy by powering innovation and accelerating the move to a net-zero emissions, high-tech, connected, globally-competitive and inclusive economy.”

The bill reflects that vision and sets out a high level of ambition for the bank’s contribution to environmental and social wellbeing in Scotland; to driving inclusive and sustainable economic growth; and to enabling small and medium-sized enterprises, innovative companies and enterprising third sector bodies to flourish.

The case for establishing the Scottish national investment bank is overwhelming. Access to finance in the current lending market for many private and third sector organisations can be challenging, which has led to very real impacts on investment and growth. The bank will make a big difference in that regard. It will seek to address those gaps; in particular, it will provide new levels of strategic patient finance.

The bank will also drive innovation in Scotland and will shape and create markets. Its investment can support our efforts to improve the level of business expenditure on research and development in Scotland to the levels in other European countries. The bank can also build on Scotland’s existing strengths, including our world-leading university research sector. Finally, it will crowd in investment from other sources, maximising its impact and enabling activity that otherwise would not take place.

The success of the building Scotland fund is a promising sign of what we can expect from the bank. Last week, I visited an office development in Glasgow that had received funding from that fund. During my visit, I announced that the fund has agreed investments of £100 million, unlocking in excess of £238 million-worth of projects and providing a significant boost to the Scottish economy.

In particular, the building Scotland fund has agreed investments of £75 million in a range of housing projects, supporting the development of more than 5,500 homes and around 600 full-time jobs. The fund demonstrates the exciting opportunities that the bank could support by investing in progressive businesses, social enterprises and third sector organisations right across Scotland.

The bank’s innovative, mission-oriented approach has rightly received much interest. The approach will direct the bank’s activity towards addressing major challenges facing Scotland.

Neil Findlay (Lothian) (Lab)

Will the cabinet secretary take an intervention?

Derek Mackay

No, thank you.

The First Minister has committed to the bank’s primary mission being supporting the just transition to net zero carbon emissions. Harnessing private sector activity to achieve that has never been more important.

The bank is expected to have two other missions, based on examples in the implementation plan. One concerns taking advantage of technology and innovation to benefit Scotland’s people, particularly through responding to demographic challenges. The other will support improvements to places across Scotland. Those missions have been derived from Professor Mazzucato’s guidance in setting out how the bank could adopt missions, and from extensive engagement.

The bank will, of course, seek to make a sufficient financial return. That will enable it to reinvest its funds many times over, in successive generations of business. The bank will also, in time, cover its costs and not be reliant on the taxpayer. I recently updated the Economy, Energy and Fair Work Committee on the latest financial modelling for the bank. I provided indicative projections of the bank’s performance over the long term. Over a 50-year period, the bank is projected to make cumulative investments of £17.5 billion—and that does not account for investment leveraged from other sources. As a result, the initial £2 billion capitalisation would be recycled across the bank’s portfolio more than eight times across the 50-year period, including the initial investment. That is a significant goal that will be achieved only if we are patient with the bank, especially in its early years. We must allow the bank time to reach its full potential.

Neil Findlay

Will the cabinet secretary take an intervention?

Derek Mackay

No, thank you.

The bill demonstrates Scotland’s ambition for transforming our economy and tackling major societal challenges. Passing the bill today will mark the next step towards establishing the bank. The bill allows for a robust, credible and impactful new organisation in Scotland’s economic landscape and puts in place the foundations for the creation of a commercially minded yet publicly accountable institution.

I move,

That the Parliament agrees that the Scottish National Investment Bank Bill be passed.

16:39

Dean Lockhart (Mid Scotland and Fife) (Con)

I, too, thank the Economy, Energy and Fair Work Committee’s clerking team, the witnesses and all those who gave evidence during the passage of the bill. I thank Benny Higgins and the implementation team for their excellent work during the implementation period, and I again thank the cabinet secretary and his team for the constructive manner in which they have engaged during the legislative process.

We have supported the establishment of the bank at all stages of the bill. We agree with the underlying objectives for establishing the bank: that there is a need for more long-term, patient capital; that businesses in Scotland need more help to expand; and that we need a transformational change in Scotland’s economy.

Development banks across the world have shown that that is possible. However, the transformational change will happen only if the development bank is part of a coherent economic policy framework in which there is absolute clarity on the economic strategy and objectives.

The cabinet secretary will not be surprised to hear me say that there is still much work to be done in that respect, as was recognised in the chamber in a previous debate when an all-party motion recognised that

“a cluttered policy landscape can lead to confusion, a lack of alignment, duplication and weakened accountability”.

The concerns about the enterprise landscape were also highlighted at the committee when one witness referred to it as a “Venn diagram on steroids”. That is our overriding concern about the bank’s future success: the bank is being introduced into a confused and cluttered enterprise landscape. To be fair to the cabinet secretary, I think that he recognises that. In his letter to the Economy, Energy and Fair Work Committee of 10 January, he confirmed that

“Wider work is on-going to develop and cement the future relationship between the new Bank and the Scottish economic development ecosystem”.

The success of the transition will be vital to the success of the bank. Will the cabinet secretary commit to providing regular updates to the chamber and the committee about the changes that he will be making as part of the transition?

Derek Mackay

Yes.

Dean Lockhart

I thank the cabinet secretary very much for his brief and positive answer.

Following the establishment of the bank, another priority will be for the taxpayer to see positive returns from it—that is, financial returns and the bank achieving its strategic missions.

With an initial capitalisation of £2 billion and operating costs of up to £20 million a year, the bank will have to demonstrate that it is making a transformational impact across Scotland. We have to remember that those operating costs are in addition to the £120 million operating costs incurred by the existing enterprise agencies.

Neil Findlay

Dean Lockhart sat through the committee stages of the bill. It would be remiss of us not to raise concerns, which have been mentioned in the media, including by none other than George Kerevan, about the new chair of the bank, who, in a previous role, was given a record fine by regulators following a conflict-of-interest case. Were those issues raised in committee? I was hoping that the cabinet secretary might address them.

Dean Lockhart

I am not sure whether Neil Findlay has seen the correspondence between the committee and the cabinet secretary, but I would encourage him to look at it, because I think that it addresses those issues.

We are now—before a single penny is invested in the economy—spending £140 million a year on operating costs across all the enterprise agencies, so we need to ensure that we get a real return from the bank. That should be similar to the returns achieved by the British Business Bank, which has a target rate of return of more than 2.5 per cent. We look forward to the cabinet secretary confirming that he will be setting out the medium and long-term performance targets of the bank once it is up and running.

Another fundamental question that the committee raised is whether there will be sufficient demand in the economy for the additional funding to be offered by the bank. We saw demand being a problem in the context of the Scottish growth scheme, which has invested only a quarter of the up to £500 million that was on offer.

In evidence given to the committee, we were told that the bank will not act as the originator of funding opportunities. That means that the bank will have to rely on the existing enterprise agencies, which are operating under existing budgetary and resource constraints. I ask the cabinet secretary, when he sums up, to confirm whether the enterprise agencies’ budgets will be increased in order to deal with the extra demands on them and the extra opportunities that they will be required to seek out on behalf of the Scottish national investment bank.

I turn briefly to the bank’s strategic missions. The cabinet secretary has been transparent about the grand challenges and the strategic missions that he proposes to set the bank, and, as we heard earlier, the bank’s

“primary mission will be securing the transition to”

“net zero”

economy, and

“A key element of the Bank’s work will be to help to shape and develop commercially investable low carbon markets.”

I think that everyone agrees with those objectives, but again, we need to see the detail of how all that will be delivered once the bank is up and running. Over the past 12 years, the Scottish economy has failed to see the economic benefit and the real jobs that were promised as a result of the development of low carbon markets; we heard about that during the renewable energy summit held last week. The Scottish Trades Union Congress also made that clear in a report issued last year.

I will wrap up by saying that the relatively easy part of establishing the bank—passing the legislation—will be achieved this afternoon; however, the real challenges lie ahead. Those are: to ensure that the bank recruits the very best professionals to deliver transformational change; for the Scottish Government to reform the enterprise landscape so that all agencies are fully aligned; and for the bank to stimulate demand and make the necessary investments so that there can be transformational change in Scotland’s economy.

16:46

Richard Leonard (Central Scotland) (Lab)

I genuinely believe that today is an important day in the history of this Parliament. A quarter of a century ago, I was calling, on behalf of the Scottish trades union movement, for the establishment of a Scottish investment bank.

I have with me the original report and the original press release, dated December 1995. I point out, for the record, that the demand for a Scottish investment bank has gone unanswered for so long that the paper clip holding the report and the press release together has turned to rust, but the argument still shines and the idea still endures.

At the time, I wrote:

“Scotland is one of Europe’s biggest financial centres, yet there is an acute shortage of suitable finance for industrial investment here. This is preventing Scotland from achieving its full economic development potential, and so hampering job growth. This is an area where a Government lead is badly needed”.

The truth is that that description of the Scottish economy, which was written back in 1995, could just as easily have been written yesterday. We have already wasted too much time—20 years of devolution—when the long-standing and most rudimentary problem of underinvestment in the Scottish economy has not been confronted.

That failure has, in turn, led to chronically low levels of productivity, slow rates of economic growth and job losses. The tragedy is that that has not been tackled head on by this Parliament, even though we have had the powers to do so. Of course, that investment gap has a very long history, with deep roots based on a fixation with short-term shareholder dividends, and with funds accumulated not as capital for investment, but as wealth to be exported. It has its roots, too, in the failure of successive Governments to provide sources of patient capital and long-term investment.

So, Scottish Labour supports the establishment of a Scottish national investment bank with the passing of this bill. Its focus on sustainable economic development and tackling climate change is welcome. Our amendments to drive up ethical standards and labour standards were right, and the people of Scotland will observe that the Scottish National Party lined up with the Tories to oppose many of those proposals. The clear focus on small and medium-sized enterprises is welcome, because, as we have said before, too much of the Scottish Government’s economic strategy is based on the attraction of big foreign direct investment.

I said in the stage 1 debate that the investment bank’s role should not just be to act when there is

“market failure”.

Instead, it must be an agent for change as part of the innovative state—the

“active state”,

not the reactive one; the

“developmental state”,

not simply the defensive one.

I remain as convinced now as I was 25 years ago that we need bold and ambitious legislation if we are to tackle the long-term, deep-rooted challenges that we face. Scottish Labour will support the bill, but we do not believe that it is bold and ambitious enough. There is too much of an air of tame mediocrity about it, when what we need is courage and ambition.

In the policy memorandum, the Government describes the bank as a catalyst, but the scale of the challenge that we now face requires more than the light touch of a catalyst. We need much more than just a spark. The people of Scotland need a comprehensive economic plan, a proactive industrial strategy and a renewed commitment to full employment in an economy undergoing a just transition to a net zero carbon economy. The bank is undercapitalised, but it must not become an undercapitalised vanity project. It needs to be a meaningful and decisive actor in the Scottish economy, making a meaningful and sustainable difference.

We support the bill, we have amended the bill, we will vote for the bill and we will the success of the bank—this new institution that is long overdue—but the Government must also find the courage of its convictions and will the means to it, too. The cabinet secretary described the bill as world beating. Well, time will tell. With the right direction and the necessary resources, it may be world beating, but in the end, what the people of Scotland need is not world-beating legislation but world-beating action.

16:51

Andy Wightman (Lothian) (Green)

I thank the cabinet secretary for his on-going engagement on the bill in the Economy, Energy and Fair Work Committee and for keeping committee members informed of developments in work as it has proceeded, which has been very useful.

As I noted at stage 1, our economy is now run substantially in the interests of private capital rather than in the public interest—in the short-term interests of shareholders rather than in the long-term interests of society. I therefore welcome any attempt to place the public interest at the heart of economic policy. By investing in small and medium-sized enterprises, start-ups and businesses that seek to solve societal issues, a publicly owned bank with a clear vision and mission can complement traditional financial bodies.

Fundamentally, though, the Scottish national investment bank will exist to help to transform the economy by addressing the grand challenges that the cabinet secretary has outlined in briefings to members. Those challenges do not appear in the bill: nevertheless, I understand that they are the overarching framework within which missions will be set. The most important mission is the vital mission to accelerate the transition to a net zero emissions economy.

The establishment of the Scottish national investment bank is the result of many years of work by a range of thinkers, which I now know includes Richard Leonard—a great thinker from 1995. More recently, those thinkers have included the New Economics Foundation, Friends of the Earth Scotland, Common Weal and many others. I want to pay particular tribute, as others have done, to the work of Mariana Mazzucato and Laurie Macfarlane, whose thinking has been very influential in developing the proposals for the bank.

As members know, Greens have set out the broad parameters of a Scottish green new deal. Central to that is the need for investment in a greener economy. The role of the Scottish national investment bank should be central to delivering the transition to a net zero economy. The bank’s ability to provide patient capital should enable it to take a long-term view on investment decisions, which could prove to be transformative for projects that badly need transformational action.

At stage 1, Greens called for the Scottish national investment bank to have a clearer purpose, to work towards net zero goals, to give local government a stake, to give Parliament a say in the bank’s missions, and to have stronger ethics and equalities provisions. We have achieved some of that: amendments that we lodged at stages 2 and 3 were designed to deliver those priorities, including two amendments that were debated—although they were rejected—this afternoon.

However, we have some concerns about the bank. One relates to the report of the Infrastructure Commission for Scotland, which was published yesterday. It says:

“The Scottish Government should ensure that its new National Transport Strategy and Strategic Transport Projects Review 2, which are due to be published during 2020, fully reflect the need to deliver an inclusive net zero carbon economy”.

It goes on to say that that should include

“Aligning strategic investment decisions to address fully the requirement for demand management”

in transport. It continues:

“For ... roads investment that is made as part of the above”

there should be

“a presumption in favour of investment to future proof existing road infrastructure and to make it safer, resilient and more reliable rather than increase road capacity.”

We face significant challenges in transport.

We also have concerns about the potential two-tier pension arrangements, which unions have highlighted to us. I understand that the shadow bank proposals in that regard have been agreed by the cabinet secretary. I point out—I will welcome hearing about this in his closing remarks—that that risks damaging the bank’s chances of providing a fair and progressive wage environment.

We believe that local government should have a significant role in the bank’s projects and missions. All 32 of Scotland’s councils have signed up to Scotland’s climate change declaration, so I look forward to further discussions on that.

The bill is a framework bill. The proof of its success will lie in the bank’s operational decisions in years to come, the decisions that are made by its sole shareholder—the Scottish ministers—and in the scrutiny that the Economy, Jobs and Fair Work Committee applies in its deliberations.

Greens support the bill—we wish it well and will vote for it at decision time.

16:56

Willie Rennie (North East Fife) (LD)

I thank all those who have contributed to the forging of the bill: the advisers, the committee, the ministers for their constructive behaviour, and Benny Higgins for his contribution.

The ambitions are big. That is certainly true. The language that is used to describe the bill is sometimes glorious; it will, for example, “transform our imagination”. I am looking forward to that particular event. The expectations are high for reshaping our economy. People will expect that to be delivered, so the responsibilities on all of us to make it happen are keen, especially when the challenges are so great—in particular on climate change and the green economy, which Andy Wightman talked about.

It is important that we use the bank to lever that change, and that we use it in relation to productivity. When we look at the stubborn problems that we have, it is unbelievable that companies that create offshore wind farms have to go, or are choosing to go, to other parts of the world—sometimes the other side of the planet—instead of constructing jackets and other turbine elements in this country. What are we getting wrong? Why are we not making that work? What are the steps that we need to take? What are the investments that we need to have? Who are the business leaders whom we need to have in place to make all that happen? Perhaps the bank will play a role in making sure that all that comes together. Who would take the risk of transporting jackets all the way across the globe, with the extra cost of doing that, instead of building them here? Let us rise to that challenge and make sure that we exploit the great opportunity of the energy off our shores.

There are massive challenges in how we cope with our waste. We have seen the delay in the landfill ban. There is an awful lot of infrastructure that we need to build in order to cope with the waste that we are generating in this country.

Our world-class universities—which are among the best, obviously—are producing a huge amount of intellectual property. We still fail to exploit that intellectual property fully for the benefit of people here, and to create jobs, wealth and opportunities.

The bank has many challenges to play a part in and, of course, it does not have all the answers. We need to learn the lessons of previous projects, such as the Scottish growth scheme. That was supposed to be a great game changer for the businesses and economy of this country, with £0.5 billion of investment. It has not been fully utilised; we need to make sure that the SNIB is.

The Green Investment Bank across the UK—in whose setting up we had a role, although to our great disappointment it was privatised later—was making good progress. We should draw on the expertise that was developed through it. What has our own Scottish Investment Bank done, through Scottish Enterprise, that works, that can succeed and that we can build on for greater success?

My final comment is that there will be great temptation from us in the chamber and people further afield to put pressure on the bank at a time of great pressure on the economy, when much-loved businesses are under great stress and perhaps on their way out. Perhaps they do not have a future; perhaps they are failing businesses. There might be a great temptation for us to pressure the bank into propping up those failing businesses. Nobody wants to see them go, but sometimes we need to ensure that we put the investment into new opportunities and challenges that will create many more jobs.

Of course, the bank should listen to Parliament and should understand what we believe are the political priorities for this country. However, it should also have the freedom to act as it thinks best, so that it can lever in money to create jobs and opportunities, and create the low-carbon green economy for the future of our country and the planet.

The Deputy Presiding Officer (Linda Fabiani)

We move to the open debate. Speeches should be no longer than four minutes, please.

17:00

Alex Neil (Airdrie and Shotts) (SNP)

To pick up on one of Willie Rennie’s points, I say that the bank’s emphasis has to be on preparing Scotland for tomorrow’s world, not on dealing with the consequences of yesterday’s world. Therefore, concentrating on things such as renewable energy is extremely important in the climate change debate.

However, the bank will be important not just in that sphere of influence. Artificial intelligence will be a major growth area and I believe that it will also have the impact of being a job creator. Robotics and animal life sciences will also be major growth areas. Scotland already has a presence in space technology—I am not talking about the Greens’ policies—with some world-beating developments based in Glasgow and elsewhere. The opportunities are enormous, and I hope that when the history of this period comes to be written by economic historians, it will be marked as a major turning point in the history of the Scottish economy.

I will mention two or three areas in which the bank should take early action, and in which the Government needs to look at the framework within which the bank will operate. The first is exports. Our export performance, in terms of our population and propensity, is way below par, and we have enormous opportunities to expand our export capacity. National investment banks in other countries help their exporters. In evidence to the committee at stage 1, it was pointed out that the assistance that the Finnish Government provides to exporters in Finland is far greater than the totality of all the financial support, in terms of credit guarantees and all the rest of it, that the UK Government provides to the entire UK. Finland, which has a population of 5 million, helps its exporters more than the UK helps our exporters—not per head but in total. That is not just in relation to manufactured goods. For example, a major beneficiary of the export finance that the Finnish investment bank provides is the shipbuilding sector. Shipbuilding is a sector in which we have potential to expand our presence.

Exports is where the bank should go out and create demand for its services. A lot of companies might not realise that if they get the funding to export on a much grander scale, they will have the potential to create many more good-quality jobs in Scotland.

Secondly, on the overall investment, I hope that the bank is so successful that future Scottish Governments have to increase the capital that is available to the bank to meet demand. We should all hope that.

The important point is that this is not just a £2 billion investment, and over the period of 50 years that Derek Mackay mentioned—which I hope to see—it does not have to be just £17.5 billion. It could be three, four or five times that, because one of the central features of the bank is that it will lever in private capital, including capital from elsewhere. If it does that on merchant bank ratios, or even near to them, we could be talking, over the piece, about £100 billion instead of £17.5 billion. That is extremely important.

Let me also say this. Members should look at the experience of the Scottish Development Agency, which was set up in 1975. It provided many similar services, but because one or two of its investments turned rotten, we abandoned the whole exercise. That was utter madness.

We have to say to the Scottish national investment bank, “Take risks.” There is no point in setting it up if it does not take risks, and if it takes a risk that does not work out, let us not hammer the bank. Let us not politicise or weaponise the SNIB in Parliament. Let us say, “Go out and take more risks.” In merchant banking, only two out of every 10 risks pay off, but those two pay for the other eight many times over. Let the bank be not only about public ownership, but about public enterprise levering and mobilising private capital to transform the Scottish economy.

The Deputy Presiding Officer

Speeches should be of no more than four minutes, please.

17:05

Gordon Lindhurst (Lothian) (Con)

We are agreed that national investment banks can play a valuable role in facilitating economic growth. I am not sure that I understood—or misunderstood—Alex Neil’s speech or whether he was advertising himself for a future role in promoting the Scottish national investment bank.

Investment banks can play an important and positive role, but there is a significant caveat: to do so, they have to be well run, with clear policy objectives, and they must be given relative freedom from direction by state-run interests, the public sector and national Government. That is what we see in other successful examples of such banks around the world.

Over the past decade, the Scottish Government has spoken positively about the possibility of creating a body such as the one we are discussing and about its potential role in our investment in the future of Scotland. It is therefore good that the dream has not turned into rust—unlike Richard Leonard’s paper clip—and that we have this bill before us in the Parliament.

As most of us know—I hope—in general terms, business and investment function far better when the long arm of the state does not lie heavily on their shoulders and when business leadership and expertise are able to decide the direction of travel. However, national investment bodies can make a real difference in pursuing wider public goals when they operate successfully alongside private enterprise—for example, on targets for sustainability.

Nevertheless, we must be cautious that such a body does not crowd out private finance, as we have seen happen on some occasions with certain similar bodies such as the European Investment Bank.

As Willie Rennie has emphasised, we need proper leadership for the bank. That means leadership that seeks to prevent public money being used to prop up failing ventures. We have seen too many of those, throughout history and more recently, and the massive cost that poorly placed public investment can have economically and on the taxpayer and people’s pockets.

The Economy, Energy and Fair Work Committee heard evidence that the Scottish national investment bank could deliver better and more sustainable approaches to investment. I welcome its commitment to investing patient capital across a wide range of sectors—investment that will be intended for long-term prosperity and not just for aesthetically pleasing short-term gains.

As has been touched on, there is a disparity between the proposed public body, with a capitalisation of £2 billion, and the example of an existing bank, the Royal Bank of Scotland, which alone has a Scottish loan book of £14 billion. Let us hope that the bank is successful and can build on that rapidly to move beyond the £2 billion figure.

In countries such as Finland, where national investment structures are particularly good at offering instruments like debt financing to major infrastructure investors and at supporting guarantees, we have an example of a successful approach.

We would like more clarity on where the SNIB is to sit in the already-crowded landscape in Scotland, with Scottish Enterprise and the Scottish growth scheme. I would appreciate it if the cabinet secretary could give us a bit more clarity on that in his closing remarks. The bank will be joining a crowded field, and we do not want a false start for it. Let us hope that this is the start of something new, positive and constructive that we can, and will, all support.

17:10

Jackie Baillie (Dumbarton) (Lab)

I support having a Scottish national investment bank. It is fair to say that it has been a long time in coming. I think that John Swinney—clearly behind Richard Leonard in doing so—announced it a decade ago and re-announced it every year thereafter, because there was no money to capitalise the bank. That was until the UK Government came up with financial transaction money, the future of which is in doubt. Keith Brown described it as “funny money” at the time, but we now embrace it as a positive capitalisation of the SNIB.

The Scottish Government tells us that, if financial transactions are discontinued after March 2021—which is a real possibility—the bank will have to rely on traditional capital or the Scottish Government’s borrowing powers. The borrowing limit is £400 million a year, not taking into account the normal Government spending commitments that are made for public sector infrastructure such as schools, hospitals, health centres and roads. There is simply not enough money to do all of that and fund the bank as well.

If that source of funding—financial transaction money—is not there after March 2021, the SNP will need to find £1.5 billion. However, instead of pausing, the Scottish Government is intent on pressing ahead to set up a bank that might not have any money. We need an urgent response from the UK Government, or we are in danger of creating a white elephant.

The money is fungible. It is up to the cabinet secretary to decide how to use the increased funding that is coming from the UK Government.

Jackie Baillie

That explains why I am concerned about the continuing uncertainty. We did not hear anything to reassure us.

Let me finish on a note of consensus. I am grateful for the cabinet secretary’s approach to working with the committee on the bill. He has been prepared to compromise and challenge thinking on what can be enshrined in legislation—everything from equality strategies and equal pay audits to the ability to invest in co-operatives and social enterprises. All of that is positive, but, as we have heard, the bank is in danger of not having the money that it requires. However, if it does get off the ground, it will be in better shape to guide investment decisions than when the bill was first introduced, and for that reason I commend the bill to the chamber.

17:14

Colin Beattie (Midlothian North and Musselburgh) (SNP)

Jackie Baillie was actually making a good case for independence with her arguments about funding.

I welcome the establishment of the Scottish national investment bank, which has the capacity to transform Scotland’s economy and to provide us with a more sustainable and green future. I followed the progress of the bill through my membership of the Economy, Energy and Fair Work Committee, and I think that the committee did some positive work on shaping parts of the proposals.

I have spent 23 years overseas, working as an international banker, and 11 years working for an investment bank in the City of London, and I have seen the benefits that other countries gain from institutions such as the Scottish national investment bank. I see huge merit in the proposal, if it is implemented correctly. It is about time that we revolutionised our economy to support our evolving society, and we should invest in creating a bank that will impact on societal and environmental change. The bank should be a smart development that will be commercially minded and publicly accountable. It will give us slightly better control over our economy, allowing us to create and shape our markets and define how our economy develops, as well as what we prioritise for public investments.

A main concern of the debate, which we should all be able to agree on, is the need to prioritise tackling the climate emergency. Global warming requires urgent and innovative answers, and we need to start factoring in new and creative strategies that tackle climate change in all areas of policy. The Scottish national investment bank could play a key role in addressing that task by supporting industries that are working towards achieving net zero carbon emissions. If we focus on creating a bank that prioritises ethical investments and creates robust structures that encourage greener policies to facilitate a transition to a net zero emissions economy, we could create an economy that will lead the way, globally, in ethical banking investment.

That would, of course, require the bank to be well regulated and subject to rigorous ethical standards. It is a measured and sensible approach to have the bank’s board as a responsible body for implementing minimum ethical standards in relation to its investment decisions and for ensuring that those standards are adhered to. I welcome amendment 5, which accounts for that and allows the necessary flexibility. The primary mission of the bank should be clearly connected to making investments that are ethical.

An element of the bill that I think is particularly important is that the bank should address the current lack of providers of strategic patient capital. That will support companies with ambition and will provide the opportunity to advance smart investments in smaller companies with potential by giving them a smoother start in their development. We can invest in Scottish companies that provide local knowledge and that understand the unique economic strengths and challenges in Scotland. That not only will support our economy now but will set us up for a much more secure future, as we will be able to choose to support those who prioritise achieving net zero emissions.

It is time for an economy that can be shaped to reflect major societal changes. Having a bank that is flexible to the needs of our population is a sensible, logical approach for our economy. Of course, the bank will also have to make a profit or, at least, break even, so normal commercial structures will, of necessity, have to be in place to avoid unsustainable losses. Prudence and innovation can go hand in hand.

We have the chance today to pass a bill that is visionary and that will place Scotland as a country that is committed to transitioning to net zero while simultaneously growing a sustainable economy that improves the lives of our citizens. The Scottish national investment bank has the potential to advance our economy as well as to help us to achieve a fair and inclusive Scotland. That will help us to bring about the transformational change that is essential to sustaining and developing Scotland’s position as a vibrant economy that is prepared for the future. We can support our population now and better prepare for the generations to come through these proposals. Scotland can continue to be a global leader in the transition to a low-carbon economy while promoting growth that is inclusive, smart and sustainable.

I commend the bill.

The Deputy Presiding Officer

We move to the closing speeches.

17:19

Rhoda Grant (Highlands and Islands) (Lab)

I thank the clerks and those who gave evidence and worked on the bill. They are often forgotten at this stage in the process, when we see the bill go through. However, the work that they do ensures that the bill is created properly.

We support the bill and the creation of the Scottish national investment bank. We want the bank to be properly financed so that it can help to grow the Scottish economy and tackle, fairly and ethically, the grand challenges that we face, such as climate change and various issues in the Scottish economy.

As Richard Leonard said, the bank must be bold and ambitious. It also needs to be adequately funded. Jackie Baillie talked about financial transactions not being guaranteed past 2021. What then for the bank? Alex Neil talked about the increased investment that may be required to meet demand, if the bank is a success. Willie Rennie spoke about other great hopes that have not delivered, and the lessons that we must learn from them for the bank.

We need a bank that is properly capitalised to deliver on the ambitions that we have for it. We understand that there has been a transfer of Scottish Enterprise funds, but we do not know which funds, or how much capital is involved in that transfer. We need clarity and reassurance about how the bank will be funded, because funding will be crucial to its success.

Many speakers talked about the cluttered landscape in relation to vital and much-needed support for Scottish business. Labour members have long called for an industrial strategy to co-ordinate the various aspects of support and strategy in the Scottish economy. Government cannot work in silos; it needs to be more joined up. We again call for an industrial strategy that does that.

Gordon Lindhurst talked about competition with the private sector and the need for the bank to do something different. A number of speakers referred to the need for patient capital and the ability to take risks in the public interest. Our research and development in Scotland is innovative, but when it comes to taking it to market, we fail. The bank needs to be at the forefront of addressing that. It also needs to be at the forefront of investing in non-traditional businesses, such as co-ops and social enterprises, which often have difficulty in getting investment from other sources. The bank needs to look at growing those businesses, because they are able to grow local economies.

The bank also needs to look at supporting indigenous businesses. We often see a rush to encourage businesses to relocate to Scotland from overseas, but we need to make sure that we are growing and financing our own businesses, because they are much more likely to stay with us.

Amendments were supported today that will improve the bill, particularly Jackie Baillie’s amendments on gender equality. It is disappointing that in 2020 we are still fighting for gender equality and that we have a gender pay gap of more than 5 per cent; indeed, the pay gap is much higher in banking. The bank must lead by example, embedding the ethos of equality not only in its own business, but in the companies and organisations that it seeks to support. We are disappointed that the amendments that we lodged around workers’ rights were not agreed to, because we believe that they would have improved the bill. We still have concerns about pension and pay disparity in the bank, and we hope that those will be dealt with. We do not want the bank going down the road that banks have gone down in the past, especially in relation to pay and bankers’ bonuses.

We support the establishment of the Scottish national investment bank. We desperately need it to succeed. We want it to be bold and ambitious. The Scottish economy needs to grow, and we need an industrial strategy that will underpin that.

17:23

Jamie Halcro Johnston (Highlands and Islands) (Con)

After more than a decade of the Scottish Government’s promoting an investment bank project, we finally reach this milestone. As my colleague Dean Lockhart suggested, Conservative members have approached the SNIB with positivity. However, we have also had concerns about its future direction. A number of those concerns have been raised as the bill has progressed and the promised achievements of the bank have been set out by ministers. Many of those issues are not to do with the legislation; they will be resolved by building a bank with a positive institutional culture that will meaningfully contribute to Scotland’s life and economy.

At stage 1, Conservative members gave the principles of the bill our support, and we will support the bill again today. However, that support is balanced with a strong feeling that this could have been done better, that greater clarity over the Scottish Government’s approach could have been provided, and that a more coherent approach could have been found to the overall question of business support. We look, for example, to the problems that have been faced in the context of the Scottish growth scheme. We need a bank that will hit the ground running and that will not be artificially restrained in its activities.

A concern of mine has been how the bank will deliver for my constituents and businesses in the Highlands and Islands. As I said during stage 1, the economic landscape of the Highlands and Islands is quite different from that of other parts of Scotland. That is recognised by long-established bodies that operate in the region—chief among them, Highlands and Islands Enterprise, which can trace its origins back through the decades to the old Highlands and Islands Development Board.

I noted the geographical coverage of the Welsh Development Agency, which had a number of offices, spread across Wales. However, I appreciate that the presence of an office in Inverness or elsewhere would not automatically solve potential problems with centralisation; the approach would have to be wedded to robust operational independence.

Just as important in regions such as mine, a balance must be found between rural development and simply concentrating on the main population areas. Directing development in one or two towns will not make a real difference to the Highlands and Islands. Development and the promotion of economic convergence will require a genuine focus on the remote and rural areas that suffer from underdevelopment and lack of amenity.

There must also be sensitive consideration of the needs of the wider community. The width of the old development board’s social remit was unprecedented. That was not a restraint; it was the basis of a vision that was decentralised and in many ways effective.

Similarly, the national investment bank must avoid the clarion calls to broaden its remit too far. A central focus on economic growth and employment will be key to the success of the bank’s missions.

We have spoken of our concerns about the Scottish Government’s forecasts on returns and the tension that is created in relation to the provision of patient capital. There will always be an inclination to see short-term returns, but such an approach does not require a publicly owned investment bank.

Conversely, we must have a metric of success. The bank should, in time, prove itself to be objectively valuable. It must not be a black hole for public money. It cannot become a mechanism whereby millions of pounds of public money are lost in unsustainable investments and failing enterprises. Above all, the bank must have the operational independence to work effectively, exercising proper stewardship of investments without regular meddling by politicians.

As we look towards the Scottish national investment bank building and growing, we must have a clear picture of where it will sit alongside commercial investment and other public sector support schemes. As my colleague Dean Lockhart has said since the bill’s inception, there is a significant question about the already cluttered landscape for business support and economic development.

To take the Highlands and Islands perspective, effective economic development will require co-operation from across Government, and a range of public bodies will have to work together. As we know, that is not always as easy as it sounds. In a co-ordinated approach to economic development, it will be important that the SNIB is more than just another public body in the room. Gordon Lindhurst highlighted the success of the Finnish model and called for more clarity on how the bank will operate in the current landscape.

Dean Lockhart highlighted the operating costs of £20 million per year and mentioned the £120 million operating costs of all the existing enterprise agencies. The bank will need to demonstrate its transformational impact. He also, rightly, talked about demand, which is a problem that has impacted on the success of the Scottish growth scheme.

I agree with Dean Lockhart that passing the bill is the easy part—Richard Leonard rather suggested that, too, when he talked about the need for “not world-beating legislation but world-beating action”. The cabinet secretary talked about his ambition for the bank and its potential. The bank will need to deliver in that regard.

As an aside, let me say that it was good to hear Alex Neil reassure us that he intends to be around for at least the next 50 years. I am not sure how well that will go down on his party’s front bench.

The Scottish national investment bank will be measured on its outcomes and not on its intentions. As the Economy, Energy and Fair Work Committee has explored, there are significant shortcomings in business support in Scotland. Whether the bank is the answer to those problems remains to be seen. It has the potential to do a significant amount of good, but it must have an ambitious and positive vision for all Scotland.

17:29

Derek Mackay

The debate has been constructive and consensual, which I think reflects the widespread support for the bank. I think that the bill process has helped to strengthen the bank and give it a stronger footing, and to capture the aspirations of others.

Before I pick up on a few of members’ comments, I issue a plea to members to avoid abbreviating the Scottish national investment bank to “SNIB”, as that means something different to some people, particularly in the west of Scotland. I ask that we call it by its full name or abbreviate it to “the bank”, and do not call it “SNIB”, as Dean Lockhart did—not that I am naming any individual members.

On a serious note, Willie Rennie raised the important point that the bank must not invest in what might be perceived as failing businesses. I will not get into definitions, but the bank must be about investing for now and the future, and it must not be seen as responding to pressure from parliamentarians. The bank will have operational independence.

The bank will also be ambitious. I confirm to Jackie Baillie that I have reached out to the Treasury for further reassurance around financial transactions and borrowing limits, and I will share the response with Parliament once I have it. However, we can still be ambitious about what we want to do—I have set out the scale of our ambition.

Richard Leonard spoke about patience—patient finance and his own patience in waiting on the Scottish national investment bank. However, I point out gently that the Labour Party was in power in Westminster for 13 of those years and in power in this Parliament, after devolution, for eight of them. There is now consensus on what we need to do, and we will get on with the job.

We have a very active industrial policy, which leads to actions that support the economy and address industrial challenges when they arise. A number of members have made points about the landscape and which agency does what. We will return to that matter, but I will say that we do not want duplication. We want efficiency and the maximum amount of support to go to businesses and enterprises directly, including those in the third sector, as has been said throughout the bill process. Alex Neil was right to speak about investing in future industries, sectors and enterprises that will be successful.

A number of members referred to the compromises that we have made during the bill’s consideration and to who saw the light first with regard to which amendments were the right ones. I think that the bill is now shipshape enough to allow us to get on with building the bank, and I hope that there will be agreement to the bill at decision time.

The expertise and experience of the British Business Bank and the Development Bank of Wales have guided the creation of our own bank. There will be the appropriate allocation of resources, which will include calibrating what the enterprise family will do.

I believe that the bank will be transformative. I believe that the missions are guided by the grand challenges that we face as a country. I believe that it will support small and medium-sized enterprises. I believe that, through the design of the bank’s financial products, we will be crowding in investment, rather than crowding it out. We will deliver additionality and we will ensure that sustainable economic growth happens that otherwise would not happen. We will do that sustainably and ethically. Patient finance will be transformational in comparison with what we have done before.

I thank all those who have worked on the bill, including the visionaries who called for it, those who helped to shape it, the clerks, all the various teams that have worked on it and our advisers. The bill has led to a strong vision of which we can all be proud.

The next step is parliamentary input on establishment of the bank. The Government will publish the draft missions for consultation, and that work will be taken forward, as I have described, with clarity, support and consensus around those missions.

As all members have reflected, we will also build demand for the bank, so that there is a queue—a pipeline—of investments that we can make. All the necessary recruitment and organisation building are going on now. While we build excitement about the bank, we must also ensure that it can deliver a very active economic policy that will support the vision that we have set out.

I believe that we are right to be ambitious for the bank and about the scale of our ambition for the bank. I believe that, given our determination and the impetus that there has been so far, it will absolutely be a success.

I will reflect further on the comments that members have made. I appreciate the joint working that has taken place to get us to this position. I trust that members are confident that we have a very strong legislative foundation on which to take the bank forward and make that positive difference that all members wish to see.

I ask all members to vote in favour of the Scottish National Investment Bank Bill at decision time.

The Presiding Officer

That concludes the stage 3 debate on the Scottish National Investment Bank Bill.

If no member objects, I am minded to accept a motion without notice to bring forward decision time to now. I invite Maurice Golden, on behalf of the Parliamentary Bureau, to move such a motion.

Motion moved,

That, under Rule 11.2.4, Decision Time be brought forward to 5.34 pm.—[Maurice Golden]

Motion agreed to.

21 January 2020

Final vote on the Bill

After the final discussion of the Bill, MSPs vote on whether they think it should become law.

Final vote transcript

The Presiding Officer (Ken Macintosh)

There is only one question to be put as a result of today’s business.

The question is, that motion S5M-20514, in the name of Derek Mackay, on the Scottish National Investment Bank Bill at stage 3, be agreed to. As this is a final vote on a bill at stage 3, we will move straight to a division. Members should cast their votes now.

For

Adam, George (Paisley) (SNP)
Adamson, Clare (Motherwell and Wishaw) (SNP)
Allan, Alasdair (Na h-Eileanan an Iar) (SNP)
Arthur, Tom (Renfrewshire South) (SNP)
Baillie, Jackie (Dumbarton) (Lab)
Baker, Claire (Mid Scotland and Fife) (Lab)
Ballantyne, Michelle (South Scotland) (Con)
Beamish, Claudia (South Scotland) (Lab)
Beattie, Colin (Midlothian North and Musselburgh) (SNP)
Bibby, Neil (West Scotland) (Lab)
Bowman, Bill (North East Scotland) (Con)
Briggs, Miles (Lothian) (Con)
Brown, Keith (Clackmannanshire and Dunblane) (SNP)
Burnett, Alexander (Aberdeenshire West) (Con)
Campbell, Aileen (Clydesdale) (SNP)
Carlaw, Jackson (Eastwood) (Con)
Carson, Finlay (Galloway and West Dumfries) (Con)
Chapman, Peter (North East Scotland) (Con)
Coffey, Willie (Kilmarnock and Irvine Valley) (SNP)
Cole-Hamilton, Alex (Edinburgh Western) (LD)
Corry, Maurice (West Scotland) (Con)
Crawford, Bruce (Stirling) (SNP)
Cunningham, Roseanna (Perthshire South and Kinross-shire) (SNP)
Denham, Ash (Edinburgh Eastern) (SNP)
Doris, Bob (Glasgow Maryhill and Springburn) (SNP)
Dornan, James (Glasgow Cathcart) (SNP)
Ewing, Annabelle (Cowdenbeath) (SNP)
Ewing, Fergus (Inverness and Nairn) (SNP)
Fabiani, Linda (East Kilbride) (SNP)
Fee, Mary (West Scotland) (Lab)
Findlay, Neil (Lothian) (Lab)
Finnie, John (Highlands and Islands) (Green)
FitzPatrick, Joe (Dundee City West) (SNP)
Forbes, Kate (Skye, Lochaber and Badenoch) (SNP)
Fraser, Murdo (Mid Scotland and Fife) (Con)
Freeman, Jeane (Carrick, Cumnock and Doon Valley) (SNP)
Gibson, Kenneth (Cunninghame North) (SNP)
Gilruth, Jenny (Mid Fife and Glenrothes) (SNP)
Golden, Maurice (West Scotland) (Con)
Gougeon, Mairi (Angus North and Mearns) (SNP)
Grahame, Christine (Midlothian South, Tweeddale and Lauderdale) (SNP)
Grant, Rhoda (Highlands and Islands) (Lab)
Gray, Iain (East Lothian) (Lab)
Greene, Jamie (West Scotland) (Con)
Greer, Ross (West Scotland) (Green)
Halcro Johnston, Jamie (Highlands and Islands) (Con)
Hamilton, Rachael (Ettrick, Roxburgh and Berwickshire) (Con)
Harper, Emma (South Scotland) (SNP)
Harris, Alison (Central Scotland) (Con)
Harvie, Patrick (Glasgow) (Green)
Haughey, Clare (Rutherglen) (SNP)
Hepburn, Jamie (Cumbernauld and Kilsyth) (SNP)
Hyslop, Fiona (Linlithgow) (SNP)
Johnson, Daniel (Edinburgh Southern) (Lab)
Johnstone, Alison (Lothian) (Green)
Kelly, James (Glasgow) (Lab)
Kerr, Liam (North East Scotland) (Con)
Kidd, Bill (Glasgow Anniesland) (SNP)
Lennon, Monica (Central Scotland) (Lab)
Leonard, Richard (Central Scotland) (Lab)
Lindhurst, Gordon (Lothian) (Con)
Lochhead, Richard (Moray) (SNP)
Lockhart, Dean (Mid Scotland and Fife) (Con)
Lyle, Richard (Uddingston and Bellshill) (SNP)
MacDonald, Angus (Falkirk East) (SNP)
MacDonald, Gordon (Edinburgh Pentlands) (SNP)
Macdonald, Lewis (North East Scotland) (Lab)
MacGregor, Fulton (Coatbridge and Chryston) (SNP)
Mackay, Derek (Renfrewshire North and West) (SNP)
Mackay, Rona (Strathkelvin and Bearsden) (SNP)
Macpherson, Ben (Edinburgh Northern and Leith) (SNP)
Maguire, Ruth (Cunninghame South) (SNP)
Martin, Gillian (Aberdeenshire East) (SNP)
Mason, John (Glasgow Shettleston) (SNP)
Mason, Tom (North East Scotland) (Con)
Matheson, Michael (Falkirk West) (SNP)
McAlpine, Joan (South Scotland) (SNP)
McArthur, Liam (Orkney Islands) (LD)
McKee, Ivan (Glasgow Provan) (SNP)
McKelvie, Christina (Hamilton, Larkhall and Stonehouse) (SNP)
McMillan, Stuart (Greenock and Inverclyde) (SNP)
McNeill, Pauline (Glasgow) (Lab)
Mitchell, Margaret (Central Scotland) (Con)
Mundell, Oliver (Dumfriesshire) (Con)
Neil, Alex (Airdrie and Shotts) (SNP)
Paterson, Gil (Clydebank and Milngavie) (SNP)
Rennie, Willie (North East Fife) (LD)
Robison, Shona (Dundee City East) (SNP)
Ross, Gail (Caithness, Sutherland and Ross) (SNP)
Rumbles, Mike (North East Scotland) (LD)
Ruskell, Mark (Mid Scotland and Fife) (Green)
Russell, Michael (Argyll and Bute) (SNP)
Sarwar, Anas (Glasgow) (Lab)
Simpson, Graham (Central Scotland) (Con)
Smith, Liz (Mid Scotland and Fife) (Con)
Smyth, Colin (South Scotland) (Lab)
Somerville, Shirley-Anne (Dunfermline) (SNP)
Stevenson, Stewart (Banffshire and Buchan Coast) (SNP)
Stewart, Alexander (Mid Scotland and Fife) (Con)
Stewart, David (Highlands and Islands) (Lab)
Stewart, Kevin (Aberdeen Central) (SNP)
Sturgeon, Nicola (Glasgow Southside) (SNP)
Swinney, John (Perthshire North) (SNP)
Todd, Maree (Highlands and Islands) (SNP)
Torrance, David (Kirkcaldy) (SNP)
Watt, Maureen (Aberdeen South and North Kincardine) (SNP)
Wells, Annie (Glasgow) (Con)
Wheelhouse, Paul (South Scotland) (SNP)
White, Sandra (Glasgow Kelvin) (SNP)
Whittle, Brian (South Scotland) (Con)
Wightman, Andy (Lothian) (Green)
Wishart, Beatrice (Shetland Islands) (LD)
Yousaf, Humza (Glasgow Pollok) (SNP)

The Presiding Officer

The result of the division is: For 113, Against 0, Abstentions 0.

Motion agreed to,

That the Parliament agrees that the Scottish National Investment Bank Bill be passed.

The Presiding Officer

The motion has been agreed to and therefore the Scottish National Investment Bank Bill is passed. [Applause.]

21 January 2020

Scottish National Investment Bank Bill as passed

Scottish National Investment Bank Bill printing changes after the Bill as passed.

Printing changes are changes to the text of a Bill. It will not change the legal effect of the Bill.

This Bill was passed on 21 January 2020 and became an Act on 25 February 2020.
Find the Scottish National Investment Bank Act 2020 on legislation.gov.uk

Scottish National Investment Bank Bill

Overview

Why the Bill was created

Becomes an Act

Introduced

Scottish National Investment Bank Bill as introduced

Related information from the Scottish Government on the Bill

Scottish Parliament research on the Bill

Stage 1 - General principles

Have your say

Committees involved in this Bill

Who examined the Bill

Who spoke to the lead committee about the Bill

First meeting transcript

The Convener

Benny Higgins (Advisory Group on the Implementation Plan for a Scottish National Investment Bank)

The Convener

Paul Brewer (Advisory Group on the Implementation Plan for a Scottish National Investment Bank)

Alan McFarlane (Advisory Group on the Implementation Plan for a Scottish National Investment Bank)

The Convener

Dean Lockhart (Mid Scotland and Fife) (Con)

Paul Brewer

Alan McFarlane

Benny Higgins

Dean Lockhart

Benny Higgins

Alan McFarlane

Dean Lockhart

The Convener

Paul Brewer

Gordon MacDonald (Edinburgh Pentlands) (SNP)

Benny Higgins

Gordon MacDonald

Benny Higgins

Alan McFarlane

Gordon MacDonald

Benny Higgins

Gordon MacDonald

Benny Higgins

Gordon MacDonald

Benny Higgins

Angela Constance (Almond Valley) (SNP)

Benny Higgins

Angela Constance

Benny Higgins

Paul Brewer

Alan McFarlane

Angela Constance

Alan McFarlane

Angela Constance

Alan McFarlane

Angela Constance

Alan McFarlane

Benny Higgins

Andy Wightman (Lothian) (Green)

Alan McFarlane

Andy Wightman

Benny Higgins

Andy Wightman

Benny Higgins

Andy Wightman

Benny Higgins

Andy Wightman

Benny Higgins

Andy Wightman

Benny Higgins

Andy Wightman

Benny Higgins

Andy Wightman

Alan McFarlane

Andy Wightman

Benny Higgins

Paul Brewer

Andy Wightman

Paul Brewer

Andy Wightman

Paul Brewer

Alan McFarlane

Andy Wightman

Benny Higgins