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
Becomes an Act
The Scottish National Investment Bank Bill passed by a vote of 113 for, 0 against and 0 abstentions. The Bill became an Act on 25 February 2020.
Introduced
The Scottish Government sends the Bill and related documents to the Parliament.
Related information from the Scottish Government on the Bill
Why the Bill is being proposed (Policy Memorandum)
Explanation of the Bill (Explanatory Notes)
How much the Bill is likely to cost (Financial Memorandum)
Opinions on whether the Parliament has the power to make the law (Statements on Legislative Competence)
Information on the powers the Bill gives the Scottish Government and others (Delegated Powers Memorandum)
Stage 1 - General principles
Committees examine the Bill. Then MSPs vote on whether it should continue to Stage 2.
Committees involved in this Bill
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?
10:15Benny 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.
I add that it is very clear from the bill that the money is committed up to 2021. Bearing in mind that things change in politics, the more of a cross-party parliamentary commitment there is to the £2 billion the better. The commitment is £320 million, plus the £300 million that is coming from the Scottish Investment Bank’s existing portfolio. If we run all of those numbers together, it is a stretch in parts, but they are not damning. There is a real basis for incremental improvement in the middle. Those are the kinds of numbers that I would be delighted for you to take away with you.
Gordon MacDonald
I am sure that some of my colleagues will talk about the mission statement and the focus of the bank. I have a couple of remaining questions. The financial memorandum highlights that in year 1 the operating costs will be £15.6 million, which rises to just over £25 million by 2025-26. Are the proposed levels of operating costs in the bank’s first few years realistic?
Benny Higgins
Yes. We have modelled that on the basis of the nature of the activity and the number of people involved. It is our best guess. We have taken as many readings against similar organisations as we can, so we think that it is realistic.
Gordon MacDonald
Why does the Royal Society of Edinburgh say in its evidence that there could be problems with that level of operating cost?
Benny Higgins
You should ask it.
Gordon MacDonald
I intend to.
Benny Higgins
That is fine. All that I can say is that we have sought to be as realistic as possible about the cost structure. We think that, once established, the bank would have between 85 and a bit more than 100 people in its business and institution. The cost structure has been test driven by various people to ensure that we are in the right ball park. There is a related issue around pay, which we have talked about and which will have to be dealt with before we are done.
Angela Constance (Almond Valley) (SNP)
Good morning, panel. Like my colleague Mr MacDonald, I always like to cut to the chase. I wondered if any projections or modelling had been done on what the Government can expect for £2 billion of investment. Have there been any projections on the number of jobs created or supported, the number of businesses started or supported to grow, or the ratio of capital that can be leveraged?
Benny Higgins
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?
10:30Alan 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.”
However, there is nothing in the bill to stop the bank doing that, and there are no rules on financial transactions beyond 2021. After that point, resources will be voted on by Parliament. I am just wondering where the statement that banks should lend only to the private sector comes from and whether you agree with it.
Alan McFarlane
To be honest, when we were asking ourselves what the bank should do, we decided that it was to make sure that the bank makes a difference. Therefore, we are trying to address the issues that do not get tackled either well enough or at all at the moment. There are two specific areas in that regard. One is ensuring that, where we can stimulate ambition, businesses can grow from being small and move to a path in which they can become much bigger companies. The other relates to what the bank’s mission should be. We have an opportunity to invest in areas so that we have the hallmarks of an economy that can succeed in the 21st century. That is what we discovered during our implementation plan phase, and the bank’s focus will be to invest in private companies that will participate in those ways.
Andy Wightman
I understand that that will be the bank’s focus. There is nothing in the legislation to prevent it from making such investments. Is it correct to say that nothing on that point is proposed in the draft memorandum and articles either?
Benny Higgins
Yes.
Andy Wightman
For example, if, in two or three years’ time, ministers were to set a mission on infrastructure and housing, it is self-evident that the public sector, co-operatives and mutuals would be well placed to deliver that. If it chose to do so, would the bank be in a position to lend for that purpose?
Benny Higgins
Yes, absolutely.
Andy Wightman
Are we clear on that?
Benny Higgins
Yes.
Andy Wightman
So there is no strict legislative prohibition, and such lending would not be ruled out.
Benny Higgins
Absolutely not.
Andy Wightman
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.
However, we have to be very clear about this: if we want the institution to be a bank, we need bankers to run it—there is no alternative to that—and we have to make sure that they can operate independently within the envelope. An advisory board will have a voice to inform ministers, as the owners of the bank, but it will not inhibit the bank’s day-to-day operation.
Paul Brewer
There are advisory boards that have been given quite significant power and say in organisations that have a public sector mission—for example, Network Rail and Welsh Water. However, when very diverse voices contribute to a body that has to make decisions, it can be difficult for the body to be an effective decision maker. Bodies sometimes find themselves being led by a chairman’s view because they cannot get everyone else to agree.
Benny Higgins emphasised the importance of ministers hearing a diverse group of voices advising them on the bank, but if we wire that directly into decision making, or into supervision of decisions, it will be difficult to make things work at the practical level.
I will briefly come back to Mr Wightman’s point about investment in public bodies. Wiser minds than mine on public sector finance will have to verify this, but I suspect that if the bank started investing directly in public sector bodies, that part of the budget would be scored in a different way and would, potentially, come out of capital resources and deplete the finance that would be available for other uses of those resources. The financial transactions budget, however, is clearly delineated for the private sector and is additional to the Government’s other resources. It would therefore be possible that a body could end up in the same place as it would have been if the money had been put in directly by Government, rather than by the bank.
Andy Wightman
I will follow that up later. I am not sure whether the Scottish ministers have the power to provide financial transactions that are not backed by the Treasury.
Paul Brewer
No—
Andy Wightman
So, the money would be resource.
Paul Brewer
Yes—it would be resource money if it were put in directly.
Alan McFarlane
Benny Higgins has continued to be involved in the year since the implementation plan was published. I have not; I have had to go back and refresh everything.
There is clearly a role for an advisory board, but I argue that it should come much later and that it need not be there right up front. The Scottish national investment bank will use the same model as the Development Bank of Wales and the British Business Bank. Its board of directors will have all the responsibilities under the Companies Act 2006 that directors of any company would have. The annual audit will have to address solvency, whether it is a going concern and so on.
The bank will make losses for the first three or four years, so it will be imperative that there is an extremely close and confident relationship between the board of directors and the shareholders, who will be the Scottish ministers. To have an audience of fans baying for the manager to be sacked three games in would be the worst possible outcome.
It seems to me that the time to have an advisory board is once the bank is up and running, has established itself and has answered the very big questions that Benny Higgins addressed about some of the mission-led work. Despite having been involved in the plan, I would want to put in an advisory board further down the track, rather than at the start.
Let me underline this: the responsibilities of directors might have been abrogated in far too many British—nay, Scottish—companies in recent years, but they are serious and onerous obligations. Vesting the bank in the proposed structure brings many things, one of which is infinitely greater clarity about investment making and performance.
I will disagree slightly with the chairman again. I get the point about bankers, but the SNIB will not be a bank in the sense of being a body that borrows money. I argue that we need people with an investment focus—although people might say, “He would say that, given his background”. A combination of credit evaluation for loans and investment capability is exactly what Scottish Development Finance Ltd had under the Scottish Development Agency, so the approach builds on past experience. That structure, with the obligations under the Companies Act 2006, provides powerful bulwarks to the Scottish Government in making investments; it is a different governance regime from that which currently exists through Scottish Enterprise and the SIB.
10:45Andy Wightman
Finally, can Mr Higgins clarify that the proposed advisory group will advise ministers but not the bank?
Benny Higgins
The group will have a voice. I think that we have to be very careful about the word “advisory”.
Andy Wightman
Okay. We will set aside “advisory” and accept that the group will have a voice. However, is it the case that it will advise ministers, and not the bank?
Benny Higgins
The group will not advise the bank. That is the way I see it.
Andy Wightman
Right—
Benny Higgins
Can I just say something else? The strength and effectiveness of the institution will inevitably depend on the quality of the people who we get to be the chair, to be on the board and—especially—to take the senior executive positions. If we create an environment in which another board is meddling in decision making or strategic development, we will not get the right kind of people.
Andy Wightman
No one is suggesting that.
Benny Higgins
I know—I am just making that point. I accept Alan McFarlane’s point that the advisory group might not need to be there on day 1, but there is a need to respond to the desire of a broad church of people who would like to have a voice that ministers hear as they go through the strategic cycle. I also agree with Alan McFarlane that although this is not about traditional banking, we need people with investment and banking experience: we need to get the very best people who are committed to making a success of the SNIB.
The Convener
I do not want to spend a lot of time on this, but Alan McFarlane made a point about directors’ duties and so forth. I am not entirely persuaded by that argument. Is it possible for you to provide something in writing following the meeting to give us an idea of how you envisage all that working, in relation to the bank?
Alan McFarlane
If you do not mind, convener, I will not do that. I will just direct you to the Companies Act 2006 page, which is on the United Kingdom Government’s website, in respect of the duties of directors.
The Convener
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.
The Convener
All right. We will move on from that.
Jamie Halcro Johnston (Highlands and Islands) (Con)
Is the panel confident or satisfied that the Scottish Government’s consultation on the investment bank included enough businesses of all sizes, and enough communities, individuals, trade unions and so on, in development of the bill? Have the key concerns that came up during that consultation been addressed?
Benny Higgins
The consultation was open—it was open to anybody to contribute. We had a very large number of contributions from a wide range of respondents. I am certainly satisfied that anyone who wanted to put forward an opinion or view, or to raise a concern, had the opportunity to do so. As I said, we have also been speaking informally to as many people as possible. I am delighted that there is very broad support for the bank across the political spectrum and the Scottish economy’s ecosystem.
Some issues were raised. There were questions about whether the bank will be big enough, and how we will operate pay policy—whether it will be within public sector pay policy, and how many people will be within that policy and how many will not be. It was asked whether there would be an ethical code and what the approach to missions would be. People wanted to know how many missions there would be and how we would develop more. Those are all legitimate questions that were asked within almost universally strong support for the bank.
Jamie Halcro Johnston
How have those areas of concern been addressed in the development process?
Benny Higgins
We continue to work on each of them, as we speak. An ethical code will be put together and we have started conversations on creating a pay policy.
We have already covered the question of scale. If more money was available to invest in the economy, it would be possible to go further, but I think that £2 billion strikes a decent balance between aspiration and impact. We are working our way through all the issues.
Jamie Halcro Johnston
Colleagues will follow up on ethical investment later on, so I will move on to another area. It was mentioned earlier that there had been engagement with HIE. How has the regional aspect been incorporated into the consultation and development process? Some regions of Scotland might feel that there is a focus on the central belt. Has that been taken into account? How can we ensure that the bank does not focus on the more traditional areas of investment and that Scotland’s regions are included, too?
Benny Higgins
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.
11:00Alan 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
Let me continue with the theme of ambition. In my head, that is certainly about how the Government ensures that what happens is legitimate and delivers societal value, which is one of the objectives.
I have always believed that assessing social costs and benefits is very much at the heart of economic appraisal. If we consider how that appraisal is currently done for a particular project, for example, we would assess net present value against Her Majesty’s Treasury’s green book. What approach will you take to assessing societal value?
Benny Higgins
We are still to agree precisely how we do that. We recognise that it is an important part of what the bank is being created to achieve. It is work in progress.
Jackie Baillie
But that is key to realising whether this additionality works for the economy of Scotland.
Benny Higgins
It is essential, yes.
Jackie Baillie
But you have not yet done anything with it.
Benny Higgins
We have the national performance framework, which is a very important starting point. We have to address how we measure the bank’s progress against that national performance framework.
Jackie Baillie
Has the green book approach featured in any of the discussions or debate?
Benny Higgins
It has been part of the conversation. However, the national performance framework is the output that we are trying to achieve. We have a national performance framework for a reason. I say very apolitically that I think that it is very progressive.
Jackie Baillie
We also have the green book for a very good reason, which has been there for while and has been updated.
Benny Higgins
It is not being ignored.
Jackie Baillie
You say that it is not being ignored—I would appreciate evidence as to how it is being considered. I do not know whether Alan McFarlane or Paul Brewer has anything to add.
Alan McFarlane
I have nothing to add. Benny Higgins has been carrying the ball. However, I can say that the topic came up in relation to wider impact and wider discussion. Forgive me, but I would put the question back to you: are you content with the SIB’s current reporting? Would you like more?
Jackie Baillie
Indeed.
Alan McFarlane
If that is the baseline, start with what you have and make it better.
Jackie Baillie
We have—
The Deputy Convener
A couple of people want to come in with supplementary questions. Do you want to continue?
Jackie Baillie
No, it is fine. I will let people come in with supplementary questions.
The Deputy Convener
I will let you come back in if we have time.
Andy Wightman
As we are scrutinising the bill, I am curious about how section 2 specifies that the bank’s objects are set out in legislation and shall be subject to resolution of Parliament, meaning that Parliament has to sign off on the objects of the company. However, in section 11, there is no such role for Parliament to approve the strategic missions, which will simply be laid before Parliament.
Alan McFarlane
Do you mean in the bill itself?
Andy Wightman
Yes. Given the potential significance of the strategic missions, should ministers also have to seek a resolution of Parliament to approve those, or is there a good reason for not providing for that?
Benny Higgins
We have to be careful not to assume that the three of us who are sitting here—not even me, who has been the strategic adviser to the project—are experts on the positioning of the bill. Others are probably better qualified to talk about how the bill was put together precisely the way it was. However, it has been put together to ensure that it gives the opportunity for the smoothest and strongest governance and running of the bank. As Andy Wightman said, it would be up to ministers to choose the missions; that is the way the bill has been proposed.
Andy Wightman
Do you have a view on whether Parliament should approve those missions?
Benny Higgins
I agree with the bill as proposed. I think that we could overintellectualise it by having to go through a parliamentary process to address the missions. There are big obvious missions that we need to pursue in this country. Alan McFarlane rightly said that the expression may not be very well—or uniquely—defined. However, we know that we have to aim for carbon neutrality and respond to the other issues that we talked about earlier.
Andy Wightman
You say that we need to do that, but there are different views on what we need to do. A resolution of Parliament is not a complex parliamentary procedure; it is merely a resolution that is debated and voted on. It is not like the procedures today; it is not legislative.
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”
that we can agree exist, although I take the point that we may disagree about how to address them. The financial memorandum then states:
“It is envisioned that the Bank will respond to these missions through its Investment Strategy.”
That is my point about the friction. The wish is expressed, and the means are in part willed in the creation of the bank. The means must respond with what they can achieve.
Andy Wightman
No, my question—
The Deputy Convener
We have another supplementary. Is that a final point?
Andy Wightman
That is fine.
Dean Lockhart
I want to move from the macro to the micro, from the mission investments to investments in private sector business. Will investments in individual companies be purely merit based, or will the bank also have a regional allocation for investment to make sure that each region gets a roughly pro rata share?
Benny Higgins
At the moment, the assumption is that investments will be merit based, but we will have to make sure that we pay due attention to stimulating the right kind of demand across the country. There is no desire for the bank simply to serve the central belt, as was suggested earlier. It will be critical to monitor the levels of investment that are being made in the different regions in Scotland. At this juncture, we are not trying to force-feed certain regions. We are encouraging the right kind of demand and feeding that demand.
Dean Lockhart
Will a return on investment or a hurdle target be established early on to make sure that investments are creative?
Benny Higgins
Yes. For the avoidance of doubt, the bank is being set up to make a return on capital. We have not yet set out the precise numbers associated with that and we have to take into account also the comments made about societal benefit, but the intention is that the bank will make a return on capital. Some of the issues relating to long-term patient capital will be interesting—in some examples, there will not be an existing market with which to make comparisons on returns. Setting out precisely what the returns need to be is work in progress.
Alan McFarlane
The British Business Bank uses clear numbers for its expected returns, which are from the British Venture Capital Association. I want to underline that the bill makes it crystal clear that it is expected that the organisation will not be cash neutral in costs until 2023. There will be red ink spilled in its annual reports and accounts every year until 2023. That is why I said at the beginning that, if you want long-term patient capital, you have to have long-term patient investors.
Paul Brewer
I want to underline that point, which comes back to the gap that we talked about. A lot of venture capital and private equity investors have time horizons on their funds. They have investors standing behind them who want to see a return in five to seven years, sometimes to the point at which a fund has a hard-closed end date and has to realise its investments in that timescale. In the ROI that is set, it is very important that the national investment bank does not have those time pressures, because that would influence investment behaviour in ways that would work against the outcomes sought.
The Deputy Convener
I have a few questions, which will be the final ones. How distinct are the missions? Is it possible that they overlap with one another? The German investment bank has a couple of missions—climate change and the environment, and globalisation and technical progress. I see those as potentially overlapping quite a lot. Do you see the missions as distinct, so that this bit of money will go to this mission and that bit of money will go to that mission, or is it about looking at all the missions and seeing whether the investment fits a number of them?
Benny Higgins
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.
11:30Eilidh 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
I think that the criteria are still applicable, and I do not think that the position has eased any. I imagine that that will be one of the gaps that the national investment bank will try to fill.
I should emphasise that the SNIB will generally be an investment bank that will make equity investments. It might do some lending; Scottish Enterprise and the Scottish Investment Bank invest a small amount in lending rather than in equity investment or long-term patient capital. I imagine that the vast bulk of the money invested by the national investment bank will be equity and patient capital; it will not be lending in cases where the lender needs to get the money back, and sometimes quite quickly. It will be patient capital.
Robin McAlpine
It is in relation to exactly those kinds of gaps and barriers in parts of the lending or equity environment where there are problems. We have been working on this for five years now, and we are quite excited by and have quite a clear idea in our heads about the projects that might come forward. What I have found really encouraging is that we keep talking about projects that we did not think would come forward, and I expect to see quite an interesting and diverse range of projects and enterprises.
I think that some of the barriers can be addressed. I will give another example. We talked to a company that was looking to expand. It so happened that its bank had just pulled out of investments in retail properties—the bank had been burned on a couple of things and because it had been stung too much by overpriced commercial property investments, it made a blanket decision not to invest in such properties. The company was looking at a property and had a very strong business case, but the bank, which was a big bank, said that it was not investing in that category at the time, so the company could not get the lending.
What was the company to do? Would it close its account and go to another bank or would it just not bother with the property? There is a wide range of barriers to people coming forward. A lot of it is to do with confidence; other issues involve straightforward strategic decisions by commercial banks at any given moment. There is a range of reasons why there is potential that does not come forward and look for the investment that will help it to grow.
I still come across such examples. We keep coming up against people who say that they did not do something because of such issues. That surprises us, because we would have thought that they would have come forward to get lending. However, there are genuine barriers. I do not think that the committee will talk to a lot of medium-sized enterprises that say that everything about their equity and lending environment is exactly as they would like. The bank will be part of completing that jigsaw.
Gordon MacDonald
What impact do you hope the £2 billion investment over 10 years will have on the Scottish economy?
Robin McAlpine
We would like the investment to be substantially larger. One of the reasons why it is important that it is not just an SME lending bank is that SME lending is quite risky—SMEs across portfolios are quite risky. As far as I am concerned, we should first move as quickly as possible to ensure that the bank’s lending is not counted against Scotland’s public sector borrowing requirement, and we need Treasury dispensation for that. As soon as that happens, we can start to leverage additional capital—for example, from pension funds. I would like to see the bank aiming to have a loan or equity book that involves perhaps 70 per cent going to housing and public sector infrastructure, which are really safe, solid and profitable investments. That would mean that it can take much more of a chance with the 30 per cent that is SME lending.
Even if we get it right, £2 billion over 10 years is not transformative for an economy such as Scotland’s. It should be more than that, but you have to start somewhere. We have been working closely with the team that is developing the bank, and I think that they are right in saying that, as a nation, the first thing that we need to do is demonstrate that there is genuine demand. I hope that we can then go to the Treasury and ask for dispensation, which will enable the bank to capitalise more fully and effectively. We will be able to do that if we have evidence that there is demand and that Scotland has an economy that is capable of absorbing that kind of advanced investment.
Everything has to start somewhere and £2 billion is a good starting point, but we are much more ambitious for the bank’s future than that. We think that there is very large scope to bring in pension funds and a number of other investors, and once you do that you are looking at a scale of 10-plus times what the bank can lend. When we get there, Scotland will start to have a bank that is changing the economy fundamentally.
Eilidh Dickson
We have taken no position on whether the £2 billion is sufficient. More important for women and for gender equality more generally is how and where that £2 billion is utilised. In the past, the committee has recommended that spend on care and childcare should be designated as part of infrastructure spend. That would have a long-term enabling effect on women’s economic participation, as well as being of direct benefit, given their current high prevalence in those industries and their take-home pay. For us, it is not so much about how much investment is made as about where and how investment is made, taking the long-term, wide view on freeing up participation in other parts of the market that you are not necessarily looking at.
Ray Perman
The bank has the capacity to make a substantial difference to the Scottish economy, and not only in new company formation—we do pretty well in Scotland at starting new companies but, as our colleague Benny Higgins said earlier, we have done less well in growing companies to a reasonable size and, importantly, keeping ownership and decision making in Scotland. Part of the reason for that—but not the whole reason—is to do with access to finance. The Scottish national investment bank will most commonly invest alongside the private sector as a co-investor. It will catalyse a lot of private sector funds so that it can make an impact that will be much bigger than the amount of money that the Government puts into it.
11:45Gordon MacDonald
I raised the question of operating costs with the earlier panel. The RSE has raised a question over the £25 million, which is the mid-point. What are the RSE’s views on that and how does it justify its criticism?
Ray Perman
We came to that conclusion for a couple of reasons, one of which is purely arithmetic. The bank will have about 100 people and £25 million is £250,000 per person, which seems a very high figure to us. In comparison, the operating costs of the British Business Bank are about 50 per cent higher for a bank that is over twice the size of the proposed bank. The £25 million therefore seemed to be a very high expectation of costs for the proposed bank. In particular, what stood out is the sponsoring department; the implementation plan says that it will have 40 people from the civil service, not from within the bank, with a cost of £4 million a year. That seemed rather excessive for monitoring a bank that will have only 100 people.
Gordon MacDonald
What level of rate of return would the bank require in order to cover its costs?
Ray Perman
I have not done the arithmetic, but I think that the British Business Bank has a target rate of return for its cost of capital of 2.5 per cent or perhaps a bit less and has achieved just more than that. On the rate of return for the Scottish national investment bank, it would be a good discipline in the long term to at least cover its running costs and its cost of capital, but it should not look to earn a commercial rate of return.
Taking the British Business Bank as a model, it invests alongside the private sector at the same level of risk; that is, if an investment fails, both the private sector and the public sector take the same hit, and the public sector does not take more of a loss than the private sector. That lesson was learned from very early investments by the UK Government.
For successful investments, the British Business Bank would expect to earn a return that covers its costs and its cost of capital, but it allows the private sector to make an enhanced return. It therefore cedes part of its commercial return to the private sector as an inducement to bring more private sector funds into the total investment of the British Business Bank.
I imagine that the Scottish national investment bank would want to look at a similar framework, although it might not be exactly the same. However, in the long term—I think that Alan McFarlane said that the expectation was that it would be 2023 before the bank would break even—the bank should look to cover its costs and its cost of capital. Being a patient investor means not maximising the return from investments.
Gordon MacDonald
You said that the Scottish national investment bank should model itself largely on the British Business Bank. That bank has substantially increased its rate of return in recent years. Over the past four years, its rate of return has been an average 3 per cent, but in 2017-18 it was 4.7 per cent and in 2016-17 it was 4.1 per cent. Taking the average of 3 per cent, I calculate that by 2023 the Scottish national investment bank’s costs would be covered.
Ray Perman
I do not think that you can go on individual year figures, because there might have been—
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.
The big gap in public house building for rental is that we still have to subsidise every house, because nobody does mortgage-style lending for large public sector housing developments. If that is not a mission that Scotland should be cracking on with, I do not know what is. I genuinely do not know why anybody would be dogmatic about who the bank was lending to. If someone had a proposal to transform Scotland in the way that was wanted, why would the bank not lend to them?
Ray Perman
I have no problem with the Scottish national investment bank lending to public sector organisations if the proposition is good.
Andy Wightman
The RSE’s submission expresses concern about the proposed advisory group’s role, which I discussed with the previous panel. The RSE’s concern is that the group will interfere inappropriately with the bank’s workings, but it is expected to be an advisory panel for ministers. The policy memorandum makes it clear that the advisory group’s chair is intended to be a non-executive member of the board. The RSE drew our attention to its consultation responses in 2017 and 2018, which I have not read, but will you elaborate on your position?
Ray Perman
We raise two problems. One is efficiency—Benny Higgins went into detail about the fact that having two people interfering in the running of the bank will not be an efficient way to run it.
Our larger concern is about accountability. What will be the chain of accountability if there is an advisory group and the bank’s board—both of which will contain at least one common person—as well as the minister and the bank’s executive? The chain of responsibility should go from the executive, through the board, to the shareholders, in the shape of the minister. That should be clear so that we know where responsibility and accountability lie. It will blur things if an advisory group is advising the minister, and one member of that group is also a member of the board.
12:00Andy Wightman
I accept that, for the sake of argument, that is probably not a good idea. Earlier, Benny Higgins mentioned missions in relation to carbon neutrality—which is an obvious area—automation, demographics and social housing. If you were the Scottish ministers and had to decide for yourselves, given that the bill does not provide for Parliament having any role in approving any missions, would you not see an advisory group having a role in advising ministers on how they should frame their mission instructions?
Ray Perman
That would be entirely for the minister to decide. If the minister wanted that advice, that would be fine.
Andy Wightman
You have no fundamental objection to an advisory group.
Ray Perman
No. Our objection is not to the group that would advise the minister; the problem is the blurring of the accountability and responsibilities of the board.
Andy Wightman
Okay. It is very helpful that you have clarified your objection.
Eilidh Dickson
Some of the confusion is about what the advisory board is anticipated to do and about how it will be structured differently from the bank’s executive board.
There is a question about expertise, particularly given the underrepresentation of women and others who have multiple characteristics of disadvantage in the finance sector and in economics. There might be a role for an advisory board in picking up some of the different expertise that is not captured within an executive board. As Mariana Mazzucato says in her paper, there might be a role for civil society in building consensus for missions, as the bank will need to have a considerable amount of social licence for it to invest public funds.
Therefore, there is a role for an advisory board, but I agree that we need to crystallise who will be on it, how it will be structured differently and what its role will be.
Robin McAlpine
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.
We wanted the advisory group to feed straight into the board for a specific purpose. Initially, we proposed that there should be a tripartite advisory group that would pick up the broad missions. A third of the members of the group would be representatives of medium-sized enterprises. That would give the people who approach the bank to borrow a clear voice in how the bank should be run. Another third of the members would represent local authorities, housing associations and public sector bodies, and the final third would represent the public good element; that would include trade unions, and gender and so on would be taken into account. It is about finding a balance.
The bank’s board will have a strong fiduciary duty to operate like a proper bank. It will need to make hard decisions and say that it cannot do something because, lovely though it is, it does not meet the bank’s lending or financial criteria. To balance that out, we wanted there to be an advisory board that focused on customers—the customers being Scotland as a whole, including the private and public sectors. We suggested taking that approach to address the fear that banks can sometimes be a little tin-eared when it comes to their fiduciary duties. Such an advisory board would mean that its members could regularly say to the bank, “We represent the people to whom you are supposed to be lending, and this thing that you’re doing isn’t helping us. It could be done better, and this would be a great thing to try.”
I take the point about conflicts of interest. I am not particularly bothered about who is sitting where, but the board of the bank should have a direct line to a group of people who are saying, “We represent the people you should be serving and we want to give you some advice. It is now for you to take that advice—or not to take that advice, because you are the board of a limited company.”
Andy Wightman
There are various views on that issue, which we will explore further. However, do you think that provision for such an advisory board should be embedded in the bill, or should that be left to the board and ministers to work out?
Robin McAlpine
I always have the concern that long-term initiatives such as this need to be protected from politicians. Do not take that personally. It is just that the point of the bank is 10, 20 or 30-year time horizons, whereas, with the best will in the world, the point of politicians is often four and five-year time horizons. The purpose of the advisory board is to provide a voice that is not based on three or four-year cycles—
Andy Wightman
I understand all that. Do you think that the advisory board should be provided for in the bill?
Robin McAlpine
Again, we would have said that it is tripartite—
Andy Wightman
But do you think that the existence of an advisory board should be provided for in the bill?
Robin McAlpine
Yes, absolutely. I would go further and say that the advisory board should exist—
Andy Wightman
By statute?
Robin McAlpine
By statute. I would also say that its purpose, content and members should be such that we do not drift to a point in the future where, for example, the board gets filled up with appointees from the existing financial services sector. That is what I mean by that.
Eilidh Dickson
The short answer is yes. I think that the advisory board should be in the bill, for the reasons that have been outlined.
Ray Perman
I am relaxed about whether it is in the bill or not, frankly.
The Convener
That is a wide range of views. Jackie Baillie, did you have a follow-up question?
Jackie Baillie
Yes, but I am assuming that my questions are next anyway. I will segue into them, if that helps you, convener.
The Convener
We will let you do that.
Jackie Baillie
Fantastic. First, I should say to Robin McAlpine that I have been a member of the Scottish Parliament for 20 years, so four or five years is not in my timeframe.
I will pick up on something of substance that Andy Wightman raised. You and I will remember about 10 or 11 announcements that the bank was coming. The reason why it is able to be here is largely because of financial transaction money. The strings attached to that money means that it can be lent only to the private sector. The advisory group started off saying that the bank will not fund public projects. Clearly, your ambitions for housing and all the rest of it fall to the wayside unless the funding is opened up. Is that fair?
Robin McAlpine
You need to clarify that with the team. I understand that the team is already talking to housing projects. It is public sector money that is coming in. As I understand it, the team is saying that they are not going into local authority large-scale public infrastructure lending—they are not yet lending for the purposes of building schools, hospitals or roads. Straightforwardly, an awful lot of the initial first demand is coming from housing. I know some people who have been fairly close to this whose biggest worry, because the bank will be demand led, is that it has the potential to turn into a housing bank, which would not be a good thing. Housing is in there, but I do not think that wider public infrastructure is yet.
Jackie Baillie
We will clarify that, because, like you, I think that that is an ambition that the bank should have.
I come to the mission approach. Some of the evidence provided to the committee suggests that a mission-based finance approach will be complex to introduce and difficult to operate and evaluate. Do you share that view?
Ray Perman
We think that the bank should be mission led, but that it should start with one mission, because the suggested missions in the consultative document are big, important areas and they deserve to be done properly. To try to set up a bank from scratch—or very nearly from scratch—to fulfil all those ambitions will set it up to fail. We would prefer the bank to start with a single, simple mission, and to get on top of that mission before it expands into doing other things.
Robin McAlpine
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.
12:15I 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.
12:30With 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

7 May 2019

14 May 2019

21 May 2019

28 May 2019

4 June 2019

11 June 2019
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.
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.
14:53The 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.
15:04Gordon 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.
15:13Dean 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.
15:21Richard 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.
15:29Andy 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.
15:36Willie 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.
15:42Annabelle 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.
15:48Tom 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.
15:53Alex 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.
16:01Jackie 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.
16:08John 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.
16:14Jamie 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.
16:21Pauline 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.
16:27Joan 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.
16:32Rhoda 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.
16:40Jamie 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.
16:48Derek 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
Stage 2 - Changes to detail
MSPs can propose changes to the Bill. The changes are considered and then voted on by the committee.
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.
10:00I 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.
10:15I 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.
10:30I 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 cabinet secretary has said that he is willing to engage in discussions with Claudia Beamish and, in her absence, I will make an executive decision to accept that offer. I will advise her of that after the meeting. If those discussions are not fruitful, we will bring back the substance of the amendment at stage 3.
The Convener
As no other member wishes to speak on this group of amendments, I invite the cabinet secretary to respond to what has been said.
Derek Mackay
I underline my commitment to work with members where I have said that I will do so. Depending on the outcome of any votes, we will ensure that we make progress on the matters on which we can agree at stage 3, particularly those relating to the equality issues. The intentions are broadly similar, but how we get there might require further refinement.
The Convener
I call Andy Wightman to wind up, and to press or withdraw amendment 17.
Andy Wightman
I have a few comments to make. On amendment 17, I hear what the cabinet secretary has said about inclusive and sustainable economic growth being Government policy, but that does not mean that it is an appropriate objective for a public bank. I was slightly surprised to hear Dean Lockhart agree with me that “inclusive growth” has no meaning, but then go on to say that he thinks it is a good idea to include that in an act of the Scottish Parliament, but there we are.
I have listened to the points made by Rhoda Grant and the cabinet secretary on amendment 26. I am happy to support that amendment.
On the debate about amendments 5 and 18, I remain persuaded that amendment 5 is preferable. The idea of promoting advancement is very similar to other formulations that I have seen in Scottish legislation about duties to consider the desirability of something. Such duties are quite weak. However, I hear what the cabinet secretary has said about discussions on that issue and I agree that there is no great distance between the two amendments. I will press amendment 17.
The Convener
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.
Amendment 57 not moved.
Amendment 27 moved—[Rhoda Grant].
The Convener
The question is, that amendment 27 be agreed to. Are we agreed?
Members: No.
The Convener
There will be a division.
For
Baillie, Jackie (Dumbarton) (Lab)
Against
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)
Wightman, Andy (Lothian) (Green)
The Convener
The result of the division is: For 1, Against 8, Abstentions 0.
Amendment 27 disagreed to.
Amendments 28 to 30 not moved.
Amendment 58 moved—[Rhoda Grant]—and agreed to.
Amendment 18 moved—[Derek Mackay].
The Convener
The question is, that amendment 18 be agreed to. Are we agreed?
Members: No.
The Convener
There will be a division.
For
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)
Against
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?
Members: No.
The Convener
There will be a division.
For
Baillie, Jackie (Dumbarton) (Lab)
Wightman, Andy (Lothian) (Green)
Against
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 2, Against 7, Abstentions 0.
Amendment 5 disagreed to.
Amendment 31 not moved.
Amendment 59 not moved.
Section 2, as amended, agreed to.
After section 2
The Convener
Amendment 32, in the name of Rhoda Grant, is grouped with amendments 68, 45 and 46.
Rhoda Grant
Amendment 32 would add a section entitled “Balanced scorecard” to the bill, which would require the bank to have regard to the economic, social and environmental impacts of its investments when making them.
According to the implementation plan, the bank—with reference to the national performance framework—should
“take into account economic, social and environmental returns when making investment decisions. A balanced scorecard will be developed between the Bank and the”
Scottish Government
“to establish the requirement and measurement of non-financial returns.”
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.
10:45We 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.
11:15Andy 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