Culture, Tourism, Europe and External Relations Committee

Meeting date: Thursday, September 28, 2017

Official Report 501KB pdf

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European Structural Funds

Agenda item 2 is an evidence session with the Cabinet Secretary for Economy, Jobs and Fair Work, on European structural funds. I welcome to the meeting Keith Brown, the cabinet secretary; David Anderson, head of European structural funds state aid division; and George Burgess, deputy director of food, drink and trade in the Scottish Government.

I invite the cabinet secretary to make an opening statement.

Thank you convener, and thank you for the invitation to come along.

I will concentrate first on the structural funds but say a few words at the end about the hubs issue that has been raised. European structural investment funds represent around one third of the European Union’s annual budget and they provide key support to the Scottish economy through the European regional development fund and European social fund programmes. Scotland has benefited from those programmes since joining the European Union and the funding has supported projects across Scotland while contributing to our ambitions as set out in the programme for government.

During the current programming period, from 2014 to 2020, Scotland is scheduled to receive €944 million as part of the ESF and ERDF programmes. That investment has been designed to support smart, sustainable and inclusive growth in line with Scottish and European priorities.

The European regional development programme supports innovative and potentially transformative projects through £33 million being awarded to the low-carbon transition infrastructure programme to support projects across Scotland. That will bring forward low-carbon demonstration projects that aim to stimulate commercial interest and investment, and to maximise Scotland’s vast potential in the low-carbon sector while contributing to positive progress in reducing greenhouse gas emissions.

Another area in which we are seeing exciting work is the zero waste Scotland programme, where £30 million has been provided to support the resource-efficient circular economy that stimulates new business activity, especially in the small and medium-sized enterprise sector. The programme invests in SMEs that are helping to create the circular economy and includes cutting-edge projects that will develop new high-value markets that—I am sure that this will be of interest to Mr Lochhead in particular—reuse whisky by-products, waste plastic and household furniture. Each of those will draw on further private investment that will accelerate our circular economy ambitions. They will create skilled jobs in urban and rural communities, and contribute to our action on climate change.

The ERDF is focused on supporting SMEs, which represent 95 per cent of all Scottish businesses and help to boost economic growth. The SME holding fund will give companies access to funding to help to transform their innovative ideas into economic success stories. It also aims to create 2,000 jobs, forming a key plank of the Scottish growth scheme. That is supported by £50 million from EU funds.

On top of all that, we have allocated £20 million in grant to extending world-class digital connectivity to those parts of the Highlands and Islands that will not be served commercially or by existing public sector investment programmes, with a particular focus on remote island communities. That will contribute towards the Scottish Government’s national priority to deliver 100 per cent superfast broadband access by 2021.

The European social fund works to support those who are most removed from the workplace by providing intensive support to help remove the barriers that they face to entering sustainable employment or progressing into better employment, and those are the areas that are being targeted by the projects that have been approved to date. As well as that traditional type of support, the fund is looking to support social inclusion and combat poverty and discrimination. For example, projects such as Shetland Islands Council’s fuel poverty service work with the most disadvantaged individuals and households to provide support for fuel poverty, while other projects focus on financial and debt advice as well as access to childcare.

The Scottish Government’s aspiring communities fund will help enable community bodies and third sector organisations in our most deprived and fragile communities to develop and deliver long-term local solutions that address local priorities and needs. It should increase active inclusion and build on local communities’ assets to reduce poverty and enable inclusive growth. An award of £27.5 million to the developing the young workforce initiative will fund Skills Development Scotland and the Scottish Further and Higher Education Funding Council to support the delivery of higher-level qualifications aligned with the needs of growth industries and sectors in Scotland. That includes extending the modern apprenticeship programme and creating new links to sectors including science, technology, engineering and mathematics. Those organisations are also creating a new work-based learning approach through foundation apprenticeships, in which activity will start at school and use a mixture of academic and work-based learning.

Finally, the youth employment initiative in the south-west of Scotland saw nearly £60 million committed to addressing the 25.8 per cent who at that stage were unemployed. Since the initiative was approved, the Government’s actions, including the introduction of the YEI, have seen the youth unemployment rate fall to 12.7 per cent, which is a more than 50 per cent reduction and a substantially lower rate than that in the rest of the UK. Indeed, it was, I think, the third lowest in the European Union; however, it is now the sixth, now that other economies have been catching up.

The Scottish Government allocated funding in two phases, allowing for a mid-term review to allow for changes in priorities or approach. As I believe that that was the basis of my appearing before the committee, I can tell members that 203 operations have been approved to date, with £395 million of grant committed. Based on current exchange rates—which is one of the big issues that we are wrestling with—that represents 45 per cent of the programme. When we take match funding into account, it represents a substantial investment at a time when public spending budgets are under pressure. ERDF programmes will support the growth of 16,000 SMEs, 750 enterprises introducing new products and 3,000 low-carbon, resource efficiency and circular economy projects, while ESF programmes will support 77,000 individuals with multiple barriers to employment, 15,000 disadvantaged people and 17,000 people with lower levels of skills.

Her Majesty’s Treasury has guaranteed EU funds to projects approved before the UK leaves the EU. However, although the Scottish Government has confirmed that it will pass on the current UK Government guarantees in full to Scottish stakeholders to provide stability and certainty for these key sectors of the Scottish economy, we still have no clarity from the UK Government on how the guarantees will operate following the date of Brexit. In that context, it is worth mentioning the Prime Minister’s speech in Florence last Friday, in which she proposed a potential two-year transition period. That might be good for other reasons, but it increases uncertainty and throws things up in the air in a substantial way, and I am urgently seeking clarification from the UK Government about what it will mean for European funding to bring clarity for those who are currently involved in it.

I also want to quickly mention trade hubs, which I know the committee is interested in and which are part of our programme to expand our presence in Europe. Indeed, they are essential to protecting our place in Europe, and we will continue to do what we can to protect our interests during the UK negotiations to leave the European Union. We have to continue to assist businesses in internationalising, helping boost our export performance and continuing to attract record amounts of inward investment. To that end, we have established innovation and investment hubs in Dublin, Brussels and London, and we are in the process of establishing hubs in Berlin and Paris.

The hubs will support the wider work across Government, partners and businesses to support trade, investment, innovation and intergovernmental relations with Europe but, primarily, they will provide a platform for collaborative activity to increase exports and attract investment to Scotland. Although each hub is different and tailored to the opportunities in the market in which it is located, they also cover broader economic opportunities such as the development of collaborations and research partnerships and work to support funding for innovation and research in Scotland. As I told the Scottish Council for Development and Industry yesterday, we cannot wait until we get through the Brexit process—we have to maximise opportunities in the meantime.

Thank you for the chance to make my opening statement, convener.

Thank you, cabinet secretary. You outlined some vital areas that the funds cover, such as foundation apprenticeships, youth unemployment, the circular economy, and low-carbon technologies. What will fill the gap? What will replace the current programmes once they are finished?

That goes to the point that I was just trying to make about finding out where Brexit is taking us—whether there will be a transitional period and what the impact of the UK Government’s guarantee will be on funding through that period. There is still uncertainty over whether the transitional period will happen and, if it does, whether it will be for two years or four years, and what the impact on European funding will be.

Much of what we want to do will depend on the available resources and we do not have a clear picture of what those resources will be. There is an announcement by the UK Government on a shared prosperity fund, which we are assuming will be used for these purposes, but again, there is very little clarity on that. Given that we are potentially 18 months away from exiting the EU, we need clarity. We have asked the UK Government whether the Scottish Government and the other devolved Administrations can be involved in developing that fund. If it is going to be the vital measure by which we replace the European funding, we have to know more about it quite quickly.

Have there been actual discussions with UK Government counterparts—for example, have the recent ministerial level discussions touched on future frameworks for the funding of regional development programmes?

As you know, those discussions were held by the Deputy First Minister and Mike Russell with Damian Green and David Mundell. Having heard back from Mike Russell, my understanding is that those discussions centred on the 111 areas that we have talked about, which touch on the areas that you mentioned but not in any great depth. The discussions certainly did not provide any clarity on the future direction of European funding or its potential replacements.

What has the impact been of the falling value of the pound on the structural funds that you are currently managing?

The impact is quite complex. There have been two downsides and one upside. We can give you the details on the change in the value of the pound in relation to the euro since 2014. That change presents substantial problems in how we profile the spend. If you suddenly have a larger amount of pounds to spend and you have to spend to the level of the euros that we were allocated in the first place, at some stage you have to try to change the programmes that are there to make sure that you get as much of the allocation as you can. However, changing the amount of the quantum available in the course of the six-year period presents difficulties. I ask David Anderson to say a couple of words about that.

When the funds were first started, the €940 million or so was worth around £750 million. Because of the change in the exchange rates, it is now worth around £870 million.

As the cabinet secretary said, at face value that is a good thing, because it means that more money is available to us. Clearly, we have to look for schemes that can be match funded. We are doing a number of things, one of which is looking at changing the intervention rate, which is the level of match funding we seek in the Highlands and Islands in particular. We are looking to increase the amount of money that we can put in from structural funds to around 70 per cent, which would reduce the amount of money that comes from the local authorities and the partners. We hope that that will bring more schemes forward.

The other aspect to the change in the exchange rates—and the downside, to which the cabinet secretary referred—is that the spend profiles were set out in 2014 and they were set out in euros, so those have increased at the same time. The matter of trying to get the money spent is becoming challenging. It is a two-sided coin.

I want to ask about underfunded or unclaimed allocations. Your letter to the convener this week says that in the 2007 to 2013 programmes, “a total of €740 million” was claimed. The figure that we had from our predecessor committee five years ago was that the Scottish programmes were allocated €798 million. Does that mean that there has been a funding shortfall of €58 million?

Do you mean a funding shortfall or—

Money that was allocated to Scottish programmes that was not taken up—

Yes, there were moneys that were not taken up—

Of that order?

I would have to give you the exact figures on that. We will provide that information to the committee, but yes, that is the case. That happens when the eligibility criteria are not met by some of the partners and when the nature of the scheme changes over the six-year period. Also, as I think you and the committee will know, there are issues in relation to the suspension of some programmes because the audit data was not provided in the form that was required by the EU. A number of factors contribute to that, and it does happen.

I think that I am right to say—again, I will check this—that the shortfall in Scotland was substantially lower than that in the UK, but it is a feature of the programmes across Europe. Obviously, we have tried to minimise the difference.

09:30  

What would you assess the level of risk to be in the current programme?

We are at an earlier stage of the current programme, but the actions that we have taken include reducing the number of partners from about 700 down to 200 or thereabouts—

If I may say, it is from 200 down to 45.

I had different figures, but we have substantially reduced that. There are now bigger programmes but fewer of them, which should help with some of the audit requirements, and I think there is now a much better understanding among some of the partners that we will not get the money back from Europe unless we can provide the audit data that is required.

The risk that you refer to lies with the Scottish Government in the first instance, because the claims come to us and we then claim the money back from the EU. If it does not provide us with that money, the liability rests in the first instance with the Scottish Government. However, because of what we have done to seek to recover shortfalls because of the lack of information on non-compliance, some of that will fall back on to the partners. I think there is now a much greater awareness of that, not least because of the process that we have just gone through for the previous funding round. I think that those things help to minimise the risk that we have this time.

In the current funding round, compared with the previous one, there is an additional European Commission requirement—the N+3 rule—that means that, if money was allocated in 2014 and it has not been spent by the end of 2017, it is lost. How much is at risk for moneys that are not committed by the end of 2017?

I do not think that it is possible to put a figure on that. We are trying to work in the ways that I have mentioned, with the programme being set in a different way with fewer partners. Sometimes we had very small organisations trying to cope with quite large auditing requirements. We are trying to minimise that in order to minimise the risks. However, I am not sure whether we can put a figure on that—the N+3 rule, which was previously N+2—at this stage of the process.

Presumably, you will know whether we are talking about a risk of millions or tens of millions. What is the ballpark area of risk under N+3 for this—

If I may, I will back up what the cabinet secretary said. The team is currently working very hard to get those claims in. We will claim from the European Commission by the end of 2017, and we are in the middle of getting claims in from lead partners and processing them so that we can then claim.

As the cabinet secretary said, we have committed £395 million. Not all of that money has been spent. It is profiled to be spent out to the end of 2018 and perhaps into 2019. However, we are working very closely with the lead partners to get as much of that funding out as we can. I am afraid that I cannot give you that detail, but I assure you that we are working very hard to keep the amount as small as possible.

Should we be very concerned that there is less than 40 per cent commitment on the European social fund at this stage, and less than 50 per cent on the ERDF, when we are already halfway through the programme?

As the cabinet secretary said, when we designed the programmes, we always intended that we would commit approximately 50 per cent in the first phase. If Brexit had not been brought forward, we would at about this time have been looking to commit the second phase. That approach is very different from those of the other managing authorities across the UK. They committed funds for the entire programme at the beginning, but we decided to put in approximately half the funds, take stock and then commit the second half. In effect, that is exactly what we have done.

On your point about European social fund commitment being below 40 per cent, that is due to two factors. One is that some local authorities have chosen not to take up their full allocation, and the other is that the exchange rate changes have changed the percentage take-up by about 6 percentage points—it has reduced significantly. We are working hard to ensure that we get phase 2 out the door.

Clearly, from what you are describing, if some of the lead partners are not coming forward and taking up those allocations, there must be an issue for them, too, in being able to provide the match funding. I am simply keen to understand how much potential European funding we may not receive as a result of these programme issues.

The youth employment initiative is one area in which there is likely to be more certainty, because there are changes there. Further, if you reduce the percentage of youth unemployment from 25-plus to 12-plus, there is less scope to take up the slack. Substantial progress has been made on that.

We could probably come back to the committee in writing with greater clarity around the likelihood of the entire entitlement not being able to be spent.

On the rest of the issue, as David Anderson has just said, we are not looking to not draw down the other funds; we are working hard to make sure that we can do that. We are not alarmed by the 40 per cent level, because that is pretty much where we expected it to be at this stage.

There are particular circumstances in relation to the YEI, and I am happy to come back to the committee with further detail on that.

That is helpful. Could you also get back to the committee at the end of 2017 regarding the N+3 and let us know how much, if anything, has not been drawn down?

I am happy to do that.

Are you confident that you will be able to recover the outstanding amount of money for those projects that had high error rates? Our briefing paper tells us that the errors involved missing documentation and procurement processing errors. How does that happen in relation to such a huge amount of money and commitment?

Part of the answer lies in there being a huge number of projects in various organisations of different sizes. The error rates that we had were pretty typical across Europe. Quite rightly, the Commission has come back to us to say that it cannot accept them. Going back to the question that Lewis Macdonald asked, I add that, despite all the actions that we are taking, one claim came in with a 20 per cent error rate, which is pretty unusual in the current round. That shows that it is still happening, although much less frequently, mainly because of the involvement of local authorities, which have the resources to do the necessary auditing and accounting and are used to doing that in relation to European funding.

The answer to your question involves the proliferation of organisations that were involved and the lack of capacity, especially in some of the smaller ones, to carry out the necessary auditing. On top of that, some of the organisations displayed a disregard for the requirements that were laid down at the start of the programme, and that is why we are seeking to recover the money.

The other part of your question was about how we go about doing that. We have talked to all the organisations that are involved and have sent invoices to them. You will be aware of the findings of the parliamentary committee that considered the issue—I think it was the Public Audit and Post-legislative Scrutiny Committee. In some cases, if the sum is below £250, it is not worth recovering the money, but we are going after sums that are larger than that.

There are some quite sensitive areas, as the committee’s letter to me made clear. In cases in which a significant amount of resources is involved, we have tried to talk to the organisations and work through the issues with them. We are in the middle of that process. About a third of the money has been collected already, and we expect to collect substantially more than that.

Who did the programme review? You were going to implement a number of technical changes to those programmes. I am particularly interested in the change to the scope of the programme for the culture and heritage activities in the Highlands and Islands, particularly with regard to the emphasis on SME growth. Can you talk us through that?

I guess that that question is coming my way.

The technical changes are about trying to address the points that Lewis Macdonald made earlier—they are about trying to get better absorption. Clearly, projects in the Highlands and Islands often face more challenging issues than those in other areas. We are working with the Commission to make changes on the basis that there is a demand for those changes. We have gathered an awareness of that demand through talking to Highlands and Islands Enterprise and others in the area. We have said that, if we could change the rules slightly, we could bring forward a stream of projects for funding.

We have also sought to increase the intervention rates so that the amount of European money that we can bring in is higher—potentially up to 70 per cent—which would mean that the amount of match funding that has to be brought in by the local authorities and partners is lower.

The review was carried out by my team. I chaired the steering group, which had representation from Highlands and Islands Enterprise, the third sector and the Scottish local authorities economic development group. The work was carried out in consultation with all the lead partners, and we issued a number of calls for evidence and information. We feel that we have got a pretty good feel for the views of those who are in receipt of structural funding. Again, that comes back to the point that Lewis Macdonald made. A number of those people are saying that match funding is harder because, often, the funds that are involved are discretionary funds and the projects that are being supported are being supported in different ways. We are therefore looking to extend a number of projects to allow them to deliver over a slightly longer timescale, which we hope will make them more deliverable.

The programmes often focus on the money, but they also have performance targets, such as targets for the number of people who are supported and the number of delivered projects. The cabinet secretary outlined some of those. We have to keep an eye on the amount of money that has been spent versus delivery against the targets.

I know that ESF money is extremely important; indeed, I benefited from it at university 20 years ago. Brexit was mentioned earlier. The UK is due to come out of the EU in 2019, and the funding round goes up to 2020. Will there be a change of process for any applications between 2019 and 2020?

I tried to highlight exactly that uncertainty earlier on. The current discussions on Brexit involve discussion about article 50, which I know the committee will go on to discuss, and the requirement to leave the EU in March 2019. The UK Government has given a commitment to honouring all the funding that was committed to prior to our exiting the EU, and in turn we have said that we will pass that on. However, what will happen after that? What will happen if there is a two-year transition period is unclear. What will be the status of the shared prosperity fund? We understand—although this is not absolutely confirmed—that it would be, perhaps among other things, the UK’s measure by which it would provide regional aid to try to reduce inequalities across the UK, but to what extent would that fund replace what is paid just now?

If we go back in history, in the 1980s there was a massive contraction in regional aid in the UK, which centred on the midlands of England. European funding came in at that stage, and it has been an absolute lifeline, especially for places such as the Highlands and Wales. If that is going, there is a real question mark about what the commitment will be to regional aid—for want of a better term—in parts of the UK. The UK economy is one of the most unbalanced and unequal economies in the world, and it needs strong measures to counteract that.

Given that we are less than 18 months away from a potential exit from the EU, we need more clarity. As has been evidenced by questions that have already been asked, things have long lead-in times, and people need some certainty about the framework in which they will operate.

I cannot answer Stuart McMillan’s question. I do not know what the arrangements will be because so much is uncertain about Brexit, any transition period and, if there is a transition period, what that will mean for things such as European funding.

My second question is about the hubs. It could be argued that they are more necessary now because we are leaving the European Union. Was that part of the Scottish Government’s thinking?

It is part of the Scottish Government’s thinking. I have visited Berlin, where we will shortly establish a new hub. We also have offices elsewhere in Germany—in Düsseldorf, for example. We took Scottish Chambers of Commerce with us on the visit to Germany. It is quite clear that connections that should have been made to take up opportunities for direct contact with German industry and the German economy have not been made. Scottish Chambers of Commerce has tapped for the first time into its equivalent in Germany and into the two other massive employers organisations that operate there. That direct contact was quite clear. We met senior politicians from each of the major federal parties at the British ambassador’s residence. It is quite clear that there is a real appetite in Germany to continue to do business with Scotland. We also went to Hamburg and saw the port there, which is nearly all automated. Hamburg is extremely important to the UK and Scotland because so many goods go through it.

People in Germany are concerned about tariffs, but they are much more concerned about the bureaucracy that might attach itself to the UK’s relationship with Germany and the EU. It is vital to have such discussions and to raise Scotland’s profile.

09:45  

When I met Liam Fox—it was a while back, but I will meet him again shortly—I said that the Scottish Government is perfectly happy to work within the network of the UK’s representation around the world but that, although it is a phenomenal network, my experience is increasingly that Scotland and, for that matter, Wales, Northern Ireland and northern England are not represented effectively at that level. I continue to say that, if the network represents us effectively, we are happy to work with it but, if it does not, we have to do as much as we can to emphasise the opportunities for Scotland in dealing with those countries. Indeed, we will still have to do that even if the network represents us effectively.

For that reason, you are right. London is hugely important and is a global crossroads for investment, and we now have around 750 businesses expressing an interest in our hub there, which is on Victoria Embankment. I think that it currently has 160 members. It might be worth while for the committee to look into that, and to go to it if you get the chance. When I met the Chinese ambassador at a dinner last week, he offered to bring all the big Chinese companies that operate in the UK, which are based in London and elsewhere, to the hub for events about investment in Scotland. You are right. We have to do those things to represent Scotland’s interests, and that is why the First Minister committed to the expansion of the hubs in the EU.

You mentioned the Berlin hub and the first-time connections that have been made with Scottish Chambers of Commerce. Why has that UK trade facility not done that before? Why has it sat there and done nothing?

I should say that Scottish Chambers of Commerce and British Chambers of Commerce operate a network and have connections. Because of those, the Scottish Government has given Scottish Chambers of Commerce resources to ensure that we can use the connections to the best effect for Scotland plc, if you like.

When I said that it was the first time that the connection had been made, I was talking about the particular location in Berlin. In Germany, because all companies are legally obliged to contribute to the German equivalent of the Confederation of British Industry, it is an immensely wealthy and powerful organisation. In that location, it sits with two other organisations, one of which is the equivalent of the chambers of commerce. Scottish Chambers of Commerce tells me that direct contact had not been made. It is very important that that happens. Maybe the prospect or threat of Brexit means that people are rapidly seeing what will have to be done to fill the void.

Why did you decide on the hub model? What was the thinking behind that?

The thinking was different in different places. In London, we were based in Dover house, which was shared with the UK Government. That was not the place for us to carry out the kind of activities that we want to carry out. If members get the chance to go to the hub that has been established in London—it is in a Nesta building right on Victoria Embankment—they will see the resources and facilities that we can use, such as drop-in points for people and businesses. We needed that facility.

In Berlin, it was also about the intergovernmental relationships. Düsseldorf is a key area for manufacturing, whereas Berlin is more important for tourism and intergovernmental affairs. Germany is, I think, the third-biggest investor in Scotland and, obviously, it is the most powerful economy in the EU, so it is important to us. That explains that one.

In Dublin, we are sharing with the British embassy, which seems to be working quite well, and we are happy to do that. We do not take an ideological approach—we will work in the best circumstances. If your question suggests that we have to up our presence because of the uncertainty surrounding Brexit, you are right—that is the underlying philosophy.

It might be useful for George Burgess to say more about that.

I think the cabinet secretary has captured the point. It is about bringing together the Scottish Government and diplomatic and institutional links with business links through Scottish Development International. With the hub in London, as well as the many businesses that are already signed up to be members, which will be able to use the facilities, the back-office space brings together the Scottish Government, Scottish Development International, VisitScotland and other such players.

On the Brussels hub, the committee will be aware that, for many years, we have had Scotland house and Scotland Europa operating in Brussels from the same building. They have worked closely together, but there is a bit of physical separation in that building, which has been a limitation. The work that is taking place will physically bring the teams together and improve the integration between those two operations in Brussels.

Looking ahead to Paris, we already have a substantial Scottish Development International team there, but there is no Scottish Government presence. We will add Scottish Government presence to the SDI team, so we will get more than we already get from SDI’s work there.

How effective have the hubs that have already opened been so far in doing what they were established to do? Can you give an example of outcomes that have been achieved?

The examples that I would give for the London hub are the companies that are already signed up. If you think of the major investment conferences that happen in London and Cannes, such as MIPIM, you will appreciate that it is much easier to go to London than it is to go to Cannes and get away with it—as some local authority leaders have found. The effectiveness is shown by the level of interest in the London hub by 700-plus companies. Some companies take up membership, which costs them money and helps us to defray the costs of establishing the hub.

I hear very positive reports about the Dublin hub. That is down to the staff who work in it and the connections that they have made. It might surprise people to learn about some of the connections that we have made with businesses and economic interests in Ireland through use of that hub.

The hubs in Paris and Berlin are not yet established, so it is more difficult to point to things having been done there. The huge potential of the Berlin hub was evident from our visit. Those are the examples that I would give of how the hubs are working.

I can add some specific examples from the Dublin hub. John Webster is the head of the Dublin hub and there is a small team of 2.5 staff equivalent in total. The team has worked in partnership with the Irish Government to create the Scottish-Irish business network, which has already held a number of events in Ireland and Scotland. They have worked with the University of Strathclyde, University College Dublin and business organisations on a project in relation to collaboration between the financial sectors. There is a conference coming up in the middle of October, which Mr Mackay will be speaking at, and there are a number of foreign direct investment projects that have been chalked up as successes that are due, at least in part, to the work of the hub.

That work has helped us to safeguard 295 jobs so far, 10 of which are high value added. We have seen a further five FDI projects landed, which have created 456 jobs. We can provide details of that to the committee. Those things are just in relation to the Dublin hub.

You mentioned in your opening statement that some European funding will be available for the growth scheme. I understand that that will be in the form of equity funding. Will you explain how businesses in Scotland can apply to access that? Who will decide which businesses are eligible and will be allocated the European funding?

There are two elements to the eligibility. It will be dependent on the conditions that were laid down by the EU when it made the funding available. People can get in touch with any arm of the Scottish Government, but they can also contact Scottish Enterprise or SDI and they will be directed to the right place. The fund is around £50 million—that is a part of the growth scheme but is not the whole amount. It is intended to help businesses, especially SMEs, to grow. Does that answer all the parts of your question?

It almost does. The final part was about who will decide how to allocate the funding and the terms of the funding. I looked at the Scottish Enterprise website, and it appears that the equity fund will decide which businesses in Scotland get to access the funding and the terms of that access. Is that understanding correct?

I am happy to provide the exact process. If your question arises from your own experience that there is some confusion out there, that is an issue that we will have to address. I am happy to give the committee all the information on the applicability of the fund. It is decided upon by the eligibility criteria that are laid down by the EU. You will understand that it is part of the larger growth fund. We apply our own priority to particular areas, and in particular the £50 million section of the funding that is to be applied.

I am happy to give you more detail. If you are aware that there is some confusion or lack of understanding in the SME sector out there, you can let me know and we will do what we can to make sure that it is cleared up.

Thank you.

On the face of it, there seem to be perfectly compelling reasons to open new hubs all over the place—in the emerging economies, for example—but what is the formal process for assessing the impact and the success of existing hubs and the process for deciding where and whether to open new ones?

I have just mentioned some of the achievements so far in the early stages of the Dublin hub. Of course, we will want to assess over time whether the hubs are making an impact. When deciding on a possible new hub, an assessment is made of the market and the geography, or how close it would be to another hub, which might serve the market equally well. All those things are taken into account.

It goes back to the questions that Stuart McMillan asked. Underlying the EU hubs and our commitment to doubling the number of SDI staff working in the EU is a recognition of the particular challenges that we face in the EU. It is about our current export performance to the rest of the EU and what we believe our potential export performance to be.

SDI is also assessing the non-EU hubs. We assess and review these things regularly and an assessment is being carried out on the wider network right now. George Burgess might want to add something to that.

The cabinet secretary has largely covered it. As he mentioned in his opening statement, each of the hubs that we already have is different. They target things in different ways, so comparing London and Dublin would be comparing apples and oranges. Nevertheless, the Government is trying to establish some sort of framework for evaluating the success of our hubs overall. The success that we have already seen in Dublin has given us the confidence that applying a similar model in Berlin and Paris would be sensible.

I have a couple of questions about the points that the cabinet secretary made in his opening statement on the programmes that are currently under way. First, how much money is earmarked from the remainder of the budgets available for the delivery of the commitment on superfast broadband?

David Anderson will respond to that.

We have had applications from digital colleagues to the programme, and we have allocated £20 million. That project is about to start. That is grant funding, so of course they will be matching that. The money has yet to go out the door, as this project is just starting. We will then continue to talk to them—

But on the 100 per cent commitment to every household and business in the country, the overall budget is way more than that of the Scottish Government, in fairness. Is only £20 million of European funding going towards that?

Yes.

The eligibility criteria are about the far less accessible areas, so the programme is very much linked to the Highlands and Islands. It is about doing what we can within the rules that surround European funding.

I understand. Has the Government decided whether it will procure the contract on a pan-Scotland basis or based on a number of smaller areas?

That comes into Fergus Ewing’s area rather than my own but it is under active discussion because of the UK Government’s potential deal with BT. How that is rolled out will have an impact on Scotland. The UK deal requires a rate of 10 megabits per second, whereas in Scotland, we are aiming for 30 Mbps. We are trying to reconcile our procurement programme with what will happen elsewhere, given that BT is a big partner for us.

The bottom line is that we could end up spending money abortively to achieve something that is already being achieved by the UK Government. If it is achieved, the question is whether it is achieved at the speeds that we want. It is being considered; I was involved in a discussion with Fergus Ewing about it this week. I think that he will have some clarity on it in the next few weeks.

Some of us who live in the wilds would be very grateful just to get 10 Mbps, never mind 30 Mbps.

You mentioned the developing Scotland’s young workforce investment. I think that you said that the budget would be allocated to Skills Development Scotland and to the Scottish funding council. Are those the only two recipients of European funding for that particular programme?

10:00  

No, they are not. David Anderson might want to give some more detail.

The answer goes back to the way in which the programme has been designed. We have been funding those people as lead partners because they had the infrastructure to deal better with the audit and procurement requirements. They pass the money out to far more recipients to deliver on the ground.

I think that it is fair to say that, in the previous round, the auditing of that particular strand gave us the most problems because so many smaller projects were undertaken. The funding is funnelled through those organisations but many other recipients benefit from it.

Okay. Thank you.

My final question is on your remarks about the transition period. I absolutely take your point about the uncertainty, but I guess that the one thing that we do know is that the Prime Minister has said that the UK will apply for a two-year transition period from 2019 to 2021. None of us knows anything about the post-2021 scenario. Would it be fair to ask you to write to the committee at some stage to at least outline the options that we understand are available. I take your point about the funding that the UK Government might come up with, but for many of us who—as you say—have relied on this kind of funding in the Highlands and Islands over many decades, it looks like we face the proverbial cliff edge, because I do not see where that funding will come from. Is Mr Brown prepared to write to the committee to at least outline the options as to where we might be in 2021?

That is a very good point. I will write to the committee in as far as I am able to, given that there are huge uncertainties. The UK’s shared prosperity fund is being referred to as the means by which the UK Government will try to address inequality and it is also linking that into its industrial strategy. We have very little clarity just now but we will give what views we can about the potential options post 2020-21.

You are, of course, right to say that the UK is now talking about a two-year transition period, but that does not guarantee that the EU will agree to it. That adds uncertainty upon uncertainty.

The fundamental point is that, as I am sure Tavish Scott knows better than me, for decades, the Highlands and elsewhere have relied on European funding, which has done a huge amount of good in the Highlands and Islands, not least when they had objective 1 status and NUTS 2—nomenclature of territorial units for statistics—status. The current situation therefore presents a real threat to the Highlands and Islands. We will write back to the committee to give any views that we can on that.

I have two brief questions. First, when I recently visited Moray Council’s income maximisation unit—where a handful of staff work to ensure that people get the benefits that they are entitled to and navigate welfare reform, which is a very important role, so I welcome the unit—I learned that 50 per cent of its funding is from Europe. I was very interested to note that as I did not know that that was the case. To what extent is the Government capturing all those examples and anecdotes, particularly on a constituency basis, so that MSPs are aware of them? Is such an exercise under way?

I am not sure that that is done on a constituency basis, but I am happy to look into it for the reasons that you suggest. Bringing a greater focus to benefits uptake is a huge area. My opening statement mentioned financial inclusion and financial capacity, if you like. I am happy to look at what you describe being done on a constituency basis, but it depends on the cost.

I presume that your point is that if we pass the information on to MSPs they might be able to increase awareness of the programmes through publicity. I know that getting the right advice about what they are entitled to can transform the lives of some individuals. I am happy to look at that and to provide such information on a constituency-by-constituency basis if we can.

Secondly, as a Highlands and Islands MSP who represents Moray, I am—like Tavish Scott and others—well aware of the positive impact that European regional policy has had on our communities over many years. We have discussed the threat that withdrawing from the EU poses to our communities. However, does the situation not mean that there is an opportunity for Scotland to form its own regional policy? We will need a regional policy in Scotland if we want to promote economic development in the Highlands and Islands and in all corners of the country. I therefore urge the cabinet secretary to think seriously about taking such a policy forward—perhaps the work is already under way.

Work is being done in a number of different areas that would contribute towards that. I could maybe wrap that into the letter that I write in response to Tavish Scott’s question about the potential future options. However, I have to make the point that the measures that the UK Government chooses to take must be underpinned by resources. The fundamental question is that if the resources that the EU uses to assist Scotland—especially the more disadvantaged areas of Scotland—are not forthcoming post Brexit, it will undermine whatever strategy is put in place.

That is the bigger question and the bigger uncertainty. Maybe those resources will be available through the shared prosperity fund, and I will come back on that issue as far as I am able to, although the Scottish Government will have to know what the shape and nature of the prosperity fund is, if it is to be a replacement for those programmes, before we can properly configure what we would do. Richard Lochhead and Tavish Scott have pointed to the need for further thinking on that, given the uncertainty, and we will come back to the committee on that.

Thank you. I urge the cabinet secretary to define regional policies beyond funding. Our regional policy directions have largely been dictated by the EU in past decades. We need to form our own Scottish regional policy, which might include, for instance, locating all new civil service jobs in all corners of Scotland. There are other such issues that could be included in a Scottish regional policy, now that we are being forced into developing our own regional policy.

Hear, hear.

Part of that will be around city deals and other initiatives, so we will be happy to do it. I am thinking who I can get to do that, but we will ensure that we get it done.

We have already gone over time, but we have one last point of clarification from Lewis Macdonald.

My question follows on from the answers to Tavish Scott and Richard Lochhead. As it stands, the European Union (Withdrawal) Bill means that those decisions will go back to Westminster. Is that correct? Is that the minister’s interpretation?

Yes, that is the whole nature of the discussion that Mike Russell has been having on the 111 areas of competence.

It would be helpful to have your comments on that in your response to the committee, but what is the Scottish Government’s proposal for any future UK framework for regional development funding? Will it make a proposal for simply freezing the shares as they currently exist, or for a dynamic relationship that depends on levels of development or underdevelopment? Could you give us an idea of what the Scottish Government envisages for post 2021?

All the points that have been raised have been noted, so it will be quite a full letter when it comes back to the committee, but members have pointed to some important issues. A lot of that work has been done. We do not just rely on what the EU says it will fund; we have a number of other measures. I mentioned city deals, but there are a number of other initiatives by which we attach our own priorities to things. However, it will be foggy, because if there is a UK measure of shared prosperity, which seems to be the UK Government’s preferred method for replacing EU funding, the Scottish Government really has to know what the shape of that is and what criteria are being applied before we can figure out our response to it. That does not mean that we will sit back and wait to find out what those things are before we put our own views across, but we need to know so that we can fill in the gaps. Of course, the optimum position for the Scottish Government—it would be churlish of me not to say it—is to have those resources ourselves, so that we can decide the priorities within Scotland.

Thank you, cabinet secretary. We look forward to receiving your letter.

10:08 Meeting suspended.  

10:14 On resuming—