Economy and Fair Work Committee

Meeting date: Wednesday, May 10, 2023

Official Report 685KB pdf

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Scottish Government Policy Priorities (Wellbeing Economy, Fair Work and Energy)

Agenda item 2 is an evidence-taking session on the Scottish Government’s policy priorities, with the Cabinet Secretary for Wellbeing Economy, Fair Work and Energy. I welcome to the meeting the cabinet secretary, Neil Gray, who is joined by Colin Cook, director of economic development; Gary Gillespie, chief economist; and Nick Young, head of carbon capture, utilisation and storage and industrial decarbonisation, all at the Scottish Government.

As always, if members and witnesses can keep their questions and answers as concise as possible, that will be helpful. I invite the cabinet secretary to make an opening statement.

Thank you very much indeed, convener. I also thank the committee for giving me the opportunity to be here today to share the Government’s priorities in my portfolio area.

The impacts of the cost crisis, the pandemic, Brexit and fiscal instability resulting from United Kingdom Government decisions have brought untold damage to our economy, with persistent high inflation and unprecedented drops in living standards. Coupled with the climate and nature emergency, these crises have exposed fundamental weaknesses in the current economic system, and that backdrop underlines the need to transform our economy into one that is resilient and which prioritises wellbeing—an economy that serves people, not the other way round.

As we transition to a wellbeing economy, we will embed equality, inclusion and human rights in everything that we do. I am committed to the First Minister’s three interlinked missions of growing a fairer and greener economy, seizing the opportunities of net zero and creating better communities.

At the heart of a wellbeing economy will be economic growth for a purpose—that is, to drive improved living standards, promote wellbeing, reduce poverty and deliver sustainable high-quality public services—through harnessing and combining the economic power and opportunity of Scotland’s rich renewable energy resources.

The skills and talents of our people and businesses will be critical to achieving that. We will work closely with the private sector and the public sector, locally, nationally and UK-wide, and we will engage directly with communities and partners in the third sector.

Working with my Cabinet colleagues, we will deliver our national strategy for economic transformation, with a sharp focus on policies and actions that have the greatest potential to grow and change Scotland’s economy, expand the tax base to fund excellent public services and make people’s lives better. That will require a new approach to the Government’s relationship with business, so at the First Minister’s request, I will engage widely with business leaders to develop and agree with the private sector a new deal for how we will work with business to deliver a growing economy that increases wellbeing.

In the First Minister’s prospectus, I have laid out my priorities for what I want to deliver over the next three years, and you will no doubt want to hold me to account on them. Those priorities include: more people being in work; more people earning at least the real living wage and a narrowing of the gender pay gap; more business creation and more businesses growing to scale; increased investment in productive assets; internationally competitive clusters of excellence, including in green technologies, health and life sciences, digital and advanced manufacturing; greater regional and local economic empowerment, including through our programme of community wealth building; more growth in exports; and more high-quality inward investment.

A just transition for our energy sector is, arguably, the biggest opportunity that we have. We have a huge opportunity to establish Scotland as an exporter of green hydrogen to Europe, and analysis shows that, overall, the number of low-carbon jobs in energy production could rise to 77,000 by 2050. The potential can be seen in the ScotWind offshore leasing round, which has already delivered more than £750 million in revenues and will bring billions of pounds of investment into the Scottish supply chain and the wider economy. Indeed, the recent announcement that the Japanese company Sumitomo Electric Industries will be coming to Scotland to build a cable manufacturing plant demonstrates the strength of investors’ confidence in our net zero economy vision.

I look forward to discussing some of those points with the committee in greater detail, and I appreciate the opportunity that you have given me to set out my stall.

Thank you very much, cabinet secretary. You have covered a wide range of issues; the committee, too, will be covering a broad range of issues, and we look forward to establishing a constructive relationship with you as we consider our inquiries and future work programmes.

Perhaps I can open with a question about the change of emphasis in your job title, in which the reference to “economy” has been changed to “wellbeing economy”. Now that it is just over a year since the publication of the 10-year economic strategy, is there any intention to look again at it—at the priority areas and the five programmes of action? What will reflect the change of emphasis in the economy role?

Wellbeing economy elements already run through NSET. Indeed, we have built in a wellbeing economy metric that allows us to continually monitor our progress in the areas that we want to chart, including our sustainability, our child poverty targets and ensuring that we are narrowing the gender pay gap and that more people are going into employment.

The job title has been changed to refocus things and ensure that prominence is given to wellbeing elements. The First Minister has also set me the very clear task of resetting the relationship with business and ensuring that that relationship is strong and that business continues to perform well so that we can deliver the wellbeing elements of what we want to achieve in Government.

There will be no change to NSET. We will be sharpening our focus as a result of the policy prospectus, which covers the areas that I have set out and which come directly from the national strategy, but we are also committed to delivering the priorities in the strategy.

With regard to the introduction of a wellbeing economy, there has been some criticism that the issue has been oversimplified or that it has been a matter of ambition over delivery, given the tensions between, for example, our international trade policies and our co-operative policies. One example that has been highlighted is the deposit return scheme and how it has tried to balance various interests. It is fine to declare that we have a wellbeing economy, but how do we deal with the tensions that arise from it? How does the Government plan or intend to get to the nub of that?

NSET is the guiding light—it has the metrics and measures to ensure that we are tracking our progress. I do not think that there are tensions. There are areas where we need to ensure that we are delivering well for people and for our planet; the deposit return scheme is one example of that. However, the DRS is also an economic opportunity because, if we can get recycling rates right, that will show that there is a clear business opportunity for dealing with commodities that come through the waste market.

Major opportunities are coming forward. The wellbeing economy elements ensure that we are focused on delivering for people; we are not focused just on the traditional gross domestic product growth elements. Growth is important for the purpose of ensuring that we are delivering better lives for people across Scotland.

When Kate Forbes published the strategy just over a year ago, the focus was on entrepreneurship and encouraging growth in the economy. Is that still the focus?

Yes. That work is on-going. You can see the work that has been done with the tech scalers network. Currently, we are analysing Ana Stewart and Mark Logan’s report on women entrepreneurs. We are looking at what more we can do to make Scotland an entrepreneurial hub.

When the former Deputy First Minister spoke to the committee on the topic, he said that the first annual progress report covering NSET would be published in 2022. Has that been published yet? If not, is there a timescale for doing that?

I will bring in Gary Gillespie.

The report has not been published yet. I think that it is due towards the end of May.

That would give the committee an opportunity to scrutinise it then come back to the issues.

Ms Hyslop, do you have a supplementary question on the opening statement?

I want to ask about two issues, one of which is to do with your opening remarks, minister. In which areas is the Scottish economy vulnerable, and what measures are you taking to support it?

Clear damage has been done to Scotland’s economy by decisions that have been taken that were outwith our control. Brexit has had a major impact on Scotland’s economy—its impact has been greater than that of the Covid pandemic. The UK Government’s mini budget, which was delivered by Kwasi Kwarteng and Liz Truss, has also had a devastating impact.

The key risks to Scotland’s economy come from areas that are outwith our control. We are doing what we can to mitigate those by providing increased business support and by looking at where we can maximise growth and job opportunities—for example, through the entrepreneurial tech scalers network that I mentioned.

You also mentioned in your opening remarks the importance of building a resilient economy. You may be familiar with the committee’s report “Scotland’s Supply Chain”. We need to build a resilient supply chain not only so that it can withstand risks but so that we address issues such as embodied carbon, carbon miles, smart procurement and advanced manufacturing. We also need to create domestic supply chains that are shorter, greener and more resilient. Is that something that you will look at? If so, will you draw on the committee’s report when you do so?

Yes, absolutely. Ms Hyslop and I spoke about some of that yesterday. We discussed the need to ensure that we have a strong domestic supply chain to feed our offshore wind opportunities. We will continue to do what we can to make sure that that is brought forward.

I will bring in the chief economist to supplement that and give more detail.

The supply chain element started during Covid. We were looking at how we could boost local supply, given the supply chain issues that resulted from Covid, which also brought particular health issues.

We are, I think, seeing our economy resetting. The point about resilience does not apply just to Scotland and the UK. Businesses are looking for shorter supply lines and are trying to take out carbon elements and make supply chains more secure, so that they are not impacted by external events in other countries. That is continuing in Scotland.

The best example is probably to do with the ScotWind programme in which, along with offshore licences, there is a commitment to build the supply chain. That is what we need to do. However, we need to do that not just in that sector. Since exit from the European Union, there has been a reorientation of trade, with fewer imports and more local supply coming to the fore, because it is more difficult to trade—both inwards and outwards.

Rebalancing is happening in the economy, which is both a challenge and an opportunity. Businesses in Scotland have a chance to embed the opportunity to supply much more locally and in a much more sustainable fashion.

We are interested in knowing what you are doing to help to support that shorter supply chain, not just in Scotland but in the wider economy.

09:15  

I will respond to Ms Hyslop’s previous question about the risks to Scotland’s economy. I should have mentioned that Scotland’s economy is performing resiliently considering the difficulties that we have faced following Brexit, Covid and the UK mini budget. Economic growth here currently outstrips that of the rest of the UK; last year we had much stronger economic growth than the rest of the UK had. We will continue to do what we can to support our economy through the difficult challenges that businesses and the third and private sectors are facing.

You have a massive brief that covers an awful lot, so I will focus on something that the Auditor General for Scotland said in his report on Scottish Government investment in private companies. He made some tough comments, and said of the Government’s involvement in Burntisland Fabrications Ltd, Ferguson Marine Engineering Ltd, Glasgow Prestwick Airport Ltd and the Lochaber smelter that

“Financial support for these four companies has not delivered expected outcomes and is unlikely to achieve value for money.”

I will ask you about Prestwick first, then about Ferguson Marine. Of Prestwick, the Auditor General said that it was bought

“by the Scottish Government in November 2013 and has had loan support of £43.4 million up to 31 March 2022.”

When the Auditor General wrote that report, the loan support was valued at £11.6 million. Do you know what the value is now?

I will bring in Colin Cook at this point. I do not know the current value off the top of my head.

Perhaps Mr Cook knows.

No. I am afraid that I would have to come back to the committee with a precise valuation. It is worth saying that we work continuously with the board of Glasgow Prestwick Airport and we receive offers to purchase the asset; it is recognised as a strong asset nationally and, in particular, for Ayrshire’s economy. The matter is kept under review. I will come back to the committee if we have an updated valuation.

Is there any current interest in buying the airport?

I have not had any interest signalled to me, but we continue to discuss such opportunities with the management of Glasgow Prestwick Airport. As Mr Cook suggested, the business is profitable. The most recent information that we have is that the operating profit was £1.9 million and the profit before tax was £1.2 million. It is a good-going concern, so I expect that commercial interest will be forthcoming. When interest arrives with the Government, we would of course look to support Prestwick returning to the private sector as soon as is practicable.

Is it still your intention to sell the airport?

Yes.

You said that you are not aware of any interest in buying the airport.

Nothing has come to me.

What about your officials?

There have been, and there are, regular approaches of various quality and standards about Prestwick. There is nothing on the table at the moment that we would regard as a going offer, let us say.

I see. That is interesting, because I am aware that an expression of interest in buying the airport has been put to the board. I am therefore concerned that you, cabinet secretary, are not aware of that. It seems to me that you should be aware of it. I am not blaming you for not being aware of it, but there seems to be a problem in that you have not been given that information.

The process that is followed is that if we receive an offer, the board of Glasgow Prestwick Airport considers that offer. If it believes that there is something in that offer or that it is in the right ballpark and we should be interested, the board talks to us then we move forward and involve the cabinet secretary at that point. At the moment, there is no offer on the table that the board considers to be realistic and sustainable. That might well change because, as I said, people are constantly interested in what is a fantastic asset for Ayrshire and Scotland.

It is a fantastic asset.

It seems to me that what you are describing is that, if the board of the airport decides that an offer or expression of interest is not worth telling the Government about, that is where it ends.

No. The board would always talk to us about any offer that was received. We would receive the offer and consider it and we would take the views of the board as the starting point of our analysis. If there is something in an offer and we think that it is worth pursuing, we would do what we always do in such situations, which is draw in external specialist advice and make sure that we get a good deal for the Scottish taxpayer.

As I said, that process is not being carried out on any particular offer at the moment. However, if we get an offer that on the face of it looks worth while, we would do that.

Okay. I have informed you that I am aware of an expression of interest, so I expect you to have a look at that.

I will ask about the loan. It was a big loan. Will the Government ask for that money back, at any point?

Obviously, we keep the situation under constant review and we will seek to recoup the money that has been invested in Prestwick as best we can, to ensure good value for the public purse. I am sure that Graham Simpson would expect that.

I will move on to Ferguson Marine, if that is okay.

Mr Simpson, I am prepared to allow time for that questioning, but I hope that you do not intend to go into BiFab after Ferguson Marine. I do not have enough time to cover all areas in which you might be interested.

No—I said I would ask about Prestwick and Ferguson Marine.

That is fine.

I will be quick.

That is no problem. Go ahead.

We know the issues around Ferguson Marine. We do not need to rehearse them. I refer to the questions that the Auditor General raised in his recent report. He does not know what the future holds. What do you think the future holds for Ferguson Marine? What are the prospects for that yard, in your view?

I hope that Ferguson Marine can continue to make progress towards being a commercially successful yard. The intention behind saving the last commercial yard on the Clyde was that we would ensure that we protect the jobs, the manufacturing base and the traditions of Scottish manufacturing.

Clearly there have been challenges at Ferguson; they are well documented. However, we continue to work with the management and the workforce to ensure that the two vessels will be delivered as quickly as possible and that Ferguson then has the opportunity to bid for more work and make itself commercially successful.

This is the same question that I asked about Prestwick, really. Is it your intention to return Ferguson Marine to the private sector at some point?

Yes.

How will you get to that point?

The better Ferguson performs, the more likely it is to return to private ownership. If interested parties come forward to talk to the Government or our agencies, we will take that interest seriously and do what we can to ensure that the yard is returned to private ownership as quickly as possible, as a commercial going concern.

I will leave it there.

Cabinet secretary, I want to explore a couple of areas. First, will you update us on the review of the skills landscape that is being led by James Withers, and on the plans to refresh the climate emergency skills action plan? On the back of that, can you tell us how the two reviews will be joined up?

We expect Mr Withers’s report very soon. When it arrives, I and colleagues across Government—after all, the issue touches not just on my areas of responsibility but on those of Jenny Gilruth, Graeme Dey and others across Government—will ensure that we respond timeously and that we take seriously what he says.

As for the climate report, I turn to Gary Gillespie to fill in the detail.

It might be better if we were to follow that question up in writing. The climate emergency skills action plan, which is central to what we are doing in that space, is currently being updated. It will also link to the report that we are expecting, so both interlinked aspects will come together.

We will ensure that we follow that up with the committee in writing as and when Mr Withers’s report comes back. To give Mr Beattie confidence, I can confirm in answer to his question that the two elements will be joined.

I would like to explore one other area, which is money. None of what we have discussed will happen unless sufficient investment is available. Government investment will probably be somewhat limited in comparison with the sum that will be needed if we are to succeed with the just transition, which has been described as “eye watering”.

We have also been assured that plenty of private capital is available. However, the calculation was done not just for the UK but on a global basis. How do we know that sufficient capital will be available for Scotland to cover those specific costs?

That is work in progress. Part of the area that we touched on in an exchange with Ms Hyslop at yesterday’s meeting of the Net Zero, Energy and Transport Committee was how we ensure that we have both a successful supply chain and a successful infrastructure to enable us to deliver on our net zero ambitions.

Mr Beattie is right to say that public finance is finite. We have already touched on the current challenges in the sector, because of the areas that have been impacted in recent years thanks to decisions outwith our control. However, we continue to work with the likes of the Scottish National Investment Bank and our investor panel on where we can leverage private capital to ensure that we are able to meet such demands both on investments, in the form of private capital coming into the supply chain, and on the required infrastructure.

The scale of that will be challenging. National Grid Electricity System Operator Limited estimates that the grid infrastructure alone will require investment of £7 billion; in any case, a substantial amount of capital will be required. We will do what we can both on our investment priorities, to deliver as much as we can within that envelope, and on working with private capital to ensure that we can meet those demands.

People with private capital will only come in if there is reasonably managed risk and they get a return on their money. Given the highly speculative nature of some of the initiatives that are under way—we are still dealing with emerging technology, for example—how will we derisk things? Moreover, derisking means not that the risk is eliminated but that it moves somewhere else. Would that entail the Scottish Government taking on additional contingent liabilities?

Mr Beattie is right in his assessment of where private capital will arrive. As I have said, we are working with the likes of the Scottish National Investment Bank on ways of making Scotland as attractive as possible for inward investment. It is already punching above its weight on such investment when compared with the rest of the UK, so we are already giving the market some confidence that we are a good place to invest in. I have just returned from Japan, where a significant decision has been taken by Sumitomo Electric Industries on inward investment to support the supply chain for our offshore wind opportunity. It is looking to build a substantial factory here in Scotland to produce the cable that will be required for the offshore wind industry.

Mr Beattie is right that we cannot be complacent, but we can already see the market having confidence in Scotland as a good place in which to make investment decisions.

09:30  

The assessment has already been made that adequate private capital is available globally, which to me seems a bit odd. Given that private capital is much in demand to finance our existing industries, it seems strange that there would be a massive surplus of capital waiting to come in. However, I realise that that was a global calculation. What is the calculation of the availability of capital in the Scottish and UK markets, for which we do not have to compete with other countries?

The honest answer is that we are competing—we are competing on an international scale. That is why our international network and the work being done by the likes of Scottish Development International and by our office network internationally are so important. They build the relationships, such as the one that we have with Sumitomo Electric, to provide confidence and they outline the opportunities that investing in Scotland gives. We will continue to work with Scottish Development International and our international network to ensure that our investment priorities—which, as we have already outlined, are around our net zero commitments and the supply chain—are communicated to potential investors globally.

If you look at investments that have been made both in the United States and in Europe through the green deal, you can see that we are competing in a highly competitive international market. We cannot afford to allow ourselves to be left behind at a time when our net zero ambitions are very challenging, and when the decisions that are taken over the next couple of years on areas such as offshore wind and hydrogen will be crucial in determining whether we continue to be a world leader in offshore wind and whether we will still have the opportunity to be first to market with green hydrogen. I therefore encourage the UK Government to look at matching some of the investment incentives that have been made by the European Union and the United States, to ensure that we are not left behind on a competitive front with regard to those nations and regions.

Thank you, cabinet secretary.

Cabinet secretary, we will be taking evidence from Graham Stuart, the UK Government’s Minister of State for Energy Security and Net Zero, after this session, and I am sure that some of these issues will come up again.

I look forward to listening to that.

Good morning, cabinet secretary and officials. I have a slight feeling of “plus ça change ... ” as I address four men on my favourite theme of how we alleviate some of the issues around women’s representation in the economy. I am sure that none of you will be surprised by that.

With regard to narrowing the gender pay gap, which you mentioned earlier, I have seen that being promoted, but there is so much—I repeat, so much—more that we have to do to address the systemic issues in our economy. In a chamber debate last week, I remarked that wellbeing in particular must be seen through a gendered lens; indeed, that is utterly fundamental. If I am being completely honest, I have to say that I feel as though we are, if anything, moving backwards instead of forwards. I say that, bearing in mind the fact that my colleague Ms Hyslop made sure that a women’s business centre was inserted into the Government’s priorities with a spend of around, as I recall, £50 million; that was incorporated into what we looked at in relation to the Ana Stewart review.

My first question is this: can you give me more of a flavour of what specifically you are looking at in the Ana Stewart review? When will you be able to come back with recommendations that you are able to support?

First, I accept the charge of a “manel” being before the member. I was cognisant of that before we came to the meeting and I made that very reference to colleagues. I should say that yesterday, when I went before the Net Zero, Energy and Transport Committee, I was flanked by two incredibly able women. We have incredibly strong women across the Scottish civil service, as well as very able men, such as the ones who are before you now.

Ms Thomson is absolutely right to focus on the opportunities that will arise from our narrowing not just the gender pay gap but the gender employment gap and from ensuring that women are able to get on in enterprise. It will be a massive economic opportunity as well as the right thing to do. If we are to succeed in our aims for economic growth opportunities, having women get on in enterprise will be incredibly important.

I happen to be meeting Ana Stewart later today, and I look forward to discussing her report and how we might be able to implement it. I am committed to ensuring that we honour its findings as best we can in the timescale that is allowed by our resources. That is absolutely central to the opportunity that we have to transform our economy into one that is not only innovative and agile but one which ensures that women are able to continue to perform well within it. After all, that will drive the economic growth that we want.

One area of Ana Stewart’s report that I want to emphasise is encapsulated in recommendation 30, on the collection of data. At the moment, we do not have the data sets that would enable us to gather the data that we need, to measure it and to use it to effect change. Moreover, we do not apply any conditionality to public sector funding, whether it relates to women’s representation or equalities matters in general—which I accept is a wide area. Will you give an indication of how open minded you are to at least taking—and I must emphasise this—the first step? We cannot measure and improve our data if we do not even collect it. That is why, in my opinion, we are at a pretty low marker. Are you willing to commit today to considering that as a minimum?

Incidentally, I had an undertaking on that from the former Deputy First Minister. That did not come to pass either, so I really have to push you on this.

Ms Thomson absolutely gets to the nub of the issue: we need to understand the landscape within which we operate if we are to have informed policy decisions aimed at improving the situation.

To answer her question directly, I have to say that I am more than open minded. The first step would be to ensure that we are working on that initial recommendation. I cannot give a full commitment until I have met Ms Stewart and we have published our response in detail, but I can say that Ms Stewart will certainly have a sympathetic ear from me in that regard.

Good morning, cabinet secretary. I want to ask you about Scotland’s export performance. The target for growing exports from 20 to 25 per cent of GDP, as set out in the strategy published in “A Trading Nation”, was quite ambitious. We are now in year 4 of that strategy, and we have had to face being taken out of the EU against our wishes as well as a global pandemic. Will you update the committee on where we are in growing our export market?

My colleagues will correct me if I am wrong, but I think that we are currently sitting at 21 per cent, despite the challenges that, as Mr MacDonald has mentioned, we have faced with Brexit and the global pandemic. Decisions of the UK Government, which are outwith our control, have clearly hampered our performance.

As I have already outlined, our international network does an incredible job of supporting not only inward investment into Scotland but our exports. I have seen that in the international engagements that we have carried out, as indeed one of my predecessors, Ms Hyslop, was able to do. In particular, the SDI network does an incredible job of embedding itself in target markets, understanding those areas, building strong relationships with business and also understanding domestic business needs for exporting. We continue to support the 1,200 target businesses in Scotland that have the greatest propensity for export in that important area.

You mentioned having strong relationships with countries where we are aiming to grow our exports. How important is the GlobalScot network to that process?

It is very important. We have more than 1,000 GlobalScot members. Earlier this year, Mr Robertson outlined the importance of the GlobalScot network in meeting business, academic and other needs. When I was in Japan, I was able to meet one of our newest recruits to the network, operating across Japan, America and Europe. They give us incredibly strong contacts and advocate for Scotland, so we should utilise them more, not less.

Going back to the situation with the EU, I note that nine of the top 15 markets identified in the strategy are in it. We have been taken out of the EU against our will, given that 62 per cent of our population voted to remain in it. What impact has that had on Scotland’s exports? Do we need to refocus our attention on the other countries listed in the strategy? In that respect, I am thinking about America, Canada, Switzerland, Norway and China.

Being out of the EU has undoubtedly had an impact on our political and trading relationships. In recent years, we have seen incredible uncertainty and difficulties in trade. I welcome the progress that has finally been made on trade with the Windsor framework, but it follows a number of years of incredible difficulty for our exporters into Europe.

On a political level, we are trying to ensure strong working relationships with our friends in Europe and will continue to do so, because it is an incredibly important market for us, as Mr MacDonald has outlined. The other countries that he mentions are also important, which is why our SDI network does such an important job. The network ensures that we deliver on our ambitions in areas where we have particularly strong trade with certain countries, or where there are strong sales of certain products.

Mr Cook or Mr Gillespie might want to say more.

I would point to the alignment between the domestic economic agenda and our international ambitions. We see the same priorities in the work on developing Scotland’s innovation strategy in life sciences and technology and within SDI, where Government gives support for exports.

You are absolutely right, Mr MacDonald—we are studying markets such as the USA and Canada to find opportunities. We are not looking either at Europe or at elsewhere; we are looking at both, and we are trying to support Scottish industry in those new markets.

What is the role of the trade board in supporting Scottish industry to find new markets or to innovate? I know that the membership of that board was updated in June 2022. Why did that happen, and does the board have a new focus?

We will get back to Mr MacDonald in writing on that question, as it is about something that predates my involvement in trade.

I believe that there has been a delay in publishing the most recent export statistics. Can you give us some background on that?

Our main publication is “Export statistics Scotland”, which gives figures for exports from Scotland to the rest of the UK and to the rest of the world, broken down by market. We paused the survey during the Covid pandemic in 2020, because we felt, for a number of reasons, that it was not appropriate to put the information out at that time. We have collected the data for 2020 and 2021, which is now being processed and which we will probably publish towards the end of this summer.

Because that delay has given us more time, we have also reviewed the methodology to see whether we can improve the data. We will publish the updated statistics later this year and will soon survey the 2022 data. That data is really important, because it gives us a breakdown. We will update that and any changes in methodology will be taken back through the series of publications to give consistency. There has been a delay, which was partly Covid-induced, but as I have said, it has given us the opportunity to have a better survey.

09:45  

Before I bring in the next questioner, can I just check that the target that Government is working towards is still that of increasing exports to 25 per cent of GDP by 2032?

Yes. We are currently sitting at around 21 per cent of GDP.

My first question was about tensions in relation to the wellbeing economy. There is often a focus on how trade policy marries up with the idea of a wellbeing economy. Gary Gillespie talked about a move towards more local supply, and Fiona Hyslop mentioned our supply chain inquiry, which pointed towards such issues—in particular, to concerns about climate change and emissions from transportation. Have the wellbeing economy and climate change pressures led to any reflections on whether our trade policy target is still relevant to the shaping of the economy?

We continue to reflect on that, to ensure that our work as a trading nation is ethical and sustainable. We continue to take the areas that you have suggested into regard, to ensure that, where possible, we do our work in a sustainable way that ensures economic performance that is not too much to the detriment of our net zero ambitions.

You say that you take it into regard. Colin Cook mentioned that there were reports on our export figures. Has the way in which we view those exports, or where we look for growth sectors in exports, been changed in any way to take into consideration a wellbeing economy approach?

[Interruption.] I am sorry, convener; I am struggling with my voice here.

I was referring to studies that are being carried out specifically into markets in the USA and Canada. Those are in-depth studies about export potential, not about the way in which figures are reported.

Has that research been carried out by the Scottish Government, or is it independent? Does it take into account the Government’s approach to a wellbeing economy and the areas that we want to expand for exports or imports?

I would have to come back to the committee on the organisations that are carrying out the research on our behalf. The ambitions of the wellbeing economy are clearly articulated in NSET. That remains our extant strategy. Everything that we do is linked to the achievement of NSET, so there will be a flow-through.

I have one final question before I bring in Colin Smyth. Will the annual report on NSET, which we now expect in May, focus on an evaluation of what the wellbeing economy is and whether we are delivering on it?

Yes, is the short answer. A wellbeing economy metric flows through NSET and the pillars that form it, so there is a wellbeing economy lens on the performance and delivery of NSET.

Obviously, the strategy was published in March last year, and this is the first annual report, which will chart the progress over the year of the actions that have been taken forward under NSET.

Good morning to the panel. One of NSET’s priorities is to capitalise on the opportunities of the transition to net zero. Would it be a fair assessment to say that, although the growth of renewables has significantly reduced carbon emissions, it has not delivered for Scotland the economic benefits that it might have delivered? We were promised 130,000 green jobs by 2020. The Fraser of Allander Institute put the actual figure at 27,000. Recently, the trade unions highlighted the fact that only around 3,100 jobs have been created in offshore wind. Why have we failed to deliver the real potential in jobs from the growth in renewables?

We have created a new offshore wind directorate to ensure that we learn from the process that was under way with onshore wind and the supply chain that feeds it. You will see the early stages of that coming to fruition in some of the potential investment decisions that are coming through, which will ensure a strong domestic supply chain here in Scotland—for example, you can see that in the Sumitomo announcement, but also in the potential investments in the likes of Ardersier, Kishorn and other ports, where, I hope, we will be able to realise the economic and jobs benefits that the renewables revolution has the potential to produce.

You talk about learning the lessons from onshore wind, but the trade unions recently highlighted analysis that showed that we are also failing to deliver when it comes to offshore wind. Their analysis highlighted that the latest Office for National Statistics low carbon and renewable energy estimates showed that

“In 2014, every £1 million in income made by offshore wind companies translated to 7 jobs for workers in Scotland”

and that

“this plummeted to 1 job per £1 million”

of turnover for offshore wind farm companies in 2021. Therefore, the big wind farm companies seem to be doing rather well out of it, but why is that not translating into jobs? Why do we appear to be going backwards?

That is exactly what we are looking to address in the work that we and our international network are doing to attract investment into Scotland and procure a domestic supply chain that feeds not just our growth that is still to come in onshore wind but the massive growth that is still to come in offshore. Mr Smyth’s points are well made. We continue to reflect on them and provide as much support as possible to ensure that we have a strong domestic supply chain.

I made that point to the Net Zero, Energy and Transport Committee yesterday in response to the strong but fair challenge from Ms Hyslop. It is important that communities that neighbour onshore or offshore projects are able to see discernible benefit. That comes not just through community benefit but through the economic performance that is derived from having a strong Scottish supply chain and domestic jobs that feed it. We are absolutely committed to that and will continue to do the work to ensure that we honour that.

With regard to the figures that Mr Smyth quoted, those sectors, including onshore wind, are highly capital intensive so, once they are set up, the actual multipliers in local benefit are much reduced. However, the capacity that is required to bring on renewables provides opportunities through the wider economy, and that is about energy resilience and economic resilience. In capital intensive industries, a lot of the benefit comes in the early investment stage and, thereafter, it is about maintenance. However, we are now seeing the benefit of having that energy through the investments that have come to Scotland to develop it into other forms of energy, whether that is hydrogen or other sources. It is a two-way thing.

The figures that I quoted from the trade unions showed that, in the seven years to 2021, turnover for those companies has gone from £95 million to £2.594 billion, and 3,100 jobs have been created in Scotland. That is a lot of money for the wind farm companies and not a lot of jobs. What will we do differently in Scotland to make sure that we actually get those jobs? Will the Government have a target? Of course, ScotWind will create jobs, but will it create the potential that we believe that it can and should? Will we have a very clear target for the number of renewables jobs that will come from ScotWind?

I have already outlined the potential for green jobs that comes from having a good just transition, and we will continue to work with the supply chain development programme to ensure that we maximise those opportunities for a strong domestic supply chain that feeds a growing and incredibly strong potential for our renewables programme. We are world leading in that regard.

To refer again to my engagements in Japan, the Japanese and others around the world are looking to what Scotland is doing as the first to market in developing offshore wind—particularly floating offshore wind—into green hydrogen, but we cannot be complacent about the fact that we are world leading. We need to keep pedalling fast to ensure that the investment opportunities are there and that there is discernible domestic economic benefit, which includes ensuring a strong domestic supply chain and strong jobs performance. That is the way that we ensure a just transition.

We have made a number of investments through the just transition fund, including in the skills passport, to ensure the transfer of jobs from the traditional oil and gas sector into the renewable sector. We will continue to make those investments to ensure that communities are not left behind in the way that they were in the deindustrialisation under Thatcher in the 1980s and early 1990s.

Do you have a target for the proportion from Scotland of those supply chain jobs?

The chief economist has already said that it would be difficult to make a specific target because the development of the projects is capital intensive. Depending on the project that we are talking about, we can sometimes see clear and discernible benefits with regard to jobs. The establishment of the new directorate in the Government gives credence to the fact that we are determined to ensure that we have a strong domestic supply chain that delivers good jobs from the renewables revolution.

The cabinet secretary has spoken about the creation of ScotWind, which is a really important marker of our ambition. It is worth pointing out, too, that the enterprise agencies in Scotland—particularly Scottish Enterprise—are refocusing all their actions and prioritising renewables as the markets of the future. That is really significant, because it shows that the whole of the economic development infrastructure of the Scottish public sector is focusing on the same target. You can have some comfort and assurance that we are focusing on that point strongly throughout that network.

You should do that, because it is an opportunity for growth. However, there is deep concern that we will not meet the potential, particularly if we do not even know what proportion of the supply chain jobs will actually come to Scotland, and that we will make the same mistakes that we have made in the past—for example, none of the wind turbines that pepper the landscape in my region were built in Scotland. We need to ensure that we do not make the same mistake with ScotWind. It is slightly concerning that we are not able to set a target to measure the proportion of supply chain jobs that will come to Scottish companies.

Do I have time to pivot to a completely different subject, convener?

Yes.

This is a whole new subject, which means that you will need to completely change your papers, minister. The committee is keen to hear from the Government on the role of co-operatives in the wellbeing economy. What do you see as the role of co-operatives and how will the Government support their growth as a model?

I should declare an interest as a member of a co-operative and highlight that I am incredibly supportive of the work that they do. They are the embodiment of what a wellbeing economy is all about—good, strong and ethical business practice that sees clear discernible benefits to local communities—so we will continue to do what we can to support the co-operative movement and ensure that it continues to flourish.

I should declare my interest as a Co-operative Party MSP, convener.

What does that mean in practical terms, minister? What proportion of the Scottish economy should co-operatives make up as a result of the support that the Government is likely to give them?

We want them to continue to succeed. With regard to Mr Smyth’s question, we do not have a particular target, but I would be happy to provide more information to the committee on the work that we do to support the co-operative network on the back of this session.

I think that Mr Cook wants to supplement my answer.

I point to two actions. First, I point to the work that we have been doing on community wealth building and the consultation that has just closed around future legislation, which creates a framework in which to promote different forms of business models. Secondly, I point to NSET, which talks about our economic ambitions to create a diverse economy and an entrepreneurial mindset in all sectors of the economy, which includes alternative business models.

We are taking action and we will use the economic development network to which I referred to focus on promoting alternative business models.

10:00  

Good morning, cabinet secretary. Thank you for joining us this morning and for what you have already said.

Like Colin Smyth, I want to focus my questions on two different areas across your portfolio, the first being fair work. The Scottish Government has pledged to make Scotland a fair work nation by 2025. I am curious to know how you see that being measured, where you think the challenges are and how things are going, given that 2025 is less than two years away.

I was pleased that one of the first meetings that I had on taking office was with the Fair Work Convention. Its role as a partner is important but it is also a critical friend in that it holds us to account and ensures that we are doing all that we can to honour our fair work commitments.

Our refreshed fair work action plan was published in December last year. It sets out our approach to embedding fair work and tackling workplace inequalities.

Thank you for that, but I am wondering where you see the challenges. It is all very well to say that we will be a fair work nation by 2025, but what will that actually look like? Do you have any concerns about areas in which we will not be able to realise that ambition?

It is a constant challenge. I have the responsibility of ensuring that I drive a fair work agenda across Government. We are already doing well. We have the highest number of employees being paid the real living wage anywhere in the UK, and the lowest number of employees being paid below the real living wage anywhere in the UK. We also have incredibly strong labour market statistics that give opportunity but also pose a challenge. A tight labour market gives us opportunities to discuss with employers the importance of advancing the fair work agenda to reduce workplace attrition and ensure the continued support of employees.

We will continue to progress that alongside the work that we do with the Fair Work Convention and the Scottish Trades Union Congress. I believe that I am due to meet Roz Foyer soon. I was with her at the anti-poverty summit that the First Minister hosted last week and we had a very good conversation off the back of that.

We will continue to do all that we can to ensure that fair work drives success, wellbeing and prosperity for individuals and businesses, and to ensure that employers continue to understand the importance of demonstrating fair work, not just because it is the right thing to do from a social perspective but because it drives economic benefit to their organisation.

One of my areas of interest is pushing conditionality as far as possible. We know that employment law is reserved, so there are limits to that. Are we pushing fair work conditionality in public sector grants as far as we could? Where do you see progress still to be made in that space?

As a result of the Bute house agreement, conditionality will be attached from, I believe, 1 July, when public sector procurement will have fair work principles attached to it. That is an important first step, but we will keep the effectiveness of that conditionality under review and look at whether there will be opportunities to go further. However, we will need to ensure that there is time, from the start of that process on 1 July, to monitor its effectiveness so that we can see whether there are opportunities to reform it in any way.

My second set of questions is on local and regional economic development. In your opening remarks, you spoke about economic empowerment for local communities creating better communities. Engaged and resilient local communities with decision-making powers and a real say in their local and regional economies are key to the realisation of a genuine wellbeing economy. Will you identify your priorities for the regional economic partnerships and explain how you see those being developed over the coming months and years?

Yes, I will. We are looking to build on the city and regional growth deals; to respond to the regional economic policy review; to work with regional economic partnerships to ensure that there are regional intelligence hubs; and to simplify the funding landscape. I am due to meet our enterprise agencies over the coming weeks, when I will be seeking to discuss that, the suggestions that they have and how I respond to those over the coming weeks and months.

In some ways, the issue is linked to or extends the questions that Colin Smyth asked about how we ensure that benefits from investments such as ScotWind are retained in communities. We do not want to recreate a two-speed economy such as we have seen in different places in previous times. Key to that is a clear place-making agenda, and we have seen that in work that this committee has done in previous inquiries. However, how does place making fit into that regional economic development agenda, and where are the barriers to achieving that?

Place is incredibly important. I represent a constituency with an incredibly strong feeling of place, but I also come from Orkney, where place-based economic development is well defined and there is a very strong feeling of place. Therefore, I understand well the importance of place.

As I said, we have discussions with our enterprise network to ensure that there is good, strong support for economic development in their regions, but we are also ensuring that we capitalise on the good work that is going on indigenously in those areas, as well as responding to the economic priorities that we have set out in NSET and in our just transition strategy, to ensure that we are taking advantage of the opportunities in different areas across Scotland.

It would be a challenge for us to say that there will be a homogeneous approach across different areas, because each region, area and place will have its own strengths, so we must build on the strengths of each area to ensure that we see the best economic performance possible. I think that Mr Cook wants to come in.

I hope that you will see the answer to that question in the two things to which we have referred over the past few minutes: first, the economic review, which we accepted—as the cabinet secretary says, we are now prioritising work on the funding landscape and intelligence hubs, and we have a commitment to working with regional economic partnerships to ensure that the regional priorities are reflected—and secondly, the work that we do on community wealth building to encourage those regions to use that as the vehicle for ensuring that the benefits come to communities.

Therefore, in the combination of the two—the regional economic policy focus and community wealth building—you start to see the answer to the question that you pose, Ms Chapman.

Thanks for that. One of the challenges with that is how, when we have city region deals, community wealth building and all those aspects that we try to fit together, we can retain economic development coherence and, within that, policy coherence. It is perfectly possible to see a situation in which we have alignment around a regional economic partnership that actually jeopardises some of the community wealth building agenda or priorities that elements within that community or region might have. How are you assessing that overall coherence across all the different economic development opportunities and agendas?

We share your understanding that coherence is important. If you are pursuing a strategy that is based on regional priorities and on the interests of local communities, there will be diversity, because that is implicit in that approach. We in Government try to find ways of supporting regional economic partnerships to acquire the intelligence that they need to realise their ambitions and to promote the concept of community wealth building at local level. We also work with the UK Government to ensure coherence in how the Scottish and UK Governments view the regions of Scotland and support the work at that level. That is a really important part of the overall argument about coherence that you have been making.

Are you confident that we have the tools and structures in place to do that?

I am hopeful.

Before I bring in Jamie Halcro Johnston, I return to Colin Smyth’s question about co-operatives. Although there is no target for co-operatives, there is a target to have 500 employee-owned businesses in Scotland by 2030. The cabinet secretary might not be able to give us a progress update on that today, but perhaps he could write to the committee about that.

I am happy to do that.

I bring in Jamie Halcro Johnston, to be followed by Fiona Hyslop. I remind members that we must finish this item of business by 10:25.

I will cover a couple of subjects. The first follows on from Graham Simpson’s questions. You will be aware of the issue of the relationship between the Scottish Government and the GFG Alliance and Sanjeev Gupta. Have you met Sanjeev Gupta yet, or do you plan to do so?

I have not met Mr Gupta and have no current plans to do so.

What is the level of regular engagement between the Scottish Government and GFG Alliance?

To quote the question back to you, there is “regular” and strong engagement to ensure that business at the smelter continues going well and that the requirements that are placed on GFG—and the developments that are expected as a result of those—are realised.

There is regular and strong engagement, which Mr Cook leads on, and there is a strong team to ensure that the investment in Lochaber continues going well.

You talk about investments going well, but a lot of jobs were promised when the deal was signed. Do you have any concerns that the projected number of jobs will not be met? I think that the projection was into the hundreds, but only around 50 jobs have been delivered so far.

On-going decisions about investments will lead to job creation. I will bring in Mr Cook to provide more detail.

Mr Halcro Johnston, you are correct to say that the investment has not yet been made. GFG Alliance is still planning to invest in a billet plant in that region and money is being allocated to that investment. The money has not all been allocated to that investment yet, but we are making progress and have seen the start of the planning phase for that investment, so we are hopeful that it will continue.

That is one of the things that we discuss regularly with local management. Our main focus has been on the plant and on the performance of the smelter and the hydro. We also discuss that when we get more general access at ministerial and official level to GFG Alliance.

It is also important to stress that the guarantee generates income for the Scottish Government and that GFG Alliance is up to date with its fee payments. We will make sure that that continues to be the case with the investment decisions that Mr Cook has given more detail about.

I am trying to remember the figure for the liability. In 2019, it was roughly £570 million. That will have decreased, so do you know what the current liability is?

10:15  

It has decreased substantially. I have a rough figure in my head, but I do not want to provide an incorrect number to the committee. I will make sure that that is followed up in writing so that Mr Halcro Johnston’s inquiry can be satisfied.

That would be helpful. Do you have any concerns at the moment that there is any likelihood that payments will be made to GFG Alliance, or are you anticipating that you will have to make any payments to the company?

Nothing is anticipated. Progress is good. As I say, the asset is currently generating income for the Scottish Government, but we will keep monitoring the situation closely to ensure that our investment continues to be strong and that the commitments, including on the billet factory, are met.

I will move to another vital area. We know that there is huge pressure on our tourism and hospitality sectors. Cabinet secretary, I am sure that you will have had plenty of representations from those sectors about the pressures that they are facing, and you will have seen the gaps in the high streets and the issues that local areas are facing. A number of eligible businesses in England are receiving a 75 per cent discount on business rates bills this year. That money was available through Barnett consequentials. Has there been any consideration about introducing a similar discount in Scotland?

We have made significant investments to support businesses through and post Covid. We have allocated £500 million beyond the support that we received from the UK Government to do that. We also have the most competitive poundage for non-domestic rates in the UK and the most competitive small business bonus scheme in the UK. We continue to provide business support where we can.

Mr Halcro Johnston is right. My colleague Mr Lochhead and I engage regularly with the hospitality and tourism sectors, and we will continue to do so as it is a vital component of Scotland’s economy. Earlier, we spoke about regional economic performance and placed-based policy making, so we understand the importance of tourism and hospitality and continue to engage with those sectors on the asks that come forward.

A number of the asks will be for funding support, and, I imagine, on regulation. A number of policies impact the tourism and hospitality sectors or the communities that they are in. As has already been mentioned, there has been uncertainty around the DRS and the costs that are involved with it. Concerns have also been raised about the licensing of short-term lets and the tourism levy. We could even consider highly protected marine areas here—in rural communities such as the ones that you and I are from, there is a real concern about that and the wider investment coming in. When you are looking at the asks from those sectors, what consideration are you giving to some of the policies that the Scottish Government has been pursuing over the past few years? Could some of those policies be reconsidered, as has already been done in some cases?

A panel meets with business to consider regulation. I have already set out the new deal for business that will be discussed over the coming months. We are looking at all those areas to see whether there is anything more that we can do, and we can consider how we can provide greater support. We have listened to business and have delayed the DRS, and we will continue to respond as best we can.

Mr Halcro Johnston has raised the issue of short-term lets. There is a competing issue, because we both know about the challenges that people living in rural areas face when trying to access housing. There is support for our looking to do what we can to make more rural housing available. The decisions that we are taking are about trying to make those situations easier for people.

It will always be a balance. We take feedback from colleagues who represent rural areas—or who, like me, are from those areas and still have family there—to ensure that we continue to get that balance right. I take seriously the feedback that Mr Halcro Johnston has given and we will continue to consider the matter as best we can.

If I could just ask a question on that point on rural housing, convener—

Sorry, Jamie. I want to bring in Ms Hyslop before the end and we have to move on as we have the UK Government minister coming in.

I am happy to take the question and perhaps respond in writing, convener.

That is fine.

That is great. The Scottish Government’s rural and islands housing scheme was extended and has not been fully used—only half of the funds were spent—so I look for an assurance that the minister will review the scheme to determine how it can be made more attractive and easier to use. At the moment, it is clearly not meeting the needs that it should be.

I am happy to do that, and I will ensure that I follow up in writing with the committee.

I welcome the fact that the economy and energy portfolios have been brought together. The consultation on the draft energy strategy and just transition plan closed yesterday. When do you expect to respond to the consultation? When will you publish the energy strategy and the just transition plan?

We have received incredible interest in that consultation. I believe that, at the previous count, there were more than 1,400 responses to it, which is almost seven times the number of responses that we had the previous time that we consulted on an energy strategy, so there is clear interest in it. We need to ensure that we give that proper consideration, but we will seek to publish our final strategy as quickly as we can off the back of considering the consultation responses.

The renewables industry welcomed the draft, which focused on electricity. The criticism was that it was so broad that it captured everything that had been done to date. Previously, the strategy was about generation, so we should be in a position to look at what that means for delivery, surely. The draft talks a lot about potential, but will you assure us that the final strategy will be about delivery on that potential as opposed to a description of it?

Yes, I absolutely take that suggestion from Ms Hyslop and will ensure that it is given due consideration as we examine the consultation responses. I cannot pre-empt that process, obviously, but I expect to go into some of the areas that she has laid out. We will ensure that we have a concrete strategy that ensures that we can realise the potential and have a just transition that does not leave communities behind in the way that they were left behind in the 1980s and 1990s under Thatcher.

In our inquiry into a just transition, we have heard that there is a potential gap in jobs and skills, particularly for the supply chain. The contracts might not be realised for some time and we might not be able to scale up in time so, when demand emerges, it might have to be met internationally. There is a gap in the funding for the skills and jobs for the supply chain. How can that be filled?

We are working on that now with the investments that we are making and through the energy skills passport to ensure that we offer opportunities for people who work in the oil and gas sector to transition. That will be an on-going process, but we will maintain a focus on ensuring that we give as many opportunities as possible to our indigenous workforce. However, we will also put pressure on the UK Government to ensure that the international labour force—which we must accept will need to play a part—is able to play a part in some areas.

Skills passports will not necessarily address the technology issues for companies. That needs to be considered.

We have heard about the need for billions of pounds of investment to realise our net zero goals. How fundamental is the carbon capture, utilisation and storage Acorn cluster for the just transition not only for the north-east but for Grangemouth? There is £1 million from Ineos sitting on the table ready to move for the industrial cluster with the biggest emissions in Scotland. What is your view on that?

It is fundamental. Grangemouth produces 8 per cent of our carbon emissions. As Ms Hyslop rightly outlines, it is our greatest emitter. Ensuring that there is a just transition means that we need the UK Government to move much faster on delivering Acorn from track 2. It is an absolute priority for us to continue pressing the UK Government for that, and I am sure that it will come up in the discussions with Graham Stuart following my appearance today.

Thank you.

We have finished on time, convener.

Thank you very much, Ms Hyslop.

I thank the cabinet secretary and his officials for their evidence. We will suspend briefly for a changeover of witnesses.

10:25 Meeting suspended.  

10:30 On resuming—