Cross-cutting Expenditure Review on Economic Development
The fourth agenda item is to consider the main issues that have emerged from the written and oral evidence that we have received for our cross-cutting review on economic development. I welcome back to the committee Peter Wood, who is our adviser on the review.
Members have a copy of Peter Wood's paper, FI/S2/05/4/3, which summarises the issues that he feels have arisen from our evidence sessions. Peter Wood will speak briefly to the paper before I open up the discussion to members, who may then make comments or ask questions.
Good morning, everyone. As the convener said, the purpose of the brief paper that has been circulated is to summarise the principal issues that have arisen from the committee's work to date and to suggest lines along which the committee might set out its final report. I will not read the paper verbatim, but I will highlight a few points from it.
The preamble to the paper suggests that five principal sets of issues emerged from our discussions. I will talk briefly to each of those in turn, but let me give an overview first. The context for the inquiry is the fact that the Executive's stated number 1 priority is to promote or increase the growth rate of the Scottish economy. The purpose of the inquiry was to see to what extent that priority has been reflected in decisions about the disposition of resources.
At the start of the inquiry, members will recall that I produced a paper that sought to measure changes in spending on economic development. The paper used the two concepts of primary spending and support spending. Primary spending is the money that is allocated to programmes that clearly have as their first objective the promotion of economic growth and business development. Support spending is those other elements of spending that are influential in, and important to, the development of the economy. Although the committee's main concern is with the Executive's budget, the paper also considered spending by other parties, including the spending of local authorities and the remaining elements of United Kingdom-controlled expenditure that affect economic development in Scotland.
We discussed those matters at some length so, rather than labour the point, I will summarise the principal conclusions. Over the life of devolved government in Scotland, direct or primary spending on economic development has fallen as a share of the Executive's budget simply because that type of expenditure has risen much more slowly than the budget as a whole. That conclusion was quite clear for what we termed primary expenditure on economic development. For support expenditure, the difference was a lot less dramatic, but support spending still rose a bit less rapidly than other elements of public spending in Scotland.
That raised the question why, if economic growth is the number 1 priority, slower growth in the items of expenditure that might be regarded as being most supportive of economic development could be observed. Various witnesses responded to that question. The Scottish Executive challenged our conclusion by arguing that all kinds of public spending made some contribution to economic development and that there are other ways of cutting the cake. However, no specific conclusions or recommendations emerged from those comments. My present position is that, notwithstanding some issues of definition and debates of theory, the main conclusions of the paper remain robust. Over the period since devolution, expenditure on activities that directly promote economic development and on intervention in the economy has grown much more slowly than public spending as a whole has grown. Given that fact, the question that we must ask is why.
Three alternative explanations might be given. The first is that, in practice, the Executive's main priority is not the promotion of economic development but things such as improving health or increasing the quality of health care, improving social housing or raising standards in schools. The second is that economic growth is indeed the Executive's first priority, but the Executive does not take the view that it must spend substantially more money on economic development than was already being spent. In other words, the Executive might view the level of direct economic development spend that it inherited—if I may put it in that way—as being broadly right. The third explanation develops that point further. It could be argued that increasing expenditure on economic development by, say, increasing Scottish Enterprise's budget is not an effective way of promoting economic development.
The evidence that we received from ministers produced no clear indication of which of those alternative explanations is valid. However, it could be argued that the evidence from the Minister for Finance and Public Service Reform was that the Executive's view is that a broad spectrum of public spending—in fact, practically all types of public spending—is in some sense supportive of economic development.
The second, more minor, topic to emerge that is worth mentioning is the balance between economic development spending that benefits mainly rural areas and spending that benefits mainly urban areas. In essence, the conclusion was that economic development activities that are relevant mainly to rural areas absorb a higher proportion of spending than equates to the rural share of Scotland's population. In other words, economic development spending is higher per capita in rural areas than it is in urban areas.
The Scottish Executive's chief economist raised some objections to that analysis. Dr Goudie suggested that not all the spending that I had classified as rural spending was solely of benefit to rural areas, although we were given no specific instances of that. There was some debate about the significance of spending on the common agricultural policy and a suggestion that other forms of spending that might be more beneficial to urban areas than to rural areas had not been properly accounted for. However, those points do not add up to a major critique. Over the life of the Parliament, spending on rural economic development has risen by, I estimate, 88 per cent in real terms. By contrast, the budget of Scottish Enterprise, which is mainly concerned with urban Scotland, has fallen in real terms, as has expenditure on regional selective assistance. I do not dispute that there might be sound reasons for that spending pattern, but those reasons were not revealed in the evidence that we received. For the moment, that is as much as I will say about spending patterns.
I turn to whether decisions on spending are driven by economic development priorities. The committee received evidence on that from a number of witnesses, including representatives of Scottish Enterprise and Highlands and Islands Enterprise, Government civil servants and others. There is general agreement that the key documents in respect of priorities are the "Framework for Economic Development in Scotland" and "A Smart, Successful Scotland". FEDS argues that the six areas that are most important to economic growth are planning and the housing market, transport, schools, lifelong learning, the electronic infrastructure and health care, and discusses generally how those might affect economic growth—for example, if people are healthier, they are less likely to be off work. However, we cannot derive from FEDS a clear message about where spending should be concentrated or where it should be increased in either relative or absolute terms; the discussion is general.
The evidence from the Scottish Executive witnesses did not indicate that FEDS or SSS were playing a major role in spending decisions. The evidence from Dr Goudie that the relationship between the priorities in FEDS and spending patterns was a subject worthy of research suggested that the Executive did not know the answers. The overall conclusion is that it has not been demonstrated that a policy framework exists that aligns strongly the pattern of public spending with economic development priorities. We tried to establish whether there was a consensus about what those priorities should be, but the views of non-governmental and private bodies were varied. There was no doubt that organisations tended to see the main priorities as lying in their own bailiwick, whatever that might be. It is also fair to say that there is no evident consensus outside Government about what the principal priorities should be for spending to support economic development, and I understand the difficulties in that.
We come to the specific argument about whether individual, general expenditure decisions have been aligned with economic development considerations. It is stated in FEDS that expenditure proposals are evaluated on their social, environmental and economic impact. Therefore, the framework for making spending decisions supports what is in FEDS. However, what is really being described is standard good practice and appraisal, in line with the guidance produced by HM Treasury for example. In itself, that does not establish that economic development has a special priority in decision making and it does not answer the question about how the broad strategic decisions are being made about how much we spend in the major areas of public sector activity.
The written and oral evidence gave relatively few insights into the process. FEDS states that health care is important to economic development, but there is no way of establishing to what extent the large increase in spending on health has been in the areas that are most closely related to economic activity, such as occupational health or the well-being of people in the working age groups, as opposed to care for the elderly or children. We cannot really tell whether or how public health care spending has been aligned with or driven by economic development priorities.
Transport is of special interest, because a number of witnesses identified it as being of great importance to economic development and it features as such in FEDS. We have seen high growth in spending on transport since 1997, but the great bulk of that has been on aspects of public transport, including funding for concessionary fares. Expenditure on roads, which most of the private sector witnesses identified as being important to economic development, has shown practically no growth since 1997. It might be argued—and no doubt will be—that public transport has more to contribute to economic growth than does building new roads, but that view would certainly be contested.
The Minister for Transport stated in his evidence that although appraisals of road projects tended to show higher economic gains than did appraisals of other types of transport investment, policy had shifted away from road construction towards public transport priorities. That suggests either that decision makers believe that the appraisal procedures that show high levels of economic return from roads investment are deficient, or that other priorities, such as environmental priorities, are being given greater weight in the decision-making process. What the committee has heard has not demonstrated that economic growth as a priority is having a strong impact on decisions about resource allocation at what we might term the strategic level.
We have seen slow growth in direct spending on economic development. It is unclear whether that means that economic development is not the practical priority that it has been suggested it is, or whether the Executive's view is that that form of spending is not effective in promoting economic development. We have had no real explanation of why there appears to be more spending per capita in rural areas than there is in urban areas. Overall, there is a lack of evidence that the pattern of spending on and investment in public services has been influenced strongly by economic development priorities. There is certainly no transparent framework for spending decisions that would enable us to say that spending has been increased in one area because that matches up with an identified area of priority elsewhere, or to show the connection between priorities and spending decisions. Specifically, I suggest that spending on transport has been driven more strongly by factors other than economic development considerations.
Those are the issues for the committee to consider and around which I suggest its report might be framed.
Thank you, Peter. That was an interesting and, in many ways, challenging set of findings. The views that you have set out have the great virtue of clarity.
I begin by making a slightly cautionary remark: economic growth might be the Government's first priority, but it cannot be the only priority, and there must always be a balance between the priorities of any Government at any point. In testing the relationship between the economic growth priority and spending, mapping out consistency, as you have done, is an interesting intellectual exercise, but Governments must always make judgments on balance.
That said, the point that you made about transport spending is entirely relevant. Would you make the same point about higher education spending, because it seems to me that a great deal of such spending has been geared towards access issues, which I suppose feeds into skills, rather than towards the Turner approach of high-level research specialisation and commercialisation by university spin-out companies? Is there a similar argument?
There certainly could be, although the issue is complex. It is true that at both UK and Scotland levels, the expansion of higher education has been justified on the ground that graduates earn more and are more productive, so the more graduates we have, the higher the added value, as it were, in our economy. That argument must be kept under review. The questions that you raise are relevant.
Has anyone asked whether the best way of using the higher education budget to promote economic development is to widen access? I am not saying that doing that is necessarily contrary to economic development priorities, because one way of expanding the economy is to raise the productive capacity of people who have been hitherto excluded from the higher levels of the workforce. However, is doing that more or less effective than building up centres of research excellence? I take no view on which course of action is better, but I can say that the choices are not really set out in FEDS and SSS. It is as if everything that might be beneficial or worthwhile is recorded—quite reasonably—but no sense of relative priorities or relative importance is given.
You draw a pertinent parallel between the situation in higher education and the situation in transport. The rationale behind the decisions that have been made was not made explicit in the documents that we received or the evidence that we heard.
I have two other questions. On the volume of spending, which is the main burden of the first part of your report, you paint an interesting picture of priorities. If we look slightly beneath that, at the direction of spending rather than the volume of spending, and consider spending on the enterprise agencies, and specifically spending on Scottish Enterprise, it seems that the approach that has been inherited is essentially a business support-oriented approach, which sees the fundamental role of Government in promoting economic growth as being to support the growth of business. What concerned me about that was that the alternative approach, which existed before 1992, and which saw Government as having more of a co-ordinating role in areas such as land reclamation and development in particular localities, does not seem to be being pursued. As we heard, that approach has been followed down south by English partnerships and other agencies. The question is not simply about volume of spend, but about whether spend is being directed correctly, and whether a form of planning-geared, strategic spend is not taking place or is not being properly co-ordinated in Scotland.
I agree that there are some issues that we should certainly develop in the report. I will respond to those points. What we have observed is very slow growth—not real growth—in the expenditure of Scottish Enterprise. It is quite right to say that Scottish Enterprise's main activities over the period have been in direct business support and business intervention, which is, indeed, a contrast with the balance of activity pre-1992, when there was much more emphasis on physical land reclamation. I might be reading more into FEDS than is there, but I am struck by the extent to which emphasis is put on the creation of a framework or context for economic growth—the physical, social and economic infrastructure, including education, training and so on—rather than direct intervention.
What might really be happening is that the priority is shifting away from the interventionist activities associated with Scottish Enterprise towards gearing spending to create an environment—or indeed a framework, as FEDS has it—for economic development. The activity is implicit rather than explicit. That is my observation and it would be helpful to know whether that is indeed the priority.
I refer again to the evidence of Dr Goudie, who said at one point—I am paraphrasing—that there are questions to be asked about the balance of spending on skills, direct support for economic development and infrastructure. That leaves the question of what the right balance is, and one might say that it is for the Executive to suggest what the right balance is. The shift and Scottish Enterprise's loss of spending share might reflect a policy change that, to some degree, downgrades the activities that Scottish Enterprise engages in nowadays, which are essentially business support activities rather than measures to change the physical or economic infrastructure.
My final question is about strategic choice at the level of projects, or at least at the level of area intervention. I do not think that this has quite emerged in your summary, but I certainly took from the evidence that the general assumption is that higher education or more transport spending is a good thing for economic growth, but that does not drive choices between different policy goods or project goods. For example, when you bundled together the transport priorities, the M74 came out the same as the Borders rail link or any other project; no economic growth driver was saying that we should do one thing rather than another, nor was there any evidence of an exercise similar to the one that the Deputy Prime Minister has mounted in the south-east of England to link affordable housing to serving specific employment needs. Is that a fair point to make about the report—that we need to have a better link between economic benefit and project choice than we appear to have at present?
I apologise for not making that point more clearly. At one stage, I was trying to make it, but I obviously did not underline it sufficiently. There is a gap. One can think of various levels at which decisions must be made about public spending. At the highest level, there is the question of how the budget is cut up among health, education, transport and other things. That is a complex process, and changing that balance is very slow. At the level of individual projects, we are deciding whether to build a bypass round Aberdeen, improve a bit of road up beyond Crianlarich or whatever. Appraisal procedures are used to assess individual projects, and those can be examined and one can say whether they are rigorous.
In between those two levels, there is a mesolevel, at which we determine the big priorities in, for example, the education or transport budget. Are certain key projects of strategic significance? Where does upgrading the M74 come relative to the Borders railway line, or how does expanding one aspect of higher education match up against another economic development priority? That level is missing in the framework documents. If we examine FEDS, we find sensible statements about the connections between aspects of public spending—of course, it is true that an efficient housing market is important for labour mobility and that a healthy population is important, as that makes for a more productive population—but what is missing is something below that, namely a level at which we ask, "Within the overriding, broad conclusions, in which areas can the greatest difference be made? What is most important in the medium and longer term?"
I concur with the convener's view and that is what I was trying to say. I think that there is an absence in the framework of clearly articulated priorities at the level between the global budget and individual projects.
What you have said is quite a useful suggestion. I found the inquiry a bit disappointing, in a sense; not only did the Executive seem not to be able to demonstrate how it supported its top priority of economic growth, but nobody else seemed to have much idea of how they would do things differently and they could not make any alternative suggestions. That was quite frustrating. The type of suggestion that could lead to a positive improvement would be helpful, because I feel that our conclusions are a little bit downbeat and that they do not point to things being done differently or invite the Executive to do something differently.
Suggestions were made about road transport, but one of the big issues at the moment seems to be planning constraint due to lack of water and sewerage infrastructure. I was slightly surprised that that issue did not emerge in our inquiry, and we do not seem to have highlighted it.
I have taken issue with people before about the question of rural and urban spend. It would be easy to overdevelop that issue, because we are looking only at a devolved budget and the division of expenditure in urban and rural areas must be examined in a UK context. You might be getting a skewed picture of spend, because more of the devolved issues are more relevant in rural areas. I will illustrate that with a small example. You made reference to the Scottish agricultural and biological research institutes, but they are the only part of the scientific research community that is funded through the Scottish Executive and not the UK Government. A very different picture of scientific research might emerge if you were to look at the research community as a whole and not only at the part that is devolved to the Scottish Administration. I am not anxious to get involved in constitutional arguments but, that said, too many conclusions can be drawn from the division, which may not be accurate.
I am grateful for that point. On the issue of water and sewerage infrastructure, I can only agree; that point emerged in evidence taking. Infrastructure is a good example of a priority area that has arisen in various discussions. However, one looks in vain for infrastructure being articulated as a priority in the framework document. I concur with the point.
Urban and rural spend should not be set up in antithesis. I did not intend to suggest that too much is being spent on rural areas; I mentioned the issue because it is one in which the spending changes have not as yet been quite explained. For example, we are seeing a big increase in spending on rural economic development at a time when other types of spending have not risen. It would have been useful for that change to be acknowledged and for the reasons to be discussed. I leave aside the question whether the spending is justified; I cited the example merely because it shows the difficulty in deriving explanations of what can be observed, in terms of spending, from the priorities that have been set out in the documents. I do not suggest that the committee should take a position on whether the balance is right or wrong; I simply suggest that the item is one for which an explanation is lacking. Although I can imagine what some of the explanations might be, they have not been articulated.
To return to Dr Murray's first point, the purpose of the document as it stands is to promote discussion. I am looking for a sense of where the committee is going. The committee might want to put forward a stronger view on the need for the Executive to articulate and set out its priorities in the areas of spend. I can see how the report could be written to do exactly that. The committee wants to produce positive recommendations and this is one of the areas in which one would hope to see that happen.
Again, as Dr Murray pointed out, the difficulty lies in establishing consensus on the priorities on which the committee needs to focus. If I were to be critical of FEDS, I would say that there is an absence of such choices—or of evidence that they are to be made—in the document. FEDS would be more useful if it articulated some of the choices that must be made about the direction in which we should be going and where the priorities should lie.
I take a slightly different view from Elaine Murray. She is right to point out that some of the evidence was disappointing, but it gave us the opportunity to highlight the need for a debate that has not yet taken place. For example, we should have the chief executive of Scottish Enterprise knowing what the top transport priorities are and being able to explain them clearly.
Like the convener, I think that a concise and balanced report has emerged from incredibly diffuse and difficult evidence. I congratulate our adviser on being so concise. Although the report is not written in our usual style, it is balanced because it does not try to impute rationales where they were not articulated.
I share the convener's belief that our expectation for the report should be that it opens up a debate on the subject. The rationales that the Executive can be asked to articulate could be reflected on by the Enterprise and Culture Committee and other committees. In general terms, the report is helpful. As I said, although it does not impute rationales, it invites others to be clear about them.
I have three minor suggestions to make, the first of which returns to the point that Elaine Murray made about water and sewerage. We should say clearly that the report is about spending on economic development and that it does not deal with the ways in which regulatory or legislative action affect the competitive climate. It is outwith the scope of the Finance Committee to talk about issues such as planning and water—although, God knows, I feel strongly about them. We need a disclaimer at the beginning of the report to the effect that the report's focus is on spending on economic development and not the way in which the regulatory environment might impinge on it.
Under paragraph 2.11, the point is made that aspects of the classification of main spend and development spend have been disputed. It is stated that, although revised figures will be included in the committee's report, they will not fundamentally change the conclusions. That point is absolutely fundamental. The final report should include a rerun of the tables, even if we have to add footnotes with a caveat that says, "The figures are disputed, but, because the order of magnitude is 1 per cent, they do not change the bigger figures." The data annexes are vital.
My final suggestion also concerns the key nature of the data annexes. I return to one of the points that Elaine Murray made. The bottom line is that the SABRIs account for £4 million or £5 million—how many million is it, Elaine?
It is £100 million.
Okay, the total figure is £100 million, but that is still less than we spend on fishing and forestry combined, to choose one example. We should deal with that by putting the data tables in the report.
I have one further query that relates to paragraph 3.3, in which you say:
"CAP spending should be excluded from the analysis on the grounds that the parliament has no effective control over this spending."
You might want to add a footnote about the increasingly discretionary aspects of CAP, because that would clarify the extent to which control can be exerted.
Similarly, in paragraph 3.4, a contrast is made between 88 per cent and 10 per cent. Is CAP in or out of the 88 per cent figure?
It is out.
Perhaps it would be helpful to include a footnote to that effect.
In paragraph 5.2, a point is being made about FEDS, but the final sentence of that paragraph does not quite tell us about the relative priorities or the higher-level strategic decisions—the big-ticket items.
Finally, I have a point of clarification. I am not suggesting that the answer to my question should go into the report, but are other branches of Government more clear about how the trade-offs are made? Does the Treasury do that in terms of total public spending? I suppose that my question hints at the extent to which this is a problem of Government per se or a problem of FEDS.
It would be wrong for FEDS to be castigated, as sometimes happens, for being worse than other documents. Certainly, Treasury documents start with the priorities that are set out in the Chancellor of the Exchequer's budget statement. The issue is one of Government and not FEDS; the criticism was not specifically aimed at FEDS.
I would like to reflect on the matter a little more—
Sure, that is what I would like you to do.
Reference was made to some of the priorities that were articulated by the Office of the Deputy Prime Minister in England. Perhaps some points should be drawn from that. I reserve my position for the moment.
I agree with that. Indeed, as you write your conclusions, you might reflect on whether the overall problem is one of Government and whether the problem might be more acute in Scotland because our Administration is newer than that at Westminster.
I am particularly interested in the section of the paper that deals with the balance between urban and rural spending. It would be helpful if we were clearer about the areas that we refer to as rural as distinct to those that we refer to as urban.
There is an argument that the only real urban areas in Scotland are the four major cities. My quick calculation is that the total population of those cities is about 1.65 million. Even the urban cities have huge rural hinterlands—for example, there are rural areas right round the outskirts of Glasgow. The adviser's paper states:
"Rural areas account for 47% of the expenditure - rural Scotland accounts for 27% of the Scottish population".
Are those Scottish Executive definitions?
They are indeed. There is a whole literature devoted to the subject of defining rural areas. The Scottish Executive uses a definition that is based on settlement size. We are talking about the population living in and around settlements below a certain threshold. There are different thresholds. However, basically, the definition is based on settlement size
Would that include our old county towns?
Let me explain exactly how the definition works. The trouble is that the definition is slightly coarse, because it is based on individual local authorities. A local authority is classified as urban or rural—which is a kind of all-or-nothing classification, as you might well imagine—whereas, in reality, even the Highland Council area, for example, includes Inverness, which is a city, naturally. You are right to draw attention to the statistical problems that rest with the definition of rural. However, the definition is based in essence on the proportion of the population of each local authority area that lives in smaller settlements. If that proportion rises above a certain level, the area is defined as rural.
So Fife, for example, which is where I come from—
It is urban.
It is urban, yet look at it: everything east of Leven is rural. The place splits totally in half. The west part of Fife is urban—Dunfermline, Kirkcaldy, Buckhaven and so on—but beyond Leven and into north-east Fife, it is totally rural. Therefore, it seems to me that some of the Executive's distinctions are not particularly helpful. We would think that the old county towns, such as Inverness, Perth, Stirling and Ayr, would be regarded as rural. If they were, that would bring up the figures.
The Highland Council area is certainly classified as rural. Mr Brocklebank makes a fair point. It would be useful to provide an explanation in the report.
I appreciate what you have done, Mr Wood. Your paper is objective and genuinely worth while, and is a significant contribution to taking forward the debate. I consider it exceedingly helpful.
I want to return to the rural versus urban issue. An article on the front page of today's Financial Times gave me a new word for my vocabulary: delocalisation. That probably describes an approach that is the opposite of relocation: the drift away from rural areas. Given the current debate, I wonder about state aid for poorer areas and about rich countries being under threat. I wonder whether we should take more strident steps here in Scotland to protect our position and start to make a special case.
It is hard for me to make that judgment. For me, that is a further example of the kind of issue that needs to be addressed and for which we need a framework. I emphasise that I am not suggesting that the Finance Committee take a position on what the right balance is between urban and rural spending. However, it would be good if we could trace back what we observe to priorities that have been articulated, so that we could say, "This is a particular problem to which we are giving greater priority."
I do not like to speculate, but my guess is that the increase in spending on what is classified as rural development is, in fact, a response to the problems that affect the agriculture and fishing areas in particular in rural areas. Indeed, we are talking about the loss of some support that has historically come through direct support to those activities. Therefore, the expansionary expenditure in rural development may be entirely appropriate. My point is that one will search in vain in FEDS, for example, for an explanation of why that is being done. I am making an argument for having more explicit and transparent priorities to which we can connect spending decisions.
Given that, do you believe that there is an ideal blend of priorities and followed-up spending, or do we have a rather incomplete proposition? Do we need to do something to change the conditions that generate growth, rather than just depending on a magic formula of support programmes and services? Pretty much every other country in western Europe is doing that.
Again, I will remain uncomfortably sitting on the fence. I do not want to take a position on what the right balance would be between, on the one hand, supporting the infrastructure of development and, on the other, intervening directly.
The more we consider what is happening with spending, the more we see that decisions are being made that might imply what the priorities are. However, things are not transparent. To some extent, the evidence from the Scottish Executive witnesses left the question open. It was as if they were saying, "We don't quite know what the right balance is on questions such as whether to spend more on training, or more on roads." It is important that we should try to arrive at a view on such matters.
Wendy Alexander is right to say that one can influence and support economic development in ways other than by simply spending money. Nevertheless, the Executive's primary mechanism is its control of the budgets. It can decide what to spend its budgets on. Again, I come back to the basic point: it is not clear what priorities are influencing the balance of spending decisions, or what beliefs are held about the relative efficacies of different types of expenditure.
In 20 years' time, should people look back at this report, will they see that we were on the cusp of recognising that the artificiality of Scottish economic management and the incompleteness of its mechanisms were coming home to roost?
Why do I feel the ground opening up beneath me?
You could pretend that it was Magnus Magnusson and say, "Pass."
There are different forms of government in which different levels of decision are made at different scales. The question was interesting. One would argue that economic development priorities should be aligned at the different levels—that national budget policies should align with regional spending patterns, which should align with the allocation of money at local level.
In a way, we have an experiment that has yet to be run in the Scottish Parliament, with regard to what might happen if there were to be a misalignment between the views of this Parliament and the views of the Westminster Parliament. That experiment awaits us.
Its time will come at some point.
In case there was any misunderstanding, I want to make it clear that my criticism was not really of Peter Wood's paper but of our inquiry. The paper is a very good reflection of the inquiry.
We have mentioned water and sewerage infrastructure and planning constraints. Those issues are to do with spending, not legislation. The major local development issues that many local authorities face concern investing sufficiently in water and sewerage infrastructure, so that they can build the houses and attract the businesses. I disagree with the view that that is a legislative matter; I think that it is about spending priorities.
I want to pick up on Ted Brocklebank's point. We need to define what is rural and what is urban. I presume that Dumfries and Galloway is rural. The analysis suggests that expenditure on agriculture, forestry and fisheries benefits the town of Dumfries but in no way benefits north-east Fife. That is a silly conclusion and I am not sure that we can stretch that sort of analysis too far.
That point is worth reflecting on.
On the first point, a question clearly arises in relation to overall expenditure on water and sewerage. Again, I say that Wendy Alexander was right to say that Government can do more to promote economic development than simply spend money. Elsewhere, such matters are rightly being considered. I know from current direct personal experience that the Executive is examining the extent to which the planning system inhibits, or fosters, economic development.
I am concerned that we are drawing such a division between urban and rural. If a farmer receives a subsidy and goes to the town or city to buy his tractor, where is the economic benefit? Is it urban or rural?
The benefit goes to the United States.
Not always.
What about a situation in which a farmer goes to Edinburgh to see his lawyer or accountant? Where is the benefit there? Members are considering the matter as though there were two boxes, but there are not. The two aspects are intertwined and it is negative to regard them as separate boxes.
There is a far bigger issue in the adviser's paper about direct support to infrastructure and spending that is supportive of economic development. Do industries such as the tourism industry benefit from support? Other industries, such as manufacturing industries, might benefit more from direct investment in infrastructure.
Again, that is a big question. It is difficult to answer, but I will try to strike a balance between personal opinion and the body of opinion. There is general acceptance that some kinds of industry and business—tourism is a good example—have a collective interest, for example in promotion. It is beyond the resources of individual businesses to promote their wares internationally, but by acting together with the help of Government they can do so. We can therefore argue that we need a national tourism promotion strategy.
The manufacturing industry has a different type of structure in that regard and on the whole we think that individual businesses are best able to promote their products to potential customers. There are parallels with agriculture, which has been mentioned. Agriculture is sometimes regarded as an area in which there is a form of market failure, because it is difficult for individual farmers to promote their interests, which leads to arguments for marketing co-operatives and other such measures. The general point that the appropriate type or extent of intervention varies according to the circumstances of individual industries is absolutely right. What is appropriate to support—for the sake of argument—the Scottish crafts industry, is not necessarily what is appropriate to support mechanical engineering.
Such discussions and issues lie rather beyond the remit of this committee. How and where we should intervene appropriately is perhaps a matter that belongs more in the realm of the Enterprise and Culture Committee. However, I concur with the view that different types of intervention are appropriate for different industrial and market structures.
What is your response to my other point about the artificial division between urban and rural?
I am sure that we will not reach an agreement on the matter. As you rightly suggest, someone who lives in Lochinver will no doubt go to Inverness from time to time to do some shopping, which brings benefits to the area. However, I emphasise that we should not fudge the issue too much. There is a question about why, for example, there has been an increase in measures that are intended directly to promote economic development in rural areas at the same time as measures to do that in predominantly urban areas have been relatively cut back. I am not suggesting that that is right or wrong, but it would be interesting to know why that balance exists. I am not suggesting that the committee make a crude point about spending too much in rural areas; the issue simply exemplifies the question about how we match up what happens in spending with the priority framework.
We have had a good kick-about on the matter and useful comments have been made. As I said at the beginning of our discussion, our report is potentially important, because it will highlight a number of issues that I think the committee would agree need to be considered properly. The advantage of the Finance Committee undertaking the exercise is our ability to look across the range of expenditure and take a vantage point that subject committees, which have more restricted remits, cannot take. We will try to incorporate issues that have been raised today in our draft report, which we hope to produce around the beginning of March. It might take a bit of time to finalise the report, but that is a reasonable timescale to set.
Although there was some unease about the urban/rural issue, particularly from members who represent rural areas, I do not think that we can avoid any of the issues that have been raised. We must deal with the issues that have been introduced. I am keen to try to push the Executive on the link between general, framework statement issues and the process by which decisions about investment or policy choices are made. We need to explore the rationale for such matters. Perhaps we should consider areas in relation to which discussion does not take place—or appears not to take place sufficiently—between ministers or between ministers and agencies across the boundaries of departmental responsibilities.
Are members content to proceed in that way and to return to the matter at the beginning of March?
Members indicated agreement.
I thank Peter Wood for his participation and for his paper.
The committee agreed to take in private the final agenda item, which is consideration of our report on the Charities and Trustee Investment (Scotland) Bill.
Meeting continued in private until 12:00.