Economy, Energy and Tourism Committee

Meeting date: Wednesday, February 2, 2011

Official Report 527KB pdf

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Enterprise Network Inquiry

For our next item of business, I welcome the Cabinet Secretary for Finance and Sustainable Growth to the meeting. I know that this is one of the quieter times of the year for the cabinet secretary, so I appreciate his taking the time to come to committee. I note that some members have lunch-time commitments and might have to leave early so I will try to take questions from those members as early as I can in proceedings. The cabinet secretary may make opening remarks and introduce his team and then we will open up the meeting to questions.

Thank you, convener. It is a pleasure to be here this morning. I am joined by John Mason, director of the Scottish Government business directorate, and Gary Gillespie from the office of the chief economic adviser.

The primary purpose of the Government remains to create a more successful country by increasing sustainable economic growth, with opportunities for all to flourish. It is vital that our economic development structures can maximise their contribution to that purpose.

We are in challenging times and it is essential that we give businesses in Scotland all possible support within the resources that are available to us. More than ever, we need to continue to work in strong partnerships, to strengthen links where necessary and to aim to provide the most efficient services that make a real impact.

Our economic development agencies and local authorities have a key role to play in supporting businesses across Scotland by promoting economic recovery and growth. It might be helpful if I reiterate the context and aims of the reforms of the enterprise networks that we introduced early in our Administration.

In 2007, we introduced reforms to help to meet our commitment to simplify the delivery landscape, to reduce duplication and to drive up effectiveness and efficiency in the delivery of economic development services in Scotland.

The work that was undertaken was to ensure that Scottish Enterprise and Highlands and Islands Enterprise had a renewed focus on enterprise development. To enable that to happen, we abolished the cumbersome and costly structure of local enterprise companies and enabled Scottish Enterprise and Highlands and Islands Enterprise to concentrate on interventions that would make the most economic impact. We established regional advisory boards, led by the private sector with representation from local authorities, to provide regional input, influence and connectivity to Scottish Enterprise. We enhanced the role of Scotland’s local authorities to enable them to support businesses in their areas, and we transferred funding for the business gateway and the local regeneration activities in the Scottish Enterprise area directly to them.

We also vested responsibility and funding for skills development and delivery in a new dedicated body—Skills Development Scotland. Our overall aim was to encourage and facilitate partnership and collaboration among key players who had a contribution to make towards achieving the Government’s purpose.

The objective of the reforms was to deliver focus across the agencies and local government within the clear framework offered by the Government’s economic strategy.

That clarity of purpose and strategic direction has provided a platform for partnership working and collaborative alignment. The Government believes that the reforms have been effective but, of course, we are looking—and will look—carefully at the committee inquiry’s conclusions in that respect.

Before I conclude, I want to update the committee on an issue that I am sure will come up in questioning and which I know is of interest: the Scottish Investment Bank. Since my last appearance before the committee, Scottish Enterprise has obtained the necessary Financial Services Authority clearances and has relaunched its equity products under the Scottish Investment Bank brand. Demand for these equity products remains high, with the likely level of investment in 2010-11 being similar to the high level of the previous year.

I can also tell the committee that the Scottish loan fund is now in place and ready to do business. The procurement exercise to secure the services of an independent fund manager has been completed and I am pleased to be able to tell the committee that we have selected Maven Capital Partners UK as the fund managers for the Scottish loan fund. The appointment of professional fund managers will ensure that the fund is run on sound commercial principles, maximising the potential returns to the Scottish economy. Maven is a highly experienced fund manager headquartered in Scotland with established offices in Glasgow and Aberdeen and has committed to enhancing its presence in Scotland for the purposes of the loan fund by opening an office in Edinburgh and appointing a new representative in and for the Highlands and Islands. That will help to raise the Scottish loan fund’s profile across Scotland and to encourage maximum uptake among eligible small to medium-sized enterprises.

The fund complements existing SIB equity products, the UK enterprise finance guarantee scheme and the loan funds that many of our local authorities operate. I am also pleased to advise the committee that, thanks to an extra £2 million of European regional development funding, matched with a £3 million commitment from Highlands and Islands Enterprise, we have been able to add a further £5 million to the resources available to the fund, bringing the total public sector commitment to £55 million and further strengthening the loan fund’s availability to eligible firms right across Scotland.

I hope that those details help the committee and am delighted to answer members’ questions on either that issue or the other business.

You suggested that the enterprise network reforms have been successful. What criteria have you used to judge that and what assessment have you carried out against them?

No formal evaluation has been carried out yet, convener. Indeed, in light of the evidence that the committee has taken, we need to give time for the reforms to bed down before any such evaluation is undertaken.

That said, after discussing the matter with individual companies and those who interact with the enterprise network through Scottish Enterprise, Highlands and Islands Enterprise or the business gateway, I get the sense that companies feel that the assistance and support that they have received has met their needs. Of course, this has all happened in a very challenging economic climate and in its on-going assessment of this policy area the Government will evaluate the results in due course. The committee’s inquiry contributes to the process into the bargain. Moreover, a certain amount of public reporting of the enterprise agencies’ performance has been assessed externally and is available for public scrutiny.

Given that the reforms were introduced before the economic crisis started to hit, have you considered whether they have been appropriate given the changed economic circumstances? Do they actually address the new economic crisis rather than the situation in which they were introduced?

I can do nothing other than acknowledge that in 2007, when we undertook the reforms, the economy was buoyant and that, within 12 months, things were fundamentally different. I assure the committee that we did not have that in mind at the time. Instead, our essential aim was to ensure that our enterprise agencies were very firmly focused on enterprise development and economic growth.

That focus was maintained in the circumstances that we then faced in 2008, when we still needed to deliver enterprise development and economic growth. We also needed to deliver a significant amount of support to try to sustain economic activity when individual organisations became more vulnerable. As a result, some of the work of Scottish Enterprise might have become less focused on the creation of new jobs in the marketplace—although that would clearly have been a desirable product of our reforms—and more focused on sustaining employment where it was challenged by economic conditions. The same would apply to Highlands and Islands Enterprise.

Decisions that we subsequently took as part of our economic recovery plan had big implications for both Scottish Enterprise and Highlands and Islands Enterprise—especially in relation to accelerated capital expenditure. Both organisations responded to that challenge very effectively.

As part of the economic recovery plan, Scottish Enterprise put additional resources into the Scottish manufacturing advisory service, to increase its capacity to offer advisory support to help companies through these difficult times.

When we undertook the reforms in 2007, the economy was in one set of circumstances; I cannot imagine circumstances in which, in 2008, I would have decided to unpick the reforms because of what had happened. We had to give the necessary focus and impetus to Scottish Enterprise and Highlands and Islands Enterprise. Both organisations responded positively and assertively to ensure that their interventions were commensurate with the economic conditions that we faced from 2008 onwards.

I want to move away from consideration of the structures to consideration of the resources available to the enterprise agencies. Our work on budgets and in relation to this inquiry has demonstrated that, in real terms, the like-for-like budgets available to the enterprise agencies have been cut significantly—even before we take into account the impact of cuts in public spending. What is the logic behind cutting back the budgets available to the enterprise agencies, especially when we have moved into a time of economic recession?

The committee will know the details of a number of transactions that have changed the size and structure of the budgets. For example, there was the establishment of Skills Development Scotland, and the transfer of responsibility for the business gateway to local authorities. However, on a like-for-like comparison, budgets have clearly fallen. Part of the rationale behind that—and I think that I have gone through this material with the committee before—is what else we are able to afford in offering support for business development in Scotland. The small business bonus scheme has been provided since 2007-08; in 2008-09, it was first introduced on a staged basis. The scheme has been one of our major contributions towards economic development.

The enterprise agencies have been required to operate more efficiently. Therefore, although the total sum of money available may have reduced, we expect the enterprise agencies to operate within their financial envelopes in a more efficient and focused manner. The way in which we have structured their responsibilities and remits enables them to do that.

Scottish Enterprise claims that for every pound it spends, it gains a net additional impact of £8.80. Do you accept that as a reasonable assessment of the bang for the buck that it gets? If so, would it not make more sense to invest more rather than less through Scottish Enterprise?

12:15

The return analysis that Scottish Enterprise has shared with the committee, which relates to a global assessment of the organisation’s work, certainly points to that. Scottish Enterprise’s evaluation work now contains much more external verification of the components of activity within the organisation to support that assessment.

As you hinted in your opening remarks, convener, there are, among the issues with which I am preoccupied just now, always arguments for more money to be spent in particular areas. I acknowledge the committee’s point in that respect. We have managed to focus our enterprise agencies by providing the resources that they require, and to take other business development interventions in the marketplace, which include our business gateway responsibilities and the small business bonus scheme. That gives us the set of interventions that are right and appropriate for the marketplace in Scotland today.

I will start by asking about regional advisory boards and the other mechanisms that were put in place after the local enterprise companies were abolished. One of the concerns that we have heard in evidence from around the country is that, in some respects at least, the abolition of the LECs has reduced the degree of engagement between Scottish Enterprise and local communities and areas. What is your overall assessment of the effectiveness of the regional advisory boards that have been established within Scottish Enterprise since the reforms were carried out?

The regional advisory boards have been able to provide perspective on a regional basis—if there is no better term—to Scottish Enterprise. That ensures that Scottish Enterprise’s knowledge base and interventions are focused appropriately according to the direction and drive of the Government’s economic strategy, particularly where it relates to tackling the issue—with which Lewis Macdonald will be familiar—of regional disparity in economic performance. It ensures that Scottish Enterprise addresses such issues and has a formal mechanism for bringing feedback from the regional advisory boards to the heart of the organisation.

Beyond regional advisory boards, there is a Scottish Enterprise personnel presence in different localities, which is clearly connected to the company base and institutional base in Scotland, to ensure that the organisation is plugged in, if I may use that term.

Lewis Macdonald indicated in his question that there is a sense that connection with communities is diminishing. I would have to accept that point, but it is a product not necessarily of the abolition of the LECs, but of the fact that Scottish Enterprise is now focusing specifically on enterprise support and development. I accept that that is different from community development.

One element of the reforms, whatever one’s view of their merits, was to provide that focus. I accept that there is probably a reduction in community engagement, but that is a product of the strategic decision that ministers took to ensure that Scottish Enterprise was much more of a company and enterprise development support organisation, as the committee has heard about in evidence.

That is very interesting. It is clear that even after your reforms, you recognised a different role for Highlands and Islands Enterprise—

That is correct.

—in connection with the matter of community development, as you appropriately describe it. Highlands and Islands Enterprise has taken a different route. At the outset, you indicated that regional advisory boards would be established in the areas of both enterprise agencies, but HIE has chosen not to do that. Was that decision taken in discussion with you? Did you approve it? What is your understanding of the reasoning for a different approach in the Highlands and Islands from in the rest of Scotland?

That approach was approved by ministers. In a sense, it was based on an understanding of what was the most effective way for Highlands and Islands Enterprise to pursue that distinctive part of its remit, which I made clear in 2007 the Government had no intention of interrupting. We recognised that it still had a significant role to perform.

I do not have the empirical evidence to reinforce this point, but my sense is that Highlands and Islands Enterprise is involved in more community-development-type activities at a local level. Stòras Uibhist strikes me as one example, as HIE has been immersed in the excellent work that is going on there. Scottish Enterprise would not ordinarily be involved in such activity because of the differences of circumstance and remit.

Again, that is helpful.

In the Scottish Enterprise area, there appears to be evidence, or at least views among stakeholders, that some regional advisory boards and structures are more effective than others. Equally, we have heard many times from witnesses that local authorities are variable in their performance in undertaking the responsibilities that they have taken over from Scottish Enterprise. Is that your view? Do you have any concern that, where there used to be a fairly consistent level and structure of local enterprise companies across the country, there are now inconsistent and variable levels of engagement by business through regional advisory boards and by local authorities with local economic development issues?

I do not share the analysis that assumes that the local enterprise companies gave an assured level of consistency around the country. That is one reason why the Government undertook the reforms: we did not believe that that was the case.

There were two other components of Mr Macdonald’s question. On local authorities, one of the strategic objectives of the reform process was to enact in practical reality its purpose of focusing Government and public services on increasing sustainable economic growth—and I labour the focus on Government and public services. My feeling, which was one driver of the 2007 reforms, was that local government had been discouraged from seeing itself as a player in economic development in Scotland. The message had been given out prior to 2007 that economic development was for Scottish Enterprise and not for local authorities, and as a consequence local authorities were not part of the picture.

In my opinion, local authorities are fundamental to economic development in all of our localities. They are the planning authorities and generally the transportation authorities—in all manner of actions, including trading standards, they are players in economic development. I wanted to address that point and, in essence, re-engage local government in the process.

There are some excellent examples of how that has worked effectively around the country. Even in the time when they were discouraged from being economic development players, local authorities sustained economic development departments and worked assiduously on the issue. In the area that I represent in Angus, 10 years or maybe even longer ago, the local authority was pursuing economic development opportunities in China, much to lots of people’s derision. My goodness, the county is now bearing the fruit of all of that sensible and patient investment.

The purpose of the reforms was to re-engage all local authorities. Will all local authorities be at a uniform level of performance and activity? I cannot say that they will, but I am certain that they have the opportunity to undertake activity and to fulfil their role and obligation in economic development.

On the regional advisory boards, the structure exists around the country and we expect business to be engaged through that channel as we would expect local authorities to be engaged.

Two weeks ago, I spoke to Lena Wilson about Aberdeen city and shire economic future—ACSEF—which acts as a regional advisory board to Scottish Enterprise for the region that I represent. You will know that I have been in correspondence with Jim Mather, among others, on the question of whom ACSEF is accountable to. In particular, I have been concerned about its taking prominent and active public campaigning positions in support of specific projects, of which Union Terrace Gardens is perhaps the most well known. Many of my constituents have raised with me the question of whom ACSEF is accountable to. Is it acting at the behest of ministers, Scottish Enterprise or local authorities? What answer should I give to my constituents who raise that question with me?

I intend no disrespect to Mr Macdonald, but I suspect that he could send them a folder of the answers that he has received to parliamentary questions on the subject over some time. Many of those will answer the question. If my memory serves me correctly, a number of those questions focused on the role that Scottish Enterprise plays in particular examples such as the Union Terrace Gardens development, what level of commitment was given and what the role of ministers was. All those questions were answered fully and properly to clarify that ACSEF would not have operated in that scenario as an agent or representative of Scottish Enterprise. It has operated as an organisation that is focused on future developments in the north-east of Scotland. Yes, it doubles up as a regional advisory board, but Scottish Enterprise had a pragmatic question to consider. Given that the organisation already existed to bring together the local authorities, the business community and various other players in economic development in the north-east of Scotland, would it have been credible for Scottish Enterprise to come along and say, “We can’t use that one—we’re going to have another one with a Scottish Enterprise badge on it”? That would have exposed Scottish Enterprise to a fair amount of criticism and people would have asked why it did not use the organisation that was already there. It was a pragmatic decision.

I understand the concerns that Mr Macdonald is expressing. However, I hope that, in answering his parliamentary questions and correspondence, ministers have given clarity and reassurance about who has been doing what in that specific case.

It is interesting that, when I put a similar question to the chief executive of Scottish Enterprise, her response was that her accountability for the regional advisory board—ACSEF—is limited by the fact that ACSEF plays another role as a local economic forum, although local economic forums ceased to exist at the same time as local enterprise companies ceased to exist. Is there something about the way in which ACSEF is constituted that might create real difficulties if, for example, an issue of accountability had to be pursued but there was no clear owner of responsibility for the actions of the organisation?

I am not sure that I understand the scenario that Mr Macdonald is painting. Let us take financial accountability, for example. Financial accountability is clearly and unreservedly the property of the chief executive of Scottish Enterprise as the accountable officer for Scottish Enterprise. ACSEF would have absolutely no jurisdiction over any of those questions or the decision making in that respect. I hope that the answers that Mr Macdonald has received to his parliamentary questions have made that clear. Accountability for ACSEF’s public campaigning stance on Union Terrace Gardens, however, is a matter for ACSEF.

I am struggling to see where the confusion might have arisen, other than—I concede—if Scottish Enterprise had seen this ACSEF architecture in place in the north-east of Scotland and had said, “Look, we can’t have that as the regional advisory board. We’ll have to create a new one.” That would have been a recipe for confusion and Scottish Enterprise would have come in for a lot of criticism for not just taking a model that was already in operation. However, to be fair to Scottish Enterprise, I recall that, in my 2007 statement to Parliament on this very issue, I specifically mentioned ACSEF as an example of the type of voluntary collaborative dialogue that we wanted to encourage. Perhaps that is where much of this has developed.

12:30

I want to ensure that I have fully understood the position. You said that accountability for a particular policy position is a matter for ACSEF; however, ACSEF has a locus within the public sector for which you are responsible. In some respects, you appear to be saying that responsibility lies with individual members. However, the funding that they get is all public money, much of which you are ultimately accountable for.

Yes, but that money will be spent with the consent of various accountable officers in the public sector, who will have been satisfied that the expenditure is appropriate. I see no issue with financial accountability in that respect.

If I understand Mr Macdonald’s point correctly, he seems to be talking about accountability for statements, comments, stances and positions. In that respect, ACSEF cannot put out a statement saying, “Scottish Enterprise believes this or that,” because it is simply not empowered or entitled to do so. However, I am pretty certain that, as a body, it has said, “We think that there should be an Aberdeen western peripheral route.” That is an ACSEF statement for which its chair, officers and members are responsible. As their name makes clear, regional advisory boards play an advisory role; they do not make decisions. As a result, they are very different from LEC boards, which had operational and financial decision-making powers up to a certain level, with any decisions beyond that level referred to the Scottish Enterprise board. ACSEF does not have that type of responsibility.

That was very helpful.

Good afternoon, cabinet secretary. Although we have heard evidence of gaps in business support opening up between the gateway arrangements and account-managed companies—indeed, one witness described the situation as a “support wasteland”—Scottish Enterprise has said that it does not recognise that situation. Given the importance that is attached to business support, which—as you said earlier—is central to the Government’s economic strategy, are you sure that all businesses that are eligible for assistance are able to access it?

I am satisfied on that point, but I would also be concerned by evidence to the contrary. There might be an issue about the perception of what the business gateway can and cannot do; it is the point of contact that is available in all parts of the country to all companies that are looking for business development support. Perhaps I can share some figures with members. In 2009-10, for example, the business gateway helped 11,000 individuals to start up businesses and more than 10,000 people attended events that were aimed at existing businesses. Moreover, it receives between 2,500 and 3,500 inquiries every month from existing and start-up businesses. I simply reiterate to the committee its accessibility to all companies.

Beyond that, we must be satisfied that companies that emerge through the business gateway can, if they are growth companies, be signposted to obtain more in-depth support from Scottish Enterprise or Highlands and Islands Enterprise. I have come across the misconception that only big companies are account-managed companies. I reiterate that they are not all big: some very small companies are account managed because they are growth oriented.

The model that is in place, which makes the business gateway and its services available to all companies, is an important facet of the system. If it is not widely understood, we have a challenge to convey that to people. If the committee has observations on that, the Government will respond positively to them.

The view might well be that the response is patchy. In the Highlands, where I work, people understand the gateway’s role more, but that is not the case in other instances.

I took a decision in relation to the Highlands and Islands of which I was persuaded by local authority leaders in the Highlands. That decision was not my original plan. I had intended to contract out the business gateway service, as happened in the Scottish Enterprise area, but Highlands and Islands local authorities made a strong pitch to me to align the service with their economic development proposition. They presented a strong proposition, and that is what we went for.

I was in Inverness some time ago to launch the joint service between Highland Council and Moray Council that is provided in Inverness, with a satellite operation in Morayshire. That involved great enthusiasm from and engagement with the business community. That model might have something on the virtue of alignment that needs to be examined closely; that can be considered in due course.

One issue is the HIE approach to very local account-managed communities. I will focus on a point that has been partly mentioned. I presume that, if no growth is happening, any growth is measured as high growth. A general point is that development officers can be appointed in account-managed communities in HIE’s area. We have had evidence that considerable areas of rural lowland Scotland have not benefited from that approach, but could be helped by filling the gap in support for communities in rural areas and providing the business opportunities that arise from that, whether for third sector or commercial businesses.

I return to the point that I discussed with Lewis Macdonald. A challenge relates to the focus that we gave Scottish Enterprise. I accept that one consequence of that focus is that Scottish Enterprise was clearly made into an enterprise development organisation and not a community development organisation. Other aspects of the Government’s agenda would focus on community development—local authorities are massive players in that process, into the bargain. The situation is a consequence of strategic decisions that we made. We will get feedback on whether those decisions were absolutely correct. I have described what we aimed to do and what our thinking was.

So, you are looking for evidence to suggest that some parts are not gaining the same access to support. The provision of business support seems to vary across the country.

On business support, I will obviously consider the evidence from the committee’s deliberations—I have seen some of it already—but the business gateway contract should provide the reassurance that, in every part of the country, there is access to the business gateway service. If that is not the case, we have an issue about contract performance, not contract design and I would, of course, examine that.

Will there be a review of the success and performance of the business gateway in the near future?

That will happen in the relatively near future, and probably in the very near future. There is a discussion on development of the business gateway on 22 February, hosted by the Convention of Scottish Local Authorities and involving all relevant stakeholders. Now that I think about it, I believe that I will actually be attending that. That is nice to know—a bit of forewarning. The business gateway Scotland board has commissioned an economic impact evaluation of the business gateway, which is due at the end of February 2011. The contracts are up for reconsideration in 2012, so all of that will be examined.

Can the committee expect any response from you on the outcomes, at least in top-line terms, of the discussion on 22 February?

I would be delighted to write to the committee on that. I am not sure what the timescale for the committee’s report is. Obviously, the committee will wind up its inquiry fairly shortly and produce its report. Once we have the feedback from that event and we have had a chance to consider the committee’s report, it would be helpful if we could give some form of response to the committee before dissolution, which would allow the issues to be considered after the election in May.

On contract renewal, what process do you envisage in considering whether changes to the basis of the business gateway contract are required?

We have not yet explored that question. The contract is up for renewal in October 2012, so we have some time to go before we come to that process. The evaluation work that emerges from the exercise that will be done in February, plus the thinking from the committee, will help to form the approach that is taken to the business gateway after the election.

You said that a formal evaluation of the reforms has not yet taken place. When is the appropriate time for a Scottish Government formal evaluation of the 2007-08 reforms?

Four to five years feels to me to be about the right sort of time.

There has not been a formal evaluation, but has there been any interim evaluation or any more detailed work that you can talk to us about now, or furnish us with information on after the meeting?

Nothing formal has been done, but one aspect of the reforms that I introduced was the establishment of the strategic forum, which meets a number of times a year and which brings together the chairs and chief executives of Scottish Enterprise, Highlands and Islands Enterprise, VisitScotland, Skills Development Scotland and the Scottish Further and Higher Education Funding Council with me, the Cabinet Secretary for Education and Lifelong Learning and the Minister for Enterprise, Energy and Tourism, as well as senior Government officials. The purpose of that gathering is to take stock and to challenge where we are in implementation of the enterprise network reforms. Obviously, the reforms had a spillover effect on Skills Development Scotland’s work, and the funding council is integral to much of the skills and training development work that goes on with Skills Development Scotland. We use that forum to revise any ways of working and approaches that we take and to guarantee that we continue to monitor the effectiveness of the reforms.

12:45

From that forum, or from your own thoughts independent of it, are there areas where you have been disappointed with the reforms or where you think that issues need to be resolved?

I am concerned by the point that Rob Gibson made about people feeling left out. I cannot see anything in the architecture of the enterprise network reforms that makes that inevitable, but if there is, we need to tackle it. I am concerned about that, because I do not want Scotland’s company base to think that there is nowhere for it to go to get support and advice. That is not the objective. If there is an issue to be explored there, we would certainly explore it.

On implementation of the reforms, I thought that Scottish Enterprise dealt with a significant amount of upheaval in a relatively short space of time and that there was relatively little disruption to Scotland’s business base. Both Scottish Enterprise and Highlands and Islands Enterprise should be complimented for the way in which they undertook these significant structural changes. We are all familiar with the fact that structural changes can create a lot of uncertainty, but that has been avoided.

I come back to a matter that you mentioned in your opening statement. I am sure that you would be disappointed if I did not ask you about the Scottish Investment Bank. I think that you used the expression that the Scottish loan fund is “ready to do business.” If companies approach me or other committee members after hearing about the fund, where should we advise them to go to find out about eligibility, to get a copy of the guidelines on how the fund would operate and, ultimately, to get an application form?

Companies would get that information from Scottish Enterprise.

So, if they went to the Scottish Enterprise website today, they would be able to get all that information.

My understanding is that people will be able to obtain information about the Scottish Investment Bank to start the process of applying for support through the Scottish loan fund. Would they get a decision this afternoon? Of course they would not, because there is a due diligence process.

I shared with the committee some of the details of the role of Maven Capital Partners. The fund has to be operated on sound commercial principles; it has got to deliver a return to the Scottish economy. Not everybody who goes to it will get support, but with the appointment of the fund managers, we are now in a position to take another step forward.

I think that Mr Brown is familiar with my responses on this issue. The process has taken longer than I would ordinarily have liked it to take. One lesson that I have learned from my time in ministerial office is that procurement is a long process—procurement of this type of service is an even longer process. That is why it has taken so long, but the fund managers are in place and are eager to pursue the issues.

Good afternoon, cabinet secretary. I will ask about the role of Skills Development Scotland because, as you have pointed out, the reorganisation has certainly had an impact on it. I am aware that a lot of hard work has gone into Skills Development Scotland and that it has many excellent staff and a committed chief executive. There is no question about that. However, there seem to be issues about how joined up it is with the various agencies and how it is fitting into the landscape. Do you believe that Skills Development Scotland has established itself as the leading public body in its field?

I think that it has done that, although there is a distance to go before Skills Development Scotland is acknowledged as the key player in that respect. SDS is not my ministerial responsibility; I will do my level best to give the committee the answers that it deserves, but if I have to write to the committee on the point I will do so timeously.

Many people’s view of Skills Development Scotland will be more influenced by the service that they access than by their knowledge of what SDS is. I suspect that an individual who wants to take up a modern apprenticeship is probably not particularly fussed to know that that happens through SDS; they just want to know that they can get an apprenticeship. That is key. In that respect, SDS has a good track record on take-up of modern apprenticeships during the past couple of years. It has presided over more than 20,000 modern apprenticeship starts. That is my sense of the organisation’s role and how it should be perceived.

SDS noted that a number of bodies retain a role and responsibilities in relation to aspects of skills training and development, including local authorities, the business gateway, the Scottish Further and Higher Education Funding Council, the sector skills councils and so on. The landscape still seems quite cluttered to people. How will the relationship with SDS, Scottish Enterprise and Highlands and Islands Enterprise develop, particularly given the removal from your portfolio of the skills agenda?

My answer to your question is largely contained in what I said about the strategic forum that we have established, which brings together the chairs and chief executives of the five relevant bodies. In the context of your specific question, the two bodies that are most directly affected are the Scottish funding council and SDS. The forum includes not just me but the Cabinet Secretary for Education and Lifelong Learning, who has responsibility for SDS.

If you were to marshal and put in front of me evidence that there is a lack of joined-upness between SDS and the Scottish funding council, I would be concerned and I would be happy to address the issue: the strategic forum’s purpose is to tackle such issues and to ensure that, for example, the funding council is not active in an area in which SDS is active, with neither body knowing what the other is doing. We want to encourage a joined-up approach to activity.

You asked about an overlap between, for example, the sector skills councils and the business gateway. I do not think that there will be an overlap with the business gateway. The sector skills councils have a different role, which I understand is, in essence, to gather market intelligence from the sectors about the skills training and skills development that the market demands, and to feed that information into public policy. I suppose that the councils are an intelligence and information gathering resource. Their activity is driven by businesses, which is crucial, because I want the business community to be able to articulate, in a focused way, the type of skills that they need but cannot get.

An example that will be close to Marilyn Livingstone’s heart is Burntisland Fabrications. I am not sure whether BiFab has been involved with the sector skills councils, but as a result of all the current discussion, modern apprenticeships will be provided for people who want to work in renewable energy developments, which is material to BiFab. I do not know whether BiFab had to tell the sector skills council about that requirement, and whether the council then told Skills Development Scotland, but BiFab is an important example to illustrate that companies are able to ask for, for example, more renewable energy apprenticeships because they do not have enough people with those skills, and then they are provided.

The cabinet secretary has been very kind to provide me with an example, and I might be able to do so, too. You asked whether I know of things that are not working in a joined-up way. We visited OPITO, the oil and gas academy, in Aberdeen, and the people there spoke to us about the time of the demise of the shipbuilding industry, when the workforce from that industry got top-up skills and were then able to work in oil and gas. They suggested that we need to move oil and gas people into renewables. However, it is not possible for adults to do modern apprenticeships, because we do not fund them. We are missing a huge opportunity to move skilled people over into the renewables sector.

We are not training adult modern apprentices in the food and drinks industry either, and that is madness. Those are the people the industry is looking for, and representatives are speaking to Government about it.

Colleges have always been seen as a gateway back into work, particularly in times of recession, and as a huge driver to restart the economy. We must not lose a generation of young people. We received evidence last week about the recession hitting young people, but we are cutting college funding—there is a 15 per cent cut at my local college. Announcements are coming from the college sector about substantial cutbacks.

The Scottish funding council was going to announce cutbacks of 22 per cent in built environment courses. That includes planning. You have been before us saying that planning is important and that there are not enough planners. What are we doing? I wrote to the minister, and that training has been halted—I say that wearing my cross-party group on construction hat. That makes me ask where the joined-upness is. I am not blaming Skills Development Scotland for this, but we are not getting it right. There are young people who will not be able to get college places, there are adults who will not be able to undertake modern apprenticeships, and there are cutbacks to courses that the Parliament wants to promote—in planning, for example, where the interventions of politicians have been stopped.

I do not know whether that gives you a flavour of how frustrated I feel, but there is still clutter in the landscape and people are still confused. It was a huge mistake to remove those areas of skills and learning from your remit. I could bore you for a week about this if you want—but that might do.

Marilyn Livingstone would never bore me on this subject. I acknowledge the passion with which she speaks on these issues, and it is not something new—I probably heard it at the first meeting of the Enterprise and Lifelong Learning Committee in 1999.

I do not think that the material that Marilyn Livingstone has just cited is evidence of clutter, or of duplication or overlap. It is all about the challenges that we have to face in a difficult financial climate. The point has been made about college places. The Cabinet Secretary for Education and Lifelong Learning has made it clear, through discussions with its representatives, that the college sector has agreed to protect college places from this year to next year. Specific decisions are taken about where we train people, and we have to get those judgments right. There is no point in training people in areas of economic activity where the market does not want them. That goes back to my point about getting feedback from sector skills councils. There is absolutely no point training people for jobs for which there is no demand in the marketplace.

I will feed back to the Minister for Skills and Lifelong Learning the points that Marilyn Livingstone has raised with me about the movement from oil and gas into renewables and about adult apprenticeships.

13:00

On training places, there were 36,485 training place starts in 2009-10 under the umbrella of Skills Development Scotland, and the projected figure for 2010-11 is 40,950 starts. Clearly, we will go into more difficult territory in 2011-12, but the agreement that the Cabinet Secretary for Education and Lifelong Learning has reached with the colleges about protected places should give the committee some assurance on that question. The strategic forum operates very effectively in creating what I think is a very good level of co-operation between the agencies and organisations. The funding council and Skills Development Scotland are sort of in the same area in many of their decisions, but they are making their decisions jointly in a much more cohesive fashion.

I am impressed by the enthusiasm of SDS staff, so that is not what I am criticising. However, we heard in evidence last week that the recession will impact most profoundly on young people. None of us around this table wants to see the reoccurrence of a lost generation, but we see evidence of problems in that regard in our own constituencies. Some of the issues that we have been discussing will obviously have an impact on that. However, we heard last week that we need to address many issues around our built environment, and issues such as renewables and allotments were also raised. Some of the fuel poverty people said that we have an opportunity not just to train as we have been doing but to look at what skills are needed for other areas and to provide the training and build skills for young people to give them hope for the future.

I agree with that unreservedly. Part of the decision making on the budget was designed to create the chance for young people to find positive opportunities either to develop their skills or to find employment. I assure Marilyn Livingstone that that remains my focus as I work to secure agreement on the terms of the budget in the course of the next seven days.

Do you feel that the reforms of SDS went far enough? Do you believe that further consideration should be given to the rationalisation of workforce development responsibilities?

If Marilyn Livingstone will forgive me, I am not familiar with the other landscape that will be in place. However, Skills Development Scotland is now up and running and functioning as an effective organisation. I would be happy to consider suggestions regarding other areas where we can rationalise and build so that we can concentrate as much resource as we can on achieving the priorities—which Marilyn Livingstone set out—of college places, training places and training opportunities. The more we can simplify the landscape to maximise the resources that are deployed, the better. If the committee reflects on that in its report, the Government will consider it very sympathetically.

You asked for specific examples of a disjointed approach. You will probably recall the discussions last year in relation to Siemens and the attempt to get funding for places at Carnegie College. That is a classic example of where it all seemed to go wrong. The college, SDS and Fife Council were all involved, and I presume Scottish Enterprise was, too. In the end, the organisation out of that lot that probably had the least responsibility for the issue—Fife Council—picked up the bill; otherwise the attempt would have failed. The question of what went wrong there should be addressed.

I recall the example, but I cannot remember all the details. However, I remember it being slightly more complicated than that. I shall go and refresh my memory on it.

How much more complicated do you need it to be?

As I said to the committee, if there are examples of a disjointed approach, I will be concerned about them and want them to be resolved. We have the mechanisms in place to do that through the strategic forum.

I am not talking about the strategic level; it is more about something going wrong and not being sorted out at the local and regional level.

I use the strategic forum as an abbreviation for saying that all the players should be able to sort out such issues. I will re-acquaint myself with the circumstances of that case.

I am going to ask a few questions about local regeneration. The committee has heard from a range of witnesses that the process of transferring the regeneration role and its responsibilities has been at best incomplete, or has not actually happened. Last week, witnesses advised that the funding of regeneration needs to be combined with building local capacity. Dr Ian Wall stated that one definition of regeneration is that it is “about people, not things”.

Cabinet secretary, we have had discussions about regeneration in the past, and I have posed questions about responsibility clauses in regeneration projects in particular. The evidence that we have received has been inconclusive. How effective have the 2007 reforms been in relation to the responsibility for regeneration? You mentioned that there has been no evaluation of the overall reforms, but has any type of evaluation been done that focuses on regeneration? Were the financial resources transferred to Scottish Enterprise as planned?

To address the philosophical point about the purpose of regeneration, one of the key points in the First Minister’s foreword to the Government’s economic strategy says:

“Scotland has real strength in the most vital factor for modern economies - the human capital offered by our greatest asset, Scotland’s people.”

I use that example to agree with Mr McMillan that investment in people and ensuring their ability to be economically active and to contribute to our society lies at the heart of what the Government is trying to do. I have cited the Government’s purpose as being to focus Government and public services on increasing sustainable economic growth. In that relationship, we have to focus the different public authorities on the work to transform the human capital of Scotland. It is not enough to rehabilitate places; we have to create opportunities for people, and they have to have the skill and aspiration to be economically active.

That will be a product of a range of interventions. For some individuals, it will be about taking a college course. For others, it will be about trying to re-engage them with what we would all ordinarily consider to be the relatively routine aspects of life. People who might be recovering from addiction or mental health problems have a long journey before they can get anywhere near the labour market. We have to make interventions that are focused on the individual so that we can assist them in that journey. For someone who has the acute needs that I have talked about, complex arrangements will have to be put in place.

On the physical aspect of the issue, around the time of the enterprise network’s reform, there was a discussion that classified the regeneration role between the local, the regional and the national. The national regeneration projects were clearly the responsibility of Scottish Enterprise’s economic regeneration projects. The local projects were clearly the responsibility of local authorities, and a transfer was made to the local authority block grant. In the middle, there were what could be called significant local or regional regeneration projects, which were supported either by urban regeneration companies or through specific decisions taken project by project by local government and Scottish Enterprise.

As for how it is working, a structure has now been established. As I said in response to Mr Brown, there is a time and a place to review that, but I do not think that it is quite that time.

Evidence that we have received suggests that the distinction between national and local regeneration has not been fully understood. Do you agree with that view? Do you have any plans to ensure that that distinction is made clearer?

If it is sensed that there is a lack of clarity around that, I will certainly examine the issue. I feel that the definition is reasonably clear, but if different participants do not think so, we will, of course, revisit the issue.

Urban regeneration companies are very much a topical issue, especially with regard to the budget process. I know that you have received a lot of correspondence on them; indeed, you will have received correspondence from me on Riverside Inverclyde. I am not going to ask how discussions are going with other parties—I am sure that we will find that out in due course—but I have certainly requested a meeting with you and Alex Neil to discuss Riverside Inverclyde.

I have a number of concerns, one of which is the language that has been used about URC funding. For example, an article in one of yesterday’s newspapers took a divide-and-conquer approach and sought to pit one area against another. That stands very much in contrast with last week’s debate on proposed coastguard station closures, in which members across the chamber talked about standing united and working together and tried not to pit one place against another. I am certainly disappointed with some of the language that has been used in the media.

At the end of the day, a substantial cut has been proposed to the regeneration budget. I realise that the Scottish budget is to be cut by £1.3 billion but, in areas such as Inverclyde, companies such as Riverside Inverclyde are trying to promote their areas and ensure that progress happens in them. Given Alf Young’s comments in The Herald that there has been a lack of investment in Inverclyde for 20 years, I am concerned that if funding is reduced by the reported 70 per cent, Inverclyde will suffer over the next five to 10 years and beyond.

I am afraid that I am not familiar with the comment in the media to which Mr McMillan referred, but I am happy to check up on it and see what has been said.

It was in yesterday’s Evening Times.

Right—I will go and have a look at that.

Since 2006, Scottish Enterprise has invested £17 million in Clyde Gateway and, since 2007, £7.1 million has been invested in Clydebank Re-built, £12.3 million in Riverside Inverclyde and £7.95 million in Irvine Bay Urban Regeneration Company, so it is clear that over the years a lot of expenditure has been made in this area. As currently constituted, the 2011-12 funding proposals include a commitment by the Government and Scottish Enterprise to invest £25.4 million in urban regeneration companies: £18.1 million for Clyde Gateway, £2.9 million for Riverside Inverclyde, £2.9 million for Irvine Bay and £1.5 million for Clydebank Re-built. Funding will continue to be made.

I am aware of the concerns that exist on the issue and I am actively considering them. I am working to resolve the concerns that have been expressed to me, including the representations that Mr McMillan has made.

13:15

I am happy to meet up with you outside the committee to discuss the matter further, if that is possible.

I am happy to do that. In addition to the URC funding issue, the relevant minister, Alex Neil, has made it clear that the Scottish Government will support new models of regeneration, including through the £50 million joint European support for sustainable investment in city areas fund. That will provide an opportunity for URCs to be involved in the process. As I say, I am actively considering and exploring the issue, and I would be happy to discuss matters further with Stuart McMillan and others.

I have one final point. I know that you have been down to the Inverclyde area on a number of occasions. If you go there over the next month or so, you will see for yourself the progress that Riverside Inverclyde has made and the benefits that it has brought to the local fabric and the local community. I am sure that that would give you a better understanding of the importance of Riverside Inverclyde to the Inverclyde economy.

I certainly understand the significance of the work that goes on in Riverside Inverclyde and I have appreciated that for some time. I will consider the points that Mr McMillan raises.

Back in April or May, we went to Brussels and Aberdeen. Part of the reason for our going to those places was to look at enterprise agencies and other agencies that promote trade in those areas. We found that in Flanders—not Belgium; one must be careful about that—the concentration on trade, because of the size of Antwerp, was the great motive force there. When we went to Aberdeen, however, we found that the various people concerned with offshore activities from orthodox oil extraction and supply to renewables were worried by the absence of any single door that they could go through for economic development. I wonder whether, in reflecting on the future of the enterprise agencies, we might pay some attention to the elephant in the garden that is renewables. Do we require some sort of co-operation between the agencies or some co-ordinating body—I hesitate to suggest a new agency—that would make it possible to tap, from a Scottish perspective, that enormous and enduring accession to our economy?

I will first make a general point about the committee’s comparative work in looking at other agencies. We have our structures in Scotland, and they are what they are. Nevertheless, there are other structures in other parts of the world, and we should be open to determining whether, comparatively speaking, we have all the right arrangements in place. It gives me comfort that the assessment of the effectiveness of Scottish Development International that is made not by us but by external players partly addresses the point that Professor Harvie makes about the importance of the internationalisation of business activity.

One key theme of the Government’s economic recovery plan is the focus on internationalisation, in the process of which we are encouraging companies to take on new activities. A rising number of companies have been helped to internationalise, although the company base is still relatively small. The number of companies was 836 in 2008-09 and 909 in 2009-10. We can identify new opportunities in a number of areas. I talked to someone from a company the other day who bemoaned the fact that they did not have many domestic sales in this country; they said that all their activity went to other countries. One half of my heart wanted to say, “That is a terrible missed opportunity in Scotland,” and the other half wanted to say, “Thank goodness you are undertaking international activity.” We have to see internationalisation of business activity as a fundamental part of how we work out of the economic difficulties that we face and ensure that we deliver a better situation for the public in Scotland.

The other subtext that we picked up on in Aberdeen in speaking to a range of different organisations is that people are having to deal with four separate ministries when it comes to renewables. People spoke about a level of co-ordination, but said that they are never certain who they have to deal with. I found that also in talking to German firms in Baden-Württemberg, such as Voith, which is the leading turbine manufacturer in Europe. The situation in Scotland is not helped by the fact that the energy portfolio is reserved. When I suggested that we should have a cross between Scottish Enterprise, Highlands and Islands Enterprise and a British National Oil Corporation-type organisation, I found to my surprise that case-hardened capitalists from the north-east said, “Yes, yes. Give us something like that.”

I am struggling to work out the four departments that people are having to deal with. We have an energy directorate that is responsible to Mr Mather, who is assiduous in pursuing energy issues. There are initiatives such as the Scottish European Green Energy Centre, which is located in Aberdeen and is designed to help companies to undertake tasks. The renewables sector offers the opportunity to internationalise activity very effectively. If you have any points on how all that is joined up, I would be happy to explore them.

My points are on finance, environment, education and the role of the First Minister in all of this. The paradigm for how to organise such matters is Lloyd George’s Ministry of Munitions in the first world war. I also cite my experience of the Open University. What we will face in the next five to 10 years will demand organisation on a BNOC-type scale.

It will require intense focus. The very successful renewables finance conference that the Government organised in September—albeit that it may not have been obvious which Government department ran the event—was designed to create a platform for companies to see the opportunities here in Scotland. The event fulfilled that objective.

Does the current structure of the enterprise agency network ensure that Scotland maximises its renewables potential? Highlands and Islands Enterprise operates in the renewables field in its area and Scottish Enterprise does the same in its area. Does having two organisations and not a single agency for renewables mean that we miss opportunities?

I would be loth to take renewables to another agency. As part of the Government’s economic strategy, we took the decision to give much firmer direction to the sectors in which we saw economic opportunity, which were defined as the creative industries, energy, finance and business services, food and drink, life sciences, tourism, and the universities. That approach was designed to give a clear signal of where we saw the opportunities lying. Scottish Enterprise and Highlands and Islands Enterprise have an obligation to support it, and they do so assiduously.

Your question was about what we are trying to achieve as a country rather than as separate agencies. Much of that will flow into the organisation of events such as the renewables finance conference and the formulation of the low-carbon economic strategy, which was a very good piece of joint working between Scottish Enterprise and Highlands and Islands Enterprise to provide a combined product. The national renewables infrastructure plan is a jointly developed proposition between Scottish Enterprise and Highlands and Islands Enterprise. Every effort is put into ensuring that no one can say that work in Scotland is anything other than cohesive. That is the objective of what we are trying to put in place.

The national renewables infrastructure fund was announced as a joint initiative of Highlands and Islands Enterprise, Scottish Enterprise and the Government, but ended up as an initiative of Scottish Enterprise only, because Highlands and Islands Enterprise took a different approach. Is that not an example of a disjoint that may not be beneficial in the long term?

All the work is focused on delivering against the national renewables infrastructure plan, which is a joint product between Scottish Enterprise and Highlands and Islands Enterprise, working closely with the Government. There should be no disjoint in that process.

One area that is seen as a particular strength of Highlands and Islands Enterprise is its strengthening communities function, which includes an initiative to account manage communities as well as firms. It has been suggested to us in evidence that some parts of the Scottish Enterprise area of Scotland, especially more remote communities in the south of Scotland, might benefit from a similar approach. Has any thought been given to extending Scottish Enterprise’s remit to give it a strengthening communities capability in areas that might benefit from that?

No consideration has been given to that. The rationale for the enterprise reforms was essentially to focus both organisations more on the process of enterprise development, although a caveat was attached to that in the Highlands and Islands because of the rich, nearly 20-year tradition of its strengthening communities role, which emanated successfully from the Highlands and Islands Development Board through to HIE. Other aspects of Government and local authority activity can be well focused in other areas. However, given that the committee has raised the issue and will, I assume, do so in its report, I will give some thought to whether such an approach is required.

There may be other ways of doing what you suggest. I refer to the interesting work that has been done in some parts of England on the total place approach, which seeks to marshal different public sector interventions much more effectively. Most of that work relates to what I might call socially fragile areas, whereas you are referring to geographically and economically fragile areas, but we may be able to learn lessons from it and to apply them, not necessarily through Scottish Enterprise but through other aspects of Government activity.

Community renewables are a particular issue. The ability of Highlands and Islands Enterprise to support communities to develop schemes has clearly been beneficial and has given those communities a long-term income stream that helps to support and develop other enterprises in the area. That is a legitimate enterprise-related activity that could be replicated in other rural communities.

That is absolutely the case. Some of the work that we do through the support that we give to social enterprises is akin to that type of development and provides a real sense of community ownership of investment opportunities.

That concludes questions. I thank the cabinet secretary for coming along. People’s minds seem to be exercised not just by the budget but by the forthcoming election, which slipped into some questions, but never mind. It has been a helpful session to conclude evidence taking for our enterprise network inquiry. The committee will now consider a report, which we hope to publish by the end of the month or in early March.

Our next meeting is next Wednesday, when we will take evidence from Ofgem on project transmit, with a particular focus on the transmission charges issue. I hope that we will also consider draft reports on our enterprise network inquiry and on the UK Energy Bill legislative consent memorandum.

Meeting closed at 13:31.