Economy, Energy and Tourism Committee

Meeting date: Wednesday, October 6, 2010

Official Report 467KB pdf

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Enterprise Network Inquiry

Item 2 is to continue taking evidence for our enterprise network review. Today’s panel of witnesses will focus on the transfer of economic development and regeneration responsibilities to local authorities. Before we move to questions, I ask members of the panel briefly to introduce themselves and to make some opening remarks.

I am the team leader for a grouping of officers in the Convention of Scottish Local Authorities who manage enterprise functions, among others. Also in my team are the three members of the business gateway who were transferred from Scottish Enterprise. We are currently in the process of filling in the team, to draw in additional capacity. I apologise for our late submission of information. We only recently concluded the survey that is appended to our written submission. I pass on apologies from Alison Hay, who has business in her ward.

I am the business growth spokesman for the Scottish local authorities economic development group. I am also a member of the business gateway Scotland board. In my day job, I am the head of enterprise and innovation at the City of Edinburgh Council.

I am the chair of SLAED. My day job is managing Fife Council’s economic development function. I am on the board of the national business gateway unit. I am a non-executive director of Impact-21, which is the deliverer of the business gateway contract in Fife.

Good morning. I am the executive director of Business Enterprise Scotland, which is the organisation that represents the enterprise trust movement in Scotland. Most of our members are business gateway contractors, although that is not all that enterprise trusts do.

Good morning. I am a reader at the Hunter centre for entrepreneurship at the University of Strathclyde.

Thank you for those introductions. In its submission, SLAED states:

“one of the unintended consequences of the review is there has been a considerable reduction in local economic development expenditure”.

I invite the panel to comment on why that is the case and on its implications.

We do not have precise data on the issue. However, when taking evidence, the committee has identified the substantial reduction in expenditure on Scottish Enterprise and Highlands and Islands Enterprise that has taken place.

There is no evidence that local authorities have made significant cuts in their budgets to date—indeed, there has been a small inward transfer of local economic regeneration funds and the full value of the business gateway contracts—but, overall, the pot that is available for economic development across Scotland has reduced considerably. Both to assist the committee and to inform its own inquiries, SLAED is trying to get a national picture by amalgamating all national agency spending with an updated position on local authority spending. We hope that, before the committee concludes its inquiry, we will have made a supplementary submission that gives a national picture of what is happening. We are in the process of surveying all 32 member councils, so that we can be clear about what is happening in their 2010-11 budgets. Hopefully, we will be in a position to submit that information by the end of the year.

Will you confirm that, in your view, the issue is not that moneys that have been transferred from the enterprise networks to local authorities, as part of the changes in functions, have not been used by local authorities for economic development but that, rather, the overall pot that is available has reduced? Are you saying that local authorities are still spending the same amount but the overall pot that is available is smaller?

In general terms, that is correct. The COSLA survey is helpful. Anil Gupta and his colleagues have spoken to each of the councils to clarify the position on resource transfer moneys. That information is included in COSLA’s submission, so you can drill down into how each council has invested the money. The business gateway transfer was fully funded, and the money from that is being used fully for the business gateway.

Does Anil Gupta wish to add to that?

No. Robin Presswood has set out the position that we have established with our members. In some areas, transferred regeneration moneys were not allocated immediately. Because local government finance is not restricted to a 12-month spending period, quite a lot of the money is being held in reserve while plans are put in place for expenditure of the regeneration moneys.

In its submission, SLAED goes on to say that there is

“significant variance in investment between comparable authorities.”

Could you expand on that point?

Local economic development is not a statutory function of councils, so provision will have been driven by historical need and the political priority that different administrations have given to it historically. SLAED has tried to bring an element of consistency to professional practice. We are developing a series of guidance notes to ensure that each council is aware of best practice and we have developed a series of national performance indicators to enable us to compare and benchmark council activity, so that we can see how effective councils are. The indicators will—I hope—be introduced as part of the 2011-12 single outcome agreement round. There is growing professional consistency in standards and measuring, but it is right that different councils invest resources differently in those functions, because areas have different needs. The needs of a prosperous rural area might be completely different from those of a more deprived urban area.

The SLAED survey, which was carried out in 2007-08 and published in 2008, gave a national picture. The private version of that, which was shared with local authority chief executives, revealed the spend by individual councils but, for obvious reasons, we did not publish that. It is very much for councils to determine how appropriate it is to resource their expenditure on economic development.

For clarification, does the variation to which you referred in your submission relate to the pattern of how local authorities have treated economic development historically, rather than being the result of changes that were introduced after the 2007 review?

Yes, that is correct.

I am interested in considering issues to do with the business gateway and business support on an all-Scotland basis. I represent the Highlands and Islands. In the submission on local government economic regeneration, it is suggested that business start-up rates have increased. What sort of businesses are we talking about? Is the picture patchy? There has been much talk about the figures for business start-ups getting worse.

During the two years since the business gateway was transferred, the performance of the programme has, in many ways, matched typical performance of an economy in a recession, with increased numbers of business start-ups. The concern is to identify businesses that have the potential to grow. There has been an increase in small businesses and micro-businesses, including many lifestyle businesses. In a recession there is often a push towards self-employment among people who have lost their jobs.

It has been suggested to us that cities are the drivers of the Scottish economy, although that is open to interpretation. Are there more start-ups in cities than in small towns and rural areas, as a percentage of the total?

I take a snapshot figure, which might not be a good indicator but does not seem to suggest a greater focus on cities than on rural areas. If we compare the figures for Highland in August 2009 and August 2010—the August 2010 figures are the most recent ones to be made available by the business gateway national unit—we can see that there has been an increase from about 50 starts to about 80 starts. There is some evidence that the increase is a countrywide phenomenon.

Does Mr Levie have a view? Entrepreneurship in Scotland needs to be underpinned, as is clear from the statistics.

I think that what you have been hearing about—please correct me if I am wrong—is statistics on businesses that have been assisted in some way by the business gateway. There is a big difference between the number of start-ups in Scotland every year and the number of start-ups that are assisted by the business gateway. There are roughly 20,000 start-ups in Scotland each year, but only about 10,000 of those are assisted by the business gateway.

The year 2009 was quite unusual. Many entrepreneurs found that they could not get money from banks or from friends and family, so where did they turn? I suggest that they turned to the state, through the business gateway, for example. That may be a reason for the increase in activity that the business gateway saw, but that does not mean that there was an increase in business start-up activity throughout Scotland. We just do not know yet—I think that we will know at the end of the month—the official figures for start-ups based on pay-as-you-earn and VAT data. What we do know is that the overall business stock in Scotland declined in the year to March 2010 by 0.8 per cent. That is not as bad as the position of the overall business stock in the United Kingdom, which declined by 2.5 per cent. I think that we had an unusual situation in 2009.

10:45

Given the recession, we would expect such a situation.

Yes.

It would be useful for the committee to have those figures as soon as they are made available.

They will be available at the end of the month.

With some sort of analysis. Do you analyse them when they are made available?

I can certainly do that.

You can provide us with those figures.

Yes.

It is interesting that we talk about lifestyle-type employment and people trying to find themselves work at this time. Of course, the idea of the business gateway is based on a time when the economy was expanding and it would have had a bigger part to play in encouraging a wider range of people to take part. We have heard about the effects of the recession. Do you think that, if the economy had been on the up and up, more people would have set up their own businesses and had access to banks and therefore would not have needed the business gateway? Mr Levie has suggested that, at the moment, probably only half are using the business gateway to get their start-up.

Could you run that question by me again? I am not quite sure what you are trying to get at.

We have identified that the business gateway is providing support for perhaps half of the people who are starting up businesses at the moment. When the business gateway was created, the economy was on the rise. Would you have expected the business gateway to have underpinned half of all start-ups or fewer at that time? People would have had access to finance and so on.

A lot of health warnings come with this. The business gateway is not just about start-ups, although those are what it is most obviously associated with at the moment. You are correct in saying that the business gateway model was designed in a different world. One of the pains of the past two years has been to shift that model from a period of considerable growth into the mess that we have had for the past couple of years.

You would expect me to say this, so I issue a health warning about this as well. I think that businesses that start with the support of the business gateway have a much better chance of long-term survival. There will always be a requirement for a national service for people who want to set up in business. The main client group for start-up services at the moment is—as has been suggested by my colleagues—those for whom self-employment is a valid option at a time when the level of unemployment is high, and it is rising at the moment. We have many people who are considering self-employment per se and lifestyle-type businesses. The issue that the business gateway faces at the moment is that there has been a reduction in the number of people who are setting up businesses that are likely to become the more substantial type.

You asked whether we would ever get to a situation in which we did not need a national service—I think that that was the nub of your question. Personally, I do not think so. I see the benefits every day of people being supported and learning about entrepreneurship and how to run their businesses. That makes a significant contribution.

There are 20,000 or so start-ups, but nobody really knows the number of start-ups in Scotland. I caution you not to believe the clearing bank statistics, which are pertinent only to the clearing banks and, as we all know, quite a few people who are considering borrowing lost confidence in the clearing banks, hence the plethora of alternative lenders. Also, the proportion is not a straightforward 50:50 split. The people who want to start up in business nowadays seem to be looking to the business gateway for support.

The point about access to funds is very important; it is one of the areas in which there has been more activity through the business gateway. Three years ago, a firm that was starting up would not have needed to seek public sector loan funding, but it has become difficult for small businesses to access funding through the banks. Local authority-led loan funds have come into their own, and we have taken the opportunity to significantly increase the range of loans available by creating the east of Scotland investment fund as a sister organisation to the west of Scotland fund.

The demand for and take-up of those products has clearly increased as a result of the recession. That reinforces the transfer in large part of responsibility for the business gateway to the local authority, as it enables closer links with local authority-led lender-of-last resort-type funds.

The figures that we publish reflect actual interventions—either one-to-one or one-to-many interventions—with businesses. They exclude the self-help tools that are available through the business gateway’s website, which are well used and well respected, and which reveal a much broader ability to engage with the client group.

There is strong evidence to suggest that local authorities, in their new role in shaping business gateway services at a local level, have put in place measures to help businesses in the recession.

Those measures include refocusing the business gateway workshop programmes to cover survival as well as growth, and linking the gateway to some of our employability measures so that those who are coming out of the market through job losses can link into opportunities through self-employment.

There has been a broadening of the small business markets to cover national, international and web-based trading, and local authorities are now able to focus on those parts of their local economy in which they feel there is the greatest potential for growth.

There are a lot of things that I want to follow up, but other members might want to ask those questions.

You say that you have helped businesses to survive, which it is obvious that businesses must do in a recession. Do you have any figures on the success of that type of intervention on your part?

It is early days but, going back to what Ronnie Smith said, I note that our figures indicate that 78 per cent of the businesses that are supported by the business gateway are surviving after three years’ trading, against the Scottish average of 64 per cent.

That is an important example of the role of the business gateway. We would be happy to work with Ronnie Smith to carry out a survey of the contractors.

Wearing my hat as a director of Impact-21 in Fife, which delivers the gateway contract, I know that in a significant number of businesses—I would not like to say precisely how many—the staff of Impact-21 have taken a detailed company doctor-type approach. They go in and try to turn around a business that is in a significantly challenged financial position. A number of those interventions have been very successful; I would estimate that up to 100 jobs have been saved through projects that I have been involved in, or made aware of by the staff of Impact-21. There is good evidence from a Fife perspective, but I would be happy to collaborate in a joint survey of all the contractors.

Ronnie Smith talked about the clearing bank statistics. Those banks put out stats about three weeks ago that suggested that start-ups were down by 8 per cent, but that figure was rebutted by the business gateway in the various articles that I read.

Can you expand on the reason for your health warning on the clearing bank statistics?

I am happy to do that. The clearing bank statistics are, funnily enough, the statistics of the clearing banks. There are four of them—well, there are three if we regard Lloyds TSB and HBOS as being the same business. The statistics refer to start-ups only in terms of the new accounts that have been opened; they do not go outwith that. Six, seven or eight years ago, that was probably a valid statistic, but there has since been a sea change in the lending options that are available to Scottish businesses. There is no question but that, although the banks have worked quite hard to get their reputations back, the four high street clearing banks have suffered quite badly from poor opinion on the part of small to medium-sized enterprises in particular.

Your view is that, six or seven years ago, that figure would have been a pretty good indicator as to how start-ups were doing.

It would have been a most significant statistic.

Now, though, because businesses are going elsewhere to open accounts or to get funding, a high proportion of start-ups will not be included in figures from the four clearing banks.

I would say that that is the case. You will get varying views depending on which bank you speak to, but the lending policies of the banks have been to move away significantly from anything that is tinged with any kind of risk. There is clear evidence from the business gateway that the high street clearing banks in particular are only now beginning to loosen up their lending criteria. They had been turning away start-up businesses—that is the bottom line.

I am interested in the views—brief views, anyway—of each panel member on a more general theme. The business gateway contracts and the business gateway function were transferred from Scottish Enterprise to local authorities two and a half to three years ago. It is difficult to judge the success or otherwise of that reform, as an enormous number of things have happened in the interim period, but, drawing on evidence or just your own gut feelings and experience, do you think that it has made things better or worse, or have things stayed about the same—trying to discount the enormous financial difficulties that the country and businesses have faced? Based on your experience over the past couple of years, are things better, worse or roughly the same?

What answer do you expect when I am sitting beside three guys from local authorities? Humour is always a good thing in these situations, I have discovered.

I cannot discount the major economic tremor of the past two or three years. We are not comparing apples with apples. If I had been asked at the time whether it was a good thing to move the business gateway away from Scottish Enterprise, I would have said emphatically no, it was not—we did not need that disruption. However, the economic circumstances that developed immediately after that changed our situation radically. The business gateway model was, until very recently, entirely designed to support a growing economy, and the contract was designed in such a way that companies that met particular growth criteria had to be sought out. With those companies being fed to Scottish Enterprise to become account managed, the whole thing was a production line—a growth pipeline, as it was called.

The way in which the local authorities have embraced the change has been a bit of a revelation, although there have indeed been some difficulties. My view is that when an administration starts to interfere with the delivery process, something is wrong, but in fact the business gateway network across Scotland in its current form is much more finely tuned to the differences in local circumstances and in the economy, now that we are in a period of having to fight for recovery.

Although that might be a somewhat diplomatic and political answer, unfortunately—we are not comparing apples with apples—as far as contractors are concerned, my members are generally very happy with the current situation, and the last thing we are looking for is a major structural changes as a result of either your work or anybody else’s work in the Parliament.

The reform has been a success from my perspective, but we should remember that it was not a full transfer. At the national level, the business gateway remains a partnership involving Scottish Enterprise, Highlands and Islands Enterprise and the Scottish Government, with COSLA taking the lead role in running the national unit and with individual local authorities being represented through SLAED. That is a mature position for Scotland to end up in, with Scottish Enterprise still running the inquiry fulfilment and research centre and the call-centre side of things. The marketing is led by the national unit, which is run through COSLA, as I have just said, with local contracts delivered by the lead local authorities. That is the first point: it is a mature partnership; it has not been a wholesale transfer.

11:00

Secondly, we know that the reform has been a success because the results and—from what I have read in the submissions—the feedback from the business associations from which you have taken evidence have generally been positive. We have also been able to fine-grain polish it to integrate it fully with local authority activities, which Jim Galloway will say more about.

However, I have two health warnings for the future. First, a number of respondents to the inquiry have highlighted what they perceive to be a gap between the business gateway and Scottish Enterprise. As our response makes clear, more polishing needs to be done and we must try to close the gap in the crossover between account management in other Scottish Enterprise products and the business gateway suite of products. In that respect, we suggest that there should be formal tripartite liaison in each local authority or contract area to ensure that there is a formal mechanism for agreeing transfer, no overlap or duplication and no gap between the different partners.

My second health warning is that we are coming up to the end of the current contract period in 2012 and, as we make clear in our evidence, it is essential that we work jointly on the post-2012 scenario for the delivery of business gateway services. To that end, we are working jointly with Scottish Government, COSLA, Scottish Enterprise and Highlands and Islands Enterprise to commission a study of the various options.

The 2007 reforms to the business gateway presented local authorities with a number of challenges. For example, we had to promote greater cohesion between the business gateway and local services, improve customer experience and develop the business gateway as a true partnership, and, as we have strongly indicated in our written submission, our approach in that respect has been a success. The transfer has promoted business growth as a key budget priority for economic development services across local authorities and has resulted in the commitment of a further £9.5 million to align local authority activities with the business gateway and add value to the contract.

Local authority economic development offices are entrepreneurial in nature and have been successful in levering in further European funding in the region of £14.5 million to complement business services. Drawing those services together has created a broader range of services with business gateway at the core, and the local authorities are able to bolt on services to meet local needs. Customer satisfaction with the service stands at 91 per cent, which I believe is very good, and it is important that we maintain that core service and local authorities’ ability to bolt on additional services.

Aside from COSLA’s responsibilities for the transferred staff, we have put in place arrangements to ensure that the process is properly informed by work at a local level. My submission refers to the board in which we are all involved, but I have to say that I think that it provides a very useful opportunity for joint working between the main stakeholders—Scottish Enterprise, the Scottish Government and local government—and indeed has brought very important benefits for us all. Other work, which has involved lead officers and representation from the HIE area, has been useful in bringing to the surface common problems that councils are facing and informing action that has been taken. Work involving the European regional development fund, the sub-growth pipeline and the east of Scotland investment fund has benefited greatly from the discussions that have taken place and the stakeholder groups, which form the last major element of the committee structures, have been useful in securing the industry’s views and feeding them into the process.

Ronnie, in your last response you mentioned being diplomatic. The written submission from Business Enterprise Scotland is slightly less diplomatic. It states:

“The process of getting acceptance for clients into the ‘pipeline’ and subsequently into Direct Relationship Management by SE has been more complex and burdensome than anticipated ... With the development of a new approach to marketing SE’s products and services directly to the customer, there are even suggestions that SE is ‘competing’ with BG”.

You say that, while the inquiry fulfilment and resource service

“continues to be the recipient of the majority of enquiries arising from BG marketing, its primary purpose now appears to be servicing the promotional objectives of Scottish Enterprise and its various functions and indeed BG referrals are simply the enquiries that SE does not want to deal with directly.”

Those seem to be quite critical comments about the new relationship. Will you expand on them?

I have to say that I thought that they were quite diplomatic.

Robin Presswood has referred to this already. The inquiry and fulfilment service is still within Scottish Enterprise. There has been quite a move. The original model for the business gateway was that it would, funnily enough, be the portal for all business-related inquiries. We have moved significantly away from that. The tone of much of what we said in the BES submission was born of our members’ feeling that Scottish Enterprise does not market itself in close partnership with the business gateway. There is still an issue about where and how inquiries are dealt with.

The original model for the inquiry service was that it was set up to service the business gateway. That has changed and evolved. I fully accept that these things happen. The inquiry service no longer services the business gateway, which is the minority contract in terms of its service level agreement through COSLA. The inquiry service, which was set up with business gateway money—he said without bitterness—is now servicing a different part of the marketplace.

One of the key things that annoys BES members is the fact that there is relatively poor alignment—other than locally with councils, where there is a huge amount of alignment, which is one of the main benefits to have arisen from the shift. A number of different organisations in Scotland are involved in economic development and business support and their marketing is not co-ordinated. That particularly irritates people on the front line and at the coalface of economic development and business support.

That is an interesting point. It sounds as if the clarity around who does what in dealing with new businesses has been reduced rather than increased by the transfer. Is that a fair comment, given what you have just said?

Our members believe that we have lost clarity over the past two or three years about who does what in the Scottish economy.

As I recall, part of the argument for transfer—and certainly one of the founding principles of the business gateway—was that it would create some clarity and give people who were starting up in business one point of entry to public sector support. Has that been diluted? Is that also the view of other panel members?

I will give a straightforward answer, and I will be interested to hear what my fellow witnesses say. I think that the business gateway is recognised as the start-up service. A lot of the early marketing made an effort to establish that. The issue that BES members have is that the marketing is confused for the company side and for existing businesses—businesses that are trading and which are seeking public sector support, whether because they want to grow or because they are facing a survival issue. There are many examples out there of misleading marketing. You are quite correct that the original idea for the business gateway was that it would be the one focus for business inquiries and that businesses would be directed once they were through the gateway—that was the whole point. Scottish Enterprise developed and designed that model. Circumstances have changed and now that is not the case.

From my perspective, there is not a problem with where you go for assistance for start-up—you go to the business gateway. Other providers have commercial products on the market, but for public sector assistance you go to the business gateway. As Ronnie Smith said, the problem comes at the top end. One of the written submissions—I think that it was from the Scottish Chambers of Commerce—talks about the ceiling of the business gateway programme and the floor of Scottish Enterprise. That is where the overlap is. In my comments, I focused on the need for proper co-ordination at a local level to ensure that specific companies with inquiries do not face confusion. They need to know where one organisation stops and what the handover process is. Ronnie Smith made a fair and valid point about marketing. We probably need to pick that up through the business gateway national board a bit more formally to ensure that there is no confusing marketing.

Mechanisms are in place through the business gateway board and through regional growth informal networks, in which Scottish Enterprise and the business gateway teams come together, to ensure that the system works well for referrals. In essence, there is a cultural difference between Scottish Enterprise and local authorities. The purpose of the account management programme in Scottish Enterprise is to support companies with the highest possibility of successful outcomes. It picks the companies that it works with carefully. However, in broad terms, there is a growing expectation that local authorities will work with the broader local economy and nurture businesses through the business gateway and other programmes. While the business gateway programme continues to be target driven, we will have people working towards targets rather than focusing on individual business needs.

Will you expand on that point about the target-driven approach rather than the business-need approach? What are you referring to? What is in danger of being too target driven and not closely related enough to what businesses require?

Because of the nature of our work, it is necessary to have a framework and structure that includes targets. As we have mentioned, when the business gateway contract was originally set up, there was a different economic climate. The contract is target driven, with targets for the number of business start-ups, the number of businesses that are supported to meet VAT targets to get into the growth pipeline, and then the ultimate, which is direct relationship management or account management. There are targets and payment points throughout that process.

It is right that we have structures to manage the programme, but they tend to drive behaviour, at Scottish Enterprise level and at the business gateway contract level, so that it is focused sometimes on the targets rather than on the broader local economic development needs. One benefit that occurred as a result of the transfer of the contract to local authorities is that the target is a bit broader.

So it would be reasonable to conclude that the critical point in the history of the business gateway will be when the next set of contracts are let. I am interested in Mr Levie’s views on that, too, because if Jim Galloway’s analysis is widely shared, we might expect a different set of criteria to be applied in the contracts that are let in 2012 from those that local authorities inherited in the previous round.

As you think about those contracts, you need to be mindful that, with local delivery of business advisory services, especially if finance is involved, there is a danger of local businesses capturing the local agency or individuals in the local agency. Targets provide a discipline.

It should be remembered that there is not much point in propping up with state funding businesses that are not going to go anywhere. The point of the enterprise agency system was to get more young firms to appear and go through the growth pipeline. There is a danger of slipping to assisting all companies that want help as opposed to companies that will create the most economic benefit to the nation.

11:15

There are possible advantages from a shift to local delivery through local authorities, some of which contract to contractors. One possible advantage is experimentation. I wonder about the extent to which some body—I would have thought that Scottish Enterprise would be the relevant body—is tracking that experimentation. Some experiments will work, but some will not. There is great potential for learning from the experience of the past couple of years, and I hope that some body is monitoring those experiments and learning from them.

I emphasise that I am not against targets per se. Targets are essential in providing a framework and mechanism by which people can understand what services they get, where they get them and the level of service that they should receive. I agree that local authorities can bring to the table additional services and additional funding through programmes such as ERDF. In Edinburgh, we have just won an Interreg programme bid to introduce innovation in small and medium-sized enterprises. Those additional services can provide experimental programmes that support business growth and focus on local needs. However, the central framework is still needed.

Do you accept Jonathan Levie’s point that what has been described as the local authority perspective on the business gateway is no longer focused on promoting growth companies, and is now about providing a safety net for local businesses in general?

No. From my perspective, that is not a fair characterisation of the changes that have taken place or the changes that will take place. We accept the fundamental principle of the business gateway contract, which is the separation of one-to-many services from one-to-one services. The one-to-many services will focus on volume start-ups, which are important. They are about creating a culture of enterprise in Scotland and are a good health check of the economy’s general vitality, but perhaps they are not the most significant part of the range of support and assistance. The current contract’s focus on businesses that have the potential to grow and create jobs is correct and will remain. We argue that we need to ensure that the targets are relevant to the objective of supporting growth businesses.

Some of the eight targets that were in the original national contract as negotiated do not provide a good proxy for supporting growth businesses. My personal view is that the VAT-plus target has not been an effective measure of growth businesses. As part of the 2012 review, we will certainly question whether that is a correct measure to include.

Does the contract allow enough capacity to help businesses in rescue situations? We spoke about that immensely important matter earlier. That is done tremendously well by the contractor in Fife, and I want to ensure that any future contract can support that. Does the contract adequately support investment by firms in going for regional selective assistance funding and innovation funding? We need to create a national contract post-2012 that supports growth and innovation in businesses and continues to support the volume of business start-ups, but in the services that people are asking for there certainly should not be a slipping down to the lowest common denominator. It is about driving and shaping those services post-2012.

On a national basis?

Yes.

A lot of the focus of the collective activity of SLAED and of the business gateway board has been to shore up and broaden the services that are available for business growth, so we are firmly behind support for business growth.

My first question touches on what has just been said. We have already heard that the initial idea behind the business gateway seems to have changed because of the economic circumstances. Do you foresee the financial situation that we face resulting in a major change in the four or five years from 20 October 2010?

Economic development will not be immune to the financial problems in the broader public sector. There have been substantial cuts in the Scottish economic development budget over the past two years, and I am sure that ministers will reflect on that in setting appropriate budgets.

The obvious issue around the business gateway budget is the fact that we are contractually obliged to make payments to the contractor, including an inflationary uplift, so there is very limited ability to make cuts in the business gateway contract until 2012, when it is due for renewal. That will provide an opportunity for a joint review of what we are trying to achieve and of the level of investment that it is appropriate to put into supporting the business gateway, but my view is that there should not be any significant cuts until 2012, because we are contractually obliged to pay the contractor, subject to its meeting agreed outcomes.

Has the abolition of the local enterprise companies and the movement to a regional approach reduced the ability of local businesses to have a voice in economic development?

That is a tricky question. Yes, it has, but I would not like to comment on how big that reduction has been, because I do not know. The move from a regionally focused LEC network to a centralised one was hugely disruptive and caused all sorts of issues and challenges in our business that we are still coming to terms with. That is partly why there is a bit of a disconnect between what Scottish Enterprise does with businesses and what the business gateway does with businesses, but we are all working hard to try to resolve that.

The issue goes slightly wider than your question. Despite my boyish good looks, I have been in this business for quite a long time, so I have seen different evolutions of the same problem. It is extremely difficult to get a business perspective, because the SME community in Scotland is primarily an SME economy. It does not have a corporate view, and even using the business representative organisations, it will never be possible to get a corporate view of what SME Scotland thinks.

One thing that the LECs did was allow the business community to have board membership at a local level. The loss of that has been responded to in radically different ways in different parts of Scotland. In our submission, we make the plea that, just occasionally, more prescription is better than less. We would like there to be some sort of local or regional set-up that allows businesses to participate in discussion and is, in effect, a vehicle for the interpretation of national strategy at local level. Has the abolition of the LECs adversely affected the ability to do that? Undoubtedly. Was that necessarily the complete solution? Probably not.

You ask a valid question. I would like that whole principle to be developed. We certainly favour some sort of national network of local enterprise representation.

Local authorities will respond to local circumstances. I will give the example of how Fife Council has tried to respond to its circumstances. The biggest impact has, of course, been financial. The abolition of Scottish Enterprise Fife has had a multimillion pound impact on economic development. On business engagement, the local economic forum was disbanded formally as part of the enterprise review, as was the LEC board, so two private sector-led entities disappeared.

We have responded to that by creating a very strong Fife economic partnership, which is entirely private sector-led. It is chaired by the private sector and by chief executives of the main firms in Fife. They drive strategy. They are not responsible for spending decisions, as that clearly sits with the council, but they are responsible for driving strategy and they have influenced our strategy very heavily and very beneficially for Fife.

You will find a number of such good examples. Some of them are multi-authority partnerships, such as Aberdeen city and shire economic forum, which is a great example, because it brings together the regional advisory board with the local authority-led partnership. There are good examples across Scotland of local authorities stepping in to ensure that the business voice is not lost, because it is immensely beneficial.

Some contractors have also tried to reinforce private sector representation on their board. I mentioned that I am on the contractor board in Fife. We have introduced three new private sector representatives on to the board and we propose to reduce the local authority representation on the board to try to get a more private sector-led animal.

Local authorities understand and value the business community’s input, and we have taken measures across most of Scotland to ensure that that is not lost due to the removal of the LEC boards. You will have read the submissions from various parties, and it is fair to say that the consensus seems to be that the regional advisory boards are less active and less prominent than the former LEC boards across the country, but they still make a valuable contribution and act as a bridge between Scottish Enterprise and the private sector.

That is an example of the experimentation from which we can learn. There are other examples—I think that Stirling has one. We can learn from local experiments, select the best and try to implement best practice in all local authorities.

It is probably fair to say that whenever a new system is introduced, it takes a wee bit of time for it fully to bed in and for people to get fully to grips with it. Would panel members change the current system or are you happy to keep it as it is and to continue to work at it to ensure that best practice is implemented throughout the country? Alternatively, would you want to go back to the system that existed prior to 2007?

In COSLA and among our membership, we want the bedding down process to continue.

It would be useful to see how the current arrangements—whether it is the existing contracts or the progress that is being made in the HIE area, where the new services will follow their own particular paths—collectively work over the coming period, so that we can feed that into the new environment in 2012. I do not think that there is any great nostalgia for what there was before.

I agree with Anil Gupta: I am not sure that there is nostalgia for the previous arrangements, but we lost something quite valuable. Our members would be quite keen for there to be a consistent approach to a national strategy. Robin Presswood gave first-class examples of how local partnerships can work, and although I fully appreciate his point, the approach is not consistent throughout Scotland. I accept Jonathan Levie’s point that variation and experimentation can lead to good examples, but sometimes you need a bit of structure and a capability. If we have a national strategy—and we do have a national strategy in Scotland—what is the local way of interpreting it? What vehicle do we use for all the local participants to come together to discuss how they will participate in delivering that strategy? We do not have a consistent model for that in Scotland.

It works the other way round, too. If the next version of the Government’s economic strategy is to be valid and an evolution of what we have just now, the model will have to allow feedback from local areas to go back up the way. Local partnerships are extremely important, and we take our hats off to the local authorities that have led them in the absence of the LECs, because someone had to step into the breach. We need to make that arrangement slightly more sophisticated now, and we are looking for something that says that every area in Scotland will have the capability for that representation and activity to happen.

11:30

I will highlight one area in which we are trying to pick that up and get a consistent approach, if not consistent provision, because resourcing is for individual authorities. I mentioned earlier that we work closely with the Scottish Government and the national agencies. We have identified a gap between the Government’s economic strategy and local authorities. The strategy is high level, but it is down to the individual community plans and single outcome agreements to decide what is delivered at the local level.

We believe that there is a gap for some sort of local authority economic development framework that will look at what constitutes best practice in each of the different economic development workstreams. We have spoken to the national agencies and the Scottish Government about that gap, and there is a shared agreement that it would be sensible to fill it. We are working with the Scottish Government, the Improvement Service and COSLA to develop a local authority economic development framework, which will allow us to identify the best, share best practice, encourage people in individual councils to pick that up and take it on, and cover each of the main disciplines within economic development. We aim to conclude that framework within the current financial year. The Scottish Government has kindly agreed to provide funding, so we will start work on that fairly soon.

Before asking my questions, I should say for the record that my husband works at the business gateway in Fife.

Robin Presswood spoke about the transfer of resources, which, speaking as a Fife member, I think has challenged us. He talked about a multimillion-pound reduction in economic development in Fife, and we have seen that. We know that the £12.5 million was transferred over, but, because of legal commitments, it was being done on a sliding scale. What impact has that had, and how much has actually transferred over?

One of the big questions that I have asked again and again of Scottish Enterprise and the Government is about what happened to the staffing resource. Away back, the committee was told that there would be a staffing resource transfer, but that has not happened—or does not seem to have happened. I have two questions about that. One is about funding, and the second is about the loss of LEC expertise.

We know that the LECs worked in partnerships and so on, and we know how they worked in Fife. Fife Council has done an amazing job in trying to fill the gap, but I want to know what happened to staffing levels at a local level, and how COSLA views that issue at the national level.

The local perspective is always difficult because the LECs’ budgets varied from year to year. In general terms, SE Fife had roughly £7 million a year to spend in Fife. About £1 million of that has been transferred to us to run the local business gateway Fife contract. Apart from that, we have received the transfer of only one—immensely gifted—member of staff who runs the business gateway contract, and the salary equivalent to fund that post.

Last year across the whole of Scotland, the annual resource transfer was £3.8 million as part of the recurring trickle-transfer approach. That is lower than it was in the previous year, but it will go up again during the current year. In Fife, that means that we had just under £300,000 of additional economic development budget. In broad terms, and once we take out management costs and the overheads that SE still bears, I would have thought that, given that last year we had about £300,000, the reduction in spend might have been of the order of £4 million in uncommitted activities that SE Fife used to discharge.

There has been a big hole for us to fill. We have had tremendous support from Fife Council’s elected members in relation to resourcing, and we have made internal management changes, to free up more of my time so that I can act as one of the lead points of contact for the private sector.

We work immensely well with Scottish Enterprise. A key point that comes across in the submissions from SLAED and Fife Council is that partnership working with Scottish Enterprise is generally positive, although it is difficult for SE, because there are fewer staff and significantly smaller budgets for the type of engagement and partnership working that has been so successful in Fife in the past.

Members will appreciate that the lack of transfer of Scottish Enterprise staff has been reflected across the whole of the Scottish Enterprise area. As far as I know, councils have been getting resources to appoint the lead officers from among their own staff. That has gone okay, by and large.

As members know, three members of staff came over to the business gateway national unit to cover the three main functions. After a piece of research work that reviewed the unit’s functions, we thought that, on balance, we needed more staff to come in. I think that that reflected the reliance of the original three members on some backroom services of Scottish Enterprise. We will try to re-evaluate how budgets are allocated, to try to squeeze in some additional staffing to carry that forward.

The example that Robin Presswood gave of the £4 million reduction in spend in Fife was a good one. We have lost staffing as well, which was a huge resource. I am interested to learn what the overall reduction is, including staff. I do not know whether the witnesses can supply the figure. It would be helpful if we could find out what the actual reduction in economic development funding has been.

The committee can probably get the most accurate figures from Scottish Enterprise when it takes evidence from the agency. As you heard, I struggled a little with the Fife figures, and I am sure that my peers across the country would do the same for their areas, so it is difficult to piece together a national figure. Scottish Enterprise would be able to provide greater clarity.

You mentioned how the call centre works. Issues to do with mixed messages and marketing have been raised with us. Does the panel think that Scottish Enterprise is the best place for the call centre to sit, given the restructuring? From what the committee has heard, that seems to cause issues.

There was a conscious decision, after COSLA and SLAED carried out a fairly detailed evaluation, that leaving those functions within Scottish Enterprise’s management would represent best value. Otherwise, we would have had to separate out two small call centres, with two managers, two offices, two sets of procedures and protocols and such like. The added benefit of the approach is that it keeps Scottish Enterprise involved in the delivery of national business gateway services and in the national business gateway board.

I suppose that post 2012 will be the right time for us to reflect on the issue and consider whether there is broader evidence that the business gateway element of the contact centre has been downplayed. We would want to have more detailed discussions with Scottish Enterprise and I suspect that there will be a long-term change process rather than a desire for an immediate further round of structural change.

I agree. While the business gateway contract is delivered by us and there remains a Scottish Enterprise element to that, it is essential that there is one point of contact. Where that sits is currently less important than customers’ experience when they phone.

It is important that customers have an 0800 number to phone, which they know will get them into the system. We just need to ensure that the information flows efficiently and correctly once it is in the system.

I have two final questions that I hope will be brief. Further restructuring in Scottish Enterprise has had an impact on the regions. For example, in the east—part of which I represent—the business growth manager has not been replaced. The staff to whom I have spoken feel that a further Glasgow-centric approach is being taken. There has been restructuring and then further restructuring. When the local enterprise network went, we were all concerned that such an approach would be taken. My concern is about further restructuring and the loss of directors—although that is not the issue; the issue is the emphasis away from the regions and towards the centre. Will the panel comment on that?

It is not fair to say that the approach is Glasgow-centric. Having read Glasgow City Council’s submission, I am sure that the council would agree with me. However, Scottish Enterprise has turned into a national agency. No regional management structures exist, other than a single regional director.

We have had to make the mind shift to accept that Scottish Enterprise is a national agency and to engage with it as such. Three years ago, most of our meetings with Scottish Enterprise were in the Glenrothes offices, whereas now, most take place in Scottish Enterprise Edinburgh, and a large proportion are in Scottish Enterprise Glasgow or with SE officials who come to meet us in council offices in Fife.

We engage with SE at the appropriate level, wherever that might be in the country. The situation can create practical housekeeping issues. For example, we spoke about the tripartite arrangements in relation to account management, but it is taking a little time to bed in the new management structures and to be clear about whom we liaise with, since the business growth director for SE east has left the organisation.

The issue involves bedding in. We must accept that SE is a national agency; we engage with it on that basis. The reduction in regional staff is not so much a policy decision as a resource decision that reflects the funding reality for the agency.

Some submissions refer to the subject of my final question. It is obvious that we will face a round of cuts. Some nervousness is felt in councils about further cuts to economic development. Because economic development and the recovery are the Government’s priority, it has been suggested that the funding should be statutory or ring fenced. That leads on to the new contracts for the business gateway. There is a lot of uncertainty across the board. As economic development is a Government priority, should we consider ring fencing funding for it or putting it on a statutory basis?

I will give the general position quickly. As you are probably aware, COSLA is generally not in favour of statutory duties on councils. However, we do not have a specific position on making economic development a statutory duty. Going down the statutory path might have dangers for councils. For example, a clear decision would have to be made about the level at which the statutory duty was applied. All councils have a fairly good understanding of the importance of enterprise to them, to local economies and to the local population. That is reflected quite well in their community planning partnerships.

The advantage in having a statutory duty is not immediately clear. If it were set too low, it could be made a bit easier to cut. That issue would arise in our approach to the general question whether we were for or against the proposal. If the duty were set quite high, other council budgets would probably be significantly affected at a time of cuts.

11:45

Marilyn Livingstone has neatly put her finger on the one issue on which COSLA and SLAED do not see 100 per cent eye to eye, although we respect COSLA’s position on statutory duties. Our perspective is that John Swinney, in making the original statement on the review of enterprise functions, was clear that local authorities were to be the lead agency for delivering local economic regeneration. We believe that we are well placed to do that and we think that, in general, the reforms have been successful.

There is a slight inconsistency between that and not saying that economic development should be a statutory duty, but I absolutely accept the point that Anil Gupta made about the level of provision that would be required of councils. We could not just have a statutory duty—we would have to say that it involved X, Y and Z. However, that would present the danger that some councils might retreat from fairly high levels of provision on the basis that, because what they needed to do was defined, they would do only that. Those are the types of issues that arise. The priority for us is to develop the framework and to be clear about what local authorities should be gently encouraged to do. We can find common cause with COSLA, the national agencies and the Scottish Government on that. That is the first and most urgent priority for us.

Somebody must take responsibility. The baton on local economic development has been passed to local authorities, and it would be a reversal if they were not prepared to pick it up. Whether it would be right to have a statutory requirement—to make local economic development obligatory—is another discussion, but somebody has to take responsibility. As I said, economic development is a bit of a soft option. If we are not careful with the economic development and business support budgets, because the business community is not particularly vocal, it could be easy for some local authorities to decide not to spend money on that, because they will not have lots of people outside with placards saying, “Support our local business.”

My point, notwithstanding what my colleagues from local authorities have said, is that if somebody is responsible for something, they should take that responsibility. With that responsibility, we should recognise that there must be clear provision, whether through ring fencing or otherwise, so that a budget is available. That will become particularly important beyond 2012.

I am interested in the references to start-ups. At the moment, at least from my point of view, the industries and activities concerned are not very well defined. We have had many reports about activity on renewables, from laboratory into production. Has that area been reflected in the start-ups that come for assistance from local authorities through the business gateway?

A sectoral analysis is done, but I am not sure whether the figures are published. We will speak to colleagues in the business gateway national unit and supply any breakdown by sector that we can. In general, local authorities, the business gateway and Scottish Enterprise try to co-ordinate and plan on a key sector basis, and an effort will be made to work with the contractor and the local authority at the local level.

To take Fife as an example again, we will be carrying out specific programmes that are aimed at key sectors in Fife. The business gateway in Fife will deliver creative industries programmes, which is in line with the national emphasis on creative industries and our emphasis in Fife on that sector. In the future, renewable energy will become an increasingly important—perhaps the most important—growth sector for communities such as Fife that are on the coast and so can benefit from it. The alignment takes place at local level reasonably effectively.

So you cannot distinguish between, say, someone who comes to you with a bright idea for which he wants expenses to go through the patents process and a firm that is setting up to provide training for people working in, say, Burntisland Fabrications. Is a picture emerging, either at the local level or a co-ordinated Scottish level, of the likely appeals for assistance?

I am not aware of that detailed analysis having been done yet, but we will review the data to find out whether we can discern any patterns that might be beneficial to the committee.

Once we have the low-carbon economy strategy paper out—and it is due fairly soon, I think—

Very soon.

It will help to focus attention and to direct our discussions about the approaches to be taken across council areas.

I spent a day with Voith in Heidenheim in Germany and, boy, the people there are interested. Voith is the biggest performer worldwide in water turbines. It has prototypes operating in Korea and elsewhere, and it is thinking about that for Scotland. We should be alert to that.

When Scottish Enterprise ran the whole of business gateway, it used it as a vast information collection machine, in my view. People who came to business gateway were asked lots of questions, and the data ended up somewhere. Is there still a data collection and analysis system, now that the delivery of business gateway has been localised? There is still a need to have a national view of what types of start-ups are coming through, as you suggest. Again, it is a matter of ensuring that there is co-ordination—of information, in this case.

As we have said regularly today, it is early days. There have been two huge sea changes: the change of business gateway to local authority management, and the change in the economy. Anil Gupta referred earlier to our recognition of the need to have a strong national presence, through which some of the analysis and research could be led.

Scottish Enterprise was a big national agency, but that has changed. It now has very little involvement with the start-up sector, which is very much the preserve of business gateway and the local authorities that manage the contracts. As we said earlier, we are adjusting to the new circumstances, and the requirements are huge.

Much of the information that was analysed—Jonathan Levie was more diplomatic about this than I will be—did not actually come out, and a lot of the work that was done to collect the stats was never turned into anything useable or meaningful.

The point has been made well, and I hope that the business gateway will lead on many exercises at a national level and that it will identify opportunities for start-ups.

Judging from your general surveys of start-ups, and against the background of the economic situation, is there a trend in any particular direction?

Yes. In relation to the national volume service—the service that provides support, assistance and training for people who want to set up in business for themselves and perhaps employ one other person—the statistics on business gateway support, as was suggested earlier, show an increase. There is no particular geographic location, although one or two cities are doing especially well. The trend applies right across Scotland.

The difficulty that we appear to have now lies with opportunities for substantial businesses. That part of the start-up market seems to be significantly constrained. It is a much harder job now to identify the opportunities that we might have been looking for two or three years ago for growth businesses to feed the growth pipeline—even compared with 18 months ago, in fact. Sadly, therefore, we are seeing growth just at the lower end of the market, if I may use that term, rather than at the higher end.

In the conclusion to its submission, Business Enterprise Scotland talks about how we get right some of these boundary issues at the top end, where there is some concern about disconnect. The submission suggests that the role for a Scotland-wide agency—leaving aside the question whether we have two or one agencies—should be focused on

“Sectoral Initiatives, Global Competiveness, Innovation”

and

“National Projects”.

It goes on to talk about the role for a strengthened gateway start-up service.

Does that mean that all account management activity, or a good bit more of it, would move from Scottish Enterprise, which has 2,000 plus high-growth accounts, to the start-up gateway space? Should the key account management activity remain with Scottish Enterprise or be entirely attached to an enhanced gateway service? I am trying to understand that suggestion for further tweaking.

It is a good question. When someone says, “You said in your submission”, you always get a cold feeling of fear and rush immediately to see what you said. The view of Business Enterprise Scotland, which some of my colleagues on the panel do not share, is that there is far too much administration. There is also conflict between the growth pipeline and access to account management at Scottish Enterprise. We believe that both those functions should be managed under the same banner, but we are not entirely sure whether that should be a local authority banner or a different device. While the situation remains under review—and a lot of hard work is going on to make things better—our view is that an extra link that does not necessarily need to be there has been put into the chain.

Scottish Enterprise and the business gateway have different sets of circumstances and criteria—they are not yet harmonised. The contract is designed in such a way that the contractors get paid on the basis of pay points to put companies into direct account management at Scottish Enterprise. That has not worked particularly well; it is an area of some rub and friction. We believe that how that situation can be resolved is something that should be looked at fairly urgently.

Obviously, moving more of the account management function into the local authority space, or wherever the boundary is drawn, takes us back to the question that Marilyn Livingstone pressed. My question is for Anil Gupta. In acquiring these additional functions, does COSLA want no change to local authorities’ duties, statutory responsibilities and contractual obligations for the growing space of economic development? Obviously, we have already had the transfer of regeneration and the business gateway to the local authorities. We now have the suggestion that boundary issues at the top might involve another slight change. The SLAED position is that no formal duty, statutory recognition or obligation should be added to those activities. Given the financial climate, what is the COSLA position on the matter?

COSLA has no formal position over the question of statutory duties for economic development. The question has not been put to the executive group that deals with the issue. From the submissions that you have received and my knowledge of the members who are involved, I imagine that views on the matter would be divided.

I return to what I said earlier: councils as a whole view the issue as a serious one. The single outcome agreements and community planning partnerships are well oriented to the issue of economic development engagement, as they are to regeneration overall. I am trying to second-guess, but I am not sure that members would feel that creating new duties was an urgent matter. They almost certainly feel—I am trying to choose my words carefully—that the availability of more resources is more urgent. As we all know, that is not likely to happen in the near future.

The business gateway Scotland board is working well, bringing together Scottish Enterprise and the local authorities through SLAED. There is a role for SLAED to ensure that service users get a consistent service across the board. Robin Presswood mentioned that. There are good examples of regional approaches being taken to renewable energy. As we move forward, the issue is not about whether we should made that provision statutory or contractual; it is about ensuring consistency of services and having sufficient resources to do the job that is expected of us, which is possibly going to be the biggest challenge.

Thank you for that, Jim. I thank all the witnesses for their evidence this morning and afternoon—we have just drifted into the afternoon. I am sure that it will be very helpful to the committee in its inquiry.

12:01 Meeting suspended.

12:03 On resuming—