Official Report 271KB pdf
Good morning and welcome to the 22nd meeting in 2009 of the Local Government and Communities Committee. As usual at this time, I remind everyone to turn off their mobile phones and other devices. For agenda item 1, I welcome our first panel of witnesses: David Anderson, the director of city development at the City of Edinburgh Council; and Derek Cunningham, the director of development and infrastructure at East Dunbartonshire Council. In the interests of progressing in good time, we will move directly to questions.
In previous meetings, witnesses have referred to the squeeze that is being felt on sources of income for local authorities aside from the money that is received from the Government or through council tax. How are your local authorities affected?
The City of Edinburgh Council has suffered a significant fall-off in capital receipts from land and property disposals. Land values in Edinburgh have fallen by around 60 per cent. We have targets for what we want to raise on an annual basis, and our progress towards those targets is suffering significantly. The major shortfall affects our ability to dispose of any capital receipts.
I echo Mr Anderson's words. It is particularly difficult to realise anticipated values from capital receipts. Land sales, planning gain and section 75 agreements are under significant pressure and there are significant reductions in what we will be able to achieve. A number of developers are seeking to renegotiate section 75 agreements because they impact on their ability to build houses, in particular. All of that has a significant impact on our ability to fund infrastructure development and, in turn, create the connectivity and infrastructure that helps us to support and attract business to the area. Fee income across planning, building standards and areas such as those is reducing against a background of increasing demands for services, particularly around the difficulties in the community that have been caused by the recession.
Times are tight, but can you see any different ways of doing things that might lead to new sources of income?
In Edinburgh, we are actively exploring the possibility of a tax increment finance pilot to develop the harbour at Leith docks, which would involve ring fencing net additional business rate take from a particular area of the Edinburgh waterfront. That model, which is commonly used in the United States, has generated interest in Westminster and Holyrood and, after the huge hit that land values have taken in the area, we are looking to kick-start the part of the waterfront that we think is the most capable of being developed at an early stage by funding a number of prioritised infrastructure assets around the harbour, such as the extension of Ocean Drive, the creation of a new esplanade outside Ocean Terminal, the construction of a new finger pier for visiting cruise liner terminals and the reberthing of the Britannia.
At the moment, East Dunbartonshire Council has to fund a certain amount of cash flow support, which is a burden, but we are working with partner organisations, regeneration companies, the Kirkintilloch and Lennoxtown initiatives and so on, on available regeneration options and how they might support the area. Other than that, we have not identified any areas where we might increase income streams.
Mr Anderson, you said that the City of Edinburgh Council was prioritising its economic development programmes. Is there a rationale behind or logic to how these things are prioritised?
Yes. We have been progressing a strategy focused on four priority development zones in the city: west Edinburgh, which is based on the growth of the airport, the land adjacent to Gogarburn and the expansion of the Royal Highland showground; the Edinburgh bioquarter at Little France, which is being developed by Scottish Enterprise and Alexandra Real Estate and will also accommodate the relocated sick kids hospital; the waterfront as a whole, which, with its 500 acres, is a 30-year programme and has areas such as Granton that are proving more of a challenge to develop in the current market environment; and the city centre itself, where we are focusing on the block-by-block redevelopment of Princes Street and the £850 million investment in the St James quarter. In the current climate, we are seeking to work on the projects that are the most oven ready, as it were, and to get activity moving in order to avoid the loss of jobs and capacity in the construction industry.
When were those longer-term priorities set?
They are part of a partnership-based strategy and a vision for the city of Edinburgh that the council has been evolving with Scottish Enterprise and other partners since 2005. A refreshed regeneration strategy, which is being taken to the council's economic development committee next month, will effectively endorse and fine tune its direction.
But those priorities were set before the recession. This inquiry is about how we cope with the new issues that might emerge from the recession. What work have you done in the interim on the short-term problems that businesses in your area are facing? Apart from the usual suspects such as the chamber of commerce, have you engaged with businesses on this issue over the past year?
We have responded very fulsomely to the recession, starting with a strategy paper that was developed last summer. Furthermore, to address specific challenges that have arisen from the downturn in general and the situation in the financial services industry in particular, we have set up an economic action resilience network involving the universities, the colleges, the chamber of commerce—or what you call the usual suspects—and others.
How have you shifted the financial resources that you have had available between priorities? Are all the bigger projects and so on priorities?
We have allocated an additional £300,000 for economic resilience activities; with partners, we have added a further £200,000 to that, so it is £0.5 million in additional spend.
Have you had to make any hard decisions, such as stopping what you believed were priorities in 2005 and redirecting that finance? You mentioned £0.5 million to deal with the collapse of the financial sector—that does not seem like much.
It is not. One of the challenges here is the constraints. My department has a budget of £83 million, £59 million of which is income dependent—it comes from car parking charges, building warrant fees and planning applications. The net budget, which is significantly less, covers planning, transport, economic development, corporate property and contingency planning. The council's economic development service has a budget of circa £5 million. That is not a huge amount of resource. For 17 years I was with Scottish Enterprise, which has a budget of £300 million in total, £10 million to £12 million of which is focused on business gateway and start-up support.
I have not had any sense from you that hard decisions are being made and that you have stopped spending in one area and shifted the spend to a priority area. Can you give me an example of where that has happened? Are you still doing everything at a time when you have insufficient money to deal with the crisis?
We are responding to the demands that business places on us. Our commitment throughout the council to start to move more money into economic resilience and development requires hard decisions to be made about cuts elsewhere, in areas such as children and families' activities, and health and social care. There has been a marginal adjustment. Last year, a total of £1.3 million went into economic development, against a backcloth of quite a challenging budget settlement.
Mr Cunningham?
A number of areas within our council are undergoing a fundamental review of their organisation to prioritise the various demands on the council. That is quite an intensive process; we will see a different shape to the council. We are looking at the economic development section, too. One of the council's key priorities is the economic wellbeing of the area—it is up there as a very high priority. The organisation is going through a fundamental review, reconfiguration and reprioritisation, which, by necessity, means that if there are priorities in one area, there will be consequential reductions in other areas.
In communicating with people beyond the usual suspects, have you surveyed local businesses to try to evaluate what you are delivering to them and what their satisfaction rates are? Have they been involved in any way in shaping the new strategy that you are developing?
We have not surveyed businesses individually, but they have representation on the working groups that we have established, so we are informed through that process. No formal survey has yet been carried out.
I want to follow up a point that Alasdair Allan touched on, about working with partners. I am particularly interested in your partnership working for development on a larger, regional, if not national, scale. I am thinking in particular about the restructured Scottish Enterprise and what impact it is having on any current or planned development to help you through the present crisis and in the longer term. What work are you planning in conjunction with your city region partners—the other local authorities in your region—to help development?
As someone who spent 17 years in Scottish Enterprise, I know that the organisation has changed significantly. It no longer deals with local regeneration activity and volume skills development programmes, but has a focus on about 2,000 companies with high growth potential. It is a business development organisation more than a rounded economic development agency, as it was hitherto. It is focusing on a number of large-scale infrastructure projects in Edinburgh. The two significant ones in which it is involved are the west Edinburgh development around the airport and the bioquarter. It has relatively small resources in physical regeneration relative to the kind of organisation that it was a good number of years ago—it has a small central team. To be euphemistic, the jury is out on whether the regional structure is delivering results yet. That model was predicated on key industries in a growth environment and we are now in a different scenario. I used to head up the local operation in Edinburgh and still have a good relationship with former colleagues on specific projects. There is a sense that SE's engagement in local partnerships has been impacted significantly because it is now a national industry that focuses on specific priorities in specific geographies throughout Scotland.
We continue to work with local partners and other local authorities. One example of that is recent work with colleagues in West Dunbartonshire and Argyll and Bute to seek European funding to support our business gateway and business development project. We are working with other partners on tourism-related activity and trying to start regional parks in our area. We are also part of the Clyde valley shared services partnership. We continue to work with other local authorities to see where we can all get benefits and efficiencies in the system.
There is certainly some collaboration and good work is being done by both local authorities. Given that Scottish Enterprise's focus has changed, it is understandable that not as much direct work is being done with it. All local authorities have more responsibility to take forward some of the smaller and medium-sized projects. From what you say, it sounds as though work in collaboration with regional partners, particularly city region partners, is going very slowly. The city regions have been in play for a few years, but, as Mr Anderson said, you are at the advanced stages of discussion, rather than effecting any real delivery. That is a bit of a disappointment.
We are not opposed to a new Forth crossing; we are suggesting that we should have the evidence on which to base a judgment and a decision. We also have some reservations about the amount of infrastructure investment required on this side of the Forth to accommodate the traffic congestion that will come—additional park-and-ride provision and other infrastructure that is not prioritised in the strategic transport projects review, as far as we can see. We have signalled those reservations to Transport Scotland. We recognise that the loss of the existing Forth crossing would have a huge economic impact, and we are acutely aware of the dangers posed by that.
Just a final question, convener.
I hope that you are not going back to the Forth road bridge, because other members are waiting to ask questions.
It is just to make a point that will be interesting to all members, as well as to Mr Anderson. We know from yesterday's Transport, Infrastructure and Climate Change Committee meeting that the Cabinet Secretary for Finance and Sustainable Growth gave assurances on public transport options, particularly for park-and-choose facilities for Rosyth and Halbeath, which would help to mitigate some of Mr Anderson's concerns.
I do not think that that was a question.
Good morning, gentlemen. In answer to questions from my colleague Alasdair Allan, you implied that both your local authorities—and, no doubt, others—have seen a reduction in income compared with what you would have expected, as a result of issues around the recession. Will you put that in perspective for us? "A reduction" does not mean a lot. What does it mean in financial terms and as a percentage of your budget?
As a percentage of my discretionary budget, it is more than 10 per cent. Planning fee income for the first quarter this year was 28 per cent down on the equivalent last year. Likewise, building warrant fees were down. Car parking fees in Edinburgh are suffering, partly because of the recession and partly because we have lost some spaces as a consequence of the tram works. In my budget, the reduction means that there is a £2.6 million pressure in the current year.
The reduction in capital receipts is significant—we are looking at about £30 million over the year, which has a significant impact on an authority of our size. The land receipts from our public-private partnership schools programme are significant, and the reduction in them is probably of the order of 10 per cent. I do not have detailed figures for our planning fee or building standards incomes, but those reductions, along with increased demands in the areas of housing and council tax benefit claims, will put pressure on numerous areas. This is not a reduction in income, but housing and council tax benefit claims inquiries have increased by 50 per cent and claims by 5 per cent. Those figures are significant in a small authority.
Perhaps you will provide us with the detailed figures at a later stage so that we can get a feel for the situation.
We are looking at service prioritisation and to future alternative service delivery models as a way forward. In the immediate term, we have instituted a vacancy freeze so we are not hiring any new staff—that is a bit of a blunt instrument. Undoubtedly, we will need to look at moves towards selective voluntary severance in areas where income is falling short, such as in building warrants and the planning department. However, we need to be prudent because, if we cut capacity too much and then there is a pick-up, we might regret our decisions.
Our situation is similar to what Mr Anderson described: we have a vacancy freeze, and you will probably find that most authorities have one too. As I said earlier, the authority is going through a major reconfiguration, which is an intensive process. We are looking at prioritisation, and the decision on what will fall out of the equation has not yet been made. In the current year, there are certainly issues in property maintenance budgets, which are proving difficult.
The problems that would come from reductions in the number of jobs cause the committee great concern, and it is a question to which we might return. You said that, although your activity has fallen in certain areas, it has increased in others, such as offering support to on-going businesses, if not start-ups. I press you to tell us exactly the demands on you from business and the difficulties that bring them to you for support.
In Edinburgh, we have seen a 60 per cent increase in take-up of business-gateway-related seminars for people who are contemplating starting up a business. That is managed through a contract, but there are challenges in supporting people at that stage of the pipeline, those who are newly started and those who have been in business for some years and are struggling to stay afloat. There is a general pressure from the small and medium-sized enterprise sector. We are trying to manage that by working with Edinburgh Chamber of Commerce, which is very active in this sphere, and other organisations.
You will find that I echo a lot of those sentiments because all local authorities face similar difficulties.
On the section 75 agreements, are you discussing with developers delayed contributions, so that contributions are phased rather than all paid up front?
Yes. That is one way in which we try to strike the balance—by looking at the phasing in the agreements to see whether we can link payments to the number of houses built rather than timescales and so on. Developers are making those sorts of approaches, but there are also demands not to make payments for certain things. The issues work their way across, and we will always try to strike the right balance that supports the development of the area but protects our interests in relation to funding through the agreements.
Is it realistic to expect individual local authorities outwith Edinburgh and Glasgow to provide that development function? We have just heard about the challenges that local authorities face, even in Edinburgh, where the council concludes:
Whatever size the organisation is, it will face those pressures. There also needs to be a local perspective to economic support and development. East Dunbartonshire Council has been successful with a number of regeneration initiatives over recent years, particularly Kirkintilloch's initiative. The partnership working between the health board and the council to set up such organisations has resulted in many significant benefits to the area. A lot can be done at a local level, and there will always be a local perspective to economic development.
I will ask you a blunt question: I presume that you expect a local perspective in shared services or more efficient procurement methods through working with others, so why would there not be a local perspective in a more regionally based economic development function?
That is one of the conflicts in shared services that we will have to face. We will have to find a way of overcoming that challenge. We must balance the local agenda and local input against the wider aspect that is inevitable in a shared approach.
It is important to draw a distinction between economic development and business support, which is part of an economic development approach. In economic development, local authorities can play a significant role in attracting investment. At the moment, with sites at the lowest price that they have been for a long time, the City of Edinburgh Council is working with a lot of house builders on opportunities for affordable housing in Edinburgh. We are also examining new funding models and working with a number of different agencies on new ways of funding infrastructure.
Do you think that local authorities have sufficient resources at present to provide either the services that they are contracted to provide or those that they might want to provide?
It is difficult for an organisation with a budget of £1 billion to say that it does not have sufficient resources. The issue is where priorities lie across the range of the council's statutory obligations. There is no doubt that elected members will always perceive statutory issues such as child protection and care for the elderly as priorities; I see that in political discussion. Economic development has been a bit of a Cinderella function in local authorities outside the major cities. When SE had a strong local presence through the local enterprise company network, a small number of people in each authority could always work with it to make things happen. To some extent, that arrangement has been undermined by the changes that have been made to the enterprise network.
You asked whether we are funded to provide what we want to provide. The simple answer to that question is no. That will always be the answer, but it must be set against the widespread demands on councils and the range of services that they provide. There are significant demands and pressures in relation to infrastructure such as our road network and school estate. Social work pressures are also significant and growing. Those are high-profile areas that cannot readily be set aside to enable us to do other work.
I imagine that at the moment there is increased pressure from business for support, advice and help. Are we in danger of losing companies just because there is a gap somewhere in the overall business development and support system?
I think that that is inevitable. There will be companies that are unaware of services or unable to access them because there is a finite supply of support. Such companies might be able to stay in business if they have the right advice at the right time but otherwise will fail.
I presume that the situation in Mr Cunningham's area is similar, albeit on a smaller scale.
There are issues of scale and particular local issues, but in general we face the same situation.
Can we predict where such businesses lie in the scheme of things? Are we talking about a particular sector or particular size of organisation?
Let me give you a couple of examples of what we are doing. Retail businesses in marginal locations are struggling, and we have been active in supporting businesses in Leith Walk, where the tram infrastructure has presented challenges, and in the west end, to help them to consider how to position their areas as alternative locations. We have been working collectively with businesses and traders associations, and we have provided a lot of support to encourage businesses to consider what vision we can develop for those parts of the city, to give people an attractive alternative day out.
Our biggest risk areas are probably manufacturing and retail. The biggest sectors in East Dunbartonshire are construction, retail and real estate, but local retail and manufacturing businesses are probably under the most pressure. The construction industry is under significant pressure throughout the country, too. Those are the main areas of concern.
Mr Anderson, the City of Edinburgh Council's paper to the committee states:
It will do, as part of consideration of five groups of services. Environmental services in the round are included in the proposals for alternative service delivery, along with property, facilities management and a range of other services.
Therefore it is possible that refuse collection services will be contracted out by the council and that people will get their bins collected efficiently again and not be subject to the sort of action that we have had to experience during the past couple of months. Is that right?
We are looking very carefully at how to improve efficiency across all our services to achieve value for money and to ensure that our service to customers is as good as it possibly can be.
But, for the record, refuse collection is one service that is being considered in that context. Is that right?
The report that is going to council includes a range of environmental services, including refuse collection.
Thank you.
There has been a modest overall fall, although I cannot give the figures off the top of my head. We have about 17,000 full-time equivalents in Edinburgh, and about 20,000 people in total. We can certainly arrange for that information to be provided, so that you can directly compare two years ago with now.
I do not have such figures to hand. Our workforce is of the order of 4,500—that is our establishment level—but we are carrying a significant number of vacancies, so while our establishment is at a certain level, the number of people in post is a bit less. Like my colleague, I can get more detailed information for the committee.
That would be helpful for us in getting a handle on the situation. My colleague Mr Wilson raised the issue at a previous evidence session and asked whether the change in the total number of jobs is a result of real reductions in the head count or is due to people who previously provided services being employed by arm's-length companies as a result of an undertaking transfer, in which case the cost to the public sector is the same; it is just that the notional employer is different. It would be useful if you gave us evidence from your councils about the extent to which the decrease in the number of jobs is a real fall, as opposed to a transferred fall. What do you estimate the net reduction in employment to be in your two local authority areas, across the whole of the private and public sectors?
The unemployment rate in Edinburgh has gone up to 3.2 per cent. This time last year, it was about 1.6 per cent. That compares with a 5.7 per cent average for comparator cities and 4.1 per cent for Scotland as a whole. As I indicated earlier, the biggest part of the increase in the figure is in youth unemployment. My colleague sitting behind me in the public gallery might know the exact figure for the increase compared with last year. If he does, I ask him to pass me a note.
I do not have figures for that, but I do have our current employment rate: it is 77 per cent, which is 1 per cent above the national average. Unemployment has not been a significant issue in East Dunbartonshire historically. Generally, the picture is fairly stable. There is a significant element of fairly high earners in our area, and when there is an impact on redundancy, that sector probably feels it the most. I can get more detailed information.
Thank you.
You are right to say that that issue is being considered in terms of the single status and job evaluation payments. We would be looking for something similar to deal with redundancy payments, as we would like to be able to fund them over a period of time to achieve the spend-to-save impact. We need to make the redundancy payments in order to achieve the longer-term savings, but to take that spend-to-save approach, we have to have the money to spend in the first place, which is our difficulty. We need a way of phasing redundancy payments over a period of time, because the initial hit is difficult to deal with.
If you spend to save in that way, do you not need to have a commitment to maintain that lower level of employment and generate more efficient service provision from the reduced workforce? If you do not have that, all that will happen is that the head count will rise over the next few years, leaving you with the cost of those salaries as well as the cost of servicing the borrowing that produced the reduction.
There are two linked but separate issues to consider. The longer that we leave unresolved the pay modernisation proposals that deal with equitable treatment across genders, the greater the potential equal pay claims liability. In seeking to resolve that issue through pay modernisation, we are looking for significant productivity gains, not least in refuse collection in Edinburgh.
I have read through the rather detailed submission from Edinburgh's city development department, which sets out the council's view of the current problems and its proposals for dealing with them, and I have picked out three issues in relation to the role of Scottish Enterprise. There are interesting comments about the account management status of certain top companies, which the submission says are well serviced in terms of their own resources and are able to see themselves through this difficult time. From a later paragraph that refers to the growth action plan, I pick up a failure by the business gateway at a national level to pass on information to Edinburgh—and possibly other local authorities—on the number of applications that are made to it. The final point that I note concerns the Scottish Enterprise growth criteria.
Perhaps I am uniquely placed to respond, given that I worked for Scottish Enterprise until 18 months ago. SE has three categories for high-growth companies. First, account-managed companies are companies that are deemed to be capable of achieving £800,000 growth in turnover over a three-year period of intensive business development support. Typically, those companies have a personal adviser in Scottish Enterprise whose case load might comprise a portfolio of 12 to 16 companies. Secondly, there are client-managed companies, whose growth potential might not be quite as high, but they are future high-growth companies for which the target is £400,000 growth in turnover over a three-year period. Thirdly, there is the growth pipeline, which comprises companies that are capable of becoming high-growth companies in future.
To give you some perspective through facts and figures, East Dunbartonshire has 2,560 registered companies, more than 90 per cent of which have fewer than 50 employees. That is how significant small businesses are in East Dunbartonshire. There are also 35 Scottish Enterprise account-managed companies. That gives a sense of the scale of things, certainly in East Dunbartonshire.
I have a final question for Mr Cunningham and Mr Anderson. On a couple of occasions, Mr Anderson has commented on the level of youth unemployment in Edinburgh. No doubt youth unemployment is a worry for a number of local authorities in Scotland. How are Edinburgh and East Dunbartonshire fixed to tackle rising youth unemployment in the current climate?
Edinburgh's position is challenging. Historically, a lot of Edinburgh school pupils who did even reasonably well in their highers tended to leave school after their fifth year to move into jobs in, for example, financial services. Last year, for the first time, Edinburgh experienced what Glasgow and the west and other parts of central Scotland have experienced for several years: a significant number of young people were faced with no prospect of immediate employment and a lot of competition. Jobs in Edinburgh are now being taken by people who are leaving industries such as financial services. Recently, I talked to a colleague from our education department who said that even classroom assistants—who at one time were lone parents living in Granton—are up against former Royal Bank of Scotland managers for jobs. The labour market is therefore becoming a lot more competitive and groups are being squeezed out of it.
From our perspective, we need to go back to joint working. That is happening at the moment, particularly between our community development section and the local colleges, which are now jointly located at the Southbank Road campus in Kirkintilloch. The ability to provide immediate handover has proved quite successful. When people come in to see one partner, they can be immediately handed over to the other quite naturally. The synergies from joint location have been quite successful. The colleges, the community development section, Jobcentre Plus and the economic development section are working closely together to manage the situation as effectively as possible. We have also applied to the future jobs fund for support funding. The issue is challenging but, by working on that basis, we hope to have an impact.
There are no other questions from committee members, so I extend our thanks to the witnesses for their attendance this morning. City of Edinburgh Council's written submission will also be useful to the committee in its inquiry.
Meeting suspended.
On resuming—
I welcome our second panel of witnesses: Colin Borland is public affairs manager in Scotland for the Federation of Small Businesses and Garry Clark is head of policy and public affairs for the Scottish Chambers of Commerce. Welcome, gentlemen. In the interests of time, we will move directly to questions.
Good morning, gentlemen. Both the Scottish and UK Governments have recently stressed what they are doing to help businesses to sustain themselves during the current economic times. In our inquiry, we are specifically interested in finding out what measures local authorities have put in place to support businesses during the recession. Some information on that would be appreciated.
The first thing to acknowledge is that we are in a completely different situation to the one that existed prior to 2007. That is a big challenge for organisations such as ours, which must now engage with 32 local authorities rather than, as before, directly with the Scottish Executive, as was. As a result, we face a challenge in ensuring that our people on the ground are educated about the change, and that we as an organisation understand exactly what is happening. As a national organisation, we have contacted all 32 local authorities to ask for an outline of how they operate and details of how they discharge their new economic development responsibilities, particularly in gearing up to support smaller businesses through—after what has been a tough year—what we reckon will be another tough year or so.
Scottish Chambers of Commerce certainly values the role that local government has played in working with businesses over the years. To a greater or lesser extent, all chambers of commerce across the country engage closely with their local council in promoting services to business. For example, Edinburgh Chamber of Commerce and West Lothian Chamber of Commerce are very much involved in delivering the business gateway on behalf of their local authorities. More informal arrangements also exist in other parts of the country. We very much work together with the local authorities to improve the lot of business.
Do you feel that local authorities were ready for the challenge of taking on the business gateway responsibilities? We heard from the representatives of local authorities on the previous panel that on one level the best that the business gateway does for the smallest businesses is hold the occasional seminar, have a chat with them about best practice and give them some handy tips for taking their businesses forward. Mr Borland mentioned the need for more in-depth, face-to-face mentoring sessions with small businesses. To what extent do business gateways do that and to what extent do they provide only networking experiences once or twice a year?
Local authorities are probably better placed to tell you how ready they were to take on the responsibilities and deliver the service. They may be doing perfectly what we are asking them to do, but I wonder whether we are asking them to do the right thing. As Garry Clark pointed out, when the change was effected we were in completely different economic circumstances and it was right to focus on start-ups, because historically Scotland has a low level of business start-ups. Now that the focus is on business survival, the model has to change. Perhaps in another root-and-branch reform of business support services we would have to consider the content of business gateway contracts, how they have been delivered and what is in them. We may have to consider whether there is too great a focus on start-ups and not enough on one-to-one support.
Bob Doris has raised a couple of interesting issues. We view business gateway services as being of value to business but, as has been said, they need to be supplemented. Whether or not the business gateway will always be the best organisation to supplement those services is another matter entirely. There are organisations throughout the country—chambers of commerce being among them—that can and do supply a number of services to businesses, including mentoring and one-to-one contact. We must consider what the best model is and where the business gateway fits into the existing infrastructure. We must also consider whether we need to invest more money in the business gateway in replicating services that are already being delivered elsewhere, or invest to extend the reach of services that are already being delivered to business.
I am curious to know whether that means that local authorities should be acting and reacting quicker because core responsibilities have been placed on them that they did not previously have. I see from briefings that one of the business gateway responsibilities is to participate in the growth pipeline—to examine medium-sized businesses which could at some point be account managed by Scottish Enterprise at a high level. Should the business gateway's focus be not on the growth pipeline, but on sustaining smaller businesses that are below the radar and may be falling by the wayside? Is that an example of the refocusing that is required?
We engage, to a greater or lesser extent, in various aspects of the business gateway. For example, in Edinburgh and the Lothians we are partners in delivery of the business gateway through the Edinburgh and West Lothian chambers. We are also engaged in assessing the business gateway's success or otherwise at national level. One difficulty is the fact that we do not always have to hand all the information that we need to make judgments about the success of the business gateway since it has passed into the hands of local authorities. We would all like more information to be published on the number of contacts they have had and the number of successes.
If the question is whether we think more of the business gateway's effort should be focused on one-to-one support for existing businesses, the answer is yes. I would separate out business support services from the wider economic development services, which include everything from transport to education to local infrastructure planning and all the rest of it.
I have a final question. I started my questions by asking what local authorities could do better or more of. You said that they are doing okay, but I got few specific examples of what they could do additionally. You praised Glasgow City Council for being flexible in negotiating business rates for empty properties, but you said little else about what you would like local authorities to do. There is a focus on that in our inquiry, so this is your opportunity to put on the record what you would like local authorities to do better to support your businesses.
Local authorities could pay their suppliers—particularly smaller local suppliers—on time, with the invoices undisputed. They could consider efficiencies in the planning service and their bureaucracy. For example, if I want set up a café in Glasgow, how many visits do I have to make to Glasgow City Council to get my licences, permits and all the rest of it? Local authorities could also think about service sharing to deliver efficiencies, and they could consult businesses when they are going to undertake local road works. Those sorts of things could be done. They are not earth shattering, but they would make a real difference to our members.
We know from speaking to businesses up and down the country that it is less a case of local authorities coming up with brand new schemes to assist them than it is a case of their doing what they do in a way that is responsive to, and which recognises, the needs of businesses. Businesses interface with local authorities on planning, on building standards, on health and safety, on trading standards and so on. Those interfaces must be as easy to negotiate, as straightforward and as inexpensive as possible for business. That is all that business would ask of local authorities, apart from ensuring that they carry out the contracts through the likes of the business gateway efficiently and effectively in order to meet the needs of business. It is about councils doing what they do and examining the interface between councils and business to ensure that it is as smooth and seamless as possible.
Of course—if I may mention the dreaded P word—it is also about procurement, and the need to apply a best-economic-value test to procurement rather than a test that involves consideration of simply how many pounds and pence are being saved.
Those suggestions are not necessarily linked to the recession. They should have been happening, and should continue to happen, anyway.
Absolutely. It is all about best practice.
It is interesting to see what your submission and others say about whether services that are provided by local government to business should be put on a statutory basis, which would impact on issues around ring fencing and flexibility. The suggestions are all very well, but the business community has decided its priority, has it not? It wants to reduce business rates. How much does that cost us?
Scottish Government figures estimate that the cost this year will be around £93 million. That will be the cost—it excludes any other economic developments that might occur as a result.
So, that was your priority.
Yes.
Faced with a choice between the business rates being cut or having all those other nice things, the business community decided—regardless of the fact that the measure would spread the benefit thinly, is not targeted and would help those businesses that are already in good circumstances—that it would go for the business rates cut.
I want to pick up on your suggestion that it is an untargeted, blunderbuss sort of approach. The current reform of the business rates, which gives smaller businesses a reduction in their rates or, in some cases, completely removes them, is linked to the rateable value of the business. That means that it provides a disproportionate benefit for businesses in harder-pressed areas in which there is less economic activity, such as Greenock, to pick an example at random.
This morning, I heard that business support is the Cinderella service. It is not this committee that will be making the hard political choices but the people who are faced with those reduced budgets. The likelihood is that the services that are provided to business will be at the lower end of the hard political choices that they make.
There are a couple of interesting issues there. First, on the small business bonus scheme, we surveyed our members just after the scheme was implemented in order to identify the businesses that were benefiting from it and to find out what they were going to do with the savings that they had made. We found that every one of those companies was investing that money back into the business. When the scheme was introduced, many businesses were facing increasing pressure as a result of rising utility costs and so on. Very quickly, those pressures were followed by other pressures, particularly around access to finance, because many businesses had to take out overdrafts just to keep their cash flow going. The small business bonus scheme delivers enough for many hard-pressed businesses to keep the cash flow going, pay staff and win new contracts, so it is making a real difference to businesses throughout the country.
Give me an example of a typical, average-sized business and how much it would gain out of the small business bonus scheme, as it is described—it is not a fairness scheme but a bonus scheme. Is it hundreds of pounds?
It can be up to about £3,000 or £4,000.
Yes—but that is the top end. What is the average for the small businesses that you represent, Mr Borland?
This year, the bonus is between £117 and £3,113.
Mr Clark has just said that it is the difference between survival and going out of business. Could £117 make that difference?
It is certainly a contribution when people are on the margins.
I do not doubt that it is a contribution, but I have just heard from Mr Clark of the Scottish Chambers of Commerce that £117 is the difference between survival and going out of business.
If the amount is £3,000, it is the difference between sacking someone and not sacking them.
Is £117 the difference?
No—£3,000 is.
Okay.
The second part of the argument is that it should not be a choice between investing in the small business bonus scheme and making procedures more effective for business in other ways. The Planning (Scotland) Act 2006 said that making procedures more effective would be a zero-cost option. According to that act, we should be able to improve the lot of businesses in planning without a cost to the exchequer.
Local government set its business plans and strategies in 2005. I accept that, from the business point of view, the debate about the fairer rating system was about putting right an historical wrong. For that reason it is correct but, given the current situation, could the £90 million, £100 million and £160 million over whatever period it is be better used? I presume that you negotiated with the Government a significant share of funding to go to business but, if we had been in the middle of the financial crisis at that point, would the debate have been different and would it have changed the nature of the negotiations?
That involves a presumption that we still have that £93 million. There is a cost to getting rid of the scheme, even if companies are not sacking people and not using the bonus to expand their businesses. That comes with the caveat that last year was an exceptional year, so a lot of the money went to help cash flow, which was particularly difficult because of the credit crunch. However, the scheme was designed to help businesses to expand, grow and continue to invest. Some managed to do that, which created work and economic activity. If we consider not only the impact of that on the jobless figures but the extra economic activity, we see that it is not as if getting rid of the scheme would save us £93 million at a stroke that was then in our back pockets to be invested in whatever we wanted.
Gentlemen, I will ask about procurement. Mr Borland referred to it a short time ago as the dreaded P word, so I am sure that you will have an interesting answer or two for us.
You have summed up the situation well. There was a problem, in that the Scottish public sector spends £8 billion a year buying goods and services, but shoddy, bad and worse practices had grown up; we had no idea how much was being spent and who was spending it. The reforms under McClelland have been positive in that they have professionalised the service and brought some transparency into it. That and certain other things, such as the single point of inquiry, we endorse absolutely.
I agree with a lot of that. Post-McLelland, we are in a far better place in terms of procurement. Government and the public sector certainly understand a lot more of the issues around where business is coming from in that regard.
That response raises a good issue about the depth of what is going on in the background, rather than just the blanket numbers around the size of businesses. I wish you well in your attempts to take forward the work with local and central Government.
Earlier, I asked about using the expertise of your organisations or your members to develop the shared agenda around more efficient procurement. Is there any evidence that that is happening?
We are both members of the public procurement advisory group.
Can you feed in at that point?
It has not delivered as much as we would like as quickly as we would like. It is a difficult process. The pressures to centralise and consolidate contracts are still great, and I do not think that we have won that argument yet.
I want to pick up on the earlier point about procurement, although I am thinking more about capital projects and building projects. Small businesses and chambers of commerce have said to me that many local authorities find that the way in which the national advertising portal works prohibits small local businesses from getting building and architecture contracts. Have you picked up on that?
The creation of the single portal was welcome but it has had its issues. There were questions about whether certain local authorities would participate in the scheme, and about the success of the scheme more generally.
I echo what Garry Clark said. The single online portal is infinitely better than what preceded it. It has a couple of issues, and we would like to see it looking at what some of the sites down south, such as CompeteFor and Supply2.gov.uk, are doing, how they are being proactive, and how they engage with very small businesses using the range of communication technology rather than relying on someone in the office sitting at a computer trawling or waiting for e-mail alerts.
It has been reported to me that there is a perception that the threshold for capital projects is quite low, in that virtually every building project that a local authority or public sector agency might have must go through the portal unless it is below a very low limit of around £200,000 or £300,000. Has that been raised with you?
The only issue that has been raised with us about thresholds has been not for capital projects but for other contracts, and the question has been whether the threshold should be £30,000 or £40,000 or whatever. In general, we would like as much as possible to be advertised on the online portals. Concerns have been raised about how the procurement process works in general, but specific issues about the infrastructure of the site and what is put on it have not been raised.
Is there a bit of an issue for smaller local authorities or agencies that work in rural areas regarding the money and activity that they put into economic development? They might feel that that does not necessarily result in visible economic activity in local firms unless specific effort is made to ensure not that procurement is biased towards local firms, but that their need to get a cut of the cake is taken into account.
I am not sure, although I take your point about rural areas. There is a big selling job to be done by buying authorities to promote what they are doing and to explain the procurement process and remind people that it is a response to the rather cosy relationships that had grown up over the years between certain suppliers and public sector customers.
Given what you said about business gateway and support for businesses around the country, is there an argument for that function being reserved to the larger cities rather than to all local authorities?
We need much more information about how delivery is taking place throughout Scotland. I hear anecdotally—I will not tell the stories in public forum—about how business gateway is operating in certain parts of the country, but there is no universal picture. We need much more clarity about how business gateway is operating.
Garry Clark made a good point. It is early days. I would be nervous about another wholesale shake-up of enterprise services, given that we are only about two years down the road since the most recent one.
The CBI said in its submission that a local authority business growth incentives scheme would be beneficial. I am not familiar with the scheme, which operates south of the border. The Federation of Small Businesses seems to support such an idea. Have you discussed the matter? How would such a scheme operate?
We have had no discussions on the detail of such a scheme, but we have said that such initiatives must be investigated. As you said, the CBI has talked about such schemes, as have other business organisations.
We would support a debate on the issue. In the past, we have expressed support for a mechanism to incentivise local authorities to assist with delivery of economic growth in their areas. That is vitally important, especially as we move forward. Because budgets for the business gateway are not ring fenced, in years to come they will come under tremendous pressure, as will every other aspect of local authority spending. Businesses do not translate into votes as easily as services such as education or having the bins emptied. However, it is equally, if not more, important for authorities to maintain solid levels of investment in local businesses and the local economy to help the local economy to thrive and to create more new jobs, in order to bring new people into their areas and to encourage the growth of those areas and of Scotland as a whole.
Has the scheme been around long enough south of the border for us to be able to see whether it has created an incentive for local authorities, or do we need to wait until the next revaluation for that?
I am trying to remember how long the scheme has been in operation. It must have been in place for about 10 years—perhaps less.
I am not sure. We have said that we need to find out how the scheme is working and whether it has been presented as something that it is not.
I offer my apologies to the witnesses. As I indicated previously to the committee, I need to leave at this point for an engagement back in my constituency. Alasdair Allan will conclude proceedings.
Good morning—just—to you both. This morning and on other occasions we have heard that local authorities' budgets are under pressure and that their incomes have dropped. If that is the situation, what support and future development would your members prioritise?
I will separate out the issues of business support and economic development. The crucial point is that we should be ready to take advantage of the economic upturn once it is with us. That means having good local support infrastructures in place to help business to take advantage of those opportunities that arise. We must ensure that planning departments are able to respond to routine, non-domestic applications, in particular, and that there is a decent road infrastructure. Those are our priorities in the longer term. If we are in the business of making tough choices and must choose between business support services as currently constituted and support for infrastructure, planning and efficient licensing, we will come down in favour of infrastructure.
As I mentioned previously, it is difficult to establish priorities in the interface between business and the local authorities because so many local authority services, such as environmental, planning and transportation services, are a priority to business. Education is also important; it is vital that businesses are able to access a skilled pool of workers and, in Scotland, local authorities are the principal providers of that, certainly up to the age of 18. All of those issues are extremely important for business.
It is interesting that you should both emphasise the importance of infrastructure, roads and education and so on, but how does that fit with your answers earlier to the convener about the small business bonus scheme? As a result of that scheme, a business in a community perhaps saves less than £200 a year whereas, for £91 million, we could have had improvements in roads or education.
My answer was about the choice that we would make between the services that local authorities deliver if we had to choose between them, rather than about the wider investment choices for the Scottish Government. For the reasons that we outlined earlier, we would dispute that if you got rid of the small business bonus, you would magically have an extra £93 million in your hand. There would be an economic consequence to doing that. If we are talking about an overall reduction in the Scottish budget of 1 and a bit per cent, we would also dispute that it would have to come down to a choice between supporting small businesses and shutting a couple of hospitals. I do not accept that. However, even if I accepted your hypothesis that there is a straight choice between the two, allowing us to retain more of the money that we create would be the preferable option. Having said that, I emphasise that I do not believe that that is a true choice. To present the choice that faces us and faces local authorities in those terms is not helpful or realistic.
I am assuming that you agree with that, Mr Clark.
Yes. In addition, we are getting into the territory of the pressures that local government will face, not just in the coming year but probably in many years to come. Those pressures will be felt equally by the Scottish Government, the UK Government and every public sector organisation in the country. As I outlined earlier, the small business bonus scheme has meant a great deal to many of our members. The proceeds of that—the benefits that small businesses have had from it—have not been stuck in a back pocket but have been reinvested for the survival and prosperity of those companies and for the benefit of those companies and their workforces.
In relation to reduced income or resources, is it sustainable to have an on-going council tax freeze?
To look at the matter from a United Kingdom level, it looks as if the UK will have tough spending and revenue choices over the next 10 years, probably. The same applies to local authorities.
Good morning, gentlemen. I want to ask about the submission from the Federation of Small Businesses. My questions are on general issues, so I am sure that Mr Clark can answer them, too. The FSB's submission states:
You are right that the matter is extremely complicated. I think that Audit Scotland has said that, at some point between now and the end of the calendar year, it will investigate the charging regime following the introduction of the new licensing legislation to see whether it constitutes a cost recovery regime or a form of revenue raising. That is interesting. There will be a robust debate about whether a charging regime raises revenue, what else the department concerned is doing and how much it charges for administrative fees and central costs, for example. I accept that the calculations are not simple and that the numbers are not easy to arrive at. That is why we have to get professionals involved. However, you are right. We are talking about a long-standing issue.
We certainly support what has been said. I am trying to think of the area of licensing—I think that it was liquor licensing—in which the charge that was levied to cover the costs involved was, as several local authorities admitted, set far too high in the first year and then had to be adjusted in the second year to take account of the overcharging. Of course, it would have to go up again in the third year to be back to a normal level. That means that there would be three widely varying bills in three years. From a business point of view, we do not want unpredictable charging; we would much prefer consistent charging. The matter needs to be investigated to ensure that there are broadly comparable situations throughout Scotland.
For the record, provided that the arithmetic is correct and transparent, do your organisations accept on behalf of your members that charges for such services and functions—licensing, regulation and so on—should be made on a full cost recovery basis?
A cost-neutral approach should be taken. We accept that there are costs in administering and conducting such business, so it is not fair to ask for it to be subsidised when there are many other calls on the public purse. We have said on the record that that is the case with respect to alcohol licensing in particular.
We certainly support the idea that, in fairness, licensing should be self-financing. If that can be clearly demonstrated and is accepted by everyone, we are comfortable with it.
I want to move into the area of procurement as it applies to what the City of Edinburgh Council described as "Alternative Service Delivery Models". To what extent are your organisations engaged in discussions with their individual councils or the Government about creating such new models for the delivery of services? Do you actively encourage councils and the Government to do so on behalf of your members?
As I said earlier, all our local chambers are in pretty close contact with their local authorities. I do not know for certain whether the City of Edinburgh Council, for example, is actively engaged in that particular issue, but Edinburgh Chamber of Commerce works very closely with the council, and we certainly encourage it to do so on behalf of its members. We also encourage it to make sure that its members and all businesses across Scotland benefit as much as possible from any new opportunities that emerge from local authorities.
Our membership is traditionally made up of the users and consumers of services rather than potential providers of them, so we might have a slightly different take on the question. We do not have any position one way or the other on who actually provides the service, as long as it is done efficiently and accountably, and it gives us what we need.
Before we conclude this session, I must tell the committee that Bob Doris has given his apologies because he has had to go to another engagement. I thank Mr Borland and Mr Clark very much for their evidence, which has been very helpful indeed.