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Item 3 is evidence from the Scottish Government on the legislative consent memorandum for the Enterprise Bill, which is United Kingdom legislation. I welcome Fergus Ewing, the Minister for Business, Energy and Tourism, who is joined by Oonagh Gil, the deputy director for enterprise and cities, Geoff Owenson, a senior policy official for finance pay policy, and Stuart Foubister, a divisional solicitor, who are all from the Scottish Government.
Minister, would you like to make some introductory remarks?
Thank you, convener. I am grateful for the opportunity to address the committee in respect of the motion that was lodged by the Deputy First Minister on 9 December 2015.
The UK Enterprise Bill was introduced in the House of Lords on 16 September 2015 and is progressing through the UK Parliament. The bill includes a wide range of measures that are aimed at promoting economic growth and the UK Government expects it to remove what it regards as unnecessary impediments to business.
The majority of the provisions in the bill are reserved to the UK Parliament. What we are concerned with today are those provisions that fall within the devolved competence of the Scottish Parliament and that require a legislative consent motion to allow the UK Parliament to legislate on those matters. The LCM covers two areas: the establishment of a small business commissioner and the capping of public sector exit payments.
I will outline briefly each of those areas. The UK Government intends to establish, as a statutory appointment, a small business commissioner with powers to offer advice, guidance and a complaints service to small businesses. The UK Government’s aim is to tackle poor payment practice across the UK whereby a small business is subject to unfavourable contract conditions yet is keen to maintain that vital commercial relationship with a larger company.
Extending the provisions to Scotland will place Scottish businesses on an equal footing with those across the UK. Payment practices that disadvantage small businesses are a common complaint, and the small business commissioner offers an opportunity to address those issues that are a challenge for many of Scotland’s small businesses that do business across the UK. My officials are in discussion with the UK Government to ensure that Scottish interests and delivery processes are represented as the UK Government develops regulations for operational procedures. The proposal is seen as generally welcomed by the small business community and as adding to existing mechanisms. The provision falls within devolved competence because it affects business support policy. Therefore, the consent of the Scottish Parliament will be required to extend the measure to Scotland.
The second measure outlined in the LCM is the provision of regulation-making powers for Scottish ministers in respect of the cap on public sector exit payments. The UK Government intends to limit public sector exit payments to a maximum of £95,000. The measure provides for Scottish ministers to make similar regulations in respect of devolved Scottish public bodies. It would be for Scottish ministers to determine whether and how they wanted to take forward such proposals.
My officials have sought views on the measure across the Scottish public sector and trade unions. Most respondents were in favour of ensuring that proper consideration could be given to Scottish circumstances should there be any prospect of such a cap being introduced but commented that the UK proposals were overly prescriptive.
Ministers therefore have an idea of the range of issues and concerns but have not made any decision as to how the cap might apply to devolved Scottish public bodies. We have committed to consulting fully before making regulations to enact the power, including on such issues as exemptions from the cap and the delegation of decision-making powers.
In his correspondence with the UK Government in October 2015, the Deputy First Minister indicated his support for those measures, subject to two revisions: first, that the £95,000 figure be unspecified in the bill, as Scottish ministers want to have full flexibility over the powers to set the level of any cap from the outset as well as to vary it; and, secondly, that the delegated authority be extended to allow Scottish ministers to make regulations around the capping of public sector exit payments in relation to civil servants working for the Scottish Government. Both those revisions would be more consistent with the devolution of responsibilities for public sector pay, terms and conditions and exit payments.
Her Majesty’s Treasury officials finally offered a response last Friday. They are clear that Scottish ministers could determine their own level of exit payment caps and, if they chose a different figure, that figure could be set out in the Scottish regulations from the outset. From a presentational viewpoint, it may have been better if there had been something express in the bill. However, legally, the position is fine and we are content.
In relation to the issue of Scottish civil servants in the Scottish Administration being covered by the UK regulations, although the Cabinet Office has already delegated to Scottish ministers authority over terms and conditions and voluntary severance, the power to make regulations in relation to those civil servants remains with UK ministers. HM Treasury officials have not said whether they intend to provide that delegation now, although it remains something that could be done at any time. We will continue to press them on the issue.
The potential benefits to the Scottish public sector of ministers holding regulation-making powers are such that we would want to progress the LCM even if UK ministers were not content to agree the points that were raised in the Deputy First Minister’s letter. The Scottish Government recognises that the current position on voluntary severance may not always provide the best outcome for the Scottish public sector, and the powers that are proposed under the bill provide sufficient flexibility to allow them to be adapted to suit the Scottish public sector landscape. Once the regulation-making power was vested in Scottish ministers, it would be for the Scottish ministers to determine whether and how they wanted to take forward such proposals. The provision will affect the executive competence of Scottish ministers, and the consent of the Scottish Parliament will therefore be required to extend the measure to Scotland.
On 14 October 2015, an amendment to repeal the Green Investment Bank provisions of the Enterprise and Regulatory Reform Act 2013 in support of privatisation was introduced to the bill. Given the lack of consultation and reassurance on that privatisation process and the UK view that no Scottish legislative consent was required, the in-principle support for the Enterprise Bill that was offered to the UK Government in early October 2015 was rescinded until further notice. Following constructive dialogue between the UK and Scottish Governments, reassurances were received from the Secretary of State for Business, Innovation and Skills and from Lord Smith of Kelvin, the chair of the Green Investment Bank, in relation to the protection of the “green” purpose of the bank and the importance of the bank’s Edinburgh headquarters and employees. All correspondence on the matter has been made available to the Parliament. On that basis, the strategic decision was taken not to pursue an LCM in relation to amendments concerning the Green Investment Bank, and the previously expressed in-principle agreement to provide legislative consent was reinstated.
Thank you for that explanation, minister. I have a couple of questions. First, the Scottish Government is clearly supportive of the proposal to have a small business commissioner. How much is that likely to cost the Scottish Government, given that it looks as though the cost is to be shared between the UK and Scottish Governments?
I have a figure for that, which I read yesterday evening—I expect that it will be put in front of me in short order. I think that the cost will be relatively modest.
The problem is substantial and, although we welcome the step, we do not think that it will be enough. Many of the people here who also attended the cordial engagement with the Glasgow branch of the Federation of Small Businesses late last year were left with the clear impression that late payment is an endemic and unaddressed problem in the UK. There is a strong feeling that many large companies—I will not name them—take advantage of their relative strength in bargaining and wait many months before making payments. Moreover, many small businesses feel constrained in their ability to speak out, for fear of losing custom if they are perceived by large businesses as being—to put it bluntly—troublemakers.
It is a serious problem on which the Scottish Government does not have sufficient powers to legislate, although I should say—this is important, and I have been involved in it in some respects—that we have taken steps to ensure that payment by the public sector to small businesses, and to businesses in general, is conducted in a far more satisfactory way. We can share with members the evidence that we have on that, if you are interested, because it is an on-going issue that we need to revisit constantly to ensure that the system is operating properly.
The figure that I was searching my cranial area for is between £90,000 and £100,000. That is the cost that is currently estimated to be attributable to the establishment of the small business commissioner. I have to say that it seems surprisingly modest. After the meeting, I will ask for the figure to be reviewed in order to ensure that it is future proof. If there are further points on the issue, we will get back to you.
I take it that £90,000 to £100,000 will be the Scottish Government’s share of the cost and that the overall cost will be much higher.
Yes—I thought that that was what you meant. We have around 7 per cent of the total number of small businesses in the UK with an estimated 7 per cent of predicted businesses likely to use the commissioner. The UK Government has indicated that it will meet the costs of establishing the commissioner. Should that position change, the estimated annual running costs for Scotland may be around £90,000 to £110,000. That is based on the UK Government consultation and impact analysis.
The figure looks small, because, if 7 per cent of small businesses complain to the commissioner, the commissioner will be dealing with a lot of complaints, and I am not sure how the UK Government expects such a large volume of complaints to be handled other than in a very high-level, cursory way. If that happens, I suspect that there might be complaints about the complaints process.
However, let us not be too gloomy. In principle, the small business commissioner is a good idea, which is why we support it. On the face of it, it is possible that that approach will tackle a problem. Therefore, as an optimist I support it and, more to the point, the Scottish Government’s Cabinet supports it.
Just to be clear, is the figure of £90,000 to £100,000 the Scottish Government’s share of the cost or the total cost?
It is the estimated annual running cost for Scotland.
It is the Scottish Government’s share of the cost.
Yes.
Okay.
I want to ask about the capping of public sector exit payments. Over the past year, how many payments have been made in the Scottish public sector that exceeded the proposed cap of £95,000?
Again, convener, somewhat late last night, after my trip to Caithness and north Sutherland, I read a figure that I hope my officials will provide shortly.
Public sector exit payments are a serious problem, and some payments have seemed pretty excessive to members of the public and members of the Parliament. I will not give examples, because that would be an abuse of my position, but we do not need to think too far and too long to come up with an example.
The matter is a legitimate and serious area of concern, so I very much welcome the fact that the Scottish Government has decided to take a Scottish approach, which, to be fair, the UK Government has largely co-operated with in principle. That is all to be welcomed. What we are not doing today is making a decision about what that approach would be. That would be entirely wrong, as it would prejudge a debate. However, I think that the need to take some kind of action is recognised and manifest.
In principle, capping is something that we entirely support as being necessary. I have referred to the preliminary consultation that we carried out, which indicated that the approach of setting one figure might be overly prescriptive. Nevertheless, we would have to look seriously at that approach. Local government made some specific points, which was not unexpected.
10:00I can give you some provisional information from the Scottish Government. Out of 238 applications for exit payments that were received in 2014-15, 22 would have been affected in some way by a cap that was set at £95,000.
I appreciate that any computations, figures or statistics are complex and need to be seen in the round. Therefore, if it is acceptable, we will write to the committee to confirm the extent of the issue. However, it looks as though the figure is 22 out of 238 cases, or something under 10 per cent. That is not enormous, but it is nonetheless a significant number of individual cases in which, on the face of it, the award would have been in excess of £95,000, which most people would see as being a very large payment indeed.
Good morning. My question is again on the issue of public sector exit payments. The end of paragraph 15 of the legislative consent memorandum reads:
“Trade unions have been more forceful in asking the Scottish Government to reject the UK Government’s proposals.”
You touched on that in your opening remarks, minister. Can you expand on the nature of those objections and how the Scottish Government responded to them?
I am not sighted on that matter, so I ask Mr Owenson to expand on it. If he is not able to do so at the moment, we can write to you with more details.
The time constraint that was imposed by the UK Government’s timetable prevented any formal consultation. Therefore, in late autumn last year, we undertook a very quick feedback exercise. The public bodies, unions and others that we approached understood that it was very quick and dirty.
Most of the respondents were in favour of ministers taking relevant powers to ensure that proper consideration could be given. Many respondents commented that the proposals were overly prescriptive and that there were other routes for setting voluntary early severance and early retirement payments at an appropriate level. Local authorities indicated that they wished to continue to have discretion over their own arrangements. The trade unions were more forceful in asking the Scottish Government to reject the UK proposals.
As I say, it was a very quick and dirty exercise, which was undertaken over a period of about two or three weeks. That was the information that we fed back to the Scottish ministers, and they are still considering where they want to take those regulations.
I acknowledge that the issue might come up if a future decision is made to use those powers. However, given that we have not heard anything more than what is written in the paragraph in front of us, it would be helpful to have something in writing about the nature of the objections that were raised and how the Scottish Government responded to them.
We will certainly consider that. However, I think that it has been made clear already, by me and by Mr Owenson, that the initial consultation was, of necessity, a pretty quick exercise. It was not the thorough consultation that the issue merits. Therefore, I am not sure that we are able to say much more than we have said. Also, to be fair, the trade unions—with whom we work extremely closely on all matters—are very capable of speaking for themselves and should have the opportunity to do so if they wish.
Thank you, minister. You rightly referred to the prospect of the Green Investment Bank’s privatisation as one of the significant aspects of the bill. You explained your concerns about a privatised bank ceasing to focus on green investment priorities and the possibility of the bank moving away from Edinburgh, and you said that you received assurances that have satisfied you. What steps would have followed had you not been satisfied?
That is a hypothetical question. That is not where we are. We were very concerned about two matters principally, and one matter of principle. We did not agree with the privatisation of the Green Investment Bank—full stop. On matters of operation, we wanted to ensure that it would remain a green investment bank and not just become an investment bank and that its headquarters and associated jobs would be retained in Edinburgh, which in itself was a subject of some controversy.
What assurances did we get? In a letter on 3 November 2015, the Secretary of State for Business, Innovation and Skills, Sajid Javid MP, offered reassurances on the green purpose of the bank. In a letter on 12 November 2015, Lord Smith of Kelvin of the Green Investment Bank reaffirmed the GIB board’s continued commitment to retaining the headquarters and associated jobs in Edinburgh following privatisation.
As I said, those responses, which I have briefly summarised, are available in the Scottish Parliament. Although they do not alleviate all risk of what might happen following privatisation, both responses seem to be pretty reasonable and helpful. They give us reassurances from the UK Government in areas of importance to Scotland.
On a commonsense basis, following the responses that we received in good faith from Sajid Javid and Lord Smith of Kelvin—someone of the highest repute—we felt that the two serious issues that we had raised, and that Lewis Macdonald rightly raised, had been dealt with satisfactorily. In a situation of trust and respect in dealing with the UK Government, we felt that the conclusion that we reached was justified. We will, of course, continue to monitor the situation extremely carefully.
I have seen the correspondence between Sajid Javid and John Swinney and the letter from Lord Smith of Kelvin. On 3 November 2015, Sajid Javid was keen to point out that seeking voluntary agreement from new shareholders was
“the most we can do to secure this”—
in other words, to secure a green priority approach—and that
“It is simply not open to us to impose more binding conditions that require future owners of GIB to act in a particular way.”
The Secretary of State for Business, Innovation and Skills, who is the minister in charge of the bill, was keen to point out the limits of the assurance that he could give you on that issue. He did the same on the issue of the headquarters remaining in Edinburgh when he said:
“it is important to recognise there is only so much Government can do on this matter.”
On that issue, Lord Smith only expressed his personal commitment to and enthusiasm for staying in Edinburgh. Given the limited nature of those assurances, is the minister satisfied that either of those outcomes is guaranteed much beyond the next few months?
As I said, the reassurances were couched in such terms that we can reasonably justify agreement to the LCM. The main point is that those reassurances have been provided in good faith. You asked about guarantees. Guarantees are not easy to come by in life or in Government. I recall that, in my days as a lawyer, banks provided the guarantees, and they had some difficulties not so long ago.
It is reasonable to rely on the assurances that Lord Smith and Sajid Javid gave in good faith. It is fair to point out that we do not support the decision to privatise the bank, but it is not within our powers to prevent it. Had the constitutional decision on Scotland been different, there would have been a different dynamic. It was not, and power rests in London. We cannot prevent such decisions being taken by the UK Government.
We must act respectfully towards the people whom we deal with. That is correct and that is what we do. The Deputy First Minister acted entirely appropriately and he obtained assurances that are sufficient in their terms.
The more important issue, frankly, is that green renewables industry and investment continues. Perhaps the more substantial question is about our concerns regarding the fiscal machete that is being used to destroy the renewables industry in Scotland and the UK. That gets to the heart of the issue, and is perhaps of more direct relevance to the stability and confidence of investors in the green sector. I have, if you like, a grandstand seat, because I deal with investors from Governments and public companies in the UK and furth of Scotland. Without exaggeration, it is fair to say that their confidence in investing in the sector has been undermined by the exercise of that fiscal machete over the past year, since the UK election. That is the serious issue that determines the viability of the investments for which, if you like, the Green Investment Bank was established to enable.
With respect, we are here to consider a legislative consent motion. Your answer brings me back to my first question, which you dismissed as being hypothetical. Given that new shareholders could change the chair and chief executive, relocate the headquarters and resile from voluntary agreements with the UK Government, and given that there seemed to be a difference of view between the Scottish and UK Governments about whether Scottish legislative consent was required for the amendment relating to the Green Investment Bank, did you come to a conclusion about whether a legislative consent motion was required?
I have enough reality to deal with in my working day without having to spend time on conjecture and hypotheses. I am afraid that, fairly or unfairly, I am going to decline the opportunity to get involved in doing so.
In my opening statement I said that our initial view was not to agree to give consent. It was only after assurances were sought and obtained on the key points—about which I have been entirely candid in these unscripted remarks—that we agreed to give consent, for the reasons that I have stated .
The answer to your question is that we said, “No. We are not happy with this unless we get assurances that the Green Investment Bank will continue to be headquartered in Scotland and that the green nature of its activities will continue.” That was a reasonable course. I entirely accept that Lewis Macdonald might want me to say what our position would have been if matters had panned out differently but, given that they did not, I do not propose to do so.
I am simply trying to establish whether, if you said that you did not agree, that would have had any force.
With respect, convener, I have answered the question in the way that I have chosen to.
Okay.
Before I bring in Mr Brodie, I have to say that your comments about the “fiscal machete” seem rather bizarre, given that the subsidy cut to which I think you are referring applied to onshore wind projects, which the Green Investment Bank—as you well know—has never supported in its business plan and has no plans to do so. I wonder whether the term “fiscal machete” would also apply to your Government’s plans to hit the renewables sector with an additional £10 million tax grab, by bringing its projects under the remit of the business rates regime for the first time.
It is not simply the elimination of the incentive support system for onshore wind, but the fact that that form of renewables was, by experts, adjudged—beyond peradventure—
With respect, minister, we are talking about the Green Investment Bank. It was clear when it was set up that it was not set up to support onshore wind projects. That was never part of its business or forward plans, so why are you bringing in a totally irrelevant matter into this discussion?
With respect, convener, although I realise that this is becoming a political discussion, I want to respond. A great many companies were appalled by the UK Government’s decision to scrap the least expensive—
That has nothing to do with the Green Investment Bank; it is totally irrelevant.
Hang on just a minute—I will come to that, if I may have the opportunity to complete my point. Many investors in onshore wind are also investors in offshore wind. The undermining of confidence in one leads to a counterpart risk and, in some cases, the undermining of confidence in both.
10:15The argument is that if a Government pulls the rug from under our feet in one area where incentives have been promised, what is to prevent it doing so in other areas? I have heard that argument from a great many companies that are involved in offshore wind generation. Therefore, convener, the way that I put it was not an exaggeration. I understand that you—although not some of your colleagues—take a very condemnatory view of onshore wind.
What view are those same companies taking of your Government’s tax grab of £10 million a year on renewable energy projects?
The business rates measures that were introduced by Mr Swinney are of an entirely different range and scale. They will affect existing businesses that are contributing successfully to the economy, and I do not believe that the UK Government’s measures are a comparator of that order. We are not comparing apples with apples here.
Good morning. I have two brief questions.
First, on the question of the Green Investment Bank, there is no assurance in Sajid Javid’s letter that he can control anything in terms of the bank’s privatisation or retaining the headquarters in Edinburgh. It is a shame that major shareholders in the new company are not employees in Edinburgh. I am concerned about what may happen regarding the migration of senior members of the Green Investment Bank to the new company. Is there any caveat in the correspondence that says that that will be looked at? We have talked about capping, but that would not stop the migration of current senior members of the Green Investment Bank to the new company or stop them owning shares in it. That is my first question.
Secondly, three years ago, when I was a European reporter on this committee, I wrote to the DFM regarding a meeting that I had had with the European commissioner on small businesses with a view to creating a small business commissioner in Scotland. The basis of meeting the European commissioner was that the relationship between the UK and Europe was not particularly friendly; I have no reason to feel that that will change.
That suggestion was made because there was no meaningful application to help small businesses with funds from the European Union programme for the competitiveness of small and medium-sized enterprises, which will amount to €2.3 billion in the period up to 2020. I see nothing in the Enterprise Bill that will address that issue and nothing in the LCM that indicates what supportive—in inverted commas—role a small business commissioner, or subcommissioner, in Scotland might have.
Regarding the second question, not for the first time Mr Brodie has raised an interesting point that I had not anticipated would form part of the debate. Out of fairness to him, we will go away and look at it carefully—particularly the reference to the scale of the funding from Europe that is involved.
More generally, I can say that the officials who are dealing with European development funding are attuned to the possibilities of, and the need to use, available funding to assist small businesses. That is very much a part of our programme for the next wave of funding. It is something in which I have taken an interest, and I am bringing together Scottish Government officials with the Federation of Small Businesses and other bodies to discuss it. If I may, convener, I will take away Mr Brodie’s point and come back to him on that.
I apologise—I decided to raise the question just this morning.
No need to apologise. We are all working as a team here—sort of. [Laughter.] As I have a little team here, I ask Stuart Foubister to answer the first question.
I do not think that there is anything in the correspondence on guarantees for senior staff. I make the point that a separate company is not being created. After privatisation, the company will remain the same company—the same legal entity—so there should be no automatic conclusion that there will be a need for transfer of senior staff or anything similar.
Or shareholdings.
Shareholdings would need to be transferred in privatisation.
I am not going to ask a hypothetical question or a question about something that is not on the agenda. I worked for the Royal Bank of Scotland a number of years ago, and I was made redundant. Minister, do you honestly believe the assurances that you have been given on the Green Investment Bank?
I have covered the approach that we have taken. It is the correct approach, and part of the reason why it is correct is that the assurance was given by the secretary of state in the UK Government and by Lord Smith, who is someone of unchallenged repute in his personal dealings. Mr Macdonald rightly pointed to things that could happen in future, and I think that Mr Lyle is pointing to that, too. I am not challenging the point that we cannot predict with absolute clarity and certainty what the future may hold. However, as of here and now, when the Government takes decisions, we do so while taking account of issues such as the nature of the assurances and the persons from whom they are received. The decisions that we have taken are the right ones, for the reasons that I have said. Without casting any aspersions on bankers, the assurances have not actually been provided by bankers.
As there are no more questions, I thank the minister and his officials for coming. Later, the committee will consider in private our response to the LCM.
We will have a short suspension to allow a changeover of witnesses.
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