Enterprise Network Inquiry
Item 3 is to take evidence for our enterprise network inquiry. After today’s panel of witnesses have introduced themselves, we will move straight to questions.
Colin Borland (Federation of Small Businesses)
I am from the Federation of Small Businesses in Scotland.
Garry Clark (Scottish Chambers of Commerce)
I am head of policy and public affairs at the Scottish Chambers of Commerce.
Graham Birse (Edinburgh Chamber of Commerce)
I am from the Edinburgh Chamber of Commerce.
A wide range of evidence has been presented to us; I am sure that we will receive more. Most of your experience is with Scottish Enterprise, but we are here to look at the whole country. Given the submissions that you have made, what are your general impressions of how Scottish Enterprise and Highlands and Islands Enterprise work for you?
It is difficult to sum up my impressions in a sentence, because a year after the 2007 reforms were unveiled we had an unprecedented credit crunch and subsequent recession. We cannot be too critical of the failure to foresee those events.
At the highest level, the various parts of the enterprise support network are probably delivering well what they have been charged with delivering. The difficulty that our members have raised with us relates to what the network has been asked to do. In a piece of work that we did a year or so ago, we identified a gap in support for good, solid businesses that were not growing, starting up or looking towards stratospheric growth but had found themselves in difficulty and were seeking support and guidance. I notice that other written submissions to the inquiry have identified the same gap.
I highlight the importance of such businesses to local communities, especially when things become tough. Our submission points out that, although we could not have foreseen the circumstances that arose, the structures that were set up were too rigid to allow rapid adaptation to the financial crisis and subsequent recession. I do not think that there is a case for major structural reform or for ripping things up and starting again—precisely the opposite, given some of the difficulties that we have experienced during the transition period. However, we need to ask exactly what our enterprise support network should be doing. If we have finite amounts of public money, what represents the best economic value from that? That is an interesting and legitimate debate that we must have before considering any reform or evaluation of the process.
I agree with much of what Colin Borland has said. This is a difficult time to assess how successful or otherwise the changes to the enterprise networks have been over the past three years. When the changes were implemented in 2007-08, we were just entering a difficult period not just for the Scottish economy but for the economy the world over. As Colin Borland said, it was difficult to foresee that and for enterprise networks that had been set up within a new structure to adapt and respond to the situation quickly.
Over the period in question, there has generally been greater focus in SE and HIE on account-managed and high-growth businesses. A number of businesses now feel divorced from both the national enterprise networks. The other week, when I asked businesses in Fife what they thought of Scottish Enterprise, they said, “Scottish Enterprise doesn’t live here any more.” Unless businesses are account managed, they do not have an interface with the national enterprise networks. When I asked the same question of the Caithness chamber of commerce in Thurso the other week, I got a pretty similar answer.
We need to examine the totality of support in Scotland. Indeed, Colin Borland made a good point when he said that we should examine what we need enterprise networks to do. At the moment, account-managed and high-growth businesses are being dealt with in the account-managed system in Scottish Enterprise and HIE, and start-ups are being dealt with by business gateway. However, support for businesses anywhere between those levels—the vast majority of businesses in Scotland—varies depending on where an individual business happens to be. Support should be available to those businesses because they are the high-growth businesses of the future. My colleague Graham Birse from Edinburgh chamber of commerce will say a little bit about high-growth start-ups but, as I say, all businesses must be able to avail themselves of support where required.
However, we must also bear in mind that the public sector is not necessarily the only means of achieving such support. Many in the private sector, the chamber network and other business support networks are working hard either in conjunction with the public sector or independently of the sector to provide those levels of support to business. As a result, in looking at the future role of the enterprise networks, we should bear in mind the large number of private sector organisations that are already geared up to provide support across Scotland and the part that they can play in that respect.
In your submission, you quote a very ancient sage, Gaius Petronius, on reorganisation and what you call “the long history” of trying to achieve efficient management. I take it that you also agree with Colin Borland that reorganisation is not a prime issue in this inquiry.
We will always need to measure success and the key performance indicators that show whether what we have done with the enterprise networks has been successful. By the same token, businesses are frustrated by the way in which, not only in the enterprise networks but in the education system and all sorts of other areas, the rule book is torn up every two, three, four, five or six years and we start again from scratch. I am not saying that we should not look at the success of the enterprise networks, but I think that this is a difficult—and perhaps atypical—time to do so. Business would certainly not welcome the wholesale changing of things every three or four years. Instead, we need to look at how we can evolve and improve the current system and plug any gaps in it to ensure that businesses receive the support that they need.
We need and value the enterprise network, and it has delivered significant achievements over recent years. However, its service needs to be considered in the round and in relation to other factors that can impede or enhance business growth. As we all know, the current context is very different from that which existed two or three years ago.
As a result, we need to look at what the enterprise network delivers for business alongside other factors. Those factors include bank lending; costs on businesses, such as the non-domestic rates, about which, as the committee knows, we are particularly concerned; regulation and red tape; the impact of the public sector austerity programme, particularly on the small to medium-sized enterprises that trade with the public sector; and, of course, general market conditions.
Looking at the enterprise network in isolation would be a missed opportunity. We need also to look at other elements of the business package, including how businesses grow, why they are unable to sustain themselves and the factors that inhibit growth.
The enterprise network has nonetheless achieved a great deal, working in partnership with the chamber network in areas such as high growth and through the business gateway. However, its targets and objectives have become too cluttered over recent years; there are too many of them and they are too complex. The question now is whether we have an opportunity to simplify targets, objectives and KPIs. As Garry Clark said, repeated cyclical reviews perhaps impede the performance of the network. Instead of concentrating on its external clients and customers, it tends to look over its shoulder more often that it ought to.
It is probably true to say that the enterprise network was slow to respond to the challenges of the recession. That could perhaps be said about a lot of organisations, including some businesses, because it was difficult to see the recession coming. The nature of constant review can make it difficult for the network to behave with a degree of flexibility as challenges present themselves. It is also true to say that the enterprise network has become more distant from local businesses since the regional network was restructured several years ago.
Thank you for that introduction.
I was interested to hear the witnesses talk about the gap in support. I am a Fife constituency member. Just a few weeks ago, I met local businesspeople, some of whom are Garry Clark’s members, and they said the same thing that he said: “Scottish Enterprise doesn’t live here any more.” They also told me that Scottish Enterprise had become more distant. I will concentrate on that gap.
Obviously, economic regeneration has moved and now comes under local government. One criticism that businesses in my constituency are expressing is that resources and expertise did not follow the move. Local government stopped offering an economic regeneration function a good number of years ago and it just does not have the expertise. It also does not have the resources. When we took evidence on the reorganisation of Scottish Enterprise and the demise of the local enterprise network, John Swinney assured us that local government would cover that element, yet local government colleagues tell us that the resources and expertise have not followed the move. What are your views on that important point?
As you probably saw from our submission, the picture around the country is mixed. Things changed rapidly in 2007-2008 with business gateway contracts shifting to the local authorities, and it is fair to say that some authorities were better geared up than others at the time. Some local authorities had very well-established local economic development teams who worked with their local enterprise company, the SE network or the HIE network in delivering business support or, certainly, economic development functions. If I think back to the re-organisation in 2007, I can recollect a chamber telling me that its local authority looked on business as a necessary evil. That is not the attitude that we would expect to produce great results at the local government level over a short space of time.
Over the past few years, local government has moved on. We now have a number of examples of local authorities that have adapted and are working well in partnership with public sector bodies such as Scottish Enterprise and private sector bodies such as the chambers of commerce. There are good examples of areas where that approach has begun to work and to pay dividends. Local authorities were at very different starting points when they went into this, and some reacted more quickly than others were able to.
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I am certainly not criticising Fife Council’s economic development department, because it is doing the best that it can with limited resources. However, as I say, the issue is that resources do not seem to follow. The concern from business is that we are looking at successive cuts, and because the services are not statutory, they might take a bigger slice of the cuts. There is a worry about that in local government.
Under the recent restructuring of Scottish Enterprise and the new city region set-up, my area is now the east of Scotland. I am concerned about the fact that there is no longer to be a business growth director for the area. There is a huge worry that Scottish Enterprise is becoming even more Glasgow-centric. Will you comment on that?
We do not have too many worries about the fact that the contracts for the business gateway have been transferred to local authorities. Most businesses have not noticed much of a difference in the day-to-day interaction with the business gateway. However, those contracts will be up for renewal in the next couple of years. We all understand the strictures under which local authorities, in common with bodies in the rest of the public sector, are having to work. Given that economic development does not have a ring-fenced budget in local authorities, we must look forward with a degree of concern. We must work with local authorities to ensure that they continue to prioritise local economic development functions.
Graham Birse can perhaps throw some light on the issue by giving practical examples of how chambers of commerce work with local government and others on a practical day-to-day level to provide the support that we need.
At a time when United Kingdom public sector debt represents about 65 per cent of gross domestic product, we clearly need to manage that deficit downwards. How we do that is a challenge for people other than those in this room, but it is clear that we need to sustain growth in the economy over time to generate wealth, support jobs and replace jobs that might be lost in the public sector with more private sector jobs, particularly in SMEs. In our view, it would therefore be not only foolish but negligent of any local authority or public agency to dismantle an economic development support function.
It is equally important that we make public money go further in delivering that support and that we ensure that when we spend scarce public money it is as effective as possible. Perhaps we should be looking for best practice in local authorities and working to transplant that to other areas. We are working in partnership with the City of Edinburgh Council on a programme called EARN—economic action resilience network—which in effect is aligning the existing support that is offered by the local authority, the private sector, chambers of commerce, the third sector and Scottish Enterprise and considering how to make it more effective, efficient and accessible to businesses.
Garry Clark is absolutely right that the way in which local authorities have adapted has been patchy, although I am delighted to say that, when talking to members, we consistently hear good things about Fife Council. In fact, I was talking to officials from Fife Council at a meeting yesterday who were desperate to tell me about the good, innovative and exciting things that they are doing.
In 2000, this committee’s predecessor, the Enterprise and Lifelong Learning Committee, published a report on enterprise support. One point that came out of that was about the need for a uniform core of support throughout the country. To an extent, that is what the business gateway contracts set out to deliver. The regional variations come in with local authorities working in partnership to top up those services.
You are absolutely right that the issue is not so much about funding for the business gateway contract, which runs until 2012, as it is about what happens to local economic development services once the squeeze is put on public spending. I am not a politician, but I know what will happen if there is a choice between closing the local business shop and closing the local nursery. Economic development services can be seen as an easy hit. They are vital for the local economy, but I understand why they might be viewed as a soft target by the people who have to make the very tough decisions.
The FSB would be supportive of calls from organisations such as the Scottish local authorities economic development group to consider making economic development services a statutory service. That would not be a silver bullet—it would not solve every single problem—but we must remember that in some local authorities it is not even certain that an economic development service will be kept.
We support expertise being transferred to local authorities. All small businesses have a link with their local authority, and local authorities should be able to respond to local needs. It therefore makes sense to transfer that expertise. However, if we make that transfer without considering how it will be paid for, issues will arise. The way in which it is done varies, too.
To address that, as well as dealing with the ideas around ring fencing and having the statutory service, we need to think about how to incentivise local government when it makes the tough decisions. If I am told to take a decision looking purely at the bottom line, of course I know what I can save, and I can simply deliver that saving. Hard-wiring the process so that the decision maker is encouraged to think about the wider economic context—for example, in relation to sharing some of the extra economic growth that their decisions deliver—could help to shift the balance slightly in favour of business development and business support services.
Some of you will be aware that I chair the cross-party group on construction, which involves lots of small businesses. At every single meeting of the group, their representatives emphasise the importance of getting capital investment right. It is only one part of the picture, but there is a huge call for that from the construction industry. If we do not invest in capital projects we are not spending money to reflate the economy and there is no knock-down in the supply chain. There is huge concern, not just in construction but along the whole supply chain—which is huge—about the need for capital investment to support all the areas that we are discussing. What are your views on that? I think that capital investment is crucial to the Scottish economy.
You have hit the nail on the head. Construction is not a growth sector—not many businesses in that sector are growing. Where do businesses go for support? The boss of a small construction company that employs a couple of dozen people might be thinking that times are tight, and they might be worrying about their cash flow. Where do they go for impartial advice? At the moment, they are lucky if their local authority provides a top-up and some advice. As far as the national enterprise network is concerned, however, the answer is nowhere.
Our consistent argument has been to ask what represents the best value to the economy in such cases: supporting that business to keep those two dozen people in work and helping it to survive and sustain itself, or putting money into start-ups that have a variable chance of success—important as that is. In the current context, which one represents best value to the taxpayer and will leave our economy in a stronger state? I argue that looking after the established business with its track record of delivering jobs probably wins out.
We need to examine ways of stimulating infrastructure development and capital projects. Of course, the Scottish Futures Trust is beginning to develop coherent proposals in that respect.
Leaving that to one side, given that in the medium term we are going to have to get infrastructure development money from sources other than public capital budgets, it is difficult to see how existing established policy positions on tolls, for example, or funding through public-private partnerships or the private finance initiative are sustainable.
I spent some of the summer looking after my very elderly parents, which I found involved an awful lot of do-it-yourself work in the house. I also went around home towns and clone towns in Scotland, and one very disturbing thing that I noticed was that the downturn is hitting key enterprises for the home towns, particularly ironmongers. If your high street still has a lot of independently owned shops run by one or two people, the notion of being able to go there and get everything that you require to run your own business disappears when, say, the ironmonger closes down. It is part of the strategy of the survival of the home town. I have noticed, nevertheless, that ironmongers are going. When it hits your own town, it hits hard. According to a proprietor who is based in another Borders town, we lost the ironmonger in Melrose not because it was losing money, but because it was not making a great deal of it.
That, I think, sheds light on the notion of strategic survival—in other words, ensuring that the range of businesses grows instead of simply trying to boost the numbers employed in some general way. Every time a supermarket moves in, one is always regaled with the number of jobs that are going to be created, but there is never any detail about the nature of those jobs and whether they will be any more than part-time positions. When one goes around Scotland, one can be faced not just with empty high streets but with the corpses of supermarkets that have been knocked out by even bigger dinosaurs. Given that Colin Borland took that line, I wonder whether he agrees that strategies in other European countries seem to be more angled than they are here at allowing small and locally owned businesses to group together and survive through the protection of wholesale chains and particular types of skills and firms.
I apologise for the jargon, but it will come as no surprise to the committee to learn that we are very much in favour of looking after that business base, which, over the years, has been written off by economic theorists and those involved in enterprise policy as unimportant and uninteresting. The idea is that it will always exist. We believe that over the past decade those small businesses have created two new jobs for every one that big business has shed. A lot of economic analysis downplays the importance of those businesses, but when this recession is over and we get back to growth, we cannot make the mistake of having another contraction in the breadth of that business base. The only way in which we will have a solid platform from which to launch the next set of stratospheric companies is to ensure that we have a solid foundation and an economy that works, which means having a large number of small employers. In the Borders, you are lucky in that the number of people employed in small private sector businesses is one of the highest, certainly in lowland Scotland; indeed, it is about twice the number employed in Glasgow. We do not need to look too far to see the economic argument in that. However, that argument is difficult to win and goes against an awful lot of orthodoxy that we have argued against for a long time.
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How does that relate to the point that has been raised about the enterprise network?
It is difficult. At the moment, where one can go depends on whether the local authority or another partnership organisation offers support for the industry or type of business. If a business is not in a key sector, is struggling—it is not looking to increase its turnover by £400,000-plus over the next three years and so does not qualify for the growth pipeline—and is not a start-up, the enterprise network as currently constituted would probably not have a role to play, which is what we mean when we talk about the gap in support.
That underlines a couple of points. As Colin Borland said, local authorities have a crucial role to play in economic development support. They represent a far easier interface between local business and the various loan funds that exist. From that point of view, it is important that they take ownership, because they can really make a difference to town centres throughout the country.
Also, as Graham Birse said, we need to ensure that all aspects of our economy and economic tools at a Government level pull in the same direction. A report that was published the other week said that Dumfries was the worst example in Scotland of a clone town. Dumfries High Street business rates have risen by about 40 per cent this year, which has not helped that situation one bit.
We are talking about local authorities that, by European standards, are colossal. Most of the opinion that business voices is in favour of reducing their number even further. About two years ago, I was in Mallorca and talked to the head of tourism there. He said that he had to get things through 300 mayors on his prosperous island. In Scotland, what decision will a local authority take when it is faced on the one hand with small businesses and small towns, and on the other with a supermarket that proposes to move in, bringing all sorts of planning gain and economic betterment?
It is important to clarify that the FSB is not in favour of reducing the number of local authorities for the sake of it. We have not taken a position on that idea one way or the other. We have said that the one thing that we can be sure about is that local authority reorganisation is incredibly expensive, so another reorganisation is perhaps not what we need. We need local authorities to work better and be more responsive. That is happening in certain areas and could be better in others, but I am not entirely sure that that is purely a question of size.
In the written submissions and oral evidence, you have talked about a gap in support for medium-sized businesses, for want of a better term. Start-ups could go to the business gateway and the several thousand account-managed businesses are looked after, but you feel that there is a gap in the middle. I described the affected companies as medium-sized businesses, but many are pretty big and they are the vast majority of businesses in Scotland. Will you give some examples of support and services that they got five years ago, for instance, but which they do not get today?
The service that they got was less contract driven and less focused; they could go in and discuss on-going support. It was not driven so much by a contractor agency and contractual agreements: there was effectively a wider remit. A range of things was available under that set-up.
What kind of things?
Things for businesses that were thinking about expanding, but not to the £400,000 growth pipeline—or the sub-growth pipeline, which is now in the process of coming through—or for those who were concerned about business difficulties. Those sorts of things were available. The client groups were not tightly defined.
Is there anything on the Scottish Chambers of Commerce side?
It is fair to say that, to an extent, those businesses have often been forgotten. Some of them do not feel that they need any support, and they might not—they might be perfectly happy to get on and do what they do best. For other businesses, an issue has come to the fore during the past two or three years in relation to the recession. From a Scottish Enterprise national perspective, there are around 2,000 account-managed businesses, and the purpose of Scottish Enterprise’s intervention in that regard is to help those businesses to maximise their growth.
During the past couple of years, the number 1 priority for those businesses has been survival, not growth, and Scottish Enterprise has had to change its outlook very quickly. As others have mentioned this morning, Scottish Enterprise is quite a big ship to turn, particularly immediately after a reorganisation. It has had to look at ensuring the survival of those businesses rather than maximising growth.
Those challenges are being faced by businesses from the bottom all the way to the top of the growth pipeline, from new start-ups to high-growth businesses. As chambers of commerce, we have identified that some businesses need additional support, and we have been working with Government and others to provide an element of that. For example, we have run the business mentoring Scotland programme, which is delivered by chambers of commerce the length and breadth of Scotland, including in the Highlands and Islands. The programme is aimed at intervening in or providing support to 1,000 businesses every year in Scotland. The interventions are very cost-effective and are available free of charge to the business, and they are delivered in partnership with Scottish Enterprise using European funding.
That is a good example of something that is working for many of those businesses. Some businesses feel that they ought to qualify for account-managed status in Scottish Enterprise or HIE, but they do not meet the criteria for whatever reason. We must ensure that we can provide support for those businesses where they seek it. The chambers are keen to provide that type of support, but if we are considering investment at a national level, we must understand that there is a whole range of businesses out there. It is not about supporting only start-ups and high-growth businesses: there are many businesses that employ many people in between.
The high-growth strategy has worked. In Edinburgh alone, the high-growth start-ups that we have been supporting with Scottish Enterprise generated £235 million turnover and 2,000 jobs last year. The number of jobs that those businesses create is proportionately greater, so it makes sense to prioritise them.
However, Gavin Brown’s question was on those medium-sized enterprises that are beyond start-up but unlikely to qualify or even aspire to high-growth status. It is important to stress the obvious in this context, which is that the responsibility for growing and sustaining a business lies with the business owner, not with Scottish Enterprise, HIE, the Government or anyone else. Often, those business owners look for what support and advice they can find to do that job as effectively as they can and to adhere to their strategies for growth and survival.
Last year, we ran several free events for our members on recovering from recession. We had a panel of experts who talked to our members about issues such as employment law, debt recovery, cash flow, marketing on a zero budget and online search engine optimisation. None of that was about strategic issues—it was not about clusters or other issues that all of us in the room deal with every day. The events could have sold out many times over, because the subjects were on business owners’ minds. They want to know how to recover debt, how to manage their profit and loss through the recession, how to downsize without falling foul of employment law and how to maintain their presence in the marketplace even though they have no marketing budget to speak of. Those issues are alive now for many businesses. Were those businesses to decline substantially or even to go to the wall, the impact on unemployment would be substantial, because of SMEs’ influence as employers in communities across our country.
As for the impact on the enterprise network, if bespoke one-to-one account-managed advice is not offered, it is important to have a way of delivering practical business advice that enables businesses to grow and prosper. The support might be online or might be delivered through private sector partners such as the chamber network, but it is important not to leave businesses out in the cold.
I am conscious of time. Three members still have questions. Gavin, are you finished?
I have one more question. Colin Borland said that the results of the business gateway and local regeneration becoming local authorities’ responsibility have been “patchy”—I think that you used that word. Will you elaborate? What does being patchy mean in practice? Do you have good and specific examples of where the arrangements are and are not working well?
I will point out a couple of examples. The business gateway structure in the Highlands and Islands is much newer than that in the Scottish Enterprise area, and the feedback on it from chambers has not been great, particularly from smaller businesses—they are directed away from one-to-one advice and towards online advice, which has not been terrifically popular. The general perception of the business gateway in the Highlands and Islands has been fairly poor. Many who have had contact with it have had positive experiences, but many have had negative experiences, especially of the online support.
For positive experiences, I look to my colleague Graham Birse.
In the year to April, the number of business gateway start-ups in Edinburgh was up by 7 per cent. In the three months to June, the number for Scotland was up by 14 per cent to 2,869 start-ups. Even in a recession, there is lots of evidence of business start-up activity. That is not atypical, because in a recession a number of people from larger organisations find themselves out of work or between jobs, so they are more inclined to take the risk of setting themselves up in business. Those numbers contrast with the amount of money that is available from clearing banks, which is important—I have made that point. Clearing banks’ lending was down 7 per cent in the year to June, so it is clear that something is going on in private versus public sector support.
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It is important to consider in the round whether business start-ups should be the overriding priority of the enterprise network in supporting businesses. I think that Colin Borland mentioned that earlier. It is important to consider, for example, whether we should look at the internationalisation of business. One of the success stories that we have been working on with Scottish Development International is the establishment of Scottish Chambers International. In the United Kingdom, growth or recovery from recession is currently sitting at around 0.5 per cent. The recovery is fragile, and it is important that we nourish and nurture it as much as we can. In China, the figure is plus 10 per cent, and the figure in India is plus 12 per cent. Indeed, they are trying to manage their recovery downwards, because their growth is reaching astronomical levels. In effect, the opportunities lie in those areas of the world.
Traditionally, Scottish businesses, apart from the larger ones—the Diageos of this world—have been reluctant to internationalise. Exporting has been seen as something that manufacturers, not service businesses, for example, do. Through setting up Scottish Chambers International as a partnership with a £7.5 million budget over three years, we are offering in partnership with SDI a range of support services to encourage businesses to reach out. Those businesses are established businesses—it is not about start-ups. The aim is to provide support that will enable them to do that and share in the global growth elsewhere.
Thank you for that. That is helpful. Our inquiry into export and import support covered that matter.
My question follows on from the question about which local authorities have dealt better with the change since 2007. Have smaller authorities struggled a bit more? I exclude Highland Council, as it is obviously not a small authority.
I am not sure that it is as clear cut as that. Glasgow City Council is probably an example of an authority that was set up to engage with the various enterprise networks, and it has probably dealt quite well with the transition. The same could be said of West Lothian Council and North Ayrshire Council, which are much smaller. I do not know whether it is simply a matter of size; rather, I think that it depends on the focus, abilities and skills in the authority.
Two authorities tend to be quoted back at us. I hesitate to speak on behalf of local authorities, but Angus Council and Fife Council seem to get positive reports on what they deliver and their general attitude.
And West Lothian Council.
Any advance on that?
My next question is on the Scottish Chambers of Commerce’s submission. It mentions the suggestion that there could be a minister for cities, although, as it says, that is
“beyond the remit of this inquiry”.
I am genuinely interested in that suggestion. As I do not stay in a city I fear it, as having a minister for cities could take away focus on outlying areas.
We would not seek to remove any focus on outlying areas; rather, we tried to highlight the need to ensure that the varying challenges that affect our cities and outlying areas are reflected. It is clear that Glasgow, Edinburgh and the Aberdeen area are extremely strong economic performers. We need to build on those areas’ unique strengths and ensure that our economic growth strategy strongly focuses on them. Equally, we need to consider the individual needs of rural areas.
Some rural areas will be able to feed off the success of the city regions, but others might not be quite so geographically suited and require special attention. The cities account for almost half our economy, which clearly means that the other parts of Scotland account for half as well. We need to ensure that the respective strengths, weaknesses and challenges of those areas are fully reflected.
The important point is not whether we have a minister for cities—there is a minister for rural affairs, so I would not get too nervous if a minister for cities appeared—but how we will grow the Scottish economy.
How do economies grow and flex? If you have time, it is worth looking at the work that Professor Richard Harris at the University of Glasgow has undertaken. It is available online. He is one of the UK’s leading experts in identifying gross value added and GDP in regional economies. In looking at the Scottish scenario, we can see that Glasgow, Edinburgh and the north-east represented 43 per cent of the Scottish economy in 2006. The figure has probably grown since then.
What the academics call agglomeration is how economies grow. In other words, if we align and identify some of the factors that impact on growing business—a qualified, competent and well-educated workforce, infrastructure and travel-to-work patterns, property costs, access to markets, taxation, and so on—we see that those are the areas where the economy will grow. On the basis that all boats rise with the tide, there is a case for saying that, by focusing economic development on large city-region areas—I am not talking about Glasgow and Edinburgh narrowly in that context—growth will be achieved in the Scottish economy.
We think that there should be an economic development strategy for cities that recognises that that is the way economies and markets behave and that seeks to import some international best practice to ensure that the recovery in Glasgow, Edinburgh, Aberdeen, Dundee and Inverness is as effective as it can be, and that it spills out into the rest of the economy, bringing the benefits that accrue from that.
My final question follows on from a question that Marilyn Livingstone asked about capital investment. The Herald of 20 September contained Brian Ashcroft’s comment that he would not like to see any cuts in capital investment. He suggested that if capital investment is to continue, resources could be diverted from elsewhere, such as Skills Development Scotland and general Scottish Enterprise activities. Do you have any comments on that suggestion?
What has been said this morning and the written submissions show that 2,200 account-managed companies and another 7,500 businesses will have benefited from various specific support. According to the Scottish corporate sector statistics, there are 289,000 enterprises in Scotland. The impact on our members of a reduction in Scottish Enterprise’s budget would not be direct; there might a tangential impact in that economic growth policies would be more difficult to fulfil, but we would not notice a significant impact on the ground. I could not say the same for spending on other forms of economic development support, such as the ring-fencing idea, making it a statutory service, or incentivising local authorities to prioritise economic development. Any diminution in that sort of spending would be damaging for the future.
We have broadly supported attempts to streamline SDS and, although many of our members still find it difficult to navigate the system, improvements have been made. Although I understand the objection that you cannot have business support without including skills, that should not be insurmountable in the current set-up. I certainly see no case for ripping things up and starting again. Whether the streamlining of SDS will result in efficiency savings or whether further efficiency savings will be required is a moot point, but the question whether any money that is available should be ploughed into local economic development, capital projects or whatever is one for you guys and other elected representatives rather than us.
The key point is value for money, no matter whether we are talking about capital spend in our economy or the results that we are getting from our enterprise networks or Skills Development Scotland. It is all about how much we are putting in and how much we are getting out. Many of the Scottish Futures Trust’s recent comments about prioritising capital spend for the national economic benefit have been extremely compelling and we hope that Governments will take a good look at those proposals and find out how we can maximise the benefit from resources that are limited and will, over the next few years, only become ever more so.
We need to ensure that we are getting value for money. We have to look at the services on which we are spending money and ensure that the return is not just acceptable but excellent. That will become more and more important.
I have one simple question that covers three issues. Have the transfer of local regeneration from enterprise companies to local government, the creation of Skills Development Scotland as an organisation separate from the enterprise networks and the abolition of local enterprise companies been a success in their own terms or would you revisit each of them?
With regard to the first item, our written submission makes clear that small businesses tend not to be involved at that level of regeneration. As we are not best placed to comment—beyond saying that we generally support business improvement districts and similar initiatives—I will leave the question to others.
As I said in response to Mr McMillan, we applaud any effort to streamline SDS and make things easier. Too much of what has gone on before has focused on the structure of services and how they interact rather than on the end user. There are certain initiatives such as step forward Scotland that should make it easier for us to operate the system, but I think that it is too soon to tell whether the organisation will deliver everything that was planned or whether we might need to tweak it a little bit. To be fair, it is still bedding down.
I understand the counterargument that you cannot have economic development support without skills, given that the skills aspect is so integral. I am not convinced that SDS could not simply pipe in skills if so required by an economic support agency but, as I say, time will tell.
As for the abolition of LECs, the jury is, as with everything that has happened, still out. The past two years are unprecedented. Time will tell whether we have lost anything. I will say no more than that beyond agreeing with Garry Clark and Graham Birse that the standard, or ordinary, business—I was going to say run-of-the-mill, but I hate to use that phrase—that forms part of that business base feels a sense of loss in that respect.
12:15
I think that the picture with regard to local regeneration is mixed. There have been some good stories; Lanarkshire chamber of commerce, for example, told us that although the recategorisation of the Ravenscraig redevelopment from national to local seemed to stall the process until fairly recently, the local authorities have got together again and are pushing things forward.
I think that SDS has done an excellent job with apprentices over the past few years, but it is still very young and it certainly took some time to get going. We in the chamber network also feel that, as an encompassing skills body, it could accommodate more skills functions and share a lot more backroom functions.
The abolition of LECs has undoubtedly left many local businesses feeling divorced from the national enterprise network, but the question is whether that is a practical or psychological problem. As long as there are measures in place to ensure that businesses that need support can access it through the public or the private sector, some of those issues can be addressed, but there has certainly been a fall-away in the local connection with Scottish Enterprise and national economic development functions.
I will not repeat the point that Garry Clark has made, but I will pick up on his final comments about the removal of LECs from the scene. There is precedent for such a move. The previous reorganisation of VisitScotland did away with the area tourist board network. The tourism industry is characterised by a large number of small businesses throughout the country, and there is no doubt that those businesses felt completely disenfranchised with regard to the national tourism strategy and the delivery of support to tourism businesses. However, as Garry Clark wondered, is it reasonable for those businesses to expect to have an account-managed support service at the micro level and for the public sector to intervene in their difficulties? We think not, but it is reasonable to expect that, if there is a national strategy for a sector as important as tourism, or for economic regeneration or redevelopment, as many businesses as possible should be able to buy into it. Without seeking to recreate the local enterprise network, I think that it is probably worth looking again at how businesses can access information on their sector or local economy and how that information is delivered and kept refreshed, renewed and up to date.
It is probably also worth considering how the enterprise network’s KPIs, targets and objectives are defined. We think that the process should be as simple and as straightforward as possible and make things quite explicit through output measures. You could argue that there are three such measures—growing businesses, sustaining businesses and growing economies—because if you are doing those things you will be not only creating wealth and jobs, supporting employment and accelerating recovery but possibly supporting recovery in the public sector after we have come through the forthcoming austerity programme.
Thank you very much for your interesting and informative evidence, which has provided us with a lot of food for thought.
We now move into private session.
12:19
Meeting continued in private until 12:40.