European and External Relations Committee

Meeting date: Tuesday, March 23, 2010

Official Report 444KB pdf

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Europe 2020 Inquiry

I have possibly provided inspirational leadership and a breach of the Official Secrets Act—who knows?

I reassure the committee on the point about the silo mentality. We have worked hard to confront that within the Government, and our structures of decision making and the approach that we are taking are designed deliberately to attack that. I am not saying that it has been removed as an obstacle, but we are in a better position as far as cross-portfolio working on some of the big strategies that will affect performance is concerned. In the Government’s economic strategy, the economic recovery plan, early-years intervention or our work in tackling poverty, we recognise across the board that there are different ways of tackling the questions that we face, and I hope that that will be built on in the work that we undertake.

It is exactly 11 o’clock, cabinet secretary. Thank you for giving evidence to the committee. We look forward to working in partnership with you as we make progress on the matter over the coming months.

11:00 Meeting suspended.

11:04 On resuming—

Thank you, convener. I welcome the opportunity to take part in the committee’s inquiry.

The Government’s position in principle is that we are comfortable with the direction of the EU 2020 document. We believe that it represents a welcome development of the Lisbon agenda and that there is, by and large, compatibility and an alignment between our approach and the vision of the document. What I will say today is in no way intended to suggest that we are out of kilter. There is broad agreement, but there are some areas where the process could be strengthened.

We believe that EU 2020 lacks the necessary focus on climate change and the development of the low-carbon economy. One of the Government’s major policy objectives is to move the climate change debate away from being viewed—as it often is—as a problem and a burden and towards being viewed as a way in which we can develop our economy in a different fashion to meet and address some of the challenges. The Government published a consultation paper on the low-carbon economy yesterday to try to advance some of those questions.

The second area in which the EU 2020 process could be strengthened is in relation to social cohesion. The document does not take sufficient account of the need to transform the economic opportunities that exist for people who are particularly isolated from the labour market. Unfortunately, we are going through an economic cycle at present that will put people back into that position. There is a significant challenge to improve people’s access to the labour market and tackle the obstacles to entry into it, but we believe that the document lacks impetus on that. Some of the issues have been addressed in the EU’s recent output on the matter, however, so some progress has been made in that respect.

You asked about targets, convener. The principle of having significant targets at the heart of the process is welcome, but whether those that are enshrined in EU 2020 are all crystal clear and meaningful is a different matter. It is clear what the targets for participation, and research and development are about, but some of the other targets are perhaps a little less clear. I hope that that will be addressed in the process of dialogue.

Evidence from Scottish Enterprise referred to insufficient recognition being given to regions in the Lisbon strategy and suggested that its focus was on member states at the expense of other actors. Does the Scottish Government agree that the Lisbon strategy was too focused on the role of member states and how will the Government seek to ensure that Europe 2020 better incorporates the regional dimension?



10:30

Fiona Hyslop raised the issue of regional disparities at the JMC. What sort of things were discussed?

I had better be careful about how I answer Rhona Brankin’s question because I sensed a certain frisson of concern about some of the issues. I will be as helpful as I possibly can be in writing.

Possibly even courageous, convener.

It would be nice to argue that everyone should get resources out of the EU as long as we are getting some—that is the nice, straightforward argument. I have much sympathy with the argument that funding should be focused on areas that are objectively shown to require assistance the most. However, we must be careful not to devise at member-state level a mechanism that, for example, completely removes the United Kingdom from access to funds. We all know that there are significant areas of economic challenge in the UK. We must be extremely careful about how we decide on the mechanisms for the distribution of European funds to ensure that need is addressed, as you said, which instinctively feels to me to be the correct way to proceed.

I hope that a strong EU regional policy, which addressed disparities in the regions, would offer the way forward.

I support Scottish Enterprise’s analysis. SMEs must play a fundamental role in the Scottish economy. They are the backbone of the Scottish economy. We have taken measures, such as the business rate cut for small businesses, which were designed to enable smaller companies to retain more of their revenue, to support internal development.

There is a range of business support, for example through some of the European funding programmes. The Scottish co-investment fund and the Scottish seed fund are available to support SMEs in innovation. Other innovation grants are available through Scottish Enterprise, through different financial mechanisms. The Scottish investment bank is another device to try to assist smaller companies, particularly with debt finance. There is a range of interventions that try to support SME activity.

Another, more strategic question is whether companies consider that they have anything to contribute to innovation. I worry that innovation sounds like something that is the exclusive preserve of laboratories and high-tech environments. I think that we all appreciate that innovation is everywhere in our business sector. We must try to ensure that there is an appreciation of the contribution that SMEs can make in that regard. A number of mechanisms to support the process are provided by Scottish Enterprise, the business gateway, local authority instruments and some of the European funding programmes. We seek to ensure that a broad and comprehensive offering is available and is tangible and accessible to the public.

Yes, because I was a little worried that, when we were talking about the rates, we were going to rerun last week’s chamber debate on tourism.

I would welcome that. I do not have the relevant data in front of me that show this, but the public contracts Scotland portal has gone from a standing start to having an extremely high level of participation as a result of public sector contracts being advertised on it and individual companies registering their interest in terms of whatever their specialism happens to be. They are notified when a relevant contract goes on to the portal, which they can examine to explore its relevance to their operation. The response rate has been tremendous, but participation is by no means at capacity—much more participation can be enlisted. Obviously, MSPs can actively promote such measures in their localities. The Government would certainly be delighted to furnish them with any relevant information. Indeed, I may do that to ensure that all MSPs are aware of the details of the portal so that they can promote it in their localities.

I am pleased to welcome John Swinney, the Cabinet Secretary for Finance and Sustainable Growth, and Jim Watson from the Scottish Government’s strategy and economic policy division. Good morning and thank you for making the time to come along. Cabinet secretary, I know that you have a busy diary and that you need to be away by 11, so we will do our best to keep to that. I understand that, as we have such a tight agenda, you will waive making an opening statement, so we will move straight to questions.

The Scottish Government has made a submission to the Europe 2020 inquiry. In general, what are your views on the EU 2020 strategy? Is it a good thing with which to replace the Lisbon strategy? Does it go far enough? Should there be clearer targets? Will you give a general indication of the Government’s views?

You mentioned that, since the Government made its submission, the European Commission has responded to some of the issues that you highlighted. Has there been sufficient movement? If you have had discussions with the UK Government about the Scottish position, what feedback have you received? My understanding is that the strategy is to be agreed at the European Council meeting in June. What are you feeding into the UK process and what response are you getting from the Commission?

There has been movement in the EU on the questions that we raised, which is welcome. Obviously, we want to ensure that everything is cemented in agreement and that there is understanding about the direction of change that we want.

We were not party to the original United Kingdom submission, simply because timing was far from ideal—there was a bit of a swift movement to submit everybody’s views. Although we were not party to it, we agree with and have no issue with much of it. After the submissions were made to the Commission, there was a discussion about EU 2020 at the joint ministerial committee on Europe meeting on 16 March. The Minister for Culture and External Affairs, Fiona Hyslop, was involved in that discussion. The UK minister agreed that the JMC would return to the subject at a subsequent meeting, in advance of the strategy being finalised at the European Council meeting in June, although there will be a discussion about the matter at the European Council meeting later this week.

At the JMC meeting, Fiona Hyslop stressed the importance of removing regional disparities. She argued for greater emphasis on skills and climate change. She also raised issues about the approach to the EU 2020 targets, particularly the need to ensure that they do not result in the creation of a new and distinct set of targets. If possible, the EU 2020 targets should encompass the direction of targets from member-state level upwards, rather than create a new set of EU targets from the top down. As the committee will be aware, the Government has formulated a number of targets that we are working towards to realise our economic strategy and they are the guides for our policy. We do not want to come out of the discussion with new targets that are at odds with the direction of thinking envisaged in our economic strategy targets.

I do not want to hog all your time, but I have a final point before others ask questions. Three of the largest political groups in Europe have suggested that, along with targets, there should be incentives and sanctions—the idea being that there is no point in having targets if you do nothing when you do not meet them. What is your view on that?

Since we are confident about meeting our targets, it sounds like a better idea.

Issues on, for example, the low-carbon economy would be raised. We have a distinctive opportunity to develop low-carbon activity as an economic opportunity in Scotland. We have a significant proportion of European wave and tidal resource and, if we have that, the issue is, by its nature, not uniform throughout the European Union. We want to ensure that the opportunities that the strategy raises take due account of the significant shift that we want to make towards developing a low-carbon economy.

Access to the labour market, which is a completely different matter, would also be discussed. Some areas of our economy have a particular challenge in accessing economic opportunity. Sometimes, that is a product of economic dislocation and, sometimes, of geographical dislocation because of remoteness and other factors. We want that to be reflected in the development of the strategy.

A fine balance must be struck to ensure that the approaches that could be envisaged by an overall EU strategy do not constrain in any way the Scottish Government’s ability to tackle some of the issues.

It is perhaps unfair to ask you for more detail, but we are interested in what issues are raised at the JMC meetings. You mentioned two that particularly refer to your brief—the low-carbon economy and access to labour markets—but will you or somebody else give us information about the other regional disparities that were raised at that meeting?

I can certainly provide the committee with some further detail if that is possible. I noticed, in the exchanges that you had with the Europe minister earlier—

A new openness, perhaps.

As you have been so brave, Mr Swinney—

Reducing regional disparities is clearly part of your cohesion response to the European Commission’s consultation and your EU 2020 strategy. No one round the table would disagree with you on the importance of social cohesion, but is the Scottish Government of the mind that EU funds should be directed towards all member states or directed only towards those in most need, as was the thinking in Barroso’s first non-paper on the matter?

You have said that 60 per cent of businesses are benefiting from a rates cut. However, 40 per cent of businesses are struggling with quite high rates rises. A company in my area faces an increase of 140 per cent. What is your view on transitional rates relief?

Also, I understand that Wales has access to funding through the joint European resources for micro to medium enterprises—JEREMIE—initiative, whereas Scotland does not. Will you comment on that regional disparity?

I have one wee follow-up question. Will the Government continue to monitor Scotland’s performance against the proposed Europe 2020 targets?

We would monitor performance against those targets. I come back to the fact that we monitor our own targets and publish live information on them—whenever the data change, we update our performance framework on the website. All the information is available to be looked at on any day of the week to find out how we are performing in relation to our targets. That is all in the public domain. If we had other targets to meet in relation to EU 2020, we would report on them accordingly.

I think that we just have time for a few more questions.

In evidence to us, the Scottish Trades Union Congress raised the issue of procurement, which I guess relates to the EU’s smart, sustainable and inclusive growth strategy and the Scottish Government’s target of creating a supported business environment. Basically, the STUC said that the public sector procurement directive of 2006 was a “missed opportunity for Scotland”. In addition, it said:

“All the procurement issues reside at the Scottish level. The European legislation already provides sufficient scope to procure”.—[Official Report, European and External Relations Committee, 23 February 2010; c 1424.]

Do you have a view on whether we could make more and better use of local procurement? The STUC would certainly like to see that happening.

We are doing a lot in procurement, and I am certainly open to hearing about how we can do more. On issues that affect procurement, there are, for example, mistaken views that European legislation somehow prohibits ensuring that local business enterprises can access Government procurement. That is not my view at all. If it is stipulated that produce for school catering contracts must be fresh, that rather restricts where it can come from, and that is perfectly permissible in a European regime.

There are also examples to do with community benefit clauses. I think that Mr Park asked me a question in Parliament last week about community benefit clauses in procurement; we are increasingly using them in procurement opportunities.

We have also published sustainable procurement guidelines, which are designed to ensure that carbon footprint considerations are implicit in some of our procurement decisions. I do not think that we need to speculate too much about the carbon footprint of goods that travel from Falkirk compared with goods travelling from Liverpool, to Edinburgh. It is clear that such issues can be factored into procurement.

The public contracts Scotland website is designed to open up contract tendering opportunities in the public sector much more directly to local companies—I accept that it also opens them up to other companies around the globe. People and companies can go to that website to see the overwhelming majority of public contracts in Scotland. I often talk to companies’ representatives who have lost the will to live while they have searched through the Official Journal of the European Union for tender opportunities. Everything is on the public contracts Scotland website, which is free to access and use, and is a helpful instrument for companies.

As I said, I am open to suggestions about how we can develop the procurement regime to ensure that there is more local purchasing. I would certainly be happy to hear about that from the committee or the STUC and to consider how we can respond positively to what is said.

From what you say, there seems to be a gap between perception and reality. Unfortunately, there is a negative perception out there. The issue is how information is obtained and managed better. I know that the committee wanted to say a little bit about that in our report.

Part of my response is to try to reassure stakeholders that some of the ground that we are on with the EU 2020 strategy is not new or distinctive ground but is encompassed by the contents of the Government’s economic strategy and the updates of the economic recovery plan that we have undertaken over the past 18 months or so. In formulating both our economic strategy and our economic recovery plan, we have had pretty extensive discussion with stakeholders. For example, aside from the dialogue that I, other ministers and officials pursue, we had fairly lengthy discussions in advance of each Cabinet meeting in 2009. On one occasion, those discussions involved the third sector; on another occasion, they involved the STUC; on a third occasion, they involved the business organisations; and, on a fourth occasion, they involved the faith organisations. We wanted their input to our thinking on economic recovery, in addition to the material on the Government’s economic strategy, and we are continuing that dialogue. My officials recently met the business organisations and the third sector—I, too met the third sector—to discuss current issues and concerns.

I reassure the committee that we are involved in an active dialogue with stakeholders that is clearly influencing the Scottish Government’s submission to the European Commission. It will also influence our discussions with the United Kingdom Government. I am happy to explore whether we need to issue an invitation to particular stakeholders to contribute to that dialogue in advance of the finalisation of that work. After the European Council has met this week, we will enter a period of hiatus, from a UK perspective, because it is likely that April will be dominated by the general election. We will have to pick up the issues pretty quickly after the election, which I assume will take place in early May, to ensure that the concerns of stakeholders are taken fully into account. However, I will consider that point and decide whether we need to undertake a further round of consultation.

That would be helpful. We took evidence from a range of stakeholders, including the Scottish Council for Voluntary Organisations, the STUC and the west of Scotland colleges partnership, and they all said the same thing—that they had no input to the process other than by giving evidence to the committee. We will ensure that the evidence that they gave us is taken into account in our report. They also mentioned silo working: when targets are set, people go into silos to protect their own organisations. They want that to diminish in favour of a greater Scottish approach. They are looking for inspirational leadership and asked us to raise the issue in the context of how we can go forward. As you have been so inspirational in cracking the JMCE, we thought that we would ask you to take that away with you, minister.

11:00

That is an interesting suggestion. I suppose that it is worth exploring. It is a fair point that a lot of public policy is structured around achieving targets, although the mechanisms are perhaps not properly in place to say whether they have been achieved. I suppose that there is a welcome debate to be had about that.

We accept that analysis. In response to one of the convener’s earlier questions, I discussed the point that Fiona Hyslop advanced at the joint ministerial committee about the need to recognise regional disparities and ensure that the framework encompasses some of the distinctiveness that exists. Our colleagues in Northern Ireland would comfortably share that position and I imagine that it would also be borne out by the position in Wales. It is important that we ensure that we have an approach that acknowledges the distinctive circumstances and, in some cases, distinctive responses, although I would not seek to make too much of a distinction between the direction of thinking in EU 2020 and that in the Scottish Government’s economic strategy because the thinking that underpins both is compatible. That is welcome for making progress on the agenda.

Scottish Enterprise said in its submission to the committee that small and medium-sized enterprises will play a large role in creating a new, innovative society. Does the cabinet secretary agree? What support is the Scottish Government providing to SMEs to help them to meet the 2020 targets?

I will not suggest that rates revaluation is anything other than a difficult issue. The business rates levels are assessed by independent assessors—they have a statutory obligation to do that. They have gone through the process independently, and it has resulted in a set of recommendations whereby 60 per cent of businesses will see their rates valuation fall and 40 per cent will see their valuation increase.

By pegging the Scottish business rate level to the poundage rate in the rest of the United Kingdom, the Government has already saved business about £220 million. That has been a significant assistance to the business community. If the business rates had been calculated on the same basis as they were calculated in England, businesses would have paid £220 million more. They are not doing that because of the decisions taken by the Government, which have helped the situation.

The second point is that, if we had had a transitional relief scheme, we would have denied 60 per cent of businesses the reductions in business rates to which they were entitled. They would have had to contribute towards offsetting the increases for other companies, which would have been a difficult position to sustain because the rates were arrived at by independent valuation that is provided for by statute.

The third point is that, if we had had a transitional relief scheme, there would have been a transfer from the private sector to the public sector. In a number of cases, the public sector has to pay higher business rates on new infrastructure. In this economic climate, when the private sector is under such acute pressure, I would have found it difficult to justify its subsidising the public sector.

In short, that is the reasoning why there is no transitional relief scheme. Of course, any individual business that is concerned by its business rates valuation is free to appeal. I encourage any business that has such concerns to make that appeal in the normal fashion.

We have explored the question of JEREMIE funding in considerable depth. The Government and Scottish Enterprise have real appetite to take it forward. The issue that we have to overcome is the accounting treatment of the JEREMIE funding within the United Kingdom financial framework. In short, convener, without going into too much detail—

The issue is that, under UK accounting rules, if we secure JEREMIE funding it is netted off our departmental expenditure limit. In short, getting JEREMIE funding would not have made Scotland any better off: we would have had no more money to spend.

Mr Hume asked the fair question of how Wales has managed it. He might like to ask it of my opposite numbers in the Treasury, because I do not understand how Wales has managed it under the accounting rules that I have to operate under—and the Welsh Assembly Government has to operate under the same accounting rules. I will leave that one hanging; I am perhaps in enough hot water already with my remarks on the JMC without going any further.

Good morning, cabinet secretary. I will leave the Welsh alone too—I have asked a lot of questions about JEREMIE in the past.

You mentioned targets in reply to the convener’s first question. We know that targets have been set—on climate change and various other issues—and we also know that Scotland is exceeding its climate change targets. Does the Scottish Government anticipate that the targets will be the same across the UK, or is there scope for differing targets in the UK that, combined, will allow the UK to meet its prescribed targets from 2020?

10:45

The Scottish Parliament has passed legislation that is more ambitious in its targets than the rest of the United Kingdom, although a process is going on that may see the climate change targets being levelled across the UK. The Parliament has taken those decisions, and the Government is taking steps to work to achieve the targets.

If Scotland is more aggressive in the level of achievement that we operate to, clearly that will contribute to the achievement of targets by the United Kingdom overall. I do not detect any lack of enthusiasm in the rest of the UK to tackle such issues; the question is how fast other parts of the UK are moving in that respect.

There is a wider dimension as far as climate change across the EU is concerned. Part of the agenda is that where the EU will settle on its climate change targets is still a moveable feast, bearing in mind the disappointment at the Copenhagen summit in December. The first response of the EU has been not to move its position significantly. A debate is still taking place in the EU, and we are encouraging the EU to go much further in the target-setting process because such assistance from the EU will make our targets more achievable. The approach to target setting at European level is still being formulated. The Scottish Parliament has given us a clear framework in which to operate, but we need the EU to contribute to that process by developing and evolving some of its thinking .

If Scotland exceeds its climate change target, as it seems that it will, it will be interesting to see what contribution the rest of the UK makes. That leads me nicely on to my next question.

As you know, we have five targets. Along with the climate change target, there are targets on employment, gross domestic product and so on. Which of those four other targets will be the hardest for Scotland to achieve?

To go back to what I said to the convener, we still need to gain a full understanding and appreciation of the impact of some of the targets. For example, we need to explore in more detail what the target that says that the share of early school leavers should be under 10 per cent means and what would be required of us.

In my answer to the convener, I was trying to make the point that we would be in a better position if—this might be an impossible ask—we had a European framework that encompassed the targets that we are trying to achieve through our economic strategy, rather than suddenly finding ourselves facing a different set of targets from the EU. Some of the EU’s targets are on the same wavelength; those on participation in the economy, R and D activity and climate change are compatible with ours. I just think that we must be careful to keep a close alignment between our domestic aspirations in regard to economic strategy and the input that we get from the EU.

That would be helpful. I hope that our committee report will assist in that.

I have one final point to raise on where we go from here. At the beginning of your comments, you said that the UK’s position paper had not been influenced by the Scottish Government because of the very short timescale. Likewise, the committee has received quite forthright complaints about the timescale from stakeholders who feel that they have not been able to influence the Scottish Government’s position. You raised the issue at the JMCE and subsequent discussions are coming up. How can you ensure that the Scottish Government’s position is influenced by Scottish stakeholders, who may have to meet targets and who may be at the front end if we go down the road of setting binding targets, incentives and sanctions? They are telling the committee that they have not been consulted and did not feel involved in the process until the committee invited them to give evidence. How do you respond to that?