Enterprise Areas
Item 2 is an evidence-taking session on enterprise areas. I welcome the Cabinet Secretary for Finance, Employment and Sustainable Growth, John Swinney, and two Scottish Government officials: Karl Reilly, social policy adviser, enterprise and tourism; and Peter Ford, team leader, enterprise co-ordination and partnership. In asking their questions, members should bear in mind that Mr Swinney is on a tight schedule and needs to be away by half past 11.
Do you wish to say something by way of introduction, Mr Swinney?
If I could, convener.
On 17 January, I announced the locations that we expect to make up Scotland’s enterprise areas and I am grateful to the committee for the opportunity to discuss the subject this morning. The Government, in partnership with Scottish Enterprise and Highlands and Islands Enterprise, identified a number of potential enterprise area locations across Scotland. The sites were consistently and rigorously assessed against four criteria: evidence of market failure that enterprise areas could help to reduce; evidence of the opportunity to create additional economic growth and new employment; evidence of the need for improved local economic performance; and development challenges that might constrain short-term opportunities.
In deciding the locations that might benefit most from enterprise area status, ministers carefully considered the outputs of the assessment along with the need for a reasonable geographic spread of sites to ensure equity; the desire to support manufacturing opportunities in renewable energy and other growth sectors; and the ability to complement rather than overlap with other initiatives such as tax increment financing to allow public sector resources to have as wide an impact as possible. Given the available resources, we could select only a limited number of enterprise area sites and settled on 14 sites in four areas. We have focused on the locations where enterprise area status can have the greatest additional impact within the policy’s five-year timescale and have selected sites that can exploit opportunities in known growth sectors but which in many cases will help to create jobs in areas of Scotland that are performing at a level below that at which the Government believes they can perform.
The additional attention on enterprise areas should be considered alongside other existing opportunities for economic development support that we pursue with our enterprise agencies, principally the small business bonus scheme and regional selective assistance.
The enterprise area policy has been moving at pace since the announcement. Rapid development, including details of incentives, has been necessary as we aim to have enterprise areas open for business from April. Business rate discounts, which will be a core financial incentive available at the majority of enterprise area sites, will also be available from April. Enhanced capital allowances may be more attractive than rates discounts to the largest companies that are planning significant capital investment.
Now that we have identified our enterprise area sites, officials are in discussions with the UK Government about offering enhanced capital allowances in Scotland. Her Majesty’s Treasury is considering our case for offering enhanced capital allowances at Nigg, Dundee and Irvine in the west of Scotland. Enhanced allowances would enable businesses to claim 100 per cent allowance against investment in plant and machinery until 31 March 2017. We would hope to have those enhanced allowances available by April.
We have been in discussions with individual local authority planning departments to build on the enterprise area planning protocol agreed last month with the Convention of Scottish Local Authorities. The protocol sets out how we propose to deliver a streamlined approach to planning within our enterprise areas.
Progress has been made with other incentives. On broadband, we are establishing existing levels of connectivity at each site and we will then make the case to the telecommunications industry to accelerate its plans for providing next-generation broadband at each location. Where possible, we will expect those upgrades to be delivered on a commercial basis. Scottish Development International is developing site marketing plans that will promote enterprise areas overseas, and it will liaise with UK Trade and Investment to ensure that that body actively markets enterprise areas.
Skills Development Scotland is considering how the emerging skills investment plans for each of our growth sectors can best be utilised to maximise the opportunities that are presented by enterprise areas.
In taking forward this agenda, we will develop a benefits realisation plan in consultation with Highlands and Islands Enterprise and Scottish Enterprise that will monitor developments and progress and provide us with the opportunity to revise any of the arrangements that I have set out today if we consider that the evidence does not support the aspirations of the policy.
Some commentators have said that there might be better ways of approaching the broader policy objective of enterprise areas. For example, PricewaterhouseCoopers said that research and development grants would be a better way of attracting life sciences companies than providing tax breaks.
When did the Barnett consequentials from the UK Government’s development of enterprise areas south of the border become available? Did the Scottish Government look at other ways of using that money to incentivise business growth rather than going down the route that you have gone down?
The best way to look at this is to view the enterprise area approach as another complement to our economic development strategy. There are a range of interventions that the Government has at its disposal to encourage economic development and investment, such as regional selective assistance, the core small business bonus scheme and the R and D grants that are already available, which are provided through the enterprise agencies.
We were looking for an approach that would provide us with another intervention to strengthen our competitive proposition and create opportunities to encourage growth. That is not to suggest that there is not a strong case for using R and D grants—of course there is—but we felt that this was an opportunity to add resources to what had flowed in the Barnett consequentials and provide another opportunity to encourage growth in key sectors of the Scottish economy.
Have you modelled the likely impact that the package of incentives that you are putting in place will have on business growth and the economy?
Not at this stage, although my last point in my opening remarks was about the formulation of a benefits realisation plan. The decisions that we have taken are consistent with the Government’s wider economic strategy. We are adding another element of incentive and encouragement. That is what has driven our policy choices on enterprise areas.
We now need to be clear about what benefits we believe will be realised through that approach and to monitor the realisation of those benefits over the five years of the policy timescale and beyond, so that we can form a view on whether the plans that we have put forward need to be revised or whether other enhancements need to be made to ensure that the policy is as effective as it can be in contributing to economic growth.
Thank you. A number of members have indicated that they want to ask questions. I will start with Rhoda Grant.
10:45
I want to ask about the displacement effect of enterprise areas. One of the criticisms that have been made of enterprise areas in the past has been that, rather than creating new jobs, setting up an enterprise area brings in jobs from other areas. In other words, there is a honeypot effect in the enterprise area but an adverse effect in areas close by. What thought have you given to that well-known concept? What steps have you taken to ensure that that does not happen?
I recognise the concern about displacement, which has been the subject of one of the most sustained criticisms of previous enterprise areas. In the past, enterprise areas consisted of zones of the country in which a preferential, incentives-based financial regime was provided. Essentially, that regime supported anything that happened in those zones.
We have designated certain parts of the country as enterprise zones, but we have done so on a sectoral basis. For example, we have designated Nigg—a part of the country that Ms Grant knows well—as an enterprise area for renewables purposes. If a life sciences company wanted to set up in Nigg, it would not get the benefit of the enterprise area regime in that area. We have limited the opportunities to benefit from the preferential financial regime and other support to the growth sectors of the economy. That has been deliberate.
The growth sectors that we are talking about are all sectors in which the Government believes—this has been an implicit part of our economic strategy since we took power in 2007—that we need to perform significantly better than we do at the moment to realise the opportunities that exist.
For example, we do not have a large renewables industry to displace from one part of the country to another. We must ensure that we have the best and most competitive conditions to attract investment in renewables and to create and stimulate such investment in particular parts of the country in a fashion that is consistent with the Government’s economic strategy and with the national renewables infrastructure plan, which guides and drives most of our direction in the sector.
The principal way in which we avoid displacement is by making the approach to who benefits from enterprise area status be driven by the classifying of sectors that have the potential to grow in the Scottish economy and which, as a consequence, have the potential to deliver fresh economic impact rather than to shift economic impact from location A to location B, which past enterprise areas could fairly be criticised for doing.
Following on from that, we were circulated with a useful document about the various areas that were considered and their scoring. It is quite clear that some areas were not given enterprise area status even though they got a higher scoring than areas that were chosen.
I will be a bit parochial, if I may. In my area, Dunstaffnage, Machrihanish and Kishorn all got a higher scoring than other areas that were granted enterprise area status, but they did not get it. If we look at the map, we see that swathes of north-west Scotland have not been given enterprise area status, even though they include areas that I would have thought are crucial to development because of previous investment and areas that could really do with such economic input.
It is clear that there are many more expressions of interest in, and opportunities and possibilities for, enterprise area status than the Government has been able to approve. If everywhere is an enterprise area—although Rhoda Grant is not suggesting that—that rather denudes the purpose and point of enterprise areas. Choices must be made.
We must focus on the basis of the choices that have been made. I am quite happy to go through all the sites that were considered, but I will mention a couple of them in particular. Although the Dunstaffnage site scored very highly, I made the point in my opening remarks that we want the enterprise area initiative to be complementary to other Government initiatives. The tax increment financing project in Dunstaffnage has been approved, of course. The Lorn arc proposal is a very impressive project under TIF. We want to ensure that there is access to different opportunities and support around the country. The Machrihanish facility has already benefited significantly from public expenditure to support the development of renewables there.
A key consideration, particularly in the renewables sector, is that a lot of the expected renewables development in the next five years, which is the duration of the enterprise area policy, will be more east coast than west coast based. That is simply because of how the industry expects to develop. That affects a number of the west coast developments that Rhoda Grant has raised with me. The offshore developments on the west coast are likely to be later rather than earlier in the decade. Ensuring that we have the manufacturing capability on the east coast involves a judgment about when we need sites to be in an attractive position to be able to fulfil their potential. The enterprise area sites that have been approved include ones at Hatston and Lyness in Orkney, and Scrabster in the north of Scotland, so a number of developments have been supported in the Highlands and Islands.
Good morning. The convener asked about research and development, which I would like to address. I welcome the sectoral approach to enterprise areas—as I would, of course—but will the cabinet secretary comment on how the enterprise areas are to be developed in relation to the Government’s knowledge transfer strategy? In South Ayrshire and East Ayrshire, I have been trying to encourage the local authorities, the colleges, the university and indigenous businesses to form a task group that will look at, if not the incubation, at least the virtual incubation of ideas and innovations that come from the colleges and university. Is that, or can it be, part of the overall strategy, so that there is cohesion between the Government’s knowledge transfer strategy and the development of the enterprise areas?
I stress that the enterprise area strategy should not be seen as a bolt out of the blue that will create a new and completely different direction for our economic strategy. The enterprise area approach has been configured—as all our other interventions have been—to be consistent with the Government’s economic strategy, which we published in 2007 and updated with minor changes in 2011. Mr Brodie’s point is important, as it gives me an opportunity to reinforce the point that we will look for clear connections between the approach and the existing elements of our economic strategy. The knowledge transfer approach is an important part of that.
Yesterday, I was with a group of representatives of further and higher education institutions that have benefited from European development funding that is designed to enhance new developments in the low-carbon economic sectors. The degree of collaboration between those institutions was exemplary and welcome. That contributes significantly towards our wider agenda on making connections between institutions with an economic purpose. That is exactly the same as the work that will be taken forward under the enterprise area approach. Of course, it is not outwith the realms of possibility that our academic partnerships will result in developments that decide to locate in those enterprise areas. In a sense, that makes the connection that Mr Brodie has raised.
It is well known that I am a great supporter of Scottish Development International. What connectivity will there be between the enterprise areas and SDI that will accelerate their development?
As the committee is aware, SDI is focused on supporting efforts to increase Scotland’s international business activity. There are some pretty demanding aspirations in that respect.
SDI will be playing a strong role in relation to the enterprise areas. They will be another part of the prospecting for opportunities that SDI will be involved in. When it is talking to companies that are interested in, for example, foreign direct investment into Scotland, it will have another part of the story to explain and will be able to demonstrate to companies the incentives that there are to locate in Scotland as opposed to another part of the globe. SDI will be heavily engaged in using its contacts around the world to raise companies’ awareness of what is on offer from the enterprise area sites in Scotland.
Some weeks ago, when we were scrutinising the budget and talking to the enterprise agencies, I was struck by the fact that Scottish Enterprise had developed what seemed to be impressive methods of evaluating the effects of its work. That methodology seemed to be much better than that of HIE, for example. Have you given thought to establishing an evaluation process to monitor the effectiveness of the enterprise areas?
We will do that. That is one of the next elements. Having taken decisions about sites, we will put in place a methodology to assess the performance of each site and what is realised as an accumulation of the initiative. The first purpose of that will be to monitor whether some of the issues and concerns that were raised about enterprise areas in the past have been avoided, particularly with regard to the point about displacement, which is possibly the most significant criticism that has been levelled. The second purpose is to give us the opportunity to test whether the policy needs to be revised during the term. I remain willing to do that if we find that the way in which we have configured the initiative does not deliver the economic returns that we are looking for. We will be very open about that process.
11:00
Good morning. I want to ask about the likely quality of employment in the areas. The main concern is to try to increase the number of employment opportunities. I was pleased to hear you say that you are looking at a skills framework.
We would be keen to see predominantly directly employed jobs that enable people to have careers and skills opportunities. The Scottish Government has an important role in setting the tone for that. Do you agree with what I have described? In developing the plans, will you consider talking openly about the type of employment and employers that you would like to attract to the areas?
I agree with that point. The sector-based approach that we have decided to pursue is perhaps an insurance policy for the delivery of the aims that Mr Park is talking about. If we go down the route of defining an enterprise area by geography and saying that people in that geographical area will be able to get a lower-cost business location, that gives no protection against the concern that Mr Park frequently raises in parliamentary debates and other discussions, which is about the quality of the employment that emerges.
On the decision to select particular growth sectors, I can discuss my experience of developments in the life sciences, such as the campus in the Highlands. The quality of employment that exists in the life sciences sector in and around Inverness is fantastic. There are high-quality jobs, great skills-development opportunities, excellent training infrastructure and strongly remunerated posts. That is one of our selected areas, and we have an objective of building on what has been done there. The same thing applies across the field of renewables, where there are clearly major opportunities to develop manufacturing and engineering skills, which I know that Mr Park has established as a priority in his parliamentary work.
Going beyond that, Skills Development Scotland will be very much involved in the propositions that are put forward in relation to developments in the enterprise areas—in that regard, its role will be similar to the role of SDI, which I outlined to Mr Brodie.
The other week, I opened the new premises of Avaloq software designers in Canonmills in Edinburgh. The deciding factor for the company to come to Edinburgh was the access to the pool of skilled talent, particularly in computer science and mathematics, that emerges from our university base in central Scotland. That is one example of the way in which skills can be used as a competitive bargaining tool to attract investment into Scotland.
We will ask Skills Development Scotland to play its part in the dialogue that SDI has with foreign investors in order to make the case that Scotland has a great reservoir of talent—which is no surprise, given the investment that we make in the university and college community. I am optimistic that those judgments will assist in realising the objectives for enterprise areas that Mr Park set out in his question.
That is one of the elements that we will monitor. We might find that it is one that we have to reflect on during the course of the initiative, but it is an issue that we would want to focus on.
You will be aware that I was lobbying on behalf of an area in the west of Scotland to try to help it to secure an enterprise area. As you will know from our correspondence, I was disappointed by the decisions, but we have to move on.
I will describe one point that has struck me in relation to the enterprise areas and moving forward. I am keen that local authority areas in the west of Scotland, particularly those that have high levels of unemployment among 18 to 24-year-olds, are not hampered from taking advantage of other opportunities that may arise in the future. You mentioned the medium-term to longer-term opportunities for the west coast in the renewables sector, although the immediate priority for the sector is the east coast. I am keen to have some reassurance that the Scottish Government will promote opportunities for areas on the west coast in the future.
I am happy to give that assurance. I understand that areas of the country were disappointed that we were unable to take decisions to deliver enterprise area status in those localities. We set out in our published document information on 34 sites that were explored in detail as part of the exercise. We discounted a further 16 very early on because of what I would describe as insuperable problems with the sites that meant that they merited no further investigation.
Of course, areas in the Inverclyde area were examined in the analysis and many other areas could be suggested for involvement. The point on the Greenock site is very much the point that I made to Rhoda Grant about the timescale for development of renewables, because that has been driving a great deal of our consideration of the sectoral approach to enterprise areas.
I do not want to give the impression to the committee that, suddenly, the only component of the Government’s economic strategy is enterprise areas. That is most expressly not the Government’s approach. This is one of a number of approaches that we will take to encourage and incentivise development and increased economic activity. There are many others, some of which are being taken forward. For example, work clearly continues on the Government-supported regeneration activities in the Inverclyde area. Through our agencies, the Government has been able to encourage other investments to take place in Greenock.
I give Mr McMillan the assurance that the whole range of support and analysis that goes into trying to encourage developments in particular areas will continue right across the country. There will just be an extra element of it, which is the enterprise area approach.
I whole-heartedly welcome the recent announcement of the £20 million order with Ferguson’s for the two new ferries, which not only safeguards existing jobs, but creates jobs and introduces apprenticeships for the first time in many years in shipbuilding on the lower Clyde. It also places Ferguson’s in a very good position for future orders. Earlier this morning, John Park spoke about traditional apprenticeships, and such opportunities in shipbuilding are warmly welcomed in Inverclyde. I appreciate that enterprise areas are not the only game in town.
We heard about youth unemployment figures in the earlier session with Angela Constance. Obviously, the country faces serious challenges in that regard. However, numerous constituencies on the west coast of Scotland seem to have a bit more of a challenge in getting employment opportunities for younger people. That is the case not only in the Greenock and Inverclyde constituency but in Cunninghame North and elsewhere.
I am keen to press the point that other employment opportunities, particularly for existing industries such as shipbuilding, would be greatly appreciated on the west coast of Scotland.
The Government will work on that approach. As I have stressed, enterprise areas are one additional tool in our economic strategy. They are not the be-all and end-all.
Good morning, cabinet secretary. In relation to enterprise areas, does low carbon mean only renewable electricity industries?
No.
I am surprised that low-carbon building techniques, low-carbon transport and local food production, for example, have not been mentioned in connection with the sites that have been specified. This all seems to be about the renewables investment plan. I do not disagree with the plan, but I wonder whether a broader focus on low carbon is needed.
In terms of category and definition, there should be no sense that low-carbon interventions will not be welcome in low-carbon renewables areas. In my response to Chic Brodie a moment ago, I said that I spent time yesterday morning with representatives of various universities and colleges that are advancing low-carbon research activity. From my recollection of all the projects that I looked at yesterday, none was in the renewables field, as it would be traditionally described; they were based in the wider low-carbon sector. There are opportunities to make progress and for such ventures to advance.
That is helpful—perhaps we can follow that up at future meetings.
There is only one other issue that I want to address. Is there any danger or concern that the enterprise area policy in general could create a more favourable environment for external investment by big business than for small businesses to grow and flourish, particularly those that are locally or domestically owned? Even if the policy works brilliantly on its own terms, is there a danger that it will contribute to an economy that is still unhelpfully dominated by big businesses, rather than small businesses whose ownership is based in Scotland or the communities that they serve?
The answer to your question lies in people appreciating and accepting that this is one economic intervention among a range that the Government will make. The small business bonus scheme, for example, is focused on encouraging small companies to develop and grow in Scotland.
On the focus of the enterprise agencies—this is one point that the Government has not communicated particularly successfully—when we undertook the reforms of the enterprise network in 2007, we said that we would concentrate on supporting companies with growth potential. I think that that got translated into “big companies,” but that is most definitely not the case; it is companies with growth potential. Although an account-managed company might be thought to be a large company with 2,000 employees in Scotland, it is equally possible for a company with only two employees in Scotland to be classified as such, because of the growth potential in whatever that company provides.
We need to reinforce the fact that our enterprise agencies are focused on ensuring that small, medium-sized and large companies with growth potential are able to benefit from Government support. The enterprise areas will create a better set of circumstances in which to encourage development in the relevant sectors.
Incubator units, which Chic Brodie mentioned a moment ago, may well be developed in enterprise areas as a magnet for their economic activity. That could be an appealing prospect for smaller companies.
I do not think that the enterprise areas have to be viewed as the preserve of larger companies or external investors. For example, in Nigg, a company that is strongly anchored in Scotland is able to take forward the likely developments there. That is welcome.
Do you expect to monitor the extent to which enterprise area opportunities are taken up by different types of businesses, such as local or global businesses; small or big ones; and social enterprises, community-owned businesses and co-operatives, rather than conventional privately owned businesses?
11:15
We very much expect to do that. Mr Harvie mentions a range of company structures. I put it on the record that the Government is keen to ensure that our support is available across that range of companies, be they foreign direct investment investors, home-grown family businesses in Scotland, social enterprises or co-operatives. The Government will be interested in that broader range of business models. Part of Scottish Enterprise’s work is to support Co-operative Development Scotland, which does excellent work in encouraging the development of more co-operative business structures, which the Government firmly supports.
That is helpful. I was just looking for reassurance that we will not get the answer, “That information is not held centrally,” if we submit written questions on those issues.
I do not think that you get many of those from me.
It has been known.
I am sure that one or two have slipped through the system.
I am pleased to hear about the support for incubator units, as those have been used to great effect in the Falkirk Council area. Several small companies have emerged from the incubator units and been a success.
The SPICe briefing mentions the emphasis on enterprise areas rather than enterprise zones. I must admit that, following the announcement on enterprise areas, I was slightly surprised that there is no specific enterprise area for the chemicals industry, given the prominence in the chemicals sector of the Forth valley region, in particular Grangemouth, and the clear, significant potential for growth. I am curious to know whether there is any intention of having a second tranche of enterprise areas. The cabinet secretary has touched on this already in answer to Stuart McMillan’s question, but if there is not to be a second tranche, will there be other opportunities for the Scottish Government to assist the chemicals sector in Scotland, given its strong potential for growth?
In relation to the chemicals sector, we have a chemicals industry leadership group, which feeds into the work of Scottish Enterprise. I am anxious to develop the strongest possible representation and input into the formulation of Government policy via the industry leadership groups. We get a tremendous amount of voluntary participation by members of the industry, which is welcome and which helps to formulate and refine Government policy, and we will continue to build strongly on that. Clearly, the chemicals sector can access a range of supports that are on offer from the Government and through our enterprise agencies, many of which are informed by the industry leadership group.
On Grangemouth and the Falkirk area and its significance in the chemicals sector, we have taken a decision in relation to tax increment financing in that area. Having taken that decision, we were anxious to ensure that other decisions were complementary and not overlapping. That explains why a favourable decision was not taken for the sector in relation to the enterprise areas. We are beginning to see the emergence of a cumulative range of strong interventions that support economic development in Scotland. I very much look forward to working with the chemicals sector and others to support that process in Scotland.
Thank you. I have put on record my appreciation for the Falkirk TIF scheme. However, all assistance is gratefully received.
As ever.
Members have no further questions. I am grateful to them for being mindful of our time constraints. I thank the cabinet secretary and his officials for coming. The meeting has been helpful and we look forward to hearing from the Scottish Government in due course about progress and how targets have been met.