Work Programme
I welcome colleagues to the 18th meeting in 2009 of the Economy, Energy and Tourism Committee. The Minister for Enterprise, Energy and Tourism, Jim Mather, is not available to discuss the Arbitration (Scotland) Bill with us until 11 am. If necessary, we will suspend the meeting after consideration of agenda items 1 and 2 and resume at 11 am. Members might welcome at that point the opportunity for a private discussion about lines of questioning for the minister.
I have received no apologies this morning and Nigel Don is here again as a guest member. Item 1 is to consider our work programme. I asked the clerks to produce a paper on possible options for our future work programme that also outlines what the committee has done to date. I am not asking for agreement today on exactly what we will do; rather I ask for indications of which areas the committee might want to consider for our programme after the summer recess so that the clerks can work up some more detailed ideas. We do not have to hold a full committee inquiry on everything; there is an option to have reporter-led inquiries whereby one or two members look into a particular area and report back to the committee.
Given that we have concentrated to date on tourism and energy, and in light of the current economic situation, we need to focus on the economy and enterprise areas of our remit over the next few months. There are some suggestions in the paper about areas that we might wish to cover. I invite members to offer their comments and thoughts.
We have an extensive paper on the future of the banking and building society sector. Unfortunately, looking to the future requires us to understand a bit about the immediate past. Although it is important to look at the potential for job creation in the financial sector as we eventually come out of recession, some of the reasons why we have reached the condition that we are in, whereby banking jobs have been lost, are germane to the committee. For example, we heard evidence from the Dunfermline Building Society chief executive last September. Although we have limited powers, we have considerable interest in exploring how banks and building societies affect the whole of the Scottish economy and I hope that we consider using our remit to have a full inquiry into the subject. We would have to agree on the remit for the inquiry, but I hope that it would be as widely drawn as possible. I am interested to hear what members have to say.
I say at the outset that my primary concern is to ensure that the committee works on an issue that is within our remit and on which we can make recommendations that the Scottish Parliament can actually implement. I would be concerned about undertaking an inquiry that had a limited chance of getting to the bottom of an issue—because of the limitations on the Parliament's and the committee's powers—and in which we would not be able to reach conclusions that could be implemented, because the Scottish Parliament does not have the power to do so. On that introductory note, I open up the issue for further discussion.
I have a lot of sympathy with that view, convener. I am aware that discussions were held at the Parliamentary Bureau on the possibility of the Parliament establishing a committee with a remit that would cross the boundaries of various committee remits. I am interested in members' views on that. Rob Gibson is right that the issue is important for the wider Scottish economy, but the convener is absolutely right that there is a limit to the recommendations that our committee can usefully make, given the limits of our remit and the Scottish Parliament's powers. However, given the exceptional circumstances, there may be a case for an exceptional approach by the Parliament, rather than the committee, to establish an ad hoc body that would include members of various committees and whose remit would cross committee remit boundaries. That committee could consider the issue as a whole but, even in that context, we would have to acknowledge that there is a limit to what the Parliament can recommend to ministers, because many of the issues are reserved.
The implications of finance and banking for general economic development are a crucial issue. The finance and banking sectors are important not simply as industries in themselves, but as the necessary suppliers of capital and of international arrangements for matters such as the enormous costs that are involved with infrastructure and renewables projects. That has an absolutely crucial bearing on the committee's general purposes. For instance, from what we saw in Denmark and Germany, the implications of finance as well as technology more or less assume a banking system that is fit for purpose. In general, our banking system seems not to be so.
Whether we are talking about an inquiry by us or by another body, greater clarity is needed. Almost no part of the issue that Chris Harvie raises about whether the banking system is fit for purpose falls within our remit. Rob Gibson talked about having a look back. If we look at the period from when the credit crunch began to be visible in the United States in the autumn of 2007 until the crisis hit fully in September 2008, we see that the issues in that time were, for example, the capital adequacy ratios for banks, the degree of regulation of products that were in the shadow banking market and whether the prospectuses for rights issues that were issued in March 2008 were wholly honest about the circumstances of the institutions. We would then be into the territory of the terms of a takeover and the role of the Office of Fair Trading, which was the issue that dominated much of our discussion in the autumn. We would also be considering the undertakings that the Financial Services Authority gave about the state of some of our banks at that time.
Not one of those issues—including prospectuses, the role of the shadow banking market, capital adequacy ratios, international regulation and the OFT's degree of leverage in takeovers—is ours, but if you take a look back, those are the issues that matter. The United States courts are now pursuing them. I am not against further investigation of all those things. I do not see how you can construct a global banking system without reflecting on those matters, but it seems to me that none of them falls within our remit. The critical issue is clarity about what is within and what is outwith the scope of the inquiry, which I do not think that we have achieved.
Chris Harvie raised one issue that it is appropriate for this committee to consider, which is the quality of banking, or the lending environment, for small and large businesses in Scotland. However, that is only one part of the forward prospectus. Other parts are the role of the financial sector, given that it is the dominant sector in the Scottish economy, the role of the skills base and a future skills map.
It seems to me that there are three issues: banking as a service provider to the wider global economy; the shifting nature of the contribution of the Scottish financial sector; and the implications for the skills base. The issue of the lending environment for businesses in Scotland would need further work, but the remit for that would be very different from the remit that we are talking about. Skills, which is not in our territory, and the role of the financial services sector in the Scottish economy, are areas that we might want to look at in the context of the six priority areas on which the enterprise networks have chosen to focus.
I have highlighted some of the difficulties with looking back. Many witnesses would say, "I am sorry, but that's not your business," and I am not sure that that would enhance the reputation of the Parliament. Even if witnesses did seek to answer, it would be difficult for us to pursue the matter.
Bearing in mind the concentration of financial services in Edinburgh and, to a lesser extent, Glasgow, and the role of skills, if it were just the Economy, Energy and Tourism Committee that held an inquiry we would not allow for key Lothian members, including Margo MacDonald, who first raised the issue and put it on the agenda, to participate and we also would not capture the skills agenda, which seems the most pressing one for us, given that Scottish public policy could have a material influence on the future of the sector.
I do not think that there is clarity around what is within or outwith the scope of the inquiry and what part of a look-back would be within our remit. I cannot see how any of the critical decisions are primarily in our territory, which takes me back to the point about joint work with committees in other places. If we are taking a look forward—I say this as a west of Scotland member—it is vital to recognise the role of Edinburgh and the Lothians. Probably the key lever at our disposal, as identified by the Financial Services Advisory Board, is around skills. We would want to pursue these issues through a vehicle that allowed the parts of the Parliament that have a remit around skills and the prospects of our new skills organisation to rise to the challenge, to be part of any inquiry. We would get into difficulties if we tried to look at whether Skills Development Scotland was the right body.
I am nervous about trying to shoehorn an inquiry into this committee alone.
I congratulate the clerks on the briefing paper, which I thought was very helpful, given that I am the newest member of the committee.
We should take ourselves out of the Parliament and consider ourselves as members of the public as well as members of the Parliament. Not to consider some type of inquiry into the future of banking and the financial sector in Scotland would do the Parliament a disservice and would have a negative impact on public perception, as the Parliament could legitimately be accused of running away from a vital economic issue. I lay that down as a marker for all the members to consider. We have a duty to consider that important element of the Scottish economy.
I take on board the points that members have made. Wendy Alexander had a couple of points on the lending environment, which is important to what can, may or might not happen, so we ought to consider what the future is on that. To consider the future, we must also determine what the problem is and what has taken us to that point. I do not know what the scope of any inquiry would be—that is for us to discuss and agree or disagree on—but it must include understanding why we are where we are so that we can move forward. It is also paramount that, in any inquiry that we undertake, we bring in other representative view points from the general public and people who work within the banking and financial sectors.
I apologise for arriving late this morning.
The powers of this or any other committee—ad hoc or otherwise—are outlined in section 23 of the Scotland Act 1998. As I understand it, we do not have great powers to compel the key players in the banking crisis and the credit crunch. We have tried to invite key players in the past, and those invitations have been declined, so it would be difficult for us to compel or invite witnesses from the Bank of England, the Financial Services Authority or the Treasury. That is the tripartite relationship that holds responsibility. If we cannot get any of them, we will have a tough start. I am not sure whether any United Kingdom Government ministers would be willing to attend, so we will not get much from them. I am also unsure—this is a bit more opaque—about the degree to which we could get directors or former directors and others who held responsibility for what went on in the various banks in the lead-up to the crisis.
There is a host of people whom we could invite but I would be dubious about whether they would turn up or wish to give evidence and it is not clear to me that we have powers to compel them. Therefore, my first big query is who would come and who would be able to take us forward.
If there is to be an inquiry, two principles are critical. First, there should be no replication. There have been two committee inquiries at Westminster and simply rehashing to any degree what has been done there would not be a good use of any committee's time. Secondly, anything that we do on the matter must be forward looking as opposed to backward looking. Simply examining what happened is not helpful and has been done, but it might be helpful to consider where we go from here and what the committee and Parliament can do. Our powers are limited, but I am sure that there are things that we can do.
On the debate about whether this committee, another committee or an ad hoc committee should undertake any inquiry, we are the committee with responsibility for the economy and the issue is closer to our remit than to any other committee's. I am not persuaded by the arguments that I have heard so far for some sort of ad hoc committee. One or two members have made the point that there is a crossover on skills with the Education, Lifelong Learning and Culture Committee, but we would not consider the issue of skills alone, although it would be part of any inquiry. We considered skills as part of the tourism inquiry, and we did not feel that we needed to set up an ad hoc committee in relation to that. Skills has also been a key subject in our current energy inquiry, and, again, there has been no crossover with the education committee in that regard.
I am not persuaded that we need an ad hoc committee because there might be some crossover in one area, or because of the regional argument that many of the financial services jobs are in the central belt and members in that area might therefore be affected more than other members. If we were to consider issues such as renewable energy and marine energy, we might argue, for example, that those issues affect the Pentland Firth more than other areas and that there should be an ad hoc energy committee of members who represent the surrounding areas. We are an economy committee, and we broadly represent the regions of Scotland. I am comfortable with the idea that we do not need a regionally based ad hoc committee—we are perfectly capable of delving into the issues.
There are things that we can do, but it would not be helpful to have a banking inquiry that is looking back. Anything that we do needs a clear focus. We have had a tourism inquiry and we are about to conclude an energy inquiry, so it is right that we focus on something to do with the economy, partly because we have not covered it in the form of a larger inquiry, and partly because the current circumstances are exceptional.
I certainly agree that we should look forward and think about what the committee can do. I agree with Gavin Brown that a rehash of what has already been done would not be welcomed by anybody—as Stuart McMillan said, we should put ourselves in the place of the public or businesses.
Nigel Don and I recently met representatives of the construction industry. Around 38 members of different trade bodies were present that evening, and if they were sitting here now they would say that they are concerned about liquidity and the lending environment, and skills. Those two big issues came over loud and clear, and that sector is in the maelstrom of the current situation.
We need a clear focus, which should be on the economy. I would like us to examine the enterprise networks—there will be big changes for the networks, and it would be right for us to include them and their future strategies in any inquiry. I have concerns about the current lack of focus on the networks.
On the question of whether we look back or look forward, the performance of the FSA and the various regulatory organisations has been so dismal that any inquiry should be undertaken about them rather than through them.
There has been a total failure of regulation in and around London. I do not know whether members heard the "File on 4" programme last Tuesday about the commercial wing of HBOS. It was terrifying: the losses that were attributable to straightforward criminal activity totalled £250 million. We might be able to interrogate the journalist Gillian Tett, and perhaps the Financial Times, which seems to know much more about the financial maelstrom than anyone in the FSA or the Treasury does.
The House of Lords inquiry into the FSA has just reported in the most dismal terms, and I think that the sources that I have mentioned would be open to us—we would need them to clear the ground to discover what has been happening. A division of Scotland's second-largest bank was somehow able to run up losses into the quarter-billion range without any of it being called in by the senior management or the directorate of the bank. That issue, which seems to have entered the public arena, must have had some reflection on general Government policy towards the bank and is something that we need to look at. We certainly need continuity and there is certainly a need to look forward, but I do not think that we will get either from Westminster, as it is already in the grip of the hysteria that accompanies an election. We might be the only body that can do this kind of work.
I take Gavin Brown's point about our ability to look back in any serious way, and the point that he and others have raised about duplication. However, I think that the people of Scotland expect us to research what will give us and them the best possible future. We should lay down a blueprint of what should be done and identify who should do it, and if that activity is outwith our powers or the powers of the Scottish Government, we need for better or worse to say so. However, I believe that that would be the remit that the electorate would lay down for us if we were to ask them. I do not think that people want a witch-hunt—well, they probably would like a witch-hunt if it would give them the right answers, but we cannot rewrite history simply by burning a few witches. We need to look forward, interrogate the people who will make the future happen and examine what all the arms of Government should be doing to help them in that regard.
As Christopher Harvie's comments demonstrate, we risk trying to mount a Westminster inquiry into Westminster-accountable agencies without the powers to compel them either to appear or to do anything about our recommendations. I think that that speaks for itself: as soon as we open the remit to cover matters for which we are not accountable, we will inevitably get drawn into discussing things over which we have no influence.
There is good evidence to suggest that it might be useful for the Parliament to commission an ad hoc committee to examine areas over which it has some influence. Gavin Brown highlighted a couple of arguments that he did not support, but we should note that members of the Finance Committee want to look into these matters and that, according to my notes, Rob Gibson has also written a letter to that effect. There is some merit in looking at a mechanism that crosses the boundaries of different committee remits, but I do not think that there is any merit in or any useful product to be gained from an Economy, Energy and Tourism Committee inquiry into matters on which Scottish ministers have no locus. An ad hoc approach might allow us to take a slightly different angle on the subject, but within the Parliament's devolved competence.
We must remember that the committee has a scrutiny and an advocacy role, which will allow the Parliament to consider not only how we have been affected by the recession and the bank crash but how we will get out of this situation. As far as our scrutiny role is concerned, the clerks' paper sets out the various issues that we should consider, including employment levels in the financial services sector, our reputation as a financial centre, the availability of credit and the plans for the restructuring of banks and building societies in Scotland. We must be able to dig into what has happened to know how we will move forward.
It might be useful to examine how other countries have handled the same issues; after all, our situation is not unique. Given the range of material that we might have to consider, our advocacy role is just as important as our scrutiny role. As the proposed remit is fairly clear and might well find a measure of consensus, we should seriously consider the subject for the committee's major inquiry for the near future. As an ad hoc committee would have no more powers than this committee, such a move would be unnecessary. In addition, members of other committees could attend and take part in our meetings, as Nigel Don has done—Margo MacDonald and others could do the same. That is not a problem; the committee could deal with the issue quite well.
There is the spur that, last autumn, we received evidence on the banking situation, which we want to revisit with regard to the Dunfermline Building Society. We may be limited in whom we can induce to speak to us, although I take on board Chris Harvie's point about journalists who are well briefed on certain issues that may pertain directly to whether we can create more jobs or get more credit into our economy quickly. I suggest that the committee finds some means of holding the inquiry, in the widest possible terms, but along the lines that were suggested by the clerks.
Thank you for those helpful comments. I would love the Parliament to be able to conduct the type of inquiry that some parts of the media have talked about and to take evidence from the Bank of England, the FSA and Government ministers—not just Treasury ministers, as the competition issues relating to the HBOS-Lloyds TSB merger need to be investigated properly by someone—but I do not believe that we have the powers to do that. If we do not, the worst outcome of all would be for us to end up being unable to achieve what we seek.
As Stuart McMillan said, if we are looking to the future, we must have some idea of where we have come from, so any inquiry that we hold will have a retrospective element. For example, consideration of the restructuring of banks and building societies will inevitably result in some discussion of what happened to the Dunfermline Building Society and of where Nationwide intends to take it. A useful way forward would be for us to draw up our remit along the lines of the first four bullet points in paragraph 12 of the paper and to ask the clerks to provide us with more detail. Do members agree with that proposal?
I have listened carefully to what other members have said. I know from the clerks' paper that Rob Gibson's original suggestion was that an ad hoc committee of members of two existing committees be established. Given that he has expounded a different view today, I would be interested to know why his position has changed.
I understand that Rob Gibson's original letter requested the establishment of a joint committee, to be made up of members of the Finance Committee and the Economy, Energy and Tourism Committee. I asked the clerks to examine that suggestion. We concluded that none of the proposed inquiry—except, possibly, issues relating to the loans book for housing associations—fell within the remit of the Finance Committee. The advice that I received from the clerks was that the Economy, Energy and Tourism Committee is in a position to conduct a forward-looking inquiry into the banking sector and that an ad hoc committee is not required. However, the Parliamentary Bureau or the Parliament may decide otherwise. I am sorry—I did not mean to answer on Rob Gibson's behalf.
When the convener of the Finance Committee said that the matter did not fall within the committee's remit, it became obvious that a joint committee consisting of members of the Finance Committee and the Economy, Energy and Tourism Committee would not work. I am convinced that the issues that are raised in the paper are our province and that we should hold the proposed inquiry.
Are members content for us to ask the clerks to draw up a slightly more detailed proposal for an inquiry along the lines of the first four bullet points in paragraph 12? That appears to be agreed.
There are six bullet points.
I think that the next two bullet points are, perhaps, a separate matter that the committee might want to make the subject of a shorter inquiry. We might want to find out the Government's thinking on the Scottish investment bank and the joint European resources for micro to medium enterprises—JEREMIE—programme. That inquiry could be done either in parallel with the banking inquiry or, as it will be quite short and well focused, before it.
The paper contains a number of useful suggestions on short inquiries. One area that is not included but which we ought to think about addressing in the next parliamentary year is the reorganisation and refocusing of the enterprise networks, which would bear further consideration.
I was coming to that. To ensure that the enterprise networks and business gateways have had time to settle, we should think about considering the matter around Easter next year, which will be two years after the restructuring and one year after the full implementation of the business gateway in the Highlands and Islands. It might be premature to address those matters any earlier than that, as we will not have allowed sufficient time for evidence to build up.
We could perhaps return to the subject after our next short inquiry and see whether the timing is right at that point.
Would it be possible to run short inquiries on the subjects of the last two bullet points in tandem with a larger banking inquiry? I imagine that there may well be some crossover points, and we could avoid duplication if we dealt with those three inquiries at the same time.
If members agree to the overall programme, the clerks can go away and build up a more detailed programme with suggested timescales for the various parts. Within that, they will have to build in our legislative commitments, particularly stage 2 of the Arbitration (Scotland) Bill; on the basis of recent evidence, that might take slightly longer than we had originally expected.
The other matter that is on our agenda is the budget. Obviously, a new comprehensive spending review is coming up and, although we do not yet know what it will be, it is fair to say that, given that the enterprise budget has taken significant hits over the past two years, which were times of relative largesse, the pressure on it might intensify in a more constrained environment.
Historically, the difficulty has been that committees do not get the Government's proposals early enough to enable them to examine them in depth. However, I think that we, along with the budget adviser, should do as much as we can to understand the choices and shifts that will have been made. That will be valuable in informing some of the work that we will do. Inevitably, there will be trade-offs between money going into innovation, money going into the enterprise network—and, within that, into various parts of the enterprise network—money going into tourism and so on.
Because of the factors that I have outlined, we should do a little more work on the budget this year than we have done in the past. The export and manufacturing inquiry and the productivity and innovation inquiry are not time limited, while the work on the budget is. I would therefore welcome the chance to have a couple of sessions in the period between September and Christmas with the budget adviser, whom we will appoint next week. During those sessions, we could reflect on shifts in overall enterprise spending in, say, the past decade and whether they make sense in terms of the emerging issues.
In suggesting that, I am mindful of the fact that it would be a good idea to have a one-off session in the first half of next year during which we could look back on the year of homecoming. That would give us insights into issues around, for example, tourism spend and the cost of events.
The budget will form part of the programme. We will have a chance to discuss in more detail the remit of the budget adviser, if we agree to appoint one, when we come back to that in due course.
I have a slightly different suggestion with regard to the timing. I understand why Stuart McMillan suggested that the short inquiries might usefully be taken in tandem with the larger banking inquiry, but I wonder whether it might be better if we arranged our programme so that the conclusions of our banking inquiry could inform our further work on the Scottish investment bank and so on. I think that the impact on exports and manufacturing should be considered at an early stage, of course.
We can consider timing issues when we come back with a more detailed report. There is an argument that, as the Government is shaping its ideas on the Scottish investment bank, the committee might have an opportunity to influence that process by getting in with its thoughts on that matter. If we leave it too late, we might find that we are dealing with more of a fait accompli.
That is an important point. Can we discuss it again when the remit comes back before us?
Yes.
At some point following an inquiry, we conduct a review. The National Trust for Scotland's current problems affect people's access to, and the care of, quite a big slice of our heritage. There are disquieting issues with regard to the way in which the NTS is operating and has been run. I urge that we take into account at an early stage some way of inquiring into that situation. There are 300,000 members of the NTS, but there are 5 million people—as well as our visitors—who rely on our heritage being accessible and fit for purpose in the 21st century.
There are issues around the fact that, although the NTS is an important body, it is technically a private organisation. However, there might be an opportunity for a reporter-led inquiry, which would enable one or two members to talk in some depth with the NTS. That might be better than our having a full inquiry.
Last year, when I was a member of the Justice Committee, the committee conducted an inquiry into community policing, which tied in quite well with the budget process, because of the evidence that had been taken. It might be an idea to consider the approach that the Justice Committee took to the budget process last year, particularly with regard to Wendy Alexander's suggestion about the enterprise budget and so on.
The committee will have an opportunity to discuss its approach to the budget process with the budget adviser, if we agree to appoint one. Your suggestion is welcome, however.
When Tavish Scott was the convener, I raised the notion of an inquiry into the nature of the Scottish black economy. The idea was sent off to Scotland's Futures Forum and, from conversations with its members, I know that they were interested in it.
Now that one of the biggest elements in the present financial catastrophe has turned out to be the penetration of what was called legitimate finance by sub-prime finance, with which the black economy was closely linked, the issue seems to have moved closer to centre stage and might form an interesting part of our inquiry into banking. The black economy was very much in evidence in the "File on 4" programme on HBOS.
My understanding is that the Scottish Government was undertaking some research into that area, and that the Futures Forum was waiting for the outcome of that research.
That is nice to know.
If anyone knows otherwise, they should let us know. Once that research is published, the committee can consider the issue again.
Do members agree that the clerks and I should develop a programme based on what is in the paper?
Members indicated agreement.