Finance Committee, 04 Nov 2003

Meeting date: Tuesday, November 4, 2003

Official Report 222KB pdf

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Economic Development Review

Agenda item 2 is consideration of the areas that the committee wants to cover in its cross-cutting expenditure review on economic development. Members have a note from the clerk and a briefing note from the Scottish Parliament information centre.

It is incumbent on me to remind members that a cross-cutting review, by definition, involves looking at budgets from more than one ministerial portfolio. We should consider budgetary issues and avoid duplicating the work of the subject committees. Obviously, the Enterprise and Culture Committee is the subject committee that is likely to be most closely affected by the review. I had an informal discussion with Alasdair Morgan, the convener of that committee, about the fact that we would discuss having a cross-cutting review. He is content that there should be such a review provided that it does not cut across the work of the Enterprise and Culture Committee. I ask members to bear that in mind.

I invite comments from members on the broad direction of the review. Perhaps "economic development" is not the best heading for the review; it might be that we are considering the factors that underpin growth, given that the Executive has identified growth as its priority. However, as we have agreed on the heading "economic development", we should perhaps proceed on that basis.

It strikes me that we might replicate the formula that we used with Scottish Water. We could invite submissions from every spending department and from some related quangos, such as VisitScotland, Scottish Enterprise and Highlands and Islands Enterprise, asking them to state what their budget and operation plans do to promote economic growth in Scotland. We could use that information as a baseplate from which further work could emanate.

I want to focus on two areas. First, one of the problems that we will face is that a lot of the work on economic development is done by local agencies and local government. There might be scope for following economic plans from the ground up, to see the relationship between those plans and central Government's plans for the different departments, as the local economic plans will involve, for example, housing developments that take place over a period of time and that might stimulate growth in a particular area. We could look at how local agencies are spending and whether central Government is supporting that. That might be a role for the committee.

Secondly, I have consistently said that we should consider the means by which central Government allocates expenditure in areas of perceived deprivation and the indices that it uses to do so. That area of government has received little scrutiny and the indices of deprivation, which were published not long ago, would provide a good starting point for a brief look at the issue.

I do not know whether this will fit in with the kind of thing that Jim Mather was talking about, but I am interested in considering the investment in the key sectors and how successful that investment has been. That might be perceived as cutting across the work of the Enterprise and Culture Committee, but some of the key clusters relate to departments other than the Enterprise, Transport and Lifelong Learning Department. We would have to handle the matter in the right way, but we could consider how well the investment in relation to "A Smart, Successful Scotland" is working. That would involve looking not just at how the budgets are divided to put money into those sectors, but at outcomes—what has been done with the money and how successful that has been.

Before we begin the review, we have to be absolutely clear about what we are setting out to do. It seems to me—as your opening remarks perhaps illustrated, convener—that a muzziness has developed around the remit and purpose of the inquiry. I do not think that they are clear, as you perhaps indicated, convener, when you suggested that the heading "economic development" should be replaced by "economic growth". Of course, economic growth is the partnership agreement's main objective. Therefore, the inquiry should focus on how to promote economic growth, although that work should be done within the constraints of the committee's remit, as has been discussed.

I am attracted to the proposals made by Jim Mather and Dr Elaine Murray. What Jim Mather said relates to what should happen after the remit has been set. Elaine Murray's suggestion that we should consider specific sectors seems to be the way ahead—indeed, I advocated such an approach at some length in a speech last week. If we consider each sector and find out what is holding that sector back and the barriers to growth that each sector perceives, we might be able to achieve something concrete. Therefore, we should take up Dr Elaine Murray's suggestion and pursue a fairly narrow and focused remit. We should consider particular sectors and then—as Jim Mather suggests—invite those sectors to tell us what they think about the economic and finance policy and about barriers to growth so that we can try to eliminate such barriers.

I would also like to consider regulation, taxation and other matters. However, if we consider everything that everyone has suggested, we might end up with an inquiry that has so broad a remit that we would achieve little. I have seen that happen with previous parliamentary reports. We should consider specific sectors in detail and find out how we can remove barriers to economic growth for them, as Dr Elaine Murray said.

Doing that would be problematic. First, we would directly duplicate the work of the Enterprise and Culture Committee, as we would narrow our focus to economic development purely with regard to economic policy in certain sectors. Secondly, there would be also duplication in the fact that many sectors will have common issues relating to, for example, the supply base and marketing on a global or national scale. In the short time frame that we have, there would be a danger that we would waste a lot of time and not carry out a cross-cutting review across all departments, including those responsible for education, communities and rural development.

The exchange has been useful. It is possible for us to come up with a valuable process. A first pass could be to ask sectors to specify the constraints that they face in achieving further economic growth. A second pass could involve spending departments, quangos and local government discussing contributions that they think they are making and constraints that they face in achieving what they would like to achieve and that inhibit the potential that they would like to fulfil. A second report could be submitted to the sectors for their comments and auditing. By the end of such a process, proposals would be winnowed away to something that could be valuable.

I apologise for being late.

I agree with Jim Mather that there should be a two-phase inquiry. The first phase should consider the totality of spend across the sectors and find one or two areas to drill down on. I say that because the Finance Committee is the only committee that can look across the entire budget.

The sum of money specified in paper FI/S2/03/11/2 is £4.2 billion. I am somewhat puzzled that no education spend—or at least no pre-further education spend—is included in that sum. We are talking about stimuli to economic growth and it seems extraordinary that spending on education is not regarded as contributory in that respect.

I do not think that I disagree with Jim Mather, but I would like something to be clarified. I do not want to accept as a given that the way in which the £4.2 billion is spent is optimal for growth. It seems extraordinary that, if one adds up expenditure on common agricultural policy market support, fisheries, agriculture and rural development, the total is more than the entirety of the economic development budget. It is right to ask people who work in those areas how there could be improvements within their spend, but the committee's primary purpose is to take a fresh look at how, if one had £4.2 billion at one's disposal, that sum would align against those priorities.

Different advisers are required for different issues. At a first stage, there should be advice in a big-picture discussion about what to look at in the £4.2 billion. The second stage might involve asking whether people think that they are spending their money optimally in those areas. One or two people elsewhere in the United Kingdom would like us to look at the £4.2 billion in relation to trying to increase regional growth from first principles. It has been suggested that areas that we want to drill down on might emerge by asking sectors whether the quantum is right and whether money is being spent appropriately within that quantum. No other committee has the chance to look right across departments and ask whether the alignment of the £4.2 billion is broadly right. We do not want to miss that chance.

I am trying to draw together all the strands of the discussion. Members are saying that they agree with one another, but each member is making different suggestions.

Jeremy Purvis did not agree with me.

Listening to the evidence that the two expert witnesses gave last week, I was struck by the fact that they felt that the slant of spend was not appropriate for economic growth. In particular, they said that there was too much investment in the pubic sector. I do not necessarily agree with them about that, but that was their contention. They said that there was not enough investment in research and development, for example. I do not know how to progress that matter, but elements of what they said are worth investigating in the context of general economic development. That might link into what is said in "A Smart, Successful Scotland" and how money is invested.

Big issues are involved. One issue that has consistently been raised with this committee and that was raised with the previous committee is whether the balance of spending between capital and revenue is correct. Most expert economic commentators seem to suggest that we are not putting enough money into capital investment, especially given the financial circumstances that we have enjoyed over the past four or five years.

A second important issue is whether we are striking the right balance in economic development expenditure between business support and research and development on the one hand and the property and infrastructure strand of that expenditure on the other hand. We need to consider how the balance works in different areas of Scotland. Certain areas of Scotland see themselves as being significantly disadvantaged through the lack of particular infrastructure resources of one kind or another.

A third issue is whether spending is sufficiently focused on urban issues in urban areas—such as in west central Scotland or Tayside—and whether the balance of expenditure in rural areas goes under the correct headings. I suppose that that is partly the issue that Wendy Alexander raised. Are we getting the big categories right within the broad framework of expenditure? Are we getting the arrangements right for the management of resources within the big categories? As I said, huge issues are involved.

We must make the exercise manageable. We cannot do everything, but we must do something that is achievable. Jim Mather suggested that we should write to sectors asking them about barriers. I think that we could do that almost as a side exercise to the inquiry. We could ask questions and feed the information into the main thrust of the inquiry. However, one problem with that approach is that it is more difficult to determine who should be spoken to in some sectors than in other sectors. There are technical issues attached to that. I wonder whether that aspect could be linked to what Wendy Alexander suggested.

The bit of the overall picture that perturbs me most is the fact that we allocate blocks of money here, there and everywhere, but no one follows them up with efficiency checks. Today, the legal people are coming in to give evidence on the Criminal Procedure (Amendment) (Scotland) Bill. Over many years, I have heard talk of the closed-shop mentality. The legal profession is the biggest closed shop that was ever invented. There is protectionism ad nauseam for the legal profession, which is highly inefficient—nothing personal, Fergus. We should highlight that right along the line. The inefficiencies in that area are astronomical. The sooner we get the efficiency experts in to clean out the profession, the better. We can then apply ourselves to the departments that are equally inefficient in many ways. If we do not place an emphasis on that, we are not doing our job to ensure that all the money that we are agreeing should be issued is being spent adequately and efficiently for the benefit of the people of Scotland.

That is why we are considering the inquiry. We want to see whether the money that is being spent is serving the objective of economic growth.

For the sake of clarity, I have a proposal with which members can either agree or disagree. Nine budget headings are set out in the paper; if we add education to those, we will have 10. Phase 1 of the inquiry should consist of two parts. The expert witnesses were helpful last week, but they dodged some of the issues. We have to compel the experts to take a view. Phase 1 is to consider whether the balance of the sum against the 10 areas is broadly right.

We should also take each of the areas and ask three questions. The first is how much of the money is supporting growth—how many people is it hitting and what impact is it meant to have on growth? The second is the question that the convener asked: what is the broad balance between capital and revenue? The third is whether the balance is right between supporting low-growth and high-growth areas.

At the end of that, we could take a view on whether, when we add in education, the £7 billion that could nominally support growth is, in fact, doing so. We are meant to scrutinise the Executive, so this is our chance to ask it whether, given its desire to promote growth, the £7 billion best supports that policy. In each of the 10 areas, we would have a sense of where the bodies are buried. I suggest that we produce an interim report at that stage—we should at least give ourselves that option.

It is impossible for us to look into all 10 areas but, if we do what I have suggested for phase 1, we could find three areas—I am sure that one would be the enterprise and lifelong learning budget—to dig down into, probably with different expert advisers, for the second phase of the inquiry. Given the pressure of the committee's other work, the inquiry is our one-off chance to look across all the headings.

My only query is how much control there is within the headlines over where the money is spent. For example, the Executive might have little control over where CAP market money goes. We could make the list long enough to cover the entire budget. Local government has an important role in encouraging economic development, but that heading is not on the list. The list still looks heavy and unfocused. I am not clear how we would dig into those areas to get the information out. We are talking not just about the money that is going in, but about what is being done with it. I have concerns about parts of the "A Smart, Successful Scotland" strategy, as I do not think that science has had the outcomes that it should have had. However, that is perhaps an issue for the Enterprise and Culture Committee rather than for the Finance Committee.

I share Elaine Murray's concern that in some areas there is no discretion with spend. We need to understand that before we start writing to sector bodies. I am sure that businesses in the Highlands would say that they would like all the CAP spend and that they would like Highlands and Islands Enterprise's budget doubled. There is no point in our wasting time listening to people proposing that if there is no discretion on spend. The point of our having an expert-focused discussion around the 10 areas at the beginning, asking the three questions that I suggested, is to establish where there is discretionary spend. We should have witnesses from the Executive and expert witnesses to establish where the discretion lies before we seek third-party views. There is confusion about where the discretion lies and we need a firm handle on that before we hear people asking for the moon.

I return to what we are trying to do. We started off talking about a cross-cutting review. That suggests to me that we should consider all the departments. Wendy Alexander has, characteristically, put forward a clear plan, but an element of that plan is to ignore all the expenditure except the £4.2 billion and the education spend. Elaine Murray has pointed out that we might want to consider local government, because some of its spend impacts directly or indirectly on what we do. The fact that we have one proposal to examine some spending and another proposal to examine some other spending is illustrative of the general muzziness and vagueness of the remit. That is why we should not embark on an inquiry until we know exactly what we are going to do.

If we are to have a cross-cutting review—and I am not entirely averse to that if the remit is clear—we must be prepared to make some fairly hard choices. As John Swinburne and Elaine Murray indicated, we must be prepared to conclude that some money is being wasted and that it should cease to be spent in certain areas. Unless we accept that as a premise of our inquiry, we should not embark on any such review. I suspect that we will embark on the review and reach conclusions without coming to a committee view that there should be any cuts at all. If that happens, I will be bound to refer back to these remarks at the end of what will be a long and costly exercise. We have to have a much clearer remit. I suggest that we all think about that and come back to the matter another day because, unless we know what we want to achieve at the outset, there is no hope of achieving anything.

If the remit is to consider how Government is stimulating growth and its capacity to do that over the next four years, we have a starting block. My biggest concern with Wendy Alexander's approach relates to the fact that we have a starting block in cross-cutting analysis with the local strategies that ministers sign off. Those strategies cover local transport, housing and education, which we should be considering. We might be able to start with that, which would make the process a local-up one. Through that, we could consider spending by bringing in private sector expert witnesses, as Jim Mather suggested. Our role should be to consider whether the Executive will address the structural weaknesses in Scotland over the next four years.

Given the time constraints to which we are subject, we should not start completely from scratch. We should begin by examining the issues at local level. After our away day next week, we may have a firmer view of whether that will be practical, because we will hear from local enterprise agencies and expert witnesses. As Fergus Ewing suggested, the clerks could, perhaps following the away day, produce a paper that provides us with a clear analysis. My concern is that we are not reaching a consensus this morning.

The remit of the review must be to ensure value and effectiveness. Although that sounds a bit woolly, I would be happy with such a remit, in the knowledge that it would be tightened up considerably if at some stage the private sector were involved in auditing the output and submissions of spending departments, quangos and local government. There are many private sector organisations with the wherewithal, the connections and the data-collection mechanisms to deliver that, including the Scotch Whisky Association, Scottish Engineering, Electronics Scotland, ScotlandIS and the Scottish Retail Consortium—I could go on.

It would make a lot of sense if at that stage we were able to format specifically the sort of response that we were seeking from such organisations, so that there was a standard model for responses. That would enable us to collate the information and feed it back to spending departments in a more meaningful way.

In conclusion, I would like to highlight two or three points that have arisen from our discussion. Fergus Ewing made the point that, before embarking on any review, we need to have a very clear remit. If we do not, we will end up confusing ourselves as well as the people from whom we seek evidence. I am attracted by Wendy Alexander's notion that we should identify areas of the budget that link in particularly with economic growth and subject those to close scrutiny, to determine whether the profile of expenditure is supporting the core objective of growth and whether our attempts to pursue that policy in Scotland reflect best practice. That may be the source of interesting comparative work with other parts of the United Kingdom and other devolved Administrations. We may want to commission some research in that area.

We could identify particular questions that we want to ask about a managed chunk of expenditure. Even if we add education to the list of budget heads that appears in the paper, we would be looking to take evidence from only four or five ministers. The inquiry would be manageable.

I am attracted by Jim Mather's suggestion that we should solicit responses from people outside Government. I would not restrict such responses to the private sector, as Jim Mather appeared to suggest. There are other sources of expertise in Scotland that would have an interest in commenting in various ways on whether expenditure adequately serves the growth agenda. We should not be closed on that issue. If we decide to ask people questions of a broad nature, we should widen the list of agencies to which we put those questions. It is important that we are clear about what we are asking and that they are clear about the responses that they are expected to make. We need expert assistance to do that.

Having heard the discussion, I suggest that I work with the clerks to bring a paper to the committee setting out a draft remit for the review and a mechanism for working, along the lines that the committee has suggested. I will not be able to include all the points that members have made, but I will try within the next fortnight to synthesise the various strands of the discussion and to produce a route forward that the committee finds acceptable. Is that agreed?

Members indicated agreement.