The New Economy
Let us make a start, as sufficient committee members are here. Bill Butler and Annabel Goldie are on the train from Glasgow and will arrive soon—ScotRail permitting. Des McNulty is also a member of the Transport and the Environment Committee, which is meeting at the same time as this committee, so he will have to pop in and out.
I welcome the Minister for Enterprise and Lifelong Learning and her officials. I welcome David Mundell, who is not a member of the committee, but who has a personal interest in item 1. He informs me that he would also like to stay for item 2; he is welcome to do so. I also welcome Ian Ritchie, the committee's special adviser on the new economy.
We have three subjects to cover this morning, minister. The first is our inquiry into the impact of the new economy, the second is the local economic forums, and the third is the Duffner report and the Executive's response to it. We would like you to give a brief introduction to each item as we come to it, after which I shall open the discussion for members' questions and comments.
Because we are covering three subjects that are important and fairly wide-ranging, I ask members to keep their comments focused so that we can address as many of the key issues as possible. If any member starts to become too long-winded, I shall cut him or her off—even if it is the minister.
I presume that that comment was directed mainly in my direction, convener.
I have tried to time my introductions to reflect the estimated length of time for which I shall give evidence to the committee on each item. The first introduction will therefore last for five or six minutes, whereas the others will be limited to a couple of minutes. I am delighted to attend the committee for the first time as the Minister for Enterprise and Lifelong Learning. I shall begin by describing where we are on digital Scotland, because that is of interest to the committee and is the subject of Executive and committee inquiries.
Our vision is well established. When the Executive set out on the way forward two years ago, it had two objectives: first, that there should be universal access for people in Scotland to digital technologies by 2005; secondly, that all Government services should be online by 2005. We have begun an audit of the resources that are committed to making those two objectives possible. As the Executive's paper to the committee suggests, £250 million has been committed to the achievement of those two objectives, including £80 million for schools, £50 million for electronic health services, £40 million for the knowledge economy, £30 million for further education, £25 million for local government—which we are looking for local government to match—and about £20 million for digital inclusion-type initiatives.
Having invested in public procurement on such a scale—ranging across hardware, contents, software and capability—the real issue is how we use that sort of purchasing power to enhance our digital capability. As the committee knows, the Executive has reorganised the way in which it handles those matters. It was becoming increasingly unwise to have a knowledge economy task force and separate digital Scotland task force, so we have brought all that activity together through the ministerial committee on digital Scotland, with me leading—within the Cabinet—on the whole area. We have also sought to bring some external expertise into the Executive, and the committee might comment in its report on whether it thinks that that is a useful way in which to proceed in this new and complex area.
I shall say a word about the way in which we are now pursuing a broadband strategy. As members know, we met the telecoms companies in Scotland earlier this week. I note in passing—I know that some of the committee's other witnesses have—that there is no universal definition of broadband, although it would be greater than what is currently available in much of Scotland. It is clear that, unless the public sector is in dialogue with the private sector, the ambition that we all share—Scotland being in the premier league of broadband providers—will not be realised.
In considering broadband, we recognise three separate challenges. First, we must secure competitive pricing in Scotland's cities. Secondly, we must ensure access to broadband capability in Scotland's towns. Thirdly, we must enhance capacity and our attractiveness as a location for economic development. We have taken up those three challenges, and I shall bring the committee up to date on our progress.
In dealing with the first problem—low levels of competition and the resultant high prices in the Scottish market—Scottish Enterprise is assessing our prices and the ways in which we can promote greater telecoms competition. How do we attract more players into the market? That is, essentially, an economic challenge.
I shall return to the second challenge—access in small towns—in a moment. The third challenge concerns our longer-term capacity. Members will know that Scotland is blessed by having broadband cybercapability as far as Wick, although much of that is dark fibre, which is unused. That will not be the case in the long term; a study is currently examining the potential business case for a dedicated spur link to one of the subsea interconnectors. Indeed, there are a number of options there. The intention is to attract a deeper wholesale market, to ensure that we become and remain price-competitive. Scottish Enterprise is taking forward that project and is trying to put together a business case that should be available to us in time for the committee's deliberations.
The second of the three challenges to which I referred concerns demand in towns. Perhaps due to the apparent lack of demand, rather than the reality, the unbundling of the local loop is not being undertaken as quickly as many of us might hope.
Furthermore, conventional ADSL is not the only possible technology solution for the delivery of broadband capability to many smaller towns. The critical insight in ensuring the ubiquity of broadband capability relates to the problem of local access rather than to a deficient backbone structure. In seeking solutions, we are working directly with the commercial players in the market so that they understand the nature of demand for broadband services, partly from the private sector, but particularly from the public sector.
We went ahead with a study on that. I hope that the committee will focus on that in its own response: Scotland is blessed with an institutional structure—which includes the Executive and the enterprise network—that has the potential to place us in a uniquely advantaged position to identify the demand and grow it, through procurement that specifies the need for services that will use broadband capability.
Those services will include general practitioners' surgeries, online libraries and the educational cluster. It is already clear that there is no one killer application that will transform demand, but that there is a wide spread of requirements that can underpin the participation of commercial players. With a view to promoting that, we have undertaken an indicative study of five towns in Scotland. They are; Airdrie, Dingwall, Elgin, Stranraer and Selkirk. The studies revealed that a sizeable demand is likely to emerge over the next three years. Even without the current requirements of the private sector, a data rate of more than 38Mbps has been reached in Selkirk.
That is the nature of the dialogue that we have begun with the telcos, in understanding the hard commercial appraisals that they have to make of future demand to justify future investment in infrastructure. It is a tough time for them; there are falling equity markets and falling prices in their sector. However, there is a big picture behind that, and we are considering with the telcos how to underpin the demand for their services through the Scottish Executive's procurement strategy.
There are areas, including the Highlands and Islands, where, under the increasingly aggressive EU rules in the sector, there are opportunities for a different approach, in which we would go beyond broadband, which is the strategy and challenge that preoccupies us now. There are important issues around improving the skills of the Scottish population with respect to their comfort with new technology. There are also fundamental issues around the development of common standards and protocols for the content of the services. I will leave it at that. I invite members' comments.
Thank you very much, minister. I found the papers that were supplied by the enterprise and lifelong learning department useful, as I am sure the other members of the committee did.
I would like to start with three questions based on what you have said, Wendy. First, you said that the objective was to have universal access and to get Government online by 2005. What stage are you at in progressing towards that? Are those aims on or behind schedule? What needs to be done to ensure that those aims are achieved?
Secondly, you mentioned—as did the department's papers—the £250 million that is already being spent. Does the £40 million that was announced in another paper that was launched on Monday come on top of the £250 million? I am referring to the allocation for cross-cutting initiatives on the knowledge economy. Is that additional, new money?
My third question is about the strategy for the electronic infrastructure. Most of the evidence that we have received points to a chicken-and-egg question: should strategy be demand-led or supply-led? One of the strategies that was outlined to us was the use of public procurement in ensuring that Scotland can take the lead. Another possibility is to adopt the Irish strategy—which has been adopted in parts of the United States and Scandinavia—in which the public sector would simply underwrite or guarantee a minimum return on private sector investment. Has a strategy been agreed in the Executive about the best way forward?
Short answers might be difficult. The first and simplest answer is that the £40 million is part of the £250 million—the £250 million is a low estimate, which does not include much of the expenditure in this field by the enterprise networks. We wanted to give a figure that itemised only the Executive's direct expenditure. I think that that figure would rise to more than £300 million if we included the enterprise network's contribution.
We are on target to have all services online by 2005, but within a fairly limited definition. The £250 million was committed in the expectation that ISDN would be the central capability that was used to deliver Government services online. Since the original commitment was made to have all Government services online, it has emerged that we should seek broadband-enabled capability rather than ISDN, so that, for example, there could be videoconferencing as well as e-mail capability.
On the question of universal access, the crucial issue is the definition of universal access. However, I think that we are undoubtedly on target to achieve universal access, if the uptake of digital television is taken into account. I note in passing that the commitment is not to universal access in everybody's home, but to having a community facility in which access is available. The national grid for learning should create more than 3,000 nodes in communities throughout Scotland. Since the Dunblane tragedy, there have of course been severe restrictions on community access to schools, so a more meaningful number of public access nodes would be something in excess of the 1,000 that already exist. Given that universal access has nominally been achieved, the more meaningful measures and targets over the next two years should relate to usage, skill levels and ubiquity of technology rather than access per se.
We envisage a demand-led strategy. It is an interesting paradox that much of the necessary infrastructure is in place in Scotland. The difficulty is in attracting more wholesalers and telecoms retailers on to that capacity to drive down prices and to drive up competition. There is in many parts of Scotland a significant amount of dark fibre off the backbone. I would be happy to explore the Irish example later, if members wish to pursue it.
Of the £250 million, how much is being spent on infrastructure?
We do not have a precise figure for how much is being spent on infrastructure. The packages of resource that we have made available often range over content, software, hardware and infrastructure.
Surely a fundamental part of a strategy to move towards universal access by 2005 will be the extension of infrastructure, and surely you will have some knowledge of what you have spent and what you propose to spend on infrastructure?
We have to clarify what we mean by universal access. Universal access is achievable simply by everybody having a telephone and a modem, and indeed by ISDN. The commitment is not to universal access that is tied down to a particular bandwidth capability. The implication that somehow bandwidth is like motorways, in that we should lay more, has bedevilled the debate. In Singapore, there is broadband capability to every home but the take-up has been 13 per cent. The point of intervention is to drive the use of services rather than for the Government to be a direct provider of infrastructure. That would put us in the position of choosing the appropriate technology. I think that the commercial providers are much better placed to decide where satellite, fixed radio access and so on should be used.
Given that money is at the crux of matters here, have you sought to obtain any Barnett formula or other share of the £22 billion worth of third-generation mobile telecoms money? Is any of that money earmarked for use north of the border? If so, how much?
The receipts for third-generation mobile telecommunications are taken annually. I understand that the total amount that is received by the Exchequer is something less than £1 billion a year, in the context of a total UK budget of about £320 billion. Therefore, the total receipts represent about 0.3 per cent of the Treasury's annual revenue. That money is part of the Treasury's general receipts. We benefit from the Barnett formula and we will receive our fair share of that 0.3 per cent as we do of the other 99.7 per cent.
So is that a no?
You seem to be asking whether there is a bypass for that element of Government revenue; there is not and we have not sought one.
We heard from previous witnesses about the emergence of a super league, containing the south of England, Ireland and Sweden. Do you accept that the two objectives of digital Scotland—universal access and all services being online by 2005—will not put us in the super league? If so, what steps do you propose to take to get us into the super league? Given that we will not be there by 2005, in what time scale can we get there?
Scotland can certainly get into the super league by 2005. I will take the opportunity to address some analogies that are used. International connectivity has been mentioned. Significantly, no Irish Exchequer funding was needed for the two cable landings in Ireland, which were the result of a business case that was entirely commercially underwritten. That is why for some months—indeed the work was commissioned when I arrived in office—we have been examining whether a comparable proposition is appropriate for Scotland. When the Irish project was launched 18 months ago, the Irish Minister for Public Enterprise said that the Irish Government was looking for sufficient broadband capacity to connect people to ISDN speeds of connectivity. We have achieved that broadly in Scotland and, like the Irish, we want to exceed that. Most of the Irish effort is engaged in creating a fibre backbone within the country, and the Irish Government is trying to work with the private sector on that. I note from recent discussions with the Irish that they have no answer as yet to the problem of making connections to households and businesses—the problem of market demand in towns, which our small-towns study is assessing.
There is a danger in assuming that there is one country that may be permanently further ahead on this issue. The capability that is available in Ireland is inferior to that which is available in many parts of Scotland. The Irish are now upgrading that capability. We are struggling with the same challenge of determining how far off the main trunk one can take capacity into homes and businesses at competitive prices. In the Irish regional procurement programme, which we have discussed with them, bids were invited from commercial players, rather than the Irish Government seeking to do the work itself or specifying the optimal technology.
The question was whether you thought that the super league is important, and what action you would take to allow us to enter it and in what time scale. You are saying that we will get into the super league by 2005. What action, in addition to the two objectives of digital Scotland, will you take to put us in the super league? The evidence to date is that what is being done will not put us in the super league. What tangible action will you take, between now and 2005, to get us up there with Ireland, Sweden and the south of England?
I dispute the proposition that £0.25 billion does not make a huge contribution to securing broadband access in Scotland, if it is procured properly. First, £0.25 billion is already committed and, secondly, we are in discussions with telecoms companies in Scotland. I met them on Monday to discuss how procurement can take place in such a way as to enhance the underwriting of demand for broadband capability. A key insight that came out of Monday's meeting was that telecoms companies said that procurement that is based on demand from services such as schools, higher education, hospitals and police does not accord with the way in which they put together business cases. They put such cases together based on geography and understanding the totality of demand in that area.
That poses fundamental questions for the Executive about how we take forward procurement; we must give more consideration to the geographic nature of demand than we give to service-by-service demand. We agreed to have a series of meetings with the telecoms operators to ensure that in Scotland we procure in a way that maximises the roll-out of broadband capability. They were very interested in our working with the enterprise network to establish private sector demand in areas.
The broadband strategy faces three problems. First, the price of provision in our major cities is a problem; that is partly because of distance-related tariffs. We are in a fluid situation about the extent to which tariffs become related to the volume of data that are carried rather than to distance. Secondly, there is the issue of towns; I have laid out the strategy on which we have embarked of collaboration with telecoms companies. Thirdly, there is the issue of whether we need a variety of interconnectors. As the committee may be aware, we are in discussion about a proposal for Shetland and the north of Scotland.
A variety of activities are going on; £0.25 billion is already committed and perhaps there will be more as and when that is proved necessary.
I should mention that being a beneficiary of objective 1 funding has given Ireland an ability to leverage European funds; that is only available to Scotland in the Highlands and Islands through the transitional programme. We are working closely with Highlands and Islands Enterprise, as we have done in the past, to consider how the special circumstances of the Highlands and Islands can be addressed.
Minister, you finished on the issue that I want to address. In the major cities the process will be driven by the marketplace. Government intervention is not necessary because there is no market failure. My concern is for rural Scotland, because some of rural Scotland—certainly the south of Scotland—is probably in division 2. The Highlands and Islands is probably in division 1, thanks to substantial Government intervention.
How will the Scottish Executive address the needs of rural Scotland to ensure that it is not left behind at the bottom of the league in the e-commerce revolution?
That is a real challenge and that is why we are putting a large part of our efforts into discussions with telecoms companies about small towns, because that is where the leveraging of public demand can make the most difference in securing the roll-out of capacity. That is why some of our more distant towns, such as Dingwall, Selkirk and Stranraer, have been the focus of the five-town strategy, rather than some of our major urban areas.
When we talked to telecoms operators on Monday, they said that the Executive's ability to specify with some precision the nature of demand town-by-town in Scotland would play a major role in their successfully making commercial business cases for investment in those communities. A liaison is emerging between HIE and Scottish Enterprise, which will allow us to specify anticipated private sector demand town by town. We cannot do that for every town in Scotland, but it will help the companies to build a commercial case.
The delivery of ISDN capability to the Highlands and Islands involved £86 million of European objective 1 money. EU state aid interest in this has become much greater as deregulation has rolled out across telecoms, so support for the provision of infrastructure through the transitional programme is £9 million for the period ahead and £4 million for connecting businesses and communities. The key is to develop trials using a variety of technologies. We recently met BT and it introduced us—as, I believe from its evidence, it introduced the committee—to the range of different technologies that it thinks could be used to bring about broadband capability.
As the committee will know, one of the reservations that people have about ISDN is that it is not always on, so the tariff structure is unattractive to small and medium enterprises. The critical issue is, perhaps, that we should secure always-on capability. The most important commercial intervention for parts of rural Scotland and the Highlands and Islands might be the securing of always-on capability of a slightly lower bandwidth, which can be provided by a range of technology solutions; some pump-priming money is available for that through the transitional programme.
When can we expect publication of the independent report that is being done on the issue in the Highlands and Islands? Will you explain in more detail how the Executive is trying to gather together the public sector demand to use it as a lever to pressure commercial companies to put the infrastructure in place? It is a big job to pull together the demand from the health service, education and local government. How will you correlate the information to get a clear picture of the expected public sector demand over the next few years? I suspect that that will be the main driver initially, certainly in rural Scotland, as the public sector is currently the biggest user of information technology. The commercial demand from small companies will run on the back of that, but the public sector is crucial in levering commercial investment into those areas.
George Lyon's final point about the significance of public sector demand in those communities is critical. I will talk from memory, because I do not have the figures in front of me. In Selkirk, were we to seek to use the £0.25 billion to make use of higher bandwidth capability, the public sector demand would be about 38Mbps and the private sector demand in that community—as estimated by the enterprise network—would be about 7Mbps; so the ratio is about 5:1. That is based on the specificity with which we can say that every primary school, secondary school, GP's surgery, hospital, fire station and police centre will demand this capability.
We aggregated the public sector demand by taking—under the digital Scotland unit—every official who was involved in procurement in this area to an off-site event. We came up with about 25 different types of outlet that are associated with public service delivery and we aggregated that demand.
The most interesting point was that, in a town such as Selkirk, public sector demand was four or five times private sector demand, whereas in Airdrie—the largest of the five towns—there was parity between public and private sector demand. However, Airdrie will, in the next couple of years, experience a very steep increase in private sector demand, which will be associated with the call centre community in that area becoming videoconference-enabled.
The point that George Lyon made about the significance of public sector demand is key. The way in which the Executive has approached that is to bring it all together for the first time under the digital Scotland unit. It is clear that trying to run two tracks of the knowledge economy and e-government is crazy.
E-business and e-government are increasingly part of the same spectrum, which should be reflected in our approach. We have had off-sites with all the officials concerned and with representatives of the enterprise networks. In those discussions, HIE is in a fortuitous position, as it can work with BT on a number of technology trials in various communities. I believe that BT shared information with the committee about the trial that it did recently on Islay—which involved satellite capability—and its intention to trial other technologies, with the aim of finding out whether they could meet the scale of demand in the period ahead.
Our intention is to hold regular forums with the telecoms companies. I am aware that Frank Binnie and other witnesses who have come before the committee have said that there is a role for co-ordination between telecoms companies in Scotland, and for a forum in which they can talk to Government. We would be interested in discussing further with the committee whether that forum should be a Government-industry forum or a Parliament-industry forum, or whether it could be both. One area in which we would particularly seek the committee's guidance is collaboration between telecoms companies in Scotland, which we want to promote. One of the things that was clear when we met those companies' representatives on Monday was that they had never before been in the same room together. That would be astonishing in industries such as oil and gas, where people are familiar with the well functioning Government-industry body of co-operation.
For too long, the problem in Scotland has been the lack of competition. One of our most difficult challenges is to find a way to secure industry collaboration without reinforcing the monopoly that has for so long been a negative in driving price competition. The insights of the committee and its expert advisers would be of much use to the Executive in seeking to meet that challenge.
There was one question that I asked previously that you did not answer, minister.
Sorry.
When will the report on the Highlands and Islands be published?
Very shortly. It is anticipated that that will be done by Easter.
Will the sites be revealed while the technology is being trialed?
When we met BT, I pushed its representatives on which of the trials we could make public. They were discussing a number of them being covered by commercial-in-confidence provisions. Let me try to ensure that the report has the optimal degree of transparency that is commensurate with the operator's commercial interests.
Your inquiry document discusses the fact that if the Executive or Government intervenes in the marketplace, there are UK and European market regulations to be observed. Could you explain that in more detail? What are the constraints on market intervention by the Scottish Government?
State aid regulations are the most fundamental factor for the Highlands and Islands in that regard. There is a consensus in the industry that projects such as the ISDN programme—and the £86 million associated with that—could not be repeated in objective 1 areas anywhere in the EU. That would be seen as conflicting with the general desire to drive competition in telecoms.
I think it is fair to say that we are doing our utmost to take advantage of the greater opportunities within ex-objective 1 areas and to bring forward proposals that will allow public participation in trialing technology solutions. Objective 2 areas—much of the rest of Scotland—are meant to benefit from a programme dealing with support for SMEs. We have been active in discussions with our own European structural funds group and with local authority economic development professionals, with the aim of assessing the extent to which we can stretch the boundaries on the use of European money in objective 2 areas, which will help with telecoms infrastructure for SMEs and for other players in the market.
Could I ask for a point of clarification, minister? You are saying that you could not enter into the same type of partnership as HIE did with BT a few years ago. Are you saying that that sort of leverage and partnership with the public and private sectors working side by side—then to put in the ISDN network—cannot be delivered this time round?
No, there is scope for co-operation between the public and private sectors. The nature of that partnership's structure and the question of whether it will competitively disadvantage other telecoms players who could potentially be in the same market will be the subject of much greater critical scrutiny than was ever the case four or five years ago. That reflects the fact that BT's monopoly in—
Are you saying that more partners would need to be included?
No, it is more to do with the competition criteria. There needs to be more transparency, in the sense that if we are seen to have a proprietorial relationship with one player that competitively disadvantages other telecoms players, that is more likely to attract the interest of the EU under state aid regulations. That is not to say that we could not come up with collaborative arrangements, but those will clearly be the subject of much greater scrutiny than in the past. We are operating in a more open telecoms market now.
You have covered most of the areas that I was concerned about, minister, but I have one question about social exclusion. You talked about the geographical difficulties in rural areas, and about how those could be missed if we rely only on the market and commercial development. There will also be much concern about parts of our inner cities.
Some of the evidence that we heard two weeks ago suggested that the biggest barrier to internet access these days was not bandwidth or cabling, but the cost of personal computers and so on. What is Government's role in addressing that problem? How do we ensure that the cabling and technology are available to people in all sectors of our society, whether they live in towns or in the country?
The opportunity for Scotland is to be not just a digital economy but a digital society. The committee may want to reflect on that in its considerations. The ubiquity of access and the familiarity of the technology to the whole population should form our aspiration. That might be culturally unattractive in North America, where the preoccupation will perhaps always be with a digital economy rather than a digital society. In that regard, Scotland has opportunities because of its size and scale.
Earlier, I mentioned that we hoped to have 3,000 nodes at primary and secondary schools across our community. The whole local enterprise company network is also included, as is the whole of careers Scotland. In a little while, learndirect Scotland will be involved. One challenge before our entire library network, which is not being pursued in England, is how we try to brand all those outlets—every local authority public access point—as places where people can have public access to the internet. One of the challenges for us—I would be interested to hear the committee's guidance on this—is to find out the basic level of access and functionality that those outlets need in order to be seen to be part of the digital Scotland project.
Let us take the example of a particularly intimidating information and communications technology facility, which was designed only, let us say, for participants in the teaching companies scheme. Someone might walk in and be told that they can only get access if they are the recipient of a small firms merit award for research and technology—SMART—or a support for products under research—SPUR—award or something else. That would not accord with the notion of public access. One of our challenges is to find out how to create a basic contract of functionality, which would, I think, cover well in excess of 1,000 outlets across Scotland. We could give those outlets a common branding.
I notice that, in England, the UK Online brand is, essentially, merely the name of a portal. It is totally disassociated from the variety of outlets that might form part of a digital Scotland project. We are interested in the committee's thoughts on that, and I hope that some of the people involved in the digital Scotland project on the social inclusion side of things will have the chance to testify to the committee.
It is also about people's comfort level and familiarity with the technology. We have spent more than £1 million in appointing digital champions in all social inclusion partnership areas. The SIP areas are to have regional champions for digital inclusion. Their job is to ensure that the services that are offered in cybercafes and libraries are being reached by people who might not take advantage of them otherwise.
I am keen for the committee to reflect on that because, however much we are able to persuade commercial companies to underwrite the interconnector for us—at Pacific quay, in Shetland or wherever—there is nobody else whom we can persuade to brand every public sector outlet in Scotland as an access point for digital technologies.
I would like to cover one or two things that have been spoken about before, just to clarify matters.
In relation to demand creation, can you confirm that you are exploring the widest possible definition of the public sector? That would include local government and the further and higher education sectors, which have extensive networks throughout Scotland. How do you foresee that process being managed locally? Having read Scottish Enterprise's document, I was not sure whether you foresaw that being managed from the Executive's digital Scotland unit or being owned more locally. Earlier in the taking of evidence, when the committee spoke to Scottish Enterprise, there was a lack of clarity about who owned the strategy for infrastructure.
I have clarified the fact that there are three issues, and that Scottish Enterprise is assessing prices and competition in large towns and cities. Scottish Enterprise has also taken ownership of addressing whether to put together a business case and whether it is appropriate to do so for an interconnector that would bring in more wholesale players. The lead on the middle challenge—of finding how public sector demand can be used to drive capability to towns throughout Scotland—has been taken by the Executive in the five town studies. Through the digital Scotland unit, we have put in place mechanisms for collaboration across the public sector.
That brings me to your first question. Yes, we want the widest definition of the public sector. In trying to put together what the nature of demand was in schools, hospitals and businesses, we seconded into the digital Scotland unit Bill Harvey of the Scottish Higher Education Funding Council. What the educational cluster has achieved in broadband capability exceeds most other recent entrants to the market. Robert Craig of the Scottish Library Association has a clear handle on what local authorities are trying to do, and the public libraries network area has come in. We have also brought in Jim Norton of the Institute of Directors, who has a clear understanding of what small and medium enterprises are trying to do. We have tried to bring in expertise to understand the nature of the demand.
Having specified the nature of demand, the next challenge is to procure that demand in a way that most effectively underpins the roll-out by the private sector. That probably requires a different set of secondees from the private sector to assist us. They will be the only ones who can tell us how to structure the procurement process to minimise the risk to us of extending capability. As you know, it is much more difficult to second people from the private sector to the Executive to get involved in procurement issues than to second fellow professionals from the public sector.
The committee might want to comment on the fact that it is not possible to be an intelligent client of telecoms companies unless one understands what risk minimisation means for those businesses. That is possible only if some of the expertise is brought on board, although we recognise the need to avoid compromising the commercial interests of the Executive. We will be required to think of procurement in a way that has not been typical in the public sector, and we will have to seek advice and guidance on the need for a different approach to procurement and the need to be closer to the telecoms companies on this matter. It would be helpful to have the committee's guidance in that matter.
Who will undertake that consideration of the procurement?
We invited the telecoms companies to second some of their staff to think about that issue, but they are nervous about doing so. In the past, if a company was seen to be too close to the procurement process, it was potentially compromised as a bidder to provide those services. However, in principle, the telecoms companies have said that they are willing to work closely with the Executive in thinking about procurement in terms of regional geographies rather than service by service.
I have a second question on the wider area of government, e-government, modernising government and the general ethos of the Scottish Executive. When I visited America in the autumn, I was struck by the fact that people either got the e-revolution or did not. The Scottish Executive, though not any specific individual, does not give me the impression that it always gets it, although there seems to be an ethos in the Executive to drive forward the e-revolution. Although we are presented with the individual elements of modernising government, there is not always the energy and enthusiasm—other than from you, minister—that would help to make all-pervasive the project to create a digital society.
A trip to Blacksburg, Virginia, was undertaken under the aegis of the Scottish Council Foundation, and we have learned from the insight of the people there about the potential for using sophisticated demand and being an intelligent client to drive one to the top of the league in broadband. There is a need to create such an ethos and a common understanding of what we are doing in Scotland, which has been more influential in shaping the Executive's thinking than the report that presents analysis of the detail of the Irish or Swedish experiences. The Canadian and Virginian experiences have shaped our thinking.
We look to the committee for support. There must be more of a just-do-it ethos. In the past, large-scale public sector procurement programmes have been disastrous. We are not saying that we will haul everything into the digital Scotland unit and then get it all right and procure on behalf of the whole of Scotland. That sort of approach to public procurement has been a disaster in the past. We need to try to preserve a balance between going ahead with the procurement and being strategic about the way in which we do that, so that we will become an ever more intelligent client.
Some of us are trying incredibly hard to resonate the fact that this matters more than anything else, and that it is at the top of our agenda. It is about growing expertise and skills sets internally and having a much more fluid boundary with people who are familiar with this area. The current commercial salaries that people with the relevant expertise command run to six-plus figures. It is a challenge to get those people to leave their work in the commercial companies to come and be badly paid by the Executive to help us to think about the way in which we should wire up Scotland. The challenge is for the Executive to tap into the expertise and enthusiasm in Scotland without expecting to get all the answers. It would be helpful to have the committee's advice on pushing the boundaries on that.
In an earlier comment, you touched on the question of how you can enter into an engagement with all the people in Scotland, whether groups in business or elsewhere, who want to take this forward. One of their criticisms is that they find it difficult to engage with the Executive. There are lots of groups, such as ScotlandIS, and individuals who want to engage in the process, but they find the current process difficult to engage in.
I look to the committee to say some hard things on that point, not to the Executive but to the commercial sector in Scotland.
And to the Executive as well.
Indeed. However, berating the Executive will not encourage skills sets to grow internally, nor will it get the work done. I want this year to stop being the year of visions and to start being the year of actions.
The fact that chief executives may turn up once a quarter to a digital Scotland committee meeting and sound off does not grow capability or skills sets in procurement, in aggregating demand on a zonal basis or in engaging wholesalers on their relationship with the retail players in Scotland. That does not even get us to the position that Ireland is in, where people understand the minutiae of who is underwriting what. None of that happens as a result of people turning up once a quarter and then putting on their curriculum vitae that they sit on the digital Scotland task force. We will make progress only if expert staff come and work on the inside, saying, "We commit to making this happen because we understand that if we seed our really good staff now, Scotland will be the most intelligent client in Britain."
If we can base our system on a backbone that is more advanced than systems elsewhere in Europe are, we might be able to leapfrog. That requires commitment from the commercial sector, which should be saying, "I wish that they would batter down my door saying, ‘Let me give you someone who lets you be an intelligent consumer of the £250 million that will flow through your door'".
It is an incredibly tall order to expect civil servants who have little experience in such areas to design a contract process that specifies a level of service from which higher bandwidth services will follow, rather than just ISDN capability. However, designing such a process would be easy for many people in the market. We must convince those people not only that £250 million is available already, but that that money could underwrite the growth in demand. Obviously, much of that £250 million is committed to software services and content, but the opportunity exists for the market to get on board in a fundamentally different way from how it has participated in the past.
We have begun to do our bit, by pulling demand together and by specifying what is required. This is the right moment in time for me to say that the leapfrogging depends not on us or on our willingness to engage, but on the market's willingness to rise to the challenge. I make that plea for Scotland on behalf of the Parliament, not on behalf of the Executive, which has its own challenges. The procedure for seconding people is phenomenally difficult.
We have covered many issues this morning. You spoke about how the growth in productivity has accelerated, particularly in the United States, where gross domestic product has risen over the past 10 years. The gap in productivity between the United States and Scotland is widening. Are we doing enough to increase productivity in Scotland and the UK?
David Mundell's point has been made to me by many organisations: raising awareness of what e-economy means is one of the most useful things that Government can do for companies that are not dotcom firms or contenders in the e-revolution. Are we doing enough to explain to old, traditional companies what the e-revolution will mean to them in relation to both staying in business and being globally competitive?
So far this morning, we have not touched on how we should develop the necessary skills in Scotland. We should consider how to develop the skills of people who move into the work force from education and the skills set that is available to the Scottish Executive and to the economy as a whole. Recently, I visited Electronic Scotland—
Elaine, I am sorry, but can you come to the point?
Electronic Scotland seems to be clear that the skills gap is short term. Lots of good activities are going on, with colleges and universities developing courses, but what can we do to tackle that gap?
Another point that has been raised in evidence to the inquiry relates to the curriculum of our universities. Is it the right kind of curriculum to produce the kind of graduates that we really need—people with the right skills for today's economy?
I am sorry—that was a long, waffly question.
How am I going to keep my reply short?
Could you keep it as short as possible?
I could come back five times in the next year.
The second committee paper—EL/01/05/02—is fascinating if you get the time to read it. It proves that Scotland has not yet really had the opportunity to take advantage of the productivity spurt that we see in the United States. It suggests that that will come, but that, first, an awful lot of Scotland has to stop using its personal computer as a sophisticated word processor and start using it as an instrument for re-engineering its business.
Part of the key to helping to make that happen is the £0.5 billion that we spend through Scottish Enterprise and HIE. The committee can send an important signal. It can ask whether it is right for us to say that we have spent two decades dealing with the challenges of transition, that we are now broadly ready to face the challenges of the future, and that we are prepared to allow the £0.5 billion that has been committed to the enterprise networks not to be focused on issues of transition but on issues of connectivity as the key to productivity and growth in Scotland in the future. A signal to that effect in the context of the committee's report would be very important.
I know that, like me, the committee comes under pressure every time any transitional issue emerges to drag the resources of the enterprise networks back to deal with it, which simply prevents the networks from getting on to the future agenda or from growing, in-house, the skills that they need to tackle that agenda.
I will say two things on skills. As part of the knowledge economy package, we announced the need for every graduate leaving Scottish universities—irrespective of their discipline, be it Roman history, archaeology or particle physics—to be completely comfortable with new technologies. That should be a fundamental part of any school or university curriculum. We now have good access to ICT in our schools and universities, but access has not been good enough in our further education colleges, which is why they have been the special beneficiaries of quality ICT equipment.
We can obviously come back to the skills challenge many times, but the fact that learndirect Scotland is a web-enabled broker of all the learning opportunities in Scotland sends an important signal about the significance of web-enabled education. I rarely have an engagement these days at which somebody does not stand up and say that they are involved in online learning, are trying to grow a market and want to be in the lead. The committee may want to consider those matters in future.
I welcome the fact that we are going to have a science strategy in Scotland. We have tended to focus on infrastructure this morning, but the new economy goes wider than that—especially in relation to science and technology. Do you agree that, in the context of what you are trying to achieve, the funding proposals put forward by the Scottish Higher Education Funding Council are sheer lunacy? Should SHEFC be sent hame to think again?
Do we need a science strategy? Yes, we do—and one is in progress. Partly to avoid confusion, I did not include in the £0.25 billion the significant additional moneys that are going into science. The Executive feels that we should return to that issue and to the opportunities that the scale of uplift that we are hoping for will bring.
You asked about SHEFC. I met the Association of University Teachers a couple of days ago and I am meeting representatives of the Scottish universities immediately after this meeting. I do not know whether the proposals made by SHEFC are right or wrong. Some inappropriate analogies have been made, comparing SHEFC with the Scottish Qualifications Authority. The SQA is an accreditation body; SHEFC is much more the body that thinks about how we fund the whole of higher education in Scotland. In that sense, SHEFC is more analogous, I think, to Scottish Enterprise or to the Scottish Arts Council, which disburses grants to arts bodies.
It is important, while no definitive decisions have been made, to allow an open discussion about how many areas should be funded. The general consensus seems to be that there should be fewer than 20; there does not seem to be unanimity that there should be six. However, as minister, I am minded to let that discussion run and then come to a view. Our arm's-length agencies, which are engaging with these difficult issues, should be given the time to think them through. Despite the many pressures in endless articles in The Herald and The Scotsman, I feel that, if the agencies do not yet have proposals on the table, we have to allow them some thinking space. I have said to them that I think that they need to have a wider discussion with the Scottish universities about the proposals. It would be wrong for ministers to say, "You are wrong and the answer is X." Our obligation is to ensure a wider discussion within the Scottish university community.
We have many issues to pursue, but I would like to finish with a quick question from Annabel Goldie—and a quick answer.
I have to declare an interest as a member of the court of the University of Strathclyde.
I have been made aware of profound concerns about the SHEFC proposals and I am aware of the minister's forthcoming meetings. Does the minister accept that Scotland—especially post-devolution—is a small village and that a dangerous lacuna is emerging between the desire, which I believe to be genuine and sincere, on the part of the Scottish Executive to have a strategic vision of the economy and the provision of higher education to match that desire? I am concerned about the lacuna: SHEFC—which is an extremely powerful body—is solely responsible for the dissemination of core funding for our higher education institutions. Does the minister accept that that is an area of concern?
Yes. SHEFC needs to think again, although I do not think that ministers need to tell it the answer. We have said that we need to try to reach more of a consensus than exists at present. Annabel Goldie makes a fundamental and appropriate point. As the committee knows, I have had the chance to discuss it with the convener. SHEFC was established in 1992, when it was universally accepted that a Scottish universities funding council was needed. The establishment of the Parliament raises interesting questions on where, in the strategic context that Annabel Goldie described, the boundary of parliamentary and Executive responsibility lies, and on where the appropriate boundary of SHEFC responsibility lies.
SHEFC never had a quinquennial review, which all quangos are meant to have. Because what would have been its quinquennial review coincided with the establishment of the Scottish Further Education Funding Council, that review was delayed. I intend to launch a review later in the spring—which will therefore be after eight years instead of five. That should give all parties—and this committee too, I hope—an opportunity to reflect on where the proper boundary between ministerial discretion and SHEFC discretion lies. I hope that we will come to a view on that fundamental question in the next year. I look forward to the committee's input. In the meantime, we have asked SHEFC to consider the anxieties that its proposals have caused but, as I said, we have not tried to tell it the answers.
George Lyon has a quick final question on the reports.
I wanted to clarify when this committee will get to see the reports. You told us when the HIE report would be available. Scottish Enterprise is conducting a leased line provision and tariff report. When can we see that? A third report was an investigation by Scottish Enterprise into the—
Local loop unbundling?
Into the international interconnector. We need those reports.
The point is that it would be helpful for us to have those reports before we come to our conclusions.
I am anxious to get them to you before you conclude your studies. Obviously, some things are out of my hands, but we have received undertakings that those reports will be available by Easter—with the possible exception of the one on local loop unbundling. On that one, we are living in a changing world. However, the HIE report and the ones on competitiveness in cities and the interconnector should be available by Easter.
It would also be helpful if we sent the committee a full report of our discussions with the telecoms companies and their follow-up on their willingness to provide some of the specialist expertise that I was talking to David Mundell about. We can certainly let you have that within the next couple of weeks.
I have timetabled the next meeting with the telecoms companies for the beginning of May, which should allow us to have received the committee's report and therefore to have your view on how the relationship between Parliament telecoms and Government telecoms should go forward.
Do you want time for a coffee before we move to the next subject? I believe that you have to change officials anyway.
Yes. I am happy to have a glass of water, but we can take a break for a minute or two.
Meeting adjourned.
On resuming—