Enterprise and Lifelong Learning Committee, 08 Oct 2002

Meeting date: Tuesday, October 8, 2002

Official Report 266KB pdf

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Budget Process 2003-04

Item 6 is the budget process. This is the stage at which the committee can take evidence from the Minister for Enterprise, Transport and Lifelong Learning, Mr Gray, and ask him questions.

I am sure that I am not alone in saying that we all feel as though we have been dragged through a mangle backwards this morning. I am pretty confident that members will want to deal with this item as swiftly as is effectively possible. The minister has offered to forgo an opening statement; he simply invites members to ask him questions. That is immensely helpful and I thank him on behalf of the committee.

I hope the minister will be able to refocus on the budget process after a difficult session earlier in the meeting. My questions are on the priority given to the economy and enterprise, which were the subject of the statement by the Minister for Finance and Public Services following the comprehensive spending review. The evidence that we have had from our adviser makes interesting reading. Over the four-year period in question, the total enterprise and lifelong learning budget falls in real-terms by just over 1 per cent. The equivalent for the regional development agencies in the rest of the UK rises by 4.5 per cent and the trade and industry budget across the UK rises by just under 3 per cent. Given that the minister will agree that our economic performance relative to the rest of the UK is poor and getting worse, what are the implications of a budget scenario that shows a reduction in investment in enterprise when the rest of the UK is increasing it?

My concern in taking the budget through the Scottish budget and spending review processes is less about a comparison with the rest of the UK or anywhere else and more about our priorities for getting Scotland's economy growing, and about the important dialogue that we have with business, trade unions and other stakeholders.

I have a portfolio budget that also includes transport. It is a mistake to look solely at the enterprise and lifelong learning budget as a whole. There are two reasons for that. It has been clear to me in the five months or so that I have been in the job that there are two particularly important things that those who have direct, day-to-day concerns about doing business in Scotland and growing that business want to raise with us. One is transport infrastructure; the other is business rates. The spending review responds to those priorities. We are freezing business rates, which takes £35 million to £40 million of business costs out every year. If you look at my portfolio as a whole, you will see that the winner, as it were, is transport, where there are significant increases in spending—a 52 per cent cash increase across the Scottish budget period.

Higher and further education are of enormous importance to us because of the science and skills agenda, so they also do well in the Scottish budget. The budget lines on the enterprise network are more or less held in cash terms, so the comment that that amounts to a real-terms reduction across the period is fair. What has to be factored in, however, is the release of some £45 million per year over that period by the business transformation project, which I believe will secure the key priorities for Scottish Enterprise and Highlands and Islands Enterprise through intermediary technology institutes, project Atlas—accessing telecoms links across Scotland—and broadband.

We have five priorities, one of which is jobs. It is quite wrong to look at the enterprise and lifelong learning budget as the only budget that contributes to maintaining and creating employment in Scotland. There is enormous investment in our economy through investment in housing in Glasgow, in the rebuilding and reprovisioning of schools and in the transport infrastructure improvements that will come through the budget settlement.

I thank the minister for a very full answer, but I feel that he did not answer the question that I asked. I am not suggesting for a minute that the enterprise budget is the only one influencing the economy, but my first question was whether he recognises, as the First Minister has, the need to close the wealth gap between Scotland and the rest of the UK.

My second question was about the implications of the levels of investment in enterprise, transport and education, which are receiving less of an increase here than elsewhere. What is stark about enterprise funding in the budget is that it is falling when such funding is increasing in the RDAs and in the UK as a whole. Does that not suggest that, in terms of the Government's own intervention—purely in budgetary terms—the contribution gap will get wider rather than narrower?

Our primary purpose is not to narrow the gap between Scotland and the rest of the UK, but to get Scotland's economy growing in a way that meets our aspirations. Our aim is to move growth towards the upper quartile of the OECD table. To do that, we are taking a number of approaches. I mentioned the intermediary technology institutes—ITIs—and the investment we are making in FE and HE. The Scottish budget decisions reflect our primary purpose. That is far more fundamental to us than an obsessive comparison of the budget decisions that are taken in Scotland and in the rest of the UK, some of which I would not accept.

In transport expenditure, the increases over the next three years compare favourably with the UK figures, but that is not our primary purpose, which is to invest in growth in Scotland and ensure that the resources necessary to make that work are available.

Given the revelations in this morning's Business a.m., what are the implications for the improving regulations in Scotland—IRIS—unit's budget? It appears not to have produced a great deal in terms of results. Is a significant amount of money involved? What is the Executive doing in the light of that report?

The IRIS budget is not significant in terms of the overall budgets that we are discussing. The accusation in this morning's Business a.m. was that IRIS has produced nothing over a period of time. I disagree. IRIS has done work over that period and it has produced the enforcement concordat, for example. I would like us to do more on business regulation and its impact. It is an area that I hope to consider, to ensure that the unit does not waste away, as was suggested in this morning's accusation, but instead finds a way to operate more effectively on behalf of Scottish business. The IRIS budget is not a significant aspect of the enterprise and lifelong learning budget.

Your answer to the criticisms is that IRIS has done work over the past three years but that it has not yet produced a specific output.

The question was about the budget for IRIS. The budget for IRIS covers the running costs for that unit in the Scottish Executive, and those running costs are very small.

The point is that there are no outputs from it.

There are some outputs, such as the enforcement concordat.

I must apologise to your colleagues, minister. I failed to introduce and welcome Mr Weeple, Ms Morgan and Mr McCrone.

Before we leave IRIS, could you tell us whether you believe it is competent for IRIS, if it is to continue, to consider regulations emanating from Europe or Westminster that affect business in Scotland?

The purpose of IRIS is to examine how regulation impacts on business, so it is certainly within its competence to consider how those regulations are applied. For example, it could look at how regulations could be applied in a way that is less burdensome to business. If the question is whether IRIS can, in and of itself, remove regulations that lie with Europe or Westminster, the answer would clearly be no, but I shall give an example.

A series of fairly big events is now taking place around Scotland—I attended one in Dundee. They are led by HM Customs and Excise, deal with regulation—particularly value added tax—and bring together Scottish and devolved Government agencies involved in regulation and UK departments such as the Inland Revenue, to give business the opportunity to discuss face to face with those departments how regulations are applied.

IRIS has been involved in a series of workshops and road shows around Scotland to discuss how regulations are applied. The enforcement concordat looks at a more consistent regime, particularly for regulations that are enforced by local authorities. A great deal of IRIS's work concerns the way regulations are applied rather than the regulations themselves. It is my belief that many of the regulations could be applied more consistently and in ways that might prove less of a burden for businesses and for small businesses in particular.

If we are to avoid the perception that IRIS has been flung on the compost heap, it is clear that it must develop a more defined role.

IRIS works in an important area where we could, and perhaps should, be more successful. I certainly intend to pursue that work.

In "Building a Better Scotland", the budget heading "Enterprise and Lifelong Learning Other" rises quite markedly from £66 million to £120 million. Will the minister clarify what that heading encompasses and why the figure rises so much?

The heading "Enterprise and Lifelong Learning Other" encompasses a large number of relatively small budget headings. We will have some clarity on that once the level 3 figures become available at the end of this month.

There are two reasons for the jump. The budget line includes the quite significant sum that is required to roll out educational maintenance allowances across Scotland. It also contains the resources that are to be made available to implement the recommendations of the working group on enterprise and education. That amounts to some £40 million over three years.

I also have a couple of questions about the increases in further education funding and higher education funding, which are highlighted in the figures in "Building a Better Scotland". Can the minister give us a flavour of what the additional funds will be spent on and of the context in which they will be spent?

The context for the increase in funding for further education is that FE funding has increased by 50 per cent during this session of the Parliament and student enrolments have increased by some 60,000. That is a significant expansion in volume.

There is a different context in higher education, although it is related in a way. We have now reached the point where 50 per cent of 18 to 21-year-olds participate in higher education. Some 25 per cent of those students study higher national qualifications in further education colleges and the other 75 per cent study in universities.

The funding for FE and HE appears slightly differently. The funding for FE will receive a 20 per cent increase over the period of this Scottish budget. Previously, the increase was front-loaded, but this time it is back-loaded—if that is the opposite of front-loaded—in that there is less of an increase in the first year, 2003-04, but much more significant real-terms increases of some 6 per cent and 5 per cent respectively, I think, in years two and three of the budget period. Those are significant increases in the FE budget.

Our priorities will focus on two things. First, we will continue to help redress the financial situation of many colleges in the FE sector by providing resource so that they can stabilise their financial position more quickly than current plans perhaps allow. Secondly, there will be a significant capital investment in the infrastructure in which FE is delivered. These resources will allow us to take forward those priorities for the FE sector.

It is fair to say that the increase in funding for HE over the period is a little more modest: it is an increase in cash terms of around 15 per cent. In real terms it amounts to year-on-year increases of 1.3 per cent, 3.5 per cent and 1.9 per cent. The key priority for higher education is to widen access and help close the opportunity gap—perhaps allowing a shift in those who are able to access higher education. The priority is not to have a significant expansion in numbers, but to maintain those numbers, as participation rates are already very high.

The key priority for investment is in science and research in higher education. There will be a significant increase in funding for that, particularly in the third year of the budget period. We have announced an increase of £10 million for science and research in higher education in 2003-04. That will rise to £25 million in 2004-05 and to £35 million in 2005-06.

Will all that dovetail with our report? How will the funding be considered in the context of our report on lifelong learning, the Executive's budget planning and its higher education review?

The committee's report is very much part of the context that we have had in mind. Our agreement with the committee is that when the final report becomes available we will respond to it. We have held off producing our lifelong learning strategy until the committee's report is published, because it is proper that we take account of the committee's work. Two other important pieces of work will feed into the process—the higher education review and the consultation on the governance of FE colleges. We have tried to keep that context in mind in setting the priorities, which are fairly broad. We have had the benefit of the committee's interim report on lifelong learning, which has been part of our thinking. I believe that the envelope of resources for FE and HE, even with the broad priorities set, will allow us to respond properly and appropriately to the HE review and to the committee's final report.

I think we all look forward to the disaggregation, particularly under the "other" heading. Perhaps unlike some others, I very much welcome what is proposed in relation to the rollout of educational maintenance allowances—EMAs—because I cannot think of a better contribution to make to getting kids into learning and work. I am delighted with the expansion of the modern apprenticeship scheme. Three cheers for the investment in innovation and science. I take it that when the Executive rolls out the level 3 spending figures we will get a better feel for where the money is going.

I am concerned that it seems to be suggested that we measure our contribution to the enterprise agenda simply by looking along the top line for Scottish Enterprise and do not look at the business transformation that is going on to shake out the kind of proceeds that will contribute to EMAs and the modern apprenticeship scheme. In telling the story about what we are doing, I urge the minister to beat back the notion that it is a case of simply looking at the top line SE figure. That would be a great mistake, which we visited in our most recent budgetary analysis.

Mr Fitzpatrick powerfully makes the point that a number of things about the enterprise network budgets are often forgotten. The first is that, by and large, half the enterprise network budgets are spent on the training and skills agenda, which is very important to us. In the Scottish budget, we make additional resource available for particular expansions in that area. An example of that is the additional resource that is available for the expansion of modern apprenticeships, to which Mr Fitzpatrick referred.

I agree that the top line is a blunt instrument with which to make a judgment. I know that the committee shares that view, because it has carried out exhaustive examination of Scottish Enterprise's budgets and has expressed concern about the amount of detail that is available on how those budgets are spent.

Moving Scottish Enterprise from an annual budgeting process to three-year budgeting will help with such examination. It might well allow Scottish Enterprise to fulfil its commitment to the committee to present more detailed figures earlier in the three-year period of the budgeting process, which would allow the committee to examine precisely what the money was being spent on. That is important. [Interruption.]

I am sorry—I must have turned my mobile phone back on by mistake.

Mr Fitzpatrick has burst into Mozart.

Mr Fitzpatrick cannot turn it off.

It is my understanding that there is an agreement with the committee that any budget lines of more than £1 million that fall under the "other" heading will be elaborated on when the level 3 figures are available. I mentioned the two large lines that explain the increase that Mr Mundell asked about. Further detail about what that money will be spent on will be made available.

A small provision is made for son of individual learning accounts. What is the time scale on that issue? Do we have information on the audit of payment?

The position on the timing of what we now call ILA 1—the first ILA scheme, which has been closed—is that some payments to some providers are still outstanding, in cases in which investigations are proceeding. The police are investigating a number of providers. Until those investigations and investigations involving malpractice or fraud have been resolved, we cannot close down the ILA 1 scheme and draw a line under it. We are in the closing stages of the process.

The Scottish Executive and Scottish Enterprise set up a joint audit group, which in the past few months has been trying to tidy up the matter and to clear as many payments as possible. The Parliament's Audit Committee has been investigating the issue. It has investigated Scottish Enterprise and is looking at the Scottish Executive. It will produce a report shortly, which will need to be considered. That is not scheduled to take place until November. It will be impossible to draw a line until that process has been completed.

We cannot embark on the new scheme—ILA 2—because we said that we would take account of all the considerations and advice that arose from the audit and post hoc evaluation of ILA 1. A considerable amount of work has been done and ministers still intend to launch the ILA 2 scheme around the turn of the year, so far as that is possible.

In response to parliamentary questions, I have made a commitment to announce our plans before the end of this year. A delay in the Audit Scotland report is the only potential obstacle to meeting that goal.

It seems to us that there are a number of principles in son of ILA, as you described it—the department tends, more prosaically, to call it ILA 2. The first is that there must be such a thing, because ILA 1 revealed a powerful latent desire for the opportunities it provided. Secondly, it must meet as well as or better the kind of policy objectives that ILA 1 had. I think that we can make ILA 2 meet those objectives better.

Thirdly, the new ILA must be proofed against the problems that beset and ultimately brought down ILA 1. The Audit Scotland report is therefore significant for that.

I assure the committee that there is resource in the Scottish budget to proceed with ILA 2. Furthermore, work to develop ILA 2—and to deliver it differently and more securely than ILA 1 was—is going on.

I am obliged and delighted with that reassurance.

Brian Fitzpatrick has raised the very subject I wanted to refer to, so I just echo his remarks. In particular, I approve of the support the Executive is giving educational maintenance allowances.

We are talking about additional funding for ILAs. Obviously, no one is using the money that was allocated for the previous funding for ILAs. Is that money still in the budget or has it disappeared?

I am not sure I am explaining this properly. Is there still an allowance in the enterprise and lifelong learning department budget for the original scheme and is the funding we are talking about additional to that?

The resources for ILA 1 that were not used because the scheme was suspended form part of the pressures and savings within my budget. In other words, they become part of the underspend or the end-year flexibility in the department's budget. Those issues towards which we have turned end-year flexibility have benefited from those resources being available.

I cannot remember how substantial that amount was. Is the £3.5 million going to be put on top of those resources in the future?

Yes, it is. The current baseline for ILAs is £15 million. The baseline in years 2 and 3 will be raised to £18 million and £18.5 million.

Excellent.

I also have to ask about a point of detail that you might not be able to answer now. Something about the Scottish renewables obligation came up in a previous meeting. I believe that the department is working on a scheme that would allow more small-scale developments such as wind turbines or other renewables. I cannot remember who was giving evidence at the meeting; it was possibly your predecessor, Wendy Alexander. One of the officials at that meeting said that there were proposals that would make it easier for communities and small-scale operators to receive Government support in taking advantage of renewable technology. Has that been worked up further? Where has the issue got? I was expecting to hear something by now.

I am not sure what was referred to. If the evidence you are talking about was given at an earlier meeting of the committee, perhaps it would be best if I undertook to go back and consider that evidence and write to the committee. I confess I am not sure about what was referred to.

By way of guidance, minister, I believe that the evidence came from Mr Finnie.

Was it given to this committee?

Yes.

If the committee is willing, perhaps I can go back and consider what was referred to and write with the information.

I was reminded by the letter that mentions the Scottish renewables obligation.

I have a small question to which the minister might want to reply in correspondence. It relates to Mr Finnie in his wider, rural development role, and it is an issue I brought up during the budget process. What is the budgetary relationship between the enterprise and lifelong learning department and Mr Finnie's rural development function? How that fits together is unclear.

They are related in a number of different areas. The relationship between departments and between ministers probably works in slightly different ways according to the cross-cutting aspect that has already been dealt with. Central to the matter is the Cabinet sub-committee on rural development, which I am a member of and which does a great deal of work on economic development in rural and remote Scotland. That includes having dialogue and meetings with responsibility shared among Ross Finnie as the minister, Highlands and Islands Enterprise and the Scottish Enterprise network.

There is also a clear joint interest in renewables, as Mr Macintosh has pointed out. A third and perhaps less obvious area of significant common interest is scientific research. Mr Finnie's department has a relatively large research budget which is invested in agricultural and food industry-related research, substantially but not solely through the Scottish agricultural and biological research institutes. One of the requirements that the Minister for Finance and Public Services has laid on Mr Finnie and me as a result of our budget settlement discussions is the introduction of a system that will enable us to examine more closely and in a more co-ordinated way how the enterprise and lifelong learning department and the environment and rural affairs department invest in science and whether we can establish any synergy.

That said, there has already been a significant cross-over between our departmental responsibilities. For example, the budgets include funding for the small firms merit award for research and technology—or SMART awards—and the support for products under research—or SPUR—awards for innovation; and for proof of concept awards, which assist in developing research ideas into marketable products. Moreover, the likes of the Hannah Research Institute have been the recipients of significant awards from that funding because that is where a lot of the powerful innovation is taking place. We are willing to consider the issue in a more strategic way.

I thank the minister and his departmental colleagues for attending this morning's meeting. With regard to the previous agenda item, I might observe that some useful lessons were learned about parliamentary procedure. If members agree, I am minded to write to the Procedures Committee, asking it to examine the procedure for statutory instruments. It is undesirable that a committee and a minister be required to address very substantive issues at very short notice.

The letter from the Law Society made it clear that there had been concerns somewhere off in the ether. However, after looking at the postmark on the letter, I find it astonishing that at such a very late stage we are receiving representations from one of the bodies that we would have hoped are part of the civic dialogue. I gather from the minister that the Faculty of Advocates had made representations, but it is unhelpful that the lead committee should be so bereft of information. This is not a criticism of Lloyd Quinan, who obviously acted on the information that he had, but the objection in question has been hanging around since the mid-19th century. It does not help that we have been forced into dealing with the matter in a rather accelerated way.

It strikes me as unhelpful that a committee and a minister are required to try and determine significant issues at very short notice. The parliamentary procedure for considering statutory instruments needs to be examined, and I propose to write to the Procedures Committee on that basis.

My only response is that I agree that the procedure this morning did not feel ideal or comfortable on either side. Of course it is up to the committee to raise the issue of procedure as it sees fit. Indeed, it would be understandable if it did so.

I support your proposal to write to the Procedures Committee, convener. Perhaps the conveners liaison group also has a role because the implications are not just procedural, but resource related. The issue comes down to the advice that is available to committees from the Scottish Parliament information centre and the legal office, and the pressure on clerks. All those aspects are under-resourced.

That point is noted.

Meeting continued in private until 13:16.