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Good afternoon. I bring the committee to order and welcome members to the 13th meeting this year of the European and External Relations Committee. I also welcome the Minister for Finance and Public Service Reform and members of the public.
My only interest, which is already on the record, is that, having been a minister, I was party to many of the decisions that the committee is currently looking at and I have certain remaining obligations under collective responsibility. No doubt due account will be taken of that.
We note those points, and we may choose to exonerate you in certain limited circumstances. Welcome to the committee.
Good afternoon, convener, and thank you very much. I am surprised to see you here; I thought that you were moving on to new responsibilities, in which I wish you well. It is a pleasure to see you still here in your post.
I am here for a last hurrah; thereafter I will encounter you in different circumstances.
This is a welcome opportunity to update the committee on the UK presidency to date and, more specifically, on the involvement of Scottish ministers in that work. As members of the committee will be aware, the presidency began with a visit to London by the college of commissioners. The First Minister of Scotland played an active part in the meeting and had the opportunity to meet individually a number of commissioners, such as the justice and regional policy commissioners, as well as one or two others. That was a useful start and the high-profile involvement of Scottish ministers was significant.
Thank you. We will now move on to questions. Mr Gallie will begin, as he has to leave soon because of other commitments. Before that, I invite Karen Gillon to place on the record any interests that are relevant to the committee's work.
I do not believe that any of my registered interests are relevant to the committee. If they become relevant, I will endeavour to inform you.
Thank you for recognising my on-going commitments, convener. I apologise to the minister for not being able to stay to the end. I welcome some of the comments that he made. It sounds as though a positive start has been made from the Scottish Executive's point of view.
It will always be our intention to promote greater regional input. We are in constant dialogue with the member state, the UK Government, about ways in which Parliaments with legislative powers can play a greater part in the formulation of their position and in Europe. The First Minister has been committed to that ideal. That is why he had such a high-profile involvement in the group of regions with legislative power—Regleg. I have no difficulty in saying that we are firmly committed to the notion that Parliaments with legislative powers should play a stronger part in the evolution of the European Union.
You have another opportunity coming up.
I thank the minister for his comments, which may blunt my next question. The Scottish budget is all-important, given the programme that the Scottish Executive has lined up. The UK Government is digging in its heels on current contributions to the European budget. Europe is seeking an increase of 1.14 per cent, but the UK Government is sticking at 1 per cent. In what ways has the Scottish Executive been able to make clear that, in its opinion, the UK Government has got it right on this occasion? If the UK Government were to backtrack on the issue of the 1.14 per cent contribution, what effect would that have on the Scottish budget?
We have done all that we can to support strongly the approach that the UK Government has taken. We strongly support the Prime Minister's comments both as Prime Minister and as the current President of the Council of the EU that a root-and-branch review of the way in which Europe is financed is needed and that we need to be realistic.
If the UK Government were forced to capitulate on the issue of the 1.14 per cent increase, has consideration been given to the effect that that would have on the Scottish budget?
At the moment we are not considering the notion of capitulation. The UK Government has given no indication that capitulation is its plan B or, for that matter, its plan C. We would prefer to proceed with things as they are, in a positive frame of mind, rather than to consider other developments that might take place.
That is music to my ears.
Phil Gallie raises several points. Better regulation is a large question that is being considered in great detail. One presidency event that will take place in Scotland is the Cabinet Office's better regulation conference and we want to ensure that we have input into that.
I thank the minister and the convener. I apologise for leaving now.
I will cover many subjects that Mr Gallie covered but—funnily enough—from an entirely different perspective. It is a pity that he will not be present to hear what I will ask.
The drive for more appropriate and more focused regulation will not stop just because difficulties have been encountered with the treaty. That drive was an important part of EU business before the treaty came about and that remains the case. We will continue to do our best to influence that agenda in the same way as we did before any of the issues that relate to the treaty arose. That is an important aspect of the work in the EU. From representations by business, we are aware that if our approach to regulation is wrong, it can be extremely damaging to competitiveness. Given our often-stated number 1 priority of growing the Scottish economy, we do not want to engage in anything that would be detrimental to that.
I will ask a little bit about future financing. One issue that Mr Gallie did not mention is the budget rebate. Will the UK Government continue to link the rebate to common agricultural policy reform? We in the Scottish Parliament want consideration of a review of the sugar regime, which I have mentioned many times. That has been identified as a UK presidency priority. The tobacco subsidies are also inconsistent with the agenda that the Scottish Parliament promotes.
Sometimes politicians can be accused of being less than explicit about what they mean. No one could have accused the Prime Minister of that when he spoke to the European Parliament at the beginning of the UK presidency. He made his view clear that there is a need for a fundamental reform of the way in which the EU is financed.
I am pleased to hear that the minister accepts the need for reform of the sugar regime. The committee raised that matter with a number of people who gave evidence to us. We have not had a commitment on that. The problem is often identified with the third world, which is an important agenda to which we all subscribe, but there is a genuine issue to do with sugar prices and the export refund system for manufacturing industry in Scotland. From what the minister says, that will be actively pursued and I very much welcome that.
The minister mentioned the rights of workers in this country. What representations are being made by the Scottish Executive to the UK Government about the services directive, particularly in relation to the country of origin principle? We fought hard to establish a national minimum wage in this country and there is some concern that that and workers' rights could be undermined by the services directive.
We would certainly not stand by silently if we felt that any action by the EU was about to undermine some of the significant advances that we have made in this country. That said, the view of the UK Government and the Scottish Executive is that the services directive is important in opening up markets. It has the potential to create a considerable number of jobs, but that has to be done in the right way. If those jobs exploited individuals, whether in this country or in any other, that would be unacceptable.
The recent experiences of Ferguson Shipbuilders have shown the potential difficulties for us where we have high labour costs—although we have such costs for the very good reasons that we enforce high standards of health and safety and provide our workers with a decent day's pay for a decent day's work. There are genuine concerns that the services directive could move us in the wrong direction with the new member countries. We need to have a closer look at the Executive's position on that and at how we protect Scottish workers' employment terms and conditions.
I take the point. However, it may be inappropriate to go into the Ferguson's issue in any detail at the moment, because it might take the meeting off at a tangent. Obviously, in cases that involve the services directive or other such issues, state aid rules always apply. In the new Europe that we have created, it is simply a given that different countries and different economies are at different stages of development. That will occasionally impact on any issues that might crop up.
That could be an example of where better regulation could work in our favour. Is there any value in carrying out an impact assessment on the directive's effects on Scotland and the Scottish economy? For example, I read in a report that
No one in the Scottish Executive or the UK Government disputes that regulatory impact assessments will form an important part of implementing the services directive. If people want to express views on the directive's impact either on their own or on behalf of their nation state, that is up to them. I should say that, because of our system of liberal economics, a higher percentage of people in Scotland are in work than at any time in the past. As a result, in considering their statements on the subject, people might want to look at our experience.
At what stage in the passage of the services directive do you expect a regulatory impact assessment to be undertaken?
The directive is currently with the European Parliament and its first reading is expected to be concluded by the end of October. As members have pointed out, many amendments have to be discussed before then. While it holds the presidency, the UK Government will have to progress the issue through the Council of Ministers.
I raised the point because it has been accepted that we need to influence the discussions and deliberations at the appropriate moment in the European Union and that doing so later on is a waste of time. It is essential that substantial concerns such as those raised by Karen Gillon or those that other sectors of the economy might express are addressed very early in the directive's passage. The boat will have been well and truly missed if particular sectors of the Scottish economy express concerns about it only when it emerges from the parliamentary process and the Council of Ministers. I hope that the minister will reflect on the point that any sectoral issues that are identified in Scotland should be factored into the process at the appropriate moment without allowing the process to lose any impetus.
The general premise behind your comments is that it would be beneficial to sort out issues before the die is cast, rather than with hindsight. We will do our best to ensure that representations are made to the UK Government.
We really need a strategy for getting particular sectors' concerns into the mix before it becomes too late to do so.
I understand that part of the UK presidency's remit in the field of better regulation is to review the impact and outcomes of existing legislation. I think that you were present for some or all of the business in the Parliament conference on Friday, where you heard pleas about the Executive's procurement policy. In many respects, that policy is circumscribed by European regulations. When you look into the impact of existing European legislation on procurement, do you intend to consider whether we are implementing that legislation too stringently and therefore putting up a barrier—not least for our small and medium-sized enterprises—to accessing Government contracts?
Absolutely. We are keen to open up as many opportunities as we can for our small and medium-sized enterprises. At the moment, the limit above which contracts must be advertised in the Official Journal of the European Union is just over £100,000. In many instances, that excludes companies. Some public sector organisations have a select list of five or six tenderers, and for tenders below the limit they will tender among those five or six tenderers. The contract still goes to competitive tender but it goes to a very closed sector of the market. We are therefore interested in how the limit can be reduced, so that we can encourage the public sector to advertise for contracts of a value far below the present limit. That would open up the market to a far greater range of possibilities.
We pride ourselves on being good at staying within the parameters of European law. What investigations can we make into how well other EU countries report on the outcomes of their procurement exercises? That would allow us to know the balance of work that is generated among all the EU countries.
We try our best. We harbour constant concerns that we work to the letter of the law whereas other people look at different letters, if I can put it that way.
You mention the divergence between formal information and anecdotal evidence. Has that been a factor in the Government's thinking on the contract at Ferguson Shipbuilders?
It would always be a factor if there were a concern that people were interpreting the rules in different ways. As far as I know, there is no concrete evidence that that is the case with regard to Ferguson's. However, the issue is being examined.
There is plenty anecdotal evidence, and some more formal evidence, on the concerns about the Polish shipyard that is involved in the Ferguson's case. Indeed, this committee asked me to write to ministers on the issue some time ago, and we will be discussing that later. If there is anecdotal evidence, was that evidence the subject of discussion in the Executive? The Minister for Environment and Rural Development has now confirmed to me in writing that the contract was properly and fully awarded to the Polish shipyard.
You know as well as I do, Mr Swinney, that anecdotal evidence does not hold a great deal of water when it comes to examining the legalities of the way in which any member state acts. If concrete evidence could be produced, a representation would be made to the European Commission. However, as far as I know, no one has produced any concrete evidence.
The point that this committee raised was that there had been a lot of concern—not all of it anecdotal and some of it pretty substantial—and that that concern should be considered. Material was brought by Ferguson's, among others. Many organisations have shared that concern, as have some members of the Parliament.
Yes, but we need to be careful that we do not mix up issues—there is a difference between anecdotal evidence and reality. Anecdotal evidence causes concerns, which cause people to raise those concerns and ask for them to be investigated. However, if no formal misuse is discovered as a result of that investigation, I am afraid that people are in a difficult position. We would never adopt a view that other member states would obviously not operate in that way and that we should just accept them at their word. We do not assume that other states operate, as we do, strictly to the letter of the law; we always question, worry about and test such anecdotal evidence. If we found that it might have substance, we would obviously take action on the matter. However, at present, the anecdotal evidence that you mention has not produced the formal basis that would justify a complaint to the European Commission.
I mention in passing that I look forward to Caledonian MacBrayne putting in a competitive bid to provide ferry services in French Polynesia or wherever. I wonder whether the opportunity will arise to turn the matter around like that, but I will leave that sticking to the wall.
Of course, true competition will be achieved when all the economies in Europe are comparable, but let us not forget that that has never been the case. Indeed, there were darker days when our wage rates were more competitive than those of other countries, which was not a situation that we wanted to be in, so we fought hard to get out of it. We do not want to compete as a low-wage economy. We said in "A Smart, Successful Scotland: Ambitions for the Enterprise Networks" that we want a high-growth and high-wage economy. As I said, the economies of the member states in Europe are at different stages of development. Our economy is continuing to develop and has developed well away from the situation that we used to be in—we did not like that situation and we are glad that we have moved on.
The minister said that we are perhaps too rigid in the application of regulations and that others are more flexible. On what does he base that comment and how does he define the flexibility of the other European Union states?
You would have to ask them about that, but I can define the position as I see it in our country. We are resolute in ensuring that we apply European law and directives properly, which is how everyone should operate. Sometimes, one wonders whether everyone is as resolute as we are on that matter. When we enter into any partnership or arrangement, it is important that we act in the right spirit and meet our obligations. We hope that other people meet theirs and if we think that they are not doing so, we do our best to ensure that action is taken.
I have a final point on the Ferguson Shipbuilders issue, about which Ross Finnie wrote to me in my capacity as committee convener on 2 September. He said:
With respect, convener, I do not think that the letter suggests that there is any doubt on the issue. I have no knowledge of the letter, but from what you have relayed to me, it is my understanding that it said that the Ferguson yard had submitted information to the Commission and that that information was being considered. The mere fact that Ferguson's or any other organisation had made representations would not normally be sufficient to stop the awarding process automatically. I think that the Commission should react by taking seriously the representations that have been made and investigating them.
It is quite clear from the letter that the Ferguson yard has made a complaint to the Commission and that
You may well say that, but I do not agree. We could easily find ourselves in a position in which the entire business of the European Union comes to a grinding halt because competitors decide to make complaints, the Commission feels obliged to investigate them and everything comes to a stop while those investigations take place. After all, we are not in the EU simply to manufacture complaints and investigations; we hope that, at some point, someone will manufacture a ship.
Wait a second. A moment ago you said that there were concerns about the way in which other countries operate. If we do not raise such concerns or pursue matters such as those that Mr Wallace mentioned, how can we guarantee that
You seem to have made a quantum leap. I do not quite know how you got to the point of saying that, if we do not complain, Scottish companies will not be able to compete. No one is saying for a second that people should not complain. The opposite is true—we would encourage people to complain on every single occasion on which they feel that there has been malpractice or inappropriate interpretation of the rules and regulations.
Mr Finnie has done me the courtesy of replying to a letter in which I raised the committee's concerns, but in my view the letter raises a question about the wisdom of ploughing on with awarding a contract when there was still an investigation to be carried out. We are obviously not going to have a meeting of minds on that point.
Such matters are important and it would be in no one's interest to be flippant, but perhaps, as in most situations in life, it is important to put oneself in the other person's position. I wonder what our view would be if the situation were reversed and the contract had been awarded to Scotland. If someone in another member state then made a complaint, would we feel that that should bring the process to a halt or would our view be that we won it fair and square and that the contract should go ahead?
It would be entirely up to the Government to decide what to do in such circumstances.
Therefore it is the Government's decision rather than your opinion, convener.
Obviously, the Government has made a decision. I may not think much of that decision, but the Government is entitled to make it. However, I find it unusual that the Government has already decided on a public sector contract when a major factor in that contract has still to be resolved. Mr Wallace told us that businesspeople at the business in the parliament conference went on at length about procurement difficulties. Surely we should have put more of an obstacle in the way of this contract being awarded to a Polish company when there is a question mark over whether it is receiving hidden subsidies. That is my opinion. The committee will give its opinion of Mr Finnie's letter later this afternoon.
An unkind person might suggest that if the situation were reversed and the Government decided to halt a contract that had been awarded to a Scottish company, you might not think very much of that decision.
That would be unkind without a doubt—extremely unkind.
It is too early to assess what the level of funding might be. Clearly, the discussions on structural funds have a link to future financing. The discussions are still going on, although they are taking much longer than people expected or would like. However, it would be premature of me to start making estimates of what the figures are likely to be.
I should stress that I am not asking about the budget process, as the debate on the future of structural funds is a consequence of enlargement and not a consequence of the budget debate. I am trying to get an idea of how great an effect enlargement will have on structural funds in Scotland. Many projects and programmes depend on structural funds. When the changes to structural funds kick in, there will be a consequential reduction in public spending in Scotland unless the Government makes up the difference.
I do not have a figure for that at the moment. As I say, it may be premature to start guessing at figures, but if I get any more information, I will send it to you in writing.
We estimated that approximately £1.1 billion of structural funds were available in 2000-06.
Would you repeat that figure?
In the structural funds spending period that is about to conclude, the figure was £1.1 billion. Work has been done on what the Commission's proposals might mean. Although we cannot predict the figures exactly, the Commission's proposals will cause a drop of about £300 million or £400 million. Those are not precise figures, but they are broadly in the right range.
I take it that all those figures are in sterling. Is that right, or are they in euros?
They are in sterling.
So as a result of the Commission's proposals, it is envisaged that there would be a likely reduction of £300 million to £400 million. Has any calculation been done of what the implications would be if the UK Government's proposal on the future financial framework were to prevail?
As president of the Council, the UK is having to stand back from that at the moment. It would be wrong to speculate on what position it might take.
Has any progress been made on the financial framework?
Discussions are on-going.
The UK presidency is holding a series of discussions with the member states this month. It is the UK's clear intention to reach a conclusion by the end of its presidency but, at this stage, it is not able to say how much progress will be made. There will obviously be difficult negotiations through October and November leading up to the final European Council of the UK presidency in December.
Let us assume that we are dealing only with the Commission's proposals, and a reduction of £300 million to £400 million in structural funds. What are the Government's plans for dealing with the consequences of that, commencing in 2007? Will the Government fund the difference, or is it saying that the money will be lost and we must move on from that?
The United Kingdom Government's original position was that it wanted to repatriate the funds, as I think you know. If that were done, the understanding would be that we would be in a neutral position. If we find ourselves in a position where the overall sum is reduced, proposals will be made, but it is too early to know the exact nature of those proposals.
So if repatriation is successful, there will be no £300 million to £400 million reduction in the available funds for projects in Scotland.
I cannot say that for definite, but we would do our best to protect the Scottish position as far as we could.
I have a final question about the Lisbon strategy. As part of the refocusing of the strategy, the Commission has produced new integrated guidelines that specify:
I cannot honestly say that it has occupied my mind greatly over the past few months, but I will certainly look into it and come back to the committee or give you our thoughts in writing as early as possible.
That would be helpful.
Given the long lead times for programmes under the structural funds and that there will be some arrangement coming from Europe or a repatriation of funds, what advice or encouragement has been given to partners about looking forward and identifying which programmes they might want to take on beyond 2007?
It is fair to say that partners are making estimates at the moment. They are considering the conversations that are going on in Europe and are assessing where they are. I know that they are drawing up plans that reflect the different scenarios that might come about. We would encourage people to do that; we do not want them to find themselves moving from a standing start, although it is inconceivable that the different partner organisations would do that in any case. The most sensible approach is for people to plan for the best-case scenario, the mid-point and the least desirable outcome of the negotiations. It is sensible for people to be prepared to move on, depending on what the final outcome is.
Can you confirm that, irrespective of what happens, the Executive is committed beyond 2007 to a regional policy in Scotland?
Yes. Absolutely.
Thank you, Mr McCabe. We will draw our questioning on the UK presidency of the EU to a close there. We will follow up a couple of points in writing; we would appreciate your getting back to us at your earliest convenience. I will now suspend the meeting until 5 past 3, when we will address the fresh talent initiative.
Meeting suspended.
On resuming—