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Chamber and committees

European and External Relations Committee, 13 Sep 2005

Meeting date: Tuesday, September 13, 2005


Contents


Scottish Executive Priorities (United Kingdom Presidency)

The Convener (Mr John Swinney):

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.

I have received apologies from Dennis Canavan, who is attending the Enterprise and Culture Committee in support of the St Andrew's Day Bank Holiday (Scotland) Bill, although he may join us towards the end of the meeting. Gordon Jackson has also offered his apologies. Phil Gallie is serving on the Edinburgh Tram (Line One) Bill Committee this afternoon, and I have agreed that he will open the questioning of the minister on the United Kingdom presidency to allow him to return to that committee, which has been suspended to allow him the opportunity to raise relevant issues.

Agenda item 1 is the declaration of interests by the two new committee members, neither of whom is with us at this stage, so I will hold that item until they arrive.

Item 2 is the UK presidency of the European Union. It is my pleasure to welcome to the committee Tom McCabe, the Minister for Finance and Public Service Reform, who is accompanied by David Crawley, the head of the Scottish Executive's Brussels office, and Jane McCloskey, from the Executive's Europe division.

This is the first of two parts of evidence that Mr McCabe will give us today. The first part is on the UK presidency of the European Union and the second is on the Executive's fresh talent initiative. I will break in between those items to give some respite to all concerned.

Before we proceed, I welcome Jim Wallace, who has joined us as a new member of the committee. To enable him to participate today, I ask him to declare any interests that may be relevant to the committee's work.

Mr Jim Wallace (Orkney) (LD):

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.

Mr McCabe will give us an opening statement on the UK presidency of the European Union.

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.

Mr McCabe:

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.

You will also be aware that the UK presidency takes place during challenging times for the European Union. Future financing and the debate over the future of Europe are two of the most prominent issues that still rage and remain to be settled.

As is always the case, the UK presidency inherits the business agenda from the demitting country, which in this case was Luxembourg. The UK Government has said that it intends to run an effective and businesslike presidency. Here in Scotland we have committed ourselves to contributing in every way we can to ensuring that the presidency is effective and businesslike. We will also take the opportunity, wherever we can, to promote Scotland and to involve Scottish ministers as much as possible.

I am sure that you are aware that nine events have already taken place in Scotland. Some of the most significant ones are the social services conference, the EU fisheries directors meeting and the chief veterinary officers meeting. More than 30 events are planned to take place here in Scotland. Among them are a number of high-profile ones, such as the better regulation conference, which I know is of interest to the committee and to a large number of members. The Committee of Permanent Representatives of the European Union will also meet here; the First Minister will host a dinner for it in Edinburgh Castle. In all the events that are to come, Scottish ministers intend to play a full part by attending meetings and hosting receptions, as we have done at the events that have taken place so far. We will ensure that delegates and representatives are made welcome, are professionally supported and get a positive impression of Scotland. We will do as much as we can not only to assist the presidency but to promote our country and the positive things that we think are happening here.

As you would expect, we will of course take every opportunity to promote Scotland. We are providing delegate packs with a range of information that we hope will be useful to the people who visit us here. You might also be aware that nearer the end of the year—in November—Scottish members of the European Parliament are organising a Scotland week in Brussels. The Scottish Executive will do all it can to support the events that the MEPs are organising during that week.

We are satisfied that the Scottish Executive's contribution to and profile in the UK presidency is being well managed. That is not to indicate complacency—there is certainly none of that. We will do the best we can to ensure that our contribution is viewed positively by the UK Government and that those who visit Scotland on the business that I have mentioned take away a positive impression of our country and the legislative and other measures that we are progressing here and a feeling that they have been supported professionally to do the best they can with the specific work with which they are charged.

I will do my best to answer any questions that you have.

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.

Phil Gallie (South of Scotland) (Con):

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.

However, I will start with a slightly negative question. When the minister last appeared before the committee on 22 March, he declined to answer a question that I asked about whether there was a plan B if the European constitution was rejected. He believed that the question was hypothetical and that the constitution was unlikely to be rejected. Given the circumstances that now prevail, does he accept my previous comment that the European constitution is unnecessary in order to ensure greater input of regional government into European matters? Will it be part of the Scottish Executive's plans to promote greater regional input and to ensure that the issue is brought to the attention of the current President of the Council of the EU?

Mr McCabe:

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.

It would be presumptuous of me to say that the constitution is unnecessary, but Mr Gallie is free to do so. I seldom see Mr Gallie's questions as negative. They are always interesting and I always do my best to answer them as fully as possible.

You have another opportunity coming up.

Phil Gallie:

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?

Mr McCabe:

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.

In his opening address to the European Parliament, the Prime Minister gave a wide-ranging explanation on record of his view of how the future of Europe should develop. We have no difficulty with what the Prime Minister said and will continue to do our best on the issue, both in the interests of Scotland and to ensure that we are a supportive voice for the UK Government. Of course, we will also take part—often in a private capacity, as members will understand—in dialogue with the UK Government to influence its view and to ensure that that view is in the best interests of Scotland.

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?

Mr McCabe:

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.

Phil Gallie:

That is music to my ears.

As is well known, in the past I have been fairly critical of the wide-ranging effect of the Lisbon strategy. It is now recognised that the strategy is not working and takes too much of a broad-brush approach to economic development, social implications and so on. What representations is the Scottish Executive making in respect of the Lisbon agenda? What plans does the Executive have to address the major problem of overregulation for business?

Mr McCabe:

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 hear what the member says about the Lisbon strategy. The UK Government, supported by the Scottish Executive, has made it clear that we support a competitive market. We support a market that is as free as possible from unnecessary regulation while accepting that on occasion—particularly in relation to social policy and health and safety—regulation is required not only to ensure a level playing field but to protect properly the interests of people who work in this country or any other part of the EU.

The UK Government has made it clear that it is in favour of open markets and free competition. Its view is that that approach will guide economic growth. The British economy provides ample evidence that we have produced a set of economic indicators and an economic position that are the envy of some of our colleagues in other parts of Europe. Therefore, the UK Government commends the fiscal and monetary policies that it has pursued to other parts of the EU.

I thank the minister and the convener. I apologise for leaving now.

Irene Oldfather (Cunninghame South) (Lab):

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 constitutional treaty process would have provided Scotland and the Scottish Parliament with input into the better regulation agenda. Notwithstanding the stalling of the treaty, can Scotland still play a role in that agenda to improve policy making and achieve greater consultation? The Scottish Parliament does a good job on that. Can we continue to play a role that we can highlight?

Mr McCabe:

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.

We will continue to take a vibrant and vociferous approach to the debate on better regulation. The treaty is one aspect of the overall debate, but by no means does its stalling halt our input into the issue.

Irene Oldfather:

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.

I see a clear case for CAP reform, but I am under no illusion that it will be easy, given some other member states' positions. Are we still trying to progress the CAP reform agenda? Are we looking to do a deal on the budget rebate? What support do we have in the UK and in Europe for holding on to the rebate?

Mr McCabe:

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.

Fundamental reform would obviously involve such critical elements of the programme as the common agricultural policy. Therefore, amid that debate about future financing, it is clear that the UK Government feels that it is extremely important that there should be a root-and-branch review of the way in which the Union is financed. However, it would be wrong to suggest that those issues will be resolved during a six-month presidency, because they are long-term issues. It will take considerable work to deal with them and application from every state in the Union to try to reach a resolution. The UK Government has been very clear about its view that the rebate is important to us and that before any consideration is given to that, it should be accepted that there must be a root-and-branch review of the way in which the Union is financed.

The question of CAP and the sugar regime is important. It is important to the third world because people believe that it is being disadvantaged, but it is important to our economy, too. We have people involved in these industries here and they need to have some surety and a better idea of how they will be treated in the future. The impact of such problems on people who live in more challenging circumstances is important, but the impact that they have on people who work in these industries in this country is important, too.

Irene Oldfather:

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.

Karen Gillon:

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.

Mr McCabe:

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 Scottish Executive's representations would be to the effect that the principle of the services directive is sound and the more we open up markets and competition, the better. We have confidence in the industry in our country and think that opening up markets can be to the good, but it must be done in a way that ensures that people are properly protected and not exploited.

Karen Gillon:

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.

Mr McCabe:

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.

Irene Oldfather:

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

"this Directive came to symbolise all that the French disliked about the Anglo-Saxon approach to economic liberalisation".

As far as the directive is concerned, things are very much in a fluid state. I understand that more than 1,000 amendments have been lodged to the European Parliament's report. The ground is shifting and changing all the time and I think that it would be helpful if we could be a little bit clearer about the directive's implications for Scotland and Scottish local authorities. Perhaps there is a case for asking Scottish Enterprise to examine the matter.

Mr McCabe:

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?

David Crawley (Scottish Executive Finance and Central Services Department):

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 cannot say exactly when during that process any impact assessment will be carried out. As I understand it, the UK Government has taken evidence and advice from many sources to establish the directive's overall impact and its view is that the overall economic impact of the directive is extremely positive. That is all that I can add at this point.

The Convener:

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.

Mr Wallace:

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?

Mr McCabe:

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.

Mr Wallace:

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.

Mr McCabe:

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.

We do our best to make representations. Any time that an inquiry has been made, the answer always seems to be that other people are complying, although anecdotal evidence sometimes suggests a different answer. If I am being frank, there is a concern that we are perhaps too rigid in our interpretations and other people are a bit more flexible. We need more investigation into such issues.

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?

Mr McCabe:

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.

The Convener:

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.

Mr McCabe:

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 Convener:

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.

I was quite reassured by what you said to Mr Wallace—that if anecdotal evidence came forward you would look at it, and that there is a difference between anecdotal evidence and evidence that sometimes comes back formally. I am concerned that the formal line is that everything in this contract is fine, but that there are some—let us use the word—anecdotal concerns that everything in the contract is not fine.

Mr McCabe:

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.

Mr John Home Robertson (East Lothian) (Lab):

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.

The fundamental issue, whether in relation to the fishery protection vessel or other issues, is how difficult it is to apply fair competition between different parts of the European Union, some of which, including Scotland, have relatively high wages, while others, such as the accession states, have relatively low wages. That is a problem for Ferguson Shipbuilders and for the food processing industry in my constituency and elsewhere, which I have been going on about. Clearly, the answer is for wages in Poland and the other accession states to come up to somewhere near the levels here, because then we would have fair competition but, in the meantime, the matter is difficult. The issue is how the whole of the Union lives with the present disparity between the economies of different parts of the Union.

Mr McCabe:

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.

People in Europe are sanguine about the matter. The European Commission constantly polices competition and has said strongly and publicly that it will take action if any evidence of malpractice is found so that the situation does not continue. However, that is entirely dependent on individuals finding a way to break through the bureaucracy and to bring to people's attention what they consider to be malpractice. The Commission constantly carries out a policing operation in relation to competition.

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?

Mr McCabe:

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.

The Convener:

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:

"Scottish Ministers are fully committed to ensuring that Scottish companies can compete on fair terms across Europe. It is, however, for the Commission to determine how it will handle Ferguson's complaint"—

which I assume was about anti-competitive practice in Poland—

"and our understanding is that the Commission is currently assessing whether there is sufficient evidence to warrant launching a formal enquiry. If the Commission finds aid to have been given illegally, it can require the aid to be repaid, with interest."

That would suggest that the Commission has still to address the complaints that a major manufacturing company in this country has made about the competitive position of a Polish shipyard. I find it strange that the tender was awarded at a time when the minister responsible was signing off a letter that suggests that there is still some doubt on the issue.

Mr McCabe:

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.

The Convener:

It is quite clear from the letter that the Ferguson yard has made a complaint to the Commission and that

"the Commission is currently assessing whether there is sufficient evidence to warrant launching a formal enquiry."

If the Commission had come out and said that it was not launching a formal inquiry because the evidence was insubstantial, that would have been a reasonable ground for the Government to say that it had no alternative but to award the contract in question to the Polish shipyard. However, given that the Commission has not come out and said that, which means that the issue is still hanging in the balance, the Government's awarding of the contract seems premature, at the very least.

Mr McCabe:

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.

The Convener:

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

"Scottish companies can compete on fair terms across Europe",

to the achievement of which aim, according to Mr Finnie's letter, Scottish ministers are "fully committed"? How are we to deliver on that if we do not question what on earth is going on?

Mr McCabe:

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.

My point is that simply because a complaint has been made, it does not automatically follow that the whole process should be brought to a grinding halt. In his letter, Mr Finnie has related information to you about the actions of a particular company. He has done you the courtesy of explaining his knowledge of the actions of the Ferguson yard.

The Convener:

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.

Mr McCabe:

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.

The 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.

The Convener:

That would be unkind without a doubt—extremely unkind.

Let me move on to the final issue that I want to raise with you. The UK Government has made its view on the future of structural funds pretty clear and, as far as I am aware, the Scottish Executive has supported it in its view. Notwithstanding the separate and on-going discussion on budget issues in the European Union, what is the Government's estimate of the likely shortfall in structural funds in Scotland in the next structural funds programme?

Mr McCabe:

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.

The Convener:

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.

David Crawley:

We estimated that approximately £1.1 billion of structural funds were available in 2000-06.

Would you repeat that figure?

David Crawley:

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.

The outcome will depend on the balance of the future financial deal. Many of the partners involved in structural funds spending and programming have been looking at this issue in partnership with the Enterprise, Transport and Lifelong Learning Department.

I take it that all those figures are in sterling. Is that right, or are they in euros?

David Crawley:

They are in sterling.

The Convener:

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?

David Crawley:

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.

David Crawley:

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.

The Convener:

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?

Mr McCabe:

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.

Irene Oldfather:

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:

"Member States and the Community should take every opportunity to involve regional and local governments, social partners and civil society in the implementation of the integrated guidelines, hence in the preparation of the National Reform Programmes".

I know that the guidelines were produced only in April, but does the Executive have any plans to involve the Parliament, local authorities and social partners in Scotland in taking the agenda forward? Perhaps the minister could come back to us with proposals in due course.

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.

Mr Wallace:

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?

Mr McCabe:

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.

The Convener:

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—