Official Report 308KB pdf
I welcome everybody to the 24th meeting in 2006 of the Enterprise and Culture Committee. I ask everybody to switch off their mobile phone and, ideally, their BlackBerrys as well. We have apologies from Jamie Stone, who has been held up because of flying difficulties, but he hopes to join us later in the afternoon.
I always thought that I had a long and complicated title, but poor Gavin's is even more complicated.
Thank you, minister. Thank you also for all the material you supplied. It was very helpful.
We are still in discussions about how the organisation will organise itself day to day as it grows and develops. We advertised recently for a chair for the joint board that will take forward the work of bringing the two organisations together. Although we are not yet at that level of detail, the new organisation will be mindful of its priorities and of the new money that has gone in. I hope that that new money will help to influence the priorities of the new body and set its agenda. Those matters will be worked out over the coming months. That said, the timescale for those decisions may be slightly longer.
In my questioning, I will start not with what the Executive is putting in at the strategic level but with what is happening at the other end. I will focus on the impact of cultural spending on communities and the roll out of the cultural entitlement agenda. I declare an interest as the chair of the Scottish Library and Information Council.
We can almost divide our consideration into two—we can consider the two aspects separately and then bring them back together. We want the national collections—the National Archives of Scotland, the National Library of Scotland, the National Museums of Scotland and the National Galleries of Scotland are now in my portfolio—to help set standards and encourage quality and to work much more closely with local providers. That is one element of the matter.
Thank you. I might come back to the matter later.
My first question is on the general approach to the budget; my second will be more specific.
No, I do not. I am sure that you are not surprised to hear me say that. The document is part of work towards the next spending review. It does not comment on work on the budget; it is meant to influence what happens next year, when it will be published along with other documents.
Okay. I hear what you say, but given that we must consider future budgets as well as what has happened this year, I think that it would assist the committee to have sight of that report. Have you seen it?
I have seen parts of it that relate to my portfolio and have discussed them with the budget reviewers.
You have discussed parts of the report with the budget review group.
Yes.
But you do not think that it contains anything that should be shared with the committee to assist us with our assessment and scrutiny of the budgets for the current financial year and the next financial year.
As I say, it is not a commentary on what has already happened; it is meant to influence what happens in the future. I have nothing more to add.
I will not pursue that line of questioning, but the committee needs to consider whether the report would assist us in our budget scrutiny.
I do not think that the figures show such a reduction; they show the reality of the situation. We have asked VisitScotland to make savings as a result of the integration of the network and those savings are being made a year ahead of the scheduled timescale. Gavin Barrie will be able to give you some more detail on that.
The fact that VisitScotland's budget for 2006-07 includes a one-off capital grant of £3.75 million accounts for the apparent reduction in 2007-08. One-off capital funding appears in a number of places in our budget—I think that £16 million-worth of one-off capital projects are funded throughout the portfolio in 2006-07. Although there is an apparent dip in funding in 2007-08 in several parts of the budget, that is just a reflection of the additional funding for 2006-07.
We alluded to that issue last year, too, when we were asked a similar question.
I just want to be clear about the figures. In 2005-06, the VisitScotland budget was £43.298 million. In 2006-07, it went up to £47.515 million and in 2007-08, it will go down to £42.632 million. You are saying that the increases in 2005-06 and 2006-07 are entirely attributable to the extra cash that was put in for the reorganisation.
They are attributable to the capital work associated with the reorganisation.
That is what the extra money was for in 2005-06 and 2006-07.
As the committee will be aware, we provided more general funding for the integration. The £1 million that VisitScotland is achieving in savings earlier than we expected is part of that equation.
On a recent parliamentary trip to Ireland, we were shown round an extremely impressive and successful community-owned tourist attraction that was set up by two or three people in a small and isolated village. The success of the attraction is being built on all the time, to the extent that the community has been regenerated and people have been brought back into the village. Do we have similar projects in Scotland?
We do. I think that the attraction that you describe involved the creation of a physical infrastructure, but such ventures are often less about a physical infrastructure and more about identifying a niche that can be projected as part of a place's identity. For example, Wigtown's book town designation has been incredibly successful. If I remember correctly, all the tickets for this year's festival had been sold by the time the festival started, whereas that position was reached only at the end of last year's festival.
One of the interesting aspects of the venture that I mentioned is that all local people had free access to all facilities, including the café area. They bought into the whole concept and, as a result, it was extremely powerful.
I suppose that one of the joys of devolution is that this is a relatively small Parliament with a relatively small Government. As a result, I have the opportunity to meet all my portfolio colleagues at least twice a year to discuss issues of mutual interest. As transport is certainly a key issue not only for tourism but for culture and sport, I can speak to the Minister for Transport and find out whether there are any opportunities in that respect.
Reinstating the link would also open up that part of Scotland.
As I am sure you will recall, we have explored at previous committee meetings how best to monitor and evaluate the impact of the arts and culture. The objectives and targets in this area of the Executive's budget still measure impacts—and potential impacts—and set targets for development in a very traditional way. If I recall correctly, you indicated in previous discussions that the Executive was actively considering how national and local measures could be put in place to monitor the impact of investment in this area with regard to certain more qualitative outcomes related to well being and—dare I say it—enjoyment, not to mention health and many of the other well established benefits that stem from being involved in the arts and culture. What, if any, progress has been made in, shall we say, adopting different methodologies—I am loth to use the word measurement here, because it implies a quantitative approach—to assess the impact of investment in the arts and culture?
You cannot lose sight of the quantitative element. After all, if you ask sensible questions, you might learn, for example, that someone has come back to see the same exhibition or has encouraged family members to go. Such information is very important in measuring quality, and we try to be alive to it.
Just a couple of points—[Interruption.]
I will let you continue, Leslie, but if the fire alert message comes on again—as it has a habit of doing—I will suspend the meeting. [Interruption.] I suspend the meeting for 10 minutes or so.
Meeting suspended.
On resuming—
I call the meeting to order again. I am informed that we think that the crisis is over, but if it re-emerges, I will have to suspend the meeting again. I apologise to Leslie Evans. I bet that you have never been interrupted in mid-sentence by a fire alarm before.
I was just going to make a couple of points, the first of which is about the qualitative nature of arts and culture provision. The cultural co-ordinators who are active in schools test for quality and the results have shown high levels of satisfaction. That is an important addition since the issue was last spoken about. It is one of the things that we will want to talk about with the national performing companies when they come into the family of tourism, culture and sport. We know that they undertake work on customer satisfaction and customer surveys, and we will want to discuss how we can bring that together and deduce from it an overall approach to targets. Similarly, when creative Scotland is up and running, that will be one of the things that we will want to talk to it about. Also, research is being undertaken down south on happiness and quality-of-life factors, which we are trying to get plugged into as well.
In the light of our previous conversation, I am not sure whether it is appropriate to ask about this. However, would it be fair to say that we can expect to see that kind of thinking become increasingly apparent in the way in which budget decisions are made in the future? I am thinking of comprehensive spending reviews and the like. It sounds to me as though some of what you have described is below the waterline at the moment. I presume that if the work that you mention bears fruit, it will become more obviously part of the Executive's approach to budgeting.
It would certainly be a good way to encourage people to think about how they do things. If performances, exhibitions and other cultural opportunities are not satisfying all the criteria, there is an issue that has to be considered and addressed. As we get the information through, we will have to consider it and determine how robust it is. We know anecdotally that the National Theatre of Scotland is successful and popular, but we would have to test that scientifically before we used it as a proper scientific judgment of what we do. Nonetheless, the work will influence what we do in years to come.
My next question majors on the arts and culture aspect of the budget, although it has wider relevance. How do you lever resource from other parts of the Executive budget into arts and culture and how do you account for resource from elsewhere that is invested in the arts and culture? That is certainly not a new area of discussion—in fact, it comes up in Finance Committee reports every year—but it has a particular relevance in your portfolio, and I would be interested in your comments.
We lever in money from elsewhere in the Executive, particularly in sport but also in culture. For example, the Health Department funds an officer at the Scottish Arts Council who works with people who have mental health problems. [Interruption.]
I am sorry, Patricia.
That is okay. I will try to obey the injunction that we have just heard and return to normal working.
Are there any mechanisms in place for the post hoc reporting of those decisions so that we can see areas of spend in other portfolios that relate to the objectives that are outlined in yours?
We could certainly get information on that for you, if that would be helpful.
It would, thank you.
Good afternoon. I notice that there is a real-terms reduction in the level of funding for sportscotland from 2006-07 to 2007-08.
I think that that is because there is a capital funding element in those particular years.
I think that that is right, minister. The baseline grant in aid is about £25 million. Anything over and above that is explained by capital funding. I hope that we provided the grant in aid letters to the committee for the first time this year. The detail will be in the grant offer letter.
If I have the right document, I think that that is set out in table 4.07. Is that right?
Yes. It is in our letter of 30 May to Stewart Harris, the chief executive of sportscotland. In 2006-07, there is a one-off capital grant of £5.5 million, which boosts funding. The money for 2007-08 is not shown, because it is stored centrally in the central unallocated provision.
We do not have that information.
We provided the committee with the grant in aid letters that we sent to all our non-departmental public bodies this year, because we thought that that would be helpful.
We can certainly send you a copy of the letter. Capital payments of £5 million are in the grant offer for 2006-07. We will write to the committee to explain that in detail.
I notice that in 2004-05 the figure was £29 million. In following years, it went from £25 million to £33 million to £34 million. Will you explain the shifts and tell us what has been going on?
I will need to write to the committee to explain that in detail. A lot of the variation is to do with the fact that new money—I think that it is £12 million a year—was introduced for active schools. Two spending reviews ago, a new capital line was introduced. Sport basically receives £8.1 million a year in capital. Some of the money has been transferred into central unallocated provision. I guess that that is where the explanation lies. I am not aware that the revenue grant in aid has been reduced for any reason—in fact, it has been increased significantly in recent years. I guess that the explanation will relate to capital sums. We will certainly write and set those out for you.
Thank you. That would be helpful. The second point that I want to raise relates to the audit of sports facilities, which was commissioned by sportscotland and published earlier this year. It highlighted a considerable need for investment in local authority-owned sports and leisure facilities throughout the country. What action does your department intend to take to ensure that local authorities start to prioritise such facilities, with support from the Executive?
The report raised interesting issues, on which I will elaborate before I come back to your question. We are discussing those issues with sportscotland with a view to trying to influence local authorities. The provision that we have must be as flexible as possible. In the 1970s, there was an expansion in the number of people playing squash. Local authorities, understandably, reacted to that and built squash courts throughout the country. Nowadays, the number of people playing squash has diminished from the high in the 1970s, but the number of squash courts is by and large the same as it was then. Those courts really cannot be used for any other purpose. We need to build in more flexibility in the facilities that we are building.
That is helpful.
Yes.
People who work in the organisation have expressed concern that given the institute's core responsibility to help to develop the country's most talented athletes and sportsmen and women, it would be more appropriate if it received core funding that did not come from the sports lottery fund. Is the Executive considering the matter?
The Scottish Institute of Sport is vital for the progression of our elite sportsmen and women that we all want to see and in providing the scientific basis for that. The institute works in tandem with many partners in delivering on its objectives. As you said, it currently relies on the lottery funding stream that comes through sportscotland, but we are considering whether that is the most appropriate approach to funding in future. Our consideration is part of a wider discussion with the institute, sportscotland and others about how we deliver on our ambitions for sport and increase participation in sport more generally. More discussion will no doubt take place in the weeks and months to come—and might continue for longer. We are very alive to the issue and are working on it with the institute.
On the pattern of lottery funding, the Scottish Arts Council and sportscotland depend on lottery funding for a significant proportion of their activity. How much lottery funding in total will those bodies receive in the foreseeable future?
The level of lottery money reached its height in the early years of the lottery's operation and then dipped significantly, but it began to level off during the past couple of years. Current levels seem to be sustainable in the years ahead, partly as a result of new lottery games, which offer diverse opportunities for people who want to patronise the lottery. There will be no significant change in the pattern of lottery funding distribution from our bodies for several years, because, as you know, lottery funding in general is being discussed and will be the subject of decisions by the Department for Culture, Media and Sport in around 2009. Until then, the pattern of distribution from organisations that receive lottery funding should remain fairly stable.
Will there be no dip in lottery funding that places additional pressure on the Executive's budget?
If there were, we would have to look at it at the time and assess whether we had to assist in any way. At all times, we are in discussion with the bodies on the subject and we liaise closely with the DCMS and the Big Lottery Fund. In terms of the amount of money that comes into the lottery, the picture at the moment seems to show that the situation has stabilised. If it continues to function, that should bode well for the next few years.
I return to the point that Murdo Fraser raised on the Howat report. What were the terms of reference for Howat?
I could not possibly provide you with that information off the top of my head.
Perhaps we could get it in writing.
I am not sure. I think that you would have to approach the Minister for Finance and Public Service Reform.
Right. Is there anything in what you have seen of the Howat report that could influence in any way the draft budget for next year or the year after?
The report is one of a number of documents that will help to influence that round of discussions when it comes around. I am not sure how much detail there is on that at this stage.
I want to be clear on the matter. We are discussing the draft budget for next year. Is there anything in the Howat report that could affect that budget?
No. The intention is that the report will influence what happens in the next spending review and not the next budget. From that point of view, the answer is no.
I agree with my colleague that it is ridiculous that the report has not been made available to committee members who are discussing the budget. That is totally contradictory to the spirit of the Freedom of Information (Scotland) Act 2002.
Obviously, I respect that view, but we have to view this in the context of the nature of the document. For that reason, I consider that the matter is being dealt with appropriately.
We will agree to differ on the subject.
Indeed.
Do you have any final points to make?
No. I do not think so. We will provide the committee with the information that we have promised to submit.
Thank you. I apologise for the interruption earlier.
Thank you.
Our next panel is from Highlands and Islands Enterprise. I welcome Sandy Brady, who is the director of strategy, and Forbes Duthie, who is the director of corporate services. I understand that Sandy Brady will make some introductory remarks before we move to questions.
I will keep it brief so that we can go quickly to questions. We have given the committee two short submissions. The first is the budgetary breakdown in the standard format that has been established for these occasions. The second is a short paper in which we have summarised the way in which we set the budget in the HIE network. We have outlined some of the key outcomes from our strategy and the organisational review that we have undertaken over the 12 months since we last appeared at committee.
In the paper that you provided, you mention that, as part of the organisational review that you undertook, you identified a need for greater integration of Careers Scotland. As you know, the Executive has issued a consultation paper on the future of Careers Scotland. Has Highlands and Islands Enterprise responded to that consultation paper? Regardless of whether you have done so, what is your view on the future of the careers service in the Highlands and Islands?
We are in the process of responding to the consultation paper and giving our views on how the Careers Scotland service might be developed nationally. As you know, our view of the place of Careers Scotland differs from that of our colleagues in Scottish Enterprise. We are clear that the circumstances in the Highlands and Islands are different from those in the rest of Scotland and we are keen to ensure that the activities of Careers Scotland are melded ever more closely into the work of the enterprise network.
The Executive is not expected to announce the results of its consultation, to which I think it has had 144 responses, until some time in the new year. What impact will that delay have on your desire to achieve greater integration? Have you held back on further integration until you find out the outcome of the Executive's review?
There has been a slight delay, but we are clear about the direction of travel. Given that Careers Scotland is a national service, there are a number of aspects of national decision making that we must wait to find out about so that we know how matters will be progressed in the rest of Scotland before we work out how we can ensure that service levels in the Highlands and Islands are consistent with delivery of the national service. However, that has not stopped us from ensuring that our local enterprise company staff work ever more closely with our Careers Scotland staff at local level. So far, that has principally been about work streams, but increasingly we are considering co-location, where possible, which involves bringing together two small teams in one place so that they can meet each other more regularly over the water cooler and encouraging them to exchange views on the challenges that they face.
Good afternoon, gentlemen. In the third section of your second submission, under the heading "Budget allocation", you mention the top-slicing of the budget for strategic projects, including the university of the Highlands and Islands. Given that we have heard that there will be a delay in that project, will that have an impact on your budget spend? Will it free up money, or will it mean that additional money will need to be spent? What will the impact be?
To be honest, we will absorb the impact on the budget. If there is a slippage of investment in the UHI Millennium Institute, we have more than ample projects to absorb that spend. Flexibility is an important aspect of HIE's management of its budgets. If there is slippage in a project or if a project accelerates and there is a requirement for more resources, we manage that quite closely. The delay to the UHI project will have an impact, but the slippage will be recycled into other investment. That money will be available to the UHI project next year when it starts to catch up.
I want to explore that further. Although I have not researched the reasons for the delay in any great detail, I assume that you are talking to your further and higher education providers in the area. How can you help to ensure that the process goes smoothly?
We are in very close contact with the UHI executive office. The announcement that the award of taught degree powers to UHI has been slightly delayed came as a disappointment to UHI and to us. It is likely that that will delay the award of university title beyond 2007, which is the date that we had been aiming at. However, there are many positives in the Quality Assurance Agency for Higher Education's report, which says that the quality of undergraduate teaching at the UHI colleges is high. The QAA's concerns seem to be about aspects of structure and governance. The model that has been proposed is unusual and unique for a university, so we understand where the concerns come from. We are working closely with UHI to support it in addressing those concerns. We will have to deal with the delay, but it does not take away from the long-term importance of the project for the current colleges to build themselves into a network that will deliver the university of the Highlands and Islands.
Are there any headline issues for you in the recently published Scottish index of multiple deprivation?
We look closely at the index, because it has a wide statistical base. We look at the results for the Highlands and Islands areas and for other parts of Scotland. It is fair to say that in remoter areas, the validity of the index suffers a little bit at the margin. There are some parts of the Highlands and Islands that come out of the index well that we would regard as some of our most fragile communities. Likewise, there are other parts that, if we took a wider view of where they sit, we might say were part and parcel of a more prosperous area. However, that is an intrinsic problem with small area statistics. We struggle hard at times to understand the detail of the picture around very small communities and are dependent on national statistics to provide such detail. Nevertheless, the Scottish index of multiple deprivation is an important part of our understanding of the challenges for our rural areas and other rural areas, for example in the south of Scotland.
Paragraph 2 of the HIE submission, on management and administration costs, states:
The reduction is modest and we hope to achieve it through natural turnover, but there are challenges in shifting the skills balance involved in reducing volume delivery in business units and having slighter fewer people working on larger-scale projects and strategic interventions. It is not easy to convert staff numbers from the way we have them to the way we want them. We are recruiting new staff and trying to handle as sensitively as we can the changes for staff whose workloads or areas of work have been contracting. We set it against a background of trying to be a dispersed network. There is a challenge in ensuring that our numbers in our localities are at a reasonable level to match the service that is delivered there and achieving what savings we can in centralised functions.
In addition, the achieve programme has been set up, initially for our top 100 staff. It is an intensive course to develop influencing and leadership skills; influencing is an important element of what we do. We are about three quarters of the way through that at the moment and noticeable impacts are already starting to be made. The other important element is how we cascade that down the organisation. We cannot have just 25 per cent of the staff trained in that new way of working, so we are already working on how we roll it out to the wider staff. We are acutely aware of the problem and are working on it actively. The cost of that training programme is about £750,000. We acknowledge that it is expensive, but the rewards and impact are fundamental, given our new strategy. It is an important programme.
So the achieve programme is one—albeit important—part of the work that is under way in this area. Is that correct?
Yes.
And it is part of a wider HR strategy to reinforce more general financial and organisational objectives?
Yes. The programme was introduced to bring out leadership and influencing skills and is one of a suite of programmes covering necessary governance and project management skills. These programmes are carried out with all staff as a matter of course.
Strengthening communities is a key priority and therefore represents a large part of the budget. I know that it covers quite a large area, but I would appreciate it if you could outline what is involved in that sort of work, with particular reference to the kind of community development that is happening in Ireland and that I described to the Minister for Tourism, Culture and Sport. Have you considered supporting such enterprise initiatives? Secondly, what are your views on reinstating the Campbeltown to Ballycastle ferry, which so dominated our discussions in Ireland?
Our strengthening communities activity breaks down into three broad headings. The first two—helping communities to invest in assets and trying to increase leadership capacity in communities—are very closely related because it is difficult to take on assets if you are unable to deal with the management issues that are involved. The third heading is investing in the area's environment and culture, including the Gaelic language.
Jamie Stone has been held up, so I will ask the question that he would have asked about HIE's role in the post-Dounreay regeneration of Caithness and Sutherland. Am I right in saying that John Thurso's report has been published?
It is very close to being published.
I wonder whether you could say a word or two about it, because it is significant not only for the Highland area but for Scotland as a whole.
There is no question but that Caithness and Sutherland's economy post-Dounreay is one of the biggest challenges that faces us. We know, for example, the profile of employment contraction at Dounreay over the next 25 years and it is a matter of huge concern in the area.
When you gave evidence in Caithness to our business growth inquiry, you said that three or four major roads projects are a key priority if we are fully to exploit the potential of the Highlands and Islands. I think that you put the dualling of the A9 at the top of the list. Have you done work on the economic impact of the dualling of the A9 on the Highlands and on Scotland as a whole?
Yes. We have considered the economic and wider benefits of dualling the A9. We have also considered the A96 between Inverness and Aberdeen and the A82 between Glasgow and Fort William. Those three roads are the arteries that are of most importance to the Highlands and Islands. Information on the economic impact of the roads projects was submitted to the Executive through the Highlands and Islands strategic transport partnership and we are currently in discussion about how to progress that work.
Could you supply the committee with a summary of the results of your study?
Yes. We can give you the research on all three roads.
Do you want to make further comments?
No.
Thank you. Your evidence has been helpful.
We welcome the opportunity to talk about our budget for 2007-08. I will make a few introductory comments, to provide context for the written submission that we supplied.
Thank you very much. That was helpful.
I have a range of questions to ask. I will start with a question that I asked Highlands and Islands Enterprise. What is your reaction to the recently published Scottish index of multiple deprivation? In headline terms at least, does it indicate a need to make any changes to your approach to aspects of your budget?
I will bring in Charlie Woods in a moment, but my reaction to the index is that it emphasises the need for an effective metropolitan strategy. The definition of a better role and a better purpose for regions and small towns, better opportunities for them, and their connections and relationships with Scotland's cities are more important than ever. I think that the index supports the agenda that we want to follow, but perhaps Charlie Woods will amplify my remarks.
The index highlights the importance of people throughout Scotland realising their full potential and the importance of ensuring that training programmes, for example, enable us to help people to realise that potential so that they can contribute to developments. We have increasingly tried to ensure that we tie together the significant investments that are being made in places such as the Clyde waterfront and areas of need so that needs and opportunities are better linked. We should try to target job opportunities at particular areas and provide training support to help people access those opportunities. That is an important part of our business. As the guys from Highlands and Islands Enterprise said, the data that have been provided are important in demonstrating where the areas that must be focused on are. The index reinforces things such as the regeneration work in Inverclyde and Irvine bay.
You have mentioned several issues that I want to ask about. I would like to deal with training first.
We do not have a fixed number of training providers in mind, but we are concerned that there is a huge disparity in our training providers' performances. Completion rates of modern apprenticeships for the same categories of apprenticeship vary by provider as widely as 74 per cent and 47 per cent. We do not think that such a gap is acceptable or that it represents good value for the taxpayer; indeed, it represents wasted opportunities for trainees. A great opportunity exists to get everyone up to best-of-breed standard.
Are steps being taken to tender a single contract for the national training scheme?
No. There will not be a single contract. There will continue to be multiple providers. Currently, we have more than 300 providers, which is simply not effective.
Let us consider modern apprenticeships. The index of multiple deprivation identifies a number of areas that have, comparatively speaking, become more deprived. It has been no surprise to any of us to find out that it is most difficult to achieve positive outcomes with respect to training and skills development needs in those areas. Is it reasonable to expect that the fallout rates from training schemes for people in those areas will be greater than the rates for, for example, similar people from inner-city areas in which there is better access to the job market?
That does not necessarily follow, as I suspect that people in inner cities and people in rural areas might face similar difficulties in terms of industrial demand. We accept that variations will occur by industrial sector and by geography, so we do not say that all training providers will reach completion rates of 74 per cent for modern apprenticeships. Our target is to increase the completion rate from the current level of 59 per cent to 65 per cent. We recognise that there will be variation.
Another point is that our work on training is part of a continuum that involves a number of other players and partners. In recent years, we have tried to focus our attention on doing as much as we can to help people make the final step from being out of the job market to being in a job. We have tried to align our programmes to what everybody else is doing so that they feed into that other work. We moderate our programmes and do things slightly differently in different areas depending on the people we are working with but, even so, it is still incumbent on us to ensure that our programmes make the difference to people so that they have a positive outcome at the end of their training with us.
I want to turn to the metro-region agenda, which I think we all broadly support. At its crudest, Jack Perry's answer to my first question was almost, "Look, the jobs will be in the cities and, regardless of how far away you are and what ability you have, you will need to go to the cities to get a job." I recognise that that is an exaggeration, but it is the reality if the strategy insists that the only option for helping those who are on the periphery is to maximise their opportunities in the cities. Can you disabuse me of that view?
I will do my best.
Will those opportunities be supported only if they fit within the key priority industries?
There is a lot to choose from. We have six national priority industries, six regional priority industries and the two key enablers of electronic technologies and advanced engineering. At present, those encompass 80 per cent of our customer base. Over time there will be a migration of our support to those key industries, but there is plenty to choose from.
It is important to emphasise a couple of points. The strategy is not exclusive; there will always be growth opportunities that occur elsewhere, and, as Jack Perry says, about 20 per cent of account-managed companies are not within the key industries. I also emphasise that the metropolitan agenda is not about cities, but about the relationship between different parts of Scotland.
I have taken up a lot of the committee's time. If there is time at the end, I might ask more questions.
There is a distinct difference between how Scottish Enterprise presents its budget, in conversations and in the written submission, and how HIE presents its budget. I wonder about that. We hear real concerns in rural areas about the emphasis on metro regions, and there are vast rural areas in Scottish Enterprise's region. Somehow or other, the message is not getting across that Scottish Enterprise cares about rural areas as much as HIE does, and a lot of that concern has to do with the metro region concept. What is Scottish Enterprise's timetable? I heard yesterday from a developer working on a small development in a village outside Dundee, who was concerned about the impact of city regions and about the uncertainty that that concept is creating in the area. That does not create the right atmosphere for pushing forward.
Obviously, I would be concerned if that was the impression that people generally had. We accept entirely that there is much more to be done in terms of communication, and we hope to be able to make our intentions increasingly clear. We will take a gradualist approach, mainly because we have a long tail of existing commitments, many of which are complementary to the metropolitan agenda. It will not be a case of a big-bang approach beginning on 1 April. We need to develop industry-owned and led strategies for a start, and those will be the drivers of demand to which the metropolitan regions will respond. Those strategies are in an increasingly developed state, but they are not all there yet; some industries are more advanced than others, and the strategies need genuine industry ownership and leadership.
I would like to touch on the comparison with our colleagues in Highlands and Islands Enterprise. As members will be aware, HIE has a specific remit to address the question of strengthening communities, given the fragile nature of communities in the Highlands; it also has the resources to go with that remit.
I am a wee bit concerned about the surprising uncertainty that I mentioned. Will you take that on board and somehow communicate more effectively?
We are happy to do so. I am aware of the uncertainty. The solution is largely about consistent communication over a period of time. Our operating plan is pretty explicit and was well received—the metro planning issues are well addressed in it. Our annual report for this year also put some flesh on what the concept means in practice. Increasingly, that will be part of any communications on our business.
Jack Perry was a fairly regular visitor to the committee earlier in the year and although I have no wish to go over old ground again, I remember that, when we talked about the problems with the budget overspend last year, you characterised your position and that of the board as being like that of a pilot trying to land a jumbo jet on a postage stamp. How confident are you that your plane-landing skills have improved in the past year?
We have submitted to the committee a document that contains the forecasted outturns for the year, which shows that we are absolutely bang on at this stage, which is halfway through the process. We are confident that we will follow through and deliver all our commitments and that our cash spending will be on budget. Murdo Fraser did well to remember the analogy that I used previously. The situation is more volatile than it has been in the past, particularly with the non-cash spend, so surprises might still arise. We will not be sure until we get the year-end balance sheet but, at present, we know of no factors that will blow us off course.
So at this stage you are confident that your spending will come in around the budgetary figure.
Based on our activities so far and on our forecasts—we are carrying out a re-forecasting exercise that goes into fine detail with every single business unit—we do not anticipate any surprises.
We undertook to take several actions following the internal audit and KPMG's reviews, and we have taken those actions. We have reverted back to allocating budgets to business units, with monthly monitoring. As Jack Perry said, a full quarterly review is being undertaken, which indicates that, although we will not necessarily land on a postage stamp, at this stage in the year, it looks as though we have a balanced budget.
In his opening remarks, Jack Perry talked about the reduction in staff numbers in Scottish Enterprise. If I read the figures that you provided correctly, they show that, between 2005-06 and 2007-08, you anticipate a reduction in full-time equivalent staff from 1,506 to 1,363. However, it is interesting that, at the same time, the staff costs for Scottish Enterprise are programmed to increase from £64 million in 2005-06 to £71 million in 2006-07 and 2007-08. Perhaps you will clarify the matter, because it appears that you are reducing your staff numbers but that your wage bill is nevertheless increasing. It looks as though you are employing fewer people but paying them more. Is that an accurate reading of the situation?
Not quite. This year, we have agreed to increase significantly the contribution rate to our pension schemes—by 7 per cent for the Scottish Enterprise scheme. That largely accounts for the difference.
That is an increase of about 45 per cent in the contribution, from 16 per cent to 23 per cent.
There is also the cost of accounting for inflation in pay reviews.
The increase in the pension contribution was purely a response to the actuarial evaluation of the scheme.
But it is not the case that salary levels are increasing across the board.
No. In fact, the head-count reduction is largely targeted at more senior levels in the organisation. Pay increases have been around the level of inflation.
That is interesting. What is the current situation when senior vacancies arise? For example, what happens when a LEC chief executive resigns? Are those positions being filled like with like?
Among the top 34 senior managers at Scottish Enterprise, there have been nine resignations with only three replacements, including the hiring of a new chief financial officer in the past 12 months. There is no intention to make further replacements. We have been replacing LEC chief executives with operations directors as vacancies have arisen. There has been a marginal decrease in salary costs.
What message does that send about the future of the LECs if you are in effect downgrading the position of the senior officer?
We had some older and more experienced people before. The change is largely one of title because it was confusing having so many chief executives in Scottish Enterprise. Often, younger and less senior people are put into those posts—the position is similar to when those they replaced took up the posts five, six, seven or eight years ago.
So it is not part of a wider agenda.
No, not really. The role of the LECs has remained pretty constant. As you know, we have not changed their nature or role.
Is it not the truth that getting rid of the LECs was your desired outcome?
Initially, we came up with proposals to streamline the network, but it was clear during our consultation, which was genuine, that there was no appetite for that and certainly not at this stage. You are right that our initial proposals were to remove statutory limited company status from the LECs, but we always anticipated keeping the LEC network open for business as our principal delivery network.
How do you do that given that you have filled vacancies with people who were not as qualified as the people who went before?
Please do not misunderstand me; the operations directors are perfectly well qualified. If you look at their credentials, you will see that they are experienced in economic development, although they might be at an earlier stage in their career. It often happens when someone retires or resigns that someone more junior is promoted. That has certainly been the case in a number of the appointments that we have made.
What is Scottish Enterprise's strategy to stimulate economic growth in constituencies such as mine in rural South Lanarkshire?
Our key industry and metropolitan approaches offer opportunities for every constituency in Scotland. They might not be in the traditional industries or ways in which livings have been made in those areas previously, but there are a lot of opportunities in food and drink, tourism and energy in some of our more rural areas and we have to re-evaluate them.
What does that mean on the ground? At the moment, it does not mean anything. Businesses are being relocated out of Clydesdale and into Bellshill business park, and people have to travel further to their work, which contradicts other areas of Scottish Executive policy to do with making local communities more sustainable.
It is encouraging that a number of areas of Scotland, including some rural areas, have reinvented themselves. I am thinking of West Kilbride, Gretna, Lockerbie, Annan and Methil, with its proposed energy park. Those areas have redefined their role within a metropolitan region, based on industries that have a long-term, sustainable future. We are also working on farm diversification to get more added value out of our basic produce. There are lots of opportunities out there, but we have to face the fact that in the more remote parts of Scotland we will not be able to continue to earn our living in some of the ways in which we used to do so.
I do not think that anybody is suggesting otherwise. Part of the problem is that we are not getting the strategic direction from Scottish Enterprise. You are not playing your full part to deliver economic regeneration in communities such as mine. That is what is being experienced on the ground. You are more obsessed with Edinburgh, Glasgow and metropolitan region structures than you are with economic development on the ground in communities such as mine.
I am sorry if that is the perception. The reality is that we know that in successful metropolitan regions elsewhere there is not the huge disparity in wealth creation between the city and the outlying regions that we have in Scotland. For example, there is a huge discrepancy between what is happening in Glasgow and what is happening 15 minutes along the M8. We do not see that in successful metropolitan regions such as the Øresund region around Copenhagen and Malmö. Around Stuttgart, 129 municipalities and authorities have joined together in a single metropolitan region. In such regions there is better connectivity and a stronger role for rural areas. We aspire to that, rather than just pouring more money into the cities. The cities need to be in well-connected metropolitan regions in order to prosper. If the city prospers, the region will too.
A year on, what are the five key transport infrastructure projects that Scottish Enterprise thinks are necessary to provide such connectivity in Scotland?
We are currently evaluating the high-speed link between Glasgow and Edinburgh and the Forth crossing. We have already done work on the Waverley line in the Borders. We have not produced a prioritised transport strategy; that is not quite our role. We want to make clear in our metropolitan plans the key dependencies for transport infrastructure.
There are not two or three major projects that you, as the main economic driver in Scotland, would say are absolutely essential in providing connectivity.
I could name two or three such projects, but that would not be based on a full, rigorous economic evaluation at this stage.
When will we have that information?
We are working on it now.
It is understandable to ask whether there is one thing that is absolutely critical. However, it is a question of piecing together support for business development, innovation, training and business infrastructure. We have to consider how all that interacts so that the impact of the whole is greater than that of any of the individual parts. There is no silver bullet; we have to address all the issues. It is about looking for unrealised potential anywhere in Scotland. In all parts of Scotland, we are supporting businesses to start up, develop, increase their productivity, sell outwith Scotland and increase their sales within Scotland. All those things, done together, are at the heart of the strategy.
From where I am sitting, the contrast between the presentation that we had from HIE and the presentation that we have had from you is stark. HIE has clear priorities, strategies, ways of working and visions of what it wants to deliver, with which it is moving forward. You guys do not seem to have that.
We came here today to talk about our 2007-08 budget. Our operating plans contain a lot of detail about what that means for our strategy and what we intend to deliver in the future. The information is there. If the member would like us to go through that with her, I would be delighted for her to spend a day with us at Scottish Enterprise. In fact, I extend an open invitation to all members of the committee. If we walk you through all the plans, you will see a clarity of vision and strategy for the future.
Can you tell us when the year-end balance sheets will be available?
The accounting timetable for the year end is still to be confirmed with our auditors. We are also producing interim balance sheets to assess non-cash costs during the year. The first will be for the end of September and will be reported to our board in November. The year-end balance sheets are connected with the completion of the audit. We will work with KPMG, which will be our auditor this year, on the timetable for those.
So you are now producing balance sheets as you go along.
Exactly. That is especially true for non-cash costs. We will prepare a balance sheet to enable us to assess estimated outturn.
Do you anticipate having to ask the Scottish Executive for more money this year or next year?
No.
You painted a fairly rosy picture, and I do not want to dwell on negative stories. However, a worrying story appeared at the weekend in one of the papers about MicroEmissive Displays and the fact that it appears that the company's manufacturing activity will be lost to Saxony in Germany, allegedly because of the lack of competitiveness of the tax breaks and grants package that we can offer in Scotland. If companies of that quality that are pretty well indigenous to Scotland are being lost, that must be of concern. I am not asking you to comment on the specifics of the company, because that information is commercially confidential. However, would you like to comment on the general issues that the case raises? Clearly, those have an impact on Scottish Enterprise's budget.
As members know, the whole grant regime will change at the end of next year. Increasingly, cash grants have become less of a factor for many projects, but for some they remain very important. That is why there is increasing pressure for further development of programmes such as R and D plus and training plus, which we are keen to see. Such programmes are major determinants of location decisions for the higher added-value activities that we may seek in future.
The R and D plus programme has been of major benefit, because of the battery of incentives that are available to companies in Scotland. I take your points, but do we still need to do more to retain indigenous companies or attract inward investment? Obviously, this is a devolved Parliament and tax breaks are not part of our remit at the moment, but could the battery of incentives be further improved?
There are opportunities to develop some programmes further. However, we have to be mindful of state-aid rules within the European Union, which are quite restrictive. We push them as far as we can, but accession countries that have derogations often offer incentives that we cannot match.
Will you be making proposals to the Executive on how to make further improvements to incentives for investment in Scotland?
We are of course talking to the Executive about the whole battery of interventions, especially in the field of innovation. We have a number of different schemes that are attractive to indigenous companies and inward investors. We see Scotland as a base for R and D projects. IBM's survey of global foreign direct investment, which came out last month, rated Scotland as the top location in the United Kingdom, beating even the south-east of England. We know that what we offer is having an impact, but we think that more could be done. There is surplus demand for our programmes.
The committee might pursue that issue with you later in the year; it might be important if more has to be done to achieve a more level playing field for Scotland.
I have tried to give you just a flavour of our schemes and projects. We are at the early stages of preparing our operating plan for next year, which will go out for public consultation. However, we would like as much support as possible for an expansion of many of our schemes and projects, because we know that there is demand for them. We think that we can deliver more for the Scottish economy.
Before I hand over to Susan Deacon, I have one final question.
Not formally. There has been some informal discussion but certainly no formal consultation.
How are you working with other agencies on some of the overarching objectives that we have touched on today? We spoke about transport a moment ago. We have a new strategic transport agency for Scotland; what links are in place to ensure that, at strategic Scotland-wide level, our various national agencies are joining up their thinking, practice and investment?
I am very happy to do that. I will bring in Charlie Woods as well, but I will give you a couple of examples first. A couple of years ago, a source of some concern and frustration was the constraint on many of our infrastructure projects caused by a lack of connection to mains water and sewerage. We now have a constructive relationship with Scottish Water, a sharing of investment plans and an alignment of business infrastructure plans so that, over time, we expect that constraint to become less of a drag on economic growth and development.
We are increasingly trying to get more value out of the knowledge resources that we have in this country. For example, in our relationship with the funding council we participate in each other's board meetings and the senior directors have regular quarterly meetings to try to ensure that their and our programmes are aligned so that we get a bigger bang for our buck.
We know that we have 1.5 per cent of the Executive's budget and that we can get some good leverage for that money. However, if economic growth is our number 1 priority, we genuinely believe that all branches of the Executive need to be aligned to that priority. That is why that relationship is very important.
In the same vein, I am interested to know what you would like to happen in the future to forge some of that cohesion and coherence. That theme ran through our business growth inquiry report; suggestions were made for national forums and so on. Your previous answer was not entirely clear about the extent to which the communications and discussions that take place between agencies are ad hoc. I assume that a substantial number of them are.
I suspect that there could be. You are right; the business growth inquiry report expressed it quite well. Greater consensus is needed. We know and can tell from the nature of some of your questions that there might not be consensus about our industry and metropolitan regions strategy, although, interestingly, this committee has certainly endorsed the broad thrust of it.
I have one point to add that might be helpful. We should not try to build a big, slow-moving supertanker. We should have a flotilla of boats going in roughly the same direction that can respond quickly to the opportunities that come up. One thing that we can be sure of is that the pace of change will get faster.
Absolutely. As there are no other questions from committee members, would you like to say anything else before we finish, Jack?
No; I think that that was a very useful discussion. Thank you.
It was indeed. Thank you very much. We will now suspend until quarter past so that we can have a bit of a break before the minister comes to speak to us on bankruptcy.
Meeting suspended.
On resuming—