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Agenda item 3 is our inquiry into the EU's response to the financial crisis. We are pleased to welcome to the meeting the Cabinet Secretary for Finance and Sustainable Growth, and John Rigg and Jim Millard from the Scottish Government. I thank the cabinet secretary for coming to address us. I understand that he will make a short opening statement.
Thank you very much, convener. I will indeed, with your agreement, make an opening statement.
Thank you. I assume that most of the initiatives that you mentioned are new. Does the European economic recovery plan go far enough in assisting projects on the ground? You have been quite complimentary about the European Commission's approach. Are there blockages in the system or measures that the Government or its officials think would help to ensure that money gets to where it is needed?
There are no new blockages in the system. The committee is familiar with the many aspects of the appropriate and proper accounting and scrutiny of projects that must be dealt with. My officials work energetically to tackle such routine matters, which are part of the furniture of dealing with European funding programmes.
You mentioned the European Commission's flexibility on state aid. We are also aware of new approaches to public procurement and the globalisation adjustment fund. It is interesting that the qualifying threshold for applications to the fund has been reduced from 1,000 to 500 redundant workers. Has the Government discussed with the Commission how to use the fund to introduce the short-term flexibility that might assist Scotland?
We are considering a number of issues to do with how we support companies that potentially face difficulties in the current economic circumstances. In essence, I am talking about supporting companies through a difficult period. Active discussions on that are going on in Government. Indeed, all Governments are considering such issues. The United Kingdom Government has had much the same discussions. The Cabinet will consider material that emerges from the discussions.
The Government has issued guidance on state aid and public procurement. Has guidance on the globalisation adjustment fund been issued? Do you intend to issue further guidance, for example on state aid to small and medium-sized enterprises?
We will do so if we think that information needs to be conveyed. In that respect, we work closely with the UK Government to ensure that consistent advice is provided in the UK and that we can deploy advice through the normal channels of communication with the business community. Our initiatives must be sustainable. That approach will be at the heart of what the Government does.
Are any programmes in the pipeline that will take advantage of the flexibility in the de minimis threshold for state aid to provide support to SMEs or large companies?
I am not aware of any projects that are coming through the route of the programme monitoring committees. However, in the Government's wider work, there are various ways of supporting companies that are facing difficulties in the current economic conditions. For example, Scottish Enterprise and Highlands and Islands Enterprise routinely have investment programmes.
I have a number of other points, but Charlie Gordon wants to come in on this issue.
Forby telling us about how you would encourage the front loading of spending from structural funding, you alluded to other types of funding. You mentioned JESSICA. In these circumstances we will always draw heavily on the EU's acronym mountain. I also have in mind JEREMIE—joint European resources for micro to medium enterprises—and the European Investment Bank. Are you encouraging eligible applicants, and are you offering them stronger guidelines? Can you give us any examples, and will you tell us more about eligibility?
We are actively engaged in all three of the issues that Mr Gordon raises—JESSICA, JEREMIE and the European Investment Bank. We have accepted an application from within the Scottish Government—from the regeneration division—to set up a fund covering the lowland and upland Scotland programme area under the JESSICA programme. A study will explore whether JESSICA can also apply to the Highland programme area. We are considering how best to make progress with the JESSICA programme, such as how it can add value to a range of interventions in Scotland.
On that point, the cabinet secretary will be aware that we have taken written and oral evidence over the past few weeks on the EU's response to the financial crisis. There has been criticism of the lack of stakeholder involvement in some of the consultations on proposals around JEREMIE, for example. The Scottish local authority economic development group feels that it could have a significant input if it were invited to contribute. Is the cabinet secretary thinking about doing that?
Obviously, my priority is to ensure that there is proper and full consultation on our proposals, so I am disappointed to hear that it has not been all that people would wish it to be. There have been active discussions with the Convention of Scottish Local Authorities about the involvement of local authorities in JEREMIE, but I am happy to consider whether more can be done to secure that involvement.
Good morning. Sticking with structural funds, questions have been asked in oral and written evidence about whether the Government's approach to the use of such funds to address the economic crisis is the best one. For example, the Scottish Chambers of Commerce questioned whether the approach was the most appropriate one to the economic crisis and Scottish Enterprise said:
My response centres largely on the way in which the Government is handling the economic recovery programme. As part of that programme, we have tried to say to a wider audience that in November 2007 the Government produced an economic strategy to explain and outline what we meant when we said that the Government's purpose was to focus on increasing sustainable economic growth. The Government's economic strategy is our direction document, and it sets out how we will approach the improvement in the Scottish economy. When the strategy was written in November 2007, we did not envisage being in the situation that we are in today. If an economist had told us what would happen, we might be in a different position altogether, but there we are.
That is helpful. In January, the Government said that it wanted to keep the book open on structural fund programmes for the 2000 to 2006 period for an extra six months. Will you give an update on progress on that extension? What is the chain of command? Who decides whether the period can be extended for six months? Is six months long enough?
The issue is under active consideration. In essence, the European Commission has provided an ability to extend the period during which programme expenditure can be incurred and resolved. There are certain constraints on our ability to do that, particularly in relation to the internal financial arrangements of the United Kingdom, which provide some challenges. I am actively considering how we can resolve those questions.
I am still not clear about the chain of command. Who ultimately makes the decision on programme extension?
I suppose that, ultimately, the Scottish Government does, but it has to do so within the framework of the United Kingdom's financial rules, which, regrettably, the Scottish Government does not set.
Are you getting a receptive response from your counterparts in the UK Government in trying to make progress?
In essence, constraints in the UK financial rules restrict our ability to utilise fully the opportunities that the Commission has given us to extend the programmes. That is the issue that I am trying to resolve.
Are you hopeful that it will be resolved?
I remain ever optimistic.
I am interested in how you interact with companies. I was on one of the Scottish Enterprise boards, and I know that Scottish Enterprise works mainly with large client companies. I am interested in the smaller companies that do not interact so much with Government agencies. How are you targeting them and what mechanisms are you using to inform them about the changes that we are going through, for example in relation to state aid rules and structural funds?
I want to set in proper context the focus of Scottish Enterprise's and Highlands and Islands Enterprise's support and interaction with companies. The agencies do not deal only with big companies; they deal with companies that have growth potential, which can be anything from a two-person enterprise up. I happened to spend time with the board of Highlands and Islands Enterprise yesterday, during which I met representatives of several companies. I spoke to people from a four-person medical science company in Inverness that is account managed. The company is getting a lot of support from HIE because the agency recognises that the company has significant growth potential.
I take your point. I realise that high-growth companies receive support, too, but a large number of companies might not be thought to be high-growth companies and might not be account managed.
The south of Scotland forum has been in active dialogue with the Government. I recollect that it has discussed with the First Minister how it will take forward some of its activities. The interventions that we are pursuing in the south of Scotland are interventions that we are pursuing in every part of Scotland. The arrangements that we have with Scottish Enterprise and the business gateway are available in the south of Scotland, too. We will remain focused on ensuring that the particular needs and requirements of the south of Scotland are adequately addressed by the Government's programmes.
Good morning, cabinet secretary. Jim Hume's question partly pre-empted the first of mine, which was to ask you to give us a flavour of which companies will benefit from the £95 million that will be allocated to 129 projects across Scotland. You have done that, so I will move on to the number of jobs that have been identified. If I read the information that we have been provided with correctly, the 50 ERDF projects might support the creation of almost 8,000 jobs and the
It is extremely difficult to do that, but it is clear that the tight refocusing of the programmes to support economic recovery has been designed to recognise the fact that normal conditions are not operating. As a consequence, we must put in place efforts to support existing employment that might well be in jeopardy. Thankfully, that is one of the changes that we have been able to secure from the European Commission in relation to our programmes. Such recognition is appropriate, given the scale of the challenge that we face in a number of sectors.
Would it be fair to conclude—from my basic maths—that the number of jobs that would result from the 129 projects would probably be more than the 9,000 jobs that the First Minister projected Scotland was about to lose as a result of budget cuts elsewhere?
The challenge in all that is the wider economic circumstances. It is not a zero-sum game involving the two factors with which we have to wrestle. There are budget reductions, which the Parliament will debate later this week. On the wider economic circumstances, the estimates that the Chancellor of the Exchequer gave the House of Commons last week represent a significant contraction in the scale of economic activity this year. Independent forecasters would say that that situation is likely to prevail well into 2010, into the bargain.
Fine. I would like more information on how we are placed to benefit from the funds that are coming from energy-related programmes. I think that three of the Scottish projects are still on the short leet: the proposed North Sea grid; the Aberdeen offshore wind farm; and the Longannet project, although it seems to have been knocked back a bit in relation to funding. Can the Government take any more steps, or can you give us any more information to assure us that you are using every possible measure to persuade the correct authorities to ensure that Scotland could benefit from two of, if not all, the projects?
The package that was agreed by the European Council on 20 March is yet to go to the European Parliament. It is not a case of our acting only once it has been approved there; we are engaged actively in discussion about the opportunities that Mr Brocklebank mentioned—the offshore grid, offshore wind and carbon capture and storage. Those are huge priorities for the Government; those projects are central to our approach to energy policy. We are optimistic that we will be able to secure resources from the programmes for Scottish projects. The First Minister, the Minister for Enterprise, Energy and Tourism and I have all been involved in discussions to try to ensure that we secure appropriate investment for the projects. They are exciting developments, which relate to another element of the European programme that is particularly beneficial to Scotland.
I was particularly interested in the First Minister's announcement of a Scottish investment bank. I read some press reports that suggested that European funds might be utilised in either the creation or the funding of such a bank—I am not sure which. Will you say a bit more about that?
The Scottish investment bank concept—it has been advanced primarily by the Scottish Trades Union Congress, with which we have had a number of discussions—is, in essence, about creating a vehicle that would enable us to provide the necessary long-term support and investment in the Scottish economy. There would certainly be the possibility of attracting European funds to the work of the Scottish investment bank. That is an active part of the proposal that is being taken forward. We would seek to ensure that the resources that would be put together in that vehicle would be able to deliver long-term benefits to the Scottish economy in a way that we have seen is possible in other European Union long-term funding vehicles. Again, it is a case of ensuring that we synchronise all the different interventions to maximise their impact on the Scottish economy.
Is there a particular stream of funding from Europe that you are looking to tap into? As Mr Gordon said, we get very used to all of the acronyms that are used.
To return to Mr Gordon's acronyms, certainly there would be the potential for some of the JEREMIE funds, and resources through the European Investment Bank into the bargain, to be sent in this direction.
Have colleagues in Europe expressed sympathy for that idea?
There have been very constructive discussions at Europe level on these questions and work is now under way to take this forward. We have the core—through funds that are already available—with which to constitute the Scottish investment bank: we can progress and build on that with other ventures. It will be a product of discussion with our colleagues in the European Union.
What is your timeframe for concluding negotiations and discussions?
I want the work to be undertaken during the course of 2009. It is actively being undertaken now and I want it concluded as soon as possible—by June 2009.
Many small companies will be particularly interested in getting support from any quarter during these hard times. That said, this is new money. Are you also expecting a ratchet effect so that long-term growth results from it? If so, do you intend to measure the effects of this new money?
The answer to that question goes back to what I said to Mr Matheson earlier: there is a requirement that the European programmes—I accept that perhaps this is a criticism that all the money is not used in or for the short term—invest to support the short, medium and long terms, so the profile of the expenditure is to achieve that, over time.
Will that measurement be peculiar to the £95 million? Will there be a separate calculation on that?
There will be a distinctive audit assessment on that work and all the components within it. It is unlikely that we will do a separate economic analysis because it tends to fit into some of the wider assessments of economic performance that the Government routinely undertakes, and which are essential in order to determine whether we are making sufficient progress in delivering economic recovery in this difficult time.
You will recall from when you were convener of the European and External Relations committee that Scotland has a good reputation for delivering multisectoral programmes that involve partnership organisations, and which build from the bottom up. The European Commission has commended us for that approach. A feeling is coming through in our evidence that much of that has been lost. COSLA's submission says that
That is not my impression. You are correct that Scotland has a commendable record on its ability to spend. There is nothing more frustrating than seeing programme funds allocated but not being spent, so I have taken a number of different steps to ensure that we spend allocations fully and effectively and that we support an audit trail, which is required on all such matters.
I do not accept that we have a lack of projects: there is no shortage of projects coming forward. We have allocated almost £335 million-worth of expenditure for the 2007-13 programme out of a fund that, in sterling, is valued at about £700 million, and we are only two years into the programme. We have front loaded the programme and there has been good demand for projects. However, we have not approved all projects because some did not pass the quality test. It is a fact of life that that will sometimes be the case.
The independent review has been completed. We asked for advice on whether the operational programmes, as originally drafted, were fit for purpose, given the current economic situation. The broad consensus is that they are able to deal with the immediate requirements for economic recovery and that they will continue to provide the sustainable growth strategy for the full programme period.
Has that independent report been published? I wonder whether the committee might have sight of it.
It is our intention to publish that report once we have given advice to ministers on the main conclusions. That will be made available and put in the public domain.
One other point that COSLA raises is the possibility that
That would depend on what we were talking about. The advisory networks are clear about what advice about structural funds is available and how it can be deployed. My officials are happy to provide advice and guidance to anybody who asks them about the funds.
It will be useful for us to see that report. We look forward to receiving a copy of it.
We are obviously in a very different position today regarding structural funds compared to where we were 10 years ago. The world and the European Union are fundamentally different, and a process of change must be undergone.
I said that that was my last point, but the clerks have drawn to my attention another issue on which we would welcome your view.
I feel as though I should plead the fifth amendment on that one, if you do not mind, convener. If the committee will excuse me, I will write to you about that in due course.
The economy is a huge issue. Front loading is probably a good idea, but do you have any concerns about problems that it might cause in 2012 or 2013, when moneys might have been spent and there is nothing to fall back on?
That is a fair question. Essentially, the question of how far to go with front loading is a matter of judgment. We have taken a decision in principle to front load the programmes because of the economic circumstances that we face. However, front loading does not mean that we spend all our money in years 1 and 2 and leave nothing for later on. We have taken an approach that tries to manage two factors. The first factor is the point that Jim Hume makes, which is that we need to ensure that programmes are sustainable throughout the six-year period. The second is the need to make a proper assessment of currency risk. When the programme commenced, sterling was at €1.20, but it has since reached virtual parity—yesterday, it was at €1.11. We have to conduct a risk assessment around the extent to which we can front load the programmes, given that we will be getting paid back in euros at a stage when the currency advantage might not be quite what it is today.
Thank you for your time. We are expecting some late written evidence this week. If any issues arise from that, could we write to you on those matters?
Of course.
Thank you. We will suspend for a few minutes.
Meeting suspended.
On resuming—
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