The next item of business is a debate on motion S6M-17785, in the name of Kate Forbes, on empowering entrepreneurs and innovators. I invite members who wish to participate in the debate to press their request-to-speak buttons now or as soon as possible.
15:22
Entrepreneurs and innovators are the catalysts of growth that shape our economy. From the moment that I first entered Government, I have championed that agenda. I believe in a future in which Scotland reclaims its position as a global leader in innovation, and in which entrepreneurs do not just imagine a better Scotland but have the tools, support and investment necessary to build it.
Scaling firms have a profound economic impact and significantly outperform the broader economy. They are 40 per cent more productive than standard small and medium-sized enterprises and corporates, they pay higher wages, and they are responsible for the majority of net job creation. Remarkably, despite accounting for less than 1 per cent of businesses in the United Kingdom, they contribute more than 50 per cent of total SME turnover, amounting to £1.2 trillion.
I am proud to say that the value of our start-up community in Scotland goes beyond what can be measured by hard economic analysis. Many of our most promising and imaginative companies are working on problems of global significance such as the climate crisis, food security and drug discovery, and those firms are dispelling the myth that growth and wellbeing are contradictory economic principles.
[Made a request to intervene.]
Will the member take an intervention?
Yes—although you do not look like Sharon Dowey.
Do I need to change, Presiding Officer, or can I simply self-declare?
I am relaxed as to whether it is Sharon Dowey or Craig Hoy who intervenes.
Let us go with Craig Hoy.
I think that we have corrected the record, but I have slightly lost my train of thought.
The minister is talking about young and ambitious entrepreneurs who are global in their mindset. Would she advise a young, ambitious, globally minded entrepreneur to base themselves on one of Scotland’s islands at the moment?
Absolutely. As a representative of Scotland’s islands—which I think that Craig Hoy mentioned—I would absolutely recommend that. A number of brilliant start-ups are located on our islands currently; indeed, I can speak from experience about some of the brilliant businesses that are located on Scotland’s islands.
Despite the global economic headwinds that have challenged our economy, there are clear signs that Scotland’s strategy is beginning to pay off. Over the past four years, we have worked closely with key figures in the private sector, such as Mark Logan and Ana Stewart, to execute a detailed plan to achieve that aim. Last year, Scotland’s risk capital market bucked UK-wide trends, with Scottish firms raising more than £700 million in funding—a 19 per cent increase on the previous year, in sharp contrast to a 14 per cent decline across the rest of the UK.
There is an increasing volume of companies raising capital at a level that suggests that they have the potential to achieve substantial scale. In 2024, there were 17 investments exceeding £10 million worth a total of £373 million; the figures were up 90 per cent in deal volume and 70 per cent in value. I say that at the outset, because these kinds of debates can often get quite negative from the Opposition side. Can we at least collaborate and join forces in congratulating those in Scotland’s start-up community on what they have achieved in those figures?
I agree that we should champion success but, to truly succeed, we also need to acknowledge that there are issues. The Deputy First Minister might quote those figures, but we know, too, that the value of Scottish deals at £10 million and above actually fell by 69 per cent in 2022-23. Likewise, we know that other measures, such as the number of patents, have been falling. Does the Deputy First Minister not need to recognise the whole picture, not just the bits that show success? We need to show the weaknesses, too.
It is precisely because we needed to confront some of the challenges four years ago that we embarked on this journey to support Scottish entrepreneurs. The fact that the risk capital market has bucked UK-wide trends is remarkable; although there has been a decline across the UK, there has been an increase in Scotland.
That is because of the quality of the businesses. A stand-out example is the Edinburgh-based gaming firm Build a Rocket Boy, which raised more than £86 million in a single investment round. It already employs 450 people, with further growth expected. Just yesterday, Wordsmith AI, a Techscaler member, announced a $25 million series A investment achieving $100 million valuation in a record-breaking 18 months. Those are remarkable success stories.
Will the cabinet secretary take an intervention?
I will, particularly if it is to congratulate those businesses.
I am very pleased to congratulate those businesses. As the cabinet secretary is talking about attracting investment, I wonder whether she will come on to talk about public sector investment. One of the most innovative sectors in the Scottish economy is defence, a sector that employs tens of thousands of people and which is growing. When is the Scottish Government going to revisit its short-sighted policy not to invest public funds in the fast-growing defence sector?
Intentionally or otherwise, the member is distorting the Scottish Government’s position. The Scottish Government has a long-standing position of not using public money for munitions.
Members: Oh!
Just a minute. A matter of months ago, I announced £2 million of investment in the skills and training required, and we have also invested in defence companies with regard to diversification. If the member wants any evidence of that, I refer him to previous debates in the Parliament in which members have accused us of making those investments in defence. Both sides cannot be right.
There are straws in the wind that suggest that momentum will continue to build. Techscaler, which is where we incubate and grow Scotland’s most promising start-ups, is performing beyond expectations. Since its launch, members have raised £118 million; there is strong demand for services; and membership applications are accelerating. That suggests a stronger pipeline of high-growth founders than we had anticipated at the early stage. If we are going to be proven wrong, we will at least be proven wrong on the basis of underexpectations rather than overexpectations.
That, in turn, is attracting the involvement of new investors and scaling firms. Data from RSM Consulting shows that Scotland is the UK’s fastest-growing territory for the incorporation of new tech businesses. The same figures showed incorporations in London falling by 6 per cent.
Will the cabinet secretary take an intervention?
I love a good debate, but I would like to finish my speech, too. I will take this intervention, however.
I am grateful, and it will be very quick. Does the Government think that the way in which the current rates regime is structured militates against small businesses scaling up?
No, because of the small business bonus scheme, which remains the most generous across the United Kingdom.
Will the cabinet secretary take an intervention on that point?
I agree with Liam Kerr—and I have discussed this with Daniel Johnson in the past, too—that the rates system often does not take into account the fact that some of the most profitable businesses are the smaller ones. A start-up can be launched from a cupboard, where there are no rates, while a large and perhaps less profitable business has to pay them. I do not think that Murdo Fraser is listening to me at the moment, but I might have found a point of consensus with him—we might agree on those points. The rates system is based on an older version of the economy, in which the size of properties was linked to profitability, and that is just not the case in our new, tech-driven environment.
I see that the member has a quizzical look. I think that he agrees with my point—I was just giving him a little bit of ground there, in response to his question.
Although it is right that we celebrate successes, we acknowledge that there is more to do if we are to match the performance of our best competitors. That is why the budget made provision for a record investment of £30 million to accelerate Scotland’s emergence as a leading start-up nation, and I want to take this opportunity to highlight some of the key programmes that the funding will support.
I will begin with the implementation of “Pathways: A New Approach for Women in Entrepreneurship”, Ana Stewart and Mark Logan’s groundbreaking review of how we can support more women to start and scale businesses. Women remain significantly underrepresented in entrepreneurship; alarmingly, only 3.7 per cent of Scottish companies have an all-female founding team, and start-ups founded by women receive only 2 per cent of total investment capital. It is clear that deep-rooted societal barriers continue to limit women’s full and equal participation and “Pathways” describes that, correctly, as
“a denial of opportunity on, literally, an industrial scale.”
We have a duty to meet those challenges head on. Under the leadership of Ana Stewart, our newly appointed chief entrepreneur, we will invest up to £6 million in the report’s key recommendations, with a particular focus on pre-start support and associated early stage grant schemes. That will be a powerful package of interventions, which will create best-in-class programmes to help women start and scale businesses, offer targeted financial incentives to back the most promising ideas, and ensure that support is delivered flexibly in ways and at times that work best for them.
Our universities are another source of untapped entrepreneurial potential. They are among Scotland’s greatest national assets—hubs of innovation, creativity and enterprise. However, despite their global reputation, we have yet to unlock their full economic potential. Sweden offers a compelling example: by placing universities at the heart of its economic model and investing heavily in research and development, it now ranks second in the global innovation index and leads in generating university spin-outs.
Scotland needs to be just as ambitious. As a result, we are working closely with our universities on developing a new support package that will transform our ability to take innovative ideas from the lab bench to the business world by de-risking new technologies, accelerating commercialisation and attracting follow-on investment.
Will the cabinet secretary give way on that point?
Do I have some time in hand?
You will get the time back, Deputy First Minister.
As ever, the Deputy First Minister talks a really good game. However, when she talks about universities, does she not accept that the current funding model is failing? Our university sector is in crisis. To talk this thing up as if none of that other stuff exists is a detachment from reality—which, surely, is not the hallmark of the Deputy First Minister.
The point that I am making just now is that we have great research and development—I think that we would all accept that there is some brilliant research and development. The member has raised questions about funding models, about which there is extensive debate at the moment, but we are talking specifically about the fact that a lot of that research and development does not get commercialised. How do we take it from the point of academic research and turn it into a business? That is what Sweden does well. Yes, there is a time and a place for a broader conversation about funding models, but what we are talking about is the fact that, over the past few years, the commercialisation of that research has lagged behind.
The entrepreneurial spirit and enduring legacy of innovation extend far beyond our university campuses. Take John Walker, for example. From humble beginnings on Kilmarnock High Street in the 1800s, he built what would become the globally renowned Johnnie Walker whisky brand, which is now valued at more than $10 billion.
To create the next generation of Johnnie Walkers, we will invest in igniting entrepreneurial dynamism across all our people and communities. First, we relaunched the £700,000 ecosystem fund. Secondly, we will continue to back Scottish EDGE’s outstanding work to identify and support promising new businesses.
Thirdly, entrepreneurship is often seen as the domain of rare individuals with exceptional intelligence and drive, but that is simply not true. Research shows that quality entrepreneurial education and strong networks consistently build the mindset, skill and attitudes needed to succeed. That is why I am pleased to announce that, this year, we will relaunch the competitive entrepreneurial education fund, which will have a focus on embedding project-based entrepreneurial learning in schools across Scotland.
Finally, we are providing £141,000 to support a two-year pilot with the University of Aberdeen to train new computing science teachers, who will be able to equip young people with the skills that are vital for success in high-growth start-ups.
As the effect of our interventions in infrastructure, education and investment starts to yield momentum, our ambition is to establish Scotland as a global hub for start-up founders and investors, with a reputation akin to that presently enjoyed by Sweden and Finland. Techscaler and key policy documents such as the Logan review—or “Pathways”—and the innovation strategy have raised our profile. Indeed, Techscaler has been invited to showcase Scottish start-ups in Singapore, silicon valley, Helsinki, London, China and Japan.
At the start of this afternoon’s debate, in which political points will inevitably be made—and I do recognise a role for constructive challenge—we should take the opportunity to congratulate those who are involved in the Scottish start-up scene on what they have achieved. The businesses that are driving that scene are raising Scotland’s profile and are doing us proud on a global scale.
This September, Scotland has been selected to host the prestigious DICE conference, which will welcome senior executives from more than 100 of the world’s top gaming companies. The world is beginning to perceive Scotland differently. It is an impression that we are keen to reinforce, and I hope to work on a cross-party basis to continue to build on that work.
I move,
That the Parliament supports the Scottish Government’s ambition to establish Scotland as one of Europe’s fastest-growing start-up economies; welcomes the significant progress made towards this goal; congratulates Ana Stewart on her appointment as Scotland’s new Chief Entrepreneur, and welcomes the record investment of over £30 million to accelerate Scotland’s emergence as a leading hub for innovation, entrepreneurship and high-growth businesses.
15:36
I welcome the fact that we are having another debate on the economy. We now have something of a trend of economy debates, which is a welcome departure from the previous state of affairs, when we would go for long periods without discussing Scotland’s economic performance. That is a good change on the part of the Government. Today’s focus on entrepreneurship and innovation is welcome, so I am delighted to be here.
Before I come to what needs to be done, I want to start by looking at the Scottish Government’s track record, given that it has been in power in Scotland for some 18 years. The fact is that, throughout that period, Scotland’s business start-up rate has consistently lagged behind that of the UK as a whole. According to the latest figures, which are from 2024, Scotland has a business stock of 762 businesses per 10,000 adults. The UK average is 996, so we are lagging far behind. That gap is particularly stark among the smallest businesses, where the figure is 738 per 10,000 adults for the UK but just 544 per 10,000 adults for Scotland. It is clear that we have a systemic issue whereby Scotland’s level of private sector business activity is lower than the UK average.
According to last year’s Global Entrepreneurship Monitor report for Scotland, Scotland’s total early-stage entrepreneurial activity, which is known as the TEA rate, was the lowest in the UK nations in 2023. The overall TEA rate for the UK was 10.7, Scotland’s was 9.1, Wales’s was 11.5—it was doing very well—England’s was 10.1 and Northern Ireland’s was 9.7.
On all those measures, Scotland lags behind, so we welcome any initiatives to improve the rate of entrepreneurship and the rate of business start-up, so that they at least match the levels that we see elsewhere in the UK.
We know that there are particular sectors of society in which we have issues in encouraging people to start up a business. That is particularly the case with women and members of ethnic minority groups, as the Deputy First Minister acknowledged. I pay tribute to the work that Women’s Enterprise Scotland does in offering support, particularly mentoring and the promotion of role models for women who wish to set up and be involved in business.
If the Scottish Government wants to encourage entrepreneurship and innovation, a really good starting point would be to listen to entrepreneurs, and Scotland has no more high-profile an example of a successful entrepreneur than Sir Tom Hunter. If the cabinet secretary has not read the report on how we might encourage economic growth that was published by the Hunter Foundation just a few weeks ago, I encourage her to do so.
The Hunter Foundation and Oxford Economics together highlight the success of Singapore—a small economy with few natural resources that is, in many ways, in a much less privileged position than Scotland—as an example from which we could learn lessons. Singapore is a country with a strong innovation ecosystem, significant investment in education and lifelong learning to help build a skilled and employable workforce, and a long-term strategy.
Last night, I was at Daniel Johnson’s sponsored event with the Confederation of British Industry. Many people were talking about the flexible workforce development fund, which is delivered through colleges but which did not have any funding for the previous financial years. That has become a real problem. The digital skills gap is becoming evident, which reflects the conversation within the Hunter Foundation. Does Murdo Fraser agree that we should reinstate that funding?
I can give you the time back, Mr Fraser.
I absolutely agree with my colleague about that funding programme. The Economy and Fair Work Committee, which Mr Johnson and I both sit on, heard a lot of evidence that it was of great value to business.
I had intended to be at Mr Johnson’s CBI Scotland reception last night, but the event that I was at previously overran, and I was therefore not able to make it. I apologise to him for that.
The Hunter Foundation report highlights the importance of pro-business policies and the need to provide stable governance, a transparent legal system, low red tape and low taxation. It is not rocket science; those measures would help to provide the focus on long-term growth that Scotland needs.
Sir Tom Hunter has said:
“The status quo is completely unacceptable. Change needs to come and it needs to be radical—tinkering will only yield further decline.
The most important lever available to incentivise entrepreneurs and business is tax. Neither the Scotland or UK governments have chosen to use these levers to their full potential.”
I agree with what Sir Tom Hunter says about the UK Labour Government, especially the ruinous decision that it took to increase employer national insurance contributions—a literal tax on jobs that will damage economic growth. However, issues around tax are also under the control of the Scottish Government, and the differential rates of income tax, together with the higher rates of land and buildings transaction tax, are undoubtedly causing problems for businesses that want to recruit above-average earners.
When I talk to people in the business community and in sectors such as finance, I find it interesting that, although higher income tax continues to be an issue, increasingly, they talk about the higher levels of LBTT for those wishing to purchase larger homes as being a real and significant problem in terms of the attractiveness of Scotland to those in that higher earner category, which affects the mobility of labour.
We know from last week’s report from the Fiscal Commission that those higher tax rates are not, in fact, delivering. According to the SFC, the income tax hikes implemented by the SNP should be raising a net sum of £1.674 billion for the Scottish Government. However, the actual projected income tax net position, compared with what it would have been prior to the devolution of income tax, is just £616 million. That leaves an astonishing £1 billion gap between what Scotland’s higher income tax might have added to the Scottish budget and what it is actually projected to deliver. This is what the SFC has referred to as the “economic performance gap”, which is made up of slower aggregate earnings and employment growth in Scotland compared with the rest of the UK alongside the effects of Scottish and UK policies and taxpayer behaviour.
Will the member give way?
If I have time, I will.
I can give you the time back.
On the topic of Scotland being an attractive nation for others to invest in or to move to, I, too, speak to many companies in Scotland, particularly in our high-growth sectors—such as the space sector, fintech and life sciences—and our universities. They tell me that their biggest concerns at the moment relate to issues such as the message that the UK is sending out about people not being welcome to come to the UK and attacks on foreign students who want to study in our universities. Does Murdo Fraser accept that those are some of the biggest concerns that the business community faces at the moment?
We have debated those issues many times before in the chamber. I say gently to the minister that the United Kingdom has had record levels of inward migration over the past five years and that Scotland has not been able to attract its population share of those new migrants. That is an issue that the Scottish Government could address.
We all want to increase the levels of innovation and entrepreneurial activity in Scotland, to make up for what is a pretty dismal historical record, but that will happen only with a change of direction from the Government, particularly in areas such as tax. I want the Government to start listening to entrepreneurs such as Sir Tom Hunter and to start changing its direction. That point is made in my amendment.
I move amendment S6M-17785.3, to leave out from “supports” to end and insert:
“calls on the Scottish Government to make greater effort to support businesses and entrepreneurship in Scotland; notes concerns identified by the Fraser of Allander Institute that only 9% of Scottish businesses believe that the Scottish Government understands the business community, and that the New Deal for Business has caused this relationship to stagnate further; recognises that Scotland has a lower business birth rate and stock rate compared to the rest of the UK, which has hindered entrepreneurship; congratulates Ana Stewart on her appointment as Scotland’s new Chief Entrepreneur, but believes that a new approach is needed to deliver the high-growth economy that businesses and entrepreneurs need; welcomes the publication of Lessons from Singapore for Scotland’s Economy by the Hunter Foundation, which urges the Scottish and UK governments to stop punishing entrepreneurs, deliver a long-term growth strategy and foster a more business-friendly environment through lower taxation, and believes that entrepreneurship and innovation can be enhanced through Scottish Conservative and Unionist Party plans to drive economic growth by cutting taxes for workers and businesses.”
15:45
The reception that I hosted last night on behalf of the CBI has been referenced. A key point that I made at that was that, in order to deliver growth, we very much need a shared agenda between businesses and the private sector and Government and politicians. It is in everyone’s interests both in driving the tax revenues that we need and in delivering the public service that, ultimately, businesses depend on. Critical to that is making sure that we have high-growth, innovative countries—sorry. I meant companies, not countries; there has been too much talk of Singapore.
That is why I welcome the debate, and I thank the Government for bringing it, because it is useful to talk about the type of economy that we need and the strategic issues that we want—
Michelle Thomson (Falkirk East) (SNP) rose—
Already, clearly, I have attracted an intervention from Michelle Thomson.
We have been talking a great deal about Sir Tom Hunter’s report, but Oxford Economics, which did the research, also made it clear that Singapore’s success rested to a large extent on higher-value manufacturing such as electronics and precision engineering. To that end, what commentary does Daniel Johnson have for the planned cut in the immigration of engineers? That is surely a worry.
That was quite a leap. What we need is a coherent industrial strategy. It was a little disappointing earlier to hear the Deputy First Minister dodge the point about defence spending, for example, because, ultimately, we need coherence. The strategic defence review—[Interruption.] No, engineers is just one component. We need a balanced immigration policy. That is what the UK Government has sought to set out in terms of attracting people with the skills that we need. We need balance and coherence, which is what industrial strategy delivers.
Will the member give way on that point?
I will make a little bit of progress.
In order to have a debate such as this, we need context and realism about where we currently sit. Success stories are welcome, and I share the Deputy First Minister’s congratulations and the celebration of the success that we have had. However, we need to reflect on not just the numbers that Murdo Fraser set out, but those of high-growth businesses. There has been an increase in the proportion of Scottish businesses that are high growth; it is up from 3 per cent to 3.2 per cent. However, when it comes to the number of high-growth businesses, we are 11th among the UK’s nations and regions.
Will the member take an intervention?
I want to make just a touch of progress.
Likewise, the business innovation rate has fallen from 50 per cent to 32 per cent in recent years. In business-related research and development, Scotland is in the third quartile of regions and nations. As I pointed out in an intervention, the number of our patent applications has again been falling.
We have success stories and we must celebrate them, but there is an awful lot more work to do.
On data, it is important that we measure the right things. One of the data points that Murdo Fraser referred to was the TEA rate. He said that Scotland is lagging. The top three countries for the TEA rate are Ecuador, Guatemala and Chile. The TEA rate is irrelevant to high-growth enterprise, and those countries are not hotbeds of high-growth enterprise. I encourage us to refer to figures that will be relevant to the discussion about entrepreneurship and what we are trying to achieve. I made the point that RSM Consulting has illustrated that Scotland is the UK’s fastest-growing territory for the incorporation of new tech businesses. Surely, that is what we are trying to achieve.
Daniel Johnson, I will give you the time back for both interventions.
I will allow Mr Fraser to defend his numbers; I was just providing some other context. We should look at the measure that the Deputy First Minister presented, but it is just one measure. All that I am asking for is a more holistic view.
The Scottish technology ecosystem report—STER—was very useful and important, but I ask the Government to question whether we are implementing every element of it as much as we could. There are a number of areas where we could go further, not least of which is ensuring that we embed the right skills in the education system and that we are delivering more computing science teachers.
We have already touched on the interfaces with higher education. There are still issues for innovation in that area, and it is good that the Deputy First Minister addressed that. However, there are still too many barriers, including that many higher education institutions are simply taking too high an equity stake in spin-outs, and those equity stakes are simply getting in the way of companies that are going for series A investment and so on.
We also need to look beyond technology start-ups. It was interesting that, again, we have had a presentation from the Deputy First Minister that has focused on that. It is absolutely right that we focus on technology start-ups, but they are not the only type of start-up. Critically, other areas where we seek to develop high-growth businesses, such as advanced manufacturing, life sciences, and food and drink, are more capital intensive. In those areas, capital equipment and plant are more expensive than they are for technology firms. The barriers between the different stages of the pipeline, as set out in the Scottish technology ecosystem report, are much higher for those sorts of capital-intensive businesses, and we need a renewed focus on how we help them to thrive.
I point out that the contrast that the Deputy First Minister made between small and medium-sized enterprises and high-growth start-ups is interesting. There are two ways of looking at that. There is a lot of value in high-growth technology start-ups, but the other way of looking at those figures is that we have an issue with growth across the broad range of SMEs. As well as looking at high-growth start-ups, we must look at ways in which we can help all small and medium-sized enterprises to grow.
As John Tsoukalas’s report on Scotland’s productivity challenge sets out, 90 per cent of Scottish businesses have seen no growth during the past two decades. We must develop approaches that help all businesses to invest and grow and help all businesses of all sizes to reach their potential. With that, I need to close.
I move amendment S6M-17785.2, to insert at end:
“; believes that Scottish businesses across sectors have not had adequate support from the Scottish Government to break down barriers to innovation, and that support must extend beyond start-up stage to provide advice and investment for scaling up; notes that the proportion of businesses in Scotland that are innovating, that is those introducing or developing a new product, service or process, has fallen from 50% in 2012-14 to just 32% in 2020-22, and calls on the Scottish Government to reform Scotland’s economic agencies to better support entrepreneurs and innovation in sectors across Scotland, including capital intensive sectors like life sciences and advanced manufacturing.”
15:52
Across the chamber, we all agree that we want to have a dynamic and successful business community in Scotland. I am not completely sure that the narrow focus on start-ups that is proposed by the motion is the whole story or a key solution.
The entrepreneurial mantra of 10 years ago—“move fast, break things, fail quickly”—seems outdated now, and a waste of talent and resources. We should be looking at building for the long term and for everyone, not only for a few people who have a high appetite for risk and, presumably, enough financial security that they can afford to take that risk.
My proposed amendment to the motion has two elements to it. The first agrees with the point in the Labour amendment about supporting successful Scottish businesses to scale up. That is where there appears to be a gap in our economic planning. Half a dozen risky start-ups do not create the same number of jobs or bring the same amount of investment as a company that has a proven product or service and, say, 25 people scaling up to be a company of 50 or 100 people. Without support for scaling up, those start-ups—even if they survive—will stay small.
I have had correspondence from the owner of a successful small business who feels stuck. They have a successful business model and would like to grow, but they are too small for the Scottish National Investment Bank to invest in and they are not in a key sector, so the enterprise agencies will not help. Where do they turn? What other options are available to them?
We have many small businesses in Scotland that are successful and experts in their fields, but they are working so hard to do what they do that they do not have time or resources to do the research and investment that is needed for them to grow. That is where our enterprise agencies and our national investment bank should be stepping in to provide advice and finance, so that those businesses can grow, support local jobs and supply chains and connect with the opportunities of a transition to a green economy.
The second element of my amendment is around the nature of start-up businesses. The Economy and Fair Work Committee heard its first evidence on the Community Wealth Building (Scotland) Bill this morning. The purpose of community wealth building is to ensure that more people have a stake in and a say on the economy, and that more people benefit from it. One way to implement that is to support the creation of businesses such as co-operatives, social enterprises and those that use other democratic and employee-owned business models. We need more of our start-ups to be businesses that create community wealth, and that workers and communities have a stake in and a say in. We need to be more supportive of employee buy-outs. Business models matter.
Witnesses at the economy committee this morning gave evidence that Scotland’s enterprise agencies and other economic development organisations need to pivot to support community wealth building, which means that they need to provide advice, direction and practical and financial support to businesses that use those alternative business models, not just those that use profit-led models. That may mean that there is some upskilling and a change of direction for those agencies. The Scottish Government needs to give that clear direction to our enterprise agencies and other economic development organisations.
We heard at committee this morning that employee-led firms are 9 per cent more productive than traditional firms.
Will the member take an intervention?
I will take the intervention, but I will just finish my thought.
That is key to improving productivity as well as to ensuring that wealth and benefits stay in Scotland and with working people.
Thank you very much for taking the intervention.
Ms Slater has 10 seconds left.
My apologies. I will wrap up.
Inclusive ownership is one of the five pillars of community wealth building that the Scottish Government has accepted. Let us think again about what a start-up can be, who benefits, who is building for the long term and who is creating wealth that stays in our communities.
15:56
Implicit in the Deputy First Minister’s speech was an acknowledgement—I could say an admission—that the Government went off track for a number of years, that it was seen to be anti-business, that it had policies of apparently never-ending increases in taxation and regulation and that there was a suspicion of business and entrepreneurship. The change in rhetoric today is a helpful sign that the Government is moving in the right direction, but there is an implicit acknowledgement that things went off track, which, along the lines that Lorna Slater outlined, contributed to the decline in investment in the housing sector but also in many other sectors that have feared the ever-growing reach and the approach of the Government. Nevertheless, it is a move in the right direction.
On top of that, there has been an unstable political environment in those areas, and there has been turbulence from things such as Brexit, Liz Truss’s budget and the independence referendum. I am sure that the Deputy First Minister will not agree with the latter point, but all that turbulence has added to uncertainty in business, which has held back decision making and investment. That is why we need to get to a much more pragmatic, stable relationship.
I have seen good examples of progress. The improvement of the pipeline to support different businesses at different stages of their growth is a good development. Programmes that instil knowledge, understanding and confidence, such as the rural leadership programme through Scottish Enterprise and others, are good examples of developing political and personal capacity and skills in certain sectors.
However, we still face challenges in a number of areas, and universities, which Stephen Kerr referred to, are probably the biggest example of that. We would not know it, but the University of Edinburgh, which is getting a lot of negative publicity just now, created 127 new companies in 2023-24. Universities are major generators of economic growth in this country. We used to sing all the time about the University of Dundee’s life sciences, but that university still does not have a rescue package in place to ensure that its research capacity and, to be frank, its brilliance will continue. We need to address a number of problems.
It is worth briefly noting, because I am always in the business of restoring confidence in the University of Dundee, that it was named the top university in the UK for entrepreneurial activity.
I hope that that means that, by the end of the week, we will have an arrangement with the university to secure its future, because we have been waiting for that for far too long.
We have had problems with business research and development for a number of years. Scotland has always lagged behind the rest of the United Kingdom in that regard. The UK figure is currently 1.96 per cent, while in Scotland it is 1.45 per cent, which is way down on where we should be. That is an indicator of businesses’ confidence to invest in their futures, and that is why we need a Government that brings stability and ensures that we invest in the right people and the right skills. I have concerns about the Tertiary Education and Training (Funding and Governance) (Scotland) Bill in that regard. We need to ensure that it tackles the real problems that we face in that sector, because if we do not have the skills, the people, the institutions and the right attitude, we will not be able to grow our entrepreneurial companies for the future.
I hope that the Government is listening and that it understands that those challenges need to be addressed if we are to grow.
We move to the open debate.
16:00
I welcome the opportunity to highlight some of what is going on in the Highlands and Islands and in our nation as a whole. Scotland is rich with the talent, skills and facilities that are needed if we are to achieve our ambitious goal of becoming one of Europe’s fastest-growing start-up economies, and that is particularly true in the diverse landscapes of the Highlands and Islands.
Whenever I travel elsewhere, I am struck by how big business often easily overwhelms many town and city centres, where I see endless branches of Greggs, Pret a Manger, McDonald’s and other big names. I am always so grateful to return home to Harry Gow, Ashers Bakery, the Highland Weigh, One One Two, Island Larder, Bad Girl Bakery and the Redshank—I could fill four minutes listing a few more names. Those amazing local businesses are run for the local area by locals, and they are full of heart as well as truly high-quality goods and services.
However, it is not a given that we will keep them—we have to support them, and that means support from Government as well as local shoppers. That is why, despite our limited powers and an annually challenging budget, the Scottish National Party keeps offering that support. More than 95 per cent of non-domestic properties in Scotland continue to benefit from a property tax rate that is lower than that elsewhere in the UK, with more than 100,000 properties being entirely exempt.
We are leading in innovation, too. Beyond traditional sectors, the Highlands and Islands is embracing digital transformation. A couple of years ago, the Scotland 5G Centre, working with Highlands and Islands Enterprise, opened an innovation hub in Inverness to accelerate the deployment and adoption of 5G-enabled solutions. That includes pop-up networks to bring that 5G technology to geographically dispersed areas from Thurso all the way to Fort William.
We are very lucky to have all the benefits of the successful Highlands and Islands Enterprise. I see its impact every day, with many new and future workstreams as well as the outcomes of various opportunities that have been taken over the past few decades with HIE support. The northern innovation hub is a great example. Supported by the Inverness and Highland city region deal, the hub has now offered tailored support, funding, events and mentoring to more than 2,500 organisations across the Highlands, including Pat Munro, which got help with information technology projects, and Kirsty Elizabeth Studio in Fort William—a start-up that now features as a case study on HIE’s website, showcasing what Highlanders can do with a little bit of support and a massive amount of entrepreneurial spirit.
Although the challenges that economies and communities face often feel more acute in my region, that presents us with the opportunity of finding solutions that not only work for us but can inspire the rest of the country and often the world.
Unfortunately, however, is not just geographical or industrial issues that our businesses face right now—there are political barriers, too. Labour’s decision to hit all employers with a national insurance hike is reducing the ability of small businesses to contribute to our economy and forcing them to choose between reducing their numbers of employees or paying those employees less than they might otherwise might have paid them. That does not make sense. Given how much the rise is costing the UK Government itself, nobody has yet been able to explain whom the rise is serving.
Brexit, in addition to a continued stubborn immigration policy that is not based on evidence or need, is also holding us back. UK policy is out of step with what Scotland wants and needs. It is now so much harder than it needs to be to recruit vital workers and attract students. Analysis estimates that Brexit trade barriers could impact Scotland’s economy by £4 billion, with our exports being potentially £3 billion lower than if we had continued our EU membership.
We have the talent, skills and natural resources to be a major player in emerging and growing industries, whether that is renewables, space or life sciences, and the Highlands and Islands knows how to be part of them. I do not want us to miss out. To ensure that we do not, we need continued partnership with the likes of Highlands and Islands Enterprise and the University of the Highlands and Islands, alongside the full powers of an independent nation within the European Union.
16:05
This debate is a welcome opportunity to highlight the importance of empowering Scotland’s entrepreneurs and innovators. Innovation will be key to Scotland’s future, but it has also been key to Scotland’s past. After all, it is one of the things that we are known for in Scotland. Our spirit of entrepreneurship and innovation was pioneered throughout the Scottish enlightenment, and Scotland has long been a cradle for ideas and progress. It is therefore not at all surprising that Scotland has countless inventions to its name, many of which we have heard about in the debate.
The Government’s motion is at least right to speak about the importance of Scotland becoming
“one of Europe’s fastest growing start-up economies”.
I, too, take the opportunity to congratulate Ana Stewart on being appointed as Scotland’s new chief entrepreneur. However, we are debating yet another motion in which the Government’s rhetoric does not match its actions, as Murdo Fraser’s amendment points out.
As members on our benches have raised many times before, the Scottish Government’s approach to taxation is making it difficult for certain sectors to attract and retain top talent. That includes important sectors such as fintech. Those in that sector have warned that higher Scottish income tax is making it difficult for the sector to grow, while economists have warned that the approach risks shrinking the Scottish tax base. Headhunting companies have warned that their jobs have already been made more difficult by the introduction of the advanced rate of Scottish income tax. How is that situation supposed to help Scotland to become one of Europe’s fastest-growing start-up economies? That concern is being raised by many economists.
Our amendment to the motion mentions the report that the Hunter Foundation published last month, which laid bare many of the problems that Scotland’s economy is facing. The report is clear that Scotland needs a new growth strategy that fosters innovation in sectors with high potential. It is also clear that a much more business-friendly environment is required in order to make Scotland more attractive for inward investment. Any politician who has spoken to businesses across Scotland in recent weeks, months and years will be well aware of that. The Fraser of Allander Institute found that only 9 per cent of Scottish businesses believe that the Government understands their needs. Speaking about his foundation’s recent report, Sir Tom Hunter said that Scotland was facing a “managed decline” under the Scottish Government but that Scotland can still reclaim its place on the global stage if we bring forward the right policies, including on tax. I endorse that view.
The Scottish Government should have an ambition for Scotland to become a leader in innovation and entrepreneurship, but the Government’s record does not match its ambition. To make that vision a reality, Scotland needs a new approach that is based on commonsense policies, including cutting income tax, which is so important. That will also help to incentivise more of the world’s brightest talent to stay in Scotland. We want to attract talent and we want businesses to flourish, but they are being stopped by the Government’s policies.
With the correct approach, Scotland can be a leading hub for innovation and entrepreneurship. That is what we wish to achieve, but the Scottish Government must play its part to make that dream become a reality. It will be only a dream if the Scottish Government does not listen to the individuals and organisations who are telling it that its tax policy is harming entrepreneurs and innovators.
16:09
Entrepreneurship and innovation are central to driving economic growth. One might suggest that they are the twins of purposeful change in the economy, driving a culture of development and productivity improvement. All innovation involves what the late Professor Tom Burns called the “application of novelty” and he said:
“All novelty involves some degree of risk.”.
Innovation and entrepreneurship are social phenomena that exist at their best in cultures that support change and risk taking; they do not thrive in risk-averse cultures. I would contrast that with our activity as parliamentarians and Government ministers. In the main, there is too much of a tendency to see each and every failure in policy making as bad and a matter to be condemned. That encourages risk aversion among policy makers. If the initiatives that we take to support innovation and entrepreneurship were never to lead to some failures, that in itself would be a major failure.
It is not policy makers or Opposition members who are criticising the policies that are failing; it is the industry and the sector.
That is simply not true. Every single week, I listen to baying from across the chamber about multiple policies. My point is that we must allow for some risk taking if we are to drive innovation and entrepreneurship, and businesses accept that. I am making that point to all of us, and to civil servants. There is a fundamental dichotomy at play that will not serve us well in the world.
Does Michelle Thomson not agree that part of the problem is that, as a Parliament, we spend a disproportionate amount of time talking about social issues and very little time discussing the sort of issues that we are discussing this afternoon? Even this afternoon, we have a very short debate.
I completely agree. It is well known that I would spend most of every day talking about such matters. We need a wealthy economy to support the social changes and contribution that we want to make.
Thomas Watson, the founder and long-term chair of IBM, probably put it better than I can when he said:
“If you want to increase your success rate, double your failure rate.”
Fundamentally, if we want to drive innovation and entrepreneurship, we all have to understand that we need to increase our tolerance for risk. That is even more important in today’s world, given the speed of change.
I absolutely agree with Michelle Thomson on that. One of the most important things for that to happen is to ensure that we are accountable for public money. That is critical in the Parliament—we must have more accountability. Michelle Thomson and I sit on the Finance and Public Administration Committee, and we are always asking for that. Does she agree that it would help if we increased accountability for where public money is spent to ensure that it is spent successfully?
I am always in favour of oversight and accountability, but I am making a separate point. One can have accountability and a clear line of sight on funding, but, specifically on the matter of entrepreneurship and innovation, we must accept that we need to increase our threshold for risk. That will include public sector funding. We also want to crowd in more private finance, because the private sector has more of a view about this.
That leads me to the end of my remarks, but I have enjoyed the debate, nevertheless.
16:13
It is a great honour to speak in today’s debate. My colleague Daniel Johnson and I come from a business background, and Colin Smyth has a background in economic issues.
I am proud of Scotland’s history of business and entrepreneurship. When I ran businesses, I was lucky enough to meet many successful innovators and entrepreneurs who had an idea and who worked hard to make it succeed. Although the proportion of Scottish businesses that are innovating by introducing or developing a new product, service or process has fallen from 50 to 22 per cent in the past 10 years, Scotland is brimming with potential to create a new generation of entrepreneurs in various sectors.
Edinburgh has growing finance and technology sectors that employ tens of thousands of people and are innovating in ways that can be applied across our economy. Taking advantage of those sectors and allowing talent to thrive are key if we want to remain competitive.
The most recent data from Scottish Enterprise shows that the Government is the most frequent investor by deal count in Scotland. Keeping in mind how agencies such as Scottish Enterprise and the Scottish National Investment Bank contribute to innovation and growth should be a priority.
Scotland’s investment and innovation system is complex and it lacks a focused economic strategy. We should be removing complexity for businesses and introducing a single point of contact across the Government for international investors, to make Scotland the most attractive part of the UK in which to operate.
Grant funding from those agencies should also be used more effectively to scale up businesses. Areas in which innovation has a key role to play, such as renewables and hydrogen, are forming an increasingly large part of our economy as we transition to net zero. If we cannot scale up those effectively, we will be left behind.
The last point that I will talk about is skills. Developing a culture of innovation and entrepreneurship is a whole-system issue on which the Government, businesses and education can all work together to deliver in the areas in which we have an advantage, such as tech. Every year, Scotland is creating around 13,000 digital skills jobs, but we are producing only 5,000 graduates to fill them. The Government can be a bridge between business and education to deliver the graduates that businesses need. That involves providing opportunities in tech skills in secondary and further education by increasing the number of computer science teachers. It involves increasing co-operation among our business schools to ensure that graduates are ready for the modern economy, and it involves enabling workers to reskill.
Scotland has the talent to innovate in new and exciting ways that will grow our economy, but we must act to ensure that talent is channelled and supported so that entrepreneurs and innovators can do what they do best.
16:17
I am pleased to speak in the debate in support of the Scottish Government’s ambition to establish Scotland as one of Europe’s fastest-growing start-up economies. It is also an opportunity to highlight the fantastic entrepreneurial spirit in my constituency.
Scotland is home to some of the world’s brightest business minds, and we have a proud history of invention—from television to telephone, and from penicillin to colour photographs. Looking ahead, the Scottish Government is committed to empowering entrepreneurs and innovators across our country. In my constituency of Clydebank and Milngavie, I am proud to have met some of our excellent entrepreneurs and innovators. As I have only four minutes, I can mention only a few.
I know that many of my colleagues will agree that caring for a plant can often be challenging. I was therefore really impressed when I met Clydebank’s Happy Leaf, which was founded in 2022 by Amy Roberts and Iain Quinn. In 2023, it received a Scottish EDGE award of £10,000 to develop a smart sensor that is placed in the soil of a plant and it sends messages to a phone app explaining what care the plant needs. That is a novel idea and I am sure that many will make great use of it.
Last year, I met Milngavie’s Andrew Flynn, co-founder of POTR. POTR was also successful in the Scottish EDGE award, securing a £100,000 investment to create what is believed to be the world’s first self-watering origami plant pot. Since that time, it has achieved a life-changing deal to sell the plant pots in Japan, and it has secured momentous deals to sell with Bloom & Wild, Uncommon Goods and John Lewis. Most recently, POTR secured a new partnership with Waterhaul, allowing it to meet increasing demand for its ocean pots, which are built from discarded fishing gear. That is an incredible innovation, with sustainability truly at its heart.
I would like to mention another constituent, Kim Burgess, who also won a Scottish EDGE award and secured £10,000 for her novel personal protection approach for anyone who might feel vulnerable in public. The product comprises a highly visible deterrent that has the potential to revolutionise personal safety and ensure that the most vulnerable groups in society feel safe and confident. When I met Kim, I was so impressed by her invention, and I commend her entrepreneurial talent.
Those are a select few examples of people in my constituency, and I am delighted by each and every one of their achievements. There are so many more that I could mention.
To ensure that we deliver truly meaningful support, it is vital that we continue to listen to and learn from our entrepreneurs and the business community. I am therefore proud that the Scottish Government is taking that approach and is committed to delivering a support network that nurtures talent and helps businesses to thrive.
The SNP is acutely aware of the pressures that businesses across the country face and is taking decisive action to offer support, despite our limited powers and having to work with a challenging budget. Therefore, it is welcome that the Scottish Government will invest up to £34.7 million in entrepreneurship, innovation and social enterprise in 2025-26, which represents a 50 per cent increase compared with the 2024-25 budget. Meanwhile, the UK Labour Government is betraying Scotland’s businesses with a tax on jobs and broken promises on energy bills.
On the world stage, there can be no better investment than investment in Scottish innovation. We have the talent, skills and resources to be a major player, but we are constantly hampered by successive UK Governments. Scotland needs the full powers of an independent nation, within the European Union, to allow us to fully flourish, and we need that now.
16:21
This has been a very useful debate. Willie Rennie is not in the chamber, but I would like to believe that what we hear from the Deputy First Minister is a change of tone from the SNP Government. However, I am not entirely convinced, because that would require a change of policy—as Craig Hoy is saying from his seat—and I do not know whether the SNP has it in it to provide a change of policy.
I will give an example, which is one that we discussed yesterday. Frankly, I might have got overemotional in dealing with the minister, Richard Lochhead, but the Government has failed to be coherent in any sense in relation to the Rolls-Royce project that Scottish Enterprise vetoed.
When I listen to Kate Forbes—I think that she knows that I like her a great deal—she sounds very credible, but, when we look behind the curtain like in “The Wizard of Oz”, we discover the same old SNP with the same old negative anti-business rhetoric. I really enjoy listening to Michelle Thomson—I think that she knows that, too—but, unfortunately, she is not representative of the vast swathe of SNP MSPs who are fundamentally hostile to the whole idea of wealth creation through enterprise and entrepreneurship.
Let me comment on what Michelle Thomson said, because she said some really important things in her very good speech. She talked about risk, and I would like to marry that up with the complete equation: it is about risk and reward. People will take risks if they can see that there is a chance that that risk will pay off in reward, but we have created an anti-reward culture in Scotland. If someone does really well in Scotland, they probably will not stay in Scotland, which is heartbreaking.
The figure for net migration into the UK is massive—far too high—but the SNP Government has to ask itself why, as was pointed out to it, hardly any of those people, in proportional terms, come to Scotland. We must ask ourselves what we have done in our country that has put off people coming here and making a future here, even if one agrees with having mass migration, which I do not.
Year after year, there is net migration to Scotland, and the figures for people coming to Scotland are pretty similar to the figures for people coming to the north of England, so it is unfair to characterise the Scottish migration position in the way that Stephen Kerr has done. Given that immigration policy is reserved, surely the policies of the Home Office play a role in the problem that he has identified.
The problem in the Home Office is that there has been too much immigration. This is one of my frustrations—I am not a member of Parliament for the north-east of England, so, to be completely frank, I am not particularly bothered about the north-east of England; I am partial to Scotland, so I want to look at what is happening in Scotland. We have to learn the lessons that are on offer from our experience of what has happened in recent years.
We can talk about migration—the Greens love to talk about mass migration, as do some SNP MSPs—but we should be talking about our broken education system, which Foysol Choudhury talked about. We have people in this country who are sitting doing nothing or who are—this is a bigger crime, in many respects—massively underemployed, which is because we have not got the skills economy correct. If you want an enterprise economy and a growing economy, you do not cut budgets that relate to building education and skills, yet the SNP cut those things.
You can dress it up in any fancy language you like, but we are talking about our people and their get-up-and-go, ideas, energies and creativity. Scotland is second to no country in the world when it comes to people, but the SNP Government has cut vital skills and education programmes every time that it could. What Foysol Choudhury had to say about that was absolutely right.
I have run out of time, but I am grateful for the opportunity to speak. I hope that Kate Forbes can lead the resistance in the SNP Government to restore capitalism and enterprise to the vocabulary of this country’s Government.
16:26
This is an important debate, and there is not enough time to discuss all the different ways in which a culture of creation and a mindset of entrepreneurship are thriving in Scotland. However, what could we do to continue to enhance that culture, how do we create an even better environment for sustainable growth, and how do we make our country an even better place in which to live and do business?
As has been touched on, Scotland has the talent, skills and facilities to be one of Europe’s fastest-growing start-up economies, because it starts from a position of strength. Although it is interesting to look at other nations’ models, as other members have done, we need to consider the context, which is that we are a devolved nation, while Ireland and Singapore, for example, have very different circumstances and constitutional arrangements.
It is a fact, as Willie Rennie said, that Edinburgh, and its university, is important to Scotland’s economy. As an Edinburgh MSP, that is of particular interest to me. Recently, a lot has been said—rightly—about the reindustrialisation of Leith, the massive renewable hub growth that is taking place at the port, the opportunities and innovations there, the diversity of that economy and how it has the potential to grow. The creative industries—film, television production and other aspects of that part of the economy—thrive in my constituency, and the capacity for growth is really interesting. The cabinet secretary mentioned tech and computer games. Build a Rocket Boy is based in Leith, and Skyscanner started in Leith, years ago.
My constituency highlights—other members have said this—the fact that we need to apply our attention to two things: people’s skills and place. The reason that so many people base themselves and their businesses in Edinburgh and my constituency is because of the quality of life here. A lot of that is to do with affordability, which is why the housing situation that we face is so important. People have been establishing and creating businesses in our capital city because it has been affordable and, compared with elsewhere, has provided a high quality of life and services.
That is why we need to think about issues such as housing market diversity and LBTT and why we need to give particular consideration to Edinburgh and its housing crisis. Some people champion build to rent, which has a role in our housing market, but it is a model for transient workers. We need to think about how to build capacity for those who stay for longer. Build to rent is not a panacea to solve the housing crisis, although it plays a part.
The challenges for the hospitality sector have been articulated in the chamber in a number of different ways. In Edinburgh, although there is huge demand for hospitality businesses, their costs can be higher because of property values. We cannot take the hospitality sector in our capital city for granted. For example, the shore area in Leith is thriving, but there is a vulnerability about it because of the challenges of the national insurance hike and general economic conditions. People come here to start businesses, to live well and to enjoy themselves, and that is a great place to build from.
16:30
I invite Michelle Thomson to make the intervention that she was unable to make in my opening speech, if she is willing to do so.
That is very kind—I really appreciate it. Lorna Slater mentioned this morning’s meeting of the Economy and Fair Work Committee, and I was going to point out that the witnesses were really talking about the large-scale lenders making the shift. It is really important for us to bear that in mind in relation to what we are able to influence in this Parliament, as I think that the reference to that kind of large-scale corporate lending was drawn from the United States. My intervention was just to make a clarification.
I was actually referring to the conversation in today’s committee meeting about the Community Wealth Building (Scotland) Bill itself and how, as currently drafted, its provisions are about putting the onus on public sector bodies such as our enterprise agencies to pivot. Both in the chamber and in the Economy and Fair Work Committee, we have talked about mainstreaming alternative business models. What Michelle Thomson says is also true; maybe we were just identifying different parts of this morning’s committee conversation.
One of the things that I would like to do in my closing speech is challenge some of what passes as economic orthodoxy that we have heard in the chamber this afternoon—namely, the idea that everybody moves around the world for tax advantages only and that everybody only wants money, and that that is their primary goal. I have an advantage over many of the members across the chamber who made that claim, as I moved to Scotland specifically to bring my skills as an engineer here and to be part of Scotland. I did that not because I thought that it would make me more money, but because the lifestyle that we enjoy in Scotland—a social democratic country and a small nation with big connections—is so powerful.
Has the member heard of something called tax flight? That is happening in Scotland right now. Members of the business community and successful businesspeople are leaving because of the SNP’s tax regime.
I have great difficulty in understanding why Rachael Hamilton brings that evidence. Even someone earning more £100,000 in Scotland pays a fraction of that more in income tax, whereas in Scotland we have free university tuition, baby boxes, free prescriptions and cheaper house prices than in many parts of the UK. The overall cost of living in Scotland is lower, and any businessperson who cannot do that math strikes me as not being very credible. [Interruption.] Living in Scotland is a very good deal. If we look at all the advantages that we get—everything from free social care to free bus passes for our kids—it adds up to a significant sum in social benefit. [Interruption.]
Ms Slater, I ask you to resume your seat.
The member has taken two interventions. She has been generous with interventions. I think that we should listen to the responses and the speech that she is making.
Ms Slater, please continue.
It is not just me who thinks, “Tax, tax, tax. Everybody is only worried about tax.” I will quote the Financial Times. When the World Bank did surveys with investors on what determined their willingness to invest in a country,
“The top reasons were almost always the same: first came macroeconomic and political stability (which has been put into jeopardy in the UK)”
because of Brexit, followed by
“high-quality infrastructure and skills. Low taxes and enterprise zones were always near the bottom. The key to growth is to create an environment where there are great commercial opportunities—tax rate differences of a few percentage points are largely unimportant if you are making a lot of money.
A better policy response would be to use any remaining fiscal space to invest in a serious productivity agenda. This would include mechanisms for increasing investment in infrastructure, skills, research and innovation, alongside incentives to firms to adopt”
new technology or improve management practices.
That brings me on to my second point, which is to challenge Willie Rennie on what he said about regulation. Regulation can support businesses. Someone who works in the construction sector told me that investment in his business has been stalled by the lack of regulation on heat in buildings and by the lack of commitment from the Scottish Government on targets and the number of heat pumps to be installed. Setting a clear direction for investment in regulation allows companies to put the money into training and equipment.
The Financial Times also has something to say about EU regulation. It makes a comparison with companies in the EU, which are subject to much higher levels of regulation than those in the UK, noting that EU regulations, while often seen as burdensome, have also driven innovation by compelling businesses to adapt and modernise. It could be argued that a lack of constraints through regulation in the UK has allowed UK businesses to rest on their laurels, rather than undertaking the innovation, investment and modernisation that they need to undertake to compete.
16:35
Scotland has a proud history of invention and innovation, from the telephone to the television, and from the pneumatic tyre to penicillin. That legacy lives on today in the entrepreneurs and innovators across our country who are working hard to build businesses, generate ideas and create jobs in every community. However, if we are serious about empowering those entrepreneurs—not just celebrating them—we need more than press releases or appointments; we need a plan that delivers.
While I welcome Ana Stewart’s appointment as chief entrepreneur—and I thank Mark Logan for his valuable work—the motion before us paints a picture that simply does not reflect the reality that is experienced by many businesses. As Daniel Johnston highlighted, the rate of innovation-active businesses in Scotland has fallen from 50 per cent to just 32 per cent, putting us behind every English region and Wales. Despite a small improvement in the number of high-growth firms, Scotland ranks 11th out of 12 UK regions on the Government’s own innovation scorecard. Other key indicators are going in the wrong direction: business R and D investment is low, patent grants have dropped sharply and academic income from business collaboration has fallen in real terms.
Entrepreneurs do not need another ambition from Government; they need practical support. They need the investment to scale, the capital to grow and the skills pipeline that meets their needs. On all three fronts, the Government is falling short. Let us be clear: this is not just about tech start-ups in our cities. Innovation must be inclusive; it must reach rural communities, social enterprises and sectors that have often been overlooked. That includes support for more women and minority entrepreneurs—something that Ana Stewart has rightly championed through the pathways work that she co-authored. Good ideas need more than good intentions, however; they need funding, access and consistent support.
On investment, the number of risk capital deals under £10 million fell last year. Larger deals collapsed, with the total value down by 69 per cent. There is a chronic lack of long-term capital, particularly for capital-intensive sectors such as manufacturing and life sciences.
We face a growing digital gap when it comes to skills. As Foysol Choudhury rightly said, we are creating far more digital jobs than we are producing qualified graduates. The number of computer science teachers is falling, and employers are struggling to recruit people with even basic IT skills.
When it comes to in-work training, which is critical for both new entrants and workers who are looking to reskill or upskill, many businesses have told the Economy and Fair Work Committee recently that they are deeply concerned about the funding mechanism changes that the Scottish Government is proposing in the Tertiary Education and Training (Funding and Governance) (Scotland) Bill. There is a real risk, and a fear, that those changes will undermine the ability of training providers to meet the needs of businesses, just so that, rather than simply funding our colleges better, the Government can shore up its bad decision to cut college funding by 17 per cent since 2021. Our colleges are facing growing demand, with long waiting lists for skills-shortage subjects and falling apprenticeship numbers—all while they are being asked to do more with less.
The Government is doing the same with our enterprise agencies. South of Scotland Enterprise had its budget slashed by more than 25 per cent—£8.7 million has gone from the organisation that is responsible for supporting SMEs, fostering innovation and creating jobs. Nevertheless, SOSE continues to deliver, from the Techscaler hub in Dumfries to support for innovative, sustainable manufacturing businesses such as the Eco Group in Annan. Ambition needs to be backed by resources, however.
The Government claims that it wants to build a world-class entrepreneurial culture—that is a central goal in the national strategy for economic transformation. However, two years on, Audit Scotland has, rightly, questioned the lack of clear investment plans and noted weak transparency in how the NSET is being delivered. The most recent progress report offers generalised updates but little clarity on what is working and what is not, or why.
We cannot afford a strategy that continues to overpromise and underdeliver. We need a different approach—one in which our enterprise agencies pivot, as Lorna Slater said, and are empowered to provide long-term strategic support for entrepreneurship; in which colleges are properly funded to deliver the skills that businesses need; in which in-work training and digital education are seen as national priorities; and in which the Scottish Government uses its influence to bring together industry, academia and communities to drive innovation and to share its rewards. That is why Labour is asking the Parliament to support our amendment. Although early stage support matters, it is scale-ups, skills and sustained investment that will deliver lasting impact.
Scotland has the talent. We have the ideas. However, unless we match ambition with action and get the basics right, innovation will remain concentrated in too few sectors and too few places. Let us deliver a truly inclusive, entrepreneurial Scotland, where innovation thrives in every community, rural and urban, and where those who drive our economy forward are backed every step of the way on that important journey.
16:41
I thank colleagues across the chamber for their contributions to the debate, which is a genuinely important one for Scotland. Without entrepreneurs who are willing to invest and take risks in Scotland, Scotland will not be able to succeed and the bill for the social contract that Lorna Slater mentioned will go unpaid.
However, under the SNP, we are missing opportunities to deliver a culture that would allow entrepreneurship to flourish. Too often, it is clear that Scotland plc is not actually open for business. The entrepreneurs, risk takers and wealth creators go where the opportunities exist. To deliver that culture, the Government must seriously rethink the way that it thinks and start to think like business thinks.
Lorna Slater’s contribution revealed that there is a gulf between some of the parties in the chamber and those who would, and could, set up businesses in Scotland if the operating environment were different. We need to create the culture and atmosphere here, in Scotland, that will allow those businesses to grow. As has been said in the debate, that means bringing higher education institutions with us and making sure that they are not only well funded but global and entrepreneurial in their outlook. To respond to the Deputy First Minister, there is no point in our having the best R and D in Scotland’s universities if those universities can barely afford to turn the lights on.
Like many across the chamber, I have read the recommendations of the Hunter Foundation’s report “Lessons from Singapore for Scotland’s Economy”, and I found those recommendations incredibly useful. The points that the report makes about Scotland are true. For example, it says that workers in Singapore are almost twice as productive as their Scottish counterparts. That and many of the other points that were made by Sir Tom Hunter should be lessons that the SNP learns—and quickly—otherwise Scotland will continue to fall behind our international competitors and the worrying trend that we are seeing in business registrations and failures will continue, particularly among the SMEs that should be the engine for growth now and in the future.
We need to address what is generally perceived to be a hostile tax environment: the Government is not pro-business, pro-development or pro-investment. We also need to target those sectors that can potentially grow.
Will the member give way?
Briefly, yes.
I thank the member—I will try to be quick. I must make the point that, yes, tax is a consideration, but, if we are talking about creating an entrepreneurial culture, we have to factor in the economic system as well. Surely the fact that so many key powers—over monetary policy, control of interest rates, money supply, corporation tax, employment law, migration, energy strategy, pensions, export support and so on—lie with Westminster should be factored in to it as well?
That was more of a lecture than an intervention. It is, pitifully, the case that only 9 per cent of Scottish businesses think that the SNP Government understands the business environment. That is the reality of the situation. The mood music and the operating environment are critical to attracting entrepreneurs and investment, and I have first-hand experience of that.
At the age of 33, after nearly a decade of running a publishing and conference business in London, I took out a mortgage on my house and flew out to Hong Kong with £50,000 to establish my own communications and conference business. The first stop was Hong Kong, which, like Singapore back in 2008—it has changed a bit since then—was avowedly international, low tax and pro-business. I recall the company formation process, which was very simple and easy, even for a resident. Through the grapevine—most likely, the grapevine in the Foreign Correspondents Club—the chief executive of Invest Hong Kong, who was an avuncular Brit called Mike Rowse, called me in to welcome who he thought was another large-scale British investor to the city. He maintained an interest in my venture even when he found out that the “50” that I was referring to was £50,000 rather than £50 million. However, as Mike said, from small acorns grow mighty oaks.
It is often the smaller start-ups that need the greatest support. Mike’s message then was very simple, and it can be articulated as, “Welcome to Hong Kong. Invest in Hong Kong. Tax is low. Regulation is light touch.” There were incentives to invest—for example, there was a tax holiday for SMEs in their first five years, which meant that, if they made a profit, they did not pay tax, up to a certain level. There was a two-tier profits tax—today, the lower level is just 8.25 per cent on the first £200,000 in profits. There were double taxation treaties in place to make sure that entrepreneurs and their companies could not be taxed twice. There was no VAT, and there were attractive tax deductions for capital expenditure. There was a low income tax rate, and no income tax had to be paid on earnings that were generated overseas. Those were all concrete measures that encouraged me to set up a business there, and Invest Hong Kong provided support for businesses big and small.
After growing that business in Hong Kong, I set up a similar business in Singapore. Again, the message was quite clear: Singapore was open for business, and, when you walked in through the door, there were people there to help you. In a very Singaporean way, there was a slightly more draconian set of rules to abide by, but, once you understood the nature of the legal system there, it was easy to navigate. Again, taxation was low.
I welcome the aspiration in the Scottish Government’s programme for government to establish an organisation called “InvestScotland”, which the Government says will be a one-stop shop for investors who are looking to come to Scotland. However, providing the mechanism to bring people here will not cut it if entrepreneurs and investors get to Scotland and realise that our taxes are too high, our skills base is not fit for purpose and our infrastructure and planning system will hold them back—and that is leaving aside the constitutional uncertainty that has been created by the SNP’s on-going obsession with independence, which I believe has been an issue.
When the most recent Scottish Government budget was considered, we advocated for tax cuts for individuals and businesses. We also advocate for a cull of the quangos that are producing the red tape that is holding many businesses back. There is a recognition that the Government needs to do more to ensure that we have the right skills, which will involve properly funding our colleges, universities and apprenticeship schemes. The Scottish Government must make that an absolute priority, otherwise there will be massive skills gaps that will prevent people from locating and growing their businesses here.
The Scottish Government has not thought seriously about the business environment in this country, nor has it thought seriously about the international lessons that—as Sir Tom Hunter said—it can learn from Singapore and other Asian nations, as well as from nations closer to home.
There is a commonsense solution to the fact that the SNP is failing to create the space and the environment in which Scottish entrepreneurs and those whom we might want to attract here to set up businesses can thrive. However, there is a template that would enable the Government to do that, and I urge it to adopt that template quickly.
I invite the Deputy First Minister to wind up the debate.
16:48
One of the vital characteristics of an entrepreneur is a healthy dose of optimism, positivity and enthusiasm. We heard that in some speeches but less so in others. Given all the debates that we are now having on the economy, things can only get better when it comes to rejecting the doom and gloom and pursuing growth, prosperity and positivity. We need to engage with the substance of the issues.
Will the Deputy First Minister take an intervention?
I would like to make some progress.
In understanding the headwinds in the Scottish economy and the challenges that businesses are grappling with, we need to rise beyond the Google bad stat on generic economic matters in Scotland and get into the substance of the issues.
Today, we are discussing the role of entrepreneurship, in particular, and how we support Scotland’s entrepreneurs—for all of the reasons that we have debated in our speeches so far. One of the points that has frequently struck me is that, if we measure the wrong thing, we will deliver the wrong outcome. We have heard a range of statistics in relation to entrepreneurship from a number of speakers, and it is clear that what we measure and what we invest in will deliver the result that we want.
In other words, if we simply measure the statistics around total early stage entrepreneurial activity that Murdo Fraser was criticising, we might start to replicate Ecuador, Guatemala and Chile. There is a role for looking at that. The same goes for some of the statistics that Daniel Johnson talked about, such as the fact that the number of deals of more than £10 million had fallen between 2022 and 2023. Yes, but the 2022 figures were boosted by a small number of huge deals, such as GoFibre, which was worth £164 million.
The latest data shows that, in 2024, there were 17 deals of more than £10 million, totalling £373 million. That is a 90 per cent increase in deal volume and a 70 per cent increase in value. In other words, Scotland is growing. I am more than delighted for the credit to go entirely to Scotland’s businesses. I am here to celebrate what they have achieved in the past few years. The evidence is clear that the policies that have been implemented and the investment that has been made during this parliamentary session are starting to turn the tide. We are seeing a significant increase in investment across the board.
Will the member give way?
I will take some interventions soon.
We can even go beyond the figures and look at the examples of companies with high growth potential. TauRx in Aberdeen, which is developing a novel Alzheimer’s treatment, has been valued at more than $1 billion. That is a great example of a business that delivers economic value, and is also providing a solution to a problem—Alzheimer’s—that many people have, sadly, experienced.
I will happily take any interventions.
It is incumbent on us all to celebrate the successes. However, when it comes to the statistics that are published by Mark Diffley and his organisation, does Kate Forbes recognise that there are serious concerns among those in the business community about some aspects of what they see as a rather threatening environment in Scotland?
I absolutely accept that there are issues that the business community raises with me and, I imagine, with all of us. However, we in this Parliament frequently fall into the trap of talking about business as though it is homogenous, and of talking about economic growth and prosperity as though there is a linear line to delivery. There is a role for all of us to have generic economic discussions and debate. What I was keen for this debate to do, however—although this is not my prerogative to decide—was to hone in on one element, or subset, of the economy and talk about the high-growth potential entrepreneurs that we want to develop.
I talked about Sweden. Let us be unashamed about the fact that we want to see more unicorns. We want to see more high-growth businesses that go all the way from being small start-ups to hitting the heady heights of being a unicorn. That will be a different journey for them than it might be for a retailer on Edinburgh’s High Street, and different from the experience of some of the other businesses that we all represent. Understanding how we do that is really important.
We have talked a bit about universities. Daniel Johnson made the point that universities take too high an equity stake in spin-outs, and I agree that that has been a barrier in the past. However, one of the interesting outcomes of the renewed focus on entrepreneurship and the policies that we have been progressing in the past few years is that the average equity stake that is taken by universities is falling. In 2024, it was the lowest since records began in 2011, falling to 11.8 per cent from 14.1 per cent in 2023. In other words, universities are actively changing their policies on equity, with Edinburgh and Aberdeen leading the way. We commend that. However, if we had not had the discussion three or four years ago about what needed to change, when it came to that really focused approach, we might not have seen that change.
Scotland has a successful track record on university spin-outs. In 2023-24, the number of active firms that spun off from Scottish higher education institutions increased by 9 per cent compared with 2022-23. That is an impressive figure. However, back in 2016-17, the increase was 56 per cent. We are moving in the right direction, and that is to be commended.
Another area that members debated and discussed was tax. Clearly, there are dividing lines in the Parliament on tax rates and the tax position, but we have to grapple with the fact that some of the top performers for entrepreneurship in Europe are Denmark, Sweden and Norway, which have high-tax systems with a strong social contract. The Institute for Public Policy Research Scotland recently laid out that approach. In other words, even if members want low taxation and they think that that will deliver a result, as Lorna Slater said, it takes a lot more than tax rates to develop and deliver a successful ecosystem. Low tax does not inevitably mean world-class ecosystems. We have to do some of the heavy lifting on that.
Craig Hoy rose—
I will bring in Craig Hoy, considering his self-professed entrepreneurship experience.
Does the minister not realise the problem? If businesses believe that they will get good public services and a good quality of infrastructure, they might think about investing in Scotland despite the SNP’s high taxes. However, in Scotland, we have high tax but poor quality public services.
To use Craig Hoy’s argument, the fact that, for nine years now, we have been the top destination outside London and the south-east for foreign direct investment indicates to me that businesses like what they see in Scotland and they are choosing to invest.
I will reiterate the steps that we are taking in Scotland, because, if we have learned anything from our work on entrepreneurship, it is that the interventions that we take have to be flexible and have to work with entrepreneurs, and, as Michelle Thomson said, we have to take a less risk-averse approach to some of those investments, because, by definition, some of that high-growth investment will be of higher risk.
The Deputy First Minister is dealing with those things without reference to some very basic foundations. For example, I do not think that she has mentioned the words “school” or “college”. Those are areas in which the SNP has clearly failed Scotland, particularly in this parliamentary session, yet she sets that aside. It always begins with our people. Why will she not address the issue that surrounds our people and the imbuing of enterprise and the entrepreneurial spirit, which needs to start at a very early age?
Our people are core to the work that Mark Logan set out in the Scottish technology ecosystem review. Our people and education are vital. In my opening remarks, I definitely made a lot of mention of education and Stephen Kerr will hear the word “education” again shortly.
I will go through the five steps that we are taking to develop the best ecosystem for start-ups. The first is in launching the ecosystem fund, which was always designed to be flexible, to allow entrepreneurs to access sometimes just a little bit of funding to help them on to the next step.
The second is in backing successful schemes such as Scottish EDGE. There has been much mention of Sir Tom Hunter. That scheme identifies and supports promising new businesses.
The third is in our relaunch of the entrepreneurial education pathways fund, which, this year, for the first time, provided entrepreneurial education throughout primary and high school. It was highly successful last year, and it means that entrepreneurship is not just the domain of rare individuals with exceptional intelligence or drive but a democratic approach.
Rachael Hamilton rose—
I am being told to wind up. The final step is supporting new computing science teachers, with a substantial investment for the two-year pilot at the University of Aberdeen to train new computing science teachers, who will educate in high schools. That means that our young people can access some of the best education that they can to have a bright entrepreneurial future.
Previous
Portfolio Question TimeNext
Business Motion