Public Audit Committee [Draft]

Meeting date: Thursday, March 14, 2024

Official Report 658KB pdf

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National Strategy for Economic Transformation

Welcome back to the Public Audit Committee. We move on to our third agenda item, which is consideration of a briefing that the Auditor General for Scotland has prepared on the national strategy for economic transformation.

I am delighted to welcome our four witnesses. We are joined by the Auditor General, Stephen Boyle—good morning, Auditor General. This morning, he is joined by Cornilius Chikwama, who is an audit director; Catherine Young, who is a senior manager; and Kirsty Ridd, who is an audit manager, all from Audit Scotland.

We have quite a number of questions to put on the briefing, but before we turn to those questions, I invite the Auditor General to give a short opening statement.

Good morning. I am here to present our “National Strategy for Economic Transformation” briefing paper on the Scottish Government’s arrangements for delivering the strategy, which it published in March 2022.

The ambitions in the 10-year strategy are wide-reaching and touch on many policy areas. The Scottish Government’s overall vision is to create a wellbeing economy in which traditional economic growth is not the only measure of success. Delivering that will be a substantial challenge and will require all parts of Government, and others, such as Scotland’s businesses, to work closely together.

Scotland’s public finances are now more closely linked to how Scotland’s economy performs relative to the rest of the UK, through the operation of the fiscal framework. That makes it even more important for the Scottish Government to achieve the economic performance ambitions that it has set out in the NSET. Good governance arrangements are the key to ensuring clear performance oversight and accountability and effective decision making and to managing risks. That is particularly so for the NSET, which spans different Government directorates and public bodies.

My briefing finds that the Scottish Government has set up governance arrangements

“to encourage collective ownership, accountability, and oversight for progress.”

That includes a delivery board comprised of relevant experts. However, the briefing also notes that, two years on from publication of the NSET,

“the government has yet to establish its planned Economic Leadership Group.”

That group was intended to provide collective political leadership for the strategy across ministers, and to provide a route for the delivery board to escalate major concerns.

The Scottish Government has not yet clearly set out how much money will be required to deliver the national strategy. Current financial challenges require an understanding of cost and affordability to inform the Scottish Government’s spending decisions, and that is crucial for transparency, scrutiny and accountability. My briefing highlights that,

“While good connections have been established across the Scottish Government to support”

delivery of the strategy,

“it is not clear how directorates are working together to agree funding priorities.”

That makes it difficult to judge whether investments are in areas that will deliver the greatest impact.

In October 2022, the Scottish Government published delivery plans for implementing the strategy. It reported in June last year that 10 out of the 79 delivery plan actions had been completed, with a further 48 in progress. While it is too early to assess the overall impact of the strategy, my briefing recommends that the Government develops its approach to evaluation in order to better understand which activity is making the biggest difference in transforming Scotland’s economy.

Lastly, in January this year, the Scottish Government advised the Economy and Fair Work Committee of its intention to update the strategy, and its delivery plans, in response to recent policy and economic developments. We will monitor the Scottish Government's progress in that area, and use that to inform any further audit activity.

We look forward to answering the committee’s questions.

Thank you for that helpful introductory statement. One of the chapters in the briefing is headed “Reporting progress and measuring success”, so I want to begin by asking for a report on progress and whether success was measured in terms of the previous national economic strategy, which was launched in 2015. At paragraph 4 of the briefing, you mention that the two principal objectives of that strategy were

“boosting competitiveness and tackling inequality.”

I will ask Kirsty Ridd to set out what history has shown us. Before I do so, I note that we find in our report that there is often an overlap between strategies. We certainly found that in looking at the progress since publication of the NSET in 2022. Of the 70-plus indicators that I mentioned in my opening remarks, it was not always clear what was a new indicator and what was an existing measure.

Looking to the next iteration that the Cabinet Secretary for Finance has committed the Government to produce this year, is there a clear flow-through from one iteration of the strategy to the next? That needs to be captured at the outset, with measuring of progress and transparency, and it can then be used to inform which indicators and measures will deliver the biggest impact across economic growth and other measures.

I will pause for a moment and bring in Kirsty Ridd.

As part of this work, we looked at the arrangements and frameworks that have been set up to deliver against the national strategy for economic transformation. We have not taken a comprehensive look back at what was in the previous strategy and how that flows through into the NSET, but we have set out, in our introduction to the briefing paper, some of the challenges in the wider economic context. We comment on some of the longer-term trends that have presented economic challenges in Scotland, which set the context for the current strategy.

As the Auditor General mentioned, we discussed how the strategy incorporates a number of actions and initiatives that pre-exist the national strategy for economic transformation, and we went on to cover the fact that it is not always easy to see how those actions all link up to achieving the wider measures of success and the overarching ambitions of the national strategy. It is difficult to see how those things flow through.

We have therefore recommended that, in doing the update of the strategy and the delivery plans, the Scottish Government should set out more clearly the linkages between the various actions and the contributions that they are expected to make to the measures of success and the overarching ambitions. That would give a clearer picture of the flow from the actions to the measures of success.

We will see whether the new vision is easier to translate into tangible, measurable actions.

This might not be an area for you to comment on, but I would be interested to hear any view that you may have. The previous strategy was formulated and launched in 2015. In 2016 we had a referendum on membership of the European Union, and the UK overall voted for us to leave. As a consequence, the UK left the European Union in January 2020. I am a bit surprised that there has been no revision to the strategy in light of such a significant event.

As you will know, it is for Government and Parliament to determine their policy intent for progress on strategy development. I do not have a particular view here and, as you have suggested, it is perhaps not appropriate for me to express a view about the frequency with which policies are developed. However, the former cabinet secretary’s correspondence with the Economy and Fair Work Committee cites the change in the economic environment that Scotland has been experiencing as one of the drivers that the Government intends to use as it reasserts its economic strategy later this year. We would also expect that to be informed by the programme for government pillars that were set out by the First Minister in the middle of 2023.

We hope that it is helpful for the Government, as it revises its strategy, that there are effective pillars of good governance, risk management and evaluation frameworks such that, given all the challenges that we know of and Scotland’s fiscal position, Scotland is getting best value for the investment that it is making in its new strategy.

Other people will come on to some of those areas later, in particular the governance arrangements.

Before I hand over to the deputy convener I will return to the importance of transparency and clarity around the goals and action points. I looked at exhibit 1 in your briefing, headed “Examples of NSET actions”, and I noted the actions under the national strategy for economic transformation that you listed. The first one is:

“Create a national system of pre-scaler hubs that will stimulate the very earliest stages of high growth commercial and social entrepreneurship.”

The next one that is cited is:

“Build strategic partnerships with other key entrepreneurial ecosystems in other countries.”

The third is:

“Design and implement programmes on practical actions business and leaders can take to boost productivity at scale.”

There is an awful lot of jargon there for something that I presume is meant to be a public document that people can read in order to understand the intent of the economic strategy.

All those actions need to be understood, not just by the people who are writing them but by the wide range of partners who will need to play their part to implement them effectively. You have mentioned that you want to explore the governance arrangements, which are wide ranging and include representatives from across the public sector, the third sector and, very importantly, Scotland’s business community. There is also an element of scrutiny and accountability for the indicators.

There is an opportunity here—and I guess it sounds like I am agreeing with you. In setting actions—not just in the way that they are described—we need to be clear what precise steps are going to be taken, how they will be measured, what the timescales are and what investment requires to be associated with all the indicators. There is an opportunity on all those fronts, as the Government thinks about the next iteration of the strategy.

Thank you. I invite Jamie Greene to put questions to the Auditor General.

10:15  

Good morning. I will start with the basics. From your briefing, it seems that Scotland has two issues: sluggish growth in gross domestic product, and low productivity. Is that assertion correct?

Those are recurring themes. Productivity and growth were also key elements of the previous strategy, which the convener mentioned. The NSET in 2022 brought in the wider component of a wellbeing economy. However, as I mentioned in passing in my introductory remarks, there is the context of Scotland’s fiscal framework and the resultant revenues to support public spending in Scotland, which are predicated not only on growth but on a wider comparison of Scotland’s relative economic performance with those of the countries in the rest of the UK.

More recent forecasts frequently come in from various sources, However, the Scottish Fiscal Commission’s forecasts for the next three years consistently show that Scotland’s relative economic performance will be lower than that in other parts of the UK as far as GDP growth is concerned. Therefore the success of the strategy to achieve better returns in Scotland’s delivery of public services is all the more important.

In short, though, the two pillars that you mentioned are consistent themes.

Why is that? What red flags might we see, a couple of years ahead, of projected lower performance relative to other parts of the UK or to similar economies? For example, you say that, in a productivity comparison, we are 16th out of 38 economies, which is around midway through the pack, but clearly we could do better. What is influencing that lower productivity and growth? What analysis should be undertaken of how we could make immediate improvements? That would generate more money for public services.

You are quite right. In a moment I will bring in Cornilius Chikwama, because that is his area of expertise.

I would seek to manage the committee’s expectations. We did not set out to do the analysis in today’s briefing paper to explore why lower productivity than policy makers would want has been a stubborn feature not only of the Scottish economy but of those of the other parts of the UK and of other western economies, too. That remains part of the focus. Again, respecting the boundaries of what is appropriate for me to get into as regards the merits of one policy or another, I can see why that approach features: it is to tackle lower productivity, deliver better economic returns, and create higher-paid jobs and personal return for individuals and resultant tax take.

I will pause there. Cornilius Chikwama might want to say a bit more about the background on productivity and the other pillars.

As the Auditor General said, it is difficult for us to be directive as to the analysis that the Scottish Government needs to do in that area. The strategy acknowledges the challenges of productivity and low growth. The areas that it has identified are ones that the Government believes would enable it to tackle those challenges. We can see its ambition to build an entrepreneurial people and culture, which is about increasing the number of high-growth businesses, focusing on a skilled workforce, exploring productive businesses and regions, achieving a fairer society and considering new market opportunities. It looks as though the Scottish Government has identified that those goals would help it to tackle the challenges of slow growth and low productivity growth in Scotland’s economy.

Of course, much of that comes from the top down. In the first section of your briefing, you immediately identify—I do not want to put words in your mouth—a lack of political leadership overseeing much of the strategy as being an issue. You specifically identify that the

“Economic Leadership Group has not yet been established.”

The strategy was published two years ago. Are you surprised about that?

We are clear in the briefing paper that establishing the economic leadership group was part of the Government’s NSET accountability framework—it identified that as an essential component of the governance that is necessary to deliver the strategy.

I will bring in Catherine Young to say a bit more about our engagement with the Government. The fact that the group has not been set up is a gap. It was intended to be the mechanism for the delivery board to escalate issues to politicians. Ultimately, much of the strategy will be about choices, prioritisation and escalation. Clearly, there must be prioritisation not only for the current strategy, but for its next iteration. That political oversight, and a route to escalate and prioritise matters, whether it is done by the economic leadership group or, as we say in the report, some other vehicle, will need to be part of future arrangements.

I will pause to allow Catherine to provide a bit more detail.

I reiterate that one of the actions in the strategy is to establish the economic leadership group. As the Auditor General mentioned, its role would be to ensure political accountability and drive, as well as to ensure the wider public sector’s contribution to delivering the strategy.

Exhibit 2 outlines the flow of information between the various levels of governance. There are positive aspects to the different tiers and the role of each board. However, as the Auditor General mentioned, when decisions are made to accelerate or stop an activity, there is no clarity on how information about that goes to ministers or on how decisions are made collectively.

We have made a recommendation that the economic leadership group be established or that an alternative mechanism be put in place, so that information, decision making and prioritisation are transparent.

I am sure that there will be opportunities for Parliament to address those issues with the Government. Other members will probably delve into the specifics of some of those gaps.

I will conclude my questioning by making a wider point. Auditor General, you said that much of the strategy is down to prioritisation or choices. I presume that those are policy choices that are under the control of ministers. Is there an intrinsic conflict between, for example, pure economic growth and the wellbeing economy? Is it difficult for Governments to balance those two different policies? The strategies for both approaches might take them in very different directions.

Cornilius Chikwama will support my opening remarks in response to that question. Again, it would probably not be appropriate for us to have a view on the merits of one type of economic strategy relative to another.

Indeed.

It is very clear that the Government’s policy is to progress with a wellbeing economy, and it has set out in its strategy the arrangements through which it intends to deliver that. We have spoken about how the governance would be set up, and about the need for clarity with regard to the actions, indicators and evaluation frameworks. However, that is about the need for prioritisation, because there is no single budget for the delivery of the wellbeing economy or for economic growth. We are, I hope, clear in the briefing that prioritisation will be needed to successfully deliver the national strategy for economic transformation.

I highlight exhibit 3 in the briefing, which sets out the programme measures of success. It is clear that things about a wellbeing economy will be interspersed with some of those measures. That brings in aspects of Scotland’s environment and additional factors from the previous strategy. Delivering the strategy effectively has to involve all the various pillars of good governance, indicators and political leadership, and the evaluation framework. As I have said, we are neutral about the merits or otherwise of one type of economic strategy relative to another, but delivering any strategy effectively has to involve getting all the real foundations successfully in place.

I will bring in Cornilius Chikwama, who can say more about that.

The challenge for the Scottish Government is to look at its NSET actions and how they work together, to identify where complementarity exists, and to align things with what it has identified as the wellbeing economy or the framework behind the wellbeing economy.

For example, the Auditor General’s report highlights the slow growth and the productivity challenges, particularly over the period from 2008 to where we are now. That has been a period of very low real growth in pay, which will have impacted progress on tackling poverty. Looking at the role that pay plays in reducing poverty highlights that there is a link between growth and wellbeing. Therefore, there may be opportunities for complementarity.

The strategy identifies new market opportunities, some of which involve delivering on green priorities. There might be opportunities where the Scottish Government is delivering on its green outcomes. The opportunities to grow the economy that are presented by those green outcomes could be seized. There are scenarios in which those things could become aligned, but a lot of planning on how to deliver those actions is required to capitalise on the potential synergies.

I hope that that addresses the question.

It does. Thank you.

Willie Coffey has a question in that area.

My question is about the growth forecast issues that we discussed a moment ago. This morning, the Fraser of Allander Institute has projected an improved growth forecast for Scotland in the next three years. The figures are slightly behind or slightly ahead of the rest of the United Kingdom figures, depending on how you read them. As we know, the UK has been in recession. The projection for the Republic of Ireland economy is four times that for Scotland. I never want to draw you into any political debate or comparisons—it is not appropriate to do that—but what levers are available to us in Scotland that can influence that to our advantage?

That is a difficult question for me to give a credible or comprehensive answer to, given my responsibilities and area of expertise. If you will allow me to pivot slightly, my response is that, with the levers that Scotland has for its economic performance and that are set out in the strategy that we have referred to, there are opportunities to give it the best chance of success. However, there are currently gaps. In my opening remarks, I touched on the fact that it is all the more important that, because of the nature of the fiscal framework that Scotland operates, its relative economic performance outperforms that of the rest of the UK to deliver the resultant generation of tax receipts and associated public spending. However, if you are looking for a wider answer, the question is probably more for others than for me.

I appreciate that. Thank you very much.

May I take you back to an issue that you will be able to answer on, Auditor General? You mentioned, and the deputy convener asked you about, the economic leadership group, which is not yet in place. Who is it envisaged will be members of that? Is it an internal governmental powerhouse or does it draw on external business people, trade unions and economists, for example? What would it look like, if it was created?

10:30  

I will ask Catherine Young to set that out, because it is probably true to say that there are number of groups in operation—some have relatively similar names that could imply overlap—and that there are other structures that are not covered by our briefing today that also involve Scotland’s businesses, civil servants and wider leadership. The key to the economic leadership group is that it would very clearly be about political leadership. Catherine can set out the intent with regard to that group and, if it is helpful to the committee, our understanding of why it has not progressed in the way that was intended.

The accountability framework sets out the membership of each layer of governance. The economic leadership group was due to be chaired by the First Minister and it was to include key cabinet ministers such as the Cabinet Secretary for Wellbeing Economy, Net Zero and Energy, the Cabinet Secretary for Transport and the Cabinet Secretary for Social Justice. The group was also to include local government representation, which I think was to be the COSLA president. The co-chair of the delivery board was due to attend as and when required. As the Auditor General mentioned, the group was to be about the political side of things rather than the external side, such as business and the higher education sector.

I do not think that there is anything further to add on the rationale for why that has not taken place. Two years on, there is no indication of why that has not happened.

The committee might invite the accountable officer from the Government to explain why the group has not been convened.

As Catherine Young mentioned, in our engagement with Government officials, we are no clearer as to why the economic leadership group has not yet met. As we also mentioned, whether it is that group or some other mechanism is entirely a choice for Government to make. However, we agree that some sort of clearing house or prioritisation forum is appropriate and needed. Prioritisation will have to take place, given that there is pressure on public finances, and that is most appropriately done at a political level.

I have a couple of further questions on the economic leadership group. Your briefing paper refers to the group offering challenge and direction to the senior responsible officers for each of the NSET programmes. That is almost a contradiction: what are you challenging if you are giving direction? Are you challenging your own direction?

I recognise that there is an overlap in terminology, description and membership of various governance settings. Catherine Young might wish to say a bit more about the operation of the groups that have been established. She has mentioned the chairing aspect. The delivery board is co-chaired by a business leader—the former chief executive of the Scottish Futures Trust—along with the director general for the economy. Therefore, the governance arrangements look appropriate, which is one of our overall comments. The starting point is right: there is appropriate representation and business and public bodies are involved.

However, what you are really asking for is an exploration of the flow through to the different groups that sit underneath. In our briefing paper, we do not identify fundamental issues with that. However, the question is about whether other aspects are effectively in place. The prioritisation and measures to support the evaluation framework all need to be better deployed in the next iteration of the strategy to ensure that level of success. Again, Catherine can say more about that.

To clarify, the delivery board is co-chaired by the Cabinet Secretary for Wellbeing Economy, Net Zero and Energy and Mr White, the former chief executive of the Scottish Futures Trust. Beneath that, we have the portfolio board and the programme boards. The role of the delivery board is to challenge, scrutinise and monitor performance of those interconnected parts of the programme. Each of the board members has a role as a critical friend or champion for a specific area, depending on their relevant expertise. A big part of that role is to engage with business and promote the shared vision around the national strategy for economic transformation.

The portfolio board, which is slightly different, is more like the engine room of governance, if you like. It involves key director generals and the chief executives of the enterprise agencies, and it has a core role in internal monitoring and reporting. As the Auditor General mentioned, that information flows through to the delivery board, which is there to provide challenge. As we said, the key piece that is missing is the economic leadership group, with which that information would be shared, with decisions being made at ministerial level.

You referred to champion roles. How does that work?

They are chosen based on the board members’ relevant expertise. For example, Mr White, who has a housing background, is a champion in that area. I cannot recall the other board members’ areas but, for example, the green economy is another of the areas. Obviously, the meetings are minuted and the information is in the public domain. Outwith that, there are also meetings with key stakeholders to do deep dives and exercises around, for example, the challenges for businesses. Information on that is then relayed back to the wider board.

The champions or critical friends spend a lot of time outwith the official forum. It is a vast area with many elements and actions. Obviously, underlying all those actions are many other strategies and plans. As the Auditor General mentioned, we felt that there is no right or wrong structure. However, the accountability framework sets out all the roles of each of the groups and the memberships, and we feel that it is appropriate.

I am trying to keep this simple. Board members have champion roles in their areas of expertise. They are also responsible for giving direction to senior officers and for challenging whatever it is that they challenge. Is that multiplicity of roles not kind of confusing?

I will start on that, and Catherine Young might want to add something. You will recall that, in my reporting on the Scottish Government’s governance arrangements in recent years, we have commented on aspects of complexity and duplication and about the same officials participating in different meetings with different names but, at times, not necessarily having clarity on which roles, responsibilities and actions were flowing from those discussions.

The committee will be familiar with evidence from the Scottish Government that work is under way to review and assess how its internal governance arrangements are operating. I fear that there is a trade-off, however. This is a complex programme and strategy—we need only look at the number of actions that are part of the strategy to see that.

To digress for a moment, we thought carefully about the number of actions. Is it too many or too few, or is it right? There are six complex planned areas of activity to support the delivery, so we are looking at around 10 or so actions per area of the strategy. When I break it down, that does not sound like so many. There is a need for clarity on roles and responsibilities or, to be more colloquial, on what hats people are wearing—that is absolutely central. There is a further opportunity to ensure that, as the Government moves into its next iteration of the strategy, it has the foundations exactly as it needs to deliver effectively.

The point that we cannot quite get away from on governance is that there is not that group at the top level—that political leadership overseeing and supporting prioritisation and making funding decisions, if necessary. That is the missing component of a system that, probably by its nature, has to have a degree of complexity.

There are lots of groups in place to support the delivery of NSET, but there seems to be a strong possibility of duplication of effort, fragmentation and lack of clarity of purpose. Were those risks part of your work? Did they inform the briefing? Did you observe them to be the case in practice?

Catherine Young can say a bit more about our observations of the deployment of governance arrangements on NSET. Our briefing paper does not make an assessment of how successful or otherwise NSET is. It would be premature to arrive at that judgment, given how recent the strategy is. We will continue to have an audit interest in the strategy and the delivery of its successor, but the complexity that you describe exists. We have not yet reached an audit judgment on whether that complexity is necessary for the strategy’s successful implementation.

Catherine can give the committee more of a flavour of some of those discussions.

I will try to keep it simple, but it is important to understand that, beneath the two tiers that we have spoken about, there are the programme-level governance arrangements. As I mentioned, they span so many different aspects and policy areas. In some cases, they draw on existing governance arrangements. For example, in programme 5, they draw on the governance that already existed around the fairer and more equal society programme board, but programme 3—on productive businesses and regions—has created a programme board. When we did the work and engaged with focus, we found that the important thing overall was clarity about whose role is to do what. However, we make the point in the briefing that all those groups should be kept under review. There is the usual assurance reporting and internal directorate reporting around some of those issues as well.

Duplication of effort is one of the things that we will keep an eye on. Ultimately, we were looking for the flow of information and reporting on what progress was being made against the actions, who was involved and whether it felt like appropriate delivery partners were involved in carrying out those activities.

As soon as you see the complexity of governance, you get a bit worried, because the committee has come up against a history of poor governance again and again. Obviously, we do not want it to happen in relation to NSET.

The Scottish Government has not established a shared budget for NSET. Do you know why? Will you expand on some of the risks in that?

I am happy to do that, and Kirsty Ridd might want to say a bit more. The circumstances are such that there is no dedicated budget for the delivery of NSET. I do not wish to labour the point about prioritisation and politicians being the most appropriately placed to do that. Our audit noted that the delivery board identified the need for prioritisation of funding. Given the nature of the delivery of the multiple strands of NSET, funding is held by different Scottish Government departments, as you would probably expect. To deliver a wellbeing economy will not be in the hands of the Scottish Government economy directorate alone.

I refer to exhibit 3, which concerns the analysis of the various programme measures of success, which are interspersed across Government departments. Were there to be a wellbeing economy department or directorate within the Scottish Government—to be clear, I am not advocating that; I am just giving it as an example—that might allow for the delivery of a single budget. However, that is not how things work. Money is being spent across multiple departments of the Scottish Government to deliver the programme measures.

10:45  

Kirsty Ridd can say a bit more about the structure and the set-up, but because it is a complex picture and there are multiple moving parts involving different organisations and departments, it is necessary to have the right underpinnings to ensure success in that environment. Those underpinnings include clarity of outcomes and clarity of measures. Such clarity makes it possible to determine what spending is delivering the best outcome to support the prioritisation. Those are features of the recommendations that we make in our paper.

I will pass over to Kirsty to say a bit more.

Before I do so, Catherine Young might want to come in on the funding point.

As the Auditor General mentioned, with the budget that has already been assigned, the responsibility sits with the directors, and any one director, or multiple directors, could contribute to one particular action. At the outset, when we asked what the overall budget was for NSET, it became clear that, as the Auditor General said, there is not a specific budget for that.

The bigger point that we make in that regard is that, regardless of whose budget it comes from, there should be a clear outline of what all directorates are investing in NSET. That will help with the spending decisions. If we do not have that information, there is a risk that it will be difficult to tell whether all the priorities are achieved in the same way or whether they are all given the same emphasis.

With regard to evaluation, which you asked about and the Auditor General mentioned, the fact that the nature of the funding is such that it comes from different directorates makes the need for a clear evaluation approach even more important, so that it is possible to see which actions are effective and where the investment is having the most impact. That led us to make the recommendation that an evaluation approach be developed and set out clearly as part of the process of updating the strategy.

You have addressed a chunk of my last question, which is about transparency on decisions on funding for NSET. You have covered a number of areas in which there is a need for transparency. Would you like to expand on that? How best can such transparency be achieved?

We welcome many of the steps that the Government has taken. There are published minutes of delivery board meetings, so it is possible to see who attended and so forth. There is also an annual interim report on progress.

For parliamentary scrutiny and for public consumption, transparency always matters, and this committee is rightly a strong advocate of it. However, transparency helps decision makers as well. If the strategy and the next iteration of it are to be delivered successfully, that will have to be prioritised, which will undoubtedly require agility, given the volatility of the economic environment in which Scotland is operating. Decisions about whether to continue to invest in a particular programme of work or to disinvest in it if it is not going well will be better made, and made more quickly, if there is transparency of reporting against the right measures and if everything is underpinned by effective governance.

Willie Coffey has some questions to put to you.

These questions follow on from Colin Beattie’s. In your report, there is a little panel that sets out the funding allocations under certain headings. For example, £50 million is allocated to the just transition fund and £42 million is allocated to a tech scaler programme. Is that new money, or is it money that has been identified in the programme for government and rebadged as national strategy for economic transformation money? Mention is made of £4.7 billion for Covid-19 business support. That cannot possibly be new money.

You are right. As we did our work, our assessment was that it is a combination of new and existing funding. You are referring to the table under paragraph 25, which mentions that the NSET annual report identifies £9.8 billion of investment. I come back to the point about transparency: the extent to which that is new money or the rolling forward of previous commitments was not always clear to us as we did our work.

Building on the discussion with Mr Beattie, I note that there is not enough clarity or transparency about which measures are having the biggest impacts, which elements are priorities or which indicators have been delivered, given that some of the traditional aspects of evaluation methodology were not in place. However, you are right. We highlight the £4.7 billion of Covid-19-related business support as an important intervention that the Government made at the time of the pandemic to support business and the economy, but its impact is ebbing because of the Government’s priorities.

You mentioned that challenges with the information technology system mean that we cannot track spend across the portfolios, or even track budgets at all. What is the issue there?

The briefing paper is fairly direct on that point, Mr Coffey. Some of those arrangements should have been in place earlier, at the outset of the implementation of the strategy. I feel that I am saying this a lot, but the prioritisation that was needed and that remains to be done on the implementation of the various programmes and the overall strategy will be better served with effective information at decision makers’ hands.

Kirsty Ridd might want to say a bit more about the evaluation arrangements that were in place and the work that still needs to be done.

When we were carrying out our audit work, the Scottish Government’s approach to evaluation was in development. At that time, we saw that it was developing an approach that it called logic models, which essentially map the links between the inputs that are underneath the strategy through to activities, outcomes and their expected impacts.

As we say in the report, at that point, when those models were in development, we were not clear that there was a timeline for when they were expected to be completed or exactly how they would be built into the wider performance measurement and evaluation framework. That is why we recommend in the report that they be completed as part of the update. That should help the Government to develop an approach that will help it to understand what is working and where, and where the investment is having the most impact. As the Auditor General said, that will be a crucial part of helping it to prioritise actions and understand where it can best make use of resource.

It is always worth asking about the monitoring of progress and how it will be evaluated. You have mentioned that several times.

Auditor General, you said that the Government is updating the strategy and has reported that. Was it to the Net Zero, Energy and Transport Committee?

It was the Economy and Fair Work Committee.

You have commented on the importance of making sure that we know what the evaluation process is and that it will be effective. Is it being fundamentally changed?

As the Government has moved from one strategy to another, it has carried over some indicators. As Kirsty Ridd said, we know that work is in progress on logic models and evaluation frameworks. We are clear in our view and recommendation that that needs to be in place from the start of the strategy. The strategy needs to have an evaluation methodology and clear indicators and we need to know how all prioritisation and evaluation will be tracked and monitored to support decision makers.

The Government has seen your comments on the issue. I hope and expect that they are being taken on board and will be built into the revised strategy.

We hope that that will be the case.

Okay. The entrepreneurial people and culture programme is the one in relation to which the highest number of actions were identified, but it seems to be the one where the least progress has been made. Could you expand a wee bit on that?

If we have that detail, we can. Cornilius Chikwama might want to set that out. The number of actions in that programme is important, but, if we do not have the detail, I can—

I would think that a lot of the tech scaler stuff would sit in there.

Indeed. Before I pass over to Cornilius Chikwama, I again refer the committee to exhibit 3, which sets out the programme measures, including on entrepreneurial people and culture. You mentioned tech scalers, and one of the measures is about early-stage entrepreneurial activity. Another is about the survival rates of new businesses after three years, and another is on the number of high-growth registered businesses. Those are all vital parts of the strategy that are to do with economic success and bringing highly paid jobs to Scotland. The committee has recently heard evidence on Scottish income tax rates and the importance of such activity in underpinning wider economic success and growth.

Cornilius might want to say a bit more.

You are right, Mr Coffey—we reflected on exactly that point when we looked at progress on the actions. It is difficult to draw any conclusions, because all the actions carry different weight, so counting the number of actions in itself could not lead us to a clear conclusion on whether there was a problem with that particular programme of work.

I guess that what I am saying is that, at this stage, we should not read too much into the number of actions that are still in progress. Maybe we could revisit the issue in future work to look at what progress is actually being made on delivering the outcomes that we expect from the programme.

I imagine that you will follow through on that work, Auditor General.

We have not yet scoped the next iteration. I look forward to engaging with the committee next month on my work programme and where it might go. As I said in my introductory remarks, Scotland’s economic performance is absolutely one of my priorities for further audit activity that Audit Scotland will undertake, but, first, we will consider precisely where we go next.

That covers it from me, convener.

Thank you, Willie. I turn to the deputy convener, Jamie Greene, who has a final question or two.

My questions carry on nicely from the conversation that we have just had about progress on the action points. You said that you do not have a view as to whether 78 or 79 actions are enough or too many, or whether there is the right spread across the six areas, but let us have a look at where we are in terms of auditing.

I am looking at the figures for actions completed under the first four measures, which are more business orientated and are centred around specific interventions rather than things such as diversity, fairness and culture. At the risk of sounding like a football results announcer, the figures are: entrepreneurial people and culture, one; new market opportunities, nil; productive businesses and regions, one; skilled workforce, nil. The figures are pretty poor. Does your audit work lead you to be concerned that we are simply not making enough progress on some of the actions?

Cornilius Chikwama can say a bit more on the specifics of the progress that you ask about. In the briefing paper, we have not looked to make an assessment of whether the Government is on track. Given the number of variables and the relatively short period for which the strategy has been in place—it is less than two years—from an audit perspective, that would be premature.

Audit methodologies have evolved. The committee will know that, historically, an auditor would only really get involved after a strategy had closed, to consider whether it had delivered or otherwise. In this briefing paper, we are looking to, we hope, support the strategy’s impact, ensure that public money is well spent and, in highlighting some of the areas for improvement, give the Government the best opportunity to deliver the strategy. That is where we pitched the briefing paper.

As I mentioned to Mr Coffey, this does not end our interest in the successful delivery of the strategy—far from it. We will return to that in due course. I cannot give you a definitive answer today on whether the performance against the indicators is good, bad or indifferent.

11:00  

The Government will not be operating to uniform timescales when it comes to the delivery of individual indicators. As we covered in our earlier discussion, it will be a question of prioritisation. Some of the indicators or actions that were set two years ago will have been carried forward. Others will have been important when they were struck at the point at which the strategy was launched but, as events changed, priorities will have shifted. We will absolutely return to those factors in future work. For today, Cornilius Chikwama might want to give more of a flavour of them, but I suspect that our answer will be less than definitive, unfortunately.

I do not have much to add to what the Auditor General has said. The key point to highlight is probably the fact that the Scottish Government has launched a 10-year strategy, so many of the actions will have to be delivered over that period. As for whether we would have expected more actions to have been completed by this time, the Government is only two years into the programme, so the answer is possibly not.

To go back to the earlier issue of how those actions might align, the Government will have to take certain steps before some of the actions can happen. That speaks to what the Auditor General said about our revisiting the area once the Government has had enough time to deliver the strategy. We would not make any definitive judgments on progress based on the numbers that we have at the moment.

I hope that we are not saying that we will have to wait for eight years before we can determine whether the strategy has worked. I am not sure how many of the committee’s current members would be here to question you, or indeed whom we would be questioning. Surely we should have a rolling brief on that, which should be produced annually.

That is fair. I will certainly return to the issue long before I finish my tenure in this role.

The purpose of today’s briefing paper is not to express judgment on the success or otherwise of the strategy but to highlight that it presents both risks and opportunities for the Government and its partners. I recognise, too, that the only area that we have not touched on is the programme for government, in which the Government clearly stated its intention to increase the importance and success of its relationship with Scotland’s businesses.

My next question is on that—do not worry.

The Scottish Government will undoubtedly take further steps. At the right point, those will be the subject of more judgment-led reporting by Audit Scotland. We will have to give some thought to when that might best take place, given the environment and the circumstances.

That reflects the complexity of our respective roles in this area: on the one hand, using public money and Government intervention in certain areas in which the Government chooses to do so; and, on the other, using that as leverage to improve the wider economic outlook in the private sector, in which small and medium-sized businesses, for example, are part of the solution.

I want to touch on the very short mention that is made, on page 14 of your briefing, of the new deal for business that the Scottish Government has touted. Would you say that it is facing a bit of an uphill struggle with that? Last year, independent analysis by commentators such as the Fraser of Allander Institute predicted a less than favourable outlook for that relationship. By August of last year, the Fraser of Allander Institute was saying that only 9 per cent of Scottish businesses believed that the Government understood the business environment that they worked in. In certain sectors, such as hospitality, construction and professional services, there was a huge differential. Between 50 and 90 per cent of businesses there believed that the Scottish Government did not understand their environment.

That is the backdrop that the Government is up against, and that is the uphill struggle that it faces. It is very early to tell, but is there any evidence that the new deal for business is working or has been reset?

I refer the committee to the final sentence of paragraph 28 of our briefing paper, which says that

“it will take time to see the impact of this activity”

and the success of the new deal for business.

Looking beyond the success or otherwise of the national strategy, we are considering and scoping a piece of audit work on the Scottish National Investment Bank, given how central it will be to wider aspects of the strategy’s delivery. As the committee heard last week, I am thinking carefully about the funding environment in which the bank operates, given the emerging scarcity of the financial transactions budget that was a key funding source for it, and considering what that means for the delivery of its strategy. We are considering how an audit role and audit reporting might work alongside our other work to support Parliament’s understanding of the bank’s activity. As I mentioned, I look forward to discussing that part of our programme with the committee next month.

We look forward to that. There are wide expectations about whose role it is to follow the money. It is sometimes hard to follow every pound of public money that is spent by various means—for example, to see which directorate is funding what, which grants are available, where investment is made and where nationalisation has occurred. We need to follow those routes to determine whether there have been good returns on investment and whether the objectives of the NSET and other Government strategies have been met.

I absolutely recognise that complexity. On your point about strategic alignment, it is worth highlighting that Scotland’s economic agencies have now aligned their business plans with the intentions in the NSET. That feels pretty logical, and it is sensible that there is synergy across the work of the multiple players in this environment. Again, from an audit perspective, we will keep tracking that and considering where our reporting should go next.

That sounds good. Thank you.

Thank you very much indeed. That draws to a close our evidence session on Audit Scotland’s briefing paper on the national economic strategy. I thank the Auditor General for his evidence and Cornilius Chikwama for his contribution. I also thank Catherine Young and Kirsty Ridd.

I now move the meeting into private session.

11:07 Meeting continued in private until 11:32.