Plenary, 18 Sep 2008

Meeting date: Thursday, September 18, 2008

Official Report 709KB pdf

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First Minister's Question Time

In light of the takeover by Lloyds TSB of HBOS, and having discussed the matter with all business managers, I intend to allow some leeway in the timing of First Minister's questions today. In addition, it is the intention of the Parliamentary Bureau to schedule a ministerial statement and debate on the matter next Wednesday.

We now move to First Minister's questions, starting with question 1, from Iain Gray. [Applause.]

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Engagements

To ask the First Minister what engagements he has planned for the rest of the day. (S3F-1008)

I welcome Iain Gray to his place.

This morning, as many members will know, I was in Rosyth announcing the resumption of Scotland's ferry service from Rosyth to Zeebrugge. The announcement about the restoration of the route today is particularly important when there is potentially grave economic news on other fronts.

A number of meetings have concerned the HBOS takeover by Lloyds TSB. Members will wish to know that I have arranged calls with both of the financial sector unions concerned. I have spoken with both banks and parties concerned today, as I did yesterday. For the information of members, I have called an emergency meeting of the Financial Services Advisory Board for next Tuesday. The board represents a wide range of interests in the financial sector, including the unions, universities and many other interested parties. The entire Parliament will greet yesterday's news with the seriousness that it deserves.

I thank the First Minister for his kind words of welcome. Indeed I will cherish them in the sure and certain knowledge that such words will probably be few and far between in the weeks ahead. I also welcome the news from Rosyth.

The First Minister is right—this is a bad day. We are in the midst of a global financial crisis and the past 24 hours have demonstrated that Scotland is far from immune. There are three key aspects to the HBOS-Lloyds merger that I wish to explore with the First Minister: the implications for employees, the implications for customers and the implications for the economy.

This morning, I met trade union representatives of the workforce. Tens of thousands of jobs are under threat. Many people in the workforce are shareholders too, and they are worried not just about their jobs but about their savings and pensions.

I am pleased to hear that the First Minister has arranged calls with the trade unions involved, and indeed with the two banks. I ask that, in making those calls, he uses his offices to ask the new Lloyds-Halifax bank to meet the trade unions as a matter of urgency. That has not happened yet. It must happen today. Will the First Minister make it happen?

I can certainly ask for that to happen. HBOS, whose practices I know well, had what the Scottish Trades Union Congress described as a model agreement with the trade unions. I hope and expect that Lloyds TSB willfollow suit. I will certainly urge the bank to meet its unions as soon as possible. I will make that point in the calls that I make to the unions this afternoon. I am grateful to Iain Gray for raising the matter and for understanding the seriousness of the situation that we face.

There are two aspects to the matter. First, we might ask whether it had to happen: was it inevitable that a 300-year-old institution, with all that it means to the Scottish economy, should be laid low in such a manner? I do not believe that it had to happen; I believe that HBOS was a soundly based institution. Only yesterday, the Financial Services Authority described it in those terms. It has been laid low by the actions of speculators in the money markets, and action must be taken against that, not just looking back at what has happened to HBOS, but considering the possibility of other financial institutions being targeted unless restraints are made on short selling.

Short selling is when people enter into selling shares to which they have absolutely no title whatever and do so with the aim of making a speculative profit over other people's misery. I note that Russia has outlawed short selling and I understand that American authorities have suspended short selling today. I urge—and I hope that all members will urge—our financial authorities to follow suit, lest other financial institutions come under the cosh in the way that HBOS has done during the past three days.

The second aspect is the substantial risk to jobs in Scotland. Some of the headlines that we have seen today have been exaggerated. Many of the jobs that we have in the financial sector, in the two institutions in Scotland, are extremely soundly based—they are based on retail banks and highly profitable areas of the financial sector. For example, Scottish Widows is a substantial part of the Lloyds TSB operation. However, we have 7,000 employees in Lloyds TSB and 17,000 employees in HBOS in Scotland, so it is understandable that many employees will be concerned about their future employment prospects. Therefore, what those employees will expect, and get, from the Government—and what I know they will get from all members—is that this Parliament and Government will strain every sinew and fight to the last iota to protect and retain as many as possible of those jobs and decision- making functions in the Scottish economy.

I very much welcome the First Minister's assurances and I have every sympathy with his anger at speculation and short selling. Frankly, anyone who is today celebrating a profit from what has happened should go to the fire.

We must be honest. There is more. HBOS was highly exposed to the mortgage market and there is a liquidity crisis, which is global. The First Minister has said a great deal during the past 24 hours about the crisis that faces the banking sector but, a year ago, in his role as chair of the Financial Services Advisory Board, he noted that the recent liquidity problem was

"a good example of the type of issue which FiSAB should be discussing"

and instructed that the matter be a standing item for discussion at all future FiSAB meetings. I think that FiSAB has met twice since then. What further discussions have taken place and what action has the First Minister taken?

FiSAB considered a paper produced by Martin Gilbert of Aberdeen Asset Management in which he made a range of recommendations about how Scotland should respond to the financial difficulties and how we should inform the financial authorities in the United Kingdom and offer our opinion on such matters—indeed, that was done. There has been a standing item, as we have discussed Martin Gilbert's paper.

Nobody would rightly claim to have anticipated the speed of the events that have overtaken HBOS. I mentioned the statement that the Financial Services Authority released on its website yesterday morning. It reads:

"We are satisfied that HBOS is a well-capitalised bank that continues to fund its business in a satisfactory way."

We are not talking about a deficient financial model or an investment bank with insecure assets; we are talking about a highly capitalised bank with excellent ratios, which has been laid low by successive waves of speculation.

I welcome Iain Gray's support. Something has to be done—intervention has to be made—to put the hems on short selling in the financial sector in particular and perhaps more broadly, because if that does not happen a succession of financial institutions will come under the same sort of pressure that HBOS has experienced. That must not be allowed to happen; people must not be allowed to profit from billions at the expense of tens, or perhaps hundreds, of thousands of jobs across the banking sector.

I agree that the regulatory regime with regard to short selling should be reviewed. Indeed, as the First Minister knows, the FSA was given additional powers when new rules on short selling were introduced in June, and new powers will be legislated for in the autumn. What other regulatory changes does the First Minister propose?

There are aspects of transparency that the FSA and the Bank of England have been working on and that similar financial authorities worldwide have been working on.

I point out again that, in this case as in the cases of several other institutions that have come under pressure, we are not dealing with deficient financial sector models. The UK banking sector as a whole relies on wholesale money—we are a net importer of wholesale money. We are dealing with institutions that are well capitalised, well funded and well founded, but which are coming under waves of speculative pressure. That is why action must be taken and why I am delighted that action has been taken in other financial sectors this very day. I urge the financial authorities in this country to take such action, and I understand that there is general agreement in the Parliament on that. Those authorities should not look back on what has happened and say, "We told you so," but look forward and try to protect other institutions.

We know that the thousands of jobs in the financial sector are important for Scotland, but let us not underestimate the consequences for the rest of the economy. Only yesterday, according to the International Labour Organisation measurement, unemployment in Scotland reached a serious low—the lowest figure on record. Nevertheless, the rest of the economy will follow a financial sector that is in turmoil. What is happening is important for the thousands of people who have jobs in the financial sector—they will be understandably concerned today—but it is also important for the fabric not just of the Scottish economy, but of the mixed economies throughout the western world.

The First Minister is absolutely correct to talk of the importance of the financial services sector to Scotland and its wider economy. Earlier this week, on television, he talked about the importance of confidence in the success of the financial services sector. He was right to do so. I therefore welcome his announcement that FiSAB will meet next week to consider these matters, but I believe that the circumstances are such that, to ensure that we are doing everything possible to sustain confidence and protect jobs, savings and mortgages, the discussion should be widened a little. We propose an urgent summit that involves all parties—trade unions, business leaders and the industry—to examine whether we are doing all that we can. Will the First Minister take such action, so that we can all play our part in this crucial matter?

It is exactly because I agree with doing that that I have called the emergency meeting of FiSAB. Iain Gray will be aware of the breadth of the membership of FiSAB, which represents a wide range of institutions across the financial sector, including the unions and the universities. That is why we have FiSAB. It is an important institution and innovation at any time; it is particularly important at a time such as this. If broader discussions need to take place to mobilise forces in Scottish society to retain every possible job and headquarters function, the Government—with, I hope, the support of the entire Parliament—will engage in exactly that.

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Prime Minister (Meetings)

To ask the First Minister when he will next meet the Prime Minister. (S3F-1009)

The question obviously has particular poignancy, given recent events.

I, too, welcome Iain Gray to his new position.

I spoke to the Prime Minister this morning at 7 o'clock—his reputation for early rising is well validated. There are no immediate plans for a meeting, but I am sure that the Prime Minister, and the chancellor, will be in regular contact, given the recent events and circumstances.

The shock waves reverberating through the financial world have today reached into virtually every home in Scotland. There are Bank of Scotland employees, savers, borrowers and small shareholders throughout the country. I want to make it absolutely clear that it is totally unacceptable to spread malicious rumours in markets and to benefit from short selling. No one takes pleasure in people making money out of the misery of others.

In Scotland, we must deal with the circumstances as they now are, and we are all in the same boat. Does the First Minister agree that the Parliament should send out the clearest possible message that we will do everything that we can to argue the cause for Scottish banking jobs and for the pre-eminent status of the Scottish financial sector?

I welcome Annabel Goldie's comments. I spoke to Victor Blank, the chairman of Lloyds TSB, some half an hour ago and I am delighted to say that he has agreed to hold a full-scale meeting with the Scottish Government. The details of the merger proposals are not fully worked out, but we will take that opportunity to press substantially on exactly the areas that Annabel Goldie has identified. I am grateful for her approach to the matter.

Over the centuries, Scotland has always shown a remarkable facility for creating opportunity out of adversity, and surely one of the best ways in which this Parliament can reflect that spirit is by urging this new bank to embrace the expertise, reputation and status of the jewel that is our Scottish financial sector. Given those attributes, does the First Minister agree that there is no reason why Scotland could not be the headquarters base for a bank of this significance?

There is no reason whatsoever. That is the proposition that we will put to Lloyds TSB. However, we would be unwise to believe that that will not be a difficult argument—not to pursue, because it will be soundly based, but given the current location of Lloyds TSB's headquarters and the nature of the takeover. We will put that argument with great vigour and determination, because it has to be put. I hope—and believe, because Victor Blank told me so today—that no final decisions have been made on any matters. However, we have had some indications today of press interpretation of the nature of the takeover.

It is important that we understand that, even in difficult financial circumstances, HBOS was a bank that was making substantial profits. Lloyds TSB Scotland is one of the outstanding successes of the Lloyds TSB group, in terms of its market share and performance over the past year. One obvious cause for confidence in this difficult situation is that the employees in those institutions are working for profitable units that are working well and which, in difficult economic times, have recorded a sound and improved financial performance. Therefore, as we argue and lobby for the Scottish interest, as a Parliament, we will be doing so in the knowledge that those employees have demonstrated, by their expertise and performance, that even in difficult financial times they can do the job.

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Cabinet (Meetings)

To ask the First Minister what issues will be discussed at the next meeting of the Cabinet. (S3F-1010)

I, too, welcome Iain Gray to his new position.

The next meeting of Cabinet will discuss issues of importance to the people of Scotland.

Following today's confirmation of the merger between HBOS and Lloyds TSB, Scotland is worried about other financial institutions as well. Does the First Minister accept that Scottish customers and businesses are deeply concerned about the future of banks that are not based in Scotland? How is the First Minister reflecting the cross-border, international issues that the situation exposes?

I am delighted that the response of the Labour and Conservative parties and other members shows that there is agreement in this Parliament that action should be urged to restrict outright vandalism—it is not speculation—in the financial sector. I believe that Mr Scott's counterpart, the United Kingdom leader of the Liberal Democrats, and Vince Cable said something similar this morning.

That response is absolutely necessary. This situation can no longer be seriously argued to be a case of deficient financial models, or of underperforming financial institutions coming under pressure. This is a case of financial institutions being targeted, for any reason, by waves of speculative pressure and brought down. I hope that what seems to be the unanimous view of this Parliament will have the effect of ensuring that the action that has been taken by other financial authorities, or something similar to that action, will be taken by the UK authorities in short order.

I accept the First Minister's description of deficient financial models. Does he accept that city speculators are holding a loaded gun against the taxpayer because they know that the Government will step in? We need to put a stop to a policy that privatises profits and nationalises losses. Tens of thousands of people who work for banks in Scotland, and millions who use them, fear for their future. Rich kids in bright shirts in London, New York and Tokyo are making money at our expense. Scotland loses its bank, people lose their branches, and the country is worse off. How will the First Minister work to get a joint approach to protect banks today and in the months ahead? I will work with him, for where else, indeed, does this end?

A joint approach is emerging in our discussions, and I am sure that the views of the Parliament and the parties within it will be well noted.

If we had had this debate even a few months ago, I suspect that members might have had reservations about increased intervention in the financial markets. However, everyone now recognises, regardless of their previous point of view, that these are not market functions: we are seeing a deliberate distortion of the marketplace that is designed to wreak as much damage and volatility as possible to make a quick buck for some people.

People who do that deserve the censure of this Parliament and of all Parliaments, but even more than that, they deserve intervention to ensure that their practices cannot continue. I welcome that recognition not because we are looking back at what has happened to one of Scotland's most famous institutions—the oldest established of our clearing banks, which was founded in 1695—and at how it has been laid low in such circumstances, but because we all recognise that unless that collective action on intervention is taken, our institutions will be in the firing line.

I welcome the fact that we, as a Parliament, have a joint and several recognition of why those things are important, and I hope that our voice is heard as people try to address internationally this type of financial instability.

Much of the leeway to which I referred earlier appears to have been used up, but I am keen to bring in other members. Bearing in mind that there is to be a debate next week on the issue, I ask that members keep questions and answers as brief as possible.

In the light of the First Minister's reply to Annabel Goldie regarding the headquarters of the new merged company, will he ensure, in his discussions with the chairman of the new company, that the commitments that were made at the time of the previous merger in respect of headquarters functions for HBOS on the Mound are maintained during this merger, and that the headquarters operations that are currently functioning on the Mound are at least maintained, if not expanded?

In this morning's statement, and in terms of the information that is available, Lloyds TSB confirmed its intent to have a headquarters on the Mound for the Scottish bank, and therefore to continue the issue of Scottish notes. It also said that it would focus—that was the word that it used—on the importance of employment in Scotland. I reiterated those points to Victor Blank when I spoke to him about an hour ago.

The obligations and undertakings that were made in relation to the merger of the Halifax and Bank of Scotland are important, and are points that need to be stressed. We should also remember that obligations and undertakings were made at the time of the privatisation of the Trustee Savings Bank and its takeover by Lloyds. That is why, for example, the registered office of the Lloyds TSB group has a Scottish nameplate, although it has a limited headquarters presence.

We will marshal all those points in argument. Pointing to the combination of the excellent financial performance of the employees and staff in Scotland and the commitments and obligations that have been made previously will provide a powerful argument as we seek to advance the Scottish case.

Like other members, I warmly welcome Iain Gray to his new role as leader of our party.

The wider business community in Scotland—to which the First Minister referred—that borrows money to invest in and grow its businesses here will be very concerned by these tumultuous events. Will the First Minister make strong representations at his upcoming meeting with Lloyds TSB to ensure that HBOS's corporate business function, which is important to that wider business community, remains in Scotland?

Yes, of course. That corporate function has been one of the substantial success stories of the Scottish financial sector. The position of HBOS, in terms of perception, was weakened largely because of its share of the mortgage market and the value of assets in that market. The corporate side of HBOS's business has been a shining light of performance, and that will be one of the important arguments that we will marshal.

Andy Kerr is correct to point to the substantial impact on the wider economy. The liquidity problems may fall immediately on a bank in terms of maintaining its position, but those problems quickly move to the wider economy, not just in the housing market but in the corporate market, as firms seek facilities for expansion. His points are well made and will be well put.

No one would blame the Scottish Government for the consequences of the events of this week, but what will the First Minister and the Scottish Government do to ensure that we do not lose sight of the longer-term interests of the financial services sector in Scotland as we deal with fundamentally different issues from what we might have expected even a year ago?

One of the great advantages of such close co-ordination between the financial sector and Government in Scotland, through the Financial Services Advisory Board, is that it gives us a forum to discuss such issues regularly. We have promoted substantially the Scottish financial sector and, with new companies moving into the sector, there have been substantial gains. Even in tough financial times, if we can demonstrate enhanced efficiency, financial performance and a competitive position, we can attract to Scotland worldwide companies that are looking for locations that reflect a better cost model than the City of London has sometimes reflected. There have been some notable successes in difficult financial circumstances. The member has my assurance that, working with the institutions in FiSAB, we will continue to promote the Scottish financial sector and, indeed, redouble our efforts in these difficult times.

The repercussions of the shock of the past 48 hours will have serious consequences for many small and medium-sized businesses over the coming 48 months. The operating plan of Scottish Enterprise no longer proactively supports companies that primarily serve local markets or indeed small businesses. The First Minister said eloquently today that the global impact on the Scottish economy often has a profound local impact. Will he work with the Liberal Democrats to ensure that Scottish Enterprise's operating plan in the year ahead is reviewed in the context of recent events to ensure that small and medium-sized companies can be supported by our economic development agency?

Yes. That sector is indeed supported. One of the greatest boons for that sector has been the small business bonus, which has operated well since its inception in the early part of this year.

Iain Gray said that recent events demonstrate that Scotland is not immune from global financial problems. The events of the past three days demonstrate fully that we are not immune; no one should believe that we are. Scotland's excellent economic performance under the circumstances of the past year is underlined by yesterday's unemployment figures from the International Labour Organisation; the retail sales figures; the substantial performance of many of our export companies—exports are important to the Scottish economy; and the performance of the small business sector in difficult times. I agree with the member, but he should not underrate the importance to small businesses of a diminution or complete elimination of the burden of their rates bills since last April.

I welcome the Parliamentary Bureau's decision to have an emergency debate on Wednesday, but I regret that we will not meet in the Parliament tomorrow. Thousands of people in Scotland are most concerned, not just about their jobs but about housing—a topic that was introduced by the First Minister. As a matter of urgency, I ask the First Minister to call the City of Edinburgh Council and other authorities that have an interest in housing to discuss many people's fears that they may be unable to pay their mortgages and stay in their homes.

We will take the necessary action. The focus is on maintaining jobs. No one should understate the risk in relation to rationalisation, duplication and key head office functions. However, the Parliament has, rightly, been united on two issues. First, it has identified one of the immediate causes of financial instability and united to urge that a restriction be placed on the activities of short-selling speculators. Secondly, it has not accepted the inevitability of massive job losses but has argued the case—with commitment and confidence—for retaining as many high-quality jobs and headquarters functions as possible in Scotland. When it comes to advancing the case for the city of Edinburgh or the whole of Scotland, nobody does it with more commitment and confidence than Margo MacDonald.

I echo the welcome to Iain Gray in his new role.

The First Minister and the three other party leaders from whom we have heard variously blame speculators, short sellers, spivs and those who should just go to the fire. However, is the root cause of the problem not the culture of deregulated, buccaneer capitalism that all those political parties have supported, celebrated and even courted? Does the First Minister accept that the irresponsible game of financial Jenga has to end? Scotland's economic future can be based only on traditional Scottish values of self-reliance, sustainability, thrift and—dare I even say it?—prudence.

If I used the word "prudence", I would perhaps be borrowing it from the Prime Minister.

I agree to this extent. There are financial institutions across the world that could have done with a bit more emphasis on risk management and prudence in recent times. However, the problem that the Parliament has identified, and which has now been widely commented on by a variety of analysts, is real—George Soros, famously one of the great speculators in currencies of our time, made approximately the same point a couple of nights ago. If we have reached the point where George Soros has identified economic speculation as vandalism and as being deeply destructive in financial markets, I think that there is an overwhelming call for action. The action might not go as far as Patrick Harvie wants it to go across the range of institutions, but a substantial intervention in the financial markets would be welcomed by people not just in this country but worldwide, as we unite to say that people's jobs and livelihoods should not be jeopardised or sacrificed by people whose only intention is to make billions out of other people's misery.

I will take a final question on this issue, from Sarah Boyack.

I welcome the First Minister's commitment to work to secure the HBOS headquarters, which is in my constituency, and to secure jobs in Edinburgh and the wider Scottish economy.

Will the First Minister join me in acknowledging the good work that HBOS carries out outwith its core banking functions? That work is not insignificant. Will he acknowledge that the HBOS Foundation has invested massive amounts in cultural and community organisations in Edinburgh and across Scotland? Consideration of that must be part of the work that is done to secure the HBOS HQ in Edinburgh.

I join Sarah Boyack in acknowledging that work, and I acknowledge the work of the Lloyds TSB Foundation, which does excellent and similar work across a range of activities. Both companies, in deploying those activities in Scotland, have in many ways been a model of social responsibility and social enterprise, so Sarah Boyack's point is very well made indeed.

We have excellent, powerful and high-performing financial institutions in Scotland. Our task in meeting this substantial challenge will be to minimise the job losses that will come from duplication—banks are cheek by jowl with each other in the high streets. As important, our task will be to maximise the points of decision-making and head office functions that exist in the Scottish economy. Many of the issues of which Sarah Boyack speaks go hand in hand with decision- making and head office functions, and she is right to draw attention to them. I acknowledge their importance, and they will certainly be part of our representations.

I will take a further supplementary question, on a different issue, from Bill Butler.

I am sure that the First Minister and the whole chamber will wish to join me in condemning a recent spate of deeply troubling sectarian incidents—namely, a physical assault on the Celtic coach Neil Lennon; a series of vile attacks on the Rangers player Nacho Novo on the internet; and the singing of the so-called famine song at the recent old firm game. Given those wholly unacceptable manifestations of bigotry, will the First Minister give a commitment to the chamber that his Government will bring to the Parliament in early course a national, anti-sectarianism strategy that is comprehensive and coherent and which builds on the previous Executive's national action plan on tackling sectarianism, which enjoyed support from all sections of Scottish society?

Yes, I can give that commitment, because it will give us an opportunity to focus attention on—and to have more widely understood—the range of anti-sectarian activities that are promoted by the Government and supported by a variety of interest groups throughout Scottish society.

The Parliament has just united in a substantial fashion in meeting and facing an economic challenge to Scotland. I hope that we will continue to unite in a substantial fashion to meet the challenge of tackling the evil of sectarianism, which is one of the great social challenges that Scotland faces.

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Domestic Energy Efficiency

To ask the First Minister what action the Scottish Government is taking to ensure that Scotland receives a full share of spending by the energy supply companies on improving domestic energy efficiency. (S3F-1018)

As Tricia Marwick knows, we have been concerned that Scotland has not been receiving its fair share of the benefits of the carbon emissions reduction target—CERT—initiative. I mentioned to the Parliament last week that our analysis of the initial scheme between 2002 and 2005 showed that there was a shortfall of rather more than 20 per cent even on a population basis, despite the fact that fuel poverty in Scotland is some three times higher than elsewhere in the United Kingdom for climatic and other reasons.

That is why the Government is taking a proactive approach and has established a steering group to discuss with the energy companies ways of increasing spend from the renewed budget for CERT. The Minister for Communities and Sport held the first meeting of the group last Monday, 8 September, and we announced in the past few days that the six main energy companies have agreed in principle to work with us to ensure that Scotland gets its fair share of CERT, and specifically to provide a package of insulation measures to help fuel-poor households.

We will publish a full CERT strategy soon, which will include the action that we will take in response to the recommendations from the fuel poverty forum.

Does the First Minister agree that the UK Government's response to the energy crisis is not sufficient and that financial support for the 44,000 households in Fife that have been plunged into fuel poverty is a necessity? Does he agree that the concerns that were expressed to him last weekend by the people of Glenrothes, Leslie and Cardenden should also be heard at first hand by the Prime Minister? Will the First Minister encourage Gordon Brown to come to Glenrothes and explain why he is denying people the vital financial assistance that they will need this winter?

I did not mention that to the Prime Minister this morning, although I mentioned the Rosyth ferry to him. I am sure that there will be a vigorous debate on the matter in Fife in the coming weeks.

I agree with Tricia Marwick. Action on energy costs and prices is one area that is destabilising the economy as well as households throughout the country. However, that should not and will not preclude the argument and debate that we will have about the importance of ensuring that the CERT funding comes in proper measure to Scotland, which has not happened in the past. There are serious issues involved in that, but we must overcome them. I welcome our energy companies' commitment to that objective.

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Sewage Pollution (Beaches)

To ask the First Minister how many enforcement actions the Scottish Environment Protection Agency has taken resulting from sewage pollution of beaches since May 2007. (S3F-1021)

SEPA takes enforcement action where there is actual or potential pollution of beaches or bathing waters. There have been a few such occasions both this summer and last summer. There have been 10 enforcement notices, two reports to the procurator fiscal and one prosecution. SEPA has reported that, where enforcement notices were issued against Scottish Water in respect of bathing waters this summer, remedial action was promptly taken.

I am pleased to hear that. The First Minister will be aware of the wide range of leisure uses of Aberdeen beach, from windsurfing to dog walking. I suspect that he shares my view that bathing water quality at Aberdeen beach is important to tourists and local people alike, even during a wet summer such as the one that we had this year.

Will the First Minister ensure that Scottish Government agencies continue to make every effort to enable a return to the excellent grading that Aberdeen beach achieved two years ago? Does he agree that such efforts should include, if necessary and where appropriate, further enforcement action by SEPA to prevent sewage pollution in future?

Yes.

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Class Sizes

To ask the First Minister whether, in light of recent court rulings, the Scottish Government will introduce legislation to enforce a class size limit of 18 in primaries 1 to 3. (S3F-1011)

As the member knows, we are considering carefully the terms of recent court judgments on placing requests. We have the agreement of the Convention of Scottish Local Authorities in the historic concordat for local government to make year-on-year progress in reducing class sizes in early years education.

I have difficulty in understanding the First Minister's reticence on the matter. The SNP manifesto was clear where it said:

"We will reduce class sizes in Primary 1, 2 and 3 to eighteen pupils or less".

The decision of the Court of Session on Friday makes it clear that without a change in the law, the policy will always be open to legal challenge. If the First Minister will not give a commitment to legislate, we must ask whether he is really serious about delivering the policy or whether it is another broken promise.

The commitment that we have given in the concordat is very important. It moves us forward in a co-operative way as opposed to, for example, the relationship that the Conservative Party had with local government in Scotland. We are reviewing carefully the court's decision and the terms of the recent court judgment stand. The member should be in absolutely no doubt about our seriousness in such matters or our intention to see that the agreement in the concordat moves forward. He should also be in no doubt that people in local government regard the class size policy as a key priority and that many councils throughout Scotland are moving substantially in the policy direction.

When Murdo Fraser's party left government in 1997, class sizes in primaries 1, 2 and 3 in Scotland were 25, 26 and 27. Does he still think that that is acceptable or is his commitment on the issue somewhat recent and newfound?

Members who would have liked to ask a supplementary will be most welcome in the chamber this afternoon when we have further questions on education. That concludes First Minister's question time; thank you for your forbearance.

Meeting suspended until 14:15.

On resuming—