Chamber and committees

I celebrate the ambitious targets for reaching net zero. However, as others have said, the scope, scale and complexity of the journey is significant—and nowhere more so than in relation to the national challenge of retrofitting homes. It is not an incremental challenge and it requires an exponential scale-up in an order of magnitude. We have heard references to the estimate of £33 billion in the debate already.

I propose to make a few points about both the supply side and the demand side. On the supply side, there are significant barriers for manufacturers. The high capital expenditure needed to create or repurpose existing manufacturing lines is an issue, particularly for the smaller companies that are currently operating in the market. For installers, there are early-stage product risks and capacity issues that will limit scale-up, as has been mentioned. It will also take time for those small companies to build brand awareness. Most operators are currently small and medium-sized enterprises, which can mean weak financial resilience and limited access to investment finance. For all involved in the supply side, there are complex skills considerations, with the requirements still a bit of a moveable feast. Because there is uncertainty, there has to be hesitancy.

On the demand side, the Scottish Parliament information centre briefing notes:

“The high upfront costs and sometimes uncertain payback periods can put people off making changes to their homes.”

Like other speakers in the debate, I would put it more strongly than that. At this stage, in such uncertain economic times, there is no real demand from home owners, particularly if they do not see their property as their forever home. Some of the costs that are being quoted today, in the range £12,000 to £17,000, will act as a major barrier.

Another point is that new heating models are not yet seen as aspirational in the way that the likes of electric cars are. Despite the urgency of the situation, costs are a concern for suppliers and consumers alike, and on-going assessment for manufacturers, installers, home owners, renters and landlords will be required as initiatives come on stream.

There are other challenges. The Scottish National Investment Bank, capitalised with £2 billion over 10 years, has a key role in addressing market failure. However, at the Finance and Public Administration Committee last week, we heard that with the enabling United Kingdom Internal Market Act 2020 leading to the Subsidy Control Bill, it is uncertain whether and how the SNIB can operate as intended and contribute to the addressing of market failure in retrofitting. Despite the bill passing the committee stage in the House of Commons, there is no definition of the rules as to how the SNIB—and, indeed, the British Business Bank—can meet their core purpose. Clarity is not expected from the UK Government for some time, and the required rules might ultimately be developed by an unelected official in the Department for Business, Energy and Industrial Strategy, without scrutiny by the House of Commons, and bypassing this national Parliament and Scottish Government ministers. The uncertainty will have a cooling effect on councils and other bodies, which will be nervous about risking expensive and time-consuming legal challenges in trying to create programmes that address the issue that we are debating.

Some innovative financing, which would attach funding to the property rather than the individual, has been considered, but such an approach can lead to hesitancy on the part of future buyers and sellers, as we have seen in the context of solar panels.

On financing, the Westminster all-party parliamentary group on fair business banking, for which I am an ambassador, made an interesting point in a report:

“The SME-dominated retrofit supply chain largely falls between the cracks of existing investment funds and approaches: too late-stage and insufficiently high-growth for venture capital; too early-stage and high-risk for institutional investors.”

I will, Presiding Officer.

I celebrate Scotland’s ambition to take the required steps forward, but, as the debate proves, it will be a considerably complex process to get us to where we need to be.

I noticed that, when you appeared in front of the Public Bill Committee at Westminster on 26 October, you stated:

“From the point of the view of the devolved Administrations, for example, the passage of the Bill will still leave them pretty much in the dark as to what they can and cannot do.”—[Official Report, Subsidy Control Public Bill Committee, 26 October 2021; c 12, Q8.]

Do you stand by the observation that you made then?

Thank you. I am aware of time, so I will stop there.

How have we ended up in the position in which the bill will go through its second reading later this month—next week, I think—yet we still do not have the necessary level of definition? It is possible that the bill could go all the way through and, under what is proposed at the moment, it will be left to the Department for Business, Energy and Industrial Strategy to make the decisions. I do not want to put words in your mouth, but the bill seems to have the potential for bypassing ministers in the UK Government, never mind the Scottish Parliament, altogether. How on earth have we ended up in this position?

Before we hear from others, do you think that, if the SNIB is fundamentally constrained to operating in areas of market failure, that could—from a risk perspective—have a cooling-off effect for the bank? Obviously, the bank’s risk assessments will be tightly honed, given the nature of what it is doing.

I see that George Peretz wants to come in.

I am keen for others to have the chance to respond. The point that we started with is that, first and foremost, the detail to establish a scheme needs to be in place, and it appears that that detail, whether specifically for the SNIB as regards its role in relation to market failure and beyond, is not yet clearly established.

I am aware that other members want to come in, but before I give way to them, perhaps Professor Fothergill or Mr Heddle would like to respond to my question about the SNIB.

Good morning, everybody. We have received quite a few submissions about the bill’s potential impact on economic development. In his submission, Professor Bell points out the difference between horizontal and vertical development. It is perhaps a matter of regret that we do not have a representative of the Scottish National Investment Bank on the panel. As you will be aware, the SNIB involves an investment by the Scottish Government of £2 billion over 10 years, which is a serious amount of public money. In its submission, the bank says:

“It goes without saying that if development banks are to be constrained to operating in areas of market failure, the new UK Subsidy Control Regime must be at least as wide as its predecessor, and/or sufficient discretion to public bodies and devolved administrations afforded.”

I want to get your views on the Scottish National Investment Bank in particular, as it seems to be a slightly different model, given that it was set up specifically to aid economic development in Scotland in a key way, not least on net zero. I imagine that, if that is the case for the SNIB, it will also be an issue for the British Business Bank. Perhaps Professor Fothergill or Professor Bell might like to answer in the first instance.

To ask the Scottish Government in what ways the United Kingdom Internal Market Act 2020 could impact on its ability to meet its net zero targets. (S6O-00601)