Chamber and committees

Maggie Chapman is right. We need to dig a bit deeper and understand what is going on.

For example, energy is not a scenario where you have fossil-fuel production on one side and renewables on the other and where the two are completely different things that are completely divorced from one another. They are not. The businesses that are involved in one side are almost always involved in both. The newer businesses in renewables that are specifically focused on new technologies are not, but the legacy businesses that are in fossil fuels are transitioning. Pretty much every business in that sector is on that journey and is reskilling its workforce as it makes that move. A lot of the skills are transferable, and that can be done quickly. For example, a lot of the offshore and deep-water skills are transferable from oil and gas platforms to floating offshore wind. A lot of that will happen on the opportunities side as we move the production over to renewable energy.

There are other areas where there is a bigger gap in relation to the skills that you need to acquire to transfer. It is fair to say that this has got a huge profile. You turn the television or radio on and we are talking about those issues, particularly off the back of the 26th United Nations climate change conference of the parties—COP 26. People are aware of that when they are making decisions on where they want to have their career.

Ironically, one of the comments that you get from oil and gas production is that younger people in particular do not want to go and work for them anymore, which is perfectly understandable. They are focused on net zero, understand the climate emergency and want to be in the sectors of the future. There is that pull from the technology as things move over and that push from people at all stages in their careers who want to be in the sectors of the future.

Our job is to provide the bridge that allows them to have those training opportunities. However, it is not only us—the private sector businesses are also hugely invested in that. We work closely with them and they are doing a lot of the heavy lifting. Obviously, it is in their interests; however, from our point of view, it is also the right thing for them to do. Have we got everything absolutely perfect? Of course not. However, an awful lot is happening that is moving us increasingly in the right direction.

You are right to say that there is labour market inactivity: 22 per cent of Scotland’s working age population—those aged between 16 and 64—are not economically active. That is about 750,000 people. That proportion is broadly similar in the rest of the UK. If we delve into that, we find that there are a number of reasons for it. Some are valid reasons. People may be in education, have childcare responsibilities or be in poor health, and there are other reasons.

We have undertaken a programme that we will talk more about in our national strategy and that will help us to understand and address the issue. Our access to international labour has been challenged by Brexit. It is becoming increasingly clear that we must focus far more on how we tackle labour market inactivity.

Some of that will come down to the expansion of childcare that we are undertaking. That will enable parents to return to work sooner if they choose to do so. Some of it will come from transport links. Our strategic transport projects review, which was published recently, addresses some of those issues so that people can get to economic opportunities. There will be work to increase skills and to make some of the people who are furthest from the labour market more aware of the opportunities that can smooth their transition back into work if they have been out of work for a long time.

We are focusing on a plethora of different aspects. We must address the issue, not only because it is the right thing to do for individuals but because we can support businesses by giving them access to the pool of labour that is available in Scotland.

Do you want me to address any specific aspect of the Audit Scotland report?

We have some levers. However, clearly, there are many levers that we do not have. I will talk briefly about the ones that we do not have, and then about the ones that we have.

We do not have control over immigration powers internationally. We constantly ask the UK Government to be more flexible about those, both in relation to the ridiculous restrictions that it has put on labour coming from abroad and in relation to devolving immigration powers. Countries including Australia and Canada use a degree of devolution of immigration powers—it is a model that works perfectly well, so there is no reason not to do it. Clearly, we want to be back in the European single market and it is our ambition to deliver that, which would resolve many of the issues.

On the levers that we can pull, there are things that we can do about labour market inactivity and bringing more people into the labour market. There are also things that we can do to focus on immigration from the rest of the UK into Scotland. At the moment, there is a net inward immigration from the rest of the UK. About 30,000 people leave Scotland every year on average, and about 40,000 to 41,000 come into Scotland from the rest of the UK. That is a net positive; we are increasingly focused on maximising that to tackle specific skills challenges.

I have a programme under way with businesses and others to understand how we can target the message more effectively and get it out there, and to consider how we can work to increase net inward immigration from the rest of the UK into Scotland. I think that there will be increasing focus on that programme because it is one of the few levers that the Scottish Government can pull in this area, given that we do not have control over international immigration powers.

The impact of Brexit has been significant. There is an issue around unpicking that impact from the Covid situation, which is difficult. When a person leaves Scotland to return home, we do not know whether it is for personal or other reasons that they want to be back in their country of origin. The current situation makes it much harder for them to move back and forth if they have family commitments in Poland or wherever; Covid has made that much more difficult. People might choose, as a consequence, to stay in their country of origin once they have gone back there.

However, I say without a doubt that Brexit has made a huge difference. Covid restrictions are subsiding and international travel is opening up again; we would, in normal times, expect the labour market to open up. However, Brexit has stopped that.

The UK Government’s hostile approach to immigration and immigrants makes things very difficult. We saw that in relation to the message that the UK Government was sending out to heavy goods vehicle drivers, which was just ridiculous. It was counterproductive and really unhelpful. Its message was that although we expect those people to drop everything and change their lives to come and help us when we need it, we will only allow them to come here for a short time. Of course that was not going to work.

Brexit has had a huge impact. As we move beyond Covid, it will become increasingly obvious that it is acting as a huge brake on Scotland’s economic potential.

It is hugely concerning or, at least, unhelpful that we have those additional constraints. As you heard from wholesalers and retailers, they have worked hard to mitigate them and keep the shelves fully stocked. The sector and industry have absolutely done what they can to keep products flowing. We have worked with them on HGV driver issues and other matters to help support that.

There is a longer-term resilience issue and there is more that we can do to grow more food in Scotland to support that. Scotland is a world leader in technology such as vertical farming and exporting it at scale. That is an area of opportunity for us.

We are focused on joining all that up to build more resilience in the Scottish supply chain.

On the question whether there has been a shift towards more of this stuff happening with larger contractors, I do not have the evidence to hand to confirm whether that is accurate. However, if you look over the whole piece, you will see that, as I said earlier, the proportion of contracts going to SMEs in Scotland is far in excess of what it is in the rest of the UK or, indeed, the European targets in that respect, and SMEs get a higher percentage of their work through public sector procurement than larger businesses. That is the reality of the situation with regard to the numbers; from memory, I think that the figure is 46.5 or 47 per cent.

There will always be anecdotal stuff about this or that happening with a particular contract, and I am always keen to hear about those specific examples, because it helps to inform the overall picture. However, it is clear from the data that we in Scotland do much more of our procurement through SMEs than elsewhere, and that is increasingly the case.

The requirements that are in place ensure that purchasing is not done on price alone. A range of other factors such as local benefits, equality and sustainability is factored in. We can debate whether the balance is right, but this is not a black and white issue. Those factors are already in play and are part of the criteria.

As for the size of the contracts, we are, as I have said, looking for every opportunity to break the lots into smaller buckets to allow smaller businesses to bid for them. That is what we have been and are doing proactively. Sustainable procurement legislation is in place and has been for a number of years, and the annual report that comes out is very transparent about what we are doing, how we are doing it, whom we are working with and what is happening right across the public sector on this. The data are moving in the right direction, given the proportion of SMEs that are winning those contracts.

We have the intent, the actions and the results. Is there more that we can do? Absolutely. Are there anecdotal examples of things that can be improved? Yes, and there always will be. However, we are keen to address all that so that we continue to move in the right direction.

The pipeline aspect is hugely important in construction, and the sector has made great progress with it. I chair the construction leadership forum, and it has been a huge area of focus there. The Scottish Futures Trust has also been working hard on the matter with the Government. We have the pipeline in place that allows public sector organisations to put their future plans for construction work on the pipeline tool, and everybody can have a look to see what is coming up.

Stability of demand is very important in the construction sector. It allows contractors to know what work is there and plan accordingly, which means that the whole sector is not being moved from feast to famine, year on year, in terms of the work. The tool has come online in the past few months. It has been really effective and is making a huge difference. We are also working with leadership groups in other industries, which are looking at and learning from what the construction sector has done in order to do something similar. That is a great example of the initiatives that are being taken.

Was your other point around sustainability?

You have characterised the situation very well. On the timescales, HS2 is only just getting started, so it is not impacting things today, but does it have an impact on strategic thinking for the future? Yes, of course it does. High-speed rail is hugely important, and there are international examples where it is well embedded in transport infrastructure. Yes, we should be in a position to exploit and develop it more.

Speed is an issue, but capacity is probably more of an issue. The line was going to help in that regard. If it was going to be done seriously, the work would have started from both ends at once. It would have started from Scotland and London and met in the middle. Clearly, however, that is not what it is all about; it is about getting commuters into London, rather than considering the whole country.

That is an issue, but it is more of a long-term issue, which affects strategic thinking. In the immediate term, there are other things that we can do and that we are doing to address the issue.

Much of that will come down to the specific opportunities that present themselves. I am not closely involved in the discussions with transport colleagues who are working across this, but where opportunities present themselves we will look at where railhead facilities can be developed to allow more products to go on to rail, rather than road. Much of that will be where there are volume products and there are specific opportunities to take X hundred trucks off the road by facilitating a rail connection or something. That work is on-going.

I am directly involved in a piece of work that directly supports that on direct port shipments from Scotland. I have convened a group of port operators, airports and others to understand what volume of traffic leaves Scotland by truck for ports in the south of England and how we can address opportunities to get more of that on ships leaving Scottish ports. There are commercial realities there and it is about understanding those and what other things we can do to move the locus of calculation to make it easier for people to use Scottish ports. I hope that that work will yield some significant results.

I am from a manufacturing background, so it is something on which I am hugely focused. We have done a lot of work off the back of the success of PPE manufacturing—it was great to hear that work being referenced several times in your earlier evidence sessions—to formalise the process and see where else we can apply it.

There are two parts to the issue, the first of which is procurement. I have responsibility for procurement, and the Scottish Government is reaching out across the whole of that £13 billion spend to public sector bodies, including local government, Transport Scotland and the NHS, to stress its importance. The SHIP work in the health service is a key part of that, and, increasingly, it is drawing through opportunities.

The other side of the issue is the enterprise agencies. They are hugely seized of and focused on the importance of the supply chain, and are working hard on it. The agencies were a critical part of the work that we did on PPE.

It is about joining everything up. For example, we might see that, although the public sector is spending £100 million on specific commodities or in a particular sector, most of that money is going abroad. We need to look at which businesses in Scotland might be capable of stepping in to meet those needs, and what they need to allow them to bid for a contract.

Is it to do with having the right skills and qualifications or the right standards in place? Is it a question of capacity or investment in equipment or premises? Is it logistics? Which factors are preventing a Scottish company from bidding? The enterprise agencies and Skills Development Scotland can then wheel in and say, “We can help you with this or that.” It is about getting suppliers—not just one supplier, but a series of them in a sector—to a place in which they can bid for those contracts, and creating the capacity and capability to bid for those contracts.

It is important that we join all that up in an intelligent way, and in order to do that, we have to drill down to understand where we are trying to operate. We currently have in train programmes for PPE, and we are looking at reshoring our generic medicines manufacturing. We also have programmes for heat pump manufacture; there are a couple of opportunities in that regard in Scotland, but we need more. A lot of that also involves looking at the sub-suppliers who supply the heat pump manufacturers in Scotland. How do we get more of that content in Scotland? We are also looking at electrolysers for hydrogen, which will be a huge area in the future.

As I mentioned earlier, we are looking at timber frame construction, from forestry all the way through sawmills to manufacturing facilities and construction sites in Scotland. Along with the construction sector, we are also looking at how much of that will involve off-site manufacture and modular build.

We are currently running about seven or eight programmes, and on top of that we have all the ScotWind stuff. I should clarify that the contract for ScotWind requires that, if the developer does not follow through on the supply chain development plans and use local content, there are penalties as a consequence. Contrary to what was suggested earlier, that provision has teeth.

I can talk about the subject for hours because I am passionate about it—it is hugely important and there is a huge amount going on. However, I will stop there, given the time.