Chamber and committees

There is green cement—there you go. It can be done, but it involves huge capital investment in the plant. We are talking to Scotland’s only cement manufacturing plant about its plans in that regard. Green cement is very much on the radar, and it is part of the mix in construction. As I said, timber—for example, products such as MASSLAM timber solutions that can, structurally, do the job of cement—will be an important part of that.

Our approach involves looking at a whole range of different aspects. The Construction Scotland Innovation Centre in Blantyre is doing a super job in leading on that stuff, with input from Heriot-Watt University and others. It is a key strand in the Scottish construction leadership forum, so we are absolutely on that.

As I said, significant private sector investment will be required to deliver on that, but the sector understands that that is the direction of travel. We want to make it as easy as possible for people to decide to invest in green cement, for example, in Scotland as opposed to elsewhere.

Food supply is another great example. Again, a lot of different things are happening there. In conversations with local authority purchasing departments and others, it often comes down to the fact that, while there is a keenness to buy locally, the capacity is not in place to do so, because of the volumes that we are talking about. As I said, we need to get local suppliers to a position where they are able to supply at scale to meet the procurement requirements. We are doing a lot of work to join all that up as best we can.

The food miles part of that is an important criterion, so we need to think about how we address that and factor it into the procurement decisions. Also, there are moves afoot internationally on carbon accounting and other measures at EU level and elsewhere. We need to take those factors into account but, again, that will impact on the cement discussion that we just had.

A lot of things are happening internationally and we are moving forward to take advantage of them. I know that the committee took evidence from the food and drink sector, and I have officials following up on some of the examples that those witnesses gave of difficulties in accessing procurement for various reasons to determine how we learn from those examples and make our processes more effective at delivering what we all want.

There is quite a lot in that question. I will take the opportunity to give the committee an update. As members will know, the UK Government’s free port proposals came out more than a year ago. We looked at them at that point and decided that there were some fundamental gaps that meant that we could not sign up to them. As, I am sure, the committee will appreciate, we do not want to engage in a race to the bottom on environmental standards, labour standards and pay rates. We were seized of the requirement to ensure that a net zero component was central to any such initiative.

We discussed the issue with the UK Government over the course of 2021. In September, the UK Government came back to say that under no circumstances would it allow us to make the payment of the real living wage a requirement. It was also very lukewarm on the net zero requirements. As a consequence, discussions on the issue stopped. We then signalled that we were keen to move forward with our own proposals.

I can let the committee know that the UK Government came back to us to say that it wanted to reopen discussions. Those discussions are on-going. We had hoped to conclude them before the end of the year, which is when we said that we would publish our proposals. However, given that the discussions are on-going and could be reaching an end, we have decided that it is important that we follow that process through to its conclusion before taking the next steps.

We are hopeful that we will make progress on that and that a solution will come forward. At its core, that solution will include our requirements on net zero and fair work. That will be good for Scottish businesses, Scottish workers, the Scottish economy, communities and the environment.

The whole construction sector works like that, so I do not think that there is anything specifically different about public sector procurement in that regard. Clearly, we must understand what the market price is when spending public money. That must be done as efficiently as possible. However, there are some very practical things that we can do and that we do do to break up large contracts into smaller buckets, and we should look for opportunities to do that. I am very supportive of allowing smaller businesses to bid for and win smaller pieces of work, rather than facing into bigger contracts that make it difficult for them.

There are other things that we can do and that we are very supportive of, including smaller businesses working together to bid for some of the larger contracts that cannot be broken up into smaller chunks.

I think that we agree on where we want to get to; it is a question of working through the details. It is not that we are saying price, price, price—far from it. As I have said, we are moving away from that, and I am keen to work with businesses to look for opportunities to move further in that direction.

That is a leading question. We are on a journey and significant progress has been made in a number of areas, which I will talk through. However, I recognise that there is more that we can do. I am relentless in my engagement with procurement officials in the Scottish Government and more widely across the public sector, and I am looking for every opportunity to move forward in all those areas.

The sustainable procurement requirements in legislation are important. They focus on making sure that there are community benefits and local aspects to procurement requirements. The situation is far from being that we will only go on price; a whole range of factors are considered. In fact, choosing a provider based only on price is not an option. In public sector procurement, you need to look at a wider range of factors including local issues, sustainability, small and medium-sized enterprises and other factors as part of the decision-making process. We have moved a long way from choosing only on price, but there is more to do.

You also need to remember that we do not have free rein in that area, for good reasons. We are part of the World Trade Organization’s agreement on Government procurement. When Scottish businesses try to export, they expect the deck not to be stacked against them in international markets and there are requirements for that. Likewise, we have to have an open, fair and transparent process for competition in procurement in Scotland. What we can do is set the criteria as best we can within the international rules that are available to support that.

Looking at the results, the percentage of public sector business that is won by SMEs in Scotland is far higher than that in the rest of the UK, and it is way in excess of the targets that are set by the European Union. SMEs in Scotland win a higher percentage of public sector contracts than their share of turnover in the whole economy. That is positive and we have managed to deliver on that in recent years. We keep a focus on that because we recognise how important it is.

The other aspect concerns the innovation side. We have done a lot of good work there, although we have a bit more to do. That involves ensuring that Scottish businesses that come forward with innovative products, they can present them, and they can get a market for them in the public sector in Scotland, with £13 billion of procurement spend being leveraged in to the health sector, digital solutions and elsewhere.

The work of CivTech has been phenomenal, and we have significantly upscaled its capacity. CivTech is an international exemplar of how to do things and is leading a lot of international work and showing people how to do this stuff. It has done that primarily in the areas of digital and tech, but it is expanding its capability much more broadly.

SHIP, the Scottish health and industry partnership group, is exploring innovative solutions from Scottish businesses, normally SMEs, for how we give market opportunities in the NHS that are more flexible in their purchasing requirements and specifications, so that something that is innovative and does not exactly fit our purchasing requirements still has a route to market.

The supply chain development programmes are focused on where we have significant public sector spend, where we can build strong indigenous supply chains and how we put both of those together and make things happen. It is not a matter of flicking a switch and stuff just happening; there is a huge amount of detailed work involving different sectors, businesses and opportunities, navigating the rules and ensuring that we are focused on delivering what we can.

We are making progress, but there is, absolutely, more to do, and I am always delighted to talk to businesses that have innovative products and services to understand how, in working with them, we can give them a foothold in Scottish public sector procurement.

As you will be aware, there are international rules around this stuff, such as the WTO’s bidding rules in the GPA. We cannot just make things up. We have done as much as we can within those rules to move things forward. We made a huge commitment with the supply chain development statements to ensure that the bidders that came forward made it very clear how they would use supply chains, and, as I have said and as I am sure Colin Smyth is aware, we have pushed the scoring criteria to the limit with regard to what we are able to do within international rules.

We can put in place requirements as best we can within the rules that sustainability, net zero and carbon footprint aspects are factored in, and we look to do so where possible. Increasingly, that is an area of focus, because it encourages local production and innovation. The construction sector is a prime example of that. The Construction Scotland Innovation Centre had worked on putting forward innovative solutions to the net zero-carbon challenges, and we want to use the levers of public sector procurement to facilitate such solutions as best we can.

Absolutely. That will happen as soon as we can do it. There are two partners involved. We have been keen to make progress on that for more than a year—we are not the ones who are taking time to get our ducks in a row. We are waiting for our partner to finalise the things that they need to finalise internally. As you will understand, they are slightly distracted by other matters at the moment.

Lots of bits of that need to be joined up. You will have heard from witnesses in some of your previous sessions that this is a moving target. It is notoriously difficult to predict skills shortages years in advance. We need closer alignment between the skills system and businesses.

The approach must be about having the right mix of practical skills that we know will be required and ensuring that young people go right through their whole careers with the ability to reskill and to understand the opportunities that are available and the support that they can get. As I said, we are spending more than £1 billion to support the skills system and an extra £500 million on top of that over the course of the session of Parliament to focus on that issue. I talk to businesses every day and skills is the number 1 issue, notwithstanding everything else that is going on.

We are hugely seized of the need to focus on that. As I said, it is about ensuring that the skills system is increasingly aligned with the needs of business. We have those clear routes of communication so that we can ensure that there is an understanding of what is required, but as I said, the system also needs to be very agile, because it is aiming at a moving target.

We continue to press the UK Government to change the rules, but, obviously, it is a reserved area. We can do what we have done with regard to PPE and other things, which I mentioned earlier. We continue to do a lot of work through our supply chain development programmes and other activities, to look for opportunities to manufacture more products in Scotland in order to create economic opportunities here and build resilience. That is the primary lever that we have to tackle the issue.

Of course, clearly, there are many things that we cannot manufacture here competitively. We can manufacture many things in Scotland, but not everything. Increasing manufacturing here is part of the answer, but it is not the whole answer.

There is a gap, but the gap is not as big as you are making out. From memory, in terms of labour market inactivity, we are at 22 per cent and the rest of the UK is at 21 per cent. There are differences, but they are not hugely significant.

In response to an earlier question, I focused on understanding the make-up of the 750,000 people who are not in the labour market. Some of them are in that situation for good reasons: they are in education, they suffer from ill health or they are taking care of their families. However, we need to understand what we can do at the margins to reduce that total number. Obviously, if even 100,000 of those people—to pick a number at random—were back in the labour market, that would be helpful in the situation in which we find ourselves.

For every part of that cohort, there will be a different answer. For parents who are returning to work after having children, childcare provision will be important, so the increase in free childcare hours is hugely important. In rural areas and in some parts of cities, there are issues around transport and access to economic opportunities. Again, the Government is hugely focused on addressing those. For people who have ill health, there might be opportunities for some to access training and support that will enable them to become part of the labour market, which is great for them and for the economy.

One of the interesting differences between Scotland and the rest of the UK is in the number of students in the labour market inactivity pool. We are exploring that further so that we can understand the issues. However, that is a double-edged sword, because we have to ask whether we want students in the labour market when they should be more focused on their studies. There is a balance to be struck.

We are increasingly deeply involved in understanding those issues and driving forward programmes to address each of them separately, because the answers for each cohort are different.