Chamber and committees

The past five years have been extremely challenging for businesses because of higher costs, including energy costs and, more recently, the hike in national insurance contributions, although I think that the impact of that will be seen in the years to come. Many businesses struggled hugely during Covid and, unfortunately, some did not make it.

In the first half of this year, we were second only to the north-east of England and, in 2025, there has been an 18 per cent increase in new business incorporations.

I will need to come back to you with the data on that. We have a lot of small businesses but, by and large, the bulk of the workforce is employed by the bigger businesses.

Let me go further than that. I agree that SMEs are the backbone of the Scottish economy. I also agree that productivity is critical, so let us unpack what drives productivity growth. First, technology and the adoption of digital technology; secondly, skills—in other words, people having the right skills for the right job and the ability to perform at the level that they need to—and thirdly, reinvestment of business profits, which I think that you are going to come on to. Those are three drivers of productivity. There are also other drivers, such as infrastructure.

My overall budget, if you include capital, is £1.3 billion. Immediately, you have to look more broadly than simply at my portfolio. We have to look at skills, training, wider infrastructure investment and digital adoption. I can do things such as support digitalisation and digital adoption in tech. When I refer to the tech industry, we should bear in mind that most industries are now tech industries. Yesterday, I spoke about the growth in med tech, for example. The £1.3 billion is delivering significant results, but it is much broader than that.

I might disagree with the premise—I think that the approaches that we have taken have had an impact. Scotland’s productivity has outperformed that of all regions of the UK over a 20-year period, recording an average growth in real output per hour of 1.5 per cent per annum. Despite that, productivity is still below the national average, and that is what we need to focus on. My argument is that what we have been doing has had an impact, but we need to recognise that the challenges that businesses are facing right now require a slightly different approach. AI is a new opportunity and a challenge.

I think that GDP remains a useful indicator of economic growth, but I do not think that it is the only indicator, largely because it is measured on a national basis. The whole point of community wealth building is that we want to understand the drivers of local prosperity. We want to know that, where a particular local community is thriving, that is having an obvious social impact. That is what Mr McKee was probably getting at, although I did not see the exchange. GDP remains useful but, on a community level, a number of metrics can be used. Mr McKee is driving the bill, so he will be doing the consultation, but there are a number of useful metrics for unemployment, economic inactivity and poverty, and those are massive indicators of economic prosperity. There will be statistics in and around the number of businesses, and I imagine that each of those local businesses will contribute to more local infrastructure development.

There are a lot of metrics and I assume that, as part of the community wealth building consultation process and the bill process, there will be a lot of discussions about how we measure the wealth that we want communities to build through that bill.

I always think that there are two perspectives on economic success. There is the perspective that, if we just pick a couple of big winners, that drives national GDP growth, which looks really good but hides all the social challenges, such as the communities feeling left behind and the disenfranchisement. The other perspective is the ground-up approach, through which we want to ensure that all parts of Scotland are economically prosperous, which, inevitably, drives GDP growth.

GDP growth remains a useful indicator, but, if we are not comparing it with the other statistics at our disposal, we do not know whether it is just masking a lack of economic prosperity in communities. We have seen that in the past, when communities got left behind but the national figures still looked okay. The national figures would have been a lot better if we had not left communities behind, so I do not think that it is an either/or situation—it is a both/and situation. Those that focus only on national GDP figures, to the exclusion of other figures, do themselves a disservice. Those that look only at the local figures, without understanding how they are driving the national figures, also do themselves a disservice.

I will ask Aidan Grisewood to speak to the metrics. We have metrics on that.

I will happily do that. I assume that the enterprise agencies were also fulsome in expressing how much financial support they have given to defence companies in the past few years. If memory serves, Scottish Enterprise and Highlands and Islands Enterprise have given £45 million of financial support to companies in the defence sector.

The First Minister announced the policy a couple of weeks ago—it is only a few weeks ago; I do not know when you heard evidence from the enterprise agencies, but I imagine that it was quite soon after the announcement. The policy applies

“to new grants provided, or investments made, by Scottish Government”,

Scottish Enterprise, Highlands and Islands Enterprise, South of Scotland Enterprise and the Scottish National Investment Bank. It applies to named countries, which are determined by ministers in reference to objective international legal processes—specifically, where the International Court of Justice has indicated provisional measures under the United Nations Convention on the Prevention and Punishment of the Crime of Genocide or where the International Criminal Court has issued arrest warrants for related acts. Currently, those countries are Myanmar and Israel.

The policy as defined above will apply only to companies whose products or services are provided to specific, identified countries, either directly or through known indirect relationships, such as distributors, intermediaries or broader supply chains. The policy does not apply to companies whose goods and services end up in those countries without their knowledge. It applies to the full global footprint of a defence company and all associated activities.

That is the technical detail of the policy.

The policy does not apply to supply chain companies. Working for companies that have links to identified countries, where the subcontracted project is not intended for use in those countries, is not restricted. That is why it all comes back to the need for the company itself to declare that, to the best of its knowledge, Israel is not the intended destination.