Economy, Energy and Fair Work Committee

Meeting date: Tuesday, February 16, 2021

Official Report 660KB pdf

---

Budget Scrutiny 2021-22

Item 5 of the agenda is consideration of the 2021-22 budget and the impact of Covid-19 on businesses, workers and the economy. We are joined by Fiona Hyslop, the Cabinet Secretary for Economy, Fair Work and Culture. We are also meant to be joined by Richard Rollison, so I must suspend briefly to allow a changeover of witnesses. Gary Jones is to be replaced, so to speak, by other officials, although the cabinet secretary will remain with us.

10:50 Meeting suspended.  

10:53 On resuming—  

I welcome to the meeting Fiona Hyslop, the Cabinet Secretary for Economy, Fair Work and Culture. With her from the Scottish Government are Richard Rollison, deputy director of the directorate for economic development; Mary McAllan, director for economic development; and David Wilson, interim director for fair work, employability and skills.

I invite the cabinet secretary to give a brief opening statement before we move to questions from members of the committee.

This is my first budget as the Cabinet Secretary for Economy, Fair Work and Culture. My absolute priority is supporting economic recovery while we continue to do all that we can to suppress Covid-19 and ensure the safety of Scotland’s workforce.

We have an opportunity to invest for the future and design an economic recovery that works for all of Scotland’s people. Crucially, our plans are to rebuild our economy with wellbeing, sustainability and fair work at its heart. The budget allows us to make further progress by investing in policies that support our national mission to create new green and good jobs to ensure that no one is left behind as a result of the economic crisis. The total economy, fair work and culture portfolio budget allocation for 2021-22 increases by 10.5 per cent, which is £98.5 million, to £1.036 billion. That includes a £170.3 million increase in resource funding plus a £27.2 million increase in capital.

I advise the committee that the Cabinet is currently agreeing the budget allocation following yesterday’s confirmation by the UK Treasury of £1.1 billion of Covid-19 support. That will provide an additional £21.5 million financial transaction funding to Scottish Enterprise, which will bring Scottish Enterprise’s financial transaction spending power to the same levels as in the current financial year, at £48.5 million. That welcome development means that Scottish Enterprise will see a significant overall rise in its budget allocation, of £42.2 million, which will include £12 million for resource and £30.2 million for capital—including £8.4 million for the green jobs fund—with FTs maintained at the 2020-21 level, rather than a £21.5 million reduction, as reflected in the budget.

That additional investment is in the face of the on-going economic challenges arising from Covid-19 and the UK’s exit from the European Union. The budget underpins our plans to renew and rebalance our economy. It will support the work that Scottish Enterprise is doing to help companies to withstand the challenges, to protect and create jobs and to help deliver an economic recovery that is fair, sustainable and green.

Central to our plans for economic recovery is our commitment to doing everything that we can to protect existing jobs, to support workers to upskill and reskill and to create good-quality jobs for the future. We must protect and create opportunities for our young people, many of whom are being hit the hardest by the economic impacts of the pandemic.

The budget includes an additional £125 million for employability and skills provision relating to the young persons guarantee, which will support delivery of continued investment in employability, training and skills opportunities, such as the national transition training fund and the flexible workforce development fund. The additional £125 million in 2021-22 will be allocated as follows: £70 million to deliver the young persons guarantee and achieve our ambition of supporting every young person; £35 million to strengthen skills interventions, including the national transition training fund, the flexible workforce development fund and the talent attraction service; and £20 million for the no one left behind programme, which demonstrates our commitment to person-centred and place-based employability support.

For 2021-22, the budget includes funding of £27 million for our devolved employment service, Fair Start Scotland. The funding underpins a two-year extension of the service, which we expect to support up to 29,000 people, and represents a £5.8 million increase on 2020-21, based on the forecast of expenditure that has been assessed by the Scottish Fiscal Commission.

The Government’s commitment to employability and skills is reflected in the education and skills portfolio allocations for 2021-22. The grant in aid for Skills Development Scotland has been increased by £6 million to £230 million, and additional funding of £21 million has been made available to the Scottish Funding Council to support foundation apprenticeships in the college sector and graduate apprenticeships in higher education.

We are supporting local authority environmental health officers and trading standards officers with extra resources of £2.9 million in this financial year and next, to reflect the increased asks of them and to allow them to step up their inspection and enforcement where necessary.

The budget builds on our already significant investments in employability and skills in relation to the young persons guarantee, and recognises the increasing challenges that we are likely to see in the labour market this year while contributing to our national mission for new green and good jobs, alongside our fair work commitments.

Over the next session of Parliament, we will deliver a new £100 million green jobs fund, which will invest £50 million through our enterprise agencies to help businesses that provide sustainable and/or low-carbon products and services to develop, grow and create jobs.

A further £50 million will support businesses and supply chains to take advantage of public and private investment in low-carbon infrastructure and in the transition to a low-carbon economy, which should boost green employment. In 2021-22, we will allocate an initial £14 million from the green jobs fund.

11:00  

We will continue our investment in the Scottish National Investment Bank, which represents the single biggest economic development in the history of the Scottish Parliament—it is also the UK’s first development bank. We have committed to bank capitalisation of £2 billion, and we will provide £200 million of fresh capital for investment in 2021-22. The bank is mission led, with a primary mission to help to provide the investment needed to put businesses at the forefront of driving forward our net zero ambitions. Its investments will provide finance and catalyse private investment to achieve a step change in economic growth, by powering innovation and accelerating the move to a net-zero-emissions, high-tech, connected, globally competitive and inclusive economy.

We will provide £36.7 million for the continued development and build of the National Manufacturing Institute Scotland. Through our inward investment plan and “A Trading Nation—a plan for growing Scotland’s exports”, we aim to attract more foreign investment and to help our exporters to be more successful. We are working to support more strategic investments, with up to £20 million per annum,?and to grow exports from 20 per cent to 25 per cent of gross domestic product by 2029. Our capital investment plan is planned for launch in March. It will set out a strategy based on Scotland’s future strengths and opportunities, with a set of actions to improve our performance in attracting internationally mobile private capital.

Following the outcome of the capital spending review, we will invest £26 million of capital funding over five years in a low-carbon manufacturing challenge fund, which will support innovation in low-carbon technology, processes and infrastructure. We will also provide £25 million of investment over five years to support the Clyde mission low-carbon heating project.

The Scottish budget commits to extending the current non-domestic rates relief available to properties in the retail, hospitality, aviation and leisure sectors for at least the first three months of the financial year.

The latest GDP statistics, published on 12 February, show that the UK economy grew by 1.2 per cent in December but shrank by 9.9 per cent in 2020 as a whole—more than twice the previous largest annual fall on record. We recognise how difficult the challenge ahead is, but this budget and the portfolio priorities will help to lead our economic recovery and to rebuild a stronger, more resilient and sustainable economy for Scotland. I look forward to engaging with the committee on the budget.

Cabinet secretary, you mentioned GDP. The pace of recovery has slowed markedly, including in Scotland, since the summer months, due to the Covid restrictions. The Scottish Fiscal Commission does not expect GDP to return to pre-pandemic levels until around the beginning of 2024. The report by the advisory group on economic recovery was published in June 2020, but it had obviously been in preparation prior to the pandemic, so what is realistic with regard to planning or an approach? Is that report still relevant? What research has been done to allow us to adjust to this rapidly changing situation, given falling GDP and the need for recovery as soon as possible? What adjustments have been made?

The Scottish Fiscal Commission has forecast that Scottish GDP will grow by 1.8 per cent in 2021—but that it will not return to pre-pandemic levels until later—and by 7.5 per cent in 2022. You referred to the advisory group on economic recovery. I moved swiftly to set up that group, in recognition of the importance of planning for economic recovery. A great deal of that report absolutely still stands. The advisory group took a considered, long view of how we can all come through what will have been considerable disruption, and we responded to that by adding, sector by sector, industry-led recovery plans—that has been done for tourism and construction and we are currently consulting on the recovery plan for manufacturing.

The response, not just in Scotland and the United Kingdom but globally, cannot be dealt with immediately and quickly. However, an immediate and quick response to unemployment will be needed. Prior to the extension of furlough, we had anticipated that there would be a cliff edge in October; then we thought that that would happen in December. Now we think that that might come at the end of April, given that furlough has been extended—that is very welcome and is protecting many jobs. We anticipate that the immediate response will relate to employability, which is why I stressed issues to do with the young persons guarantee and the increasing focus on employability.

A lot of companies and organisations are in survival mode so that they can get through this period. As the advisory group on economic recovery said, we need a green recovery and a focus on digital activity. You will have seen what the Logan report said about tech scalers and investment, which is part of the support in the budget, and about the importance of growing green and low-carbon jobs. The growth agenda is therefore critical. That is why I have focused on the work that Scottish Enterprise can do to grow the companies that will develop the jobs of the future.

We cannot be completely confident about where things will go—nobody can forecast that—but we can plant those seeds. We expect entrepreneurial interest. We set out a range of areas in “A Trading Nation”, which I mentioned, and in the inward investment plan. No single measure will lead to economic recovery; we have to function in a range of areas. I hope that you can see from the budget and from my opening remarks that we want to build recovery through a variety of measures, whether we are talking about immediate sustainability of businesses or the need to grow the sectors that will be important in future.

I suppose that your point is that, in light of changing circumstances and where we are, the report and some of its recommendations—albeit that they remain relevant—have perhaps had to be adjusted. Can you update the committee on progress when it comes to delivering on or adjusting the recommendations?

I have commissioned work to plot progress on delivery against the recommendations and against the Scottish Government’s response. I can assure the committee that all the recommendations are being taken forward. A lot of work in that regard took place in the summer and throughout October, with energy now going into delivery, and I will be more than happy to share the finalised work with the committee. I absolutely assure the committee that I want progress and am pleased to see that it is being made. As I said, the report was quite far sighted in looking to the longer term and not just the immediate issues that need to be addressed.

Would it be possible to give the committee an interim update? You commissioned research that, given where we are in the election cycle, might not be available later, so a written update of some sort would be useful to the committee. I appreciate that you cannot give us that here, off the cuff.

I am more than happy to work with the committee to provide some sort of interim indication to you—bearing in mind what state the work is currently in. I am pleased with the progress.

Thank you.

I am always curious about how joined up budgets are when it comes to achieving outcomes across Government departments. I want to focus on housing, which is not mentioned in the cabinet secretary’s budget but is one of the greatest needs in near enough every community in Scotland. There is a lack of houses, and councils and housing associations have record waiting lists, but there is no plan for a 15 to 20-year house-building programme, which is what we need if we are to tackle Scotland’s housing crisis.

The issue has clear links with your brief, cabinet secretary, because if we had such a programme in place it would generate thousands upon thousands of apprenticeships and tens of thousands of jobs. The other day, I asked Fergus Ewing about the rural economy and housing, and he referred to the need to have housing available for workers who we are trying to attract here through migration. It seems that there is not a joined-up approach to the issue. Do you see housing as an economic development opportunity? Would a 15 to 20-year house-building programme create tens of thousands of sustainable jobs?

I agree that having such a programme is important, which is why we are developing our housing 2040 programme. As Mr Rowley mentioned, I am not the minister who is responsible for housing and nor am I the infrastructure secretary. However, I can tell the committee that, in recent weeks, I have had a few meetings about the 2040 housing programme, which is exactly the type of proposal that Alex Rowley refers to. However, he might not be aware of it, so I will happily ask my officials in the relevant department to share details of it with him.

The programme is important because, as Mr Rowley will know, housing and construction will be vital to our recovery. That is why, right at the beginning of the pandemic, I supported the construction sector and prioritised its route to reopening. It was the first to establish an industry, union and public sector recovery task force. It also published its recovery report, which covered such aspects. Mr Rowley will also know that private sector capital is important for market stimulation. It forms part of the discussions that I have had not only with Aileen Campbell, who is the cabinet secretary with responsibility for housing, but with the Scottish National Investment Bank, which will take a keen interest in the issue.

Housing has not been helped by the collapse of the financial transactions funding that was in the budget. There was a 60 per cent reduction in such funding, and Mr Rowley will be aware that housing particularly relies on that. I am hopeful that, following today’s discussions, there might be additional funding for housing, but I will leave it to the Cabinet Secretary for Finance to set out those aspects.

I am conscious that I have said a lot in response to Mr Rowley, but I will make a final point that might also reflect what Fergus Ewing will have said. I have been in charge of producing a population task force. If we want not only to attract people to move into our country from elsewhere but to ensure that we repopulate our rural and island communities, our housing strategy will be a vital part of our approach.

Mr Rowley is absolutely right that housing is everybody’s business, whether we consider it from the point of view of employability, repopulation or a variety of other areas. I am more than happy to send information about the housing 2040 plan to him when it has reached the stage when that can be done. At the least, I will provide him with an update on its progress. I know that Aileen Campbell has been pursuing it vigorously in recent months.

Thank you.

This week, ahead of the chancellor’s budget, I wrote to him to make exactly the point that you have just made about the furlough scheme. I raised with him the fact that the Scottish Fiscal Commission forecasts that unemployment will reach 7.6 per cent in the second quarter of 2021. Should the chancellor consider extending the furlough scheme beyond April? Should he be considering the issue sector by sector, because some sectors will not be able to return by that time? Are you doing anything about that, such as putting pressure on the chancellor? What can the Scottish Government do, given that some sectors will not be able to recover by April? If the furlough scheme goes, we could see a massive fall in employment and businesses collapsing.

11:15  

Alex Rowley is absolutely correct about that. I welcome the fact that the furlough scheme is protecting a lot of jobs. The underlying unemployment rate would be much higher if the scheme was not there. However, it is worth emphasising that most companies want to open and want their employees to be actively doing work. Rather than being some kind of subsidy that is desirable, the furlough scheme is essential for the economy and for individuals.

From a cost benefit analysis perspective, it is clear that it will be worth the UK Treasury’s financial outlay to continue a broader scheme of the kind that other countries have had right to the end of this year. It should be recognised that furlough is a tool in the fiscal armoury, not just in preventing the big bills that the Department for Work and Pensions would face in paying out unemployment benefit in its various guises, but in stimulating economic growth by enabling people to be re-employed.

The furlough scheme can provide smooth continuity through a period of economic growth; it is not just a useful tool in enabling businesses to survive and keep people on their books but an important bridge to what comes next. If the chancellor wants to limit the furlough provision in some way, he must look at the sectors that will be most seriously impacted for longer. Even if those sectors can reopen at some point, it will be a long slow haul, as the First Minister will say this afternoon. In reopening, they might not be able to get to the levels of profitability that they previously had, so there must be a bridge. The role of furlough as a bridge, as well as the lifeline that it has been in the most recent period, is the context in which the chancellor should consider extending the scheme.

We have pressed the UK Government on that. We did so as recently as last week in a quad meeting, in which the business minister was involved. Colleagues from Wales and Northern Ireland are supportive of that position.

Thank you.

I am sorry, convener, but if Alex Rowley is asking another question, I cannot hear him.

I am afraid that I cannot, either. Alex, do you have a further question?

No. I have finished. I thanked the cabinet secretary.

That would explain the absence of a question.

I would like to touch on the economic development and enterprise budget. I would be happy for you to update us on any aspect of this that is out of date, but it was originally proposed that the innovation and industries budget would decrease by 39 per cent from £30 million to around £18 million. That budget is to cultivate a culture of innovation, entrepreneurship and global ambition among Scotland’s innovators. Given the Government’s future ambitions on economic recovery, how can the proposed decrease be explained?

It can be explained by the 60 per cent collapse in financial transactions funding that the Scottish Government received. That had an impact on the areas that had previously been supported by financial transactions. However, that does not mean that we will not be providing investment support for innovation and technology, which, as Colin Beattie said, are essential to growth and development.

The good news is that the cut in financial transactions to the Scottish Enterprise budget has been replaced—that happened as recently as this morning, and will form part of the announcement that Kate Forbes will make this afternoon. That is extremely helpful.

The innovation and research budget had previously been ring fenced in order to drive business enterprise research and development, which we knew had faced some challenges. More broadly, the intention had been to double that level of investment—obviously, that included external investment.

In 2017, the target had been to double the business enterprise research and development investment. In terms of the targets and where we are now, that figure has been revised up, and there has been significant investment in the area. I do not have an issue with the question of whether we are stimulating enough investment and whether there will be resources available to continue that investment, because the answer is yes.

When the committee carried out its pre-budget scrutiny, it said that Scottish Enterprise’s budget perhaps lacked the flexibility to manoeuvre. With regard to the convener’s remarks at the beginning of the session about the extent to which we need to change tack and adjust depending on what is required in economic development over the next period, providing flexibility for Scottish Enterprise to position that investment will be important. Given our work through the National Manufacturing Institute Scotland, our aerospace low-carbon investment and what we are doing in the space sector, and what we are doing with the strategic board by working with the Scottish Funding Council and our universities, we anticipate that that drive, and our good experience of stimulating business enterprise research and development, can continue and be more flexible. Rather than it being ring fenced, the investment will be capable of being identified and used in the most appropriate way.

The good news is that the reduction has been removed. To recap, Scottish Enterprise has a £12 million increase in resource and a £30 million increase in capital. Much of that capital could be, and is being, used on innovation investment, as Colin Beattie mentioned. It is the area of the budget that has moved the most, so I thought it appropriate to get permission from the Cabinet Secretary for Finance to discuss with you that, although we had seen a reduction in financial transactions funding, as of today, we have managed to restore it. In fact, Scottish Enterprise is in a stronger position to help to meet the challenges that the convener laid out earlier.

Can I therefore take reassurance from what you say that the support for early stage businesses is restored and, I hope, enhanced?

Yes, indeed. As part of this year’s £1.2 billion economic recovery activity, in the summer of 2020, I specifically provided funding for early stage growth companies, because we thought that there would be restrictions on the levels of investment in that area of the market. If you judge on the track record of the past year, I hope that you will be reassured that the budget for this year not only has the appropriate resources but takes an economic approach that recognises that supporting early stage growth companies is part of creating jobs in areas whose economies will benefit from them, and providing jobs for the future. That involves balancing support for and protection of the jobs of today, and growing the jobs of the future. Innovative early stage growth companies are absolutely part of Scotland’s future.

A few minutes ago, you picked up on the committee’s recommendations that more flexibility be built into Scottish Enterprise’s budget. The committee actually recommended flexibility and contingency. How exactly have you responded to that recommendation?

There are different aspects to the issue of contingency. I am clear that, with business support, it has been important to provide contingency to ensure that we can adapt, depending on our experience of the virus.

The new variant is far more transmissible, and it has caused real issues and disruption in December and January. The Cabinet Secretary for Finance has made sure that we have enough funding to support people at the highest level. Back in November and December, when she was putting together the strategic framework business support, who would have known that, in February, most of Scotland would be sitting in level 4 and that the businesses that are required by law to close would all require the highest level of business support? That would not necessarily have been forecast in November, so that is a contingency.

The issue with Scottish Enterprise is to ensure that it has enough FT capital to support equity and loans for companies that might have difficulties due to Covid-19 pressures or EU exit. My worry now concerns companies that were viable before Covid and which have managed to use their working capital and loans facilities to deal with the situation so far.

That is where I expect the support to be required as we move forward. Their business is currently restricted, and for many of them, demand has collapsed as well, but in some areas we would expect demand to go back up. However, we are finding that Brexit could be the final straw for such companies if, for example, they are facing difficulties with exporting.

One of the recommendations from the advisory group on economic recovery—the Benny Higgins report to which the convener referred—was that we look at cash-flow issues and opportunities for equity and loans. Contingency for the enterprise agencies to help companies in that space is very much needed, and the capital support that we have provided is very much a part of economic recovery. Contingency can operate in different ways, including in relation to basic business closures and those businesses that are facing a real struggle.

We expect support from the UK Government in the areas that are impacted by European Union exit. Michael Gove has made it clear that the UK Government will support businesses, and the seafood sector support—however limited it is—is part of that. However, I do not think that the seafood sector will be the only sector that will face problems because of EU exit. A lot of the issues are unwinding and are becoming more apparent just now. The issue is to what extent exporting is part of the business plan and the operation of many companies. For many years, we have been calling on small and medium-sized enterprises in particular to innovate and export. We know that the companies that export are more likely to innovate, and we want them to continue to do that.

Do we know, and can we anticipate, the level of cash-flow issues as we move forward? That is hard to predict. Scottish Enterprise is currently revisiting the slightly more than 1,400 companies that were previously identified as—dare I say it—Brexit vulnerable, in order to find out their current situation. SE stands ready to support those businesses as and when that support is required. However, we cannot simply hold on to that funding and therefore not invest in innovative early stage growth companies or the low-carbon sector that was mentioned previously. As you might appreciate, it is a balancing act.

I will move on to the Scottish National Investment Bank. Previously, with the decline in financial transactions funding, there was a concern about the future funding of the SNIB. Obviously, there has been a restoration of financial transactions. Does that mean that that source of capital will now fund the SNIB, as was anticipated?

There is £200 million in the budget for Scottish National Investment Bank financial transactions. Even before the 60 per cent reduction in financial transactions, we were clear that the commitment to the SNIB and its funding levels must be honoured as part of the patient, long-term recovery funding that it will be able to help supply. The SNIB was always a priority; it remains a priority, and its funding is secured this year. Obviously, we need to anticipate what will happen in future. Financial transactions are now at the stage where we are starting to get incoming revenue in different areas, which needs to be factored in.

Scottish Enterprise will also benefit from the returns that it was getting from financial transactions. We will keep a close eye on that area with regard to financial transactions and the potential for more capital investment in the future. We will set out our plans. We have launched the Scottish National Investment Bank, the first investments have been made, and the bank has been capitalised to the level that will be required. The £2 billion over a 10-year period is a strong commitment, and there is £200 million in the budget that is before the committee now.

So it is not anticipated that there will be a need to source capital from other portfolio areas.

The capital investment plan was set out at roughly the same time as the budget; you will see the plan for public capital investment over a period of time. At this stage, we do not anticipate the need that you mention. Obviously, we have to look at the year-on-year developments of capital and FTs. Because of the reductions in FTs from the UK Government—not just to the Scottish Government but to other devolved Administrations and within the UK Government—we will keep a close eye on the issue. I can reassure the member and the committee that we have confidence that our funding for the Scottish National Investment Bank is strong and secure.

11:30  

The deputy convener has questions now.

I want to talk about support for young people. Earlier you mentioned £125 million, and you broke it down to £70 million for the young persons guarantee, £35 million for skills and training and £20 million for the no one left behind fund.

You will probably be aware of the committee’s recent work that focuses on young people and, in particular, on Covid’s impact on employment opportunities for them. Do any of the schemes that are in place reach out to graduates who are coming out of university and looking for their first opportunity to get into the world of work? How might we assist employers to get them into that first job, which they are desperately keen to have? A number of committee members have been very concerned about that, so your thoughts on it would be greatly welcomed.

With regard to the young persons guarantee, the recommendation of the advisory group on economic recovery is for 16 to 24-year-olds, and that range covers the age group that you are referring to.

There is obviously a lot of focus on young people who are leaving school. There has been progress there, even in these challenging times. We should remember that we are still closed, but 18,000 new opportunities were identified during the past year, as well as 10,000 for transition training. The real demand will be in the second or third quarter of this year, unless, to go back to my answer to Alex Rowley, some other solution using the furlough scheme can be identified.

However, recent graduates are one of the target areas that we will work on with the colleges and universities, but also with employers who are looking to take on people who are in that position. We recognise—and I will go back to the additional funding that the Scottish Funding Council and Skills Development Scotland have—that young people are going to be a priority. That is why there is additional funding for graduate apprenticeships and foundation apprenticeships. Even the experience that someone can get from an internship or, preferably, paid employment is going to be really important.

That is why we are also very keen to work with the UK Government to ensure that our provision, which we hope will provide some kind of two-year round package for young people, can use the kickstart scheme as part of that package. It also provides—[Inaudible.]—between that and the subsidies that might be available through local authorities. That can help companies take some of them on. A number of businesses want to do their bit to take on people in their own communities; they know that they have a responsibility. They also know that doing so can help them grow, particularly in new areas, such as marketing and other areas where we know that there has been a step change.

Those groups are really important to providing regional leadership in relation to developing the young workforce. It is employer led, and they will be fundamental to helping the local authorities identify subsidy schemes for businesses to enable them to take on the sort of people you identify.

There is also a website portal, which I ask all MSPs to promote in their local areas. It is a single portal that young people and employers can go to, and we have made it user friendly to help them to identify the available opportunities.

That is helpful. If you provide more details on that, I would be obliged, cabinet secretary.

What are employers saying to Government? The feeling that we got from the young people who gave us evidence was that the recruitment process has basically dried up during Covid, particularly for graduates. They are looking for that little bit of additional help to enable employers to bring graduates in for a time just to get us through the awful time that we are in. Are you aware of graduate recruitment tightening and drying up a bit?

The recruitment process generally is in a challenging state. On the school side, for example, the employment in each school of a developing the young workforce co-ordinator will be important. The pilot scheme in Fife proved successful and provided a good link between schools and employers, precisely for that reason. It is more challenging for universities and colleges, but I will speak to Sandy Begbie, who has kindly agreed to lead on the young persons guarantee, about how colleges and universities can form those links. Again, that is on the education side rather than in my area, but I will ask Richard Lochhead about what is happening on that. Colleges and universities keep in close contact with recent graduates, so they could use that system to make the connections with employers that are seeking employees. It is difficult to take someone on remotely. I have had to do that—I have a member of staff who I have not physically met. It is, however, the reality of the challenge we face, so we must be realistic.

We will soon be able to announce more of the new companies that are graduate recruiters that want to be part of the young persons guarantee scheme. In the areas in which we want to develop, particularly on the digital side and in green energy, there will be a strong need for that workforce. The same is true in the financial services sector, which has been successful in this period—and very busy, as one can imagine. There are opportunities, but we need that collective national mission for jobs, and that is not a mission just for the Scottish Government but for everybody. Employers know that, as part of that economic recovery, we need to focus on this generation of young people. I will get more information about how we can create that interaction between recent graduates and the young persons guarantee, and I will share that with the member and the committee.

The cabinet secretary mentioned the digital aspect several times. One of the messages that the committee has picked up from young people is that, because of Covid, we are seeing much more online and distributed work going on. It was always possible to do that, but Covid has prompted it to gather pace. Are we thinking about encouraging employers to distribute their employment opportunities more widely within communities, so that young people in Scotland’s more rural communities in particular can have a realistic prospect of working in the community in which they live, rather than us all flooding into the cities in Scotland, as we have done for many years? There is a real opportunity now to use digital technology to encourage employers to offer employment opportunities in a much more distributed way.

The member has valiantly advocated the digital economy and its opportunities for many years. The reality that everyone is facing means that people have rethought how they operate and what they do. The opportunities to work in a virtual way in any place are now evident. I speak to companies regularly, and many are rethinking what they will do, even when, at some point in the future, physical distancing is not required. That sort of hybrid operation is being seriously considered by everybody. What the member suggests was the subject of the discussion that I had with the leadership of the Convention of Scottish Local Authorities, and I spoke to council leaders last week, when we discussed the ministerial work that I have been leading with the population task force. I hope to publish that in the next few weeks. It is an opportunity to think differently.

People might remember, with some pain, the issues around Scottish Natural Heritage, when, in the very early days of the Parliament, there were proposals to move the whole agency, lock, stock and barrel. You would not necessarily need to do that now. We could have people living and working in more rural and remote areas and, importantly, as Willie Coffey said, enabling people to live and work in the communities in which they grew up.

In Scotland last year, eight local authorities lost population, and a third of local authorities lost population the year before, so this would be a good way of addressing that. That goes back to a point that I made about housing. We need joined-up thinking about regeneration and how to have a place-based approach to economic recovery, and we need to encourage that and find ways to do it.

Even before the pandemic, I was discussing co-location with major organisations because banks had closed branches up and down the country. Could we use vacant properties to have sponsored work spaces with hot desking and so on in remote and rural areas? I have also had those discussions with the information technology sector in relation to delivery. We are all human, so we know that living and working on your own is a lonely place to be even though it is great to see colleagues on screen.

Having physical places in remote localities that people can go to and still work for their companies and still have the option to work at home, not having to travel but instead spending money in the local community, is one of the ways that we can tackle one of the most serious long-term economic challenges that Scotland faces, which is the loss in percentage terms of working-age population. As you can probably tell from my answer, I am enthusiastic about that idea.

That is appreciated.

The extra £1.1 billion of funding that was announced yesterday takes total UK Government cash delivered to the Scottish Government to almost £10 billion. Will some of that funding go towards a 100 per cent rates relief for businesses in the leisure, retail, hospitality, newspaper and aviation industries?

Prior to the announcement yesterday, around a third of the investment had already been spent on business support and, as I said in a previous answer, £1.2 billion of economic recovery. Our response to yesterday’s announcement is symptomatic of the speed at which we have to respond without anticipating what is coming in terms of our share of consequentials. I am tempted to say, convener, that had you not invited me to this meeting, I would have been able to take in the full discussion at Cabinet on the decision making around that and been able to tell you what the answer is to Maurice Golden’s question.

We know that rates relief is important, which is why without any of the additional funding from the UK Government that we anticipate, we have already committed to that first three months’ support for different sectors. Aviation, you will recall, is being supported only by the Scottish Government, which is why I have called on the UK Government to work on a task force along with the Welsh Government on the aviation sector in particular, because it is facing real challenges. Scotland can be low-carbon manufacturing in that innovation space, but clearly the collapse in demand in the aviation sector is having major effects, so any support that we can give it would be welcomed.

In relation to the deployment of the funding, as you might appreciate, I am the cabinet secretary for the economy, not finance, so I want to give Kate Forbes her place; she will make her announcements at the appropriate time.

The most recent statistics for the strategic framework business fund show that 24 per cent of applications were rejected and 11 per cent were awaiting processing. Can you explain or provide further insight on the reasons behind the rejections and any issues that are causing delays?

We are keeping a close eye on the issues that local authorities face. For example, local authorities that had previously been in level 4 in December can move much more quickly on distribution. I commend councils’ work; we are expecting a lot from them in relation to targeted as well as general funding provision. My understanding is that those applications were rejected because the businesses are not eligible. The guidance is clear that you had to be either legally required to close or the hours during which you can work had to be restricted, and clearly at level 3 that latter requirement was important.

That is why we have now doubled the discretionary fund for local authorities from £60 million to £120 million. A lot of companies that were applying through the strategic framework were companies where demand had collapsed but they were not legally required to close. That is where the discretionary fund can step in—for example, supply chains are in that category.

Some of the 11 per cent might relate to councils that have just moved into level 4. Not all businesses provided the required information in the given time. Some businesses did not apply until near the end of January, as opposed to doing so at the beginning of the month.

Councils are doing well—we know that £270 million was distributed in January and slightly before then. Kate Forbes has committed to keeping Parliament informed about progress. The decision to extend level 4 funding until February has been welcome and important.

11:45  

Much of what I was going to ask has been covered, but I am keen to understand one point. Scotland has 350,000 SMEs, many of which are concerned about defaulting on loans, retaining employees, paying their supply chains and postponing their growth projects because of the uncertainty. As we look forward and start to put Covid behind us thanks to the vaccination programme, we will aim for a bit of growth in the economy in the next few years. How do we support those companies through the transition period? As the economy starts to grow, how do we gradually phase out support such as non-domestic rates relief? Has that been thought about?

I am afraid that the concept of putting Covid behind us is challenging—we will be living with the health and economic consequences for some time. However, Gordon MacDonald is right to think about how we ease out of the period of loans and debt and get into a period of investment and growth, which is a challenge. That is not all about the public sector.

With the backing of the extensive borrowing and other financial mechanisms that the UK Government has, we established a comprehensive system of loans, including the coronavirus business interruption loan scheme. The UK Government’s recent announcement of the pay-as-you-grow approach to repaying such debt is welcome and is a good prospect. We cannot have a sudden cliff edge when the tax burden and loan repayments all come in at the same time.

The watchword for the foreseeable period is forbearance—that applies to the Government and the banks. It is in the banks’ interests for businesses to survive and grow and to be their customers of the future. I have had an increasing interest in the issue. We will shortly publish a piece of work on financing the recovery that I asked Benny Higgins to do, which came out of the advisory group on economic recovery’s report. That includes financing from the private sector, and there are asks of and challenges for banks in how they behave.

Scotland has many businesses—perhaps family businesses—that did not previously want to get into debt, perhaps because they had an adverse experience 10 years ago in the financial crash. There are also companies that have taken on low-cost loans because of their availability but not used them completely. We need to encourage those companies to consider investment for growth rather than just repayments—it works two ways.

I recently spoke to UK Finance and I just signed off a letter to John Glen of the UK Treasury to ensure that we have a strong and robust agenda. We have a national mission for jobs, but helping the companies that we are talking about must be a mission for everybody, so that we do not have a cliff edge. We must have a smoother approach so that companies do not focus so much on their debt that they do not think about investment for growth.

That is quite a paradigm shift, particularly for a lot of SMEs in Scotland. The idea is to use equity and loans effectively. We will work with the business banking sector in particular, because it has a role and a responsibility. That will be a focus for me. I cannot share too much but, when I have the report on financing the recovery, I will share it with Gordon MacDonald, the convener and the wider committee.

Good morning, cabinet secretary—it is good to see you. I want to mop up some of the areas that we have covered.

Willie Coffey asked about graduates. Am I right in thinking that there is no specific help for people who graduated last year? Of course, we will have a new cohort graduating this year. From what I heard, although you want to do stuff, that has not yet happened. If I am right in thinking that, when help appears, should the universities that people graduated from let them know about it? Should they be keeping in touch with graduates who have been sent out there with no prospect of getting jobs?

I will also touch on a couple of other areas that have been mentioned. Will there be extra help for the aviation sector? You are well aware of the problems that it is encountering at the moment. Maurice Golden mentioned the newspaper sector. Will there be a business rates relief extension, as Parliament voted for last week?

The latter point is an issue for the budget discussions; I am sure that the Conservative Party is actively engaging with the Cabinet Secretary for Finance on those issues in the formal negotiation process.

On aviation, I agree—it is a big challenge, and it is not an issue only for Scotland. As regards what we can do in Scotland, Jamie Hepburn has been leading a group to look at recovery in aviation and the aerospace sector more generally. However, that requires UK input and co-ordination. We have an official who sits on the task force, but we think that there should be a more collective ministerial approach. The Welsh and the Northern Irish are extremely keen for the UK Government to establish more work on aerospace and aviation more generally so that there can be a more co-ordinated response.

On investment, I have talked about our focus on the work of the National Manufacturing Institute Scotland, its partnership with Rolls-Royce and its research funding and activity in that area. There is an opportunity for Scotland to take the lead in the area of low-carbon manufacturing in particular.

Does the budget reflect our ambitions for aerospace and aviation? Yes, it does, but I think that Graham Simpson is probably referring more to survivability and coping, which is an issue that is widespread across the UK.

On graduates, I do not want to give the impression that there is not any proposal. There is support for graduates, which continues; indeed, the portal that I mentioned allows any young person to access the young persons guarantee and to link up with opportunities that exist. As to whether more needs to be done for graduates, I suspect that the answer to that is yes. As the committee might be aware, this is not necessarily my area of responsibility, but I know that universities are strong on keeping track of young people’s employability experiences.

This past year in particular has been a real challenge; I will not pretend that it has been easy. I do not anticipate that there will have been extensive opportunities for last year’s graduates. Even in areas where there is temporary work, people have obviously had to fall into whatever they can, a lot of which might be remote working or work in call centres. People are having to get income from whatever source of employment they can at this stage. Areas such as retail and hospitality that many young people would traditionally have gone into while trying to follow their long-term career path have closed, which has caused an issue as well.

We do not want to lose out when it comes to graduates. One of Scotland’s economic strengths is the level of our graduates’ capability. We have among the highest numbers of higher education graduates of any part of Europe. We need to ensure that we can maximise productivity by using their skills.

The committee obviously has an interest in graduate unemployment, and I will be more than happy to work with colleagues—Richard Lochhead, in particular—to ensure that we can give you a proper briefing about graduate opportunities and what has happened over the past year. In schools, the developing the young workforce co-ordinators are the link to employers. The issue is how we can work with universities and colleges to provide something similar—there will be people who already do that, but I do not have that information at my fingertips; I will share it with the committee when I can.

My strong impression is that the universities are not keeping in touch with the people who graduated last year and that many young people out there have little prospect of finding jobs in the immediate future. That is nobody’s fault. However, my view is that there needs to be on-going contact.

You mentioned a portal. What is that? Can you remember its name?

It relates to the young persons guarantee—I hope that someone will put its name up on my screen.

I know that members have been getting letters from lots of cabinet secretaries, not least from the health secretary about the vaccination programme. I wrote to you with all the links when we launched, back in November, and I am more than happy to send you those links again. As you said, we all need to work collectively to spread the word about what is available and where the access points are for young people.

Okay. That is it from me, convener.

Thank you. Richard Lyle is last but not least.

Always, convener.

Cabinet secretary, can we clear up a wee myth? Do you agree that any money that we get from the UK Government, including the £1.1 billion, is not a gift or a hand-out—as some people portray it—but our cashback?

Consequentials are our share of the funding—“cashback consequentials” is an interesting phrase, which you should perhaps trademark and take the credit for. Every Government in the world is having to put an enormous amount of funding into tackling the Covid challenges. A recommendation of the advisory group on economic recovery was that we consider the Scottish fiscal framework with a view to ascertaining how the Scottish Government could get the levers that it would need—including increased borrowing—if it was to provide the required funding. A state has far more extensive powers than a devolved Administration.

The funding is our share. We are talking about debt of £2 trillion, which is massive, and many other countries have massive debt. That is why a lot of today’s discussion has been about not just what we do over the next year in the budget that the committee is scrutinising, but transition and the ideas, ingenuity and ambition that will be needed for recovery, which will be every Government’s focus over the next period.

Yes, the £1.1 billion is funding that is due to Scotland as part of the regular settlement. I have no doubt that you will hear Ms Forbes say that trying to plan when we have a couple of days’ notice is always a challenge, however welcome the funding is. Richard Lyle has done some myth busting, and I expect to hear the phrase “cashback consequentials” for some time.

Thank you.

In the budget documents, the Scottish Government says:

“we will extend Fair Work criteria to as many funding streams, business support grants and public contracts as we can”.

Can you provide more detail on that? Will adherence to the fair work criteria become a condition of Covid support?

Conditionality is part of how we become a fair work and wellbeing economy, which is important. In the context of the funding streams that we provide, we have been asking companies to demonstrate their fair work credentials. I talk to many companies, and I think that they recognise the importance of staff wellbeing. They know that having good, well-paid, motivated staff—especially when staff are working from home, as they are doing just now, which has been difficult—is important.

There is now an opportunity for the fair work agenda, and I will talk to the fair work convention this week. Fair work needs to be the hallmark of how Scotland conducts business. That was already a commitment made by Scottish Enterprise in the funding programmes for this year. However, the committee can imagine the volume of cases that we have been dealing with. With around 300,000 businesses applying for funding support, there had to be simplicity in many of the programmes and in the processing of applications but, increasingly, fair work conditionality must be part of the society that we want to be and the economy that we want to have. It is a case of bringing both those things together. We cannot compete on low-wage, low-skilled activity; we must have high-wage, high-value businesses. If members look at the business focus on economic growth in the budget, they will see that that is the direction that we want to travel in.

12:00  

I have not personally thanked you for the help that you gave to showpeople, and I want to take this opportunity to publicly thank you for that.

In the light of the pandemic, does the Government intend to review any of the statistical measures for performance or to develop any new measures in the national performance framework indicators?

The national performance framework is increasingly important. It was established with the sustainable development goals and so on, and it will be increasingly important in measuring how successful we have been in becoming a wellbeing economy. At its January meeting, the Enterprise and Skills Strategic Board examined some of the initial work on the performance framework analysis, and I understand that it will give that further consideration in March. I am happy to share where we are with that, along with information on our achievement against the recommendations in the economic recovery report and in relation to the national performance framework.

One of my officials might want to give further detail on that. While we identify who that should be, another official has kindly given me the details of the website portal on the young persons guarantee, which it is probably worth me advertising: www.myworldofwork.co.uk/youngpersonsguarantee. I hope that all members will publicise that after the meeting.

Richard Rollison will come in on the important question about monitoring the national performance framework and the changes in the analytics.

The national performance framework and its outcomes and indicators are long-term measurements that look beyond the pandemic and on towards recovery. Other work is happening across the Government, especially in the economy space, to monitor the impacts of the pandemic and how we might supplement some of the NPF indicators at this point, to take account of the current circumstances, because, as Ms Hyslop said, we are in for a longer haul. That analytical work is also taking place.

I think that David Wilson wants to come in on the young persons guarantee.

One of the commitments that we made as part of the launch of the young persons guarantee last November was to develop a performance and measurement framework. That will be framed and developed in the context of the national performance framework. One of the specific indicators in the national performance framework is on participation in employment, education and training by young people. Skills Development Scotland publishes an annual assessment of participation and that will be the principal indicator.

We are also seeking to develop a wider range of qualitative and quantitative indicators to help us to monitor the progress of the young persons guarantee and to evaluate its longer-term impact. Although participation is the principal element—after all, it is a guarantee that seeks to ensure that there are places for young people in education, employment or training—we also want to assess how the guarantee is contributing to the wider issues that young people face in the labour market, including the impact on women in employment, those with disabilities and the wider equalities concept. We are developing that performance framework, and we intend to publish it later in the spring.

As there are no further questions, I thank the cabinet secretary and her team for attending this morning’s meeting.

12:05 Meeting continued in private until 12:46.