Local Government and Communities Committee

Meeting date: Wednesday, November 22, 2017

Official Report 706KB pdf

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City Region Deals

Good morning everyone, and welcome to the 28th meeting of the Local Government and Communities Committee in 2017. I remind everyone present to turn off mobile phones. As meeting papers are provided in digital format, members may use tablets during the meeting. I am glad to see that we have a full house today: all members are present.

In agenda item 1, the committee will take evidence in its inquiry into city region deals. I welcome Keith Brown, who is the Cabinet Secretary for Economy, Jobs and Fair Work; Oonagh Gil, who is the deputy director in enterprise and cities, and Morag Watt, who is the head of region and city partnerships team, both in the Scottish Government; Lord Duncan of Springbank, who is the United Kingdom Government Parliamentary Under-Secretary of State for Scotland; and Neil MacLennan, who is head of city deals and local government at the Scotland Office. You are all most welcome.

Before we started the meeting, we were observing that it can sometimes be challenging to get the Scottish and United Kingdom Governments scheduled to appear at committees at the same time. We see this as an encouraging step in relation to our city region deals inquiry, and we thank everyone present for making it happen. I understand that the cabinet secretary and Lord Duncan have opening statements to make. We will be delighted to hear those now.

Thank you very much, convener. Ian Duncan and I appear together on many platforms, including the Scottish business growth scheme and various conferences, not least of which are those on city deals. We are delighted to be here. Ian Duncan reminded me that I danced at his wedding recently, although I cannot remember dancing with him, which is what he said.

We are here to talk about the city region deals. The Government believes that strengthening Scotland’s economy so that it benefits everybody in Scotland is the very definition of inclusive growth; for us it is front and centre of what we do. City region deals are one of the key economic levers: 83 per cent—that is 4.5 million people—of Scotland’s population live in the areas that are covered by existing or planned city region deals. According to the latest figures, from 2015, that same area equates to 86 per cent of Scotland’s total gross value added and 2.2 million jobs, which is 85 per cent of all Scottish jobs.

The Scottish Government is the biggest funder of city region deals in Scotland, having made commitments that are worth over £1 billion to date. The investments that we are making in city region deals will benefit Scotland as a whole by creating tens of thousands of jobs and upskilling labour markets, but they can do much more than that. They are based on proposals that have been developed by regional partners, harnessing local intelligence to identify what is needed to unlock inclusive growth. They can also act to galvanise key partners to come together to drive regional economies in ways that go well beyond the investments that they deliver. Crucially for us they focus on delivering inclusive economic growth.

Of course, our policy approach should not be, and is not, just about cities and regions although they are very important, as the figures that I mentioned show. For our economy and all of our people to flourish we need inclusive economic growth in all of Scotland, especially outside the traditional growth areas. Inclusive growth, by definition, is about opportunities for everybody. That is why the enterprise and skills review made it clear that we are expanding our regional economic policy to go beyond city deals to support the creation of regional partnerships across the country. As I told the Economy, Jobs and Fair Work Committee last week, I have agreed to establish a centre for regional inclusive growth, which will provide a platform to share local and national data, analysis and evaluations. It will also help to support regional partnerships and city and region deals.

I am very pleased to be here and I am delighted that the committee is taking an interest in city deals at this early stage. I look forward to answering questions.

Thank you very much. It is a pleasure working alongside Keith Brown, because the only way we can deliver the city deals is through co-operation. It is important that the committee is beginning to examine what is going on, because it is not just the two Governments that are co-operating: local authorities across Scotland are, too. That collaborative form of working, which is at the heart of the city region deals, is perhaps a model for how we might move in other areas.

Let me give you some background, which might be useful for the committee before we begin to delve into the questions. The UK Government launched the city deals programme in December 2011 with the publication of the “Unlocking growth in cities” white paper, which set out our ambition to transfer powers and decision making to local leaders and businesses to support economic growth. Behind the city deals is our recognition that they are catalysts for the cities and their wider hinterland. It is important to stress that. Although there is often a city at the heart of the deal, it is not exclusively about the city. We are considering implementing new governance arrangements across the UK, certainly south of the border, for developing economic growth strategies that I believe will dovetail very well with the Scottish Government’s ambition for inclusive growth and its increasing capacity to manage devolved funding and spending.

The city deal programme in Scotland started in 2014, some three years after the city deals were launched in England. We now have four deals agreed. Three more are in negotiation and we expect progress to be made on them in due course. The UK Government has so far committed just over £1 billion to that programme. Our ambition is very simple: it is to support balanced and sustainable economic growth and to improve the health of local, regional and national economies. As I said at the beginning, the deals should be a means by which our Governments can co-operate and collaborate; after all, we are governing the same people and both Governments have the same objective at heart, which is to deliver better lives for the people who live in those areas. Scotland has particular challenges, and we know that the Scottish Government’s own figures reflect those. The city deals will be very useful in, I hope, transforming the landscape, as we understand it.

The UK Government has moved forward in a number of other areas that we hope will complement the city region deals approach. They include the industrial strategy, about which we should hear some more information in the next week or so. I could explain that in greater detail, but I think that I will wait to be prompted by the questions.

I thank both of you for your opening statements. A theme that has run through the evidence that we have taken so far has been how well managed the first city region deal—the Glasgow one—was at the outset in terms of getting the balance right between economic growth and inclusive growth. Councillor Susan Aitken, who chairs the Glasgow city region deal cabinet, talked about that when she came to this committee. We heard academics in another evidence session talking about the possible need to retrofit earlier deals to align them better with inclusive growth. I have to declare an interest because that may be a real benefit to my constituency: the Glasgow city region deal might, for the north of Glasgow in areas such as Hamiltonhill and Ruchill and the canal network, boost regeneration in an area that has long been deprived.

That leads to a question about the purpose of city region deals. Are they about inclusive growth, but not necessarily about maximising economic growth? Regenerating and taking forward communities that need it, but where there is not a lot of economic activity, might create less economic activity than a boost to an area in which there is already significant economic activity.

I am keen to understand the balance between maximising economic growth and inclusive growth, and where the two Governments sit in relation to that. That will determine what projects will proceed both in the city region deals that might be retrofitted and those that are still in the pipeline. Are there tensions between inclusive growth and maximising economic growth?

On the first part of your question, the Glasgow city region deal is unlike the other deals. The Scottish Government was asked, at the very last minute, to contribute £0.5 billion to it. There was no prior discussion, so our ability to emphasise or prioritise such things as inclusive growth was limited. It is true to say that city deals have matured since then; they no longer resemble a straightforward list of infrastructure projects, and there is more involvement with the private sector and more emphasis on transformational growth.

On retrofitting, as you called it, the Glasgow city region deal, we have said—I think that this is also true for Ian Duncan, although obviously he will want to speak for himself—that we are willing to consider that within certain constraints, including that an area should not be disadvantaged by, say, councils suddenly finding projects moving out of the area with no replacement. That is important. The quantum of funding is not going to change: the £1 billion that is behind the city region deals is not going to change. That should be understood.

Beyond that, it is true that city region deals have—to use an overworked phrase—been on a journey. They have matured over time, and if councils and partners want to look at the deals again they should do so. We would like to see the extent to which they do so, although it is important to make the point that city deals are characterised by the initiative for them coming from the local authorities and other partners. It is not the Scottish Government’s intention nor, I think, is it the UK Government’s intention, to go behind that and come up with ideas and change deals. We want, however, to see inclusive growth being prioritised in changes to city region deals.

There can be tension, as it might be characterised, between economic growth and inclusive growth. In theory, there could be 20 per cent economic growth but only 20 per cent of people enjoy its benefits. It has to be decided whether that is what is wanted. It is not, for us. We want growth, but we want everybody to have the chance to access the benefits of that growth. That will be a priority for us and it is fundamental to our economic strategy. Scotland is getting something of an international reputation for inclusive growth; we want inclusive growth to be recognised—we are seeing this—in the city deal proposals that are coming forward. There is certainly a balance to be struck and we have come down in favour of inclusive growth.

In lots of ways, the Glasgow city region deal benefited from being first in the queue, but it faced challenges as well, which the subsequent city deals have been able to benefit from significantly. The recent Edinburgh and south-east Scotland city region deal, for example, was able to benefit from a wider audit that demonstrated that a particular focus could deliver particular outcomes. I have met Susan Aitken to speak about that and we recognise that the deal can be examined. Keith Brown is exactly right. We do not want to find that in the eight local authorities the money begins to move from one to another and there is disagreement within the consortium that creates tension.

It is important to stress that projects still must grow organically from the local level. It is not the job of either the Scottish Government or the UK Government to impose projects or to determine what projects are included. Rather, it is to make sure that when projects are developed they will deliver against our specific objectives. The UK Government’s objective is economic growth and the Scottish Government’s objective is inclusive growth.

Is there a tension between the two of them? Keith Brown rightly pointed out that there is. One of the challenges that we have is that we must operate in our respective spaces—the devolved space and the reserved space. That difference was probably less well defined for the Glasgow deal than it became later; that has been part of the evolution of the deals as they have progressed. The key thing now is to ensure the right outcome for the Glasgow deal local authorities in a wider sense; that the outcome delivers against the objectives of both Governments to see real growth; and that the people of Glasgow experience and benefit from that growth and can recognise the value of the Governments’ and, of course, the local authorities’ investment.

As deals have evolved, we have seen more private investment in other growth deals and city deals. I think there will be opportunities to re-examine the deals. Retrofitting will depend much more on what we are told by the partners than on what we would seek to instruct.

That is helpful in setting the context for this evidence session. It is reasonable to say that the evidence that we heard about the Glasgow experience was critical analysis rather than criticism. This is about how people learn from the journey.

I was a regional MSP at the time of the Glasgow city region deal coming into existence and opposed one of the projects—the Cathkin relief road, which I think came in at £18 million or £19 million. The road was built: it is there and it is working. I still think that it was a waste of money and had nothing to do with inclusive growth. I am not even sure how it was to do with economic growth, but I accept that the local authorities wished it to be one of the projects. I was representing that area and I disagreed, but local democracy prevailed. I would say that it was not value for money, but the project was allowed to proceed. Who is doing work on value for money, measuring outcomes and auditing the process by which projects are procured and delivered?

10:00  

We now have a board that includes the UK and Scottish Governments to do oversight. What was called an assurance framework was put in place for the Glasgow deal. As the convener rightly said, it was not for us to go in and say that we did not think a project would offer value for money, and what could be done otherwise if the partners had different priorities. Both Governments insist on proper business cases that stack up, and that the integrity of projects is overseen.

There is also an element of risk: it is in the nature of infrastructure projects that they overrun—more outwith Scotland than within it, I would say. We underspent, or made a saving of, £45 million on the Queensferry crossing. Infrastructure projects, being what they are, can have cost and time overruns. Those risks are carried by the local authorities. If the project to which the convener referred that cost £18 million or £19 million had ended up costing £29 million, that would have been for the local authority to pick up. Both Governments have made it clear that we are not there to bail out overruns or infrastructure projects that do not come in on time or on budget. We are involved at the earlier stage, through the assurance framework that I mentioned, and we have a monitoring board. Over and above that, as the committee knows—you will see it being replicated in subsequent deals—for the Glasgow deal, the Glasgow city region deal cabinet has been established for the same purpose. However, the quantum of money is the quantum of money. A project going over on costs in the Edinburgh city region deal will either be at the expense of the council and its partners, or at the expense of their ability to carry out all the projects that they would like to do.

We take a close interest. We have an assurance framework and we have a responsibility for the public money that is being spent, which we discharge through the joint board that I mentioned, and also through the assurance framework.

We are living through this right now in the deals that are evolving. The Tay cities deal and the Stirling and Clackmannanshire deal, which have projects developing from the grass roots up, still need to meet the criteria to satisfy our respective treasuries that they will deliver. Those criteria are clearly agreed in order that we can try to determine the gross value added of a project to see whether it will fulfil what we anticipated when we signed off the heads of terms and the overall deal. One of the challenges in some elements of the Glasgow deal that were about infrastructure was that it is not always easy to see the multiplier or to feel the warmth of the new road or recognise what it delivers to the area.

The first deal in some respects reflected not quite a wish list from local authorities, but recognition of where work that had not been done could be done, now that money was available: there was a backlog of things on which they wanted it to be spent. We have refined the city deal approach to recognise that it is not just meant to fulfil existing obligations, but is new investment that delivers against clear objectives that are, when they are explained, understood and welcomed by people in the region, so that there is no resentment about money being been spent on one project over another.

As Keith Brown rightly said, in the Glasgow deal we fixed the budget that we can invest, so challenges that come thereafter will have to be met from within that quantum. That said, we will do all that we can through the monitoring process and through working closely with the participants to ensure that issues are identified early and addressed in order to prevent overruns or money not delivering against expectations.

Lord Duncan, you mentioned the gross value added of projects. To double check, what would happen if the UK Government did not think that the GVA of a city region deal project was sufficient, but the local authorities said, “We know that another project would give a greater GVA, but this is the one that we want for overall inclusive growth”? In terms of the local democratic decision making—I know that we are talking theoretically—what would the UK Government’s position be on that?

We can only operate, and have now become much more focused on operating, in the reserved space. Our key criterion for examining that is the GVA. However, at no point in our discussions with local authorities have we sought to move anything other than what we believe we can fund; we are very clear about where we believe we can operate and what we believe we can deliver. Importantly, and this is where some of the elements have to interweave, there may be elements of co-operation between the two Governments, where our spend complements the inclusive growth ambition of the Scottish Government and we step into traditionally devolved areas in order to make that happen. It is not our ambition in any way to rule out projects on that basis; it is that we have a suite of criteria that we must fulfil.

Do you think that the money should lose its identity once it is put into the pot of cash for a city region deal? We should not be talking about a UK pound or a Scottish Government pound; we should be talking about a city region deal pound, with the local authorities being the drivers that determine locally, with agreed criteria, what projects to invest in. We have heard before about devolved investment and reserved investment. This is strategic city region deal investment. Should the money not lose its identity? If local authorities want to maximise inclusive growth, perhaps at the expense of GVA, would you be willing to consider tweaking the criteria on that at a UK level?

No, it is unlikely that the criteria would be tweaked at a UK level on that basis, I am afraid. The Treasury sets the criteria that we have to work within. The reason why there is clear division is that the Treasury would argue that, through various other means—the block grant and so on—it is already supporting the Scottish Government in its investment in the on-going projects. We have to be careful that the money is assessed according to the criteria that we must work within.

I do not want to create an artificial division in relation to that answer, which was very definite—it was very black and white. The committee will have to consider all the evidence that we get in the round about city region deals. Based on the recommendations of our report, would you consider making that case to the UK Government? The Treasury is there to be lobbied and influenced and cajoled to see a bigger picture if it would be for the better management of city region deals. You gave a fairly absolutist answer about not changing the criteria, because you do not think the Treasury would move. Is that something that you would be willing to consider?

I suppose that I would have to flip around and ask another question. I am being very clear to avoid there being any doubt about that. By all means, if you write the report, I will happily pass it on to the Treasury. I suspect, however, that its criteria will not be changed on that basis because it sees the money as spending in the reserved space, which it is able to do, versus the Scottish Government’s spend in the devolved space, which it should do. If the UK Government ends up spending in the devolved space, it would argue that it is spending twice. By all means, I am not seeking to in any way influence the report that you write and I am very happy to take it back to the UK Government and to the Treasury, but I am setting out clearly what I suspect will be the outcome of that.

I am but one person on the committee and we will have to wait and see what the committee recommends, but that is very clear, Lord Duncan.

I want to follow up on what you were both saying about the Glasgow city deal. Mr Brown, I was interested that you feel that other deals have learned from—shall we say?—the mistakes of the Glasgow deal. Lord Duncan, you mentioned particular projects in the Glasgow city deal that can cause local resentment, and that is certainly the case. The convener mentioned one that caused local resentment, and I am aware of others in the vicinity that will cause local resentment. There are road projects for which there appears to be no obvious case: there are £85 million-worth of road projects in East Kilbride that we have not seen a business case for, but I guess that they fit the description that you gave of projects that have sat around for years and which councils have seen the opportunity to spend money on even though, frankly, nobody can see the benefit from doing so. Does either of you think that changes can be made to the Glasgow deal? Will the Governments ask for changes to be made? Mr Brown, could you be more explicit about what you think the lessons are from the Glasgow deal for other deals?

The first lesson is that, if you are going to have a deal involving the Scottish Government, you should talk to the Scottish Government first. I think that agreeing a deal and then coming to the Scottish Government with a demand for money is not the best way to get the best deal. However, it is also true to say that the Glasgow deal was a deal done in the early stages of city deals generally and they have moved on. I am not characterising it as a mistake, but I think that they have moved on. You will have seen in Aberdeen and Inverness more involvement from the private sector at an earlier stage. Aberdeen in particular has had a very large contribution from the private sector. There is also a more rounded approach that can lead to a transformational effect on the local economy, with much more emphasis on things such as broadband, skills and housing as factors in economic growth. I think that city deals have matured over time.

The Scottish Government will not be asking for changes in the Glasgow city deal. We will listen to and be receptive to proposals for change. As I mentioned earlier, if the partners to that deal want to make changes within the constraints that I mentioned and within the quantum, making sure that different areas are not disadvantaged by the changes, the Governments—Ian Duncan and I have had conversations about this—are agreed that we will be receptive to listening to proposals for change, but it is not for us to go in and propose changes. That is not how we see it. If, when the Glasgow city deal was struck, the Scottish Government had then said, “No, you are not doing this,” the local authorities would have said, with some justification, “We are saying that these are our priorities.” We cannot fund all the priorities. We pick and choose which ones we can support and it has to be done within our budget.

To go back to the convener’s point that the money is now city deal money, in effect it is, but we have to have accountability for the money that we spend, so that is why we have a continuing monitoring role. It is true that the city region deals are over a long period of time and things can change, so I think that we are duty bound to be receptive to that, but we should not be the ones to initiate that change. It should come from the partners locally.

I would certainly echo that. The UK Government’s spend inside the city deal has focused on the innovation and growth area. If I list where it is, you will see why the convener’s point about moving the money around becomes more problematic. For innovation and growth, there are three particular projects: supporting the development of an imaging centre of excellence as part of the £64 million investment in stratified medicine at the new south Glasgow hospitals campus; supporting the development of a £4 million MediCity Scotland facility; and supporting the development of a new £4 million centre for business incubation and development in the Tontine building in Glasgow’s merchant city. In the areas where we have put money, there is a very clear function—not quite ring fencing—so that we can track the money that moves through. The earlier projects seem more difficult as we look back on them now, because we have learned lessons.

I do not think that either Government has been able to dictate to the local authorities what they were to pursue, but they had to recognise that both Governments had a suite of criteria that they had to meet and obligations that they had to fulfil. The projects that emerged were those that best fit the criteria. Several projects did not make it that far and did not secure funding in that particular round. Those that did are those that we collectively believed we could support, and we did so. We continue to monitor to make sure that they deliver on time and as per expectation.

There is a feeling among communities, which we have heard strongly in evidence, that they have not been involved in city deals, and not just in Glasgow. Things are done to communities but not with them or by them. Think about the roads projects that I have mentioned, some of which have not even been built yet. Those are projects that people do not want, do not see any value in and are not involved in but which are pushed on them by the partners in the city deal. That is surely not the right way to do it. You should be involving communities right from the start and involving businesses. Mr Brown, you mentioned involving the private sector. That has come through in evidence as well. Certainly, businesses in Glasgow do not feel involved. Could you pick up on that point about the involvement of communities, which should be right at the start?

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I agree with that and you are seeing much more of that. For example, in the Stirling and Clackmannanshire deal there has been substantial involvement, certainly in the early stages, from Stirling Council and latterly from Clackmannanshire Council. The fundamental point here is that this is the Local Government and Communities Committee and we are talking about local government, which has its own mandate. If a local authority comes forward and says, “This is what we want to do,” it is not for the Scottish Government or the UK Government, whatever its point of view, to look beyond that, to second-guess the local authority and to say no. Of course, the Scottish Government was not involved in the early stages, but I did not hear a howl of protest from one or other partner saying they were being forced to do this by a collective. These projects were presented to both Governments as the priorities and it will be for local authorities to justify the extent to which they have or have not engaged. To be fair, we are more alive to that and the local authorities that are now involved in city deals are more alive to the need for public engagement. I think that that is true, but it is for those who are coming forward with proposals to make sure that they consult the public. That is where it should happen.

The Stirling and Clackmannanshire city deal is perhaps the best evidence that we have now of the wider engagement by the local authorities into the community. Part of the challenge is that such a large sum of money is being spent by all the partners and you would hope that the people in the cities and regions would welcome it and recognise what it is delivering, which should be transformative. It is a little dispiriting to then discover that perhaps some of the money—which is of great quantity—is not being appreciated. I do not think that either of us is particularly pleased to hear that. That being said, Keith Brown was right to point out that the projects that emerged and were funded—not all projects were funded; several fell by the wayside—were those that were pushed and advanced by the consortium of local authorities. It does become a challenge.

I would argue that there is no one-size-fits-all approach to the city deals. They do not look alike; the cities themselves are not alike in character. The Aberdeen city deal, for example, is very closely allied with what I would call the sector approach; it very clearly dovetailed with the oil and gas sector. That worked very well, but it was not how the Glasgow deal evolved. If you look at the evolution of the Edinburgh deal, you see that it is much more about the university sector driving forward elements of it. If you look at the emerging elements of the Tay valley deal, you see that it is different again. Each of them takes a different approach.

Our hope would be that those putting forward the projects have not just secured the right level of commitment from the council, although that ultimately determines what happens, but, as local representatives, engaged widely with the communities that are affected to ensure that there is buy-in. The last thing we would want is billions to be spent and nobody to be pleased. That would seem to be the worst of all possible worlds.

Do you want to follow up on that, Mr Simpson?

I will just make a point and then we can move on to other questions. The point is that no council is going to deliver what Mr Brown described as a “howl of protest” if you are throwing money at them, but the people on the ground might not like it. The councils will love it, but the people might not.

That is the nub of the question, but it is a question for local authorities. We would be very quickly accused of centralisation if we were to say, “This project should not go ahead because we believe that you have insufficient support.” Your basic point is true. If, in a city deal over 20 years, a project—say, one of the projects that is to be done 10 years in—does not enjoy support at the start and its relevance is not obvious to people, it is unlikely to gain support. That is why I have said—and I think Ian Duncan agrees with this point—that we are willing to listen to proposals for change, but it is the local authority that has to be the key body here.

To be fair and for the record, I say that I had a reply from the Cabinet Secretary for Finance back in the day, John Swinney, to the reservations that I raised about the project that I referred to earlier. The reply that I had was that it was for local authorities to prioritise and bring forward the project. I put that on the record because I had an involvement at the time.

Good morning. I was interested in Lord Duncan’s comment that the commitment from the council will ultimately be the determinant of these projects.

I want to drill down on a specific constituency question. Cabinet secretary, you will be aware that there is a huge campaign for the Levenmouth rail link in my constituency. I have spoken about it in Parliament regularly, and I recently led a members’ business debate on the subject, at which the Minister for Transport and the Islands was present. You said in your opening comments that we need to grow outside the traditional growth areas. You will know that Glenrothes and Leven fall into those gaps, because Fife is part of the Edinburgh and south-east Scotland city region deal.

In an evidence session two weeks ago, David Ross, who is the co-council leader in Fife, said:

“the clear understanding that we got from Government officials was that the project”—

by which he meant the Levenmouth rail link—

“would not meet the specific criteria they were looking for in the city deal.”—[Official Report, Local Government and Communities Committee, 8 November; c 32.]

He subsequently wrote to the committee to update his comments. In that letter, he said:

“In discussions between Scottish civil servants and council officers it was made clear to us that the full project would not score highly under the criteria on which the Scottish Government would consider the bid.”

I would like to ask a specific question, the answer to which I think I already know. Did the Scottish Government or the UK Government at any time block local authorities from specific bids?

You mentioned the process that led up to the deal, in which Government officials were involved. I was with Councillor Ross at the signing of the deal, and I have no recollection of any objections being raised to the deal that was proposed. I can absolutely guarantee that it is very problematic to judge what the eventual cost and timeline of rail projects will be. The nearest rail project to Levenmouth is the new Stirling-Alloa-Kincardine line in my constituency. That project started in 2008 with a bid from me, as the then local authority leader. Everyone said that it was a small line, so it would not take much investment. It was estimated that it would cost £6 million for the passenger service and £13 million for the extension for freight to Kincardine, but it ended up costing £85 million and it was not completed for a number of years afterwards.

As far as the process is concerned, the Levenmouth rail link was not part of the final proposal from Fife Council. As you will know, the whole of the Fife Council area will benefit from two city deals, because it will also be part of the Tay cities deal. Perhaps the officials who were involved in the process might want to answer your question, because they are sitting here very quietly.

Of course. Who would like to respond?

I am happy to do so. As the committee is aware and has heard from a number of people already, the process for considering proposals within a city deal is one that starts with the local authorities coming together with their key regional partners to bring forward propositions. During that process, there are some discussions about exploring the detail, the readiness of the proposals and the constraints that may exist with each proposition. Those discussions continue and the regional partners evolve their asks through that process. That was the case with this proposition. You have heard about how it evolved and was taken forward.

Did those involved in the Edinburgh city region deal ask local authorities to prioritise projects? David Ross is insinuating that it was the scoring that was used by Scottish Government officials that was used to prioritise projects, and I want to find out whether that was the case. Were local authorities asked to rank projects in any priority order?

We always talk to local authorities and invite them to identify the priorities within their deal proposals. You will be well aware that the aspirations for regional deals can be extremely large, and the Edinburgh proposal grew considerably during the discussion process. Throughout those discussions, we invite the partners to be clear about their collective priorities for the region and to articulate their reasoning behind that, including the benefits that they think that those projects will bring across the region and where they will sit within the region deal.

Having listened to the Edinburgh city region deal representatives, I struggle to point to projects that will have a direct benefit in my constituency.

I have a specific question for the cabinet secretary about the wider benefit. I hope that you do not mind my asking you it. In his letter to the committee, David Ross said that he believed that the Scottish Government was providing around £120 million of funding for the Sheriffhall junction, which he said represented around 40 per cent of the Government’s investment in the city region deal. He went on to say:

“it was not a project that was submitted by the local authorities as part of the City Region Deal and as a consequence of the Scottish Government including this project in the overall funding, it may have been that other projects that had been prioritised by the local authorities were not funded.”

Do you think that that is true?

I think that the Sheriffhall junction will have been a priority for a number of the local authorities involved.

To be honest, I do not think that it is the way to go for local authorities that freely and happily signed that city deal agreement to start picking it apart. As you know, the possibility of funding the Levenmouth rail link is—quite rightly—being taken forward through other means. You mentioned the members’ business debate on the issue.

We are trying to work with local authorities, but everyone freely signed that city deal agreement. Before we got to that stage, we said, “This is what we’re thinking of doing. What do you think?”, and they all said that they wanted it. I do not think that it is fair to now go back to it and say that they did not like particular parts of it. We have tried to act in good faith.

As Oonagh Gil said, at the outset of the Edinburgh city deal, the City of Edinburgh Council came to me and John Swinney and said that it did not want any money. At the start, the council said that it wanted a city deal, but that it was not looking for money, because it could fund the deal through other means. After that, the deal grew up in increments of, I think, £0.25 billion at a time—it continually went higher and higher. That has been a feature of most city deals. Therefore, we have to prioritise, and it is obvious that local authorities and their partners, in putting forward their proposals, will have to prioritise. However, Fife Council and the council leader freely signed up to the Edinburgh and south-east Scotland city region deal.

For clarity, I should point out that Councillor David Ross, who gave evidence two weeks ago, wrote to me on 20 November. That is what the previous exchange was about. That letter is publicly available on our committee page on the Scottish Parliament website. If there is anything in it that any of the witnesses here would like to correspond with us in relation to, feel free to do that. To be fair to Councillor Ross, his full reply is on the Scottish Parliament website, and people who are interested in the issue should go and look at that.

Good morning. We have already touched on the potential benefits that such deals can bring to communities and cities, as well as the tensions that continue to exist.

I want to ask about areas that, because of their location, lie outwith city regions and which find themselves between a rock and a hard place, because their needs are not being met. How can we build a resilient local economy in such areas? How can we attempt to do that for places that feel that they have been excluded in some way from the process? Do you believe that there are sufficient support mechanisms to provide such communities with support in the future?

The Scottish Government has made a commitment that every area and every community in Scotland should benefit from a deal. To put it diplomatically, we are still working through that process. It will be interesting to hear Ian Duncan’s view on the issue. We have areas such as Moray, Argyll, Falkirk, the islands and Dumfries and Galloway that would not be covered by a city region deal. You are quite right to say that their local economies require support as well. We have said that we are willing to look at those. Ayrshire is a good example. We have said for quite some time that we are supportive of an Ayrshire growth deal. The Ayrshire councils approached both Governments and asked for Government support. It is not for me to say what the UK Government’s current position is, but it did not want to commit to a growth deal in that sense. I think that Andrew Dunlop said at the time that whatever the UK Government might want to do in the Ayrshire space would be done through the industrial strategy rather than through a city region deal.

The Scottish Government will go ahead and do this: we will provide support for, and look at deals for, every part of Scotland. It would be useful to know at this stage whether the UK Government wants to take part in that process and whether it intends that we should work collaboratively in the way that we have done on city deals, or whether we will work separately. Either approach is perfectly legitimate, but we have to know which one is to be taken; we also have to try to get the priorities worked out. For example, there is a proposal for a borderlands deal, yet half of the borderlands—or one of the two local authorities concerned—has already had a deal. Falkirk, Argyll and Moray have not had a deal.

10:30  

Now is a good time to sort this out. We might get some clarity on the UK Government’s approach even in this week of the budget. Things have changed over the period of the city deals, so the initial 50:50 requirement is less of a determinant now. If we are to work together to maximise the benefit of a deal in a given area, it would be useful to find out from the UK Government on what basis that work will be done. Is it to be done in the reserved space? Both Governments have experienced situations in which local authorities and partners seem to find it harder to come up with proposals in the reserved space, with the result that we get a preponderance of devolved projects, especially when it comes to infrastructure.

If we are to move forward together on this, it would be really useful to have a common understanding of the basis on which we will do so. If we are not going to do that, we should just crack on. However, I accept Mr Stewart’s fundamental point, which is that every part of Scotland deserves to get the support that the city region deals have provided.

I am right on board with that. The plan is that we should be able to do that. I hope that we can, but Keith Brown and I need to speak a lot more about how we move forward. Clearly, Scotland is more than its cities and the cities’ hinterlands. We are talking about a large number of areas. This afternoon, my team will be off to Argyll and Bute to begin early exploratory discussions to see what is possible there. I have had meetings with each of the island local authorities to find out what their world looks like and to get an understanding of what the deals might look like.

Today’s budget might give a shout out to this. I cannot confirm that, because I have no idea whether what we have asked for will emerge, but the point is that we need to commit to the space beyond the cities. That should mean that the mosaic of Scotland is all coloured in. Every part of Scotland should receive benefits irrespective of whether it is in an urban area, near an urban area or there is no urban at all in that area. We are very much committed to doing that.

In some respects, I do not envy Keith Brown his role, because whenever you speak to a local authority, it wants pretty much everything that Keith has and very little of what the UK Government would normally spend money on. That can be a big challenge, because it is not easy when a local authority says, “We want 100 per cent spend in the devolved area, but we can’t think of anything to ask the UK Government for.” One of our challenges can be to encourage authorities to identify whether areas can be developed in such a way that would allow the UK Government to act and to spend. Trying to find a 50:50 balance in areas where, broadly, 100 per cent of the ask relates to devolved matters is not that straightforward and it has caused tangles in the past. Going forward, Keith Brown and I will need to sit down and work out how to do that. We do not want to be tangling each other up in complexities, nor do we want to overpromise, because we are working within budgets that are ever tightening. Equally, we want to make sure that no part of Scotland is left behind and that all can see prospects coming, albeit that they might be that little bit further away.

As you have identified, we are a nation of cities but we are also a nation of towns. We have different aspects, and those aspects have different aspirations with regard to what they want to achieve. The role of the Scottish Government and the UK Government is vitally important to ensure that everybody feels that they are being supported.

Communities feel that they have not always been included, and the cabinet secretary has indicated that local government should be the mechanism that deals with that. However, in some of the involvement that has taken place, communities have been left outside the process because the bigger, more ambitious projects that councils might have identified are the ones that they want to happen, and the projects that are in the hinterland or might come later on in the 20-year programme are the ones that might need to happen. At the moment, as I said, you need to identify that. I hope that we see a joined-up approach in the future to ensure that we have that balance, so that we do not end up with people feeling that they are excluded or left behind in this whole process.

I think that that might be more of a comment than a question.

Lord Duncan, you said that we will have to wait to see what the Chancellor of the Exchequer says in his budget speech today with regard to whether your asks have been delivered. Does that mean that you have had a key ask in relation to city region deals in Scotland?

We are hoping to see priorities set. At the moment, we have the quantum to take forward the city deals that we have outlined. We are hoping now to be able to move forward.

In order to deliver the growth deals in Ayrshire, Moray, Falkirk and elsewhere, we have asked—we are always asking—to get money; it is a question of when we get it. I would like to be able to answer your question in a more declarative way but I cannot.

That is a very eloquent way of just saying yes in answer to my question, Lord Duncan.

You might well say that—

You mentioned issues with local authorities being able to find that 50:50 split between the Scottish Government and the UK Government because of issues around reserved areas and devolved areas, and the desire to maximise the opportunities to secure finance opportunities from both Governments. Would that not strengthen the case—should you be prepared to make it, along with this committee, if that is what we decide—that, at some point, money should lose not its traceability but its identity and that we should have a more collective and holistic view of how we invest in the city region deals rather than viewing the relevant areas as devolved or reserved? You have identified in your evidence that there are issues with some local authorities identifying what the UK Government investment would look like in their areas.

I am afraid that the answer is still the same as it was before. When we identify projects in the reserved space, they are clearly delineated and we are able to justify the spend when we approach the Treasury to deliver against that. What we are unable to do, however, is to commit spending into what in effect would be the devolved space. The Treasury would argue that, through the block grant, it is already providing funding and will not provide double funding. That might seem like an unhelpful statement but, at the same time, that is the breakdown of how we spend the money and how we account for it.

It is not unhelpful; it is accurate in relation to the Treasury position. However, of course, the Scotland Office might have a position that involves maximising spend in Scotland for the benefit of Scotland, and that approach might be different from that which is taken in accordance with the current Treasury criteria under which the Scotland Office is applying city deal spend. I am trying to create a space where there could be some kind of change. I think that the cabinet secretary wanted to come in on that.

Ian Duncan and I do not agree on everything. The UK Government double spends. For example, with regard to the £1.5 billion that is going to Northern Ireland, there is no requirement for matched funding for city deals for Northern Ireland. That £1.5 billion is nearly entirely in the devolved space, so of course the UK Government double spends.

The scope for the Scotland Office’s ask of the Treasury is pretty substantial. We could do far more with many of these projects if we were to have a pro rata equivalent of £1.5 billion to spend on devolved issues. It is possible to do that.

The point about reserved issues is a really important one. I do not find it difficult to think of things in the reserved space that would be very useful for local authorities—there is a lot that can be done on broadband, social security and a number of other reserved issues. It should not be beyond them to come forward with those ideas. If they do not, the quantum that they get is reduced because, if there is to be a 50:50 split, and you have identified only reserved projects, you will only get so much.

The point was made earlier, perhaps by the convener, that the process of city deals itself should lead to a dynamic—that is not currently there—which leads people to think about transformational change, not all of which has to be funded by Governments and others. The idea is that the city deals lead to a mindset that makes people think more broadly in that regard.

One of the challenges is that the projects that local authorities explore inevitably tend to be those that involve traditional spend by local authorities, which tend to fall into Keith Brown’s space more than mine. However, once you can break through that mould and recognise where the UK Government can spend, you can see substantial benefits.

For example, both Governments recognised the value of the oil and gas technology centre in Aberdeen and were able to commit to that very quickly. Of all the city deals, the Aberdeen one is perhaps the one that has hit the ground running and has moved forward most quickly.

With regard to the Northern Ireland issue, the important thing to say is that there are definitely challenges that we will have to face, but none of them are centred on how the money itself will ultimately be spent. It is not our ambition to place ourselves in a comparable situation in relation to Scotland. At the moment, the situation is that we will be spending £1 billion outside the Barnett consequentials. We will spend considerably more to deliver against each of the existing city deals, and we will continue to spend more as we move from city deals to growth deals. A substantial amount of money will be spent in that regard, but the situation in Northern Ireland is different.

I think that that is a significant political debate, so we will leave it for the moment and move to our next line of questioning.

Lord Duncan, you said a few minutes ago that you think that no part of Scotland should be left behind. However, I represent one of the five Ayrshire constituencies and I feel that we are being left behind. Certainly, in terms of economic growth, per capita income and so on, Ayrshire is already behind, but there appears to be nothing on the horizon. Last week, Patrick Wiggins, the director of the Ayrshire growth deal appeared before the committee—I am sure that you will have read his evidence. He said:

“There is commitment from the Scottish Government, but we are still pursuing formal commitment from the United Kingdom Government.”

He went on to say:

“we are making good progress with the Scottish Government and have had quite a lot of engagement with UK Government officials, but we really need a green light from the Treasury”.—[Official Report, Local Government and Communities Committee, 15 November 2017; c 1.]

I am wondering why there has been such a delay with the Ayrshire deal. Edinburgh, which is much more prosperous, has a deal and, from my perspective, it looks as if the gap between the Lothians and Ayrshire will only grow. What impact do you feel that the delay will have on a place such as Ayrshire?

There is not a delay, in that sense, because the commitment in the first instance between the two Governments was for the city deals. They are moving forward and we will deliver each of those within the schedule that we set. I can say that I hope that, by the end of today, you will be in a better place than you are right now.

I am very pleased to hear that, and I certainly hope that we are. The chancellor made a lot of good noises about this in January, which led to an expectation that an announcement would be made, but no announcement was made. If there is to be a successful implementation of the Ayrshire growth deal, we really need to know when it is going to commence, what it is going to consist of and how it is going to be delivered. I think that there are real concerns that that is not going to happen.

What do you feel the impact of displacement is on Ayrshire and other areas in Scotland while other deals are going ahead? We have already heard that the Glasgow deal started in July 2014. Even if Ayrshire is given the green light, it might be a number of months before it starts on the ground. There is a real concern that skilled workers are being drawn into areas of Scotland where the deals are and that investment is being drawn into Glasgow and Edinburgh that might otherwise go to Ayrshire, Moray, Galloway or wherever. What concerns do you and the cabinet secretary have about this uneven development of deals?

The deals are not short term. We do not expect all the elements of the Glasgow city deal to be completed even in the first 15 years. We are looking at a much longer timescale. I would have thought that, within five years, if we are able to move forward from the city deals to the growth deals, they will all be developing across Scotland over the same sort of time period. Of course, some will develop faster than others, because certain things can be delivered more quickly than others, but I think that you will begin to see all of them moving forward over that same 15 or 20-year period. That means that the displacement effect that you mention should not take place.

The UK commitment to the Glasgow deal was £0.5 billion. The spend is still on schedule but, so far, it is quite modest from our side—it is only about £40 million. Again, that means that the element of distortion that you are concerned about has not taken place. I hope that, as we move forward—again, through collaboration with the Scottish Government and local authorities—you will see all of the deals delivering within the next 10 years, albeit each at its own pace, which will be determined by the consortium that pulled it together.

The deals should be almost the gift that keeps on giving—if that does not sound an odd way of putting it—because they will deliver over such a lengthy period of time.

Kenneth Gibson is right in that we cannot stand still and wait for a deal to be done. We have been active in the space, but perhaps not in the way that we would have been if we had a joined-up growth deal in the way that we have described. For example, 800 modern apprenticeships have been created in North Ayrshire alone over the past four years and we have supported Spirit AeroSystems near Prestwick airport with research and development investment to try to bolster employment there.

We recently announced a £5.3 million investment in the HALO project in Kilmarnock, which is a good example of what has been asked about. That project could have been one in relation to which the two Governments worked together. Instead, there was an early announcement from the UK Government, subject to due diligence—I have not seen an announcement like that before—and we announced the £5.3 million. I am encouraged by Ian Duncan’s suggestion that we are to get better news or more confirmation of the UK Government’s approach later on today, as that will lead to a collaborative joint approach between the UK Government and the Scottish Government. Last year, when the Ayrshire councils came to me with their request for a growth deal, which I agreed to, I said that we would do it jointly with the UK Government. Since then, the councils and I have been asking for the UK Government to take that approach.

In direct response to Kenneth Gibson’s question, I agree that we have to support the Ayrshires as best we can. We should crack on and do a growth deal. If both Governments can agree, we will maximise the benefit that we can get from that and achieve something for the whole of Ayrshire. In the meantime, it is worth pointing out that the councils have taken the initiative by forming the Ayrshire economic partnership, which is an arrangement that is unique in Scotland. That is an encouraging sign of councils working together and overcoming some of the traditional demarcations for their mutual benefit.

10:45  

Cabinet secretary, you have touched a couple of times on deals being imposed, rather than agreed. What impact does that have? If you are suddenly told that there is a deal, such as with the initial one in Glasgow or the HALO project, what impact does that have? Does that have a distortive effect on the way in which the Scottish Government looks at the deals and spends its capital?

That is not the case with Ayrshire, because the Ayrshire councils had quite a lot of discussion with us and the UK Government about the things that they wanted to be developed. The earliest discussion of a growth deal included the HALO project, so that is not being imposed. However, it is being done in a disjointed way, which perhaps undermines the full potential that we could realise if we did it in a more co-ordinated way. It may be that, notwithstanding what has been said, the UK Government decides that it wants to provide support but not in conjunction with the Scottish Government. I do not think that that is optimal, but it is fine, as long as we know that.

Thus far, Ayrshire has not suffered from that—a deal has not been imposed. Obviously, the Spirit AeroSystems deal was done at the request of that company for the wider benefit of the economy and for the apprenticeships, as part of our larger programme, but all the councils spoke up for the HALO project in relation to a growth deal, so nothing has been imposed. However, the Glasgow deal was a different kettle of fish, as you know.

It is worth stressing that the Scottish Government will of course have obligations outside the city deals as part of its on-going relationship with local government, so elements of spend and collaboration will rightly sit outside the deals. I think that we can move forward. The ambition that I set out today is that we see the whole of Scotland covered by extensive city deals, or indeed local deals or island deals, depending on how they fit together.

On the HALO project, the UK Government moved quickly because it was seeking to secure private investment, which relied on early movement. The important thing is that there will be no imposition of a deal on Ayrshire. It is not in the gift of either Government to achieve that and nor would it work. As with all the other deals, it will have to emerge from organic development of initiatives, buy-in from local communities and a determination by the local authorities that the outcome is exactly what the people and those authorities want. At this point, all that we can do is to ensure that the green light can be given to the initiative so that we can then begin the process of determining our commitment levels to that. Where we see that we have funding in place, we are able to move forward.

One thing about the deals that makes them attractive is the ability to lever in private funding. For example, the Glasgow deal is looking to lever in some £3.3 billion over 20 years. Although we are only three years in, so we are still in the early stages, are we seeing that leverage? Are we seeing more or less leverage than we expected or is it on track?

For Glasgow, I think that the estimated contribution from the private sector is £3.3 billion. However, it is probably too early to say what it will be. In relation to the Aberdeen city deal, there is £400 million of investment just in Aberdeen harbour, and that is following a process and is on track.

It is worth addressing the point about private sector investment, as we have struggled with that. With Edinburgh, both Governments had to go back and say that there had to be more engagement with the private sector. I know that that approach sounds a bit less substantial than saying, “Here’s a cheque,” but it can be effective if councils think about things in a genuinely transformative way. The ability to make a deal much more than it would otherwise be is dependent on things such as the private sector getting involved. I should say that the Tay cities and Stirling deals have been quite effective at talking to partners in the private sector and the third sector.

I do not know whether the officials want to talk about any early indications that we have on the private sector contribution to the Glasgow deal. The claim of £3.3 billion of investment is a very substantial one. As I said, we were involved in that deal only towards the end.

The committee has already considered the monitoring of and reporting on city deals, and the group that the cabinet secretary referred to earlier is certainly looking at that. It is early days for demonstrating commitment and delivery from private sector partners across the city deals, but there is evidence that those are forthcoming across the deals. They are perhaps most evident in the Aberdeen and Aberdeenshire city deal, where the private sector is a partner around the table. We will certainly continue to investigate and report on that as we move forward.

Morag, do you want to come in?

No.

That is fine. I am not always good at identifying when people want to add something, so I was just checking.

Aberdeen is a useful example of an area where there have seen significant commitments from other partners beyond what the UK and Scottish Governments have committed. Obviously, the local authorities have put in money, but there is substantial investment from the Robert Gordon University and the University of Aberdeen. We have seen that in the early stages of the Stirling and Clackmannanshire deal and we are seeing it in the Tay valley deal. Beyond that, more moneys will be unlocked as the wider private sector sees the benefit of the initiatives.

That goes back to how the deals are generated. At the genesis, or at the earliest possible stage, there needs to be consideration of how projects can unlock moneys that might be out there in the private sector. That will not always be possible, because in certain areas that level of private sector investment will not be available but, where it can be done, the multiplier effect is significant. The output of that is useful, because it brings a certain coherence to the overall drive behind the initiatives.

Time is catching up with us, and two members still have questions.

I want to ask Lord Duncan about what might be viewed as unintended consequences, just to explore a bit further what we have been talking about. Obviously, the policy was originally introduced to create a northern powerhouse and to balance England’s economy, and I want to ask about exactly how that works in Scotland and whether there might be unintended consequences. Alexander Stewart mentioned town centres. Scotland is a country of towns but, at the moment, we have decline in some of our town centres. For example, in Lanarkshire, Coatbridge and Airdrie town centres have been in decline for a number of years. Are you confident that there is no risk that the city economies will expand to the detriment and displacement of town economies and therefore cause further damage to those town centres?

I am fairly confident that that will not happen. If, for example, the money in Glasgow, which is a substantial sum, was spent in one year, you would be absolutely right, because the bonanza of that spend in one year would result in a distorting effect. However, if the money is spent over 25 years, while at the same time there are other growth deals in the areas that we are talking about, all overlapping and with their own timeframes, the risk of distortion is cancelled out.

There will always be elements where significant spend may draw things in, depending on what the spend is on. There is no question but that the development in the oil and gas sector in Aberdeen will draw in people from the sector to the area. That will certainly be a distorting element as that development begins to evolve but, as the Tay cities deal becomes a real delivered prospect and evolves over a 10 and 15-year period, you will see that, although the two deals did not start at the same time, within five years, they will both be moving forward against their overall ambitions.

So you are confident that there is no fundamental flaw in the policy because of the way that it was created and that, over the longer timeframe, there will not be detriment to the hinterland, as you call it.

I am being careful with the words that I use. When I talk about the cities, often the city deals themselves have city and region elements, so that is their hinterland.

I am fairly confident that there should not be a distortion. I think that there would be if both Governments spent a vast sum of money very quickly, but we are not proposing to do that. In some instances, the spend will be over a generation, or longer, and it will therefore begin to be married up. Some projects will move faster. In the Aberdeen city deal, the Oil & Gas Technology Centre moved very quickly. Other elements will, by their nature, be determined to be on a slower spend level. A number of the projects in the Glasgow city deal are paced over a much longer timescale.

Both Governments are conscious of those elements, so it would be unfair for me to dismiss them as not worthy of consideration, but I do not think that they are a fundamental flaw; they are just a recognised element of the evolving city deal landscape.

As Mr Stewart pointed out, we cannot leave behind any of the non-urban-hearted areas, and they will move forward at a distinct pace. Importantly, we hope that, by the end of the decade, we will see all of the parts of Scotland—and, one would argue, northern England—experiencing exactly the same approach, so that there is a city landscape and an evolving growth landscape that should be transformative.

Cabinet secretary, do you want to add to that?

Yes, just briefly, because I think that Elaine Smith hits on an important point. It is worth pointing out that the city region deals will cover a large number of towns as well as cities, but we think that it is right that all parts of Scotland should benefit.

There is a fear about what will happen if the UK Government takes forward the issue in the context of the industrial strategy, although we do not have clarity on that yet. As was mentioned, the strategy was born of the northern powerhouse idea, and that was about the imbalance in the UK economy, especially in relation to northern England, which is an important issue. Some of the early signs that we are seeing with the first and second waves of funding are that they seem to be reinforcing that inequality because, as was said, it is sometimes easier to fund things where dynamic economic activity is already happening.

As recently as last week, I made the point to Greg Clark, the Secretary of State for Business, Energy and Industrial Strategy, that, if the strategy is going to succeed it has to tackle that issue and it cannot just reflect it. A lower percentage of bids have come forward and been approved from Scotland, Northern Ireland, Wales and northern England. If the approach simply reinforces current inequality, it will not have served its purpose. I do not think that that is the UK Government’s purpose and, to be fair to Greg Clark, he said that it absolutely is not. However, if that is to be achieved, the pursuit of the industrial strategy—if that is the means by which the UK Government proceeds—will have to actively help those areas to come forward with bids and make sure that economic activity takes place.

That is helpful.

Lord Duncan, I apologise, but I am going to ask for brevity. I understand that you might want to outline in more detail how the industrial strategy sits beside inclusive growth and all those things that the cabinet secretary has talked about. Perhaps you can correspond with us in relation to that.

I can be very brief. The simple answer is that the industrial strategy is not driving forward the growth deals. The truth of that can be seen if we look at some of the deals that are emerging in England. For example, the Cornish deal is not in any way determined by the growth strategy. Inevitably, there will be overlap, just as there will be with some of the existing city deals, but they are not linked and the strategy is not a driving force.

That is helpful.

I have a brief question before my substantive question. Mr Duncan, you talked about a move from city deals to growth deals. For clarity, do you mean that the ones that are filling in the current gaps will be called growth deals because there are no cities in them, or do you mean that growth deals are a new way of doing business that may well come forward in a phase 2 in areas that already have city deals?

No. I am being very clear. Broadly, we have run out of cities. I am sorry—I was not trying to be clever. I just meant that, broadly, we will have completed all the bits of Scotland that have an urban conurbation in them and that, if we are moving forward with the same initiative and idea, we really need to call the deals something different.

So it is filling in the gaps—

It is perhaps more a matter of the nomenclature than anything else. I am not trying to be clever. I hope that Keith Brown and I will sit down again to consider matters. The initial approach was to look at city deals. That was the original plan, but it is clear that that has evolved, and we need to recognise—this has been confirmed by a number of the participants—that Scotland is not just about cities. We need to find a way of taking forward the initiative and the idea and to recognise that, by their nature, growth deals will be different, because they will not have a large urban conurbation at their heart.

11:00  

That is helpful. Thanks.

On my substantive point, the Glasgow city region deal is obviously the first one, and I understand that its five-year gateway review is coming up shortly. City region deals are for 20 or 25 years. You talk about their being generational. In that time, Governments will change, big things will happen, such as leaving the European Union, and new policies will emerge, such as industrial strategies. How can deals be monitored in a sensible way as, in 10 or 15 years’ time, we will be in a very different place and possibly have very different governance arrangements in the UK?

The deals are designed to have governance structures at their heart. That is part of the tripartite agreement. Irrespective of what political party is in office north or south of the border or whether a local authority changes hands, the means by which we are able to measure are agreed, and the governance and review structures are all part of the on-going process and the commitment. I suppose that it is not impossible that one partner might have different views—we see this already with the Glasgow deal—about how the deal might be refined or adjusted, but the structures that are in place for monitoring and oversight are not really up for adjustment. They are broadly the fixed elements, but the quantum itself is also fixed. In the case of the Glasgow situation, if there is determination from the local authority level to re-examine elements, I think that both Keith Brown and I would be responsive to that, but we are not seeking to change the deal. The structures need to be trustworthy so that everyone is able to operate on a fair and level playing field.

It is fair to say that there are not many governance structures in such areas that extend for 20 years and are not underpinned by primary statutes, for example. That is very unusual. How confident are you that, if we see problems arising in, for example, an Edinburgh or Aberdeen deal in 10 years’ time, the governance structure will be adequate to deal with them with the original players having long gone and the policy context perhaps being very different?

If we put in place the right structures, they should be able to weather the political changes that come along. I am aware that there are, of course, entirely unknown unknowns that could change the entire landscape, but we can work only on the basis of constructing robust governance and auditing. That is all that we can do at the outset, and we have done that with each of the deals so far. They are underpinned by the commitments of our respective Governments and the local authorities. It is recognised, of course, that the parties in power in any of those particular tiers need not be the same, but the commitment should remain the same, because that is how large-scale projects are built over long periods of time.

Cabinet secretary, without speculating on unknown unknowns, are you confident that the structures will prevail irrespective of political change or new thinking in relation to economic and industrial strategies?

I am not sure that the assurance that Andy Wightman seeks can be achieved by putting in infrastructure. It is much more to do with how structures are baked in at the start. Members have made points about popular support for deals, engagement with communities, and local authorities having an inclusive approach among all the different parties. I cannot guarantee this, but I think that that would help to obviate swings in policy and priorities that would make previously agreed projects non-sustainable.

Nothing is certain in life. Local authorities change hands and Governments change. Both Governments put into their long-term budget projections a commitment to the city deals. Changes will not be done on a whim. We made a long-term commitment, but things can and will change, and sometimes it is good to reflect those changes in our priorities. However, the more there is agreement on a deal at the start and consensus on and inclusion and involvement in it, the more chance it will have of sustaining unforeseen events, such as even Brexit.

We are out of time, but I want to ensure that we have a balance of evidence. I would like to mop up one or two things before we close the evidence session. Although the questions might be substantive, brief observations and perhaps correspondence with the committee clerks with more information would be very helpful.

Our deputy convener, Elaine Smith, made a very interesting point about how towns fare in relation to city region deals. We hoped to ask a question about how the city region deals or growth deals take account of equalities and sustainability, which are relevant. It is not just about geographical equalities; it is about different sections of the community. What checks and balances—equality impact assessments, for example—are there within projects that go through city region deals? What due diligence in that area happens with city region deals?

The officials can confirm that we are undertaking equality impact assessments on the city region deals that we are taking forward. That did not happen in the early days. I mentioned the circumstances in relation to Glasgow, for example. We have our priorities. Inclusive growth and increasing equality are very important, but we do not want to continually overlay our criteria on top of what local authorities come forward with. This is an important forum to put the message out there for those who seek to do city deals that we will prioritise things such as inclusive growth and improving equality, but local authorities also have a role to play.

Broadly speaking, we are in a comparable situation. As a Government, we have a number of determining factors around the equalities agenda, such as fairness and dignity, but we also recognise that the constructors of the projects have much of the responsibility to build those elements in with the bricks. Throughout the process, we seek assurances that that is indeed the case. That is not to say that we rely solely on that. We also need to audit to ensure that they are delivering against both Governments’ expectations in the wider area.

Members have hinted in their lines of questioning at the issue of funding over a long period. The Glasgow city region deal will have a gateway review, but what will happen if the other deals fail to meet outcomes in an agreed framework? What will happen to that guaranteed long-term funding? Will it no longer be guaranteed? What is plan B?

May I return quickly to the point about equalities? As you are aware, local authorities have statutory responsibilities on equalities, so they have to factor that in. That is probably how we would ensure that what is coming forward meets the equality impact assessments.

If something were to fail, I think that there would be a pretty big message that people should pause and take stock of where they are going. We have not had a failure in the Glasgow city deal, but we have had a demand to have things looked at again. It seems right to be able to do that, so the process has to allow for that.

The gateways are there for a purpose: to make sure that their project, if it is a project, is sustainable and that it meets objective criteria. It is right that that process is there and it will force a rethink if something fails, so whether the change is to the nature or the extent of the project, or to something else, it is right that we should have that check and that balance in the process.

Should local authorities build risk assessments into their city region deals on the basis of what their contingency would be if they did not meet a gateway review or achieve an outcome but they wished to proceed with a project nevertheless? Please be brief, cabinet secretary.

I think that everybody who is involved in the process should be undertaking their own risk assessments, and local authorities are no different.

Absolutely. We should not be waiting for five years to discover that something has gone wrong, so the on-going auditing and assessment should be enough to safeguard against failure. That has to be at the heart of the process.

If a problem can be anticipated, or is emerging, it is incumbent on those who are leading the project to work very carefully to avoid failure, because at no point does either Government wish significant investment to be lost because a project could not fulfil its initial obligations. That being said, all participants must look at their risk register to make sure that they are prepared for any eventuality. That needs to be built in with the same elements that we touched on a moment ago in discussing equality. They need to be the component parts of the overarching projects and they need to be monitored carefully to ensure that they do not drift.

There is an evolution in this situation, which we are seeing in Glasgow already. The local authorities think that some of these areas should be re-examined. That perhaps goes back to what Mr Wightman was talking about. We are not deaf to that. It is a question of how we do that sensitively, so that in trying to solve one part of an equation we do not end up contorting the other part.

I have a final question, which is probably more relevant to the cabinet secretary. It is a substantive question at the very end of an evidence session, so perhaps you could respond briefly and come back to us with a more detailed answer if you think that it is required.

Scotland is like a big jigsaw at the moment. We are plugging the city region deals and growth deals, and there are questions about bits that have been missed out or have come late to the table. We have asked questions on that, but given that there will be a focus on regional partnerships within the forthcoming enterprise and skills review, is the time now ripe for a more co-ordinated Scotland-wide regional economic strategy and monitoring programme? Is there the opportunity to better plug in different parts of Scotland so that local authorities can feed in to what that national economic strategy might be? How does the Scottish Government see that going forward?

That is a very good question, which it would be useful to follow up in writing. My immediate thoughts are that we have sought to do just that through the enterprise and skills review with the establishment of the strategic board. We have that at a national level. At a local level, I think that what Ayrshire, for example, is doing with the economic partnership that it has established reflects its priorities and a way of working with the other players in Scotland. We are open to the idea of bringing together skills and local economic development in just the way that you describe. We are involved in that process. The enterprise and skills review probably had to happen first.

The city region deals have happened relatively organically and I do not think that that is a bad thing, but as a number of committee members have said, there is what has been called a jigsaw approach. We have had a little more clarity today from the UK Government. It is news to me that the industrial strategy is not to be used as part of the growth deals—they are called growth deals only because Ayrshire termed itself as a growth deal and Moray has done the same. We are not insisting on that terminology, which has come from the local authorities. That is an important point. There is something organic in city deals, which I think makes them sustainable if they are properly reflective of local communities.

We want to co-ordinate and to ensure that each part of the jigsaw puzzle knows what is happening elsewhere, but I think that we also have to allow for an element of dynamism, organic growth and local initiative.

That is helpful. I think that it is reasonable to bring in Lord Duncan at this point.

I want to make a very brief comment, as helpful clarification for Keith Brown. The industrial strategy will overlap with elements of the growth deals and the city deals but, to be very clear, it will not be the driver of them.

I thank all our witnesses for their efforts. We are delighted to hear that there appears to have been movement today by the chancellor on city region or growth deals. I like to think that the chancellor is, of course, watching this committee’s work on that, and that Lord Duncan and the chancellor—and, indeed, the Scottish Government—will remain open-minded on the committee’s reporting and recommendations.

11:12 Meeting suspended.  

11:17 On resuming—