Contents
- Attendance
- Decision on Taking Business in Private
- National Strategy for Economic Transformation
- Scottish National Investment Bank
National Strategy for Economic Transformation
Our next item of business is an evidence session with the Cabinet Secretary for Finance and the Economy on the Scottish Government’s national strategy for economic transformation, which was published on 1 March 2022.
I welcome Kate Forbes, the Cabinet Secretary for Finance and the Economy, and, from the Scottish Government, Colin Cook, the director of economic development; Gary Gillespie, the chief economist; and Adam Read, the deputy director for skills. ?As always, members and witnesses should keep questions and answers short. I invite the cabinet secretary to make a short opening statement.
?Thanks very much, convener. I will take that on board and keep my opening remarks fairly short.
As you said, the national strategy for economic transformation was published earlier this month. The strategy sets out what we want to achieve and what kind of country we want to be. We want a strong economy that outperforms the previous decade, builds on our strengths and recognises our weaknesses.
Some of those weaknesses are short term and relate to the emergence of the economy from Covid, but some of them are longer term and the strategy does not shy away from that. We used extensive and detailed analysis, consultation and input from the advisory council for economic transformation to develop five programmes of action. Although “Delivering Economic Prosperity” explains the front end of the strategy, I encourage members to engage with the analytics paper, which is a lot lengthier and gives more detail on the data that underpins the five programmes of action.
The five programmes of action are entrepreneurial people and culture, which covers citizens; new market opportunities, which covers emerging economic opportunities—in particular, those that relate to net zero; productive businesses and regions; skilled workforce, which will enable all of that; and, finally, a fairer and more equal society, which is what we want to achieve.
I know that the committee, the country and the Government will judge me on our ability to deliver what we have set out, so there is also a hugely important sixth programme that focuses on delivery. That will introduce a new, streamlined model to maximise our success. That issue has been of interest to the committee on a number of past occasions.
That is all that I have to say at the outset, but I could go into detail about some of the challenges that we face. The situation in Europe has become worse since the strategy was published, and that will have an economic impact. Therefore, my last comment is that publishing a 10-year strategy when none of us has a crystal ball is challenging. The strategy has to be flexible and high-level enough to be able to adapt to emerging situations, but it also has to be focused on the routes to success. I hope we have achieved that balance by being flexible and focused at a macro level as well as on the key vehicles to success.
Thank you, cabinet secretary. You mentioned a number of areas that committee members will wish to explore, not least the changed context in which the document has been published. Although we recognise that this is a high-level document, it is not clear what is different in this economic strategy to previous ones. We know there are significant issues with Scotland’s economy, but what is new and different that will mean that this strategy will deliver on the priorities you identified?
Interestingly, I posed a similar question to various advisory council members and to a lot of the people with whom we consulted. I asked what needs to be done to deliver a step change. By and large, the feedback was that we know what to do—I am sure that the committee and the Government are mostly aligned on what needs to be done for the Scottish economy—but we need to improve our ability to get it done and to be focused, determined and ruthless in our execution of the strategy during the next 10 years.
When we look at international examples of models that involve Government-led national strategies, we see that what often separates the successful ones from the unsuccessful ones is that, in the successful ones, there is consensus across political parties, Parliament and Government about what needs to be done. That means that, irrespective of the challenges that emerge, those Governments are able to deliver, because whoever forms the Administration knows what needs to be done.
One thing that makes the strategy stand out considerably is the ruthless focus on delivery. Of course, that will never grab a headline. There is a lot in this document that will grab headlines, particularly around entrepreneurship, but that focus on the execution of what we know we need to do and on streamlining our ability to do it is key.
There is one smaller area that is equally important, and that is the new opportunities that have emerged. When the previous strategy was published, in 2015, we knew that Scotland had great strengths when it came to our natural assets around energy, but in the past few weeks we have seen the announcement of the world’s largest floating offshore wind technology. That is remarkable, but it will be effective only if we can develop the supply chain and establish the businesses that accompany that. Those massive, momentous opportunities that are recognised the world over are new, and the strategy sets out in detail how we can make the most of those opportunities and, basically, build businesses and deliver jobs over the next 10 years.
I mentioned that the Fraser of Allander Institute and other organisations have concerns that there is not enough detail, clarity or direction. The delivery plans will not be published for another six months. Why were they not published with the original document? Will they fill the vacuum that has been created?
I think that they will. Again, I refer you to the two documents that have been published: the analytics paper, which is quite a weighty document, and the document that sets out the emerging actions, which is an easier read.
There are two issues. One is that we had given a commitment to publish the strategy document as quickly as possible after the election and, obviously, there was some delay because of the emergence of the omicron variant over the winter period.
The other issue is that the agents of delivery are not all within Government. For example, with regard to health, the national health service reports directly to the Government, and all of it, in its entirety, is in the public sector. However, with regard to economic growth, 70 per cent of the agents of delivery are in the private sector. That means that we need businesses, entrepreneurs and academics to be on board with the strategy, and they need to play their part in the delivery and implementation. You will see in the document that, next to each of the actions, we have detailed who we think owns each one, and, in order to deliver an implementation plan, we need to work with them. That is why we believed that it was more important to publish high-level actions and then work with those people on the implementation plan.
The convener has covered the views of the Fraser of Allander Institute, but a number of other organisations and pretty eminent people have raised concerns. In the chamber, I raised with you the response of Professor Ronald MacDonald, who said:
“This report provides a widely known and understood diagnosis of the problems facing the Scottish economy but, on solutions, it is simply a rehash of all the failed scripts that we have seen since 2007 ... The kind of substantive issues we need to discuss are simply not there.”
You have talked about your hopes for the strategy and delivery. How will you measure that delivery and keep us updated on where the strategy is in that regard?
I will take that question in two parts. The second part of the question is about measurement and the first part is about solutions.
I will take this opportunity to say that I am pleased that Ronald MacDonald agrees that we have diagnosed the problem, because that, in itself, is where we should start. It is easy to shy away from diagnosing the problems, which involve long-term structural challenges and some of the short-term post-Covid challenges.
There is a lot that is new in the strategy on solutions. I have already referred to some examples around developing a more robust supply chain—a Scotland-based supply chain—for our renewables. I am sure that you would be one of the first in the Parliament to criticise the Government for not having done enough to develop the supply chain for renewables. The fact that we have set out a comprehensive plan for how we are going to do that and a commitment to do it sounds like it is new, to my mind.
It is unfair to suggest that there are no new solutions. We have started with the data, diagnosed the problem and identified the actions to get where we want to be, bearing in mind the fact that not all the agency lies with Government. A lot of it lies with other institutions and the private sector.
Measurement is vital. If we are not measuring the right things, we will probably not be able to define success. Ultimately, there will be clear metrics for success in the implementation plan.
On what we are measuring, I go back to the analytics paper. I will give the example of entrepreneurship. Scotland is an entrepreneurial country if we define it in terms of entrepreneurial activity such as start-ups—new businesses—but we are not performing as we should on scale-ups. In other words, the success rate for new businesses is not as high as it should be. There is much to celebrate in the way of entrepreneurial activity. If we just stop there, we could say that it has been a success, but there is a problem with business survival rates. We do not perform in the way that Ireland performs, for example.
What we measure is key, and we will set out the measurements. That is unpacked in the analytics paper—particularly the example on entrepreneurship. Gary Gillespie, the chief economist, might want to come in on measurement, because we debated at length what we should measure.
You will see in the analytics paper a detailed analysis of all the five programmes and the underlying data. There was a lot of discussion at the advisory council about what we are trying to achieve across each of those objectives. That is different in each domain, so, across the 18 projects and 77 actions, you will see that some of the actions are continuing, some are new, some have existing governance and some have data in place at the moment. For those that do not have data, we are considering how best to measure the impact of the direct action and the wider interaction.
In the analytics paper, we also publish some illustrative modelling of the types of impact that the strategy could have. Focusing on our export performance and a small increase in real wages and productivity, the impact over 10 years could be quite profound. As the cabinet secretary said, you cannot model everything over a 10-year period. The strategy is truly transformational in the sense that we will see a lot of new market areas develop, and we cannot model in entirety the final solutions across those. However, we have a clear grasp of all the metrics in those areas. We have already done modelling on that, and, in the work on delivery with the enterprise agencies and others, we are tying down what the metrics will be for the actions being in place, how we will report progress on that and what it will ultimately mean to our key metrics in the economy, which is set out in the strategy.
I do not want to put words into Professor MacDonald’s mouth, but I think that he was suggesting that you have not diagnosed the problems. They have been well known in the economics sector, and there seems at last to be a recognition in Government of some of the issues.
The Fraser of Allander Institute has concerns about whether, even if the measures are achieved, that will lead to the plan succeeding as you believe it will. I appreciate that you said that we cannot read the future, but are you concerned that, even if the plan’s objectives or ambitions are achieved in terms of deliverables, that might not lead to the success that you want?
09:45
Again, I will take the question in two parts. If we have a streamlined, focused delivery landscape, in a sense, that vehicle will drive itself. We need a very focused approach from our enterprise agencies and so on to what we are trying to achieve: new market opportunities, more entrepreneurial culture and citizens and a focus on productivity. If we look internationally, we see that those are three ingredients for success. That is not aligned with a particular circumstance or with being relevant only in the immediate post-Covid phase. Those things will be relevant going forward, and they have certainly been the foundation stones for Scottish economic success to date. Therefore, there is an element around delivery to consider.
On the other point, we need to be flexible and agile enough to respond. Therefore, when it comes to productivity across our regions, I want to see the Highlands, Ayrshire, Glasgow, Edinburgh and the north-east being as productive as possible, and that will remain a focus, irrespective of the circumstances. Success is never inevitable. In no country and on no planet is success ever inevitable if you do not go out and seek it. The strategy is built on the fact that Scotland has advantages and strengths that are the envy of many other countries. Let us build on them and ensure that we are as successful as possible.
Good morning, cabinet secretary. Thank you for your opening remarks. I will follow on from Jamie Halcro Johnston’s question on measurement. I am interested in exploring two areas, one of which is around the indicators of progress, and measurement feeds into that. Obviously, the inclusive development index is welcome, but how can we take it further to measure intrinsic environmental wellbeing and, importantly, to include the benefits of a care economy? That is implicit in the document, but it does not come out as a significant single thing by itself.
Those are great questions. On your first point, one of the actions is to develop a wellbeing economy monitor. That will bring in measurements of, for example, healthy life expectancy, fair work indicators, mental wellbeing, child poverty, greenhouse gas emissions and biodiversity. It goes back to a previous question to which I responded. The measurements are key, so what we measure really matters. We are one of the founding Governments of the wellbeing economy Governments initiative, working with countries such as New Zealand to improve our measurement of wellbeing, because we talk about trying to build a wellbeing economy but the measurement of it is really important.
Some elements of that will align with other metrics that we already work to. We have metrics in place around biodiversity, greenhouse gas emissions—obviously—and child poverty. The point is to ensure that economic activity is certainly not undermining efforts on those issues but, more than that, is contributing to addressing them.
On your second point, about care, as you say, the strategy is a fairly short document. We could have taken the approach, which might have been quite popular, of listing everything that we think people would like to see name checked. However, there is reference to the importance of care in achieving all our economic aims.
It is an economic strategy, not a care strategy. However, going back to my favourite subject of entrepreneurship and the fact that certain groups are still underrepresented, the strategy specifically says that, in order to provide those underrepresented groups with more exposure to entrepreneurship and mentorship and more encouragement and support to build businesses and so on, we need to understand what is stopping them.
Let us take women as an example. Obviously, it is not just women who have caring responsibilities, by any means, but supporting women to be entrepreneurs probably means providing enhanced wraparound care support. Where individuals have caring responsibilities, how do we ensure that there is wraparound support to help them with those responsibilities? The strategy identifies the fact that, if we are serious about supporting those with caring responsibilities in either a paid or unpaid capacity, we need to do more as a Government to provide that wraparound care.
That sits alongside a lot of other things that are going on, such as the establishment of the national care service and improving terms and conditions and pay for our carers, but that is where it is referenced in the strategy.
I see the care economy as being about more than just giving people the care that they need so that they can go out to work, but I take your point that it is part of a much wider situation and connects to other things.
It is good to see renewable energy, heat in buildings and decarbonising transport being highlighted as opportunities in the strategy, but how will constrained public funding be structured to enable action in those plans and the delivery that you have spoken about?
That is a critical question, and it goes back to two points. One is that we are halfway through our resource spending review and setting out multiyear budgets. The strategy acknowledges and reflects the fact that we need multiyear budgeting for the approach to be successful. That is the bottom line. The resource spending review is due to be published in the coming months, and it will set out a medium-term trajectory on spending. However, on opportunities, we absolutely have to leverage in private sector funding in new markets. There is no question about that. It is well documented that, for example, the gap between what we need to achieve to meet net zero and what we have funding to be able to do is significant.
The bottom line is that the funding exists. As part of the Global Fund Advocates Network initiative, $130 trillion of assets under management right now that need to find a home have been identified. Either that money will find a home in Scotland or it will find a home elsewhere. I want it to find a home in Scotland, but, for it to find a home in Scotland, we need two things. First, we need to be clear about the green prospectus. We have built the £3 billion green prospectus, which we used extensively at the 26th UN climate change conference of the parties—COP26. We need to expand on that and bring in more initiatives so that investors can easily find opportunities. Those opportunities also need to align with our values—that is an important point.
The second thing relates to the supply chain. We face a choice. As part of the up to 25GW of offshore wind energy that might be developed over the next 10 years, we will create jobs outwith Scotland or in Scotland. The way to create jobs in Scotland is for businesses to be established, to grow and to identify and take a larger share of that market. I refer you to project 5 under “New Market Opportunities”, which explicitly says:
“Build on Scotland’s Strengths to Win an Ever Greater Share of Domestic and International Market Opportunities”.
That is the action that hits the nail on the head, and I do not want to miss that opportunity.
Good morning, cabinet secretary. You touched on productivity and I will ask you a few questions on that.
A report published in December by the University of Glasgow’ and the Productivity Institute highlighted that
“Scotland’s productivity growth has outperformed all regions of the UK”
over the 1999 to 2019 period. However, our productivity is still below the United Kingdom average. What are the challenges that Scotland faces in continuing to improve its productivity?
It is good to reference that growth in productivity over the past 10 years in particular.
Productivity is an issue with which a lot of developed countries are grappling just now. In the strategy—there is more analysis in the analytics paper—we identify a mixture of business investment and the need to improve business productivity. That mixture includes specific investment opportunities. It also includes increased digitalisation. We know that more businesses have access to, for example, superfast broadband than use it to its full extent.
Alongside business investment and digitalisation, we need to address workforce matters. We need to ensure that our workers have the skills that they need to be as productive as possible.
Quite clearly, productivity is one of the most important metrics for not just improved economic performance but wellbeing, because it drives up wages, improves work-life balance and, ultimately, positions Scotland internationally. That is on the private sector side.
On the public sector side, we have a role when it comes to improving infrastructure. We have set out the second strategic transport projects review, which is under consultation just now, to ensure that we are investing in the right infrastructure to improve productivity. That is my quick summary of what we are talking about.
There is one other part to our actions that I am hugely supportive of, which is the notion that it is not a mark of success to improve national productivity while leaving parts of the country behind. We must identify the building blocks and try to work with every region in Scotland to improve regional productivity, which will contribute to national productivity. There is a big focus on not forgetting any part of the country or leaving any part behind. In terms of the measurement, some regions are coming across as more productive right now, which is due to the skills and industry mix. We need to work with those parts of the country that need additional Government investment and support for business.
My next question was going to be about how we support the areas that are not doing as well as the likes of Edinburgh, Stirling or Aberdeen.
On productivity growth, Scotland has eight industrial sectors, including energy and finance, that outperform the UK average. What steps will the strategy take so that other companies and sectors can learn and understand how business can drive productivity improvements?
There is a point to be made around businesses working with business. One of the actions to which we have committed is appointing productivity ambassadors. There has been talk in the past about productivity commissioners, but we chose productivity ambassadors, and their job will be to work intensively with key industries to drive productivity improvements.
As part of that, they will work internationally. They will build international networks and work with similar industries in other parts of the world to learn what are the key investments, perhaps in technology or workforce, to improve productivity. They will ensure that there is a particular focus on leadership in those key industries in order to improve productivity.
As you said, there are some industries that are significantly more productive than others by far. However, we must work with them because we cannot be content that they are more productive than other industries; they should be world leading on productivity, because many of them compete on an international stage and not a domestic one. We must also work with other industries—this point is well rehearsed so I will not list them—in which, to bring them higher, there needs to be more investment in reskilling, upskilling, digital, technology and innovation.
Good morning, cabinet secretary. The Scottish Trades Union Congress has branded the strategy a “missed opportunity” to deliver a “transformative change”, saying that there is not enough focus on improving pay and conditions in the foundational economy, which is the largest employer and an engine room of economic activity. Roz Foyer, who is part of the advisory council that you referred to, said:
“this is more a strategy for economic status quo than economic transformation.”
Why do you think the STUC is wrong?
10:00
The STUC makes a significant contribution on this issue, and I know that it is interested in helping us with delivery. On the launch morning, there were at least two representatives from unions, including one from Unite, who specifically said how pleased they were to see fair work built into so much of the strategy’s work.
The programmes of action that we have chosen are based on evidence, but we recognise that economic growth and prosperity have a purpose, which is to ensure that we have a fairer and more equal society.
Some of the initiatives in the strategy are pretty pioneering from a Scottish perspective, not least building conditionality into support for business, ensuring that we focus on underrepresented groups and ensuring greater payment of the real living wage across our economy. Those are all in line with the STUC’s requirements. We are committed to developing sectoral fair work agreements with industry and to working with trade unions.
There is a lot in the strategy that will deliver what the STUC and others have looked for regarding fair work and greater equality.
When the general secretary of the STUC says that
“this is more a strategy for economic status quo than economic transformation”,
there must be things missing from the strategy.
What do you suggest is missing?
We should go much further with conditionality in areas such as trade union access.
You mentioned one big issue that trade unions are deeply concerned about, which is jobs in the supply chain. You highlighted offshore wind. The former First Minister, Alex Salmond, said that Scotland would be the “Saudi Arabia of renewables”. The Government promised that there would be 130,000 jobs in renewables. The most recent figures from the Office for National Statistics show that that number is 20,500 and that it is actually falling. Why has the Government failed to meet those targets? If we are focusing on delivery, what is your new target for renewable jobs?
The Bank of Scotland and PWC would disagree with you. Both of them have referenced Scotland as leading the way in the creation of green jobs. In the UK, the greatest opportunities in the green economy are already here in Scotland. That is not wishful thinking for the future; that is in the present.
Our commitment, which comes through loudly and clearly in the strategy, is to a just transition. Great economic opportunities are emerging. I have already referred to some of them, such as ScotWind. We must do that transition fairly. We have moved a significant distance on conditionality, with a commitment to embedding conditionality by this summer. We also recognised the importance of sectoral agreement and of trade union recognition. Those points will ensure that the transition, and the significant economic opportunities, are underpinned by a fair-work approach.
Adam Reid may want to come in on the subject of fair work.
As the cabinet secretary said, the plan is clear about applying fair work and conditionality, including really effective channels for worker voice. We will be taking that forward as part of the delivery of the plan. We can give the committee more detail if that would be helpful.
To come back to the issue of jobs in renewables, you said that we are leading the way. Your Government promised 130,000 renewable jobs by 2020, but the ONS figures show that we have a sixth of that number of jobs and that the number is falling. I am keen to know why you think that we are leading the way if we are so far behind your Government’s target for renewable jobs. The trade unions are very concerned about supply chain jobs. What is your new target for renewable jobs if you are so far from delivering the target of 130,000?
I quoted two independent analysts.
I quoted your target and I would like to know why you failed to meet it.
We can consider and defend what was said by the Bank of Scotland and in the “Green Jobs Barometer” that is published by PWC.
We are doing quite a lot of work in Government at the moment to measure green jobs. There are narrow ways of measuring green jobs, but a lot of jobs that could be classified as green are being established and created in a number of industries.
For example, I recently met one of the largest real estate businesses in the world, and it can reference a number of jobs that have been created, including as a result of work in Scotland, that directly contribute to making non-domestic properties net zero. At the moment, jobs such as those are probably not classified as green jobs, but they contribute to making the country as a whole net zero. Our approach through the strategy is to ask where the challenges are, meet them head on and ensure that we build a more robust supply chain.
It would certainly take a leap to go from 20,500 to 130,000 jobs just by changing the definition. I would be keen to hear what the Government’s target actually is, however you define it.
I will briefly raise a final issue. I have previously raised the issue of the cluttered landscape that businesses and organisations face when they seek support, which was highlighted by Audit Scotland. You changed the name of the Enterprise and Skills Strategic Board; I think that you now call it the snappy “national strategy for economic transformation delivery board”, which you will co-chair. If I am a business that is getting on with the day job and looking to see where I am best placed to get support from all the various organisations, how does the strategy make that less cluttered? You are obviously not removing any of those organisations, so what has changed from that very cluttered landscape that businesses keep referring to?
There are two things. First, the access that businesses have to support will change. It will be more streamlined, in that it needs to align with what our strategy says—for example, there will be changes to conditionality and to the things that we focus on. There will inevitably be changes to the support that businesses receive. In relation to that streamlining, as soon as anything is stopped, I guarantee that people, whether it is Colin Smyth or somebody else, will be posing questions to me about why we have stopped certain schemes and initiatives and so on. Inevitably, one of the by-products of streamlining is that you bring everything into one place and by default, things might have to change. If the Parliament believes in change, I hope that members remember that in the future, when considering the schemes that are available. Some of the schemes will have to change or will be no more, because we have adapted our approach.
The second thing is that there is support that is provided by, for example, the enterprise agencies that is not specifically grant support and is not about accessing funding. Again, the enterprise agencies will align all their activity to the actions and objectives that we set out in the strategy. It will be very clear to businesses what the enterprise agencies are doing, what they are seeking to achieve and the opportunities that come from getting on board with that.
Thank you. I am going to make some progress now. I call Colin Smyth to be followed by Alexander Burnett. [Interruption.] I apologise—I meant Colin Beattie.
Ah—both the Colins are handsome people.
Cabinet secretary, there has been some criticism that the strategy does not quantify the benefits that each project is expected to deliver or how it will directly link into the higher-level ambitions and the vision for the Scottish economy in 2032. How far will the delivery plans, which will be finalised in six months, go to flesh out the strategy?
The delivery plans will definitely flesh out the strategy, and as we have already said, we will make sure that there are clear metrics in those. We have set out, at high level, what we think the contribution to the Scottish economy will be over the next 10 years, but as Gary Gillespie said a few moments ago, some areas are, by their nature, more difficult to measure and define, particularly the opportunities that come with new markets. We are still at an early stage in relation to that. In other words, some things are easier to model than others. There is certainly a graph in the 133-page analytics paper of the overall contribution to the Scottish economy.
Some areas are easier to define than others. For example, when it comes to our export strategy, we will know what success looks like and, when it comes to fair work, success will be building in conditionality. Some things are easier to quantify and others are more challenging, and we will set out the metrics in the implementation strategy.
I have a slightly different question. In the past day or so, I saw a figure that showed unemployment in Scotland at 3.8 per cent. I seem to remember an economist saying that, when we get to 3 per cent, we are effectively at full employment. We have significant labour shortages in certain areas, but the strategy sets out our ambition for new start-ups, expansion of information technology capabilities and an increase in exports, all of which need labour. To what extent will our inability to control our borders with our own immigration policies impact on us? Where will we find the labour that we need in order to carry out all those new strategies?
Compared with other independent Government strategies, this strategy is unusual. We did some comparison work, and pretty much all other international, independent Governments have far more tools and levers at their disposal. Macro, fiscal, economic and monetary levers are all reserved. Trying to build an economic strategy is quite remarkable when, for example, we do not have any control over migration, the vast majority of tax powers, international trade and some regulation.
You are right to say that our unemployment rate is 3.8 per cent, which is lower than the UK’s unemployment rate. From that perspective, accessing additional labour is hugely challenging in a country that has always welcomed inward migration and that now has a demographic outlook that indicates that we absolutely need to build and extend our working-age population. It is a huge challenge.
One of the actions in the strategy is around talent attraction from the rest of the UK. To date, Scotland has done very well on that, but we need to do even better because, right now, our businesses and industries are crying out for labour. There is an acute labour shortage, but we have no capacity to manage visas or ensure that, once we have attracted individuals, there is an easy route for them to get here.
You highlighted a number of areas where there are constraints on what we can do, because of matters being reserved. Given our ambitions, is there any prospect that there are areas where the UK Government might support those ambitions and the vision that we have in Scotland?
I think that the chance is slim, but it is worth trying. To go back a year or so to Mark Logan’s review of the opportunities for the tech industry in Scotland, as an independent individual—not a politician—he set out clearly the need, for example, to have a tech visa. In my conversations with them, many industries talk about the need for industry-specific visas. That is not something that I can grant but, in the engagement with the UK Government, there has been no appetite or willingness to consider sector-specific visa arrangements for the tech industry, for example.
Thus far, I do not think that there has been much progress, if any. Even in industries where the issue is UK wide, we have not seen huge progress and, right now, the current discourse around refugees and migration suggests that we have a long way to go before making progress.
Thank you. We have to make some progress. Alexander Burnett is next, to be followed by Fiona Hyslop.
10:15
My question is about measurement of labour, particularly of the underrepresented groups that the cabinet secretary referred to earlier. First, may I ask about comments in your opening statement? You talk about seeing now how important delivery is. Why was delivery not seen as important until now? In your answer to Jamie Halcro Johnston, you blame the private sector’s having agency for lack of delivery. What responsibility lies with the Scottish Government for the lack of delivery over the past 14 years?
It is quite a stretch to suggest that I am blaming the private sector; that is a quite remarkable misrepresentation of my remarks.
I am not saying that delivery has not been a focus. In response to Jamie Halcro Johnston’s and the convener’s questions about what is new, I said that our evidence suggests that we understand what the challenges are but that the issue now is that we should focus ruthlessly over a 10-year period on delivering what we know to be the solutions to those challenges. As I said, that is not going to grab any headlines, but we know what we need to do, and we need to persevere in delivering that.
New opportunities have also emerged—not least in Alexander Burnett’s part of the country—so the issue now is to ensure that we deliver on the supply chain that exists but needs to expand to meet Scotland’s opportunities. Clearly, the supply chain is where we need to work with the private sector to maximise opportunities.
Thank you. I will move on to the labour question. Unfortunately, our economically inactive population is larger than the UK average. I am not sure why and I do not know whether the cabinet secretary has an opinion, but it is obviously a historical matter. More important is that getting those people into work is particularly difficult, given the diversity of the group—you have mentioned underrepresented groups in the economy. How, therefore, do you intend to do that, and what measurements will you be able to provide for that group? Most importantly, how will you break down that larger group into subgroups, so that we can see what is happening and how things are working or not working?
The economic inactivity figures are well documented in the analytics paper. The most common reason that is cited for economic inactivity in Scotland is temporary or long-term health problems. We also have big contingents who are in full-time study and who have caring responsibilities. “Economic inactivity” is a catch-all term, so getting underneath that and understanding how we encourage those who can work into work is important. The commitment in the strategy is to remove more of the barriers and to simplify the employability system by implementing the “no one left behind” strategy.
It is important to say that the people who are furthest from the job market will require greater and more intensive investment to bring them closer to it. That is a commitment that we are willing to make, but it requires significant up-front investment and willingness to work intensively with individuals. We have set out that commitment—we need to do it.
The earlier question about the need to access skills demonstrates that we need to support into work as many people as possible, but we also need to understand what is preventing people from working. For some, it is the caring responsibilities that I mentioned in my earlier answer to Maggie Chapman. For others, it is full time study, which is good, and for others it is ill health. Given all that, there is quite a small group of people whom we need to work with to encourage them into work and to provide them with the support that they need.
Good morning. The focus on transformation and change means that you want to do things differently. There is a focus on the entrepreneurial aspect as well as on the need to be streamlined and focused on delivery. One of the things that is mentioned in the entrepreneurship section of the strategy is expansion to all sectors of the tech-scaler model. That model comes with a cost. Expanding it to all sectors will mean that it is not necessarily streamlined or focused, but it will have a cost, which will mean that other things will not happen unless you have additional budget. Will you unpack some of that thinking for us?
That is a great question. Running through all our budget discussions on the economy is our asking what we are going to do and saying let us do it really well.
We have set out our belief that entrepreneurial people and culture are among the key building blocks of economic transformation and that we will, therefore, prioritise them when it comes to funding and we will expand them. Alongside expansion of the tech-scaler programme, we will create pre-scaler hubs so that we engage much earlier with potential high-growth businesses. We are committed to that approach. We want to do it in partnership with the private sector, so we will prioritise it as we have already prioritised implementation of the Logan review.
You are right to say that, inevitably, that will mean that there are other things that we cannot do. That takes us back to my point to Colin Smyth: when we stop doing certain things to focus on what we have set out in the strategy, there will be questions. However, we have set out the blueprint in the strategy. That is what we want to deliver and it is what we are focused on delivering. Rather than trying to do everything under the sun, let us focus on where we think we will make the biggest impact and really shift the dial. That is what the strategy captures.
I am sure that, at some point, the committee will have to focus on what is not going to be done.
I will move on to questions about resilience in supply chains. “Delivering Economic Prosperity” is a 10-year transformational strategy. However, we are dealing, and will continue to deal, with the consequences of Brexit. We are still living through a pandemic. International security issues and the war in Ukraine will also have global economic consequences. Therefore, a resilient supply chain is more important than ever.
You focused your earlier remarks on ScotWind and the supply chain for new and developing industries. However, during the 10 years of the strategy, an important focus will remain on resilience in the bread-and-butter industries—our foundational economy. I refer to food and drink, engineering and construction, for example. What measures in the strategy will enable Scotland to build a more resilient supply chain overall to help us to ensure that we have economic security?
There is specific reference in the strategy—because we are post Covid, I guess—to the need to build in resilience.
On specific action, we are committed to expanding a programme that we already have and in which you are probably well versed: the supply chain development programme, which is about improving the capacity, capability and development of Scottish supply chains. It includes identifying and targeting Scottish companies that have the skills, capacity and capability to allow them to bid for, win and deliver contracts in key industries. That goes beyond ScotWind. The programme is about identifying intentionally such businesses and working with them to improve their resilience. Some of them might already be operating within the key supply chains, but others might not be and should be building their business more.
Identifying those businesses and working with them is a more intensive way of working than just waiting for the supply chain to develop its own resilience. However, after Covid, many supply chains are far more resilient than they were going into Covid because of the necessity for them to have adapted.
I have a question that is connected to that. It is about the target that is set in the export plan to increase exports by 5 per cent to 25 per cent of gross domestic product by 2030. As Fiona Hyslop outlined, there are extreme pressures, such as Covid. We still have the hangover from Brexit and now the war in Ukraine is putting on pressure. Are you still confident about achieving that target? How will the plan have to change to acknowledge the situation that we are in?
We are still focused on that target. We carefully monitor the progress of the export strategy, on which my colleague Ivan McKee leads.
Gary Gillespie might want to answer the question about the impact on the export target, because his team have been doing extensive work on monitoring the impact of the war in Ukraine on our trading arrangements, as well as on our resilience as an economy.
It would be helpful if Mr Gilliespie’s answer could be brief.
Since Covid—and pre-Covid—there has been a change in how the global system works: supply chains have been shortened. Initially, that resulted from Covid in China, but supply chains have also been impacted by the Ukraine-Russia conflict. That is primarily because of continued disruption and increased commodity prices. Obviously, that feeds through into producer input prices in Scotland, and has a wider impact on the cost of doing business and the cost of living.
We monitor our exposure to economic sanctions and restrictions; through that, we can see that our trading world has become smaller. Scotland’s exports to Russia have been worth £245 million to £250 million, and our exports to Ukraine about £50 million. Similarly, our imports have been about £200 million from Russia and a smaller amount from Ukraine. The impact from those trades on our key sectors and parts of our economy is relatively small. Our imports and exports have been impacted more by Covid and our exit from the European Union, which is intertwined with the supply chain constraints that I mentioned.
The resilience of supply chains is now one of the top risks for businesses in Scotland, the UK and Europe, so the focus is on shorter supply chains and on investing in and understanding those supply chains. The food and drink supply chain sets a good example for Scotland; it is a strong supply chain that is built on a lot of the natural capital that exists. That industry is keen to understand how resilient its exports are and how they feed through.
The current situation in Ukraine and Russia means global growth is expected to slow this year. It will impact on trade—the estimate is that there will be around a 1 per cent fall in global growth—and it has the potential to increase global inflationary pressures by about 2 to 3 per cent. That will impact on domestic production through squeezing both the input and goods costs for consumers. There will be an immediate negative shock, but the global economy has gone through a number of those during recent years and it will come back from this one.
Jamie Halcro Johnston—do you have another question on that?
Yes, I have a brief question about supply chains. It has been reported that the former Minister for Transport, Graeme Dey, said £1.5 billion could be needed for replacement ferries. That could be an opportunity for shipbuilding, but contracts to build ferries have gone to Turkey—as you are well aware. How can the strategy support our shipbuilding sector and ensure that Caledonian Maritime Assets is looking at yards here—not only Government-owned yards, but others—and ensuring that procurement processes work, and how can the strategy work with the UK Government’s refreshed shipbuilding strategy?
We have engaged with the UK Government’s refreshed shipbuilding strategy because of its opportunities for Scotland, in particular. We also recognise that that is one of the most powerful arms that the Scottish Government has for procurement at a time when public finances are not plentiful as the Chancellor of the Exchequer tightens the purse strings, post-Covid. Quite clearly, there will be opportunities for ferries—in Scotland and outwith it—when those links are developed.
However, to cut a long story short, I note that procurement is a key arm. It is an area that we reference alongside our spending power to create new opportunities for Scotland, and it goes right to the heart of developing a supply chain. Under project 6 in the strategy, which is on development of Scottish supply chains, we specifically talk about our strategic approach to public ownership, so that public companies are managed, developed and initiated for the public good. That relates to what you asked about.
10:30
I will bring in Michelle Thomson for a closing question.
I was interested in what you and Gary Gillespie said about exports and evidence of impacts that is still to emerge. Perhaps inadvertently, Gary gave a very good explanation and reminder of why proximity in relation to trade is vital. I understand that we will see the global impacts of the geopolitics that is going on unfold, but in relation to proximity impacts and our trade with Europe, do you have a sense, in numerical terms, of the additional costs that have been incurred as a result of Brexit? How will those additional costs impact on the development of resilience in supply chains? Brexit is on-going and is important in relation to proximity. Do you have any further reflections on that?
I will prime Gary Gillespie, in case he wants to come in with additional analysis about additional costs.
Certainly, the anecdotal feedback from businesses, particularly smaller businesses, is that higher costs and increased bureaucracy have impacted on trade. They seem to be disproportionately affecting small and medium-sized enterprises that had previously been able to trade in and of themselves. Some larger businesses are able to access markets more easily, but there are increased costs.
If we go back to the questions about how we improve our productivity in our economy, I note that one of the most significant opportunities is through increased exports. That is why our export plan and the 25 per cent target are so important; there being additional costs of accessing one of the largest trading blocs in the world does not help with that.
Gary Gillespie might have some analysis on EU exit.
We are looking at analyses in order to try to disentangle the impacts of EU exit and Covid; we are trying to break down how Covid and EU exit have impacted on Scotland’s trade figures. We do that with a technique called synthetic control. We look at a peer group of similar-sized countries, model the impact that Covid has had on them and look at how they responded, and compare that to Scotland. From that initial work, we have picked up an additional negative impact on trade for Scotland over and above what should primarily have been the case from Covid. We are doing that work internally; I would be happy to share it with the committee in due course, once it has been finalised and shared more widely.
It has been very brave to do a 10-year macro strategy. I regard it as a framework strategy, and have read the 118 pages of analysis underneath it. In relation to other important areas, the section on our financial services and fintech sector, which are of personal interest to me, includes Scotland’s leading position in responsible and ethical finance. I am on the record as being fairly active in that area and in highlighting where lax governance has allowed extensive corruption in the UK. Very conservative figures put that at £290 billion—or 15 per cent of UK gross domestic product—every year, which is utterly shocking. My concern is the potential impact that that could have on Scotland’s brand, which is viewed as being trustworthy, for Scots who do business around the world and for the country itself. Have you managed to consider that specifically, and have you looked at how we might heighten Scotland’s brand profile to avoid issues around global corruption in relation to the City of London. Can you reflect on that?
That is a big focus for us. The brand is identified in the strategy as one of our strengths and as one of the areas of greatest growth.
We already know that, in Scotland, we have more assets under management that is defined as ethical than would be our proportional share in the market. There has already been disproportionate growth in ethical financing, so there is a huge opportunity to position Scotland’s brand as being distinct from that of the rest of the UK. That is largely because we have a well-known and well-regarded financial services industry in Scotland, and because we have, on our doorstep, significant opportunities to connect what our financial services are doing with our natural assets, for example. I refer to my point about the significant opportunities in that regard.
Just a fortnight ago, we launched the Global Ethical Finance Initiative with none other than Mark Carney, who was the keynote speaker and with whom I shared a panel. The issue is firmly on his radar, and he is conscious of the work that we are doing. We had a lot of interest from around the world in that launch and in what we are trying to achieve. Such initiatives set Scotland apart. Of course, we want to build on the legacy of COP26, in particular.
On the question about branding, we have set out a plan through the Global Ethical Finance Initiative. We are working on it, and we are keen to position Scotland as the home of ethical finance.
Thank you, cabinet secretary, for attending this morning, along with your officials.
I suspend the meeting briefly while we change the panel.
10:37 Meeting suspended.10:41 On resuming—