Meeting of the Parliament (Hybrid)

Meeting date: Wednesday, December 2, 2020

Official Report 1144KB pdf

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Scottish National Investment Bank

The next item of business is a statement from the Cabinet Secretary for Economy, Fair Work and Culture, Fiona Hyslop, on the Scottish National Investment Bank: mission-oriented investment in Scotland’s future.

The cabinet secretary will take questions at the end of her statement, so there should be no interventions or interruptions.

15:00  

The Scottish National Investment Bank was launched by the Scottish Government on Monday 23 November and I am pleased to outline to Parliament how the missions that have been set for the bank will help to direct investment towards addressing the major challenges that Scotland faces.

In the months prior to launch, the bank secured state aid approval from the European Commission and advertised and recruited the board. It expects to have 60 staff members in place by the end of year 1, including all the senior executive team members.

The bank continues to develop its investment pipeline and will be funded with £75 million for investments for the remainder of the year and £200 million for next year.

The launch, which has been delivered on time despite the significant complications arising from the coronavirus pandemic, delivers on our Government’s commitment to establish a national investment bank to provide the patient and growth capital that the Scottish economy needs for the future. It is the single biggest economic development in the lifetime of the Parliament and I thank MSPs for supporting it unanimously.

When we started the process three years ago, we could not have predicted how much we would need the bank today. With the economic shock that we face, and the kind of recovery that we need to make, the bank and its ability to offer patient capital will be more crucial than ever, as will its ability to work with our enterprise agencies and the private sector in supporting businesses to recover and grow in Scotland.

As legislated for in the Scottish National Investment Bank Act 2020, the bank will adopt a mission-oriented approach when providing finance. The missions have been set by the Scottish Government and address the grand challenges that Scotland faces—the issues that we know that we must face to build a sustainable future for Scotland. That mission-oriented approach allows the bank to operate independently to crowd in investment, create and shape new markets and promote inclusive economic growth, while also offering an innovative approach to addressing key socioenvironmental challenges in Scotland.

The mission-oriented approach for the bank has been in development for a long time. Working with international experts Professor Mariana Mazzucato and Laurie Macfarlane at University College London’s institute for innovation and public purpose, we developed “A mission-oriented framework for the Scottish National Investment Bank”. That has helped translate the grand challenges into concrete missions that have a clear direction; are targeted, measurable and time bound; are ambitious but realistic; are cross-disciplinary and cross-sectoral; and involve multiple bottom-up solutions.

Alongside the framework, the development of the bank’s missions has been informed by stakeholder engagement, the illustrative missions in the implementation plan, responses from parliamentary procedures, Government policy priorities and the national performance framework. From the outset of the work to establish the bank, the missions have been a constant measure in ensuring that the bank provides the greatest benefit to Scotland and is aligned with the economic priorities of the Scottish Government and opportunities for Scotland.

It has been important to consult widely on the missions, because it has to feel like Scotland’s bank, and as a result of that a more wide-reaching range of missions has been proposed and subsequently supported. They revolve around the themes of transitioning to a low carbon economy, promoting inclusive growth through placemaking and local regeneration, and responding to emerging demographic pressures. Those themes were further supported through broader engagement with stakeholders, while other policy priorities were considered throughout the development process of the bank’s missions.

The Scottish Parliament has been instrumental not only in its unanimous support for the act that established the bank, but, more recently, in its support for the missions that were presented to it and the public in late August for final comment.

I am now pleased to announce that the final missions were communicated to the bank yesterday, on 1 December, through a letter addressed to its chief executive officer, Eilidh Mactaggart. Let me set them out in turn.

The primary mission of the bank will be a net zero mission to address the climate emergency through making investments in relation to

“Achieving a Just Transition to net zero carbon emissions by 2045”,

and to

“Invest in rebalancing our economy towards leadership in sustainable technology, services and industries.”

The net zero mission of the bank aligns with and supports the Government’s policies to deliver a sustainable green economy, as outlined in our programme for government and the climate change plan. It will help to drive investment into innovative sectors and companies and tackle climate change, and it will offer patient capital to help facilitate the development of new technologies essential in addressing the climate emergency.

The second mission of the bank—its place mission—is focused on developing place-based opportunity throughout Scotland. To achieve that, the bank’s mission is to make investments to support

“Extending equality of opportunity through improving places by 2040”,

and to

“Invest in places and regeneration to reduce inequality, and improve opportunities and outcomes for people and communities.”

That mission will allow for investment in the kinds of places that people want to live and work in—ones that are good for health and wellbeing and which involve the local community. The mission will help to support the good work that is being carried out by, for example, the empowering communities programme and the more homes Scotland approach. Place-based investment will reduce inequality and improve opportunities through increased availability of housing options, secure employment, education and commercial prospects.

The final mission of the bank—its people mission—seeks to address the demographic change that Scotland is experiencing now and will experience in the coming years. That is about not just demography and ageing populations, but helping our people adapt to a changing world. The mission asks the bank to make investments in line with

“Harnessing innovation to enable our people to flourish by 2040”,

and to

“Invest in innovation and industries of the future for a healthier, more resilient and productive population.”

That mission and the bank’s investment in innovation is an opportunity for businesses and organisations to increase productivity and to raise skills levels in the economy. Innovation is essential in achieving all the missions that are outlined for the bank, with new and developing technology at the heart of driving the response to climate change and the inequality of place-based opportunity.

The bank’s inaugural investment of £12.5 million to M-Squared Lasers perfectly illustrates the mission-oriented basis of the bank in looking beyond financial returns and towards social and environmental returns through investment in the innovative companies of Scotland.

Those missions represent the directions in which the Scottish Government would like the bank to focus its investments in order to provide finance and act to catalyse private investment to achieve a step change in growth for the Scottish economy, by powering innovation and accelerating the move to a net zero emissions and a high-tech, connected, globally competitive and inclusive economy.

Those missions are not in place to constrain the bank’s activity. Ultimately the bank will be required to invest in opportunities in line with its vision, objects, missions and ethical standards. Therefore, the missions should be viewed as part of a wider picture of the bank’s governance, rather than in isolation.

The 2020 act requires that ministers lay before Parliament a statement describing how the consultation influenced the content of the document sent to the bank. That statement is in development and will be laid before Parliament later this month.

The bank will measure its performance against a balanced scorecard, as set out in the 2020 act. The balanced scorecard will capture the environmental, economic and social impact of the bank’s investments, as well as its financial performance.

It is important to note that it will take time for the impact of the bank’s activities to be evidenced. The long-term nature of the missions means that social, economic and environmental returns should not be expected shortly after the bank has been vested. The bank will be expected to deliver those impacts in the medium to long term.

Of course, those are the bank’s first missions. The 2020 act requires the Government to review the bank’s performance at least every five years, reporting back to Parliament and the public. The same consultation process will apply if the Government proposes to modify or end any of the bank’s missions, or set new ones, to reflect changes.

The Covid-19 pandemic has caused a huge health and economic shock to Scotland. On the economy, the Scottish Government set out a four-step plan to respond, reset, restart and recover. Although the initial economic shock of Covid-19 is expected to be shorter than the long-term nature of the bank’s mission-oriented investment objectives, the bank is expected to play a key role in supporting Scotland’s recovery by delivering patient and sustained investment. In that, the bank will work closely with established agencies, in particular Scottish Enterprise. There have already been constructive discussions between the two on their areas of focus and collaboration.

If anything, the immediate impacts of Covid-19 underline the need for the bank and support the adoption of a mission-oriented investment approach. The climate emergency, place-based opportunity and demographic change represent compelling challenges now more than ever.

The bank is uniquely placed to work towards addressing those challenges, through providing patient capital to support long-term economic growth in tandem with the business community and public sector partners. The bank’s mission-oriented approach provides a unique opportunity to influence the direction of economic recovery in the long-term interests of the people of Scotland.

The missions for the Scottish National Investment Bank have been developed with broad stakeholder engagement across Scotland, civic organisations, the general public and colleagues in the Cabinet and Parliament, and in line with the legislation laid out in the Scottish National Investment Bank Act 2020. They help to form the basis of the relationship between the Scottish Government and the bank.

Once again, I thank members for their unanimous support in establishing this institution of our national economy and in helping us to set its direction.

The cabinet secretary will take questions on the issues that were raised in her statement, for which I will allow around 20 minutes. We are pushed for time, so please bear that in mind.

I thank the cabinet secretary for her statement and for advance sight of it. I welcome the progress that has been made in establishing the Scottish National Investment Bank. With a serious economic recession looming and job losses already happening, it has never been more necessary.

The missions that the cabinet secretary set out in today’s statement are comprehensive, and she said that they were not in place to constrain the bank’s activities. Can she confirm that those missions will not restrict the ability of the bank to invest in all projects that can deliver economic growth and provide jobs at this vital time?

I also ask the following two questions on the cabinet secretary’s statement. First, the cabinet secretary has confirmed that the allocation of funding is £75 million in the current year and £200 million next year. Previously, it was indicated that the funding to the bank would be £400 million. Can she clarify the figures and the reason for the difference?

Secondly, the cabinet secretary mentioned Scottish Enterprise in her statement. Over recent years, the Government has slashed Scottish Enterprise’s budget, and some of the functions that it performed are now effectively being taken over by the Scottish National Investment Bank. What on-going role does the Scottish Government see for Scottish Enterprise and the other enterprise agencies, and how will future funding reflect that?

I recognise the challenges that we face in our economy; some will be shorter term and some will be medium and longer term. In relation to Scottish Enterprise, the collaboration will be important, not least because of the issues that will be faced by our retail and other companies, which we heard about in a different context in the urgent question. Short-term working capital will be provided by Scottish Enterprise, not by the bank. However, in relation to that co-operation, it is important to note the opportunity to have high-growth innovative companies. We have already announced a significant number of developments via Scottish Enterprise investments during the recovery and I am looking forward to hearing tomorrow further announcements from Scottish Enterprise with regard to helping that development.

On Murdo Fraser’s question about whether the bank will be strictly controlled by the missions, I have indicated that we will not constrain the bank but we want to contribute to the missions. The missions will not prohibit the bank from investing at commercial rates in high-growth innovative companies in different sectors other than the ones that are obvious from the missions.

On funding, the capitalisation figure of £2 billion still stands but, with regard to what was available for investment and what the bank wanted to or could invest in during this period, it was understood that £75 million would be appropriate at this point. However, if there is any further information, I can write to the member in that regard.

I also welcome the statement and the progress that has been made.

Is there not a need for Scotland to have an industrial strategy? We could measure the performance of the bank against the delivery of that strategy.

On meeting the needs of Scotland, one of the greatest needs in Scotland at this time is the need to build houses in the social rented sector. Will the bank be able to work with local authorities and make finances available to councils and social landlords in order to build houses? House building must be seen as a long-term investment, because it would create tens of thousands of apprenticeships and jobs.

Scotland has an industrial strategy. Even this year, as part of our recovery, there has been an increase of £20 million in the investment into the National Manufacturing Institute Scotland, which takes the total to £75 million. That will be a real driver for innovation and development.

I absolutely agree with Alex Rowley on housing. If we are looking at place-based approaches and we want to tackle inequalities and issues relating to low carbon, it is quite clear that housing provides an opportunity. He is quite right that aligning that with the opportunities to skill and train young people is really important.

We have seen the construction sector’s recovery plan, and we are due to see the manufacturing sector’s recovery plan shortly. With the added opportunity for investment that I have described, we can see some drivers for growth in jobs and innovation, particularly in our manufacturing sector. Our work on sustainable procurement and development will also help the manufacturing base of Scotland.

We move to open questions. I will do my best to let everyone contribute.

Can the cabinet secretary confirm that the Scottish National Investment Bank is a bank for the whole of Scotland and that it will play a pivotal role in our transition to net zero emissions in Fife as well as in the rest of the country?

Yes, I can. It is important to identify the place-based mission as one of the Scottish National Investment Bank’s missions that have been outlined today. That mission will support all of Scotland, including Fife, although I suspect that I will get approaches from all MSPs about their constituencies. I am sure that Eilidh Mactaggart, the chief executive officer of the bank, will want to engage with the committee and with other members at the appropriate time.

I welcome the bank’s mission-focused approach, especially the support for a green recovery. However, the bank is still investing public money and the public must be sure that they get good value from it, so what rate of return will the Government set for the bank?

It has been made clear that there will be commercial rates of return for the bank. It wants to operate in growth areas and to tackle some of the real challenges that we have, but I can confirm that the bank will offer commercial rates.

I welcome the cabinet secretary’s statement, which comes at a perfect time, given the economic burdens of Covid-19 and the impending effects of Brexit. How will the Scottish National Investment Bank boost regional economies across Scotland and the momentum that is created by the respective growth deals?

I welcome the Ayrshire growth deal, which has recently been taken forward. Again, that shows the opportunities for investment in key areas. One of the bank’s jobs will be to align with other sources of investment. Clearly, there is a great deal of investment from the Scottish and United Kingdom Governments in the growth deals, and the bank can align with such public sector investment.

Importantly, the bank can also align—as it did with its first investment—in generating private investment, to ensure that we maximise opportunities. That is particularly important in relation to the exciting work that will happen through net zero activities. Alignment with some of the growth opportunities, particularly in relation to the space sector and others, will be really important. I am sure that the bank will also be interested in aligning with the opportunities in the Ayrshire growth deal, but I emphasise that the bank will operate independently of Government.

The predecessor to the Scottish National Investment Bank was the Scottish Investment Bank, which sat within Scottish Enterprise. I understand that it remains part of Scottish Enterprise. When will it transition to become part of the Scottish National Investment Bank, or is the cabinet secretary not concerned about a duplication of effort and resource?

It is important that we have alignment, not duplication. The Scottish Investment Bank will transition into the Scottish National Investment Bank at the appropriate time, but that needs to happen in a way that makes sense for organisations—particularly Scottish Enterprise, which has done a tremendous job in tackling some of the immediate priorities and concerns during the economic crisis. The transition will happen at the appropriate time.

There is obviously good news about vaccines today. However, the economy might take longer than us to recover from the Covid pandemic. Can the minister confirm that the bank will stick to its net zero mission despite the fact that there might be pressure on it to bail out existing industries?

That is an important question because of the pressures that all of us will come under as we consider the immediate crisis response while, at the same time, trying to identify recovery plans and set our course on them. We know—this is in our response to the advisory group on economic recovery—that digital and net zero are important pathways to recovery, and the bank needs to stay focused on that.

As I said, the bank will not be the source of short-term working capital for companies that are in distress; those will be supported in other ways.

In the light of the place-based mission and the fact that an amendment to provide a shareholding for local government was rejected during the passage of the bill, and given that the German development bank is 20 per cent owned by German states and that, in Sweden, Kommuninvest—a local government investment agency—will lend more than £15 billion in 2020, what plans does the Scottish Government have to enhance the role of local government in long-term investment in the Scottish economy?

Enhancing the role of local government is key, as we have seen through the growth deals, in which decisions about where those major, multimillion-pound investments should go are driven by local government. The bank can align with that, as I said in my answer to Kenneth Gibson.

The Government certainly looks at different models when it is considering the SNIB, including German, Dutch and other examples. I know that Eilidh Mactaggart is interested in working with different local authorities on the place-based mission, and the Government’s advisory group on missions will draw from a wide range of civic responsibilities, including local government.

We are also working very closely with local authorities to identify what their needs are, and the place-based approach—which the Scottish Enterprise has been involved in, as we seen in the Clyde mission—is a good example of what we can do on alignment with local government needs.

It is difficult to disagree with the mission that has been set out for the bank, and we support the progress that has been made. However, the ultimate test must surely be how many good-quality jobs it actually creates. Does the minister have an estimate?

I am not going to give a number, because Willie Rennie will then come back at a future date and ask why I have not met that target. It is a challenge. However, his point about good-quality jobs is important, because we have to play to Scotland’s strengths. We have to focus on the key sectors that we have, and good-quality jobs will help with place-based renewal. The issue is how we spread those jobs and opportunities across the country, because it is attractive for them to be based not just in the central belt but in places such as Fife and other areas. It has to be about sustainable jobs, but those must be in the right areas, which is why alignment and the missions are really important.

I was delighted that M Squared Lasers, in Maryhill, secured the first investment from the SNIB. Can the cabinet secretary outline how the SNIB will work with Scottish Enterprise—which already offers grants to some companies in my constituency—to ensure that a mixture of grants and loans will be available?

I congratulate Bob Doris on being the MSP for the constituency that was the first location to receive investment from the SNIB.

Alignment is important, and Scottish Enterprise can pursue early-stage, high-growth opportunities to make businesses attractive to invest in at the next stage. That is part of the pipeline that we are talking about when we talk about alignment. It is important, especially at this time, that we seek opportunities to enable new businesses to develop, as well as supporting existing ones—I know that many existing businesses will be under pressure over the next period. If we are ambitious for Scotland, we will want to support those new-start and early-stage, high-growth companies. Scottish Enterprise has, and will continue to have, a key role in that, and I look forward to hearing further news of those developments shortly.

When the legislation to create the bank was passed, there was widespread agreement that it should focus on the provision of long-term, patient capital. However, we now know that thousands of viable firms across Scotland will not survive the next six months without urgent short-term capital investment to see them through the pandemic. Does the cabinet secretary recognise the need not only for Scottish Enterprise but also for the bank to be actively involved in the response to Covid and to provide significant short-term investment capital from its own budget? The capital that is now required is far in excess of what Scottish Enterprise can provide.

The bank will be involved in our recovery. There are opportunities for short-term investment that can help to deliver in a number of areas, particularly in transport, in the immediate creation of jobs and in supporting companies.

It is important to recognise, however, that the bank must focus on long-term, patient capital. We will therefore make provision and offer support. I have managed to secure additional capital investment for Scottish Enterprise, particularly in some of the areas that we have been talking about.

I say as gently as possible that we must also anticipate the disruption that we cannot deny is likely to come in January, February and March because of Brexit. It is important that we are in a position to support companies and supply chains during that period of disruption. As of now, we do not know what kind of deal there will be or whether there will be no deal. I am worried about that period. We are looking into an abyss, and we do not know where we will be.

Will the cabinet secretary indicate whether the Scottish National Investment Bank will have a particular remit, through its place and people missions, to aid investment in local authority areas that struggle economically and with population decline?

That is one of the great challenges of our time. Inverclyde is an interesting area in that it combines deep-seated and long-standing poverty with demographic challenges.

I cannot and will not tell the bank where to go or what to invest in, but I would like the bank to suggest solutions that would tackle those multi-pronged issues. That is a challenge. I am sure that the bank will look at any investable propositions that come forward from Inverclyde.

That concludes questions on the cabinet secretary’s statement on the Scottish National Investment Bank: mission-oriented investment in Scotland’s future. We will shortly move on to the next item of business. I remind members to observe the social distancing measures that are in place.