Economy and Fair Work Committee

Meeting date: Wednesday, January 19, 2022

Official Report 584KB pdf

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Budget Scrutiny 2022-23

The next item of business is an evidence session on the Scottish Government’s 2022-23 budget. The budget was published on 9 December 2021 together with a resource spending review framework and the medium-term financial strategy. The stage 1 debate on the budget is expected to take place next week.

In today’s evidence session, we will concentrate on the areas of the budget within this committee’s remit. I welcome the Cabinet Secretary for Finance and the Economy, Kate Forbes MSP, who is joined by Scottish Government officials. Helena Gray is interim director of fair work, employability and skills; Richard Rollison is director for international trade and investment; and Kathleen Swift is head of the economic directorate finance unit.

As always, I ask members and witnesses to keep their questions and answers as concise as possible. I invite the cabinet secretary to make a short opening statement.

Thank you very much, convener. I thank the committee for inviting me to the meeting.

In general terms, the finance and economy portfolio budget for next year provides £1.75 billion in total to strengthen Scotland’s economic recovery, with a firm commitment to build a net zero wellbeing economy and to protect and create good-quality jobs across Scotland. Obviously, overall Scottish Government funding for next year is significantly less than that for the current year, with Covid funding having been removed at a time when we undeniably need to invest in the economy and help public services to recover. I think that committee members will want to touch on the on-going Covid impact without our necessarily having the Covid funding to cover that. We also have on-going challenges that are presented by the European Union exit, particularly for our labour market. That means that some really tough choices have been made in the budget, because it cannot deliver the resources that all our partners need in full.

The budget will invest £635 million across our enterprise agencies, the Scottish National Investment Bank and VisitScotland to support economic recovery and transformation. We are providing £124.6 million in total for employability support for those who are most impacted by Covid and we are contributing to our national mission to eradicate child poverty. We hope that that will help businesses to tackle the skills shortages that they are experiencing particularly acutely now.

To accelerate the potential contribution that digital technology can make to the Scottish economy, we have allocated £192 million to improve connectivity and boost the digital economy. That is an increase of £48 million from this financial year, and it includes targeted support for small and medium-sized businesses.

Those are just some of the headlines. The budget is progressive, but it is also transitional, as we are working towards finalising the 10-year national strategy for economic transformation, while we do all that we can to mitigate the immediate impact of Covid uncertainty on the economy.

Alongside the budget, we have published a consultation on the resource spending review. We will publish a full resource spending review in May 2022. I look forward to engaging with the committee on the review in a way that suits it. It will be the first time in a number of years that we are able to embark on multiyear budgeting. I know that multiyear budgeting has long been a request of this committee and others to provide certainty for our public bodies, businesses and taxpayers.

Thank you, Ms Forbes.

You mentioned in your opening statement the 10-year economy strategy, which you are working to finalise. You have outlined the challenges for our economy, and we know that Scotland is lagging behind the United Kingdom overall in respect of economic growth. This morning, we have seen increased inflation figures and the pressures that they are putting on the economy. Why has the 10-year strategy been delayed? When can we expect to see it? What are the challenges in responding in quite a fluid situation? I appreciate how challenging it is to set out a long-term plan at this stage, when the ground is constantly shifting.

The way that you phrased that question is particularly helpful. You have instantly grasped some of the challenges that we face. We have worked on a strategy for six months, and I am quite pleased with what it intends to achieve. Its objectives and evidence base are clear, and it has been heavily informed by quite a remarkable council of advisers and extensive consultation.

That said, there are, obviously, acute risks in publishing a strategy at a time when businesses are quite rightly saying that they face challenges now, tomorrow and next week, without the Government investing significant time and attention in looking at what we should be doing in 10 years’ time. That is one of the tensions. We have that tension with some of the other strategies that were due to be published before Christmas, including the retail strategy, because that is all focused on recovery.

There is a particular tension in publishing a strategy that is 10 years long. Obviously, it must take into account not only the immediate impacts of Covid, which we are well versed in, but two other elements: the long-term structural challenges that there were pre-Covid and which there will be after Covid—perhaps in an exacerbated form if we do not grapple with them—and trying to identify where Scotland can grow over the next 10 years. This week alone, we have seen a pretty substantial and significant announcement on ScotWind. There are phenomenal opportunities for our supply chain, but I am of the view that economic success is never inevitable; it comes as a result of clear targets, clear approaches and working collaboratively with business.

I hope to be able to publish the strategy very soon. I certainly hope to publish it as soon as we have emerged from the protections—the First Minister announced the removal of many of those yesterday—and we are all, including the committee and the business community, in a space in which we can continue with that. I see that as happening in a matter of weeks, not months.

Okay. That is helpful. The committee had hoped to see that before Christmas, but I appreciate the reasons for the delay that you have outlined. We hope to see the strategy as soon as possible.

I want to move on to the tourism budget, which comes under the committee’s remit and is within your responsibilities. As you will know, the committee recommended that the Scottish Government should look to meet the ambition that is set out in the Scottish tourism emergency response group proposals for phase 2 of the tourism recovery programme. In the foreword to the tourism recovery programme document, which is entitled “Scottish Tourism: Two-year Recovery Recommendations”, the Minister for Business, Trade, Tourism and Enterprise, Ivan McKee, says:

“The Phase 2 recovery proposals have the potential to deliver greater, greener and fairer prosperity for Scotland”.

There is therefore an endorsement from the Government in that document, but there has been no progress on funding. No additional resource has been put in at all at this stage for the phase 2 delivery of the recovery fund.

You have given an explanation of the consequentials—that is where the £25 million originally came from—and you have recognised the importance of employability and some other areas in which you have put in resource. Why has that area not received any additional funding?

You are right to say that the initial £25 million during this financial year was from Covid consequentials. That goes to the heart of comments that I made in my opening remarks about the difficult choices in the budget. There are some difficult choices on where to prioritise funding, which I am not shying away from. Areas across the board were previously funded by Covid consequentials, and we have had to determine whether they can be absorbed in our budget.

I have engaged with representatives of STERG, and we have not withdrawn our support for the recommendations in the STERG report. We have previously accepted the recommendations. I would very much like us to be able to progress those recommendations, and I am working with VisitScotland and others to see how we might do that. The door is not closed on trying to progress them with financial support, but we have not identified a specific ring-fenced pot of money in the budget to progress them.

I have been in conversation with the tourism industry quite intensively over the past month or so. There is an opportunity, particularly once all the protections are removed and tourism can function fully and trade normally. There is a real appetite to then focus back on recovery. I would like to see whether there is more that we can do on the finances to ensure that we can progress some of the early points.

The tourism industry is citing the real need to invest with confidence. That comes from marketing internationally as well as locally. We have perhaps been holding off on our commitment to invest in a big marketing campaign because of the uncertainties of the time that we are living in, particularly when it comes to international visitors. There is still a commitment to do that when the time is right, and the door is certainly not closed on identifying additional support, but that will probably need to be in-year rather than in the budget.

You mentioned marketing. I see that there has been a real-terms reduction in VisitScotland’s resource budget in the coming year. That is of concern, as it is the main marketing body. I know that a number of members want to come in on that issue.

Good morning, cabinet secretary. I, too, want to focus on tourism. I will begin by following up on what you said about STERG’s recommendations. Have you calculated how much its funding ask comes to?

Bearing in mind that we are talking about the budget for 2022-23, any spend on phase 2 of the tourism recovery plan to attract visitors and build confidence would be for next summer as well as this summer. If there is a clear indication that visitors need to have confidence in the sector, not including that expenditure in the budget will have an impact. How much do you think phase 2 would cost? If you are saying that you are committed to funding it and that, although you cannot put it in the budget at this stage, you want to do so during 2022-23, do you know much that would cost?

It is challenging to put a specific figure on the overall cost of phase 2 now. There is a moveable feast when it comes to what we could do on each recommendation. My officials might be able to flesh that out. One of the recommendations is about investing in a marketing campaign. I would like that to be as impactful as possible, but we do not have a specific figure. Generally, we are talking about £25 million of resource and £24 million of capital—those are the figures that we are using at the moment, but I caveat that by saying that we will identify funding for the recommendations as they require to be implemented in the light of particular pressures.

Another example that I can give relates to the skills agenda, which Fiona Hyslop will know well. There is probably an unlimited requirement for investment in reskilling and upskilling in tourism. Although there will be funding identified for that, it needs to reflect the situation at the time.

09:45  

On the issue of confidence, I take the point that, if funding for a specific requirement does not appear in the budget, that raises questions. That is why it is important that there continues to be engagement with STERG so that it is conscious of our commitment to continue to progress our commitments and knows that we are willing to work with it as and when its recommendations are required as part of the recovery. That process starts right now. In fact, it started over the Christmas period, even though the tourism industry has been focused on the immediate challenges.

There is still financial support available in the budget for tourism more generally. It is not a case of our not investing in tourism. We are talking specifically about the STERG proposals.

I will stop there. I think that there was a second part to your question, which I am afraid I cannot recall.

It is okay, as I would like to move on. If you are thinking about figures of £25 million for resource and £24 million for capital for phase 2, that is almost equivalent to the whole of the tourism budget. It is not an insubstantial amount to be missing from the budget, although I think that people will take comfort from the comments that you made, especially those on the tourism sector.

If we look at the budget before us, we can see that the resource budget for VisitScotland is flatlined. The capital expenditure has reduced, but we know that, by and large, VisitScotland’s refurbishments have been completed. Can you give an assurance that the rural tourism infrastructure fund—in which, as you know, I have a keen interest—will not be reduced as a result of the capital reduction?

That leaves the “Tourism special projects” line as the line in the tourism budget that will experience a major reduction. That relates to recovery, as you have explained. Can you provide reassurance on the capital for impact for communities and reassure us that the rural tourism infrastructure fund will be protected? Can you also comment on the fact that phase 2 of the tourism recovery plan might double the tourism budget as it is currently set out in the budget if and when you can get the resources for it?

The rural tourism infrastructure fund is close to Fiona Hyslop’s heart and it is extremely close to my heart, considering my constituency interests, which have significantly benefited from the fund, which she announced when she was a minister. It was a pioneering fund at the time, and it has unlocked huge amounts of economic potential in some of the more remote and rural areas. It was a very forward-looking initiative, for which I thank her. I am absolutely still committed to RTIF.

On VisitScotland’s overall budget, its core budget has returned to pre-Covid levels. In doing comparisons for all the public bodies, I would encourage the committee to look at the pre-Covid position, where we stripped out Covid consequentials. There was a significant amount of Covid consequentials in the VisitScotland budget. I do not for a minute argue that there is not an on-going Covid impact, but I do not have Covid consequentials in any part of my budget, because there are no Covid consequentials from the UK Government sitting separately. That is the position for VisitScotland. We have done all that we can to protect the budgets of the key enterprise bodies, including VisitScotland’s.

I have one specific question and a couple of slightly more general questions, so I will try to get through them quickly.

As has been mentioned, VisitScotland’s budget has been cut, and the Convention of Scottish Local Authorities has highlighted the pressure on local authority budgets. Given the importance of tourism to the region that I represent and which your constituency is in, what concerns do you have about the impact of those cuts across the Highlands and Islands?

I would argue that they are not cuts. I would argue strongly that we have protected the enterprise agencies in particular. For example, we have protected the budget of Highlands and Islands Enterprise. Its spending power has been maintained. I know that there was dispute in the press about HIE’s budget falling, but that relates to its non-cash allocation. That is about budgetary cover for a depreciation of assets and accounting standards, so it is not about spending power. That was based on what HIE identified that it needed to cover the non-cash basis.

HIE’s budget has been protected. I have already talked about VisitScotland’s budget being protected. You also mentioned local authorities. There is a debate taking place this afternoon that will allow us all to air the issues in that regard, but we have protected the local government budget.

However, I concede the point that protecting spending in flat cash terms does not take into account the significant challenges around inflation. This morning, we had the announcement that, last month, the consumer prices index rose to 5.4 per cent. That is significant and substantial. I cannot inflation proof any part of the budget, because my budget is not inflation proof and these are challenging times.

I will not go into details now but, on top of that, I could cite the city growth deals for Moray, Inverness, the Highlands and the islands, all of which are contributing to economic development in one of the best bits of Scotland.

I certainly agree with you on that, although I might dispute some of your other comments. Convener, do you want to me continue?

Yes, please, if you want to. Your connection is a bit poor, but I think we can hear you well enough.

I have another couple of questions, convener. I do not know whether you want me to keep them until the end or to ask them now.

That is fine—go ahead. Keep it brief, but go ahead.

I will do—thank you.

I seek clarification from the cabinet secretary on a couple of points. On “Representing Border”, you suggested that you had allocated every penny of the budget and that, because it was a fixed budget, you could not create more money overnight, but then around £100 million-worth of funding for business support was found from what you called “existing budgets”. Which budget lines did that £100 million come out of?

I remind members—Jamie Halcro Johnston will know this—that that question relates to this year’s budget rather than next year’s budget, which is what the committee is taking evidence on now.

I think that the First Minister has been quite open about the fact that that budget was largely identified from an overall figure of £375 million. The Scottish Government identified £200 million that could be taken largely from health consequentials, understanding that there is a health implication of us keeping Covid transmission low and that, to do that, we need to compensate businesses for being closed. There is a health element to that.

In our management of budgets, particularly in the run-up to year end, we try to ensure that every part of the Scottish Government’s budget comes in on balance—on budget—so an intensive piece of work is being done right now to manage every budget line. Within that, we have identified funding across the board—I cannot go through a list with you at the moment, beyond citing the health consequentials—that we are using to manage that £100 million impact. It will not impact specific lines that I can reference now beyond health, because that is just the nature of our budget management.

So it should not impact on next year’s budget. I understand that I have been put on audio only, which is probably a blessed relief to the public and everybody present.

The Barnett consequentials funding that has come in to help to allay national insurance costs has not been passed on to local authorities, as it has been south of the border. Can you confirm that that is the case? What are the reasons behind that?

It is really important to understand that, within the budget that we receive, we do not get, for example, a ring-fenced fund for national insurance contributions from the UK Government. We get our overall budget, which has been well scrutinised. The Scottish Fiscal Commission has talked about it being 5.2 per cent down, in real terms, on this year’s budget. We get an overall pot and we allocate the funding within that pot. We have done that—we have identified funding for local authorities and for other parts of the public sector. There has not been specific ring-fenced funding for any part of the public sector.

People cite to me that the national health service is getting additional money for national insurance contributions in Scotland, but that is not true. I provide the health budget. When it comes to responsibility for how that funding is divvied up, it is entirely up to the relevant cabinet secretary, the chief executive and so on to identify how they do that. They have identified funding within that overall pot for national insurance contributions. Any other part of the public sector could do that. Some of the public bodies that we have discussed, such as HIE and VisitScotland, face the same challenge. They, too, will need to manage national insurance contributions, which is essentially an inflationary impact.

To clarify, you are suggesting that the funding for that has been passed on, but it has been passed on in general budget terms rather than through specific ring-fenced funding.

I am suggesting that I cannot tell you how much money has or has not been given for national insurance contributions within the overall budget that we receive from the UK Government, as that does not have a specific line that identifies national insurance contributions. I can only tell you what the overall pot is. I cannot tell you where there has been movement. This is a technical tangent, but that is because this is a spending review year. In normal years, we would get all the identified lines showing where there were rises and falls in budgets. This year, because it is a spending review budget, we just get the overall pot; things are not divvied up.

As part of that, I have sought to protect the local government budget in cash terms—the core budget. Obviously, that is significantly supplemented by funding for social care and education, to name just two areas of pressure that local government has cited.

Good morning, cabinet secretary. I return to the issue of support for enterprise agencies. You said that you are protecting funding for the enterprise agencies, but real-terms cuts are not really protecting. The revenue budget for Scottish Enterprise is pretty much flatlining in real terms compared to last year and, as you admit, as inflation rises that becomes a cut. The Highlands and Islands Enterprise overall budget is being reduced in real terms, and that includes day-to-day revenue spending, not just capital spending. The budget for Skills Development Scotland has been cut by £5 million in real terms alone, and we do not see any stimulus for our struggling high streets.

Given the scale of the economic challenges that we face, surely this would have been a year not just to tread water when it comes to economic support but to boost the budgets for our enterprise agencies and SDS.

It sounds as if Colin Smyth and I are on the same page. It is entirely because of the huge economic challenges that we face that the total allocation across the three enterprise agencies—Scottish Enterprise, Highlands and Islands Enterprise and South of Scotland Enterprise—is the highest that it has been since 2010. In the overall budget this year, we have not just protected the enterprise agencies’ budgets, but ensured that there is funding to help them to respond to the economic challenges that we face.

I have discussed the budget allocation with each agency’s chair and chief executive, and they are planning their business activity right now. We are also fully funding the financial transactions requirements for the Scottish National Investment Bank. You cannot get away from the fact that not only have the enterprise agencies been protected, but there is funding in place to help them respond.

You talked about cuts to HIE and South of Scotland Enterprise. There are two changes to their budgets. One is removing the ring-fenced Covid funding, which I have explained already, and the second is the non-cash element that seems to be dominating discussions. Non-cash funding is not spending power. It is just to cover depreciation and accounting standards, and it is determined by what the enterprise agencies tell me they need. That is where there is fluctuation, particularly for HIE and South of Scotland Enterprise. Incidentally, Scottish Enterprise’s non-cash allocation has gone up significantly, because of the need to cover some of those issues. It is not about spending power.

I am unclear how in effect freezing the revenue budget when inflation is over 5 per cent is somehow protecting the budgets of the enterprise agencies. The Scottish Fiscal Commission recently warned that the Scottish economy is lagging behind that of the rest of the UK. Compared to pre-pandemic levels, gross domestic product and employment earnings are all recovering more slowly than in the rest of the UK. The Confederation of British Industry Scotland has said that Scotland is lagging behind other parts of the UK on nine of the 13 productivity indicators. Surely we should not have a real-terms revenue reduction now for the enterprise agencies. Why are we not increasing the budget in real terms in the year ahead? Does the budget not impact at all on the fact that the Scottish economy is lagging behind the rest of the UK on the key indicators, as your Fiscal Commission highlights?

10:00  

I will give the figures again. The investment of £370.5 million for next year is an increase of almost 7 per cent for the enterprise agencies from this year. What I find startling about this conversation is that, in a budget with lots of difficult choices, the enterprise agencies have been protected. I understand the focused scrutiny on the enterprise agencies, but we have already talked about some of the difficult choices that we have had to make. Those difficult choices are largely as a result of where I have prioritised funding. I have prioritised funding for the enterprise agencies and for the Scottish National Investment Bank to deal with and tackle some of the economic challenges. I understand the scrutiny, but the enterprise agencies have received what they need.

My bottom line is that, if the member thinks that the enterprise agencies should receive more than has been allocated, he should tell me where in the portfolio to take it from. There are other areas that are probably facing greater challenges than the enterprise agencies’ budgets are.

Why is Scotland’s economy, on all the key indicators that the Fiscal Commission has flagged up, lagging behind the rest of the UK, if it is not to do with funding for the enterprise agencies?

I can go into that in great detail, but anybody who suggests that the structural challenges in the Scottish economy are entirely the result of budget decisions on the enterprise agencies is missing the point in the SFC’s evidence and the evidence from many other commentators.

There are a number of challenges. Productivity is an obvious example. Although productivity has increased in Scotland over the past decade and a bit, it still lags behind. We need more significant investment in businesses from the private and public sectors. We need to tackle the skills challenges and try to reduce economic inactivity. There is a whole host of issues on productivity and growth. There is also our dependency on particular sectors in the economy. When those take a hit, as happened with the oil and gas sector in the Covid period, there is a disproportionate impact on the Scottish economy compared with the impact in other parts of the UK.

We could probably spend an entire evidence session on the structural challenges and also the opportunities, but suggesting that the entirety of the structural challenges is purely linked with enterprise agencies’ budgets is probably short-sighted.

I will continue the conversation on enterprise agencies. You have said that their budget is the highest in recent years and that it has increased by 7 per cent. What other revenue streams, such as investment income, are available to the enterprise agencies? How is the £370 million that is the baseline investment in the enterprise agencies being used to support our economic recovery, especially as we come out of the pandemic?

That is a good point. Gordon MacDonald will know that the enterprise agencies have their own revenue streams, although that is perhaps less the case with South of Scotland Enterprise, as it is fairly new. The agencies have portfolios that they manage and that supplement their budget positions. We are discussing what is allocated by the Scottish Government. The agencies are constantly on a journey of trying to improve the way in which they operate, support businesses, create greater business and community resilience, protect and create jobs and deliver a fair and green economy.

When the economic strategy is published—it will be soon—I want it to galvanise the enterprise agencies and provide clarity on what they should be doing. I am of the view that we cannot do everything as an economy. We need to identify our strengths, back those strengths and ensure that we have competitive international advantages rather than try to do everything moderately well.

You will have seen that the enterprise agencies have developed their own performance management frameworks. They are working together to make sure that they are better aligned. In their annual business plans, which are approved by Scottish Government ministers, set out their commitments to meeting agreed targets and milestones. Every penny that is spent on enterprise agencies has to deliver benefit to the Scottish economy. I want the enterprise agencies to perform as well as possible and to be clear in their ambitions and approach.

I do not know whether the member would like me to bring in Richard Rollison to speak about some of the other things that the agencies are doing, but otherwise I have probably covered it.

It would be helpful if he would expand on the economic recovery from the pandemic.

As Ms Forbes said, we could spend a whole committee meeting discussing that. I will pick up on Ms Forbes’s point on the revenue generation of Scottish Enterprise and to an extent the other enterprise agencies. As the committee will know, Scottish Enterprise has an investment portfolio that over the years delivers returns that are then invested back into the economy, economic growth, business support, meeting the net zero targets and all those things. All the enterprise agencies have a little bit of a property portfolio that delivers some revenue. The income adds to the grant funding that the Government provides to help them to support the economy. The detail of the income each year is set out in their annual accounts.

I believe that it was in the region of £56 million last year. Is that correct?

I am not sure of the precise figure, but it was pretty significant from some historical investments. We can come back to you on that.

Thank you.

Cabinet secretary, how do we measure the impact of the enterprise agencies’ activities, in particular in the national performance framework?

That is a hugely important question. There are two parts to that question of measurement: what the agencies do now and what I would like them to do. What they do now is develop performance management frameworks, which are published with the annual business plans and approved by ministers. We monitor the delivery through the agencies’ boards and through regular discussions with me and Ivan McKee. The agencies formally report on progress in the annual report and accounts. That is the sum of their internal and external reporting on performance.

After the economic strategy is published, I would like us to be crystal clear. I will not pre-announce the national strategy, but there are five aims and objectives in it, all of which relate to areas where the Scottish economy has big opportunities or needs to deal with some of the structural challenges. I have already referenced productivity. There is also a big opportunity in some of the new markets—there are new growth and economic opportunities, particularly in energy transition. There are also areas where we have skills challenges, and we need to ensure that we have a skilled population for the jobs that are available. We also have to deal with some of the structural inequalities.

That is a quick overview. The enterprise agencies and other public bodies that have an interest in Scottish economic growth should all be held responsible, as I will be held responsible, for delivering against those objectives. The national strategy will also include a real hard look at the delivery mechanisms. Basically, there will be a ruthless focus on delivering a step change against those five objectives. I have told you how the agencies publish and monitor progress at present.

Ultimately, to go back to what Colin Smyth said—I agree with him in part—the enterprise agencies need to deliver, as I need to deliver and as other public bodies need to deliver when it comes to economic activity and economic prosperity. That is where the accountability should be.

Thank you for joining us, cabinet secretary. There are only a couple of areas that I want to explore. I will try to be quick so that all committee members can get in.

The first area is women in business, which the committee has discussed a number of times. It first came up when I put what I thought was a simple question to one of the business development agencies about the extent to which it routinely disaggregated its data for all business services by gender. After some humming and hawing, the answer came back that it did not really do that.

In your response to the committee, you say that

“preparatory work is being undertaken now to establish the actions needed to overcome, and ultimately remove barriers to participation”

for women in business. Will you give me a bit more flavour of that? What consideration is being given to putting conditionality in grant funding at some point in the future? How might data collection and perhaps conditionality work in public procurement? I appreciate that it is early days for the work that you are doing, so I am just looking for a flavour of that.

There is a lot in those questions. I noted the committee’s recommendation that covered some of the points that the member has raised.

The Scottish Government absolutely wants more disaggregated data to be published. We cannot deliver change unless we understand what the problems are, and the problems can be understood only if we have the data. We absolutely need to understand the data.

Some good work has been done. The Scottish Government has paid for or invested in studies and the provision of information on gender disaggregation, but we need to do more. We are planning for how we can capture and publish more information, particularly on gender, for future published analysis of businesses and their employees. I would like to come back to the committee and perhaps take your views on how we can do that as effectively as possible.

We are also working on how we can capture data on women-owned businesses and their participation in public procurement. That is an example of a specific issue.

I note that there is also a role for the private sector. We need to consider getting it to change its behaviour, given that only 1 per cent of private equity funding goes to female-led businesses while 99 per cent goes to male-led businesses.

Moving on quickly, I have some questions about the Scottish National Investment Bank, which I am very interested in. Some people are not clear about the fact that the Scottish Government has no control over most regulations on property and labour markets, the international migration regime or overall macro monetary policy. However, one of the key ways in which the Scottish Government can really make a difference—I am glad to see this happening—is by protecting the funding for SNIB after the withdrawal of FTs.

Despite that, the chair said in November that the bank would still like to be able to raise third-party funds. Have you considered that? The consumer prices index, which is reported today to have reached 5.4 per cent and is probably only going to get higher, will have an impact on the difference that the bank can make. Have you given any further thought to whether SNIB can raise money from private sources? Are you constrained in any way in allowing that?

10:15  

No. That absolutely needs to happen. I would like to see it happen, and I would like to work with the Scottish National Investment Bank to enable it to raise third-party funds. You will know that it is undergoing a process as part of the bank becoming Financial Conduct Authority regulated, which is a key stepping stone on the road to it being able to raise and manage third-party funds. The bank is on that journey.

The chair said a few months ago, although I think that the comment was taken somewhat out of context, that the £2 billion overall capitalisation was never enough to meet the huge opportunities. I agree, and it was never intended that the bank would manage only £2 billion. The point was that it would be able to leverage and crowd in additional funding, and that is where we need to end up.

Thank you for that clarification.

Thank you for what you have said so far and the information that you have provided, cabinet secretary. I have some questions about employability and skills. Will you give us an update on how the youth guarantee is going? How successful has it has been, particularly in reaching young people who have been dramatically impacted by the pandemic? How can we ensure that we continue to support young people, not only through the pandemic, but beyond it?

I will focus on the young persons guarantee, and Helena Gray, who is attending the meeting, will probably be able to provide a bit more information.

We have allocated funding to the young persons guarantee and I think that it is progressing very well. We are working well with partners and with private and public sector employers to ensure that there are opportunities for young people. In the early parts of the pandemic, we were concerned that there would be a significant impact on young people’s employability. Substantial funding has been made available and the ambitions have not changed. I will not overspeak on that, because I think that Helena Gray can flesh that out.

I am delighted to do that. We are developing a measurement and evaluation framework to support our understanding of the young persons guarantee. With our partners, we have developed a three-year evaluation plan that covers the three key themes of employability support services, employer engagement and education initiatives.

The annual participation statistics that were published at the end of August highlighted that the proportion of 16 to 19-year-olds in education, training or employment in 2021 was 92.2 per cent, which is a slight increase. We continue to develop our evaluation plans and to monitor the area really closely, but that is a headline statistic.

That is helpful. I will move on to a linked issue. Cabinet secretary, you mentioned the clear context of the budget—the pandemic and the other issues that we are dealing with—and you have spoken about the support that is needed for businesses and the need to have excellence in what we do and not mediocrity across the board. You talked about the importance of making sure that people in our communities are ready for the labour market, but the labour market is not an end in itself; it is there to tackle some of the challenges and the structural inequalities that you mentioned will be included in the economic strategy.

Will you give us a little more information on how we can deliver the pace of change that we need around fair work and conditionality, not only in relation to fair work, but in relation to wellbeing as well? It could be argued that, if the economy does not create happy and healthy communities, it is failing on one measure. My question is about fair work, conditionality and the pace of change. Are we getting the balance right?

We could always move faster, particularly on fair work. I am very conscious of not just the moral imperatives, but the economic imperatives. To have a healthy, thriving economy with an ample supply of skills requires fair work to be embedded in everything that we do. If somebody who is in work is still in poverty, we have a problem, because we are therefore not tackling child poverty, or meeting our objectives on it, and skills interventions are not quite meeting the mark. We could always move faster.

On the fair work side, we are making significant progress on conditionality and ensuring that it is embedded in everything that we do. Public sector grants are an example, with the requirement to pay at least the real living wage. As you will know, we have real limits when it comes to employability law, so we are using things such as conditionality instead.

However, there is another side to this. You said that it is not enough for people to just get into the labour market. The other side is how we help people to get into the labour market, and there is a particular budget point here. I need to say this carefully, but it is very budget intensive to help to prepare people for the labour market who have not participated in it for years, or in some cases decades. As you will know, there is significant investment in our no one left behind scheme for the long-term unemployed, but £20 million probably helps with 2,000 fair work opportunities, and there are more than 2,000 people who need those opportunities. That scheme is financially intensive, for good reasons.

There is a question for all of us about how we prioritise substantial sums of money to try to tackle economic inactivity while recognising that we cannot just leave people once they have participated in a scheme for a year.

That is helpful.

I have a supplementary question. The committee’s recommendations to the Government mentioned the need to encourage employers to invest in employees in order to develop the skills base. You have talked about employability programmes, but the committee has evidence that, while businesses are experiencing labour shortages, the skills gap has produced an issue. Who has responsibility for that? Is there a budget line to address the skills gap, which would help with our productivity levels and our sluggish economic growth?

The overall responsibility falls within my budget, but the primary ministers who are responsible are Jamie Hepburn, who is responsible for skills, and Richard Lochhead, who is looking at fair work elements. They work together quite closely.

On budget lines, that is a really good point. I could go through the list, mentioning the national transition training fund, the no one left behind scheme and so on, and tell you about all the different things that the public sector is doing and where I am spending money, but you are asking where employers are spending money—

Yes, or what the Government could do to incentivise employers to make that investment. Sorry to interrupt.

One way of doing that is to apply fair work conditionality. For example, if a company cannot access a grant or get a public contract unless it is investing in its employees, there is an incentive for it to invest in its employees. The primary way of creating incentives is through conditionality. We are trying to embed conditionality in all forms of business support.

As the cabinet secretary probably knows, I am a substitute member, so I am not quite so familiar with all the work that the committee has been doing.

I will follow on about conditionality. I presume that that is a lot to do with who Scottish Enterprise, HIE and South of Scotland Enterprise invest in. Maggie Chapman talked about wellbeing and fair work, but is conditionality on grants also linked to recipient businesses being committed to net zero?

At the moment, the straightforward answer is that we are embedding the programme for government commitment, which is that by the summer of 2022 we will have introduced, for public sector grants, a requirement that companies pay at least the real living wage. The focus right now is very much on fair work.

I am sure that many people would like to see us expand conditionality, but there is a tension, in that having too many requirements and conditions attached would mean quite a lot of hoops for businesses to jump through at a time when we want them to access support to grow and develop.

The situation is less clear cut in relation to net zero—which is not in any way to underplay it. We have had discussions about that with businesses that need support, but at the moment the requirement is about the real living wage.

I take the point that we do not want there to be too many hoops to jump through. I was on the previous session’s Economy, Energy and Fair Work Committee, which felt that Scottish Enterprise and HIE—there were just those two enterprise companies, then—were focused solely on the number of jobs that they could attract, and that things that Michelle Thomson mentioned, such as attracting women, were almost not on their radar. Has there been an attitude change? Do Scottish Enterprise and HIE kind of get it now?

I think that they get it, increasingly. My sincere hope is that they take the approach that once a strategy is published it will become a defining mission. There is a lot to be considered about dealing with structural inequalities in participation and about the benefits of a thriving economy. I think that the enterprise agencies are getting there. A more nuanced approach is being taken. Clearly, enterprise agencies are—to go back to the previous question—leading the charge on net zero, for example. They have expanded their approach.

Thank you very much.

The third and final matter that I want to raise is ownership—co-operatives and so on—that I saw in the committee’s letter, and in the Government’s response. The committee feels—I agree—that the co-operative model can be very good. It keeps decision-making in communities, and such companies are less likely to be taken over and all that kind of thing. Is the Government investing in co-operatives? How does it see the mixed model of ownership?

Yes, we are absolutely doing that. The primary way that we do it is through working with Co-operative Development Scotland and the enterprise agencies to support the growth of co-operatives and other alternative business models. The matter is very much on our radar and we have mechanisms to work with and invest in alternative business models.

We do not seem to have quite as many co-operatives and so on as some other countries. We can look at the Nordic countries, Denmark and so on. Can we make progress?

I think that we can make progress. That goes hand in hand with other work that we are doing on community wealth building, for example. On the economic opportunities that sit outside the traditional model of the past few years—the Companies House registered business—there are alternatives. We want to continue working with Co-operative Development Scotland and the enterprise agencies to support such opportunities.

I have a supplementary question on that. I think that the target is that there will be 300 employee-owned businesses by 2030. We are making slow progress towards that. Are there interim targets to drive that change? Has the work of Co-operative Development Scotland, which is delivered by Scottish Enterprise, been mainstreamed across Scottish Enterprise? Is the option to change to employee ownership or a co-operative model always considered when SE is looking to support a business?

I am not conscious of an interim target. I can pause to see whether officials want to correct me. We can get back to you on that.

On mainstreaming, I might have responded to the committee’s recommendation, so forgive me if I repeat myself. We promote use of the co-operative model; it is not just about supporting those who proactively seek support. How do we promote the model, provide advice and information to those who are considering it and provide training in co-operative business skills? If the committee has ideas about alternative models for mainstreaming the activity further, I am open to that. There is probably more that we can do to ensure that we meet the target.

10:30  

That was helpful, thank you.

Good morning, cabinet secretary. I have a question on broadband. A number of constituents and private installers have contacted me about the voucher scheme and have said that it is not working properly and they are not getting any indication of when that will be resolved. It is also clear that the value of the vouchers will not cover installation costs, particularly in rural areas. I know that your constituency falls into that category. I would be grateful if you could comment on those points and provide an update on the timeline for completion of the reaching 100 per cent broadband programme.

We have extended the deadline for the voucher scheme because we understand some of the challenges for businesses. The overall value of a voucher is determined by whether a household or business property is likely to get access to commercial build or R100 build. The voucher is worth less for those that are in the scheme’s scope. That might have come into it, but the deadline has been met. In terms of overall contract delivery date, you are probably more interested in the R100 north lot contract, which is expected to be let by 2026-27. The delivery years for the central lot and the south lot are earlier because the more remote and rural areas will require more investment and will take longer.

Thank you. Will you review the value of the vouchers?

To be honest, we will probably not do that—unless the member or others can provide me with substantial evidence of a disconnect between the overall cost and the voucher scheme. The voucher scheme is supplemented by UK Government vouchers, which increases the overall pot that is available. The value of the voucher is determined by whether a business is in scope for R100 or not. If you are referring to those that are in scope, I point out that it is much harder to justify an increase because they will ultimately get broadband. However, I appreciate that they want it earlier; that is absolutely understandable. I have bigger concerns about businesses that are not in scope and are not having the overall costs covered.

Thank you. I will forward examples of the disconnect between the scheme and the cost of installation.

I have a second totally different question on Registers of Scotland. Its budget for 2021-22 is down 25 per cent. Could you give us the reasoning behind that? It appears that registration is behind schedule, particularly for local authorities, which have not really started the process. I declare my registration of interests in property.

I have two points to make about that. The first is that Registers of Scotland received significant Covid consequential funding this year. As part of the more than £639 million of Covid consequential funding, Registers of Scotland got—if I remember correctly—£14 million. If I am incorrect about that, I will get back to you.

Secondly, Registers of Scotland got substantial financial support because, of course, it raises income. I have been assured that it can still deliver its services within the budget that has been allocated.

I have a final question for clarification. Does the cabinet secretary expect the medium-term financial strategy to revert to its normal publication date of May 2022?

On timetables, my intention is to publish that strategy following the UK spring statement, at least four weeks prior to the summer recess. If we are unable to meet that deadline for reasons that are outwith my control, the normal process is to consult the Finance and Public Administration Committee. We will make sure that the committee is sighted on that. That is my intended timetable for May.

That is helpful. Thank you. That brings us to the end of the evidence session. I thank the cabinet secretary and her officials for joining us today. We will move on to our next item of business. I suspend the meeting briefly to allow the changeover of witnesses.

10:34 Meeting suspended.  

10:39 On resuming—