Meeting date: Thursday, September 26, 2019
Meeting of the Parliament 26 September 2019
Agenda: General Question Time, First Minister’s Question Time, Motor Neurone Disease (Blue Badge Scheme), Portfolio Question Time, Scottish National Investment Bank Bill: Stage 1, Scottish National Investment Bank Bill: Financial Resolution, Decision Time
- General Question Time
- First Minister’s Question Time
- Motor Neurone Disease (Blue Badge Scheme)
- Portfolio Question Time
- Scottish National Investment Bank Bill: Stage 1
- Scottish National Investment Bank Bill: Financial Resolution
- Decision Time
Scottish National Investment Bank Bill: Stage 1
The next item of business is a debate on motion S5M-19061, in the name of Derek Mackay, on the Scottish National Investment Bank Bill.14:53
It is with great pleasure that I open this stage 1 debate on the Scottish National Investment Bank Bill.
The bill being considered today lays the foundation for an institution that will be a cornerstone of Scotland’s economic architecture—one with the capability and commitment to reshape our economy, making it more inclusive, innovative and internationally competitive.
As a mission-oriented lender, the bank will contribute to the major societal challenges that are facing us all today. In particular, as the First Minister has set out, the bank will make a significant contribution to our work on tackling the climate emergency. I will come on to that in more detail later.
We want this bank to be a valuable asset to the Scottish economy for generations to come. For that to be the case, the bank will have to protect and grow its portfolio of investments, recycling one decade of success into the next. The bank will therefore make investments that support sustainable and inclusive growth across Scotland and it will be held to account for its delivery against the missions that are set for it. It will also seek to make a sufficient return on its investments to enable it to cover its operating costs and not be reliant in the long term on the Scottish Government and therefore the Scottish taxpayer.
In 2017, the First Minister asked Benny Higgins to provide a blueprint for the Government on how to establish an institution capable of transforming Scotland’s economy. The implementation plan that he produced articulates a clear, ambitious vision for the bank and provides a detailed road map for creating an institution that can deliver against that vision. I personally thank Benny and his team for their ambition and rigour in producing the implementation plan.
Our proposals for the bank have been strengthened through extensive stakeholder and public engagement. We have run two public consultations over the past few years, and more than 300 people attended a series of eight stakeholder events held across Scotland over the summer. Throughout that engagement I have been struck by the level of excitement about our vision for the bank and its potential to transform Scotland’s economy. I thank those who engaged with us in creating the bill, thereby helping to lay the foundation for a bank that will deliver for businesses and communities across Scotland. We will continue to engage widely as work to establish the bank progresses.
I thank the Economy, Energy and Fair Work Committee for its thoughtful and constructive scrutiny of the bill. The committee recommended that the Parliament agrees to the general principles of the bill—which is a relief—and it made a number of very helpful suggestions. In recognising that the bank must be
“independent but accountable and permanent but adaptable”,
the committee demonstrated a clear appreciation for the type of institution that we collectively wish to create. The Scottish economy enjoys significant strengths in employment, in our proportion of employees in the United Kingdom who are paid the living wage, and in the growing demand for our exports, which all demonstrate our economic resilience.
However, it is important to acknowledge that there remains significant work to do to release the untapped potential in Scotland’s economy. The 2019-20 programme for government sets out ambitious and progressive sets of proposals. The measures include increased investment in skills and in physical and digital infrastructure. Those measures can improve productivity, boost exports and help to make Scotland a globally competitive place to do business.
Business investment levels are low, and their potential for growth has been curbed. Scotland’s business expenditure on research and development and innovation performance is behind that of other European nations. Our productivity growth in key sectors, although outperforming that of the UK, remains modest. Those factors point to the need for a new investor in the Scottish economy—one with patience and the strategic oversight to reinforce and enhance Scotland’s position as a dynamic and innovative economy.
The case for establishing the bank is even stronger today than it was when it was first announced in our 2017 programme for government. Patient and strategic investment will be vital if we are to mitigate some of the damaging impacts that are forecast as a result of the UK exiting the European Union.
Earlier this year, the First Minister acknowledged that Scotland, like the rest of the world, faces a climate emergency. This year’s programme for government set out our response and lays the foundations for a new Scottish green deal. The Scottish national investment bank will also have a role to play, and the First Minister has confirmed that the bank’s primary mission will be securing the transition to a net zero economy.
It is vital that the bank is an institution that complements the existing investment landscape in Scotland—one that crowds in, rather than crowds out, private sector investors. We believe that capitalising the bank to the tune of £2 billion represents an ambitious yet achievable level of funding. It enables the bank to have a transformative impact on the Scottish economy while ensuring that it does not displace the activity of existing private sector lenders.
Can the cabinet secretary confirm what percentage of the bank’s initial capitalisation will be in the form of financial transactions money from the UK Treasury?
It is well understood that a substantial amount of that will be financial transactions in the early years. We will look at expanding the products. I would object to the language of that being the Treasury’s money; I would argue that it is Scotland’s money—and we will of course be reinvesting it in Scotland. It is true to say that the bank will be largely financed through those financial transactions, which are available to be spent in the private sector, particularly on investments such as those that we have been talking about.
As highlighted by the implementation plan, the £2 billion that is being committed to the bank over the next 10 years equates to 1.3 per cent of Scotland’s gross domestic product and is therefore in line with the level of capitalisation that is committed to comparative institutions across the world. Indeed, in its stage 1 report, the committee has acknowledged that our commitment to capitalise the bank with £2 billion over 10 years represents “a good starting point”.
The bill is an enabling piece of legislation. It places a duty on Scottish ministers to establish the bank as a public limited company, and gives ministers the necessary powers to capitalise the bank. The bill also enshrines a role for Parliament by ensuring that parliamentary approval is needed before making any changes to the provisions of the bank’s articles of association. I am pleased that the committee has been supportive of the general approach that we have taken.
The recommendations set out in the committee’s stage 1 report are welcome and constructive. I have provided a written response to the committee, accepting many of the recommendations. For the benefit of the members who are present, I will briefly set out some key parts of that response.
The Government has accepted the committee’s recommendations that the bank’s role in achieving social and environmental value alongside financial returns be clarified. Consequently, we are considering potential amendments to the ancillary objects that would give effect to the recommendation, and I want to engage with members on that.
We are also considering the committee’s recommendation that the bank not be given a target rate of return for its first years of operation. Although we recognise that the principle behind that recommendation is constructive, its implications need to be fully considered. I have already mentioned the need for the bank to become financially self-sustaining. A commitment to a rate of return may also be necessary to meet the state aid requirements that apply to the bank. However, we will give the matter further consideration.
When giving evidence to the committee on the bill, I committed to engage with the Parliament in the development of the bank’s missions and I am pleased that that proposal has been welcomed. I will engage and work collaboratively with members across the chamber in looking at the missions. I engaged on a similar cross-party basis on the national performance framework, which I know was welcomed by members across the chamber.
We have also accepted the committee’s recommendation to consider potential stage 2 amendments to provide for a process by which Parliament can be formally consulted on future missions.
The committee made recommendations regarding the role and membership of the advisory group. The Government has accepted the recommendation that the chair of the advisory group should not be a member of the bank’s board. I also clarify that the role of the group will be to advise ministers, not the bank itself.
We have, however, concerns about providing for the advisory group in the bill, as doing so may prove overly prescriptive as to the mechanisms by which Scottish ministers seek advice. I am, however, keen to hear members’ views on the matter in the light of the proposals for the advisory group that we have now published.
The establishment of the Scottish national investment bank will be a substantial good for the economy and, therefore, the people of Scotland. Today’s debate is a key staging post along the way to creating a long-standing institution in the Scottish economy, which is capable of driving the positive changes that we all want to see.
I look forward to the debate.
That the Parliament agrees to the general principles of the Scottish National Investment Bank Bill.15:04
What’s in a name? The Scottish national investment bank certainly has “Scottish” in it, and the intention is that its reach will be national and its purpose will be investment. However, it is not a bank; at least, not a retail bank.
As one witness told us:
“Essentially, SNIB is an example of that great Scottish invention, the investment trust—it is not really a bank.”—[Official Report, Economy, Energy and Fair Work Committee, 28 May 2019; c 11.]
The bill to enable the bank that is not really a bank is not quite the whole story either. As the cabinet secretary indicated, much of the detail is to be found elsewhere, in the articles of association and various other supporting materials, strategies, plans, frameworks and charts, and some of those documents are still in draft form or will be left for the bank to devise. I shall not try to cover everything that the committee had to say about the bill and those other component parts; instead, I shall focus on some aspects: patience and purpose, inclusive growth, and missions.
What is it that the bill imposes a duty on the Scottish Government to establish? It is both a public limited company and a non-departmental public body. The bank will be an unusual body, expected to act commercially while at the same time seeking economic, societal and environmental returns. Like the British Business Bank, the plan is for it to become a funder of funders and to crowd-in other investment. The emphasis will be on long-term, or what is called “patient”, capital, informed by a mission-led approach.
Hopes for what the bank can achieve are vertiginously high, but we must look beyond short termism and the limited perspective of the electoral cycle. As one witness put it,
“We are constantly faced with people trying to rewire the building with the power still switched on.”—[Official Report, Economy, Energy and Fair Work Committee, 21 May 2019; c 15.]
That might also be applied to Westminster at the minute.
Another witness cautioned against criticism in the first few years, advising that
“Most of the bad news comes early … The lemons ripen before the plums.”—[Official Report, Economy, Energy and Fair Work Committee, 28 May 2019; c 13.]
If I may add another metaphor to the mix, we were also told that
“There will be red ink spilled in its annual reports and accounts every year until 2023 … if you want long-term patient capital, you have to have long-term patient investors.”—[Official Report, Economy, Energy and Fair Work Committee, 7 May 2019; c 25.]
The economist Mariana Mazzucato underlined the importance of finding the right partners—those who are able to subscribe to the mission-orientated ethos. Rather than “just handout machines”, she favoured public banks that pick
“the ‘willing’, not ... the ‘winners’”,
and she told us that
“The Bank is a wonderful experiment in Scotland to see precisely what it would be like to transform our imagination of what the public sector is for.”—[Official Report, Economy, Energy and Fair Work Committee, 14 May 2019; c 3,13.]
The committee was not convinced the language of the bill matches that aim for the bank to be transformative. We asked the Scottish Government to reflect on the wording of the objects that are set out in section 2—the cabinet secretary has already referred to that. We also invited consideration of how non-financial returns can be anchored in the bill.
How do we measure success? The use of a balanced scorecard was mentioned in an earlier document—the implementation plan—but it does not feature in the bill or anywhere else. The Scottish Government has said that it will lodge amendments at stage 2 to address those points, and the committee welcomes that undertaking.
The bill’s equality impact assessment should also be mentioned, because it was not so well received by some. The Scottish Government has now issued a fully revised assessment—the full detail in the revised assessment can, of course, be read elsewhere.
That brings us to the theme of inclusive growth—a term that is frequently used in policyspeak but is subject to considerable interpretation; the committee has highlighted as much in numerous pieces of work this session.
Research published in June by IPPR Scotland on behalf of the Poverty and Inequality Commission stated:
“The Scottish Government and its agencies could be clearer and more consistent in their definition of inclusive growth and demonstrate how this applied definition translates into practice.”
The Poverty and Inequality Commission concluded that
“inclusive growth appears to be more of a concept than something which results in a tangible outcome.”
It found it “heartening” that inclusive growth was to be built into the bank from the start, but it wanted to ensure that the agenda
“penetrates into the heart of economic policy making”.
The committee recommended that the Scottish Government give careful consideration to those research findings, and, in particular, how it can translate the theory into a clearer vision with tangible delivery. Our concern is that, without clarity, the bank could focus only on financial returns. Therefore, we welcome the positive response in the form of the fairer Scotland duty assessment—yet another document in a crowded field—which recommends that
“the Scottish Government review the ancillary objects contained within the Bill ... utilising its position as a ‘cornerstone in Scotland’s economic architecture’ to shape an economy that is diverse, democratic and which enhances societal wellbeing.”
That is perhaps a slightly long-winded quote, but it is one that is worth sticking with. If one reads the quote carefully, one sees that, in its own circuitous way, the Scottish Government is telling itself that it should listen to the committee—of course, the committee can only heartily agree.
The final issue that I wish to touch on concerns the bank’s vision and the setting of its missions. There will be missions to meet major societal challenges such as carbon reduction and the provision of social care. Such missions will call for multiple solutions from multiple sectors by multiple players. Professor Mazzucato said:
“I encourage the committee to keep provoking on that point.”—[Official Report, Economy, Energy and Fair Work Committee, 14 May 2019; c 4.]
Indeed we shall. We called for the Parliament to have an input to the formulation of the missions. There should be not just a round-table approach—useful as that can be—but a formal consultation process that is akin to the mechanisms that have been devised for climate change and planning legislation. The Scottish Government said that it
“will give consideration to bringing forward amendments to this effect”.
I rather hope that that is a non-committal way of committing, but maybe I am misreading the coded language of bureaucracy.
It was Bob Hope who said:
“A bank is a place that will lend you money if you can prove that you don’t need it.”
What is envisaged for the SNIB runs very much counter to that caricature. The bank is intended to be a public bank that drives transformative change. It is intended to be independent but accountable, and permanent but adaptable, with a long-term patient view. To that end, the committee set out 19 recommendations in our report. Our balanced scorecard reads that roughly half have been accepted, a couple have been declined and the rest are under review, which reminds one, in relation to investment, of the three options that are set out in the parable of the talents.
As I have said, there are several areas in which the Scottish Government has undertaken to lodge stage 2 amendments, and we will study the detail of such amendments in due course. We look forward to further engagement on the Parliament’s role in framing the bank’s missions. On that basis, we recommend that the general principles of the bill be agreed to. I look forward to listening to other contributors to the debate.15:13
We agree with the objectives underlying the establishment of the bank, and we will support the motion. We agree that Scotland needs more long-term patient capital, that firms that are looking to expand need more support and that we need transformational change in Scotland’s economy.
Just last week, we had confirmation that Scotland’s economy is contracting—the rate of growth is half that in the rest of the UK economy. Productivity continues to lag in the third division, and wages and tax revenues are falling further behind those in the rest of the UK, which is resulting in Scotland having a record fiscal deficit that is higher than that in any other country in Europe.
The need for transformation to reverse Scotland’s decline into a low-growth and low-wage economy is clearer than ever. Development banks can make such transformational change; there are clear examples in Singapore, Germany and elsewhere. However, such change can happen only when the development bank is part of a coherent economic policy framework and when there is absolute clarity on strategy and objectives.
That was recognised in the chamber last year, when we first debated the bank and all members agreed to an all-party motion that said that
“a cluttered policy landscape can lead to confusion, a lack of alignment, duplication and weakened accountability”.
That is our overriding concern with the bill. Rather than being about the bill itself, which is enabling legislation, our concern is about the policy context in which the bank is being introduced and the on-going confusion, clutter, duplication and lack of alignment that characterise the Scottish Government’s approach to the economy and which mean that there is a real risk that the bank will fail to meet its ambitious objectives.
Section 2 of the bill states that the bank must invest in inclusive economic growth but, time and again, evidence that was given to the committee showed that there is fundamental confusion over the policy of inclusive growth. According to Scottish Enterprise, what the concept means to one person is different from what it means to another. It said:
“There is no single measure of inclusive growth”.—[Official Report, Economy, Jobs and Fair Work Committee, 14 November 2017; c 22.]
A representative of Highlands and Islands Enterprise said:
“I agree that inclusive growth is difficult to measure”,—[Official Report, Economy, Energy and Fair Work Committee, 10 September 2019; c 36.]
and a leading economist made the observation that we do not have “a firm handle” on inclusive growth.
If inclusive growth is to be a central part of the bank’s objectives, the Scottish Government must clarify precisely what it means and how it will be measured, not just for the bank, but for other enterprise agencies, so that they are all aligned in their economic targets.
I wonder whether the member overstates the case slightly. There is broad agreement on a lot of things. For example, Scottish Enterprise and HIE have not been very good at bringing women into growing businesses and encouraging them, and I think that everyone across the chamber agrees that that is part of the inclusive growth that we want to see.
When Mr Mason was a member of the committee, he heard evidence from many witnesses that inclusive growth as a concept means different things to different people. I am a great believer that, if we cannot measure something, we cannot manage it. I think that partly explains why there is confusion about the bank’s objectives.
The guidance that I am talking about does not need to be in the legislation itself; it can be in the form of public guidance to all enterprise agencies. We look forward to the cabinet secretary clarifying what the centrepiece of his economic strategy actually means.
The committee also heard concerns about the costs involved in setting up and running the bank. In its evidence, the Royal Society of Edinburgh said that the £25 million annual running costs were “very high”. That £25 million is in addition to the £120 million operating costs of the other enterprise agencies, which means that the Scottish taxpayer is spending £150 million a year on running costs for those agencies before a single penny is invested in the economy.
We need to ensure that we see a real return on that investment along the lines of the one that the British Business Bank delivers for the UK Treasury. It has a target rate of return of more than 2.5 per cent. Again, that target does not need to be part of the formal legislation, but we need to have clear targets to monitor the medium and long-term performance of the bank once it is up and running. I agree with the cabinet secretary that the targets should apply only once the bank is up and running.
Another fundamental question that the Scottish Government has failed to adequately address is whether there will be sufficient demand in the economy for the additional funding that is offered by the bank. It has also failed to adequately address the related question of whether the existing enterprise agencies are fully resourced to identify the new investment opportunities. We saw those problems arise in the context of the Scottish growth scheme, which has invested only a quarter of the money that was promised, because there was not sufficient demand in the underlying economy to pick up the £500 million that was promised.
The committee also heard evidence that the bank will not act as the originator of funding opportunities. That means that it will have to rely on the existing enterprise agencies, which will be operating under their existing budgetary and resource constraints. That raises the question whether the existing enterprise agencies are properly resourced and fully able to deliver the transformational increase in business investment that is required. We are yet to see convincing evidence from the Scottish Government that it has a delivery plan in place, either through the bank or through the enterprise agencies, to identify that transformation in demand in the economy. The cabinet secretary also needs to confirm whether the enterprise agencies’ budget will be increased to deal with the extra demands that are placed on them. HIE told the committee that, to prepare for the SNIB coming on stream, it has hired one additional person, which does not strike me as a transformational change.
In later stages, we will seek assurances from the Government that it will avoid calls for a series of restricted areas of investment by the bank. We will also seek assurances that the bank will not be used to prop up failing business or declining sectors; that the bank will avoid duplication with the multitude of enterprise agencies and initiatives, which one witness referred to as a “Venn diagram on steroids”; and that the bank will continue and expand the co-investment programmes that the Scottish Investment Bank has successfully pioneered.
I turn to the bank’s strategic missions. The programme for government announced that the bank’s
“primary mission will be securing the transition to net zero”,
“A key element of the Bank’s work will be to help to shape and develop commercially-investable low carbon markets.”
We agree with those missions. Again, however, we need to see the detail on how they will be delivered, given that, over the past 12 years, the Scottish National Party has failed to deliver economic benefits and jobs from low-carbon markets.
The Scottish Trades Union Congress made that point clearly earlier this year when it highlighted Scotland’s negative trade balance in the low-carbon sector. We import £230 million more in the low-carbon economy than we export. I look forward to hearing from the cabinet secretary about how the Government will avoid repeating past mistakes in relation to the development of low-carbon markets.
We will lodge amendments to bring the bill into line with best practice and with the way in which the British Business Bank operates. That will include adding in a requirement in section 12 for the Government to consult and seek agreement with the bank’s board of directors before any change is made to the strategic missions. We believe that the Scottish national investment bank should operate independently and that any change to the missions should be made only following such steps.
We will support the bill to establish the bank at stage 1, but we call on the Government to provide assurances, in the bill and otherwise, to address the concerns that we are outlining today.15:21
In this afternoon’s debate, the Scottish Labour Party is making the case for the active state, the innovative state and the developmental state. That is our guiding principle; that is our call to action in considering the bill.
We and the people of this country do not simply want a residual state that is reactive and steps in only at the point of market failure. We need a different allocation of resources than would simply be delivered by the market. That is what the establishment of a Scottish national investment bank should be about.
The purpose of the bank that we must create with this legislation cannot simply be about the best rate of financial return alone. It must be ethical; it must take account of the strategic interests of the wider economy, such as the urgent need to tackle climate change; it must be empowered to help build a more equal and a more democratic economy; and it must be on the side of the people.
We live in an economy that is too often unjust and is in too many areas inefficient—with long hours and low wages, with inequalities and, all too often, discrimination in the labour market and with low rates of capital investment and low rates of productivity.
We will tackle the productivity gap in our economy only if we tackle the production gap in our economy, and we will do that only if we tackle the investment gap. A properly resourced national investment bank is the right way to begin to address that gap.
The Scottish Labour Party wants intervention that is developmental, not defensive, and that is industrially radical, not industrially conservative. We want to lock in the public ownership status of the bank so that there can be no repeat of the Green Investment Bank sell off. This Parliament must learn the lessons of that initiative.
In the bill’s accompanying financial memorandum, the Government claims the bank’s level of capitalisation to be “both ambitious and achievable.” There is little doubt that it is achievable—of course it is—but it lacks ambition. Some £2 billion to capitalise the bank over 10 years might seem like a lot, but it would represent a rise of less than 1.4 per cent per year in overall Scottish business investment. In its plans for a UK-wide national investment bank, Scottish Labour proposes that £20 billion should be made available over 10 years for industrial investment in Scotland. That would make the kind of transformative step change that the Scottish economy needs.
In recent weeks, I have argued that the restrictions on Scottish Government borrowing powers should be lifted. I believe that that rule should also apply to the Scottish national investment bank, as the Scottish Trades Union Congress has called for in its submission.
Scottish Labour welcomes object (c) in the bank’s articles of association as listed in the bill, which is
“promoting and developing the activities of small and medium-sized enterprises”.
However, unless the Government amends its economic policy objectives, object (e), which sets the bank the goal of
“contributing to the achievement of the Scottish Government’s economic policy objectives”
will mean that the bank’s investments will be in pursuit not simply of small and medium-sized enterprise development and the nourishment of indigenous industrial growth, but of mobile foreign direct investment. The inevitable result would be that the Scottish economy would be not less, but even more of a branch plant economy as a result of the new bank’s creation. We must guard against that.
On governance, of course the bank should be answerable to ministers. However, it should be answerable and fully accountable to the Parliament, too. Its strategic framework, the setting of its goals and performance objectives and their monitoring must be subject to parliamentary scrutiny and therefore public as well as ministerial scrutiny.
The main board and the advisory board should be gender balanced and should reflect the diversity of our society. Both boards should contain trade union and industrial voices in significant measure. Those should not be token seats; they should involve meaningful representation.
We need to set clear guidance on maximum salary ratios in the new bank, so that the ratio of the chief executive’s remuneration—not just their salary but their overall remuneration—should be limited, perhaps to no greater than 20 times that of the lowest-paid worker, and arguably significantly less.
In “The General Theory of Employment, Interest and Money”, John Maynard Keynes rightly said:
“When the capital development of a country becomes a by-product of the activities of a casino, the job is likely to be ill-done.”
Scottish Labour therefore welcomes an alternative to the model of dispersed ownership and share listings, and an alternative to the model based on financial institutions looking for a quick return and the ever-constant threat of takeover. Everyone is agreed that we need longer time horizons and more patient capital. We need industrial interests to predominate—not the commercial interests of the City of London. We need to rebalance our economy and tackle the highly centralised UK economy.
We will not solve every problem in the Scottish economy with this bill and the establishment of a national investment bank for Scotland. We need to make sure that the bank is not another Government proposal that overflows with spin but underwhelms on substance. Nonetheless, the bill represents a starting point on which we can improve. We can establish a bank that is accountable and that has clear objects, the overarching aim of which is to build the economy from the bottom up. We can establish one that is financing the just transition from a carbon-based economy to a non-carbon based one. Such a bank would promote democratic forms of ownership, including co-operatives and employee ownership. We can establish a bank where the right voices and values sit at the heart of it—not just at the start, but in the long term—by building that into the legislation.
I ask the cabinet secretary to hear those views and to respond to them positively. Listening to Parliament and agreeing to radical reforms and constructive suggestions would be a sign not of weakness, but of strength. I hope that the Government is listening and that it is prepared to act.15:29
Greens support the establishment of a Scottish national investment bank. We have an economy that has, over the past 40 years, been run in the interests of private capital rather than in the public interest; an economy where the return to labour over the past 20 years has declined in relation to the return to capital; and an economy where the public sector at a local level has been in retreat and has lost the means, the will and the courage to take its proper role in the economy to advance the public interest. It has therefore been refreshing in recent years to see an increasingly positive case being made for an economy where the public interest is placed more at the heart of economic policy.
I pay tribute to a range of thinkers who have advocated the creation of such a bank. They include the New Economics Foundation, Friends of the Earth Scotland, Common Weal and the move your money campaign, whose 2016 report “Banking for the Common Good” outlined a vision of what a state investment institution could do and the role that it could play in Scotland. In the context of the bill, such thinkers include Mariana Mazzucato, whose 2013 book “The Entrepreneurial State: Debunking Public vs Private Sector Myths” debunked many of the myths around the role that the state can play in the economy. Her evidence to the committee was both refreshing and encouraging.
We know that public investment banks can work. In the debate that we had on the subject in May 2018, the then cabinet secretary Keith Brown noted that countries including China and Germany are confronting key social and environmental challenges in that way. He cited the example of the German KfW bank, which supports small and medium-sized enterprises, export promotion, environmental protection, innovation and international development.
In this context, other countries provide examples of far more sustainable models of banking in general, such as the German Sparkassen, which are 431 locally owned savings banks that own the eight Landesbanken and work with the German state investment bank KfW, which the cabinet secretary mentioned, to make loans. In 2012, the Sparkassen provided 45 per cent of all long-term business lending in Germany, which was more than double what was provided by German commercial banks.
There is a lesson here that we need to learn as a matter of urgency because, as Professor Mazzucato said in The Spectator last year:
“many of the businesses we are told are value creators are actually value extractors”.
In an interview in New Statesman in the same week, she pointed out that the financial services industry was never even included in GDP until the early 1970s because many such services are no more than transactional and they add nothing to economic activity.
In recent weeks, Greens have set out the broad parameters of a Scottish green new deal, and central to that is the need for investment in a new green economy. The role of the Scottish national investment bank should be central to delivering that. With that in mind, we would like to see some changes to the bill, including the following.
We would like a clearer articulation of the bank’s purpose. The Economy, Energy and Fair Work Committee remains to be persuaded that the language of the bill fully matches the ambitions for the bank to be transformative. The original vision for the bank in the implementation plan was a bank that would be responsible for
“a step change in growth for the Scottish economy by powering innovation and accelerating the move to a low carbon, high-tech, connected, globally competitive and inclusive economy.”
Personally, I do not agree with those words, but the point is that no vision is set out in the bill, and that needs to be addressed.
Does the member accept that the enabling legislation takes us so far in ensuring that the foundations of the bank are provided for in law, but that there is far more scope for that transformative language, vision and purpose to feature in all the other documentation that will drive the bank? Arguably, its absence from the legislation is due to the nature of legislation, but it must be there in the other associated documents to drive the transformation that Andy Wightman and others seek.
There is an important debate, which we can have at stage 2, about how much of that language might be included in the bill. I take the point. The bill is very much a framework bill—it just tells ministers to set up a public limited company—but I think that we can do more in the bill to reflect some of the ambition that, as has been noted, it will deliver.
On climate, as the cabinet secretary noted, the First Minister stated in the programme for government:
“Securing the transition to net zero will be the Bank’s primary mission.”
We agree with that, and it is therefore vital, in our view, that that objective is set out clearly in the bill, both in section 2, on the bank’s articles of association, and in section 11, on missions. I would be grateful if the cabinet secretary or the minister could comment on that in winding up.
Another area in which we would like to discuss some changes is section 1. The bill provides that the sole member of the bank shall be the Scottish ministers. The cabinet secretary will be aware that the German public development bank KfW is 80 per cent owned by the federal Government and 20 per cent owned by the states. Given the vital role that local government plays and will continue to play in tackling climate change and promoting economic development, there is a good argument for local authorities to have a stake in the bank. I would welcome the cabinet secretary’s view on that.
On missions, we of course agree that the transition to net zero should be incorporated, but we also believe that it should be a statutory mission that is in the bill. More generally, it is notable that, although any changes to the bank’s articles of association, which are set out in the bill, can be made only with parliamentary approval, the missions are to be set solely by the Scottish ministers with no parliamentary involvement. The cabinet secretary said that he intends to lodge amendments that would allow Parliament to be consulted on those missions. However, we think that any mission should be subject to parliamentary approval and a vote, just as changes to the memorandum and articles of association will be.
On ethics and equalities, the committee highlighted the poor quality of the equality impact assessment and pointed out that, although an ethical basis for investment was recommended in the implementation plan, there is no such provision in the bill. We suggest that that could be overcome by the incorporation of an ethics and equalities committee in section 9.
Greens support the bank and the bill. There is more work to be done, but we will vote for the motion at decision time.15:36
The impact of Brexit is hitting investment, jobs and living standards. We saw that in the woeful Scottish GDP figures that were released last week, which mirrored the figures for the rest of the United Kingdom—and Brexit has not even happened yet. That shows why, for the sake of our economy, jobs, livelihoods and public services, we need to stop Brexit.
In Scotland, opportunities to invest in the talents of our people through education and mental health services have been missed. Government initiative after Government initiative has failed to deliver a kick-start to the economy. The Scottish national investment bank must be different—not least, for the sake of the planet.
The programme for government rightly committed to putting the transition to net zero emissions at the heart of the bank’s work, but that primary mission must be properly reflected in the legislation that underpins the bank, and in the breadth and depth of its work. As we have heard, the committee concluded that the language of the bill leaves something to be desired. The committee was not persuaded that the bill
“matches the ambitions for SNIB to be transformative.”
As Friends of the Earth Scotland has pointed out, the bill does not mention climate change once. The bank is to focus not just on fixing market failures but on creating and shaping new markets and tackling societal challenges, and there is no bigger challenge than the climate emergency. The bank needs to help to drive the transition away from carbon-dependent industries. It should be able to take a distinct approach to risk management, with an appetite for absorbing some of the risk to which developing green industries are vulnerable.
The promise to begin investing in 2020 needs to be kept. The Scottish growth scheme took forever to pay out a penny, but the climate cannot wait. We know how important it is that we turn the situation round in the next few years. We know that the Scottish Government is going to have to step up a gear after Parliament yesterday agreed to Liam McArthur’s and Claudia Beamish’s bid to strengthen the interim emissions targets.
Other countries are already investing accordingly. We have heard about KfW, the national investment bank in Germany, which once focused on post-war reconstruction and which now includes addressing climate change and environmental issues among its central missions.
Under my party’s plans, the Scottish bank would be complemented by a new UK-wide green investment bank. We set one up before, only for the Conservatives to sell it off. The replacement would channel investment into zero-carbon infrastructure for power, heat, transport and afforestation. I want the UK to be the green finance capital of the world.
The principles of the Scottish national investment bank have been outlined. The bank is expected to pay the living wage. However, I would be grateful if the cabinet secretary could provide reassurance that the bank will not provide finance to companies that do not pay the living wage. I do not want to see a repeat of what happened with Amazon, which was given millions of pounds of public money while a blind eye was turned to the needs of its workers. It is expected that the bank will develop a code of ethics that goes beyond regulatory requirements and adopts a best-practice approach. Will payment of the living wage be incorporated into that code—and not just for the bank’s own workers? Could that be included in the bill? Healthy employment practices lead to a healthier economy.
In aiming to be helpful, it is right to propose many things that might not necessarily fit in the primary legislation. Definition of the living wage might be one such matter. However, we should consider including it in other places in order to achieve the desirable outcome of payment of the living wage, although it might not be appropriate to put it in primary legislation.
I know that we are due to have a discussion about the bank, during which we can perhaps go into the detail of why it would not be appropriate to put that requirement in the bill. I am grateful to the minister for giving us that guarantee—such as it is.
In the course of promoting inclusive growth, the bank, like the rest of us, will be faced with the challenge of automation and what it means for jobs in the future. The issue has been brought into focus again this week, when Dame Deirdre Hutton, the head of the Civil Aviation Authority, said that Thomas Cook Group was
“operating on brochures whereas everyone else has moved on to barcodes”.
The demise of Thomas Cook will lead to a fresh focus on the future of our high streets. More customer-facing jobs will go and there will be more empty units.
FSB Scotland has suggested that the bank should, under its inclusive growth mission, support efforts to protect the vibrancy of our local communities for the long term. It could focus on areas where there are low levels of entrepreneurship, low economic activity and high unemployment—areas that the FSB says struggle to attract the private investment that could transform their fortunes because it is less certain that they will generate returns. We cannot halt the march of technological progress, but we can take steps to ensure that everyone benefits from it.
We will support the bill at decision time.
We move to the open debate.15:42
I am pleased to have been called to speak in the stage 1 debate on the Scottish National Investment Bank Bill. It is a landmark bill, because it will see Scotland join the growing number of countries that have set up their own national investment banks. It has been recognised that the drive to do that has, in part, been led by the need, following the financial crash of 2007 and 2008, to re-evaluate how best to fund projects that will be transformative and which will support innovation, given the retreat of many commercial banks from capital investment.
At the same time, there is also a demonstrable need to secure long-term investment in small and medium-sized enterprises in order to promote growth in areas that fall within the mission that has been set forth, given the general disinclination of commercial banks to lend to what are deemed to be less-attractive prospects from a short-term commercial perspective—that is to say, the commercial banks are not prepared to provide so-called patient finance.
The bill will provide for the setting up of a Scottish national investment bank as a public limited company to be established in 2020. It is an enabling bill and hence—as has been said—it will be required that much of the detail be developed outwith the bill. Although I understand that that is frustrating for some of those who have made submissions, as with any enabling framework bill, a balance must nonetheless be struck.
However, it would be helpful if the cabinet secretary could provide some more detail on exactly how the provisions of the articles of association—the key document—are to be developed from here on in, and on how they can be subjected to appropriate scrutiny. Although I understand that the articles of association represent a legal agreement between the bank and the Scottish Government, an appropriate mechanism to ensure meaningful engagement must be found. That should also apply to the general principles that underpin the investment policy.
On the proposed objects of the bank, concerns have been raised that the vision that was set out clearly in the implementation plan is not elaborated on in the bill. I am pleased to note that the cabinet secretary has undertaken to lodge amendments at stage 2 that will ensure alignment between the objects of the bank, the vision that is set out in the implementation plan and the anchoring of non-financial returns in the bill. It must be recognised that although there must be a financial return because it will be a bank, there must also be a so-called balanced scorecard that factors in wider economic, social and environmental returns.
It has been stated that the proposed capitalisation of the bank is £2 billion over 10 years. Again, there are differing views on that, with some people arguing that it is not enough. However, as has been said, it is worth noting that the sum represents about 1.3 per cent of GDP and therefore falls well within the parameters of international practice in that regard, in which there is a range from about 0.5 per cent to 1.5 per cent of GDP. Benny Higgins, who developed the implementation plan, has said that
“£2 billion strikes a decent balance between aspiration and impact.”
Of course, it cannot be overstated that in the current devolved set-up, in which Scotland does not have access to all her resources and we have limits on our borrowing powers, any initiative such as setting up the national investment bank must be affordable within the devolved settlement.
As far as the estimated running costs of the bank are concerned, the Royal Society of Edinburgh has queried whether running costs of about £25 million, in the context of administering an annual fund of £200 million, are of the right order. Perhaps the cabinet secretary could reflect further on that in his summing up.
The debate that has taken place thus far on governance issues has focused to a considerable degree on the make-up and role of the advisory committee. Although the membership of the committee should be drawn widely, it is important that it be clear that the advisory committee is to advise Scottish Government ministers, and not the bank directly. It will not be a bank by committee. Rather, for the bank to be successful, it must have the operational independence that is necessary to ensure that it can function successfully and do the great job that we all hope it will do.
As I said at the outset, the new Scottish national investment bank will be pivotal in securing a transformative impact on Scotland’s economy. It is clearly intended to provide additionality and not to duplicate the existing landscape of enterprise bodies, the Scottish Futures Trust and local government. Although many key issues remain to be developed, it is heartening to note that the Government has engaged widely and is committed to continuing such wide engagement, as the issues are worked through. I very much welcome that approach and I look forward to further detailed information from the finance secretary over the coming weeks and months.
As the finance secretary has said, the new Scottish national investment bank will allow things to happen in our country that otherwise would not happen—for example, the transition to a low-carbon economy; our seeking to tackle the demographic challenges that we face from an ageing workforce and health inequalities; and reflection on Scotland’s challenges that result from our geography and our regional diversity. I find that to be a very exciting prospect, indeed. I am happy to support the bill at stage 1.15:48
A new investment bank, such as that proposed today, has the potential to grow our economy and provide for the economic development of our towns and cities. With that in mind, I am supportive of the bill. I do not just look forward to the opportunities it can provide, but will try to keep one eye on the challenges that should be addressed during its latter stages in order to make the bank as successful as possible.
Since the bill’s introduction earlier this year, the Scottish Government has changed the bank’s remit to focus on environmental issues and, given the salience of such issues, it is easy to understand its reasoning. It is right that we continue to increase our efforts to ensure the highest standards of environmental protection, so the move can be welcomed. However, it is vital that business sectors that invest in renewables, for example, are able to work with the bank even if their original area of practice does not fit within the model.
I am thinking of a number of companies in my region that are involved in the fossil fuel industry but are expanding their investment into greener energy solutions. Such firms, which are not all multinational giants, should not be excluded from working with the bank if they could contribute to reducing emissions over the long term.
Another issue lies in where overall control of the bank’s mission sits. It is currently proposed that ministers can dictate to the bank its objectives, and there is no requirement for any consultation on those with the Economy, Energy and Fair Work Committee, Parliament as a whole or the directors of the bank. It is important to include in the bill the need for such discussions, as it would be unfortunate if, at any point, the bank was obliged to follow the political instruction of ministers rather than economic best practice. I note that the Economy, Energy and Fair Work Committee highlighted that in its stage 1 report on the bill, and I hope that ministers will respond in a constructive fashion.
Another vital consideration is the nature of the current stated mission of the bank. Ministers have indicated that they want the bank to be quite interventionist in certain areas of the economy. That is a valid viewpoint, but I am concerned that it is trying to be all things to all people. Although it is important to consider how we deal with climate change or our ageing population, preferential treatment for certain sectors over others could undermine the fundamentals of the economy. I hope that the minister will give that further thought.
Concerns have been raised about the expectation for the bank to be self-sustaining within five years. The committee has taken a significant amount of evidence on that and it appears that ministers are being quite generous with their predictions. The idea of the cost of a project spiralling out of control will be entirely unfamiliar to the Scottish Government, but I urge ministers to think carefully about how to manage expectations over the next few years.
I worry about a landscape that has been described by Jim McColl as “too cluttered”. In the past few years, there have been a number of arm’s-length organisations trying to provide investment for businesses. Whether through Scottish Enterprise and its Scottish Investment Bank or the Scottish growth scheme, which was the previous idea for a business investment bank, the Scottish Government has taken a number of swings at it, but it has not worked out yet—I hope that it will this time. The growth scheme has not even managed to get close to investing half of the £500 million that was promised in 2017. There is a serious question here and ministers need to have a good answer: what will be different this time around?
The Scottish national investment bank is an idea with merit, but a number of challenges need to be resolved before the bill is passed if the bank is to fulfil its potential to grow our economy, create jobs and boost living standards. I do not doubt ministers’ intentions, but more work is clearly required.
In that spirit, I look forward to seeing amendments lodged at further stages of the bill to address the issues that the SNIB faces. I hope that ministers will be receptive to such changes and I look forward to working together to make them happen.15:53
The civilised debate in this Parliament is a great contrast to the pantomime down the road in Westminster.
The success of the Scottish national investment bank will be judged on how it tackles the central challenges of the Scottish economy. We rely far too heavily on a small number of sectors for our entire national wealth, as the food and drink, oil and gas and service industries account for about two thirds of everything that we produce in Scotland. We need to expand our product, service and company base. In many sectors, we rely too heavily on a small number of companies for a high proportion of what is produced.
We now almost have a situation in which we can count on the fingers of two hands how many companies are headquartered in Scotland. As we know, if more companies were headquartered here, that would produce a far bigger spin-out than if we relied on branch activities. All those things are extremely important.
We rely heavily on a small number of products, services and companies for most of our exports from Scotland. The key central challenge is to diversify our economic base. We need more companies, more SMEs and bigger companies, more companies headquartered in Scotland, more companies exporting, and more companies involved in research and development.
It is interesting to compare ourselves with countries such as Finland and Norway, as well as bigger economies such as Germany. They have all had successful national and regional investment banks almost since the war. In Finland, more money is given in the form of credit guarantees and other facilities to their exporters than there is given in the whole of the United Kingdom by the UK Government. That shows the scale of where we have to get to in order to be as competitive as Finnish industry.
A good example is shipbuilding, which we gave up far too easily many years ago, apart from what is left on the Clyde and at Rosyth. Through their national investment bank, the Finns have a vibrant shipbuilding industry and many other such industries. Through their innovation agency, the Norwegians are building up to diversify over time from oil and gas into a range of new, high-tech industries.
Scotland’s record on research and development is appalling. The UK’s record is appalling. The average level of business research and development in the UK is less than 50 per cent, as a percentage of GDP, of what it is in Europe. The level of research and development in the private sector in Scotland is less than half the UK average because of the heavy concentration of industry in London and the south-east.
A key challenge for the national investment bank will be to increase finance to exporters as well as increasing the level of research and development to help us diversify into new jobs and industries. On top of that, there are many other opportunities that we need to pursue.
Let me just say a word about the money. On first looking at the idea, I thought that, although £200 million is not to be scoffed at, against the scale of the challenge, it looks to be fairly modest. However, a key role of a national investment bank is to leverage in funding from elsewhere. The worst thing that can happen is that the investment bank takes on all the risk while other people benefit. We will be able to leverage in many investments from the pension funds and other funds. The whole point is not the £200 million a year. If we manage to at least double that in the early years, and increase that ratio further in the later years, we are talking about an additional £400 million to £500 million a year. Once the bank gets a track record, people will come to it with new ideas and demands for funding. It will grow in the second half of the 10-year period into spending and requiring much more than the original capitalisation plans because there will be opportunities. The return to the Scottish economy could be very high indeed.
I come to the opportunities and looking to the future. Many mentions have been made in the debate so far of the fantastic global opportunities. We should not narrow ourselves down to the European Union, which is the slowest growing part of the global economy. We should go out there and be global and international. That is where the big markets and the market growth are.
Let us look at artificial intelligence, some of which resides in the chamber.
Let us take the health sector. If we develop an expertise and invest heavily in the application of artificial intelligence in diagnostics in the health service, we can be a world leader in that field and, at the same time, help our health service.
If we look at life sciences, particularly animal life sciences, we see that Scotland’s opportunities are transformational.
If we look at information technology, we see that one of the massive, growing industries is the provision of cybersecurity for Governments and businesses. We do not need to be physically in Australia in order to provide cybersecurity services to somebody in Sydney or Melbourne. We can do it from Glasgow or any remote part of Scotland; we can serve a worldwide market. The opportunities are endless.
It is a great pity and tragedy that this Parliament did not do that earlier, because, 20 years down the line, we could have had a booming Scottish economy, which would have topped the European and global leagues. For our country and people, that is what we should aim for.16:01
Tempting as it is to note that Alex Neil was looking in the mirror when he was talking about artificial intelligence, I will, of course, resist.
As an idea, a Scottish national investment bank is not all that new. The Scottish Investment Bank already exists in Scottish Enterprise, and investment in business has existed in different forms for years.
Time after time, intent on a bit of nation building, of which the SNP is so fond, successive ministers and First Ministers have announced the Scottish national investment bank. It has probably been announced at least nine times over the past nine years: first, by John Swinney, then Alex Salmond; Keith Brown had a look in; Nicola Sturgeon followed; and now even Derek Mackay is in on the act. However, it could not be legislated for earlier because, until now, the SNP Government did not have the capital to make it fly.
Now, it is all hail the financial transactions money from the UK Government. At first, the SNP denounced it. Keith Brown talked about it as just “loan funding” and “funny money”. Of course, it is just loan funding, but now it is the welcome money that will capitalise the bank.
However, all £500 million needs to be paid back. Therefore, I want the cabinet secretary to tell us how the repayments are profiled, how much they will be and what their timeframe will be. We need to understand in totality what it will mean to the Scottish budget.
Make no mistake—I am in favour of a national investment bank. As we heard from Richard Leonard, Labour proposes to capitalise the bank with 10 times the resources that the SNP promised. However, I want to know that we are doing it in the most efficient manner possible—getting the biggest bang for the taxpayer’s buck.
The economy committee, of which I am a member, looked at the bill proposal, but the Finance and Constitution Committee considered the financial memorandum. First, I want to follow the money, as my mother always taught me to do. The bank will be capitalised up to 2021 by £500 million of financial transactions money from the UK Government, and £1.5 billion of Scottish Government money will be provided from 2021 to 2028. That is the investment part of the equation, which is straightforward.
Now, let us look at the cost. Here is the headline figure that we have not properly understood. By 2023-24, which is when the Government expects the bank to cover its costs, the taxpayer will have borne a cumulative loss of at least £80 million. Dean Lockhart uses the figure of £150 million. Whichever it is, it is a significant sum. That £80 million is to cover new staff, a chief executive, a chair, the Scottish Government sponsor unit and estate costs, and that is before the bank starts to cover its operating costs. In a time of continuing austerity, that is a sizeable sum of money to lose. Let us think about what that money could buy—almost 3,000 nurses or almost 2,000 teachers. We must think carefully about what we are doing.
The Royal Society of Edinburgh, in a very thoughtful submission, noted that the projected annual running cost of £25 million to oversee an investment fund of £200 million is “very high” and needs to be reviewed.
Let me ask a fundamental question of the cabinet secretary. Money is already distributed through the Scottish Investment Bank, the Scottish Futures Trust and other Government-controlled agencies. What review has taken place of the experience, efficacy and impact of those existing arrangements? Are those arrangements any good? I know that Derek Mackay is dying to answer but I will just finish. Does the cabinet secretary know whether they are any good? That will inform whether what he is about to do with this bill is the right thing. Can he tell us why this approach has been taken in the bill and what additionality the new bank will provide? That information is important for us to know as we go forward.
I thank Jackie Baillie for the question. I will make a brief intervention at this stage; I may say more in summing up. I think that there will be a requirement for that on-going review, especially to work out what the final legislation should look like. I have said that I will engage with Parliament, so it is right to have an on-going review of what is provided by other parts of the public sector and by banks elsewhere in Scotland. We need to keep that under review and, to address the point about clutter that colleagues have made, we need to look at what financial products are available and which other parts of the system come together. We will then return with a comprehensive plan on how that will look in a whole-system approach. However, that is a fair challenge.
Although I welcome that recognition from the cabinet secretary, my concern is that we have not done that review in advance of passing legislation and spending taxpayers’ money, and we are not quite sure whether this bill will do the trick. I am happy that he will do the review, but I want it done now rather than some years down the line, because it is important for us to understand whether the bank’s additionality will compensate for the cumulative multimillion-pound loss in the first five years.
A key issue is stimulating demand. Is the cabinet secretary confident that there will be sufficient demand, given that the Scottish growth scheme, which was announced to considerable fanfare, has distributed a fraction of the money intended? These questions all need answers from the cabinet secretary—
Will the member give way?
No, I do not have enough time.
If there is another more cost-effective way of achieving the same end, we should consider it. I am with Alex Neil when he speaks about the potential return, but we need to be convinced of that rather than just hoping that it will happen.
To turn to some of the other issues that have been raised, I particularly want to focus on the views expressed by Engender and Close the Gap. Both organisations said that the equality impact assessment was limited in scope, lacked analysis and was quite poor. Although the cabinet secretary has revised that equality impact assessment, which is welcome, it is still difficult to retrofit equality into policy that has already been developed.
There is a wealth of international evidence that gender equality is a necessary precursor to economic growth. If we want the bank to deliver for women and women-led businesses in Scotland, that needs to be a core part of the strategy and implementation. It should be on the face of the bill—that view is shared by many—as should the vision and the objectives of equality and non-discrimination, along with socioeconomic and environmental outcomes, so that we influence the bank’s lending policies and governance right from the very start.
There will undoubtedly be many amendments to come and I look forward to challenging the cabinet secretary further during stage 2.16:08
Once again, I find myself speaking in a debate on an issue that came from the economy committee, of which I was a member when the report was prepared. Sadly, I am no longer on the committee, but I am happy to take part in the debate. There was clearly broad agreement on the subject among committee members, which perhaps there was not in last Thursday’s economy committee debate on pre-release access to statistics.
As has been said, this is very much an enabling or framework bill and the question has arisen whether there should be more detail in it. We have faced the question previously with legislation such as the Land Reform (Scotland) Bill and the Islands (Scotland) Bill.
Too much detail in a bill can be difficult to update as circumstances change. On the other hand, too little detail could give ministers or, in this case, the bank itself too much freedom to drift away from the intentions of Parliament. We need to get the balance right as we move to stages 2 and 3.
I think that having a bank such as this is a great opportunity. We heard clear evidence at committee from a number of countries, including Wales, about how it could be a real asset to the economy.
As we noted at paragraph 48 of the report,
“The Bank ... will not take deposits”,
nor will it borrow from anyone other than the Scottish ministers. However, we might wish to revisit that in the longer term. I believe that there are a number of individuals, and possibly also organisations, who would be keen to invest in Scotland’s economic development through a bank such as the national investment bank. In fact, I have had individuals asking me personally whether it will be possible for them to invest in it.
The bank is intended to provide patient finance. That could be by way of loans or equity, but it would not be through grants, and it would not be to bail out struggling companies. I realise that the concept of patience is not always well known to politicians, who usually want to see the whole health or education system turned around between one First Minister’s question time and the next. As in business, there are likely to be failures as well as successes, as the convener has said and as the committee heard—bad news may well come sooner than good news. I hope that we can all commit at this stage to being patient and not jumping to criticise the Government of the day if the first investment were to go belly up.
I will move on to some specific topics that have aroused interest, starting with the matter of setting a target rate of return. The committee said in its report, in paragraphs 201 to 203, that the rate of return should not be the be-all and end-all, and that evaluation of the bank should be wider and include social and environmental impact. We suggested that we should be particularly careful in the early years—say, the first two to three years—and we recommended that a target should not be set or applied in the short term. I was therefore particularly interested in what the Government said about that in paragraph 40 of its response of 26 August.
I think that there is agreement that, as paragraph 43 of that response says, the bank needs
“to cover its operating costs”.
There have to be
“sufficient financial returns”
to repay the Treasury, and there must be
“sufficient returns to grow its asset base ... enabling future rounds of investment in Scottish companies and communities”.
As paragraph 45 of the Government response says, we do not want an unintended consequence involving decision making focused on the short term.
Paragraph 46 of the response makes the extremely important point that if the bank does not have a target rate of return, it might be more susceptible to political pressure to be a lender of last resort to distressed companies. There might also be issues with state aid rules, whether those are decided by the European Commission or by the Competition and Markets Authority.
Moving on to ethics, the economy committee asked the Government to consider including an ethics committee in the bill. In paragraph 61 of its response, the Government says that ethics might be best considered
“as a main Board duty”.
I get the point that ethics should be central to the whole organisation. However, on balance, I would like to see a committee that specifically focused on that topic, which could then take a considered position to the main board. It would not be a particularly bad thing for the respective chairs of, say, the ethics committee and the investment committee to put slightly different arguments before the main board for a decision to be made. However, I am more relaxed about whether that needs to be set out in the bill.
On sustainable growth and the environment, there have been a number of briefings for today’s debate, including from Friends of the Earth, the Scottish Council for Voluntary Organisations and Social Enterprise Scotland, emphasising the importance of the environment and other issues. It seems to me that there is broad agreement on the need for environmental issues to be included, although, as we saw yesterday during the debate on the Climate Change (Emissions Reduction Targets) (Scotland) Bill, there are differences as to how far people want us to go and how quickly.
There are clear concerns about what the term
“inclusive and sustainable economic growth”
might mean. I do not think that many of us want unlimited economic growth with no strings attached. Perhaps the more difficult question is where all of that should be written down. Should it be in the bill itself, as some people suggest? Unlike normal legislation, the bill deals with a company, and there need to be articles of association, which gives us the option of having more detail. Articles of association can be changed only by agreement of Parliament, so they seem to be a good place for laying out what we want.
However, as far as I can see, the wording in the draft articles on the objects of the company is exactly the same as the wording in the bill. I would have thought that there might be an opportunity for the articles to be expanded beyond what the bill states and for them to give more of the detail that many people are seeking. I wonder if the Government is open to that.
Will the member take an intervention?
The member is in the very last few moments of his speech, so probably not. You had better just do a last sentence, Mr Mason.
My last few lines are as follows.
I hope that we can all support the bill today and the creation of the bank. I am sure that there will be much more debate over the detail later on.
Cabinet secretary, I am sure that you will have time to comment in your summing up.16:14
I am very pleased to speak in today’s debate, which has been interesting.
The old adage is that you wait ages for a bus to turn up, then three come along at once. The same has to be said for the Scottish Government’s strategy on supporting business: we have been waiting for something such as the national investment bank since Derek Mackay’s party took office. Going back as far as 2009, John Swinney talked about
“creating a vehicle that would enable us to provide the necessary long-term support and investment in the Scottish economy.”—[Official Report, European and External Relations Committee, 28 April 2009; c 1128.]
That was very admirable of him. In 2014, he said that he had not shelved the proposition of a business development bank but was still searching for a way to develop one.
Five years later, here we are in the chamber debating stage 1 of the Scottish National Investment Bank Bill. I am supportive of the concept of national investment banks, because I think that they have a place in modern economies. We have talked about Germany and some of the successes that other countries have had with such financial vehicles.
To be fair to the Government, this vehicle is probably the right one for the purpose. However, the devil will very much be in the detail. A bank such as the proposed Scottish national investment bank goes against what banks normally do and, probably, what Governments do. Governments are generally asked to step in when markets are failing. I hope that the aim of the new bank will be entirely different, and I hope that it will genuinely shape and steer the markets, rather than simply correct failures.
A number of members have raised the point, so I will make the position clear, if that is helpful. The intention is that the bank will be based on an economy-shaping model, as opposed to having the aim of—as it has been described by others—supporting failing businesses. The bank should help businesses that have viable futures, and it should help to shape our future economy. That will be the spirit of the bank.
I am pleased to hear that. It is a very positive move.
There is certainly a theme coming through in the stage 1 process about protection of the environment, social inclusion and sustainable development, which we hope will sit at the heart of the bank’s investments.
However, ultimately, we are talking about taxpayers’ money, so the money must still be invested in viable opportunities that will offer some return, even if it is not a direct and obvious pound-for-pound return. There is nothing wrong with the concept, but it is still unclear from the papers that we have how the bank will achieve that. We have seen other schemes: the Scottish growth scheme aimed to provide £500 million in loans by 2020. We are not in 2020 yet, but we know that the amount that the scheme has invested to date is substantially below that figure.
It is true that an investment vehicle such as the investment bank cannot be measured by the conventional tools that are used by Governments or investors. It will be challenging to put a number on the success or otherwise of the bank. As John Mason said, we might need to be patient.
Availability of credit, although it is a tool, is not the only tool. Finance cannot overcome poor market conditions, skills deficits and factors that are way outside our control. We might argue that the Government could already have played a more vital role over the past decade in fostering innovation, growth and skills.
After First Minister’s question time today, I held a timely meeting with members of the Ayrshire Chamber of Commerce. Some of the people whom I met at that round-table meeting are entrepreneurs who run small businesses. They are the sort of people whom the bank should help. I met entrepreneurs including Alix, who runs her own make-up company; Ruth from Ardrossan, who runs a photography business; and Gemma, who runs a wedding and events company.
I was really buoyed up by the enthusiasm in the room for promoting small businesses, taking on people and growing the economy of Ayrshire. I told them that I would be speaking in today’s debate about a new national bank that would promote SMEs, create and shape markets and develop enterprise when clearly commercial models are failing them. They said that that is all very well and good, but asked me to ask the Government where it has been for the past decade, and how much longer they will need to wait for support to be made available to them. I hope that we can work through the process swiftly and get the bank established.
I turn to technical aspects of the bill, in the short time that I have left. I say, meaning no disrespect to the people who have drafted it, that I am pleased that it is just stage 1, because there are many holes in the bill. I hope that members from across the chamber will work constructively to get it to a good place when it comes back.
On page 1 of the bill, the bank’s main object—something that Andy Wightman alluded to—is stated as
“giving financial assistance to commercial activities for the purpose of promoting or sustaining economic development”,
which is okay if we can decipher what that actually means.
The bill also says that
“the Bank may do anything for the purpose of its objects”.
It says that it can borrow only from the Scottish ministers, that the Scottish ministers will appoint the executive and non-executive directors, and that the directors will determine their salaries while the Scottish ministers give direction on all of the above.
The Scottish ministers will set the mission through the ingenious method of sending a document to the bank. The bill goes into great detail about how they might do that. The bill also says that
“The Scottish ministers may capitalise the bank”.
It is only when we get to the very end of the bill that we find the only activity that will require parliamentary approval. That is the
“Procedure for modifying entrenched provisions”—
so it is already looking like a marvellously non-political and independent organisation, is it not? I raise that issue because I think that it is important for the bank to have independence, which it requires in order to make decisions that are right for it as a bank, and that it is not simply under the political will of ministers.
I conclude by saying that there is potential to create, with the bill, something that is very interesting and worth while. However, the ministers who are responsible for it must ensure that it is not just a box-ticking exercise or a half-cooked plan. I support the setting up of the bank and I hope that it succeeds, but my reaction is the same as that of many folk: I will believe it when it delivers.16:21
I welcome the proposed new Scottish national investment bank and this stage 1 debate. The bank will not be focused on profit-seeking and will be able to respond quickly to Scotland’s investment needs.
There could, however, be a missed opportunity, as many commentators have said, because it does not have nearly enough capital. Jackie Baillie was right to say that we need to get the equality commitments put up front in the bill.
The Scottish Council for Development and Industry has said that the level of capitalisation—£2 billion over 10 years—does not match the scale of the ambition that is proposed, and that meeting that ambition could be challenging.
I want to talk about why housing should be a key mission for the Scottish national investment bank. I will reference an interesting forthcoming report from the think tank called Common Weal. Let us not forget that it was housing finance that led to the sharp practices in the mortgage market, which led to the crash that deprived many people of their housing options. It is my opinion that we have to steer away from seeing housing purely as a profit-driven and commodity-based part of the economy, and instead look to its primary purpose of creating homes. One of the key missions of the bank should be to build high-quality social housing.
Dr Craig Dalzell from Common Weal has written in his forthcoming report:
“The current approach to housebuilding is deeply flawed and largely revolves around the private housebuilding market whilst the politics of social housebuilding is limited to setting arbitrary targets of houses to build without much thought to quality, location or other infrastructure.”
I agree that one of the bank’s missions should be to build sufficient high-quality publicly owned rented homes—not just as a safety-net for people in need, but to exceed the baseline ambition and to provide homes that are desirable and cheaper than those in the private sector.
I am sure that people who follow the housing debate do not need to be convinced that housing is an important part of the economy because of the skills that it requires and the infrastructure that it brings. By guaranteeing security of supply and legislating to fund only the highest-quality housing, the approach could act to stabilise the private rented sector and raise the quality of housing overall.
In Labour, we want to see a strategic plan for the housing sector that is focused on improvement of quality. It seems obvious to me that, given yesterday’s debate on climate change and emissions reduction, a key infrastructure project for quality homes would be to aim to introduce carbon-neutral housing as standard.
Another reason why I believe that housing should be a key mission of the bank is that the majority of people who are not able, or do not want, to buy a house are almost wholly reliant on the private sector. More families with children are living in the private sector, and they are experiencing dramatic rent increases in many parts of the country, which causes them hardship. In turn, that increases the risk of an increase in the number of adults and children who live in poverty.
There is therefore an excellent case for a mission relating to housing. According to Homes for Scotland, Scotland is building at only 80 per cent of the level that is required to meet housing need and demand. I am sure that we all agree that good housing is central to a healthy population and a vibrant economy. It makes sense that the investment bank’s funding could be used to construct the highest-quality housing in order to ensure that we drive up the quality of housing in the private market as a whole.
We support the Government’s plans to retrofit all buildings, so that they have a C-rated energy performance certificate by 2040. However, retrofitting existing buildings is often extremely costly, so we need to ensure that new buildings are built to the highest standards.
Scottish Labour’s housing commission was tasked with considering whether a national housing agency could be an asset to the economy. The agency could be tasked with, among other things, taking a strategic approach to identifying gaps in provision, having powers to make compulsory purchase orders to create new communities, and co-ordinating provision of the skills that are needed in the sector. We will say more about that when our report is published.
Overall, there is a very strong case for saying that a national approach to house building could identify gaps in the housing sector. Many organisations, including Common Weal, support a form of national agency. More than a year ago, Homes for Scotland identified that such an agency could play a strategic role in ensuring that we retain the necessary skills for infrastructure building, which includes housing.
A move towards high quality and passive carbon-neutral homes, will allow us to tackle several problems—not least, the scourge of fuel poverty. At the same time, that would make serious inroads into decarbonising Scotland and meeting our climate change targets. Making social housing a viable option for more people through investment by the Scottish national investment bank will mean that factors such as high heating costs could be practically eliminated. Although we might not think of housing as part of a national investment bank’s strategic plan, there is a strong case for one of the bank’s missions being about housing.
Will the member take an intervention?
No. The cabinet secretary is always picking the wrong moment; he will just need to deal with the point in his closing speech.
Continue, Ms McNeill—you are in your final minute.
I apologise to the cabinet secretary.
Building high-quality social homes should be part of the mission of the investment bank. I hope that the cabinet secretary would have agreed with that idea, had he been able to intervene. Decisions on where homes are built must be guided by a demand-led strategy.16:27
We need not look far for evidence of systemic inequality across the UK. A wealth gap is increasing due to a toxic partnership of discredited economics and Westminster ineptitude. There is geographic inequality as well as social inequality. I will concentrate on the regional divide, on which I hope the Scottish national investment bank will focus in the future.
Southern Scotland has one of the lowest recorded levels of regional economic wealth among comparator regions across northern Europe. Citizens in the inner London west region, where Westminster is situated, are on average 10 times better off than my constituents. Inner London is, of course, the richest region in northern Europe.
Such disparity is not found only in Scotland. Regions across the UK have been starved of investment by a metrocentric financial system that does not work in their interests. Across the world, growth is focused on cities, which, in turn, attract more investment and talent. That is great for people who live in a city, but I represent a region that does not have a city and I feel strongly that no part of Scotland should be left behind.
That is why I welcome the Scottish Government’s attempts to address geographical disparities, particularly through the south of Scotland enterprise agency, which is being set up, and the adoption of place-based inclusive growth as part of Scotland’s economic strategy. My ambition for a national investment bank is that it complements such initiatives.
I do not sit on the Economy, Energy and Fair Work Committee, but I sat on the Economy, Energy and Tourism Committee in session 4. I remember being struck by figures that showed how difficult it is for SMEs in the rural south of Scotland to access capital, either from the private banking sector or through public agencies. I am extremely pleased that the Government is responding to that in a number of ways. It is vital that the bank, like the new agency, helps to dismantle all barriers to sustainable growth in the south of Scotland, which is a region with so much potential and talent. Although the bank has both a national and a regional remit, I am gratified that there is specific recognition that variations in productivity across Scotland must be addressed.
We have heard that the bank has an unusual nature and departs from the status quo, which is a good thing. It will be underpinned by statute and the detail will be contained in articles of association. It will be a uniquely Scottish institution. We already know that greater long-term or patient capital is needed for small and medium-sized enterprises to grow, and that is certainly the case in my region.
I was struck by the wide and thematic approach that the committee took to scrutiny of the bill, reflecting the bank’s mission-orientated approach, which is to not just fix market failures but, in the words of the economic adviser Mariana Mazzucato,
“create and shape new markets aimed at tackling modern societal challenges.”
I note that the bank has gained widespread support among stakeholders. CBI Scotland said:
“The development of the SNIB could be a leap forward for the Scottish economy that boosts global competitiveness, supporting ... innovation and growth.”
Social Enterprise Scotland said that it has “huge potential” to transform our economy.
I am particularly pleased to note that the bank will be open for business in 2020. It cannot come quickly enough.
Scotland has a rich, almost unparalleled history of groundbreaking invention and innovation, and it is currently home to several world-class universities and centres of excellence. There is no shortage of home-grown talent and it is time for Scotland to punch above its weight in developing that talent.
Because so much could be achieved, much is at stake, so it is extremely important that careful scrutiny is given to any weaknesses or deficiencies in the bill or the proposed structure of the bank. I echo the comments that were made earlier about the inadequacy of the equality impact assessment.
The committee has reported on ethical investment and other matters, on some of which we have had further detail today. All of that bears further reflection and consideration.
To critics of a uniquely Scottish solution to address inequality and stimulate growth—of whom there do not seem to have been many in today’s debate—I say that I agree with others that it is extremely important that we work through local knowledge. I very much welcome the establishment of the bank.
We move to the closing speeches.16:32
Scottish Labour welcomes the Scottish National Investment Bank Bill, but it does not go far enough. It lacks a strong objective for the bank and it lacks ambition on the part of the Government.
The bank will not be adequately capitalised: £2 billion over 10 years is not enough to create a step change in our economy. It is a level that is achievable, but not one that is ambitious, as Richard Leonard said. The Scottish Labour Party would look to finance the bank to the tune of £20 billion over the same timeframe, which would bring about a step change in the economy. A sum of £2 billion amounts to only £200 million a year. Given that, as Jackie Baillie pointed out, the set-up costs are likely to be around £80 million, that would leave very little for investment.
The Scottish Council for Development and Industry welcomed the sum but contrasted that level of capitalisation with the scale of ambition that is set out in the vision to transform Scotland’s economy. Unite was not convinced that £2 billion represented a sufficient level of capital investment to deliver significant economic change and cited several examples of projects that would have taken up almost the whole of the bank’s budget.
The Royal Society of Edinburgh was also concerned that the level of capitalisation could restrict the number of potential missions that the bank could have. It suggested that the scale of investment of £200 million a year over the first decade was
“not enough to provide investment across three or four missions—such as demographic issues and/or transition to low carbon economy”.
Pauline McNeill mentioned the need to build more housing for social rent. It would cost more than £3 billion to build 50,000 such homes. That is more than the entire proposed budget for the bank.
Does that not speak to the point that all the other figures are excluded when the bank is taken in isolation? In fact, £3 billion has been committed to build 50,000 homes, which target the Government is on track to meet. When considering the totality of the investment in our infrastructure, we must look at the global figures and not just at what is allocated through financial transactions or elsewhere for the purposes of the Scottish national investment bank.
Indeed, but if the investment bank is to fulfil the ambitions set out for it, it requires more capitalisation than that already put forward by the Government. Take the example of climate change and the move to a carbon-neutral economy, which almost all speakers mentioned. That new and growing sector needs to be supported, yet the bill is silent on that, as many speakers pointed out. Currently, too many jobs in the low-carbon sector are going to overseas competitors. In order to make a just transition to a net zero economy, we need to grow the number of jobs in the sector and compete with overseas companies. We also need to innovate and develop new low-carbon industries.
Reaching net zero will mean that traditional high-carbon industries will decline—that will happen—but our economic wellbeing and the wellbeing of the workforce in those sectors depends on workers being retrained and securing jobs in zero carbon sectors, especially where skills are transferable. No one should be left behind if we are to meet the ambitions that the Parliament agreed to yesterday.
Many speakers talked about lending criteria and who the bank should lend to. It must work for all our economic generators, but it will specifically not lend to the public sector. It must, however, include other sectors, such as the third sector, co-ops and community bodies, because those are different businesses, which, it could be argued, provide a much greater economic impact in their local communities. If the bank is not to lend to public institutions, how will it be able to make an impact on areas such as housing, which Pauline McNeill emphasised in her speech?
The challenges of the 21st century cannot be met by the private sector alone. If we are to address climate change, digitisation and the like, we need new models of public ownership and finance. We must support our home-grown industries—Richard Leonard cautioned against chasing foreign investment. Alex Neil made that point, too. Our economy depends on a few large companies and very few of them are headquartered here. They could move away at any time.
The lending criteria must embrace fair work principles. The Scottish national investment bank should ask ethical questions of companies and customers to determine whether they are appropriate to lend to. Willie Rennie talked about the living wage and whether it would be appropriate to include that in the bill. I believe that it would be. The living wage will not change—it will keep step with the times and increase as required. There is no reason why high-level ambitions, such as our climate change targets and the like, cannot be in the bill.
Dean Lockhart talked about inclusive growth. It is important to include that in the bill. He said that inclusive growth cannot be measured, but we can measure what it is not. This week, the Government published a report called “Longitudinal Educational Outcomes (LEO) from Modern Apprenticeships”. It showed that “males earned more than” women “across all occupational groupings”, and that that difference in earnings ranged “from £300 to £9,700”. In addition, people
“from the 20% least deprived areas earned £4,500 more than those from the 20% most deprived areas.”
That is what measures of exclusion look at, so we should be able to identify inclusive growth and do it. As Richard Leonard said, gender balance on boards is a positive step towards addressing that. Gender balance on boards will be reflected in the workforce.
Scottish Labour supports the development of a national investment bank, but work is needed in order to ensure that it is built on a solid foundation, which the bill certainly is not. We will use the amendment stages of the bill to create a Scottish national investment bank worthy of that name.
Before I call Mr Halcro Johnston, I welcome back to the chamber Mr Rennie and Mr Neil, who were not present for the beginning of the closing speeches. They are old hands, so they should know that that is required.
Jamie Halcro Johnston rose—
Please sit down just now, Mr Halcro Johnston.
No matter how senior members in here might be, they should note that the rules apply to everybody. I do not see any notes of explanation from Mr Rennie and Mr Neil for why you both came in late. No doubt they will appear later and will corroborate each other. I look forward to reading those and, in particular, your apologies to Ms Grant for failing to hear the beginning of her speech.
I will call you now, Mr Halcro Johnston.16:40
Thank you very much, Presiding Officer. I am sure that members in the chamber are united in their disappointment in those scamps. [Laughter.]
The legislation on the Scottish national investment bank has been long awaited. As Jackie Baillie suggested, and as Graeme Roy of the Fraser of Allander institute pointed out, the bill represents about the eighth time that the Scottish Government has tried to establish something of this nature in the past 12 years.
Scottish Conservatives have been consistent in calling for more action to grow the Scottish economy, which has lagged behind the rest of the United Kingdom, so attempting to improve business support in this regard is to be welcomed. Ministers will be aware that there is a good deal of support for many of the bill’s aims. However, much of the detail on the delivery of the bank falls outwith the direct scope of the legislation, so we can only hope that the Scottish Government will continue to consult and engage as we move forward.
The Economy, Energy and Fair Work Committee’s convener, Gordon Lindhurst, highlighted the body of work that it has conducted in the area and, as I am a member of that lead committee, I also feel obliged to do so. In addition to our direct work on the bank, which has led to the stage 1 report, we have touched on many elements of business finance in the course of several inquiries. As part of our current budget scrutiny we have produced work on topics from business support to the role of business gateway, the enterprise bodies and regional selective assistance, a great deal of which I commend to the chamber.
It is vital that any consideration of the Scottish national investment bank looks at our current framework of business support. We know that there are significant issues around the growth scheme, and the committee’s reports have suggested a number of ways in which Scotland’s business support landscape should be improved.
We might also look at the examples—both positive and negative—provided by the Scottish Investment Bank, which was established with similar aims of providing long-term support and investment in the Scottish economy. We do not expect the new bank to be a panacea but, with the right organisation and support, it can be a positive actor in our economy.
In my region of the Highlands and Islands, which has varying local economies and priorities, having the right approach and the right institutions focused on regional development is vital. Organisations such as Highlands and Islands Enterprise have long experience of navigating the business environment there. It would be a loss if such local institutional knowledge were to be diluted by the new bank’s engagement in the area. We have seen examples of a regional focus in the Development Bank of Wales, which has a number of offices around the country. The Scottish Government has rejected that model, and the cabinet secretary gave his reasons in his evidence to the committee. Derek Mackay said:
“the bank can reach the parts that other banks cannot.”—[Official Report, Economy, Energy and Fair Work Committee, 11 June 2019; c 27.]
Despite his appallingly plagiarised slogan, I accept that there are differences between how the two banks will operate.
I could come up with another one.
I am glad that the cabinet secretary has not intervened with a new slogan. However, I ask him to remain open minded to ensuring that the Scottish national investment bank is accessible to and engages with all parts of Scotland—even the more remote parts, as are found in my region.
We will work to get the bill right. In committee, the cabinet secretary indicated his hope that the parliamentary process would lead to further improvements to the Government’s proposals. I welcome that approach and hope that he will honour it.
That leads me to consider some of the other speeches and ideas that we have heard from around the chamber. My colleague Tom Mason set out both the opportunities and the challenges of creating a new institution. He also spoke about the remit, objectives and the mission of the bank, which are areas that will be crucial not only to its success but to its wider role in Scottish society. He echoed points that have been made on the changing remit of the bank and questioned how it would treat businesses that are moving towards more environmentally conscious models. He also covered many of the financial elements that we have explored in committee.
Richard Leonard spoke about the mission of the bank and its make-up—its board and the like. Although I respect his opinion, I think that he is looking to create an idealised bank, which would be unworkable in future.
Jamie Greene pointed to the difference that long-term investment priorities will make to the Government, and to the need to look at what success means in the context of the wider economy. He also explored the lessons of previous development funding models, particularly the Scottish growth scheme, and he made the important point that availability of credit alone cannot make businesses thrive while significant gaps remain in growth and innovation in Scotland. As we have seen, any real progress will depend on the wider business environment, and the Scottish Government has much work to do in that regard.
Alex Neil made a barnstorming speech, promoting global Britain, global Scotland and opportunities outside the EU. He certainly garnered a lot of support from members on the Conservative benches. “The opportunities are endless,” he said, and of course he is right.
Jackie Baillie was also right. She highlighted the important role that financial transactions from the UK Treasury will play in helping to finance the bank. Dean Lockhart also raised that in an intervention, and he outlined the need to manage expectations around the bank. As he said, it must not go too far in yielding to competing ambitions the original objective of providing patient capital into the Scottish economy. We have heard that there needs to be a clear focus as well as work across agencies and other bodies at both the Scottish and UK levels. The risk is that the bank will serve to duplicate work that is currently carried out by other organisations.
As Dean Lockhart noted, none of those concerns is new. They were all raised in the debate in May last year. However, the problem of managing expectations has grown since that time, with the list of ills that the bank is supposed to address getting ever longer.
In committee, we have heard evidence on costs. Time and time again, witnesses questioned the assertion that the bank can be self-financing from 2023-24. There seems to be some tension between the desire for patient capital and the hope of quick and easy returns. There are also real concerns about how the bill’s provisions on the bank’s mission will impact on its operational independence and the timescales that are involved in reporting. With amendments being expected at stage 2, it will be interesting to hear ministers’ responses.
As has been highlighted today on the Herald website, this is a vital time for the bank to be created. I think that £135 million of Scottish Government money, which is taxpayers’ money, has been written off to prop up failing companies, so it is vital that we get this right.
We can all agree on the importance of the organisation that exists behind public sector financial support. I hope that, as the bill moves forward, the Scottish Government will maintain a clear vision around its core objectives. The concept of the bank has potential, and in that regard the bill is welcome. We have raised a number of real and valid concerns this afternoon and the bill will undoubtedly benefit from further scrutiny. It will have our support today, but a willingness to consult must continue beyond the process around the bill. The Scottish Government must ensure that it works with the committee and other members to make the bank a body that can have a real and positive impact in driving forward investment and improvement in those areas where the Scottish economy is underperforming.
I call Derek Mackay to close for the Government. Cabinet secretary—you have until 5 o’clock.16:48
Thank you, Presiding Officer—including for that very generous allocation of time, which might be explained by my having not been allowed to intervene on some members earlier. I note that you have rebuked some members about their attendance, although it was a wee bit less of a rebuke than those that we have seen at Westminster of late. The debate that we have had here in the Scottish Parliament is a useful contrast with debates at Westminster. It shows how we are getting on with the day job and trying to deliver the transformational interventions that will support our economy.
It has been a consensual debate, although members were quite right to go through their issues with the bill, of course. I want to respond in a spirit of collaboration and co-operation, as we move on to stages 2 and 3. I will respond to and reflect on as many comments as I can.
It is important to say that many of the considerations that members mentioned might not be for the bill or primary legislation, but can be covered in a range of documents that will be important to the bank. The documents include those on its missions, its articles of association and its mission reports, which will be the bank’s response on the missions that have been set for it. There will also be the shareholder framework document, the business plan, the investment strategy, the ethics statement—many members have commented on its content—the annual report on investment performance and the independent review of performance. I reassure members that there will be many appropriate places in which to set the direction that Parliament wants.
We need to consider fully the appropriate balance between addressing points that many members have made about accountability, direction and transparency and the need for operational independence to ensure that the bank is a success.
I trust that the cabinet secretary enjoyed Alex Neil’s pantomime, and that he shares my scepticism about John Mason’s crocodile tears as he said that he is “sadly” no longer a member of the committee when, just last week, he said that he had been “promoted” to another committee.
On a serious point, both those members referred to better organisation in economic terms in relation to national investment banks in European countries. Does the cabinet secretary agree that, although the SNIB is a good start, we will need to do a lot more, because in Scotland—and more widely in the UK—we are not so good at planning for and working on such things as other countries appear to be?
That was a lengthy intervention, but you have time, cabinet secretary.
I will certainly reflect on that point. We are looking around the world at best practice on investment strategies and national investment banks in terms of scale and intervention. As the Economy, Energy and Fair Work Committee’s convener knows well, we have leaned heavily on the work of Professor Mazzucato.
Mention has been made of potential investment in artificial intelligence, and of the intelligence in the chamber. I suggest that, on occasion, some members of the Opposition engage in artificial objections. I am not referring to Jackie Baillie in particular, but I will come back to her comments on the investment bank.
Jamie Greene rightly spoke about current business support. We should not lose sight of the important point that many businesses do not need to wait for the bank’s support and that we should signpost them to the support and products that are available. Right now, the Government’s enterprise family is still attracting investment and new jobs, and is encouraging scale-ups and start-ups in Scotland. Many of those interventions are to be welcomed. The Scottish Investment Bank has been working successfully. However, with the new bank, we want something that is transformational and at scale. As a number of members have said, it is about an all-Scotland approach. We have a supportive business environment that is bearing fruit, but we want to accelerate that through the Scottish national investment bank.
I do not want to get into the debate about one committee being more important than another, because I have to attend both the Economy, Energy and Fair Work Committee and the Finance and Constitution Committee to give evidence. However, points by the economy committee’s convener were well made. I hope that he appreciates the response to the committee: more is to follow. Let us not lose sight of the fact that we are dealing with the legislation to create the bank, and that other operational matters will be dealt with in the fullness of time.
I will help the cabinet secretary to use up his time. When the Scottish Development Agency was formed, back in 1975, it was given a function that was very similar to that of the proposed national investment bank. However, a number of the agency’s early investments, which were high-risk investments, ended up in failure. As a result of the media and political reaction to that, the agency basically closed in on itself and gave up taking risks. I stress that the bank will not add the value that it can and should add if it is not prepared to take reasonable risks because, if there is no risk, other people will invest anyway.
I agree with those comments. Of course, we want every investment to be a success, but with risk, some will not succeed. However, it is right to set out the missions to transform our economy in a way that responds to the agenda that we have set in relation to the economy, the environment and our desire to have a highly skilled workforce.
We will focus on more than just the financial returns—a key point that was made by Gordon Lindhurst. The bank will have the mission focus that several members have emphasised.
Dean Lockhart touched on running costs, as did other members. There will be more to that than what is in the financial memorandum. We will refine the operating costs and ensure that Parliament is made aware of them.
We will also look at the entirety of the enterprise landscape to ensure that it is structured to address concerns about duplication. The bank should provide additional rather than substitute finance. We will ensure that traditional banks in Scotland continue to do their job, too.
Questions were asked about expanding successful programmes. We will also try to look at that. Richard Leonard talked about the scale of ambition for the bank. We have to think about what is affordable as well as what we want the bank to achieve.
Roseanna Cunningham has just joined me on the front bench: I note that the just transition commission will be very helpful in advising us on what the new economy will look like when we are setting out the bank’s missions.
Several members asked whether I intend to engage fully and to refer to Parliament in relation to the missions. Yes—I will. John Mason asked me whether I will engage on the articles of association. Yes—I will engage on that, too. Will I listen to Parliament? Of course I will.
Andy Wightman asked about the sustainable model and how we will grow the green economy. There is much in that respect that we should pursue through the national investment bank.
We have an optimal model to deliver the vision for the bank. I will engage further on the question of parliamentary consultation. I look forward to the cross-party work in which I have committed to participating.
Willie Rennie raised Brexit. We have tried to focus on what we can do here, but Brexit is—of course—the main threat to the economy in Scotland right now. Willie Rennie spoke about the transformational nature of the bank and the scale and pace of delivery, and asked questions about social conditions, such as the living wage, to which I will give further thought.
Annabelle Ewing made a very thoughtful speech that emphasised the strength of patient finance and investment, and the importance of the fact that the bill is enabling legislation. She also raised the importance of the composition and purpose of the advisory group. She quoted my slogan—Jamie Halcro Johnston was worried about me plagiarising other people’s slogans, but this was mine—that success will be allowing things to happen that would not otherwise have happened if this financial institution were not there. Annabelle Ewing was very kind to recall my words on that.
Tom Mason made a very helpful point on diversification and transition to support sectors that want to move to a low-carbon agenda. We should support them using the functions and products of the bank. The bank can make a difference in combining funds and addressing particular needs and demands.
Alex Neil gave a very powerful speech on the ability to transform the economy if we get the bank right. He also spoke about the benefits of bringing more companies to Scotland—their headquarters, domestic bases, skills and talent. There have already been some such success stories and announcements made through our economic strategy.
Jackie Baillie raised legitimate questions on the repayment profile of financial transactions: I will be happy to get back to her with further detail on that. Reviewing the tools that we have is an on-going process in order that we can respond to what business and industry need, as we lead up to operational delivery of the bank. I would not describe the operating costs of the organisation as money lost. If the bank gets it right, it will have a transformational impact on the economy, and that operational cost will be money well spent.
Will the cabinet secretary take an intervention?
I have only one minute left, so I have to decline Jackie Baillie’s request, on this occasion.
John Mason spoke about not being overprescriptive in matters such as the committee structure of the bank. I will look for reassurance in relation to matters that members are interested in. To reinforce the point that I made to Jamie Greene, if there are companies that want financial support right now, there are many products that can currently be deployed to support our business community to thrive and succeed.
Pauline McNeill covered housing, which will be absolutely critical. I hope that she welcomes the fact that the precursor funds have been used to support housing. I hope that that will continue.
Joan McAlpine spoke about the widespread support for the bill and the bank, which is appreciated. That support is why we want to take it further.
Many members also spoke about the opportunity that we have to invest resources to achieve our climate change ambitions, which have been discussed recently in Parliament.
We have an ambitious programme: the enabling legislation will allow us to build the bank in the ways that members have described. It is a major intervention, so I look forward to support from across the chamber as we continue to progress it in this cross-party and collaborative fashion, in order to make a success of the Scottish national investment bank.