 I welcome to the 19th meeting in 2018 of the Finance and Constitution Committee. He is joining us. Welcome to you. The first item in our agenda is to make evidence on the funding of EU competencies in our own table format. We are joined for this discussion by Joe Armstrong from the Royal Society of Edinburgh, Professor David Bell, Professor of Economics at the University of Stirling, Amanda Berger, leader of the community-led local development group, Professor Sareen Diamond, the principal and vice chancellor of the University of Aberdeen, Jonathan Hall, the director of policy and member services at NFU Scotland, and Anne Milne from the D-City Council, who is part of the East of Scotland European consortium, and David Phillips, who is the associate director of the Institute of Fiscal Studies. The session is going to differ a bit from our usual session in terms of a formal evidence session. It's obviously intended to be a round table, much more full flowing discussion than the normal standard and answer type of event that we have. The round table that we have this morning has been structured around five themes for the discussion. I set out in the meeting papers and I intend to allow around 20 minutes for each one. Now I know that, inevitably, with a round table discussion that is free flowing, it may well cut across the areas that we have laid down in terms of the structure. That is inevitable to some extent, but we will try to keep to the areas that it is. I will invite one member of the Scottish Parliament to initiate the discussion of each of the themes following that, to allow the participants here to set out their views. If anyone wants to make a contribution, if you can catch either my eye or Alan Clarke's eye here, that will help. We will try to allow you in at the appropriate time. We will try to make it as free flowing as we can, whether I can keep to the 20 minutes in each bits of the structure is another story. We will see where we get to. The first theme that we are going to begin this morning is on governance issues around EU funding. Ash Denham will kick off and lead off on that area. Ash, over to you. Thank you, convener, and good morning to everybody. The current structures for inter-governmental engagement that we have at the moment—that would be things like the JMC—have how well that system works in terms of reflecting things across the whole of the UK that has been questioned in a number of different areas, including in reports by this committee and by some committees also at Westminster. I suppose that there is an opportunity here to look at what we might do post Brexit, what ways those structures could perhaps be updated and also to make sure that perhaps they do not repeat the same mistakes that have hampered the current structure. Has anybody got any ideas on how we might move forward post Brexit in that area? I am looking at the two Davids to see who wants to volunteer first. I was going to say that David Bell had more about the governance side of things in his response to the committee, but I think that when it comes to thinking about the governance of it, it seems to me that there are two elements to that. There is the governance between the Scottish Government and the UK Government, which I think is the JMC issue there, but there is also the governance within Scotland. If that is an important part as well, the relationship between Scottish local government and Scottish central government and the role of the voluntary sector in governing the post-Brexit funding arrangements is an issue that arises. I think that there is a question about whether the British Government will want to, in some instances—and I am not saying that it is a good thing or not—to have direct relationships between the British Government and local government in Scotland and organisations in Scotland. What is not at the moment is whether the Shared Prosperity Fund will provide money from the UK Government to the Scottish Government to set out the priorities in Scotland or whether there will still be an element where individual city regions, local authorities or groups of organisations in Scotland bid directly to the UK Government for those things. As well as thinking about the relationship between the Scottish Government and the UK Government, it is also worth thinking about the Scottish Government to the local government and local and sub-national things in Scotland to the UK Government, because it is not clear at the moment where that area is going to end up. I agree largely with David. In his sense, we have a mixture already in terms of these governance relationships. For example, if you think of city deals, the UK Government and the Scottish Government dealing with local government and arranging stakeholders to set up those deals. We have that on the one hand, and then we are trying to merge with that, assuming that the Shared Prosperity Fund in some way mirrors what the structural funds have been doing in the past. We have a system where we have been used to effectively the EU on the one hand, with an intercession by the UK Government. I mentioned that in my paper. In terms of day-to-day administration, most of the relationship is going from the EU to the Scottish Government. We have also got the issue that the principles on which the structural fund has been based are around areas of need, whereas the city deals are around getting local stakeholders together, whether that area is particularly needy or not. I am trying to merge all of that with possibly the UK industrial strategy as an overarching strategy for the whole thing. It seems to me to need some really clear thinking around the governance issue. I do not know at the moment what the answer to that is. Similarly, if I can just switch the attention to agriculture, you have similar problems in the sense that, if we are going to do new trade deals, the UK Government will have a common tariff with whatever countries we are doing deals. The UK Government has got a global interest in agriculture, and the Scottish Government has a local interest in ensuring that rural communities continue to thrive. There is a strong need for a greater level of intergovernmental co-operation around that, and you do see that in countries such as Canada. If that is all right, just on the agricultural point, but not on the trade issue in particular, I am curious to think about this now in the sense that the EU and common agricultural funding that comes to the UK, the EU views the UK as the member state, but thereafter, in terms of the audit and accountability processes, it looks at different paying agencies in each of the devolved administrations. In terms of governance, the Scottish Government is accountable to the EU auditors of various forms on a very regular basis, much to their annoyance, quite a lot, but I am just wondering what the situation would be post Brexit, whereby we would have to have some centralised audit of future agricultural and rural development spending, and who would take responsibility for doing that work of the European Commission in terms of ensuring that the allocation of taxpayer funding is done fairly and is accountable and so on. I am not suggesting for a minute that the UK Government or either the Scottish Government becomes the European Commission mark 2, but, nevertheless, we will have to have something in place that says where funding is being allocated across the United Kingdom and being spent by different administrations. What is the governance process or audit process to make sure that that is being done in a fair and robust way, as we currently have at a European level? That would suggest to me that you probably need some sort of UK body, like an enhanced GMC, of some sort that can oversee that across different administrations within the UK. Joe? My point probably follows on a little bit from that one, but it comes back to the principles of why we are spending the money, what the objectives of spending the money and, therefore, the governance requirements to make sure that the spending delivers the objectives, as stated, which probably requires a finer, greater clarity around the rules about which the funding is being used for and the point about how you then make it accountable and auditable. The spatial level at which you then do that accountability or auditing has to take account of both economies of scale but also local needs and local requirements. If we are moving away from what we have got and we think that what we have got is not necessarily fit for purpose, I think that we will start with why we are doing what we are doing and what are the objectives that we are going to set, and, therefore, the governance should follow that and the accountability and auditing should follow that. Amanda? Really, just to flag up what Johnnie was saying, from a leader perspective, where it is very much funding from the grassroots up and decision making is made at a very local level, so within Scotland it is funded under the Scottish regional development programme, but there are 21 local development strategies that have been made in concert with the grassroots. Each one of those local action plans reflects the specifics of that local community, and across Scotland they vary greatly. One of our fears would be that, if the governance is then moved even further away from it than in Edinburgh, some of that local competency will be lost. I will pick up a bit more, because in terms of the overall scale of things, it is a danger that things such as leader, which are smaller bits of the pot, get missed out, but it is still worth a rink £77 million over the programme time, so it is a substantial amount of money and it is a different model because it is obviously delivering at a rural level, where local people are making decisions about what is happening in their communities. As far as I understand, there are almost 500 projects in Scotland already through the leader process that have released about £31 million from leader fund, but they have levered in another £47 million. I do not think that we should allow ourselves to forget in terms of that structure and that model of delivery that is different to other ones. Thank you for drawing that out, I am very grateful. Just an observation on that. I suppose that, rolling back from just some of the comments there, it would depend on whether the funding was going to a UK level that then set the objectives or whether the funding just went to the devolved administration, so it then set its own objectives. It might be very different, because I can envisage the scenario that you are talking about, where the UK Government was involved in setting the objectives. Yes, it would get a bit complicated trying to figure out how you were going to do it. However, if it is just in a Scottish-only context, do not we have mechanisms already in place? We have charities regulators, we have Audit Scotland, we have a whole framework of institutions that manage public money, where it goes, check that it has been spent correctly, etc. Is that not already in place to some extent? I think that that is true. You will write that the requirements for governance and audit and management will depend on, for instance, if it is just being rolled into the block grant and there is complete freedom of how the Scottish Government spends its money, or whether the objectives are being set at the UK level and Scotland has freedom within certain bounds and parameters. I think that there are some areas where you might want if you like external assessment. I think that agriculture is the point that David raised. Even if the management is being done at this Scottish level, because it interacts with UK trade policy issues, there will want to be some role for the UK in that. I was wondering where there are things that are joint competencies. Agriculture could be in effect a joint competency because of the devolved policy measure, but it interacts with UK trade policy and needs to conform to certain UK-level rules for our trade agreements with the US and Canada, etc. In those circumstances where it is a joint responsibility, could it be some sort of joint between Scottish Audit Office, National Audit Office and Welsh Audit Office, where there are committees between them? Potentially, you could even have someone from England, Wales, Northern Ireland or Scotland, someone from Scotland, Wales, England or Northern Ireland, etc. There is some kind of external critique, but everyone is involved, so it is not just being dominated by Westminster. Maybe that could be an approach to take. I do not know. I think that this is an area where a lot of people do not know at the moment. That is the purpose of today's debate, to get those views on the table, so we will know what to look forward to. Jonathan, do you want to go ahead? I echo what the point just made. In likelihood, although nobody can predict with certainty, in replacing the common agricultural policy for the United Kingdom, we are looking at something like a commonly agreed regulatory framework that is applied across the United Kingdom to cover all sorts of standards, largely to protect intra-UK trade, as well as enable the negotiation of trade deals out with the UK, etc. In terms of things such as animal health, environmental standards and all those sorts of things, there are lots of governance issues there in relation to how finance is spent or, indeed, penalties on payments, for example, and so on. However, in terms of delivery of support payments, as we have now under the common agricultural policy, we have four separate settlements across the United Kingdom, and each devolved administration has its own paying agency, which is ultimately accountable to the commission. It is a bit of a hybrid between having something that looks at accountability across the United Kingdom in terms of how standards are being met and regulations are being enforced, but equally in terms of where funding is allocated and giving to individual businesses to ensure that there is full traceability on how that money is being spent. I can see the National Audit Scotland playing a very serious role, but probably alongside other audit administrations across the UK. My experience is very much at a local level. I work for a local authority, so I only have the experience between the local authority and the Scottish Government at that point. What we see is that even at that level, the level of transparency has decreased considerably in recent years. In previous programmes, there was a lot more peer review in terms of the application process and decision making. To be honest, we do not see that at all any longer. We rarely see any of the papers that are related to the joint monitoring committee in Scotland. They are not published on the Scottish Government's website regularly. I do not think that they have been there since about 2016. I have not seen a paper. From our perspective, it is about more transparency within the process. It is about clearer rules. We were recently in Brussels, and they are very clearly talking about potentially having what they call a single rulebook across all programmes. That is what we would be looking for, and we would make sure that any governance arrangements were the same, regardless of the programme that was coming forward. We see that they are all completely different at the moment regarding leader, ESIF funding and the fisheries funding. If you use any of those, the processes are different. Even within ESIF funding, every strategic intervention lead that is managing money is delivering it in a different way. If we are looking at governance, we need to look at it from the bottom up as well as from the top down, and that process needs to be adapted. I agree with transparency, I agree with clarity and I agree with rules. However, the downside of rules means that you have less flexibility. A lot of the streams of funding that come in typically come in because they are dealing with a particular problem that has a vision and may not be conducive to apply the exact rules that apply elsewhere. The other thing that I am the microeconomist in wants to bring out is the issue around displacement. The more that you have local control, the greater the chance of displacement activity elsewhere within the economy, either at a UK level, a Scottish level or even at a local level. That is not to say that we do not necessarily accept some level of displacement, but if we do not have a discussion about displacement, we create activity that does not generate net economic growth or net social benefit. Iain, is there any particular things from the university sector that you would like to draw out in terms of governance issues? The thing that I would note in the university sector is that largely we apply for funding and get it or not or don't get it, so the actual governance is around are you achieving one project or not. However, the non-European but UK-wide position that I think is helpful is that research is funded according to something that we call the dual support system. There is a particular project, but there is also a block grant. That block grant comes because of UK research and innovation. It comes to the Scottish Government and the Scottish Government can choose how it wishes to use it. The Scottish Government has something called a research excellence grant that goes to each university, so far so good. There is at the moment a very large and exciting programme called the Global Challenges Research Fund, which is funding research to alleviate poverty in low-income countries. The block grant that is associated with that has also, because it is joint with the Department for International Development and the Department for Business, Enterprise and Industrial Strategy, that funding has to be for low-income country work. As a university, one gets now two pots of block grant, one block grant that you can use in any way that you want and which universities can show has enormous leverage of other funds and a block grant that you have to be audited against for its contribution to research to alleviating poverty in low-income countries. I support that very much, but my fear is that we could end up with all kinds of relatively small pots that have to be used in particular ways. It is much easier to be able to have a university-wide economy that says that we are going to try to improve research in ways X, Y and Z without having to think about which block of funds is being used for which piece of money. One thing that we know for sure after this morning on that discussion is that it is a very complex picture that we have out there in terms of the very different arrangements that exist in so many different programmes. I am glad that we asked the question. I am not sure what the answers are. Does anybody else want to, before we move on to structural funds, make a point about Government's issues? I just want to reiterate Joe's point, which I think is very important. There is an opportunity at the moment to have a look at all that kind of funding and to decide whether it is delivering in aggregate what we intend to do. We are looking for sustainable economic growth. There are the kinds of initiatives that are encompassed by European funding, delivering the kinds of objectives that we want for Scotland as a whole. We have tended not to try to do evaluations of the structural funds and so on. It is quite tough to come out with very clear conclusions as to whether those objectives have been delivered. We see down south, at least in relation to agriculture, that a kind of strategic decision is perhaps—we are out at consultation at the moment—it is perhaps going to be made, which is around the support of public money only for public goods. We have not had that debate in Scotland. I am not saying that I support it one way or the other, but we have to think what it is that we want our agricultural funding to achieve. This is an opportunity to think about those issues. I will tie that back in more directly to the conversation about governance. This picks up on something that Ivan said. One of the questions that we have to think about in terms of designing our governance arrangements is what we want the governance to be governing. If we want the governance to be governing joint policymaking, so that, for example—to take that def, for example, that you just put on the table, David—it would be a UK-wide policy that we want agricultural support to support public goods. If that is a UK-wide policy decision, then it needs to be made, it seems to me, through an institutional structure that enables the four Governments of the United Kingdom to come together and agree that as a policy outcome. That is a very different sort of structure for governance arrangements from the one where you have a single set of very broad objectives being filtered down and delivered by different Administrations in different ways. It is not just a question of what you want to achieve that will determine the governance. It is a question of what it is that you are trying to co-own, what it is that you are trying to co-govern. My reflection on this conversation is, I think that there is a kind of puzzle that we are much nearer at the beginning of the end of about how much post-Brexit we want to copy and paste EU structures into the UK post-Brexit. Do we want to have a system of centrally imposed directives in the UK that enable each Administration in these islands to pursue common goals through separate means, which is what European directives do? We do not have anything like that in UK law at the moment, neither in England nor in Scotland nor anywhere else. That is one question. If we do not want to do that, what do we want to do instead? For me, as a lawyer, the elephant in the room here is that no one has talked about courts and dispute resolution. The big difference between the way EU law resolves disputes arising out of these issues and the way in which we have hitherto resolved disputes arising out of these issues in the UK is that in the UK, our JMC machinery that Ashdellyn talked about in her opening remarks is entirely political. It is informal. It does not use the courts. We do use the courts for disputes between central and local government in terms of funding, but we do not use the courts in terms of disputes between UK Government and devolved Governments in terms of funding or anything else, apart from questions of competence. In terms of the JMC machinery, there is no judicial architecture attached to that. One of the big questions for us is the extent to which, if at all, we want to make these questions what lawyers would call justiciable questions that you can litigate in courts. That is probably a good place to move on to the next discussions. You do not want anything else to start with? Although the MD can be, we can spend all day asking, but that question has got to be answered, but it is obviously something that everyone needs to think about as we go through this journey. Will we move on to funding mechanisms? Mordo? Thank you, convener. We touched on this briefly in the previous discussion, but I want to open this out a bit and look at what are the most appropriate mechanisms for distribution of funding across the UK post-Brexit and what impact that might have in Scotland. David Bell and your paper have written quite a lot about this particular issue. There are two broad approaches. One is to say, let's in effect replace EU funding mechanisms with UK-wide structures, which will allocate funding on some agreed basis. The other approach is to say, in effect, we will take Scotland's share, however that might be determined, or the devolved administration's share, and just give that as part of the block grant to the devolved administrations who will then have flexibility to divvy that up as they see fit without having that UK-wide element. I am wondering what the views are in relation to those two different approaches. If it is the second approach, how then do we determine what Scotland's share is? Is it on the basis of the Barnett formula, which, of course, has only been applied in the past to changes in Scotland's budget allocations? If I am right, Scotland's share of UK spending has historically been much higher than our population's share. If it was done on a Barnett basis, it would represent a reduction in the proportionate amount that we were getting. If it was not done on Barnett, how else might it be done and what the implications are? That is an easy one to start with. When you are doing that, you can really explain to us. There seems to be a difference of view about whether a Barnett formula process will be advantageous or disadvantageous to Scotland. I would like to understand that a bit more, and I do not know that it is probably starting with the two Davids again here to get this kicked off. I am not doing that intentionally to you, but— I think that on this disagreement that you are saying, or uncertainty about whether Barnett would be beneficial or costly to Scotland, it sort of depends on what we think is going to happen to the level of funding once you initially set the level up. Starting off, the Barnett formula will not tell you what to set the initial level of funding to be. You would need to make that decision in some other way. It could be to set it based on existing allocations in the EU funding. It could be based on some other assessment of spending needs for the different areas that are going to be funded by these placement funds. The Barnett formula would, in effect, be beneficial if, over time, those allocations were to be reduced in cash terms. That is because, when you sum up agricultural funding and development funding, Scotland gets quite a bit more per head than England does. Going forward, the Barnett formula would say, give the same per person pounds per person change in funding. Scotland started off with, say, 200 pounds per head and England 100 pounds. It was being produced by £1 a year per head in England. Well, England is getting a 1 percentage point four every year. Scotland is getting a half percentage point four every year. When funding has been cut in cash terms, Scotland benefits from the Barnett type per head arrangement. However, when funding per head is increasing in cash terms, that same £1 per head increase is a 1% increase in England, but only a half percent increase in Scotland. Scotland loses out when funding is increased in nominal terms under the Barnett formula. I guess this is where uncertainty is. The messages from the Westminster Government agricultural funding certainly suggest reducing direct payments to farmers over time, but it is not clear if that means a reduction over all levels of funding for rural areas or whether it will be shifted more into shifting the funding from direct payments into rural development and greening initiatives. For regional development, there is really any signal there about what the likely outcome would be, but I would say there is. A cash terms freeze is quite a significant reduction over time. If it were to say a real terms freeze, because that implies that it is still going up in cash terms, Scotland would lose out from a real terms freeze in England, because it is still a cash terms increase that should be small in percentage terms in Scotland. If it really depends, do you think that in cash the budget is going to be falling, in which case Barnett is good for Scotland or rising, in which case Barnett is bad for Scotland? That is exactly the point that I made in my paper, so I will not repeat it. David Scott is absolutely right. It all depends on what is happening with the cash budget, whether it is going up or down. It is advantageous to Scotland relatively when it is going down, although that may still mean a cut in its funding. It means that it is less of a cut than England is getting, basically. That is why, in the paper, I give the example of the pillar 1 payments, if they disappeared, Scotland would still have some money at the end of it, even if the amount of spending in England diminished to zero. Agreeing with David Scott on the detail, there is the question of principle here. I point out firstly that, if the money goes into the block grant, that means that, effectively, it is in competition with health, social care and education, and all the other forms of funding, and we know that there are pressures right across the system at the moment. The other thing is that, Bruce, that you mentioned at the start, and the Barnett formula in a sense does not help because it is not a measure of need. The EU principle around the structural funds is that you allocate it on the basis of need, and you measure need in terms of GDP per capita. Scotland, at the moment, is pretty much not that much different from England. Wales is significantly lower GDP per capita, at least in West Wales. It is the principle about whether we are going to use need as an indicator or just allocate Scotland some money at the start and then let Scotland use it as it likes. Scotland could have its own indicators of need. Most money that is allocated within Scotland is already on the basis of need because all education funding, all local government funding, all health funding takes account of the number of pupils, the levels of disability in the population and so on. The overall question is, should the UK Government determine need in terms of a global view across the UK economy, which would probably mean that perhaps even more structural fund money would go to Wales and less to Scotland, or do you just hand over a bunch of cash to the devolved Administrations, arguing perhaps that they know best how to deal with their own patch and let them allocate money to the highlands or to deprived areas in Scotland? There is not an easy answer. Again, we come back to the governance arguments around that. Again, it is a critical question that we have to think through in the relatively short space of time. Now that we have figured out the reverse Barnett squeeze, I want to throw a few more interesting things into the pot to get your take on it. Clearly, the Barnett squeeze depends on relative population growth. Although starting from a position where Scotland has a higher per capita revenue coming in from the Barnett formula, if we are in an environment where we would hope to be, and which may happen given the differential actuused immigration where Scotland's population is growing faster in percentage terms in the UK's population, clearly that has got an impact on whether the reverse Barnett squeeze is certainly the quantum of it, if not the direction. Another issue in there is clearly that Barnett is not the only mechanism for allocating funds. There is a third option, which is to invent a new way of doing it, which is effectively what the Fiscal Commission does because you have the IPC in there that protects your population growth impact. There is another way to do that. Just on top of that, if I am correct, the more revenue that is devolved to Scotland, unless that could be once on the table in a post-EU environment, the situation in which the impact of Barnett is smaller because the BGA is bigger and it is protected through the IPC, through the fiscal framework, at least until 2021. If I am correct, my assumptions are just like your take on those. I will let you think about that and then while you are thinking about it, I will let Ian in. Thank you very much. I just wanted to make a point about the issue that David made, which is policy effectively best made on one's own patch and points to the current example of higher education broadly defined, where in each of the four nations that make up the United Kingdom, higher education policy has been diverging at some rate, so that in Scotland we have a very, very different policy to anywhere else. That is achieved by the Scottish Government taking a view that it wishes, for example, to fund fees and in research that it wishes to encourage in a Scottish way the interaction between universities and industry to drive the economy. Those are made against, as has been said, that it could be spent on education, it could be spent on health, it could be spent on any other things, but the bottom line is that the Scottish Government is taking decisions about what is best for Scotland on a block grant basis, as opposed to those decisions being taken, for example, in the UK-wide and then having to be enacted across. I might argue that it is working quite well in research at the moment in every way. The question from Mido Fraser was, do we replace EU funding with UK-wide approach, or do we look at Scotland's share and allocate that through the existing block grant approach? Our view on this is quite clear and quite crude, I guess, but nevertheless I hope that it gets the message across. Clearly, CAP funding, particular pillar 1 funding, comes from the EU, comes to the UK but then goes straight through UK Government's hands and into Scottish Government's hands, at which point it is also entirely ring-fenced. It cannot be spent on anything else other than direct agricultural support and other things as well, and a significant amount of the pillar 2 rural development funding is of the same milk. Any suggestion to us of what the future budget might be that the UK Treasury might allocate to replace current UK CAP funding is key, obviously. We would argue that it has to be at least the same quantum, but thereafter the big question for us is then how it is allocated on a UK-wide basis, because currently we get 16.3 per cent of that UK funding from the CAP, which is a significant difference from the Barnett equivalent, which would be about eight or nine per cent. That immediately sends a few alarm bells ringing. The second question after that is, no matter what the allocation would be to Scotland, is that once it comes into Scotland, would it be ring-fenced? The point has already been made about where would it have to sit in terms of competition with other things, and we all recognise that there are hugely competing demands on limited public funding. There are significant concerns on our behalf. I am intrigued by the comment about Barnett not being based on need, and I think that that is absolutely right. That goes back to the earlier conversation about what our objectives are. Given that Scottish agriculture's reliance on agricultural support is significantly different from other parts of the United Kingdom, given the very terrain in which we find ourselves operating, particularly our beef and sheep producers in more marginal areas, which is not just about food production, but about sustaining communities and rural development issues and so on, I would argue very strongly that the allocation of future funding should be made in a very different way from Barnett. We have several different criteria, which would suggest what that would be across the UK. Finally, a real concern goes back to the issue of intra-UK agricultural trade, or competitive advantage, in the sense that if you had a significant change in the current allocations, i.e. you went to Barnett's approach, you would get them and let's assume that the Treasury continued to fund to the same extent as we currently get from the EU. You would get a rush of funding into English agriculture, which you could argue doesn't need it, and a rush out of marginal areas in Scotland, and possibly Northern Ireland to degree, but they are in a slightly different place and certainly parts of Wales. That funding level might be one thing, but it would almost immediately cause some sort of collapse in particularly our red meat sector. In a sense, that would put us at a very difficult competitive position within the UK agricultural market, let alone anything to do with Europe. Finally, I think that one thing that we need to recognise in this whole approach is that, under the CAP, discussions have already started at a European level about the next programme for the CAP, and there are already suggestions of significant funding cuts to the CAP. I suspect that whatever the Treasury does will probably follow that model at the very least, if not go further in some sorts of cuts. That is something that we need to be mindful of, is that whatever happens to the CAP is likely to be an influence on decision-making by UK Treasury. I am not sure whether I am answering your questions. I am probably just raising more. I think that I was invited here as somebody who has hands-on experience of managing structural funds, so 20 years of experience since the 1997 programme till now. To be honest, I have seen significant changes in the level of information that is required, the audit process, the bureaucracy and things like that. We have seen it go to the last stage where we received an invoice for the Scottish Government for £16, because we rounded up two of our invoices in a claim to the full pound. I was like, I will just give you out of my pocket, because surely that is cheaper. However, where we are coming from as local authorities and as the East of Scotland European Consortium, there are a number of issues that need to be thought about, one of which is the match funding issue. You can give us all the money in the world that you want, but if we do not have any match funding, if that is a requirement of delivering projects, we cannot deliver anything. Aberdeenshire raised it as an issue. It was awarded a pot of money for the European structural funds for delivering employability programmes. It did not have the match funding at the level that is required to draw down all that money, and it could not do it. It was then allocated—you are talking about need versus opportunity and things as well. It was given a rurality index in terms of what it might need to deliver a programme. It meant that, with an unemployment rate of about 3 per cent, it was awarded more money for employability than Dundee City Council was awarded, because we were in urban area, and therefore we did not have that rurality index. We have to be really careful to look at the need versus opportunity, at what level you are looking at it at. It comes from Europe at nuts to level, which is far too large to even address local versus regional disparity. It also relates to who is making the regional policy or the local policy, and the money needs to follow those levels of opportunity. The only other thing that I wanted to say was that the timing of any replacement funding that comes from the UK Government, whether it is to the Scottish Government or directly from them, is really critical. We are not seeing it being developed fast enough at the present point in time. We have only got to 2020 to identify what the future is for us. That is very helpful. David, do you want to try to pick up an Ivan's question to you at the same time? That is a general question, if you can still remember where it was, because I can't remember it. I am trying. Sorry, I was thinking about areas, too, because we probably have to have at a UK level some kind if we are thinking about how to measure need. We probably at a UK level have to have an agreement about what are the areas, so that the areas are not gerrymandered to provide the level of need that generates the support. It is not correct to think that the Scottish farmer should not be terrified about the Barnett formula in the sense that, probably in the first instance, Scotland would get, as David said, 16.3 per cent of the funding. Barnett only applies then to the changes. In cash terms, when the money is going down, Scotland slightly benefits, as I said in relative terms, and it will slightly lose out when the cash budget is going up. If the budget is not changing that much, the 16.3 per cent does not change that much. It is incredibly important that, if you are making a real indices or measures of need that you take into account rural areas, too many measures of need simply take a multiple deprivation approach, and they are heavily biased towards urban areas. Rural deprivation is hidden, and it is important that Scotland is lost completely. We really need a sophisticated measure if we are going to measure need. I was going to follow up on Ivan's couple of questions and some other bits related to that. You are right if it is more about population growth. More generally, the Barnett formula becomes less advantageous to Scotland because it takes population growth for the increment, but not for the baseline funding. You are right that the IPC method would both avoid the issue about any kind of convergence, either because of population or because of the £1 per head difference being different as a percentage, because it is based on percentages rather than £1 per head. Coming back to some of the bigger questions, we can separate the issue about whether it is ring-fenced from whether it goes by the Barnett formula. You could still have some kind of needs assessment based on certain characteristics, whether it is agricultural need or deprivation and economic disadvantage, which might be a broader term type of need, but you could still give discretion of how that money is spent. To give an example, it could be that you look at the relative levels of deprivation or disadvantage economically to decide how much funding to give to Scotland or areas within Scotland. The local government or Scottish Government has discretion on how to spend that, because maybe the best way to tackle that deprivation is not a traditional economic development type of policy, but maybe it is better social care and better education because that will let people go back into work and improve human capital in the longer term. You can separate out the way funding levels are determined from what they have to be spent upon, although I bear in mind that there will be issues about whether certain sectors feel that they could be squeezed if there is not some kind of ring-fencing. I think that there is an issue about need. If this is a section on regional funding in particular, how need is defined within the UK for local government funding is quite different from how need is defined for EU funding. Need for local government funding is based on deprivation, if you like, whereas need for EU funding is based on GDP per capita. Actually, the patterns of those differ quite significantly across the country. A lot of the areas with the lowest levels of GDP per capita are rural areas. A lot of the areas with the biggest levels of deprivation are urban areas that have quite strong overall economies. I think that you need to determine what is it that is need, how progressive should it be according to need? Cymru, it is very progressive. There are a lot of decisions to be taken there, but I am waiting for enough time for that answer. If I interrupt your flow, forgive me, I am just thinking that these are big, big questions, they are the only thing that I am saying to Adam. I am reflecting on something that you have been saying, so forgive me. At the moment, the EU funding is very progressive, and it has this big cliff edge in there. If you are less than 75%, you get much more money. That is why West Wales and the Valleys and Cornwall get so much more than somewhere like South Yorkshire, and maybe I guess some parts of Scotland are just above that threshold as well. That also gives you the incentive to gerrymander, as David Bell said. If you get just below that threshold, you get three times as much funding. That certainly happened in Wales. It has happened in London as well. It is classified as a transition area, because they have taken all the intersections out. The last thing that I would raise here is, as well as thinking about the need, what role is there for outcomes and what role is there for competition in the bidding? I do not understand it. Within local areas, there is competition over projects. What happens is that projects apply and there is some kind of—not necessarily formal competitive tendering, but it is almost—they judge the cost benefits of different policies and decide which ones to fund on some kind of criteria. At the regional level, there is no such—it is based on needs measures. Would there be some scope or some role for outcomes or competitiveness to be taken into account at that level as well? I am not saying yes or no, but that is an important decision, because that is how city deals are going to have an element of that in there, or growth fund deals. I do not know we as well, because it is a competition for resources. Felly, I am disagreeing. Too often, we are engaging our discussions around need in a historical way, because the data only allowed us to look at a big area, and so we have to worry about how do we make this big area. We have all the ability, using now data that is available from administrative sources, from other sources, at a very local level to take local levels of need and build them up in whatever way you want to in a way that does not get in the problems that you get if you take a big area and then you lose people and have cliff edges. It is not rocket science, it is perfectly possible, and Scotland is better than just about anywhere else that is doing it. That is a strong point, Patrick. Thank you. I hesitate to make this even more complicated. Once upon a time not so very long ago, we basically just had the Barnett formula, and people thought that was complicated enough. Then we built on top of that a fiscal framework to deal with the devolution of tax and social security and other issues in the most recent Scotland act, and that is another level of complexity. That is due to be reviewed under the agreement between the Scottish and UK Governments by 2020-2021, with recommendations for change coming to the end of that period. That may or may not be at the end of what seems like quite a stretchy transition period in European terms, but is there a danger that if we have that process and the design of new funding mechanisms that may or may not themselves be based on Barnett, if we have those things in isolation, we will make a mess of both? And how much of a challenge is trying to combine those two together? Emma. That is a quick point. Last time, David Mundell, the Secretary of State, was here and said that the farming would not be Barnettised. I am wondering if that suggests that he is ahead of the game and some other fiscal framework will be set up that will be completely separate. Obviously, Scotland has a disproportionate need for support for our rural economy. 73 per cent of the land in Scotland is agricultural holdings, and we have 85 per cent less favoured area. We need a different solution for the way things are looked at for Scotland. Several points I want to pick up on. I want to reiterate David Mundell's point about capture the money now, rather than put it over to a competition elsewhere. Put it in the block grant and then work with Barnett. It would seem to me a simple way to pick up Patrick's point about why we come up with a new system when Barnett already exists and whether you like it or not, it has worked. The idea that you would then develop or think about whether it should be ring-fenced or not is a really important issue that needs to be debated. Agriculture is important, but it is not as important as other sectors in the UK economy for growth purposes. Clearly important for rurality and rural sustainability. Are we funding agriculture for its rural sustainability purposes or are we funding agriculture for its growth, trade and economic benefits? The debates need to be had rather than just to assume that we continue with the ring-fencing of agriculture, because we do not do that for any other industry. My other point would be about setting up a needs approach that is extremely difficult to do. If you open up the level of funding to a needs assessment, what do you do to the rest of the Barnett formula? Wales would argue that the Barnett formula is not fair for them on a needs-assessed basis, so opening up needs on that is a leverage for the rest of the block grant. Following on from what Emma Harper said, you are right that it is unlikely for agriculture certainly that Barnett is going to be used. The talk about using it for public goods purposes is that if it is going to be used for public goods purposes, there is no necessarily relation between the size of the public goods that can be delivered versus the size of a population. If Scotland has a potential for more public goods to be delivered because of its larger rural landscape and historic degradations of farmland, moorland and forests, maybe there is more scope for public goods and if Scotland should get much bigger than population share, and that should be increasing more if Scotland is doing more to deliver on those things. The rhetoric suggests that Barnett would not be used there. More generally, the point that Joe Ray does is that, first of all, would that open up debates about needs being used more widely to replace Barnett? Well, certainly Wales would try to use that as leverage, I am sure, but the Scottish Government would certainly push back against that. I am not sure that Wales has greater leverage on that issue than the Scottish Government would have. I am not sure that it would be a threat to Scotland's relatively high levels of funding under the current arrangements. I do think that applying Barnett to development funding would have big, big impacts on Wales, for instance. I am not saying that as a Welshman, but it would have a very large impact on Wales. For that reason, it is quite unlikely to go and simplify the Barnett formula. Currently, regional development funding is about six times per capita higher in Wales than in England. The Barnett squeeze would get on that. In a few years, that would come down from 600 to 400 to 300. I think that, because of the size of that squeeze, it would be politically very challenging for the Government to roll that into Barnett, and not to be seen as penalising the poorest region of the UK. I would just like to pick up on a couple of the points. First, the measuring need is incredibly difficult in rural, and we have learned through leader and other programmes that SAMD is not fit for purpose. Although there are some efforts to try and look at how we can measure that, there are problems within rural communities themselves about measuring it. Things to do with privacy and shame, really, is that people do not come forward. We have seen this whether it is with rural homelessness or rural poverty. Those issues are hidden and very difficult for us to use as metrics. I just wanted to flag that up again. The other thing is that we tend to think about CAP as farm payments. That comes to Joe's point about rural sustainability. The money that those farmers or agriculture receive does not just sit on the farm, it trickles through the rural economy and helps to provide jobs and livelihoods for a lot of people in rural communities. That is really important. When you take that together with leader, which is the other source of funding for a lot of rural communities to put together projects about the rural economy and creating jobs or whether they are looking at the social aspects of rural life, leader has the advantage of additionality. In a lot of places, it is used to bring other external money into the rural economy. Rural communities feel like they are being hit everywhere at the moment. The farm payments are going. They will not be able to use leader money for match funding. It means that we have to take another look at community benefit funds. Most of those have clauses in them that insist on communities finding some form of match funding, which is very few and far between the opportunities. I just wanted to cover that. Roughly for every pound that Scottish agriculture receives in direct support, Scottish agriculture, through farmers and crofters, is then spending about £5.30. It is a multiplier of about five in terms of cost. Not all of that is getting spent in local economies, but an awful lot is, and it sustains a whole host of upstream suppliers, trades, businesses and so on, hauliers, vets and contractors. It filters right throughout the Scottish local economy and full economy. Downstream, the other point is key. Yes, agriculture in its own right is not a huge employer with 65,000 full-time jobs. It is not a huge part of the Scottish economy, if you look at it in isolation. In terms of its contribution to Scotland's food and drink sector, which is significant in terms of employment and importance to the overall economy, it is the producer of the primary product. The Scottish Government has an existing target of growing the food and drink sector from a turn of £14.5 billion per year to £30 billion a year by 2030. I suspect that it will fall far short of that if we do not keep an eye on how funding is allocated to agricultural businesses. Equally, I am also saying that agricultural businesses are not just about food production, but about everything else that they do in terms of local community, local economy and managing our environment. The next section that we are going to have a discussion about is agricultural funding, but we have already gone a fair bit down that area. In terms of the agricultural funding issue, do you want any other comments on it or any other questions on your go? Could I just add to that last comment? I think that it is perfectly defensible to argue that agricultural funding is there to support the provision of public goods, which is mainly about environmental improvement and also about sustaining rural communities. We are going right back to the start of the discussion in terms of governance of all of this. The UK Government will not want to be in a trade negotiation where the other side—the US, Canada or whoever—is saying that nothing much is going on in England, but you are supporting the incomes of farmers in Scotland and we will use that in the sense against you in terms of those trade negotiations. The way that agriculture is currently being supported is probably allowable under WTO rules, so it is not supporting the production, it is delinked from food production. However, the Scottish Government will have to A. make a good case about how it supports agriculture and B. be in a position to in a sense participate, help the UK Government when it is in these trade negotiations because these are going to be apparently many of these are going to occur within a relatively short time now. I have a question, actually. Do we know how much of the land for agriculture in Scotland is rented as opposed to owned by the farmers? You might expect that agricultural subsidies could get capitalised into land values, so ultimately the beneficiary of the subsidy is not the farmer but whoever owns the farming land. If the farmer is the owner, then it is the farmer that is benefiting, but if not, there could be a bunch of lads living it up. In terms of agricultural land, the ballpark figures about 30 per cent, but that land is let in a whole host of different arrangements, be it secure tendencies or even just annual grass, let farmer to farmer, letting a field here and there. However, to make an assumption about agricultural support being capitalised into land values is absolutely right. That has happened since the repeal of the Corn Law in 1870 or whatever. Ricardo's theory of rent, the price of corn is not high because rents are high but vice versa, and that is exactly the same today. That is absolutely clear. An unequivocal flaw of the common agricultural policy in our opinion, in my opinion, is that an area-based payment has no reflection on how you farm, but it is about occupation of land. The occupation of land being the means to unlock a payment is a very blunt, crude and inefficient way of supporting an agricultural industry or indeed deriving environmental benefits or anything else. We want to see a move away from the CAP and how CAP payments are made, but the challenge, which is pointed out by David, is that once you move away from a very decoupled area-based payment, depending on how you do that, you could then be challenged in terms of other trading partners to say that you are directly supporting production. We think that we have solutions to say that it is not about directly supporting production, it is about not tons of wheat or head of cattle that you have, but how you manage your land. That is one of the arguments that DEFRA will be using in terms of if they are paying farmers for the delivery of public benefit or driving productivity gains rather than production, which, again, is something that we would say is the right direction, then we think that we can overcome that. The CAP, without question in my opinion, has incentivised inertia in Scottish agriculture and we have, for the last 45 years, farmed in a way to unlock a payment rather than what the market wants or indeed what society wants. We believe that this is now the opportunity to move away from that, but we need to move away from that very carefully. We are not saying that we should reduce the amount of funding that goes into Scottish agriculture far from it, but it is how we spend it on Scottish agriculture, which has to change. That is the clear distinction. The CAP has long been ready for reform and, arguably, Brexit is a catalyst to move that process on very quickly, but it is avoiding cliff edges for our more vulnerable beef and sheep producers in particular in certain areas because they need to manage that change process. Scottish Government, ourselves and other Administrations are in that same view and in that same vein. That is going to be a difficult and challenging time. We want to get to the place where we have clear objectives of what we want farmers to do and how we will support them, but, nevertheless, we cannot race to that very quickly. Otherwise, the collateral damage could be significant in terms of rural areas, rural economy and so on. Thank you, Joe. That is helpful. The committee is about to undertake a more substantial piece of work on common frameworks and what they look like, what they feel like and how they are negotiated, and all that is described in front of our minds as we look at what those arrangements are going to look like. Joe, I saw you nodding your head away bigarishly there about things. Alexander, do you want to pick up anything at this stage? My question is really about the WTO point, which I think has already been covered very well. Johnathan also mentioned the next round of cap. Does that go the same way as where we think the WTO is going in terms of moving away from production support? I think that the direction of travel at a European level in terms of the CAP really shifted on a gear in 2005 with the decoupling of payments, and in 2013 that was taken a step further with the introduction of things such as greening measures in pillar 1. I cannot see the direction of travel changing at a European level at all. I think that it will continue down that route. A major proposal coming out of those early discussions and papers from the commission is that they are looking at the capping of payments to individual businesses. That is partly a budget management issue because the CAP is a huge expenditure issue for Europe, and it is also about how you rebalance funding from perhaps the old member states of Western EU, the Germanies of France, the Spains, etc., with the newer member states and how we move to this more converged level of payments across what will be 27 member states once the UK leaves. That is the broad direction of travel, but built into that will be an increasing expectation of farmers delivering more in terms of public good, as at the same time producing food of a standard and equality and with traceability and all the rest of it around that as well. I think that we have covered agriculture adequately, as any other points want to make. I would like to make sure that we get you. I do hope that when we take those on board that we move to a system of funding that incentivises both agricultural production and environmental protection, because that can be done. There was a very good piece of work that the Economic and Social Research Council about 10 years ago evaluated, which showed how incentivising farmers to reduce their impact on the environment worked very well. That could be seen as part of what Jonathan was saying about the public good. It is making it a little more complex in the goals, but those that impact not only on agricultural production but on environmental protection seems to me to be a good thing. That might help with WTO rules as well. The direction of travel, we believe that the future is not about area-based support, direct income support if you like, but about combining improvements in productivity with tackling the big issues around the environment in terms of climate change, water quality and biodiversity, but those two things are not being separate parallel exercises, which they have been to date, but are actually very complementary overlapping. The more efficient you are in your production system, the less input you use, etc. There are win-wins to use a cliché all over the place, but we have not grasped them and now we have an opportunity to do that. We have already produced proposals that would try to bring that into play and mainstream that as how agriculture should be supported. We are moving into areas of research funding. Willie, you are going to kick that way off. I know that you might have to go about it. It is actually a good fun. I am learning so much. Good morning, everybody. Turning to research funding, we know that research funding put through things like horizons worth about 80 billion euros over the period up to 2020. Universities in Scotland have been particularly successful in that area when research funding gained about 11 per cent of the UK allocation of those funds. What do you think will be the impacts on Scotland, on Scottish universities and others, if we no longer have access to that funding stream in Europe? Presumably the UK has a decision to make about whether it will continue contributing to that fund to allow Scottish universities to apply for all the funding. What do you think of the implications of that if the funding stream is withdrawn? The first thing to say is that, in the Prime Minister's general bank speech, she was very clear that it is the wish of the UK Government to remain part of the European funding stream. That requires negotiations that I certainly am not able to comment on at all, but I do think that throughout the discussions there has been a consistent view that we would wish to remain part of the European research enterprise, not least I believe, because European research is much better with the UK being part of it because of the UK's strength in research than the UK not being part of it. I believe that, without trying to sound arrogant on behalf of the UK, that Europe needs the UK in research as much as the UK would like to be part of the European research enterprise. Scotland is extremely good at competing for those funds, and Scotland outperforms, in percentage of the population, other parts of the UK. Having said that, your question was what happens if the wishes that have been made thus far do not happen and we as a nation do not have access to those funds. Clearly, it would then be for the UK, as a whole, to decide how much funding to allocate to research. It is worth saying that the current UK Government has increased the funding for research and innovation by £7 billion in this Parliament. I would expect Scottish higher education to be very successful in bidding for much of that fund. There is already a commitment to research and innovation that exists. I would hope that, if we were not able to access European funds, there would be an increase in funds. I would expect that Scottish universities would continue to outperform, or at least to do very well in the competition that exists. If there was such an increase, it is important to recognise that enshrined in legislation in the Higher Education Act of the UK of last year is the dual support system that I described earlier, and an increase in funding would lead to an increase in the block grant to the Scottish Government. The Scottish Government would then have the ability to take whatever decisions it wanted to take about funding research, the block grant part of that, within Scotland. The only point that I would then further make is that, whereas in the 17th century, shall we say, research was done by individual scholars locked away in garrets for a very long periods of time, research these days particularly on the big challenges that the world faces is undertaken by multidisciplinary teams and multidisciplinary teams because knowledge knows no nation-state boundaries that cut across nation-states. We would need to find ways to enable the best researchers in Scotland to be able to collaborate effectively with the best researchers elsewhere in order to really be able to address some of the magnificently difficult but important problems in research that the world faces. Thank you. I would like to follow on from what In Diamond was saying. In part because of the kind of collaboration that it opens up, but also because not only is Scotland better than the UK on average in terms of its success rates, but the UK is better than the EU in terms of its success rates. It is performing well in a country that is performing well. There could be benefits financially and in terms of research collaboration from remaining in EU-wide schemes, so in Horizon 2020, within the European Research Council etc. That will require a contribution from the UK into the EU. The rules are somewhat different for non-EU members in terms of setting the priorities for what that research stream looks like. Being outside of the EU, I think that it is the case that you do not have quite as much influence on the design and allocation of those Horizon 2020 funding as if you were a full member of the EU, but that could have implications for how much funding you get back if it shifts towards funding priorities that other universities and other countries have competitive advantage in. If the contribution is based on population or GDP, you would expect to get more than that back unless there was quite a substantial changing of priorities and changing of allocations post Brexit to the UK into Scotland. If you cannot be in the EU schemes, there is then a question about how much of that funding comes back and is allocated at a UK-wide level through the research councils such as ESRC, the Physical Research Council etc. versus how much of that goes into the block ground to be allocated by the higher education and research bodies of Scotland, Wales, England and Northern Ireland. I am not sure if there is any set for portions that are set by this act that was mentioned, but there could be a trade-off between how much control does the Scottish Government have on the priorities over how much money is spent. Clearly, it has more control if it is mostly allocated to the Scottish Government to allocate as part of its research funding versus scope for collaboration and scope for getting above a higher share than your population if it is at a competitive level at the UK level. There are also decisions about what criteria should be used to allocate that funding. Is it just based on pure quality of the research proposals or are there other objectives that have been trying to be met by this funding? For instance, would this funding be partly seen as being an element of regional policy where not only is it aimed at supporting innovation, but it is aimed at supporting innovation in more deprived or less advantaged areas? Not saying that is a good or bad thing, but in fact you can say that being in the EU gives the most scope for collaboration and potentially the highest levels of funding, if the degree of success was to be sustained, through devolving down Scotland would give the Scottish Government the most control about the objectives and the type of research and innovation that funding goes towards. The first is that Scotland has always been clear that it sees the competitive nature of funding across the UK as being desirable, and there is considerable evidence to demonstrate that the UK's competitive funding scheme has led to the UK being one of the very best countries in the world for research. Part of that has always been based on the view that it is excellence that is the key thing. One of the things that has been said about our potential participation in European funding post Brexit is that we would wish funding still to be based on excellence, and it is on excellence that we believe that one can do very well. The other point that I just wanted to make was that I deliberately did not talk about third country models because I could be here for three days talking about different third country models for participation in European research funding. The Norwegian model, the Swiss model and the Israeli model, we can continue. They are all different and it does seem to me that this is one area where, if both parties wish to participate, and certainly the UK view, and I would submit that of Scotland, is that we do, then there needs to be a sensible conversation about how best to ensure both excellence and influence. So quite a lot has been said about the flows of funds. I just want to make a quick point about the flows of people. I think that it is really important that, yes, we can try to organise some kind of deal in relation to horizon 2020, but it has been vitally important for higher education institutions in the UK and in Scotland to also have the people from Europe coming across, spending time here, and that kind of interaction that Ian was talking about helps to develop excellent research. I am one of only three British people in my department, only two Scottish people. We do benefit from all of the international linkages that having people from Mexico, Belgium or wherever within the department, and that helps the research in itself, aside from any funding issues. Chair, you asked me about research and I responded about research, but given David's helpful interjection, could I also say that some of those European scholars now in David's department may have first come on an Erasmus undergraduate visit to spend a semester in Scotland. I think that we need to recognise that encouraging, as the Scottish Government has always done, encouraging both Scots students to spend a semester outside of Scotland and to encourage European students to continue to study in Scotland, which is good not only for the short term but for the long-term benefit of higher education in Scotland is incredibly important. I just add three really quick things. One of them relates to what Ian Diamond was saying about the third country models. Whoever model we end up with, we are only likely to get out what we put in. We will not, as a UK, gain more money from Europe as we are now. We still have an opportunity as Scotland to try and gain more money out of the UK pot, but it really is what you put in and get out. You would have to have a really difficult negotiation to try and get any further. One of the other points that was raised was about the future programmes and how we engage in what those priorities are. I think that it is safe to say that we are still in the negotiations at the present point in time, and many of the programmes for the next multi-annual framework are being developed right now. We need to make sure that our priorities are put into those programmes, because they will be there for the next seven years, regardless of whether we are there or not. Finally, it talks about the research and about the people in Erasmus and Horizon 2020, but there are a whole host of other transnational programmes out there that are really not being talked about. The universities have a very powerful lobby in terms of Horizon 2020 and Erasmus, but from a local authority perspective we engage in research, hands-on research, through a whole host of other programmes, particularly interreg programmes that allow us to learn from best practice and experience elsewhere in Europe and allow us to do the same things that universities do through Horizon 2020 and Erasmus. It is not really being talked about at that national level at the moment, as strongly. I wonder if you just tease that a wee bit more about what interreg is and what other programmes like that the local authorities are involved in. I think that it would probably help everyone to understand a bit more. Interreg is a structural fund and it is an interregional collaboration programme, so it is one of the ones where you go in and you have anywhere between three and thirteen partners across Europe. Most of them are about us learning from best practice or us exchanging experience and collaborating. You develop new policies as a result of those programmes. We are involved in a couple at the moment, one that has been running, which is called Create Converge. We are the lead partner in that programme, and it is very much looking at how digital industries in the film, games and sector can use their skills to develop other economic sectors and how they can use filming underwater to help to develop the oil and gas industry, for example. It is about convergence of those industries. We have other partners in the programme looking at cultural tourism and creative tourism, which is just about to start. For us, as a city who are about to start developing, hopefully, a stronger tourism product, those types of participations and learning from others about how they have done it are really key. Interreg is one. There are lots of others that we have engaged in in the past that probably are going to be rolled in to bigger programmes in the future, such as intelligent energy in Europe, the urbact programme, which is the only programme in the EU that focuses solely on urban issues. There are those sorts of programmes that we have participated in and would like to still be able to. From a local government perspective, they are much easier for us to access than programmes such as Horizon 2020. In research areas, have we teased it out? David, have you got another point to make before we move on? Just one very quick point. It comes to collaboration. If we are not in the EU scheme, which I think is the consensus that is good to be in that scheme, it would be worthwhile both the Scottish funding body and the UK funding bodies doing more to set up collaborative programmes with other research bodies, whether that is with the ERC or directly with individual country ones. For instance, ESRC has collaborations with the equivalents in Netherlands, Germany, France, called the Open Research Area. They are really successful in bringing teams together. As a fallback option, pushing forward that side of things would be potentially very beneficial. I agree with that. One would then need to be quite imaginative. Scotland, for example, could join with the Nordfisk collaboration of the Scandinavian countries. It is not optimal, but one would need to be imaginative and think laterally and work quickly. Another good session. Structural funds are lower. They have touched on it a fair bit, James, but they are probably still a bit more to tease out there. There has been a lot of discussion on that already. I was going to ask about match funding, but I think that Diane and both Amanda made some really good and practical points around that. Again, there has been a lot of discussion around how funds are allocated, the role of the block grant and the Barnett formula and some of the different iterations around that, which obviously apply around structural funds. I suppose to bring it all together and to give it a bit of focus. The current tranche of structural funds coming to the UK is €10.8 billion, of which Scotland gets €476 million. The issue going forward is how do we ensure that Scotland protects and ensures a fair and adequate level of funding in relation to what will replace the structural funds and how we deal with the competing bids that are going to go on within the UK? That brings us back to the beginning in a sense in terms of the governance issues that we talked about at the beginning. David, do you want to have a go at that? I think that you are right that one of the first questions that needs to be taken I suppose by the UK Government Bank, I am sure that the Scottish Government and the other devolved Governments and local Government will want to say in this as well, is at what level strategic objectives and the broad structures of this programme are being defined. Is that going to be a UK framework, this regional prosperity fund? How detailed in terms of its rules and objectives and aims is that going to be? Or is it going to be simply assessing what the level of funding to give to each area is and then there is complete discretion within areas on how to spend it? For instance, is this a needs assessment that you have for local government to sum in the local government grants and then the local government can spend it on what it wants? Or is it more how it is commonly done for EU projects where you have an assessment at a regional level and then it has to be spent on particularly quite defined areas to do with labour markets, personal development on one hand and competitiveness, greening and communication on the other hand. The two main strands of regional funding. Once you have made that decision, there is a whole bunch of questions about how granular is the assessment of needs. Diane mentioned that she thought at the moment that it was currently at a too high level approach and that does not pick up pockets of deprivation. Is this funding out picking up pockets of deprivation or is it about thinking about broader areas in terms of thinking about the Highlands and Islands because they are more remote? Do they have the same opportunities as the central belt, which is less remote and has more scope for agglomeration effects? Is it about deprivation or is it about broad economic city-region-type issues? Once you have determined what it is about, how targeted should the funding be is the next question. Then, how frequently should you update that funding? If you update the funding on a regular basis to account for changes in local characteristics, you can end up reducing the incentives that areas have to improve the economies. If, after five years, you say, we are going to reduce your funding now because you have got richer, could that be having a negative effect? On the other hand, if you do not update it, you can have an area that really falls down because some big factories and industries close down, but you have not updated the funding to reflect that this is now a more needy area, so there is a trade-off to think about there. In my submission, I had a list of questions. A lot of those questions are the key ones to think about. Some of those will be thought about at UKE level, but depending on how much discretion the Scottish Government has, a lot of those will come down to the Scottish Government to be thinking about and be things that the committee would want to think about. The key questions are how to target it, how targeted it should be, how frequently should you update it, how much discretion, evaluation and basing on an outturn. For instance, if you have met your previous objectives, should you get less funding going forwards? There are dozens of questions in this area, which I think we have touched upon, but at some stage we will have much more debate. David Coyne and Anion? That goes back to the start. It is good to think about this in the context of the UK industrial strategy and the way that that has gone and is developing. In a sense, it is partly about equity and it is partly about efficiency. I think that when it was initially dreamt up, the ideas that largely lay behind the industrial strategy were ones around efficiency, getting growth as quickly as possible. Then the Prime Minister noticed that there were lots of left behind areas. We are now sort of rebalancing it a bit with the discussion of the shared prosperity fund, but it is not really clear how it will be allocated. The stuff around improving efficiency, we have had the city deals, which are meant to engender at a local level, whether it would be interesting to have those evaluated and exposed. There is quite a lot of stuff around sectoral that is aimed at sectors such as the automotive sector. That kind of work has been quite successful. We are also bringing research and innovation into the industrial strategy. This sits somewhat oddly with the existing structural funds, where money is paid out because you are able to prove that, in some sense, you are deprived. The question is, well, that might be equitable, but is that an efficient use of funding? There is all the question that David, assuming that maybe you do not care too much about the efficiency aspects of it, but you are really concerned about equity. How do you determine who to give it to? How much to give that community or however you define the area? All of that is up for grabs. David has already said that the existing model, partly because of the cliff-edge nature of the 75 per cent of GDP, does not set up all probably a lot of wrong incentives. The shared prosperity fund is out for consultation at the moment, but we are largely in the dark about the quantum of resource that is going to it and exactly how it is going to be designed. It is important that those issues are addressed, and perhaps something quite explicit around that issue. This is equity to try to get those left behind areas to catch up with the rest of the country. How much is about driving economic growth? I will pick up three points. The first one that David has just made, left behind areas, is really important. Those left behind areas are often, for example, fading seaside towns, which might be quite close to good economic areas, but have lost their economy. I make that example because they are not large economic areas. To David's point about things change, we are in a position in Scotland in particular, but in the UK as a whole, where we can use data now at a much more granular level and we can do it in real time better than just about anywhere else. Therefore, it is wrong, in my view, to continue to use big areas and to say that we are going to keep this going for five years. We can be much more flexible. However, would it not be really, really nice if there was an algorithm that told us exactly how to answer all the questions that David exactly and beautifully put? Sadly, there is not. That is why we have politicians. We can identify the questions and we can identify the data and we can provide the evidence. However, at the end of the day, it is a political decision—that is why your job is harder than mine—to be able to make those kind of judgments about how much money, about what the priorities are and how they are going to be allocated. The research community can provide you with the evidence and you have a harder job when you make the decisions. I am going to make it any easier, I am afraid. I feel quite aged sitting here thinking through some of the issues that I discussed or was involved in when I worked in the Scottish Development Agency economic development issues. They are absolutely germane, I think, to the discussion about this new fund or funding arrangements. It is the issue of additionality and displacement. If we spend money that we are taking from taxpayers in places that would otherwise happen, that is not net good. If we are spending money in areas that are displacing from a contiguous area, that is equally not good. However, additionality and displacement are not easy matters to discuss or debate, particularly when you have a target to get money out of the door to make sure that it gets spent. However, I would argue that that really needs to be part of any debate about how we are allocating funding under any new funding arrangement for this type of approach. That begs the question about whether it is at a UK level, a Scottish level or a regional level or a sub-regional level, as we can now do with the data. It is not easy at a UK level, let alone the green book shows that, let alone looking at a sub-regional level. If we are talking about good governance and why we are spending the money that we are taking from taxpayers, we have to start asking those sorts of questions and have some clarity on how we are going to arbitrate against one area getting money, or one sector getting money, or one region getting money. I come back to the third, and the more difficult one is around the issue of those areas that are left behind. If we start talking about what they are now, they have been left behind when I worked in the SDA. To make a difference, it is not about turning the tap on and turning the tap off when the data is hard to tell us something. It is about thinking about why they have been left behind, how long it will take, and how long it will take to make the commitment to make that long-term commitment last. I just want to add a couple of observations on the issue of economic efficiency versus what is left behind. There is a separate issue about agglomeration and where you focus city deal money, but I mean leaving that to one side. The growth report, the commissioner report is big on that, which is the inclusion agenda, because those things need not necessarily be opposites. If you are focusing the money where you are going to drive inclusion and participation, that is a huge boost to the economy as a whole, so I am just making the point that they need not be opposite to each other, depending on how it is configured. I want to make an input before we come to a natural conclusion. I think that we have come to that natural conclusion from my perspective, and I am sure that for the rest of the committee members that has been an excellent morning, there has been some fantastic input across the room. There is a lot of learning going on, although turning politicians into algorithms will be an interesting one to really learn at the end of the day. It is obviously complex, it is challenging, it is compelling in many ways, as some of the stuff that we have been discussing is time-pressured, but I think that we will just leave the last word to Ian Diamond, who said that it is also fun. Thank you everybody for coming along today, it has been most appreciative in helping us in our deliberations. Thank you very much. I now suspend this particular part of the proceedings to allow for a change over our witnesses. We are back after suspension. Our next piece of business is to consider subordinate legislation relating to the land and buildings transaction tax. We are joined for this item by the Cabinet Secretary for Finance and Constitution and supporting officials, Ewan Cameron Nielsen and John Sinclair of the Scottish Government. As we must consider each such instrument separately, we will have a short evidence session on each instrument before formal consideration of the relevant motion. First, we will take evidence on the land and buildings transaction tax, group relief modifications Scotland order 2018. I welcome the cabinet secretary to the meeting and invite him to make a short opening statement if he wishes to do so. Members of the committee will be aware that the laying of the draft legislation follows the engagement with stakeholders who highlighted a small but significant divergence of approach between LBTT and SDLT in relation to the group relief provisions. That divergence related to scenarios where shared pledge type arrangements were in place. Having considered that and accepted the need for change, I announced in March my intention to launch a consultation on draft legislation to make clear that group relief should be available where such arrangements are in place. I am grateful to everyone who took the time to respond to that consultation and to Revenue Scotland for their considered and valuable input to the Scottish Government's thinking. All consultation respondents were in favour of that decision to amend LBTT legislation, and that view seems to be echoed across the chamber during consideration of the recent LBTT bill. The focus today is on the draft order, but you will be aware of the widespread calls for any change to be made retrospective. Indeed, two members of the committee explicitly raised that issue during stage reconsideration of the recent LBTT bill. We will appreciate that it is not normal practice to make changes retrospectively, and that that is a matter that requires careful thought. However, after detailed consideration, I can confirm that, if the order is approved by the Scottish Parliament, the Scottish Government intends to bring forward legislation to make it retrospective in effect at an appropriate future opportunity. I note that the position is informed in particular by the Scottish Government's original policy intent in terms of group relief, and I will be very happy to take questions. I am glad that you clarified the issues around retrospectivity. Is anybody got any questions of the Cabinet Secretary for the Day? There are no questions. We now move to agenda item 3, which is consideration of the motion on the order. I invite the Cabinet Secretary to move S5M-12474 that the Finance and Constitution Committee recommends that the land and bills on transaction tax group relief modification Scotland order 2018 draft be approved. Do you have any other questions? No further questions, and I put the motion. The question is that motion S5M-12474 be agreed or will agree. We are all agreed. We are now turning to a further piece of subordinate legislation relating to the land and buildings transaction tax. As we take evidence from the Cabinet Secretary on the lands and buildings transaction tax, the first-time buyer relief Scotland order 2018. Members will be aware that, as part of the draft Scottish budget, I announced last December my intention to bring forward a relief from LBTTT, which is focused on supporting first-time buyers in Scotland. The relief is intended to complement our progressive approach to the setting of LBTT rates and bans that has prioritised support for first-time buyers and, of course, a range of other measures to support first-time buyers in Scotland. As a result of consultation, a number of changes have been made to our proposed approach. In taking account of those changes, I believe that the approach that I have taken in setting the eligibility criteria for the relief is sensible and appropriate and will minimise complexity as much as possible. In terms of the impact, as members of the committee will be aware, raising the nil-rate threshold for first-time buyers to £175,000 will mean that an estimated 80 per cent of first-time buyers will pay no tax if the relief is agreed. In addition, those purchasing a home above the threshold will see a £600 reduction in their tax, regardless of the purchase price of their home. The Scottish Fiscal Commission has independently estimated that the policy will benefit around £12,000 first-time buyers each year, and I am happy to answer any questions that there may be. I think that Murdo Fraser may have a question. I was just wondering, cabinet secretary, how the term first-time buyer is actually defined in the instrument and how will that be policed? First of all, the policing and monitoring, of course, would be for Revenue Scotland as the appropriate tax collection agency using its established procedures. I am familiar with the fact that Revenue Scotland has communicated with the committee in terms of its general approach and some specifics in terms of eligibility. That is why consultation was really important to get a full understanding. There is eligibility criteria set out in terms of first-time buyers. I suppose that some of the considerations that we are thinking about if you had joint ownership, prospective ownership, should it be just one eligible or should it be both? We have set out clearly in the instrument the regulations a range of criteria such as positions around, I could go through the detail, I think that it is in the instrument, but essentially if the member wishes, I can go through the criteria, but that is what we consulted upon, and that is what is in the instrument. It is up to the member if he wishes me to read that criteria out, but he does. I do not think that he does. Okay, that is a relief for us all then, but that is what we consulted upon, essentially. There have been no further questions. We have now moved item 5, which is consideration of the motion on the order. I invite the cabinet secretary to move item 5, S5M-12473, that the Finance and Constitution Committee recommends that the land and building transaction tax first-time buyer relief Scotland order 2018 be approved. Members, I have no further comments. The question is that motion S5M-12473 be agreed. Are we all agreed? We are all agreed. The committee wants to publish a short report on both of those instruments in the coming days, setting out a position on both orders.