 Good morning, and welcome to the 24th meeting of the Economy, Now, Energy and Fair Work Committee. May I remind everyone to turn electrical devices off or to silent, please? First of all, may I welcome our new member, Angela Constance, and ask her to declare any relevant interests? Thank you, convener. I have no relevant interests to declare, and my redisor of interest is there for everybody to see. Item 2 on the agenda is a decision by the committee to take items 4, 5 and 6 in private. Are we agreed? Yes. Thank you. Now, today we're looking at European structural and investment funds as part of an inquiry, and as part of that I'd like to welcome Ivan McKee, who is the new Minister for Trade, Investment and Innovation, and also with him is David Anderson, who is the head of European structural funds state aid division of the Scottish Government. Welcome to both of you this morning. I'll open or ask Ivan McKee to make an opening statement to the committee at this stage before we move to questions. Thank you, convener, and good morning, committee. It's my first appearance in front of the committee in my new role, and I hope that it will be the first of many. Thank you very much for the invitation to contribute to your inquiry on European structural and investment funds and for the provisional findings that your work has already produced. The European social fund and the European regional development fund programmes have provided significant funding to Scotland for over 40 years to promote economic development and cohesion. Going back to the 1970s, Scotland received funding for a wide range of activity, including, for example, road improvements in Ayrshire and new water supplies on the Scottish islands. Today, the EU aims of smart, sustainable and inclusive growth towards the Europe 2020 targets, and the Scottish Government's ambitions of sustainable and inclusive growth are set in the national performance framework neatly aligned. The programme supports a number of Scottish Government's priorities. Funds from ESF are used by Skills Development Scotland and the Scottish Funding Council towards the aim of a well-equipped workforce, with 17,000 individuals receiving skills training. That is in addition to other programmes that are working to contribute to alleviating poverty and increasing social inclusion by providing support to 15,000 individuals, including low-income households, lone parents and those not in work. The ERDF programme supports investment in 16,000 SMEs to grow and create jobs and opportunities and is aiming to support 500 organisations to develop low-carbon processes and technologies to facilitate Scotland's transition towards a low-carbon economy. During May, when you took expert advice from a number of organisations that were stated, the programme supports between 10 and 25 per cent of local authority economic development and employability spend. I am sure that you will agree with me that the significant contribution to economic development in Scotland cannot be underestimated. That is not, however, without its challenges. The programmes come with significant audit and compliance requirements. The European Commission have issued around 6,000 pages of rules via three regulations, eight implementing acts, nine delegating acts and over 100 pieces of guidance. The commission required that all expenditure that is claimed complies with those rules and failure to do so can result in serious penalties. We have experienced problems in the past when non-compliance has been identified, resulting in funding being reduced. The Scottish Government, as a responsible managing authority, works hard to support those applying for and in receipt of those funds by distilling the complexity and clarifying understanding around the compliance and audit process to avoid risk and maximise the positive outcomes that it provides for Scotland. That is achieved by carrying out third-check regular reviews of guidance and processes in always seeking opportunities to simplify the process where possible. Your provisional findings identified value in programmes that are based on funding being needs-driven, based on good practice from the current and previous programmes and directed at people and places. The UK Government has also recognised the value and contribution that those programmes have made and demonstrated in its commitment to replace those programmes with a shared prosperity fund. It has acknowledged that it will engage with us and counterparts in Wales and Northern Ireland and respect the devolution settlements However, I have to tell you to date that there is no detail from the UK Government on how it intends to take this proposal forward. The EU exit was not Scotland's choice, but we will work with the UK Government to avoid and mitigate the worst effects of Scotland. That includes ensuring that repatriated powers are transferred to the Scottish Parliament along with a sustainable funding package and any proposed replacement for the ESF and ERDF programmes. The aims of the programmes and the distinctive characteristics, such as a longer timescale beyond a single year or even a parliamentary term, the recognition of regional development, particularly the Highlands and Islands and the partnerships, including between Government, Public Bodies and the third sector, remain a good starting point for future programmes. As you noted, we do not want a programme that is seen as rigidly bureaucratic and we want to simplify the management of the programmes where possible in line with public finance standards to ensure that funding is spent appropriately and audited proportionately. By aligning the strengths of the programmes with Scottish policies and priorities, including the national performance framework, economic strategy and enterprise and skills review, we need to strike a balance between compliance and complexity that will maximise the impact of future programmes for Scotland. I am happy to answer any questions that you may have. Thank you very much for that minister. You commented on this being something that has been on going for over 40 years, ESIF, to promote economic and social cohesion. Do you have specific examples that you can point to where this has helped to reduce economic and social disparities if we think of deprived areas in Scotland where things are not improving? Can you think of specific examples where ESIF funds have resulted in improvements, as opposed to simply programmes delivered? If you reflect back on the evidence that you have had from representatives from highlands and islands, it is very clear and strongly made the point in your future sessions about the huge value that it made to the highlands and islands. Clearly, you mentioned that a specific area of Scotland that has received a particular focus in terms of the way that programmes are delivered to the extent that match funding requirements are reduced and that £150 million has been put into highlands and islands through that programme and hundreds of millions over previous programmes. It is difficult to say what is the difference in terms of what would have happened anyway, but I think that everybody is one of the best examples for people from highlands and islands. I have come here and said very clearly the significant benefits that are made to the region. Another example that we want to talk about inequality is the work on the youth employment initiative, which we may want to talk about later in terms of decommits. Other programmes have been in place, but the work that has been delivered by those programmes—we have seen Scotland's youth unemployment reduce significantly from 25 per cent down to around 10 per cent below the UK average, and a significant amount of the focus of our programmes has been focused on reducing youth unemployment. There are a couple of examples where you can see regional and economic disparities being reduced through the focus that those programmes have brought to Scotland. Can they be directly related in that way? As I said, all that you can do is look at the structure of the programmes, the performance framework that is agreed with the European Union, the deliverables that are part of that, and the number of people and organisations that have been supported through the programmes. I mentioned some of those in my opening speeches. The tens of thousands of individuals have been supported directly and businesses are additional to that and recognise that those individuals and businesses have benefited from that support. How that stacks up to the macro, as I said, is that you are not sure what the counterfactualised, what the impact of other interventions that the Scottish Government is taking, in any event, are and what factors are pushing in the other direction and what would have happened anyway. However, you can clearly point to the support that is given to individuals and organisations and the benefits that are made to them and a macro level of what it has done in terms of the Highlands, Islands and Youth employment as a couple of specific examples. I have a couple more examples here that we can talk about. One of the things that is around connectivity is a specific example of the state of the art video conference. It suits in the University of the Highlands and Islands, which has made a huge difference to the connectivity and the ability to work together. There are also some numbers, if you want to talk about the Scottish Enterprise and the Scottish Co-investment Fund. If you look at the data there, the additional GVA added through to the 2025 period has been an estimated at £290 million. So, a significant impact is on economic growth to the Scottish economy as a consequence of those programmes. Thank you. We will now come to Jamie Halcro Johnston, who may have further questions in this area. Thank you very much, convener, and good morning to the minister. You rightly pointed out the importance of the Highlands and Islands and the Highlands and Islands area makes up 20 per cent of the funding across both the funds. You mentioned the individual figures there, but the figures that I had here in terms of committed funding was, I think, for the European regional development fund was 51 per cent so far committed, maybe slightly higher now. For the European social fund, 33 per cent committed of the total package, which would eventually, if they were fully committed, come to around 180 million on previous exchange rates. What can the Scottish Government do to ensure that that potential allocation is met and that the compliance is met and that the money available is fully utilised for the Highlands and Islands? Thank you for the question. This is an issue clearly that operates across the whole country, not just the Highlands and Islands. We have got the challenge of how do you allocate the funds and deploy the funds compliant with the audit requirements that I have talked about. Certainly in the early stages of the programme, I think that it was recognised that there was a slower take-up, particularly on the Highlands and Islands, and I know that Keith Brown, who was the Cabinet Secretary, wrote back out to organisations, encouraged organisations to step up and become more engaged in the programme. One of the specifics that has happened with regard to the Highlands and Islands is that, because of EU rules and because of the fact that the Highlands and Islands are a transition area distinct from the rest of Scotland, we were able to relax and match funding requirements. Those are increased to 70 per cent in terms of programmes or specific activity, sometimes as high as 80 per cent of the funding can come from the funds. That is one specific we have done to encourage organisations and programmes to come forward and take part in utilising those funds as best as possible to support development in the Highlands and Islands. Thank you for that answer. Do you be confident that that title allocation will be met or do you have a figure that you are working in a potential allocation that will be met? It is very difficult to say at this stage what we are several years out in the way the programme works. We will talk about this in more detail later. The end plus three is that you have got three years after you have committed the funds to utilise them. Given the complexity of the audit requirements that we will talk about, it is very difficult to predict whether we are going to miss because somebody is not going to be compliant with audit requirements at some point down the line or whether we are going to have enough proposals and programmes coming forward to utilise the funds. The officials and the team and the mining authority are working very hard to push that, and the signs at the moment are that I would be very doubtful to see whether we are going to utilise all the funds, but certainly the vast majority will be deployed to support the development of the Highlands and Islands. I wonder whether I can pursue this slightly further but take it a bit wider. I always think that it is instructive to learn from the past, so we avoid making similar mistakes in the future. At the end of 2017, your expenditure targets were not met and something like €22 million, which I am sure that you will agree is a substantial amount of money, was either lost or decommitted. What have we learnt since then and what do you think caused those problems that we will avoid in the future? You are absolutely correct. That was funding for the 2014 period with N plus 3 tripped out at the end of 2017. Of that, €22 million, around €16 million, was associated with South West of Scotland youth employment initiative programmes. As I mentioned earlier, the significant reduction that we have seen in the post-economic crash period in youth unemployment is a success of the programmes and other initiatives, but it has meant that there are fewer places to spend that money. We have gone from a position where youth unemployment was around about 25 per cent at the point where the programmes were being designed and the funds allocated to that to a point where it is around about 10 per cent, one of the lowest in the EU, the lowest in the UK. As that happens, it becomes harder to find places to allocate the money, and that is by our most significant driver. You will appreciate that the Scottish Local Authority economic development group pointed to seven criticisms, not all of them related to the improvement in youth unemployment. For example, delays of up to a year for the Scottish Government to issue guidance, a wasted exercise in looking at the cost models to be used that inevitably led nowhere. Do you intend to sharpen up on those issues rather than point to one thing? I think that it is important to learn from the past and look at the problem of the £22 million by far-reliant share of the £16 million that was around about the youth employment initiative. If you are going to try to fix that problem, you have to look at what is by far the biggest cause of it, and that is why it is important that we talk about that. In terms of the other issues that you have mentioned, the delay in the programmes of 2014 to 2020 programme was approved at the end of 20 December 2013 by the European Union, the European Commission. The Scottish Government then worked with the rest of the UK, because the UK is a member state to put a partnership agreement together that got agreed towards the end of 2014. The Scottish Government went out at the start of 2015 to call for programmes to take part in the funds. As I said earlier, there was a slow initial take-up on that and I want to go back out and, in some cases, review the much funding requirements in order for people to encourage more people to come forward. The initial delay, if you like, was part of putting together that partnership agreement with the rest of the UK in place, which happened in the latter part of 2014. Specifically, on the unit costs that you mentioned, that feeds into the simplification agenda, which I think is something that you might also want to talk about later. The issue there, to talk through that in a bit more detail, is that moving away from a situation where you are having to approve individual receipts and timesheets to a position where you can say that the cost of an individual we can allocate their time and understand the cost per hour for that individual and allocate funds on that basis, which clearly makes the whole process in order to require much simpler. Work was put in at the start of the 2014-20 programme to work to deliver that, and unit costs are put in place for parts of the programme that is spent, not across all of it, not across parts of it. In other issues, for example, the flat cost system, whereby you take the individual's cost and add on a percentage uplift for administration and travel costs, etc., on top of that, is also put in place. Between those two, the programme has been simplified, so I do not think that it is fair to say that that work was wasted. I am going to be asked about self-vocation and reducing bureaucracy, and that is the work that is in place to make sure that that happens to some extent at the start of the programme. I think that I was trying to reflect the view of the Scottish local authority economic development group rather than my own, but I take what the minister says. Can he tell me what the current allocation is for the programme? What is your expectation of spend? I appreciate that it is difficult to predict, but you will have internal processes where you know how much it is the intention to spend, and I am interested in knowing how those internal processes work and what the figures are. That is fine. I have clearly spoken about the £22 million that came out with a way of just now. There is clearly also an issue, and I will ask David Anderson to talk about exchange rates, which is important to recognise, because in the programmes that I have put in place, we are exchanging a £125 million, exactly where we are today, about £111.12. That clearly makes a difference, because all the programmes from the EU side are funded in Europe, so that makes a difference in terms of the amount of pounds that we have got available to spend. I will ask David Anderson to talk through the details of the numbers as we are up to today. As the minister said earlier, it is still our intention and planning to get all the funds allocated throughout the life as far as we can. We are still working on getting all the money committed. As the minister says, quite what that number is depends on the exchange rates and any further decommitments that may become necessary. There are two things working in our favour on that basis. One, we have been working with the Scottish local authority economic development directors and with other stakeholders to be absolutely clear with them how much money is still there and how much money they want. We are going through the round two, so it is a case of bringing forward your idea. We are having that good dialogue. Where we identify that we might have shortfalls in terms of take-up, we are talking with other partners to see where else we might use to spend the money. We have a couple of discussions on going, perhaps with some health colleagues, with universities and with one or two others, to try and seek to make sure that we use it obviously within the rules that are set, but to try and make sure that everything is net. The final point to say is that the change in the UK HMT guarantee, which has changed in July, meant that, prior to that point, all the funds that were committed by the date of Brexit were guaranteed, that date has now shifted out to the end of 2020. Clearly, we do not want to wait that long to commit the funds, if we were to crash out of Europe, but it does give a little more elbow room to commit final funding. Scottish Government's response to SCVO criticism would be welcome. Let me quote from them directly. Many aspects of Scottish Government work very well, but management of the European structural and investment funds is not part of that. Do you agree with their view and what action are you going to take to improve things as the new minister? No, I do not agree with everything that they said. There are one or two things that we are taking on board and we are going to look at, but I think that they made a number of comments. A lot of that was round about the bureaucracy, round about the process and the need for simplification. I have to point to the statements that I made in my opening remarks, where we are existing under a very onerous audit requirement. There are 6,000 pages in terms of the EU requirements. The officials reduced that down to those to hand the simple documents for organisations to work with. Clearly, because things change from one programme to the next, the EU requirements under the 2014-20 programme are different to what they were under the 2007-2013 programme. I think that there is perhaps some misunderstandings round about what the new rules were. People working on the old rules have been issues. I have examples of all manner of things that have led to audit problems and things that seem very simple and straightforward, such as people not keeping records, not keeping time sheets, not recording building costs correctly, not recording staff costs correctly. There are a whole number of detailed issues that have led to issues with the funding that they call down from the European Union as a consequence. You will be aware of that in the previous programmes, 2007-2013 programmes. I think that 1.3 of the four programmes are under suspension because of audit non-compliances. That is a serious issue that needs to be dealt with properly. I understand SCVO's comments round about that, but the processes that are there need to be rigorous and robust and bureaucratic, in some sense, to ensure that we are compliant with the European Commission requirements. There are some issues and comments that they made round about match funding, which we take on board. Match funding for third sector organisations is very often funded by the Scottish Government. Effectively, it becomes a 100 per cent grant to third sector organisations, but that is not the case in all cases. I take on board the point that they made about lead partners not always stepping in to put match funding in place the way that it was expected. It is also important to recognise that the SCVO chief exec is a member of the joint programme monitoring committee, so they have had opportunity through the process to make their comments as part of the on-going process and they have been listened to as part of that. However, what I will do in my new role as ministers is to undertake to meet with SCVO as part of our efforts to, and I think that we will come on to talk about that later, to design what the future might look like, notwithstanding where we are with Brexit and the uncertainty around the shared prosperity fund, but I will undertake to meet with them and other stakeholders as we attempt to design the future. Thank you, convener. Can I just follow up on that? Is that not just basic stuff, keeping records of staff costs, things like that? That is not really that complicated, is it? If that is what is causing audit trail problems, surely that should not be arising? Well, I think that when you are working on something as broad with as many organisations and as much money and as many instances of claims, etc, as we are talking about here, you are always going to get a percentage that is problematic. That is the requirement that exists under pretty onerous and the sea will bring in auditors to work through and double-check what officials in the Scottish Government are doing. It is important that we are on top of that, but I think that in any situation where you have got many transactions going on, a percentage is going to be non-compliant, that is why it is very important that we are rigorous about the audit requirements. We produce the guidance so that organisations understand what is there. We produce monthly e-bulletines to keep organisations up-to-date. We work directly with organisations as best we can to make sure that they are aware of what the requirements are and to feed back any audit non-compliances in time, so that they have the opportunity to fix us. I want to pick up some of the concerns that have been raised by Sleid. I note that the minister, in his opening remarks, pointed to the 6,000 pages of rules and the 100 pages of guidance, and you reiterated the Scottish Government's role to distill the complexity of those rules and guidance with a view to reducing risk. However, as you have heard from other members, you will also be aware and aware from the evidence of committee of criticism from stakeholders about the level of inflexibility and bureaucracy. Specifically, Sleid gave a long list of reasons why it can be difficult to translate commitments into expenditure. One of them was elongating Scottish Government appraisal and assessment procedures. I wonder if the minister could say more about how you can ensure that Scottish Government practice is not adding to an already very complicated process. Without a huge amount of detail on specifics, it is fair to say that we understand the simplification agenda very well at the forefront of our minds. I gave examples earlier as to where we would look for areas where we could reduce complexity in the claims process by looking at unit costs and flat costs and so on and so forth. As I said before, we take the 6,000 pages and reduce it into about 100 pages. We will work closely with organisations to make sure that they understand what the requirements are and work through that process with them as best we can. As I said, the bureaucracy and audit requirements are not something that the managing authority and the Scottish Government have put in place. That is the reality of what we are working under in terms of the EC rules. Those rules are robustly interpreted and implemented, and the consequences of not complying are pretty significant. I can understand organisations on the outside looking in and seeing what they see. However, I have demonstrated that the Scottish Government, in its intent and what it has done in terms of designing the claims process and cost management, is working hard to simplify and make accessible the complex rules around the process that are very much committed and understand the issues and want to make it as simple as possible for organisations to participate in. At the end of the day, we want to move the funds into those organisations and get the benefit from Scotland for it. It is in nobody's interest to make the system more complicated or more cumbersome or more difficult or the funds more difficult to access than it needs to be. You are confident that current processes and procedures are not adding complexity, or are you saying that, where that exists, you will endeavour to reduce complexity, particularly looking to the future? Absolutely, and that is exactly what I am saying. I will ask David Anderson to give a bit more detail on the specifics. When we get an application for funding, we have to make sure that it fits the programme and we have to then submit it to a managing authority approval panel. That has a certain number of checks. There is a standard template form that allows people to fill in the data who want the money. We then check that that complies. We do that as quickly as we can within the rights. We often have a dialogue backwards and forwards with the stakeholder to make sure that both what the numbers are set out are correct, what it is delivering is fits and that they can actually be clear. On the basis of that, we make a formal commitment of grant funding between Scottish ministers and the actual person being funded. We have to be sure what we are buying, if you will. We make that point as quickly as possible. In previous programmes, we had to submit that to a panel that met quite infrequently. That panel now meets on a six-week cycle and therefore there should be very little delay, if any, between getting an application. When it is ready to be put to approval, we can take it there as quickly as possible. We do take some out of sync just to make sure that we do not hold people up. We had one recently where Highlands Nines Enterprise was interested. The other point is that within all of that, we are actually talking with Slade themselves. In fact, one of my team leaders is giving a presentation to the Slade on Friday of this week in the Lighthouse, setting out, sharing the information, saying that this is the amount of money and how much we are going to do. One of the other ways of breaking down any delays is having that open dialogue, and we are having a good and positive dialogue with them, so we are helping where we can to make this thing as slick as possible. One final question. If I may, the minister's commitment to meet with SCVU, I am sure, is very welcome, as is his commitment today to take on board any concerns. One of the things that SCVU raised that actually worked well was within the third sector division in Scottish Government in terms of the 100 per cent eligibility costs being met and, indeed, the match funding. I just wondered if the minister has any initial thoughts on how he will pursue that approach, given that that will just be for his department and that will be for departments across the Scottish Government. In terms of match funding? In terms of increasing the Scottish Government's ability to match funding? I think that, just in general point about match funding, I will make, and then last, David Anderson will talk about specifics on that detail. Clearly, you have a range of organisations that are applying for funding. In some cases, they are perfectly capable of match funding, and that has to be encouraged because it brings more money into play and significantly increased. If you look at the total number that is spent through those programmes, it is significantly more than the money that comes from the ECs, which is a consequence of match funding. It also demonstrates that commitment from organisations makes, I would say, more committed to deliver and make sure that they are thought through because they are putting their own money, if you like, on the table to support the programme. I think that there is very much a place for match funding, but we do recognise in some cases that there is not a place for it because of the types of organisations that are typically in the third sector that we are working with. I think that that mix is important, but I will let David Anderson talk about the details of that. The point that the SCVO makes about the third sector fund is that it was a choice by the third sector division to put effective Scottish Government money to match the European money to make that effectively a grant situation. That is the exception rather than norm. If you think about the total value of the programmes, which are somewhere around 900 million euros, by having match funding brought into it, it means that the overall investment in Scotland in those programmes is somewhere just under £2 billion, about £1.9 billion. If we were to match fund everything at source, then we would not lever in as much opportunity than if we were to seek match funding from those applying for the money. Dean Lockhart, I just wanted to follow up on the point about match funding requirements and get a wider view of the benefits and challenges that you have experienced in match funding requirements. Are there occasions where the match funding requirements have been too rigid and investments have been prevented, or is there sufficient flexibility in the system that you can tweak the requirements as and when required? A couple of points there. First of all, there are EU requirements round about the level of match funding that we need to adhere to. Those are, as I already said, specific to the highlands and islands because it is a transition area. Those percentages are a lack, so we can go up to 70 in specific instances—80 per cent—but, in general, 50 per cent is where we need to be based on the EU requirements. We are working in that context. The example on the highlands and islands where we did relax because we were able to, in those rules, because we saw early on that there was a shortage of programmes coming forward and that stimulated more programmes coming forward. We demonstrated that it was successful. The third sector organisations where we understand the match funding is a challenge that we have worked hard to do. It has never been a case where somebody has been prevented from participating. Because of match funding, there will be examples of that, I am sure, but, in general, we work hard to mitigate that within the rules as best we can. David Anderson might put some more detail on that. The one example that I would point to is Transport Scotland. Transport Scotland put out a call for proposals in the highlands and islands with an intervention rate of 70 per cent. There were no takers. We were able to up that percentage intervention rate, and we now have some takers on those programmes. We do have flexibility, and we do change intervention rates in the programmes to respond to those demands. We responded through the mid-term review when we looked at the demand overall and made the case to the EU. As the minister said, the total match funding percentages are that we have to agree with the EU. We cannot just do what we like. We have to meet an average, but they were persuaded to allow us that flexibility to go higher, such that we could ensure that the actual funds were taken up at the point that Spain is making. Minister, you made reference to the UK-shared prosperity fund. How much do we actually know about how that fund is going to operate? Are there guidelines in place already? There's very little in place. I think that it's only within the last two or three weeks that there's been any official meeting on it. What we have is a UK Government Tory party manifesto commitment that they would put a fund in place to replace the lost EU funds. There was a statement in July of this year from a UK Government minister that said that the fund would be in place. It would be aligned with the objective and the four challenges of the UK Government's industrial strategy, and that it would, in its words, respect the devolution settlement and engage with the devolved administrations on the design of it. That, in reality, is pretty much as far as we've got. David Anderson might say a wee bit more about where officials are in terms of the very latest discussions, but at the moment, it's very, very unclear what that fund will look like, how it will be deployed, how much funding will come to Scotland's consequence, where the decisions will be made, whether they will be made at UK level or will all be devolved to Scottish level, how much of the EU's requirements will be mirrored. So there are very many unknowns and clearly we're running out of time. The UK Government's moving forward to a consultation process, which we thought would have happened by now, but it's going to be happening, we believe, later this year, to seek views on that. Our expectation, our hope very much, is that we would have a sit-down discussions with the UK Government around where the devolved requirements would fit into that programme going forward, and we wouldn't be treated as just a consultee filling in an online form. So that's very much our hope. I met Lord Henley, who's a minister responsible last month, and I raised those points with him. As I said, it's very unclear at the moment, and time is running on. There's not a great deal more to say, I'm afraid, but we have, as officials, met with colleagues. We've been pressing ever since the May 2017 manifesto commitment was made. We have a group that meets across the UK for the managing authorities, and when this was first announced, we said, well, what is it going to be? We have had no detail on that, and we've been pressing to get that detail, and when I say that, that means both Wales, Northern Ireland and ourselves. And it would be said a number of different parts of England as well, because they've made clear that it's going to be at a regional level that the fund will be allocated. So that process is now beginning. I have met officials from the UK Government, and I know that in the last week, those same officials have met with representatives of Northern Ireland and Wales officials. But the detail is still to come at the moment, and they're very much looking to say as the consultation what do people need. This is where one of the pieces of work that we've got in train internally is to take not only the results of your own investigation here, but also what the stakeholder has been saying to work out what it is that Scotland's asks such that we can put the case to the UK Government to say, well, this is what we want. Is there a commitment from the UK Government to maintain the present level of funding for a specific period beyond Brexit, or don't we know? There's two scenarios. There's a no-deal scenario in which case there is a guarantee. We understand in place that we step in to fill the funding gap to the end of the 2020 programme, which affected the runs-through to 2023 with the N plus 3 process. In the eventuality that there is a deal, then clearly the existing programme runs through with EU funding as planned, and it's a programme beyond that, the 2021 onwards programme. In terms of the specific commitments around the level of funding, my understanding is that there's nothing been given there, so that is one of the unknowns. And certainly our requirement would be very strongly that Scotland would need to receive at least the same level of funding as we would have expected from the equivalent EU programme going forward. I don't know if you want to add any more on that. Trying to look at this positively, creating a new fund and new funding mechanisms and so on is perhaps an opportunity to improve on what's there. What would you think should be the guiding principles of this new fund? It's a great question, and I think that I'm going to step back from that and say that what I'm keen to do in my new role is to engage with stakeholders. I think that the work that the committee has done so far and the eight points that you've raised in terms of where you would see the fund going are very helpful. I think that the evidence that you've taken from stakeholders has been very helpful as well. I would like to continue that process, engage with stakeholders and understand what their requirements are and some of the points that have come up this morning. I think that it's clear that the UK Government has indicated that the fund is going to be built on the industrial strategies that we're constrained by. As far as we're concerned, the principle that underpins the EU funds of cohesion and social inclusion is hugely important. The four eyes of the Scottish Government's economic policy are critically part of that innovation, internationalisation investment and inclusive growth are clearly very much underpinned and it will be very much lined up to the measures in the national performance framework so that everything is coherent across the whole of Government approach in Scotland. You've then got questions about how you balance, and this is a whole series of balances that are balanced between how much flexibility you want versus how much stability you want. People like stability, but they also want flexibility to change things when circumstances change. How much does it need to be coherent strategically and off Scotland level, but how much do you want to evolve regionally to be able to allow a regional level of different choices to be made but still being strategically coherent? What we've already talked about, the audit requirements, how strict do you need to be on that to ensure a good piece of public funds without being too bureaucratic in terms of the process. There's a whole number of trade-offs there, and I think it's important that we engage in that space to understand the best place, the best way to go in terms of the direction as we move forward to the design, or at least to put forward our view on what a programme for Scotland would look like going forward. Could you expand maybe on some of the headline points that you made there, and give an indication of what you think the big societal challenges that any future fund should be tackling? I think that, as a saver, we're going to be constrained by what's coming forth from the UK Government in terms of the industrial strategy, so I kind of start with that and identify certain themes around about age and society, about mobility, about low-carbon, etc. Broadly, we wouldn't disagree with those, I would say, that kind of extension of the Scottish context as well. I think that we'd probably have to start from that basis, and then we'd build on that depending on the feedback that we get from stakeholders. Running across that, as I say, is the requirement for social inclusion, inclusive growth and cohesion, which is usually important. Anything that we do has to make sure that least-developed regions in Scotland are invested into bringing them up to the standard that we want, so that people that are fellas from the labour market, for example, continue to be brought into the labour market and upskilled. Those principles are very central to what we would want to see. You've already said that your starting point in terms of fund allocation for Scotland is that Scotland should receive no less than it is now. Having said that, do you believe that there is a formula that could be put in place that should be adopted for the allocation of funds across the UK? No. In terms of the rest of the UK, frankly, that's not a space that we would want to comment on. I know that, in England, I heard your earlier evidence that there are quite wide variations between different regions of England, if you like, in terms of the amount of funding that they get, but in terms of the split across the four nations, obviously we've got a view on that, which is, as I said, that Scotland would require to maintain the same level of funding at least as we do at the moment and build on that going forward. Because there are specific requirements, the Highlands and Islands is only one of three transition areas across the whole of the UK, so Scotland historically has enjoyed higher funding in the Highlands and Islands in particular, so it's important that that is built in. The answer to your question is very keen, as I said, to strongly push the argument that Scottish funding would have to be at least the same level in any division between the four nations of the UK. We would have to take that into account, but in terms of the specifics across how the rest of the UK would manage their funding at a lower level, that's not something that I want to comment on. Initially, keeping the funding at the same level is fair in terms of the situation that we find ourselves in now. Going forward, presumably there should be some formula in place to replace the one that's used by the EU, and the UK Government should adopt some formula to be able to continue that allocation and build on it, because it's about £871 million that we have been allocated over the past few years. Obviously, we want to draw a line under that, but we don't want it to stay there. It should move. How do we make that happen? If I may answer that one, in the discussions with the UK, there is no formula that has been agreed. What is interesting when you look at the EU budget for the 2021-2027 period is that there is a pressure on the entire EU budget. Therefore, if we were to stay in Europe, there is a question mark as to what our allocation would be. Again, like all of those things, we are pitching to say that we want to do those things and therefore we need this much money. The point that you make is absolutely right. There will need to be a discussion with colleagues as to how this overall fund, because at the moment there is no figure attached to the shared prosperity fund, what is the right level and how should it be divided up. As the minister has already touched on, we benefit disproportionately if you were to take on a population basis the funding because of the needs of the Highlands and Islands. The other point is also that it is unclear entirely as to what the fund will cover. For instance, we understand that it will cover the Marine and Fisheries fund. Scotland actually receives almost 50 per cent of that because of the way that the fund is divided up. We get a disproportionate, if you were to divide by the four nations, proportion of that fund. There is a bit of mixing to be done to work out what it is that we want to do with it, how much money we need to have to do that, and then I will go our case very strongly. Thank you very much, convener. I suppose that following on from that, and I accept that there is a lot of uncertainty in all of this. In one sense, at one extreme, the UK could just put down a very rigid system and we would have no flexibility at all. Assuming that we do have a fair bit of flexibility and that we have roughly the same amount of money that we have had, how would you see that being allocated across Scotland? There has been some criticism that maybe we have only got two sections of Scotland at the moment. We have got the Highlands and Islands, we have got the Scottish Enterprise area, and we will become three, obviously. Should it be more subdivided down to more of a council or a regional level, have you any thoughts on that side? Well, if you look historically at the programmes that have been back in previous rounds, back two or three cycles ago, there were up to five different areas within Scotland in terms of programmes, and that has gradually been reduced over time. As you have heard in your other evidence, that is something that has been happening in other similar countries to Scotland, Scandinavian countries as well over that period of time, as the funds have come into more developed countries have reduced, reduced administration, etc. The number of programmes have reduced, so we are now in a situation in this cycle where there is effectively one Scotland-wide programme, but with some recognition and specific funding within that for the Highlands and Islands. I think that it comes back to the point that I was making earlier, in all of the decisions around trade-offs. What do we think makes the most sense of whether we want to be on that spectrum? It is between having something that is coherent, strategic and all-Scotland level, where we can direct maximum resources to fix the problems, we identify whether that youth unemployment is one that has been successful in others as well, and we are lined up with the national performance framework and we are lined up with the economic strategy. That is clearly important, but also to get the right balance where decisions can be made at a local level. Clearly, the more you devolve the administration of that, the more complex the bureaucracy and administrative burden on the cost of that becomes, so that is part of the balance. Having said that, it is clear that there are different requirements in different parts of Scotland and that is something that we would have to take on board. We are open and we are coming in new to this job. It is a good opportunity, just at the right time, to be able to take some views on that and reflect on that, and we are keen to engage with stakeholders to take their views on it, to make sure that we get that balance right going forward. Within the constraints of the shared prosperity fund, then, as you rightly said, we might find a room for manoeuvre there. It could be severely limited in any event. I accept that. Assuming that we have more room for manoeuvre, then, presumably, we could be restrained. Presumably over time, if the Highlands and Islands, I think that there is some evidence that they have come closer to the Scottish average, and that has been, in my opinion, thanks to a lot of this extra funding, so that has been a success. Where are the other needs? Mr Beaton, myself are on the cross-party group for industrial communities and there is a focus on, for example, the ex-mining areas, which still in Fife and Ayrshire still have particular challenges. That might be quite local, either within a council or within a group of councils in Ayrshire, but is that the kind of thing where we could be targeting a relatively small area that has real need? It could well be, and it depends on—the other way to look at that is to say that perhaps you have a fund for post-industrial communities, for example, I might say that we would, but that allows you to focus much more specifically on programmes to communities rather than, within any given council area, there is going to be a mixture of less well-off and more well-off areas. If you want to target a specific type of challenge, it might be better that you do that by the way you design the programme and the interventions rather than by the way you do it regionally. It is seen that, within the Highlands and Islands, there are quite wide discrepancies between Inverness, for example, and some of the more outline areas in terms of the challenges that they face and the support they need. You can be quite local in that sense, and we need to look at that in the round. David Anderson will contribute to that as well. I will bring out the point that you just made, Ms Mason. It is that point about could we target smaller areas? That is perhaps an opportunity going forward. At the moment, the only fund that is targeted at a specific area of Scotland is the Youth Employment Initiative fund, which is in the south west. Otherwise, all the funds span either the Highlands and Islands or the rest of Scotland or the whole of Scotland. We do not have the flexibility to target very specific areas because of the EC rules, so that is an opportunity, perhaps, from the fund going forward. If we wanted to target the areas, in your example, we should be arguing for that flexibility to allow us to do so. Following on from Ms Mason's point about economic development at a more local point, I wondered if the minister is thinking about how any future successor programme could meaningfully link with the local governance review, given that the Government's economic strategy is increasing its regional focus, and given the importance of meaningful partnership work with stakeholders, whether that is the community sector, social enterprises, third sector or local government? That is a good point. I will pick up on to have a look at the local governance review and see how that could align with it. As I said, notwithstanding the fact that we do not know what we will be able to do in the future, it gives us scope to perhaps look more broadly at how we will line up with that. Clearly, it also plays into the regional economic development agenda, with the regional economic partnerships and what we are doing with city deals and city region deals, etc. There are a number of moving parts there, and it is important that we take the time to have a look and see how that could all be lined up to best effect to deliver the overarching objectives that we have. I understand that the Government does not have a regional economic development strategy, but it has a regional development agency, and it is soon to have another one in the south. It has growth deals that it is promoting. It has a national planning framework. Apart from the resources that could potentially come from a shared prosperity fund, how do you see such a fund tying in with existing economic policy levers, the ones that I have outlined? I think that that gives us the opportunity to do that. I mean, at the end of the day, it all comes back to what are the overarching strategic objectives, what are the four eyes, what we are measuring in terms of the national performance framework, and then in terms of regional development, as you rightly say, we have got Highlands and Islands Enterprise that has a clear focus on developing economic development and community cohesion in Highlands and Islands and the New South of Scotland agency, which is taking forward similar programmes for Scotland. We have got the city region deals, which have put a clear focus on local authorities and groups of local authorities to do, to bring forward programmes that make sense for their economic development in their specific areas. There are a number of things that are happening, as you rightly say, at different levels. As Angela Constance said, that is an opportunity for us to look at, at this point in time, what we want the programmes to do going forward as part of the ship prosperity fund and how it can best fit in with those. I think that we are at the early stages of that. I am not coming here with the answers to how we are doing that, but I am very conscious of the fact that that is a piece of work that we need to take forward as Government and mean my new role to engage with stakeholders to figure out how best to do that. I will elaborate a little bit more, because in our inquiry on growth deals—or was that another committee? I cannot remember. There was a sense in which, when pots of money became available, in that instance, through growth deals, people just grabbed projects off the shelf that had been gathering dust or quickly put together propositions. There was not a strategic thinking underpinning some of the projects that were fed into that. Historically, that has been a pot of money into which people have bid. I certainly get the sense that some of the projects that have been funded through those funds have had their genesis through similar initiatives, things being taken off shelves, a bit of ad hocary. My key question is that you have a range now of policies in place, trying to take a more strategic approach. How much flexibility will you need to ensure that any new shared prosperity fund that comes to Scotland can properly fit in with existing plans and strategies, and not just be a pot of money that people bid into in a rather ad hoc fashion? To some extent, that plays back to the earlier answer that I gave to John Mason, which is that if you want to have a coherent strategic perspective on that at an old Scotland level, you need to have some structure around what kinds of programmes are going to be accessing those funds and going through a process to check that they are coherent and feeding into that overarching strategy in those objectives. I understand that, but I think that that is the reason why there is a limit to how much you can devolve. There needs to be an overarching strategic perspective on that at a Scottish level. In terms of answering your question, I think that the answer is that we do not know clearly where we are going with the shared prosperity fund and until we see the detail of that in terms of how much scope we are going to be allowed in Scotland to decide how to design the programmes and how to allocate the funding, it is very difficult to answer that question. Clearly, we want to be able to do exactly what you said, which is to look at the landscape, look at strategic objectives, look at what is happening locally, design programmes that fit into that space, but, as I said, until we see what we are going to be allowed to do, it is very difficult to answer that question. On a specific point that was made to us in discussions with Robin Smale, an academic, he acknowledged that there may be a role for a kind of a subfund to deal with crisis or economic shock events—notwithstanding the Brexit itself—that economic shocks take place across the country on a routine basis. Is that something that you would consider or contemplate, or do you think that that is more appropriately dealt with in other parts of government? It depends exactly what you mean by that, because, if you are to say, here is a given pot of money and, by the way, we want to set up a subfund for crisis, then the first thing immediately that you are doing is taking some money out of the overall pot, which makes the overall pot smaller, to put this money to the side to wait for the crisis. You might decide that that is a priority or it may be that you would rather have that money allocated now and driving forward the strategic programmes that you want to drive forward at this stage. It is not free money if you like that money—it has to come from somewhere to put into this subfund. You are then looking at what sort of crisis you are talking about. If you are talking about something that is very local and affects a business or a group of businesses or a specific industry or part of an industry, then it may be that there is a case for an intervention there. The Scottish Government clearly has intervened in examples of industrial interventions that we have made over recent years to support businesses or industries to allow them to go forward and develop. If it is a larger shock that you are talking about another financial crisis or you are talking about something that knows what the impact of Brexit is going to be, as you rightly mentioned, then you could be in a situation where whatever kind of subfund you have got is clearly dwarfed by the requirements of the crisis as such. It is an interesting idea. I am not sure how much mileage there is in it when you start to pick away at some of those fundamental questions about it, but it is certainly something that we will have on our agenda to consider. Gordon MacDonald I want to continue this discussion about the UK Shared Prosperity Fund. If my understanding is correct, since the announcement in May 2017 of the Shared Prosperity Fund, there has only been one meeting between UK Government ministers and Scottish Government ministers, if my understanding is correct from what you said. Is there a concern that the method of distribution, administration and evaluation of the fund might not be devolved to Scotland? In terms of ministerial meetings—I do not know if you are referring to that—I had one meeting with Lord Haley as a minister responsible, but it was a very broad general introductory meeting and did not go into a lot of specifics on the fund, other than to raise our concerns about exactly what you just said. In terms of official engagement, there has been very little, but I let David Anderson talk in a minute about the details of where that is up to, because I know that things have started to move recently. I mentioned the UK Government consultation, which we are expecting at any time now, and we will see whether that goes. In terms of your general point, yes, other than some words about it, they will respect the devolution settlement. We do not have any specifics, so it is quite possible that an awful lot of the control round about what you can do with that fund, how large it is, where it can go, how it is managed, how it is audited, the time scales round about it, the method is for accessing it, who can bid for it with much funding. All those questions, as far as we are concerned, there is no clarification, and therefore they could be controlled at a UK level. We have nothing to say that that is not the case as far as I am aware. You also touched upon the fact that this consultation is late. Given the whole delay in the system and that Scotland currently has a pot of money available to them in the current EU structural fund round of about €944 million for the 2014-2020 period, what would the economic impact be in Scotland if there was to be a delay in the full implementation of this fund by the end of 2020? 900, whatever it was, euros. Exactly. It is also a significant if we fall off a cliff. I mean, just to clarify, but the more than that, because we are obviously getting more benefit back for our investment clearly. However, as we understand it just now, if there is a no deal scenario, the UK Government has indicated that there would be a treasury guarantee there, so that it would fund the programmes to the end of the 2020 period. Beyond that, as I said, we do not know the scale yet or the number on the shared prosperity fund. It is a big on known and a big concern, frankly. It is not just that cliff edge. It is that sense that stakeholders are already planning now for what comes next. That point, as you ask about how we allow clarity, is a very live question in the minds of stakeholders because they are looking to say, well, how can I continue these programmes or do I have to make some provision for them, perhaps not being there? We have made that point to officials. Officials are aware of that in other parts. Very clearly, the view that they have said is that this thing, the shared prosperity fund, will be ready to go on 1 January 2021. One other question that I was going to ask was, there has been suggestion that any new UK shared prosperity fund will have the opportunity to look at different areas of the economy that they could not previously do under EU rules. However, we heard in one of the evidence sessions on 15 May by Robin Smale, and it was backed up of the European Institute of Public Administration and Professor Backlar that, with aspects of state aid and public procurement, we will most likely have to continue to follow the EU regulatory framework. Given that that could be the possibility, how much scope is there for introducing different programmes that we currently have? On the state aid point, I think that you are right or that the witnesses are correct in that sense because the expectation and indication from the UK Government is that the state aid rules would continue pretty much as they are for the foreseeable future, not least because of your hope to do a deal with the EU, then they will want to know that you are not doing things with state aid that are going to disrupt normal trade. The expectation is that those would continue pretty much as they are, which means that there is scope for doing something. There may be stuff around the margins, but at a significant level, we do not anticipate that we will be able to tear up state aid and operate as if those rules do not exist. I do not know if you want to add any more detail to where we are on state aid. On the state aid point, as you make it absolutely right, minister, it is that what is the flexibility going forward and the rules and guidance are very detailed when you get into what you can spend the money on and what the outcomes are targeted at within the EU guidance and legislation. I think that we would all hope that there is that flexibility and the flexibility that the minister talked about in response to earlier questions is that flexibility to be able to write the programme that addresses the needs of Scotland's economy is the flexibility that will be sought without perhaps prescribing to the nth degree what we actually mean by that in terms of funding outcomes. There is always a balance and that sense of there is that balance between you prescribed to the nth degree and are very clear or you just have a very open and then there's something about begin to question is what is the how do you define the value and how do you define the audit trail to ensure you've actually got the value out of that additional money? Okay, thanks so much. Follow-up from Dean Lockhart. Thank you, convener. It's a supplemental on the question of government support for the economy because last week's programme for government announced a new export plan, a national export plan, with £20 million of support over the next three years. I wonder if the minister could clarify which agency will deliver the national export plan and the form of financial support that will be available under the plan? Of topic, but yeah. You're right, there's £20 million there that support for peer-to-peer for 100 businesses, a support for 50 businesses to enhance and develop their per year to develop their export potential and encourage them to grow. Clearly it's a range of part of a whole range of activities that are going on and there'll be more to meet around the export plan. It's something that I'm working on at the moment with officials. I've got a trade board meeting next week to further develop that money. Specifically in terms of which agencies it will depend on what businesses we're talking about and how that £20 million is going to get spent in total. The examples that I've given are only about £2 million or £3 million, so the rest of it, how exactly it's going to get spent, will be a consequence of the detail around the export plan that will be getting unveiled in the spring of next year, but we're working hard on that at the moment. There's much more to it than just those specific interventions. There's an awful lot of work going on roundabout where trends and exports have been by sector, what kinds of companies offer the most potential to grow exports, what sectors and therefore what geographies we should focus on and therefore we should focus resources to maximise Scotland's export potential going forward. That's quite a significant piece of work when they say that they'll see the light of day sometime in early part of next year. Has it been decided which agency, which government agency will deliver and oversee, implement the national export plan? Clearly all the agencies are involved. SDIs are at the forefront of that because they're the agency that's working internationally, but other agencies have got a role there to encourage businesses to export, which is something that Highlands and Islands Enterprise and Scottish Enterprise do at the moment through their account management processes, engage with businesses and have that discussion about, are you exporting, what can we do to help you exporting more? Then those businesses are fed up, if you like, to bring the tension of SDI to trade missions and put them in touch with Global Scots or the new trade envoys or the investment innovation hubs internationally in the whole range of support that's there to link those businesses up with opportunities in their sectors globally. So in answer to your question, it's SDI that's at the forefront of that, but other agencies have got a role to support and work with businesses to maximise their export potential. If there are no further questions from committee members, I'd like to thank the minister and David Anderson for coming in today and we'll now move into private session.