 Welcome to the fifth meeting of the Economy, Energy and Fair Work Committee for 2019. I ask everyone in the public alley to turn any devices that they have to silent, please. We have apologies from committee members Dean Lockhart and Gordon MacDonald. The first item on the agenda is a decision by the committee to take items 3, 4 and 5 in private. Are we all agreed? Yes. Thank you. I turn then to item 2 on our agenda, which is our inquiry into construction in Scotland's economy. We have today our four witnesses here who are all welcome. First of all Hugh Edgar, who is the interim head of UK policy for RICS in Scotland. Ian Rogers, chief executive of Scottish Decorators Federation. Then we have Stephen Dillon, who is the regional co-ordinating officer of UNITE, construction allied trades and technicians, UNITE the union. And Simon Rawlinson, who is a partner in Arcadis, representing the construction leadership council today. Welcome to all four of you. Before we move to other questions from members of the committee, I would like to open by perhaps asking what each of you view as the key strengths of Scotland's construction sector and some of the key weaknesses in light of recent events. If you wish to speak, the sound desk will operate the mic, so no need to press any buttons. I do not know who would like to start. Hugh Edgar is volunteering. I think that the key strength of the Scottish construction sector is its resilience. The last 10 to 15 years have been particularly turbulent from an economic point of view, and the construction industry still manages to stuggle on in there. A vibrant and healthy construction sector needs confidence, and confidence itself is a product of consistency, of certainty and stability. In the last 10 to 15 years, we have had numerous national elections and referendums, all of which contribute to a slowing effect on investment decisions from foreign investors or internal companies. We have had an election every year since 2012, so it has a slowing effect on those decisions. However, the Scottish Government's track record on infrastructure investment and construction is commendable. The Government recognises the benefits of the healthy construction sector to the economy, and I think that that is best illustrated when our current First Minister and a previous role as Deputy First Minister stated that we need to build our way through the recession, as she said in 2012. That is probably why the Scottish construction sector continues to be an attractive arena for investment. On a regular basis, the Scottish Government announces a package of measures to increase capital investment, which will create and, more importantly, maintain jobs. A lot of construction, sexual activity and measures are based around creating new jobs, but it is also maintaining jobs that are equally as important. I am sure that my colleagues on the panel will share that view. One of the weaknesses is the lack of talent coming through the pipeline. There has been a stand-off when it comes to education and to encourage school leavers and graduates into the built environment, which is a concern. We have an impending retirement cliff edge. Many professionals are aged 50 or older and are set to retire over the next five to 10 or 15 years. As I said a moment ago, it is trying to encourage more school students and university students into the built environment and into the professions as a means to replace those who are leaving the sector. That is difficult. Obviously, we have been somewhat dependent on EU migration, but at the same time we need to focus on the domestic pipeline. Ian Rowlands. I would like to perhaps bring some data to this conversation. From a strengths perspective, I think that it is worthwhile recognising that Scotland, probably compared to the rest of the UK, has a high proportion of public sector spending. Probably about 30 to 40 per cent of expenditure in the Scottish construction sector is public. One would assume that that would be rather more stable than, for example, some of the more cyclical sectors—private house building, private commercial. If I was going to highlight a potential weakness, there are two that I would highlight. One is the particular characteristic of the Scottish construction industry. Of course, it is certain locations in which the industry operates are very remote, and that results in considerable premium costs. That was brought to life by a very fine construction news award submission by Robertson, the contractor, building a primary school in South East. The challenges that that submission brought to light were firstly accredited to the industry and, secondly, recognising how difficult some of the locations are delivered here. The second one is probably more general, which is the rate of growth. If one looks at the forecast growth for the UK for 2019, currently 1.3 per cent, for Scotland 0.1 per cent. That is an area for concern. The industry has been robust. We are doing very well. There is a lot of reliance on the public sector, which is absolutely true. Spending in the public sector has to be maintained and levelled so that it does not have the peaks and troughs to ensure that the flow of people coming to the industry is employed and does not have that on-off effect, which is not attractive for young people to enter into the stock and go economy that the construction has. We have an envious reputation in the past of training good apprentices. Scotland was the gold standard for training apprentices, and that was one of the best in Europe. I can be looked at by the European competitions that we have and the skills Olympics. We always do quite well in Scotland. We are always up there in the top 10. That is excellent, but we need to make construction a career of choice. How do you make it a career of choice? We have to have better qualifications, a raft of qualifications linked to wages. We need to make it a career of choice. Careers teachers are not conducive to coming into construction. It is not something that they would point that they are young people to go into. Construction is a great career. It can be very, very rewarded. £30,000 per annum is not uncommon. That is not bad for a tradesman starting off in his life after he has done his training. I should say that not every member of the panel needs to respond to every question. Obviously, as we go through it, we will try to build a discussion here, but I will hand over to Stephen Dillon. I will be brief and thank you. I brought the brush there for mentioning the painting. One of the strengths for Scotland's construction industry is the Gold Plated Apprenticeship Scheme. We need to protect that. We, Unite the Union, will be protecting that at all costs. Recently, it has been tried to be watered down from some sectors, and we need to protect that at all costs. That is the future of the industry, that is what we are today. One of the weaknesses—it has been a weakness in the industry for years—is the employment practice. When people are through their apprenticeship, what happens to them then? That is the weakness of the industry. It is about how we look after the people in the industry. We keep talking about the building, the materials, the design. Nobody ever talks about the people who work in it. That is what we need to look after. Most of those people, when they have finished their apprenticeship, have to work in what we call bogus self-employed in the industry. I will go on to that later on, chairman. Thank you very much, convener. I will pick up on some of the contributions there, particularly in terms of apprenticeships and skills. In terms of the apprenticeship levy, there was some research done that said that 33 per cent of employers and 48 per cent of employees knew nothing about the apprenticeship levy, and more than a third of British construction businesses admitted to offering no formal professional development for employees. Despite 73 per cent of employees in the sector saying that quality training is an important factor when deciding whether to leave a job, I wonder whether you could share your views. Which levy are we talking about? There are two levies. I am talking about the apprenticeship levy. There are two levies, the CITB levy of 0.5 per cent, and the Government levy of 0.5 per cent for companies that are over £3 million, which will probably cash in down much lower than 10 per cent. I was talking about the UK apprenticeship levy that was introduced three or four years ago. Our employers do not like that at all. Those do not want to encompass it, because they cannot get funding from it. They can only get funding by doing certain specific training. That has been a retired training. It just retards the whole thing. It is seen as a tax. It is a seasonal Government tax. You do not train, you do not get a money back. There is only specific training that you can do to get the money back. There has been no more money given to the Scottish Government to fund that training. The Scottish Government is now trying to fund that training from its current budget. I think that it is worth recognising that the apprenticeship levy is a collaborative scheme that relies on employers, specialist skills sectors and the Government collaborating on delivering training. One of the areas that was a challenge around the launch of the scheme in 2017 was that there were not sufficient approved courses available. I think that it is absolutely correct that there is a hiatus in skills coming through because the opportunities were not there. The construction leadership council has worked very hard with the CITB and with the board that approves apprenticeships to get 60 approved courses through during 2018. Furthermore, there was an announcement in the budget in November 2018 that large employers, the ones that are described by Ian, would be able to cascade 25 per cent of their funding to their subcontractors. I think that there is some evidence of progress in the scheme, but I would certainly agree with Ian and others on the panel that the implementation of the scheme over its first 18 months has created a gap in the skills in the short term. Okay, thank you for that. I will also pick up on some of the contributions from panel members speaking about apprenticeships being go-plated. I think that the strength of apprenticeships in Scotland is their employed status and you spoke about how we need to do more to make construction a career of choice. Therefore, picking up on some diversity issues, where are the women? Well, painting and decking is probably the most successful attracting women, but it is still only 2 or 3 per cent that is very low and controversially anecdotally from my conversations with apprentices. Females and males have a different mindset. Females use the qualification to go and further their careers. They have a longer term view of their lives than young men coming into the industry. Young men think about Friday and getting out with their pals. Girls seem to think about where the qualifications can take them. Many of the girls who come into our sector end up in interior design, so they have a qualification in painting and decorating. They can use that qualification to go to university and do an interior design course. I am a bit nervous when you are going with us, Mr Rogers. Even I am conscious that there is a range of careers available in the construction industry. Some of them are in interior design, some of them are a bit more on the front line and hands-on and require that the crafts and traditional trades be served. The question is, what would make it attractive for a young lady to come into the industry? That is a bit of research that needs done. What are the barriers that are coming in? From their perspective, not just an employer's perspective, it has historically been a male environment. I am not sure that working in a building site is an attractive disposition for young girls coming into the industry. Of course politics is historically a male environment. How do you stop that? How do you change that? I wondered if other members of the panel are Mr Dillon. The industry is a poor place for women to work. There is no doubt about it. I have six sisters and I would not want some of the work in the industry. Some of the reasons for that are toilet conditions, for example. There are no sanitary products, so we unite the union around a campaign about period dignity and construction sites so that female construction workers have got somewhere to go instead of going into a meal. I do not know if you were in a meal construction site toilet, but probably none of you is in here would last for a minute. That is some of the things that need to change in the industry. We are running a big, massive campaign across Great Britain about trying to make sure that construction companies, clients and the likes look at the toilet conditions for both men and women, particularly including the period dignity issue. We have, and we all know about the other period issues that were raised across the country. We put in our pay claim that free sanitary products should be provided in all local authority buildings. That is the kind of thing that prevents women from coming into industry. There should be a lot more women in the industry. If we could get them in, it would be great, but we need to make sure that the conditions are right, because those construction workers have lived in these poor conditions for years and they might try to make it good for everybody. I totally agree with what Ian and Stephen have described there, but I would like to suggest that the prospectus might be a little bit brighter than that. The CITB has done quite a lot of research about future skills requirements, so this is the industry transforming itself. One of the areas where most development is expected is in off-site construction, so this is construction in factory conditions. I think it is emphasising its groups like this, which is emphasising in getting that message out that the future of construction is not necessarily on a site. It might be in a factory. It might be using digital tools, which again is construction. That is the future for everybody, not just women or men. The more that that message is communicated externally, the way that we change the brand of the industry and the way in which we attract everybody. There are opportunities out there for girls in construction. The demographics are changing and there are more single families out in the great wide world out there. Lots of ladies who live on their own prefer a female coming in to do work than a man coming in to do work in their house. That has been a couple of our female members. They get quite a lot of work that way rather than trying to compete in the bigger environment. They compete in a specialist market for the female market. I agree with what the panellists have said on the issue so far. We have been canvassing our members on diversification of the chartered vein profession. RCS member employees are keen to diversify their workforce and apprenticeships come back to the earlier point or just one way of doing that. I am coupled with the innovative recruitment process at the undertake. Many of our member firms are increasing the diversity. However, in Scotland, the apprenticeship recruitment process is less able to utilise the innovative processes due to the challenging nature of the application process. That is something that the committee might want to look at. I am conscious that there are other areas to move on to. Is it useful if members of the panel, on behalf of their respective organisations, provided committee with some written information specifically on the points to do with diversity and improving the gender balance within the industry? On any other points that are raised where you want to come back with more detail, if you do not have it to hand, please feel free to do so. Jamie Halcro Johnston had a follow-up question. I visited the site of the new hospital in Oakley. The men's loop is very clean, but I appreciate that politicians visiting may have had an impact on that. I was also going to talk about the changes in construction, but I think that Simon Rawlinson picks up on that, the fact that the modular will play more of a role. I suppose that how to encourage more women or people from different backgrounds, and are we getting into schools and promoting construction as a career early enough? I know that that was something that the CITB picks up with me when I met with them, that all the sector needs to get into schools perhaps earlier. How many school groups are taking around construction sites to see what? I mean, this is a wider issue than just the construction sector, but I suppose that career advice progression promotion, is that happening early enough at the moment? No, there is a short answer. At a time when Scotland is becoming more devolved from Westminster, the CITB is becoming more centralised. In fact, there have been a number of redundancies announced up to date, and there will be more coming. Much of the work that is going to be done by CITB is going to be done south of the border. That needs to change. We need to have a Scottish run CITB, particularly looking at the problems in Scotland. CITB has recreated from doing work at schools, and it has now been left to others. As a federation, we are looking at getting funding to do some schoolwork and get some children out of schools into work experience and give them some qualifications. We are working with Skills Development Scotland and CITB on funding packages to do that. We will be looking at the 14 to 16, what we would call the Skills to Work programme, and probably change that to something more meaningful. We will hopefully get the industry to agree that any qualifications that are attained there would be a credit towards their apprenticeship. That is quite a novel idea. I still had to be discussed with the union to see if that would fit with what they are looking for. That is what we are going just now, but we do need a much more Scottish control training board. I will add a clarification. The CITB reforms are devolving the delivery of training locally. It is effectively the identification of need that is being brought into the centre, but the reform programme, which is fully supported by the Construction Leadership Council, is a three-year programme backed by the industry to devolve training to where it is delivered. One thing that I would like to mention from an Arcadis perspective is that we support a programme called Class of their Own, which runs a design and construct GCSE. There is formal qualification in the construction industry, which is increasingly available across schools, and that will also be delivered at an A-level and T-level. Therefore, we have formal qualifications that apply to the construction and the design disciplines. The final thing around CITB is that we are trying very hard to create a single entry portal into the industry. One of the problems that the industry has is that there is no clarity about who do you go to. As Stephen and Ian have very clearly indicated, it is not clear who the employers are, for example. By having a single entry construct, it makes it much easier for people to decide how they want to enter the industry, whether they are a decorator, a ground worker or an engineer. RFCS does its fair bit of engagement. We go into schools, we credit university courses to help people in their career to become a chartered severe. Again, that goes back to one of the points that Ian mentioned earlier about the attractiveness of the construction sector. When you look at the recession and the number of layoffs that there were, people losing their jobs and not coming back into the sector, that is not exactly a good pool to people who are beginning to make life choices in terms of what their career path will be. We have to try and find a way to end the cyclical nature of the construction sector, trying to level out the peaks and troughs of the construction sector performance. I think that what I'm looking for is probably a raft of qualifications as we progress into your career link to wages. That would be a helpful tool for recruitment. If people knew that there was a ladder of a career ladder, it just weren't going to be a journeyman. You could progress through that and you could progress financially through that. That might be more appealing for their parents and make it more attractive for them to come into the industry. Stamindor Daddyshire. Just quickly, Chairman, you mentioned the bit about the MSP going to visit a construction site. Well, that's the bit about the queen, given how she smelled paint everywhere she went and everywhere she goes. That's the standard that we should be having in every site, whether MSPs visit it or not or whether HSEs visit the job. That's what's going to attract people in the industry. One of the things that's not attracting females to the industry is that the pension scheme is garbage. It's hopeless, doesn't it? It's not good for the workers that are now. The male workers are going to be no good for the female workers and the families. The pension scheme is garbage. There's nothing about childcare in the construction industry, however, young mothers, for example, are going to come in and out of the industry. Nobody's ever looked at that for construction and needs to look at it on its own for females. Also, we seem to have a new build in a new build. A lot of construction, in the majority of construction, is repairing maintenance. It can't be off-site because it's already there, so the repairs and maintenance of construction sector is a big, big sector. What percentage of the sector would it be? I think you're on 33, 43, 35 per cent of the repair and maintenance, which is huge. I've argued for a while that there should be project bank accounts, and up until last year none were ever used in Scotland. I'm delighted that the Scottish Government is confirming that they're going to consult on cash retentions for construction projects in the spring. I wonder whether you could unpack for the committee how prevalent issues are with payment terms and payment behaviour. Start with Simon Rawls. So, just before I start, currently there is an inquiry into payment and retention in the UK Parliament, so that has been running for the past year. It's an extremely complicated situation, so I think what's become very clear from that consultation is that, as many people who are, say, for example, against the holding of retentions, there will be exactly the same number who will want to hold it for different reasons. So, typically, the reason for not holding it is cash flow. The reason for wanting to hold it is to have some assurance around the maintenance of quality of work. I think there's a bigger question, which is actually around the transparency of the industry, and, therefore, whether employers, whether they are in the public sector or the private sector, actually know what's going on in that supply chain. So, if we would take the example of a project bank account, that might solve the problem for the immediate subcontractors who sit under the main contractor, but it's no solution for the many dozens, potentially hundreds, of suppliers who sit in the third and fourth tier. So, I think the solution, which is actually in terms of people being able to demonstrate whether they've been paid, and if they haven't been paid, whether there's a good reason for that money being retained, may well be a solution. Just turning very quickly on project bank accounts, the committee is probably aware of the very low levels of profitability, particularly amongst tier one main contractors in the industry. So, the top 10 contractors in the UK made an average profit, I believe, of 0.5% in 2017-18, depending on the latest audited figures. The costs of a project bank account in cash flow terms will more than exceed that profit level. So, what will effectively happen is that the costs of projects will need to rise to finance that cash flow. So, there is no zero sum game here. So, it's one that will have an implication whether it's for the main contractors, for the clients, as well as for the lower tiers. Will it potentially protect the interests of subcontractors, certainly at one level, that the Government then doesn't need to bail out because the company goes fast? It will. Well, if one was going to make an observation around Carillion, for example, most of the organisations were bailed out were, of course, not delivering projects. They were delivering what you might describe as services, so that wouldn't be covered by a project bank account. But yes, you're right, it would provide some protection to those organisations, but I'd emphasise that it would protect the second tier, not necessarily the third or fourth. I suspect that Stephen Dillon might have a different view. I have a different view, and you mentioned the tier one contractor. Sometimes it doesn't matter if they want a profit or not, because it's basically all delwein stocks and shares in how much their business is looking on the stock market, and not really about the actual project itself. Some of these companies buy contracts, even if they run out of loss. I'm not really bored about the big major players at that stage. It is more about the medium to small-sized companies, and it is a great thing for them where they can be guaranteed their money. If I go home with my Mrs and tell her that I might have had some money back through this week, she'll tell me another thing, and she'll make sure that I get that cash out there. The companies are no different. If people are supplying a service, they should be paid for it, and there should be a timescale on it, which is in the details, so that the workers, the companies, the workers and the subcontractors that they are probably working for them as well, all get paid. It really needs to happen, because the tier one companies don't need to tell you how they operate. Sometimes, as I say, they're not really bothered about whether or not the companies are actually making profits. It's all about the stock market, in my view. Can I have a grievance with Steve there? We do need project bank accounts. We need a much more robust way of getting paid, not even just our retention money, but getting paid normally, getting our valuations paid, without the main contractors deducting sums from it unfairly. What sums do they deduct? Just so that we understand. When you make a valuation, our colleagues in the RICS will have a look at that, and then they may dispute the valuation from the contractor. Therefore, he'll get a much less valuation than he will throughout the project, leaving the bulk of the money to the last argument when you fail and you can't get your retention back. Many tier ones use the retention as another main contractor's discount, because subcontractors don't know when the practical completion of a project takes place, so they don't know when to actually apply for the retention. Mr Edgar, defend your profession. On terms of valuation, we report the market, but we don't steer it, so the valuation is just taken at the time. If I could just pick up on project bank accounts, they provide a vital cash flow for SMEs. Without cash flow, SMEs would go under, as simple as that. They can make profit, but it's all about having that money coming in and going out to pay staff. On a quarterly basis, we canvass our members who operate in the construction infrastructure sectors, and our most recent iteration came out in January. Across the UK, financial constraints were reported by 78 per cent of our members to be the most significant impediment to building activity. Financial constraints include access to bank finance and credit, along with cash flow and liquidity challenges. That's something that's certainly on our radar and is very much a concern to our professional membership. I get to ask you the questions and you get to answer them. Hold on. I now want to turn to procurement and specifically look at carillion and lessons learned, because I think that it was a shock to everybody that carillion went under, certainly to us, responsible for delivering on sizeable government contracts. A huge network of subcontractors is all adversely affected, and the context in which we meet today strikes me as pertinent. We've got McGill's and company, Devastating Blow for Dundee, announcing 374 job losses going into administration, and yet, to the outside world, things looked rosy. Up until last year, people reported that they'd made increased profits, that turnover was going up. I keep asking myself, have we learnt any lessons from carillion and what does McGill's tell us is going on in the construction industry? Has the construction industry learned anything from any of the people going into administration? The answer to that is no. Absolutely no. We still tender under the same principles. We still have a hugely low profit margin. Some companies are working on one or two per cent. That's on that sustainable as we go forward. You don't need to have a very long pause in your next contract before you have any money and you're laying people off or going bust. The construction industry hasn't learnt it. My question is, has the Government learned anything from it? In the procurement, are too many projects going to one main contractor rather than spreading them through several main contractors? Is the Government looking at the lowest tender, the right thing to do? Is there another avenue there? Can we divest ourselves of the highest tender bid and the lowest tender bid and something in the middle of it? That's probably correct. Procurement was reviewed as I recall in 2013. You're saying that it's just not working. It's really sad that it's happened to McGill. I've been in this since I was a lad. As an officer of the union, the main accompanies in any administration in Scotland are shocking. The sad bit about that is that the Scottish taxpayer picks up the bill for those administrations. They pick up the bill for the redundancy. They pick up the bill for the notice paying. They pick up the bill for any protective award that comes at a later date in employment tribunal. Some of these firms open up as a phoenix firm a couple of weeks later. Directors of companies are needing to look at how, when a company is in an administration, how those people operate after the administration, they should be barred. It's plain and simple. They and their families should be barred from opening up on our business. Devastating what's happening in the day, we are meeting with families in the day and Thursday evening along with Pace for the Scottish Parliament. As far as procurement is concerned, the United States calls for the use of public procurement to be bedded in direct employment and national collective agreements. Anyone subject to significant role, supervision or direction in relation to their work should be deemed to be employed for tax and employment rate purposes. There needs to be swift action by the Government to prevent employment intermediary intermediaries being used to disguise false self-employment and exploited of labour practices covering payroll companies. The conclusion of the cold report into the issues around the force closure of Edinburgh schools due to the defective construction process led to the United Nations calling for a national inquiry to look at every building that was constructed under a private finance model so that the public can be assured that they are safe and fit for purpose. Our view was that the inquiry should have looked at not only the safety but also the contracts are delivered and the value for money covering the contracts being carried out under the Scottish Government's NPD model, as well as the PFI and the PPP models. Additionally, one of the cold report recommendations highlights the need to examine the current payments made to workers by the amount of work done that is rife in the construction industry. The need for checks and balances to improve monitoring to be put in place by all public sector clients engaged in building vital infrastructure projects employed by clients to include project management roles and clerks of works, so that the level of scrutiny of those projects ensures tasks that have been carried out safely and to the highest specification. It is important that the clients show leadership in the sector by developing procurement policies supported by the selection of contractors worthy to develop a fair construction economy. United States sees the commitment of direct employment apprenticeships and trade union recognitions as indicators of such. There is also a need for the ability of clients to disengage from contracts where the successful tender is operating contrary to the fair work principles, including the recently updated best practice guidelines. That may be deemed further changed in the public contract regulations exclusion definition. Scotland prides itself on being a nation of supporting fair work. Therefore, the challenges of the construction industry should be a key priority. United States is currently campaigning to ensure all procuring authorities involved in finance of major construction sector and infrastructure projects signed up to the construction charter as a vehicle to deliver those aims. Before I bring you back in, Mr Rogers, I want to hear from Mr Edgar and Mr Rowlandson if they have something to say on this, but specifically I want to know if people do know what happened at MacGel's. The last published accounts have increased turnover, increased profits and now they have closed their doors. Does anybody know what happened? Mr Rogers, I think that Jackie Baillard has to hear from Edgar and Simon Rowlandson at this point. I don't know and I'm not going to comment on that. We can't comment on individual cases. I think that there was one word missing from Stephen's commentary there and that was transparency. I think that in procurement you need transparency and I think that there has been a lack of that for some time now. Most commentators will probably agree with me when I say that there needs to be changes with procurement. I know the Crown Commercial Service and the Construction Leadership Council, which I'm sure Simon can find more insight on this. I know they are invoking that and that procurement decisions need to be tied to both social value and payment practices. I think that the only observation that I'd like to make is, of course, that construction, like most other enterprise, is an entrepreneurial business. These are risk-taking businesses and we know that there are many sectors that are under pressure. I think that that is absolutely correct and I agree with Stephen and Ian that, in 2018, I think that a very large number of construction organisations, mostly very small, will have gone into administration. I think that the lessons learned from Carillion are firstly—I think that it's an important one for everybody around this table—is that, as part of the procurement process, the public sector has a role in supporting organisations that are going through challenges. If one could name one or two other large national contractors where the rumor mill has been circulating over the past 12 months, which, if they hadn't still been given the opportunity to secure work via the public sector, then those organisations might well not be operating. I think that there's a partnership model there, which we need to remember. The second lesson learned is also that government actually does, in the role of a co-op such as Carillion, have the opportunity to mitigate some of the impacts. I believe that there are something like 1,500 or 2,000 apprenticeships that, under Carillion, were transferred to other organisations through the offices of Bays and other government departments to mitigate some of those impacts. Rather than just sitting back and letting these things happen, you can do something to lessen the impacts. That is something that the organisations involved can be rightly proud of. I understand that, but thousands more lost their jobs and many lost their pension rights as well, so, while that's a positive, there were significant negatives to that. Can I just wrap this up then with one final question? I'm picking out four strands from you. Transparency. Small is beautiful to give it a name. Quality and cost, not just cost, and the use of contracts to secure fairness and employment. Taking all that into account when you look at the current approach in Scotland, which is a framework agreement, hub companies, does that approach favours small firms or does it mitigate against them? Mr Rogers? Our Federation hasn't found any success in the hubs cascading down to smaller companies. The hubs have their preferred suppliers and contractors. They're used to working with them. They know how to work with them. They're not interested in cascading that down. And some of the smaller companies are not interested in working with main contractors. The payment terms, the attention, doesn't make it attractive for them. All they're doing is using their meager financial resources to underpin the work that they're doing for the main contractor. So, how do you change that? You can only change that through payment terms and retentions and project making. Great. Thank you very much. Most people across the hub are just under tier 1, so the small contractors are getting nothing out of it. They might get something further down the line if the tier can sometimes contract subcontracted five or six times before the person physically goes out and does the job. We need to start from the bottom up rather than from the top down, probably with that. The Scottish S&M's are being squeezed out of the hub. It's as simple as that. It's slightly flawed as it favours large companies that are necessarily Scottish-based or looking down to the regional level based on that region. That can be concerning for local business. The overwhelming proportion of construction firms are S&M's, aren't they? The only observation I'll make is that there is a very difficult balance to achieve between on one side what you might describe as the continuity of workload, i.e. organisations that are large enough to undertake sufficient workload with an organisation or hub to create some consistency of delivery and efficiency through process, and that desired cascade work through to a larger number of small organisations. I would observe that there is likely to be a trend towards increased capitalisation of construction businesses, for example investment in off-site manufacturing, which will make it harder for small, under-capitalised organisations to compete. On the other side, that should create the position where the employment conditions are better because those organisations are effectively more supported, they have more investment and they can provide better working conditions, for example in factories. I would like to turn to the Scottish Government's policy to build 50,000 homes by 2021. How capable is the sector to meet Scotland's infrastructure needs and to drive growth us per the investment needs or investment strand of the economic strategy? I think that most of the equaled on house builders, they rely on the supply chain to build houses, have land banks and wait to land banks increase in value before they build houses. Therefore, if you are looking for a private sector to build massive 50,000 more houses, you might be waiting some time. It might be better looking at the other model of building affordable homes through local authorities and housing associations. Your view is that, from the point of view of the private sector, they are not able to support the Government's policy on that? I think that we can support it, but we need to get the land somewhere. Who has that land? It does not sound like supporting if you are talking about land banking in anticipation of the increase in price later. That is how developers develop. They do not buy a piece of land and then build on it right away, generally. They go and build big land banks. If you look at any of the big house builders, they will have massive land banks, even now, and they are not building houses until they sell them. The boom times of house building where you build a whole estate and then try and sell it, those days have gone. It is going to be built as required. It is a much slower pace of development of a piece of land and a piece of property. Are you saying that, from the private sector's point of view, that those 50,000 homes are not achievable? Probably, unless there is some Government pressure to provide. I do not think that it should be achievable. If people are buying land and all the rest of the Government should be using their powers and taking it back after them if they need to build houses, it is simple. One of the biggest problems that we are going to have about building houses is the labour market. There are a lot of major projects starting in England. I hope that maybe you have got HS2, you have got Hinkley Point, and it is going to drain the Scottish economy across people. That is one of the major concerns that this committee should have. We are going to have a skills shortage when we need contracting that HS2 takes off. The amount of Scottish workers that have moved down to Hinkley Point, when you look at that, if you talk about building houses, maybe it might have a case of visiting apprentice numbers, for example, so that we can build those houses. That is the kind of thing that we need to be looking at. Is it your opinion that, even now, Scottish workers are already moving down to take on projects down south? Yes. Plenty of them have moved down from one of the biggest projects in Scotland, while two of the biggest projects were the bridge and the Aberdeen bypass. The next biggest project is the A9 at the moment. All the people who are on the road up in Aberdeen are heading towards Hinkley Point. That includes crass people, brickeys, ginners. They are required to build those houses, so we need to boost the apprenticeship numbers as well as build the houses. Is boosting apprenticeship numbers in itself adequate to meet that? It depends. First of all, you need to make sure that you've got the land, you've got the go-ahead to build the houses, you've got the finance. To do that, you still need the workers at the end of the day. The workers are critical no matter what you do, because it's not going to be a boat with a computer. Rawlinson, you, Edgar, have to say on these points. Just a clarification, I think it's important that the committee recognises that the supply chain and the labour force involved in the delivery of housing is almost completely different to the supply chain that is involved in the delivery of large civil engineering projects. I think that that is something that is worthwhile recognising. I think housing is a difficult area, but it's worthwhile recognising the increase in the volume of housing delivered across the UK over the past five years. I think it's increased by 30% or 40%. I'm very happy to deliver the numbers after that, so it is possible to increase output. I think it's also worthwhile recognising that increasingly large strategic land sites are converted into housing and they take a long time. The Lekwin review, which the committee may be familiar with, recognised that some of the large sites took about 10 years to deliver on housing because, of course, you can't deliver too much housing into a market because if you do, there won't be the sufficient demand. The recommendations of the Lekwin review were to change the tenure mix, so to have a blend of private, affordable and social housing so you can accelerate the absorption of housing into a local market. I think the sense that if you deliver lots of housing that people will come is the kind of mistake that's been made in China over the past five or 10 years, where you have these ideas of cities that are waiting for people to come along. I think that sense of supporting the industry to increase its capacity is really important. I hope that the committee is aware of the great success that Stuart Milne has had in securing, I believe, a share of £6 million of funding in conjunction with Barrett Homes and an RSL-LMQ in developing off-site manufacturing innovations. That's something that they secured just before Christmas, which is a great result for the sector and a great result for a very innovative Scottish housebuilder. Technological changes are very important. There's a question whether we're doing enough in that regard, and the projections are that something like a quarter of construction jobs could vanish as a result of technology, which would help alleviate some of the labour shortage. How good are we at taking advantage of these technologies? To build houses, you need planning, we're having enough planners, we need infrastructure, we need sewage, we need to be able to connect to sewage. All of these things, there are some areas of the country that are moribund because you can't put any more into the sewage system. There are a whole lot of different problems there that slow the actual process of house building up. Having had been a house builder in many years ago, it's slow to get on to site initially, and that needs to be looked at and speeded up in some way, especially in the affordable market. We're now looking at Brexit as a no-deal Brexit, possibly. That is going to stop the inflow of labour because it won't meet the Government's minimum wages criteria in some areas. We'll then be fishing in a pond that everybody is fishing in for apprentices. The hotel trade will be looking at more apprentices, bringing in more young people, the motor trade will be looking for them, we'll be looking for them, retail will be looking for them, but we'll all be fishing in that same pond, and there'll be less people that will be less fish in that point to construction. One last aspect that I would ask about is the availability of finance for these projects. Would anyone like to comment on that? Some very important developments in public sector finance. I'm afraid I'm probably not going to be able to quote the exact fund, but I believe that something like 10 to 15 billion has been brought forward into enabling infrastructure investment, dealing with some of the issues, for example, of capacity and transport and utilities, to enable housing infrastructure to be brought forward, and I'll be again happy to provide those references. I think that there's a real problem around finance for SME house builders. This is the one area that I'm sure Ian and Stephen would agree is where a hole in the market has emerged over the past nine or 10 years since the recession, which is that sector of house builders disappeared in that time. Again, the availability of SME funding, whether that's from banks or from the public sector, will help to increase the overall capacity of house building. I wanted to comment on a number of points, so perhaps you could do so now. I've got about four points as a kind of reaction to what's been going on here, firstly looking at infrastructure, then homes, modern methods of construction, and then land banking. Starting with infrastructure, the entire UK has a problem with an infrastructure deficit. We haven't built the roads or rails that we need, we haven't maintained the existing roads or rails that we need, and housing is another example. The Queensferry crossing was a great piece of work. It was what we could consider a mega project, and as Stephen alluded to, the problem in Scotland now is that we don't have a mega project to look forward to. The labour force that was attracted to Scotland to work on that project has now left to seek work. It would be prudent of the Scottish Government to ensure that there is a pipeline of mega projects or large-scale projects that would entice talent to come to Scotland and work and remain because there is a project to move on to next. Moving on to the affordable homes target, the £3 billion investment over five years is a significant sum. It's a very commendable target. The drip-fed approach, the £800 million per budget or thereabouts—that mass is terrible, if I forgive me, is more than that, obviously. That's good. The drip-fed approach allows developers to plan their next step. Ultimately, what's lacking, and this goes back to what Simon was saying, is that we need to widen participation in the housing developer sector. It's as simple as that. We need to find ways to encourage SME builders, but there are other approaches out there. There's self-build. There's a growing interest in people wanting to build their own homes, but lack of supply or land or availability than know-how to do it. That's a problem. If we encourage different tenures and different participants, we will increase tenure choice and type. We can actually start building homes so that people want to live in and have the requirements that they need in the home. Modern methods of construction—very quickly, this isn't a new concept. It's been around for a while. It takes many forms, off-site construction, prefab homes, modular, and generally the greater use of technology. It is a way to tackle the skill shortage, but let's recognise that it's not the panacea. It will contribute to the skill shortage, but we can't just build everything that we need in a factory. There will always be a need for that labour force to pull everything together. The main benefits of MTC is that it can tackle some of the issues that the construction sector has been struggling with, such as low productivity, variable quality, output lagging behind targets, and slim margins for builders, which has been brought up in the committee session earlier on. Finally, the issue of land banking. I think that there is a fine line between land banking and a land supply pipeline. Ultimately, developers have to know what the next project is coming on to, where and what they are going to build next. Whether that one person's land banking could be another person's pipeline is something that we need to be careful of. It might be prudent to look at planning permissions and investigate where they are and to see what is in development plans and what has been held up, and where and why. John Mason Thank you very much, convener. Maybe I can have a look to the future a bit. Some things have been mentioned already about where you would like to see things change in the future, but that is the area that I would like to concentrate on. Specifically, to start with the Construction Scotland Innovation Centre, which I believe started in 2014. Is that being successful? Has it been successful? Will it be successful? John Mason Strangely enough, I was on the original Construction Scotland committee. As far as the industry is concerned, Construction Scotland is an enormous body. If you were to ask who Construction Scotland was to me, my members would be if I were difficult to tell you who they are. John Mason Specifically, the Innovation Centre is also not known about? John Mason I am a chief executive for our federation and it was lost on me, though. John Mason Okay, anyone else on that? I am sure that the committee will go back to some of that in the future. Okay, well let's leave that one. John Mason I mean, the off-site... John Mason Sorry, I had something to say to that. John Mason No, it's fine, I don't have a lot to say on it. I mean, I've got an infographic here, and it supports 206 projects to date. I don't know if they're completed, you know, so the infographic out there, the information that they provide, it shows that it's a good organisation, it's a good centre, but, again, it's not that many people are aware of it, as illustrated by Iain. So more could be done to advertise that, I think that the work that it undertakes is good. John Mason So where's the innovation coming from? Are people working together to bring innovation, or is it left to individual businesses to look at the innovation? Because I've spoken to two active house builders in my constituency, and one is very keen on off-site construction, although it doesn't seem to have taken off from what I can see, and the other one, which is a reputable company, as far as I'm concerned, is quite sceptical about off-site construction, and they basically said that they're not convinced it's the way ahead. Is there any agreement in that kind of area? Everybody's shaking their heads, right? John Mason Can I take some observations from the perspective of the Construction Leadership Council and the sector deal, which was published in July 2018, and which applies UK-wide? The case that I'd like to make is that there are certain clues that that sector deal sets, which, if the Scottish Government could follow in its setting of policy, I think would help to create some momentum around common themes. There are three themes that I think are important to pick up on, most rely on collaboration. The first is that there is a collaborative innovation group. It's called the I3P, which is the Infrastructure Industry Innovation Partnership, which brings together clients, contractors and designers to co-fund innovation. At the moment, it's working on understanding what those common opportunities might be. That potentially could bring together a R&D funding that might be many tens of millions of pounds. John Mason Can I just check if that's active in Scotland? John Mason That's a national body. John Mason When I say national, I'm thinking of Scotland. John Mason I'm sorry. It's a UK-wide body represented by UK-wide organisations. Yes, there will be parties there. The second is that there are actions that the Government is taking, and that's national Government again, around developing common ways of delivering particularly, again, off-site manufactured, not housing, other buildings. In the UK budget in 2017, there was an announcement around a presumption for off-site manufacture by five Government departments. That would be Ministry of Justice, Transport, Health, Defence and such like. Again, if the Scottish Parliament could follow up with a similar presumption around a similar way of delivering, and there is a current inquiry by the infrastructure projects authority into what's called product-based design for manufacturing and assembly, that would create, again, further what you describe as a common ways of working to deliver greater productivity. The only other area that I'd focus would be around, again, infrastructure and procurement, picking up the point about the long-term pipeline, very important, and then, in terms of using it as a means of procuring in a common way. Whether that's using, for example, a balanced scorecard to emphasise lifetime value, creating skills and employment, or by procuring two different techniques off-site manufacturing, that creates a common approach that people can invest into. I think one of the messages that your two house builders have demonstrated is that they have lack of confidence in there being one solution that they should put their money into. I think that the more confidence that comes from the public sector in asking a consistent question, you're more likely to get more investment into that solution. Are you saying that the public sector, like housing associations, should dictate to the builders if they want the house built off-site or on-site? Currently, there is no presumption for, for example, housing associations to do that, but they are increasingly very significant players in housing development. They work at volume and they work at speed, so they could potentially work together to create greater consistency. Again, I will share a publication which we put out in the press in August, last year, which described how our ourselves could join together to procure jointly on off-site manufacturing. A lot of the things that are coming up today will spend more time on the future, so we are just trying to get an introduction. I still would be interested today to hear what are the key arguments for and against off-site construction, because we have heard a little bit about already that it might be safer and better working conditions and all that. I track more people in if it is off-site, but do we end up with a good product? Is it not as solid? Does it not stand up to the weather? I don't know. Mr Egger. The point on the quality of the home's bills is that they get pulled up very quickly. Have you ever been inside a home that feels like you're just in a normal on-site house? That's my experience. Everyone is different. I'm sure that the two housebuilders you mentioned might have different views and their experiences might have led to their views on that. I just want to pick up a point that Simon made about a roll-out of MTC or parliamentary or governance support for the roll-out of MMC. We have to recognise that with that. We need to upskill the workforce. That's one of the first things that we have to recognise. We can't just introduce presumption in favour of MMC in public contracts without upskilling of the workforce. Is it a problem of upskilling the workforce because so many are self-employed? I don't know. It would be good if regulators became a little more familiar with MTC products, so they would be better familiarised to the offer of MMC. Those are just two things. I can expand on those further in my written evidence. That's great. Mr Rogers, you wanted to come in again. Having been a housebuilder in the past life, we did both off-site construction and conventional, and we did both different roles. When houses are selling as quickly, we would go into conventional construction, which is a slower form of construction than off-site. The off-site needs a very high quality assurance of on-site inspection, because following trades, if they rip the vapour barriers, then you are ripping the heart out of the home and letting condensation into the insulation, and they wouldn't structure themselves. The quality control there has to be much better on-site. That's going back to Mr Rogers' point about the skill of the work for a different skill set. It's not the skill of not just the constructor, but the skill of the plumber. When he's putting a hole through the vapour barrier, that has to be sealed properly, and not just a slash put in his paper. There's a different kind of skills, right? Yes. It's a knowledge of what he's doing, and what the implications are of his actions. Right. Mr Dillon? As far as I've spoken, the concern that we've got tonight is not opposed to any innovation on automation or digitalisation of the sector, per se, but is there policy that the benefits of automation need to be harnessed to ensure positive benefit for workers across all sectors, including construction? Now, I've been in some of these construction sites that basically I've explained it to you. It's like a big aircraft hangar, the bold sections of the house. In that aircraft hangar, there's one of them just outside Inverness, and they deliver the house to the site. So the site groundwork's already done. It's like a bit of a legal kit. It's all clicked together, and it's really good. Now, the good thing about it is safer. It's proved to be safer. It's better conditions, just like you said. You know, better health and safety conditions, because, you know, there's over 50 construction workers killed in Great Britain every year. So if that helps that alone, it'd be great. The good thing about it saves in productivity, because there's no downtime. The construction and house-building sector is plagued by downtime, because they were not in the best climate here, let's say, in Scotland. So we're going to harness all that stuff, and the Scottish Government should be going to harness it. There is technologies available there. We should be putting some funding into that as well. I don't know if you do, but we should be looking at that. Then it makes it easier for construction workers and the families, in my view, is a good thing. On the skills thing again, I mean, it's obviously a different skillset, building something off-site and then putting it together on the site, compared to your traditional bricklayers and all the rest of it. Who would you see as responsible for, you know, upskilling the workforce or just at least adapting their skills? Is that the individual company? No, I don't think there's a different skill. You know, there is, and it's clear and nice. You know, the union will be protecting those craft skills. They were, you know, way back when they were introduced when they were building the pyramids and all the rest of it. That's how far back it goes, so we'll protect that to the death. Now, bricklayer still needs to build the brick, and it's only in better conditions. That's all. It's a better environment. The ginner still needs to put on the doors and all the rest of it, so it's just placed in the workers in the bed. Instead of being out there in the snow and the cold and the driving rain, they're in good accommodation where the units are being built. You still need to craft people, but what we need to protect again is people trying to water down those crafts to say, we can just make you fit the doors. You're a door fitter now, you know. We don't need to be a ginner. You're just a door fitter. The union will be protecting the craft skills until we die. I'll leave it at that now, thanks. CITB has published research that looks at the specific skill sets that are needed to support the development of the off-site industry. As Ian particularly pointed out, the supervisory skills and the main contractor skills of understanding how the process changes is really important to get the productivity gains. I think there are supervisory skills around how you work a factory as well to get the maximum productivity out of that, and I think one thing very encouraging for the trades that Stephen represents is actually the encouragement of greater multi-skilling. Rather than having someone who does one thing, they can do many things, which of course makes a job richer and potentially more productive as well. I think that we could debate that point for quite a long time. I'm sure we will. We'll go back to that one another time. We'll leave that just now, thanks. Andy Wightman. If you're interested in an off-site construction— Sorry, I think that it is Mr Wightman who's speaking now. Thanks very much, convener. In 2016, the farmer review was published, Moderniser Die, and it identified a lot of problems in the construction centre and low productivity, low productivity, structural fragmentation, poor industry image, workforce size and demographics etc. I know that the construction leadership council is doing a bit of work to take this forward. I'm just wondering what impact that report has had specifically in Scotland and whether its lessons are being learned by the industry here. Nope, no lessons are being learned, that's fine. Nope, no comment on that. I think that looking at our craft, our craft modernises materials more than it modernises. It still needs somebody to paint on the walls. There's only three different ways of doing that at the present time. How do you modernise that? Okay, fair enough, but I don't know how you modernise that. Perhaps I can just make one positive contribution to this, which is that the committee may or may not be familiar with the proposals of Heathrow Airport to establish a logistics hub in Scotland. This is effectively the construction of Heathrow with an overall value of, I believe, £36 billion over 10 years. It will take place rather than in crowded south-east England, it will take place across the UK and those components will be placed into containers and will be then taken down to the south-east of England for assembly. That is probably as good an articulation that you're going to get of large clients thinking of the farmer principles of how do we deal with the skill shortage challenge, how do we spread the distribution of skills around the UK to areas where there are people, where there is unemployment, where we can do that and where we can use some of these advantages around improved logistics and thinking around how we construct things. That is a really positive story for Scotland, and if Heathrow can make it work, that will then be a watchword for other projects instead of being delivered in situ, but being delivered where the skills are and where Stephen and Ian have clearly articulated where the skills are in Scotland. Sorry, are you saying that's a response to the farmer review rather than the need to get SNP votes in Westminster to support Heathrow? I would say that that is, well, Heathrow are an active member of project 13. They have been active in probably every industry reform agenda over the past 10, 15 years. Andrew Wollstone, for example, who, ex-chair of the CLC, very closely involved in Heathrow, wrote the project Never Waste a Good Crisis. That organisation has been at the forefront of construction innovation over an extended period of time, and I would not disagree that the lobbying power of being able to spread construction around the country is very powerful, but they also are a leading light in the way that you change the way that we deliver construction. Moving on to the big political hot topic of the day, Brexit. Obviously, there is still a lot of uncertainty around that, but what are the key challenges that Brexit poses to the construction sector in Scotland, as we know today? I think that the political uncertainty more than anything is beginning to take its toll on commercial and industrial activity in Scotland. The protractor of uncertainty caused by the stalemate is becoming ever more apparent with workloads in commercial and industrial sectors. Many are grinding to a halt across the UK. The UK-wide issue is not necessarily focused just on Scotland. Anecdotally, some of our professional members have started seeing Brexit qualifications attached to tender returns, stating that, should the UK leave with a no deal on 29 March, the protractor reserves the rights to renegotiate the tender and the programme. Our members are getting a little bit on edge as we approach the leave day. I think that investment is difficult to project what is going to happen. That uncertainty is slowing anybody or all investment down. It could impact on materials coming into the country, it could slow that down or it would not get them at all. That could be an opportunity for construction companies to go into different areas. Labour is another one. Historically, construction has got labour from when we have skill shortages, we have got labour from abroad. We are going to have to find somewhere else to get that labour. On the Labour question, do you think that the UK's immigration policy in relationship to the qualifications and salary of £35,000 is going to be adversely affect your sector? That is a barrier to construction. On the skills white paper, the threshold is £30,000. The barrier is more around the employment model and the issue of self-employment has been raised already. Both the skilled route and the temporary route, which potentially could work very well for overseas construction workers, most of whom currently do not spend more than a year in the UK, but it relies on sponsor. Currently, the model that is typically agencies have so effectively represented and then self-employed people are not going to work through that sector. Again, one of the things that this committee could play back to, whether it is the Migratory Advisory Committee or back to West Minister, is through the consultation on that skills white paper because it does not give a solution to construction. Whilst the CLC ran a conference in London two weeks ago, in addition to skills that we have covered, there are two areas that we highlighted. One of which is the flow of goods. This is particularly because the industry is so fragmented, it is very difficult to understand what goods might get stuck in what bit of supply chain. If we take a building like this, it is very easy to see the external curtain wall and say, yes, we can order that in advance and we can make sure that that arrives on time, but some of the products that go into the installation, you might not know when they are going to be delivered or who they are going to come from. That lack of transparency is a real challenge. The other thing that might potentially happen is around cash flow, with, if we go into a no deal situation, VAT would have to be paid out of the border, whereas, of course, it is only paid when products are sold. That is a potential cash flow for importers. The final one is around product regulation. This is potentially a significant issue for exporters because when we leave the EU, then UK-manufactured products will no longer be certified for use in the EU, so they will have to be certified twice, once in the UK, once elsewhere. That becomes a barrier for our exporting manufacturers, as well as those important products. Our view is that the scenes at Westminster over the past few weeks have been embarrassing for this country in politics, as far as Brexit is concerned. Construction workers basically have had enough. They are all floundering around and even they understand that their other pressing issues is getting shelved because of the uncertainty, including their job security, as we have seen by McGill's. By the way, it is a context to be clear on the position that our union is taking on this extremely serious matter for both Scotland and the UK economy. United policies are democratically agreed by their members at conference. In 2016, they set out a position accepting the result of the referendum on the UK membership of the EU. Our priorities for dealing with the process of Brexit were paramount to any UK future economy outside the boundaries of the European Union. United's priorities are clear, defending employment rights, terms and conditions, and regulation standards that exist by virtue of agreements through the democratic structures of the EU. Opposing dog whistle racism by the rise of the far right and leased against workers that came to live and work in the UK and who make invaluable contributions to our society and our wealth. Thank you. I think that that brings us to a conclusion. Hugh Edgar, you would like a last word perhaps? Yes, just a couple of points as quickly on the impact of Brexit. One of the issues that have not been brought up is the European investment bank and how much infrastructure that supports in the UK. If we leave the EU without a deal, the chances are that we will lose access to this vital funding stream. At present, I do not think that the UK Government has planned to introduce any kind of replacement funding mechanism for the EIB. In Scotland, we obviously have the national investment bank and the precursor of the Building Scotland fund. I am still not entirely clear how the funding mechanisms work for them, but I could be used to support infrastructure projects and go back to my earlier point, mega-projects. On a final point, again, as it goes back to procurement, the EU procurement rules are very stringent. They are very good because they prevent any kind of mishaps or bad deeds in the procurement process. However, with the UK departure from procurement, we do have the opportunity to set up our own procurement and within that, and I am assuming that we should, but within that model, or future procurement model, we could place an emphasis on the use of local trades, local materials, which, at present, you are not allowed to do. I think that there is opportunity with Brexit. I think that Stephen Dillon wants to come back on the point that you raised, so I will allow him to do that. Thanks for that, Chairman. I can just say that there is one thing that I have not really spoken about. I did speak about it myself, employment practice of employing people in this industry through umbrella companies. Can I just say this piece about a unite member said to us, and I think that it is critical that we listen to it? I wait for a text every Friday. I see somebody who works for an umbrella company Friday to say if I will be working the following week. I book a holiday and go away with my family. There is a real chance that my place at work will be taken by another worker, and they will have no work. I will take a day off. I might be replaced. I can call in sick. I might be replaced. If I do not work every shift, I am offered. No matter how short notice I might be replaced. I pay a number early company a fee of £100 per week and get my own wages. I have no holiday pay, no sick pay, no unpaid holiday pay. I cannot work anywhere else if there is no work for a few weeks. In the rail industry, I can only have one sponsor. My holiday pay is a percentage of my net income. That is taken off when I get back at gross, so it is taxed twice. I also pay employers and employees national insurance. I will finish on that. That is one of the practices that happen in this industry. I think that that is a completely new point. I see that Ian Rogers might want to bring in yet another new point. We will stop there, thank you very much. We have run over our time, so thank you to our witnesses. I will suspend the meeting at this point to change over witnesses. Thank you very much for coming in to all four of you. Welcome back to this morning's meeting. I would like to welcome two witnesses. One of our scheduled witnesses, Matt Lancashire, had to give his apologies. We have with us Dr Stuart McIntyre from the Fraser Valander Institute and John McLaren of Scottish Trends. Welcome to both of you. I will start with questions from Jackie Baillie. Thank you very much, convener. I want to explore with you this morning the impact of the construction sector on Scotland's GDP and, indeed, some of the changes in methodology. In your view, how important is the construction sector to Scotland's GDP performance? We will take it in rotation. I think that there are a couple of things in there. One is how we measure activity in the construction sector. There have been concerns that we ourselves raised a number of these methodological concerns. The Scottish Government has responded to it and done something different. That has changed our understanding of the last four or five years' worth of economic growth in Scotland as it has changed methodology. I will talk about that in a second. Two is approximating a better methodology. It is not perfect and there is still work to be done on it. On the measurement side, progress has been made. There is a feasibility scope for further progress, particularly as we move to greater use of VAT data. One of the issues that we first raised was that, if we look at activity in the construction sector, it seems to bear little relation over the past four-year period to what we knew to be activity employment, for instance, in the construction sector. A big part of that was down to the way that the construction sector data produced by ONS was incorporated into the Scottish GDP figure. I was a startling point. Essentially, that issue was addressed to some degree by work undertaken by Scottish Government statisticians. Rather than relying on orders data to apportion regionally the data that ONS was collecting on a monthly basis about construction sector turnover, that was the previous methodology. The ONS was conducting a monthly construction survey and getting information on turnover in the construction sector. Data on new orders was being used to apportion that across regions. That was essentially the primary input to the Scottish Government's construction series. As I said, there are problems with that. In particular, we saw an explosion in what that suggests to the construction sector growth had been through the period from 2014-15. If you had seen that sort of increase in construction GDP, you would expect to see some reflection of that employment in the construction sector, but we did not. The Scottish Government has now moved to a different methodology, which is based on the use of the overall data from the ONS in terms of overall turnover in the construction sector. However, it is using a different way of apportioning that in order to get a series that they think closer matches activity in the construction sector. Sorry, that was a really long answer. It was just quite a dramatic difference from minus 12 per cent at one point to plus 4 per cent in terms of that change, but you think that that is much more accurate than an indication of what is actually going on. The number of problems with using the orders data, one of which is that order data can, so if you take an offshore wind development say, which I think was the example that the Scottish Government used, if that order is being lodged with a company headquartered in the rest of the UK, that might give a different picture. If you regionalise the UK data, the GB data, on the basis of orders placed than if that had been a company headquartered in Scotland. Where the companies headquartered, where the orders are placed, the supply chain could be elsewhere. As I said, the VAT data and the moves towards that will improve GP measurement generally, but it will also help in particular with the short-term measurement of construction output. Can I ask John LeFarren not the specifics of the change, but somebody always used to say to me, if construction is booming, the economy is booming too. Is that correct? It is a good indicator that the economy is doing well. Construction is a very erratic series, so when it goes down, it tends to go down more than so, after 2008. I think that it went down almost 15 per cent in 2009, whereas the economy as a whole went down 2 per cent, but then when it booms, as we have seen in recent years, it goes up by more. However, because of that erraticness plus the difficulty of collecting the data, it makes it a difficult series to have much faith in. Although the GDP data has been revised, at one point, construction output had increased by 33 per cent in two years before it was revised. Clearly, the industry itself was saying, oh, we are in the doldrums, I do not know where this is coming from. Now it has been revised back to something like 10 per cent or 12 per cent, which is still a lot, but having said that, the ONS has not revised its figures, its regional figures still show enormous rise in infrastructure doubling, so it is now by far the biggest sector. The Scottish Government is still saying on its measure that what the ONS is counting as construction is engineering or something else in relation to the energy, the offshore, non-shore and wind machines. There is a problem there in defining, necessarily, whether that is construction or something else. It is an important weather vein as to how well the economy is doing, but it is not a particularly reliable one. If you have something that is going up 33 per cent, then as the Government was saying, bloody hell, we should be doing something about this, or maybe the economy is overheating, more important at the UK level with macro powders, but you would beat it. However, if it actually was only going up 12 per cent or even less, you have probably made the wrong policy decision. So it is important to keep an eye on it but also not to put too much faith in what it is showing. The other thing in this area, which I think is quite important but is really commented on, is that, when it was massively increasing in Scotland and they were trying to think of ways why that was wrong, which we have now got this thing about at the energy industry, one of the other theories, and it probably is true to some extent, was that a lot of the new infrastructure stuff, particularly the second fourth bridge, was actually being done by overseas firms, so the profits were being, it looked like there was a lot of extra activity, employment was flat, there was no increase in employment at all, even though apparently output had increased by 33 per cent. What might have been happening was that the people working on the fourth or the second bridge and other places like that were coming from other parts of the UK or abroad doing specialist work and so were never counted as being in Scotland. So that means that in an area like that, gross national income is much more important than GDP, but we are still at early stages of getting a GNI figure for Scotland. GNI is also much more important for Scotland than the UK because it has a huge impact on things like the energy sector, much of its foreign-owned fish farming, most of its foreign-owned the North Sea oil banking, so it is very important, probably as if not more important than GDP, but we just do not have a reliable series for it. That is a slightly tangential thing, but it is important for us to understand the construction sector and how reliable or otherwise GDP is in that area. Is it in the Scottish Government's gift to develop that series or is there a blockage to it happening? It is in their gift and they are developing it, but it is very difficult to develop because you have to know the ownership of the company and how much of the profits are remitted. Going overseas is difficult, but it is doable, but in the UK it is extremely difficult. What do you do with Tesco? What do you do with those other companies? Maybe it is UK-based or what do you do with the RBS? It is Scottish-based, but most of its profits are coming from England, so it becomes very complicated and very costly if you want to put enough economic effort into statistical effort into actually getting reliable figures. They are producing those figures, but only Scotland is at a whole level and it is still quite early stages, but it is a very difficult task. I am interested in productivity. Mackenzie and Co are on record saying that for UK construction workers productivity has remained flat since 1945, while manufacturing, retail and agriculture has grown by 1,500 per cent. In Scotland, according to construction Scotland, productivity within the construction industry has remained flat since 1994, yet when you look at the economy as a whole, it has improved by around 30 per cent. I would be interested to know what that is about and what are the implications of that. Are those figures reliable? If so, what would be the solutions to improving productivity in the sector? Any figure that goes back to 1945 would not pay an awful lot of attention to even 1994. Those figures in a construction Scotland article relate to the UK, because there are only Scottish figures, as far as I am aware, back to 1998. However, the bigger picture is that yes, productivity is important. In the construction sector, it is traditionally low, because there is a lot of self-employment. It is not particularly the industry that is mainly UK-driven and most productivity gains come from having international influences coming in and improving your productivity. The Scottish figures that I have here, which go back to 1998, just to show how I would not put much weight on them, shows that, in 2015, productivity increased in the construction sector in terms of output per hour by 27 per cent. It is almost pretty much technically impossible to do that. What has happened is that output has gone up a bit and employment has gone down. To get to productivity, we have already discussed the GDP side, which is the numerator, which is dodgy and a bit unreliable. However, the denominator, which is the employment, is even worse. It shows almost no change over time. There are little bits up and down. Even when, in the past, when it was going up 10 per cent, it has been going down, which produces these big differences. The reason that employment is difficult to gauge is because there is a lot of self-employment, and it is not necessarily easy to pick up or they might not be registering themselves in this area. It is a very difficult area to get a good handle on, not just in Scotland, but throughout. It is one of those things that, yes, productivity is extremely important, but do we have a good handle on it, not at all? I would not believe those productivity figures that are currently published. Unfortunately, that has, if you imagine, construction industry going increasing by 27 per cent in one year, that will then feed through to allege productivity for Scotland as a whole, because 6 per cent of whatever the economy is that, 6 per cent of 25 per cent is still quite a lot, so it boosts up apparent Scottish productivity. This is a whole area that needs to be taken with care, even though it is probably one of the most important areas in terms of improving. To improve productivity, we have low R&D, low innovation, especially in construction, and there may be an issue over skills. We will probably get on to that later on, but there are quite a lot of areas that are more export stuff like that that you could do, but perhaps those policy areas will get into more. Before I turn to Mr McIntyne, Mr McClavin has given a really interesting deconstruction of statistics of the reliability or not of measuring productivity, but is there anything that would help us to get a better handle on productivity within construction? Is there something that we are not doing? Is there a different approach that we should be taking? You could go to more micro data and look at it in terms of separate businesses, but construction is not one area. It is public, it is housing, it is infrastructure, it is repairs and maintenance, and it is commercial and industrial. All of these will be quite different. If you are in infrastructure or housing, you could perhaps go to some big companies and say, can we have a look at your data privately and put them together and see what seems to be how much output have you been doing now, compared to maybe not next year by year but a period before, and is your productivity improving? There are some issues in that in terms of there are a lot of small, medium-sized enterprises involved in this as well, but there is something that could be done there. Although, again, the bigger companies tend to have a much better productivity record than the smaller companies, and if the smaller companies dominate, you are not necessarily getting a true picture of how productivity has been moving. Without putting words in your mouth, there is something around a more in-depth focus on real companies, real businesses and having just a better granular case study approach. If we had that understanding somewhere in the Scottish Government or the statisticians or the economists, we would never have been saying that the GDP had been increased by 33 per cent. I don't think that any economist ever believed that, but it was, and I don't think that any statisticians believed it, but it was still published. If you had that relationship with the companies themselves, they would be telling you that this is not right. You need to either suspend the data or the series or rethink it before you publish it again. Thank you for that. That was interesting. Mr McTire. Do you want me to follow on the back of that, because I guess between that and actually some points in relation to questions from Jackie Baillie earlier that might just be worth clarifying a little bit? One is a lot of the measurement issues that we have got with the construction sector are construction sector output in 2010, 2011 and 2012, which are much better benchmarked against supply use tables and a much better understanding of what is actually happening coming out of the ABS data, the firm-level micro data that helps Scottish Government statisticians to produce those sorts of tables. The issue around data and the numerator that we just talked about is about the short term. It is the last few years until we have got those sorts of benchmark data. While data quality is, of course, an issue, and quite a lot has been done around that, to be honest, it is much more acute in the immediate past, which is what gets the headlines that people want to know as construction up or down this quarter or wherever. It is worth being in mind when we think about output in the construction sector. A couple of other points that are worth making. One is that when we talk about output in the construction sector, that itself is only a subset of construction output. A lot of what we intuitively think about as activity in construction takes place in other sectors. We focus in on this construction sector as defined within national accounts, but that omits quite a lot of what we might intuitively think of construction as being a product. We just need to be slightly careful about focusing in very narrowly on that sector as defined and ignoring activity elsewhere. Even within that sector, that sector itself is building. It is also civil, which is relatively high-value-added activity, in contrast to a lot of what we might intuitively think of as construction activity. Just as we should take the construction sector to be construction full stop, even within that sector, there are some important differences in productivity. No, that is useful. It reminds us that we should always dig deep behind the headlines, particularly when it comes to stats or indicators. In terms of the establishment of the Construction Scotland Innovation Centre, you are using that, whether it is likely to help to achieve change on the ground in the real world. I think that one of the things that picks up on the question that you asked before about drivers of productivity improvement. Two points are important. One is that when all the data that we have talked about so far were focusing on labour productivity, output per job and output per hour, and there is some evidence, somewhat dated now, by which I mean probably 10 or 12 years old for the UK, that in contrast to lots of other countries we have quite a low capital intensity of construction, so we use a lot of labour but not much capital in contrast to Germany, I think was the example back then. When you control for that additional input, the construction sector, certainly the evidence that I was looking at for the UK suggests that it is not out of kilter with international peers or certainly wasn't at that point, and its ability to take capital and labour and produce construction. But if we have relatively higher labour inputs, then our productivity is going to look worse than our international competitors. You said earlier what we could do in terms of the data to get a better handle on what is happening in productivity in the construction sector. One thing is to go back and say, okay, let us control for the capital being used in production so that we have an idea of how productive the sector is. The second thing goes to the idea of one of the big challenges for productivity, not just in construction but elsewhere, and there is some evidence that construction is as well the people who were here before are still here. One of the problems in the construction sector is management practices. The survey done by the ONS last year, which we will be repeating shortly, puts management practice in the construction sector below average and among some of the worst of any sector. That is a big challenge as well. How do we better combine the inputs that we have? There is some evidence of that as well, but I do not know if— I think that we are both quite good at discussing the data and the economics of this area, but because we are not construction experts, I think that I would struggle in knowing much about the construction Scotland innovation centre, how it is working effectively, or any of those bodies or even the major policy changes that have been made in recent years. However, in terms of what the committee should be looking for in the future, it is sort of like, why would those bodies set up and who's interests are they really looking after? What specific problems are they trying to solve? Something like the Construction Scotland Innovation Centre might be quite good for large companies in Scotland, but because so much is SMEs and they do not have much time for training and they do not have much time for doing other things, they would not have much money. Will they be able to engage there? Will they be helping as many people as they could? If you ask them, they will say yes, they are, but it is somehow getting to the truth of how well are they working and could they be working better? I want to move on to regional variations. I am always interested in that, although Scotland is a small country, local economies are very different. I want to look at regional variations in the context of innovation. On the paper produced by clerks, we have statistics that say that local authority areas are contributing most to GVA and construction. It is the big authorities, such as Glasgow, Edinburgh and South Lanarkshire, probably not surprising when you think of scale. You see a similar pattern when it talks about top five local authorities for construction employment, such as Glasgow, Lanarkshire and Fife in Edinburgh. When you move on to the top five local authorities for construction enterprise activity, you see Glasgow, Aberdeenshire and Highland. Do you have any perceptions on how smaller local authorities can be leading the way? I do not have a great knowledge of the reliability of regional data in this area, but what strikes me is that it would be important to break down the data by the different types of construction. Housing is probably going to be heavily related to population size, as I suggested in your papers. On infrastructure, Highlands might be doing very well because of onshore and offshore energy constructions, which could be quite big. Obviously, Aberdeenshire has the North Sea and construction related to that. I get that the central belt will be much more about business and industry construction. You need to dig a bit deeper into the figures to see that the anomalous area there is not building many houses in South Ayrshire or something. Why is that happening? Is there a problem there or are they doing something else? On areas in which the Government might be more interested and have more impact on public housing, such as if people are doing energy things in Highlands, there will be issues there for the Government in terms of planning, infrastructure and access, but it is a different ilk from a housing issue. That is as much as I can offer in that area. I think that Dr McIntyre and I can sweep up one or two of those points if he wishes, but we will move on now to questions from John Mason. I suppose that you both made me quite pessimistic, because we cannot measure anything accurately, it seems. How do we build on that? I think that the evidence that you have given us so far has been very helpful. If you heard some of the previous panel, one of them, for example, said that we should have a mega-project all the time to bring in and create specialist skills, jobs and so on and so forth. Should we be putting money into construction, is that having a positive impact on the economy? We have always been told that, if we build a new house, it helps people out of fuel poverty, it helps them to be healthier, it helps the kids to study because they have more space. All of those positives, on the other hand, if we put money into construction, does it all go to men? Because there are a few women in the sector, do they all lose out and the gender pay gap gets worse? Can you help me around any of that area, or is it just so uncertain that we cannot tell? I guess that one of the things that I tried to do in response to Angela Constance's pick-up and the point to Jackie was that we have to be careful about the big picture trends in data certainly over two, three, four, five years ago, probably reasonably reliable. The shorter term is certainly the GDP that there is an issue that is being addressed. I do not think that you should take the impression that we cannot know anything or rely on anything in the data because the data is inherently problematic. It is more a case of certainly looking at the big picture trends and being aware of what is being captured. To pick up Angela Constance's point at the end about employment locally, we have an issue about measuring employment at a more local level because the confidence intervals around survey estimates get bigger. That may be something that we should bear in mind when we think about that, just as to pick up the gender pay gap issue, Ash is probably some of the best data that we have on survey-based data on earnings. Even then, it is not that it is inherently unreliable, it is just that there is a confidence interval around about it and that is inherent with any kind of survey. We can do things to improve that, but probably longer-term, the direction of travel around access to VAT data and turnover or HMRC data on earnings will help to do a lot of that and provide those more reliable indicators at a more local level, say, or provide more reliable estimates of the gender pay gap. I get that point. There is a lot of improvement out there that needs to be done. Unfortunately, we, as a Parliament, are having to decide today how we spend next year's budget. Do we put it into construction projects or do we have more nurses or more social workers and we are having to get young people, do we encourage them into the construction sector or do we encourage them into nursing? Are you able to give us any guidance on those things? Is £1 spent on construction work its way through or is it not as simple as that? You can both look and say that the multiplier effect of expenditure in the construction sector is whatever it is. If you spend that in a different sector, here is the expected multiplier effect in the economy. I guess that the broader issue would be one of—this goes back to the question about the new institute—what is it supposed to achieve? What are the aims? The aims are not just, presumably, boosting GDP. Instead, it will have a whole variety of aims. The question then is, how do you design an evaluation process that allows you to conclude whether or not it did that? That is something that Scotland is not very good at doing. Are we saying that it is more difficult in this sector than in other sectors because of all the issues about self-employment? Not inherently if you have got the data or if you design the evaluation in such a way that you can look at the effect that it has had potentially on individual contracts or individual firms to get some idea. If you have an activity that is being supported where it is heavily dominated by male employment, no one is going to be surprised to see that the employment that is supported—if you run this through any kind of standard economic model—would replicate those sorts of gender differences. If, instead, you take the view that we are going to fund new female apprenticeships in construction, if the criteria is that you have to be female in order to apply for that, then that is going to boost female employment in the construction sector. At what level do you want to look at that? If you take the issue that you have brought up about having a mega project all the time, there are some merits in that. If you have a mega project, it will probably have big companies involved—there is a good chance that there would be a lot of overseas involvement—and that can improve productivity, not just on that project but for all the other suppliers within Scotland, so that can have a long-term positive impact. Presumably, it has got to be a good mega project that will have a long-term positive impact on the Scottish economy, not building a bridge to nowhere. It might sound silly, but there are lots of countries doing it. If you did something like that, you would find short-term complaints of, well, there are not many Scottish people involved in this, not many Scottish companies, because it is on the cutting edge, which is where you get your innovation and your productivity from. We cannot see yet the long-term productivity benefits that will ripple through the wider economy. All we can see is that there are not many Scottish companies involved. On the other hand, you say that a pound spent in construction is that good for Scotland. It is good for Scotland at the minute in terms of a lot of those companies. A lot of the construction sector is Scottish-based, because there are so many small and medium-sized companies. That is good in the short term, but is it doing you much good in the long term, because those companies are not very productive? Those things have to be balanced up in terms of where you want to go. There are some other things, such as do you want to pick certain areas that Scotland is well-placed in and could perhaps build up a better knowledge base and sexual specialisation. For example, green construction, which is a faster growing area than most others, or pre-construction, where you build something somewhere and then move it at the end to what is quite big in certain continental countries in Germany. On that point, I will run out of time in a minute, but if I can press you on that point, because the previous panel again, and there is clearly in practice a wide view on that, as to whether you build off-site or on-site. From your point of view, economic point of view, does that make any difference, or does that just imply that that is the more productive way to do it? From my point of view, the most important thing on that is that those are the fast-growing areas of construction. If you want to get involved in Scottish construction as a whole, you want to get into the areas that are faster growing rather than the ones that are reduced to not happening so much, that is where they should be more focused. Perhaps you can help in that by having training programmes and whatever planning permission at ease so that those things can come through. Again, there are different ways of looking at those, but to me, those are the growth industries. If you want the economy to grow faster, you have more presence in the growth industries. I could ask you more, but I will leave it at that now. The Scottish Government has an ambition to build 50,000 houses by 2021. How capable is the sector of being able to meet Scotland's infrastructure needs to drive growth as per the investment strand of Scotland's economic strategy? I will give you some thinking time this time. If the conditions are in place that those houses can be built, they can be met, because if they are not built and constructed by Scottish firms, then somebody else will come in and do it, or a UK firm will come in. However, the conditions that must be met are that people want to buy the houses, so their incomes and earnings are sufficient. Planning permission is available so that they can build those houses relatively easy and that they will get a reasonable profit of them. Those are the more important elements about meeting a goal like that, especially on the private side. On the public side, it is slightly different. Obviously, the budget concerns. As the budget is tight now and it is likely to continue to be tight, that puts the focus more on some sort of public-private partnership, which is what would you like to say, a rat-and-fested difficult area. It has had its problems, shall we say, in the past, and it is still having its problems. It is a matter of how do you best get the tune—I do not think that we have resorted it out—to work together in those areas so that the funding pressure is taken off the public side, but the private sector produces what you want on a high enough quality. That is probably not a particularly useful answer in the sense of what you were hoping to get, but, as I say, the basics of it are those two things. It is not about the ability of the construction sector to do it. If other things are in place, it will be built. Maybe not by Scottish companies, but it will be built. On the other side, if the public sector does not have the money, how do you manage to get in the private sector to help out? It would be interesting to get your comments. The previous panel quite alarmed me in some way by saying that it would not be possible. It seemed to be saying that it was because of land banking that the development companies banked all that land. There was a pipeline and it would not achieve what the Scottish Government was looking for. That goes back to my point of the other things being in place. One is that people with earnings are enough that they are looking to buy a new house. The other is that the planning permissions and things like that are in a position where they allow the houses to be built. The land bank comes up because we do not want to build there. You might want us to build there, but we do not want to build there, but we will build there, and we will not build there until we are happy that we can get the right price for it. We are going to land bank and you are at a stalemate. That is a different condition. The houses or the roads or the hospitals could always be built because the capacity of the industry is always there. It is a different thing from saying that we could feed ourselves through our own agriculture. Do you actually believe that the capacity is there? Again, with the previous panel, we are hearing about shortages of workers in the industry and issues coming from Brexit and all the rest of it in terms of the number of workers that are available and the ageing population in the industry and that perhaps the capacity might not be there? There certainly is a possible potential for Brexit to impact on the number of workers that you could get involved with, but I imagine that that will ultimately be a temporary thing. Ultimately, if the country is in the construction industry's grain into a hall and the Government will find some way that might not be coming from Eastern Europe but will come from somewhere to do its job, there could be a temporary issue in that area. I still think that overall, do I think that the number of houses will be built? There is a good chance that they will not, because almost every target in either the UK Government or other Governments is not met because they do not address the underlying problems. They just say that they want this to be built and it is like they do not want to build them there or at that price or have as many social housing within it. That is the issue, rather than could we build them? Yes, we could build them, but not the way that you want us to do them. There is a good chance that that will not be met, but not for the reasons of capacity Brexit aside, I suspect. The only thing that I would add to that is that there are a whole range of issues here and the committee is well aware of them around the housing market and land more generally, but there is a period of unprecedentedly low unemployment. Youth unemployment is gone by persons across the UK and certainly across Europe, which is pretty low. There is a question for the sector as to whether or not they are experiencing recruitment difficulties or whether they fear recruitment difficulties if they saw a substantial increase in demand. Alongside that, a month does not go by before we see a construction firm in Scotland in trouble. To the extent that that is reflecting workers being released back into the labour market, if we can think about it like that, that might be less of an issue, but it is an issue for me for the sector to get their experience. What about availability of finance? There seems to be some evidence that the first echelon lenders are less willing to lend into construction these days and that they are having to go to more expensive second echelon lenders. I have seen some evidence that banks are less willing to lend to the construction sector. The thought being that it is not as reliable because the sector is more prone to boom and bust, it is not as safe a bet or lending a bet as in other areas. Outside my area of expertise, but if that is the case, and it seems to be a bit of evidence of that, is this somewhere where the Scottish investment bank could have a role? Does it see itself as having a role in this area, or maybe it is too specialised and it is for too many small and medium-sized companies? Again, the size of the company is important here, and there should be a different type of public sector helping bank or financial assistance area. Or it could just be that, again, with a lot of small and medium-sized companies, they do not have the financial expertise within them to know what the options are out there, whether it is Government grants or to deal with a bank or whatever, so that they are a sort of self-inflicted issue because they just do not have the expertise to avail themselves of the loans that they could get. I want to ask a question about the role of the public sector, private sector and construction. Historically, the public sector led in building houses, roads, railways and energy infrastructure. Over the past 40 years, that has swung quite dramatically, so the private sector is now more involved in not so much the railways now but certainly energy and housing etc. What impact, generally speaking, economically does that have? Is there an optimal balance when one is talking about projects that are fundamentally about assets with very long lifespans? There are quite a lot of big issues involved in that question. If you look back at how the Government spent money, say, in the 21st century versus the first half of the 20th century, or maybe post-World War, the shares might not be that different, they are a bit higher now than they were then, but what they are spending them on is massively different. What was spent on even education, health and such things like that versus defence infrastructure and such things like that is... Part of the reason for the squeeze on the public sector in some of those areas that you are talking about is because they have had to spend what they have decided to spend much more money on health and education, which is politically popular, I guess, or they would not be doing it, but it means that the much less is available for that, which is why public housing has been less money invested in that, but it is also a way to try and find a better way to get the private sector more involved in an area that used to be the public sector. In historical terms, we are still in quite early days for that, so we are still scrambling around to find ways where the schools that are built do not cost £150 to change a lightbulb, and the tiling does not fall off after a couple of years, and it is nobody's fault or the government has gone bust and you cannot get the money back, so I think that it is still in a way of... We do not have the money anymore to do that unless you decide to increase taxes, but based on the real politic, it might not be your opinion or my opinion or anybody else's opinion, but based on the real politic that if you go into an election saying that I am going to increase taxes income tax by 20p or 20p, then I am going to lose the election. If that is the case, then there is not that money that is not going to become available again to spend on infrastructure and on public housing, so how do you solve the problem of getting enough of it and have a good standard? As I say, that is extremely common. I think that a lot of countries, most countries, are probably dealing with that issue now, and they are still scrabbling around to find a reliable way through it. My daughter went to a high school that was a PII school. Its design life is 40 years. She came from a primary school that was just celebrated its 125th anniversary, will last another 125 years, with some maintenance and putting a lift on the outside, building that on to improve accessibility. You are basically saying that these are political choices that people want short-term rewards for their electoral choices, as opposed to the more long-term view that perhaps was taken in the past or inevitably was taken in the past because construction methodology was different. You did not have much choice but to build things that were going to last a long time when you were building them out of stone and steel. I think that there is also the issue of not so much primary schools but secondary schools. Part of the reason that they tear a lot of them down is because they are just not functional. The design and architecture has moved on so that there are ways of stopping bullying and getting flow better around the thing that they cannot do them in the old ones, so they have to rebuild them. I think that they now almost build in an obsolescence to them, not quite as bad as an apple phone, but along the lines of, the way things are going, we are going to need a different style of school in another 20, 30 or 40 years anyway, so do not spend too much on it because it is going to get ripped down in 40 years, which is a valid way of doing it, but it is then sort of like so. How do we make sure that the good school is good enough in the 30 years that it does exist, even if we do know that 30 years ago, what would you imagine would be in a school versus what is in a school? I mean, when I went to school, it probably was not that different from when my dad went to school, but from when I went to school to when kids now go to school, entirely different setups, and they need a different structure to them, so I can understand that, but it does make it extremely challenging then to decide what is the best way to do these things. I could apply that to anything, airports, road systems. I think that it is something that universities struggle with as well, university campuses struggle with as well is exactly this issue, when we feel that university of thrathliau, university of Glasgow, lots of redevelopment taking place there just to make old buildings fit for purpose for modern students. I mean, I do not know what the design life of this building is, for instance. I will not push that way any further, but again, it is a very similar point. I do not necessarily think that that is tied to who delivers the project so much as what the commission for the project is and how much people are willing to spend to do it. Yes, I was thinking more about the financing rather than the commissioning. You talked briefly about Brexit, it is a perennial topic, we have not talked about it for a while in this committee. We are reaching perhaps the beginning of the end of the beginning. What challenges have appeared in the last year around the construction sector that we are not always going to be apparent? Is there anything new? New, just the old chestnuts of workforce. On the positive side, we are not positive about input. In terms of the positive side of not being pressures in the construction industry, then not having as many net migration into Scotland will mean that there will be less pressure on public sector and on new housing and on expanding infrastructure for housing. Whether you see that as a positive, short-term positive perhaps, but in the long term it is not necessarily good for Scotland. Other than that, I think that there is just the... Although I did read somewhere that in terms of the number of migrant workers in the construction industry, it was almost all London. That was hugely dependent on Eastern European workers, but outside that, the number of migrants in the construction industry was not that different from in other areas. I have only read that once and it says that I am not steeped in this area, but that would be an interesting thing to see if that was true. The other thing to that is, depending on what the final settlement is, can we get these workers from other places? A lot of people from the Indian subcontinent are in Qatar or places like that. I imagine that coming and working here is slightly nicer than arriving in Qatar and waving goodbye to your passport for a while. Is it the case that the negotiations over the future relationship are as important, if not more important, than the negotiations that have taken place to secure a withdrawal agreement in terms of the economic impacts? My understanding is that what is trying to be voted through at the minute is just like a holding clause and that there is nothing in it about what the future economic arrangements will be. That is all to me—it was very dispiriting—but that is all to be still negotiated. Most of it is still to come, but what can you pick from that, given that we have been trying to negotiate for two years, seems to have virtually nowhere and now we are just going to negotiate it in the next two years or whatever? One thing yesterday, one of the leading indicators for the construction sector, was published for the UK-wide, in fact it might be GB, and it is registering its weakest outlook for 10 or 11 months. I think that there is a broader issue for the last couple of years about uncertainty, meaning that people are kind of in wait-and-see mode for some of the reasons that John touched on, but I think that we are now—I saw something this morning that I hadn't fully appreciated, some of the lead times for exports are more than six weeks, so people are now having to hold off on stuff that they would be delivering in six, seven or eight weeks, because they simply don't know what customs arrangements are going to face. I think that we are getting to the point now. If you were starting a construction project today and you have inputs coming in from Europe or elsewhere that are going to arrive in eight, nine or ten weeks, but you have got to order them now, you can see how getting to this crunch point is potentially quite damaging for the sector. Can you give us an illustration of such an item, a specific illustration? Well, as both John and I said, we are not experts in the construction sector, as the committee knows, but I wanted to illustrate the broader point about getting close to that cut-off date means that the lead times for—I mean, it's not difficult to imagine goods that fall into that category. I don't want to stress to us the life expectancy of this building because I think Brexit is something that we could all discuss for quite a length of time, and I think that we've possibly slightly overrun the time that the two of you expected to be with us. Thank you very much for coming in, and we'll conclude this session there, and I'll suspend, and we'll move into private session.