 Cwm yn gweinogi, a fawr i gael i'r 27 ffaron y dda iawn Dasgwm Fenergiиты a Ffair Work committee i 2018. May I ask everyone to turn off any electrical devices that may interfere with proceedings... Item 1 is a decision by the committee to take items five, six, seven and eight in private. Are we agreed? Thank you. We now turn to pre-budget scrutiny. We have with us today…perhaps first of all Derek MacKay, who is The Cabinet Secretary for Finance, Economy and Fair Work, and Jaymean Hepburn, who is Minister for Business, Fair Work and Skills. It is welcome to both of you. With them we have Una Gil, who is Deputy Director for Enterprise and Cities, Gavin Gray, who is Deputy Director of Employability, and Greger Boyd, against justice. Angela Constance, cwrnwg wrth fy ffeistio, ddim yn cwm ni i ddim yn ffryd ac yn y sylfaenwyr ac yn mynd i ddim yn ei bod ynnw'r gwirionedd aethrwyrnwyddo ar gyfer y cael ei wneud mwyflocku That claim that there is no coherence to employability funds and that the context for this is that the £600 million that is spent on employability in Scotland, whether that's at local government level, Scottish government level, or indeed via DWP and job centre plusses. So I would be keen eich eich gynnwyr cyntaf i Donald Hepburn, a challengedd yn cael ei wneud hynny i'ch gondwjant. Rwy'n plaid i'ch gynllunio i tholwyr Cymru, Felun? I saw the remarks from Mr Downey. I think that there is no coherence that has certain implications for that, I think that from my view of the landscape that we have across the board, each element of it ond y ffordd yn ei gwybod, y gallwn ei gwybod yn fawr i ddatud y ffordd, ac mae yw i'r cyncig ac yn rhan o ddawn i gyd, oedd mae'r cymdeithas unlikelym yn y gymhwyllt y mae oedd y cyfryd yn ei hunain, ac mae gwybod i'r evadwar felly iawn ar beth y jechwanegau ffasurau kwaith i niomei aysyn statu .... wrth gwrs, ein hynny i fynd yn cyfrifoedd o'r pwylltrad ni fel y gweithredu aethwyr oedd y gwaith, maen nhw o'r termonolgrwys. She talked about a cluttered landscape in terms of the variety of programs we have. Again, I would emphasise convener, each of them I think is doing important work. What I believe we can do, and what I have set in train, in utilising FairStick Scotland, which is, of course, a new statutory responsibility that we have to provide an employment program is to take the opportunity to allow us to reflect on how we can create a more coherent system. That's why I took for the publication of No One Left Behind, which sets out our next steps to ensure greater alignment and integration of the various employment programmes that we have, but also, I think, just as importantly, better aligning them with other statutory services. We know that a person who is quite far removed from the labour market, we know single-facet to their life experience, so a person could be far removed from the labour market, have issues with their housing circumstances, could have issues to do with their health circumstances, could have caring responsibilities. We need to make sure that various statutory services are pulling in the same direction as well. Through that piece of work, we are determined to ensure that we have that more coherent system. As some of the efforts are in traction, we have the integration alignment fund, £2.5 million fund, which is funding 13 projects, sorry, yes, 13 projects across 18 local authority areas, which is designed to try and test how we can better integrate those services. I have made contact with COSLA, who is the main player here in terms of investment employability programmes, so that we can begin that dialogue, that serious dialogue, as to how we can have that better integrated system. Of course, the DWP has an important role to play as well, and I have been pleased to see a commitment from the Secretary of State for Work and Pensions that she has committed that the DWP will take part in the efforts that we are taking forward as well. Mr Hepburn, you have described how Fair Start Scotland will become more aligned with devolved services, but given that there are three spheres of government involved in here, how do you propose that the ambition for more coherence and a less cluttered landscape across the piece is achieved? I wonder if you could say a bit more about that and your relationships with both local government and the UK Government. At the beginning of that process, what I have done, as Constance has taken, the opportunity that Fair Start Scotland has allowed us to begin that process, so I am not going to second guess where we end up. We have set out our determination to ensure that we have that more aligned system, but it would be wrong for me to sit here and say before we have engaged with COSLA and the various local authorities, and the DWP and the third sector and private providers to have that round the discussion to presuppose what the outcome might be. What I can say is that I am determined that we have a better system as a result of that dialogue. What would your proposition be to your other partners, and in particular to the third sector, who are perhaps feeling a little bit sidelined? The third sector should not feel sidelined. They are a core part of delivery across the board in Scotland. They are an essential delivery partner within Fair Start Scotland, a significant player. They are also a key partner in terms of other provision. We provide £6.1 million for the Community Jobs Scotland programme, which is delivered with Scottish Council of Volunteer Organisations. This year, we are providing £2.5 million to Inspiring Scotland for their £14 to £19 fund. We are working with the Prince's Trust and other partners to better support young people with experience of the care system in their journey to employment. I certainly do not think that the third sector is not an important part of the landscape that we have here in Scotland. In terms of my ambition, although I would re-emphasise I do not want to presuppose what the whole system would look like after having had that dialogue, what we must ensure is that we have reduced duplication. Better understandings—one of the big challenges that we face is that we do not know what is happening in each area. As a very starting point, we should at least understand and know what is happening on the ground area by area and make sure that each system can interface with one another better, so that a young person or a not-so-young person can start at one element of the provision and move through the process that we have, ultimately, we hope, into the world of employment. Mr Hepburn has touched on my final question. When will we have an up-to-date map on provision across Scotland? In terms of what we provide directly as an administration, that is all publicly available. We have laid that out. In terms of the entirety of provision across all providers, all that we commit to is as soon as possible. I know that that is not a wholly satisfactory answer, but, given that I have to consider the outset that I am sitting here, I cannot tell you what each local authority is providing, I suppose that underlines the necessity of beginning the process and I want to take that process forward as quickly as possible. As part of that, we can better map what the service provision is area by area. Gordon MacDonald, thank you very much, convener. Just to continue looking at the employment support services, how does the budget for fair start Scotland compare with the previous budget for the UK work programme and work choice in Scotland? Well, that has been a challenge because, although we have had the devolution of responsibility and we are taking forward discharging that responsibility, with the devolution of responsibility came a roughly 80 per cent cut in funding. We estimate that, in the last year of DWP provision, it was expending somewhere in the region of between the work programme work choice, something like £54 million in provision here in Scotland alone. As it has moved to its successor programme, it has drastically reduced investment in that across the UK as a whole, which has had the consequent effect here in Scotland of reduced funding. In the first year that we had responsibility, for example, we had roughly £10 million from the UK Government. By my Government's estimation, that clearly was not going to be sufficient to support enough people, so that is why we took the decision, convener, to leverage in up to an additional £20 million each year over the lifetime of the contract of fair start Scotland. And what influence has this reduced budget had on the design of the fair start programme? I mean, it clearly has had an impact. What I wouldn't want anyone to get the sense that this isn't an ambitious programme. We have set out an ambition spot at least 38,000 people through our programme, at least 38,000 people through our programme over a three-year referral period and over the five-year operating period of the providers that we have provided contracts to. I think that that is a significant amount of people. Clearly, we have had to frame some of our thinking around what is available in terms of expenditure. That is just an obvious necessity, but in terms of our wider philosophy that we have taken to approaching the design of the service, that has been based on practical experience of the programmes that went before. For example, we took the decision to make the programme voluntary, because we have heard, I think that this Parliament has heard very clearly, a significant concern about the efficacy or the lack of efficacy of the approach that is taken by sanctioning to support people into employment. We have seen a variety of academic assessments, third sector assessment, campaigning organisation assessment, that sets out that those who are sanctioned may end up in employment, but it will only be for a short period of time before they end up back in the benefit system. That speaks to me of the necessity not to operate a system that compels people to take part. We have also taken a view of having a very person-centred system, we have also taken the view that supported employment will be a key part of our provision. The first time that has happened in the employment programme of this scale across the islands, we are also operating in individual placement support, and we have modelled to support those with poor mental health challenges. We have also ensured that our providers signed up the fair work agenda, and if so, it is informed by practical experience and the things that we think are important. How confident are you that there is sufficient budget to provide the long-term services that people need to get back into the work, back into the labour market? How confident are you that you can hit the targets of a number of people that you want to support? I want to hit the targets, that is our ambition to do so. Clearly, the information that we will publish will determine the successful trajectory, convener. Those are official statistics, so they will be first available in November for the first two quarters thereafter, available on a quarterly basis. I believe that the investment that we have leveraged in, the additional investment that we have had to leverage in, is sufficient. I believe that the approach that we are taking is the correct one, and I believe that our programme will be a success. Of the interim schemes, such as the new First Start Scotland work voluntary, there was a quite high drop-off in those. 40 per cent on the work-first programme, that was 40 per cent of people who did not start the programme and did not even get to the starting block. How many people completed that programme? We had a target of up to 4,800 people to be supported through the lifetime of the programme that we referred in. We saw 5,500 people referred in, the final figures in terms of those who have maintained their place on the programme and had job outcomes is not available yet, that will become available in November. Again, this is the first time that we have operated that type of programme. Clearly, like any programme, there is going to be mixed success. My view is that overall it was a success in terms of the number of people referred into the programme, the qualitative assessment, and the feedback that I had. I went out and spoke to a wide range of people who were participating in the programme. For me, they thought that the programme was well designed. It was far better than those that they had had previously through DWP-administered programmes. I believe that we had a successful approach. Clearly, we have sought to learn from that. One of the particular challenges, for example, to be quick-handed with you in terms of starts and workable Scotland, was that we had not factored in the frequency in frequency that DWP sees in that particular client cohort. That is not a criticism of the DWP, I should say. Incidentally, convener, it is probably given that cohort quite correct that they are not requiring them to attend as regularly as others to job centre plus, but we had not factored that. That was part of the learning process, so that is why we have tweaked the provision in the fair start Scotland. You talked about the learning process. SCDI, who is supportive of the voluntary nature of the scheme, said that there needs to be more of an investigation of that slip-off, whereby only 60 per cent of the people who volunteered actually started the programme. Obviously, you have talked about the DWP, but are there any other lessons that have been learned from that programme taking forward to first start Scotland? Well, ultimately, the lesson that we learned was the fundamental approach that we took in terms of the voluntary approach was the correct one. I still firmly take the view that yes, there will be people who disengage from the programme. Can that be wholly attributed to being voluntary in nature? I very much doubt so. Candidly, will it be for some people? Probably it yes, but overall I still think that it is the correct approach. If you look at the evidence base in terms of, as I laid out earlier, the approach to securing long-term employment prospects for people through comparing them to taking part in programmes, it leads me to conclude that it is not an effective approach. It also ultimately leads to an approach whereby you know that for with greater certainty that those who are taking part actually want to be there, they are there because they view the programme as an opportunity rather than a threat to lose the support that they otherwise rely on. The fundamental lesson that I learned was that in taking the voluntary approach that we have got the right one, as I said, the other elements were probably around ensuring that we had a wider cohort of people that could be supported through Fair Stars Scotland. Can I ask, just going back to the budget issues that Gordon MacDonald raised, you, the budget £36 million over three years, obviously a five year, sorry, sorry, £96 million, £30.4 million in the first year. You are looking at 38,000 people to help over the period of this programme, but obviously payment is on certain stages going through. If everyone of those 38,000 people were to complete all three stages, would that still sit in within that £96 million budget? I suppose that you should make the point that it is at least 38,000. Sorry, I would hope to exceed that. We cannot say what the final expenditure will be because it is ultimately driven by participation and progression through the model that we have put in place. Yes, it could be slightly less than that. Ultimately, if we have a fleet of people taking part more, considerably more than we have set out then it could cost more, that is something that we will need to factor in at the time. Have you factored in people that will drop out, as I did with the traditional programmes of you, factored in who might reach the second stage or the first stage only into those calculations? Yes, of course we have made a calculation in terms of a projection of starts at each stage of the three-year referral programme, the five-year period for providers to support people. Yesterday, there was a projection of how many people would start and how many people would reach each stage in terms of the support, so we have made that calculation. I am not in a place to provide every single element of that detail, but if the committee would like something that we can provide more of that information and writing. It would just be useful how that sits in the budget. If you have the projection, then you will obviously have the cost to set out and the projection on starts. Ultimately, that is always factored in terms of the budget that we have provided. So you are hoping to meet that but be round about meeting that budget or are you factoring that it may well be slightly under or slightly over? We want it to be as close to £96 million as possible, I am sure that the cabinet secretary would emphasise that point as well. Thank you. Jobcentre Plus is intended to be the continuing main referral agency for Fair Start Scotland. How can the Government ensure that the correct people are being referred to its programmes and how can they make sure that people are sufficiently informed about the programme? We are working on a partnership basis, ultimately, with Jobcentre Plus in so far as comes to referral. That is a new relationship for us to have had to build. There are agreements in place at an operational level, a joint operational framework, because it is technical, in between Scottish Government officials and DWP officials at various levels, to ensure that, where issues arise, they can meet to try and resolve them. I have to say that there is also, and Ms Constance will know this, because she has attended them previously as well, the joint ministerial working group on welfare, where we often had to resolve issues as well, sometimes in a slightly different fashion than might have been between officials. However, we always managed to resolve issues before us. On an operational basis, the working is good. Where issues are identified, they can be taken forward with those particular forums that I have referred to between officials. If there is something that needs to be resolved, then it can be resolved. There is also the conduit between, through the Jobcentre Plus, Jobcentre Plus work coaches at the ground level identify issues on their side, they can escalate that through their management, they can bring it to the table on the other side of providers, those we have provided contracts to identify issues, they can raise that with Government officials and they can bring that to the table. I should say that it is the case that Jobcentre Plus will, by necessity, because they are in most direct contact with those who stand to benefit by our programme. They will remain the main conduit for referral, but we are actively trying to explore other referral mechanisms as well. We have the opportunity to do so. For example, last week—I think it was just last week—I went to launch something called the Navigator Toolkit. It is the Violence Reduction Unit that Police Scotland operates based in accident emergency. Those are individuals—they are called navigators—who will identify people who have come into ANE through violence, through criminal behaviour. They will seek to engage with them to try to provide them wider support. We are trying to make sure that employability supports an element of that and as a result of that joint work. One of the areas that was there was to launch this toolkit that navigators could utilise. It is essentially a publication that they can look through the various elements of sources and supports that they can refer any person on. One of the things that has come out—a productive discussion—is trying to ensure that those individuals, for example, could directly refer people into fair start Scotland. We are not going to just rely on Jobcentre Plus. We are going to try to expand that out as well. Are you satisfied that Jobcentre Plus has a sufficiently robust system for ensuring that the correct people are being referred to? Clearly, the committee will well understand the Scottish Government's concerns about the manner in which the Department for Work and Pensions administers the social security system. I have already referred to sanctions. However, on a ground level, having had the opportunity to go out—I will continue this process—I have had the opportunity to go to Stirling, Inverness and Lerwick Jobcentres, I have been impressed with the enthusiasm by which Jobcentre Plus work coaches have embraced fair start Scotland. They like the system, they like what we have put in place, and they are taking the opportunity to refer people in, talk them through the process and work with those that we have put in place as providers to ensure that it can be as seamless a process as possible that their client group can be referred into fair start Scotland. Clearly, it is not going to be uniform. The referral rates will be higher at some Jobcentres and lower at others. Again, one of the benefits of the approach that we have taken is that we can drill right down into that information and work with Jobcentre Plus, here in Scotland, and work with the WEP to ensure that we are getting as many referrals as possible across all Jobcentres in Scotland. Do you think that the definition of a successful outcome should be widened, not just a sustained job outcome? One of the things that we have an opportunity to do through the no one left behind agenda that I set out earlier in response to Angela Constance is that we can begin to look at where elements of the system might be able to take a different approach. For fair start Scotland, it is the right approach. If we are leveraging £96 million of investment for an employment programme, I want to say that as many people—ideally everyone, but in recognition of reality it won't be everyone—but as many people as possible engage in that programme, ending up in employment and sustaining that employment, that would be a good outcome. Going back to the point that I made earlier about having greater coherence in the system, I think that there probably is a role to be played for other parts of the system to have slightly different outcomes. That could be not necessarily, ultimately, ending up in employment but being closer to employment, indeed transitioning into something like fair start Scotland. That is an opportunity that we now have through the work that I have laid out that will take forward through the no one left behind agenda. That is something that I will be very keen to discuss with COSLA, DWP and all the other partners that I mentioned earlier. Thanks, convener. Continuing from where Colin Beattie was, we have had slightly different evidence, I think, from different witnesses. On this subject, I do not think that I like the phrase, but anyway, parking and creaming, which I think means that the people who are more difficult to get into a job would be parked and the people who are easier to get into a job would be got into a job. Therefore, the programme provider would get the results, get the money more easily. What is your reaction to that? What is your feeling about that area? That is certainly a concern that was expressed through the process of considering how we would design our service. Incidentally, I do not think that that is what any of our providers want to do. They want to support those who engage with the programme into employment, and they want to be reached out to ensure that as many people as possible engage in the programme. It is in their interest to do so, because one of the ways that we responded to that concern was, of course, by ensuring that there was an upfront fee when a person engages with the programme. The provider will get 30 per cent of the overall value of the fee that it will be entitled to for someone participating. They will be able to get that upfront, again, to reduce the concerns about parking and creaming, which, as Mr Mason does, I have a distaste for as a terminology, but it is the terminology that has been used. That is one of the ways that we are seeking to respond. Of course, we also have a tiered approach in terms of the intensivity of support that might be required for each individual. It is not like every person who walks through the proverbial door, or the literal door, in some cases, to engage with. Fair Start Scotland will be treated the same. It is very much a person-centred model, and we have provided funding within that model to explicitly recognise where a person might require more support to get into employment than that can be accessed within the full funding that we have provided. That is why, for example, we have the individual placement support model that I referred to earlier for those who might be suffering from poor mental health. That is all in place to try to mitigate and work against that concern. The Employment-Related Services Association said that you are targeting at those who are furthest away from the labour market. In fact, it is saying that there are not people who are going to be easy to get into a job anyway. Do you agree with that statement? Yes, by its very nature, I would go back to the point that I made. There will be some people who engage with our service who will transition to employment more seamlessly than others. Ultimately, the people who stand to benefit most by our service are those who are furthest removed from the labour market. Those are the people that we want to reach out to. I saw Ms McHugh's evidence. I think that I detected from her—I think that I picked up from her and I am sure that I have picked up wrong. She will inform the committee, but I think that she was making the point that the effort that we had to put into designing our programme was exactly to that end. That is the direction of travel that we want to see with the programme that we have put in place. Jackie Baillie I wonder whether I could rattle through some questions with the minister and start by asking specifically about the Employability Fund. I understand that FESTAR contracts are for three years, but the Employability Fund is for one year. Why is that, and would you change that to bring certainty and stability to the training providers? Well, our training providers are obviously integral to the success of any of our training programmes. What I will say, and I think that Ms Baillie and any member of this committee would expect me to say, and I am sure that they would share this expectation, are programmes that are designed around the needs of the participants. Ultimately, they have to be the ones that are most important. On the point that Ms Baillie makes, convener, I suppose that the fundamental difference is, and I have made that quite clear in the answers to some questions before, especially Mr Mason's, just a few moments ago. The reason that FESTAR contracts are for a longer period of time is that the people who participate in that programme, many of them are going to require a much longer period of support that will take, longer than a year. The Employability Fund is designed in a very different way. It is designed to support people over a shorter, sharper period of time rather than over many years. By its nature, it is a different type of system. The other point that I would make is having just set out that we have begun the journey to look at a more effective system. I would not propose at this stage to radically alter the elements of the system that we have in place just now. Of course, that is all part of the dialogue that we will have, and if it is felt to be an issue of significant concern, it is incumbent on us to at least listen to that. We might not draw the same conclusion, but we will always be willing to listen to any concerns that are raised. The budget for the Employability Fund has gone from almost £34 million in 2015-16 to £19 million in 2017-18—a drop of £15 million, which is a 44 per cent cut. Can you explain that? The Employability Fund was put in place at a time when the labour market was very different from what it is just now. If you look back at the period when the Employability Fund was first instigated, youth unemployment levels were running significantly in excess of where we are today. Thankfully, we have travelled much further. In terms of investment in specific programmes, they largely reflect the place that we are in just now. What I can see in going back to the point that Jackie Baillie made in trying to offer as much assurance and stability to train providers as we can over each of the past three years is that the openly procured element of the Employability Fund has been stability in terms of funding and the number of places. I wonder whether you would comment on what the overall budget has been because there was a report by consultants in 1314 saying that the total spend across all employability programmes was about £660 million. However, in evidence, both the STUC and SCVO thought that it was quite a bit below that. Do you have a global figure for what you spend on employability funds across the board? We can set out what we spend. The £660 million figure that came around is the analysis of the Cambridge consultants, which, if I recall correctly, we put in place in trying to analyse and understand what the level of expenditure was. The lines here, the vast majority, was through local authorities. I cannot sit here and say what the definitive figure is right now, but that will be part of the discussion that we have with COSLA and with other partners as we move forward. I cannot tell you what the figure is right now. Will you repeat the exercise to ensure that we get a positive figure? I would certainly consider doing so. We would need to engage with COSLA first of all. I am not one that will initiate consultants without necessity. If we can get the information more readily by directly engaging with COSLA, then we will get the information. If they come back to us and say that that is a piece of work that might be helpful, then of course we will consider it. Thank you, convener. Thank you, convener. That is on the enterprise agencies. Yes. Thanks to ministers for coming along. I want to turn to the enterprise agencies now that we are doing pre-budget scrutiny of. We have heard claims about jobs that have been created by the intervention of the Hounds and I's Enterprise and Scottish Enterprise. We have also heard economic analysis by Scottish Enterprise about every pound that they spend, resulting in generating between £6 to £9 of gross value added. Are those figures that the Scottish Government recognises? Do you do any independent scrutiny of those figures? Thank you, convener. I think that this is my first time appearing before you as economy secretary and I welcome that opportunity. Just before I turn to the very specific question, as it is my first appearance, I want to say that I found the letter from the committee very helpful in terms of your report into the performance of Scotland's economy and I've given a response to that. It gives us a lot of opportunities to work together going forward in the response covers the consensual approach that I hopefully want to take in the economy. The committee can judge for themselves whether my appointment and or the publication of your report has helped to contribute to the turn of economic indicators over the course of the summer, which of course has been largely welcomed. Or it could be neither of us, of course, responsible for any of that, but in any event I appreciate the focus on the economy. Specifically in relation to the question, we expect validation by the enterprise agencies around the reports that they give on the economic benefits, the jobs that they create, the economic return for investment, but there was, as that happened a few years back, an analysis by Audit Scotland into that kind of work. We don't audit every single comment that the enterprise agencies would make, but there is an expectation of course that the claims that they make around the added economic outputs that they bring are of course accurate and can be proven. Now there is challenge between the civil service and enterprise agencies, the board, the chief executive and myself as well of course, and further focus on that as we address the direction to the enterprise agencies every year. I think that there will be some opportunities such as the high profile announcement about Barclays going to Glasgow specifically, 2,500 jobs being mentioned, where clearly that has to be delivered, you want that to be delivered and those numbers would be proven by how many people they ultimately employ. We do not have an extra bureaucracy on top of our own accountability, the enterprise agency's accountability, but I think that there is a range of checks and balances that assure us that how we are investing in them is achieving the economic outputs that they claim. You mentioned an audit Scotland report a few years ago. Was that a generic report? Yes, I can ask my official Unagill to cover more of the content of that. Yes, indeed. It was a review of the enterprise agencies three or four years ago that Audit Scotland undertook. It is clear when Scottish Enterprise, for example, attract Barclays to invest in Glasgow, that is high profile, there are job numbers and that will be scrutinised quite closely, but every year they are making evaluations of the number of jobs that they have supported that without their intervention would not exist. I wonder if there is an opportunity to invite Audit Scotland, there is one option here, to scrutinise one year's budget and to drill down on those claims and see what they are based on. One economist based on Inverness Tony Mackay has suggested that high figures are very exaggerated. To be clear, for ministerial responsibility, Scottish Enterprise report to me, Highlands and Islands Enterprise report to Fergus Ewing specifically, but as a general point, I would expect the numbers to be robust. The one thing that I have learned about economists is that they are forecasting into the future and can even revisit the past. The thing that I have learned is that they all absolutely agree on the forecast. I have no reason to believe that the results that the enterprise agencies present to us are in any way inaccurate. If the committee wants to explore that further, I will certainly consider that, but I would not want an extra layer of bureaucracy on top of the actions that we are trying to collectively deliver to grow our economy. However, if there are any concerns that the committee has, I am happy to look at any example where you feel that the presentation or the outputs have not been validated, but we believe through our checks and balances, through our challenge and through the range of work that we do, that the numbers that we get are credible. When big announcements are made, the proof of the pudding is in eating, if a commitment is made around how many jobs are going to be created, well, let's look back at how many jobs were created then. In the conditionality of financial support, sometimes or often, the drawdown levels, the point at which any company can draw down the support that has been committed, is conditional based on those conditions being met, and that may well be job numbers or economic return. Last week, I was asking both Scottish Enterprise and HIE about their performance targets, because they had met absolutely every target that they had. That struck me as slightly surprising, because in other sectors such as health and education, we sometimes meet some targets and we sometimes miss others, so that made me think—and I think that other people think—are their targets too easy and how are they being set. Linked in with that, I was asking about the strategic board and if it would have a role in those specific targets. Both of them answered broadly that they didn't think that the strategic board would have a role in that, but that, in fact, the strategic board would just be at a much higher level. I was wanting to ask your comment on that area. Do you think that the performance targets have been a bit too easy in the past and would the strategic board be a vehicle for clamping down on them? Mr Mason asked a good question. I wouldn't say that the performance targets have been too easy, but on the other hand I expect us to be able to do more. More because there are opportunities there. We, as the committee has requested, are recalibrating our economic strategies, so the range of actions that we will put in place will hopefully get even more value from the investment that we are making. Fundamentally, the question around the performance targets, although we set out in the strategic direction what is the expectation of ministers and clearly the enterprise agencies produced that report, we want to get maximum value. Where the strategic board will be helpful is not adding a new list of targets, but having a more consistent framework through which we can judge the performance of the enterprise agencies, because each agency has a Highlands and Islands Scottish Enterprise and South of Scotland emerging as well. There is an issue about how they judge the performance that we can then address through the strategic board, bringing it all together, the funding council, the skills development in Scotland and the enterprise agencies to have a more consistent framework as to how we analyse their performance. It will not be another layer of performance targets on top of it, but more consistency in how we challenge and rate the enterprise agencies compared to each other whilst recognising the regional and local differences within. Let us all bear in mind that the strategic board was meant to have a more cohesive and aligned approach to skills and enterprise, not more divided, not more fractious, not more layers of bureaucracy, but more cohesion. In bringing that together, I think that there is that opportunity to be more challenging around performance and that monitoring framework without adding any extra layer of bureaucracy. I think that that speaks to the point around them being able to have indicators that might suit any individual enterprise agency, but what works for us all? I think that I would be more comfortable if they met nine out of ten of their targets, because then I would feel that they were doing pretty well. Ten out of ten, convener? Yes. Then I would feel that they were doing pretty well, nine out of ten, 90 per cent is a pretty good result, but clearly if they failed to meet one, that would show that it was challenging. My fear is with this 10 out of 10 100 per cent record that it is not challenging enough. Do you have any agreement with that? I would not want to direct the enterprise agencies to start failing on their objectives to make Mr Mason feel more comfortable. I suppose that the point that I was trying to make is that I do believe that the performance statistics are challenging. The ministerial direction is clear, but the wider objective is that we know that we want to do better on the performance of Scotland's economy. We know that the enterprise agencies have to contribute to that. We have a range of financial tools that we can use to do that. We know the big challenges around research, development, innovation, future technology, productivity and all of that. I think that we all need to push them. I am accepting that point. There is a range of ways in which we can do that, but there has to be some satisfaction in the fact that performance targets and milestones have been met. I accept the point that we should make sure that it is challenging enough to push them to maximise the opportunities for the Scottish economy. I think that the strategic board is helping us to do that. One of the key outcomes of the strategic board so far is that it is bringing greater alignment across the public sector, the enterprise agency, skills, funding council and working more cohesively together. That will mean a challenge between them as well. I think that that will bring the benefits, but equally we know that we want to grow Scotland's economy and we will have to push the enterprise agency so to do it as well. If that means sharpening up some of the performance targets, so be it. However, I want to get on with the job rather than relying on extra bureaucracy, frankly. We heard last week about a £13 million underspend in financial transaction money from Scottish Enterprise, £10 million of which was SE's contribution to the Scottish European Growth Co-Investment Fund. That was a promise, as the cabinet secretary may recall, of £200 million in equity investment in a previous programme for government. Nothing of the £40 million was spent in the first year, 1718. We hear that there is one project of £1 million in this year. Given that there is £80 million allocated to this year, how much do you think will be spent? I want to put the whole Scottish growth scheme into context. It is an umbrella for a range of financial packages that we have debated before. I have not had the opportunity to discuss that fully with the committee directly. On announcement in the 2016 programme for government for delivery or implementation starting from financial year 1718 and then over a three-year period, the announcement that we had envisaged was looking at a range of financial tools to support and stimulate that private sector growth. Frankly, we had envisaged more use of guarantees. The guarantees have been used by the Government, but not to the scale that we had anticipated. There was not necessarily the demand in the private sector for the use of guarantees. Of course, grants are popular. If enterprise agencies offer people a choice on the hierarchy of which financial products they would like, such as grant support, loans or equity, or guarantees, people opt for the others. It appears that equity has been more successful so far and guarantees less so. We did work with the British Business Bank to do some work in that area. It did not find a huge appetite for that kind of product. What we have been doing is having bespoke solutions to ensure that we can commit and deliver on the commitment to the half a billion pounds of extra financial support that was announced. Over the three-year period—again, you have to look at it as a package—I believe that the three-year commitment will be fulfilled. However, it means that we have to respond to what the private sector wants and what they are choosing to take up as the most popular products. Many of the European co-investment programmes and other funds take some time to develop. The private sector works up their proposition and maybe works with other co-investors to see if there is that investor interest, so some of them may well take time. It may not be in one financial year, but over the three-year period, I believe that it will fulfil that half a billion pounds support. We will adapt the products that are more popular and are actually delivering the economic growth. Although some of the schemes have not, as I said, had the uptake that we would have wanted, we are close to about £100 million overall. I can check the most recent figure for all the funds within the Scottish gross scheme to see how we think we can deliver that trajectory for the three-year period. Jackie Baillie is right that some products have been more successful than others, and co-investors are required. They take some time to be developed. I just want to give that answer in the round. I wonder whether I could take you back to the specifics that I asked, which is £80 million for what is probably the biggest chunk of the growth funds money, and so far we have one company at £1 million. Given that it only has, halfway through the financial year, another year to run, are you telling the committee that that fund will be fully spent or are you going to change it? If so, how? I suppose that what I am saying is that we will respond to demand. There will be some projects that are under consideration, but what I want to make sure is that the £500 million that is committed to is delivered in terms of all the products that we have. If any individual element is underused for whatever reason, I do not want to see any money lost to Scotland, so we will use the resources at our disposal. As to each strand of that, if it is less popular, I have pointed out that guarantees—we envisage quite a lot of guarantees being used as contingent liability—may never have crystallised into a financial cost to the Government. Recognising that that was not as popular, we have used other financial tools to ensure that, no matter what, that support is given to the private sector. I do not know at this stage that I am trying to be helpful to Jackie Baillie, because she appreciates me trying to be helpful. If we do not deliver on the £80 million for whatever reason, I will look at making sure that we can still deliver on the overall £0.5 billion support through whatever financial products are working for the private sector. In order for me to be equally helpful to the cabinet secretary, can he tell me what other financial products beyond the Scottish European Growth Co-investment Fund are part of the growth scheme and how are they performing? The SME holding fund has been quite successful, for example. That has been equity that has been used quite successfully. I can again get specifics to Jackie Baillie or to the committee on where we are right now, recognising that, as each month passes, more companies will benefit. There has been an allocation of some £97.3 million in equity investment that has been made to £79 million companies, for example. I can share more information with the committee overall. I make the point again that, if a fund has not been used, it is important to say what other products there is more demand for, so that we can deliver the headline commitment that was set out by the First Minister. Speaking of maximising budgets and meeting headline commitments, education is this Government's top priority yet we have an underspend from last year, reported just last week of £115 million in education and skills. The new economy secretary, I am sure that you would agree that any reduction in investment, for whatever reason, in educational performance and skills has a direct impact on the economy. If we look at some of the budget lines—I do not have all that information in front of me right now—some of the lines in the budget will be demand led. For example, education maintenance allowance is demand led, so, if a budget is underspend there, it is because people have not necessarily applied for it as opposed to any other reason. I do agree, though, that having invested such a massive increase in enterprise and skills that we want to ensure that that resource is spent to try and encourage and stimulate the economy. It is a substantial commitment around enterprise and education. Of course, we would want that to be spent. If I go back to a specific question on the budget that Jackie Baillie asked about, of course the enterprise agency, including financial transactions, saw an increase in the 2018-19 budget, a substantial increase. A lot of that was financial transactions that we have been able to use for equity investment, but that is a substantial increase from £35 million up to £68 and a half million. I just want to put that figure of underspend in context as well. I do not think that I asked that question, convener, but let me just put some context as well. Financial transaction money, as we know, is loan funding and equity funding, but if you look at SE's core grant, it is reduced by something like 27 per cent over the last five, six, seven years, which is unfortunate given the importance of growing the economy. I just thought that I would put that on record. To be helpful, convener, to put it on record, the increase was 24.68 per cent increase in the budget. Yes, financial transactions were part of that, but loans and equity are part of a core function of Scottish enterprise and how we grow the economy, so that increase was welcomed. I think that I have made my point, convener. I think that you both have. We will move on to Dean Lockhart. Thank you, convener. Good morning to our panel. I would like to first of all follow up on the Scottish growth scheme. If you look at the Scottish Enterprise website, decisions on the European co-investment programme, the investment decisions are made by the private fund manager, not by the Scottish Government or by Scottish Enterprise. How can the Scottish Government ensure that money is being invested in a way that is consistent with the Scottish Government economic policy of enclosure growth? Absolutely. The policy is to grow the economy and not only will we use Scottish Government resources to do that, we are happy to look at investment pots elsewhere. It seems reasonable to look at European funds to do that as well. Of course, we would expect our inclusive growth policies to be followed, but we have provided additional support and resource to take any applicant from Scotland through the system. Of course, we want more positive results here, but we are in the hands of those propositions that have been developed, those who are making co-investment decisions as well. The support that Scottish Enterprise provides to companies, and then I would revert back to the point that, even if we are not successful in this scheme but we want to be, then I am trying to make sure that we still provide that half a billion pounds extra support to the private sector over the three-year period. Thanks for that. Just looking at the numbers, the half a billion pounds target was set out two years ago with the three-year target period. Roughly speaking, do you have a number as to how much has in total been spent or invested under the Scottish growth scheme as we sit right now? It is a fair question, convener. As I understand, at this point in time, it is roughly £100 million that has been invested, but that is why I committed to write to the committee, because that number changes week to week, month to month, but I am happy to get that figure to the committee. Recognising that it is not necessarily just a linear approach that there might be some big investments, there might be some big success stories in terms of propositions that are put forward. Overall, I am confident on the trajectory that I have seen so far that we will achieve that half a billion pounds figure over the three-year period in the timescale that I have given an earlier question. Just to follow up on that, thank you for that. We are two years in, roughly £100 million has been invested, leaving £400 million balance, which would, under the original target, leave £400 million to be spent this year in the following 12 months if you look at the original three-year target. Is that original three-year target still shaking your head? I assume that the original three-year target is not being met. If that three-year target is not being met, what is the new timeframe for the £400 million to be spent? If I may add one other question, will the following budget allocate and provide for that additional £400 million? I think that the timescale that I gave to Jackie Baillie earlier is the accurate one, that the headline commitment was in the programme for government in 2016. The schemes were to begin in 2017-18 financial years, so it is over 17-18, 18-19, 19-20. Recognising that some of the schemes were in place after the financial year began in 2017-18, that is the timescale that I am working to. Again, some of the investment propositions will take some time. They will work through the system, and they may substantially come at one point, but that is the timescale that I am working to. The information that I have is that we should be able to deliver that £500 million extra support over that period. What I have tried to do, and Dean Lockhart understands the private sector, if certain elements are not as popular or are not working as well, you really calibrate the elements that are. That is what we have been trying to do to make sure that we give the support where it is required. The element that we set out with at the start was around some of the use of guarantees. As I said, they have been used in part for some substantial investments. That would only ever crystallise as a cost to government if there was a contingent liability, I call on that resource. That element was not as popular, which is why we have focused on the other elements, and we worked with the banks to test out the appetite for that particular product. Of course, all that builds towards the Scottish National Investment Bank, where we are looking at the current financial tools that we have and what new financial tools we will have going forward, including the building Scotland funds, the precursor to the capitalisation of the bank, to see what additionality we can provide to stimulate and support the private sector. That will show the momentum around generally Government support for stimulating the economy. One final question, if I may. I am very pleased that the cabinet secretary had time to read the economy committee's report on the performance of Scotland's economy. He will have read the conclusions that all seven of the national performance targets relating to the economy were not met and had not had the Scottish Government targets had failed to meet those targets. The programme for government this year announced a new economic action plan to be announced, I believe, at the end of this month. Will that set out new economic targets under the Scottish Government's economic policy? No, I do not envisage it setting out new targets. First of all, I thought that it was a very helpful contribution from the committee in terms of the analysis of the economic performance that we have been experiencing. Of course, there have been major issues in the Scottish and the UK economy, the oil and gas downturn before that, whether it was a financial crash, and we know the issues around productivity as well. The question is how do we address them. I know for some time many members of the committee had been asking us to revisit our economic strategy, and that is what we have done. We have revisited the economic strategy, but what is important is what are the actions that can be delivered to provide stability, stimulate the economy and the sustainability for our economy as well. It is the actions, some of which from the programme for government, some of the key pillars of our economic strategy, looking at them. What more can we do to grow the economy? Of course, we want to meet the indicators that we have set out in the national performance framework that I led that process within government. Of course, in the very purpose of government and wider than just government, we have the inclusion of wellbeing, and we have inclusive and sustainable economic growth. That was what was sought after throughout our consultation, the cross-party approach. There was a great deal of engagement in the performance targets, in the ink outcomes and the indicators. What we know we have to do is accelerate the growth in our economy, deliver greater fairness and there is a range of actions that we need to undertake to deliver on that. I was slightly light hearted when I made the reference about the economic indicators, but it is worth making the point that we have, over the period of devolution, made progress on productivity. Exports are up. There is a sharp increase in exports, but we know that we have more to do and internationalisation on innovation, more to do. That is why we are investing in innovation hubs. We are supporting greater collaborative working between our universities and the private sector, for example. We are investing in a national investment bank. We are investing in a national manufacturing institute for Scotland. On business support, Scottish Enterprise is recalibrating their efforts around business support. Those are actions that will feature in the economic action plan, some of which have been announced in the programme for government. Our objective is to do more around exports, deliver the inclusive growth agenda, scale up and, of course, in terms of the engagement with businesses, respond to what businesses have been asking for. Yes, some of that is a competitive tax environment, but the number one issue that was raised with me over the course of the last few months was skills. That is an odd number of people and productivity. All the more reason to work together on the strategic board, on the funding council, Skills Development Scotland and, through the enterprise agencies, being able to feed in what business and industry needs are. Those are the range of actions, some of which feature in the economy committee's report. I have looked at a commission member, the growth commission as well, engaged with businesses. What are the actions that are required to help to grow our economy so that we can meet those performance targets? Mindful of that, there are events outwith our control that affect our country's economic performance. I have touched on some of the previous ones and the most immediate one, frankly, convener, facing us right now is the uncertainty of Brexit. I thought that the member might want me to pause at that point. No, that is fine. I just want one of the other recommendations in the committee report. I know that we are running out of time. In the context of evidence-based policy, the committee encouraged the Scottish Government to look at reinstating targets, because, as the Audit Scotland report said in the enterprise agency, if you cannot measure it, you cannot manage it. We would encourage you, in the new economic action plan, to look at some specific targets, as opposed to having a very generic approach to the economy. I am sorry if I might interrupt. If we are referring to the committee now and it was a committee recommendation. Indeed, in that case, perhaps I might intervene and ask both of you to pause, having, I think, both made your points. In fact, I think that we are out of time, so if I might just deal with two points very briefly. Cabinet Secretary, the Scottish Government, in its programme for government, mentioned increased conditionality attached to some future business support. Now, with reference to the inclusive growth agenda, I just want to ask what is the emphasis going to be then on the fair work criteria or growth potential? Or how is that going to be addressed the balance between these two in terms of? Cabinet Secretary, I think that it is a fair question that conditionality has been debated for some time. What was announced in the programme for government is that we would look at that conditionality in relation to the RSA. That is essentially the Scottish Enterprise grants. What we are looking at specifically is the fair work criteria, including paying the living wage, excluding exploitative zero hours contracts and being transparent on gender equal pay to business support grants through that RSA. That is the territory that we are looking at. We have said that it will be in place for the grants from 2019-20 onwards. I would invite the committee, in partnership with me, to think further. I certainly know Andy Whiteman as an interest in this. I have raised it in another committee, and Jackie Baillie has certainly raised it in the chamber. Conditionality might not just stop at RSA. Where further should we consider conditionality and the principles that we hold in other levers that the Government has? That is what has been announced in the programme for government, and that is what we wish to take forward with our enterprise agencies. How important is growth potential or actual results in terms of jobs created and so forth? In the past, the debate has been about the trade-off. It is good to get the jobs and the economic growth. What we are saying is that we want to deliver that inclusive growth. That fair work agenda is really important. Therefore, we want the jobs to be compliant with those principles, and that is a progression from where we were before. Of course, economic growth is important. The point that I was going to finish on with Mr Lockhart is that the committee will welcome that our GDP is now outperforming the UK GDP statistics. We are outperforming the United Kingdom in growth, but we want it to be fair and inclusive growth. That is what our conditionality will try to achieve. I will resist the temptation to bring Mr Lockhart back into comment on that point. I will ask you to focus on the specific question that I am asking. That is a further matter. I hope that you do not think of me as an economist wishing to revisit the past, because I do not think that that matter has been tied up so to speak yet. You will be aware of the data inquiry report of the committee. I think that, possibly in a previous guide, the cabinet secretary responded on that. I just want to focus on one issue, because there are a number of outstanding issues. I think that we are still waiting as a committee to hear from the Scottish Government, and that is on pre-release access. The question is very simple. Are you going to respond by doing what the majority of the committee wanted? I am not sure that we even have a response properly speaking to the minority view. In this new spirit of consensus, are you hoping to bring the Scottish Government approach to this in the interests of transparency, public trust and openness, into line with what is applied in the rest of the United Kingdom? Convener, in the interests of consensus, I think that I have given you a very comprehensive report to your economic performance considerations. In relation to other matters, I understand that I have written and responded to your previous letter. In specific relation to this, no, I do not propose to change the Government's position. If you want a straightforward answer, I am happy to debate that with you. You understood that you might want to explore this issue here and now. I can put it in writing why I am not proposing to change the Government's position. I think that the Government is transparent and accountable. There have been no accusations or reasons to revisit our handling of statistics. The professional community has not asked us to. There are no concerns from the statisticians. I understand that, in a minority view in Government, I have had no evidence whatsoever to lead me to the conclusion that we should not have a well-informed, accurate understanding of statistics when they are being released. I looked back at the history of the issue when the previous order was made and there were no party politics at the time. There was no division in the committee on the legislation that we currently rely on—none. I have had no evidence as to why the Government should change our position and the statisticians equally are not requesting a change. They are happy with the current arrangements. I can go through a range of other arguments such as market sensitivity and so on, but no, convener, I do not see any reason to change our current position on the system. I was hoping that you might suggest coming down the road to meet us halfway perhaps on it or something or a willingness or openness to do that on the basis of some of the evidence that was given to the committee, which was unanimous. I think that things have moved on since the previous order was issued, but is there a further point or purpose in the committee engaging with yourself on the issue? I will certainly remain open-minded. My call to you would be, can I see any evidence as to have the statistics in any way being misused that I should have sight of? As I understand it, there are benefits of a clear understanding of statistics being reported in an informed way. I think that the committee has another view, and I need to see that evidence. The issue may not be one of misuse of statistics but rather openness in public trust. The committee can discuss that further and perhaps come back to you. We will see where we take that, but I think that that is probably as far as we can take this discussion today. As I said, the committee can discuss that and we will see what we make of it. Thank you very much for coming in today. I will suspend the meeting and allow a changeover of witnesses. Welcome back to our meeting this morning, and we now move on to our discussion of the proposed public-owned energy company. One of our witnesses, Catherine Waddon of the University of East Anglia and the UK Energy Research Centre, unfortunately, is unable to be with us today due to travel not working out. I would like to welcome those who are here, starting from my left to right, Ragnie Lowe, principal knowledge exchange fellow centre of energy policy of the University of Strathclyde, Neil Barnes, deputy director of consumers and markets for Ofgem and Kate Morrison, energy policy manager for citizens advice Scotland. Welcome to all three of you. Thank you for coming in today. I will turn first of all to John Mason for some questions. Thanks, convener. It was to start off with the role of a potential public-owned energy company. It was Professor Waddon's who had made some interesting quotes, including, there is a danger that conflicting and or poorly defined objectives result in poor achievement of any of them. I was just wondering if you could give us some comments around the area on what the key strategic priorities should be for such a company, for example tackling fuel poverty, supporting renewable generation, supporting community energy schemes. Does there need to be a narrow focus or can we have a wider focus? I should say that there is no need to operate buttons that will be done by the sound s or rag new law, I think. I will give it a crack. When the proposal was initially made, the intention had been that this would be something that would support strategic objectives around energy generation and decarbonisation as much as anything else. We have changed focus now, as I have set out with the committee before, for this to be much more about consumers and fuel poverty. If that is the case, that is a laudable aim. If that is the case, as Catherine Waddon has suggested, that goal needs to be quite tightly defined and some of the other things that are still at play around local energy decarbonisation and strategic oversight need to take a step back. There is a lot going on already on fuel poverty. If that is going to focus exclusively on fuel poverty, it will need to be very well aligned with existing fuel poverty definition bill and action that is proposed under that. The requirements on local authorities to develop local heat and energy efficiency strategies and the actions that are being undertaken by many Government partners on fuel poverty. Alignment with that will need to be at the heart of how that thing evolves. There are other objectives that could be addressing, but I agree with Catherine that it needs to have a more narrow focus now that we have got to the point of pulling forward concrete proposals to have it look. Off-gem is the regulator of the gas and electricity markets in Great Britain. We support many of the aims of the Scottish Government that they have set out for the public-owned energy company, many of which match our own duties. For example, we are trying to drive down customer bills and support vulnerable consumers. We have seen recent proposals to introduce a price cap, which will help to reduce the bills of consumers who have engaged, many of whom may well be vulnerable or in fuel poverty. There is a good match in terms of those aims. Ultimately, we are looking for a retail market that, while functioning, where competition can benefit all consumers, enables innovation and new technologies to come to market, particularly when consumers who do not engage, particularly the vulnerable, are also able to benefit from that competition. There are already a wide range of players in the retail energy market, such as 60 or so, and energy supply is active in the Scottish market alone. However, there seem to be a lot of opportunities for new entry into the market to deliver different objectives, particularly scope for innovation based on new technology, new data that is becoming available with the advent of things such as smart metering and new markets and new ways of transacting. To that extent, we are very much welcoming of new entries, new business models, product and services that can provide better value to consumers. I share a lot of the objectives of the Scottish Government in that endeavour. I would not have a specific view on whether the right one is for that sort of venture. You talked about whether we want to have a well-functioning market, which I am sure most of us agree with. Is it well-functioning at the moment? One of the problems seems to be that especially vulnerable people who are off are not switching suppliers, which is one of the key factors in all of that. If people are not changing at the moment, would another supplier possibly make them change? The market is not functioning as well as it should at the moment, as evidenced by the fact that the Government has decided to introduce price regulation. We have recently made our proposal with a view to introducing a price cap from 1 January next year, which stands for the benefit of consumers to the tune of around £1 billion. I recognise that the market is not working well. There are a lot of initiatives where we are enacting to attempt to improve competition in that market. Even when the price cap is in across the market, there will still be significant savings available for consumers who engage and switch in the market. The price cap will at least ensure that consumers who do not engage are not being ripped off and that they are paying at least a reasonable price for their energy. Ms Morrison, do you have any thoughts about how narrow or how wide the focus should be? I think that we would quite strongly support the objectives that were laid out in the most recent version of the energy strategy, with the focus on tackling fuel poverty. Over a quarter of Scots were in fuel poverty as of 2016 figures. We know that there has been significant price rises since 2016, particularly in the electricity market. We would want a specific emphasis on trying to tackle and alleviate fuel poverty through cheaper energy bills. Do you think that such an organisation as we are talking about could do that in a more strategic way by helping people and helping them to understand what is going on better, or should they actually be in their playing themselves? Yes, it is a difficult one. I think that there is a huge lack of awareness. We did a recent survey in Scotland, and it showed that up to 10 per cent of some suppliers' customers told people that they can switch. Obviously, there is a huge amount of awareness that is raising to go to identify and to reach the fuel poor and the people who are vulnerable. Our view is that if it contributes to getting to the fuel poor, it is a good thing. Whether it is going to be the single solution to doing that is another question. Assuming that the company was to sell electricity or gas or both, do any of you know what kind of level of customers it would need to have in order to break even and to be viable? Presumably, if there is too few, it would not work. Is that something any of you can comment on? I am sure that there is a magic number there. What we have seen from the many companies that have entered the market, particularly in recent years, is that there are a range of different business models out there, some that are not looking to grow particularly big and aiming more for niche bits of the market, whereas others are looking to achieve scale relatively quickly, and some of the economies of scale come along with that. What we do know is that below certain customer numbers, very small, that can be quite difficult to actually compete effectively, particularly in terms of accessing the wholesale market on a cost-effective basis, but that is relatively small numbers of customers there. Beyond that, it very much depends on quite what the business model of the company is, how cost-efficient they can be in terms of their operations and other factors like that. To reinforce that, there are costs that are associated with tipping over certain thresholds in terms of scale. You would imagine that a Scottish Government-supported energy company would wish to take on many of those costs, things like the warm homes discount, which is targeted at supporting fuel-poor households. Those costs might well be assumed to be part of a smaller company, irrespective of thresholds. Colin Beattie Should the company be involved directly in the supply of energy? Is that the correct role for it? I can kick off. My understanding is that the minister has now written to the committee, in addition to others, to suggest that a white-labelling arrangement—we can maybe discuss what that is in a bit more detail—is the preferred option that has been taken forward to the development of a proper business case. It is a hybrid between directly supplying and not, somewhere in between, and it offers a number of advantages in terms of de-risking the venture. As Kate has suggested, there are multiple ways of addressing fuel poverty, if that is the objective, providing low-cost energy. If that can be done, given the margins in the market, by running a supply company, it is one of them. It can be a part of the solution if it is designed well and the thing is designed for success. I am correct in saying—I think that I have read this in newspapers—that there is a 5 per cent margin on supplying power. That is the profit margin. We require the large suppliers to publish on anual basis their accounts in relation to their gas electricity activities. The average margin on gas electricity retail in recent years has been around 5 per cent. That is probably made up of eight or nine per cent on the gas side and almost nothing on the electricity side. That is looking at the six large companies. Given the rate of new entry and the rate of switching in recent years, smaller companies now account for over a quarter of the market, which is very positive. We do not have the same level of visibility over the profit margins that they are making. Anecdotally, they are relatively thin—in some ways, you would expect that from companies that have just entered and are looking to get up to speed. Whether you think that 5 per cent or so is an interactive margin. Neil Burn said that there are 60 existing suppliers in Scotland, which seems an awful lot. Where would this company fit in on that? There are 60 suppliers competing at the moment, and some of the smaller ones, presumably, are seeking to establish themselves in various niches in that market. Now, we are proposing to have another company come in and try to establish itself in its niche. What we see in terms of the energy market at the moment is a part of the market that is very competitive, where consumers are engaged and willing to shop around. There are a lot of options, a lot of choices and relatively low prices available for those. What we also see is a part of the market where consumers do not engage and are paying considerably higher prices. There is potentially a role for a supplier that can reach those parts that other bits of the market are not serving so well and engage those consumers and potentially save them considerable amounts of money on their bills. That is one factor to the extent that there may be bits of the market that are not being particularly well-served or targeted by existing players in the market. Another observation is that the market is going through a rapid change at the moment, so while a lot of those existing players are focused very much on what you might think of as traditional supply, selling kilowatt hours of gas and electricity to customers, the opportunities afforded by, as I mentioned earlier, new sources of data coming from smart metering, new technologies, be it storage, electric vehicles, new ways of trading, local energy, peer-to-peer trading mean that we expect to see significant innovation in current times and whether that comes from existing players in the market or, potentially, players who are not currently in the market, that remains to be seen. We very much welcome further new entry to the extent that that brings with it a better way of supplying energy or innovative ways of doing that. Do you think that the Scottish Government's phased approach with local authorities is the best way to launch this company? I think that it makes sense to do it in a phased way. For a number of reasons, not least, the state of the market and the amount of flux and change in the market means that it would be very difficult to do anything else in terms of financial accountability and risk. For me, the phased approach still has to have a sense of the end point that we are heading towards. It is not clear that—we talked about the range of objectives that may be being served simultaneously—it is not clear to me yet whether the end point is still trying to address a large number of objectives simultaneously in a way that, say, an energy agency might be better equipped to do than a supply company. What happens after the white labelling arrangement is still an open question that needs to be considered. It may be that the white labelling arrangement is it. In fact, the white labelling model is the supply side entity, and other things then flow but do not necessarily sit under that arrangement. There might be investment in renewables, for example, through a different mechanism, but what that all looks like, I think, would be useful at this stage to start at least to set out. I was just going to add to that that the two councils that operate this kind of model already are Bristol and Robin Hood, and I think that the jury is out as to whether it is really a sustainable model. The Bristol council said that it would spend £33 million on the venture. The Bristol energy has already spent £27 million of that, and they are not profitable yet. For me, I read that Sadiq Khan had planned to do the energy for Londoners. He was either going to set up an energy company or a white label, and he commissioned Cornwall Energy to do a scoping study, which is better—the white label—or setting up a complete supply company. I think that they double-weighted timing so that the white label was the one that was chosen. In fact, the setting up of an actual supply company was going to deliver better on revenue retention, more control over tariffs, tackling fuel poverty, generating economic benefits such as jobs, etc. Getting higher customer numbers and supporting renewables in the area. The white labelling model—I think that the devil will be in the detail how they plan to do it—is the most important thing, but that raised a little alarm bell for me as to why choose that option when there is evidence to suggest that it is not initially going to get the best benefits. Do you see a role for the national investment bank? I think that there is in the energy sector generally and around investing in both the generation side in terms of low-carbon technologies and projects, but also in local energy systems that match supply and demand through projects that are not just about putting in new bits of kit in. However, how that links into the public energy companies is again a bit of an open question. I want to explore a little bit about the community and local energy sector, where there has been quite a bit of success, but that remains huge challenges. Mainly in terms of investment, and the Scottish National Investment Bank may have a role to play that, but also in relation to fuel poverty, which is high in rural areas, particularly in off-gas grid areas. In terms of resilience, we have seen islands such as the island of egg build its own generation capacity, and yet only 80 people live there. Repurposing that in 10 years of time will be quite a task for 80 consumers. I wonder whether there is a role for a public energy company in alliance with investment vehicles such as the Scottish National Investment Bank, providing grants, loans, equity guarantees and so on, to try to build, to assist in building resilience in those areas in which the energy supply and the degeneration is most challenging, both for price and for resilience. We do see a lot of interest in local energy schemes, not just in Scotland, but more generally. A lot of thinking and investment going into those areas. That is a slightly different model to what we have seen generally. There are ways in which the current market arrangements do not always facilitate some of these innovative new business models or ideas, and that is something that we are looking at actively in terms of how we might adapt the rules to enable a greater range of business models, be it local energy or other types of trading. I think that that is a direction of travel for bits of the market, whether it makes sense everywhere. I am interested to see how some of the experience that we are seeing at the moment works out in terms of how well they engage consumers in a local area. I think that there are some positive signs in that area, but more broadly, how well those schemes can deliver cost savings for the local area, drawing on local generation and other things. The market does not work at all in that respect. We had a state-owned energy enterprise 30 years ago, and it has been privatised. It is owned by big multinationals, and it is focused on generation, distribution and supply. At the same time, we have new innovative models. We have been looking at district heating, for example. Some of those are early stages, but we have had demonstrations of how they can apply, not just in this country but in other countries. It seems to me that the reform of the energy market along conventional lines about price controls and so on is not going to make much impact on the need for resilience, not just in rural areas but in parts of urban Scotland as well. That innovation needs to be supported. Maybe that talks to more of an energy agency than an energy company. I think that it does, or indeed to arrange a different policy leavers that some of which are not under the purview of the Scottish Parliament. I think that that takes us beyond just thinking in terms of the white-label arrangement that is being proposed at the moment. I think that there is one way in which, under the current arrangements and devising a white-label arrangement model, some sort of support, as you are suggesting, might be possible through power purchase agreements. In the current market, because of the drivers in the market, there might be a role for a publicly-owned energy company to pursue power purchase agreements that are slightly longer-term and have more of a social objective to them. However, that is not an area that I am an expert on. I do not know what that would look like in practice in terms of the current rules of the game. For us, there are specific groups of consumers such as those who rely on an electric heat pay on average about three times as much to heat their home as they would if they had gas. Whether a supply company could simply offer enough of a saving to make it worthwhile for those kinds of groups of consumers is probably questionable. However, if they could perhaps get them on to different systems such as destructing or is that a better solution, then I think that the outcomes for consumers might be better if you are thinking beyond just slightly cheaper tariffs and into what other options are better placed in that home. I just want to ask about how that affects the policy approaches of the Scottish Government. If we add in yet another energy company or another aspect to the situation, is that likely to assist in delivery of the objectives that the Scottish Government has policy objective-wise, or is it likely to overcomplicate matters? I think that the proposal, as I understand it, to be that local authorities would be invited into a kind of an umbrella, a white label arrangement, so the Scottish Government would effectively procure a supply package on behalf of local authorities that they could then choose to take up. If it aligns with what local authorities are wanting to do and their wider energy policies and activities that they might already have in terms of energy supply or energy services companies, then that is all to the good. However, I suspect that what you will end up with is a sort of patchwork of some local authorities engaging in that and others not, because they do not necessarily feel it aligns well with their objectives and their current activities. If it can be designed in a way that supports as many local authorities as possible in their endeavours to reduce fuel poverty and to increase energy resilience locally, then that is good. That is the area that it can help in terms of the way that is framed at the moment around engaging with the idea of local energy systems. That does not seem to me to cut across anything else that the Scottish Government is trying to do, so that seems to be a sensible approach. However, it does just address one part of the kinds of objectives that we have been talking about. Kate Morrison and then Neil Bond. I was just going to add to that the risk of it with policy is that the application is patchy, so that not everyone is benefiting. A question is if your objective is to reach fuel-poor customers. We have done some recent research where we spoke to people in fear poverty and, unsurprisingly, they want instant financial support with their bills—that is what they need. There is a model in Ireland where you get a winter fuel allowance if you are on specific benefits over the long term. Are there other ways of consistently reaching the fuel poor and lowering their bills, which means that you access everybody instead of whoever signs on? The concern for me might be useful in forwarding some of their policy objectives, but whether it is going to reach everybody that needs to benefit from those. Neil Bond. One thing that we do see is that we talk to a lot of innovators and potential entrants to the market who have different ideas and different business models that they want to bring. In an awful lot of cases, they do not start out with the intention of becoming a licence energy supplier. That is not really what they are interested in. That comes with a lot of obligations attached, but they ultimately find that, given the current structure of the market, they either end up needing to seek a supply licence themselves, particularly to gain access to industry systems and data, or they end up needing to partner with an existing player in the market to do that. That suggests that, in the current market model, there can be benefits to being a licence supplier to enable them to do certain things. Accessing the wholesale market, for example, and accessing customers. As I mentioned previously, we are looking at ways in which we can update market arrangements to recognise how the market is likely to evolve and make it perhaps less burdensome to become a licence supplier or to make it easier to provide some of those innovative services without having to go through that hoop of being a licence supplier. Thank you. Gordon MacDonald. We touched upon earlier that retail energy margins are really tight, about 5 per cent. Most electricity and gas is sold through the wholesale market, and that is predominantly dependent on supply and demand, not necessarily reflecting the cost of production. Do we know what the margins are for generators? Again, we get the six large supply companies to publish their generation outcomes. Of course, some of them are less involved in generation than they used to be. They were all vertically into it in that way. The margins differ very significantly. One of the players, particularly those involved in the nuclear side, makes the vast majority of the profits in that area. Those six large suppliers no longer represent the entirety of the generation market, so it is less clear to see what. Would it be fair to say that it is substantially higher than 5 per cent? In terms of return on investment, yes. You would expect that in a capital-intensive sector-like generation compared to retail. Again, whether 5 per cent margin on retail activities is tight is interesting question. I suspect that there are some retail markets that would consider that a very healthy return. It depends on your perspective. If this publicly owned energy company wants to make a difference, should it be getting involved in generation where the margins are larger and, therefore, there is more scope to support people who are struggling to meet fuel bills? I do not have a view on whether it is worth them getting into that market. Who else? Is it a good idea to get involved in generation? It seems logical that it would have greater benefits, but then you have the higher risk of investment, so it is whether that plays out for you. What do you think of those potentials? Well, it depends on what technology they decide to invest in. I am not going to pretend to be any kind of economist, but I know that there are a lot of suppliers failing in the market of late. It is not necessarily an easy market to be in, so I guess that there must be a lot of high risks. As Andy Wightman has already touched on, there are a lot of small-scale electricity suppliers. It is certainly my own constituency. It is Harlow Hydro that has been on the go for a couple of years. They are small-scale. Is there a need for a publicly owned energy company to, through power purchase agreements, to engage and give small-scale producers or generators a market that could be used to focus on people at a fuel pool? Yes, potentially there is. That may not be something that can be delivered through the white-label model, but there is definitely scope for that kind of support and, indeed, for investment, as we have discussed in relation to the National Investment Bank, for example. We touched on earlier Bristol energy, but Robin Hood energy, I believe, has just turned a profit for the first time since it was established. Is there any lessons that could be learned from either Bristol energy or Robin Hood energy in order to help us in setting up this new publicly owned energy company? We rank suppliers in a supplier league table quarterly, so it is based on not their costs but on their complaints levels and how easy they are to get through to on the phone. I think that Bristol did pretty well. There is sixth out of 32 that we have got in the specific parameters, but Robin Hood is 29th, so maybe they are offering a wee bit cheaper, but you would hope that the publicly owned energy company would be really focusing in on goods, customer service and all the other things that come with it. If you are particularly trying to attract vulnerable consumers or those in fuel poverty, you do not want to move someone and then have their standard of service drop. Certainly Neil Barnes. Not so lessons that could be learned from those, but it is interesting to note some of the different approaches that they have taken, for example in engaging consumers, so Bristol Energy has physical shops that people can go into. I think that quite a lot of consumer research that has been done suggests that some consumers need that extra hand-holding confidence to be able to engage effectively in the market and make decisions, so they have clearly used that. I think that most suppliers will not see a physical presence on the telephone or online with Robin Hood energy. I think that they initially focused on prepayment customers as part of a social objective, so I guess that it shows that those city council run suppliers are able to target different segments of markets in different ways and have tried different things. The other example is our power here in Scotland, which also has a kind of explicit policy of addressing those in social housing that are being moved from one contract to another and intervening at that point to give them a better deal. Thank you. A supplementary from Jamie Halcro Johnston and then Dean Lockhart. You mentioned that there were 60 suppliers. How many of those are not for profits? I thought that you might ask that. We do not formally log whether they are or they are not. In some ways, there are different interpretations of what that might include. I think that we have heard some examples of those. I would say that there is almost certainly a significant minority of those. Of course, not-for-profit does not necessarily mean cheaper. Obviously, they are not aiming to make a margin, but whether or not they are cost-effective, so I think that of the not-for-profits, some may be at the cheaper end of the scale, some may be at the higher end. I appreciate that they might be trying to provide an additional service, whether it is public or customer service. I was just going to ask what is the difference between the average fuel cost, whether it is electricity or gas, and the lowest available cost? Is there a fairly consistent gap between the two? Over recent years, the average difference for an average consumer is at one who consumes average level of gas and electricity, which is between the most expensive and the cheapest on the market. It has been around £300 in those circumstances. Obviously, for people who consume more, that could be higher, and it is remade at that level. Ofgem's plan is to introduce its price cap from 1 January. That will, on average, provide savings for consumers on the poorest-value tariffs of around £75 a year, resulting in savings of around £1 billion. That will still leave scope for those consumers who want to shop around and engage in the competitive market to save significant amounts. Would that not suggest that perhaps the focus should be trying to encourage those who are not engaged in shopping around for price or maybe helping them to get on to the lowest tariffs rather than just the price gap? The price freeze is going to play a role, but would the focus not be best spent on making sure that everybody who needed to be was on the lowest tariff available? Absolutely, and we have been putting a lot of effort in recent years to better understand what is stopping consumers from engaging effectively in the market. We have done a lot of research and a lot of trials recently of different ways of engaging consumers, some of which have been very positive. When we published only quite recently, it was what we called a hassle-free collective switch. We asked one of the big suppliers to if we could use about 50,000 of their customers who had not switched for around three years, so a reasonable proxy for people who may not be making a conscious decision to be on poor-value tariffs. We used a price comparison service to run an auction, get suppliers to bid a low price in for those customers. In the event, a quarter of those customers ended up switching against a baseline of around three or four per cent who, on average, would have switched out of that group. That is just one example of where I think there is significant potential to engage more consumers. It was an important learning from that, the extent to which consumers valued being able to use the telephone and actually talk to someone rather than just being expected to deal online and make those sort of decisions. I think that we would recognise that that is very necessary to continue to promote engagement, perhaps not sufficient. There would always like to be some consumers who, for whatever reason, don't or can't engage in the market. The price cap is a temporary solution for improving their outcomes. Longer term, we are committed to exploring ways of changing the arrangements in the market to try to improve competition, enable better innovation and, hopefully, deliver better outcomes without some of the downsides that could come with setting prices. At a local grass-roots level, we have a 60-day cab in Scotland. We run a project called Energy Best Deal, which gives people one-to-one sessions to make sure that they are on the right tariffs and that they are accessed all the correct support. Last year, we had 38,000 energy issues come through the network in Scotland. We managed to save clients £1.6 million in financial gains, so it shows how many people could be saving money. It is a real shame that people are not just on the cheapest tariff available to them. Scottish Government's focus should be, in the first instance, looking at the reductions that are available already and focusing attention on trying to get people on to those cheaper tariffs. I do not think that there is a single answer. I think that there are focusing on doing that. They support the energy best deal project, the big energy savings network and other various other projects that do attempt to do that. They have success, but you are never going to reach everybody with a single thing. I think that there is a role for the supply company and perhaps it could be tied into those local awareness. If you have a local tariff that is really good for people in your area here on prepayment meters, then get the energy best deal project to make sure that that is clearly advertised to the people in that area, so that there is probably tie-in with what else is going on. In order to achieve a meaningful impact on the market and make a difference to consumers, presumably the energy company will require scale in terms of being able to influence the market and influence price, which in turn will require significant investment, both set-up costs, as well as annual running costs, presumably worth looking at tens of millions of pounds. From a policy perspective, is this the best use of public sector money to address fuel poverty, or does the panel have views on—because some of those in need may not be, this company might not reach all of those in need—is there a better way to use public sector money to address fuel poverty? I think that the white label arrangement that, as I understand it, is on the table now avoids those large set-up costs that you are describing. It is a sensible first step, potentially, and then ultimately doing something that looks more like a standard supply company or not. As I say, one thing for me would be to understand what happens in phases 2 and 3 of this. I think that a white label arrangement, if it can be designed in a way that matches what local communities need, then that seems to me a pretty sensible approach. There is quite a lot going on in this area. The power is over a warm home discount, and ECO has moved potentially to Scotland, so there are pots of money that could be used for targeting support to fuel poor. There is also all the stuff that is going on with the fuel poverty strategy, so I do not want to make a new policy position for my organisation of the hoof bat. I think that there is definitely—I certainly like the Irish model of having this winter fuel allowance that people can throw in fuel poverty or throw in uncertain benefits. They are definitely getting a certain amount of money over the winter to make sure that they can actually heat their home. Thank you. One other question on a slightly different topic. We have heard mention of other companies in the rest of the UK in terms of addressing price, fuel poverty and hoping to reduce pricing for consumers. Are there other examples in the rest of the world that you can point to where state-owned companies have been successful that possibly we could learn some lessons from? Obviously, the UK on the GB energy market is quite a different context to most other energy sectors. There are not directly comparable examples. A lot of play is made of the ways in which Danish and German, for example, municipally-owned companies have succeeded in delivering local investment, local jobs and good prices for consumers. Those companies exist in a different type of market, many of them in spite of being publicly owned to compete in a more or less liberalised market, but many of them are involved in not just supply of electricity to households but in heat and in district heating and generating and supplying heat. That is something that we have not touched on, but heating your home is usually the chief reason that you might be in fuel poverty rather than the need to have your lights on. There are lessons to be learned about how not just the state but not-for-profit companies might be involved in provision of heat. It is fair to say that energy markets tend to be set up quite differently in a lot of different jurisdictions. I would not have a view on which one is necessarily delivered better against some of these aims, but I think that there are some clear differentiations. For example, in a lot of the Scandinavian markets, objectives around vulnerability and fuel poverty are dealt with outside of the market through the social security system. One of the defining features of the British market is the volume of obligations that we put on energy suppliers to be delivered through the market in terms of loft insulation and warm home discount and some of those things, which is clearly one route. Those companies have existing relationships with their customers. It also has the potential to make that a harder market to enter if you are coming in. You need to be performing a very wide range of activities that could put off a company that is looking to do something quite specific and clever. As Ragnar said, in many European countries, you do see more public ownership based around municipalities and other issues. That in itself can have issues around competition that perhaps has developed less well in some of those countries. There are pros and cons, but it is certainly not all the things that energy suppliers are currently expected to do and have to be done by energy suppliers. There are potentially different ways of doing that. It is very helpful. Thank you very much. Angela Constance I would like to explore the governance arrangements for any publicly owned energy company. If the panel had views about where the principal accountability should lie, should any company be principally accountable to Parliament or to Government or to both, is the committee structure of this Parliament adequate and suitable for scrutinising and holding to account such as a complex organisation? Is there any basis for the accountability arrangements to be set out in legislation? What do you see as the arguments for and against that? I do not think that we have a specific view on whether legislation is required or not. In terms of a model that we think works, just because we work quite closely with Scottish Water is that they are publicly owned and are effectively accountable to ministers in that their high-level objectives are set every six years over the principles of charging and the ministerial objectives. There is a whole structure of governance that goes around that with WICS, SEPA and all those different organisations that ensure that certain elements of their priorities are delivered on. For us, that seems to be a exemplary model for a publicly owned company. I do not have a view on what suitable governance arrangements would be. From the perspective of the regulator, clearly if a publicly owned energy company wanted to seek a licence as a supplier, we would obviously be the body that considered that and granted that. We would want to be clear as to what the entity was that we were granting that licence to so that we could hold them accountable and regulate them. We would be treating a publicly owned energy company in the same way as any other company we regulate, monitoring compliance and enforcing that in the same way as we do in order to protect consumers. In terms of governance, it might well be instructed to look at some of the existing local authorities, city council owned models and C. Obviously, that is a slightly smaller scale than a Scottish Government run company would be, but to see how they have addressed some of those issues and also how they have addressed potential concerns around state aid and the way in which such companies are funded. Thank you, Ms Law. I would agree with both of those points. Certainly learning from existing models of governance from Robin Hood, for example, and Bristol Energy, which took a slightly different approach in the lessons that came out of that, would be good. On legislation, I do not have enough informed view. I think that the only other example that we might point to is the way in which, when Statoil, the Norwegian energy company, was established, its requirement to report to Parliament might be something in terms of transparency and accountability, without necessarily assuming that Parliament would be the ultimate body to which the company would be accountable, but that it should be required to report to Parliament in terms of its business and objectives and how they are being met. I have heard about some of the local examples of the Robin Hood companies south of the border. I have heard of some of the arrangements in and around some of the larger national companies that are on the continent. I have heard that there might be some learning from Scottish water. I suppose not just thinking about accountability, but also thinking about service user involvement, promoting and protecting the rights of consumers, but also ensuring that the voice of those most affected by fuel poverty are heard and integral in that lived experience is integral to the working of a publicly owned energy company. I wondered if there were any other examples that we could also be learning from in terms of proper, meaningful, participative user engagement. There are models of citizens, panels and deliberative participatory processes being used to support design of services. This is not an area of expertise for me, but in terms of health and social services, for example, which could be drawn up on and in multiple ways in which service users and or citizens, depending on how we want to characterise them, have been involved in supporting decision making, so in terms of participatory budgeting as an example of a process that directly involves those recipients of public services in the design of those services. There are multiple different models that we could draw on. I would just add that we would hope that, as the consumer representative, as they were forming this company, they would be able to draw on our expertise and research to understand what consumers want and need from this kind of company. That is something that we are planning on doing in this year's work plan, is speaking to consumers about it. That is perhaps more a question for Ms Morrison, because I suspect that, given her role in Citizens Advice Bureau and research, she will be more familiar, perhaps, than other members of the panel with Social Security Scotland and how that organisation has been set up and how it rather inevitably taps into a service user experience. I am quite keen to Canada's opinion on a range of bodies, either in Scotland or across the UK or, indeed, the continent that we could really be learning from. I have to say that that would be my colleagues. I could feed back on that as to what they think the learnings could be from Social Security Scotland. Thank you very much. Thank you to all of our witnesses for coming in today. I will suspend the meeting briefly to allow a change over to our next panel. Welcome back to our meeting. With us, we have Graham Fisher, head of the branch legal directorate and constitutional civil law for the Scottish Government, David Farr, policy manager, corporate insolvency for the accountant in bankruptcy, and Alex Reid, who is the head of policy development. We are looking at the insolvency amendment, etc., EU exit regulations 2018. Before I come to other committee members who may wish to ask questions about this, I want to clarify one thing. We know that we are looking at the question of leaving the European Union and the technicalities that that will involve not just with regard to insolvency regulation but other areas, and that there is a protocol for obtaining approval of the Scottish Parliament where the UK ministers exercise powers over areas that are within the legislative competence of the Scottish Parliament. I want to focus on this issue. My understanding of the protocol, and correct me if it is differently understood by yourselves, is that if the Scottish Government supposing that we exceed what is before us today, if the Scottish Government were not to be happy with what is eventually brought from the UK level, the Scottish Government can bring that to the committee and to the Parliament. Indeed, in a Scottish statutory instrument it could be issued and agreed by the Parliament. On other occasions, there may be a slight alteration in what the Scottish Government had understood but considers it not to be material, in which case the Scottish Government would be content with that. Or another, the third possibility is that the Scottish Government may be entirely content, and in that case it simply laid before the Scottish Parliament. The concern of the issue that I want to raise is the issue of this committee not being in a position then to scrutinise should it choose to or review what is then being put forward by UK ministers in relation to what our devolved powers or competences are, because it would appear on the basis of that protocol that the only time that it would come back to the committee or potentially to the Parliament to review is when the Scottish Government was not happy with what was coming from UK ministers, whereas if it was effectively the scrutiny would be simply not possible, except obviously from the point of view of the Scottish Government. Have I understood that correctly or is there another way of looking at that? I don't know if Graham Fisher would like to. Yes, I believe that you have understood the protocol correctly. It would be open if it was helpful for the Government to write to the committee with a copy of the regulations as laid, if that would assist. Could that be done on the basis that the committee could then take action in regard to the regulations or raise issues with them? Exactly. It would be open to the committee to raise any issue. It believed that it was of concern. I think that it would be difficult in terms of the process and the overall process in terms of the timings for laying the Brexit legislation across the UK, but it would be for the Parliament to decide what view it took of the final position that was reached at Westminster. However, the protocol does work on the basis that if the committee is content with the proposal that the matter would be dealt with by the UKSI, the Westminster Parliament would look at the matters before the Westminster Parliament. If, for example, there were a procedure whereby the Scottish Government put the draft SI to this committee for comment, would the Scottish Parliament then, if the committee made comment or a specific comment on provisions that it thought should be drafted differently and that were not being dealt with elsewhere, would it be open to the Scottish Parliament to then not agree to that? I do not think that there is a formal role in terms of the protocol in terms of disagreeing to the instrument that would be considered at Westminster. No, I suppose in that sense. Ultimately, before the UK Government to decide what recognition to take of any views that the Parliament might express, but certainly the committee could be provided with a copy of the instrument that is taken forward at Westminster if that would help the committee with its consideration of the instrument. I may or may not come back to that. Would other members of the committee like to raise any issues? Andy Wightman Yes, thanks very much, convener. This is quite a complicated area of policy and quite a complicated area of legislation. Perhaps you can just clarify. The proposition that the UK legislate in this area is designed to address both the prospects of a deal and the prospects of no deal, is that correct? At this point in time, the plans that have been made are based on a contingency for a no deal Brexit and the deficiencies that would arise in that and the most appropriate way to deal with the issues that span competence and that would be complex or difficult to deal with using another route. The piece of work that is before us just now is basically dealing with that contingency on a no deal, and that situation would need to evolve and reflect any deal if a deal were reached with the EU covering cross-border insolvency proceedings. So, just to follow up on that, the instrument that is developed would not have any effect if there was a deal, is that the case? Certainly the position on the instrument would need to evolve in relation to the terms of a deal, because the instrument deals with specifically what would need to happen in legislation and the deficiencies in legislation on the basis that there is no deal and that the EU regulation as it stands does not have that reciprocal arrangement across EU states. There would need to be a development that would need to correspond to the nature of a deal. Is it your preference from a policy perspective that a deal should include an agreement that basically retains the status quo in terms of cross-border co-operation? I think that it is safe to say that we share the UK Government's view, the Scottish Government's view, that there are advantages to the cross-border arrangements and the reciprocal arrangements that exist in insolvency and that, from a policy perspective, it would be desirable that those arrangements would continue post Brexit. So far as you are aware, any negotiations on continuing those arrangements along the same lines exist just now. Are those negotiations that could lead to a positive outcome or are they contingent on other aspects of the deal around trade, for example, in services? I think that the draft withdrawal agreement anticipates that, for example, existing insolvency proceedings, the cross-border co-operation and recognition that exists would continue after Brexit, but that is still subject to the negotiations that are on-going. At this moment in time, I do not think that we have any particular certainty on the continued reciprocal arrangements that are agreed. What we are dealing with just now is a contingency arrangement to enable the continuity of domestic law in the event of a no-deal Brexit, where those arrangements do not continue to exist. Is it worth saying something more to distinguish that there is the withdrawal agreement, which is in draft and is available. That has provision for the transition period and the implementation period. There would be a process for UK Governments to publish the white paper where it sets out that there would be a withdrawal and implementation bill, which, if there is a deal and an agreement on the withdrawal agreement, it would provide for that implementation period. The provision to be made in the no-deal SI would then effectively be deferred to the end of the implementation period set out in the withdrawal agreement. The wider negotiations and the future partnership paper, which the UK Government also published and set out its desire to reach that wider deal with the EU, is where those arrangements would be maintained in the way that Alex has mentioned. It would be the policy preference of the Scottish Government along with the UK Government to maintain those arrangements. At present, that is not yet being agreed, and that would be agreed as part of that wider partnership. I think that it is a desire of the Scottish Government and the UK Government to reach an agreement on that. At present, the EU is saying that it is still up for negotiation and that the wider aspects that you mentioned might come in to obviously whether or not there is an idea can be agreed as part of that. Finally, how clear was the accountant in bankruptcy indeed the Scottish Government that this proposal should be allocated to category A as opposed to B, or was it a marginal decision view, not a decision? I do not think that it would be classed as a marginal decision based purely on the arrangements that have been put in place in other contexts to deal with that difficult area, particularly if a company is winding up that spans confidence with the general legal effect of a company winding up being reserved and the process of a company winding up being devolved, thinking of practical ways to deal with that. We have previous examples of where the approach has been taken. In terms of looking at the approach, it seems that it is the only feasible approach that can result in legislation that is effective for the user of that legislation and is not trying to deal with unpicked issues of reserved and devolved competence in separate instruments. In dealing with that particular situation, I do not think that we had any doubts about the category that that fell into. I wonder why you did not consider, or maybe you did, the issue of separate Scottish legislation in areas where there was clear responsibility, for example personal insolvency and receivership. You have legislated before yourselves in Scotland. Why are you passing that responsibility on to the UK Government? The draft instrument and the approach is not to have those issues covered in UK legislation. The plan would certainly be to address those deficiencies that relate to purely devolved matters within a Scottish statutory instrument. When would we expect to see that? I am conscious that this is not the only instrument that the accountant in bankruptcy needs to deal with, but I am sure that Mr Fisher is aging rapidly when he considers all the instruments that need to be brought forward. I am interested in teasing out how you are going to manage that. We have already undertaken work to address the deficiencies and plan what needs to happen in Scottish legislation in terms of the timing for the development and laying of those legislations. That will need to take account of other Scottish Parliament priorities that come along and the impact of not making that SI. That needs to be taken in the context of Scottish Parliament priorities, but there certainly would be no difficulty in bringing that legislation forward within the bounds of those priorities in advance of Brexit. I appreciate how difficult it is to speculate, but I am interested in unintended consequences. If we did not legislate quickly over the areas of devolved responsibility, what would be the likely impact? In the areas of devolved competence, I do not think that there would be a significant impact, because in the areas of personal insolvency and receivership, there are not high volumes of cross-border activity. That is certainly fair to say. Receivership appointments are diminishing. Receivership action is raised by a floating charge holder, and the floating charge would need to emanate from before 2003. In the last two years of receivership, there have only been six receivership appointments in Scotland. There are few and far between, and even fewer of those would involve cross-border insolvency, and certainly in personal insolvency, there are very few cross-border. I think that the impact is likely to not be significant, but that is not to say that we would need to address the deficiencies that are created, certainly in anodio scenario. I wonder whether I could explore with Mr Fisher. We were told that there is something in the order of about 100 SSIs and legislative consent motions that are taken as a package. How many are we asking the UK Government to run with, and how many of those are we legislating for? I appreciate that it is a bit of a blamonde at the moment, but it would be useful to get an order of magnitude. I am afraid that I do not have the figures in the breakdown to hand, so we would have to give you that information later, if that was possible. That would be very acceptable. John Mason. To continue that kind of way of thinking, is the subject of insolvency unusual in that it is so intertwined between Scotland and the UK that it makes a lot of sense for one, i.e., the UK, to deal with it? Is that unusual? Are there a lot of other subjects like that? If I take that one, it is safe to say that it is unusual, particularly because the C2 reservation in the Scotland Act is particularly difficult when it comes to corporate insolvency and, in particular, the area of winding up where the process of insolvency is devolved, but the general legal effect of that kind of insolvency is reserved. That leads to particular difficulties, but there certainly are other areas of regulation where there are mixed areas that are relatively common in particular areas. In EU matters, there is a practice of using section 57.1 of the Scotland Act, in some cases, to allow those very mixed areas to be dealt with on a more straightforward basis. That is something that I know that the committee has considered in the context of insolvency in the past in relation to that mixed area of winding up, in particular in approving the Scotland Act order, which would allow the corporate insolvency rules to be made together with the UK Government. For that, there is a project to replace the corporate insolvency rules that is on-going at the moment. I do not know if I can say yes to both sides of that. That is fair, thank you very much. Just as a general comment at this point, I would say that I share the convener's concern that what the committee has been asked to approve something, but I totally accept that that is not your responsibility, but something that we have not really seen. My final point would be a briefing from R3. R3, your concern seems to be that, if we go down that route and there is no deal that UK practitioners would be recognising what people in the EU are doing, but there is no guarantee that EU practitioners would be recognising what we were doing in the UK and that that would put the UK at a disadvantage, is that a fair comment from them? I think that, to a certain extent, the arrangements that we have put in place would allow for them to be referred to the SI, but on recognition, would EU insolvency procedures be recognised here? That is part of the provision that will be made in the SI. I think that, broadly, we would agree with R3 on what they are saying about the potential impact of Brexit, generally, and how that could... Is those reciprocal arrangements falling down that could put people in Scotland at a disadvantage? OK, that's helpful. Thank you. If there's no further questions, then I will allow you to go back to the blamange of EU directors, and trust that it doesn't age any of you too much. Thank you for coming in, and we'll suspend the meeting move into private session.