 Felly, gwrth gwrth ac yn gwybod â'r Cymru. Fodd byddai aelod a'r Cymru, Jacky Bailey, amdag argynnau'r gweithio yr afnod cyffredigúr mewn muniwyddiad. Oherwydd, yr argynnau heddiw ym ni... Na, OndÙr wedi gael eu cyfnodau i cyfnodiau i ddim yn hwylionnau y cyfnodau sgwrs a'u trafio'i rygawdd. Byddiwch jeddangos iawn. Rwy'n edrych i gael eich gwaith o'r ddysgu o'r wneud i ddechrau ei ddau sydd wedi cael ei ddau ei ddysgu o'r gwaith y broseseth ar y cyfnodau. Nid oes yn gwych yn ddod o'i ei ddau ffars ifud i ddim yn gwych eu complainei tribei mwyn gael bros pa yn chi i swyddfaeth ac amser lleol rhaid a'r yn ewch ar gyfer subway. Fy fyddai disgwy oo, yr70s yn my���du i fynd o ffordd mewr ei ddefnyddio. Fy fyddai ei fyddai fyddio eich gunwyd wedi eu gw� DAW yn iawn. John, CEO of Scottish Financial Enterprise. David Lawnsdale, director of the Scottish Retail Consortium. Eric Geddes, communications manager at Edinburgh Airport. Gareth Williams, head of policy at the Scottish Council for Development and Industry. David Williams, I'm the public affairs director at the Scottish Whiskey Association. Maury Tumbi, assistant director for policy at CBI Scotland. Thank you very much. Can I just ask about the apprenticeship levy and perhaps what our guests who are interested in that aspect of Government policy will be looking for from the Scottish Government in this area? Perhaps a good start with David Lawnsdale if you wanted to comment on that. Thank you for that invitation, convener, and thanks for the opportunity to be here to do. I'm very happy to do so and I'll follow up certainly if there's any questions afterwards with any information. In terms of the apprenticeship levy, our industry has a great record I think in terms of investing in staff. It's in our interest to do so obviously. Our members have often extensive branch networks and deal with customers on a day-to-day basis and are dealing increasingly with technologies, so they need to keep a price abreast of these things. In terms of the apprenticeship levy, we've been supportive of the need for more apprenticeships within industry. We wouldn't have started from this position if we were designing the apprenticeship levy. It came somewhat out of the blue, truth be told, from the chancellor last year. If you like to ask, in a Scottish context, it's very much around allowing firms that contribute to the apprenticeship levy to be allowed to benefit directly from it. That was one of the recommendations that we put to the finance secretary in our budget submission a few weeks ago. That's our starting point in terms of the apprenticeship levy. Obviously, it was designed at Westminster and came somewhat out of the blue, but we're keen to make sure that firms here in Scotland are able to benefit from it directly as well. What form would that benefit in your view take, or might it take, if I might put it a bit more generally? We've put forward—we published a position paper a couple of months ago and we've responded to the Scottish Government's consultation on this issue. Essentially, what we'd like is for firms in Scotland and the retail sector to be able to access that cash, ideally to spend on skills in the round, not necessarily apprenticeships. Obviously, firms work at different points in their history or in the development of their business, require different types of skills going forward, so in one particular year it might be apprenticeships, but in a subsequent year it might be something different. Obviously, the market is changing particularly in the retail industry, given some of the structural challenges. It's that ability to tap the funds that are going to be raised in Scotland. We estimate that apprenticeship levy will generate about £12 million to £15 million from the Scottish retail industry. A number of retailers are obviously just focused on their operations in Scotland, so they will pay the levy but not necessarily benefit from it under the current envisager arrangements, so allowing that to happen would be a huge step forward. Do any of our other guests want to come in on the apprenticeship levy issue? It's Gareth Williams. Thank you. It's important to say that we've got a very strong apprenticeship model in Scotland, and we want to protect the quality of that model and not just go for a volume approach, so that's an important consideration for us in the design of any new support. We think that there is scope to increase the number of apprenticeship starts to 30,000 in line with what the Scottish Government has got planned. We welcome the increased diversity of apprenticeships that are being made available. We have some strong concerns about lack of clarity, which has already been touched on in terms of how the apprenticeship levy was announced and continue to concern around the details of how it will operate. There are some specific concerns in terms of sectors that are already making industry contributions towards training, so the construction sector, for example, and how the apprenticeship levy will operate alongside those sectoral levies. The points that David has made are ones that we would certainly agree with. There are concerns not only within big business but public sector universities and colleges and so on about how they can benefit from the money that they will be paying towards the apprenticeship levy, so I encourage the UK and Scottish Governments to consider a delay in the introduction and how best the additional funding that will be generated can support the needs of businesses and others in relation to partnerships and wider skills needs. I think that Mary Tunby wanted to come in at that point. I guess that the point that I wanted to make was that our latest education and skills survey has found that 79 per cent of the Scottish businesses, we work with, participate in apprenticeship training schemes in some forms. Apprenticeships are a hugely important part of the skills investments that companies make, but in terms of the apprenticeship levy, I think that there are some concerns there that have been pointed out by previous witnesses, but what we have been looking at in terms of our contributions to the Government on this is to find solutions for how we implement what is quite a tricky policy. We have said to them that the Scottish Government should treat it as a skills levy rather than an apprenticeship levy, because, whereas apprenticeships are an important part of the skills investment that companies need, it is not the only one. What we are saying is that changing demand and global competition means that there is a huge demand for reskilling of the workforce and helping people who are already part of the staff. What we are asking for is treating the apprenticeship levy as a skills levy, meaning that you give employers direct access to the funds but with the flexibility of continuing to invest in skills in a broader sense, so that includes apprenticeships as well as your existing workforce. Additional flexibility that would be welcome would be to expand the age range for apprentices to give companies more flexibility to expand their offer. In terms of the broader look at it, we need to look at the cross-border arrangements and make sure that companies that have operations here in Scotland but are headquartered elsewhere have the opportunity to use their levy funds that they get returned in Scotland if they deem that necessary. What we would also say is that we need to make sure that the levy systems across the devolved nations, Wales, Northern Ireland, Scotland and England, are in talk to each other and can communicate. That is based on transparency, collaboration and consistency to help as much as we can their continued skills investments. Graham Johnston, do you want to come in on that? I would just add my support to what Mary said and to David. I do not think that I have anything more I can add beyond what you have articulated extremely well. Liam Kerr I have two questions. The first is to David Lonsdale, who spoke earlier on about the large business supplement potentially having a negative impact on the sector. I understand that the large business supplement might add about £62 million to business rates bills. I just wondered if you could give us more details of that and if anyone else had any input. I also wonder whether there were any thoughts on the abolition of empty buildings relief. My second question is directly to David Williamson of the Scottish Whiskey Association. I have in my mind that there was a mushrooming of craft ale industry as a result of a tax break given by Gordon Brown 10 years ago or so. Is that something that we should be looking at for your sector to encourage craft distillers, if you like? Is that something that we can be doing? Thank you for that question. We have a broader challenge with the business rates system in Scotland, and there are two aspects to that. One is that it does not reflect economic and trading conditions in the country. Essentially, bills get ratcheted up every year regardless of whether the economy is doing well or it is doing less well. We have seen that through the recession in the last economic cycle. Those are the two aspects to it. It does not reflect the economy and bills keep rising. In that context, the introduction of the large business supplement unsupplyingly does not help. It adds to the burden. Our estimate is that the rates bill will cost the retail industry in Scotland about £15 million a year on top of the £700 million contribution from the sector. That is in a context in which retail sales have been flat over the past 12 months at best. That is when you factor in that short prices are falling at the moment. It is an issue. There is profound structural change. People do not really have a tremendous amount of money at the moment, and at the same time, costs like that are not rising. It is certainly a front and centre for our industry at the moment. That is why we were one of 13 organisations that, earlier this month, wrote to the finance secretary saying that this is a common issue across all of our sectors, business organisations and memberships. I plead for him to try to take some action on his budget when it comes up in a couple of months' time. Before we go to David Williamson, I think that Gil Parison had a question on that to David Lonsdale. It is a general one on rates that impacts on his members. Perhaps we could take that now and then we will go to David Williamson. I wonder if, as any research, the small business bonus came about because of difficulties in the recession. It was aimed at small businesses, but I wondered if there has been any research into the impact of that. For instance, retention in shop property and shopping centres number one and how the buying power of small businesses then extends into bigger businesses. The one thing about small businesses is that they tend to buy locally out of all the services, plumars, joiners and lawyers. I wonder if any research has been done into that. My understanding is that the Scottish Government has, a couple of times, commissioned external research into the small firms bonus, the small firms rates relief scheme, and not across that particular aspect of it. However, we are supportive of the small firms relief for this very simple reason. It is an implicit acknowledgement that business rates and other costs are an issue for business. We think that it is an issue for all businesses. We have been supportive of that. The Scottish Government has commissioned a review of rates under Ken Barkley. We are engaging with him at the moment. We will put in submission to that. We are looking for the changes that were outlined a few moments ago, but it is an issue for industries. It is not just in retail, as I say, that we pay about a quarter of all business rates, but, in my experience, it is one that permeates many sectors of the economy. Perhaps we can go back to David Williamson on the earlier point. I have been in the Scottish whisky industry for nearly 20 years. I cannot remember a more interesting time in terms of the number of new distilleries that are being opened across the country. Just last week, there were two new distilleries announced—one in Spacide, one in Islay. Over the past three years, there have been more than 10 new distilleries opened. Going by conversations across the industry, we reckon that there are around another 40 new distilleries being planned at different stages of development. To give you some sort of sense of why that is important, you only need another five or six distilleries to open in Scotland for us to reach a post-war record high in terms of distilleries. There is a very exciting trend of new small distillers coming into the sector. Who face high barriers to entry into our market? You have to lay down stock for at least three years before it is even Scotch whisky. You will be maturing it for significantly longer than that before you sell it, either as a single malt or blend it. Looking at different ways to support that part of the industry is very important as companies are investing. I have no doubt that we will be talking a lot about the challenges of Brexit during this session, so I will hold my fire on that. However, what we have tried to do within the industry since June is to look at where there may be potential opportunities. Your question about taxation and small distillers is an area in which there is the potential for an opportunity. Currently, there is EU legislation that restricts what member states are able to do in terms of offering reduced tax rates to smaller distillers. The direct of 9283 allows for member states to apply a reduced rate of up to 50 per cent on production up to 10 hectilitres of pure alcohol. That is not very much. At the moment, over the years, the UK Government has not availed itself of that particular mechanism. There is the potential for the future to take a different approach should the Government choose to do that. I think that our starting point as an industry would be that we campaign around the world for fair and equal taxation of Scotch whisky, making sure that there is no discrimination. If we could put in place a system that offered reduced rates to distillers up to a certain production threshold, which applied to all up to that threshold, there may be an opportunity to support new small entrants into the industry at the same time as maintaining that very important principle of non-discrimination on taxation, which the industry argues strongly for in markets around the world. At the moment, we could not because of the framework in which tax policy is set, but for further down the line, that might be one of those areas. I have many challenges that I can outline in Brexit during the course of this morning, as the committee wishes. However, that is perhaps one area where there is an opportunity to look at doing something different that helps to support the wide range of new small starts that are coming into our sector. Mary Tunby wants to come back in on this. Yes, it is just a quick point. Mr Kerr mentioned the empty property relief, which is the removal of the empty property relief, I should say. I would point to how that does cause a bit of challenge for a lot of commercial properties who may have a presence in different local communities where there is some economic challenge in terms of making things work. We would encourage the Government to look at giving local authorities some discretion for working with business to encourage their continued presence in the community because there are anecdotal mentions of some local authorities being better at reaching out to their local businesses to talk about how they can work through the removal of the relief, but maybe looking at that a bit more systematically might be a way to go to try and help both the local communities and the businesses. David Williamson wants to come back in that point possibly, Gareth Williams. It was more just a general point in business rates as the subject had been raised. We are consulting with our members at the moment in the context of the Barclay review. I am not going to prejudge where our members land on that, but there have been issues raised in the past among our membership in areas such as individual assessors taking different approaches in different parts of the country and what that might mean for different companies and their tax burden. Anomalies in the system, for example, around where you have invested in renewables capacity at your distillery, facing a higher burden in terms of business rates than others. There are areas where we are certainly exploring with our members. More generally, as we look at business rates and the tax environment, particularly at this time of uncertainty in the economy after the Brexit vote, the very strong message that we are getting from our members small and large at the moment is making sure that the Scottish tax environment, the Scottish business environment is at least as competitive as anywhere else in the UK and, ideally, more so. Looking at areas such as business rates is very important in that context. I suppose that when it comes to taxation, whether we are talking about devolved or reserved taxation, looking to make sure that any system that we are putting in place delivers the revenue that is required, which is very important, but it is also fair, transparent and as simple as possible. You will not be surprised that any representative of the whisky industry coming in front of any committee looks at taxation very carefully in the context of excise duty. An excise duty would fail the test that each of those tests have just set out. I think that there is an opportunity here to make sure that the country is as competitive as possible, particularly at a time of uncertainty. Gareth Williams. I agree with everything that has been said, but I would add to what Mary was saying around empty property. There is a particular issue around speculative development, which is obviously necessary for business growth, and varying treatment of when taxes are applied across different areas, whether that is at the point of the property being complete or whether it is at the point of it becoming occupied. We could look at that and try to get a more consistent approach, which is more focused on the point when returns start to be made and the property is occupied. John Mason, deputy convener. Subject, I do not know of. Does anyone want to come back in on the issues that have just been discussed? Andy Wightman. Thank you, convener. I was interested in your point about non-domestic rating. Given that it is a levy on rent and not a levy on turnover, if the economic conditions are deteriorating, should rents not fall and therefore non-domestic rating fall? Why are they not falling? We have a revaluation coming up, but it is seven or eight years after the last revaluation. I think that you and I may have touched on some of this when you were on the commission last year on local tax reform, but one of our challenges with the rate system is that it does not flex with economic conditions. One option for that is to have more regular revaluations and therefore might better reflect economic circumstances. That might be one aspect. In terms of rents, the structure, that is an issue particularly in and around commercial property and landlords and things. Obviously, the structure of many leases is often on an upwards-only rent basis, so there are profound structural changes and issues in that particular aspect that knock on, but the reality is that the business rate poundage is, effectively, ratcheted up every year. That is obviously causing issues. When you have things such as the large business supplement on top, that makes it more challenging. I guess that all that comes at a time when retailers in particular have options as to where they invest, whether that is in physical stores or an online presence. In an ideal world, rent should fall if economic conditions are deteriorating. We will see what happens and comes out of the revaluation coming up in due course. As I said, we have not had one for seven or eight years. At the moment, retailers and every firm in Scotland are paying a business rate based on conditions that are, effectively, at the top of the market in the beginning of 2008, from seven or eight years ago. That is the reality. At the moment, firms have been paying that. They have been asked to pay every year more, and then, obviously, we have had the large business supplement that we are talking about a moment ago on top of that. If I may just quickly touch on David Williamson's point, convener, my plea today, as I understand it, is to influence the committee's work programme. I think that David Williamson made an excellent point that the finance committee, and I appreciate that there are other people on this committee who are on the finance committee, the finance committee's job is to look at taxes and, obviously, are they sound? Are they going to generate the revenues and things like that? From our perspective, we would like this committee to obviously take an interest in, is it the right thing for the economy, whether that is business taxes or personal taxes, which are obviously now the preserve of this Parliament and government as well? That is where we think that this committee can add its weight. For example, whether it is on the small firms, the rich relief or the large business supplement, is there an economic dynamic behind it and has been explored or is it simply some sort of cash aspect to it, revenue-raising aspect to it? Thank you. I think that Gordon MacDonald, the committee member, wanted to come in on that. It is on the same subject. We touched upon the possibility of the removal of empty property relief. I am just wondering what we would put in its place. I know certainly in my constituency that there is a large supermarket site that has remained empty for 10 years, and the concern within the community is that its deliberate policy in order to stop competition, i.e. a competitor taken of the site. When there is so much pressure on green belt sites in Edinburgh to build housing and you have a large site that has remained empty for over 10 years, what mechanism should be put in place in order to encourage development if it is not the removal of empty property relief? Any ideas on that, David? Empty property relief is not something that we have touched on. We produced a budget submission for the finance secretary a few weeks ago and it covers all the sort of priority issues for our industry. There is a very simple reason why we did not alight on empty property at rich relief. It goes to the heart of your question, which is that the retail industry is in a pretty difficult position. It has been now for a number of years. Retail sales have been flat for the past few years, but there are not that many retail businesses that are expanding their footprint. As I said earlier, there has been a retrenchment, so there have been about 1700 fewer shops in Scotland over the past six or seven years, according to Scottish Government statistics. Our indications and our forecasts will continue. We would love to be in a position where there are people and companies. My concern is where you have a supermarket that is traded in an area for a number of years. It moves a mile, mile and a half down the road to new premises and then does not sell off the old piece of land either because it does not want a competitor in its back door or it is just land banking for the future. It is difficult to comment on specific cases. Given the discussions that we have with most of our members, they have bought their hand off from money, whether that is income from receipts from selling capital assets. There may well be something in what you say, but most of them—the fact is that, in terms of the grocery market, the market is changing. People are buying online and getting groceries delivered to their house. People are not really—there are one or two retailers in the grocery sector who are picking up large properties. The vast majority of most grocery retailers are not developing huge new estates. The markets fundamentally changed. We are buying online. We talked earlier on about the end of the weekly shop, in a sense. People are using convenience purchasing more often. The market has completely and utterly changed. The idea that another grocer is going to come along and take over a huge superstore will be much less common than it was before. Obviously, I cannot comment on particular cases. I do not know that particular one, but most companies in our sector would be delighted to try to offload assets, frankly. I do not know whether anyone has been in to make a bid, whether there is change of use allowed in the planning regime. Mary Tunby, do you want to make a point on this? It is obviously not a silver bullet in any way, but I reiterate the point of the importance of giving local authorities the discretion and flexibility to have those sorts of conversations with the businesses that are based in their area to try to work out solutions that are mutually beneficial when it comes to sites or properties that they are struggling with, because there will be multiple reasons for that. I think that that is a valuable conversation to have. While we are on the subject of business rates, I would like to reiterate the point in terms of when we are looking at the business rates review and business rates more broadly, we would say that it is incredibly important to find ways of better reflecting economic realities in the rate system. As we are working on the solutions for how we can at least move in that direction in consultation with our members, as well as to the Barclay review, we would say that it is important to find ways of slowing down the fast increases in the business rates multiplier. One way would be to index the multiplier against CPI rather than RPI, but a point that was touched on by David from the Scottish Risky Association earlier was what we do about plant and machinery and productive investments that companies are making in terms of maybe mainly environmental efficiency. We would say that new investment should be exempted from business rates, and what we would also encourage is more frequent valuation in business rates. One way would be to value Scottish properties every three years, which would address some of the challenges that we are seeing in the system today. Would revaluing every three years not also introduce uncertainty, though, because if businesses know what the rates are—perhaps for a longer period of time, even 10 years—at least they know precisely more or less where they are at? I think that the rates hikes that you might see from the more infrequent valuations will then be addressed in a way, because there is a smaller incremental rise with a three-year revaluation. It is easier to plan for. Okay, a different subject. Brexit got mentioned already by one of the witnesses, but that was what I wanted to ask about. It is a short question. I would be interested in each witness if they could give us what they saw as one threat, one opportunity. The committee has the opportunity to feed back to the Scottish Government and the Westminster Government about how they should be negotiating over Brexit, so is there anything in there that you think we should be pushing for from the two Governments? David Williamson Having raised the subject originally, I am happy to field it. The Scottish whisky industry argued strongly for the UK to remain in the European Union. We did so for a number of reasons, which are worth reflecting on as we look ahead. A third of our exports go to the European single market, so retaining the best possible access to and influence within that single market is very important to our members, just to give you a sense of, once you scratch away at the surface, what that means. The size of the bottle that we sell our whisky in, the label that we put on that bottle and the definition of our product that goes in the bottle are all set at European level. We have had the opportunity in the past to be part of discussions around those very fundamental issues for us. Retaining that ability to have influence and be able to discuss very key issues for us is really important. We also argued strongly that the Scottish whisky industry has done very well out of the EU's trade deals around the world over the years—reduce tariffs, removal of discrimination, protection of the Scottish whisky, geographic vindication. There are questions and uncertainties around how we maintain those benefits going forward. If the EU has a deal with Australia and we are part of that, what is your fear that, if we leave the EU or we are leaving the EU, we effectively have no deal with Australia? It depends on the country, so it is hard just to pick on one market. In principle, it will depend, of course, on which model we decide to negotiate on with the rest of the EU for the future relationship. For us, taking on your challenge as where are the priorities is an answer to your second question. On the trade side, it is absolutely fundamental that we grandfather or maintain the existing benefits that the Scottish whisky industry has secured through previous trade deals. It will depend on the market, but in some markets the challenge would be tariffs going back up, the protection that we have secured for the Scottish whisky in that market falling. We think that we can manage that as an industry through a variety of different ways depending on the market, but a top priority at the moment in our discussions with the UK Government and the Scottish Government is to make sure that what we have secured over the years, which has helped to grow Scottish whisky exports around the world, we maintain at the very least. We can have a separate discussion about what sort of trade deals we want to prioritise going forward. That is a piece of work that we have been doing over the summer and we have been more than happy to share our analysis with the committee in writing if it would be helpful. However, there have been no surprises that a top priority for the future would be some sort of trade deal with India, which could be a massive opportunity for the Scottish whisky industry. We have currently got 1 per cent market share, but we face a 150 per cent tariff. If we remove that or reduce that significantly, that would be transformational for the Scottish whisky industry in terms of the opportunity. It is an important point for the wider Scottish food and drink industry. The Scottish whisky geographical indication is well protected and we are very active in that as a sector. We have domestic legislation that protects Scotch as well as the geographical indication that is being protected at the European level. Other Scottish food and drinks products need to look carefully now at how they secure their protected denominations. They have relied on European legislation to date. They do not have domestic legislation in place and they are making sure that the intellectual property around the different food and drink products from Scotland is going to be really important going forward. We are working with a number of organisations to look at what the mechanisms might be to do that, but it should not fall away from sight just because it is quite a technical issue. Protecting the intellectual property around Scottish food and drink products in the future is really important. Ash Denham wants to come in on that point. It was a point specifically about financial services, which is a large sector for Scotland. It is a large sector in the city of Edinburgh. As we have heard, we do not know what model precisely we might end up with at the end of Brexit and what will end up being negotiated. However, I understand that several of those models will particularly impact the trading of services. Can you explain a little bit about what the implications for financial services in Scotland might be of that type of Brexit arrangement? Ash, what you are probably alluding to here is passporting. Passporting means that a bank or an asset manager or an asset servicer or a wealth manager or anything in between or an investment bank can manufacture, if you like, its products, whatever it is, whether it is an acquisition, a deal or whatever it is that they are doing, or it could be our legal profession, an accountancy profession, who are involved in similar, but it allows us essentially to trade those services across European borders effortlessly. At the present moment in time, article 50 has not been invoked. It is a bit of a phony war just now, so that, as far as we are concerned, we are trading as normal. However, our asset management sector in Scotland is second only to the city of London, in scale, £880 billion of funds under management. If we were to lose passporting, that is something that the asset management sector would not want. It is very similar to what David has been saying. What we would have preferred would have to remain in EU. That is what our members would have preferred. On the basis that we are coming out of the EU, we need the next best proxy to the existing EU agreements that we have. From our point of view, it is very important that passporting rights are protected. There is a further observation that I would make, which David was alluding to, and that is the level of complexity on the path that we have chosen and embarking on. Does anybody in the committee know how many EU regulations there are in banking and finance so far? 8,000 and counting. Do any of you know how many trade agreements that banking and financial services enjoy, where the EU agreement is the primary agreement? 35. How that is unpicked for us is very important, because the devil here will be in the detail. If you look at the operating models of the companies that we have, it is very diverse. We have something like 100 members and all of them have very different operating models. Some of our banks are R&D tech centres for global banks and they would be by and large unaffected by it. Some of our members who have operating models that absolutely have integral to the underlying operating model passporting would be hugely affected. It is not just a case of it is complicated, but it is also the fact that it affects how it impacts organisations that will be at individual level, even if they are in a common sector. That hopefully gives you a flavour for what we are contending with, but we are being very clear when we consult with Government that we would prefer to have the best possible deal that we can have with the EU. We think that that is essential. On the point that you make about regulations, I understand the point that you are making, but many regulations or EU rules are enacted as British laws or regulations, whether they are at the Scottish or Westminster level. They will not be affected in the sense that they remain law until and if they are changed at UK levels. Is that not correct? Yes. I think that there are a couple of things to add to that. You could adopt them all, so you could, as you say, just say that we will adopt them, but once we exit, you could have divergence. In fact, it would happen through time. We would not happen immediately, but through time you could have different capital adequacy rules. However, the danger that we are faced with, because there was a debate that I was part of, when somebody said that it would not be really good if we could relax some of the regulation around banking finance. The reality of the situation is that if we want to have access to the European market, when they are negotiating with us, we will demand equivalency. What we do not end up being in Scottish Banking and Financial Services or the UK Banking and Financial Services is a rule taker. It is very important at the moment, just now, that we are part of the rules, but we have a seat at the top table, so when we are negotiating things such as capital adequacy, we are actually there. The danger that we would run is being a rule taker, so we have to take the rules that are being provided from Europe, but we have no say or influence over them. I think that if we could just perhaps move on from that. Gillian Martin wanted to come in. Yeah, moving on to the work of the fair work conventions woven throughout the recent Scottish Government labour market strategy. My question to our witnesses here today is how that is informed in the operations of big business, but particularly what work has been done by business and your members that you represent to identify and address the gender pay gap? Mary Tunby? I know that there is currently work on going in the CBI on the gender pay gap and gender pay reporting. I think that it is still being developed, so as soon as I have that, I am happy to share that with the committee. Gareth Williams? I think that there is work on a sectoral basis within Scotland. For example, the Law Society of Scotland has been looking at some of those issues. From our perspective, we think that that is the right approach. Businesses and sectors are increasingly aware of those issues and the long-term implications for them in relation to attraction and retention of talent within their businesses. We want to see the fair work convention and government and industry working together positively to address them. The labour market strategy is the basis for those conversations. There is not a whole lot new in that. The most significant point is the creation of a strategic ministerial group, but if that is to lead to further input of expertise and raising awareness not only in larger businesses but all levels of business, that is something that we would support. I wonder whether Eric Giddas has not been involved in the discussion. Do you want to comment on that most recent question or any of the other issues that have come up thus far? It is probably more relevant to go back to Brexit, if that is okay. It is such a big overriding issue and I would be keen to state where we are at with it. I very much agreed with David Williamson in the sense that it is about competitiveness and making Scotland as competitive as possible, which is vital. While we supported the remain campaign, we are where we are and we are confident that the Edinburgh airport can continue to grow as a business in spite of that result and any other constitutional changes that might happen. We are aware of industry concerns of leaving Europe and the knock-on effect that that might have, so we are monitoring it very closely. If I can bring it on to air passenger duty for a second, we feel that the cut to APD is a real opportunity to mitigate uncertainty and risk that comes with Brexit. It sends a signal to Europe and indeed to the whole world that Scotland is open for business and competitive. It is an opportunity that will help big businesses and small businesses and the knock-on effect will be good for all of Scotland. Mary Tunde, you wanted to come back on that? Yes, I wanted to come in on that point in terms of Brexit and the importance of sending signals in terms of our competitiveness. I think that an important point for all politicians will be to send a clear signal of openness. In purely practical terms, we would say that we need a clear timetable and a plan for the UK EU negotiations and we also need close partnership between business and the Scottish Government, business and the UK Government and between the Scottish and the UK Governments themselves. An important point for us is the implications of leaving the EU on all the nations of the United Kingdom needs to be understood by those who are around the negotiating table. All of us need to give a clear message out there that we remain open for business, we still want to attract investment, we still want to attract skills, we still want to keep trading. Those are immediate priorities as we wait for the framework of the negotiations from the UK Government. While we are banging on about the APD so much at the airport and across the industry, independently prepared calculations by bigger economics show that a 50 per cent cut in one move to air passenger duty will mean an additional 18 million passengers coming to Scotland between the detail of the move and the next five years, so potentially up to 2021-22. That will create 10,000 new jobs in Scotland in tourism and related sectors and add more than 300 million GVA per year to the Scottish economy. Can you ask what those figures are based on in terms of the increased passenger numbers? Where are the passengers coming from? Are they going to be new people coming to the United Kingdom as such or passengers coming to Scotland rather than going to London? No, they would be passengers coming to Scotland. Passengers using Scottish airports, excuse me, but the biggest growth area in aviation, particularly at Edinburgh airport, is international passengers. While there are opportunities for people to go on holiday and that is well documented, the great gain of cutting APD is inward investment and the ability of not the six million people in Scotland but the seven billion people across the world to come here. That will create jobs, the knock-on effect of that will create greater wealth and opportunities for the Scottish economy. Perhaps my question was not clearly enough phrase. Does the increase in international passengers mean a total net increase for the United Kingdom or is that some passengers choosing to come to Scotland rather than fly through London? The great gain of cutting APD in Scotland is that it gives Scotland a competitive edge. That will attract, in the same way that Dublin airport attracts much more passengers than any airport in Scotland, passengers direct to Scotland. If you are an easy jet or a Ryanair and you are looking at setting out new routes, one of your key factors is desirability but also the cost to fly there. Scotland is disproportionately further away so there are more fuel costs and it is more expensive to land planes there and because of the APD cost as well, airlines are less attracted to come here. You take that away, you make Scotland more competitive. Are those transit passengers who then just fly on somewhere else or ones that remain in Scotland and do business here? I guess that further down the line there are hopefully opportunities for us to have a hub airport but at the moment people are coming to Scotland. People are coming to Scotland because it is a great country to come to visit, to do business here for universities, to drink whisky. It is an attractive prospect but it is disincentivised by APD. You take that away, you attract more people. I want to follow up quickly on a point that Mary made and respond to Gillian, if I may. One was that open markets really do matter to the Scottish economy and as we look at Brexit, ensuring that open trading policy but also that we have pragmatic, non-disruptive transitional arrangements is really important and that is a big message that anybody in Scotland can take out as we move that negotiation forward. I think that a starting point would be making sure that the EU legislation that is in place is transposed in UK law so that we have that certainty at least for an interim basis and then it is up to politicians to decide to what extent that legislation either stays in place or that there is a different approach taken in the future. Turning quickly to Gillian's point, I think that there would be a perception of my industry that it is a male-dominated industry. I think that the industry is working very hard on that. At our AGM this year, there was a focus on getting women into leadership roles within our sector at work in progress but there was a very clear focus on within the industry. Certainly a significant number of the new master distillers and master blenders in our sector are women who have been coming into the industry from different paths. The final point in this area is just to say that there is a role here for the business pledge and we haven't touched on this morning which is that it's up to individual companies to decide whether that's the right way for them to go. When you look at the considerations around internationalisation, innovation, youth workforce, a balanced workplace and the elements that are in there, our industry would measure up well in any of those but there is an area for trade associations like ourselves to keep growing awareness of that and then companies can take that forward. Gillian's point is well and Adam Brearport has signed up to the Scottish Business Pledge and would broadly support moves for greater gender equality in the sector and beyond. David Lonstail? Just two quick points. I didn't reacquate myself with our submission and paper on gender pay but I'm happy to share that with Gillian Martin and indeed the committee later today. So we do have a position on it. I can't remember off the top of my head, I'm afraid. I'm sure that it's very progressive though but I'll stop digging. I believe it is. The other point on going on to Brexit in the document that I did bring today, and I do have in front of me our budget submission to the Scottish Government, we made two points and this, I guess, goes back to John Mason's point about the opportunity. The first was, as I understand it, we're obviously leaving the EU, control of our powers will be repatriated but not all of them will necessarily go to Westminster. Some may come to this Parliament and also some of the other devolved assemblies in the UK. Our recommendation in the paper is to handle that and get a sense from Government and Parliament here in Scotland as to what they would do with those powers going forward. Secondly, somebody put it to me recently in light of Brexit, don't waste a good crisis. So, from our perspective, are there things that the Scottish Government can do to improve the business environment here in Scotland and obviously we've set out some of those and we've talked about some of them today. Just for the record, what is that paper called that you're referring to? I won't give you the full Sunday names quite long but it's gone open for business. I'm very happy to share it with the clerk. It's just for the written record so that people know what we're referring to specifically. If I might come to Dean Lockhart. Thank you convener. Just some follow-up questions for our guests and thank you very much for coming along this morning. First one for Eric Geddes in terms of what you're seeing post-Brexit, in terms of inward-bound tourism to Scotland. We've heard from different bodies that they've seen an increase partly due to depreciation of sterling as well as other factors. I'll give you a couple of seconds to think about that. David Williams in On Whiskey and Food and Drink more generally. Again, looking at the opportunities post-Brexit, can you talk us through what might be the international export opportunities? I believe you mentioned India. I believe exports to India are up 40 per cent in the first six months of this year. The depreciation of sterling against the Japanese gen, one of the fastest growing whisky markets, has been quite significant so perhaps there will be opportunities there. Finally, a question for Graham Jones. Graham, we spoke earlier about the financial services industry in Scotland contributing about 10 per cent to GDP. Can you briefly talk us through how the industry is preparing for fintech opportunities and how critical is it for Scotland's financial services industry and investors to have a central bank, a lender of last resort, with sufficient reserves to underpin the sector? The immediate effect being one of uncurrency has not been problematic for us. We would have expected to see good passenger numbers in July and August anyway, and we did. The overall point is that, regardless of the vote to leave the EU, we remain confident that Edinburgh Airport will continue to thrive and grow as a business. However, there are airline concerns. Two of our big airlines have made noises that they are very unsatisfied with what that will mean to aviation in the UK, and, indeed, US services have potentially talked about withdrawals from the UK as well. We are monitoring it very closely. Moral will become obvious as we approach article 50, but there has been no negative impact particularly since it happened earlier in the summer. Maybe just prefacing the answer by just talking very quickly about the conditions that we are facing in the market anyway. The Scottish whisky industry has had a 10-20-year period of growth in terms of value and volume of exports. Certainly, over the past two years, it has become much more difficult in a range of markets for many reasons, so that export success cannot be taken for granted. Our starting point on Brexit is certainly one of uncertainty and challenge for the reasons that I outlined earlier. In terms of looking further ahead—we are a long-term industry, so we have done a lot of thinking already about the trading environment and markets around the world. The challenge for us and the opportunity is that there are trade deals revisited or struck for the first time with markets with the biggest potential commercial opportunity for Scotch whisky. You have already mentioned India, which would certainly be the industry's top international trade priority given the current challenges that we face because of the tariff to get into the market but also the growth opportunity once you are there. Looking more widely, though, I think that this is an area where the industry sees real opportunity, are markets that are perhaps not front of mind for the wider economy. That is markets in Latin America, where we are seeing growth for Scotch whisky already but where there is real space to grow in the future. I am thinking of markets like Mexico and Brazil. There is a lot of industry interest at the moment in, over the next 10 years, how Sub-Saharan African markets are going to grow for Scotch whisky, markets such as Nigeria, Ghana and Kenya, where you are seeing economies that are developing with consumers who want to buy aspirational products such as Scotch whisky. In South East Asia, markets such as Vietnam are seen as being potentially very important for Scotch whisky in the future. What you are seeing in all those markets is aspirational consumers who, as they have more disposable income, are wanting to make a statement about how the economy is growing and how they are doing personally. In the same way that you might buy a nice watch or a nice handbag, Scotch whisky is seen as being a desirable but affordable luxury product. The opportunity is there, but the challenge is making sure that, in this post-Brexit vote environment, the trade deals that are struck prioritise products such as Scotch whisky going forward. A final point, if I may, is the challenge for the wider Scottish food and drink sector. I think that the same applies. The Scottish food and drink sector is looking at exports in terms of provenance, authenticity, heritage and high quality. The Scotch whisky industry and the wider sector are working together now in an export collaboration initiative to make sure that we take full advantage of those opportunities. Where Scotch already has networks or experience in a market, the wider sector can try to benefit as a result of that. Can I ask you what the second point was that you gave me your three-part question, please? It was the importance of the central bank with sufficient reserves to underpin confidence in the banking sector and international investors who invest into the Scottish banking sector. Can I start with financial technology or FinTech, as it is more widely called? It might be with me, giving just a quick description of what financial technology is. Technology has been applied in banks since post the second world war. Typically, it was the large mainframes that sat in heated bunkers or cool bunkers, should I say. People didn't really access the technology other than the programme. When I started working in banking finance in 1980, that was the case. There were no terminals in people's desks. There were no laptops, no computers, PDAs or mobile phones. The thing that I would say about financial technology, which is very important today, is the digitisation of every banking process that you can think of, either through blockchain, artificial intelligence or robo advice. It is a global phenomenon. It is happening now to our organisations and you cannot control it because it is a global phenomenon. Someone somewhere in Minola right now might be writing a programme that does away with the banks and chap system, the bank automated clearing system and the check clearing system. For all we know, somebody could be doing that today. It is also likely to be a non-banking person. It is probably likely to be someone who is a PhD student who thinks, I think that I would like to try and do something with my life and I want to go and try and invent something in the financial technology space. When those organisations do something, they get it right, they become what is called unicorns, billion-pound companies. What is typical for most developed countries is that they have a FinTech hub, a financial technology hub. In the US, they have one in California and one in New York City. Germany has the factory, you can google it, which is based in Berlin. Stockholm and Copenhagen have declared to their governments their intent to become financial technology hubs because it is associated with a brand of smart, savvy, cool people capable of transformational change and innovation. It is a halo effect brand for the country. It attracts other organisations in who are smart and savvy and say, I actually want to go into that country because that is a good landing point for me because I can come in there and I can tap into that intellectual property. From a Scotland perspective, we are incredibly well placed because the first component that you need is a diverse financial services sector. Secondly, only to the city of London, we are it. We are in a different league from Leeds or from Manchester. Because I have been in banking for so long, 38 years, I have been in banking financial services. I know the sector. If you go down into Leeds, which is going to be one of the northern powerhouse towns, they have two building society groups. All their financial technology is aimed at mortgage origination because that is what they have to deal with. If you look at Scotland, we have asset management, asset servicing, wealth management, independent financial advisory, retail banking, corporate banking, investment banking and merchant banking. We have a fantastic legal profession that goes across and supports all those businesses and we have a fantastic accountancy profession. If you imagine it as a cake, if you like, the Fintech hub cake, we have all the ingredients to make that cake but we must put it together. Otherwise, all that will happen is that it will still continue as it is but we will never leverage the position and we will not achieve true potential. For Scotland's large banking institutions and asset management institutions, we have to win this battle, simple as that, because we are competing in a global marketplace and it is one of those things where either we do it to them, so we come up with the smart Fintech apps and export them. There is an upside here for Scotland. If we get good at this, we export our technology, we export our applications across the globe or we wait for someone in Dublin to do it to us. The big message from SFE and the members is that we want to be off the front foot, we want to be proactive here and we want to make sure that we have a Fintech hub that serves two purposes. One, it protects the backbook of 226,000 jobs and that is probably at the light end of what the sector has. Job number one, which we are doing for our members, is saying, how do we protect the 226,000 jobs? Job number two, how do we get more jobs to Scotland? I think that the universities that we have, the quality of the students, the quality of the education system and the quality of the country in terms of transport and ease of access, makes it a very attractive place for foreign investors to come or even companies that might be based down in London, Fintech companies based in London, saying, in my next biggest market is Edinburgh Glasgow. That is a quick snapshot on Fintech, but we are hugely excited by it. We have an agenda for FISAB on 4 October as one of two major agenda items. We are working very closely with our partners, which are Scottish Enterprise and Deloitte. Richard Leonard Thank you, convener. I am looking for illumination on two points. One has been covered already, and that is trade agreements, but I just want to understand a bit better. Graham, you mentioned that there were 35 trade agreements struck through the European Union that affected your sector. What kind of proportions are we talking about here? Are nearly all the agreements that we are party to now under the umbrella of the European Union, and to the extent that, if that is the case, what is the implication of Brexit? Does that mean that we have to renegotiate all of those agreements or is there a way of ensuring continuity? My understanding is that trade agreements can run to thousands of pages long and can take years and years to conclude. I want to understand better where we are and where we are likely to be on trade agreements. My second point of illumination is to ask whether you are aware of whether any of your members are considering relocating overseas as a contingency plan. I do not know whether the work has just started to figure out those things, because I think that the fact that we left was a bit of a surprise all round. That process has started of beginning to understand how we are linked to it. I understand that our main agreement with China is through the EU. I do not know how long it took to set up, but I reckon that it would be in the order of 10 years or something like that. If that is the case, that would be something that, as David was alluding to, is part of. We do not know what the type of negotiation is that we are going into and what type of negotiation will come out of that, but clearly those trade agreements, and understanding what the linkages are and what the dependencies and interdependencies are, are really, really important to unpick extremely carefully. That is why we would want and we would urge, and our members are urging, for the best possible proxy to what we currently have now, so that we protect those agreements as much as we possibly can. However, I would imagine that at the other side of the table, the Europeans will be driving a hard bargain, I think. That is something that we have to be mindful of. I spoke to people from Switzerland just, and that might make it come alive for you. It is better sometimes to give examples. The Swiss have 126 bilateral agreements. In the air, they have people, garrisons of people, flying round the world, maintaining 126 bilateral agreements. The reason why the Swiss banks, such as Credit Suisse and UBS Phillips and Druard in London, is that they have said, well, this is a really difficult way to do things. We will move our HQs out of Zurich and Bern and Geneva, and we will put them into London, and guess what, they access their passporting rights that are being located in London. That is a practical example. It is public domain. That is what the Swiss have done. However, they still have 126 bilateral agreements that they have to maintain. Hopefully, it will give you a feel for what life is like, if you like, outside the tent. David Williamson I am afraid that this has been my life, trade deals and trade policy. Simple answer to your first question is yes, because of the EU common commercial policy, our existing trade deals are all channeled through the European Union. That is part of the challenge that is setting up the relevant capacity and expertise to negotiate the large number of trade agreements that we are talking about. There are different options. They could be renegotiated as and when the UK leaves the EU, or there may be mechanisms found for some form of continuity. For example, if you take the EU South Korea deal as an example, you could turn that into a tripartite agreement, where it is the EU UK EU. There are already terms there that the UK could simply say that we would like to sign up to that now as the UK is part of the EU. However, that takes time and is very difficult. I led for the Scottish Whiskey Association on the EU Canada deal. It took seven years and it is still not signed off and implemented. It is notoriously difficult to get consensus and agreement on the side of things. I have also been long enough to have led for us on the EU Swiss Steel, which goes back a number of years. That was inherently complex. Graham has already alluded to the number of different sectoral agreements that had to be struck, including one on wines and spirits. We have to get down to the real technical detail and still come out with an agreement at the end of the day. Do not be under any illusions how difficult it would be to get in place either the continuity with current arrangements or, indeed, to strike more advantageous steels. It is possible, and that is the opportunity that we have to now pursue, but it would be difficult. In answer to your second question for illumination in terms of relocation, with the Scottish Whiskey geographical indication, you cannot outsource that production, so I think we will be staying here. That is a wider issue. Part of the challenge in our sector is maintaining that investment into the sector across companies that then attracts and creates the cluster that you are able to produce and bottle white spirits as well in Scotland. We have done well in that in the past. Gordon MacDonald and Andy Wightman had two further points that they wanted to come in, so perhaps we could take those two questions now. On the continuation theme of Brexit, if we do not retain the principle of free movement of people with the other EU countries, what impact would that have on your members? Andy Wightman might take your questions while we are finishing up. We will perhaps take those two questions and open it up. My question is for Graeme Jones. You talked about protecting 226,000 backroom jobs in the context of financial technology development. Is it not the case—I mean, I am just asking because I don't know—that some of this technology, peer-to-peer lending, digital currencies, etc., threaten to demolish large sections of the financial services industry as it is currently constructed? I think that they won't demolish them. The technology requires time to be adopted, so if you think of blockchain development or distributed digital ledgers, that is still many years away, but it will come through time. As we would say, the time to mend the roof is when the sun is shining, and what it is perfectly able to do is to see what those changes are, understand what the changes are and then repurpose the staff. I cannot remember who was talking about reskilling or retraining, but the smart thing to do is to say that I can see that this range of more operational jobs is going to go, but there is going to be massive growth in regulatory compliance and dealing with regulation and unpicking all of those agreements that we have been chatting about, so staff would be redeployed to that. The view of the SFE members is that what will happen is that we will have 226,000 jobs. Now, five years from now, we will have 226,000 jobs, but people will be doing different jobs, so instead of maybe counting checks for SMEs in a bank branch, you will be working on the digital app for SMEs for accessing asset finance and trade finance at advantageous rates or whatever, but it does mean that large numbers of people will require to be reskilled and will have to transform, but going back to my time when I started off with no computers, no mobile phones, no laptops, no Microsoft Windows, no Microsoft XL, I just had to learn it and adapt as I went on, so we are very confident that the staff that we have in our large banks and our large financial institutions are more than capable of being reskilled, but that is the deal. If you say, I just want it to stay the way it is, you are absolutely correct. Big swaths of banking would be taken out, but no one is thinking that way. Everyone is saying that we need to adapt and we need to reskill as we go, and that is the way that we keep those jobs. Thank you. We will come back to Gordon MacDonald's question about freedom of movement of workers. Mary Tunby, if you want to come in on that or indeed what has just been said. Yes, I thought that I would come in on the point about freedom of movement. It will be challenging, but it will be important that we somehow manage to work towards immigration policy that recognises the need from business to have access to skills wherever they come from at the same time as having an immigration policy that has the confidence of the people of the United Kingdom. I would like to make an additional point in terms of European citizens already working here. Clearly, they are facing a profoundly uncertain future, still waiting to see what the outcome of it is, which is why we have said that the Government must confirm that those people who are here already working from the EU, the Government needs to confirm that they can stay. I will ask on that last point which European nations have confirmed that British citizens will be allowed to stay after Brexit, regardless of the agreement reached. I do not have that answer for you. I think that the answer is none. Is that not correct? Yes, but I think that we also need to recognise the contribution that those European citizens are making to the UK economy and the fact that we value them and want them to continue making that contribution to our society and our economy. That might be a different question. Others want to come in on the question that Gordon Rays, Gareth Williams, asked. Yes, it was to say that this is the number one issue for some sectors, not all sectors. Some sectors are more concerned about single market membership or access to or trade deals and so on, but certainly this is a major issue for some sectors. It is the range of skills as well, it is the high level skills but it is also lower level skills. It is not just business, it is public sector, it is social care etc. We have to recognise that there is a particular demographic challenge for Scotland around our projections of a declining working age population from the early 2020s, which contrasts with other parts of the UK. We certainly believe that there should be room for a differentiated approach around immigration to reflect the different needs of the economy, the different demographic issues and the different levels of political support, for example for the reintroduction of a post-study work visa within Scotland. We tie that into the issues that I raised earlier around productivity, innovation and internationalisation. We have a large number of EU students at our universities. We want them to stay and contribute to the Scottish economy. We have a large number of large percentage of researchers within Scottish universities that come from other parts of the EU. The last thing that we want to do when we are addressing those long-term challenges is to have an economy that is less open for investment. We understand the challenge that the UK Government has around being seen to respond to public concern on the issue, but a way has to be found to ensure that we have access to those skills. We would hope that a differentiated position could be found for Scotland. Any last comments on that point from any of our guests? I thank all of our guests for coming and taking part in the roundtable discussion. We will now suspend the session and move into private session, so that gives our guests an opportunity to leave at this stage.