 Good morning, and welcome to the 11th meeting of the Public Audit and Post Legislative Scrutiny Committee. I ask everyone present to please switch off their electronic devices or switch them to silent so that they do not affect the work of the committee this morning. Apologies have been received from Alex Neil, Liam Kerr and Monica Lennon. I welcome to the committee this morning Liz Smith as Liam Kerr substitute and James Kelly as Monica Lennon substitute. Can I now invite Liz Smith and James Smith to declare any interests that you consider to be relevant to the committee's work, Liz? Thank you, convener. I declare that I am a member of the General Teaching Council for Scotland, and I am also a member of two governing boards of independent schools, George Watson's College and St Mary's Prep School of Mills. Thank you, James. Thank you, convener. I have no relevant interests to declare. Thank you. Item 1, the committee is invited to agree to take items 4 and 5 in private, as noted on the agenda. Do members agree? Thank you. Item 2, the next item, is an evidence session on the Auditor General for Scotland report entitled Audit of Higher Education in Scottish Universities. I welcome to the meeting Paul Johnson, director general for learning and justice, and Stephen White, strategic policy lead, both from the Scottish Government. Dr John Kemp, interim chief executive of the Scottish Funding Council and Alistair Sim, director of University Scotland. I thank you all for attending this morning after we rescheduled the meeting from our original date. I invite Paul Johnson to make a brief opening statement followed by Dr Kemp, and finally Alistair Sim before I open up to questions from members. Paul Johnson. The higher education sector makes a pivotal contribution to the Scottish Government's vision for Scotland's education system, one that is characterised by equity and excellence. Higher education is also an essential catalyst in growing Scotland's economic strength. As the Auditor General recognised in her report, it plays an important role in relation to all four of the priorities set out in the Government's economic strategy, including investment, innovation, inclusive growth and internationalisation. I have provided two written submissions to the committee in respect of the Audit Scotland report, and there are just a small number of key points that I would wish to reinforce. The Audit Scotland report rightly states that the Scottish higher education sector is successful and internationally renowned. This success is based on a partnership approach with universities, the funding council and the Scottish Government working together to deliver and sustain the success. The Scottish Government's substantial financial investment each year—more than £1 billion each year for five years now—is an essential element in delivering the success. This investment provides a stable base for our universities to attract a range of additional funding. It also means that we are able to deliver on our collective ambitions to widen access to university education, with 14 per cent of Scottish domiciled full-time first-degree entrants to Scottish universities now coming from the 20 per cent most deprived areas of Scotland in 2014-15. That is up from just around 11 per cent in 2006-07. This has been delivered while maintaining the Scottish Government's commitment to ensure that access to higher education continues to be based on the ability to learn, rather than the ability to pay, meaning that now more than 126,000 undergraduate students benefit from free tuition each year. The Scottish Government recognises that there are challenges that need to be addressed, Audit Scotland has highlighted a number of these, and I am keen to see work progress in light of their recommendations. Our continued engagement with the university sector, including through the recently established strategic funding group, will allow those challenges to be faced together, albeit in a context of the overall funding constraints faced by the Scottish Government. I look forward to answering further questions on those matters from the committee. Thank you very much. I now have Dr John Kemp. Thank you for this opportunity to discuss the Auditor General's report. The report describes a successful university sector in Scotland. Five of Scotland's universities are in the top 200 worldwide, according to the 2017 times higher education world university rankings, which is more per head of population than almost any other country. A good part of that is down to the hard work and success of students, staff, managers and leaders in Scottish universities. Performance in learning and teaching shows a generally positive picture. In the past years, the sector has delivered beyond its funded places target. The number of full-time Scottish undergraduate students has been increasing over the past decade and in 2014-15 was at an all-time high. However, there are challenges. Although the proportion of Scottish domiciled undergraduate entrants to universities from the 20 per cent most deprived areas has risen over the past five years from 12.8 per cent to 14.1 per cent, we recognise that we need to make further progress on this issue. That challenge is greater for school leavers, where the proportion from SIMD 20 is considerably less than 14.1 per cent. In the area of research, Scotland's performance is very good, demonstrated by the results of the most recent research excellence framework. In that, the Scottish sector increased the proportion of Scottish research graded at the highest level that matched or exceeded the performance of other UK nations. Recently, we published a review by Professor Graham Reid on progress with the innovation centre programme, and it showed that they are making good progress and that there are ways in which the programme could be enhanced in the future. The funding council will continue to work with the university sector and with the Government to address all of the report's recommendations, and I am very happy to answer any questions that you have. Thank you, Dr Kemp. Thank you very much for the opportunity to give evidence and make an opening statement. The Auditor General's report celebrates Scotland's universities as successful and internationally renowned, and the Auditor General recognises university's contribution of over £7 billion to the Scottish economy each year, and our central contribution to Scotland's economic strategy. The Auditor General also identified in her words significant underlying risks in university's finances in 2014-15 and major challenges ahead. She pointed to real-terms erosion of teaching funding by 6% between 2010-11 and 2014-15, and the real-terms cut of 69% in capital funding over the same period, and that public funding was not covering the costs of research. She expressed her concern that overall universities were not able to generate surpluses that meant that they were operating today without damaging the ability to do so tomorrow. Looking beyond 2014-15, she highlighted significant challenges from increasing costs, potential further reductions in Scottish Government funding, and risks to university's ability to continue to increase their income from other sources, particularly fee-paying students from the rest of UK and non-EU countries. These risks are now crystallising. SFC revenue funding of universities has been cut by 6% in real terms since 2014-15. That adds up to a 12% cut in real terms over the period of the Auditor General's report from 2010-11 to 2016-17. Over that period, average funding per student has declined by 8% in real terms. We estimate that public funding now covers only 90% of the cost of teaching home students. Within a limited resource for SFC funding of research, increased research excellence across the sector has driven the perverse outcome that several of our world-leading research intensive universities have faced multi-million pound cash terms reductions in SFC research funding. Increased pensions costs and national insurance costs, UK Government charges for international staff and the apprenticeship levy all increased the cost base, and we fear further restrictions on the recruitment of international students. In the last set of available accounts, five out of 18 institutions were in deficit and other stakeholders written submissions to the committee draw attention to the consequences that this is having for jobs. It's essential to students, staff and the wider economy that Scotland has a diversity of truly excellent universities. We do not currently have a sustainable financial basis for that. University leaders have welcomed the Deputy First Minister's specific commitment that the Scottish Government will ensure that, throughout the period of the 2017-20 spending review, the allocation for higher education from the Scottish Government's budget will support the excellence, competitiveness and accessibility of our world-class universities. We look forward with confidence to the realisation of that promise. Thank you very much. I now move to members' questions. Liz Smith. Thank you, convener. Just as a matter of clarification, perhaps Mr Whiter and Mr Johnson could answer this question. We were obviously expecting the announcement of a widening access commissioner. Could you give us a quick update as to where that is? I'm happy to address that. The Government accepted all of the reports, all of the recommendations in the commission for widening access, one of which was the recommendation around the appointment of commissioner. The timetable set out in the report was the end of the year, and it remains the case that ministers plan to make an announcement on this matter shortly. I appreciate that I'm not in a position to make that announcement today. It is one for ministers to make, and I hope that they will be making that shortly. Okay, thank you for that update. I think that we're all agreed that the success of the university system in Scotland is absolutely outstanding for all the reasons that have been set out not just in the education committee but in various reports that have given it a glowing reference, and that's very good news. However, in the very comprehensive, very good report that Audit Scotland produced in the summer, as Mr Sim has rightly identified, there are very serious concerns about funding for the future in order to allow us to maintain that excellence, particularly when it comes to research and to the quality of teaching. In terms of the three things that are extremely important, we need to have a review of higher education funding, given what Mr Sim has said this morning. In the classic case of whether, if we don't have sufficient money to be able to deliver what we have been delivering, then surely that suggests that there is a need for this strategy to have to change. I'll be interested in your comments on that. Specifically, that has to be set against the background of the changing demand for international students and EU students and the widening access agenda. Do you believe that the Scottish Government should undertake a review of higher education funding? The issues around higher education funding are very live issues that we continue to work on with the funding council and with University of Scotland as part of the strategic finance group that has been established in recent months. That is a context where the key partners, including a number of university principals and university Scotland representatives, are looking at the data and are having constructive discussions about the requirements that will exist in future in relation to university funding. In that context, what the Auditor General has set out is helpful. It is important to recognise that what Audit Scotland has set out is a sector that has been successful in generating additional revenue on top of what the Government has put in and a sector that has made an overall surplus of £146 million in 2014-15, notwithstanding some of the risks that Mr Sim has identified, which I do not dispute at all, but I absolutely recognise the need for us to be working constructively and collaboratively on issues around future funding. That is exactly what the strategic finance group is doing at present. There are just a couple of other aspects of work that are under way that may be worth mentioning, and it may be that you wish us to expand on it in due course. We have now begun our review of the learner journey, which was set out as something that would be undertaken in the education delivery plan. That is looking at the whole issue of the pathway from school to college to university to work, and that will get into issues around demand and supply. We are now undertaking the review of student support, which I recognise is a related issue, so we are giving very active consideration to those issues. Mr Kemp? As Paul has said, the issues of how we fund universities, the volume of what we fund and the way that we fund it are something that we constantly review every year as part of spending reviews in the funding council, as part of our annual budget decisions. We do that with the Government and, increasingly, with the University of Scotland as well by essentially starting by looking at every option for what is available for changes to funding. To that extent, we review HE funding every year. Do you mean a more fundamental review than that? Yes, I do, Mr Kemp. I think that it is very important that one of the great successes of the Scottish system has been over centuries, not just many decades, has been its ability to have that long-term strategic oversight of what it is trying to do. The pressures on it are now intense financially, as Mr Sim has outlined, but they are also pressurised by specific aspects of Scottish Government policy, widening access being one of them. Of course, it is also pressurised by external factors because of the Brexit vote. Those are very considerable pressures, as have been identified with Audit Scotland. What I am asking for is whether you believe that there has to be a major review of what higher education funding should be for a long term? The extent to which that will cause a financial pressure is debatable. There are a number of ways that access could be widened to Scottish universities by making better use of the capacity in the system through improving the learner journey and so on. You are quite right that on Brexit there are a series of issues about research funding that could be detrimental, but there are other sides to that on teaching funding to which, to some extent, it might balance it. Those are the kind of issues that we consider each year, as we are looking at spending review decisions. Some of those, particularly on Brexit, remain unknowns to some extent. We can begin to see the shape of what might be coming down the track, but we do not know exactly what they are yet. As we do, I am fairly confident that we will be working with Government and University of Scotland on looking at how we deal with those issues. To that extent, we are already reviewing those areas and we will continue to do so as they become clearer. I will leave it to colleagues whether they think that a more major review would be useful, but I think that those are things that we are looking at. I will pick up on one specific point. When you mentioned widening access, which is a very specific policy agenda, that 20 per cent of those from disadvantaged backgrounds is only 20 per cent of the intake of universities by 2030 will come from that background. That is a very specific political choice that the Scottish Government has made. On top of that, there are issues about providing more places in the university sector. Specifically, if you are not going to squeeze out other students, do you believe that the widening access agenda can be delivered without the constraints that will be on other students in the system if you are not going to provide extra places? The number of young people in Scotland or their school-leaving age has been declining for the past few years and will continue to decline for another few years. Increasingly, the entrants to universities are not going direct from school, some are going to college first and then coming in through that route. That does not always mean that you then need to do four years at university and, increasingly, it should not mean doing four years at university. There are a number of other things that would affect the calculation of whether the widening access can only be done by expanding the system. I think that it can be done through taking account of demography and by reforming the learner journey and making the best use of the places that we have. I do not think that it necessarily means additional funding for universities. Dr Sim, does that tie in with what you have just told us, that there is a major crisis of financial resources? I will not claim a doctorate yet, but I have given some indications in my opening statement about the stress that the system is under. To come back to your question, does that mean that you need to review how it is funded? That is a political choice, how you fund universities. Obviously, we recognise the broad parliamentary consensus in favour of free full-time undergraduate education. It is the same as true in many continental countries, but if you are going to do that well, it does come at a price. We are seeing the indicators of stress at the moment. I do not really, for instance, agree that the situation of admissions is, as John describes it, alright there is a demographic dip, but actually what we have seen is that application rates from qualified learners have accelerated faster than the demographic dip. If you look at the percentage of school leavers in 2010 who got the equivalent of four hires, it is about 30 per cent. In 2014-15, it is up to 35 per cent, so the number of qualified learners is increasing. If you look at the success rate of school leavers in getting into university back in 2009, 81.4 per cent of those who applied would get into university. It has dropped now to 73.7 per cent. You are seeing stress in a system that is not actually at the moment, even though it has expanded gently in terms of student numbers, it has not expanded at the rate that demand from qualified learners with the ability to learn has expanded. I will tease out that point because it is very important that there are more Scots, domiciled students going to university, but there are also a growing number of Scots very well qualified who are finding it much harder to get into Scottish universities because the number of students that are applying for places, just as you rightly said, is increasingly competitive. Are you worried that the Scottish system will lose some of our very best pupils because they cannot get into Scottish universities and will therefore have to look elsewhere? I think that that is part of the issue. I think that what possibly worries me more fundamentally is that there are students from all sorts of backgrounds who have the ability to come to university and succeed, who are finding it more difficult in Scotland than there are in other parts of the kingdom to get into university just because we have a capped system here. The other general quoted that over the period from 2010 to 2015 demand had grown by 23% from Scottish students, whereas the number of offers made by Scottish universities had only grown by 9%. We do want to offer opportunity to as many people for whom it is the right option. Unlike in England, we are operating in a capped system where we are limited in our capacity to do that. I am looking at the UCU's submission and I was intrigued by the proposal for a business education tax. How did you see that working? If that is one direct to the Scottish Government, I have to say that that is not something that I can update the committee on at this stage. Clearly that would be a matter of policy for ministers and ultimately for the Parliament to consider. Do you have any idea how this would work? UCU is not represented here today, so I am not sure that we can speak for it. My apologies have nobody to interrogate. I do not think that we can speak for that. Let me then cut to what was discussed just a few minutes ago about Scottish domicile students in places. According to the figures that we have seen here, the number of Scottish domicile full-time first degree university entrance has increased by 11% between 2006-07 and 2014-15, and yet we have comments here that there are issues in relation to providing places for them, but we are seeing an increase. We are seeing an increase over time in Scottish domicile students getting to university, which is something that we celebrate greatly, but it is not an increase that is keeping up with an increase in demand. I am just moving to Unison's submission. The comment here that the SFC is reluctant to hold universities to account for their performance. Is that true? You would probably get different answers on that, depending on whether you spoke to universities or some others. We do hold universities to account for their performance on a whole number of things. That particular comment probably reflects a view that I am putting my own gloss on. We should be harder sometimes on making sure that outcome agreement targets are met. We think that there is always a balance to be struck by agreeing outcome agreement targets with institutions, and having targets that they own and see as aspirational can sometimes be hard to do if you are then going to be very brutal in finding people for not meeting them. We always strike a balance between working with the institutions to get mutually agreed targets for improvement and then being quite proportionate in the consequences of those targets not being met. We would tend where a university is not meeting its targets and so on to look at ways that could be improved or move provision about rather than do anything more drastic—where it is under performance and the number of students we do claw back and so on. It is very much a question of interpretation about what the correct level of intervention by the funding council is on that kind of issue. Given the fact that we give universities over a billion pounds of public funds and the fact that SFC has a regulatory role in that, how do you exercise that? We exercise the linking of the billion pounds worth of public funding with the aims behind that funding through outcome agreements with institutions, largely through outcome agreements, which are documents in which we will agree with the institution what the priorities are for that funding and what the targets and success measures are for how we will know whether they have done that. We do that very much linked to the national aspirations of the Government and the funding council and of the universities and use that as the prime method by which we link the Government funding and what universities do. By and large, that works well. The successful system that we have talked about and the Auditor General's report talks about reflects that that system is broadly working. We constantly review it. Priorities change our experience of how well it is working from year to year and we constantly keep it under review. By and large, that is our main method of linking the two things. If there is an issue, what penalties do you have in your armory to bring universities to heal? We have largely funding on issues where we have agreed with the university that will do X and it is not doing it. For example, there were some additional places for widening access a few years ago that were part of the outcome agreement process. Some universities have some additional places to recruit more students from MD40. Where they were not doing that, we took the places away and moved them to universities that could. That is the kind of sanction that we would use. If we are funding a university to do something and it is not doing it, then we reconsider that funding. Is it on the same point? Are you moving to another point? I was moving to a slightly different point. Can I ask Liz Smith what is to come in on this point, if that is okay? Yes. On page 49, 50 of the Audit Scotland report, the comment is made that universities are increasingly relying on income from non-EU students as part of their financial planning, but growing competition from the rest of the UK and other countries makes that increasingly challenging. Notwithstanding what you have just said, there is the implication that the level of funding that has to come in from those sources is significant. As we are all aware, when the new principle of St Andrews was installed this week, she made some pretty blunt comments about the implications for one of our ancient universities as to what that might mean. Do you accept that the pressure to raise that additional money is really significant? Yes. We recognise that, in the case of St Andrews, our funding is less than 20 per cent of its total funding. A good chunk of what that institution and many others do relies on bits of the environment that are beyond our outcome agreement and that which we can control. We would encourage universities to be outward facing and to be pulling in funding. Students and researchers from elsewhere as well. Are you concerned, though, that that might change the nature and the structure of universities in Scotland? Sally Mapstone went as far as to say that there was the possibility of a sort of private identity to the university. Is that something that would concern you? I have to say that I did not read her comments. She clearly made a statement that the amount of funding that came from SFC to St Andrews was relatively small. She accepted the accountability that went with that, but she was thinking more long term about the positioning of St Andrews and what they do to maintain the other 80 per cent of funding, which we would applaud them in doing. I did not read it as in any way our funding was in any way causing the problem for the other part. Is that something that you would be concerned about if the University of Scotland started to diversify? What I understood her to be addressing was that the genuine stress is that the university is under. I think that she, as a university which has not even hired a normal proportion of EU staff, was seriously worried about the prospects of recruitment of talent from the EU. She was worried about the possibility of further restrictions on recruitment of international students who are just so important economically and culturally and, as you said, are part essentially of having a financially sustainable system, if we can, in Scotland. Also given that, as we have said, public funding is not covering the costs of publicly funded activities in teaching and research, then, obviously, anyone would look at how do you do your best? How do you make a university both excellent and accessible? How do you maintain its international competitiveness? I mean, every university leader has to look at that. Now, I think our aspiration and what we're trying to achieve in the discussions from the Scottish Government is that public funding can maintain an excellent international competitive and widely accessible university sector. Certainly, when we look towards the Scottish budget, we would be looking for an outcome that shows that we are starting on a trajectory back towards the recovery of sustainable funding levels that enable us to do what we want to do for students and to promote excellent research. Just a slightly different thing, but what we've touched on earlier on is in connection with the impact of the limits on funded places for Scottish students and EU students, how does that affect university entry requirements? Blunt, obviously, if you have more pressure on places, then, in a sense, as a rationing system, you may have to put your thresholds up. Now, what you need to do around that, which I think is hugely important, is also make sure that you're applying that with contextual admissions. That's really important that, actually, when you're looking at people coming from disadvantaged backgrounds, you're not just looking at their exam grades, you're looking at the circumstances in which those exam grades were attained. For instance, are they coming from a school with low progression to higher education? Are they coming from a free school meals background? Are they coming from a neighbourhood of multiple deprivation? You need to look at a range of these factors and actually say, is that a student who may not have, let's say, two A's and two B's at higher, but actually we think they've had to work hard to get their three B's and we really need to give them a bit of extra consideration. Within that capped system, immense amounts of effort go in to making sure that it's operated fairly. If I can look at statistics on admissions, one of the things I find interesting across the system is about 14.5 per cent of applications come from the most 20 per cent deprived post codes by SMD as to 14.5 per cent of acceptances. If you're coming from a deprived background and you apply to university, you've got as good a chance of your application being accepted as if you come from a more privileged background. How does it affect student choices in terms of the courses that they might opt for? I think that we can express that very briefly in a capped system where entrance thresholds are relatively high. You may have to pitch yourself at what you can get into rather than what you might ideally aspire to, but I think we do have a wide and rich range of options available. Also, I think one of the things we do have in Scotland is a four-year degree structure where actually you have the opportunity to find your way through different disciplines, through different specialisms over a course of five years, so your professional and personal future is not cast along tram lines in the sense that it might be in an English three-year degree. How does SFC funding take into account this capped system? We have two elements to the cap. There are the number of funded places that we offer to universities. Universities can recruit above that number and take the students with only the SASS fee but no funding from us, so that's called out of the... Do you direct funding to specific courses? No, we direct funding to specific courses in some subjects called controlled subjects such as medicine, teacher education, nursing and so on. For most places however, and we agree the numbers for those with the relevant part of the government, for most subjects we have a number of places that goes to the institution rather than the subject and as part of our outcome agreement there will be incentives within that to do more STEM and so on to meet needs of specific industries and so on, but we don't specifically allocate a number of places for chemistry, biology and history in a particular university. It's up to the university to take those decisions. As I was saying, there are a number of places above what we fund that universities can recruit to but there's a cap above that to essentially control the costs of the SASS budget because those places are paid for just by the SASS fee. James Kelly. Thank you, convener. Mr Sim has painted quite a graphic picture of the financial challenging financial landscape which universities face and as part of that in your opening statement you indicated that out of the 18 institutions 5 we're running at a deficit and that was there for presenting a challenging situation in terms of jobs. Can you just maybe expand on that a wee bit more? Well to put it bluntly, four publicly funded activities were being funded at a below cost. We reckon about 90% of the cost of publicly funded teaching is coming from the funding council. Overall the other general says around 85% of the cost of research is covered by the blend of funding council and competitively one, for instance research council funding that we get and that's putting a system under real stress. I think obviously university leaders want to retain talent as much as they conceivably can but when you have got a system under stress when you do actually have to try and balance the books so that you're going to have a university that is excellent in five years' time as well as excellent today then sometimes you have to take extraordinarily difficult decisions that you may have to reduce your commitment to certain areas of your academic effort. You may have to have voluntary runcy programmes, you may in some cases have to move towards compulsory runcy, none of these things are anything that anyone wants to do but ultimately if you haven't got enough money to run an excellent university you have to reduce your activity levels. One of the things that concerns me particularly is the impact of that on the local economy. Typically university jobs are relatively highly paid jobs in the local economy and I think the typical salary plus on-costs of university employment is about £48,000 a year. That compares really well for instance with employment and tourism where there is a lot of casualised labour and where you're talking sometimes only £10,000 a year and so when you lose these jobs you really are losing quite big economic impacts in the local economy in an environment where I think if you look at regional economies for instance at the Tayside you see getting on towards 20% of the local economy is in some sense dependent on having a world-class higher education sector at the heart of a cluster of economic activity. Would it be fair to say that at the current funding level it's going to be difficult to sustain the existing staffing levels? That's what we've seen over the past year. We've seen publicised examples for instance at UWS at Dundee to Robert Gordon at Aberdeen where there has been publicity about the really difficult and contentious decisions that have to be made in situations of financial constraint. My genuine hope is that actually we're now heading towards a trajectory back towards sustainable funding levels and that's certainly the good will that we are bringing to the discussions that we're having with Scottish Government and if we are then great, we can sustain or we can have a contribution, we can continue to be at the heart of clusters of economic growth and grow employment and growth student opportunity. I really hope that that's going to be the case. I have already accepted and I would reiterate that the Government recognises that there are real pressures on the university system. Equally, I think that this committee would expect that, from a Government point of view and from a funding council point of view, we are very demanding around the need for public money to be securing the best possible value and impact. That's where I think it's important that there's on-going collective work done around how we can secure greater efficiencies from the overall public investment. Indeed, I think that the Auditor General makes some comments around that, recognising that efficiencies have been secured to date but that work must continue to make sure that we get the best possible value from the very substantial public investment that has been made. Everybody would agree about value for money, but is the Government concerned that the warnings that Mr Sim has given in terms of not just the potential reduction in jobs, but the loss of expertise in the sector? What we have to do is look at all the data that exists around the funding situation of universities and also look at the financial context of many other institutions that are reliant on public funding as we make overall spending decisions. The committee looked at the college sector just a fortnight ago and we engaged with some of the financial issues there. When we look at the higher education sector, the Audit Scotland report tells us that the sector's overall income increased around 38 per cent in real terms between 2005-06 and 2014-15. 60 per cent real terms increase in income from research grants and contracts around the same period. Overall sector spending increased by about 35 per cent in the same period and an overall surplus of £146 million in 2014-15. That is not to say that there are not real constraints that we need to look at carefully, but we need to look at the overall picture and make decisions about the funding in future in light of the demands that exist with the higher education sector, but also the demands that exist in the part of other institutions that are reliant on public funding. You have quoted a lot of statistics, but my specific point was about the loss of expertise. Are you concerned about that? We are absolutely committed to ensuring that Scotland's universities continue to thrive, to punch above their weight in relative terms, and that requires continued expertise in the university system. That is what we want to work with the funding council and the university system on something that is the subject of the on-going act of deliberation, and that will continue. I will touch on an issue in terms of access as well. I was surprised to look at the table in page 92 of the report in terms of offer rates to Scottish students—sorry, it is 42—exhibit 14—offer rates for Scottish applicants. I was surprised to see the wide variation and also the fact that there are significant numbers, seven out of the 17, where the offer rates were less than 50 per cent in terms of Scottish applicants. I know that there has already been some discussion around that, but to take an example of Glasgow Caledonian University, that is running at 46 per cent. Why would that be? Basically, a lot of students will put in multiple applications to universities. For instance, a student who thinks they are going to get good grades or has got really good grades might be really ambitious and say, I want to do a really demanding and highly selective course at Edinburgh, but I am going to also select other universities where I have got courses that I am interested in doing and might be slightly less demanding. What you tend to find is that there is a bit of bunching up of applications towards the most highly selective institutions and obviously only a subset of the people who apply to the most highly selective institutions are going to get an offer. There might be an institution that also has very high quality, but it has slightly lower requirements for your hires or advanced hires that accept you and you end up going there. It is a major selectivity. For instance, take Glasgow School of Art right up there at the top. I cannot say the conservative word there, but it has been a very similar position to get into an institution like that to to make your way in art or in the performing arts. You really have to be absolutely at the top of your top-level potential if they are going to recognise you as someone that they can take on and really help to build a professional and successful career with. Can I just ask Mr Johnson from a Scottish Government perspective? Do you think that it is a desirable policy outcome that is out of the 17 listed? 11 of them are running at 55 per cent or less in terms of successful offers to Scottish applicants? I do not think that it is possible to be prescriptive about what the acceptance rate should be, partly because, as Mr Sim has identified, a number of students are making multiple offers. Nonetheless, I accept what the Auditor General goes on to say at paragraph 102 of her report, where she points to the need for us to have a clearer picture overall as to what is happening in terms of trends, in terms of both applications and offer rates. That is something that we accept the need to work on further with the funding council and with University of Scotland. Mr Johnson, you said that you are confident that Scottish universities will continue to punch above their weight, but Mr Sim said that research has been funded at 85 per cent and teaching has been funded at 90 per cent. How does that work? I think that there is scope to look in more detail at the particular data that Mr Sim has put forward. It is based on a track system that is compiled by the universities themselves, and it takes into account a wide number of measures, including a measure around the university seeking to secure some funding or resources for future investment and improvement in the estate. When you look across Scotland and the rest of the UK, what you see is a situation where, as I understand, research is funded at a lower overall percentage rate in England than it is in Scotland. It is helpful to look at—I absolutely accept in terms of teaching—the figures that we are seeing at the moment suggest that the figure is significantly under 100 per cent. I am not too concerned about what is happening in England, but I am concerned about what is happening in Scotland. I know, for example, that a Dundee university, when research grants come in, there is not sufficient money from the Scottish funding council to sustain those grants and to sustain the facilities that are required. How do you expect Scottish universities to continue to punch above their weight in this weight if you are underfunding them? I point to the fact that universities have been and continue to be successful in supplementing the public money that they receive with money from a wide range of other sources. That has been key to the success that Mr Sim has pointed to in that broader economic impact that they have made. Do we need to look carefully at this data? Absolutely, we do. That is something that is being considered as part of our strategic funding discussions. My point in referring to England was simply to say that this is a UK-wide measurement, the track measurement, and we need to look at the measures right across the UK. In some measures, we see that Scotland compares as well or, indeed, more favourably. That was my purpose in trying to make the comparison. You just said there that you are looking at universities' other sources of income. We had a discussion that Liz Smith prompted earlier about St Andrews University, which obviously receives a lot of money from other sources. Is my understanding, though maybe Dr Kemp can clarify, that the SFC does not consider other sources of funding when they are considering how to fund courses at universities? Is that correct, Dr Kemp? Up to a point. We look at the financial health of the whole institution. When we are funding something at a university, we are funding that thing. We are not looking at making assumptions that they will automatically pull. On research, it is a bit more complex because I am sorry, but I will take that clarification there. Mr Johnson, are you saying that you are looking at a different system of funding? You keep preferring, and you have referred all morning to other sources of income from universities and taking that into consideration, but Dr Kemp has just clarified that that is not a consideration for the Scottish Funding Council. Where are you going with this? I think that it is essential to look at the overall picture. The Scottish Funding Council injects very significant amounts of resources into the university, but I think that the Audit Scotland report looks at the overall picture. It would be making a false distinction to look only at one source of income. We need to look at the whole picture. When we do so, we see the overall success that the institutions are managing to secure. To be clear, on research funding, quite a lot of the external income that universities will pull in on research will not cover the full economic costs. A lot of the research funders explicitly do not cover that, and that is part of the dual support system. There is an interaction between our system and the charity funding and so on, which will not cover the real costs. You would expect some cross subsidy. Are you not making the case, given that Audit Scotland has pointed quite rightly to the fact that you need to see this in the broadest picture? The success of Scottish universities depends not only on what the Government funding is but on external sources of finance. You have to see that in the round. My point would be, back to what we discussed earlier, that there is a need, given all the pressures on the system, to review higher education funding as a direct result of what you have just said. We do appreciate that there are other sources of funding for universities, and that will affect how efficient our funding is and what it can be used for. My point was that, when we are funding something, we ought to expect to pay most of the cost to that. It needs to be something that washes its face in its own right, or it will be contributing to problems at the university. I am not sure that that necessarily leads to a wider review of funding beneath it, rather than something that, as I said, can be dealt with through the annual discussions that we have about the correct level of funding. Alasdair is making the point to us constantly about the difference in track T levels between Scotland and England. We are aware of those things and can take account of them up to a point when we have the money as part of our annual funding decisions. Audit Scotland and Mr Sim are making a very clear case. Unless we do something radical, we are not going to have sufficient money in the higher education sector in Scotland, whether it comes from the Government or other sources, unless we have a system that allows us to put more money into that sector. That is the point. There are other ways in which some of the aims that we want from the university sector have been done other than more money. However, we need to constantly make the best use of the money that we have available in the system in order to achieve the ends that we want from the system. We need to do that efficiently and effectively and in a way that is financially viable for the institutions. The role of the funding council is to do that with the Government's share. The accountability lies with the funding council and the Scottish Government for that particular part of university funding. The broader point, which Audit Scotland is very clear about in the report, as is University Scotland, is that that is only part of the way that Scottish universities are funding. Perhaps quite a large part, but it is only part. The challenges, given Brexit's and given the widening access agenda, given all the other pressures of changing demand with students, is that we need to see it in the round. The Scottish Government aspect, which is obviously the responsibility of the funding council, needs to work in tandem with universities that are bringing in sources from elsewhere to ensure that that bigger picture is addressed in the future challenges. I hope that the Scottish funding council would accept that that collaborative approach is absolutely crucial. I completely agree with that. We have heard a lot over this last week about the proposals to merge Scottish funding councils, Scottish Enterprise, Highlands and Islands Enterprise. Alistair Sim, is that a good idea? I think that there are things that we are certainly welcomed from the phase 1 report, particularly if we can get a better alignment between the activities of public sector bodies for promoting innovation and productivity. That is good if there is some sort of board that can help them to work better together. That is fine if we can create no wrong door approaches to make it easier for businesses to navigate their way through the landscape of support. That is good. I think that I took that from the first report. We have also said very clearly in evidence to the Education and Skills Committee that there are a lot of issues that really need extremely careful thought in phase 2. To give you some examples, the role of the funding council in supporting universities and the role of universities is much wider than enterprise and skills. Fundamentally, on the learning side, it is about education. Out of that, you grow people who can drive innovation and enterprise because they are adaptable entrepreneurial employable graduates. Similarly on research, the fundamental is getting your fundamental of high quality research in universities. That is a trunk from which you apply research and stuff that more easily translates into business growth ultimately branches. However, you need to have that fundament of being able to do excellent fundamental research. As we look forward, it is really important that, if this goes forward, that the structures are built that enable us not to put too much on this proposed superboard because a limited number of people sitting around a table are not going to be competent to deal with a huge remit that they have been given unless there are proper substructures underneath that where people can really take an expert view and where there can be a role like that of the funding council where you can take an expert view that challenges government that says actually government if you want to achieve your results you could be doing this and also is able to challenge universities. I think that that intermediary role of being able to challenge both ways is actually incredibly important. It is also incredibly important that we as universities are a force of initiative and that we are not drawn into ministerial direction. We have good assurances on that point and our risk of being reclassified as public bodies by the Office for National Statistics isn't heightened by being drawn into a less arms length relationship with government because, as we have said in our evidence to the Education and Skills Committee, that actually would be catastrophic. Okay, so you've had reassurances that won't be chaired by a minister. I don't think that those reassurances were heard in Parliament. The reassurance that we've heard is simply reassurance that you've heard in Parliament that autonomy and academic independence will be respected. Okay, I may be wrong about this but my understanding of what was said in Parliament was that there was no assurance that it wouldn't be chaired by a minister. Are you confident that ONS reclassification is not a risk here? Well, we don't know what the structure is going to be so I can't really give you an answer to that. Right, okay. Your answer to my first question seems to be saying, if I'm correct or it's quite long answer, you're saying that it'll depend on how it works, it'll depend on how all these institutions work together, it'll depend on the structure but your members must have a very open-minded approach to take to this proposal. We'll just see how it works and are all your members of that view? I don't think it's, let's see how it works, I think it's, you know, let's use the opportunity that's been presented by Phase 2 of a review to get in there and co-design in a way that actually makes sense for the breadth of what universities do and contribute to the economy and society which is much wider than enterprise and skills and that maintains our ability to be at arm's length from ministers and further to be a body that has a challenging role both to universities and to government so it's not waiting to see, it's getting in there and see if we can make this work and I don't know the answer to that yet, we have to get the work done. Okay and I mean I think myself and certainly a colleague's understanding is that we didn't receive assurances in Parliament that was going to be chaired by a minister so if it were to be chaired by a minister which still seems to be an open possibility what view would universities Scotland then take? I think there's a real risk there, I mean I think you know particularly if you look at O&S classification the more you come into the sphere of influence and direction from government, the height and risk you have of classification which means you can't earn entrepreneurial income, you can't hold reserves and basically it would be- Which Mr Johnson seems to be relying on. Yeah and so I think what we're seeing very clearly in our discussions and this needs to be carried through in Phase 2 is actually look, let's proceed with care, whatever the design is it needs to maintain that firewall that means that universities are at arm's length from government and that we're not heightening that risk of reclassification nor are we diminishing universities capacity to be a voice in society that you know in many ways is aligned with government, we're always trying to achieve you know we're partners in achieving inclusive economic growth but we're not government Mr Johnson, did you hear a reassurance in Parliament that there would be no ministerial chair? That's something which I don't want to speak for ministers on this, I'm not sure of everything that's been said in Parliament on the matter, I do, I apologise, I can't absolutely confirm that, what I can say though is that I recognise what Mr Stem has set out around the further detailed work that will be done on the enterprise and skills review in the course of stage 2 of that review, the issue around how the overarching statutory board functions including how it is chaired is something that has to be looked at in detail and Mr Stem made reference to I think you know a sense of co-producing the outcomes of that recommendation. University of Scotland is represented on the ministerial review group that is overseeing the work of phase 2 of the review, that group has met in recent days and will continue to meet as the work is taken forward. Mr Johnson, do you think there's a risk of ons reclassification? I'm aware that the issues around ons reclassification are matters that need to be looked at carefully and certainly we would want to ensure that the new arrangements that you put in place do not lead to any reclassification, so it's absolutely one of the factors that need to be taken into account as we look at what the mechanisms going forward will be. So the Scottish Government is against ons reclassification of universities, I assume? Well, we absolutely recognise the risks that that would create, I think that's something that I know that Parliament has looked at and discussed in the past and the current status of universities does indeed support the attraction of a wide range of additional funding, so yes, we would want to look at that issue carefully and ensure that there is not reclassification of the universities. So you wouldn't want to do anything to risk it? I would not want to see reclassification. Okay. Dr Kemp, do you have a view on SFC merger? Well, let's be clear, it's not the SFC merger, it's the merger of the boards or the creation of an overarching board. We're looking forward to engaging constructively in phase 2 and we think that it's important that, as part of that, there is a recognition that while enterprise and skills is very important to what we do and is a subset of the output of our colleges and universities, as Alasdair has said, education and research are arguably quite a bit wider than enterprise and skills, and we think that it's important that a governance structure emerges from phase 2, which recognises that. So we're looking forward to engaging with the Government and others in phase 2 to make these points. Mr Sim, what is the University of Scotland view to turn to widening access on the system that's currently used SIMD? Do you think that it's efficient? Do you think that it's working? It's not enough on its own. I mean, I think, what does SIMD do? Will it tell you that you live in a postcode area where there's a lot of indicators of multiple deprivation, and obviously growing up in an area of multiple deprivation is one factor that is advantage even though within that postcode area you can cross the street and go from the area that's really deprived to the area that frankly isn't really deprived. Our view is that we are absolutely committed to promoting wide access to universities. We've got an action plan for that, but we need to be looking at it on a properly evidenced basis where you would look at a multiplicity of factors of how you indicate whether somebody is from a really challenged background. Do they have free school meals? What do you know about their household income? Do they come from a school with low progression to higher education? Because bluntly, only about half the people who get free school meals are in an SIMD-20 area. Half of them are in other circumstances of deprivation, and SIMD-20 does absolutely nothing to measure rural deprivation. It's an inadequate measure, and I think the conversation we've had for some time with Government and the Funding Council is that we need to be measuring who individually can demonstrate that they really deserve the special treatment that we should give, recognising their circumstances of disadvantage rather than looking at it on a postcode basis. So you're in favour of a more sophisticated system of indicators? Yes. So Mr Johnson, why is Nicola Sturgeon's target for widening access based on SIMD alone? Well, what the Government has done is accept all of the recommendations in the report of the commission on widening access. Chapter 4 of that report has got a very detailed discussion of the different measures that can be used. The commission concluded that SIMD is a valid marker of deprivation based on a wide range of data. I could say a lot more about the very helpful discussion of SIMD alongside other proposed markers. The Government has accepted the recommendation that Mr Sim has alluded to, which is that there is scope for further work to be done on getting the very best possible markers, recognising that all of the markers have got some limitations. Nonetheless, I would come back to the fact that the commission's conclusion was that, as matters stand, SIMD is a valid marker and the one that is best used at present. Okay, but if you've been having discussions with University of Scotland for years, Mr Sim said, about a more sophisticated system, why hasn't Nicola Sturgeon set her target just on SIMD? Surely that's not very progressive. Well, as I say, what the Government has done is accept in full the recommendations of the commission and the commission's recommendations are expressed in terms of SIMD. So it's about accepting the recommendations, but one of those recommendations is that work continues around getting better precision in terms of the markers. Okay, so you're saying that you're open to a more sophisticated system that Alistair Sims is talking about? Yes, because that's part and parcel with accepting the recommendations. Okay, Dr Kemp. On the national target, that is one of the things that SIMD is very good at. SIMD is a very good overall way of looking at which areas are more deprived, looking at the characteristics of people and actually quite small data zones and working out the overall success of a system. So for a national target, we think that SIMD is probably as good as we could get, and that's why the commission, I think, came to that conclusion. Alistair is quite right, though, when you come to decisions on individuals, SIMD is perhaps less good and that the data zones covered by SIMD, they cover about 1,000 people. Not all of these people will share the same characteristics. If a university is making a decision on whether to admit that person or that person, you couldn't tell exactly who to admit from SIMD. You'd have to look at more personal characteristics, but if you're looking at the overall performance of a system, SIMD is a good, robust and stable way of looking at performance over time. It's one of the things that we shouldn't lose sight of. There are some things that doesn't do well. It's not good at the individual level always, and it doesn't work as well in rural areas, but it is a very robust and stable way of looking at the performance over time in meeting needs of particular parts of the population. I would like to draw the committee's attention to my register of interests, where it states that I am a board member of North Highland College, which is part of the UHI. I am glad that you were talking about SIMD not being as good in rural areas, because being from Highland, we have found that quite a lot. Touching on Brexit, which we tend to do quite a lot, and it was mentioned earlier that we really don't know what a lot of the implications are, and we accept that, but what we do know is that, well, Alistair Sim mentioned that the cash terms for research and development is going down. A lot of the research and development money that we have comes from the EU. 30 per cent of the UHI's external funding comes from the EU, and they are quite worried, especially places such as the Enviro Research Institute up in North Highland College. They have already seen postgraduate places being pulled, and there are very worrying implications of Brexit. I know that you have already said that we cannot guess, but do you have an educated guess? When I said that we cannot guess, I was not implying that we just sit and wait back and see what happens. As Brexit happens, we need to be working with the Government and others to understand the impact of each part of it and the impact on things like some of the regional funding that has been helping UHI, where that is going to come from in future, and in terms of research funding, how possibly ways could be arranged so that Scottish universities can continue to access that. Not all of the countries that access at the moment are part of the European Union, so there are a series of decisions to be made that, as we work through this and understand the implications and timings, with the Government, we would need to work out how we mitigate some of these and put them possibly and remove some of them. While I said that some of them are unknowns at the moment, we are striving to make them known as soon as possible and then work with others to find solutions, because we are very much aware that this is something that affects a whole range of universities in different ways and with different European funds, and UHI has particular issues. Brexit is just one of those huge things that we are having to wrestle with in an extremely uncertain environment. It affects us in multiple ways and we are already reflected on the need to attract staff from across the European Union, and also the extremely difficult situation that principals have found themselves in when European Union staff have already been saying, look what happens to me, what happens to my family, what happens to my access to public services, and the best we can say, and we said this together with the Scottish Government, is yes, we value your contribution here as crucial, but when you get beyond that, you can't give answers, and that's a really unsatisfactory position to be in as an employer. I think we're also, European research funding has been important, it's about £95 million a year of research funding comes from Europe to Scottish universities. We would like to be able to continue to participate in these networks, as, indeed, to some other countries, Norway and, indeed, Israel. Not just because of the money, you could organise money in different ways, but also fundamentally, because it just keeps that ecosystem of cross-border collaboration going in a way that keeps universities excellent. Structural funding, as you said, particularly for UHI, if there's no European structural funding, that puts quite a challenge back, I think, on government to find alternative ways of supporting that. Also, as we look to students, we do have to find a model where we can remain open to a reasonable cohort of European students in the future. They bring something rich to our campuses, and we have to think about how that can be done. In an environment of the uncertainties that I outlined in my opening statement, it's just another layer of uncertainty. I think that Mr Simpson sets out the issues very clearly, and it's another area where the Government must work hand in hand with University Scotland and the funding council. Indeed, it is working closely with University Scotland and the funding council to ensure that we do all we can to protect the current diversity both in terms of workforce, students and funding arrangements that we see in the higher education sector. I would perhaps just add that the committee will be aware of the Government having established the Standing Council on Europe. Anton Muscatelli, the principal of Glasgow University, has recently chaired a session that is specifically working on those issues around what can be done to ensure the best possible protection for the university sector going forward. Mr Simpson, would University Scotland then echo the call from the Scottish Parliament—well, the majority of the Scottish Parliament—to the UK Government to reassure the families and EU workers that we have that they are going to be welcome to stay here? Absolutely. It's 16 per cent of our workforce. It's people who are really important in our university communities, and it's just painful not being able to say to them, not just that you're welcome, but that we can give you assurances about what your future is going to be. I want to touch on another aspect of funding that was in the report, and that's city deals. They're springing up all over the place, but certainly being involved with the Highland we call it city and region deal, but it's just an Inverness city deal. A lot of the criteria for using that money is quite specific. Do you have any details of how current city deals are being used by universities and what they're being used for? We don't have a collated list of all of the university involvements, but we're aware through discussion through our outcome agreement managers and some of the city deals that currently exist. The Aberdeen one, for example, is doing quite a lot of work on innovation, which the universities that Robert Gordon and Aberdeen are very heavily involved in. Some of the Edinburgh ones at an earlier stage, there's quite a lot of discussion in there about skills aspects and innovation in that area. Alistair might have more on some of the other ones, but some of it at an earlier stage, and you'll know that the Inverness one includes aspects that UHI is heavily involved in as well. There's a variety of different models. They seem quite different, which are perhaps appropriate because they are individual city deals rather than a single national programme. My sense is that, by and large, universities have been fairly big players in putting together these deals and both as contributing their existing funding and making use of the additional funding. We've been aware of them, as I say, through our outcome agreement managers, but we haven't been an official partner to any of them. I think that wherever the city deal is, universities will be closely engaged in that, and I think that Edinburgh is a big team in trying to further catalyze Edinburgh's extraordinary identity as a hub of biotechnology growth. If we could offer a site question to somebody earlier, because it is relevant to this question, the total employment tribute to higher education institutions in the Dundee City region is 12.5 per cent. I think I said something slightly higher earlier, but I think that's still relevant because when you look at that, when you look at a similar figure of about 7 per cent for the Edinburgh region and a similar figure for the Aberdeen region, what you see is, of course, we've got to be involved in city deals because actually just by sheer economic impact and just by being at the centre of these clusters of companies that come here because they feed off the student talent, the graduate talent and the discovery of universities, we're fundamental to regional growth, and so you'd expect that to be reflected in us being at the heart of city deals. Okay, thank you. I want to go on to talk about student loans. In 2013, mortgage-style student loans that were taken out between 1990 and 1998 were sold to a private company, and that company has had less than positive reviews in a lot of cases. Do you think that enough was done to explain to people that the system was changing and did they realise that if they had more than one loan, i.e. one with the private company and one with SAS, that they may be paying them off concurrently instead of consecutively? To pick that up and say that I think the point that's being raised is not something, as I recall, that's covered specifically in the report, so is it something that I could offer to follow up on in more detail and provide a response from government? I'd be absolutely happy to do so, but, as I say, I don't have an answer in front of me to that point, I do apologise. Thank you. We've spoken about widening access and attracting students from deprived areas, and, quite rightly, we have a target for that, but it does say in the paper this time—you'll be glad to know—that grants have gone down and loans have gone up. On page 48, it also said that there is no up-to-date national data on how much accommodation or living expenses are going to be. Now, particularly coming from the Highlands, even though, with the creation of UHI, that has kept a lot of students in the Highlands, and ultimately that is our goal. However, you're still going to have students that won't be able to access certain courses, have to go to a city university, maybe they make the choice to go to a city university, and that's also great. It would be useful for us as elected members, but I think that it would also be useful for students and their families that are making that decision to have that broader statistic. Do you feel that students from deprived areas are adequately funded to move away should they want to? Important points were referred to by the Auditor General. I see that on page 48 of the report. Those are significant issues, and the whole issue of student support is such a significant issue that the Government has set up its overarching review of the student support system, which I'm sure the committee is aware of. That is now up and running. That's chaired by Jane Anne Gaddi, the chief executive of Virgin Money, and it's bringing in a lot of other partners to look at the whole system. As part of their work, I expect that group to be picking up on the matters that have been raised by the Auditor General in relation to student support and therefore feed those issues into the advice that they will provide to ministers in due course. That's in the course of next year. I want to touch on the very first question that my colleague Liz Smith asked about the widening access commissioner. I appreciate that the more detail is to come from ministers. My particular question is whether the new commissioner will be able to challenge the Government. In the Education and Skills Committee, there were submissions in relation to Education Scotland in increasing politicisation of Education Scotland. We would like to know what safeguards you will be putting in place to ensure that the new commissioner is protected against political interference and that, when they feel that things are not working on the ground, they can challenge the Government on it? I am back to the recommendation 1 of the commissioner widening access, which is the recommendation that the Government has accepted. That sets out what the role of the fair access commissioner should be. It includes holding to account those with a role to play in achieving equal access. There are many players in the system that fall within that description having a role to play. That clearly includes the universities, but it absolutely includes the Government as well. We would expect that the commissioner is holding to account the entire system on the basis that progress is needed right across the board. Following on from the question, both from Liz Smith and Jenny Amara in relation to the widening access agenda and how it will be based on SIMD in postcodes, I know from visiting Aberty university and again in the papers you could see that they had a 77% offer rate. They are very proud of being able to offer those in the disadvantaged communities those opportunities. Is there not a risk by basing it on the hit and miss assumption of postcode that, although it is SIMD, you have taken affluent areas—for example, the principle of Aberty himself lives in an SIMD area—is it not a boost to middle-class students living in those areas rather than deprived students? Is there not a risk of displacing the most able students? I think that that takes us back in some ways, if I may say so, to our need to consider very carefully the totality of the commission on widening access. It is not about just one of them, so it seems to me that the commission gave very careful consideration to the best possible measure. Accepting that is not a perfect one, but the best possible measure to be used given the data that we have. Equally, what has been accepted is the need to do further work on refining the data that we have available. That is what we will do. I would repeat my earlier point about what SIMD is very good for is measuring progress over time, particularly at system level but also at an institution level. What is less good at is making individual decisions about whether to admit that student or that student. If universities are making the right decisions about contextualised admissions and working with schools in the most deprived areas to increase aspiration and attainment and so on, that will affect SIMD without them making admission decisions based on SIMD because it will overlap with the right action. I would stress again that it is a measure. It is not the only way that you would select a student. The fundamental problem that that exposes is that we may make the right choices at university level of taking in the people who present the signs of coming from a challenge and disadvantaged background, but if we are not taking them in predominantly from SIMD 20 years, we might be doing a brilliant job in widening access and it will not register on that metric. Absolutely. Actually, following on just from those answers in relation to the further work that will be going on to refine the data and actually I think as the convener managed to point out in her own questioning is that this has been a discussion that is clearly going on for some time. Is there a timetable? When will we see the results of the further discussions? When will we see a finer refine model and when do you think that that would be presented to committee or Parliament? The refining of data that we are doing with University of Scotland will be doing from now. To some extent, what I have been doing over the last year or two is largely about additional types of information, particularly individual levels, so that you are not looking at where somebody lives or where they went to school, but you are looking at their parental income and other attributes that apply to the individual. Those would be for individual targets and institutions and for things that they could use in contextualised admissions, so that work is on going at the moment. There is also a timetable set out in the report, so recommendation 31 says that the Scottish Government and Funding Council should develop a consistent and robust set of measures to identify access students by 2018. We learned today—I think that it is in the herald—that the widening access policy anticipates to cost more than £13 million in its first full year alone and annually, once we get to 2030. How accurate is that report and how sustainable do you think it is? The Government has funded additional widening access and articulation places over the past four years to a total of £128 million, so there has been significant public investment associated with the progress that we have seen in widening access. I have seen the article to which you refer, but I have not been able to fully interrogate the figures that are there and I wish to do so with colleagues in the funding council before being able to comment on their accuracy. Dr Kent may have more to say on it already, but the assumption behind the figures in the herald article are simply adding more of the same, just taking what we currently do and adding more. As I said earlier, I think that there are ways of looking at the learner journey and considering demography and so on, which might give you a different answer. Referring back to my earlier answer, this is a really complex area where there are several things that you need to factor into. The total number of young people coming out of schools, particularly the number of older people who want to go to university, the overall participation rate that they want, the kind of learner journey that people have, whether they are repeating level 7 of the SEQF more than one time and so on. It is a number of those things that need to be factored in. The herald figures look reasonable if you factor in doing one way, but there are other ways of doing it too. Obviously, with the consent of the convener, once Mr Johnson has had the time to do that, forensic analysis of the figures would you be able to write to the committee to advise us? You will certainly provide further information to the committee on that matter. Again, it has been touched on by all my colleagues that overall funding for universities, we have seen that reduce and anticipated to continue to reduce to 2016-17. The report itself advises that a 6 per cent reduction in real terms, further research funding is projected to reduce in real terms by 7 per cent. I think that Mr Simmons will highlight in his opening statement as well as the question from the convener that we are seeing home students underfunded by 10 per cent. Is it not the case that the inability to sustainably fund our universities is leading to a slow erosion of our institutions and because it is a slow erosion, the Government feels that it can ignore it? I begin by emphasising our commitment to working with the funding council and the university sector to secure the continued success of our world-class institutions. We have a sector of which we are all enormously proud. What we need to do and what we are doing within the overall financial context is to work closely, imaginatively and fully to try and secure the continued success of the sector. The committee is well aware of the overall restrictions that exist in relation to public finances. The Auditor General, in giving evidence to you before, has recognised the difficult choices that need to be made by Government in relation to the allocation of resource. However, what we want to do is ensure that future funding decisions do secure the continued success and sustainability of this particular successful sector. Mr Sim, do you have any comments? That is certainly an aspiration that we share. To credit the Scottish Government, we are in constructive discussions with them. What do we want to see out of that? We want to see a budget for 2017-18 that marks the start of a trajectory towards recovery of sustainable funding for teaching that protects research funding in real terms and continues to extremely welcome injection of capital funding that the Scottish Government made in September this year. As the Auditor General said, previously it had collapsed by 69 per cent in real terms. Starting to see recovery in that was extremely welcome and will be very economically catalytic. I am optimistic that the quality of discussion we are having is securing recognition of the need to achieve that. We are bringing creative ideas to the table about how it can be cheered, but it is not just about seeing the colour of your money. We are also bringing ideas to the table about how one can fund postgraduate taught students in a way that makes masters-level study more accessible to Scottish students and also more financially sustainable for the funding council. We are also talking about whether there are ways that the apprenticeship levy can be used to catalyze new ways of working between employers and universities. We are in a creative discussion, but we need to see a trajectory towards the recovery of financial sustainability. One last question to Mr Simpson. My colleague Gail Ross raised questions on the challenges posed by Brexit. Those questions cannot be underestimated. The most significant challenges from it come to our higher education institutions. I appreciate what you have said about the importance of the protections that need to be put in place. To quote the principle of Edinburgh University, it said that the post-Brexit landscape will offer us many opportunities to thrive and we will be ready to take them. As well as ensuring the importance of the protections, what work are you doing in relation to the negotiation process, relation to access to single market and so on, to develop a plan for a post-Brexit landscape? Are you looking at the potential and also opportunities as well? Yes, we need to look at all the possible outcomes and ensure that, in relation to a wide range of scenarios, we are ready to support the sector. That is something that this committee and the Parliament are likely to expect to be kept informed of. We have discussed objectives with the Scottish Government, broadly as I have summarised earlier in this hearing. We also have an influence on the UK Government, I do not know how great that is, but through Scotland Office, through our relationship with the University of the UK. The opportunities, obviously, I think that the irony that we find ourselves in is that if Brexit is encouraging businesses, institutions, universities to look beyond Europe for opportunities, we can understand that, but then we find ourselves crashing up against the potential further restriction of our ability to attract international students and international staff from abroad. We just find ourselves in this irony where we are being told to get out there and exploit international opportunities, and then we are being threatened with even further restriction on our ability to compete internationally. Mr Johnston, you said that you do not want ons reclassification, so your Government must have risk assessed this before the proposals emerged. How might your risk assessment impact the widening access agenda and outcome agreements? Presumably, there will be rules in place about how far you can push universities. In terms of the enterprise and skills review, the key point that I would emphasise is that that work is still on-going and has not concluded. The issues that the committee has raised and discussed this morning around reclassification are ones that need to continue to consideration, and that will happen. However, I emphasise that what we are proposing, or what is proposed as part of the stage 1 review, is that the separate bodies continue to exist. Our assessment thus far— On the head of a pin? No, our assessment thus far is that we do not see that ons reclassification is in any way likely from the proposals that we have put in place, but what I can say is that I recognise that that is something that requires to be considered as the proposals are developed over the coming months. You do not think that it will have any impact on how far you can push universities on widening access. You have done that work and you do not think that that is a risk. I think that that is work that needs to continue. I think that it is very important that we— So you are saying that the proposal came out before that work was concluded and you were confident in that? No, I am not saying that. What I am saying is that at the end of stage 1 of the enterprise and skills review, an overarching recommendation was set out in relation to the creation of a strategic body that would ensure overall alignment of our enterprise and skills systems, and the detailed implementation of that is something that is part of stage 2. The points that you are raising, the important points that you are raising, are ones that will be fully considered as part of stage 2. I cannot envisage that the overarching arrangement that we have set out would in any way compromise the status of the universities or indeed the ambitions that the Government has set out in relation to widening access, but I absolutely accept that those are matters that must be considered carefully as the work continues. I am going to suspend the committee. Thank you very much indeed for your evidence. I am going to suspend until 10.40. We now move on to item 3, which is our evidence session on the Audit Scotland report to the National Fraud Initiative in Scotland. I welcome to the meeting Russell Frith, Assistant Auditor General and Owen Smith, Senior Manager for Audits Scotland. I invite Russell Frith to make brief opening comments before I open up to questions from members. Thank you, convener, and thank you for the opportunity to brief the committee on the National Fraud Initiative exercise, which is carried out every two years across the UK and helps public bodies to minimise fraud and error in their organisations. The NFI works by matching large volumes of data across the public sector to identify matches for further consideration by the participating bodies. The data sets include payrolls, pension information, creditor information, housing benefit data, information on deceased persons and failed asylum seekers. Audit Scotland's payroll is included in the exercise and payroll data generally includes both staff and elected representatives at all levels. It is important to note that matches themselves do not necessarily mean that fraud or error has taken place. There is limited information within the data sets and it is always essential that the participating bodies take the matches and investigate them properly to ensure that fraud or error does or does not exist in each case. The NFI was started by the Audit Commission in 1996 using implied auditor powers. The devolved nations audit agencies joined in the early 2000s and the power to conduct the exercise was put on a statutory footing in Scotland through the Criminal Justice and Licensing Act 2010. The NFI is a tool to help public bodies as part of their overall arrangements to prevent and detect fraud and error. It is not the only part of those arrangements. Audit Scotland's role is to facilitate the exercise using its statutory powers to obtain data and we prepare reports on the outcomes of each exercise. In the 1415 exercise 104 Scottish bodies took part and 16.8 million pounds of outcomes were identified. That takes the total identified in Scotland to 110 million out of about 1.3 billion across the UK. The values is one part of the impact of the exercise but there are others. The deterrent effect is quite important of people knowing that this sort of data matching exercise takes place and some outcomes are not so easily measurable in monetary terms. For example, in relation to blue badges making sure that only valid blue badges helps to keep the relevant parking spaces available for those who really need them and are entitled to them. Even where there are no outcomes or very few outcomes identified for a body it provides assurance on positive assurance on the absence of fraud and error in those particular areas for that body. Looking forward, we've now commenced NFIs 2016-17, a small increase in the number of bodies taking part, including now the larger further education colleges in Scotland. The Cabinet Office took over responsibility for the NFI in England following the abolition of the Audit Commission and it's looking to extend the range of tools available to participating bodies, including flexible matching, which allows bodies to request more frequent matching at times convenient for them and something called an app checker, which is a fraud prevention service allowing bodies to check against the NFI databases before payments are made rather than the retrospective once every two-year full NFI exercise. In Scotland, we're also keeping an eye on the development of the new tax and social security powers to ensure that those data sets will in future be available to be included with NFI to help to ensure that the devolved benefits reach the right people. In summary, we believe that the NFI continues to be a useful tool to help public bodies to minimise fraud and error, and we're happy to answer any questions that the committee may have. Thank you very much, Mr Frith. Colin Beattie is going to open a question. I'd like to start by looking at the outcomes, and you're estimating here that the last initiative there's £16.8 million of savings, actual and notional. In paragraph 81, you estimate that the cash savings for the public purse are about half the total outcomes, and you rightly raised the fact about blue badges. There's a notional benefit from that, but there's also a cost to the council because fraudulent or not, people were paying for these, so there's a slight loss of revenue there as well. However, the bigger picture is looking at the overall effort. Are the outcomes commensurate with the effort that goes in? I'm not decrying the deterrent effect, but are they commensurate? I believe they are commensurate. One of the things we do to help minimise that effort is we provide a number of software tools to the participating bodies so that they can refine the matches that they receive to identify those that are most likely to give rise to an impact. What we expect them to do is to look at those higher-risk matches first, and if those are not demonstrating much value, then we don't expect them to continue through all the lower-risk matches. Looking at the figures that you've given us, you say that there's 2,522 investigations on their way to recover £4.2 million. Doesn't that seem a lot of expensive investigations for a relatively small return? Some of those investigations will be very, very short. Council tax, if you find somebody who's been living with somebody else and they've already claimed a single-person discount, all you've got to do is cancel that and then change the council tax bill and recover the money very simply. That's a very simple match and a very simple outcome or return to the council. That's real revenue back into the council that wouldn't take too much time to do. That was very much worth doing in the last exercise. The last exercise was our biggest outcome area, which was a single-person discount, not fraud but error or undisclosed living together, basically. I agree that there's a deterrent effect on that, but I don't believe that the NFI is particularly well-known to the public. The deterrent effect really is on the people who are immediately caught out and perhaps their immediate circle. How big a deterrent is it, actually? That's always a very difficult thing to measure. It's something that you can't see. I would point out that some of the areas that were of high value in the very early exercise is that the value of fraud and error coming out of those areas has declined over the life of NFI, including housing benefit, including things related to payrolls as well, and certainly those in relation to pensions being paid after people had died. That has definitely fallen away. You have highlighted some issues around the quality of the effort that has been put into that. On paragraph 94, you stated that central government bodies have overall significantly improved, but NHS and local government have not. Is there a significant reason—you have mentioned one or two reasons for the local government but you haven't for NHS? Yes, that's right. For local government, the timing of this exercise and the transfer of many of their existing fraud stuff to the DWP's national fraud and error service probably didn't help prioritising investigations. With the NHS, I would say that it's still a very good level of participation, but a bit lower than in the previous exercise. The NHS is an area where it is more difficult to obtain the buy-in because the outcomes for the NHS bodies themselves tend to be very much lower than for local government bodies simply because of the nature of the NHS activity and the data sets that are being used. The importance of keeping the NHS data in there relates as much to where it helps other bodies to establish a match and either fraud or error are taking place. Clearly, with local government, there is a problem that you have mentioned in a number of councils that have been a problem. You have also mentioned the Scottish Police Authority, which is a bit of a surprise. I think that the most likely explanation there is the still developing systems, certainly at the point when this data was being collected, which is back in October 2014. At that point, the Police Authority was still very much developing its systems and I hope that it will be a bit better this time round. Looking at the quality of what has been produced, you are talking about late submissions and all sorts of issues around that. Is it not made clear to the participants what the deadlines are? Yes, it is. There is no penalty, of course, is there? There is no penalty. In most cases, we do get the data, albeit a bit later, which, if that data is taken at a later point, is still very useful. However, it means that the investigations and subsequent investigations are slightly more complicated because you have data coming from different bodies at different times, so the ideal for us is that all the data comes in at the same date. Come back to NHS, you state in paragraph 96 that NHS bodies arrangements for NFI have weakened. You are still saying that it is good, but the fact that it is weakened is worrying. Where are you taking that? We will be monitoring all bodies' participation in the exercise, not only the provision of data in the first place, but we are able to look at when bodies access the matches that are provided, when they look at them, when they investigate them, when they mark them up, and we then work with the local auditors of each of those bodies to keep the pressure on to make sure that they are actively participating. So you take it to the local auditor, that is your escalation point? Yes. But wouldn't you think that if this is weakened, it is a significant issue and it should be escalated perhaps to the Scottish Government? It is weakened from a high position to satisfactory in most cases for NHS, and what that report is, is a two-year exercise, and every year we annually encourage and assist our local auditors to review the arrangements in each body, and every year they'll produce an annual audit report that goes to those charged of governance and the Auditor General on the council mission to discuss areas of governance, including how they will engage and participate in the national fund initiative. So we do see success at local level, and sometimes this sort of exercise is about getting momentum up to get bodies to engage properly, and that's how you produce some sort of self-help guides and areas that they can improve going forward, and the best area for me would be the audit committee to take far more involvement in looking at how the NFI exercises are actually progressing in terms of delivering the materials, the data sets on time, having a resource plan, how they're going to investigate them and what the results are, so as they're fully engaged and cited of what has been found locally, that for us has been the best way to engage. And we've also had other successes, and there's two councils, Perth and Ross and Angus, disagreed with interpretation of legislation on giving us the electoral registration. We accepted that, but we asked what they did instead to use single person discount information to prevent and encourage more income into the council, and they now are doing that and using the data, so that's a win for us, but it doesn't come through the national fraud initiative, but it's still a way we can encourage. We did that through a local auditor as well, so we do work closely with auditors and the bodies to encourage them to make use of data and the NFI exercise to deliver the best for their taxpayers and public. Can bodies opt out of this? Choose not to participate. We have the statutory power to demand the data to take place from the bodies that are within the remit of the Auditor General or the Accounts Commission. What's the penalty if they don't? There isn't one. There isn't one. Not in the legislation. So it is things like naming in this report local auditors, including it in their annual audit reports, which are also public documents and considered by those charged with governance in the organisation, so it's peer pressure publicity that are the main tools that we have available. I'm just interested in this outcome figure of £16.8 million that's been recorded. Is that £16.8 million that's either fraudulently or erroneously been taken out of the system? It is the estimated value of the outcomes from the exercise in a way that tries to put all of the outcomes into the same currency, in this case pounds, because some of it will be value that has been taken out of the system, so a single person discount that's been claimed for the last few years is clearly a value that's been taken out of the system. But, for example, pensions being paid to people who are deceased, the value that's recorded in this exercise is the value not only of any pension that's already been lost, but an estimate of the future value that would have been lost had the match not occurred. Right. So, just to understand that, why is that an estimate and why can't we be more certain about these instances that you've quoted? Because in some cases we're looking forward. So, for example, estimating how long a pension would have been claimed had it not been picked up through the exercise is very much an estimate. We use the remaining expected average life of a pensioner for that particular purpose. In the case of council tax discounts, it's two years' worth that's used on a consistent basis across all the agencies that undertake this work. Does the data go down to individual transaction level or is there an element of extrapolation involved? It's all down at an individual transaction level. Okay. So, in terms of the £16.8 million that's been identified as an outcome of items that have either been fraudulently or erroneously taken out of the system, how much of that value has actually been returned into the public purse? Well, it's been recovered just now, but it's about just under £5 million has been recovered, so that's the value of cash, but what you can recover is what you never paid out because you prevented it from being paid out in the first place by stopping the on-going pension or single-person discount. So, it's £5 million that's been recovered just now. Right. So, by taking action to stop an on-going fraud, for example, you're stopping an on-going exercise, but you've identified £16.8 million of transactions of which £5 million, around £5 million, have been recovered. Right. Thank you, convener. Just a very small point. In relation to paragraph 70, you make the point about SASS as generally what I think is probably quite a good record in terms of uncovering any student support that has been claimed erroneously. Am I right that that is a very low figure and, therefore, there's no major concerns about fraudulent claims? They're on this, for what no better expression, and they work very well trying to reduce this type of fraud, but the NFI has proved an effective way to double-check, but if people have got fraudulent passports, it's very hard to, you know, they have to rely on the Home Office as a second check the data there. So, yes, this has come down from memory, I've not just checked it out, so it's... That was my next question. I was going to ask you, is this an improved figure? Yes. In terms of there's less found... I'm not trying to get more. Correct me if I've misunderstood this, but just for clarification, I mean, this committee's job is to follow the public pound, and I know you've asked, is it 104 public bodies to participate in this? How do arms-length organisations and contractors play into this? Is there any investigation of fraud within those? We do not have the power to demand the data from bodies outside of the Auditor General and Accounts Commission's remits, but we do have the power to accept voluntarily participation by other bodies, and for the exercise that's just started, we are getting data voluntarily from some of the allios linked to councils, for example. As I said earlier, the NFI is only one part of a public body's fraud and error prevention. Paragraph 11 on page 9 says that 104 bodies participated. It says that two further education colleges were invited but did not submit any data. Can you tell me which FE colleges those were, please? City of Glasgow and Edinburgh College. Okay, did they give reasons for not doing so? No. No reasons at all? I've been through this. This is often an organic process to try to encourage people to see the benefits of using data matching and to indicate that we've now got 10 colleges taken part or invited to take part, six of whom we've already got their data in. I still don't have Adam's or Glasgow, we'll check again with him, but we don't have any power to actually, you know, we can mandate it, that's what the law lets us do, but I don't think we'd ever go to court over it if you see me and it wouldn't be a very good use of public money, so we will ask them again why they haven't done it. But this exercise is complete? We do this every two years, so we've started another exercise. The date for submission of data was two days ago for the next discipline, another quote coming in 2018. Have Edinburgh College submitted to that? Not when I checked on Tuesday. Okay, so they didn't submit this last one and they haven't submitted for the forth coming one? So far. Okay, and you said, Mr Smith, you just said in your answer there as well, that you do have the power to demand information, have you done so? We wrote to them and effectively we mandate the data from these bodies, but as we've already raised, what do we do if we don't get it? That's the, there is no penalty, I personally wouldn't want that either because it's a thing that's trying to add benefit and it should be seen as that to the public sector, it's not. So there's no penalty, but you said you have the power legally under the act to demand the information, so hypothetically if you were to take the next step what would it be? As Owens said, the date for submitting data has only just passed, we will now be looking at any organisation that has not submitted data and be following up directly with each one of them as to is there a reason why not, is it going to be coming in the near future and we'll consider what level of escalation we can apply depending on their answers. Okay, but to go back to this report, you wrote to them and asked them for it and it wasn't taken any further then. Were there any other invited organisations who didn't participate, the 104 bodies participated and two further education colleges were invited but didn't submit any data? Were there any other bodies that were invited? How many bodies did you invite altogether? 104 participated, what was the invitation number? I can't remember, it gets very complicated with the Scottish Government because it covers some of the different bodies, peer roles and credit system, so it was over 100. But as far as I'm aware, we've got every other organisation that weighed the two colleges. Okay, so it was just the two colleges out of the whole public sector in Scotland that didn't submit data? Yes. Interesting, okay. They have submitted it in previous ones like four years ago, City of Glasgow took part. Do you think there's something to be said for making this initiative compulsory? Well, I sit on the Scottish Government's counter fraud forum with many other bodies such as SAS, the Scottish Public Pensions Agency, Police Scotland, COSLA etc. There is a Scottish Government's rule in last year that issued a new sort of counter fraud strategy and the thing that we're all trying to work together to push this and where we see it as the NFI is a very useful tool but it's not the only tool in terms of data matching so what we want to see is bodies using their data and the information commissioner wants to use their data legally to make sure that they are doing all they can do to prevent fraud and error in the system. So, for me it's a governance issue as well. It's really up to those charged of governance to make sure that they're taking care of this and audit has been filling a gap. Rules in charge of governance at the individual institutions? A council, an education college, a central government body would be, would I would be asking the questions if they're not either taking part in the NFI or doing an alternative one. We have examples in the support of councils doing alternative data matching for council tax very successfully that's good so the fact that it's not in the NFI we're not going to get too upset about it as long as we're doing something so I don't know what we'd get from making it compulsory. You might get data from Edinburgh and Glasgow colleges? Get data, we'd have to make them look at it though so wow that's a good point but we'd have to then investigate it. We don't do investigations out of the body themselves so okay, you've been able to quantify the sums recovered through the national fraud initiative is it possible fraud at Scotland to quantify the money that they have saved the taxpayer through other work or is that a question for those general herself? I think that is a question for the for the for the auditor general but in principle estimating the impact of our work is something that we is a continuing area for us to look at but we do have to bear in mind that the impact of a lot of our work isn't necessarily wholly financial. Can you offset the cost of this work against the save against the money recovered? No, the cost of the initial exercise is met from Audit Scotland's funding provided by the Parliament for the individual bodies, the cost of their investigation exercises, yes, is offset against anything that they recover. Okay, so it's a split cost in a way. I mean this is governed by the Criminal Justice and Licensing Act 2010, your initiative, it's underpinned by that legislation isn't it? And to go back to the point that we were making about somebody's participation, do you think that suggests a fault with the act? I'm usually in two minds as to whether there should be penalties or sanctions within each piece of legislation. For something like this I think it is preferable if we are able to persuade organisations to participate willingly because that will also improve the quality of the investigations that they carry out that is likely to lead to an overall better overall impact than if they feel they are being dragged to do the minimum that they can. Thank you. Do members have further questions? Can I thank you both very much indeed for your evidence this morning? I now move the committee into private session as previously agreed.