 Good morning, and welcome to the first meeting of the Economy, Energy and Fair Work Committee for 2019. First item on the agenda is a decision to take items 5, 6, 7 and 8 in private, as the committee agreed to do so. This morning, we turn now to item 2 on the agenda, which is budget scrutiny for the 2019-20 year. I welcome the two ministers who have come to be with us this morning. First of all, Derek Mackay, Cabinet Secretary for Finance, Economy and Fair Work, Jamie Hepburn, Minister for Business, Fair Work and Skills. They are joined by Una Gill, Deputy Director for Enterprise and Cities, and Gavin Gray, Deputy Director for Employability, both in the Scottish Government. First of all, I invite Derek Mackay and Jamie Hepburn to make brief opening statements before we move on to questions from committee members. Mr Mackay. Thank you and good morning, convener. This budget is in the context of continuing UK austerity, which has reduced a resource block grant by £2 billion in real terms over the last decade. It is also against the backdrop of UK Government careering towards any Brexit, regardless of the cost. Therefore, the budget aims to provide as much certainty as possible for business and the economy, providing stability and stimulus, and also making strategic long-term investments to strengthen and prepare the economy for the future. In terms of economic indicators, the latest GDP statistics published on 19 December show that the Scottish economy continued to have stable growth for the fifth consecutive quarter. I would welcome the business enterprise research and development birth statistics, which show that birth expenditure in Scotland in 2017 was £1.2 billion, the highest level since 2001 and up by 13.9 per cent on 2016. In terms of actions, we have published an economic action plan in October, setting out the range of positive actions that the Government is taking to deliver inclusive growth. The employment rate in Scotland remains among the highest on record, and the unemployment rate is at record low. The Scottish budget will invest £5 billion to grow and modernise Scotland's infrastructure, including the creation of a £50 million town centre fund to safeguard and support the future of our high streets. It will invest £8.3 million to further progress the new Scottish National Manufacturing Institute for Scotland. It will target up to £18 million in European funding to establish an advanced manufacturing fund. It will provide the initial funding of £130 million to support the establishment of the Scottish National Investment Bank. It will commit over £187 million of capital investment in city, region and growth deals. It will invest £20 million over the next three years to enhance and intensify support to businesses that are wishing to export, and that is £5 million in 2019-20. In terms of a competitive tax regime, it maintains the most generous small business bonus scheme in the UK, lifting around 100,000 properties out of rates altogether and extends the transitional relief for the hospitality sector and for offices in Aberdeen and Aberdeensia. In terms of the poundage, of course, that is the property tax. The increase in Scotland is capped at below inflation at £49. That ensures that over 90 per cent of properties in Scotland pay a lower poundage than they would in other parts of the UK. The budget also offers the most generous package of relief anywhere in the UK, worth over £750 million. It continues to invest around £2.4 billion in our enterprise and skills bodies to provide that vital support that is required to realise Scotland's economic vision. Skills Development Scotland will receive an additional £22 million in 2019-20, taking its total budget to £214.7 million, and that will further expand the work-based learning opportunities that are available through foundation, modern and graduate apprenticeships. We will publish the future skills action plan in early 2019 to ensure that we have the right skills in place to support individuals, employers and our economy. I wouldn't propose to add anything to the Cabinet Secretary for Rural Affairs, convener. Thank you very much. Perhaps we could start then with a question from me. The Scottish Government appears to agree with Scottish Enterprise's claims that Scottish Enterprise is contributing to the Scottish economy positively. Against that background, my question is why the Scottish Government continues to reduce Scottish Enterprise's grant allocation if it accepts that Scottish Enterprise is successful should not money follow success? There are a few issues there. First of all, Scottish Enterprise, unlike some other parts of Government or other agencies, can generate some of its own income, so it has the ability to do that. There is a recognition of how important the economy is. Scottish Enterprise has to make choices in that backdrop of overall real-term reduction over the 10-year period, but we believe that Scottish Enterprise can deliver the outputs that we have asked from them while delivering those efficiencies, and they believe that they can do that through a headcount, through assets and property, and they say that they have the ability to generate income without impacting on performance. It is very mindful of the range of actions that we are taking to support the Scottish Enterprise. Highlands and Islands Enterprise, for that matter, are key players in that regard. The totality of investment to support the economy is impressive. It includes city deals, growth deals and so on, the manufacturing institute, but in relation to the enterprise, it believes that it can execute its function while making those efficiencies through the areas that I have suggested. Not everyone would agree with that assessment of Scottish Enterprise's performance, and they might think that cutting the budget is because you share that in spite of what you have said as the position. No, I am clearly setting out that I expect Scottish Enterprise to carry out the functions that we have asked them to do, and they believe that they can do that while making efficiencies and the ability to generate and realise income. It is not a reflection on the organisation, but it is the reality that the Government has to make budget choices. This is one of the choices that we make, that we believe that we can get the same outcomes and Scottish Enterprise. I have discussed that with the chief executive of Scottish Enterprise, Steve Dunlop, who believes that he can deliver those asks while delivering those efficiencies. A question now for Mr Hepburn, and I think that others will come on to this as well. You are aware of the situation with Cayam and Livingston, and there have been other situations similar to this where companies have received funding through Scottish Enterprise or funding support. Is this a matter that needs to be looked at more generally about where those funds are put to the companies that are used to support and whether or not they could be dealt with more efficiently to support the longer sustainability of workers' jobs? Thank you, convener. Clearly, the situation at Cayam is a very disappointing one. I understand that the circumstances there will beget that question. Our expectation will be that where Scottish Enterprise seeks to provide any form of regional selective assistance, it should go through process of due diligence. That will have been the case at Cayam, just as it would be where they determined that any organisation, any company, should be provided with Scottish Enterprise funding. That will include a number of factors, looking at the finances, market conditions, looking at the company's business plan. That will have happened in the circumstances at Cayam. Of course, where such funding is provided does not guarantee that, in the long run, a company will necessarily be successful. Clearly, when there is funding made available from Scottish Enterprise, it is on the basis that the due diligence has been undertaken and the hope that that will lead to on-going success. Sadly, that has not been the case at Cayam. It can never be guaranteed with any form of investment that it will result in a company being able to sustain itself for the long term. Clearly, where there is investment, there is an expectation that there will be a return. Sadly, that is not the case at Cayam. Now, we are going through the process of supporting the workforce. That is my primary concern in the circumstances that we find there. Through our agencies, through Scottish Enterprise, through Skills Development Scotland, working with the PACE partnership that we are now, my primary focus is ensuring that the workforce can be supported. That is happening already. There has been a quick response in terms of supporting events that were arranged in West Lothian. There will be another job sphere arranged later this month to support the workforce there. After that, of course, Scottish Enterprise will be looking to see how it can recoup any investment that it has made in that company. You have mentioned in your letter to the committee, and you are aware of the calls that the background of how the approach is made to assigning such assistance generally should be reviewed. Do you agree with that? We have made a number of comments about how we would expect, for example, through our fair work first policy, that fair work can be embedded as part of any public investment that we make in any organisation, in any private enterprise. That is work that is under way. We are looking actively at how we can have a wider expectation in terms of our return for public investment. I am also aware that the committee has undertaken a review on business support, and we will, of course, respond to whatever the committee reports in due course. I am sure that committee members will come back to that issue in the more specifics of Chiam, but I would like to come to Andy Wightman. Thank you very much, convener. Cabinet Secretary, you mentioned you had met Steve Dunlop to talk about those running cost efficiencies. Can you give us a bit more idea of exactly what those efficiencies are? That would be more a matter for Scottish Enterprise to detail. As I say, I had sought reassurance that they would be able to deliver their functions, as I have described, and that that can be made within those efficiencies and ability to generate income. If you require more from Scottish Enterprise, I would encourage you to go through Steve Dunlop. I am sure that you would be happy to be forthcoming about how he envisages running his operational budget based on the budget that I am proposing to Parliament. However, it is not the territory that I have described to committee. I am sure that Steve Dunlop would be happy to go through the detail. At one point of reassurance, I am sure that committee would appreciate the Government's approach around no compulsory redundancy, so anything in relation to headcount would not compromise that particular policy. It also has an estate strategy. All through Government, I have a responsibility for the asset management within Government as well. You can always work your way through workplace planning or asset management. There is a range of areas that can be explored to ensure that further efficiencies can be met, but I am sure that Steve Dunlop would be happy to engage with the committee. However, I was satisfied with the assurance that I was given around a budget reduction in terms of that 3 per cent figure. At the same time, it is worth the totality of investments to support the economy that is maintained, if you take just enterprise and skills at £2.4 billion. That is an efficiency within the organisation. Is 3 per cent saving through efficiency something that you would seek right across the public sector? There is a benchmark figure that is used. There is the annual expectation that efficiencies will be made around productivity, procurement or general efficiency. We have an agreement with local government that local government makes annual efficiency and reports that to the Scottish Government, and they do that every year. However, that is not a consistent line to say that every part of government or every department has that equivalent level in terms of the budget allocation. The budget allocation is determined by a range of factors, but that is a consistent figure for the enterprise agencies, such as the Scottish Enterprise and Highlands and Islands Enterprise. However, you mentioned that local government reports that to government on an annual basis. Do any other public sector bodies outside the portfolio report that or account for how they have achieved those efficiencies so that lessons can be learned? Sure. Within the accountability of each agency, depending on the nature of the public body or agency, through their accounts or accountability arrangements to ministers, there will be a reporting of how organisations have conducted themselves. I realise that, but I am talking about crystallising the actual efficiency saving. When you say in your budget in the level 4 figures that this will be achieved through running cost efficiencies, it would be useful to know on an on-going basis, year to year, not just in the Scottish Enterprise but across the public sector, the nature of those efficiencies, how they have been achieved and any lessons that can be applied in future. Is that not something that would be generally useful? Well, it would. Leaders and chief executives of Scotland's public bodies and departments for that matter meet through the Scottish Leaders Forum, and there is shared good practice in terms of efficiencies. Some of it might be straightforward, but whether there is an additional requirement to produce a report or a document, I am not quite so sure, but there is a sharing of practice of what good savings look like or what works in terms of procurement or other areas. I can certainly give the matter further thought, but there is a lot of sharing with information around the efficiencies that can be found within the public sector. Okay, Tia. Another small point. You mentioned £750 million of reliefs on the non-domestic rates. What evidence is that the small business bonus scheme provides any economic benefits? That is a regular discussion that Mr Wightman and I have at various forum. I am delighted to bring it to the economy committee as well now. As Mr Wightman knows, we have conducted a Government-led exercise, but organisations such as the Federation of Small Business have produced survey evidence as to what they believe that the small business bonus has done to support the economy for small and medium-sized businesses. Again, I am happy to supply that survey output to the committee. Mr Wightman will also know that the Government has committed to reviewing the small business bonus, and the details of that can also be shared. Thank you, Jackie Baillie. I think that everybody would agree that we are facing a very tough economic context, particularly with the uncertainty of Brexit. It was no surprise that the Scottish growth scheme announced in the programme for government in 2017 was widely welcomed. Imagine then our disappointment that only 0.5 million of 10 million allocation as part of the Scottish European Growth Co-investment Fund was actually spent. I wonder whether you consider that Scottish Enterprise just had their eye off the ball. I think that, to be fair, there is a range of issues within that. In terms of that particular fund, that is part of the 500 million pounds Scottish growth scheme. Over 100 million pounds of that 500 million pounds has been invested, but I accept that the element of the European scheme has not landed the way that we would have wanted. I think that we can all accept that that is disappointing, but there are different ingredients to that, such as a willing investor, such as a proposition, and then the Government element of the scheme comes into play. I think that it is true to say that staffing of that particular element has been or will be improved with dedicated staff working on it, so I hope that that makes a difference that we can invest it as envisaged. I am advised by companies not necessarily specifically in relation to that, but I am no doubt that it applies as well. Some investment interest is drying up because of Brexit uncertainty right now. Some investment plans are not being realised, put on hold because of the calamitous position that we are now in that we do not know what is going to happen on 29 March because of the unectitude of the UK Government. That is having an impact on investment interest right across the UK right now because of that uncertainty. That said, in essence, my answer to the question is that there is dedicated staff to support that, but the ingredients to its success will involve investment proposition, ready investors and then the Government and the European Fund can come into play. I hope that that is achieved. That is one part of the overall £500 million scheme. To the wider question to make sure that the £500 million investments are made over the period, yes, I do. I know that I have committed to providing this committee an update by April, which I will do and it will set out where we are with all the schemes and what we are proposing for the year ahead. I hear entirely what the cabinet secretary says, but it does not explain what has happened in the past 12 months because there were people who were wanting to invest in preparation for Brexit. I accept that in the next three months it is going to be very difficult and challenging, but I cannot help but wonder that this is a missed opportunity. Although there may be additional staff, you are describing yourself that there will be issues about people investing. How are you going to use the money? Will you divert it elsewhere? Will you ensure that it is used? If financial transactions, for whatever reason, cannot be used for the purpose to which they have been dedicated, yes, they can be used across Government, and I have ensured that that is done so that we either carry it forward or we reinvest it elsewhere with the support and approval of Parliament, whether that is through budget revision or so on. In fact, if you take the financial transactions that we have used for support to farmers, if they realise that they can be reinvested in the economy, I give a reassurance that financial transactions are not lost to us. The ability to spend them are maximised either through, as they say, budget exchange or through another good cause. There are financial transactions right across Government that say that it can be helped by, it can be support for farmers, it can be investment companies, it can be fluid. I welcome that, that they can be used in that fashion and then carried over. If ever I could not spend a particular quantum and had to hand it back to Treasury, that would be an unacceptable situation. Something, of course, I would engage with Treasury. I can assure the member, Jackie Baillie, that they are spent. In terms of that specific £10 million scheme, part of the issue here is the scale of an equity investment. There are other investments that are around. Of course, there is a hierarchy of financial support that could be provided to a company, irrespective of the brexit uncertainty. Companies can choose which support they wish. Some prefer grant, maybe that is no surprise. What would you choose? If you were the investor, would you take the money with conditions or would you like the equity or would you like the loan? Other companies have sought guarantees for different reasons. If you like a menu of financial support, that is there for companies in Scotland, some of which are delivered by Scottish Enterprise. Then, of course, there is separate brexit support as well. Brexit readiness, for example, to support companies preparing for brexit, whatever that may transpire to be. However, there is extra effort going into that particular scheme. In terms of timescale, I understand and I appreciate the disappointment. I share it that there have not been more schemes that have been successful to come through. Some of that is down to the time taken for an investment proposition to go through the necessary process. We would all hope that more come through the pipeline. However, I say that there are investors that have made contact. I understand that brexit uncertainty is now cast and out on their investment propositions. We all know that to be true that investment has been put on hold because of brexit. In relation to the scheme, the dedicated description—I think it is fund managers—and I can come back with the detail, I will absolutely try to be proactive to ensure that it is used. However, I hope that all of that answers comprehensively give the reassurance that the resource is not lost to us. We are trying to take advantage of existing resource out there. The draft budget allocates £130 million to the Scottish National Investment Bank in terms of initial funding. How much of that money is coming from financial transactions funding derived from the UK Government? £120 million would be the financial transactions and £10 million is the base operating costs that I have allocated. We have the vast majority of funding in relation to the Scottish National Investment Bank and £70 million of the Scottish Enterprise budget is derived from financial transactions funding. When the UK Government announced that funding, you described it as a con, as it is not being real money. Do you still think that financial transactions funding is a con? I think that you are mixing what I said. What I have described was that, just as I have described what resources businesses would choose, any Government would choose the financial flexibility of resource funding. Why wouldn't you? What I have described—I think that Dean Lockhart helps me to make the point here—is that if a Government and a Parliament has been asked to choose reductions in front-line services because our resource block grant is going down in real terms, that has an impact on the services of Scotland. What I have said around capital investment, on capital investment, if you have traditional CDL, you can invest that direct in housing or wherever it happens to be. That is capital investment. Financial transactions are welcome for those kinds of purposes. I welcome them to invest in the bank. I welcome them to support co-investment. Companies are equity funding. What I do not welcome is a reduction in the front-line budgets, a reduction in the CDL grant, a reduction in the financial flexibility that we have to invest it in a very tightly defined area. Any finance secretary would want as much flexibility as possible so that we can invest it in the fashion that it would like. I welcome financial transactions in so far as they go, but surely with that wider context committee understands that I would also welcome an increase in resource spending so that we can invest more in areas such as the NHS, education, local government, swan and so forth. What I described as a con is the way that some conservative members were describing that £2 billion as totally unconditional £2 billion for the Scottish Government when, in fact, a large amount of that was, indeed, financial transactions. That is fungible. The increase might not like it, but that is the explanation that it was £2 billion with strings attached. No, but the reality is that cash is fungible. The increase in financial transactions funding means that you can use cash that otherwise would have been going to enterprise agencies in other areas. That is just a simple case of financial management, but thank you for clarifying that FD funding was not a con. I certainly cannot fund a national health service through financial transactions or the education service or local government through financial transactions. That was my point about it as a con to describe it as unconditional money, so I am glad to have been given the opportunity to clarify that. I am glad that it is real money. Moving on to a more general question about the budget, the amount of income tax under the control of the Scottish Government is forecast to decline by half a billion pounds over the next financial year. That is almost 10 times the amount that the Scottish Government will raise as a result of not increasing tax thresholds. Can you explain the reasons for this half a billion pounds decline? Sorry. Income tax is forecast to increase. Shall we go to the tax chapter? Yes. Income tax, I am talking about. Yes, so am I. Okay. What page are you on? I will show you its question in me, so you tell me what you are wishing to grow. I am Rob. I am talking about table 102, Scottish Income Tax, from 2018-19 to 2019-20, from £12.1 billion down to £11.6 billion. What is the... Table 102 on page 8. And what do you wish to challenge? Scottish Income Tax. The last two columns going down from £12.1 to £11.6 billion. In terms of the figures, the member will know that we are moving from forecast to actual outturn. So the closest we get to each fiscal event, then we get to outturn. There is a two-year, 80-month delay in terms of income tax figures being reconciled. So actually we are moving from a period of forecast to actual outturn. So the policy decisions that we have made will actually increase the Scottish Income Tax take. That is not what this table says. As I say, we are moving from a period of forecast to actual outturn. And the more data we have takes us to a more accurate picture. Right, but is this table accurate in showing a £500 million decline in income tax receipts? Mr Lockhart, do you remember a finance committee or not? I used to be. All right, okay. So you'll be very familiar with the issue of us moving from forecast to actual outturn that recalibrates the numbers. And as each year goes, we'll have the updated number. And of course we'd all like to get as close to outturn as possible when that gives us the actual number rather than the forecast that we've been moving to. I can give a more expansive answer, of course, because we've published the medium-term financial report that gives us the latest numbers. And we also will have the, as I say, when we have the outturn, it tells you what exactly is raised up until recently and now. And going on to the future, we rely on forecasts that are provided by the fiscal commission. The fiscal commission and their very detailed report have been going through what they've estimated in terms of Scottish income tax. So they will move from what was the baseline issue, which was estimates to the actual outturn. It's no detrimental consequences for the Scottish Government's budget and the resources that we have. So I know that that's the methodology issue that we were facing before, and they have revised the Scottish income tax figures. So that's the explanation for the difference in figures. We're moving from forecast into more accurate outturn figures. Okay, but we're still seeing a decline in actual cash coming in through income tax. Let me move on to another question. The estimated number of totally rate taxpayers in Scotland was reduced from £18,000 to around £12,000. The £18,000 number was in your tax document of last year. What steps is the Scottish Government taking to increase the number of top tax rate payers in Scotland, because they provide a significant percentage of income tax receipts? And do you think that increasing the tax gap with the rest of the UK for those taxpayers will help increase income tax revenue from those taxpayers? First of all, I've not seen any evidence that our divergence in tax policy is deterring people from coming to live, work and invest in Scotland. I actually think that the other side of the coin, there's tax and spend, and in terms of spend, we're stimulating the economy, we're providing that stability that's required, and importantly the sustainability of our public services. And the social contract in Scotland, so that's benefits that don't exist south of the border, whether that's free education, no prescriptions, the extension of free personal care, or the kind of society and country that we're trying to build is about raising the necessary revenues and then investing that in our public services. So I do believe that that presents a more attractive country and as I say again, there's been no evidence that any tax divergence thus far has in any way impacted negatively on the economy. In fact, you could argue in the current financial year that for the two quarters where we were outperforming the GDP growth of the rest of the United Kingdom, it showed that the economy was strong and it was no deterrence at all. That said, I said in my budget speech and I'll say again, we must be mindful of the issue of divergence and therefore I've asked the council of economic advisors to continue to advise us on those issues. In terms of the top rate of tax, because that was specifically the question that Mr Lockhart had asked, we've taken an evidence-based approach. Others may argue that I don't see any Labour members on this committee interest. Oh, sorry, I do see. I know that to Jackie Baillie's— I actually do apologise. I think that the Labour Party should apologise for the treatment of Jackie Baillie, but it's a whole separate matter. I was just going to go on and make the point that if we had pushed the top rate of tax to such a point where it does deter people from living in Scotland, then there would be less resource raised. I say that as a course, something that we would not be willing to do, because the advice that we were given is that there would be that detrimental effect. In maintaining it at the rate that we have done in terms of the top rate, we raise extra revenue and it meets the tests that we've set out in relation to income tax. I did a discussion paper on income tax and it set out the four tests, which is to have a more progressive system to support lower income earners, protect the economy, and that's a key part of that, and to raise revenues for our public services, so it's met those tests. In terms of how do we attract more top rate tax payers to come to Scotland, it's the kind of country that you want to build, so that's a country that's investing in infrastructure, in education, in society, in business, and is a fairer and more progressive society as well. We have a successful economy that will continue to attract people, and I continue to believe that the tax rates that I propose will not be a deterrent to investment or to taxpayers living in Scotland. Okay, final question. Thank you. Do you have a specific target for increasing top rate taxpayers in Scotland? I don't, I don't. Not a specific target of top rate taxpayers if you don't have a target, how can you manage it? I would like to hear the rationale for only attracting top rate taxpayers to Scotland, because you know what, I value the carer, I value the nurse, I value other people, I don't judge people just by their tax ban, to convener, by their contribution to society. Maybe even the size of their heart, something Dean Lockhart would be interested in as well, but convener, I have set no target to attract a particular band of taxpayer but do I want to attract people to come and live in Scotland? Of course I do. Does the UK Government wish to do that? No, they wish to send them away and create a hostile environment for migrants to come and work in Scotland and the rest of the UK. Something, of course, would make a difference to our economy. Well, we have no one from the UK Government here to respond to and rebut that comment finance secretary. So I think we'll move on from finance, tax and apologies to questions that might be for the other minister to address, but I'll turn to Angela Constance now. Thanks very much, convener. Before I ask Mr Hepburn some detailed questions about CAYAM and RAC, could I just pick up one issue with the cabinet secretary with respect to financial transactions where earlier he gave an outline of the range of activities that financial transactions could be used for? And I wondered if he would be interested in what the Welsh Government has done to enable credit unions to access financial transactions and whether that is something that he would actively explore if I write to him with the detail about that. Yes, I'd be very happy to look at that. Mr Hepburn has some responsibility around credit unions. I'm more than happy to look at that issue, absolutely. I've obviously spent much of the last two weeks in regular contact with ministers with regard to the devastating news over 300 workers at CAYAM in Livingston received just prior to Christmas in terms of being made redundant without due notice and not receiving pay before Christmas. Now, I accept that we know more about this company now than we did in 2014 when £850,000 of taxpayers' money was invested. But can I ask Mr Hepburn or indeed the cabinet secretary to speak more about due diligence given that this is a company that is persistently late in laying its accounts, took me two minutes to find it out on the website of the company's house and that they haven't seen an annual profit since 2012? I would refer back—I mean, clearly, I would refer back to the answer, I keep it early, in terms of my clear priority right now is, as Ms Constance is, as a convener to support the workforce. But in respect of the question that the convener opened up with, I would go back to the point that I made there in relation to the clear expectation would be that full due diligence would be undertaken by Scottish Enterprise in respect of any award that they made. That should have happened with CHIAM in terms of the specifics of the process that was undertaken. Scottish Enterprise would be able to give a fuller answer, but the investment was made back in 2014 on the basis of seeking to secure some 103 jobs at the site and the funding conditions were attached to those remaining in place and the assets that were secured remaining in place until 2021. Now that's clearly very sadly not being able to be achieved and on that basis Scottish Enterprise would be seeking to recoup its investment. I would be interested to know whether the due diligence that was undertaken in 2014 by Scottish Enterprise whether that will be made publicly available, particularly given that we know, as Mr Hepburn has outlined, that the purpose of that £850,000 was to create 103 new jobs and safeguard 65 existing jobs in 2014. By Christmas 2014 the company paid off 20 permanent staff and 40 temporary members of staff. Despite being given £850,000 of public money with a view to expanding the business in 2014, the year wasn't even out in 2014 when the company was actually doing the exact opposite of what it was giving that money for in the first place. In respect of the specifics that were undertaken at the time, that's something we need to raise with Scottish Enterprise. I can undertake to do that and to see what information we can provide to the committee. It may be that the committee wants to engage Scottish Enterprise directly. My clear expectation would be that any form of public funding is provided by one of our agencies that full due diligence should be undertaken. Scottish Enterprise has direct responsibility for that, so it would be able to provide additional information. In terms of follow-up when public money is given for a specific purpose, but the reverse happens, what do Scottish Enterprise and ministers do to follow-up events that have not transpired as expected? Clearly there will be an on-going relationship between any company that has been investment made in and the agency that has made that investment, in this case Scottish Enterprise. Where the outcome has not been, as expected, there would need to be the issue of clawback, so that's what I've referred to already. Scottish Enterprise would seek to reclaim any monies that have been invested if the purpose by which it was invested has not been achieved. So in this circumstance, ordinarily that would be through the company that the company is on-going. In this circumstance, that will not be possible, so it will be done through the administrator. So we are now looking at the issue of clawback via the administrators because of events leading up to Christmas 2018. Was there any suggestion of clawback dating to Christmas 2014 when I put it to you again, a substantial amount of public money was given to this company for the purpose of expansion, creating jobs, safeguarding jobs. But by the Christmas of the same year, they had actually paid staff off, where why were we not looking, or why was Scottish Enterprise under the guidance of ministers, not looking at clawback then? I think that that would be a matter that the committee would have to take up directly with Scottish Enterprise. I'm happy for us to take it up with them and to ask them to update the committee accordingly. Okay, I will indeed take that up with Scottish Enterprise, but I suspect that my dialogue with the minister on this has not ceased. My final question— I would be surprised if it was, Ms Constance. You know me well. My final question, convener, is how can conditions on RSA or grant funding be used to reduce the risk to the public purse and be used in a way that aids early intervention in terms of supporting countries or being on top of situations when there are the first indications that things are going wrong? Well, that's clear of something that we can look at. I would go back to the point that I made earlier. We should be that on-going relationship. No, I can't answer, and I've been quite clear and upfront about that in relation to what happened in 2014. But we will look at that, but there should be that on-going relationship between the body that has made the award and the recipient of that award. In terms of how we are starting to look at what we can leverage in terms of additionality out of our public investment, we have set out the fair work first principles that are under way, seeking a wider expectation around the commitment of any organisation that is the beneficiary of public funding to adhere to those fair work principles and certainly maintaining dialogue with your workforce about what's happening there. I think that it should be part of those principles. Okay, but there is evidence looking at the history of this company that fair work principles have not been applied given they were given public money in 2014 to create jobs and expand their business and in fact did the exact opposite. Well, we will need to seek to learn from this experience. Clearly, the manner in which the company moved into administration at the timing of it was very unfortunate to say the least and the impact on the individual employed there is something that I do not underestimate and as I say my clear priority now yes, I've referred to the fact that Scottish Enterprise will seek to call back any public investment but that is not their immediate priority right now. It's not my expectation that's their immediate priority right now. Their immediate priority should be working with other agencies to support the workforce and indeed work with the administrator to see if a new buyer can be sought for the site so that we can continue to see economic activity in the west loading area. Okay, thanks. The Labour member of the committee would like to ask a follow-up. Thank you very much, convener. Just a couple of questions as follow-up to that. There was of course 100,000 given an RSA in November 2017. What was that for and is that also going to be part of the clawback that Scottish Enterprise come on to look at eventually? That if it's related to the circumstances that we are in now then yes, the expectation would be that there should be some form of clawback but I would need to look at the specifics. You do know what it looks for. I don't have the specifics to be quick-handed. It would be helpful if you could write to the committee with us. You can be quick-handed with that. I understand that Scottish Enterprise were told on the 16th of November because this is an account managed company. The Scottish Government were told on the 22nd of November. Can I ask when either the minister or the cabinet secretary knew and what you did? Sorry, I found out on the 22nd when ministers were informed. Then at that stage, yes, there was certainly an indication and this would be one of the difficulties in this situation which I don't think has been widely understood or has come out in terms of the coverage of the situation. Understandably, the coverage has focused on the impact on the workforce. One of the difficulties in this situation is the first contact that we had was, yes, certainly, that the company was in financial difficulty but they weren't moving into administration. They were talking about seeking a buyer. Then it would change to the company looking to secure new sources of finance. Then it would change back to seeking another buyer and then looking for additional sources of finance. Indeed, ministers were informed. I was informed just two days before the company announced that it was going into administration. The latest thing that the company was looking to do was secure new sources of finance to keep the company going. So it was a very fluid and rapidly changing set of circumstances but throughout that entire process Scottish Enterprise was engaged. The Scottish Government officials were engaged with the company to offer whatever assistance we could to try and help with the process of finding a new buyer if that was what was being sought. Or indeed, and this became clearer as we got closer to the eventual outcome that we started to gear up pace to engage to offer the support of pace to support the workforce. So the process of engagement was there throughout the entire period. I'm sure that you've expressed this, the regret that staff weren't paid and were told on Christmas Eve. Did you seek specific assurances from the company given the fluid situation that there was about protecting staff and their rights to a decent wage? Well, everything that we were doing through the engagement with the company was about trying to secure the rights and the position of the staff. We were advised very late on that the salary that was due to be paid on the 21st of December, sorry, we were advised before then that limited funds were available to meet the payroll, but there was no suggestion that payroll wouldn't be met. We were then subsequently told a few days later that the salary wouldn't be paid as had been planned on the 21st of December but would be paid on the 27th of December. And then it was only a matter of, in fact it was the next day we were told it wouldn't be paid at all. That indicates the kind of situation. I think it is, of course, important to place on record that ultimately the staff were paid. Absolutely, but when did you know, because that clearly should send up red flags about what was going on in the company, when did you know for certain that the staff wouldn't be paid? We were told, I think, the day before they went into administration. That's when we came up. So that's the kind of timescale we were working to. I mean, you'll forgive me for doing this, but I can't help but contrast seeing you, both of you, sitting there, that Michelin and Dundee, so the Cabinet Secretary, get on a plane to go to Paris to try and resolve this. And I just feel as if the Scottish Government have been sleepwalking and trusting I am, and it results in workers going without pay on Christmas eve. Well, I think the situations were rather different. Doesn't feel that way to the workforce, I suspect? Of course, it doesn't feel any different to the workforce. I wouldn't suggest anything otherwise, Ms Bailey, and I've made clear the commitment right now as to supporting those people who have been directly affected. With the situation with Michelin and the Cabinet Secretary can speak more to this, you had a company that was willingly seeking it to be engaged and had indicated very upfront and early on what the position was in respect of the future of that site, but indicated a willingness to stay involved in the city of Dundee. That was not the same with Cation, but there was that process of on-going engagement with the company. And indeed, ultimately, we know that the chief executive of the company didn't remain in Scotland to tell the workforce directly what the outcome was, but he was at various stages in Scotland and being engaged directly. Have you had any discussions with the chief executive directly? I have not, no. I'm now seeking to engage with the chief executive, he was no longer the chief executive of the company, so I'm now seeking to engage with KPMG, who are the administrator. At the point that he was the chief executive, when all those problems were being experienced and disappointed that he didn't engage directly with him, I would have expected that from the minister and from the Scottish Government. Well, there was engagement direct between the Government and the company. From whom? Yourself as minister? No, I've sent that very quickly. The Cabinet Secretary? From Scottish Government officials. I suppose that the point that I'm making is that the situation changed very drastically over the months period. It was only at the ultimate end that it was very clear that it was as drastic as it was. Now, that's not to suggest that the company hadn't indicated that there were problems with their financial situation. We sought to engage with the company to try and do what we could to assist, but it was only at the very end that the company moved into administration and said that the staff wouldn't be paid that it was as clear as it is. Okay. You suggested to me, minister, in one of your earlier responses that you found out literally a day before they went into administration, I forget the precise timing of it. You were briefed that it was going into administration on the 14th of December. Isn't that not correct? And would you want to correct your earlier response? So you don't mislead the committee? Sorry, I'm not misleading the committee. So that's the point. So the CHIAM had suggested that they may move into administration, but they then changed their position as far as we were. We had to, they were pursuing investment options to try and keep the company on-going. On the 14th of December, you knew that going into administration was a live possibility and nothing was done? No, nothing. I'm not suggesting, at no stage of my suggestion, nothing was done. It was still that continued engagement. Okay, so you were reassured by them saying, it's okay, we're going to find other investors and that was enough? No, I'm not suggesting that at all. The unfortunate reality, Ms Bailey, is that companies will engage with us on a regular basis. And very sadly, and more often than not, it's where the engagement we have is not successful. We will hear about it. We have other times that we engage with companies and they will seek to do so on often on a confidential basis, because if the first thing we do is, let's say that they are looking for another buyer, if we were to go out and say this company is in specific financial trouble, it might make a buyer more difficult to be found, for example. So every process of engagement is designed to try and secure a successful outcome. Sometimes that's achieved, sometimes regrettably it is not. I think that people would expect people at the highest level, ministers, cabinet secretaries, to roll up their sleeves and get on with this. And I can't help but contrast that approach with the more proactive approach taken by the cabinet secretary. Thank you, convener. John Mason. Thanks, convener. I mean, Ms Bailey has strayed somewhat into my questions, but I was going to ask for an update on Mishla and indeed, if either of you can say anything about that. Convener, I'm happy to do that. I think that it is important to say, though, as Mr Hepburn has said, that there can be a number of issues where companies get into difficulty and Scottish Enterprise are involved. They won't be involved all the time, but where we have an account manager, there's an expectation that we're informed of events. And the timelines that have been set out in relation to some companies, I think it will give you a snapshot that companies can get into difficulty. There is sometimes an opportunity for ministers to get involved. Mitchellyn is an example where there was clear opportunity for ministerial involvement and I think that that, in that instance, was able to affect change because what we were able to present and understand with a company that was quite an ethical company in terms of their approach generally and their purpose and their mission and their desire to do the best by Dundee and the best by their staff gave us the opportunity to engage. Ultimately, that's led to signing of a memorandum of understanding with Mitchellyn through what we're describing as the Mitchellyn Scotland Alliance where the company, the council, the Scottish Government, our agencies will come together to make the best of this situation. As all members of the committee will know, we set out to try and save the plant as it was. We didn't give up on that mission but it was clear that repurposing the plant was the more likely outcome of discussions. Having met the company, as I say, with other stakeholders, including the council leadership, the leader and the chief executive, we were able to arrive at a proposition around the circular economy, the low-carbon economy, retraining and re-skilling that can be housed at Dundee. Because of the engagement that we had had and showcasing what we wanted to do as a country, the company was willing to engage. Even though they have confirmed their plans to withdraw the tyre manufacturing, of course there will be a reduced head count as that happens, but there are full redundancy payments that have been welcomed by the trade unions. We want to try and retain, recruit and attract as many people as possible to those new ventures. Michelin has appointed a senior executive to take that work forward. We have the memorandum of understanding and we will have ongoing discussions with the company in terms of how that is resourced, but we bring in our key partners together to make sure that that happens. That was all welcomed by the local community, by the trade unions and by the local authority, as other than retaining the plant the best possible outcome in the circumstances that essentially Michelin is here to stay in terms of on-going investment and on-going partnership. Bear in mind that this is an international company. In the words of Scottish Enterprise, if they were not already in Scotland, we would be trying to attract them, so we did not want them to go. We have put up a package that encourages them in this way to stay. That work will now be taken forward, led by the chief executive of Scottish Enterprise. A number of jobs involved here, of course, were over 800 jobs. The scale of industrial manufacturing in Dundee was about 8 per cent of manufacturing alone, just from that plant. The plant had a strong record as an environmentally friendly plant in that it was heading for carbon neutrality because of the renewables on site. I think that there is a lot of potential at the site. There is a lot of good work to make sure that we can retain as many jobs as possible and, even more importantly, invest in the jobs and manufacturing of the future. It will be repurposed as we set out. I have been listening carefully to the committee's questions about grant assistance. I can tell you this. If all this Parliament had done was demanded clawback, and if that is all the Government had done on day one of hearing of the Michelin announcement, we would have lost Michelin completely. Michelin are only staying because we engage. I am not suggesting that members have said that we do that, but I make the point that somewhere, immediately asking about clawback when it was something far more positive to be secured from the predicament that we found ourselves in. I think that is why that positive partnership working, the engagement of the company, that the willingness for them to listen to is, and then the proposition that we put to them has led to a far more positive outcome than otherwise would have been the case. Of course, if there is to be clawback if grant conditions have not been fulfilled, and in the most recent grant around conditionality, around headcount, if it is not fulfilled, then yes, we have that clawback of resource that may have been drawn down, specifically in relation to Michelin. I understand from memory about £4.5 million grant for environmental purposes, £1.5 million was drawn down, and if the conditions are not meant, we will claw that back. However, we will be having separate discussions as to what we have set out in terms of the mission at Dundee. I am sure that Mr Mason finds that helpful. That was a very full answer. I did ask, and I have got a good answer, so I appreciate that. Thank you very much. There does seem to be a contrast between the two situations that we have just mentioned. I noticed that you used the word ethical about Michelin, and it seems to me as an outsider, I am not involved in either case, but they seem to have been quite proactive, they seem to have been quite upfront, they seem to have been willing to engage, and call it ethical or whatever. Are those factors that Scottish Enterprise take into account when they are assessing different companies? Is this a company that we can basically trust? I know that you could not be 100 per cent sure on that, and is this a company that we have got reservations about? Are those factors that are taken into account? I do not want to make specific comparisons, but on the general issues, of course there is a difference if you trust the individual that you are engaging with. Of course we go through due diligence with every company. Some companies are up for support and help, and some are not. Some companies are far more resistant to an open book approach. They will share their accounts, they will tell you the predicament they are in, they will tell you their investment plans up front and honest, some are maybe more guarded. I think that you have to make investment decisions based on the information that you have before you, but there has to be an element of trust as well. In terms of how much Government and our agencies can do to support a company, there has to be a willingness and an honesty as well to get the best possible outcome. That is what we had with Michelin. Yes. Presumably this overlaps then with the fair work agenda that we are wanting companies to treat their workers well, make sure that women and employees are getting an opportunity at all of these kind of things. Presumably it is the same kind of company that is going to treat its employees well, but it is also going to be open with you as the Government, and if a company is not being open with yourselves, that should perhaps raise questions as to whether they are treating their employees well. I do not want to pick in any individual company when I say the following. Some companies are not well managed, some companies are not maybe forthcoming with everything that they should tell, Scottish Government or Scottish Enterprise, more specifically or Highlands and Islands Enterprise, for that matter, about whether they might not be forthcoming with the nature of the problem. Some companies might not want the extent of their difficulties shared, and that is why sometimes there are discussions in confidence. We could do more harm to a company and its employees if we did not treat commercial confidentiality seriously. That could put some companies at a serious disadvantage. There is an issue of trust in honesty, transparency, accountability, everything that you would expect in due diligence. There are also issues at a company level about quality of management, the respect of the show to their workforce and how open they are with the Government. Yes, it is dynamic and we can only do our best, and our agencies can only do their best when they engage with companies. Ask for the right information and expect due diligence. We are not satisfied, of course, that we do not have to give public money, ultimately, if we are not satisfied, but always bear in mind the employees, those people who are lively, who are determined on the success of that company. That is why I just make the point that, in Michelin, if my number one mission was financial clawback, there would have been a far less positive outcome than the mission we embarked on. I know you are not, convener, but I am making the point for the avoidance of doubt when the Government's mission is to support a company for the right reasons, that is what we are trying to do, but we do expect conditions to be fulfilled and we expect companies to act in an upfront, honest and transparent manner with us. I just make the final point. We have had reservations in the past with Scottish Enterprise and, to some extent, the HIE as to how much they took on the Government's fair work agenda and all of those other issues about bringing in disabled employees and ethnic minorities and women and so on and so forth. I do just hope that the message that you are giving today, which is that these are absolutely central, will filter through to Scottish Enterprise and I am sure that we will raise that with them in due course. Oh, convener, I would not expect the committee members just to hope that we are making it a matter of conditionality for the regional selective assistance and then as we have committed to work through all funding streams to make sure that it is absolutely mainstream, but clearly we have to work on the big grants first. But if there is any resistance to it, the Government agencies will be expected to deliver the Government's policies. The First Minister has made it clear conditionality around fair work, fair work first and that is what we are embarking upon. To make sure that it touches every funding stream as I have described will take time, but we are working our way through that. That is the commitment. If you hear any resistance from Scottish Enterprise or any other enterprise agency, I cannot make it clear that that is what we are working towards. I am not asking the members to hope. We will hold them to account for that. That is great. Thanks very much. Gordon MacDonald. Thanks very much, convener. I want to move on to the general question about enterprise agency targets. Scottish Enterprise successfully delivered all its business plan measures for 2017-18. Highlands and Islands met or exceeded all its targets for the same year. At the end of 2015-18 business plan period, Scottish Enterprise met all but one of the full three-year targets. Who sets the targets for the enterprise agencies? What input has the Scottish Government in setting those targets? And are you satisfied that the targets are challenging enough to maximise the opportunities for the Scottish economy? Essentially—of course, that is changing, and that is just what I wanted to check. Currently, the targets are set through their annual plan, which ministers see and ultimately approve. However, the issue is that there is not a consistency among the enterprise agencies. There is an element of developing targets and then satisfactorily meeting them all. Is Scotland as a nation meeting our economic targets? Well, no, because we have published the Scotland performs documents and we set out our own targets. The targets have, of course, been impacted by the wider issues around the economy and, right now, Brexit, uncertainty and so on. However, I think that what will be helpful that we are moving towards, and I think that you are taking evidence on this, or will be, as part of your work around the strategic board, is that the strategic board is looking at having consistent targets for the enterprise agencies. With the strategic board looking at it, I think that it gives that level of independence of the board. If you like independence of government, in a sense, because it is the strategic board led by Nora Senior, that will be taking that work forward. You mentioned the national performance targets, and I was going to go on to that, that they have not been met. How can the enterprise agencies meet their targets, yet the Scottish Government's national performance targets are not met? Are they not aligned enough? Well, I think that it would be unfair, an interesting challenge to present to them, but an unfair challenge to hold the enterprise agencies entirely accountable for the entire Scottish economy in every part for it. Surely, if we are asking the enterprise agencies to grow companies, to help exports, to deliver start-ups, scale-ups and all of that, at least if they can achieve all of that, that is what they have been asked to do, and that is success. I did touch upon the wider issues in relation to the Scottish economy. Although there are many elements to be positive about, I am well aware of the long-term targets that will set for Scotland, for the country. It is surely to be welcomed that we have had five consecutive quarters of GDP growth. If for some of those quarters, we were outperforming the United Kingdom, unemployment is at a record low at 3.7 per cent, foreign direct investment is only behind London and the south-east of England, export is high, and we have made progress under devolution on productivity. Surely all of that is to be welcomed, notwithstanding that there are national targets that have not been met that we want to meet. If you take the forecasts for economic growth, if you want to define it through GDP, they are subdued. However, the Scottish Fiscal Commission said that they are subdued largely because of Brexit, the population challenge that Scotland faces. If we recognise that the population challenge that Scotland faces is really an issue, we cannot say that it is just a matter for Scottish Enterprise, Highlands and Islands Enterprise, or the South of Scotland Development Agency. Enterprise is essentially to fix and isolation. I think that that is why there might be a disjoint between the two, but we absolutely want to make sure that the Enterprise Agency's targets are challenging, and I think that the role of the strategic board in that regard will be very helpful. Okay, thank you very much. Cabinet Secretary, I would like to look at really Fair Start Scotland and maybe touch on one or two the points that Andy Wightman raised. Why is the Fair Start Scotland budget falling by 3.3 million between 2018-19 and 2019-20? I am happy to refer questions for Fair Start employability to the relevant minister, which happens to be Mr Hepburn. I am sure that the answer is along the lines of the fact that schemes are coming to an end, but I think that it is more appropriate that the minister answers for that. I will cover the budget question, of course, but the minister knows his brief. It is because schemes are coming to an end. Last year, for example, out of that budget line, we were funding the Innovation and Integration Fund, which was some £1.7 million to road test a pilot variety of different approaches as to how we can better align employability provision. There was also funding for our transitional one-year programmes, because there was still follow-on from the year before, where people had started. They were still going through the process of being supported in the last financial year, even though they had been referred in the previous year before. That has come to an end. Effectively, that is the reason why of course it does not affect the front-line service at all. The funding that we have provided through the contracts, the £96 million contracts, that remains in place. The contracts are signed, and my expectation is that what we have put in place through the contracts will be delivered. Of course, we were reporting on that. The first report was published in November in terms of numbers, covering the first two quarters of nearly 5,000 people starting on the service. Given the reduction for the reasons that you have said, is there likely to be more reductions in years to come because of other programmes that are coming to an end? Probably not through that budget line. I refer to the fact that, if you look at our other lines in terms of employability provision, there is an increase in expenditure through a number of projects that we are seeking to take forward. No, in terms of this budget line, it has been contracted for the contracts that are in place and will fund our contract obligations. Is there a linkage between the level 4 explanation on efficiencies and running cost efficiencies in relation to the drop as well, or is it entirely because of the programmes coming to an end? There are rather associated savings that she would describe as efficiencies, but again, they were upfront costs, so a lot of that was to do with development costs. We do not now need to pay as much forward because the programme is up and running. Why are not those savings being used to fund individual placement support pilot, specifically recommended by the committee in the report of 31 October and of course page 3 of the Scottish Government response? We are already funding individual placement support, so individual placement support is an integral part of Fair Start Scotland and if the providers through the process of assessment of any participant determine that that is an appropriate form of support, then they are contractually obliged to provide it. I am loath to provide double funding for something that is already available through our mainstream employability programme. In the programme for government, information is given on the Fair Work Action Plan, the living wage nation, women's returners programmes, all the picture in that programme for government. Given the importance to the Government's inclusive growth agenda, why is the combined budget for these policies so small, £7 million in 2019-20? You could argue that it is small, I could also offer the report that there is a 55 per cent increase in the Fair Work budget line, so there has actually been an uplift in funding. I think that we would also make the observation that a lot of the first observation if you look at the funding that we have provided for living wage accreditation, for example, which has been maintained, that has led to significant success. We now have over 1,300 accredited living wage employers. We saw 25,000 people over the last three years benefit by an increase in their income as a result of living wage accreditation, so we are offering the same form of funding seeking similar outcomes through that particular initiative. Even for what might seem in the face of it quite a modest investment, you can actually make quite a significant difference. We have seen 25,000 people experience an uplift in their income as a result of living wage accreditation. The other more fundamental and wide-ranging point is that as we seek to embed a fair work approach, not every element of it will necessitate new forms of funding. We have made the point a number of times now around elements of conditionality through the public investment might make into specific companies through the fair work first model. That does not necessitate additional budget line, it necessitates a different approach. So much of our approach to fair work is predicated on that culture change. You also mentioned specifically, Mr Beattie, the issue of women returners. I would argue that we are investing in a quite significant resource, £5 million over three years to support up to 2,000 women to return to the world work after a career break. I have been very clear that if supporting women to return to work after a career break is left entirely to the Scottish Government, then we are going to fail in that challenge. We need wider buy-in in relation to that. So, again, that is about working with employers through our agencies directly engaging with employer representative bodies, directly engaging with employers to try and embed that culture change as well. I hear what you say and it makes sense, but still, given the ambitions behind these programmes, £7 million really does not seem very much. I think that it's really just to emphasise what Mr Hepburn was saying. I don't think that you can look at those figures in isolation. They may be for projects or budget lines or for our staffing, but the question is that we're using the £42.5 billion of total expenditure to deliver a fair work nation. That means procurement, that means employment policies, that means conditionality and that means a leadership role with the rest of society, including private business. So, we need to ensure that those principles have been rolled out as a matter of policy, not as a matter of individual projects but a matter of policy. Last time, I was at committee, a committee was quite rightly asking me about why so few women get enterprise support, for example. So, you don't need to necessarily set up a separate budget for that, but understand the reasons for that and then work it through. So, I simply make the point that this is about policy to achieve our ambitions in terms of fair work as much about the financing. If we get the policies right, then that is system change, it's transformational in itself. Of course, working with other stakeholders, ensuring that it applies to the private sector as well encourages that best practices is why it shouldn't be judged by an individual level 4 budget line, but judged by the implementation of the policy, I suppose. Jamie Halcro Johnston had a follow-up, I think. That's right. Thank you very much indeed, Kavanaugh. It's a question for the minister. The number of targeted participants of 38,000 over three years, so far the statistics, the quarterly statistics, don't exceed 2,815. So, that would suggest that, sorry. So, Mr Halcro Johnston didn't follow that last point. So far, the statistics that we have for starts, in none of the quarterly starts, the number of, sorry, starts is any more than 2,815. That would suggest that we're not, or the number of starts isn't going to reach the 38,000 if that continued over the three years. So, would that suggest either there's going to need to be a large increase, or that perhaps the target is going to have to be reduced? Would you expect there to be an increase in the number of starts over the next three years? Well, we've set ourselves a three-year target. We've not set ourselves individual year-on-year targets. It's a 38,000 target over a three-year referral period and a five-year delivery period. I would make the observation that this is the quite early phase of the programme, so it's a new approach. So, we're working with a variety of bodies to make sure that they are well acquainted with what is a new programme. The primary example of that, for instance, is that we still rely primarily on Job Center Plus as the referral mechanism. We don't have direct responsibility for Job Center Plus, so we have an agreement with the UK Government as to how that relationship can be managed, but we're working with them to make sure that we're maximising the number of referrals, but we're also working to ensure new referral pathways as well. That work is under way, but my expectation is that we've set out a target of 38,000, and we do everything to meet that target. So, you're confident that that target will be hit with 38,000 over three years? We've set the target and I want to hit it. Okay. Can I ask also, just quickly there now, figures for job outcomes and early leaves at this stage, I appreciate it. It's early. When would we be looking to expect to be able to get those figures? I think we're still working our way through as to what sensible stage it will be to start reporting that information. I don't think it would be meaningful to have reported it at this early stage, so that will be available in due course. So, the first set of statistical information was published in November, that covered the first two quarters. Thereafter, we're going to publish information on a quarterly basis, and we'll continue to think through what additional information should be proactively published as part of those statistical releases. Okay. Thank you. Thank you, Berlay. Thank you, Chris. A question for the minister. First Start Scotland gets three-year contracts, employability fund, one-year contracts, so organisations are involved in an annual procurement exercise that is time consuming and it takes them maybe two to three months where their attention is diverted. The committee recommended three-year contracts. I have to say that the Scottish Government response, if I was being kind, I would describe it as non-committal. So I'm always keen to give the minister a chance to say yes. Would he perhaps now just say yes to three-year employability fund contracts, because that's the right thing to do? No. No. Let me expand on what would at face value probably not seem a very helpful answer. I think that non-committal can be viewed as somewhat a pejorative term, but I would accept that in our answer we haven't committed to definitively doing what we said. So I'll accept the good faith by which Jackie Berlay used that term. We are looking at this issue. I mean, I understand the practical difficulties that can be caused for organisations. I think that my first observation though would be, and we should always bear in mind that Fair Start Scotland and the Employability Fund are very different beasts. The Employability Fund is designed to be a much shorter and sharper intervention than Fair Start Scotland might be. Fair Start Scotland operates on the basis of the specific individual coming forward. It might be a fairly short-sharp intervention, but a person can be supported up to 30 months. So by necessity, those contracts have to be of a significant length. That's not necessarily the same in terms of delivery requirement for the Employability Fund. We're moving into a new world, though. We've published in the 5th of December the first steps of our review of employability provision. We've signed an agreement with local government in terms of working on a more aligned and close basis for the delivery of employability services. The Employability Fund provision, or that type of provision, is very much part of that review. What I can say very clearly in the review, we did set out how we would explore how we could commit to multi-year funding levels to bring added stability. It's in the mix in terms of what we're looking at. The other thing that I can say to add certainty for employability fund providers is that, for this financial year, we've agreed with the SDS that they'll roll over contracts with existing providers to try and maintain the stability of support because we're moving into this further area of review. So hopefully that satisfies Ms Bailey somewhat. It's a maybe, convener. I think that the jury's out on this one. Right. Before we move too far into this new world in which an SNP minister says no instead of yes and the Labour member says maybe, I think that that probably is a good point to conclude today's session. So thank you to both of you for coming in and I'll suspend the session briefly to allow for change over witnesses. Well, good morning again and welcome to Nora, senior chair of the Enterprise and Skills Strategic Board, and she has with him Stephen Boyle, who is head of the analytical unit Enterprise and Skills Strategic Board for the Scottish Government. So I think I'll invite Nora to make an opening statement and then we'll move into questions from committee members. Okay. Excuse me, I have a bit of a cold. Hi, thank you very much for inviting us back to give us the opportunity to update you on what has been undertaken since I was last here. The board has been in existence now for, well, I've been in position for about 14 months. The board itself has been in existence since December last year, so just over 12 months. We've met eight times during that period. Within that period, we've examined evidence around the areas that will help move Scotland's position both within the OECD charts, if you like, and looked at actions around improving productivity, wellbeing and sustainable economic growth. I think that there are a number of areas that the board has successfully achieved. I'm happy to discuss those or outline those in more detail during questions. The aims of the board were to improve the overall performance of the Enterprise and Skills system to drive sustainable economic growth, to drive hard alignment between the activities of the agencies, to look at performance measures that would give realistic insights and comparisons against what the agencies are spending money on and what the return on that investment is, and to look at how we encourage engagement with other agencies and bodies that are involved in the whole Enterprise and Skills business support area, and to look at the culture and collaboration of the agencies themselves. I think that we can demonstrate a successful movement forward in each of those areas, particularly around alignment. We now have a more co-ordinated planning system between ministers, Scottish Government and the agencies. We are looking at a process where there are dedicated times for the agencies to develop and discuss not only their own plans, but to share their ideas with each other, so that there is more opportunity for the agencies to identify where greater collaboration can take place, but also where duplication can be eradicated. We have made initial progress on measuring impacts across a number of different areas. We have produced and published our strategic plan, which was published in October. That covered four main missions around business models, workplace innovation and fair work, future skills, business creation and growth, and export growth. We looked at a wider range of areas that we thought would impact on moving economic growth in a positive way forward, but we selected those four as having been the ones that demonstrated as being able to deliver the most impact. We will be returning to the others that we did not do in the first launch later in this year. I think that we have also been successful. We had some discussions there around fair work. I think that the board has been more challenging in embedding fair work within each of the agencies themselves, in terms of their culture and their values, but also within the plans that they are now beginning to prepare. There is a significant amount of data that the agencies each hold. The board has been successful in ensuring that there are ways and means that that information can be shared more easily among themselves and, importantly, with the analytical unit. Most of all, I think that the strategic board has created a forum for discussion not just with the agencies themselves but with the wider business community, with the wider learner community and with those agencies and bodies and other organisations that are already involved in that area. That would be my opening statement, and I am happy to take questions. I am interested in the overall picture. Some of my colleagues will get into more of the detail, for example, on the analytical unit, so I will try not to stray into their areas. You mentioned quite a lot of things there about hard alignment, sharing plans and avoiding duplication. Can you say anything about timescales? How quickly a year is very quick, I accept? At what stage can we say that we are making progress towards the OECD targets or that there is more alignment? Can you say anything about that? I think that the strategic plan has a 20-year range if you include all the actions and looking at being in the upper quartile of OECD countries is not going to happen overnight. There are some actions very specifically around hard alignment, which will happen very quickly. For instance, the culture and collaboration piece is very much going to be focused on the user, not on the services that the agencies themselves can deliver, but on what the user needs. To help assist that, there is a group that is already working together, led by SE, but comprising HI, SCS and Business Gateway, to look at a single digital online point of entry, which is an initiative to be able to ensure that a customer is able to access everything that our enterprise and system in its widest context is able to offer. The beta system of that will be ready in spring and within the next month or so, that programme group is already looking at how local authorities can also be involved in contributing to that single online point of entry. I think that that is really important. That has a very short timescale. Our learning journey with the change and the future skills agenda that we outlined within the strategic plan will take longer to deliver because you cannot change an education system overnight, but our education system and the way that we learn needs to change to accommodate the technological change that we are experiencing, but the fact that work patterns will change throughout the next period. We will not have jobs for 30 years, we will have jobs for one year, two years, five years, then there will be a continuous programme of lifelong learning needing to upscale and rescale. Changing the education system and then the career system to support that is going to take slightly longer to do. I think that a range of timescales that are embedded within the strategic plan will be able to identify targets against timescales more specifically. We have seen the initial draft of the performance measurement framework that we are looking at. The next discussions around that will probably be in March and then will be embedded and adopted. We should have a fairer or more transparent overview of a timescale around various different KPIs. Specifically, on the different organisations working together, more or less duplication, more joined up, if that is what women have had alignment. I mean, you were saying that you've got your plan and they're beginning to prepare their plans based on that, so obviously that is going to take a few years. I mean, do you think that we as a committee in two years' time, do you think that we could see a noticeable change in the kind of atmosphere and the relationships between the organisations and they're all really going in the same direction or is two years too soon to expect that? I would expect you to, or for the business community to be able to be coming back to your learner community, to be able to come back and say that we see a noticeable difference in the way that we can engage with the whole enterprise and skill system. I would be most disappointed if it was still being a question in two years. That's fine for us now, thank you. Gordon MacDonald, thanks very much. We've already started talking about the analytical unit and you've said that the performance framework, I think that the first draft, is going to be available in March. Can you say something about the resource that's available to the analytical unit and the staffing levels and what size of budget it's got, etc? I'm happy to do that, if I may, convener. The board in May of last year agreed a proposal for an initial head count of eight people and a corresponding non-staff budget of up to £800,000 per year. At the moment, we have five people in post. Sorry, I should say that the Scottish Government also agreed to that budget request. At present, we have five people in post and expect to bring others on board. The five out of the eight that's currently been recruited have been transfers from other Scottish Government agencies or are the new people that's been brought in from business, etc? Of the five, three of the team are employed by the Scottish Government, so they either were already members of the Scottish Government civil service complement or have been recruited to the Scottish Government specifically to work with us. Three of them are mainstream civil servants. We have one person who's on secondment from Skills Development Scotland and I'm seconded to the role from the Royal Bank of Scotland. The three people that have still to be recruited, are they specific gaps that are needed to be filled in terms of expertise and having an analytical unit that can analyse all of the data that's coming in about the Scottish economy? Yes, two of those are economists and as the plans are in place to bring them on board. One would be either a statistician or a social researcher. Those are descriptions of roles in government and there can be grey areas between them but they would be either a statistician or a social researcher. That's helpful. We carried out an inquiry earlier on regarding the amount of economic data for Scotland. Are you clear that there is enough data available to measure Scotland's performance so that you can measure the outcomes of Scottish Enterprise High and the New South of Scotland Agency? Is there enough data that's there? State-of-the-art approaches to measuring the impact of agencies like those don't rely terribly much on conventional economic statistics. Perhaps I can give you an example that's live at the moment of something that we're doing that maybe illustrates that. In round numbers, about two thirds of the budgets of the four agencies are spent on investing in people, whether that's college and university provision through the Scottish Funding Council or the apprenticeship programmes through Skills Development Scotland. We believe that building a work that Skills Development Scotland started, we can estimate what the impacts of that investment are on productivity, equality and well-being, not by using conventional economic statistics but by using other data sets that now exist that allow us to track people as they move through the education and training system so that we know what investments have been made in them, what qualifications they've obtained. However, those data sets, when they're linked with others, allow us to follow people into the world of work so that we can establish what impact undertaking the education and training has had on the likelihood of them being on work and on what they're earning. None of that is in the conventional territory of economic statistics that the committee has looked at before. In measuring the example that you gave of a progress movement through education and their career, how will you measure the impact of wellbeing, fair work, business models and innovation? There's no question that that's trickier, so in a sense the easy bit to measure, and it's by no means absolutely straightforward, the easiest bit to measure is the impact on productivity. Again, if I give you an example of how we're tackling the question of wellbeing in the context of education and training investments, what we're likely to do is to survey people who have been through the education and training system using the approach to the measurement of wellbeing that the Office for National Statistics uses for the United Kingdom as a whole, and then to compare people who've been through the education and training system as best we can with people who are identical in other respects, and we can compare them with the wellbeing of the two groups and measure the impact that proceeding through the education and training system has had on wellbeing. If I turn to something like the impact of the agency's activities on fair work, then we would adopt a similar kind of approach where we would observe what has happened to those businesses that have participated in programmes or received support from the agencies, where fair work perhaps was part of the conditions of participating, and compare them with otherwise similar firms that have not participated in those kinds of programmes. Again, by comparing the two groups, measure the impact that, for example, in this case, fair work interventions have had on those businesses. To get back to my original question, you're satisfied that the ONS data, which covers predominantly the majority of the UK in this small amount, will relate to Scotland, will be adequate for doing that comparison purposes? I don't expect us to rely very much at all on ONS data. We're going to be relying on these different kinds of data sets, many of which have only started to be developed in recent years. It seems to a large extent from what you're saying that this analytical unit is reinventing the measurements and so on that it's going to be using. To what extent can we make use of other countries or regions' experience in this? Are we actually reaching out and looking at this as we put these models together? Yes, we are. I think that there's a very great deal that we can learn from what other people have done off the top of my head. We can learn a lot in the education and training sphere from work that's been done by the Centre for Vocational Education Research at the London School of Economics and by the Institute for Fiscal Studies. Often, they've done that on behalf of other Governments or agencies, but they've often done it independently so that we can learn from them. If we think about assessing the impact of export support, there's a good experience to draw on from Denmark, and we are very open indeed to learning what has been done elsewhere. One thing that we might well benefit from is that the Economics Department at the University of Strath Clyde has recently recruited a number of people who have got deep specialisation in the kind of impact assessment and evaluation techniques that are likely to be important to us, and we've had initial discussions with them about how we might be able to work with them and whether they will be able to support us in the work that we're doing. Given that there's a wide variety of organisations out there in Europe and within the UK that are trying to measure this data and trying to make some sense of it, how are you determining which models are better than others? How are you doing that evaluation? If I take the work that I've already described to Mr MacDonald, where we are trying to assess the impact of the education and training investments that are made through SDS and SFC, one of the things that we did was to undertake an extensive review of examples of people in other places in other countries trying to undertake similar kinds of work. When we do that, we apply two filters to the examples that we generate. One is that we can use something called the Maryland scientific scale, which is a five-point scale for assessing the quality of a piece of evidence. One is not very good, five is state of the art, so we look for those that are closest to state of the art. The second thing we do is using the skills and experience of people in the team, apply our own judgment as to what looks as if it is most relevant to us in our particular circumstances. To reiterate the point, we are very open to learning from what people elsewhere are doing well. Specifically, what have you learned elsewhere and what are you applying here in terms of the return on investment in enterprises and skills? The principal lesson that we have learned is that many of the techniques that had previously been used in the past to try to measure the outcomes from those kinds of investments were, in many respects, flawed and inappropriate. If I can interrupt there, does that mean that previous data, previous statistics, are actually not going to be comparable with what is being done now? In other words, any other measurements that we have had in the past, you are talking about them being flawed, does that mean that we are not going to be able to, for example, take an average comparison over a period because you are reinventing the whole basis? Let me just explain briefly in more detail what it is that we are trying to do. The question that we are trying to answer in the example of education and training investments is, for each pound that is spent on an apprenticeship or a college place or a university place, what is the return that we get at the end of it? The reason that previous approaches to try to answer those questions were flawed was in no small part because we did not have the data that would allow us to answer the question. The type of approach that I outlined to Mr McDonald deploys data until very recently just did not exist. If we had been before you two or three years ago, we would not have been able to talk to you about the ways in which we are going to use data of those kinds. We hope to move beyond the approaches of the past to give different, I think, better answers to this return on investment question. You are right that those answers will not be comparable with what you might have seen before, but I think that there will be more reliable answers. As with all statistics, until you build your statistics over a period, you cannot do trend analysis, you do not really get the picture, you get a snapshot. That is correct, so you have to wait for the trend analysis. Again, if I take the example of the education and training analysis that we are doing, I think that I am correct in saying that we are now able to follow people who have been through the education and training system in the past up to about their late 20s. We have begun to build that time series or others have begun to build that time series, but you are correct that we will not get much longer trend data for some time. I was largely going to focus on some of the areas that Colin Beattie has just covered. Can I expand that a little bit and look at responsibility and accountability and, I suppose, process? Looking at the measuring return on investment of enterprise and skills policy, one of the things that came up this morning was the Scottish Enterprise suggestion that every pound spent results in £6 to £9 of GVA. While some may agree or disagree with that, I was wondering if that was something that you agreed with. Also, if the enterprise budgets are being cut, if you had a concern about cutting budgets while accepting potential for GVA growth, how would you put that across? What the processes would be to make that known to the Government and to the enterprise agencies, but particularly to the Government? I will kick off and then Stephen Cun to follow up with any other comments. To take your first point about Scottish Enterprise and the return on investment, one of the challenges that we have or that the board has put to the agencies is that they are measuring themselves and their targets against those companies and people who are already involved with the system. To an extent, they are already people who are companies that are on a trajectory. The big challenge for the agencies is to reach those people who are not yet engaged in the system because that is where the greatest growth could perhaps come. If you then bring in people who have not been in that kind of marking system before, then it would change the return on investment that is being there. Do I agree with what the agencies are putting forward at the moment in the context of what they are marking? I still think that it is more than an excellent return. Do I think that it has not then resulted in an overall shift in productivity or economic growth because there is still too large a number of customers who are out there who are not engaged with the system at all and who would benefit from greater help? That is one of the tasks that is going to be set by the board to the agencies in order to widen their customer base. What Stephen has said is that the strategic board is not an operational board. Therefore, the targets and the measures that we will look at will be at the macro level where we will look at the shift in productivity, inclusivity, equality measures, growth in economy and how many companies are moving up the growth scale. If all those top-line metrics and measures show that nothing is moving, that is when the board will go back and challenge the agencies to come back and explain and demonstrate why particular budget lines are showing growth and particular budget lines are showing no growth. The challenge then would be from the board to say why you need to explain and evidence why you have continued to place money and investment in those areas without there being an acceptable return on that investment. The board would challenge the agencies to do that and challenge the own agency's boards to then revisit that and to be able to come back and support why they have chosen to look at investing in those areas. That gives an opportunity for review as to where investment is currently being made and could it be potentially better placed. In each of the missions, the board will be looking at the types of targets from an overall macro perspective that then has to be taken by the agencies and deployed through each of their individual plans. You talk about greater help, but the greater help might require at least the same budget. Where is there a role for you challenging perhaps the Government if you disagree with the cuts that it is making and how that might limit in terms of providing that greater help? We have to discuss through the various ministers who are responsible for the agencies and make some recommendations. It is not in our gift to make those budgetary decisions, but we can certainly make informed recommendations around where we think investment ought to be made. The committee issued a report last year on the economy that expressed some concerns that the enterprise agencies were marking their own homework when it came to setting and achieving performance targets. Do you share those concerns? How will the performance targets be set going forward? Will we see more transparency? I think that I have probably potentially answered that. I think that there is the planning process that has been put forward together. The strategic plan has been created. All the agencies are developing their own individual plans around those missions, as well as the other areas that they cover. There is an approach where the agencies will hold themselves to account because they will have to share their plans before they are published, which previously has not happened. We are suggesting—this is still to be decided at our January meeting—that the process will be that not only will the agencies share their own plans with each other, but they will also be reviewed by the strategic board, particularly the business members, before they are signed off. There should be greater transparency and understanding around the targets that are being set. I think that the performance framework, which has been developed by the analytical unit, will allow greater transparency around comparisons. Not just GVA, but the other elements that Stephen has referred to, which will make it easier for us—or it will be more transparent for ministers to be able to make decisions around where budgets ought to be placed. Is there any plan to make them public the performance targets of the enterprise agencies? I think that the performance targets of each of the agencies publish them in their own business plans. My understanding is that the top-line targets are published, but the Scottish Enterprise has 72 different targets from memory. I do not think that the second level of targets are made public. I cannot answer that. I am not aware, but I am certainly willing to go back and have a look at that. The performance targets that the board will set will be around the macro level. The more operational targets would have to be set by the agencies themselves, but you raised a good point, so let me consider that and feed that into the discussions in January on targets and how they are reported. Just a related question. The Scottish Government has recently moved away from a policy of setting specific economic targets. For example, it is no longer saying that productivity should increase to the first quartile. In the absence of specific economic targets, does it create difficulties for the strategic board in setting your own targets when you do not know what the overall macroeconomic targets are in each of those economic components? I think that I will like Steven perhaps answer that. My own observations on that is that our aim is inclusive economic growth, therefore it is not just about economic growth in GVA and GDP itself. There are other areas around wellbeing, around health, around workplace innovation, etc., which are all indicators that an economy is moving in a positive direction. I think that those are the criteria that are included in the performance framework that the analytical unit is looking at. Steven, is there anything that you want to add? The board retains the desire to see Scotland achieve top quartile performance in each of the areas of importance to productivity, quality, wellbeing and sustainability. I expect that that will continue to guide the approach that the board takes. You mentioned inclusive economic growth. It is something that we have mentioned before as lacking definition, certainly previously. Is there now an agreed definition of what inclusive economic growth is and how it can be measured? I would have to say no, because if I asked five different businesses or five different Government officials or five different politicians, each of us would probably use different words on a different definition. I think that that is part of the challenge. When we talk about inclusive economic growth and fair work, that is where businesses get confused about what it is that we are talking about. It sounds like a Government mandate, but what we are talking about is actually good working practice. If you ask somebody in business, would you be willing to look at a workplace where you include your workers, give them a voice, look at equal opportunities, et cetera? Most of them would say, yes, of course. The majority would think that they are doing it, but because we put a name on it like fair work, people think that that is something that you know. The language that all of us use needs to be much more consistent. Collectively, we need to look at a definition. We are certainly looking at words that the strategic board will be using, which will be embedded in the agencies. In terms of the fair work discussion, what came across to the board was that, even within the agencies, the understanding of inclusivity and fair work was different between each of the agencies. We are going to be looking at a consistent approach in form of words that the agencies will all buy into. That will be embedded within the culture and collaboration piece of work. The SFC has forecast GDP growth of around 1 per cent for the next four years, just briefly to get your views on how far off that is in terms of trend growth in Scotland's potential. How far 1 per cent is of how much it diverges from trend growth in Scotland's potential? Over a long period of time, between 50 and 60 years, Scotland has probably grown at an average annual rate of just south of 2 per cent. In the 10 years after the financial crisis, I think that we grew in total by about 1 per cent. The fiscal commission's projection of 1 per cent a year over the next few years is materially better than the immediate aftermath of the financial crisis, but materially poorer than the longer-term trend. 1 per cent is the new normal. One of the things that we can observe across most advanced economies is that there appears to have been a step down in the rate of growth, a step down that predates the financial crisis that probably happened towards the end of the 1990s and the early part of the 2000s. Despite what we all read in some of us say about the pace of change and so on, that is not manifesting itself from productivity growth across much of the western world. Scotland is part of that story with the added factor in Scotland of slow population growth. I think that I will also add to that. There are other external factors such as Brexit, and I do not want to bring in the Brexit debate, but that could have a considerable impact, as will technological change and the ability of businesses and our education system to adapt to digital disruption and climate change. I think that there are elements out there that would be difficult to say that any of those could have a more severe impact, which would impact on your 1 per cent. The enterprise and skills review did not include consideration of business gateway, yet the board quite rightly identified one of its missions as business creation. How can you influence what goes on in business gateway? Well, looking at it from the user perspective, business creation is absolutely critical. If we do not have enough businesses being created, we do not have enough moving into the middle bit and on to being, and we rely too heavily on a small number of large companies, so we need the pipeline to be bigger. We quite rightly recognise the important role that business gateway plays. To so much so that, in our November meeting, we invited both business gateway and Slade along to our board meeting, so that we could have an open discussion about how the agencies and the enterprise and skills system can work much more cohesively. Businesses will start off through the business gateway doorway, but there needs to be a better cohesion and better customer experience of moving through the system at the right time, so that they move from local to regional to national in a seamless transition, rather than a disjointed transmission. I would also say that that kind of disjointed journey goes back not just through those agencies, but for me looking at it as an outsider in the portfolios of where each of those agencies sits. To an extent, where you have division around budgets and delivery, there is the challenge of disjointedness. I think that business gateway needs to be embedded in the cultural collaboration piece. It is not just looking at the agencies working amongst themselves, but it is looking at local authorities and business gateway regional economic partnerships. Again, that is why we made the recommendations in the strategic plan about closer working relationships. How can that journey be more streamlined, not just for the user but also internally? The user is the most important. I think that, certainly in the evidence given to committee, we would regard the performance as patchy if I was being kind. I wonder if there is a role for the analytical unit in just looking at some of the data that underlies performance that would give us an in into how to lift the standards across Scotland. We would be open to that. I have had one initial discussion with business gateway about its approach to evaluating its impact. We are not at the position at the moment of being able actively to help them, but I am certainly open to doing that in the future. In your opening statement, you said that the board is now much better placed to really challenge agencies on the implementation of fair work. Throughout this morning's meeting, both witnesses have spoken a lot about the availability of data and the importance of scrutinising that data. I am conscious that your guest speaker, Patricia Finlay, to your board meeting in August, said that the system, e.g. business support, is not set up to support fair work. The value of adopting fair work is recognised and accepted, but not mainstreamed. I wondered whether the board agreed with the assessment, and if so, why that is the case, considering that fair work has been a Government priority since 2015. That is a very fair comment. Patricia Finlay said that it is completely right that fair work is not mainstreamed. I do not think that it is mainstreamed in the agencies, and I do not think that it is mainstreamed in our businesses. Partly for the reasons that I mentioned before, because businesses do not really understand what it means. One of the board's four missions was on business models, workplace innovation and fair work. The board is completely behind that that must be central to everything that is being done. We were fortunate enough to draw on Pat Finlay's advice in developing our proposals in that area. We set a number of actions for the agencies in that area. The first was to deliver a campaign to promote understanding of the possible impacts and productivity through the adoption of fair work, workplace innovation and different business models. The second was building on the Scottish Manufacturing Advisory Service, its diagnostic model to identify businesses that can benefit from innovation and the adoption of better working practices through the fair work model. Developing new cross-agency teams that will drive the adoption of fair work and other management practices, I think that it was the cabinet secretary when he was talking about fair work, I think that it was to your question. Those businesses are the ones that fail because they are not more transparent. I think that the business management practices can be very poor across some businesses in Scotland. The communication and creating new cross-agency teams that will deliver a consistent message around fair work will be really important. We made the recommendation to the Government that any support that comes from the agencies should have the conditionality of fair work practices as a condition. Where does social partnership sit with all this? I am very conscious that the STUC and Jim Maith are led a bit of work and reported on their findings, the working together report. Given the links between good social partnership and productivity, I wonder what your assessment is of how well-placed Scotland currently is in terms of really beginning to motor ahead with social partnership or whether we are still some distance from the races. I think that Scotland benefits from the size and scale that it is and has more of an opportunity to be able to engage and have dialogue with a much wider bank of stakeholders than many of our competitor countries. I think that the strategic board has acted as a catalyst for dialogue between not just the agencies themselves but a wider bank of organisations. I think that there is the potential for that to grow and that engagement to continue much more widely. Andy Wightman I thank you very much for the convenient response to an early question from Jamie Halcro Johnston around the budget. You said rightly that you did not make any budgetary decisions, but did you make any recommendations to the Scottish Finance Secretary this year regarding the budget? In truth, not really, not in terms of the pound shillings and pens, but in the areas that we made very strong recommendations around the missions, where we thought the emphasis ought to go, which was in the main, around the business models workplace innovation and fair work, but we did not give indications around the budget. We have tasked the agencies themselves to look at how they will use their budget collectively, and SFC is looking at how it can use some of its budget to give to SDS around career progression, upskilling and reskilling. The task is for the agencies themselves to take on that as a responsibility and then bring that to the board for discussion and review. You mentioned the Scottish Funding Council in south of Scotland Enterprise, was it? No, SDS, sorry. Scottish? Skills Development Scotland. Skills Development Scotland, I apologise. Is there going to be more flexibility around the transfer of money between the agencies that you coordinate, or is that not a discussion that's happened? We haven't considered that as yet. The board is meeting at the end of January to discuss its priorities for the next two years. I think that, within that, there will be a discussion for the agencies through their, we are asking them to be able to demonstrate where greater collaboration and shared resources is happening. Therefore, the movement of budgets, which is outside our domain, will have to be decided between the agencies, their Government sponsors and by ministers, I would suspect. But you're looking at that in terms of efficiencies that we discussed with the Cabinet Secretary this morning. What's the role of the board with regard to the Scottish National Investment Bank? We talk to them, we make recommendations, their work will be of interest to us. There will be areas of investment around infrastructure and perhaps exports, which we would want to feed into, but we don't have any formal relationship, and that would be a Scottish Government or ministerial decision if we were to. Okay, thanks. I'm just turning to some of the future challenges in relationship to enterprise and skills. I think that you've already hinted at things like population, Brexit, climate change, et cetera. I'm not asking you to take out a crystal ball or anything like that, but you mentioned at the beginning that some of the time skills you're working to are 20 years. You mentioned changes in people's expectations about what a job is and how long it might last and what might be required in terms of sustaining employment by people. What are the key challenges, do you think, in terms of the enterprise and skills environment over the next 10 years? Skills, I think, is a major one because I do think that there are many opportunities in which Scotland as a country needs to be very fleet of foot on, both in terms of manufacturing, development and exports. Upskilling and rescilling, digital disruption is all going to impact on how Scotland performs. The ability to have a flexible education system that can look at both demand-led jobs but also create new, higher value innovations is going to be one of our key challenges. You mentioned digital disruption. Can you say anything more about that? There are still many of our particularly manufacturing industries in Scotland that could benefit from a more innovative adoption of digital technology or technologies. Many of those companies are not yet engaged with the enterprise and skills system. It goes back to the challenge that I mentioned at the outset. The challenge is not just working with those companies who are already in the system but those who are not yet engaged in the system. Has the board or any of the agencies that you work with made any preparations for no-deal Brexit? We had a presentation in November very comprehensively of a collective response to Brexit and a number of different scenarios. There is a very comprehensive website that the agencies have collectively launched to deal with Brexit and queries around about Brexit. Part of the challenge is that the business is very ambivalent about responding and closing its eyes. Depending on what happens at the end of March, there will be a rush to the agencies to give them assistance, which is why the board has tasked the agencies with a collaborative Brexit response. On automation, from what I understand, we are behind in this country where many European continental countries should be. Have you identified a way that Scottish companies can be encouraged to automate more? That does not necessarily mean loss of jobs because when automation is introduced often that can increase production and result in more jobs. Do you have a view on that at this stage? We haven't got... The board hasn't seen evidence around that. The analytic unit will be looking at innovation. The board, one of the areas that we will be looking at that we didn't look at the first time, was about innovation and research and development. The analytic unit is preparing some of the background information around that area, which takes into account those companies already benefiting from digital technology adoption and those who haven't, and doing comparators around some of the other OECD countries. That piece of work won't be ready until between March in the middle of the year. You talked about digital, but I'm thinking also of actual automation, so using machines to do work. Digital is part of that, of course, because you can't really separate the two these days. Going back to the Scottish manufacturing advisory model, it is already looking at companies that are benefiting from automation. I think that rather than reinvent the wheel, the aim would be to work in partnership to gain insight and knowledge from their findings, and then for the agencies to be able to touch those companies that could benefit from automation. Dean Lockhart, you have a general question. Have we reached the end of the questions? If you could put the question perhaps briefly. Just an observation that a number of the initiatives and measures that you are setting out are welcome and very sensible measures, but it kind of begs the question in terms of what was happening previously. Was there a lack of strategic direction and no alignment between the agencies? What is your observation in terms of what has been happening before? Is this personal or from the strategic? Do you feel the position to answer that question? Yes, and I did to an extent the last time that I appeared at the committee. My initial observation was that I asked the analytic unit and government departments to give us some evidence around what had happened in a sector-based approach. I think that, as I said before, what we saw quite clearly was—well, the reason for asking was because I wanted the board to understand what the future analytics round about the sectors that we looked at would be. We did not have that predictive information, so I asked for the information to go back five years then, ten years, so that we could see what the trend was. The trend showed clearly that, within six of the seven sectors that had been looked at, there was no real substantial economic growth. Personally, I think that that approach was rather flawed because high growth can come from anywhere. It does not need to come from a sector, it can come from a different place region or different type of industry. However, there are always debates about which—some people always say that you need to go for the next big thing and you need to put all your money in that. The reality is that we do not know what the next big thing is, so one way is as good as another until you monitor it and evidence it. My challenge would be around why did we do it for so long without deciding that we were going to review it and change course, or maybe do more or less of one particular area? Thank you very much. That concludes this session, so I will suspend the meeting. We will suspend briefly to allow our witnesses to leave. Item 4 on the agenda is the European Union Structural and Investment Fund's EU exit regulations 2018. The committee has been asked to consider a notification from the Scottish Government relating to the European Union Structural and Investment Fund's EU exit regulations 2018. That notification relates to arrangements for the regulations for structural funds, which are the rules governing the funds and which give powers to the Secretary of State or a devolved authority to ensure the operability of eligible projects. In the event of a no-deal withdrawal of the UK, those regulations will no longer be operable and the programme would be administered domestically. Funding would come from the Treasury guarantee, a commitment that all funding already committed for projects before the UK leaves the EU will be honoured. The relevant regulations are being partially or fully revoked, as set out in the notification. Is the committee content for those issues to be dealt with by statutory instrument laid out Westminster? Yes. Thank you very much. The committee being content, I will write to the minister to notify him of the committee's decision. At that stage, I will suspend this meeting and move into private session.