 Welcome to the 18th meeting of 2018 of the Economy, Jobs and Fair Work Committee. Can I remind all members to turn off or to at least silent electronic devices so that they do not interfere with the committee? We are somewhat depleted this morning. We have apologies from Jackie Bailey, Kezia Dugdale, Fulton MacGregor and Andy Wightman. On top of that, the convener, as you can see, is not here, Gordon Lindhurst. He is expecting to join us later, but I will be chairing in the meantime. Item 1 is a decision to take business in private. Is the committee agreed to take items 4, 5 and 6 in private? Are we agreed? Thank you. Item 2 is our continuation of our inquiry into Scotland's economic performance. We have heard from a number of witnesses and today we have the cabinet secretary, Keith Brown, together with Mary McCallan, director for economic development, Gary Gillespie, chief economist, Sam Anson, deputy director of economic policy and Hugh McAllun, head of fair work and skills. Welcome to all of you. Can I invite the cabinet secretary to make an opening statement? Thank you very much and thanks to the committee for the opportunity to contribute to the investigation into Scotland's economic performance since 2007 and to looking at divergence in performance between Scotland, the UK and its regions and other countries. I welcome the scope of the committee's inquiry and know that the committee has taken evidence covering a wide range of areas and subjects relating to Scotland's economic performance. At the end of the process, I look forward to receiving the recommendations on what further action might be required to make Scotland's economy even more inclusive, innovative and international. I can just start by setting out Scotland's recent economic performance before turning to the broader economic outlook and some of the challenges. Scotland's economic performance strengthened through 2017 with four quarters of growth recorded. That has been driven by growth in services and, importantly, production with sector supporting the oil and gas sector beginning to return to growth. As the outlook for that sector continues to improve, the aggregate growth for Scotland, albeit still below trend, is important against a backdrop of heightened uncertainty as the UK moves closer to leaving the EU. Alongside the growth, Scotland's labour market remains strong and, over the past year, unemployment has fallen to near record lows. Employment has risen and inactivity has fallen. The labour market in aggregate is performing at near record levels, which is welcome, although it would also acknowledge an element of underemployment in those figures. Over the past decade, GDP in Scotland has grown 6.5 per cent, having just 0.7 per cent growth each year, compared with 1.1 per cent for the UK. Part of the difference in economic performance with the UK reflects differences in population growth. When we make comparisons with the UK economy, it is important to note the unbalanced nature of the UK economy and the fact that some UK economic statistics are skewed by the impact that London has in dominating economic performance. I have heard it referred to as the UK economy is flying on one engine. It is so unbalanced, perhaps the most unbalanced developed economy in the world. Since 2007, Scotland's economic performance has outperformed many of our peers, so productivity growth since 2007 has been higher than any other country or region of the UK, including London. Employment in Scotland is now 66,000 higher than it at its pre-recession peak, and there has been considerable progress in reducing youth unemployment, with Scotland now having one of the lowest rates in the EU. Latest figures also show that GDP per head in Scotland is higher than anywhere else in the UK outside of London and the south-east of England. Those facts demonstrate the economic progress that has been made under this Government. The past decade covers a period of course of the global financial crisis and the deepest global recession since the 1930s. It is not surprising, therefore, that Scottish GDP growth over that period is below the pre-recession trend of growth of around 2.1 per cent each year. Scotland is not, unlike other advanced economies in that respect, trend growth internationally has also been impacted by the financial crisis, with G7 growth averaging 1.1 per cent over the past decade. There is no question that some of the consequences of the global recession and the UK Government's subsequent austerity programme have limited economic growth in Scotland. Since the EU referendum in 2016, there has been on-going uncertainty for businesses and households. The fall in the oil price in 2014 led to a slowdown in the oil and gas supply chain and fed through to the wider Scottish economy, accounting for around two thirds of the slowdown in overall growth between 2014 and 2016. There is also another underlying factor that I am well aware has had a limiting effect on growth, and that is the fact that Scotland's working age population hasn't grown as fast as other countries. This is a challenge that Scotland has faced for many decades and has been exacerbated by Brexit. That is why we have repeatedly called for Scotland to have the power to tailor its own migration policy to reflect the challenges that we face. On the economic outlook, independent forecasts for the Scottish economy suggest that GDP will grow by between 0.7 per cent and 1.4 per cent in 2018 and accelerate in 2019. There is consensus from all those independent forecasters that the uncertainty surrounding Brexit is the key risk affecting the economic outlook, although there still continues to be some Brexit deniers that deny that that has an impact on the economic outlook. There is no doubt that risks relating to business and consumer sentiment remain, and those are impacting on expenditure and investment in the economy. The improved outlook relative to 2017 reflects, in part, a stronger world economy. In its latest world economic outlook, the IMF was clear that the world economy is enjoying a period of strong economic growth. The IMF has raised its forecast for growth for the world economy for this year and next by 0.2 per cent points above its forecast in October 2017. The IMF has also upgraded its forecast for the advanced economies by 0.5 and 0.4 per cent points in 2018 and 2019 respectively. The UK is the only member of the group of seven leading countries not to have its growth forecast upgraded, and the recent UK data for Q1 2018 reported growth of 0.1 per cent, which was below market expectations and also below the previous quarter growth in the Scottish economy of 0.3 per cent. Also, as I noted in my earlier remarks, there is a more positive outlook for oil and gas and related production activities, and this should also help to drive productivity growth. Support is needed to maximise the longevity and success of this dynamic industry, and the UK industrial strategy has failed to mention any new developments in the oil and gas sector. There is clearly an upside to future prospects for economic growth, but we must be alert to the potential downside from the unpredictable post-Brexit environment. We are just under 12 months away from formally exiting the EU without a clearly agreed path in terms of our on-going access to key EU markets, and that remains the biggest uncertainty hampering economic growth and investment over the coming years. In fact, I would argue that it has already had an impact on investment. It is also virtually universally acknowledged that Brexit will damage our long-term economic growth and also damaging productivity, investment and trade. Related to that, of course, with Scotland's working-age population projected to grow only slightly over the next 25 years, a Brexit-induced decline in EU migrants will have a damaging impact on our economy. The economic outlook is, perhaps, inevitably uncertain, but I emphasise that the Scottish economy is facing the future from a position of relative economic strength. Despite the uncertainties, we are supporting business and continuing to grow Scotland's economy by focusing on investment, internationalisation, innovation and inclusive growth. There are many positive results from those actions. Scotland has secured more FDI investment projects than any other part of the UK outside London since 2007. Those investments have supported 38,000 jobs in Scotland and are a vote of confidence in the economy. The Scottish Government is clear that we remain open to investment from the rest of the UK, Europe and from further afield. We have established a board of trade and created hubs in Dublin, London and Berlin. Our international goods exports, including oil and gas, grew 19 per cent last year to £28.8 billion pounds. The fastest growth of any of the UK nations. We are also investing £48 million in our national manufacturing institute for Scotland in Renfishure, with Strachlide as the anchor university. We have invested over £6 billion in the higher education sector over the last six years. Business expenditure and research and development exceeded £1 billion for the first time in 2016, up almost 70 per cent in real terms since 2007. We have also increased free, high-quality early learning and childcare. That has been to 600 hours a year for all three and four-year-olds, up from 475 hours in 2007. Scotland remains the best-performing of all four UK countries, with the highest proportion of employees paid the living wage or more at 81.6 per cent. We are building on the successes of our enterprise and skills agencies, developing a system of support that is greater than some of its parts. A strategic board is now in place and will seek to maximise the impact of the collective investment that we make in enterprise and skills development, and to create the conditions for delivering inclusive growth. We are creating a new enterprise agency in the south of Scotland with an interim economic partnership in place, backed with £10 million of investment. We have a detailed implementation plan to establish a Scottish National Investment Bank to be a new cornerstone institution in Scotland's economic landscape, and we have undertaken to provide an initial capitalisation of £340 million from 2019-20. Having said all that, convener, there are undoubtedly key challenges that the economy will face in the next 10 years and beyond. We are alive to those challenges, challenges of automation and technology, but also to the opportunities that they will bring as well. The recent joint report with the STUC on the impact of technological changes in Scottish jobs set out how digitisation, automation and other innovations will affect the Scottish labour market. We share a common objective with the STUC to ensure that automation and digitisation have positive outcomes for all of Scotland's people. There is one very significant challenge that is self-evident—that is that key economic power remains devolved or reserved to the UK Government. Those include things such as the national minimum wage, national insurance and migration powers, and, incidentally, the national minimum wage is what stops the Scottish Government from making a legal requirement or a contractual requirement of the living wage. If you already have under EU law a national minimum wage, you cannot then impose a higher wage for procurement purposes. Further powers, though, would allow us to invest in Scotland's economy and infrastructure rather than being tied to the UK Government's hard Brexit and austerity policies. Although the UK Secretary of State for Business, Energy and Industrial Strategy recently acknowledged in the House of Commons that he accepts that he is responsible for growth in the economies of all the nations of the UK, the UK Government really needs to engage in a meaningful way with the Scottish Government on the industrial strategy. Those are my views on the central issues in Scotland's economic performance. Finally, I believe that we now have a more resilient economy than in 2007, not least as evidence by the way that it has dealt with one of the biggest shocks to any economy for many decades, and our ambition remains with regard to improving our economic, social and environmental outcomes as set out in the national performance framework. I look forward to the committee's further forthcoming recommendations from their inquiry. Thank you very much, cabinet secretary. You have touched on a very wide range of issues, and I think that committee members will be following up and asking more about some of those. If any of your team are wanting to come in at any point, if you just indicate, I will try to bring you in as well. If I can start off with one or two questions myself. You have mentioned a number of things that are happening, have happened and will happen in the economy, but in particular, there were purpose targets set in 2007 for the coming 10 years, which are now complete. I wonder if you could give us some thoughts about how the economy has really performed over the past 10 years. You said that it is more resilient, but there are some specific things, such as raising the GDP growth rate to the UK level, to match the GDP growth rate of small independent EU countries. How do you feel that we have done on some of those specific things? I think that there are a number of those targets, some of which you refer to, convener, of which we have met. There are a number of them that we have not met, and there are a number of them that we have made progress towards meeting. However, I think that those were set in 2007, and of course, since that period, we have had a huge recession, some say the biggest ever recession. Of course, that is being followed on now by eight years of austerity. Asterity inevitably has an impact on demand in the economy, consumer spending and consumer confidence. I think that those targets having been set were then hit by or the ability to achieve those targets was hit by more general economic circumstances. I am not making this stuff up. Everybody knows that from their own lived experience, but to come back to some of the points that you have raised and some of the targets that you have referred to, convener, the target to match the GDP growth rate of small independent EU countries by 2017, that has not been met, although the gap has narrowed. In the 10 years to 2007, Scotland's average growth rate was 1.1 per cent points behind the small EU countries. In 2017, that gap has almost halved 2.6 per cent points. We also had a target to rank in the top quartile for productivity against our key trading partners by 2017. The performance that we have had has not reached that target, but it is consistent on this measure, moving between the bottom of the second quartile and the top of the third quartile. We have not made, I think, perfectly willing to admit the step change required, and hence the additional focus through the enterprise and skills of strategic boards. However, we have made some progress, so between 2007 and 2016, our productivity growth has been higher than any other country or region of the UK, including London. Although labour productivity growth in Scotland has slowed over the last decade, this trend has been seen in many countries since the economic downturn, and I think that Scotland's performance has been comparable to our key trading partners. A number of other targets were also set—for example, convener, like the trying to match the average European population growth from 2007 to 2017. We have met that target. The population of Scotland has increased each year since 2001, and it is now at its highest ever level at £5.42 million. Although that stands beside the comment that I made in an opening statement that we would like to have control over that, especially for emerging trends related to Brexit, where we are seeing people either leaving or choosing not to come to Scotland or the UK, that might be something that suits the UK. I would argue that it probably does not suit the UK, but that is for the UK to decide. It certainly does not suit the economy in Scotland. There has been a mix of targets that have been achieved, some have not been achieved, and I think that all have been affected by pretty global circumstances in terms of the recession, austerity and downturn 2014 in the price of oil and gas. Thank you very much. One of the ones was raising the GDP growth rate to the UK level. You yourself have already said this morning that the UK has got a pretty unbalanced economy, it has got one engine in many ways. Should we be comparing with the UK as a whole, or should we be comparing with other sizeable chunks like the north of England? Can we really compare with the south-east of England at all? I think that that is a good point to convener. I will say that if we set the target, then we have to be held to account for the target that we set. The Government has to be held to that, so we have to have that comparison between Scotland and the UK. In the last two or three years, we have seen a much more rounded assessment that is based on a comparison between other regions and nations of the UK. In that context, Scotland, in different criteria, either sits right amongst the average of countries and regions of the UK, or it is well above and usually sits behind the south-east and London, all of which points to the fact that we have a grossly imbalanced economy in the UK and an extremely unequal one, perhaps the most unequal economy, even in some respects greater than the US in terms of its inequality. We have a dysfunctional economy in the UK. If you go to the north-east or north-west of England, if you go to the midlands at some extent, if you go to Wales, people will say the same thing. It is not the way to run an economy and London sucking in resources and talent the way it does at the expense of other parts of the UK is a difficulty. I think that in order to make a proper assessment, first of all, we have to be kept to the targets that we set. I accept that in terms of a comparison between Scotland and the UK, but similarly to get a proper assessment of that. I think that you have had that in some of the discussions during your inquiry, convener. You have to look at other parts of the UK as well, and that does leave you to an assessment that is a very unequal and, to some extent, dysfunctional economy. Thank you very much. I think that Gillian Martin has a supplementary on this point. I do. I was really interested to look at some of the commentary around the gross national income statistics that came out a couple of weeks ago. One of the commentaries around it was about the outflow of income that Scotland is producing, a sizable amount of income, but a lot of it is flowing out of Scotland. Is that oil and gas, of course, is a major indicator of that, a lot of revenue that is produced from oil and gas, but it is actually going out with Scotland? Is that making it more imbalanced as a result? Yes, although it is also true to say that that will be a factor for other parts of the UK as well. I saw a graph this morning with the ownership of supermarkets. I think that it was Denmark compared to Scotland, and a number of supermarkets owned them. I think that it was Denmark in Denmark, pretty substantial none in Scotland in terms of the big supermarkets. There is that outflow, and that comes from being in a poorer position in relation to headquarter functions. We have seen that trend that has been there for many years, including decades, of headquaters being taken towards the south-east and, in particular, London. That is a fact. Of course, with those headquaters, headquaters tend to go jobs. As much as any income raised by those companies, which in any event goes to the exchequer, are those jobs, those high-value jobs, that can be detrimental to the economy. It is another facet of what is a very imbalanced economy. I think that Scotland could do far better than to be tied to that kind of economy. Continuing to look back at the last 10 years, could you highlight, one or two or maybe even three, Government policies that you feel have made a really positive impact over the last 10 years? I think that there is a number. The small business bonus scheme, for example, I think has had a major impact. I think that that would be—I am about to do some analysis on that. It is not so much of my portfolio as more to do with the Cabinet Secretary for Finance to bottom out the evidence basis for that. From my constituency, I would assume that other members would know that, during the teeth of the recession, the small business bonus scheme had the effect of allowing, especially, as its name suggests, small businesses to either survive through that period or to keep a member of staff, perhaps, that they would otherwise not have kept because of cost pressures, or to take on a new member of staff or even an apprentice because of the savings made from the rates. I think that that has been a very substantial support. Of course, it is very particularly delected at the Scottish economy, given that 98 per cent of our companies are SMEs, so I think that that has been a major boon to the Scottish economy. The focus that we have had laterally in terms of the living wage has produced benefits, so we have, of the countries of the UK, the highest proportion of people paid the living wage, 81.6 per cent, as I said, in my opening remarks. I think that that has been very beneficial. The other thing, again, going back to the worst of the recession, but we are still seeing the benefits from that in terms of the employment figures, is our decision back in 2011-12 to have a no compulsory redundancy policy. The reason for that was not just to keep people and jobs important though that was. If I remember at the time, convener, the First Minister mentioned that it was partly because we wanted to make sure that people had the confidence to know that their job was safe. Of course, that was accompanied by a period of wage restraint, which we are only now starting to see people coming out of that wage restraint, but it did mean that people had the confidence to know that they would still be in their job. I think that that was really important for demand in the economy. In terms of some of the stuff that we have done for training, opportunities for all, the guarantee of a place in training or an apprenticeship for all, 16 to 19-year-olds. If you remember, we had a real high in terms of youth unemployment back in the early part of this decade. Turn that around to, as I mentioned in my opening statement, one of the lowest in the EU and below the UK has been a real boost. It is one of those things that you perhaps do not appreciate so much when you have it, but if you do not have it and if you have, like Spain, huge numbers of young people unemployed, that is a major generational problem for society. I think that we have done a number of things that have helped to mitigate the effects of some of the shocks on the economy. The final area that I wanted us to touch on is looking forward. You mentioned a few things looking forward. You mentioned Brexit, so we will leave that just now, because other people will come on to that later. You also mentioned automation. What other risks and challenges do you think we will particularly face in the next 10 years? In terms of automation and digitisation, I think that those of course can mean even things such as autonomous vehicles. If you take that one example, I am also related to low-carbon vehicles. There are issues that are thrown up in terms of what you do with vehicle excise duty. If you have autonomous vehicles, what does that mean for certain services that are currently provided by buses and taxis? What does it mean for those that are trained to be drivers? If autonomous vehicles include, as they are bound to do, autonomous vehicles transporting freight, what does that mean for the people employed in those industries? That throws up some major questions. Also, more generally, if you think of, I think, the Japanese have—I do not know how you describe it—an AI on one of their boards, an artificial intelligence on one of the boards on one of the companies. That gives you an example of the way that things are changing and the role of people in the economy can be changing as well. What we have done in relation to that, convener, is that we have established with the STUC a just transition group, which is to look at how we can manage those processes but still make sure that people are not the ones that pay the price for those in terms of jobs or fulfilling work. It is quite clear that automation, digitisation and the growth of artificial intelligence and the growth of use of data will have an impact on the labour market and our economies. They also, I think, very importantly represent opportunities that we have done a great deal to try to maximise our benefit from. In terms of Edinburgh University and associated universities, the data centre and data lab that is there now has an international reputation. It means that there are threats that are there, but it is also true that there are real benefits. One of the other problems that I briefly alluded to in my opening statement, convener, in relation to challenges, is the demographic one. We are facing still an ageing workforce. It seems axiomatic to me that we should be trying to bolster that workforce by being an open country in terms of migrant labour, which has been a real boost to Scotland. Again, that is a challenge. I will not go back to Brexit. I know that, as you said, we are going to come back to that, but if there is a tightening of the ability for us to have people come to this country, especially in sectors such as hospitality, retail and agriculture, that is going to have an effect as well. That is great. Thank you very much. It is a fascinating idea that the Japanese companies have AI on their board. We can maybe try that at the committees as well. The next question is from Colin Beattie. Cabinet Secretary, we have obviously had a lot of focus on productivity, and that has been identified as a key to Scotland's long-term economic growth potential. You have touched on a number of elements of that, but one of the key things that I look at here that we have heard in previous evidence is that, for example, growth of GDP per head between 2007 and 2017 is 1.5 per cent in Scotland versus 10.5 per cent in the UK as a whole. We have also had evidence that very little progress has been made in narrowing the productivity gap between Scotland and the best-performing countries. There are other examples of success in that, but, broadly speaking, that is the evidence that has come out. Very simply, why are we lagging behind other countries? I notice that this is a question that the committee members have asked of many of the people that you have heard appearing before you. I do not think that, from my review of the evidence, anybody has come up with a definitive answer, but they tend to focus around issues such as skills, innovation and the quality of management. That is a very important issue. There is a lot more focus on that these days and the quality of leadership in the workplace. The level of business R&D is a key factor there as well. I am very pleased, as I mentioned in an opening statement, to see that go above £1 billion for the first year. That has been a real long tail of under-investment in terms of business investment. I am afraid that I cannot give you one reason for it. I think that we have seen over 5 per cent growth in productivity well above what the UK itself has achieved, but we still lag, although slightly now, behind the UK. The UK, as you quite rightly say, still lags behind other economies. In terms of trying to change the nature of the productivity issue, the productivity puzzle that is often called is by focusing on those areas. The enterprise and skills review sought to do that. Things like the national manufacturing centre of excellence will also seek to try and achieve change in relation to productivity as well. I do not think that there is, and I think that this is borne out by the evidence that you previously heard, one silver bullet that will do this, but it might be useful to hear from the chief economist in relation to that as well, if the committee is happy. I was reading over the evidence last night, and there were quite a lot of different views on the productivity puzzle. As Mr Brown has said, first and foremost, it is not a Scottish or UK thing, it is actually reflected in the data for the WECD and EU 15. In the context of Scotland, there is quite interesting evidence that appeared from 2000 to 2007. We had a productivity growth rate average about 1.2 per cent, and at the time the UK was growing at close to 2 per cent. We lagged in that period, but interestingly from 2007 to 2016, the growth in Scotland has been around 0.8 per cent compared with broadly flat in terms of the UK. Something happened in the second part of that period, and we are closer to the WECD average in the EU. I suppose what does it all mean in the round? Productivity, in a sense, is a whole system measure. This specific measure captures the value added per hour work. In a sense, it reflects, much wider, reflects the whole productivity of the system. That means more than just the economy, but if I can just pick up on some factors that might have contributed to this, there are different arguments around what is driven it. The financial crisis is a plausible argument about what happened to the banking sector and whether there was an adverse supply side shock, which led to different types of function of the provision of credit and also impacted on the churn of businesses in the sector. The idea of zombie firms being kept afloat. Link to that, we have seen and heard evidence around weak private investment in the Scottish economy, the extent to which that is driven by the banking sector, the provision of finance or the types of enterprises that we have had. We have heard in your evidence quite a difference in the performance of sectors in terms of productivity. We have high value added sectors, such as utilities, energy, business financial services, to slightly lower value added sectors such as retailer tourism. What was really interesting was that, in the sectors, there is quite a range of performance. There is something about not all firms performing at the higher level. Mr Brown has touched on fair work and utilisation of skills in the workplace. There is something about retraining. One other thing that I would mention is the debate around inequality and the extent to which inequality contributes to the less productive societies. Sir Harry Burns, when he was giving evidence, touched on the productive value of all people in society. If people are excluded or do not participate, that underlines and values the productive possibility of the economy. There is no single answer for that, but it is a combination of all things that interlink in terms of driving productivity. One thing that, as a fairly new member of the committee, I have been interested in is all the figures around GDP and so on. They do not seem to be solid figures. There is an awful lot of extrapolation and, frankly, to me, guesswork in producing them. How accurate are they actually? It is a very good question. The committee has carried out its investigation into economic statistics. The short answer to Mr Beattie is that they are complicated, so we produce a number of economic stats ourselves. ONS provides quite a lot of the stats, and some of the stats that we provide are a combination of both. For example, in relation to export figures, we have to wait until almost a year after in order to get the last figures from the UK to work with energy. Energy is the last set of figures that we get to put into those. That is on exports before we can put that in. I do not think that it may be useful to have figures from over a year ago, but we need to have more up-to-date information. One of the things that we have done is through the establishment of the Enterprise and Skills Strategic Board to put in place an analytical unit with Stephen Boyle, formerly from RBS, looking at exactly what the quality and the range of stats that we have. The underlying point that has been made is that unless you have real confidence in the range and the relevance of the stats that you should provide with, you cannot take the right decisions on the economy. I think that, by and large, there is integrity within those figures. It is whether they are always tirious enough. A lot of them are based on surveys and sometimes a boost that we pay for to UK surveys. For example, there is quite a different situation in Northern Ireland where they oblige all companies to report back on those things. We have not gone down that route. I do accept greater consistency and also relevance. There is a measure in which many countries do call the whole of the economy report, which you do not do in this country. It is worth looking at that. We can rely on the figures that we have, but we should not be complacent that they are always the most relevant or up-to-date or could not be improved. The GDP essentially measures the value of goods and services produced in the quarter. If you think about that, there are 380,000 enterprises. Within 100 days of the last quarter, we are producing an estimate of the change in the total output income or expenditure on the economy. Given the time scale and the fact that we have to draw on survey evidence that is then imputed for the wider economy, it is an estimate. However, the estimates have been shown to be relatively robust. They are subject to revision. As we get better data, as companies turn over and profits are formally published and audited, we get better data. Generally, our GDP data in the UK and Scotland is among the best in the EU and is the most timely. However, I can understand the frustration around different sectors in it. People have picked up on construction trends in Scotland, but generally the methodology, the approach and how it is actually conveyed is really strong in Scotland, and I have no concerns at all about it. In your opening statement, you made the comment about population growth south of the border, driving the productivity figures there to a certain extent. When we are comparing Scotland with the rest of the UK, do we try to strip those figures out? Do we try to adjust for them or not? I think that the statisticians will be able to answer, but they do try to account for them and the extent to which GDP figures are intrinsically linked to population growth is well-evident. We understand that point. There are ways in which you mentioned stripping out. You can do that by some measures that you have. Perhaps best if Gary was able to speak to that. However, we do account for it. We understand that we have lower population growth and have had for decades and even centuries than the rest of the UK. We do try to account for that, not least because we want to try to make the point that if we could have more control over what a population is, particularly in relation to immigration, we could make an impact. It is accounted for. Gary, what is to come back in it as well? You can break it down into three elements—productivity, participation and population. We have done analysis within Government, which have published in the state of the economy. I think that Mr Brown said that Scottish average growth rate over the last 10 years was 0.7, and the UK was 1.1. You can break that into the contribution from productivity, participation and population. What you would see is that the UK growth will have been underpinned in the third of that by population. In Scotland, that will be maybe 15 to 20 per cent. Productivity is a smaller piece and participation is the other element. If you think that a grown population brings more people like the economy, boosts aggregate demand and makes the size of the economy bigger, it does not necessarily make it more productive, but it boosts the size, so a shrinking economy less people would mean a smaller economy. That is why we focus on GDP per capita and output per hour work to try to control for differences in the size of the economy, but population in itself is a driver of growth in the economy. I do not want to push the time too much, but can you make this the final question? We want a slightly different aspect. We have heard evidence that Scottish businesses lack ambition in their growth. Obviously, that is a key concern if we are trying to improve GDP. Do you agree with that? How do we tackle that? I was talking to the person in charge of the CBI in Scotland recently, and she made the point that she felt that there was quite a level of that. Companies that are satisfied with the markets that they have do not necessarily want to go into exporting or even expansion. That is perfectly legitimate. We cannot tell companies that they should grow in this way or that way. If they are happy with what they do, they know the market, they know their products, but we want to try to encourage companies that have been inhibited from being involved in exporting or further expansion or scaling up. A typical example is that it is given as a family business where they know they have, if they like, succession planning in place and they know their market and they want to stay in that market and basically do what they have been doing up till now. That might have an effect, but that would be true of any economy in the world. You will get that trait among those. We are trying to increase the number of companies. For example, the export sometimes has been a cultural resistance to it by the feeling that it is intrinsically difficult. You have to speak different languages to do it. There is bureaucracy involved, so we have done a lot sometimes with the UK Government in trying to dispel some of those inhibitions. I have often asked if there is a benefit to Brexit and struggle to think what it might be, but if the public discussion that we are having about international trade also acts as a way of making more obvious to people the benefits of international trade because of the debate around Brexit, that should be a good thing. Yes, it is there in the economy and perhaps even exacerbated by the relative peripherality of Scotland's geographical situation, but that would also apply to Ireland. We do try and overcome this and that is why we have done what we have done in relation to innovation, the business support that we have done in terms of enterprise and skills, trying to make it as focused as possible on internationalisation, investment and innovation. It is definitely there, but we are trying to overcome it. Thank you so much. I can move on to Dean Lockhart just now. Thank you, convener. Good morning, cabinet secretary. Just to follow up on that point about the growth of Scottish business and microeconomic policy—for example, the large business supplement—do you think that it applies for companies that grow above a certain level that then have to pay significantly higher levels of rates? We heard during evidence in the committee that that, for example, is one policy that acts as a barrier for growth. Do you see that concern? I think that the various measures that we have taken have to be taken the balance, so the supplement should be taken around with what we do for small businesses. I think that it is right that Governments have a basket of measures that they can take. That largely affects the retail sector among others, and the retail sector will tell you—I am sure that they have told you, they have certainly told me—that their biggest concern is disposable income in the economy. People have money to spend to buy their goods, which is a big factor. I accept that. For example, we have reduced the lowest rate of taxation to the lowest rate in the UK now and taken a number of other measures. However, if you take that in tandem with what we are doing in terms of fair work, the national living wage is our preference for the real living wage. If you do that, and if some of the companies that are doing that employ people—and most of them now do—on the real living wage, that increases the disposable income in the economy. Therefore, if you are being paid the living wage, you are using it by definition to live on, so you are buying those goods and services in those companies. Of course, it is on the case that nobody likes paying taxes or rates, but we have a balanced approach that should help not least that sector but other sectors as well to achieve growth. I do not think that it is an ambition on growth when taken together. I was just going to make a point, I suppose, in a sense, linking back to the last question about the lack of ambition and I suppose the growth in self-employed and the arguments around lifestyle businesses. However, when you look at the composition of our enterprises, the UK and Scotland, we tend to have less of the medium-sized businesses, so we are dominated by the large and the small. There might be something around actually growing more medium-sized businesses, which would be the engines or driver of growth in that context, so there is something around that factually that is worth adding to the record. I think that one of the things that is that structure of the economy point is really important, and if you look at the things that we are trying to do in terms of innovation, what we are trying to do is we are trying to support innovation coming out of the universities and across into business with the various innovation centres that we have, but we are also trying to make sure that business spend on innovation and research and development is as high as it can be. It has not been as good historically as the university sector has. If you compare them, the business spend is very much lower, so what we are trying to do is to encourage that by providing support, so we have been given about £22 million to SE to help businesses invest in research and development, and we have upped that by £15 million per annum for the next three years, and we have got a target of trying to double the investment that business makes in its own innovation. That is not necessarily the Eureka-type innovation, it can be process innovation, it can be a company understanding how it might actually just run its business better, and to some extent we are worried about a long tail of companies who are out there and who perhaps feel that they are doing perfectly well but actually are not doing the kind of things that would allow them to grow faster, and that can sometimes be because they don't want to, but it can sometimes be because they don't know how to do other things. There is a challenge for us in terms of investment and knowledge and support and information to help those businesses to operate differently. Dean Lockhart, I think that there is consensus here in the sense of needing to scale up a number of the SMEs who are currently small and move them to that medium area. To the extent that we can remove barriers to that, in addition to helping them from a public sector perspective to the extent that we can remove barriers in their journey to scaling up, I think that that would be a really important policy priority. Perhaps I can move on to some policy questions. During the evidence session, we heard from the strategic board and others about some of the performance gaps relating to the 4i targets in relation to inclusive growth, innovation, internationalisation and investment. We also heard evidence of a lack of policy focus and clarity over where policy might be heading. Given that, I wondered if you could explain whether you have any plans to review the 4i economic policy or otherwise in terms of what the Scottish Government's economic policy is? In terms of the 4i, we think that that remains relevant. A good focus is steer the economy by, but part of the rest of your question, and I know that you phrased a separate new chamber, is on the quite complicated landscape that we have in Scotland. If you go back to the enterprise and skills review and the establishment of the strategic board that you mentioned, I have said right the way through that that part of what it should be about achieving is a decluttering of the landscape. I have asked that they continue on with that process. It is not just—it is very often—a Scottish Government that puts buildings, if you like, or structures in that landscape. The UK Government does that as well, and sometimes we do it jointly in relation to city deals. I think that there is scope for further clarity, really from the point of view of the user, the businesses or those who want to establish businesses being clearer. That process, which started under the enterprise and skills review, will continue, and that should provide greater clarity. On the 4i, we remain committed to those and think that they are relevant to the way in which we want to see the economy going. You mentioned the UK industrial strategy. What steps—a specific step—is the Scottish Government taking to work together with the UK Government to identify opportunities for Scottish business through sector deals, the innovation challenge fund and the other funding that is available under the UK industrial strategy? First of all, we have been keen to be partners in this. It is not easy when you are setting the industrial strategy on a Saturday night and it is being published on the following Monday, despite previous assurances that we would be treated as partners in this. It is not easy also when the sector deals, which, to be fair, are often led by the industry themselves, do not involve a Scottish component until we bring it to the attention of the UK Government or the sector brings it to the attention of the UK Government. That is improving somewhat, and I am very grateful that Lord Henley is one of the ministers in the department who has recently agreed to rerun one of the sector deals because he acknowledged that there was not sufficient involvement from the sector in Scotland. We have had a number of discussions, including a recent one that I had with the Secretary of State, where we agreed to meet on a regular basis to discuss it. Because of some of the representations that we have made to the UK Government and to Innovation UK, we have now seen the take-up in terms of the quantum of monies being much better for Scotland, so up to about 14 per cent of some of the available funds, but it is still our concern that is coming from too narrow a base in Scotland, so I have made that point to the UK Government. Officials participate in regular calls, and they have them on a regular basis with UK counterparts. I think that the other thing is well that we have said to the UK Government that really to see the whole picture of what the industrial strategy will do, we also have to have some clarity about the shared prosperity fund, which is now becoming very pressing, so we have a group established between ourselves and the UK Government, the Scottish business growth group, which is attended by myself and usually Ian Duncan. At the most recent meeting, we have to have some clarity, shared prosperity, which will be the successor to many of the European structural and other funds that are currently available. It is very important to businesses that we are about 10 months away from the Brexit date, and people still do not even know the basis of what the shared prosperity funding will be delivered. That is very important to lots of businesses. We have dialogue, and it has improved since the establishment or announcement of the UK industrial strategy. We make regular representations on it. I speak with and write to the Secretary of State and officials to collaborate with UK officials as well. One final question, if I may. In relation to social enterprise, which I think that there is some consensus around the importance of social enterprise and increasing focus being put on that, there was some concern expressed by the sector that the definition of what is a social enterprise and what may or may not be included as a social enterprise is slightly confused. There are guidelines, but there is no statutory definition of what a social enterprise is. Many people, some of the evidence, indicated that that was a barrier to growth in the social enterprise sector. I wonder if you recognise that that is an issue, or perhaps one of your colleagues might want to give us their thoughts on that issue? I think that I will do that and they can choose between themselves which one is going to be the lucky one, but I would say that I have not had that representation. I am not saying that it is not there, but I certainly have not had representations along those lines to me, but I do not know who works to come in. Is it Mary? I am not sure that I can comment in the detail of that, because to be honest, I do not deal a lot with social enterprises, but I know that the Government, over many years, has put a lot of effort into working with social enterprise, to having a social enterprise strategy. Scottish Enterprise has an element of their functionality, which is about supporting social enterprise. I think that, if I remember correctly, Businessgate has that. On the question of statutory identity, it would depend on which legislation it is founded in. If it is founded in Scottish legislation, that is obviously something for us to look at. If it is founded in company law or something that is reserved to the UK, we would have to think about that on a UK-wide basis. Social enterprise, I suppose, by its very nature, is a more… ambivalence is the wrong word, because it sounds as if it is a pejorative comment and it is not intended to be that at all. However, it is much more difficult to define, because it actually has that wider dimension. Last but not least, of course, we have an enterprise agency in the Highlands and Islands, which has, as a part of its remit, a role in community enterprise. Indeed, account manages some communities in the Highlands and certainly works with social enterprises in that space. It is also being considered as part of the work to set up the forthcoming South of Scotland agency. We are getting very full answers. I know that it is very helpful for the committee in our report and things, but we are halfway through our time, and I have only had three of the committee members ask questions that I am going to take and then go on to the other three. I will take something very brief, Mr Glyspy, if you want to say something. I suppose just to say the point that social enterprises are often considered not for profit, but many of them operate on a profit basis. It is just that they tend to be charities and the profits are reinvested either into local community or assets, so there may be something in that. The social enterprise census is really good at giving you a flavour. I think that there are over 1,000 social enterprises in Scotland now employing around 100,000, and they go from the housing associations at one point right down to really small enterprises. Right, thanks very much. It is helpful for the full answers that we are getting, but I want to give all the committee members an equal chance, so Gillian Martin now with a few questions. In response to one of Dean Lockhart's questions, he was alluding to a relationship between the Scottish and UK Governments with regard to the industrial strategy. You will know that we had Greg Clark in front of us a few weeks ago, and he indicated that there has been constructive engagement with the Scottish Government around the industrial strategy. Some of the questions that I asked him were about the impact of future trade deals post Brexit, particularly around protected geographical indicators for Scottish produce that they currently apply to. He did not particularly have answers in that regard. He was pointed out how important they were to the Scottish economy. Can I ask you what conversations you have had with the UK Government and how much you have been stressed that they are important to the Scottish economy? Well, the conversations that we have had with the UK Government tend not on these issues, tend not to have been through Greg Clark. It tends to be Liam Fox that we made these representations. I think that Greg Clark is right to say that it has gone up and down, but it has been largely a constructive discussion with him in particular, much less so, in relation to trade. On the geographical indicators, which you are quite right to say are absolutely crucial, whether they are whisky, smoked salmon or both smokies, various things. They are absolutely crucial to the economy. If some of the stuff that we are starting to hear about the US's requirements of any trade deal of the UK to give up some of those geographical indicators, I think that they have a phrase about intellectual property rather than the one that is used in the EU. We want to stick with what the EU protections currently are. I know that this is a matter of major concern to some of the trade unions with whom I met recently in relation to this. We have raised it directly with Liam Fox and I think that we have raised it in writing and are happy to let the committee have copies of that correspondence. You also mentioned that the industrial strategy in the future, and if I heard you right, oil and gas is not mentioned in the future strategy. Of course, food and drink, in one of the trade deals that is under way with Hong Kong, food and drink did not feature in that either. Do you feel that Scotland's economy, those two major strengths of Scotland's economy, have really been taken into consideration as a priority in future trade deals post Brexit? Do you get an indication from Liam Fox that they are going to be front and centre of any kind of trade deals? I'm afraid I'm not, and that's not just interactions with Liam Fox. It's just to do with the general confusion around what's happening with Brexit when deals are actually going to be struck a year this week that Liam Fox has said. For example, there could be secret discussions with the US about a trade deal. That is just not the way, quite literally, to do business. We have to know what's going on and we need to know that our vital industries are protected. Scotland's biggest food and drink exports are obviously whisky, but they are also the biggest food and drink exports for the whole of the UK. They are crucial. We've just seen the New York Macallan distillery open £140 million worth of investment there and a big impact on the economy. If people can produce copies of that at a fraction of the price, that's going to fundamentally undermine our trade. I don't think that we have got those reassurances yet. The trade bill was another one where I got an email through as I was sitting at an SNP conference. That's no way to tell us what the trade bill is going to include. Of course, it didn't include very much in the end. We don't have the discussions that we would like to have just now with the UK Government. It's much less satisfactory than I would say the discussions that we're having with Greg Clark on the industrial strategy. Incidentally, I met with him just after the committee spoke with him last time. In answer to one of my questions, he said that a lot of the things that I was asking about were some way down the road, but some way down the road were, as you say, 10 months away from a Brexit situation. What impact could that have, that uncertainty have on Scotland's economy for those major sectors? Just a cursory read of any day's newspapers will tell you that it's having an impact already. People are deferring investment decisions, whether that's an industry that's currently doing very well, but they're uncertain about the future, and the relocation of European agencies out with the UK. However, if it touches on those absolutely huge parts of the Scottish economy, such as whisky, drink and food, it can have an absolutely major effect. The idea that there's some way down the line while we're about 10 months away from Brexit, I don't know how much further down the line you can get before you want to have some clarity. Of course, if we have the transition period, then it's not possible to undertake trade deals during that period either, because you're still part technically of the EU. This uncertainty is not good. I've heard from, for example, the investment association, which is the umbrella organisation of the financial sector. They've said, as long ago as a year ago, that they were losing jobs already. It wasn't so much that jobs had been lost out here, but jobs that would have come here had now been established elsewhere in France and Germany in particular. We need to have some clarity and trade. Any idea that's further down the line isn't really good enough. I want to move on from that to a couple of other questions on different themes. The Scottish National Investment Bank has come up in conversations with quite a great deal of the people who have been in front of us during this inquiry. I'd like to ask how the Scottish National Investment Bank will be used to promote inclusive growth, for example, and tackle regional disparities, encourage more female entrepreneurs and promote fair work practices? What it can do, all of these things, it's going to be, if you like, mission-centred, so that Scottish ministers will be establishing missions for the bank. Mariana Matsukuto, who is an advisor, both to the First Minister and the Council of Economic Advisers and a very prominent adviser to the UK Government, has been very strong on that point. In fact, I think that you would say that in terms of the proposals that have come forward from Benny Higgins on the National Investment Bank, she's been the architect of that side of things. It is, of course, possible and desirable for the National Investment Bank to achieve other goals than just straightforward economic growth, whether that's greater opportunities for women's enterprises or for fair work. Crucially, I think that the biggest impact from the investment bank will be its ability to both shape and maximise markets in Scotland, so it can take a look right across a supply chain and decide to invest in different parts of the supply chain. There is no reason why it can't take decisions, which, of course, and there are reasons why it should take decisions, which are going to maximise inclusive growth, fair work practices. It can do that, not least by focusing on higher-paid sectors, where the knowledge economy is very important. However, those things will be developed in time as we go forward with the National Investment Bank. It might be that Sam is the person who has been following us right, we assume, maybe with a quick comment from him, Sam, for the community. Thank you. So, while it will be for the board and the management team of the bank to determine its investment strategy, it will be for ministers to set the strategic framework within which those investments will sit. Would it expect ministers to engage widely on that strategic framework, so consulting with stakeholders from across the landscape? It will be important that it will be consistent with broader Scottish Government economic policy, so it will be about all the different elements of inclusive growth. There will also be an issue here in terms of the reporting framework for the board back into government, so thinking about the range of indicators that should determine whether the bank has been successful or otherwise, I don't think that that will just be about financial return but will include broader social and economic criteria as well, so there will be plenty of opportunities to lock those kinds of criteria into the performance of the bank. Thank you. We mentioned earlier on about the medium-sized businesses. We have a lot of SMEs and the big gap in between. That is something that comes up time and time again. It is also a barrier to access to business support as well. You get access to a lot of support when you are starting out. You get access to a lot of support if you have a turnover and there is a gap in the middle. Do you see the Scottish National Investment Bank plugging that access to finance gap that is potentially, particularly since the financial crash and the banking crisis, means that those businesses are not getting financial support or access to lending from those high street banks that the Scottish National Investment Bank could plug that gap that exists at the moment? Certainly. It can take quite a big role in relation to that, not just in terms of big projects that might be about developing the infrastructure to serve as a market. It can take decisions. We are looking at, as you will know from the implementation plan, different schemes that we currently run being developed underneath the bank and being part of what the bank's offer is in terms of the first port of call for finance. There is some controversy or at least different views on the availability of finance. The banks will say that there is not the appetite among businesses for the finance that they are willing to make available, partly because of a kind of inhibition since the financial crash, but we talk to businesses and they say that the right finance at the right price and the right scale is still something that they find it hard to achieve. Yes, the bank could help to achieve that. We will also look to rationalise the offer that we make in terms of finance. It is less involved in business support, but it is certainly in access to finance that we are a fundamental part of the bank. I want to move on to the barriers that we have heard about to women in the economy in particular, whether that be in work in regard to pay with the gender pay gap or setting up in business. It has been highlighted as a big mis-economic opportunity for Scotland. We have heard that Scottish Enterprise does not adopt a different strategy when dealing with women-led businesses, despite the evidence showing that, if you have a different approach to working with female entrepreneurs, you can unlock the potential. What more do you think that could be done with the enterprise agencies to tackle the barriers that there are to unleashing the potential of women-led businesses? There have been a number of things said, so unconscious bias is mentioned as well about the way that people can approach the issue of women's enterprise. I have done some work myself in relation to Women's Enterprise Scotland and the work that they have done, not least in terms of the military. Often wives, but otherwise spouses of serving military personnel, have taken a very different approach to some of the enterprise companies or enterprise organisations that try to help the general population. The most important thing to do would be to listen to that. If women's enterprise Scotland, led by somebody who is very experienced in this area, can point to the ways in which the offer and dialogue that is held with women should be changed in order to better encourage that take-up, then we should do that. It is a question, first of all, of these organisations saying to us, this is the way in which we think that we could change and have an impact. Your starting point to say that, to the extent that I think that the First Minister said, that is a number of times. If we have the same number of women establishing businesses as we do have men, the change to the GDP of Scotland would be absolutely phenomenal, so it is an untapped resource. In addition to the things that we are already doing, if there is more that we can do in terms of how we go about it, I am certainly very receptive to hearing that. Given that we have just talked about the enterprise agencies and how they can do things different around the things that you just mentioned, taking the advice of agencies like Women's Enterprise Scotland, would you see that advice with something that the Scottish National Investment Bank would take with regard to the same thing but access to finance rather than support? Yes. Again, as Sam mentioned previously, it will be for ministers to set the framework and establish the missions for that. Of course, that is a perfectly legitimate mission to have, to increase the take-up of women in business and setting up their own enterprises. So, yes, it can have that role. It is also worth saying that it is not just the Scottish Government business gateway as an important role to play here at local authority level. There is good evidence from Professor Sarah Carter, Accelerator Inclusive Growth Conference, that women enterprises are as successful as male-led enterprises, but they just start, they are under-capitalised at the start, so when you adjust for that, they are as successful. There may be something about patient capital that is required in a different form, Max. Right, now we move on to Jamie Halcro Johnston. Thank you very much. Good morning, Cabinet Secretary and to the other panellists. Just before I ask the question, I am going to move on to regional variations We talked a little bit earlier about some of the successful policies or policies that you felt that impact. Given that some of the purpose targets have not been met and may not be met, do you have an opinion on some of the policies that you have brought through or some of the initiatives that you or previous economy secretaries or the Government have brought through that perhaps have not worked that you might have done differently over the last 10 or 11 years? I am not going to criticise my predecessors in any way. I think that that has been a great deal. You might have improved on that perhaps. The one thing that I would say is that when establishing these targets, it is important to establish targets over which you have the control to achieve or not to achieve. As I have mentioned before and as has been considered by Greg Clark, there are two Governments that work in the Scottish economy. If you set yourself a target that you alone cannot be responsible for achieving, that is a difficulty. We should be very careful to make sure that when we establish targets that we do so, knowing the different organisations that will sometimes include local Governments and sometimes the UK Government in relation to that. No, I cannot think of particular initiatives that I would say were wrong. You may not have set a target on economic growth. The suggestion there is that you may not have a target. I think that it is perfectly legitimate for Governments to set targets for economic growth. In fact, it is desirable to do so. I just think that a greater appreciation of the factors that will have to contribute towards that and the extent to which the Government can be responsible for achieving it is important as well. You talked earlier about the UK economy and how you felt that it was very much focused on the south-east of England, of Highland Science and MSP, and there are some in my region that may think that the central belt of Scotland gets a lot of focus as well. Regional development is very important. Can you tell me a little bit about, certainly for the next few years, how you think that the Scottish Government's economic policy is going to benefit the regions? Perhaps the most obvious example would be—and it is a complement to the Highlands and Islands Enterprise in particular—the establishment of the South of Scotland agency. That recognises what has been felt to me for a long time, a very particular focus on the south of Scotland. Even within the south of Scotland, the borders are not the same as done in Freeson and Galloway. I think that that focus and also the inclusion within the remit of that new body to have the ability to be involved in social and community initiatives as well, because you all know very well that in the Highlands the success of high has been about establishing the capacity, not just the businesses and the jobs, but the capacity for people to start up businesses, and sometimes that is meant to be involved in the cultural, social space as well. That is extremely important to it. Incidentally, there is a perception that the Scottish Enterprise cannot do that, but they can and they are perfectly able to do that as well. That is one factor. Beyond that, in terms of regional development, we have tried to be very focused on the infrastructure works that we have carried out over the past 10 years to make sure that it is not just the central belt of Scotland that benefits from that. The border's rail, biggest new piece of railway infrastructure, new rail line for over 100 years in the UK, was specifically down to the borders. The two biggest roads projects that we have are the A9 and the A96 dualling projects, each potentially around £3 billion, which dwarfed even the Queensferry crossing, which was less than half of one of those projects. Also, in terms of some of the rail improvements to the Highlands and a cross between Aberdeen and Inverness as well, are very important. Beyond that, I would say that the biggest issue in relation to this area will be the shared prosperity fund. What is going to replace the funds that have been so crucial in the Highlands and other parts of the country, South of Scotland and Freeson Galloway, in terms of supporting businesses' skills development that have come from the EU? If you do not know even 10 months out what that is going to be, that is already starting to cause confusion and uncertainty. Getting to the bottom of that and I hope to work with Greg Clark to achieve that will be very important for regional development in Scotland as well. You mentioned the important thing about small businesses. I was noting the FSB highlighted that it is 79 out of every 1,000 in Orkney of higher percentages than other parts of Scotland. Those small businesses, particularly if they are in the tourism sector, but why are they not very much affected by the infrastructure around them, whether that is broadband or transport? How can the Government ensure that projects such as RETs to the Northern Isles can be delivered more quickly? I appreciate that the cabinet secretary does not like to make an announcement today, but we in the Northern Isles have been waiting a considerable amount of time for RETs to be introduced. Broadband infrastructure is still very sporadic in reliability. How can we ensure that projects such as schemes such as that can be introduced more quickly? In relation to RETs, the implementation of RETs, if we did the same way as we had done for the Western Isles, would be counterproductive for Shetland. It might be beneficial to Orkney, but it would be much less so to Shetland. There is some sensitivity as to how that is done. Despite the fact that it has not been introduced as yet, there have been other measures taken, not least in this year's budget, to improve the situation and affordability of fares in the Northern Isles. It is really a question for Humza Yousaf, but in relation to broadband, which is really a question for Fergus Ewing, it is a very important point that you make, because you know that if in rural areas you do not have the connectivity in terms of transport links and the ability to have a digital or virtual link, whether it is in terms of your employment, your education or your health, it is absolutely crucial. What we are trying to do is, through the R100 programme, make sure that every single business, every single individual in Scotland is connected to superfast broadband by 2021. That goes, and it is 30 bits per second, which is three times the level of the speed that the UK Government wants to achieve in England and Wales. That is happening. We are very high up in terms of the 1990s now, but that has got to be rolled out. Fergus Ewing has been very keen to try and say, let's do rural first, it needs it most, and let's not always focus on the urban area. I think that that is happening, but I am happy to come back to you in writing on the situation with RET, as Humza Yousaf would be able to tell me. That would be another quick last question. A number of organisations have talked about the skills gap going forward. Which areas are you particularly focused on, which I suppose representative bodies or sectors have expressed concern that the skills needs of the future are not being met and may not be met going forward? It is important to distinguish skills gap and labour gap, so there are labour shortages and demands in certain areas, which you will be very familiar with and concerned about. There is hospitality in terms of agriculture as well, but we are having the skills gaps in terms of digital skills. Generally, in some of the biblical trades, we have the skills gaps there as well, so we are trying to address that through the apprenticeship thing. If I could get Hugh McAllune convener to say a couple of words, this is the area of expertise here as well. Looking into where skills gaps might emerge, I think that it is quite important that we have a dynamic approach, because the labour market is changing a lot and increasingly we are starting to look towards the existing workforce. Most of our interventions at the moment are focused on young people, which is the right thing to continue to focus on. It certainly has been with high unemployment. There is quite a lot of work going on between our SDS and Scottish funding council around aligning skills planning. With the resources that we have deployed through two agencies through very different approaches, if you look at institutional funding through colleges and universities compared to work-based learning through the apprenticeship programme, they are in very different forms of training. However, it is still absolutely critical that we do not duplicate in some areas and we do not underserver other areas. As the economy moves towards different sectors and demand moves, it is best that we can. I think that it is important to keep that alignment as close as possible to employers and industries that are needed. We are not in a situation where young people coming out of the labour market or those seeking to transition are going on courses that do not lead to where the demand in the labour market is and do not have skills shortages coming through. That is a tough job. It is a bit of a holy grail in this area, but having the two agencies taking things forward together and thinking about all the labour market information that is at their disposal for the horizon that is sensible and then planning that together and executing that together and reviewing it together is really important. I think that looking much further forward, I think that lots of people can speculate about the sort of labour market that we will have in 10, 15 years' time. There are a lot of things that could happen in that time. If we look back 10 years, none of us were sitting with smartphones in their pockets and now that is an intrinsic part of how some people do their jobs. Things like that are maybe harder to predict. You can look at certain things, so a high proportion of the workforce for 20 years from now is already in the workforce. People in their 30s and 40s are already in the labour market. I guess that the thing for them is that there are going to be changes that support for people to transition. The Cabinet Secretary has already spoken about just transition around low-carbon, but that sort of thing. Would you therefore suggest that, going forward, a larger percentage perhaps of the budget for that would, for training, for the education side, be focused on post-24s transitioning people reskilling moving in between different sectors? I think that it is about ensuring that our support and our funding is focused when it is most needed. If that is a change around more of a focus on the existing workforce, if that is where the demand is, then that is where we have to consider our investment. However, we cannot ever get complacent because we have had a real drop in youth unemployment and we have been around that the whole time, from when it was 23 per cent down to 10 per cent today. You cannot be complacent about that, because every year there is about another 50,000 kids coming in. I was from school, college or university. Getting that balance right is challenging, but if you look at labour market challenges that we face, one of the big ones is how we support an existing workforce to maintain its levels of income and enhance its productivity across a very dynamic looking future labour market. Okay, thank you. Dean Lockhart, did you have a very quick supplementary? Actually, to one of Gordon MacDonald's questions, so I can come in later. Okay, that's fine. I'll hand over to Gordon MacDonald now. I'm glad that he knows what I'm going to say. Just on that point of reskilling the workforce, cabinet secretary said earlier on that unemployment levels are near record lows, but what about the position of disabled workers where at a situation where their employment levels tend to be around 43 per cent? What is happening in relation to supporting them and tackling inequality in general terms? That's a very good point and, of course, the Parliament's debating that this afternoon. I think that it's one area that we've not done as much as we should have done in relation to addressing that. We've got a very ambitious target to half that figure. We're helped to some extent by the change in procurement rules for supported businesses now, which can be of a broader definition under European regulations. That should help us to do that. That has been taken forward by Jeane Freeman and Jamie Hepburn in my portfolio. There's a great deal that we have to do. We have to try to concentrate on what people's abilities are rather than on what their disabilities are, so that we can have a clear idea of what work they are able to undertake and to make sure that the workplaces that they have to work in are as receptive as possible to them. However, you're right. This week, we've seen a move by the UK Government to reduce the protected places scheme, which could put another 660 people with disabilities out of work. That would be counterproductive, so I think that representation is going on with the UK Government to try to avoid that. Nobody has done it as well as they could have done it. We have made major strides, but there's still a lot of work to do in terms of the gender issues in the workplace, similarly with black and minority ethnic groups. In terms of people with disabilities, we've got a lot more to do. Thank you very much. Moving on to my questions about the agency support that's out there for SMEs, etc. The Scottish Government has identified six growth sectors ranging from food and drink to life sciences. Can you say what the impact has been of having that focus on Scotland's economic performance? I think that it is important that you take one example of the food and drink sector, a real focus on that. You've seen exponential growth in food and drink over the past 10 years. I mentioned just last night's opening of the new distillery in Murray, but there are new distilleries proposed. The new distilleries are cropping up all over the place, but there's one that's proposed in both Bororah and Argyll and Bute by Diagio. That focus on the food and drink sector has been really important. I think that we want to see a sharpening of the focus in terms of what geographies we're going after, as well as allied to the sectors that we have, and the focus that we have in terms of manufacturing. The establishment of the National Manufacturing Institute is really important for giving us a focus on an area of the economy that, whether in Scotland or the UK or other countries, we have seen neglect of manufacturing such that we expect that we will use things that should be produced elsewhere by and large. I don't think we should accept that. The First Minister said that in the programme for government. The focus on those sectors can, as demonstrated by the food and drink sector, as demonstrated also in terms of some of the fintech developments in the financial sector, have a very beneficial impact. The most obvious measure of that would be in terms of the growth in food and drink. You've touched upon other areas slightly outside the growth areas, but what support is available to those SMEs whose businesses are outwith those growth areas? I think that that is a good question. We are seeing a changing landscape, first of all, through the enterprise and skills review in terms of the changes to Scottish enterprise, so with the establishment of the South of Scotland agency, and also some really encouraging developments such as the Ayrshire with the economic partnership, so the three councils have come together to look afresh at how they can provide business support in their area. If there is support that is not there, one of the criticisms that I have seen in previous evidence to the committee is that becoming an account managed company for Scottish enterprise is too difficult or too exclusive, we don't want to see that happen. We want to see businesses getting the support that they deserve. A lot of businesses just ask them to get out of the way so that they can get on and do what they want to do, and that's fine, but for those that need support, we want to make it as wide as possible. This is more Mary's area, but we, just to reassure the committee, are looking at the evidence that you've taken and seeing if there are points of action for us in relation to this business support. We've talked to Smyrnau a bit about innovation and the funding that's in place, et cetera, and we've got these innovation centres as well. Scotland continues to come up with the innovations and inventions from big data, fintech, life sciences, but again, out with those known growth areas, what support is in place for university spin-offs or for new innovative businesses that aren't within those growth sectors? There is support. One of the criticisms that the universities have had is that they've been very good at developing spin-outs, but not scalops, and also the fact that they sometimes find it hard to let go, say, for example, of an equity share when the private sector could take things on to a further level. That discussion is now because the Scottish funding council is a partner in the enterprise board and represented on the strategic board of the following enterprise and skills review. That discussion is much better now, I think. You can see early signs of that, nor a senior may have told you that when she appeared before the committee. So that SFC sitting next to Scottish Enterprise, next to Highlands and Islands Development and so on, they can have those discussions. I think that there is now a much greater appreciation in the university sector. If you think of Harriet Watts, Edinburgh is just a hugely powerful economic engine itself in the university, in terms of what they do. Even in my own area, Stirling University has had the innovation park for a long time now. I think that there is a greater appreciation of trying to maximise the economic impact of those areas. However, if there are any gaps where people feel that they are not in a sector that has been highlighted, that should not be there, there should be support for all businesses, then they will begin to hear about those and see how we can address them. Is there a role for the Scottish National Investment Bank in supporting these innovative businesses? I am conscious that the list of demands on a body that is not even yet established grows day by day. However, yes, of course, especially in relation to that scale-up idea that you are talking about, companies, and it was mentioned earlier on this discussion, companies that have done well, perhaps have innovated. We do not want to see that just fly off elsewhere. We want to see it scaled up here and the jobs and the benefit that come with it take place here. Of course, I mentioned that the National Investment Bank should be involved in shaping markets. If that means expanding the indigenous Scottish presence in markets, that has got to be a good thing. Okay. Thanks very much. Dean Lockhart, I promised you a supplementary. Yeah, thanks very much. It was actually on the Scottish National Investment Bank and given its long-term plan for the bank to inject long-term capital into the economy, recommendations 6 and 13 of the implementation plan talk about a 10-15-year horizon by which the bank will be judged. Cabinet Secretary, can you confirm that the bank will continue to use sterling as its currency for that period of 10-15 years? I think that would make me the person that's got the job of trying to establish certainty going forward to a 15-year period when nobody else can do that. Who knows what changes are going to happen over the course of that time? That's the currency that they're going to work in, I'm sure, when they're started. Beyond that, who can say what currency changes are going to make? I certainly can't, I'm not a currency expert. Well, despite the fact that we only had six committee members here today, we seem to have filled up our time quite well. That's partly because we've had good questions and answers, so thank you very much, Cabinet Secretary, and to your team. Did you have any final comment that you wanted to make before we finish? No, and just to say that the points are made, convener, in relation to the evidence that the committee has taken, we are obviously waiting to see what recommendations the committee wants to make, but we are looking at that just now and there may be changes that we'll make in the meantime as well, but thank you for the committee's work. That's great. Well, thank you for all your time, and I suspend this meeting just for a minute to allow the witnesses to leave. The item 3 is the bankruptcy fees Scotland regulations 2018, and our item here is to consider it a regulation 2018 SSI 2018 127. The committee will recall that we wrote to the minister outlining our concerns over the 2017 regulations and that instrument was subsequently withdrawn. Our general concerns at that time were the lack of transparent, consistent and understandable processes for setting fees, clarity over the extent of cost recovery, and the impact of fee increases on stakeholders. We have now received views on the iteration of the regulations from ICAST, the Institute Chartered Accountants of Scotland, Alan McIntosh and Money Advice Scotland. It may be worth noting that the current regulations will not take forward a number of the fee increases that had been proposed in the 2017 regulations. The bankruptcy fees charged to debtors will not change and there will be an increase in the fee charged to a creditor to apply for a debtor's bankruptcy. In brief, the accountant in bankruptcy has gone some way to addressing the committee's concerns about the 2017 regulations. At this stage, does any member have any substantive issues that they wish to raise by way of comment about those regulations before we move on to making a decision about them or not hearing any comments from members present? Are we content that the instrument comes into force? Members are agreed. As we agreed at our previous meeting, we will also draft a response to the minister and we will consider that in private. I now suspend this meeting and we will move into private session. Thank you very much.