 Gwelwch i'n ffordd, wrth gwrth i'r gwrth gwyfnig o'r myfwyr y gyfnodol yn Ffair Work Cymru, ac i'n ddim yn bodi'n ffwrdd i'n meddwl i'r cyddiadau o'r mewn cyfwyr o'r ddweudol fel ddodol i'r cyfnodol i'r cyfrifolau cyfwyr o'r ddweudol. Fy rydw i'n gwybod am y gwyfnig o'r gwyfnig o'r cyfwyr o'r ddweud o'r cyfwyr o'r ddweud o'r to determine to take item 4 in private. Are we agreed that that should be taken in private? Yes. Thank you. The second item is if the committee is happy to decide to delegate responsibility to myself as convener to pay any witness expenses arising from these round table sessions. Is everyone happy with that? Yes. Thank you. So that will be dealt with by the usual procedure. I would now move on to our round table session and just explain that this is a slightly perhaps less formal than an evidence taking session. We have the committee members and also various representatives from small and medium enterprise and organisations with us today. Individuals will, once we get going, raise their hand to speak and we will seek to perhaps focus on our guests today and what they have to say to committee members, although obviously committee members will come in with questions as and when appropriate. For the benefit of our witnesses, there is no need to switch on your microphones. These are already on and broadcasting will deal with those issues. First of all, I will introduce myself. I am Gordon Lindhurst, MSP convener of the committee. To my left we have the clerk, Ably, assisting me and others from the clerking team as well as the official reporters. If I might start then perhaps by doing a round of introductions and just asking everyone around the table to introduce who they say who they are, what organisation they are from and just a very brief introduction as to what their organisation or business does. I will start first of all and perhaps you can go from my right around the table. I will start first of all with Susan Love. Susan Love, I am policy manager for the Federation of Small Businesses and I will not say any more because you have just heard from me. My name is John Mason, I am the MSP for Glasgow Shetleston, which is in the east end of Glasgow. I am the vice convener of the committee. I am policy officer with the Scottish Grocer's Federation. We are the national trade association for the independent convenience store industry in Scotland. There are roughly 5,600 convenience stores in Scotland, more per head of population than in the rest of the UK. The sector employs about 44,000 people directly and contributes about £543 million in gross value added to the Scottish economy. We feel that it is an important part of the supply chain in Scotland. Jackie Baillie, constituent of the MSP for Dunbatten and the Scottish Labour spokesperson on the economy jobs and fair work. I am Caroline Corry, I am here from Women's Enterprise Scotland. For my colleague Ann Meecill, our policy officer who is supposed to be here today, so I shall try to do my very best to replace her. Women's Enterprise Scotland, I think as many of you know, works to create an entrepreneurial environment where all women can start up in business, with particular aim to unlock the economic potential, estimated at £7.6 billion. GVA, if women started up in business at the same rate as men in Scotland. Gordon MacDonald, MSP for Edinburgh Pentlands. Sandy Kennedy, chief executive of Entrepreneurial Scotland. Entrepreneurial Scotland starts with the premise that we have been lagging significantly not just for a few years but for decades on our economic performance. It is a belief that we can become a truly entrepreneurial society that is the only way that we can resolve this and answer that. By an entrepreneurial society, I mean not just with entrepreneurs and start-ups, which are absolutely vital, but how we then look at how businesses are growing and scaling, how we look internationally, and how an entrepreneurial culture might exist within Government, within our universities, within the third sector. The important thing to recognise is that it is already there, so that is not about one thing towards the other. How we do it is that we have a network of many of the most famous or most successful entrepreneurs coming through and that there are many people who are coming in behind them. It is about joining the dots, working together collaboratively, but with a very high ambition. Good morning, everyone. My name is Dean Lockhart. I am a regional MSP for Mid Scotland in Fife. I am also the economy spokesperson for the Scottish Conservative and Unionist party, and I would like to thank all of our witnesses for coming along this morning. Gil Paterson, constituency member for Clydebank Mulgaea, is taking on a chunk of Beir's rent—better say that—and I would like to declare an interest on my member of SSB. I am Colin Mason. I am a Professor of Entrepreneurship at the Adam Smith Business School at the University of Glasgow. I research on entrepreneurship on the Scottish economy and on home businesses, to high growth firms, to financing entrepreneurial businesses and to teach business start-up classes. My name is Andy Wightman. I am a MSP for Lothian region. My name is Alison Grieve, chief executive of Ghold. We invent and manufacture handholds for different industries. Our main focus is export, where we sell to 20 countries worldwide, both products and licensing our patents. I am Gillian Martin. I am the MSP for Aberdeenshire East. Good morning, everyone. I am James Withers. I am chief executive of Scotland Food and Drink. We are the industry leadership body for the food and drink sector. We have around 360 businesses that we are members of ours. The vast majority are food and drink manufacturers and the vast majority are SMEs as well. We exist to grow the value of Scottish food and drink and ultimately grow its reputation as well, but we are a partnership body as well. Whilst we are industry-led, we are a partnership of the main trade associations operating food and drink, alongside the public sector agencies, all working to deliver a food and drink industry strategy. I am Richard Leonard, Labour MSP for Central Scotland. Hello, I am Ann Johnson. I own a business called Blaze Manufacturing Solutions. I own it with my husband. We are a family business. We have 30 employees and we have a workforce of about 130 subcontractors. We have grown from our garden shed, quite literally, to premises that Howard and I own. We did £20 million in the year before last. Last year, we did £3.9 million. Our industry is in absolute crisis and we are desperate for help from the Government, so I am delighted to have this opportunity to speak here. I am Ash Denham. I am a constituency member for Edinburgh Eastern. I am James Bream. I am a research and policy director at Aberdeen and Grampen Chamber of Commerce. I am also in the other part of my life, a direct developing young workforce in the north-east. Good morning. I am Liam Kerr. I am MSP for the north-east region. I think that I ought to also declare an interest. I have set up and run various small businesses, including one that is currently in existence and is currently a member of the Aberdeen and Grampen Chamber of Commerce. I thank everyone for that. I might start with a question that I would like to ask on business rates. A large business supplement might not be so relevant to what we are discussing today, but looking at business rates in particular, changes in the recent past, what effect do business rates have, what would people here like to see the Scottish Government doing about business rates? I could start with asking Sandy Kennedy, who talked about Scotland lagging behind. I do not know whether that is an issue that you are in a position to address. Perhaps others of our guests would like to come in if they have comment on this particular point. I think that we are specifically around business rates. Yes, that particular aspect. I would say that there is somebody else who is better at able to answer on business rates. Who would like to take that question? Perhaps James Bream would like to come in on that. I am not happy if I go. Obviously, last week, a number of business organisations wrote about the large business supplement, so I suppose that element of it is well documented in the views on what should be done with that or in the public domain. I think about it from a small medium enterprise point of view. Business rates are an input tax, so you pay before you've earned a penny. In that respect, for smaller businesses, I guess the cash flow impact can be more disproportionately harmful than for maybe larger corporates. I think also for a lot of smaller businesses, as you go through the kind of cycle of investing in your business and property, that then impacts on your valuation. You invest in the valuation goes up, so you're actually maybe not incentivised as much as you might be to invest in property, which is generally unhelpful. You might actually delay investment in some cases around the valuation points. I guess finally, from a wider economic development point of view, I'm not sure we're always doing everything that we can to use business rates in positive movements around it in the way that maybe some other countries around the world are looking at free trade zones and things. We used to call them enterprise zones in Scotland. That might just be a good thing to revisit the past and see how they worked, because we might be able to, when we look at the role of clusters and particularly incentivise greater activity around that type of intervention than we do at the moment. I guess those are all things that look at what we could do if we changed things. There's probably, if we did nothing with the current system, pieces around how the appeals process works, nudging, tweaking around the edges, but I think there's some more fundamental things that we could look to do with the system as it is. Do you have specific countries in mind that we could take an example from or might be helpful to reassess our own approach to those matters? I think that there's elements probably of different countries that you might look at, but if you look at the way that a lot of the Middle Eastern countries work around trying to attract clusters of business in the oil and gas sector as an example, there are a number of them throughout the Middle Eastern Europe who have freed trade zones. Basically, they are quite specific about what types of company they want to get into that area, and it really is about trying to build strong clusters. Actually, with the reviews that are being undertaken by Government at the moment, the thing about clusters that they actually have to be close together, that's the whole nature of a cluster, as well as being a sector. You can't look at geography and the sector in isolation, so that seems to be an obvious tool that you could use. At the moment, do I see many local authorities thinking like that? Probably not, but it's maybe because, if they were to take that risk, they would be fairly significantly financially hurt in the short term. It's about using business rates as a growth tool rather than as a way to raise money. I think that that takes quite a long-term view on business rates as a tool, which I'm not sure we have at the moment. Can you say something about small business bonus and how that's been helpful to small businesses and supporting new businesses, as well? Maybe the FSB are better placed, but it's certainly something that's been helpful. It's been welcomed. I wasn't with the chamber when it was introduced, but it was certainly something that is an input tax. Reducing that burden is something that business finds extremely helpful in terms of that cash flow position. Again, when you look at how we use the small business bonus scheme, looking at where the cliffs are and making sure that we're taking account of the companies that are around those margins, that's probably a bit of evolution rather than revolution, looking at how transitions impact when you jump up to the next level. Again, it's something that we hear feedback on, that it might be useful. Again, that's a way to evolve the existing system rather than make a complete change. Was it Anne Johnson who wanted to come in and then Dr Lee also? From the small businesses, I'm talking about shop owners, just one real example is the hardware store in Lawrence Cook. What we're finding in the villages on the outskirts of Aberdeen is because of the downturn in oil, so many people have lost their jobs, no-one's spending any money. The hardware store had expanded and by expanded, I mean just put a bit of a makeshift roof on the back of the hardware store so that they could sell gardening equipment, then found themselves with an enormous hike in the business rates, and that's the number one thing that's really stopping them from growing or actually existing just now. Dr Lee? The small business bonus is very, very welcome. From our point of view, the Government has signalled its commitment to maintaining it, which is great, but if there was some way that we could find of almost taking the politics out of it and ensuring that the small business bonus became a permanent form of rate relief without any strings attached, that would be very, very helpful. I guess the problem with business rates is that they keep going up. From our member's point of view, they are continual asking what do we actually get for our business rates, more and more they have to pay for their own recycling, waste collection services and so on. As citizens they are paying their council tax, but they also have to pay their business rates as well and in return seem to be getting very, very little back for them. We need more frequent re-evaluations. I think that most business rates at the moment are based on a time a few years ago when the value of commercial property was much, much higher. If we could look at some kind of freeze in the poundage, small business bonus is becoming permanent and more frequent re-evaluations, I think that those things would be extremely helpful. I think that Susan Love wants to come in and then John Mason. Thank you. I do not think that it is any secret that there are a number of concerns about the non-domestic rate system. There are in all the countries in the UK about how the system operates and we obviously have an independent review in Scotland at the moment looking at that. From our perspective, I think that there are short-term and long-term issues to think about here. I think that there are some short-term changes that could be made to the system. For example, I think that one of the parameters of the review is about how we have a system that does not discourage investment and at the moment we do. For precisely the reasons that I am just outlined. For example, if you are a business and you are seeking to expand or invest in your property, you will not be able to find out what the rateable value is going to be of your property until after you have done the work, because the system is completely opaque and difficult to navigate for small businesses. One solution in the short term might be that you delay any re-evaluation following improvement for up to two years for small businesses, which would give some certainty to make back your investment before you pay higher business rates, for example. There are a number of changes that could be made in the short term, particularly around the ease of use of the system from a small business perspective. However, there are many longer-term issues that are more difficult to consider about how that tax works and whether a property-based tax is the right one for the modern economy. There are obvious questions about online business, for example, and about how that creates a burden that falls on businesses with premises. Those are all not easy to solve in the short term, but they are worthy of discussion. I would say that a property-based tax plays greater burdens on smaller businesses for whom the rent and property costs are a higher proportion of their turnover than larger businesses, particularly for start-up businesses who are trying to survive through early overheads. The small business bonus scheme has been an absolute lifeline for them, particularly through the recession, and now is the economy struggles to recover. If there was to be less money coming into either local government or central government through business rates, would the preference be to have more profits tax, so raise corporation tax or income tax to compensate? Or would the preference be to cut services, spend less on road repairs, spend less on training young people, so that they would be less ready for work? Does someone want to field that one? I feel as though the proportion of the total revenue that is being committed to government is being placed more upon the business than the general public. That is a perception that business has. Will they be happy with a profit tax? I think that this is exactly the point that Susan Smyth alluded to. There are always going to be winners and there are always going to be losers with whatever you do, and I think that we need to have a proper discussion on what is fit for purpose to help our economy to grow rather than kick a can down the road because it is a difficult one to fix. It may be that, when we have that discussion, we find that a property-based tax is the best type of tax to help our economy to grow. I do not think that businesses feel that we have had that discussion. Maybe there is a halfway house that has a half-profit. I do not know, but because we have not had that analysis and discussion yet, I think that that is where we need to get to. Until we have that, we are always going to return to this discussion forever more. I suspect that some people who have been around for longer than I have probably had this discussion a few times. Sandy Kennedy wanted to come in. If you want to come in, please indicate to me by raising your hand. Sandy Kennedy is just a very short observation, which is that a lot of the discussion is centered around how we carve the pie up and who gets what and how it is allocated. I think that the point that you make is a very good one. I would ask the committee to always bear in mind how is it that you grow the pie and how do you make that pie bigger? If we want to see inclusive growth, if we want to see more investment into all the communities that we want to see, then that is only going to be possible if we grow the pie. If we spend all our time talking about just moving the debt shares around, then we will be continually talking about it for 10 years time. It is really important that we focus on growing the pie. Gil Paterson wants to come in. Perhaps you have an idea about growing the pie or a further question? I have a point that James is making in relation to the split between rates and how do you cut it up? Do you go more on profit? I am now speaking as a business person. One of the things that I like about rates is that I do not like the idea that I do not qualify for any business bonus because of the size of my business, but I have always voted for it. I think that it is good and that it has saved a lot of businesses through the hard times, to be quite frank with you. However, the one thing that I like about the business rates is that it captures those who do not pay any taxes at all in this country. There tend to be big companies that do not pay low wages. If they have a footprint on the ground, they do not escape rates. That helps the fire service and all the other things that we get, like the roads, if the place is broken into the police turn up to the places that folk do not pay tax. That is one element. We need to understand what is happening in business at the present time. I am dead easy to capture happy all my taxes and so do my employees, but some big outfits do not pay anything. We need to really consider that if you want to shift away from a rates-form or property-type tax. If anyone would like to comment, that is more of an observation than a comment. Could I add to that that internet-based companies may not fall within the category of those who would be captured by business rates on property? That is a further dimension to add to what Gil has just said. Do we have someone who would like to comment on this aspect of matters? Andy Wightman might come in with some suggestions. I was going to come back on what Gil was saying. One of the biggest online retail operations is Amazon, and it pays more non-domestic rates to Fife Council than it pays to the UK Government, which is one reason why I echo Gil's comments that property taxes are quite good taxes, because they are very hard to avoid. That might be correct, but it depends if they have a geographic base within Scotland. There are some who would not have that. I wonder if Colin Mason has anything that he wants to add to the discussion on this point. Not on this point, but I would share Andy's view that I am disappointed at the way that the discussion has gone. I think that there are more fundamental strategic questions that we should consider. One of the most strategic questions is, what are Scotland's structure weaknesses in the area of entrepreneurship? One of them is that we do not have sufficient companies that achieve scale. It is not to denigrate small businesses that employ one, two, three or four people that are very valuable socially and economically, but we know that the companies that achieve scale are the ones that have a disproportionate impact. I was involved in a study a few years ago that Nestor published. It was a UK-wide study called The Vital 6 per cent, because what the study showed was that 6 per cent of companies created more than 50 per cent of the jobs. The 6 per cent and the 50 per cent will vary from time period to time period, but the gist is the same. We have a disproportionate number of companies that make a big economic impact, and Scotland disproportionately does not have these companies of scale. I know that not every growing company will take a public listing. That is not necessarily a route, but it is a useful indicator. Only 3 per cent of companies listed on AEM—the stock market in London designed for young growing companies—only 3 per cent of AEM companies are Scottish-based. Why should that be? There are other statistics—I will not bore you with that—that makes the point more generally—that Scotland lacks high-growth companies. Moreover, the nature of the Scottish economy means that high-growth companies in Scotland create a lot of their jobs outwith Scotland. We need to have lots of high-growth companies to create jobs domestically. One of the issues is that a lot of our potential high-growth companies get acquired for good or bad—it is a complex issue. Having independent, locally-owned, solid, middle-sized companies in Scotland is important, not least because the head office is in Scotland. If a lot of high-growth Scottish companies are creating jobs in their export markets, very often the only footprint in Scotland is the head office. In many cases, maybe that is only 50 per cent of the jobs. It is important that decisions are made in Scotland. The head office also creates a demand for the professional services, the law firms, the advertising firms, the marketing firms, the accounting firms and so on. Having significant-sized, locally-owned, locally-head-officed firms in Scotland matters. I am old enough to remember back in the 1990s, when Crop of Beverage came in as the new chief executive of Scottish Enterprise. He is a Scot. He would be working in California in a high-tech company. He came to Scotland to take over the role of chief executive of Scottish Enterprise. His immediate observation was lack of entrepreneurship in Scotland. He set up what was called the business birthrate strategy. At that time, Scotland was ahead of the game. He was a very well-researched, strategically thought-out, well-researched strategy, which was curtailed far too quickly. Where is that strategic thinking happening? I do not see it happening. I would like to see some kind of think tank or some kind of working party set up to nail the strategic issues and propose some meaningful policy solutions. Gillian Martin and Jackie Baillie wanted to come in. I do not know if one of you has a new point or on this point. Gillian, was it? I have a kind of new point, but it is linked into what has been talked about as well. I am coming here with feedback from a well-known company in my constituency who was talking to me about the barrier that they want to grow—absolutely huge demand for what they supply. They want to grow, but they are saying to me that the barrier to growth in their area is infrastructure investment in the area that they have their premises, which is Ellen—I am giving her lots of clues as to who they are—and access to utilities. This is a company that we would like to stay in a rural area, which is great, providing jobs in a rural area. However, because their demand for electricity, water, is such that it is outstripping what supports that can be available. I just wanted to put that out there and see if there is any feedback from people around the table as to whether that is something that you have seen in your areas, which is something that needs to be worked on in order to promote growth of existing medium-sized businesses. I confess to sharing a frustration at where we started off, and I absolutely agree with both Sandy Kennedy and Colin Mason about the big questions that affect us. It is about how we grow the economy against a backdrop of Brexit and all sorts of other things going on. Understanding what is going on in our economy, understanding where we should invest, what triggers there are and what levers there are that we can pull is central to whether we are going to be successful or not in the future. I absolutely endorse the comments about making sure that the strategy is right. I would add to that, making sure that the institutional clutter is also right and that there is a review going on at the moment that I would be interested in hearing people's views on. In my head, is it about investment in infrastructure, as Gillians talked about? Is it education? Is it exporting? Is it entrepreneurship and innovation? Is it all of them together? I am getting a feel from you as to whether it should be SMEs in that engine room for growth, whether it is the large corporates, and where should the balance be struck? If you are looking at high-growth companies, a lot of them will not necessarily be SMEs. Is SEs Scottish Enterprise's approach right to simply target high-growth companies? They come in for a fair amount of praise and criticism. Is the institutional architecture the right to support that kind of high-growth strategy? Finally, the Government's economic strategy is supposed to be that overarching framework. Not many people disagree with it if you compare this Government's economic strategy to previous Government's economic strategies. They hit the same buttons, but where are we going wrong? Is it just that we are not implementing it? Is it the fact that there is no action plan or monitoring framework? What is it? We talk about those things constantly. In the 17 years that I have been here, we have talked about the same subject several times, so what is it that is going to make the difference? I wonder if Colin Mason wanted to come back in at this point and then a couple of other guests. One thought would be that high-growth firms come in all shapes and sizes, but there are some mythologies within policymaking about what high-growth firms look like and, in particular, that they are high-tech, commercialising the state-of-the-art technology, which is not the case. I think that a lot of the schemes to support firms are based on the myths about what a high-growth firm would look like, so I think that it is appropriate for policy to be agnostic about what high-growth firms look like. If you think of the most recent, present-generation, most successful entrepreneurs in Scotland, there are two Toms, Hunter and Farmer, Retail, Egg and Car Repair, John Boyle and Travel, none of these guys would have qualified for public sector support because they are not deemed to be in sectors where there is growth potential. I will pick one company at random, Barhead Travel, probably one of Scotland's most successful companies. It is a travel agency, but clearly they have seen niches and opportunities, which is what entrepreneurship is about. It is seeing opportunities that other people have not taken. Another problem with policy is to see this divide between manufacturing and services. If you go into the room and talk to businesses, that is nonsense. Some of the most successful companies in the study that I did for Scottish Enterprise a few years ago called solutions manufacturers. At the core, they have a manufacturing product, but they build around that in various kinds of services. They say that if we were just a manufacturer, we would be competing on price, we would be out competing with the Chinese, we would be out of business before we know where we are at, but we are adding this intellectual value. It is about business models. It is innovative business models that are the key to success, not necessarily the technology that people are working in. That is one of my thoughts on the subject. What can the Scottish Government or the Scottish Parliament do about these things, going down to the detail? Of course, the devil is always in the detail, and some of the issues that have been raised are perhaps matters of detail rather than high-level strategy, but the difficulty is putting that into something that can actually something can be done about. I think that Sandy's paper quoted the Sherry Cootie report by Cambridge technology entrepreneur on the need for scaling up UK-wide. I would like to see a Scottish Cootie report on the Scottish context, the scale of the problem and what we can do to create an infrastructure that is not necessarily provided by any means by the public sector on how we can support entrepreneurs with the ambition to scale up and to avoid the kind of anecdotes that we inevitably get in this kind of debate. That is what I would like to propose. It is an equivalent of a scaling up strategy, such as the business birthrate strategy of 30 years ago. What do you think of that, Sandy Kennedy? 100 per cent endorse that. No surprise there. For those people who do not know the Sherry Cootie report, what she does is she has five recommendations as to what she thinks are the big differences that can be made. The first one, I suppose, sits outside of what can be done for the actual businesses. That is great transparency and collaboration across public, private and third sector, because we are all in this together. Therefore, we need to collaborate and we need to pull together. James and I were talking before that many of the things that his members face are the same things that entrepreneurial Scotland members might be able to help with and vice versa. I urge greater collaboration by all of us. I see that clutter that you were talking earlier about, Jackie, is very much there. It is not just in the agency side, it is elsewhere. The first, second and third relating to businesses are all about people. They are all about do we have the right talent flows coming through, do we have the right leadership capabilities, particularly when we are looking to export, and do we have the right connectivity. Connectivity is about people and connectivity, particularly into new markets. That is absolutely vital. The point that I would say, and I think again that it comes to the point that I was saying about growing the pie, the other thing that we have got to recognise is that this is not something that we have got your limitless amounts of money to throw at. We have a finite amount of money. If anything, we have to accept the amount of money that the public sector can put towards this, it is going to go down rather than up. Therefore, we need to look at it and say, well, how can we do something truly different? I would say that the key lines of focus should be about how do we make sure that our talent that is coming through is our best place to be able to go and grow businesses about growth, to make sure that our leadership teams are the best leadership teams that can be with the right mindset, with the right networks, with the right connectivity, with the right executive education if that is required, and thirdly, we need to get greater connectivity into new markets as well. That is about the people's side and ultimately people's about culture. Therefore, we are going to look at how is it, and this is what I am saying collectively, how do we collectively as a government, as a private sector, as a community of the third sector work together to change our culture, to become an entrepreneurial culture? An entrepreneurial culture is not just about businesses making profits, it is about how do we solve problems within the NHS. For that reason, I have been working with a number of civil servants within the Scottish Government, but how do we bring those tribes together? How do we bring the steved and the lops of this world to a driving change in Scottish canals along together with the Mike Welshes of Black Circles or the Richard Dixon's, and it is only by working together that we can make a difference? Thank you. Caroline Currie, do you share those views that have just been expressed? Pretty much. I think that I would like to pick up on the point that Colin Maid put his high growth look like. I think that we do a lot of the right things. We look at sectors to understand where sectoral growth is coming from, but often high growth tends to surprise us in terms of its nature. It is very much a mix of the people that Sandy picked up on that, the personal traits that come through. Certainly, from our experience, we have just consulted with a number of women-led businesses. There are some interesting trends coming through. We heard earlier this morning that there is certainly an increase of women starting up in business, which is of interest to us, but there is also a change in the demographic coming through. There are more older age entrepreneurs coming into the market with the benefit of corporate experience behind them, so quite a different type of person coming in with a lot of skills and talents at their disposal. One of the key questions is how do we identify the mix of entrepreneurs that are coming through and pull those talents through to best advantage? Sandy's point on leadership is really well made. I would certainly say that diversity within a leadership team is very important. How do we harness the talents across the entire ecosystem to get real leadership and to make entrepreneurial Scotland a very exciting place to be that is open and inclusive to everyone? If you can bring everybody together successfully, I have no doubt that we could create a very entrepreneurial culture. It is that mix of different people from different backgrounds being able to come together to share what they know and to bounce off that that really can often take ideas and idea generation to the next level. We touch briefly on the enterprise review. There is a structure here already in Scotland to help businesses and to help businesses to get that support. What is really important is that we understand the end-user experience and listen to those voices and see how we can make that support more tailored to current needs, but also to the needs that we are seeing coming through that pipeline and best shape that support to deliver. I just want to bring in a couple of our business people here before returning to some of the members of the committee who would like to raise some points. First of all, James Withers. Thank you, convener. I am keen to echo some of the themes that have come out, and I think that we are getting some really interesting areas now, particularly the issue that Colin Mason raised about scale. Clearly, we need to achieve scale if we want to internationalise, if we want to build our markets here and build them overseas as well. However, how we achieve that scale is going to be crucial, particularly in a country where we are dominated by SMEs. In my sector of food and drink, 90 per cent of our businesses employ less than 10 people, so we are not even at the S part of SME yet. We are really down at the micro end, and we can talk ourselves into that being a barrier to sector development. I fundamentally disagree with that. It is absolutely a strength that we have. It is diversity, it is authenticity and then a sector like ours where we are trying to build a national identity around provenance, about consumers' connection with individual brands. Small can be beautiful, so how do we achieve scale whilst not losing that diversity of small businesses that are out there? Again, if I just look at our particular sector, eight or nine years ago, food and drink was static, it was not growing at all. Now, in 2016, we have turnover at 43 per cent. Interestingly, the growth of manufacturing of food and drink in Scotland is growing at twice the rate of the UK average. When you strip all of that out and think, why is that? What is different that is happening in Scotland? It comes down to collaboration. To me, how we get small SMEs to work collaboratively is the game changer. That allows individual businesses to retain their identity, to retain their talent and entrepreneurialism, but to achieve scale by working collectively. To pick one sub-sector for us, there are about double the number of independent craft breweries in Scotland in 2016 than there were six or seven years ago. The old-school model is that, to achieve scale, some of those bigger independent brews need to merge or the big guys need to take over the small guys. That is a highly unexciting prospect to me. I think that for most customers that are out there that are interested in understanding the background of the brand that they are buying, that independence and that craft that artisan is important. However, those brews need to work collaboratively around logistics. They all need bottles and packaging and pallets. They are all interested in getting into the same markets in London as they are internationally. To the question that you asked a minute ago to one of those giving evidence, what do we need to do? We need to think how we support collaboration. There might be 200 food and drink businesses that are account managed by our enterprise agencies. Most of them are at the bigger end. We need to think how we, through account management, through the support that the business bodies provide, how we support collaboration. In a world of tight funding, how we deliver a one-to-many solution by bringing small businesses together and identifying what those common issues are, and that starts creating mentoring networks. A lot of the magic that comes out of bringing businesses together will come if we can facilitate that kind of collaboration. I think that I will come to Ann Johnson next, but I think that Alison Greve, you were nodding your head in agreement today. Yes, our products expand both food and drink and also technology. I was really impressed by the collaborative work that is done by organisations such as Taste of Arran, who are different food producers, but who export together and have a collaborative brand, which I think has worked very well for that organisation. In technology, I find it quite difficult as a hardware company to be able to collaborate with software companies. I find that there are divisions within the business community of Scotland that really shouldn't and don't need to exist, especially if we are going to be competitive in international markets, where a lot of the departments of R&D departments, hardware and software, are merged often. However, I would like to talk about growing the pie with a very small project that is focused a bit like you talked about looking through the large end of the telescope and looking in. I have been working quite a lot with California State University and their teaching department, who promote mobile technology and education. I have formulated with them an idea for a pilot project involving 12-year-olds, because I believe a lot in education and in children, sometimes showing us how it is done. My project that I would like to get off the ground is to collaborate with a group of five Scottish children of about 12 years old and the same age in California to do a small import-export project involving Scotland food and drink companies to export a healthy snack. There are quite a lot of organisations that that might involve. Although it is very small, it is to promote a culture of international entrepreneurship within the Scottish education system. I hope that some adults could learn from it. I am on the high-growth fund. I am a high-growth company. I fall completely into your description, Colin. Of what we do, we do fire protection offshore. You start off your company until you turn over about £10 million a year, and everybody leaves you alone. The minute you tip over that £10 million, the global sea was a threat. Our competitors would group, chub, tyco, those sorts of companies, massive deep pockets, and suddenly you are a hindrance to them. You are up against them in bid situations, and they want you out of the market. The tax hits are quite brutal. The problem that you get is that by the time you have done £10 million, you are generally 10 years in, and you are really tired. If you are a family business, you have lived it, breathed it, and you do live and breathe it every minute, second of the day with your kids. Your kids are fed up with you talking about it. They work in our business as well, and you start to think that someone is going to offer me loads of money. I do not blame anybody for selling out. We have not sold out. We are still continuing down. What can the Scottish Government do? You do an enormous amount already. We are part of Scottish Enterprise. They literally could not be better. They have been fantastic. We are part of the chamber. Elevator is marvellous if you are starting off your business. I am part of Scottish. That is a great thing for the entrepreneurs to enter, and the prize money is £100,000 marvellous. SDI, because we want to internationalise, is fabulously supportive. What could you do extra? The problem that we have is that we have been in a downturn. The operators are now saying that they will not give work to us because we are too risky. What could you do for that? You could stimulate the market. We are desperate for drilling to be in the UK. I am not saying help me. I am saying help higher up the economy and just leave us to it, and we will be okay because we will work away at it. Also, maybe guaranteeing bonds for working abroad as well. That is a huge problem, because banks do not want to know you because you are in a downturn. The other thing I want to address was Gillian's point about working in a rural location. The only reason we managed to stay afloat was because of an MSP, Nigel Don, who stepped in and taught to BT on our behalf. Nobody else would listen. Absolutely nobody. It was actually an MSP. I do not think companies know how helpful an MSP can be. I think that it is up to us to make those relationships with our MSP so that we can filter through the message back to you, so you know what is going on and how you can help. How we can help you as well. I think that James Withers wanted to come in. No, I am sorry. I beg your pardon. James Bream kind of a best one. I think that James Withers already had to come in on this. Sorry. No, I did not want the point that Gillian made on infrastructure to be lost from the note. I raised it about BT. It is just unbelievable and completely unacceptable that that kind of example—it might be a brewery, for example—is being raised as an example that they want to grow. They are international, they have huge scope for growth and they cannot grow because they cannot get enough water. I am sitting here thinking that we have a dozen of the most powerful people in Scotland here. How can that happen? That needs to be put to the Scottish Water, BT, those organisations and just fixed. It is just not right and it should be an easy one to fix. Right. I would like to bring in some of the committee members now. First of all, Andy Whiteman, followed by Dean Lockhart and then Gordon MacDonald. Andy Whiteman. Yes, my point was really—James has really addressed it or preempted it really, which is to say that following from Colin's points about growth, it is apparent in certain sectors, like for example distilling, brewing. We had very large companies, most of those have gone now or been taken over and the growth is in the smaller companies. Some of those companies do not actually want to grow to be Scottish in Newcastles or Guinness or whatever. They are perfectly happy. Once I have spoken to employed 10 or 15 people, I have extremely good order books, never be short of work, enjoy what they do and not have all the attendant risks and uncertainties of wanting to double or turn over in five years or whatever. I am sure that I am wondering if people have got comment about that in terms of how we talk about business growth. Perhaps Susan, you would like to come in there. I think for us that this is a bit of a recurring theme when we talk about fixing the Scottish economy, which we have talked about endlessly. I suppose that we feel very much that we have to remember that this is the economy that we have and if we want it to do more, we have to work with it, not against it and work with what the people who are running the businesses want to do and what motivates them, what interventions are effective. One of the issues might be perhaps that they see their value in delivering those wider social or economic benefits in their place rather than seeing themselves as contributing to the bottom line of Scotland PLC. Perhaps they see that as a valuable end in itself, providing jobs and activity and income and a service for local people. Sometimes I think that that can get overlooked. When we are thinking about the enterprise review, one of our questions is about what is the balance that we want between looking at the undeniable evidence that Colin has spoken about about the small number of firms that make a disproportionate impact on GDP and jobs versus reducing inequality and some of the other outcomes that we want that might be better served by different types of intervention. How do you reconcile those two? They might be very different things and I do not really feel that we have had an open and honest discussion about that. Two final points. One is that in talking about how we do not have the right type of businesses in Scotland and how they lack ambition, I am not sure that that is an effective way to talk to your audience to encourage them to grow by continually berating them for not being ambitious enough. The second point is just about understanding that growth might mean different things to different people. I know that it comes up in women's enterprise, for example, where fast-paced economic growth might not be the outcome that the business owner is looking for in the short term. I do not think that our language and how we think about this has really been bottomed out well. Thank you. Dean Lockhart, you wanted to come in and then we can… Thank you, convener. I would like to look at a slightly separate point in relation to funding of the SME sector and business in general in Scotland. The feedback that we get is that after you go through the family and friends round of finance and possibly if you are lucky, the angel round of finance, things start to dry up if you are looking to scale up around the £1 million to £5 million range. If that is the type of mezzanine or other type of equity-linked finance that you are looking at, I would like to get the witnesses' views on that. Is there a funding gap and if there is, how can it be plugged? Related to that, how will the newly announced Scottish growth scheme, which aims at guaranteeing loans, not necessarily giving grants, but guaranteeing loans, help in terms of both the availability of financing and the pricing of financing that is given to SMEs? Would someone like to come in on that from our guests? I have fallen into that cat. We have had the family and friends seed and the angel investment rounds. It is well known that it is a difficult period to get through that next period of growth. I think that access to guaranteed loans would be helpful in that kind of environment. I think that it should be stated that the banks are better than they were five years ago, certainly. I think that the Bank of England has taken measures to encourage that access to finance, especially after Brexit was announced. I think that they have taken the right kind of measures, but it will always be. It has been difficult to raise that level of finance in Scotland for decades. It is not a new environment. At least the programmes that have been available for seed rounds—the Scottish Co-investment Bank and so on—have been massively helpful in helping to grow that community of businesses. Colin Mason wanted to come in on that. Let us talk up Scotland for a change. One of the strengths of the Scottish entrepreneurial ecosystem is the number of angel groups that we have. We have 20 angel groups in Scotland, including archangels, which are the oldest organised angel groups in the world, even older than the well-known American ones. They take the third stair on the escalator, the family and friends, solo angels and angel groups. With the syndication that is possible through the co-investment fund and so on, we can cover up to £2 million quite easily. In many cases, with the falling cost of technology and so on, that is often enough runway for a company to grow, to succeed to whatever point it wants to be. In some cases, we do need a £5 million, £10 million injection. We should not necessarily look just within Scotland for that. I have been doing some research on how small economies address the venture capital problem. We know that venture capital is geographically concentrated in major cities. In the UK context, London and the south-east get about 60 per cent of all venture capital that is invested. Scotland, again, gets less than its 10 per cent share. In many countries, there is what we call pipeline connections into other countries to access. New Zealand has got a link into Taiwan with the Time and Ease venture capital organisation. We know that Sky Scanner did a funding round that brought in one of two well-known American venture capital companies. It is back to international connections. There has been a theme running through some of the discussion before, which may well provide at least part of the answers to the large chunks of finance that bear by only a very small proportion of companies that are in the market to have. I do not have many five million dollar venture capital deals that have been in Scotland in a year, very few, but they are the companies, the Sky Scanners of this world that make the big impact. Sandy Kennedy said that, having previously worked in the venture capital firm, it is important to remember that the funding is a symptom of something else, which is what that funding is going to be used and what it is that motivates funders to put that money in the first place. I was with 3i and the investment strategy is a bit of a cliché now, but what they invested in was three things—management, management and management. The bottom line is that if you do not have strong management and you do not have a vision and they have a very clear purpose for that funding, we should not be getting the funding coming in. That does not mean that there is not a structural gap and I agree 100 per cent with Colin and what Dean was saying. That is really important to recognise. It still comes back to the leadership and the management that is in place in those businesses and what we can do to support those coming through. It was just a way to say that the key issue facing our sector is very much what we might call the cumulative impact of costs. A lot of those costs emanate from legislation particularly from the UK Government. The most obvious one is the national living wage, which has a huge impact on our sector. More staff in our sector and the independent retail sector, about 80 per cent of staff, are in the 25-year-old age group and above, which is precisely the group that is impacted by the national living wage. We have already seen some evidence of a decline in employment in the independent retail sector, which is the first decline since 2012. A few years ago, the Department of Work and Pensions abolished something called the percentage threshold scheme, which had allowed employers to claim back statutory sick pay. That is no longer available. We have had business rates keep increasing. Altogether, the cumulative impact of those costs, at a time when we are seeing a period of price deflation in the grocery retail market, is having a significant impact on our sector. I do not always think that Scottish Government ministers and Scottish Government officials are fully aware of all the policy changes that emanate from Westminster. I am thinking of the percentage threshold scheme that I have just mentioned, but also workplace pensions, auto-enrollment. I do not think that they have a full 360-degree picture of all the cost pressures that are impacting on our sector. That would be an interesting area of work for the committee to make sure that officials and ministers have the full picture—the full cost barometer when it comes to looking at the cumulative impact of costs. It is becoming more and more difficult for our sector to provide the services that it does. Our sector provides very useful utility bill payment services. It is becoming much less cost-effective to do that. There is a big issue here about financial inclusion, people paying their rent, people in their council tax. All of those issues are now impacting our sector, and we are beginning to see a drop-off for the first time in retail employment. Thank you, Dr Lee, and Anne Johnson, if we would like to come in there as well. On getting a loan, we have never asked for a loan. Typically, a project is between £3 million and £12 million for one project, and we fund that by stage payments throughout the contract—very careful with your terms and conditions and your contract. However, what we are finding is that the operators now want a guarantee that you are not going to go out of business, because then you too risk it, and that is why they are going to the globe because they do not want to deal with ourselves. I do not know if there is anything that you can do with the banks that we could get some kind of assurance from our bank. I am with the Royal Bank of Scotland—it has always been very supportive in the past—that if, should we need funding, the funding will be there. I suspect not, because we have already been told by RBS that they offered me £100 million two and a half years ago. Now, I do not know if they give me anything at all. I have not asked, but I suspect that that would be a difficult question. It is in the speed of getting the loan as well. If you are giving guarantees, it is fantastic, but it has got to be if we are filling in a bid situation, we generally have four days, and I think that the wheels are quite slow to turn on guarantees and things. I do not think that the committee can answer the question about the bank. Gordon MacDonald? I have a couple of points. It is really about the evidence that we got from FSB. One of the comments that you make is that 64 per cent of businesses think that the current economic approach favours large multinational companies, because so can you expand on that. Secondly, you said that every Scottish public body should aim to spend 10 per cent of its procurement budget with firms with fewer than 10 employees by 2021. Can you tell us where we are at the moment with that? How should we progress to hit that target that you were talking about? The first point relates to a feeling from a lot of our members. We asked them, after the election, what their priorities were, and they expressed a feeling that micro-businesses are not regarded as important in the Scottish economic discussions. It is partly because of the conflict that I spoke about earlier, because of the naturally and understandably important value that is placed on the small number of high-growth firms that can lead to the rest of the economy feeling undervalued. It is about how you get this balance. Our point is about how we both have—I think that it would be fair to say that, to a certain extent, the focus of a lot of business support has been focused on certain high-growth sectors and firms. If you are a business despite having potential—if your face does not fit, and if you do not hit the magic criteria for your turnover growth—then no-one wants to know. That may be an unfair perception, but that is how a lot of small businesses have felt. That is what that comment relates to. James Withers was saying earlier on about the collaboration work. Should Scottish Enterprise be looking at supporting trade associations to build that collaboration, rather than focusing on high-growth companies? What is it that we want our business support structures to do? What are the outcomes that we are looking for in the economy? We would advocate that we need to do both. As well as trying to focus on making a better job of finding the companies that need support who are going to make a disproportionate impact, we are also valuing the economic activity at the most basic level that is provided in many of our communities by small businesses. If you are trying to reduce inequality and have a community where there is no formal economic activity, it would be a good start to look at what small businesses can bring to that area. We are just saying that we want a different value in terms of our approach. Collaboration is one way, and I think that some of the industry leadership groups do a good job on that. It is not always going to be the right approach for small businesses. The procurement remark in particular, in terms of spending with micro-businesses because of the consolidation of procurement following procurement reform in Scotland over the past 10 years, there has been a reduction in the percentage of small businesses locally who engage in public contracts. You can debate whether that is good or not, because there are benefits that flow from that. However, there are fewer firms who are getting public contracts. That has started to improve with some of the measures that have been put in place. We are hopeful that some of the measures in the procurement format will have a beneficial impact, but there are also threats flowing from that act. At the moment, I think that we are about 7 per cent with micro-businesses. I will not bore you with all the details of procurement, but there are various things that could be done around how public bodies implement their new procurement duties that could help us to get towards that target. The reason that is important is because of the flows of the money through local economies if you spend locally. Caroline Currie, I think that you want to come in on that point. Just to underscore some of the points that Susan is making, your point about collaboration, we just undertook a survey for the ministerial enterprise review. We have not released the results, so in very general terms, there are definitely issues around collaboration. I think that the hand-overs could be clearer, but we also fill up the responses that we got through the sense that, at that point of support, their business is not being really understood, valued, and therefore they are unable to access the support that they feel they need at the time that they need that support. The two issues are that accessing the support that they feel would be beneficial, but also the timing of which the current support is available and their frustration at that inability to access what they need, linking that back to growth. Very interestingly, the overwhelming majority wish to grow their business, so we have talked earlier about the constructs of what high growth might look like and how we might pull that out. Certainly from women-led businesses, what high growth looks like is quite different. That does not mean to say that there is not an appetite to grow or that that different mindset around high growth cannot be grown and leveraged for the benefit of the economy. I think that all that we need to do is understand what that looks like and understand the support that we could actually put around that. I was really interested in Alison's comment about the small exporting pilot that you were going to undertake. I think that initiatives like that, on a much broader scale, would resonate with a lot of women-led businesses. That sense of having grown something that is very important to them and their local community and the benefits that that has brought to that local community, particularly, I think that a lot would resonate with the rural community aspects that have been brought up, that importance of growing a business in a rural community, but if that community has links to another community globally, then that internationalisation thought and ambition can be linked in. It is just about how you might go about linking that and making those connections. It is perhaps a little bit different to our current structure. Thank you, and James Bream. Yes, so on the local procurement piece, I do see and we hear about this kind of move to more looking at—and it is understandable going for economies of scale, large tier winning companies, and then you tend to lose some of that local impact, because labour and work will be bought along an existing supply chain around the UK or outside the UK. Therefore, the procurement process is still looking a little bit at financial value rather than true economic value. The definition of economic value currently is a kind of set of quality criteria and a financial appraisal, and then you add that together for economic benefit, whereas what they are not counting is economic value, so the number of jobs that might be retained by giving a micro business who is located in the area some of the work, and therefore you are actually counting the economic multiplier effect in the local economy. I do not think that you want to have an economic impact as part of every procurement process, but I understand that. There are clauses in there about community benefit. I think that beefing those up and using those is probably the tool that you could use, and it is in there already in some cases. On your trade organisation, there is some stuff that happens with Scottish Enterprise particularly. We have run missions in partnership with them to Mexico and Colombia, taking companies overseas. One of the difficulties that we face is that as a membership organisation who is self-funded, we would ask members to pay for our services, and the public sector is paid to do that. Members get that for free. On those occasions, we have agreed with Scottish Enterprise that any company that wants to internationalise can get some money towards that. I think that making that kind of thing more formal so that it does not matter who you are going to, whether it is Food and Drink Federation or Entrepreneurly Scotland or Chamber of Commerce, because you are trying to deliver the same outcome, how you enter the marketplace should be completely relevant, and so who delivers it to the public or the private sector? We need to blur that boundary a bit, because at the moment it is quite fixed unless you can build a relationship. If you are based on relationships, if a person leaves, it tends to fall apart a little bit. I am interested in taking people's temperature basically on the issue of Brexit, whether there is a potential impact that you are already seeing now, whether you think that you might see it more in the future. If you are an exporter, how important do you think being in the single market rather than having access to it might be of relevance to you, or if you have concerns around limits on free movement, whether that would affect you in terms of your employees? Sandy? It is important to open it up to others. In terms of the attitude, it varies massively across the different sectors, different leaders and different organisations and sectors are seeing it very differently. It is important to see it across there. The thing that might admit and utter bias in the selection is that they tend to be entrepreneurial and therefore they see opportunity coming out of it as well, and they have taken it and said that they have to deal with it. I was surprised and we have gone to speak to them. The freedom of movement that is coming out is much stronger for our communities, and we do not have a bias towards tech, but we cross over into tech. They are very concerned about it. It goes back to the Sherry Cattu report that if talent is perhaps the single most important thing, if you are having your talent pool restricted, that is not just in terms of what does or does not happen, but the uncertainty is very significant. Many of those businesses, 75 per cent of their employees, might not be UK nationals. I would say that that was the big thing that is universally concerning, but otherwise they are just getting on with it. From my point of view, we work in some of the shipyards in Germany. We need to be able to go and work there, so that is the free movement the other way. Just a very small example, our local post offices were going to close down. The only thing that keeps it going is the Romanians that are working in the fruit industry locally. They send money transfers back every week, and they get a fee for doing that. The people from the post office said that it is the only thing that is keeping them in business. I was astonished. We have a lot of Romanians, Latvians and a great mix of people who are working very hard within our own area. To stay in Europe cannot be at the risk of having another referendum, though it will kill just about every business that I know of, because the oil operators have said publicly that, if another referendum is stated, they will delay their drilling plans. Already, they are not going to drill in 2017, and heaven knows how we are all going to survive, but if they delay it any longer, we will not have an oil industry any more, because all the drillers will have gone bankrupt. Did James Withers want to come in on this one? I suspect that there is an entire whole very long session on Brexit on its own, so I will not go into too much, but specifically to the question that Ashrae has raised. 30 per cent of the workforce in food and drink comes from Europe, and 80 per cent of our food exports go to Europe. It is the ball game at the moment, and we cannot grow without that workforce. Engaging in ensuring that Scottish priorities are emphasised in a UK exit negotiation position are critical for SMEs in Scotland, and finding a mechanism to do that will be central to our future, but there will absolutely be opportunities to do so. We know that we rely far too much on Europe for our export business. The whisky is the one exception to that, and I have conquered the globe. The rest of the food and drink sector is quite immature in exports, with the exception of probably salmon and seafood. Prioritising where those new FTAs are going to be overseas—for us, that is North America, Japan, China and on top of the list—is important, too. I think that there is a good level of discussion happening at UK level about what the post-Brexit plan looks like. I am not saying that in Scotland, and I think that having a more open discussion about what Brexit looks like for Scotland and where the priorities are. In my sector, farming, fishing, food and drink is a much higher priority for the Scottish economy than it is for the UK on average, so we need to be highlighting the differences between the Scottish position and elsewhere. I am just looking at our statistics. It flags up some of the stuff. It depends where you are and probably what type of business. In the north-east, we have more disposition to be concerned about free movement, possibly a little bit more international, and we also have quite a lot of Europeans in the fruit picking sector, particularly, but also stuff about changes to regulation features very highly. Actually, the rest of Scotland, from the Scottish Chamber's point of view, is looking at access to the single market freedom without tariffs. I guess that paints a picture of what we are different around Scotland, and it depends who you ask. I suspect that we probably all know what the issues are and none of them look to be very easy to solve, so I wish you good luck with that. The advice and support that companies are looking for is actually a little bit about guidance, as this starts to pan out, because I think that people are, frankly, just getting on with stuff at the moment. Nothing has actually changed apart from things like currency impacts, but that new market opportunities, I notice certainly North America being big in a Scottish sense, northeast, more Norway, UAE, slightly different markets, but maybe new ones for the rest of Scotland. It is not without opportunities, but that is part of influencing where we go first. We are through UK Government as well, and being part of that and understanding what is best for Scotland as we go through that. I want to move on to Liam Kerr. Thank you, convener. After a few comments, first of all, from Sandy and Caroline, I am just interested in your opinion, following on from Alison Greaves' presentation, which I enjoyed in the papers very much. What do you think can or should be done at school level, at school curriculum level, as regards entrepreneurialism, financial education, that sort of thing? I would also be interested in comments on a number of the papers talked about fair taxation and light-touch regulation. I am just interested to know, at a practical level, what is meant by that, particularly because James Withers mentioned earlier on about collaboration kick-starting craft ale. My understanding is that at least part of that was due to a significant tax break in the past 10 years, so I am interested to know how the tax system can be used. Finally, Dr Lee, in particular—this is where I have my small business hat on—I would have a concern about the Scottish business pledge. I am concerned with auto-enrolment coming in, and things like that. Things like the Scottish business pledge could disincentivise growth. I wonder whether there are any comments on that, particularly from Dr Lee and anyone else. Who would like to start? I will have the next bank, our financial education, which is absolutely critical. It is very important that that should be part of education nowadays, particularly if you look at the growing numbers of self-employment, gender apart and any other demographic apart. It is critically important for anyone starting up in business and enterprise to understand the financial side of things. Many people will come to enterprise with a great sense of skill, a great idea and a great drive. Often, they do not come well equipped with the financial side of things. Keeping yourself on the straight and narrow at start-up is very important, and a sense of how finance works is critical to that. I think that organisations such as Young Enterprise Scotland do a great job in enterprise education schools, in not just teaching it but getting kids to live it, to breathe it. Annan and I were talking earlier about how experiences might want to come in on this, but I think that it is so important to make enterprise accessible to young people and to give those insights at a very early stage. We are working on a programme at the minute with women, and the whole aim of the programme is to give them an insight into what business creation looks like and what that process looks like, partly because they have had no education in school and they find themselves in a situation where enterprise could be a really valuable option for them to generate an income, but they have no understanding or they feel they cannot access the support that they think they might need to do it. It feels like a massive step for them. I cannot tell you that we are at week 4 in the programme. We have about 27 on the programme, and virtually every single one is now talking about starting up in business. That is from people who were terrified on week 1 that they would never have a business idea and that business was not for them. That in itself is very, very interesting. A lot of learnings are going to get out of this programme. It is a 10-week programme, so I will keep you posted. You mentioned the Scottish Business Pledge. I am a huge fan of the business pledge. It gives a real focus to the value of diversity and inclusion. To me, it is a key document in the Scottish Government strategy. We all have great intentions about meeting our end-user needs, about being a diverse and inclusive nation, but unless we have a structure that holds us to account for that, it is very easy for it to fall off the agenda. I understand that there is potentially a level of cost and pain that needs to be debated, but from my perspective, the value of that inclusion and the value of inclusion when it comes to innovation and internationalisation, some of the broader aspects that we have talked on today are huge and not to be underestimated, and that is where it starts. It starts at the heart of our business communities with the business pledge. I echo a lot of the points that Caroline has said. The more practical experience that can be brought into schools, the better, so what Young Enterprise Scotland does is spot-on. Again, the theme that you have heard a lot of today about collaboration is the importance of connectivity. How do you connect in businesses—not businesses, you do not connect businesses to schools, you connect people to schools? How does Anne go into her school or we go into our school? Also, role models are not just people who are running businesses, but people who are coming through behind. As an example, we run the Salter Scholar programme, which is fit averaging between 45 and 55 per cent widening access. We encourage all those young people to go back into schools. Sometimes it is much—I have not been there personally—rather than hearing my posh voice in Springburn academy. It is much more important that they hear one of their own, talking about their ambitions and where they want to go. Appropriateness of role models is key. I think that things like Founders for Schools, which is about connectivity, are absolutely spot-on. Again, going back to the theme that I mentioned earlier, an entrepreneurial culture and mindset is not just something that is embedded in the start-up community, but it is something that you see in schools. I have had the pleasure of connecting with the school where you have an outstanding headteacher or an outstanding senior leadership team in the school. When you do not, amazing things do not happen. Again, I emphasise the importance of leadership in terms of Carlin's points around diversity. I think that an additional observation would be that there is very strong research that I know particularly is out of MIT, which looks at diversity in maybe a slightly different way, which is not a long gender or race or socio-demographics, but much more about that, particularly in times of uncertainty, you need diversity of ideas. You need diversity of experience. You need diversity of expertise. You need diversity of perspective. If we saw it more around how do we bring in that kind of diversity of ideas, then that will grow the pie going back to theme before. I do think that sometimes you need to have rules and say that is how we force it, but as long as we do not focus on the whole point of it, it is because we need different perspectives to be able to grow. How do we things apply equally to universities? I think that we need to be creating entrepreneurial universities, and that is not in the conventional sense of how many spin-out companies do we have. It is how many graduates set up their own businesses. MIT, we think about it as being the most perhaps the most entrepreneurial university in the world. It is not so much the staff starting businesses, it is the alumni starting businesses. Ultimately, it needs to be embedded in universities, both in the architecture of universities, with entrepreneurs in residence, with hatcheries, with entrepreneurship support people, but also at the curriculum level. It should not just be taught in business schools. I know some Americans who said that the worst place to teach entrepreneurship is in a business school. Indeed, when entrepreneurship began in the States in the 70s, the first professors of entrepreneurship were in engineering faculties, and only laterally did it move into business schools. I would like to see ways of teaching entrepreneurship across all disciplines. After all, many of the folk who are graduating in the professions law and veterinary dentists will, in effect, be running small and not-so-small businesses. It is highly relevant to many of their accountancy as well. It is a question of how to teach it. To echo Carlin's point, I have come around to the view that you have to teach entrepreneurship experientially. I have done, like you have done, got the students to actually start a mini-business. They say exactly what you said. I never realised that I could do this. Entrepreneurship is not a totally different way of doing things. I did not realise that I could do this. Again, in a country like Scotland where entrepreneurship levels are relatively low, a lot of kids do not come from—let me put this another way around—the only predictor on who is likely to become an entrepreneur is if you come from an entrepreneurial family. I think that you are twice as likely to become an entrepreneur if you come from an entrepreneurial family. We are in a vicious circle in Scotland because our entrepreneurship levels are quite low. One of the ways to break down that is through education. If you are in an entrepreneurial family, you get your entrepreneurship education over the dinner table or on your school holidays. Why not have sandwiched courses where, rather than doing a placement in a business, you have to start your own business? I have seen one or two examples of that. I think that we can be quite imaginative in how we build an entrepreneurial experience into all sorts of degrees. James Bremen, John Lee, you wanted to come in this one. On the school stuff, I will probably leave it, although it is really exciting just in the whole developing young workforce thing. I think that we have started something here. There are areas where we may need to force collaboration, if that is such a thing, particularly because in the educational structures there is an element of rigidity that we need to break down a little lamb, and we should not hide that. It is really interesting in different perspectives. I think that we are in a world where Governments are pushing regulators to be a light-touch regulation and risk-based regulation, and yet we are moving to a place where we put more regulation and tell businesses what to do and how to be good businesses. I think that I am listening to the different perspectives, and I think that we need to make sure that by introducing things like the business pledge, why are we doing it and it is back to that piece? I am not sure that we can create diversity in businesses with a quota, because it is about what the business is and how people think. I accept that there are different views on that, but my worry is that we are telling businesses how to be good businesses. By saying that you should pay this, you should have this type of person in your organisation and you must internationalise in all those things, you push some of the market out of being a good business. I am an economist, so I am naturally dispositioned to say that the market will sort all this stuff out. I realise that that does not always happen, so maybe I am not an economist after all. That is my nagging worry on the stuff that we are just pushing this stuff a bit too hard at the moment. Again, what you start to do is actually burden business because they start to worry about whether we are meeting this particular regulation rather than just being a good employer and doing the good stuff that businesses do. It was a good point that I made about the business pledge. It is a very laudable thing. One of its key elements was a living wage, which was essentially aspirational and voluntary. Any progress towards that was torpedoed by George Osborne pulling the national living wage out of his hat without any real consultation with industry. Even the low pay commission was taken surprise by it. George Osborne's two legacies to our sector have been the national living wage and the sugar tax. We think that what this is doing is stopping people moving towards that living wage, which was essentially aspirational and voluntary, and imposing on them a living wage that takes no account of the size of the business or profitability of the business. Earlier, I outlined a very useful topology of businesses—microbusiness, small business and medium businesses—rather than looking at them as SMEs. The living wage takes into no account of the size of the business. It is very difficult for a small business to absorb those constantly increasing staff costs. For a business now, staff costs are not under your control, they are now under the control of the UK Government. I think that the problem with the national living wage is that it is torpedoed by any move that a lot of businesses in our sector are willing to make towards the living wage that the Scottish Government has promoted. The performance of the business pledge has been less than stellar. I think that only about 250 companies have signed up to it. The national living wage has been quite unhelpful in any move towards the wider adoption of the business pledge by our sector. I am just wondering on the last point. Are you saying that because there is a minimum wage that has been set, that means that businesses will not move to a slightly higher minimum wage? Certainly in our sector, everyone now pays the living wage, from the retailer's point of view. Before that came along, we were beginning to move towards some discussions with the poverty alliance and so on about how we could engage a little bit more with the business pledge and at least encourage some of our members to move towards the living wage that the Scottish Government was promoting. However, now they all consider themselves to be living wage employers and I really have no inclination to move beyond that. I have a couple of points. First, in the pack that we handed out earlier, is the report on school ties that we produced recently about the links between local employers and schools, where there is a lot of work to be done. Fair taxation, light touch regulation, I guess fair taxation is in the eye of the taxpayer, I suppose. We could have a whole discussion about the types of tax and how businesses might view fair tax. If you are a business in a high-value, low turnover business, you may view the business rate system as unfair. If you are a small business, you may view it as unfair that you have to pay tax, while global companies do not have to pay tax. A whole debate around what we might mean by fair tax. In the business pledge, I suppose that we have been fairly agnostic about that. It is entirely fair for the Government to set out its priorities in terms of the kind of good behaviour that it is looking for from employers, because it is not a business pledge, it is an employer's pledge, which is fine. I suppose that our question is about whether there is a risk in taking a tick box approach from the type of good rounded ethical behaviour that we are looking for from employers. As we mentioned earlier, many small businesses exhibit great characteristics as employers, in which other employees consistently rate as good, in which they value. That kind of stuff does not get picked up by the business pledge. I also question the extent to which it changes behaviour, or is it just for those who are already doing all the good things that we wanted to have a piece of paper saying that they are doing it? Lastly, picking up on James from an economy point of view, I think that the real trigger for this is the market and what your customers expect and demand. In some areas and in some markets, customers will drive a change in behaviour in terms of wage levels that they expect businesses to be paying, but there is a crunch point at which customers are not willing to pay more or will not value change in certain industries. Until we tackle that, the business pledge is not going to make a difference. We have to recognise that the business pledge is going to be limited in terms of its effectiveness of changing the problems that tend to be focused in particular sectors in type of business. Richard Leonard has been waiting patiently for some time to get a question, so perhaps Richard would give us a question or two now. A couple of observations, first, if I may. First of all, on the taxation point, if you look over the period of the last 35 years, the shift in the burden of taxation has been from the rich on to the poor and has been from direct taxation to indirect taxation, which is much more aggressive. I think that we need to look at it in the round. I am bound to say that this is where Gordon May stopped nodding. You cannot have 10 years of a council tax freeze and not expect charges to go. Richard Leonard is referring to it just for the record. I think that we need to look at it in the round. In the round, I would say to Dr John Lee that the converse argument to the one that you pose is that, if you give people at the bottom end of the pay scale increases in their disposable income, they are much more likely to spend it in the shops of your members than if you give beneficial increments to people at the top end of the scale. I would ask you to ponder on that. I want to come back to an important emergent point that has come out of the discussions this morning. On the one hand, we have got an increased level of external ownership and, indeed, overseas ownership of what you might in old-fashioned terms call the commanding heights of the Scottish economy, on the one hand, and on the other, you have got an increase in the number of people going into sole trader self-employment. What seems to be missing, as I understand the way the discussion has gone, is that bit in the middle. It is not the case of talking Scotland down, compared to other countries. Maybe we could do better in the development of the medium-sized business. That takes us back to what the Scottish Government can do, and is the economic development architecture the right one, and that has been reviewed, as other people have pointed out. My immediate and present question is, with the devaluation, albeit in voluntary, of sterling—I recognise that it does not affect some industries such as the whisk industry necessarily so much—but, with the devaluation of sterling, that does potentially open up opportunities for an export drive. It does potentially open up the opportunities for import substitution. It does potentially open up the opportunities for tourism. My question to those in businesses is, how nimble is the support that you get in pursuing those opportunities? In other words, already you are having conversations about how we can drive our exports forward because the pound is devalued. Are those in tourism having discussions about what can be done to better market Scotland as a destination? Is that happening, or is there a lag in time between those events and where the apparatus of government is? Without commenting on those individual types of conversation, I would just make a comment about the state infrastructure. We have commented to the Enterprise Review that it certainly does not have a good track record in terms of being nimble, just in terms of how long it takes for programmes to be agreed to be rolled out across the different parts of the public sector that have to deliver it. If you use the recession as an example of a fairly quick change in economic circumstances and a need to reposition support, that is not a great example. We have said this time around that, given that we design a system in which we can drop programmes and change them, or change the focus of them much more quickly because it has not been something that we have been good at in the past. I have reflected on Mr Leonard's point about the national living wage. That is a very good point, but I will say it very briefly. I suspect that the truth is that the changes to tax credits and in-work benefits that were made at the same time as the chancellor introduced the national living wage probably mean that people are not really that much better off. What he gave with one hand is that he just took back with the other. I suspect that that is the truth of the matter. On the point of internationalisation, are we currently nimble and adept? Probably not. I would suggest from some of the responses that we have seen. Could we be? Yes. We have an infrastructure there to support businesses who are interested in exporting. I think that what we have certainly picked up is the growing number of micro-businesses that are actually interested in exporting, but do not know the first thing about it. I think that there is a whole business community there that is by definition very nimble. They could certainly be supported to export. I think that there is a high value in looking at matching their needs into the service provision that is currently available, but not just targeted towards them at the moment. It is a huge missed opportunity. SDI is a huge help in that. You are absolutely right. It is very quick in the chamber that you have had the trade missions. When a company decides to go international, the first thing they do is to find out about the tax law that is your first stop. You do not want to pay your accountant because accountants cost a fortune. What I would like to see is a body or perhaps part of Scottish Enterprise that is able to advise. The cost of speaking to your accountant is just phenomenal. It is absolutely ridiculous. It is one of the considerations wherever you trade abroad. We are trading in the Democratic Republic of Congo because there is no work here in the UK. The problem with that is that they are just about to go into civil war. Who is going to help you? Nobody. You have to be really careful with your contracts and your T's and C's. Working abroad is a risk. It is a higher risk than doing business here, but are we nimble enough? Yes, as a small company, as a big company, no, they are not. That is why we beat them. Sandy Kennedy Just really on the international exporting point as well about the nimblness. Again, you know no surprise collaboration has to be a key here. I think that part of the features I know the agencies are trying to change this is a bit of a walled garden around it. Therefore, SDI is seeing as the only solution and sometimes UKTI might be a very powerful ally. When you look at our businesses and again our business leaders, we should be able to pull all the stops down at once. UKTI, if it can help, let's get access to it. We are paying for it, so we should be using it. SDI do great stuff. I tend to find that it is all down to the person. If you have a great in-person market, then it makes all the difference. If you haven't, then you can go round and round circles. Global Scott is an amazing asset, probably underutilised, but it is an opportunity to open that up. If you think to the networks that sit in the oil and gas sector, maybe some of them are useful to the food and drink sector. Maybe some of the people who we have within entrepreneurial Scotland have connections that could be helpful to somebody else in another sector. The more that we see it, the more likely we will be able to do it. The more we say, it doesn't matter if it's UKTI, SDI, whoever is doing it, if it helps and gets a sale that she wouldn't have got otherwise, then we all put shoulders to the wheel and that applies for everybody else. James Withers That's right, second James. On the international point, because you raised an important point there, Ms Llynde, around the exchange rate at the moment and are we nimble enough to react to that? The answer is perhaps not, but the reason that international is important is not because clearly there is a short-term opportunity at the moment, but it is about balancing the economy and particularly balancing our risk. If I put whisky to one side and you look at the mainstay of our sector, we have too much business and too few hands in the UK. We are not balancing our risk. The reason why we want to export is because it is a transformational opportunity, but it is about balancing our markets. It is almost like the old stereo systems of the graphic equaliser bits that go up and down. If we have lots of different options, then when things change, we dial one up or dial one down. However, what we do not want to do is write a strategy on the basis of the exchange rates working well on our favour just now, because for every minute it is working on our favour on export, there will be a minute at some point down the line where it will not be. However, if we create that balance of good international markets, good UK market and good local market, then we have a long-term strategy that is robust to changes that we absolutely will not be able to control like exchange rates on the line. Thank you very much. I am conscious that we are coming to the end of our time here, so I would like the two representatives from the two SMEs who have come today to the committee to perhaps give them an opportunity just to give a brief comment before we close Ann Johnson and then Alison Grieve. I feel like I have had an opinion on everything, but I apologise for that. It is just because having a business in a rural area, you get involved in absolutely everything. We have had a very successful career for the first 10 years. This year is absolutely brutal. I worry about how good a leader you feel you are. However, these hard times make you a much better leader. Obviously, we intend to stay in the game and recover, but we are only going to recover from the help from people like the MSPs. We desperately need your support. We need support from all organisations. Sandy was absolutely right. We all need to band together. We are all in business, and it has been great to meet other business leaders today. If I can help somebody in food and drink, you are absolutely right. I have had some experience that can maybe help yourself or help Alison. I just thank you for the opportunity to come today. I would like to finish on a positive note. It is to your point about the opportunities that exist right now. You are right. I was astounded that there were not more announcements about how we could capitalise on those opportunities in tourism. It is a step by step guide for people who perhaps would have a bedroom going for Airbnb during the Edinburgh festival. A lot of the general population do not realise the small steps that they can take and the produce that they buy in local shops, in their involvement with visitors who come to Scotland and businesses who could potentially export overseas. I think that there is a lot more that we can talk about about the amazing opportunities that exist and the fantastic support organisations that I think exist in Scotland. I suppose that it is more about promoting on an easier level rather than talking in big politics or big business, but for the everyday business person and everyday person in Scotland, how we can all help to reduce that trade deficit and make us a more competitive country. On that positive note, we will finish this session. I will thank all of our guests for coming to speak to the committee today, and I will suspend the session so that we can move into private session shortly.