 Saint Crispin Well, good morning, everyone. Welcome to the CEO of the Economy, Jobs and Fair Work Committee. First of all, welcome our guest Se Housing Minister Linda Hanna, managing director of strategy & sector Scottish Enterprise Charlotte Wright, interim chief executive, Highland and Islands Enterprise, Dr John Kent, interim chief executive of Scottish Funding Council Douglas Duff, head of economic development and environmental services, Falkirk Council and chair of business gateway management group. We also have Gordon McGinnis, director of industry and enterprise networks of skills development Scotland, who is slightly delayed due to travel difficulties, as is one of our committee members. I'll start the meeting by putting in apologies from the committee member Liam Kerr. I'll remind everyone in the room to turn off electrical devices or turn them to silent, please, so as not to interfere with the work of the committee. The first item on the agenda is to take items 4 and 5 in private by decision of the committee. Is that agreed? Yes. Thank you. We'll then, having welcomed our witnesses here today, start off with some questions to you. There's no need to switch your mics on or anything, this will be dealt with by broadcasting. I would like to ask something about regional economic strategy, but I think we'll first of all turn to the deputy convener John Mason, who would like to ask a question about overall structures. Over to you, John. I'm interested in where we're going with all this, and I realise that none of you are actually making the decision and you're all parts of the overall equation as to where we're going, but I'm interested in your views as to where we might be going. I see the word simpler appearing in the review at various times, including Keith Brown's comments that we want a coherent and simpler, more flexible and cost-effective system, but at the same time I'm seeing the idea of a new statutory board and I'm seeing the idea of something for the south of Scotland, so that doesn't seem simpler to me, that seems like more organisation, so I just wonder if any of you can explain to me or give me your thoughts as to where we're going with all this. Is simpler important? Does it need to be more joined up than it has been? I'm happy to pick that up at first. Charlotte Wright. No doubt colleagues will want to come in as well. Firstly, we appreciate, having seen feedback from users as part of this review process, that clearly there was a strong message in there about people wanting it to see the process easier for users to navigate. I think that there is a key point in this, how we deliver services more simply. In relation to the strategic board, we welcome the opportunity to have that strategic oversight across our agencies working together. You're absolutely right in terms of the detail isn't there yet, so our assumptions at this stage on how that will work is that there will be that strategic board. We've yet to see exactly what that will mean for the boards of the individual agencies as they currently exist. We did have the convention of the Highlands and Islands yesterday in Inverness. Mr Brown was present at that and did respond to some questions from local authorities who were very keen, not surprisingly, to see that we would ensure there continued to be a strong Highlands and Islands voice into that strategic board and how that works going forward. I guess what's really important to us is how we work together through these next implementation stages in phase 2 to ensure that whatever the changes bring and we welcome those opportunities, we ensure that the things that have made the most difference and that we can point to in terms of the success from my point of view of high and the Highlands and Islands over the last 50 years that that legacy continues into our new structures going forward. That's helpful. I suppose that the radical option would be to have one organisation with five branches. I'm not sure if anyone's actually suggesting that or if that would be a good or a bad idea. Does anyone else want to come in? Thank you very much. Just to build on what Charlotte has been talking about, one of the things that we were very clear about in our submission to the Enterprise Review and building on the Audit Scotland work was looking at there is a very clear economic strategy that sets out what wants to be done for the country, but it's very high level. We feel that there is an opportunity around a clear plan that builds and binds everybody together to look at those outcomes that we're looking for for the economy and very clearly puts at the centre of that what those outcomes are, so rather than necessarily one organisation being clear about how we all work together, not just as agencies, the growth of our economy is also dependent on many other organisations and about how all that works together, so the clearer that we can be around putting the economy at the heart of that, the things that make a difference and about making sure that we're all going in that direction, we think would be something that would actually support that to go forward. In the past, the five haven't always been going in the same direction as much as they could have been. Maybe I could just come in. I mean, we did have, when we do continue to have separate agencies, so in terms of what ourselves in Scottish Enterprise would do, there are a number of areas where we are doing similar sorts of things to provide support to businesses, but Highlands and Islands exists for a set of reasons that we work with a different business community. We also have a community development remit and we're working within the geographic and social challenges of the Highlands and Islands, so that means that we do different things in a different way, so whilst at an overarching strategy level, we're absolutely doing the same things and performing two Scotland's economic strategy in terms of that delivery, some of the how we do things will be different. I'm very much echo that. The five agencies will be five and do different things and sometimes do them in very different ways, but there is a significant overlap and there is a synergy even when we're doing things that don't overlap, that influence each other, and I think it's important that we—and I think that this has been something that's common to all of the discussions that we've had as part of phase one of the review—is seeing a way of linking the Government's economic strategy to what we do by some board or other mechanism that brings the agencies together as something that we've seen as very important. That could simplify things depending on what happens with other levels of governance and so on, but we don't quite see it as the way that you'd suggested is one agency with five branches. The agencies are quite different from each other, but there is a synergy that we must extract the maximum benefit from. Mr Duff, how do you see that? From a local Government point of view, should it not be too centralised or would it be better to be more centralised? I think that business gateways is part of local government services and certainly we welcome any opportunity to simplify and make more seamless the services that we're offering. As part of the inputs that were made by COSLA, by SLADE, which is the national body for economic development officers in Scotland, we've certainly welcomed any moves that can be made to simplify and make more straightforward the arrangements. Importantly, we've been blending services at local level, but we try to maintain consistency across the country and we work very closely with the national agencies to achieve that. We see that this is all part of a direction of travel to simplify, but it is important that it maintains the scope for local flexibility as well as a nationally consistent picture. I hear the message that you are all separate but together in some way. Do you see some scope for collaboration in terms of back office services? Do you see the scope there to maybe save some money so that you can reinvest in what you do and try to reach out to small businesses? We actually have a live example of that at the moment in terms of our information and IT support, which has shared across SDS, Scottish Enterprise and ourselves through an organisation EIS, so we've seen that we can do that kind of thing and I guess that gives us the opportunity to see what further we could do. Similarly, we share some HR services with the SQA, so that kind of thing is going on, both within the agencies that are part of this review and wider. Gwm's local government, are you in the same mindset? CRM system that has been developed jointly between Scottish Enterprise and Business Gateway, and that's a means of maintaining a close understanding of the business growth pattern that any company takes and all the interventions that are made to that company. There's been quite strenuous effort in building that system and making sure that it meets the needs of business. I think that we've already got those things in place and we already collaborate well around those. I think that there is an opportunity to go further around some things, particularly in our submission that we talked about. There is an opportunity to jointly share our approaches around continuous professional development, where our colleagues across agencies, not just in those agencies but wider, do a similar role. Business advice, project management, etc. We could share how we do that. We've done that for many years over Business Gateway. We work together with hiring. We could look at how we could go further than that and make sure that we share best practice. One of the things that is in a recommendation in the review around looking at that kind of shared data and intelligence and about how we share that much more, we do that informally already. Lots of that goes on right now but there is an opportunity to go further with that and make sure that that underpins what is decided around this new strategic board but also informs the services. Particularly as we move much more to digital-enabled delivery service models in the public sector as well as the private sector, there's going to be even more an enrichment of those kinds of insights. Being able to share that is something that we're all very keen on how we do that, just to make sure that we're continuing to serve what customers are looking for and to get a sense of that making a difference on the ground. You've sent a guess to my next question, probably my last question, that, commonly, particularly in small businesses, you really don't know where to go or to get confused and, in some regards, there's too many doors. Is there a way to, you see scope also in this change, its take and shape, to help? I really speak up for one or two people businesses who are only interested in running a business and don't have time to, perhaps, let bigger companies have got more staff to find their way to that door. Is there an element of this where we can make it much easier to signpost and make it more distinct so that it's easier for the customer to talk about it? The recommendation in the review of No Wrong Door is a really powerful one, particularly the opportunity using digital to make sure that that's a simple, straightforward digital portal that all businesses can use and make sure that they get through to the right part of government or agency that can help them with whatever their particular need is, so that I think we would probably all say that we've done this over time, tried to make sure that that looked as simple as possible, but recognised that there is feedback in the review report, which says we can do more there and, as I say, the principle of No Wrong Door I think is one we would all really support, so that we make that as simple and transparent as possible for business. I absolutely agree with your remarks. A business has no time to try and negotiate its way through something. We should make that as simple and straightforward as we can. I see that Gordon McGinnis has now joined us. Welcome, Gordon. There was someone who took the train in front of us at the end, but I'm sorry to hear that, but thank you for coming today. We'll let you get a little settled before anyone throws questions at you, but just to fill you in, we're discussing the overall structure of the enterprise agencies at the outset of today's meeting. I'll hand over to one of our committee members, Jackie Bailey, who has another question on this area. I should record my apologies, convener, for being late for exactly the same reason that Gordon McGinnis was. One of the recommendations arising from the review is that there should be a strategic board, but it's my understanding at the moment that you have a strategic forum where you'll sit round the table with Government officials and with ministers. What difference does statutory underpinning going to make to Linda first? Thank you very much. I think that the difference that this makes is around that this needs to be much more than just a board. I think that this needs to be a board that is really genuinely considering what that plan is going to be in terms of how all of this works together, what the outcomes that it is seeking to drive and then making sure that it focuses on those. The strategic forum has been much more of a collaborative forum in that sense, which I think works well, but I think that this board gives an opportunity to have a much clearer line of sight around how that links to the outcomes in the national performance framework, how that links to the key drivers of productivity in the economy that are really important, how that links to the different roles and responsibilities. We've described that we bring different expertise to Scotland's economy and to the landscape at the moment, so it's about how that joins that up and increasingly how that has the private sector at the table. The strategic forum very much is the partners there, but a board would bring the private sector around the table as well. I think that it brings an opportunity to have an even stronger focus on the economy, a stronger focus on the actions that need to be taken and then around being agile and flexible over time, the types of actions that will need to be taken around how that flows through to what happens on the ground with customers. I should say for Gordon Macginnis' benefit that if you wish to come in on a question or on the discussion, if you simply indicate by raising your hand, I'll seek to bring you in at an appropriate point. Thank you. Jackie Baillie. No, I'm interested to hear other views and then I'll come back. Just to add to that, I suppose that I'll caveat this remark with an assumption rather than knowledge at this point as we still have yet to see how things are implemented. I think that perhaps there's an outward message about it being a strategic board underpinned by statute as much as the internal message about how we as agencies work together differently across strategic forum and strategic board. Perhaps that goes to the message that we've had from users of service about needing to understand that. I see that also about a powerful outward message that there is one board that makes sure that it gives overarching strategic direction, collaboration and challenge to us as the agencies. Thank you, Dr John Kemp. I very much agree with what my colleagues have said. I think that there's always more than one way of doing this. A statutory board shifts the balance of the responsibility in a direction that's different from the strategic forum, which is a collaboration between bodies and boards that were tasked with different things. It brings things together in a way that a non-statutory board perhaps wouldn't do, but a lot of the detail is still to be worked out in phase 2 of the review. How that will operate, how it will interact with the five agencies is something that we still need to see. I was not clear that there was any clamour for this from any of the agencies. You all think that this is a really good thing. I'm genuinely surprised that a strategic board with John Swinney, Deputy First Minister, in charge, does not seem to have achieved that much. You are saying that it really wasn't fit for purpose and that you needed something else. I'm slightly confused. I don't know if we were saying that it wasn't fit for purpose, but there's an opportunity perhaps to give that. My contribution there is about giving a powerful outward message about how we are working together under a new strategic board. I certainly wouldn't say that the forum hadn't been fit for purpose. Perhaps we could move on to something slightly different. I would like to ask a question about the regional economic strategies. We've looked at the overall structure so far. I've seen the Scottish Enterprise submission to the Scottish Government. There's reference on page 10 of the documents that we have. It may be a different page number in the original report, but talking about Scottish Enterprise's work with the three Ayrshire councils to develop a shared regional economic strategy. I'm interested in that because, of course, if we have agencies looking at the national Scottish picture, Scotland is a very diverse country in economic terms from region to region. Indeed, the workforces in different areas, the local economies and what they are focused on, can be varied and very different. The three Ayrshire councils area is an example of that. I'm wondering how you think that the agencies can be best organised or best approach to localisation of approaches and getting away from the idea of simply national strategies, which may be necessary, but the difficulty is always in the detail and local level. John Kemp? That's something that we've very much recognised for some time that one-size-fits-all doesn't suit all the colleges and universities that we fund. For the past few years, we've been funding colleges through regional outcome agreements and universities through outcome agreements, which are regional to various extents. That recognises, as you say, that some regions have different economic needs from others and that the skills needs will vary from region to region. We fund a university based on a document that we agree with the college or university based on a regional skills assessment from Gordon's organisation SDS and based on our outcome managers discussing with the college and other local stakeholders what the needs are. We hope through that that we are recognising that there are different regional needs in different parts of Scotland. There are some things that are needed in most regions, but there are some things that are very specific. We do that through regional outcome agreements and teams of regional outcome managers who work closely with the colleges and universities in their areas. As a representative of a regional organisation, clearly I come with a regional as well as a national perspective to this debate. After 50 years of HIDB and Highlands and Islands Enterprise, we feel that there is a strong role for what we've done in regional and community development, but working to ensure that what we do from the region contributes to that national picture. That's really important about how we make sure that our strategy joins up and work with partners, for example with SDS on a regional skills plan that was discussed in some detail at the convention of the Highlands and Islands yesterday. It's a real opportunity to explore at that regional basis how national partners, national agencies can contribute to the ongoing development of a region. Within the way we operate within Highlands and Islands, we also have a number of area offices so that we can respond directly to the needs of our rural and island communities and our small towns so that there is not even a level below that region where we can see local economies operating and the needs and opportunities of those local economies can be quite different. I wonder if Gordon McGinnis wanted to contribute at this point on this specific question. I think that in our work we have recognised the differences across regions in terms of economic performance, where some of the challenges are and where the opportunities lie. We did commit and have developed regional skill assessments, which look at and we've worked in conjunction with other agencies in terms of developing these, so looking at where the economic opportunities are, looking at what the supply side through the colleges and universities are delivering and looking at demographics within areas. We've committed and we're working with local authority partners in areas such as the Glasgow city deal. We're working there to produce a regional skill investment plan, so we're working with the college structures in Glasgow, I think, around curriculum planning and development. We're also working in Aberdeen and the Northeast in terms of looking at a regional skill investment plan there. Charlotte mentioned the work that we've done across the Highlands and Islands, so I can ambrella plan, which was published October 2014, identifying the key issues around things like depopulation, demographic profile of issues and some of the skill challenges that have been faced by particular sectors. We were updating the Convention of Highlands and Islands yesterday in progress against that. I think that there is a lot of joint development work there. We have seen in recent years the emergence of city deals and your reference, Dearshire, so we've been working along with Scottish Enterprise with the three local authorities around their growth and deal and how that's developed, building on their strengths around manufacturing, but particularly around aerospace. I think that there are ways that we can work and develop the system. Sometimes I think that the funding sources need to be a bit more agile to meet local needs more effectively, but that's something that hopefully through the review process we'll be able to discuss. Do you think that structurally speaking there's no need for enterprise agencies at a more local level because you can work with local authorities in local areas or regions or how would you do that? From a skills perspective and a skills agency, I think that we've got a good blend of national approaches for apprenticeship programme, but then local responsiveness. I'll work at a local authority level. We have school service level agreements with every headteacher in our schools that define how we'll deliver the service internally and we're involved in community planning at a local level. As I said, I think that you have seen the emergence of things like the work in Dearshire in terms of the growth deal, but I think that potentially different approaches have been offered and taken and that's something that we're open to working on. In terms of the enterprise agencies, there was obviously work with Scottish Enterprise for about 19 years, so I think that when the local enterprise companies in terms of that regional focus changed then perhaps the local authorities felt they were missing something of that regional dimension, but I don't think either the Scottish Enterprise or ourselves in terms of what we've done with Dearshire have been found lacking in terms of how responsive we've been to that. Linda Hannah. I can add that the work that we've been doing in Dearshire, absolutely, as you've said, is looking at what does Dearshire need to do across the three different local authorities. Having worked in Dearshire for many years, I was based in the LEC in Dearshire for a long time. The three geographies and the three areas have quite different needs and have quite different assets in terms of what that means for the local economy but also the contribution that makes from Scotland. I think that blend that we've got of being able to look across the agencies and working particularly with the SDS around Dearshire, really thinking about the national assets that are in Dearshire, so when we think of the life sciences opportunity that there is based around Irvine, looking at what Scotland can compete on globally based around the work that we're doing with GSK and others, also looking at, as Gordon said, aerospace and the spaceport potential around Prestwick and about thinking about that broader manufacturing. We've been taking the work that we're doing around the manufacturing action plan and supporting that around Dearshire, but it's on the basis of what Dearshire needs about working with the local authorities and the work that we've done has also been around together building that kind of team approach, so team Ayrshire, team North Ayrshire and about building the capability around the business advisers that are working with companies, whether that's through Scottish Enterprise, the local authority or the business gateway, and we've worked very actively around how do we make that seamless, and as a result of that, for example, in North Ayrshire we're working with more companies now through the gateway growth pipeline, through the services that we deliver directly and the account managed portfolio, so we're seeing that beginning to really bear fruit around how do we work together around that, but at the same time be able to connect that to some of the bigger opportunities at a national level and how that plays out on an international stage. And with the same considerations, to a certain extent, applying to the larger cities such as Glasgow and Edinburgh, or is that a different kettle of fish? No, absolutely. We have an approach where we've got location directors working across each of the local authority areas, so a key member of staff who works with the local authority, but we also have a regional approach if you sense around that. For example, I work very closely with T cities, so around the T cities deal, working with her partners around what is that deal going to look like, what are the best opportunities for T side and how ambitious that we are as partners around that, and that also applies in Glasgow and Edinburgh and the other regions, like Aberdeen. Thank you. I think that Gordon MacDonald wanted to ask a question that might fit in at this point, unless Andy, there is something specific that you wanted to come in on there. Yes, thanks, convener. In the enterprise and skills review, it talks about recognising the distinctiveness of the Highlands and Islands and retaining an agency that is locally-based, managed and directed there, and the new one for the south of Scotland. What about the rest of Scotland that seems that it doesn't recognise the distinctive challenges of T side or the west of Scotland or the northeast of Scotland? Is this not an opportunity to really embed the local approach more universally? Interestingly, what will Scottish Enterprise change its name to become central and northeast enterprise, or how is Scottish Enterprise going to fit into the structure of where they are identifying really just two distinctive regional approaches? Those are all matters for phase two in terms of what needs to be looked at. From our perspective in Scottish Enterprise, we believe that there is still absolutely a focus on the economy, the national. I have been able to look at that national, regional and local perspectives are really quite important. We believe in those other areas, like T cities that I have mentioned. There are already mechanisms in place for us to do that. What we are really keen to do is really focus on what needs to be done in the economy. Let's keep focused on that. Let's work with our partners to make sure that we deliver on those things and ensure that that is delivering right onto the ground in terms of the work with our customers and partners. Around something like you mentioned, T side, I think that the T cities deal is the place for us to be having those conversations and making sure that we join that up with the private sector. Douglas Duff, do you want to come in there? Maybe just to add in terms of the business gateway, our approach to localisation, which has been very much the message since the service transferred to local authorities. It was with the intent to localise better and I think we have been able to achieve that in embedding business gateway services alongside the variety of services that councils offer and to tune those services to local economic priorities. They fit in with the direction of community planning and local economic strategies. More recently, since 2008, they have been aggregated up to the regional levels. We have seen a number of the city deals, the growth accelerators, etc. There has been a petition through this round of the review to see a more seamless structure to how regional and local priorities are set across the country, so that there is a clearer pattern of how those priorities are dealt with. In doing so, make sure that we have the proper blend of being properly attuned to local circumstance, which expertise is already at the local level in the councils, and draw on the national economic priorities that focus on the significant areas for growth. Again, it is about marginal and the efforts of partners to achieve those. Thank you. Linda Herner. To add to that point, Douglas must have read my mind about aggregation and about national priorities. It is absolutely important that we are able to respond regionally and locally, but Scotland is a small open economy. We are competing on a world stage. We are competing very hard with international investment, not just around inward investment but talent and investment that comes into Scotland. We have real capability and there is an opportunity to maintain the capability that we have in some of the key sectors that we have, but around building capability that is emerging, for example, around data and subsea and other things that are emerging from the oil and gas industry. It is about having that blend of nationally how we compete, how that enables our country to be able to compete in an ever-challenging economy and, at the same time, make sure that the opportunities for that are spread across the country and that we support those local economies as well. It is very important that, in terms of that national perspective and the economy, we keep a focus on where is our future of economy going, how are we going to drive that productivity and how do we make sure that that flows through at our regional and local level to where companies are based and people are based and assets are being built? It is about both of those things. Gordon MacDonald I wanted to ask a question in relation to the local and national agencies working together, etc. There has obviously been comments on some of the evidence that we have saw from companies that there is lack of clarity and lack of partnership working. In their view, that is the perceived perception. One of the things that I was interested in was Scottish Enterprise's evidence where you recommended a reduction in the number of economic development groups and forums across Scotland. Can you expand on that? Why and who are you particularly aiming at? The reason why we shared that in our submission was that we were trying to think much more practically about action-orientated things. Over time, there has been a growth of lots of bodies or groups being put together. One of the things that we have been quite reflective of—I hear it because I sit around the TSA regional advisory board—is the challenge that the private sector has to support the numbers of bodies that exist. We were just quite reflective and we made a recommendation that we thought that we could pull back on some of that and do some of them quite differently. Rather than having fixed bodies in place, groups—whatever you want to call them—over the put-in-place and remain forever, you do something that is more agile. You would have a focus on a particular issue, you would bring people together to address that and then that group would come apart. We wondered and it was merely a recommendation that we thought that that might bring some kind of different benefits. We see that around other kind of things that happen like that and we just wondered if that might be of benefit. Part of the clutter that sometimes businesses see is that there are lots of groups. If we think of a local level for good reason, they grow up from the bottom up, but sometimes that causes that kind of perception. We just wondered if there was a way to think through that and just genuinely focus on the outcomes. Looking at other countries of a similar size to Scotland—New Zealand, Ireland, etc. Are there any agencies or any of those countries of a similar structure to the way that we deliver support to businesses? Is it less cluttered in other countries or do they have the same number of agencies that deal across the piece? The scaling report that was produced as part of the work for the Enterprise Review and hopefully members of the committee have seen that it undertook some of those international comparisons. I think that it probably gives us a bit of a mixed picture in that there are elements of some of those other countries that we could probably learn from, but in other cases we could say that what we have in Scotland looks better than some of that. I think that those international comparisons are helpful to enable us to benchmark ourselves and see whether there are some opportunities to improve the way that we do things, but in some cases it gives us the opportunity to reflect that in some cases we are actually starting from quite a good place in terms of how we are structured within Scotland. If members have had a chance to have a look at that report, it really does give some useful comparisons. I thank the guest for coming along this morning. My question relates to one of the core elements of the Government's economic strategy, innovation and productivity. Based on international comparisons, the Scottish economy remains in the third quartile of productivity performance behind the rest of the UK, Ireland and countries like Denmark. Based on the Scottish Enterprise submission, the productivity mismatch comes at significant cost. I believe that the estimate is £45 billion to the Scottish economy. If we reached the target of being in the first quartile, the Scottish economy would be boosted by £45 billion. Can I ask the guest what is causing this productivity gap and what specific measures can we take to address that? That is a long, structural issue that has been facing the Scottish economy for a long time. A related question is innovation. We have world-class universities with world-class research and innovation at university, but we are not seeing the commercialisation of this innovation coming through to the economy. Is there something wrong with the transition mechanism? You are absolutely right. At the heart of all this for our economy is how we can improve our productivity. We know that that is the puzzle if we get that right. It is not alone. For Scotland, it is the same across the UK and other parts of the world. This goes absolutely at the heart of how we drive our economy and how we drive benefit for all the communities, people and businesses that we have talked about. In terms of things that are contributing to that, we know that our exporting performance as a country is below what it would need to be if we were going to be in the top quartile of productivity. One of the estimates that we have is that the region would be the UK as opposed to the WECD, but if we were in the top quartile around exporting, we would have another five or six thousand businesses who would be exporting to be able to reach that. We know in the context of innovation that that would need another about 1500 businesses to be able to do that. We are making progress around some of those things, but we know that the scale of that is something that, in terms of our economy, is quite considerable. We also know that businesses per head of population are quite considerable in terms of we would need another 120,000 registered businesses in Scotland. We know that there are challenges in terms of the productivity, the structure and size of the business base in Scotland, and that has been an issue that has been persistent over a long period of time. We work with our colleagues in business gateway to get more businesses to start, get them to keep on growing. It is something that, certainly when I was involved in business gateway, has been a mantra for quite a long time, but it is very challenging. While we are seeing an increased number of self-employment businesses, we are not seeing them growing to the size that would start to innovate and export and create some of the contribution to productivity that we would look at. It is about how we get more innovation, how we get more exporting, how we get more companies to invest in R&D and, overall, how we get much more investment into the economy. Those are all things that we are working on, what we need to do much more. You are absolutely right—excellent academic expertise that we have in our universities. The challenge is around how we get businesses to invest much more around R&D, how we get them to invest much more around taking new products to market and particularly getting them into export markets. Those are the things that we need to concentrate on, and we very much welcome in the context of where we go next, those are the things at the heart of the actions that we need to take. I think that all of our guests, or at least the majority of them, want to come in, so perhaps start with Charlotte Wright. I was just going to add to something on productivity before John maybe goes on innovation. I certainly endorse the remarks regarding the structural difficulty that we have in terms of the size of our business space, even more so for the highlands and islands, and in terms of the sexual mix that is predominated by sectors such as tourism and food and drink, which traditionally are not as high-paying as some of the other sectors. However, the other point that I just wanted to introduce into the discussion about productivity is also about the productivity of our human capital and that one of the aspects of how we perform in the highlands and islands that we have often looked at, is a challenging issue to deal with as that of underemployment, and that is actually making it more difficult for our population to be productive as well. So, working with developing the University of the Highlands and Islands is really critical to us in being able to deliver that aspect, so that I think it's helpful maybe for the committee also to look at productivity in the round, so as well as outputs and inputs in terms of a traditional way of looking at productivity. There is also a wider view in terms of its impact on communities and people and population, and I'd say that underemployment is a key thing that we have as a challenge. Before I bring Douglas Duffin in, I think possibly Gordon MacDonald wanted to come back into slightly nuanced his question or follow-up. I just wanted to ask a question about the productivity. The Sculling report says that the OECD note that productivity across the developed world has been in secular decline over the past 15 to 20 years. With that background, I noticed from Hayes' submission that the Highlands and Islands ranked 32 out of 40 UK regions for productivity in 1997, and by 2014 it had risen to 18 the largest change in ranking of any region in the UK. Is there anything that the other agencies can learn from the remit of high that should be reflected in the other agencies to try and gain that same level of increase in productivity? We very much welcome the opportunities as part of phase 2 to examine that. One of the things that has made a difference to those figures is the starting place. The starting place for the Highlands and Islands was obviously a lot lower than the rest of Scotland. We see that as a fantastic achievement for the Highlands and Islands, and hopefully the work of Hayes is part of that, and that reflects a growth in GVA. However, that GVA still lag behind the rest of Scotland, and therefore the rest of the UK. Therefore, we still feel that we have a journey to go on. However, we do feel that we can bring something to the debate, particularly about what a south of Scotland agency might look like, and how we can support from that 50 years of knowledge and experience that we have. Douglas Duff, I think, wanted to come in. It is just a brief point to add to the work that BusinessGateway does in that field to boost innovation and productivity. Our growth pipeline is very much intended to help companies move along that growth path and to access the specialist advice and support to be more innovative, to be more productive, to access international markets, to ease their scope to employ. All of that is very much designed to achieve that growth. To point to the work that was done recently to augment the BusinessGateway services with some European funding that provides more dedicated support in those areas, so that we can offer more expert help assistance to companies that will help them to examine and look at the possibilities there and lead them on to the more specialist support that Scottish Enterprise and others can offer. I will come to Gillian Martin, I think, as a question relating to this area. I want to follow up, I suppose, from what Dean Lockhart was asking about productivity. A couple of things were mentioned there. You mentioned that there is a deficit in the amount of businesses that have been set up in order for us to reach a full potential. For the record, I am a convener of the Women and Enterprise Cross-Party Group. We heard from one of our colleagues, Laura Galloway, from Heriot-Watt University, that she is saying that female graduates and STEM subjects in particular end up in business, but they end up in business outwith their skillset. They end up doing things such as setting up a bed and breakfast or going into creative industries or whatever. We are missing a trick with our graduates where we could be involved more in universities and colleges at the point at which people are graduating and encouraging them and giving them the support to look at enterprises as an option rather than employment. I wonder whether I could have some feedback on that. I support that kind of encouragement for graduates. We fund that. There are a variety of organisations that work with universities and colleges in supporting that. Probably the core one that we fund is the Scottish Institute for Enterprise, which works with pretty much every university in Scotland and around about 6,000 students a year on exactly that kind of thing, encouraging them to see enterprise as a potential route after university. It runs competitions and boot camps and so on. It fits in with other competitions such as the Converge Challenge and some of which we do alongside the enterprise agencies. That is aimed at students across a whole range of disciplines. Often, what will turn people on to business is not exactly the thing that they are studying at university, but it is not as simple as people go to university, study a course and set up a business and then set up a business. The people who leave university and either set up businesses very quickly or sometimes years later, tends to be in a whole range of subjects sometimes related—actually some of the winners of the competitions lately have been medical students and so on. People would not anticipate having an entrepreneurial ben. It is something that we need to support. Can I come back to the innovation point that I politely let Linda in and then move on? Just to answer quickly on that. There is a huge imbalance between the research that is done in universities in Scotland and how strong that is compared to the amount that is done in businesses. There is an issue about how the research in universities translates into economic development in Scotland. We have funded, in the last few years, a set of innovation centres that sit between universities and businesses in order to help bridge that gap. There was a recent evaluation of that, which was very positive. It is early days and it is something that we need to do more of. It is an area where, as part of the review, the phrase cluttered landscape has occurred more than most because it can be confusing for businesses knowing how to interact. It is probably less so with universities but with the wide range of things that are partly universities, partly enterprise agencies and partly other agencies. That is an area where you better signposting and a degree of rationalisation might be the way forward. It is very much a live issue in one that the innovation centres are trying to address. Linda Hannah, did you want to come in or I will go to Charlotte Wright first. I will go back to Gillian Martin's question to say that one of the most powerful things that we can do is give strong role models and case studies of women in business and enterprise. Working with organisations like Women in Enterprise or with the companies that we account manage where we can demonstrate that that is a really good career track for women is something that we need to do and we do need to find more role models and do more to make sure that people can see that and that we share those case studies and people can see that there is a really exciting career prospect in business for women. Women are not the only demographic in which there may be an enterprise gap, so I would be interested to see what other demographics you believe you have identified as having. In not so much a productivity gap but an enterprise gap, who are the sections of society that are maybe the wins to be gained of encouraging them into business? Scottish Institute for Enterprise, who I mentioned there, don't just deal with women, that covers both men and women, but we've expanded their work recently to cover colleges as well as universities because often the people who are studying in colleges will leave to set up their own businesses and sometimes are more likely to do it than university students because of the kind of things they are studying, so that is very much a demographic that we see if you can call college students a demographic, but it's a different group from university students and we see that as very important. We have also worked with high and some very specific things in the highlands about supporting students as they leave university into types of enterprise and so on, so I think we're open to doing more of that with other regions and other demographics when a need can be identified. I just have one short question, Gordon. I won't take up too much time. You might know that I'm an ex-college lecturer and at the point of which your students are graduating, I see that there's not really much in terms of the curriculum and I know that I'm jumping into the education committee remit in actually putting in the curriculum something to get students aware of how to set up a business. Would you see that as being an action point? Yes, though what I would say, and you were a lecturer and I've lectured for a long time, what we've found in speaking to colleges and universities is that often if you build it into the mainstream curriculum of whatever subject it is, it doesn't work as well as having it sometimes semi-extracurricular in something like the Scottish Institute for Enterprise because not all of the class might be turned on to that. Not everyone leaves college or university and immediately sets up a business. Sometimes it's something that you can encourage and then it happens a few years later. We need to have the full spectrum of support. Sometimes it's built into the curriculum, sometimes it's available to sit alongside the curriculum in a course where it might not be of appeal to most of the students and sometimes it's for people once they've left and that's probably less of our things but it's something we do work with the enterprise agencies on. Thank you. Dean Lockhart wants to come back in with a short supplement. Thank you very briefly. Just talking about the full spectrum of support, I spent some time yesterday at Entrepreneurial Spark and spoke to a number of small companies who had benefited through the different stages of support and who were complimentary about the support available. The one gap that they identified is support in getting the first win under their belt, the first contract, external validation of their product or service. Can you talk a bit about that because that's not really been touched on on any of the papers I've seen in terms of getting those companies across the final hurdle to get the first win? Maybe I could pick that up. We have a slightly different model of E-Spark working in the Highlands and Islands at the moment, a virtual accelerator, just to pilot how that works in a more rural region but I think the point you raised is a really important one that for businesses going through that experience it's how they actually get the follower put and follow on so that they can build on the experience and usually a lot of passion and commitment they've got through going through the accelerator process. I think it's where either business gateway or the enterprise agency can plug into the graduates if you like of an accelerator process so that they can then move on to the next stage. I think I'm agreeing to your point really that we need to make sure that accelerators have a clear place within a business growth strategy. I'll move on to Ash Denham who has a question about NPF. Thank you. You're probably aware that we had Audit Scotland in giving evidence to us last week so I'd just like to pick up on a point that was raised by them. In their report they said that the development agencies in general were performing very well against their own agreed measures but they felt that it wasn't possible to measure the contribution specifically to the national performance framework so I'm just wondering if the panel think that's a fair assessment or not. Charlotte Roy. On that particular point we did go back to Audit Scotland and thought their report was really excellent and we appreciate the recommendations that were made but in relation to that point we did actually point out to Audit Scotland that the Highlands and Islands Enterprise performance measures we have actually in our operating plan mapped them to the national performance framework so that we could demonstrate exactly that. We do have a different set of measures which we have tracked over time and they are different because we are doing some different things say to our colleagues in such enterprise and we need to be able to demonstrate that they are successful. I think the key point there was that there was a mapping across of our outcome measures to the performance framework. Linda Hannah. If I can decide, we've also shared with Audit Scotland that what we would call a line of sight, so national performance framework, what's in our business plan and the published measures that we set out in that business plan and then a broader measurement framework that we've got in SE around the things that we track and monitor and the direct line of sight and the contribution that we believe makes to that so we've also as has high shared that with Audit Scotland. To add very briefly that through the work of Slade, the national economic development body, we've been working with the improvement service to aggregate a set of performance indicators for economic development services at local level. That can be aggregated up to national level, so business gateway is an important component to that, but it respects the other economic development services that councils provide. We'd certainly be happy to look at the relationship of those indicators in the national ones. I was just going to say that in the report they've suggested the Northern Ireland's approach for monitoring progress against the strategy to be good practice, so they're talking in here about things like publishing details of how the strategy is developed or annual action plans, regular viewing progress with annual monitoring etc. Do the panel think that that's worthwhile to do that or is it going to add anything? I think that we recognise both from the Audit Scotland report and actually the first phase recommendations from the enterprise and skills review that that actually is a critical outcome there that we get a much better and clearer join-up between national strategy and outcomes and the actions that we as agency or others undertake to deliver on them, so absolutely I think that join-up is there to be made much more clearly. Thank you. Would any other panel member like to comment on that? The question was specifically about the enterprise agents in the Audit Scotland report, but on that point about annually publishing data and performance, we do publish a summary of the outcome agreement data for the colleges and universities, which is a strong proxy for the performance of our organisation. We do publish that annually, both at an aggregate level and at an individual college level, so there are ways of doing that. Just to add to what Charlotte said, those are things that will be looked at in phase 2, so just in terms of making sure that they think through in terms of what that looks like around the action plan and the measures and that absolutely brings that simplicity that we've talked about earlier and the direct line of sight nationally, regionally and locally, that's all very important. I think that the other thing for me in all of this is always around learning about, there was a question earlier about what works, so how do you learn from that? We were very pleased that the Audit Scotland drew out the work that certainly we and other agencies have done around our evaluation, so that kind of piece around looking at the plan and looking at the measures is also helping us to understand where we make investments, where does that make a difference and then how do we do more of that and how do we respond to how our economy is changing, so that kind of piece that's around that action plan and the targets and measures I think also helps us to kind of keep honing around what's working for us. We see around productivity what's working for us is the join-up around leadership support, workplace innovation, internationalisation and innovation. It's not about doing these things separately, it's about working with the business around their ambitions to do that and about when you blend those things, you get quite exciting things in companies, so it's about how those things work and I think the more that we can do that, I think that the more that gives us confidence about how we take forward different aspects in the economy. Thank you. Jackie Baillie, did you have a follow-up to that? Yes, just a slight tangent if I may convene, because obviously the Government has made clear its commitment to encouraging women into business because of the increased economic contribution that that would make to GVA, something like, I think, £13 billion was the assessment. So I'm curious to pursue the second recommendation from the review, which was about the data gap, but specifically in terms of gender disaggregated statistics, because we've been told there's a paucity of statistics overall and within that there's definitely a paucity of gender disaggregated statistics. I asked that in light of Scottish Enterprise's own contribution in their annual report that said that it worked with, of the high growth companies, 3 per cent were led by women. Whilst I welcome the transparency, I'm shocked at the small number that are there. I don't know the number for high, maybe that's different, and I just wondered if you think that gender disaggregated statistics might help in addressing some of those problems. I agree that we need the data that helps us to pinpoint what's actually happening, where is that working, what else can we be doing. I'm not sure where that 3 per cent figure came from, so apologies. I will pick that up when I go back to the office. Partly the challenges around different ownership models mean that it's sometimes actually quite hard to know in terms of female ownership or the ownership of the business and what that looks like and how we gather that, so that is something that we look at. What we have looked at is we do equality monitoring for companies who approaches and access services for the first time. That isn't just account management, that's not everything that we do, so we do collect that data and where that answer is available. The proportion of companies that are female-owned a couple of years ago was around 46 per cent, so we know that it's much higher. We also know for the examples that we've got on the ground of companies that we work with. We know that we are working with companies who are female-owned, but being able to pull out those statistics, I agree, gives us a sense of data and how we're able to focus on that. How many high-growth companies do they work with that are led by women? I don't have that figure to hand, but we've certainly looked that out for you. What we do, though, is make sure that we undertake equality monitoring of all of the programmes that we run to make sure that there is nothing built in to the way that we address a programme that could actually be a barrier, be it to women or any other group. That's a key part of the way that we would look at introducing any new programme of enterprise support, but I'll certainly look into that figure for you. I guess it's not going to be as high as we would like it to be. I wonder whether I might ask Douglas Duff. What data collection is going on at business gateways? There are some anecdotal stories that suggest that it's not consistent and that people aren't necessarily looking at gender as an issue. As with my colleagues, I'm happy to get more statistics on that to get the details. It is a common CRM system, as it says, so there is an initial data capture of the profile of participants and our programmes. It would be gathering that and producing some analysis for you, but certainly the work of women into enterprises and programmes that are around that are vitally important in business gateway. Gateway advisers support and promote those events. In recent years, there has been significant growth amongst women who are moving into business. They seem to be very keen networkers. It is certainly something that is seen as an important part of building a business community locally. That adds to the scope for growth. We certainly see a huge appetite amongst women in business to work together to ensure that they're getting the best quality of service or gateway advisers working closely with them to enable growth to take place and to enable that to move forward. I'm happy to get the stats. That's very helpful. I wonder whether the account managers or gateway advisers have any gender-specific training. I'm getting two nods. If I can add to that, we absolutely provide, as part of the CPD work, the training for account managers. That includes gender and that also includes, as Charlotte said, we make sure that we check and that it is baked into all our services, that there is nothing that's actually going to get in the way of that. We also make sure that we're thinking about what that training needs to look like going forward and what needs to change on the back of the feedback that we're getting from companies that are female-led around anything that might have made a difference around those things. I think that Gillian Martin mentioned other groups as well. We've emphasised women a lot, which is great. Disabled people and maybe people from ethnic minorities. We have seen figures that people from ethnic minorities are doing better. They're doing more higher education and are coming out better qualified but aren't doing so well employment-wise. I could add unemployed Scottish white males from disadvantaged areas. Sorry, I'm not sure who we're addressing the question to. We certainly wouldn't have that information initially to hand and some of it might be quite difficult to obtain if that's the question about how many people are in account management or receive our products and services. Some EU programmes require certain questions to be asked, but they are anonymised when we're at a programme level. Gordon McGinnis. Skills perspective. Our challenges are slightly different, particularly around occupational segregation, but we've spent a good amount of time working with partners, particularly from specialist groups to develop our modern apprenticeship action plan. Within that, it obviously looks at gender, but it also looks at black and ethnic minority participation, people with disabilities and care leavers who are disadvantaged within the labour market. It's a four-year plan, fixed milestone, so we're working hard with partners on the delivery of that. I can add one more thing around the focus that we've got around inclusive growth, a big part of that is about workplaces and what happens within the companies that we work with. A lot of that is about thinking about job design, about how jobs are organised, what that means in terms of different structures and encouraging employers to think about the workplace practices that might encourage them to be able to access the talent that's going to be best for their business and the mix of that. Sometimes that could be around part-time working, it could be around disabled workers, it could be around using digital mechanisms to do that or flexible working, it could be around busting myths. Sometimes we've heard certainly anecdotally that certainly females particularly might have a view that in a manufacturing environment you wouldn't be able to do a job because it has to be full-time, whereas that's not the case. It's also about working with employers to go out to their communities and talk about some of those kinds of things, being engaged in schools, colleges and being engaged in their community around bringing forward some of those models and then hopefully what that brings is some of those opportunities in a different way. What we've certainly seen with employers that we work with in that way is that they see a big difference. Sometimes that's about youth, sometimes it's about disabled workers, sometimes it's about different parts of the community. Increasingly, going back to the regional dimension, we've been talking quite thoughtful with the Scottish Government not just around the asset piece of the regional economic development but also thinking about the social inclusion dimension of that, so the inclusive growth diagnostic and around when there isn't that talent pool coming through for those employers, what's stopping that and therefore how do we match together the work that they were doing with companies, the work that's happening in colleges and others, to make sure that we've got that kind of skills flow coming in and that that's meeting the demands of employers. So I think that there's a bigger piece around that we've been doing a bit of work on, we need to do much more work on, but I think that we'll start to kind of bring through some of that kind of data and intelligence around where we need to focus a bit more. Dr Kim, we recently published our gender action plan, which was originally something that was asked for as part of the developing the young workforce report, but we expanded it to include universities as well. That seeks to address some of the issues that we've talked about today. We recognise that there's quite a complex issue that, while in colleges, about 50 per cent of the students are from each gender, there's huge segregation in which particular courses they study. Some courses are almost entirely male, some almost entirely female. There's a separate issue at higher education where, as well as having gendered courses, female participation is higher than male participation, similar to the point that you made about young white males in some ways, not doing as well out of the education system. So we are trying to work with employers and with others and through our outcome agreements to balance some of these, but there are other groups as well. Gender is the one that we prioritised this year, but there's been quite a lot of activity recently on care leavers as well, and we've been building widening access for care leavers into our outcome agreements over recent years as well, and that will be something that's commissioned for widening access work as it goes forward and very much address. Right, thank you. I'd like to go on to Richard Leonard, who has a question, I think, to do with budget and forward planning, but I'll let him ask the question. Yes, thanks, convener. It's principally for Charlotte Wright and Linda Hannah, but I would welcome the contributions and observations of the other witnesses. In the weeks that lie ahead of us, one of the tasks of this committee will be to consider the Scottish Government's budget and especially the Scottish Government's budget as it affects enterprise and skills and economic development. The Audit Scotland report, which we received evidence on last week, spoke about the 16 per cent in real terms cut of the Scottish enterprise budget between 2008 and 2015 and the 22 per cent cut in the operational budget of Highlands Nile's enterprise over that same period. The cabinet secretary, in his forward to the review last week, used one of his favourite expressions, which is that any change needed to be cost effective. In light of that, I wonder whether you would help us to understand how we are resourcing the increase in the creation of a board of trade. Trade envoys have been dispatched across Europe, Scottish Development International staff are doubling. I also wonder, especially Linda Hannah, if you would reflect on the submission from Scottish Enterprise, where you ambitiously recommend that the number of companies that Scottish Enterprise helps grows from between 2,000 and 3,000 to between 10,000 and 15,000, a 500 per cent increase. Is that based upon, and is the work that you have now been asked to undertake on this internationalisation in the face of Brexit? Are you receiving additional resources for that? Do you expect to get a significantly enhanced budget in the round that's coming up or not? I wonder if there's just a context around a vouch, Audit Scotland, that I'd maybe just like to give you a bit more of information around. It focused on the grant and aid element of the budget, which is the bit that we get directly from government. We do augment that budget. For 2015-16, although our budget was £66 million, we delivered a spend of £111 million as we brought in money from Europe that we realised to income from our own assets. We also got additional funds for specific programmes such as Community Land Fund, Community Broadband Scotland and Wave Energy Scotland, which added considerably to that. There's always a bit of context around that. Having said that, I think that we're probably realistic about what the future looks like budget-wise. Part of this review is clearly about making sure that we're all as efficient and effective as we can be. I would love to hope that there was more budget coming our way. I think that our expectation is that we need to make sure that we're as effective as we can in terms of delivery. A great way into that is looking at how we can use digital better to give a better reach to our clients and that we're actually quicker in turning over our interaction with clients so that we can be sharper and more focused in those engagements so that we can perhaps reach a wider population of the business base. I can add to that. Certainly, as Charlotte said, beyond the granty need that we get from Scottish Government, we absolutely are focused as a team around maximising our income. Some of that comes from our property disposals, our investment income as well as EU income, as Charlotte said. In any given year, we are absolutely seeking to do everything that we can to make sure that we invest what needs done for the Scottish economy and focus our resources in the right places around what needs to be done. Over the past number of years, that's exactly what we have done. I think of it even in the past couple of years around the shifts that we've made around responding to what's happened in oil and gas and what's happened in the north-east and about shifting resources around those things. Even within the model that we currently have, we've made sure that where there are needs in the economy that we've responded to that. At the same time, we've made sure that we're effective around some of the other things that we've sought to do. We've made quite a lot of savings over the past number of years that has allowed us to help to do that. Like Charlotte, I'd love to think that we're going to get even more money, but we're all realistic just in terms of where we are right now in the public person. What's really important is that we use the funding and the resources that we've got really wisely and that we make the right investment decisions. We're pleased that the Audit Scotland report talked about the risks that we take and how we are very careful about the decisions that we make around getting the best return for the economy, and that's exactly the approach that needs to take place going forward. Clearly, there are going to have to be trade-offs unless there are going to be lots more resources. There will be trade-offs that will need to be made. Again, in phase 2, thinking through how we make through those decisions together, where are we able to work together or collaborate that allows us to do even more if we can with the resources that we've got, will be increasingly important. Certainly, the piece that we've put in around working with many more companies is that we are very ambitious about using digital mechanisms to do that. When I was involved in business gateway 10 years ago, we really at that time wanted to have a blended service about digitally-enabled services, but the market wasn't ready for it. The world has moved on quite considerably now. I think that businesses are much more ready and interested in being able to have digital services delivered so that they can use them. We believe that we think that that provides opportunities to reach many more businesses with some of the services that might currently be provided in a particular way that we think can be augmented to provide even more value for the public purse. We're investing heavily in that right now, in that kind of digital capability. We're not taking the existing services and putting them online, but designing services for a digital world. We think that that will enable us to reach many more companies. Right. Very brief follow-up, Richard. So the answer to the question about how you're going to reach five times as many companies is digitalisation, or do you envisage employing more account managers? On the doubling of SDI staff, is that new people coming into the organisation? Is that a redeployment of existing staff members? So I'll take the last piece first. In terms of the four-point plan that was announced, we are still in discussion with the Scottish Government about what that looks like, and that's certainly something that my colleagues in SDI are discussing with the Scottish Government, so I don't have an answer for you on what that looks like, because we're still involved in having those conversations about what that means. Certainly, in terms of the reaching more customers, a big portion of that will be around digital. What needs to then supplement that digital, we still have to work through in terms of what that means, particularly in terms of whether that's account management or about specialist services or about collaboratively how we work across partners. Those are things that we have been ambitious and set out in our submission, but we still have to work through what the detail of that would look like. Thank you very much. Well, I'm afraid our time has gone, so I'd like to thank all of our guests for coming today. Thank you very much, and I'll now suspend the meeting for a comfort break and we'll reconvene at 11 o'clock. Thank you very much. Well, good morning and welcome to everyone. This is our round table discussion on economic impact of leaving the European Union. I would like to welcome the witnesses and just say that you don't need to press your speak buttons or anything. If you indicate to me by simply raising your hand that you'd like to come in on the question or discussion, simply do so by raising your hand and I'll bring you in, and broadcasting will deal with the mics. It's a sort of formal informal setting, I suppose, and an informal round table setup meant to facilitate discussion between the committee members and the witnesses. I wonder if we could simply go round from my right, starting with Dr Graham Roy, and if you could simply introduce yourself and indicate the organisation you're from. I think Jenny Stewart from KPMG could be given an opportunity just to explain a small bit about her role in that organisation because I think you've been added to the list of witnesses slightly later than the others and not had the opportunity to put in a written statement. So I'll start with Dr Roy. Thank you very much for the invitation to come along this morning. My name's Graham Roy. I'm the director of the Fraser Allander Institute at the University of Strathclyde. I'm Richard Marsh. I'm an economist with a small independent consultancy called for consulting based in Cacoddy. I'm Stephen Boyle. I'm the chief economist at RBS. Fabian Zulig. I'm the chief executive and chief economist of the European Policy Centre, which is an independent Brussels-based think tank, and I'm also on the standing council in Europe. Okay, good morning. My name's Jane Gotts. I'm director of a business startup called Gen Analytics, which focuses on the area of equality and diversity in the workplace. And I'm Jenny Stewart, partner at KPMG. I run our government business in Scotland and part of a group who run our UK public sector business. Thank you to the convener. I'll just do a quick one minute intro since you haven't got a paper from me. Just to say that KPMG took the vote very seriously, prepared for it, both eventualities, and within two days of the vote appointed ahead of Brexit, and we've been gathering intelligence from across our very diverse client base and working with clients to help them respond to the Brexit vote. So I just thought I would pick out just some key points that you might want to pick up later. Obviously, the first thing is that the immediate impact has not been as severe as was predicted, so I spend a bit of time explaining to clients why that hasn't been the case. The quick one second answer is that there's three bits to the economy, consumer spending, 60 per cent business investment, and then whatever government and the Bank of England does. Effectively, consumer spending has held up. Business investment instead of thinking will stop until we know more has generally been it's so uncertain. We don't know what's happening, so we'll just carry on as usual. Obviously, the intervention by Mark Carney and the Bank of England on the reduction in interest rates was pretty helpful. In terms of Brexit itself, every business will have a different exposure to Brexit, and given the economic and political uncertainty that's around at the moment, what businesses are doing and what we're doing with business is really around scenario planning. So it's saying, we don't know, we can't possibly predict it's exactly going to be like this or it's exactly going to be like that. What kind of broad scenarios are likely to emerge and therefore how do we respond to that and how do we deal with that? The key business issues that they're picking up at present are obviously around people and their exposure to the easiest way to describe it is EU 27 nationals. So KPMG itself, we knew before the vote exactly how many people are 700 staff EU 27 nationals. We then made sure that we contacted them after the vote reassured them of their value to us as individuals within the company and set up arrangements to provide advice to those individuals. So that's people. The other issue is strategy. So clearly with the significant drop in the pound, then a number of companies, there's a lot of foreign direct investment coming in. Companies are becoming acquisition targets equally some businesses across the UK are now revisiting their acquisition strategy in the light of the pound. So people strategy, medium-term financial planning, really what is given the potential around exchange rates, inflation, et cetera, et cetera. Let's review our medium-term financial planning assumptions and see whether we breach our banking covenants in any of those scenarios. The other issue is tariffs. So clearly if we do end up in a WTO situation, how is that likely to impact on that particular business and what are the costs? So those are the key business issues. Clearly individual sectors are affected differently. So across the EU, different countries are now making clear that they've got a competitive offer. So Slovakia, for example, in the automotive sector, are really stressing their competitiveness and jaguar land rover has just made a big investment there. Clearly Frankfurt, Luxembourg and Brussels are, sorry, Dublin, Frankfurt and Luxembourg are making a play for financial services institutions. So in terms of the sectoral issues, there are specific sectors affected, HE, agriculture, financial services, but actually for most businesses it's really about what's going to happen to the economy. And the last point I just wanted to make was around what this all means for public policy. So clearly public spending accounts in Scotland for about 40% of GDP, directly the public sector employs 20% of the workforce and even more are reliant on that. So clearly what happens in tax and spending will have a big impact on the economy and the fiscal framework clearly will need reopening in the light of things like the cap. And then we're seeing across our client base questions beginning to be asked about what is future policy going to be in those key areas like agriculture, fishing, research and development, social fund, regional policies. So these are all policy areas that the Scottish Parliament and Scottish Government will take over post Brexit. So people are already starting to think well actually what are the policy choices, how are we as individual businesses going to be affected if there is a significant policy shift. So that was that, apologies if that was too long by way of introduction but hopefully helpful. Thank you very much and may also welcome Dr Mathias Magullis and you are a lecturer at the University of Stirling. Thank you for joining us. We're doing a round table format today. The committee members will ask questions and if you want to come in on a discussion topic or question simply indicate by raising your hands, not your hands both. Sorry, a hand will do and once that's noted then I will seek to bring you into the discussion so not at all. Thank you. I will perhaps start with a question and this is specifically directed to Richard Marsh who has done a paper from his company for consulting which has been submitted to us and it relates to the question of EU citizens and their contribution to Scotland's economy and society. I think you say yourself in the paper that it's more looking at a snapshot rather than what may or will happen because policy changes and how these affect people or what they do or don't do is not something you address in this document. On page 2 of that you do say that it's difficult to measure the number of EU citizens living in Scotland and their social and economic contribution. I'd like to ask you a few questions about the numbers in your paper, if I may, and just to start off with you have in paragraph 1.5 on page 2 of your paper, page 2 by the numbering in our documents but I think that you'll be familiar with your own paragraphs I'm sure. You say that there are around 209,000 people who were born in EU 28 countries accounting for around 4% of Scotland's total population. The First Minister has talked about 173,000 EU nationals living in Scotland, can you clarify the difference between those two figures for us? Yes, absolutely. As you've kindly pointed out already it is actually quite difficult to measure even the number of people. One of the big differences and we've set it out here is people who were born in the EU 28 countries and people who are citizens of those EU 28 countries. We've referenced here a paper that neatly summarises that from the Office for National Statistics, the ONS, and they think that around 16% of people across the UK who are from the other EU countries have actually become EU citizens. That would account for some of the differences between the numbers perhaps at the First Minister's site and the numbers that we show here in the report. I'm sorry about that, I might stop. 83% of 209,000 is roughly 173,000. I was trying to do the maths in my head but that's roughly the back right. Would that explain the discrepancy between the figure in your report, the 209,000, and the First Minister's figure? It might do. What I'll be at pains to say is that the figure that we've shown here is from a survey and it's taken from a very small part of the overall population. All the figures that we show in our report are estimates and there'll be a margin of error in those estimates so it's plus or minus a few thousand, possibly tens of thousands, around the figures that we show. Your purpose in this paper is, correct me if I am wrong, to show the contribution that EU citizens make to the Scottish economy. Is that correct? Yes. I think that I originally submitted this to the European committee and I was asked to pass on a slightly updated version to the economy committee. It was to answer the two specific questions in the call for evidence from the European committee to show the economic and social contribution of EU workers. You are aware that EU citizenship is not based on where a person is born. Where a person is born does not mean that they possess the nationality necessarily of that country. The European Union framework is based on rights for European Union citizens. A European Union citizen is such a citizen because they are national of a member state of the European Union. In the report I think we've been fairly clear to say we're just looking at people who were born in EU countries. We haven't really gone into the issues of citizenship. The survey does include some questions. The labour force survey would allow us to go in and interrogate to say would you classify yourself as a European citizen. It's a self-response survey so we're relying on people providing accurate information. So it doesn't necessarily give us an indication of the numbers of people who have a right to be here based on European Union citizenship? No, absolutely not. This is purely looking at the number of people who were born in EU countries outside of the UK. If we look at some EU citizens, of course, non-UK born such as Irish citizens, they would have a right to live and work in the United Kingdom that is unrelated to their EU citizenship, would they not, under the common travel agreement? You're probably pressing me on an area in which I'm not an expert. Thank you. Jenny Stewart? Just to say, obviously I talked about the EU 27, that was because within our firm we recognised that Irish would have a different status. So the status of Irish citizens is unaffected by whether or not the United Kingdom is in the EU because they have rights under the common travel agreement which predate the European Union rights? That's our understanding and my view. So did you look at the figures of the number of Irish citizens living and working in Scotland who, on that level, would be unaffected by the United Kingdom leaving the European Union? We could, and certainly I had a quick look at the number of Irish people who were born in Ireland living and working in Scotland. The problem is the sample sizes get quite small when you begin looking at individual countries and asking what proportion of that population are working and how much do they get paid, dealing with sample sizes that wouldn't allow you to produce credible results. But if we're talking about European Union citizens who would be affected in the sense of a question of whether or not they're allowed to remain here after the UK leaves the EU, you'd have to take out the Irish citizens because they're not affected. If you wanted to look at that, you could almost certainly take them out and the numbers presented in the report would be lower. Now also, if we think of the number of EU citizens who have a right to permanent residence within the United Kingdom, namely those who have been in the UK for five years or more, can you tell us what percentage of the numbers referred to in Scotland in your report fall into the category of having been resident here five years and therefore there's no question about whether or not they would have a right to remain when the UK leaves the EU? Again, the labour force survey is a very useful source of information and it does include information on what year did you arrive in the UK. So we could do that analysis and filter out those who've arrived within the last five years and apply it. The problem then becomes a slightly more in-depth piece of research that might take it a little longer. Yeah, but again, we could do it and you could say what country do you come from, have you arrived in the last five years or not? That's entirely doable and if you wanted to take a view of, instead of a snapshot, you wanted to try and address a policy question, you could try and amend the data slightly to get close to the question that you want to ask. So if the Home Office has figures that suggest more than 80 per cent of EU nationals living in the United Kingdom fall into that category, is that something that could be extrapolated to Scotland in the same way that I think you've extrapolated the 16 per cent, 83 per cent figure from the ONS figures? Yeah, for the ONS figures you'd simply ask a slightly different question and say are you a citizen of another EU country and that would follow the ONS route. You could also try and take away certain countries and you could also try and do another cross tab with the tables, add another dimension and ask have you arrived in the last five, 10, 20 years. All of that's doable. My understanding is that you haven't done it in this or for the purposes of this paper and I take it then you haven't looked at the question of EU nationals who have been resident in the UK for less than five years but in fact we'd have a right to remain because for example they have children born here who are British citizens. Yeah and you can actually extend the analysis even further if you chose to do so and say do you have children who are born here in the UK. And I think also you haven't looked at the question of dual nationalities so someone can be born in a European Union country, have British nationality or be born in Britain, have nationality of a European Union country and they would be unaffected by these changes. Yeah again we focused on those born in the country so we haven't touched citizenship nationalities. Right so do I take it from what you're saying that you accept that the paper shows the contribution that people born out with Scotland in EU countries who are resident and working here make to the country but it doesn't address the question of who would have a right to remain upon the UK leaving the EU. Absolutely. Thank you. Now I think if I could move on to Gordon MacDonald's has a minor question on this I think. Yeah thanks very much convener. In relation to your paper I just wanted to ask a very quick question. Scotland like Western Europe has an ageing population and we need young workers and people that want to come to this country, put down roots and yesterday I visited a food manufacturing company who highlighted that 41% of their production staff and some of their office staff were obviously Eastern European and had been there for up to 10 years. While the Home Office might be putting down an agreement that people have a right to remain, what happens in future years when we still require a workforce and we still have this ageing population? How do we attract workers if we suddenly have a barrier in place? I suppose what I do is point towards the table that we produce looked at as best we could, some very broad sectors of Scotland's economy. We looked at manufacturing and the proportion of people employed in manufacturing from other EU countries was slightly higher and the wages paid to those workers in the manufacturing sector was much higher so perhaps you have more full-time workers, perhaps the workers are slightly longer hours or they're paying a higher wage rate, we couldn't go into it. It's around approaching 12% of the wage bill for employees in manufacturing in Scotland is paid to people born in other EU countries. I recognise the situation that you've described and in manufacturing it is a particular concern. I don't want to sound flippant in your response but if it's more difficult to recruit people from other EU countries that has traditionally been an important source of labour then it will become more difficult to find the workers you need. I'll come to Gil Paterson because I think you wanted to come in on that subject and perhaps you could also open the discussion out. I don't want to feel that Richard is being put on the spot on his own here. Gil? The question's almost been covered but I think we need to wind it out a bit and my experience is in the automotive industry in Scotland, not in the UK and I'm not talking about big plants in England at manufacturer cars and the number of people in that industry at the present time in Scotland is quite a substantial number of EU nationals within that sector and they're very highly qualified. So my question is although also in the health sector, so you've got the private sector and you've got the public sector and the health sector, this question relates to that also. What's the panel's view on the long-term future economic situation for Scotland if part of that workforce is removed and it's a long-term rather than the immediate five-year threshold that might also be removed at any given time by the Government? Dr Roy? You start to look to guess one of the key issues and the key challenges around thinking about what the future might be in a world of where Scotland and the UK are outside the European Union. I guess the key thing about that is holding everything else constant so assuming that nothing else changes then we know that we have an aging population in Scotland, we know that attracting skilled migration into the country is good for the long-term health of the economy and most academic studies would show that. So you start to get into questions about well what do you do to respond to that and as I said all else remaining equal something like Brexit makes this a headwind into the future and that becomes something which I think we would encourage an institute particularly the committee and policy makers to start to think about well what might you do within both domestic policy and what might you do in terms of the future negotiations about the terms of Brexit about trying to tackle something that would you know is a genuine long-term challenge which Brexit doesn't help with? Stephen Boyle Pursu'n y pwynt gyda Graham Roy has just made, assume for a moment that at some point the existing arrangements that allow people to move freely come to an end and that over a period of time that means that migration falls very sharply from current and recent levels to much lower levels. What we know when I think the Fraser Valand Institute's work points to this as well is that that will mean slower growth in the Scottish economy, other things being equal. I think what then amongst the things that points us to is what are the other measures at our disposal, what other things could we do in a circumstance where the labour supply becomes constrained and I would turn quite quickly to the fact that we have in Scotland still a very large proportion of the working-age population that's outside the job market. By all means, it's important to focus on the actions that you can take to try to secure a good deal around the free movement of people, but it's at least as important to try to draw more people back into the job market because that's in a sense a form of internal migration that you could think about trying on. Gil, you wanted to come back on that. It's a supplementary to that, so I'm looking at the long term, but of course if this effect might be quite a sharp cut-off period, so my question would be relating to the long term, how long does it take and how do you square that circle in terms of training people in those highly skilled jobs? How long does that take and how does that impact on the economy? I'm going to reach the limit of my knowledge on this quite quickly in answering you. I think that the answer is that it depends hugely on what the occupations are that you're dealing with, so it will be much easier and possible to do much more quickly the training that's required for some jobs than for others in my guess and it's no more than that would be that for some automotive trades it might take quite a considerable period of time whereas for other industries and occupations it could be done more quickly, but if you get a cliff edge reduction in labour supply then that would mean a wrenching adjustment for a lot of employers. Push-up labour costs quite sharply. I just referenced the automotive industry. People might be more familiar with the health service and the impact on that, so it's just that I know all about the motor industry, that's all, sorry to say. I think that Gillian Martin won't come in with a question, then I'll come to Jenny Stewart. We've heard reports of various dispensation, as there were calls for dispensation from the potential effects of Brexit in agreement with Nissan and calls for London, the city of London, to be excluded from certain implications of Brexit in particular access to the European single market. I'd be interested to hear from some of the people around the table on their views on whether certain sectors in Scotland should have the similar exemption from some of the implications of Brexit and what that might mean. I'll come to Jenny Stewart first, because I think that you possibly wanted to come in on the previous point, and if you want to come in on Gillian's question then open it up to other guests on Gillian's question. I'll leave that to others, I've spoken quite a lot, but just on that point around the workforce, clearly we don't know what future immigration policy would be or what constraints or who would be and what kind of visa system might respond, so that's obviously one question that will impact on the future economy. The other point that I just wanted to make was more of a short-term one about how attractive Britain is then to future people coming in. We've obviously seen the pound dropping quite sharply and I'm sure we'll come on to that in the debate, but what that means for a lot of people coming in is that if they're being paid in pounds and they want to send money back home, it becomes less attractive to come to the UK than say Germany or France, or equally for non-EU people coming in. For example, I use one of our very bright economists who paid in pounds but still has student loans in the US, which suddenly cost spiralled. She was thinking about her career anyway and has moved to Australia. One needs to think about how attractive we'll be and the pound is a big issue in terms of that, sorry. Yes, Jane Gotz. Can I maybe come back on the point that you were making about the internationalisation and the exporting agenda? As a kind of overview, it's probably important to look at the challenges that the Scottish economy faces in terms of our low levels of internationalisation, so I think it would be quite useful for the committee to consider that, as Graeme mentioned, in terms of what the forward projections and policy making should look like for the Scottish economy. We know the statistics in terms of Scotland's trade with the European Union and how that will be impacted in terms of Brexit. We don't yet know. Jenny referred to WTO and potential tariffs. However, if we are looking at the future success of Scotland's economy longer term, we need to be much more open in terms of our businesses exporting beyond the European Union. Our exports to Asia remain very low. Recent exports to China have statistics for 530 million. Recent exports to India are 228 million. Those are two of the most fastest growing economies in the world and our export levels remain very low. In terms of forward policy making, we need to look at Scotland's export strategy as a whole and say why we still have over 50 per cent of our exports generated by 50 companies. It would be interesting if the committee could look at that in terms of how many of those 50 companies are actually foreign owned and what are the risks to the Scottish economy if those businesses were actually to decide to leave Scotland, whether due to Brexit or not. It is not answering your question specifically on trade agreements, but it is important to have that overarching look at where Scotland's exports currently are and why we still have very low levels of exporting among our business base, particularly among our SME business base, which remains obviously the key driver of Scotland's economy. Dr Roy. Just picking up on Gillian's point about what sectors come in. From our thinking, I think that there are probably four ways to look at this going forward. One is to start to think through about what are the different trade-offs that might happen from different trade agreements, different outcomes from the UK's exit from the European Union. The whole debate about membership of the EEA or WTO models, we think that that becomes quite important, and those will have quite unique implications for individual sectors. It is important to understand that, so a model in the EEA could be quite different for an individual sector to one in the WTO. Understanding that the potential implications for individual sectors would be quite crucial. The second thing is starting to broaden that out into how might different sectors be impacted by elements such as changes in migration rules. For example, we know that certain sectors of the economy are more dependent on inward migration than other areas. Tourism, you mentioned a point about automotives and NHS, so understanding the potential implications there. The third thing is that you start to move into what policy opportunities open up from no longer being part of the European Union. That gets much more controversial, it is much more into the political sphere, but we know that this place is going to get further powers as a result of Brexit. There may be even further elements coming through fiscal frameworks, so what areas within the air could you potentially use policy in a different way? That might have implications for sectors as well. The final part is to broaden that out to say what are the existing policies and strategies that the Scottish Government, but also the UK, but let's just focus on the Scottish Government at the moment, are taking forward to deliver an economic strategy at the moment. It can't be the case that the delivery of the economic strategy prior to Brexit has now got to be exactly the same afterwards. There are going to be new challenges and new opportunities there, so reassessing what the economic strategy might look like in a world where you are no longer part of the European Union becomes crucial. What levers do the Scottish Government have under their disposal at the moment that could be used differently to have an impact on sectors? Coming back to your general question, our analysis and our modelling for the Europe committee cited the headline impacts. We start to look at what sectors are most exposed to the European Union. What sectors can you identify as being? That's when we may need to be quite worried about or we may need to think about how we respond to that, but what other sectors maybe have other opportunities, have greater scope to move into wider international markets, and then our policy response for them might be quite different. It might be less about protecting and nurturing and supporting a sector. How can we help them to use the future growth that will happen in the global economy to tap into wider markets? It's quite complex, and there's quite a lot of things in there, but all that needs to be looked at if we're going to get a comprehensive response to that. Richard Marsh I'm going to try and shamelessly borrow some research that I did with Fabian a long time ago, but the point about what sectors is interesting is that we've had some brilliant work from the Fraser on this. What I'd also add is that the single market is much more than just workers and trade. If you look at the financial times today, the biggest company in America is Apple, and it's top 20. I think there's one, two, there's six companies, Google, Microsoft, Oracle, Facebook, Amazon, that just weren't really there 10, 20 years ago. If you look at the same top 20 for Europe, there are no software companies in the top 20 for Europe. The single market is bringing together a whole series of disparate countries and trying to say how can we have common rules around digital services, signatures, bringing all the very difficult things together, and that in the United States, where they have a fully integrated single market, has produced global companies of scale that are world beating. What I would say from this is it's good and proper that we think very carefully about the Scottish economy as it is today and how we can protect the sectors that are thriving now, but what do we need to put in place so we actually see some of the smaller creative technology-based companies that are actually doing really well but don't have the scale yet in Scotland? How do we put things in place to make sure they can still trade and integrate online with the rest of Europe and the rest of the world? Thank you, and Dr Margulis. Thank you, convener. I just want to address the question of the Nissan specials so-called deal that's been in the news a lot. At this point, we don't really have a full picture of what the specific assurance is that the government has made to Nissan, but one of the suggestions that has been made in the news is that the UK government will pursue zero tariff entry for British automobiles into the EU market post Brexit. That would make sense on paper given that EU tariffs on automobiles can be as high as 22%. However, the idea of special sectoral deals is not very likely to be WTO compliant. The only way you can have this kind of arrangement is under a comprehensive free trade agreement, which is essentially the single market. The customs union, outside of that kind of arrangement, you cannot provide duty-free entry for specific sectors or for specific trade partners. The likelihood of this kind of option being WTO consistent is very low. The idea of thinking about can we have special sectoral deals with the EU is not likely to fly with international trade. Jackie Baillie wanted to come in. It was to pick up Jane Gott's point, because I think that there are undoubtedly challenges with exports, but there are also opportunities. I am struck by an agenda that says that we need to lift exports overall, but secondly to say that we do very badly in the rest of the world. Given that we know the hierarchy of export more to the rest of the UK, Europe and the rest of the world, I am curious to know whether you think that it makes sense that the Government's strategy is to expand exporting in Europe and not to take on that bigger piece, which is the rest of the world where the opportunity lies. I am just curious whether you think that that should be the priority or is there something else that the Government should look at? I think that the Scottish Government has to be commended because the reach that the Scottish Government has in international markets is very good. Scotland has representation in all trading businesses through the UK, but Scotland specifically has offices throughout Europe, in Asia and in the USA. I think that the infrastructure is there. I was aware of the recent announcement to increase Scottish presence in Berlin, which is a really good thing because the German economy is a market that offers a lot of opportunities for Scotland, again particularly due to the German's very strong SME base. If you were looking at trade between Scotland and Germany focusing on SMEs, that is a positive. I would say that the infrastructure is there. Scottish businesses just do not seem to be taking advantage of it to the extent that they should be to grow exports, so it is not the infrastructure. I think that there are still challenges within Scottish businesses in terms of getting them to internationalise for a whole host of reasons, whether it is access to finance, whether it is awareness of opportunity. I know that the Scottish chambers have done a lot of research that looks at businesses and does not think that they have a product that can be sold overseas. However, if they are selling into England or into Ireland, they effectively are exporting. It is just about getting more of that international mentality, if you like. I can understand that because of the pressures of doing day-to-day business, it is difficult, so it can seem very challenging to do businesses in overseas markets. It can seem that it would be an expense. However, the more that can be done to allay those concerns, I think, is very positive for the economy. However, I would definitely say that the infrastructure is there and there is just not enough businesses taking advantage of it. Can I just maybe push a little bit further? I suppose that what I am asking is, should the priority be to expand in Germany or should it be to expand in the rest of the world? It is a difficult question to answer, yes or no to at this stage. The Scottish Government has been increasing its offices in India and they have increased their offices in China in recent years, so that is obviously looking at where the Scottish Government has its priority plans in terms of the markets. I believe that they have expanded into South America, so I am just aware of the recent announcement in Germany. However, as I said, I think that that is a good thing based on the current German economy. Dr Margulis, do you want to come back in? You talked about the car industry and the sectoral deal. As you rightly said, we do not know what the detail of what assurances may or may not have been given, but I am just thinking about the fact that we import billions of pounds worth of cars from Germany to the United Kingdom. If the Japanese continue to have cars built in the United Kingdom after we leave the EU, those cars could be sold in the UK, it may depend on what tariffs are put on, whether or not the popularity of German cars continues in the UK. It might be that the question around it may have more to do with the question of what tariffs between the UK and Japan may be speculation, but perhaps you could comment on that and also come in on the point. Let me just follow up on what Jane was saying. You have to distinguish between trade promotion and market accessing. Brexit, no matter what the scenario, is going to reduce market access for British exports. Whatever strategy you are looking at has to be in the context of reduced market access and whatever option is finally taken on the nature of Brexit will determine exactly how much market access will be lost. We are talking about a degree of disintegration, so I think that needs to be part of the discussion, not just trade promotion, which is promoting your products, but if you have more restraint access to those markets, that is going to change the incentives for exporters. With respect to the convener's question, the Nissan cars are British made, assembled with parts from all over the world, so there will be several factors which will influence the export of automobiles. One will be tariff rates, depending on what those are set at. In the WTO option, we go to most favourite nation tariff rates, which are significantly higher than the UK now faces when it exports to the EU, but there are also rules of origin. It will depend on the content inside that automobile, which will determine the tariff rates. Often when we talk about exports and production, we have to think that most things are globally assembled. They are not primarily built here. They are assembled here with parts from everywhere, so where this gets complicated is with the non-tariff barriers, such as rules of origin, which determine the kind of tariff that would be applied on the exported goods. It is not so much a relation between what EU's tariff rates are with Japan and the terms of the British exit out of EU. It is a tariff agreement into the EU market, but also with the rest of the world, because those will affect all the inputs and outputs that go into those automobiles. My question may have been too simplistic. I think that it was more thinking about what cars British people would be buying. Certainly, if tariffs are introduced, where to be introduced on German automobiles, there might become a huge appetite, a growing appetite for Japanese cars built in Britain, which might deal with the issue. Right, perhaps we could move on. I think that Gil wanted to come in on some of the points that were made, and then Andy Whiteman will come back to some of our guests who have indicated that they would like to come in. I could just ask a quick question. I understand that the tariff of automobile parts is substantially lower, and that is a worldwide phenomenon. The finished articles are where it goes in. My main question is in relation to the stats in terms of exports. It would suggest that there are some strong views that a substantial amount of Scottish exports are actually termed as English exports simply because they leave from English ports. Is that real, or is it imaginary, or is it one of the things—again, I said it last week—that this committee has actually got stats that are reliable and peculiar to Scotland? They do not seem to really exist, and we rely on people sitting around this table to produce some of the information, rather than the information that businesses provide in the present time to the Government, but it never comes back peculiar to Scotland. Dr Martin, do you want to comment on that, and then we will come to Dr Zulaic, who wanted to come in. It is a very astute observation. One of the problems is that British statistics are national and they are not broken down internally. That makes it very difficult to actually know the extent of Scottish economy. Most of the statistics I've seen are based on surveys, so to some extent limited data. There isn't really great Scottish statistics, and I think that's something the committee and I think the Government as a whole should be thinking about what kind of data is required to really make these kind of decisions, because in my former experience as a trade negotiator you can't really make decisions on what is appropriate strategy unless you actually have a hard picture of what your economy looks like, and I think that's actually currently missing for Scotland. It is a significant information gap. Thank you, Dr Zulaic. Yeah, just picking up a couple of the points. I think what is clear is that there's still a very significant amount of uncertainty. There's uncertainty about timing, there's uncertainty about transition, and there's uncertainty about the final outcome. But I think what is also clear is the harder and the quicker Brexit is going to be, the higher the costs are going to be, and that's I think the key question here being whether the UK continues to be in the single market, and that is qualitatively different from negotiated access to the single market. It's a binary choice. The single market is much more than a free trade agreement. If there is a free trade agreement rather than membership of the single market, then it will depend on when that will be negotiated. It is likely to be way into the future. We're not talking about a free trade agreement on exit. We're talking about a free trade agreement at some point in future, which is undefined at the moment. So I think there are a lot of questions, there are questions around what will happen with the UK and the WTO. The UK does not have a WTO schedule. It will have to negotiate a schedule. Again, there's a question of transitional arrangements, but all of this will impose cost, and I think it's short run costs, medium run, and long term dynamic costs. I think that's where the really significant costs are going to come in. So there are some considerations whether there can be special deals. I think the one which I would think is highly unlikely is a special deal for any part of the UK to remain in the single market. If the UK leaves the single market, I think it's very unlikely that any part can remain. Then it's a question of negotiation, and I think special deals. For me, the big question is always, in whose give are they? Who will actually be the one who can decide on those special deals? And if we're talking about international trade, it's a negotiation game which involves give and take, and for me the big question is always what is the give from the UK government, which is going to be on the table to rescue some of the special provisions are there. And it shouldn't be forgotten, it's already been mentioned, that that also takes place within a framework which is already set. So WTO rules will prescribe certain things for the UK. For example, if we're talking about agricultural subsidies, if we're talking about preferential trade deals, it is quite difficult to see how some of those will work under WTO rules. So it's not just the relationship between the EU and the UK, but it's also the relationship between the UK and the rest of the world, which will change fundamentally. Should Scotland then aim for the rest of the world rather than the rest of the EU, I think it's about both rather than either. And it's about taking into account this uncertainty, which will be there with WTO rules with the rest of the world. But there is also an economics proximity factor. The closer countries are, the more you trade with them. Generally, that holds true regardless of the institutional arrangements. Just finally on the Nissan case, we don't know what has been promised, but I think the key thing here is we shouldn't assume that UK car makers produce for the UK market. UK car makers produce for the European market. And that means it matters a lot whether there will be tariffs between cars that are exported from the UK to the continent. And that will also, I think, determine long-term decisions of car makers whether they continue to invest here. I think there are possibilities of trying to mitigate for some of this, but these possibilities are costly. State aides, for example, and then again you come back to the question of what is WTO compatible and what isn't. Thank you. Andy Wightman, you wanted to comment with a question. Thank you, convener. Following on from discussions about special deals, I note from four consultants paper that Edinburgh's economy is reliant on financial services to a greater degree than even London in terms of a European perspective, second only to Luxembourg. Given that financial service is a key export in the UK, what are the implications for the Scottish economy, particularly the Edinburgh and Lothian economies, of whatever deal might be reached for financial services? Do financial services have a different profile in Scotland that are likely to be less or more impacted upon by exit from the European Union or are they the kind of services that would benefit to the same degree as the city of London if it secures any special deals on the future of passporting? I'm wondering if Stephen Boyle has any comment on that. I'm happy for other guests, obviously, to comment who wish to come in on it. I'll do my best, convener. I don't carry those numbers around in my head precisely, but if I recall correctly, then exports of Scottish financial services to the rest of the UK are between 10 and 20 times the value of Scottish financial services exports outside of the UK, so the UK market matters to a considerably greater extent for Scottish financial services than does the non-UK market. My expectation would be that that is quite different from the position that would apply in the city of London, where the non-UK market is likely to be much more significant than it is for Scotland. Dr Zuleig wanted to come in now. I just wanted to make one point regarding a special deal for financial services. I wouldn't necessarily assume that there will be a special deal for financial services in London. I think we have to look at what the EU 27 might want out of these negotiations, and I think there is relatively little incentive to give competitors good access to the market without any kind of a gift from the UK. So if the UK does want to keep passporting for UK financial services, my question would be what is the gift going to be? What is it that the UK is going to offer because it is not going to be an easy right, in my opinion? I was just to reinforce Stephen's point about the make-up of the financial services sector in Scotland that is linked into the rest of the UK, and that is quite crucial. You can see that with things like the banks, for example, RBS, which is larger than being a domestic bank, the service to the rest of the UK is crucial. That is the same with a number of other big financial players in Edinburgh, Standard Life and so on, into the rest of the UK market. I guess that there is a second issue in there about some of the companies that are much more open and trading internationally create large amounts of GVA and turn-over, but in terms of large numbers of employment, it is slightly less than some of the ones that are more focused on the domestic side of things, so there is a distinction between the potential impacts on employment and by other measures. That starts to get into the point that Jackie Baill is making around what markets do you go for and Fabian is entirely right. We should not forget the fact that trade deals are important, actually a single market is important but proximity is one of the most important things. One of the big focuses for the Scottish Government in the future policy round is access and support and integration into the UK market and what it can do around support for growing expansion. If you look at one of the reasons why Scotland has struggled with all this in the past, it is about growing small businesses into medium-sized businesses, and access to your local market is actually quite crucial there. That is where access there is really important. Back to my point about the differences by sector, again, will be quite crucial. If you take a product such as whisky, yes, it exports a lot of goods into the European Union, but it exports a lot more globally, so there is something where it has opportunities to focus into other markets. If you take a product such as fresh fish, you cannot really export that to Australia, so a free trade deal with Australia is all well and good, but you are not going to export your west coast fish legustines out there, so there is an important point to think about all of that. The actual results will be determined by individual sector. Just picking up Gail's point about the data. It is easy to knock the data, and the data is not perfect, and it is based on surveys, but the numbers that we have for Scotland are the best that we have. They are national statistics. They are based upon questions to companies about where is your end market and where are you exporting to. It relies on companies knowing ultimately where they are exporting to, so I would say that, for the most part, they are pretty accurate about finding where the final export market is, where it becomes much more interesting and much more difficult to pick up or where you potentially might be part of a supply chain, so you are maybe part of an element that is going to the UK to then extend over into the European Union. I think that our modelling was quite carefully to look at the potential shock not just to Scotland but also to the rest of the UK, so if I am a firm in Edinburgh producing a good which is part of a supply chain going to a company in Leicester and then going into the European Union, understanding that supply chain becomes really quite crucial as well. We need to think about the potential impacts of Brexit not just in terms of exporters but actually people in the Scottish economy part of a much bigger supply chain that is actually into the European Union, so that becomes quite important as well. Right, I think that I am trying to just make sure everyone gets in there. I know Gordon MacDonald had a quick question on that followed up and then I will come to two of our guests, Jane Stewart and Jane Gotts. Sorry, Jenny Stewart and Jane Gotts. Gordon, just to build on Andy's point about the importance of financial services to the Edinburgh economy, recently Anthony Brown, the chief executive of the British Bankers Association, said that many smaller banks plan to start relocations before Christmas. Bigger banks are expected to start in the first quarter of next year and Mark Kerney, when he was asked last week in the House of Lords about this point, says that we are aware of the contingency plans at various stages of ready this at those institutions. I am just wondering what would be the impact in Scotland if there was starting to be relocations of some of the larger players? Is there also an opportunity for Scotland if we decide that EU membership should be retained? Right, I know Jenny Stewart wanted to come in and Jane Gotts and I do not know who would be best place to perhaps provide an answer to the question that Gordon has put into the room. I do not know Stephen Boyle, would you? We will move first to Jenny Stewart and Jane Gotts so that... Thank you. It was just to pick up on the points around financial services impact on the Edinburgh economy. As others have said, clearly there is a big distinction. Different parts of the financial services will be affected differently. 90,000 jobs depend on financial services in Scotland directly, with large amounts of those probably in retail banking. There is no single market effectively in retail banking between ourselves and the EU, so that will not be affected. However, on the investment side, there is a paper that has been produced recently at Strathclyde University by Owen Kelly, Chief Executive of SFE and Jeremy Pete. That goes into quite a bit of detail around the different elements and how they might be affected and who are more exposed to the UK versus the EU, so it might be worth looking at that. Just on the relocation point, there are contingency plans around for those based in the city of London. Is it worth... I might just explain the passporting requirement because it does pull out the point about... We've talked a lot about freedom of movement but freedom of capital and being able to invest in other countries. Effectively, what that means for the financial services institutions coming out of the EU is that if we don't get passporting, that means that they will have to set up subsidiaries in the EU, capitalise those subsidiaries in order to continue to provide services. That's the significant issue for them and therefore what impact, how they address that and what their ownership structures and so on ought to be. Clearly, there are potential relocation activities. It may be issues around headquarters but it might also be around particular groups of staff, so investment banking is more exposed. Therefore, it might be about how many people do we need to put in Luxembourg by quarter one next year to be ready to deal with that, so it's slightly more complex than just a headquarters point. Thank you, Jane Gotz. It was really just building on the point that Graeme had made on the statistics. I would agree with Graeme that the statistics that the Scottish Government produces in terms of exports is the best that we can get in terms of getting access from company information. It's interesting to note that despite the proximity in trade, Scotland's biggest market is the USA by over £2 billion between its nearest rival. We export £4 billion of goods to the United States. Our biggest market in the European Union, determined by the statistical information, is Holland at £1.9 billion. We know that a lot of that trade is going through Holland and then going out through the ports. It refers back to Graeme's comments about the final destination of our exports. The reason for saying that is to look at the potential impact on the Scottish economy of knowing in more detail, if possible, of who is generating, what companies are generating, the bulk of these exports. Is the USA primarily determined by USA owned businesses here in Scotland? That is information that isn't necessarily available, and I think that that would be welcome to understand any more potential risks and opportunities for the Scottish economy. The food and drink market has experienced over 12 per cent growth in exports to China, but that is growing for demand in terms of Scottish products that are at the very high end of the market. That is an interesting area that should probably be explored in more detail. How do we take advantage of growing economies, growing wealth and other markets throughout the world to say what are the niche Scottish products that could be going out to those markets? I am returning to Gordon MacDonald's point. My first observation would be that it is exceptionally rare for headquarters to relocate. Other than the event of takeovers, it is rare to see headquarters change where they are. I wouldn't expect to see much by way of the movement of headquarters either in or out as a consequence of that. Come on then to what I think is the nature of the tussle or the trade-off here. If you look at financial services to which you referred, then depending on the terms of the agreements that are subsequently struck, I would expect that we would be in a position for the costs of doing business from the UK would be higher than they are now, that the barriers to trade would be higher than they are now, and that that would cause some functions to leave the UK. Pulling against that are at least two factors. One is that there are very substantial agglomeration economies that businesses benefit from being in London in particular. The fact that you are part of a richer labour market and that you are part of an extensive supply chain means that the costs of going somewhere else are not negligible. That would be the trade-off that businesses are making. To the point that Jenny Stewart made, where a business to decide that it needed to be in European Union member states in order to conduct its business, I think that it would, among the options that it would consider, would be establishing an operation in that country specifically for that purpose, rather than necessarily taking its operation wholesale from London to the third country. Thank you. Dean Lockhart, did you want to come in on this financial point? It was actually another point. Right. I will bring you in in due course then. I think that John Mason has been waiting to get in with a new point. Okay, okay, another different point, yes. Although something has been touched already, I mean, we have talked about exports quite a lot, but primarily it was to go back to what Jenny Stewart said, touching on exchange rates, because I feel that that is something that has actually happened, the exchange rate has already changed. It strikes me that a lot of people seem to be very relaxed about this. So the first question is, well, if exchange rate goes down, does that automatically mean that exports go up? Can we just sit back and watch the whisky exports go up and up and up? What really is the impact? Jenny Stewart mentioned remittances back to other countries, which some people are living here and doing that. What happens but for an investment? Does that make it more or less likely that people invest in Britain if the pound has gone down and it stopped or is it going to go down? I mean, when I was younger, we laughed at Italy and Greece because their currencies were thousands to the pound. So I mean, it strikes me that an exchange rate is quite an important thing and it reflects the strength of the economy and creates an image around the world. I mean, people seem to be surprised that the price of tea is going up despite the fact that I don't think we grow any tea here that I've noticed. So of course the price of tea is going up and presumably the price of quite a lot of things are going up. And where are we going with that? Is that a factor? Clearly, the exchange rate and the fall in the pound has been very significant. A couple of direct implications from that. I think that people were surprised in the initial fall in the pound and then equities rose, so people didn't really understand why the stock market was going up when the pound was falling. However, what that reflected in a lot of cases was because, for a lot of companies, their income is denominated in dollars, for example, a lot of the oil and gas industry. Then actually a fall in the pound was pretty helpful to them and therefore share prices were going up. Absolutely clarify that. So if they sold a barrel of oil or something for so many dollars, that automatically meant that they got more pounds, so they hadn't actually sold any more or done anything? Right, I'm with you, right. So there's that impact. Clearly then there's potentially a positive impact on exports, although we haven't yet seen, in terms of the data, whether that's feeding through significantly yet, but that's important. The other is the impact on inflation, as you touched on so clearly, because we, as an economy, import an awful lot more than we export, then obviously if that, because of the exchange rate, then overall in the economy, the expectation is that that will then feed through into increased inflation and the Bank of England's inflation reports coming out in Thursday, but so far what they have suggested and others have said, well, we're sitting at inflation at about 1 per cent just now, it will potentially go up to 2.5, 2.6 over the course of 2017 and might even hit 3 in 2018, so the drop in the pound, that inflationary effect might take a while to come through, but then again it depends what the Bank of England does. The Bank of England has got their remit in monetary policy to impact is to target inflation, so there in a bind around, okay, we're keeping interest rates low, but equally we want to control inflation, so that's why the value of the pound is such a fundamental issue for the economy as a whole, but also for individual businesses. On the point of time scales that you said that's going to come through over time, is that partly because energy companies, supermarkets are buying ahead, so they fixed the price for a certain distance? Some of that, but yet other goods, it will be almost instantaneous, so we'll just have to see how that all feeds through. I think that Stephen Boyle, Dr Zuleig, Richard Marsh and then Dr Matthias wanted to come in, so perhaps in that order, if I ask Stephen Boyle to give his comments on this. On John Mason's point about the impact of the exchange rate reduction, so it's down about 15 per cent since the referendum, it's probably down closer to 20 per cent across this year as a whole, so there already has been a very substantial adjustment in the exchange rate, and let's assume for a moment that that was to be sustained, that there wasn't to be any recovery in that, then on the face of it, that represents a substantial gain, potential gain to exporters, that they can either take higher revenue for the same volumes or they can adjust their prices and take higher profits. There's another dimension to this, however, which is in, as Jenny Stewart explained, input costs are rising, and what we've already seen in the UK as a whole is a very sharp increase in input prices as a consequence of the exchange rate fall that's come through really quickly, so who wins and who loses in this context depends on the balance between your dependence on export revenues and imported costs, and there are some sectors like the drinks industry that have very limited imported costs, but very substantial export revenues that will clearly gain from this, and more generally the sectors that are going to gain look to me to be in the service sector, where imported inputs are not a big part of what they do, but they have some level of export. The losers look predominantly to be in the manufacturing sector because of the nature of supply chains, so you might be exporting, but you've actually got a substantial amount of imported input content. There are other types of winners and losers out of this as well, so again Jenny Stewart referred to what the average increase in inflation might be, but different types of household are affected in different ways by this change in the exchange rate, so if you look at where the input cost rises have been greatest so far, they've been greatest in things like energy, food and clothing, those are items that constitute a higher proportion of the spending of older households and poorer households than the rest of the country, so those are households that are likely to be disproportionately adversely affected. Final point very quickly, you might not see all of these points manifest themselves quickly, for example you might not see the change in imported export volumes because businesses hedge their currency risk, so they're protected against movements in the exchange rate for a period of time, anything up to a year or more. Thank you, Dr Zulaik. Just to make a couple of points on this, export performance depends on many factors and exchange rate is one factor, but depending on the sector it's very often not even the most important factor, it depends on a lot of other factors as well. You can see that very easily if you look at the experience we've had in Europe before we had the euro, you had a number of countries which periodically had competitive devaluations of their currency and it didn't solve their export problems certainly not sustainably. The other factor which is important is how responsive demand is, both demand abroad and demand in Britain to price, so if the price changes then will you get a big effect and generally at least on consumer prices there tends to be quite inelastic demand, so that means that the exchange rate loss which will be there will be passed on to consumers within probably a relatively short period of time. It's also important to note that volatility in itself imposes a cost, so it's not necessarily whether the pound is high or low, but if it fluctuates a lot it is very difficult especially for SMEs to deal with the costs of a fluctuating currency, so stability has a value in itself which I think we are going to see is still under threat because when you look at the exchange rate at the moment the exchange rate still moves predominantly with events in the political sphere, so whenever you have a consideration that Brexit might be harder you see a further deterioration of the pound, if people think there's a chance that the UK or parts of the UK stay within the single market then you see an improvement, so it depends a lot on the politics and whatever the final outcome is going to be if we are truly moving towards a very hard Brexit then I would expect the pound to fall even further. Thank you Richard Marsh. It was just a quick point. I think we're in danger of having a room with several economists all agreeing with each other, but it was just to follow up with Steven Wells' point. There is some data out there from the Scottish Government's input output tables which looks at the balance between what you export and what you import, so you can actually look at some of the winners and losers and do a quick list and towards the top it is absolutely, it's the food and drink type sectors with whisky at the very top of the table because it exports a great deal of its output and it uses the natural resources from within Scotland, so it just intuitively is potentially a big winner. Towards the bottom of the pile would be sectors around energy, as Steven's just said, but you've also got in there sectors like health and public administration that have quite significant purchases from outside of the UK in specialist equipment and plant. That actually exports very very little because it's public public services, but there's no particular, I think it was quite difficult to say whether Scotland would be a winner or a loser from this position, but what I'd note from the stats are there would be some significant winners within specific sectors of Scotland's economy and there would be some sectors that are going to have to source things from outside of the UK and the point made by Fabriant, they've got very little choice over this. It would require some fairly significant changes in the economies of Scotland and the UK to adjust supply chains. Thank you. Finally, Dr Douglas. Just a quick point. Much of what I want to say has been said, so I think that this just sort of reinforces the importance of better understanding where Scotland fits in global supply chains because we can't really answer this question of what the change in the currency, how it will affect exports and so we actually know what the global supply chains look like and can understand within sectors how those changes might play out. Thank you. Now, Richard Leonard had a question. I wonder whether any of our expert witnesses have got any examples of actually existing companies who are making contingency plans. I mean, Jenny's mentioned as early as quarter on next year, Fabian Zoolog talked about perhaps over time there would be a potential disinvestment. James Scott spoke about the extent to which some of the commanding heights of the Scottish economy are now foreign owned, which you would expect would lead potentially to a branch plan approach, a possible retrenchment, which also leads me to ask the people around the table whether they think that that now makes it even more compelling that we have an industrial strategy which looks at how we plug the gap in the medium-sized enterprises, how we try and develop the indigenous industrial base and become perhaps less reliant on foreign direct investment as a way of transforming the economy. Dr Zoolog. I think it's very difficult to say when the disinvestment will happen, but I would say that at least for larger companies, I would be astonished if there's no contingency planning. That would be a failure towards their shareholders if they're not doing some contingency planning at the moment, whether that means that they will plan to leave or not is a different question. But I think that in the long run we will see an effect on investment. It does mean that there will be more reliance on indigenous growth, how that can be best promoted, I think is a big question, both technically and from an economic perspective. The kind of industrial strategies we've seen in some countries have not worked particularly well in growing medium-sized companies, also for medium-sized companies. It is generally the case that the international market is very important. They are not just oriented towards the national market, so the question is if you look at successful countries like Germany with medium-sized businesses, they are very international, so the question is how you can internationalize those kind of companies. On top of that, I think there's a big question about what kind of industrial strategy will even be possible, both within the UK framework and in the WTO framework. There are big questions about what kind of instruments you could use and also what the response then would be from other countries that will very much react to the kind of industrial strategy that Scotland or the UK puts into place. Jane Gotts. Just to add to that, I think that it's too difficult a question to answer in this context, but it's important to have that blend. Scotland's been phenomenally successful in recent years in terms of attracting foreign investment, the best foreign investment outside of London in the UK in terms of attracting overseas businesses into Scotland, so that should always be a priority to try and maintain that. At the same time, look at where the potential gaps are in our economy, look at where there are opportunities for Indigenous businesses. The other thing to mention that we've not talked about—and it was John's point earlier about where the opportunities are—the tourism sector. I know that we mentioned it briefly, but with the drop in the pound, there is a huge potential to grow our tourism sector. Of course, it's a double-edged sword because we know that there are a lot of European citizens working within the tourism sector in Scotland. How do you manage a potential boom in tourism because of a falling pound at the same time as making sure that we've got enough people to service that industry? It's not questions that we can answer just now, but they all have to be on the table for consideration. Dean Lockhart, you had a question. Thank you, convener. It's a question for Dr Roy. Dr Roy, in your submission, you quite rightly challenged policy makers to examine the policy opportunities that may open up as a result of Brexit. I have two questions for you. First of all, with the report that you prepared for the EU committee a couple of months ago, am I right in thinking that this report only looked at three Brexit scenarios—the Norway model, the Swiss model and the WTO model—and did not take into account a potential upside coming from new trade deals with countries such as India, China and the US? The second question is, we've heard about potential opportunities across different sectors. For exports and different sectors across the Scottish economy, how can we best explore those opportunities going forward? I think that it is incumbent on policy makers to address both the challenges but also the opportunities arising from Brexit. What steps would you recommend that we take going forward as a committee to explore those opportunities? On the first point about the modelling, what the modelling does is look at essentially what could be the potential impacts from different trade models for Scotland and the UK in a post-Brexit world. We are quite clear that what it does is isolate what is the impact of Brexit. What is the implication of having less trade integration with your largest international market? That is what it does, and that is essentially the modelling that we do. You are entirely right. You then get into things like, okay, what might be the potential policies, what might be the different things that could flow from that? The reason that we do not model that is that there is no clarity about what Brexit will be, let alone what policy opportunities might come from that. We need to put it in context with that as well, so it is entirely possible that we could have trade deals with other countries outside the European Union. We have to put those numbers into context as well, and it is entirely possible, and it is ways that you could potentially improve trade into those countries. However, if you take somewhere like Australia, for example, where we know that there have been hints and stuff about potential trade deals with Australia, it is just supposed that we would increase our exports to Australia by a third. That would be equated to less than 2 per cent of total exports to the EU, so yes, we can get trade deals with our countries, yes, we can expand there, but we have got to put it in context just to the relative size. The second point, and it has been touched on a wee bit in the questions here, is that there is quite a difference between something like a single market and free trade deals, or trade arrangement with other countries, because what a single market gives you is a level playing field to have that trade as well. It means that there are rules to stop exploitation of workers, it means there are rules to harmonise product regulation, etc. Yes, you can enter into a trade deal with China, for example, but what might be the worker rights in China for goods that are being exported into the UK? Would you want to enter into a trade deal with that? What might be the implications? We have seen all the challenges around TTIP and the potential concerns that people have had about American companies coming into public services. Your point is entirely right and entirely correct, and that is what we are encouraging people to start to think about. It is okay if Brexit happens and we know that it is going to introduce headwinds to growth rather than meet growth enhancing. What are the potential policy opportunities that you can do to mitigate the worst of those effects and to look at potential opportunities to do things differently? You have to start to get creative to think about what policy levers have the Scottish Government at the moment that it could do things differently, what potential policy opportunities might come from greater devolution that might come down the line. If we are prevented from having VET or excise duties in the past because of EU regulations, what could happen if those were to be devolved to the Scottish Parliament? What might you do differently if you have a greater suite of fiscal powers? What might you do with the powers that come from agriculture? That is when you have to put those opportunities in context. Even with all those things, Brexit will still be a headwind in growth. However, the reality is that, if Brexit is happening, you start to have to look at what you do about changing policy in response. Thank you very much. In your blog earlier this week, you mentioned that we should not let Brexit overcloud everything else. Some of the challenges facing the Scottish economy have been there for years, and I welcome that. Do you agree that, while Brexit is a possible headwind, there are structural issues in the Scottish economy that we need to deal with and that have been there for years? I agree with that statement apart from the phrase that Brexit could be a possible headwind. I would probably say that Brexit is a headwind, but you are entirely right that the structural challenges that we have had in the Scottish economy around our internationalisation, the growth of small to medium-sized companies, have always been there. Brexit is not going to help to address that, but it is an opportunity to take a fresh look and a frank assessment of how we start to address the structural challenges that we have had. Before I bring in some of our guests, I would like to give Ash Denham an opportunity to ask. That was a question about long-term implications and short-term implications, and I will try to bring in the rest of our guests as we come to the end of our session. Thank you, convener. It may be that my question has been partially covered, but I just want to reflect as well. The Fraser of Allander group this into short-term considerations. We have seen newspaper headlines in the last few weeks crowing about the predictions of economic doom that, where forecasts have not quite come to pass. Obviously, we have already touched on the sharp fall in sterling, which probably would fit into that category. The Fraser of Allander quote that they have put in regarding this is that we should be wary of expecting to see any immediate changes. I suppose that my question is that, even though we maybe have not seen the full impact of Brexit come to pass yet, that does not mean that it is coming. I am wondering if you would reflect on when you think that we might see some more impacts. Short-term challenges are really quite complex. If you speak to most economists, there is a relative consensus about what the long-term headwinds of something like Brexit will be because the stuff that we have spoken about today around trade, investment, access to skilled migration, etc. What happens in the short-term is much more complex, as we have heard about companies that tend to wait and see what is happening. They tend to be driven in the short-run very much about today-to-day supply and demand things, so what their orders are like, what is happening to interest rates, what is happening to the exchange rate in the short-term. Those are things that dominate very much in the short-term. There are lots of things happening on the positive side, which will help boost the economy and lots of things that happen on the negative side, which will turn out to be more difficult. If you look at what the average of forecasters are saying about the outlook for the next week while most people think that the economy would be slower in 2016 as a result of Brexit because of the uncertainty the data that we have had so far. I would caution that and say that it is what we have got so far. We have only got the first three months after the referendum. A lot of it is based on model data and so on, but putting that aside, the data that we have got has surprised on the upside, but most economists are predicting that the real challenge will come in 2017 and 2018. That is when the decisions on investment start to kick in. If you made a decision to invest in 2016, you are unlikely to throw everything out immediately because you will wait to see greater clarity. What is the next decision? What are your expansion plans like? They might be cooled slightly, so you would expect to see things beginning to trickle through more into next year and the year after. That is why, in our forecast, we are thinking that 2017 will be slightly more challenging for Scotland in 2016. Most independent forecasts, if you look at the ones that the Treasury produced, are talking about 2017-2018 being slightly more challenging than 2016. The key thing with that is about what happens to inflation. We know that inflation has risen up to 1 per cent. Even in the Bank of England's report in August, they were talking about inflation rising to 2.4 per cent in 2018. That really starts to kick in about household consumption and what it means for households going forward. I will just pick up one really quick aside about that. Stephen made the point really well about the impact on different households. One of the things that we have not spoken about is the potential impacts on the poorest households. We know that they typically face the highest increases in terms of food prices, energy prices, etc. When you start to think about what might happen in autumn's statement about what is the future outlook for welfare, we know that a number of benefits plan to be frozen is at higher inflation. That makes the challenge to people on welfare benefits all the more difficult. A pay award in the public sector of 1 per cent is challenging, but when inflation is 0.5 per cent, it is still a real-terms increase. If inflation rises to 2.5 per cent, that pay award of 1 per cent suddenly starts to become much more difficult. That is when you start to see the potential challenges coming through to consumption, not just investment, but actual consumption in 2017 and 2018. If we just talk about specific helpful measures that either the Scottish Government or the UK Government could do in the short term, so the Bank of England currently has cut interest rates and the Scottish Government has launched its 500 million growth scheme. Is there anything else that any of our panellists would like to suggest? Perhaps we could answer that question as part of our response. I think that Jenny Stewart wants to come in. Perhaps you could address that question as part of your closing remarks, as it were. We have talked about the short term when packs not being as significant on business investment. There is so much that can still change. We are looking at reduced improvement next year, so those are changing. Interestingly, the forecast for 2017 has gradually been shifting up a little bit as more positive data has been coming through. Originally, in the weeks post-Brexit, people thought that the UK economy, the consensus was about 3 to 5 per cent for next year, whereas now the consensus is hovering about 0.7 to 0.8 per cent for next year. If we continue on relatively positively, then that has a good starting place for next year. On the business investment, I was going back to Richard Stewart's point about that. I do not want to give the impression that it is suddenly going to fall off a cliff. Businesses will be thinking through things. They will be making contingency plans, but we will have to see what happens going through, particularly the autumn statement, will be impacting. On other points, I just wanted to throw in that you might want to consider. We have not talked much about skills yet. Clearly, that has been a significant issue in the Scottish economy. We have some significant skills gaps, which may be made worse by Brexit, particularly around construction, but also around looking forward. We touched on the digital agenda and technology, so that might be something that the committee wants to look at. We also have not touched on the higher education sector at all in the discussion so far. It will potentially be significantly affected by the freedom of movement issue, because, as I understand it, something like 16 per cent of staff and 25 per cent of researchers come from other EU countries. As a sector, it is certainly worth looking at, because it contributes significantly to the economy. What is important to emphasise is that it has not happened yet and that it is not scheduled to happen for two and a half years. The effects that we are seeing are anticipation of what people are thinking, not the effect itself. The effect itself will only be felt after Brexit has happened, and then it is a long-run dynamic effect, which I think is much more important. It is the interplay between innovation, between freedom of movement, between foreign direct investment. All of these will play together to have a long-term, in my view, significant growth reduction effect on the UK as a whole. At the moment, there is still quite a bit of speculation that there will still be, for example, parts of the UK still in the single market. There will still be questions around passporting, etc. If that does not come true, we will see a further effect, because, as the markets start to anticipate a harder and harder Brexit, the bigger the costs are going to be. That is, I think, what we would expect going forward. I think just one other point on what the committee should do. I think one of the issues which tends to be neglected a bit in this discussion is the relationship between the UK and the rest of the world. Not the UK-EU relationship, but what actually happens in foreign trade. There is a huge potential. Certainly, there is a very high uncertainty about what will come afterwards, and there is a huge potential for damage in that. The question of assuming that there might be free trade agreements with all these places around the world, that might be the case, but that is quite a big ask to negotiate. It takes a lot of time, and it will require quite a lot of giving up on the UK side to actually get trade deals with these places. If you look at something like the trade deal which the EU has just concluded with Canada, it is a huge book. It is 2,600 pages, because that is the big difference between being in a single market where you can have a level of paying field or having to negotiate access on every individual point. That is a huge area where I think the UK Government needs to be pressed more to say what are the contingency plans for the day X, which is the day after Brexit happens, because all of the current trade deal and the schedule of the EU will no longer apply to the UK on that day. Dr Margulis, perhaps you could also address the question of what the Scottish Government could be doing about this at this stage. I just want to echo how much of a Herculean task it is going to be for the British Government to not only renegotiate its trade relationship with the EU, but also with all the existing 50 countries that the EU has, and the EU's preferential trading agreements with that that the UK currently enjoys. What we are looking about is a safe estimate several decades of just renegotiating the current access that the UK currently enjoys. The idea of upside down the road, we are talking decades away, because the reality is that the UK has not negotiated a trade agreement since the late 70s. It has no capacity to negotiate these agreements. The reality is also now that it is a much smaller economy. It does not have the leverage and negotiations it did have as the EU, so when it does strike new deals, they are likely to be not as good as the deals that currently has. Nobody is getting in line to sign trade deals with the UK. It is not that important of economy globally. It is not the country that most other nations are lining up to trade with, so I think that there has to be also some realism of where the UK sits in the global picture. In terms of long-term things that the Scottish Government can do, I think that it is really important to start a consultation process with stakeholders across sectors to get a better sense of what their concerns are and also identifying the kind of measures that will need to be put in the interim just to replace the types of supports or benefits that the UK currently enjoys under the EU, which might disappear when it leaves. These are things like agricultural subsidies or state aid. It cannot assume that it is going to be able to use the same things going forward. It is an interim measure of figuring out what kind of mitigation capacity it does have. In a very narrow sense, I think that one thing that we can do is stop obsessing about Brexit. I say that for this reason. What Graham Roy's work and his colleagues' work shows is that, at its heart, Brexit presents a growth challenge. It makes the growth prospects of Scotland's economy poorer than the otherwise would have been. However, we have been on a journey for a long time to try to improve Scotland's rate of growth, and I think that that just provides a further stronger justification for doing that. What does that mean in practice? Above all, it means that, on the side of government, at the margin of continuing to change the balance of spending when decisions are being made towards investment, which means that they are away from consumption. That is difficult to do, but investment will pay off in terms of longer term growth. Specifically around dealing with the narrow or Brexit-related issues that arise, my judgment would be that, if we have, for argument's sake, a fixed pot of money that we use for the purposes of promoting internationalisation, that money is more productively likely to be spent in future in export promotion than it is on the attraction of foreign direct investment. I think that we will wind up there, because we are at the end, certainly, of the time that is available to us, and we would not want to be accused of obsessing about Brexit. Thank you very much to all of our guests. I will close the session there.