 Hello, and welcome to the 17th meeting of the Economy, Jobs and Fair Work committee for 2018. I remind everyone present to turn off electrical devices so as not to interfere with the work of the committee. Item 1 is a decision by the committee to take items 4, 5 and private. Are we agreed on that? I think it's actually items three, four and five. Are we agreed on that? Yes. Thank you. Now today we continue our inquiry into European structural and investment funds and we have witnesses today with us whom I'd like to welcome at this point. I should say to you that the microphones will be operated by the sound desk. No need to press any buttons. If you want to come in at any point please just raise your hand or indicate to me that you would like to do so and don't feel you need to answer every question and also if you want to put in further evidence in writing after today's session please also do that if you feel you haven't been able to cover a particular point. So today our witnesses are starting from my right moving across the panel. Professor John Bachler, head of European Policies Research Centre at the University of Strathclyde, so welcome to you. Then Linda Stewart, director of European and international development at the University of Highlands and Islands, welcome to you as well. Robin Smaill, EIPA visiting expert, consultant on regional economic development EU structural funds. Last but not least, Professor Steve Fothergill of Sheffield-Hallum University, so welcome to all four of you this morning. If I might begin just by asking a question about an aspect that I think touched on in the submission by the University of Highlands and Islands, it's indicated that what is said, the principles and aspirations behind planning for current allocations of ESIF funds were well intentioned, but then you in that paper it goes on to say, unfortunately in practice many of the original aspirations have not been realised. A small number of SI's gradually expanded into a much larger number, putting a strain on delivery mechanisms. So coming in perhaps and put in question to Linda Stewart first of all from that, those comments, just how have other EU countries and regions allocated, managed, spent and reconsidered their own funding arrangements and how can we learn from that perhaps? Especially we've seen that the EU itself, the funds have become more perhaps bureaucratic or restrictive since roughly 2000 and we've heard that from others. Would you like to perhaps first of all come and comment on that? Thank you convener and thanks very much for the invitation to come and speak about this area which is obviously crucially important to all of the key organisations across Scotland looking forward. This area is a huge, huge challenge and I think listening to the evidence that was given last week members will be fully aware of some of the very difficult practical problems that are around in delivery of structural funds. Looking back to the development of the current programme, I was involved in that as indeed I was involved in the previous three programmes and we were very much aware at the time about 2012-2013 looking to put the new programmes together that there had been very serious issues, a number of mistakes, interruptions and suspensions of the programmes. There wasn't always a very good alignment between national and EU policy which led to problems with match funding so we did actually collectively, there was quite a good process at that time involving key stakeholders across Scotland and looking at the new plans. We looked very carefully at what are the options, how do we maintain some of the good aspects that had been developed in the 2017-13 programmes, for example the concept of the strategic delivery bodies which did deliver very well to a certain extent. Looking very carefully at what was happening elsewhere as well, at that time in the University of the Highlands and Islands we'd done quite a lot of work with, for example, University of Corsica on their ESF programme and how they used and there were some interesting transnational aspects of ESF use that we looked at carefully. We also did quite a lot of work with some of our partners in the northern Scandinavian regions, for example Academy Noir in the north of Sweden, and looked at how they could, as a starting point, say what are the big ticket issues that we really need to address and then look at how do we actually do that. We also looked very carefully at what was happening south of the border. We were involved with Yorkshire universities in a study that was done at the closure of the 2017-13 programmes doing precisely that. What has worked well, what hasn't. There were a number of issues that came up through that. We'd also done very careful analysis at Highlands and Islands level working on a partnership basis and carried out quite a comprehensive lessons learned analysis of what had worked well and what we should be maintaining. Putting all of that together, there was a very good understanding at the very start of the 2014-20 programmes, the current programmes, on the need to be more strategic, the need to be much more aligned, the need to look at some of the implications for match funding if we don't get that relationship working properly and the need to say, wait a minute, the money that comes to Scotland through the four ESF funds is significant in itself and for the work that it does, but it's only a relatively small part of what's happening elsewhere with other policy initiatives. Looking carefully at what we needed to do, I do believe, even now, that the concept at the very start of the current programmes was correct. Looking at a small number of very targeted strategic interventions and looking at the role of the national organisations, in our case it was the Scottish funding council who have overall responsibility for further higher education and research and their role in administering a part of that programme for those purposes. I think thereafter is when some of the problems began to arise. I can speak about these just now or I don't know if that will come up in some of our later discussions, but the starting point was sound and it was informed by what was happening elsewhere. I was just wondering whether there are specific points that you could summarise that you took from studies in Sweden and so forth as to how things are dealt with differently in other European countries that we could learn from or apply, so perhaps very briefly before I come on to Professor Mathleon. Briefly, I would say that the number one priority was getting the partnership right, getting the right mix of partners who are literally stakeholders, who have a stake in making it work, who have a shared understanding of what the objectives are and are prepared to work together to make that happen. If there are problems in process or systems or whatever, being able to get together and collectively address them, I would say that partnership was the key lesson from what was happening elsewhere. And we don't do that in Scotland or haven't been doing that? I think that we set out with the intention of doing that. I think that the system has become overly bureaucratic and it perhaps doesn't allow that. It's taken the focus away from what are we trying to achieve with what do we need to do to satisfy the requirements of the process to great an extent. If we look at why we have the structure or the approach that we have at the moment, it's driven by a number of factors. Firstly, there's been a steady reduction in the amount of funding coming in. Secondly, there's been increasing administrative complexity in the management of the funds. Thirdly, there's been a pressure on reducing the errors or the problems with the management of the funds. There's been a greater pressure to improve performance. Those have driven partly by the regulatory framework and partly by our own experience. Essentially, we have progressively centralised the management of the funds and rationalised the architecture, if you like, for implementing them. There's a logic to that, and we're not alone. We can see a similar process in Sweden and Finland, for example. In the current period, there has been a rationalisation of the administrative structures and the number of programmes. That's not the case everywhere. In some other countries, like France, there's been a trend towards greater devolution and decentralisation in the country. As Linda said, the changes that have been made have been well-intentioned, but looking in a historical and comparative context, we have lost a valued element of partnership working in the arrangements. We've lost a degree of challenge that was built into the system because of the range of partners that were involved in implementation. Again, looking over the longer term, we've lost a degree of innovation and experimentation in our approach. If we look back to the 1990s, early 2000s and a very different context in funding, Scotland had a reputation for pioneering the use of structural funds, particularly in areas like community development, evaluation and equal opportunities, and a number of other areas. The pressures of the complexity of administration in its broadest sense have, perhaps unavoidably, pushed us towards the current model. Whether Brexit had come along or not, there would be an opportunity now to rethink where we would go from here. I'll move on to questions from Andy Wightman and the other members of the panel who will no doubt come in and follow up with some of these things as we progress. I'm interested in the fact that, in England, there are 39 subregions. Are those a managing authority, or is it just for clarity? I'm not sure on the exact terminology, but de facto, the leps do take the decisions and oversee the funding in each of their areas. The fact that there are 39 separate local financial allocations in England really distinguishes the English situation from the Scottish situation, where you've really effectively got two allocations, one for the Hounds and Islands and the other one for the rest of Scotland. Within that rest of Scotland, which is a very big and diverse area, you really don't have any specific targeting at the poorest areas. Whereas you do in England, it really is quite strong targeting, I've got to say, with some areas on a per capita basis receiving five or ten times as much as the most prosperous parts of the country. Why is there such a distinction between the way that Scotland and England have done it? My Scottish colleagues will probably know better on the distinctive Scottish situation, but outside the Highlands and Islands, all of the Scottish subregions fell into the same statistical category for European purposes. The money that the Scottish Government received for that area bundled into one single programme and managed as a single programme. That wasn't an option in England because of the sheer diversity across the country. I think that's correct. Of course, in England, during the labour administration, there were regional development agencies, and they were scrapped with the coalition Government coming in. The regional development agencies, if I'm not mistaken, were the principal vehicle for the delivery of structural funds programmes. I'm not sure if they were managing authorities, but they were working with a regional strategy in most cases. With the abolition of the English regional development agencies, the local enterprise partnerships came in. I don't think that they are the managing authority. I think that they would be classified as intermediate bodies who carry out many of the functions of a managing authority. As in most member states, managing authorities are usually a department of state and ministry, but they will frequently use other ministries or agencies or quangos who will act as intermediate bodies on behalf of the managing authority. They then hand out the grants, the funding to the beneficiaries, and the beneficiaries can be a great range of organisations who, in turn, can hand out the funding to, ultimately, recipients who might be companies, individuals or organisations. I'm just wondering, looking to the future, and we'll come on to discussion about what the future might like, but working on the assumption that there continues to be a fund broadly of this character, the shared prosperity fund, do we need to have more regional targeting in Scotland? I know in the Highlands and Islands that there is frequent criticism levelled at the fact that Inverness gets a lot of money and Inverness doesn't need it, whereas a place like Skye and the Western Isles and parts of our Gael arguably do need regional funding much more. Linda Stewart. If I may come in there to address those points. It is a notoriously difficult balance to get in all of this. Going back to the start of the current programmes, there was some value in having a single Panscotland programme for ESF and a single Panscotland programme for ERDF, but then you've got to look at how that's administered, look at the governance for that, beneath that single programme. Yes, there were some advantages in our ability in the Highlands and Islands as a transition region, knowing that there was ring fence budgets to be able to look at funding allocations, but there wasn't sufficient control over how we would prioritise, how we would actually deliver. I think that looking forward, and again we'll come on to this in more detail later on, I think that it's doing a bit more work on getting that balance right, between having shared national strategies that we're working towards, but the ability at, and yes, I would agree, perhaps a more granular level across Scotland, Highlands and Islands, as far as it goes that the strategy was good, because you're absolutely right that there's a continuing tension about a lot of the funding coming to Inverness. The partners are very much aware of that across the Highlands and Islands and do have very, very robust discussions about that, but also looking at, if I take just one very, very quick example, back to the objective one days, so much money was invested, ERDF money invested in Inverness airport, but thereafter there was the ability, because you were bringing business, you were bringing tourists and a lot of investment up to Inverness, you were thereafter able to develop the regional airports and spread that benefit right across. I think that it's developing that kind of approach that we need to be looking at going forward. Professor Barclay. Thank you. I think that one important factor that we have to take into account is the extra conditions that have applied to the use of funding, EU funding in this period. Firstly, there's been the principle of thematic concentration, where in the Highlands and Islands at least 60 per cent of funding had to be spent under ERDF, has to be spent on innovation, information communication technology, SME competitiveness and low carbon, at least 80 per cent in the low land and uplands area. Secondly, there's pressure to spend through the what's called the decommitment rate of view, commit funding but don't pay it out, you lose it. Thirdly, what's called the results orientation, the pressure on performance that you sign up to certain outputs at the start of the programme and will be held to account for delivering those. If we add to that the bruising effect of the experience in the last period with suspensions and so on, I think that at least one strand of thinking within Scottish Government was, let's show that we can deliver the programme well, that we can spend the money, that we can do it in line with targets and that we meet the principles of thematic concentration. Where are the projects coming from in terms of innovation, for instance? There's also thematic targeting with respect to education, skills, poverty and inclusion, particularly as far as the European social fund is concerned. The context for this period has been much tighter constraints on those who are responsible for managing and delivering the funds. You're really arguing or suggesting the reasons why there's been very limited scope to have a better regional approach within Scotland? There are a number of factors domestic in terms of the architecture that we have in terms of economic development and domestic architecture, but those factors coming from the external environment from the regulatory framework and experience, I think, were significant. The four reasons that you outlined there, are they important factors to take into account in the design of any new scheme? Yes, I think that there are opportunities to rethink some aspects of the constraints that are potentially less relevant, such as the decommitment rule that is particularly designed to deal with problems in countries such as Italy and maybe central east in Europe. There's the question about whether we want the same degree of thematic prescription that we have had on an EU-wide basis. There are questions about how we manage performance. I think that all of these are—I'm not saying that we want to scrap all of these, but there's an opportunity to think, well, what are our domestic priorities? What has been the experience with administration of structural funds? There are a number of important principles that we can perhaps come on to that we would certainly want to retain, and a lot of the position papers that organisations in Scotland and elsewhere in the UK have put forward have advocated retaining certain principles. I think that we have an opportunity to rethink some of the principles that I was talking about in terms of thematic concentration, performance management and decommitment. I think that Professor Fothergill and Robin Smale wanted to come in, so perhaps first of all Professor Fothergill. Yeah, if you see the role of the European funds or indeed the successor to the European funds, there's been about improving the performance and the economic well-being of the less prosperous parts of not just Scotland but Britain as a whole, then you'd expect some geographical targeting, and within that area, that part of Scotland that isn't the highlands and islands, there's a huge diversity. I believe that the GVA, the output per head in the Aberdeen city region, is around about 135 per cent of the UK average, whereas in the Glasgow city region it's only about 90 per cent of the UK average. If you were using the funds to try to bring up Glasgow, you would expect some distinct targeting of the funds on the Glasgow city region, but that's not been happening, as best I can understand here in Scotland. As I said earlier, in England there is a much greater targeting of the funds to less prosperous parts of the country. Thank you, convener. You did ask the question about how are other European countries doing it. I would definitely repeat what Professor Backler and John's observations were about how concentration centralisation has taken place in some of the smaller, better-off EU member states. As their level of funding has gone down, there has been a natural progression back to centralisation of programmes. The larger member states, of course, Germany, Italy, France, Spain and Poland, that they still have regional programmes. Each programme has a strategy and an approach to what they are going to do within that region. The region is varying in size from probably a million, no more, up to £12 million, £15 million, Nordrhein-Westfalen, £18 million. There is a huge range of sizes of regions that can have a regional programme. You always have to ask yourself what level of territorial or geographical distribution do you want to have. Personally, my experience tells me that we have a good size programme here, which is £5 million or so, not to say that there shouldn't be sub-regions. There are studies coming out of the EU and the World Bank recently, which is highlighting the huge regional disparities and sub-regional disparities. It is a growing problem. It is noting that cities and secondary cities are the powerhouse of most wealth creation. They are creating 40 per cent more GVA than the hinterland areas around it. You go to some member states and the problems of rural areas are massive, absolutely massive, not least just because of depopulation. Their recommendation, of course, is to have targeting as appropriate within the regional programme, within whichever level of programme you choose. They are recommending things like identifying very clearly what are your strong endogenous assets, what sectors are the sectors that you need to develop, and how do you introduce new technologies to those sectors? They are recommending the use of smart specialisation strategies for sub-regions and finding what is your competitive advantage. More than anything, they are highlighting the growing disparities. John Mason wants to come in with a follow-up before we move on to questions from Jackie Baillie. I am a wee bit unclear what you are saying. On the one hand, 5 million people are saying that that is quite a good size to take Scotland as a whole. On the other hand, you are saying that there is disparity and that we have traditional areas such as Fife, parts of Ayrshire and Lanarkshire, which are clearly in more need. Are you saying that we should target or should not target? I am saying that because I do not want to miss the opportunity. I do not know if, convener, you are going to come to this question, but I have spent about 25 or 30 years looking at different EU programmes. I have to say that the Scottish programmes and, indeed, British programmes generally are exemplary. They are really amongst the best in terms of their strategies, their strategic alignment, their design and structure, their application of the partnership principle, their project selection mechanisms, their delivery mechanisms, their measurement of progress and success, their evaluation practices. British programmes and Scottish programmes, frankly, have been amongst the best in most aspects. What I am saying is that, in my experience, it is a sensible level to have a regional strategy and a strategic approach at a geographical area of 4 to 6 million. It works well. There is a lot of evidence that it works well. Within that, you, of course, need to identify subregions and subregional problems, as well as local problems, as well as community problems. That is what your strategy is for, to decide what will your priorities be within that economic region. I will come to Professor Foddigill and then to Jackie Baillie. I was genuinely surprised at what you were saying. Somebody who, maybe 20 years ago, used to write and manage ESF and ERDF projects did not feel so good from where I was sitting. Can I pick Linda Stewart's presentation up a little bit further? The criticisms of the operation of ESIF—things such as overly bureaucratic, lacking flexibility, changes to eligibility criteria—were all around when I was writing ESF applications. I am interested in the learning journey that UHI has been on. You have talked to universities in Corsica and Sweden. Was that for the 2007-13 programme, or was that the 2014-20 programme? I am keen to know how we finally get the practicalities and the nuts and bolts right in any future shared prosperity fund. I would thank the member. That is a very interesting question. How do we bring things together? Certainly, the work that we did looking at the preparation of the current programmes, we used our UHI experience of working with other partners across Europe, picking up some of the issues that Robin has just outlined there, but also looking with partners across Scotland. Remember in the early days, there was a very, very good consultative approach to developing the 2014-20 programme. There is a lot of very, very good detailed discussion about how we would approach that in the early days. We also looked at some of the options that were coming up from the commission itself on simplified cost options, how you would use unit cost methodologies, flat rate costs, other new options that were there, and spoke to people in other member states who maybe piloted some of those. We had piloted some of those during the 2013 programmes in UHI. A lot of very, very valuable experience on the advantages that some of those new approaches would take, but some of the pitfalls as well. There is not a magic wand answer to all of this. I think that looking at the nuts and bolts side of the administration and management of the programmes, there was a lot of potential there. As we have seen, I do not know if we want to go into this in more detail or not, there are current problems over that. Overwhelmingly, I would wish to say that those are practical problems that need to be addressed and for which there are solutions. Let us not lose sight of the incredibly good work that ESIF has done across Scotland, particularly in the Highlands and Islands, since the 1990s. The long-term strategic planning approach, particularly the partnership working, has delivered really well for Scotland. Let us fix the relatively minor issues where we can and get something even better next time around, whether we are looking at a shared prosperity fund or whatever other mechanism we are faced with. As John said earlier on, even if it was not for Brexit, we would have been looking at a substantial change at the end of the 2020 period anyway, and there would be a need to address some of those issues and look at perhaps a substantially different approach in the future. Professor Foddigill, you are interested in coming in on one or two points. Sorry, I just wanted to pick up on what was said a little bit earlier about the size of the units through which you allocate or manage European funds. In England, a lot of the units are as small as half a million people. That is probably the size of around half of the 39 LEP areas. To put the Scottish situation into context, if you take that part of Scotland that is not the Highlands and Islands, there is a population there of four and a half million. There is only one programme area in England that can exceed that population of four and a half million, and that is London, which for obvious reasons is going to be a single programme area itself. Every other allocation in England is for a smaller geographical area than in Scotland. I think that Professor Bartler wanted to come in on your question, and then we will come back to Jackie Baillie. I just wanted to pick up on a couple of points. First, I would be perhaps less complementary than Robin Slane at the experience of the UK's track rocket. If we look at the evolution of structural funds in the UK and in Scotland, we have seen more chopping and changing, more institutional change than in any other member state. We have lost serious institutional memory, and it has been at the expense of stability and a long-term approach. Stability is not always positive, of course, but nevertheless. Where I would agree, though, is that the administrative capacity below the member state level and particularly at subregional and local levels has been excellent. It has been the partners, if you like, that have provided the consistency in terms of the administration. On Mr Mason's point about the different levels, I think that we are talking about both levels. At national level, as the OECD research shows about the regional challenges that are facing Europe, there are issues of intensified globalisation of technological change and the impact of AI. Those are nationwide issues for us, and there was a rationale for having a strong strategic approach from the Scottish level. There was also the impact of Brexit, which is unknown, but potentially in terms of the deal that is reached or not reached, the kind of trade arrangements that are met. You could see very profound sexual impacts across Scotland, which will have spatial consequences, and I think that there is a need for a strategic role. However, there is also scope to rethinking the subregional, the subnational approach that we take. We have the challenge of ensuring that our cities are drivers of Scottish competitiveness. We have the challenge that parts, particularly of our cities, have entrenched social inclusion, so we have very local entrenched problems of underemployment and so on. We have problems outside the city hinterlands, outside the city travel to work areas, particularly of small towns and rural areas, which have suffered from the loss of major employers, where we have problems with the retail sector collapsing because of the withdrawal of banks, closure of post offices, closure of major stores and so on. There are multi-level approaches that we need to be thinking about. Can I come back to one key partner, the voluntary sector, who was giving evidence to the committee last week and was quite critical of the approach being taken, which does not shine with what you are telling us? I wonder how well you think the voluntary sector engages with managing authorities and whether there is a need for change there. Equally, I am very clear that I think that for the 14-20 round there is a degree of clawback going on just now, principally among the voluntary sector. It is quite a high percentage compared to previous years. There is also the danger of underspend in the 14-20 programme, and I wonder whether you think that that is potentially a problem for us as we move across to new arrangements. Who would like to go first, Linda Stewart? I will start off with a few perhaps more specific points there. I am aware of the problem generally across Scotland and, as you would expect more specifically, in what is happening in the voluntary sector in the Highlands and Islands. Undoubtedly, there are difficulties there. There are a lot of challenges around the complexities of the bureaucracy just now. Again, I think that you went into that in quite a lot of detail last week, so I am not going to rehearse the same lines again. That has proved difficult for all partners. It has certainly proved difficult for my own organisation. We run a large ESF programme on developing Scotland's workforce with the funding council totaling some £30 million over the duration of the programme. We have had huge problems primarily around just how long the process has taken us to get to the stage, which has had a knock-on effect on spend, on hitting targets and on the synergies that we had originally anticipated. I am aware of the problems. We have been fortunate in that we have had a good working relationship with the Scottish Funding Council to address them. It has been hugely frustrating. It has taken longer than it should have done, but collectively with them we have been able to work with the managing authority and eventually get to a reasonable operational point now for that major programme. If you are a small voluntary sector organisation without that kind of resource, without necessarily the historical knowledge and understanding of how the programmes work, it would be substantially more difficult to address some of the challenges there. I think that that needs to be picked up. Perhaps on a plus side, if I am allowed to be positive here, there has been a lot of serious talking done over the mid-term evaluation of the ERDF and ESF programmes. The managing authority has recognised to an extent a lot of the difficulties that it is putting forward a number of solutions that I think will help, including more regular lead partner meetings where they can discuss the kind of operational programme. One of the major drawbacks of the governance in our current programmes is that there was very little in-between the joint programme monitoring committee, the very high-level Scotland-wide strategy discussion, and what was happening on the ground with individual organisations. There are moves afoot to improve that. However, I think that it is incumbent on beneficiaries, whether that is a voluntary sector or my own sector, or whatever, to grasp that and say, right, okay, guys, we really need to have that detailed discussion, and we need to make sure that there are mechanisms to have that kind of bringing issues to the table and working together until we can find the solutions instead of a very protracted system of putting in typically email complaints about things. It's put to one person, it's put to another, it's put to another, and by the time you eventually come to some conclusion, even if it is a positive conclusion, then there's other problems that have amassed in the meantime, which has been one of the heart of some of the problems that we've had in this first phase. Let's grab the opportunities that are here in phase two to try and sort things out while we can. We absolutely, just to finish, we absolutely need to avoid the level of decommitment that we've had this last year. That's a given. We need to look very carefully at what the implications for the performance reserve, for the programmes at the end, and we need to look very, very carefully at just the missed opportunities that are there if we don't get our act together right now. I'm particularly interested in pursuing whether people think that we're heading for an underspend and what the implications lie with that for any future funding. Anybody? Sorry, Professor Fordigo. Just take that one because I've been talking to the civil servants, certainly down in London, about this. At this stage, the financial commitments in this particular spending round are running at roughly the same sort of level that they were in the last spending round. In fact, they're slightly ahead, I understand. Financial commitments are different to outturned spending. Outturned spending lags a long, long way behind in the process. If you look at the figures for the present spending round 2014 to 2020, you will find that only about 10 per cent of the money that's been allocated has so far been spent, but the alarm bells shouldn't ring because of that because, in practice, the spending comes through well behind the commitments, in fact, well into getting the money back from Europe. It comes very last of all in the process. I wouldn't yet ring the alarm bells, but I think it's something that needs watching, if you know what I mean. Briefly, perhaps, Robin Smith? I've got the figures here because you can access progress at the member state level on the open data platform of DG Regio's website. As Steve says, the UK, in terms of commitments to approved projects, is the third best performer in the EU right now. We've earmarked a lot of our spending. We've earmarked nearly 60 per cent of it already, which is good. We are only at the average in terms of actual spending on the ground, that is, the beneficiaries using the money on the ground. We're only in the middle of the pack. It doesn't give you, unfortunately, the breakdown by programme. One has to look at the annual reports for that and so on. I'll bring Professor Bachler in. I'm just conscious of time, and there's quite a number of committee members who want me to get in with further questions. Perhaps briefly, Professor Bachler, and then we'll move on to a question from Fulton MacGregor. Yesterday, I had a look at the comparative figures for Scotland relative to the UK and the EU. As Robin Smaill says, Scotland, in terms of the commitment to funding, is up there with the EU average and even ahead in some respects, as is the UK as a whole. However, in terms of actual payments, in terms of spending and paying money out, we are at about a third of the EU level, so we are at half of the UK figure. It might not be the case for pressing the panic button, but I think that there are some issues. Fulton MacGregor. Thank you, convener. Good morning, panel. My question is actually, I'm sorry, a lot of the issues to do with regional variations have already been teased out with the other speakers, and I think there's been quite a good discussion on it. Perhaps I could bring it together before the convener will move on to another line of question altogether by asking a direct question. If the panel think that the current programme works for the regional areas of Scotland, the diverse regional areas of Scotland, I'd be happy for it any order. Who would like to come in on that? Yes, sorry, so just that the various regions of Scotland, rather than the two, is already in the fight. I think that I made that news clear already on this. There is a distinct lack of targeting within Scotland, in that sense that the way that the system is established at present is not working as well as it could work. Certainly, yes, I would back that up from a Highlands and Islands point of view. I think that a lot, as we touched on earlier on, a lot of the potential is there looking at high-level strategic input on sub-regional level to the Highlands and Islands with our allocation of transition region funding and some of the particular aspects off of the John outline earlier on. One of the problems, I think, is that there isn't this mechanism to say, right, what flexibility do we have to address specific problems at sub-regional level? I know that we have had a fair amount of challenge doing that across the Highlands and Islands and just briefly to pick up on the previous point, we have very strong alarm bells already ringing about current levels of spend. They are troubling in Scotland as a whole and we can see the evidence of that in the decommitment levels last year. It is even more of an issue in the Highlands and Islands and unless something is done to address this, I think that we will be in the same position going forward. That is why I think that there is an urgency in dealing with this. We do need to look very carefully and this again brings us into your question here. Make sure that it is not just the strategy but the delivery mechanisms beneath that allow for flexibility to spend money on regional priorities in a way that regional partners are able to do so. I know in the Highlands and Islands that it is not that we have a lack of projects or that there are issues around match funding but that often is not the definitive factor, it is that the mechanisms do not allow us to bring those projects to the table and deliver on them within the current structures. If that is an issue for us in the Highlands and Islands, I think that the point has already been very well made that we need to look at greater granularity within the LUPS region and what is happening across there because there is huge diversity across that region. It is difficult to look at how you deliver with an approach that is just pan Scotland. Professor Bartlett? In terms of assessing or concluding whether it has worked or not, we will have to wait until we can get some serious evaluation, particularly because money being paid out is still at a relatively low level and we are only partway through the period. Potentially at a national level, in terms of the strategic objectives of the programme in terms of improving innovation, ICT, small-firm competitiveness, low-carbon skills, I think that each of those has different experiences in terms of take-up and spend, as we can see from the annual implementation reports. However, the likelihood is that there will be significant evidence of effectiveness at national level. The question is whether it is effective at sub-national level, particularly at local level and the degree to which local authorities and other partners are in a more responsive mode. If we link that to the hollowing out that there has been of local authority capacity over the last decade and the capability for driving strategic change at local level, I think that there will probably be some questions about that, but we will have to see the evidence. Fulton, did you wish to come back? I just wondered if a problems with me was going to cover that. You really made me think that I am not so close to the Scottish situation as I used to be when I was working with Scottish Enterprise because I have been on the continent for so many years. Our problems would not be alone. I cannot answer your question, but I do know that in many other parts of the EU there are problems of engagement of certain sectors. For example, if one is talking about the most deprived communities and accessing helping people with the most serious problems, that is an issue everywhere. There is a tendency for the programmes to recruit, if you like, or provide funding to those who are most likely to come forward to participate in courses. It is called creaming, whereas you take the cream off the milk and try to achieve your results in your initiative. They look quite good because you have really gone for the people who are most likely to come in for help anyway. Going for the hard core is a challenge that I was hearing most recently—Poland, Latvia, Hungary. It has been the same in Belgium and the Netherlands. That, as an example, is a typical challenge right across the EU. Is it because of our approach, our strategic approach or the administrative structures? I am not close enough here to say that. There are other examples like that of perhaps where, right across Europe, as I said earlier, I think that actually helping certain communities, certain sub-regions is a challenge right across the board now. I do not think that there are any—there are obviously wonderful cases, case studies that you can get from other member states. I am sorry to hear that there have been delivery problems in Scotland because I stand by what I say is that, in my experience, since being in DG Regio as a national expert in the early 90s through to now is, our programmes are relatively good. I have a quick follow-up, convener. I thank all the panel for their responses, but it is in relation to targeting and I represent a fairly deprived area of the country. I am asking whether you took the Cote Bridging Crisis, for example, in my constituency, you would say that that is a deprived area. You could target for that specifically. However, in that, you have some quite affluent areas of Cote Bridging Crisis. I am asking how we target within even smaller regions to make sure that, as you mentioned, you are getting the wrong group. I know that that might be opening up a full new discussion, and I appreciate that we are quite short on time, so I just want to answer. Sometimes the best way to help a very specific small area such as Cote Bridging is not necessarily to target all your energies on Cote Bridging, because regional and local economies are sent to function at a subregional scale. Sometimes the best way forward is to grow the wider area in which Cote Bridging is located, so I would be thinking of west-central Scotland there. It is the failure of the European Funds at present to specifically target the less prosperous subregions in Scotland, which, to me, is its great shortcoming. When you are looking at training programmes where you do target individuals rather than businesses, there is clearly perhaps a more compelling case for going in hard in some of the most deprived communities to try to get below the cream, as Robin has put it. Professor Barclay? I think that it is interesting that, at the start of the current period, the European Commission was particularly concerned about the Cote Bridges and others in a similar situation and concerned that structural funds were being strategically designed and spent at too high a level. It made provision for what it called the integrated territorial provisions in terms of the jargon, integrated territorial investment, community-led local development. The Scottish Government decided not to go that route and use those because it argued that there were domestic opportunities that could be used. However, if we look back now at the early experience of using the new integrated territorial provisions across Europe, it has revitalised new approaches to sustainable urban development, particularly at the level of towns, neighbourhoods or communities. There is quite a lot of interesting new thinking that has been going on, which I think that we can learn from, regardless of Brexit, and are potentially particularly relevant for your constituency and others. I think that we will move on now to Colin Beattie. References have been made to the shared prosperity fund. Ideally, when should that fund be put in place? In the lead-up to it being put in place, what should the process be to establish it? What sort of consultation should take place to determine how it is going to operate? Who would like to start? Professor Foddigol. I think that what we need is a fund that is operational from 1 January 2021, so that there is no hiatus between the ending of the existing structural funds. Even though we are likely to leave the EU in March next year, our access to the structural funds will trundle on in terms of making new financial commitments. It will trundle on right until the end of December 2020, and we want a seamless transition. We have got rather longer to make that transition than we first thought was going to be the case, because we did think that March 2019 was going to be the cut-off. In terms of the process to get there, my understanding is that the Westminster Government is going to launch a full-scale consultation exercise. It was a commitment in the Conservative manifesto for the last general election to launch such a consultation. The civil servant's current expectation last time I spoke to them was that that consultation exercise would probably be launched in the autumn of this year. We have quite the time to develop ideas, to plant ideas, even before the consultation exercise starts. I suspect that when that consultation does emerge from the Westminster Government, it will not be of the form of, well chaps, we have got an issue, what do you think we should do. I think that they will already be formulating ideas as to what the post-Brexit world might look like, and they will be tabling suggestions. They will be halfway there by the time we get to autumn. The timing of this inquiry is exceptionally fortunate. If you can say something on the issues on this side of the summer break, it will perhaps help to shape what emerges in that consultation exercise from the Westminster Government. Professor Barclay? I think that we have three separate issues about the future of funding arrangements after Brexit. The first one is policy, one is money and one is institutional arrangements. The policy one is fundamental and we haven't really started to consider that. One concern is whether the consultation will be sufficiently policy led that opens up where is it that we want to go, even if there are transitional arrangements in order to get us to somewhere more, which involves more fundamental reform. The second question is money. The crucial to that is what kind of indicators are used for the allocation of funding. Scotland did exceptionally well in this period, with probably about 40 per cent more than it would have got with an application of the EU funding formula, as did Wales in Northern Ireland, pretty much at the expense of England. There were some important political questions about allocation mechanisms, and the third question is institutional arrangements. It's been presented as a UK-wide shared preparatory fund at the moment. The question is how will that work in terms of the devolved administrations and, below that, city authorities or city regions, local authorities and so on. I suspect that, when it comes to money, what will be critical is to ensure a degree of continuity so that there are no sudden breaks. We know from research that sudden breaks in the allocation of structural funding or in other funding streams can be really damaging to regions. We have seen that in South Yorkshire, for example, with its downgrading of EU funding status. However, there are some important principles that we should think about building the design of a shared prosperity fund around. One is, as I said, devolution or decentralisation. A second is multiannuality, that there is a predictability, that it is not going back to the sort of days of annual budgeting. The third is partnership, both national and subnational, but also horizontal. We might reinvigorate and address some of the problems that we have been talking about today. Integration, in other words, is bringing together different funding streams within a common framework and accountability in terms of transparency and openness. There are some guiding principles that we could potentially think about. What is it that we would want to keep from the structural funds experience? Just to pick up on a couple of points, the previous two speakers have given us the key issues that we need to be aware of. On your issue of when we need to look at putting in place whatever is to replace EASF, whether it is a shared prosperity fund or whatever mechanism it is, there is a real urgency. John mentioned the danger of hiatus in funding. Even if we were not looking at a very different situation that is likely post Brexit, we would be putting a lot of pressure on now to say, could we start having those conversations about what comes next? There is always a substantial change at the end of one EASF funding programme to the next, likely, if it is going to be more of a change this time round. It takes time to develop that kind of new approach, particularly when we are looking at substantial changes. We need to look at particularly bringing in more of the partnership approach. Whatever we put together is not going to work unless the people who are going to be involved in delivering it, who are going to be taking responsibility for it, the beneficiaries, are fully bought into it and are able to deliver some really important things there. On the policy issue just quickly, for the Highlands and Islands, the reason we have been able to develop that entire region since the 1990s is a direct result of the EU territorial cohesion policy and the recognition of regional disparities in that policy. Some of the areas and the specialised aspects that we have mentioned before, but I know particularly in the Highlands and Islands, we will still be sparsely populated, we will still be remote rural, we will still have about 94 inhabited islands, there will still be structural issues that are there post Brexit no matter what. We will still have opportunities, for example in marine energy, looking at 10 per cent of Europe's wind energy up to 25 per cent of the wave potential there. So we are not just saying that we are going in with a begging bowl, we are saying with the right kind of help that we can contribute here and I think that we have got to get to grips with similar issues right across Scotland when we look at what we are planning, that is going to take time and an important point about the consultation, it is now that we need to start addressing some of these issues, I do not want to be in a position where we do get a consultation out and it is just, do you agree with this or do you not? We have got to start influencing what is going to come up, the shape and the direction of travel before it comes to consultation, so an awful lot of changes but if we get it right, we should be able to develop something that will maintain the benefits that we have had in Scotland from east of over many many years but maybe address some of the procedural and system issues that we have currently. So big challenge but worth going for. Consistently we have been hearing reference to overly bureaucratic processes in flexibility. Is there any indication that Westminster has taken that aspect on board and might be prepared to look to addressing it? If you take the Conservative Party manifesto at first value, I mean quite clearly, yes, they are promising a new fund that will be less bureaucratic and easier to administer but there is no detail as to how they are going to do that but the intention is there, absolutely. Perhaps relying on a political manifesto is the best way to go forward on this. That is the only Government statement at this point in time. That is all we can work from. As best we can tell, ministers have not yet progressed their thinking very far, if at all, beyond what was in the 2017 manifesto. Is not a bit disappointing because we are talking about a consultation starting in autumn. Shouldn't they be some way down the line already as to developing their ideas? You might have thought so but, on the other hand, given that in December they stitched up the divorce steel, which in the sense postponed D-Day on all of this from March 2019 to December 2020, I think they have taken their foot off the accelerator a little bit on this issue. I do not think that we should be waiting for these papers. Scotland should be, as Linda says, working with its regular partnership now. The partnership may need to be extended, tweaked, but this is the time to be working up a Scottish economic strategy or a Scottish national development plan or our part of the shared prosperity fund. The consultation takes place, the drafting, the ex-anti-appraisal, which will take place in the next year or two, and that should be in place ready at the beginning of 2021. Obviously, we have a very different model to that of the English setup. Steve seems to be rather enthusiastic about the local envelopes of money. It is vital that Scotland maintains its strategic approach at that level, where it can also devise local envelopes to subregions as well. My own calculation suggests that the net contribution that the EU makes to the EU would fully finance the funding for the shared prosperity fund, replacing the easy funds. The money is there, whether the UK Treasury is prepared to hand that money over is quite another question. I think that they will be clawing back a substantial proportion. Therefore, you will probably be working with a lower level of funding. If you have a lower level of funding, you will have to select what you do more carefully. I think that it is extremely important that the strategy is well worked out. Working on the continent, as I do mainly, the Scots have to think about what distinguishes us from other parts of Europe. Where are we seriously lagging behind? Why is our rate of economic growth not as high as it should be? Why are we not dealing with problems of deprivation in the way that we might do? We really need to get to the nuts and bolts of that. What strikes me, above all, is the lack of vibrancy of the private sector or the size of the private sector relative to other parts of Europe. It is about investment, the size of the company base and start-ups. Perhaps it is about the nature of deprivation and the mobility of people across social classes, if I dare to use that phrase. We need to choose carefully because when you have a budget pressure, you need to select carefully what your priorities are. I think that Robin is accepting defeat on the size of the fund before we have fought the battle. What we should be asking for is a UK-shared prosperity fund that is worth at least as much as the European funds that we receive at present. In practical terms, allowing for the inflation that we have had over the past few years, that means that we need to be asking for a UK-shared prosperity fund of at least £1.5 billion a year. If we do not get that sum, we are facing cuts in real terms and then we all face problems. It is going to be a lot easier for everybody in all parts of Scotland if we can make sure that that overall UK financial envelope is of the size that we need. Robin is absolutely correct in saying that the money is there in the Treasury. It is not money that the chancellor has to find. It is money that he will no longer be handing over to Brussels and therefore will have available for domestic spending. There is already a line in there in the Office for Budget Responsibilities financial estimates into the 2020s for UK domestic spending in lieu of EU transfers. The money is there. I will move on to Gillian Martin now, who may pick up some of the things that have been said in the whole session. It is quite clear that we are saying that we want the funding level to continue at the same level or above. That seems to be clear, but there is a concern that Scotland has punched above its weight in getting access to the European structural funding and that there is a nervousness that that might decrease. In taking that, what should Scotland's regional and local allocations go forward in the shared prosperity fund? Could you be in place procedurally to ensure that, for example, you talked about Aberdeen in Aberdeenshire—I am from Aberdeenshire—and you mentioned that GDP is high in Aberdeenshire, but that is money that a person earns and that does not necessarily go into the infrastructure of the area. You just have to look at Union Street to know that that is not the case. There are pockets of poverty in Aberdeen city and rural poverty. That cannot be a measure, because then we would not get anything. So, what do you see going forward? That would protect Scotland's success in this way, but we would also take into account some of the things that you have mentioned around the granularity. Can I come in here? I have been doing some hard numbers-based work on potential allocation formulae. In fairness, I have been doing this with Malcolm Leitch, who you had in front of you last week from Glasgow City Council. We have been experimenting with certain numbers and looking at how that would work out in terms of allocation between the different nations of the UK and how it might work out if those formulas were applied to local areas. I have got to say that the conclusion that we have reached on the division of the funds between the four nations of the UK is that you cannot replicate a division that is at all similar to the present division of funds unless you get into some very convoluted statistical manipulation. I will not go into details as to why that is, but it is to do with changing the relative prosperity of certain English sub-regions that have slipped down the rankings and, therefore, other things being equal get more funding. That said, I would not give up on the idea that Scotland could or should get anything like the present share of a UK pot of money, because what I also detect in conversations that I have had with a number of civil servants—I am sorry, I keep coming back to those conversations—is that there is a great sensitivity, certainly at civil service level and I suspect also at ministerial level, to this basic division of funds between the four countries. There is a recognition that to engage in reallocation in terms of shares between the four countries of the UK would potentially invite a political backlash, not least from here in Scotland. I recall what happened last time round in plotting the allocations for 2014-20. I remember, as John has said, that there was a thought that, if you followed through the logic that was being deployed in Brussels, Scotland would get rather less money than it has got. I remember full well sitting across the table with Nicola Sturgeon, who had this brief at that time, and she said, we are not having this, and she expressed that point of view down to Westminster ministers, and they caved in. The real changes in the underlying economic geography of the UK have not been truly fundamental over the past few years, so there is a case for saying why don't we simply roll forward the present division of funds between the four countries into whatever follows with the shared prosperity fund. Beyond that allocation to the four countries, there is then a further issue of how do you construct formulas that allocate sensibly within the countries. We have come up with something that works on that front, certainly it works in England, but the primary issue in Scotland is to lay down a marker. The share shouldn't be reduced because the economic fundamentals—Scotland against England, against Wales, against Northern Ireland—really haven't changed that much over recent years. That's why Scotland has been successful at getting European structural funding, because of some of the things that Linda Stewart has mentioned—the issues around population disparity, islands, terrain, geography. That's brought a ring-fen spot of money into Highlands and Islands, which is a relatively small component of Scotland as a whole. Scotland, as a whole, would have received less in this present spending round, had the Scottish Government not dug its heels in and said, we're not wearing this. I've got to say that the approach of the Scottish Government was enormously helpful to us in Northern England as well, who did not want to see a diversion of funds to more prosperous areas in the south, because we were able to build on the Scottish precedent and say, if that's good enough for them, then it should be good enough for the north-east, north-west Yorkshire, etc. It was a huge step forward. The European Commission will, in fact, two weeks yesterday, be publishing its proposals for the formula for allocating structural funds in the next period from 2021 onwards. It's going to take optimistically at least 18 months and possibly two years to agree a set of indicators for allocating funding or determining the spatial eligibility of regions and determining what funding goes to those regions. We've got an increasingly complex formula involving GDP, unemployment, employment, population density and other indicators, and potentially now it's going to include migration, innovation rates and so on. We would potentially have the same issue at UK level if the UK Government were to say, we'd like to develop a new indicator system for the allocation of funding either at local level or between the nations of the UK. Potentially the most partly politically astute but perhaps most productive way approach would be to say, we're going to take the current structural fund allocation as our starting point, either continue that or have equivalent cuts of 5, 10 per cent or whatever it is across the board, and then within each part, within each nation, there would be certain principles about how that funding should be allocated, but that funding would be determined by the Scottish Government and the Scottish Parliament in Scotland. The principles would be that it has to target territorial inequality and a series rather. It has to potentially take particular account of poverty, of skills deficit, of innovation deficits and so on. To me, I think the issues that we should be thinking about in Scotland are twofold. The first is, while funding is important and the allocation of funding is important, there's a high-level question about why do we want a regional policy, how important is territorial equity? We haven't had that discussion really since devolution and we don't have a regional policy as such, a coherent regional policy as such. If we look at the contrast between regional policy in Scotland or in the wider UK and other European countries, our discussion tends to be primarily about economic efficiency, about productivity, about innovation and competitiveness, whereas the foundation stone for regional policy in many other European countries is about social justice. It's about the right for people to have equal opportunities to equivalent living standards, for example. In many cases, that's constitutionally laid down as an objective. How important is territorial equity in Scotland? In other words, it's a question that we should be addressing. What's the relationship between the economic and the social? How do we want to translate that into practice? There's a danger of thinking about funds and schemes, which is the classic UK Government approach of thinking of schemes and funds in the instruments, rather than what it is that more broadly we want to achieve. Again, if we want to learn from our other European counterparts in the Nordic countries, regional policy is not a scheme, like regional selective assistance, it's a framework that a range of policies education environment transport industry contributes to. Then there are the institutional arrangements about how do we want to co-ordinate this very diverse mix of spatial initiatives that are evolving city regions, for instance, and regional partnerships. The framework for it actually comes to Scotland and then is obviously devolved to regions. That comes on to the next thing that I was going to talk about. You've been critical, but it lacks flexibility. Talking about my region again, of course, we just had a big economic shock. The oil price plummeted, lots of people lost their jobs, people who've been doing very well for 40 years all of a sudden had no orders coming through their doors. Do you think that there should be a responsiveness aspect that's maybe missing with the current structure to economic shocks, that that could be built into a framework if it was resided here in Scotland? John has outlined quite thoroughly the sorts of qualities a replacement fund should have, the importance of the multi-annual aspect of it. Multi-annual finance for multi-annual problems rather than just the annual funding round, the partnership principle and so on. It's interesting to see that the local government association in England, the COSLA in Scotland, have been asking for the fact that we have an opportunity here as well to make things more flexible. We don't have to follow exactly the audit rules that currently exist for structural funds. We don't have to follow all the rules on N plus 3 necessarily, although it might be a good idea. Of course, therefore, you could have even a sub fund that is dedicated to crisis situations. That fund exists in the EU anyway. There is a lot of discussion about how best it is dovetailing with the ESF fund. There are a whole host of issues that you could design yourself taking advantage of the framework that exists already, all the benefits of that, but making it more flexible and more targeted, addressing our specific needs. Yes, I agree with that. I would echo a lot of what John has said about the way forward. I may be aware of time to pick up on a couple of the specific points that the member raised. You have hit the nail on the head when we talked about what we are measuring and how we are going to do that. On how we measure success and what the indicators are for a future replacement of ESF, that is absolutely fundamental. Once you have that in place, you can look at the formula for how you are allocating funding, how you are going to prioritise within that and so on. I think that it has been largely acknowledged certainly in Scotland in previous similar discussions that GDP itself is far too blunt an instrument to do that. We need to be bringing in other indicators as well. We need to get to the heart of the whole regional policy questions that John mentioned there. What are we trying to do with regional policy? Are we looking at equity for opportunities or are we trying to do something else? You just need to look at some of the city deals that are doing some excellent work in their own right, but that is quite distinct to how we have approached regional policy through ESF in the past in Scotland. Again, I mentioned some of the issues around the Highlands and Islands and the dangers of losing territorial cohesion policy approaches, recognising regional disparities as such. A place-based approach is going to have to be part of the mix that we do here, so that we are identifying not just the challenges that we have at regional level but the opportunities as well. Partnership has to be fundamental to this and to pick up on your Aberdeen experience there. If we look back to 2014, the place of ESF and what it was doing to support the Aberdeen in the north-east economy was completely different to where we are at now with the changes in the oil and gas sector there. There needs to be a system and again, this is one of the opportunities that we have looking forward. Having an approach that can be more flexible, that can be more responsive to changing circumstances. Within that, though, there were so many benefits of what we have had in the past on a longer-term, strategic six to seven-year programme so that partners are able to plan ahead to look at what might happen in that time frame. It must be place-based, but let us not lose sight of the urgency to have some of these much more detailed discussions. Just to finish, time does not allow, but when we are looking at ESF, we should be incorporating what is happening with the fisheries and agriculture funds as well. How that is changing in the future is going to have a massive impact right across the whole of Scotland. That conversation needs to be quite broad, but we really need to get a move on with addressing some of those very serious issues, or it will have missed another opportunity. A follow-up from Jamie Halcro Johnston and then John Mason. Thanks very much. It was just a quick one. I am very glad that you brought the fisheries and agriculture having come down from Orkney today, and we are certainly in the Highlands and Islands. There was mentioned about the Nordic examples, but I was wondering whether there are examples out with the EU that we could be looking at regional policy. It is something that we should be incorporating in terms of looking further at the shared prosperity fund. I mean, apart from Norway, which I have already mentioned in the Nordic context, I think that there are some interesting developments going on in Switzerland where there are some similarities in terms of areas with sparsity of population, remoteness, particularly in Alpine valleys, but they have been forging a new regional policy, which draws on some EU experiences but is adapted to Swiss federalist circumstances. If you are following some aspects of the debates that have been going on in other countries, which is about thinking more flexibly about space, the economic and social development problems that we have do not follow territorial boundaries. To think about in the jargon sort of place-based policy approach, which is that you think about where are the territories that are affected by particular challenges and then you design and those may cut across subregions, local authorities or whatever and design, if you like, a bottom-up approach to the policy responses, drawing very much on communities and local knowledge while having top-down objectives. That is a different way of thinking about geography but also about the institutions that you need to respond to that. Again, less top-down, less prescriptive, more flexible. That is where, without the constraints of European construction investment funds and all of the conditions and administrative obligations, we could think quite radically about how we might like to change. I think that Switzerland is one of the countries that has very much tried to do that. We can provide more information, if you are interested. It has taken them to develop on that, whether it is an on-going process or... It is because it is very much an on-going process because the Cantons very jealously have protected their constitutional responsibilities, but it has certainly not been easy. It has taken them about eight years and it is still evolving. Briefly, Linda Stewart and then John Mason. Very briefly, another interesting example is the work that we have been doing with other Hines and Islands partners recently with the Canadian institutions. Similar issues around sparsial population, island regions and so on. What is interesting is that it is the same conversations and challenges, but I think that there is so much benefit in having those conversations. Just briefly, to bring us back to EU partners, there has been so much interesting work done on that issue of territorial co-operation through the interreg programmes, particularly in some of the work that is going on just now with Irish partners north and south of the border. I think that that needs to be part of our future planning, what is going to be happening with the interreg programmes. There has been some huge benefit there. There is obviously the cross-border programmes with Northern Ireland and the Republic. There are wider political issues around that in the peace programme, but on the ground through the interreg cross-border programme that West of Scotland shares with those regions, there has been some terrific good cross-border co-operation going on there, so let us make sure that we do not lose that as well. Building on some of the things that Gillian Martin was looking at, I am looking at Professor Backler's table in your paper on page 7, it is called table 3, which shows how the money is split up between around the UK. I am interested that the UK average is £172 per head whereas Scotland is £169, so we are actually below the UK average at the moment. Wales appears to be the big winner with £788 per head, so that is quite dramatic. Tying that in with the industrial communities alliance has suggested that the south of England might be arguing for more money as a part of the region. Is that argument based on their need has increased relatively and therefore they want more money or is it just because they only get £33 per head and that does not seem very much? Professor Backler, do you have anything about where the EU is going? If we adopted the EU proposals for the next four or five years, how would that affect this table and how the mix is shared out? The table that you are referring to is in euro rather than pounds, but your basic point applies. It is very much driven by the EU's methodology, which maximises the aid intensity in what are called less developed regions. Wales has benefited from West Wales being a less developed region and South West England from Cornwall being a less developed region. There are indicators in terms of the regional gap in terms of GDP between those regions and the EU average. There are premiums related to the number of unemployed people that come into play. I can provide a breakdown of the formula, but there are also caps, safety nets and ceilings that have had an influence on the allocation. That is to the UK, but it is based on regional situation. Would you agree with Professor Fothergirl's point that we are not going to replicate this, whatever happens, that kind of split is not going to be replicated? Not at this level, no. If you also look at table 7 in the same paper on page 11, you can see the way that changes in GDP per head would potentially impact on the eligibility of different regions. For example, under the current system, Highlands and Islands would no longer be a more developed region, but South West Scotland would become a transition region. That is a very academic exercise, but we would not have the same map now using the same indicators that we would have had from 2014. In terms of the future, we now have the European Commission's proposals about the amount of funding that is going to be allocated to cohesion policy, particularly structural funds, for the next period. That is, on average, a cut of between 6 and 7 per cent, depending on how you calculate it, and the likelihood that there is going to be a requirement for member states to co-finance more of their share of the funding, probably particularly in the richer countries. That is the global budget, if you like, that goes to the policy. What we do not know is the allocation formula. We have been told that while GDP will remain significant, there will be new indicators relating to potentially innovation or migration that have been particularly designed to benefit those countries who are receiving a lot of migrants, such as Germany, and penalised countries such as Central East York, which have not. We also focus more on some of the broader EU policy objectives, such as innovation and climate change. That would again benefit the south and the east broadly in general terms. Particularly because the southern Europe did badly relative to its problems of unemployment in the settlement in 2013, it is likely that there is going to be a certain shift in funding to the southern member states. The question is what happens to the more developed countries. The thinking at the moment is that they will still be part of the policy, but they may be facing cuts of up to a quarter of a third. Except that it is not a definite. There is a bit of a bizarre at the moment in Brussels trading information, which we will not know until the presentation. That is great. We are living in the European Union. I cannot see the Westminster Government in planning the new shared prosperity fund trying to replicate what would have happened if we had stayed in the European Union. The issues of what the fund is spent on and how it is allocated across to the UK are not going to be driven by decisions taken in Brussels. Of course, people in the UK regions may look over to Brussels and say, well, that is happening there, why is it not happening here? I am not sure that argument will necessarily cut too much ice. Let me clarify the point that you were saying that I was arguing that it is not going to happen that present division of funds. It is not going to happen again. What it was saying is that if you try to recreate that division of funds using statistics, it is very difficult, if not now, and it is impossible to get there. It is very different to saying that that division of funds cannot happen again, because that is fundamentally a political decision. Presumably, would you accept that the UK Government is going to come up with some system that measures things? On that basis, it will not happen again. It will only be if it does not come up with a system like that. No, I think that there will be two levels to this. One, there will be a high-level political decision about the carve-up between the four countries of the UK, which is not at the end of the day driven by numbers. Then, certainly within England—I cannot speak for Scotland, within England—they are likely to come up with some system for targeting those funds at the areas that they want to support, which historically have certainly been the weaker local economies. The Scottish Government will presumably have quite a lot of leeway within broad UK guidelines to design its own internal allocation formula. We have talked this morning about the amount of bureaucracy involved in EU funding. Last week, there was a call for a need to simplify the management of funds, etc. Given that there is very little detail regarding the UK shared prosperity fund, we are obviously at the opportunity to hopefully influence UK Government thinking. How do we get the right balance between maximum impact on the ground of that funding and ensuring accountability? I think that that is our big challenge. It is to work on getting that balance absolutely right. We mentioned before about the opportunities to simplify and want to be good in a new programme of whatever nature to look at simplification. We were promised that we would simplify the system in the current programmes. To an extent, new simplified options such as unit cost models were brought in, but, by and large, very little was discarded. The same level of having to evidence activities, complexities and uncertainties around what is eligible and compliance ended up being even more complicated. I think that there needs to be a degree of being ambitious and perhaps looking at the opportunity to say, okay, this is public money, of course it has to be accountable and transparent, but we have lots of very good systems in place across Scotland in any case. Again, look at my own sector in education and innovation. When we fund students at whatever level, further or higher education, we have very good methods for making sure that the student is eligible for that funding and that the money goes to that student as is required. Why are we trying to add extra layers of bureaucracy on top of that when we don't need to? By all means, when we have decided what the indicators are, if there is some extra information that needs to be captured, do that within existing systems instead of trying to build something else on. I think that that is the big opportunity to look at that, but it absolutely needs to be in light of what we are actually wanting to do with the funds. That is what really matters, what we do with the funds and then find an acceptable and accountable method of delivering and spending the funds within that. Briefly, as Linda says, simplification has tended to mean more work for the member states. It has been simplification for the European Commission, which is perhaps normal as they are finding themselves streamlined. There are obviously a number of features of the current system that we may wish to let go of. As I mentioned earlier, there are the audit requirements and probably we will just follow UK audit standards and procedures rather than follow the EU's setup. With respect to financial control, most EU countries have found the process of management verifications to be a huge burden. That is to say, checking all the expenditure of projects that are submitted to authorities. This is something that may be simplified if we understand that the audit results in the UK and Scotland are satisfactory. The automatic decommitment rule may be common sense. You may wish to continue with that. A lot of member states are, according to the EU, guilty of gold plating. That is to say, adding all their own eligibility rules, eligibility of expenditure rules on top of the EU's eligibility of expenditure rules. Clearly, the UK and Scotland will have its own eligibility of expenditure rules anyway. Requirements for things such as public procurement procedures are one of the greatest sources of error in EU programme expenditure. We will no doubt continue with the legislation that exists in that field, as we will in state aid, I imagine. We will devise our own rules on things such as revenue generating projects, which again have been a source of error and challenges across the EU. How you achieve impact, on the other side of the coin, is about identifying your priorities in the strategy, identifying those areas where you have an opportunity to generate new wealth. I referred to certain areas where I felt that we perhaps need to focus on more than we have done in the past, such as greater efforts to expand the company base, greater efforts to encourage start-ups and support start-ups, which, according to a recent Post Office survey, Scotland leads the UK in terms of start-up survival rates after five years. We have very fine delivery mechanisms in this field. Checking that one is achieving impact would be to devise our own system of monitoring, similar to that used perhaps in current programmes, but not the same. We are good at devising indicators. We are good at monitoring those indicators, checking that we are achieving certain results, and we are good at evaluating the impact of our policies, and we should be continuing to do that. The UK and Scotland are good at administering the various schemes and projects that we have placed. Is there any countries abroad that, if we were to try and cut the bureaucracy that we could learn from? Yes. What is important is that a lot of the problems with EU funding are that in every country there is a domestic system for economic development, and then we have the EU one. We have parallel circuits of administrative practices and rules that somehow have to work together. With the removal of the EU regulatory requirements, the default is what we are doing anyway. In areas such as financial management and control, in areas such as audit, in terms of monitoring, evaluation, communication and performance management, we have systems. As Robin said, in terms of state aids and public procurement, we would have to continue most likely to follow the EU regulatory framework, but I think that the question is not having to reinvent anything. It's a question of saying, okay, which bits within our domestic system, which is functioning, I wouldn't say perfectly well, but is functioning reasonably well, do we want to enhance by taking selective elements of the EU system? Just my final question would be, given the time constraints that we've got, what one thing would you change in terms of economic regional policy in order to make it more effective in terms of either focus on a sector or geographically? What would you change? I think that I'd shift the emphasis a little bit more towards direct support to businesses. I mean, if you look back at the long history of UK regional policy, certainly in the days when I first engaged with it, regional policy essentially meant giving financial support to companies to encourage them to invest, to create jobs, to expand. The UK Government once upon a time put very serious money into that area of work. Scotland still does put some money, and I've got to say through regional selective assistance, but it's done nothing like the scale that we used to. We are constrained in fairness by EU state aid rules at present, and there is a huge question mark about the extent to which we will remain constrained by EU state aid rules even once we've left the European Union. That's an issue for negotiation with Brussels, but it's always seemed to me that the most direct way to try to create jobs, to increase output, to raise productivity in the less prosperous areas in particular, is to have some direct financial support to companies. If there was one thing that I'd like to see in terms of a shift, it would therefore be from the rather contextual investments that largely go on at present and are co-funded by the European Union to improve the wider environment for business and for employees through to perhaps more direct targeting of job-creating and output-increasing investment. Robinsmill. I've already mentioned a couple. You asked for one more. That's difficult. Foreign direct investment. If you asked me what are the three quickest ways of growing your economy, the three quickest ways, it would be new money. Foreign direct investment, export-led sectors, and the third way would be tourism. I know that it's not very popular amongst the European Union officials just now, but tourism is the third. I would like to add a slight angle to what Steve was saying. There's been a shift in the EU away from the thinking about handing over grants towards loans to businesses. When Junker became the European Commission president, he came up with his Junker plan. The Junker plan was designed to address the investment deficit across much of Europe after the financial crisis. There's a special fund, the European Fund for Strategic Investment, which is proving to be quite successful, where the public sector is providing a guarantee to relatively risky major investment projects. That is encouraging the provision of subordinated debt to projects from other public sector bodies, which in turn leads to senior tranches of investment from the private sector. Indeed, it's so successful that it scares DG Regio, because it is a return to projects that are being approved directly by Brussels, rather than member state programmes. As the money and the pot become smaller, there will be a shift away from grants to businesses towards loans and repayable assistance. The one thing that I would look for is more of a place-based strategy across the whole of Scotland, taking into account the regional disparities and the arguments and issues that we have had to deal with in the Highlands and Islands, but looking at how that translates across the whole of Scotland. However, with a much more positive slant to it, instead of saying, poor us, we've got a difficult economy or whatever, it's saying, how can we make the most of what potential there is, the long lines of the smart specialisation strategies that we've seen, so adapted to regional circumstances. I'm making sure that you can contribute, yes, to your regional growth, but to national growth as well, which means that you're building up the capacity so that you are able then to participate and contribute to some of the very good examples that my colleagues have just mentioned here. A final follow-up from Dean Lockhart and Professor Bachler can come back in on the points that Dean Lockhart raised. Thank you, convener, and good morning. I've got a question that cuts across a number of the points discussed today about targeted funding and strategic direction and increasing partnership working. It's the role of the enterprise agencies and how there has been a review of the enterprise agencies with the setting up of the strategic board. Very briefly, if I may, how do you see the role of the enterprise agencies going forward and what can they do to increase the issues that I've highlighted? Start proud, Professor Bachler, to cover the two points that and the previous. I'm probably not the best person to ask about the enterprise agencies, but in terms of the review that has been done, I think that what interests me in particular is the regionalisation or the return, if you like, to a more sub-regional local approach. I think that we have become too centralised in our domestic policies over time and it links with what I said before. If we are to give meaning to what Linda Stewart was talking about, just a more place-based policy approach, firstly, policy across the board needs to be more responsive to local needs and development challenges, but crucially also we need to tap into the potential of community developments and that links with what I was going to say is my one recommendation. If we compare Scotland with other European countries, not EU member states, what is missing is a real local community dimension to economic development. What we call community planning partnerships, for example, and no such thing, they are not community, they are sub-regional, what we call sub-regional in many other countries. I think that we are failing to exploit the potential of community development. There are some interesting directions in terms of where the Community Empowerment Act is potentially taking us and the agreement with COSLA to devolve a percentage of, I think, two communities. I think that I would be in favour of accelerating that process very, very considerably and with the enterprise agencies very much engaged in that process. Linda Stewart? I would agree very strongly with what John Stewart said. A further element where there is a really good opportunity with what is happening with the new strategic board is to align what is happening with skills and innovation more closely with the inclusion of the Scottish funding council in that approach. That gives us a very good starting point for a lot of the regional strategies that we might want to be starting to think of, a very good context setting there, and to bring in the community element that John Stewart talked about before. That has been a key feature of the Hines and Ions Enterprise since the establishment of the Hines and Ions Development Board in 1964, and it is something that has proved really, really important. We have tried very hard in the Hines and Ions to bring that element in more closely to the 2017-13 programmes through the distinct involvement of community planning partnerships. That was working to an extent, but again when we looked at the possibilities of an integrated territory investment that John Stewart mentioned earlier, that was deemed not to be appropriate. I think that there was a lot of very good potential benefits in that kind of approach that again it is worth investigating further as we move forward. Well thank you very much then to all of our witnesses for coming in today, and I will now suspend the meeting and we will move into private session. Thank you very much.