 33rrd meining of the economy jobs and fair work committee. May I remind everyone in the public alley to turn off any electrical devices that may make a noise or interfere with proceedings. We've received apologies from committee members Gordon MacDonald and Gillian Martin. Item 1 is a decision by the committee to take items 4 and 5 in private. Are we agreed to do so? Thank you. Today we have the Cabinet Secretary for Economy, Jobs and Fair Work, Keith Brown, to give evidence to us and good morning and welcome to you. Also with him are Chris Stark, director on energy and climate change, Mary McCallan, director for economic development and Hugh Macaloon, deputy director of fair work and skills. Welcome to all of you. Before we commence the evidence session, there are two matters to deal with. First of all, the committee would like to express its appreciation to the various chambers of commerce who submitted evidence to the committee. Second, I think there may be a declaration of interest from one of the members. I declare an interest as the honorary vice president of energy action Scotland. If there are no further preliminary matters, I will invite the cabinet secretary to make a brief opening statement. Thank you for the opportunity to give evidence on what I believe are an exciting range of measures in my portfolio's budget. The measures themselves are designed to help to address one of the most challenging economic scenarios in recent memory. As Derek Mackay made clear last week, the fundamentals that we believe of the Scottish economy remain strong. In 2017, our economy continued to grow and, over the past year, the number of people in work reached a record high. Derek Mackay also noted the conclusions of the first Scottish Fiscal Commission report predicting continued growth and rising employment. However, we do also, as a Government, acknowledge the challenges, not least the consequences of the UK Government's austerity policies. In particular, I would mention the refusal to lift the pay cap, which has, of course, knock-on consequences for the Scottish Government and its budget, the UK Government's failure to control inflation and, of course, the damaging uncertainty caused by Brexit. Taking action to counter those issues was at the heart of the Scottish Government's budget that was announced on Thursday and is also at the heart of the decisions that were made in that portfolio. For that reason, I am delighted that the budget delivers an increase of £270 million. That is a 64 per cent increase—I think that it is the largest increase of any portfolio—and that is the increase in the economy jobs and fair work portfolio. I would, convener, acknowledge and apologise for the error in the draft budget chapter on that percentage. I think that it mentioned 39 per cent in the draft chapter. The additional funding contributes to investment of almost £2.4 billion in enterprise and skills through our enterprise agencies and our further and higher education bodies. The enterprise and skills strategic board is now fully established. That support will be vital to the realisation of the four strategic priorities that are identified in Scotland's economic strategy, innovation, investment, internationalisation and inclusive growth, allowing us to grow Scotland's economy and ensure that it remains resilient. I know that you are all aware of Scotland's long history of innovation and invention, and the Government is focused on maintaining that proud record of achievement. That is why the budget contains a 70 per cent uplift in our funding for business research and investment, taking our investment in the coming year from £22 million to £37 million. Last week, the First Minister announced a new centre of excellence in manufacturing, the National Manufacturing Institute, to be based in Shinnan. Construction will begin next year and is supported by £18 million of funding from this portfolio in 2018-19. Our programme for government also acknowledged our ambition to maintain our competitive advantage in the low-carbon economy and announced a commitment to a £60 million low-carbon innovation fund. That commitment is supported by £10 million of government capital funding in this budget. A further measure set out in our programme for government was the creation of a Scottish National Investment Bank to provide long-term patient capital to support innovation and drive productivity growth. That ambition is now supported by a commitment to an initial £340 million capitalisation between 2019 and 21. However, while the bank is being established, we will create a dedicated building Scotland fund worth £150 million over the next three financial years. That portfolio provides £70 million in 2018-19, with the purpose of supporting innovation in house building, helping to deliver modern low-carbon industrial and commercial facilities and to provide further support for capital investment in research and development. Those measures will complement existing activity to unlock investment for ambitious SMEs, including expanding the SME holding fund by £25 million. I am also delighted that we will now more than double our commitment to driving regional economic growth through our city region deals to £122 million. Of course, that takes into account likely future city deals for Stirling and Cluck-Manager and for the Tays cities, as well as looking forward to the Ayrshire growth deal and the Borderlands deal. However, our focus is not just on domestic opportunity. The budget retains funding to support the action set out in our trade and investment strategy. Our presence in Brussels is long established. The plans for a new para-sub are developing and a new Berlin hub will begin operating in early 2018. London and Dublin innovation investment hubs are now up and running. With the process to double the number of people working for SDI in Europe well under way and with five local export partnerships established, the Government has taken practical steps to maintain Scotland's long-held position as a trading nation. The budget maintains the seriousness of which we approach the task of creating more inclusive growth and fairer employment. Inclusion in regional terms by meeting our commitment to the south of Scotland, for example, with an initial £10 million to support the establishment of the new south of Scotland enterprise agency and interim measures. Inclusion through continuing our vital work on tathlin barriers to work, supporting training and promoting fairer work, actions that are essential to improving Scotland's economy and improving opportunities for all. £17.6 million will support our devolved employment service, Fair Start Scotland, which, from April 2018, will provide tailored person centres support to a minimum of 38,000 people who are furthest removed from the labour market and for whom work is a realistic prospect. Our overriding aim is employment services that work differently and more effectively for people to help them to find work and to stay in work, for services that treat people with respect and encourage people to take up the opportunity for finding work on a voluntary basis rather than being driven by the threat of benefit sanctions. The portfolio's 2018-19 budget and its 64 per cent rise reflects our determination to grow Scotland's economy, to seize the opportunities before us, to build a fairer Scotland and to put the progressive values of this government into action. I'm happy to try to answer the committee's questions. Thank you very much, cabinet secretary. May I start by asking about the enterprise agencies? I think that the Scottish Enterprise Resource Budget is due to see a slight real-terms reduction over the coming year and Highlands and Islands Enterprise. Are you able to enlighten us on the reasoning or thinking behind that? I think that I have a statement, convener. I mentioned the £10 million that would go to the south of Scotland economic partnership. That was capital, but in addition to that, there is also £3 million, which essentially would, if you like, come out of SE's budget, because SE has responsibility for that area. That £3 million should perhaps be added to the figure for Scottish Enterprise. The total draft budget allocation, including non-cash for Scottish Enterprise, is £256.15 million. That is up to 24.6 per cent. Of course, that includes non-cash, not just resource. Whereas the total draft budget allocation for high is a 4.6 million, which is 7 per cent. A much larger increase in the total budget allocation for Scottish Enterprise than there is for high. The goal that we are trying to aim for is to withstand the economic shocks and sustain higher employment. SE has continued to be fair to them to bear down on operating costs and also have made the offer to absorb some costs and live within, in terms of its resource budget, a flat cash settlement. However, as I say, that does not include what is going into the south of Scotland and a substantial increase in capital and financial transactions. That is the difference between the two. John Mason Thanks, convener. Cabinet Secretary, you mentioned just now financial transactions. I think that, frankly, there is a little bit of misunderstanding or lack of understanding around that whole sector as to what financial transactions are, what we can use them for and what we cannot use them for. If I am understanding correctly, they are linked to housing expenditure in England, but we are not required to use them for housing. I also think that we cannot use them in the public sector. It has to be outside the public sector, but I wonder if you could explain around that how you see that going forward and what we can do. John Mason I think that you have given true of the defining characteristics for it. When I mentioned the money that has been put aside for the building Scotland fund, that includes housing, both public and private housing. It is the case that, first of all, those have to be paid back. I think that that is important to remember, but we do apply them in those ways. It can also be used—I am happy to be corrected—for things that are very central to Scottish enterprises, in terms of helping companies sometimes through loans to help them to get through or to expand. We have a substantial increase in FTs, and that, as I say, helps to support both Scottish Enterprise and the Scottish Investment Bank. SMEs' demand for loans and equity can be a very important way to try to help to grow the economy and to protect jobs that are already there. They require that access to finance, and I am sure that it will become evident through this evidence session that there are quite a number of ways in which the Scottish Government can do that and the number of different bodies that can help with that. However, financial transactions give us another weapon in the armory to ensure that we can do that. They can be used for a number of different functions, and they have to be paid back, and you are right to say that we cannot use them for the public sector. As you say, there is quite a substantial increase here. Do you think that there is going to be the demand to use the full amount? Yes, I think that part of that will rest upon us making sure that people are aware of it as an option. Companies are aware of it. It can help to support other initiatives that we are already engaged with. For example, if you look at—I am not sure if you were at the Scottish Micro Finance event that we had recently—that featured a number of new companies formed due to the access to the finance that had become available through that, which was largely European funding. Once we had made that or helped to make companies aware of that possibility, we still got more work to do. We had 128 new and existing businesses receive £1.7 million to help to create 200 jobs. That was a case of a new fund letting people know that the option was there. That was relatively small sums of up to £20,000 for start-up companies that could not find access to finance elsewhere. I think that there is an issue about us making sure that people are aware of it and that this session helps with that. It would also be true to say that it can help with starting up of the national investment bank, which I have mentioned already, as well as the growth scheme and the equity and loans to businesses. The demand will be there. It is up to us to make sure that it is used properly and that people are aware of the facility that we have. How do we handle risk around that? Presumably, we have to repay the full amount to Westminster no matter what. If we put money into a company that failed, how is that handled? There is risk attached to it. I think that I have heard from a number of individuals involved in the economic development sphere who will tell you that being involved in economic development, if you are not involved and willing to take a risk, there is not much point in that activity very often. There is no question that there is risk involved. We do diligence on these things before we make the commitment to it. We do not seek to make a loss, but we also recognise that it is possible that a loss arises. There is not an economic development agency worth its name that has not made a loss on one or the other of its investments or when they are backing a company. Risk is there, but we try to minimise that by the diligence that we undertake. Tom Arthur has a brief follow-up on that. Regarding the use of FT and the challenges in the take-up, the Financial Times reported yesterday that, with the uncertainty over Brexit, companies have been holding off investment. It makes a specific example of, in the third quarter, a decrease of 11.8 per cent in the same period in the previous year in investment in things such as vans and other transport equipment. Is there any way in which the financial transaction money can be marketed in such a way to businesses to mitigate the effects of the exit in the sense that they are not being put off investing? Is there any way that it can be targeted in such a way to give them the confidence to invest? I think that it is difficult to do that. I think that there is no question that you are right that there has been deferred investment taking place for a quite number of months now, but the financial transactions that we are involved in will often be to try and enter the market where nobody else is providing that finance or not providing it at that rate or where there is no risk appetite from the financial sector to undertake that. I think that we are usually talking about a different set of circumstances. It may be possible for a company that thinks that it is not a safe bet to undertake investment just now because of the uncertainties of Brexit for them to work with us on some financial transactions, but, by and large, that is for areas in which we know that, for example, I mentioned that the microfinance is up to £20,000 where it cannot access. In fact, one of the qualifications for that is that you have to be refused by a bank or a finance institution for the borrowing that we then ask the microfinance fund for. At a higher level, we will tend to be talking to companies that have tried to raise finance but have found it prohibitive or are unable to get financial from elsewhere. However, it is possible that we can find ourselves in a position of helping finance something where somebody has deferred investment because of the uncertainties of Brexit or perhaps the uncertainties of Brexit have then made the finance too prohibitive for them to take on. We are advertising the Scottish growth scheme, which is another means by which we can achieve that. Around £90 million has gone out the door already in relation to that. It is supposed that there are different purposes, but there may be some crossover. Thank you. Good morning, cabinet secretary. Just a couple of follow-up questions on the National Investment Bank. How much of the funding for the bank and the Building Scotland fund, how much will that funding come from financial transactions money? The vast bulk of it, so £150 million that I mentioned already to help boost house building, commercial property investment and support business R&D and also going forward into future years, we expect consequentials from financial transactions to be a large part of the money that we raise for that. You mentioned the growth scheme and Scottish Enterprise. Can you describe what role the National Investment Bank will have that is different from the existing enterprise support available through Scottish Enterprise, Highlands and Islands and other agencies? I suppose that the first thing to say is that it is not finally defined as yet, so Benny Higgins, who we are meeting with again tomorrow, should come back to us in January with his proposals. That will give us more definition around the nature of the bank. You will find that it is first of all in terms of its scale, so the £350 million that has been mentioned is initial capitalisation. Also, the range of its activities will include the potentially long-term patient capital that can help companies to scale up or to provide support to a particular sector within the strategies that we have for industry and enterprise. It is mainly about the purposes and it is quite possible that we can work other schemes. You mentioned the growth scheme, whether that can be part of what the National Development Bank does. One or two other schemes possibly could come into that as well, but it is not yet defined. We should be able to have more clarity on that in January, and we expect to start the bank up, at least with the appointment of a chair and a board as a shadow board in the course of 2018. We will get more definition of it very shortly. You mentioned the growth scheme. I think that you also mentioned that money has started to be paid out of the growth scheme. Could you give us some details of how much has been paid out and how many businesses have received financial assistance under the growth scheme? I think that I have mentioned the fact that it is about £19 million so far. That has been dispersed so far to 18 different companies. We cannot highlight the individual ones, obviously, for commercially confidential reasons. These are agreements with investors, but so far £19 million and there are others in the pipeline as well. Just moving on to the economy and how the budget might address some of the challenges that you mentioned, the fiscal commission announced last week the five-year forecast showing growth over the next five years to be under 1 per cent and the gap with the rest of the UK continuing. Fraser Van Der has referred to this as unprecedented. Do you think that we are facing a growth crisis in Scotland? I think that there is a challenging growth environment for the whole of the UK. In fact, there is evidence from various commentators out today to support that. The UK also is facing lower-than-trend growth over coming years. For essentially the same reasons, Brexit has brought the uncertainties. I have mentioned the continued austerity policies of the UK Government. It is my view that we do not discuss nearly enough the impact of the UK Government on the Scottish economy. If you have a major clampdown on welfare benefits, those are commonly referred to by economists as transfer payments. That has an effect on the money in the economy. You have seen reports from the Scottish Retail Consortium. They are a big concern. It is always about the amount of money in people's pockets. If you substantially cut back through universal credit on these kinds of transfers, you are going to impact that as well. It is also true to say—I am perfectly happy to concede the point—that if you increase tax, that can have an effect on people's disposable income, which is one reason why we have also agreed to a 3 per cent increase proposed public sector pay increase and to lift in the public sector cap. We are also putting more money into this. I have also made the point to the Scottish Retail Consortium that if all of its members, instead of just most of them, paid the living wage, that would also put more money into the pockets of people who will spend it on those items that supermarkets and others provide. I think that it is true to say that we do have a challenging economic environment. I think that the austerity policies of the UK Government contribute to that. Their failure to get a grip of inflation obviously contributes to that. That is one of the reasons why you have an upward pressure on pay because inflation is now running over 3 per cent. Also, if we, as we have done, say that we are lifting the pay cap and the UK Government says that it is not, then of course we do not get the consequentials that would flow from a decision of the UK Government to do that. That also has an effect, of course, on the economy. There is no question that there are challenges in the economy. I do not deny that. The fiscal commission's projections are perhaps the most pessimistic that I have seen, but they are not completely out of the same ballpark as other commentators as well. The challenge that we have is to try and exceed those estimates. Thank you. Just one final question. The fiscal commission identified productivity as one of the key issues that are driving lower growth. Given that Scottish Government targets on growth, innovation and productivity have not been met, is the Government looking at a change of direction on economic policy given those challenging forecasts going forward? I think that you are right to identify productivity, although what constitutes a strategy to improve productivity is debated hotly amongst economists, but central to them will be innovation and fair work. That is a precursor of productivity. Good management practices and management capacity investment is very important to that as well, and there are other factors. It is a challenge. In Scotland, we have seen an increase in productivity, about 6.6 per cent, I think that it is since 2007. In the UK, I think that it is less than 1 per cent. That only however means that we have more or less closed the gap with the UK, and that is not our target. Our target is to get into the top quartile of the OECD's table, so to do that we have to start to compete with the likes of France and Germany. Things that we are doing in terms of the manufacturing centre, in terms of innovation funding and in terms of funding entrepreneurs are designed to increase that level of productivity. We realise that that is absolutely essential. The other factor, of course, would be internationalisation. Expanding the base of businesses within Scotland at export is also very important. We recognise that it is a problem not just for Scotland, but for the UK, who have also established a number of interventions trying to increase productivity there. The point that was made previously by Tom Arthur is also relevant here. If companies are deferring investment, that is going to have a knock-on effect in terms of productivity. If it is investment in new practices, innovation and new capital plant, it is going to have an impact on productivity. Those are not ideal circumstances—perhaps ideal circumstances never obtain—but we are very focused on increasing productivity. Daniel Johnson First of all, good morning to the cabinet secretary. I would like to start out by looking at some of the recent evidence that we have had about the role of Scottish Enterprise and Business Gateway in terms of business support. Specifically, the West Lothian Chamber of Commerce highlighted something of a gap in the perception that Scottish Enterprise is really for large business and business gateway is for brand new businesses, and an awful lot of businesses fall between those stools. Do you think that that is a characterisation that you would recognise? If so, what steps do you think need to be taken to address that? I think that there is no question that there are some people who would have that perception, and I think that many others would not, but I think that you are right that there are some people who think that business gateway is for either new or very small or start-up companies and Scottish Enterprise for larger companies. That is not actually borne out by some of the companies that Scottish Enterprise engage with, as you also know very well. However, I think that you are right to say that we have to have an ecosystem of business support that is understandable to people. For that reason, we have had the Enterprise and Skills review, in which we have a whole-system approach to developing, but we still have business gateway, if you like, off to one side. That was quite deliberate. We did not include business gateway in that review, because business gateway is delivered to local authorities, they are their own bodies, they have their own mandate, but what we have had, since towards the end of the Enterprise and Skills review, is a willingness from cosar representatives to see how we can work together. I would cite, in relation to that, the very good development of the three Asher councils that have come together with one economic partnership, and they are also tying in very closely to the rest of the ecosystem for which we are responsible. I think that we are moving much more towards an ecosystem that is more understood by everybody. What we want to get to is a situation in which it should not matter which point of access or contact you make with a system, you get the right response from the right person, that is what we are aiming towards. I think that it is a little bit clunky just now, and that is what we are trying to resolve. Given that that is the case, what sort of view the new strategic board will be taking in terms of overseeing that integration and making sure that there is better and more joined up support between Business Gateway and Scottish Enterprise? I think that the approach that they will take, and it is for them to take that approach, they have only just been established. Amongst their number is councillor Stephen Heddle from COSLA. It will be, if you like, a coalition of the willing. It is up to local authorities to choose to do that, or to find other ways to do that. The strategic board, of course, can have an oversight, but it is not one of the agency's business gateways, not an agency for which they have, if you like, responsibility within their remit. However, I think that you will see, not least from the inclusion of Stephen Heddle, you will see people, and also from the example that has been given of the Azure authorities. I want to encourage that, so I am saying to officials that, in relation to Skills Development Scotland and other agencies, we want to bolster that as much as we can. Using that example, using the inclusion of somebody from COSLA on the strategic board, I think that you will see some very effective joint working integrations perhaps onward. We are not forcing anything here, we are going to try and work with local authorities to achieve this. You are very much focusing on business gateway and the scope for change there. I am just wondering how much scope you feel there is for change in Scottish Enterprise. I mean, for example, at this point I should declare an interest as a director of retail interests, but I know that there is practically no support given to the retail industry from Scottish Enterprise. I wonder if that indicates a lack of engagement with more mature businesses. My reason for asking that is that, if we really want to boost productivity, should we focus on mature businesses just as much as we focus on high growth and large businesses? If you are able to look at the portfolio of companies for which Scottish Enterprise is responsible, you will see a very large number of mature businesses. I take your point about the retail sector, but in terms of mature businesses, Scottish Enterprise has got many relationships that go back a very long period of time, in fact almost to the inception of Scottish Enterprise. Your point about what you are right to say business gateway is a responsibility of local authorities. What we have done through the Enterprise and Skills review, which may well start to challenge the point that you make about Scottish Enterprise and its relationship to the retail sector, is to say that those agencies involved in that review should not be much more aligned, and that is going to be the central purpose of that board, to make sure that they align with each other. Within that, I hope that we will see also joint working with business gateway, but the central purpose of the board. I imagine that it would include—it is not for me to lay down what it will have in its strategic plan, but I imagine that if there is a sector for which it is not currently getting the support that it currently requires, it would want to address that. However, I do not think that it is a case that it does not properly link with mature businesses per se. It may be across sectors, but it is certainly not per se, because there are quite a number of businesses of that type that they manage. That is my final question. Again, focusing on Scottish Enterprise, we also heard evidence that some businesses find it difficult and frustrating to deal with Scottish Enterprise just in terms of the way that they work and the way that account management works, with there being six-month lead times between requesting a decision for that decision to be made. Especially for businesses that are seeking to grow start-ups, that is not something that they can work with. Indeed, I would imagine that, even for large businesses, where they might be able to cope with it, it is not something that they enjoy. There is a need to look at the way that account management works, the approach for Scottish Enterprise. Do you think that six-month lead times and decisions are acceptable to businesses? It is interesting, because this is a discussion that you and I and the convener had at Hustings before the election last year, if you remember. I am sure that there are ways in which Scottish Enterprise can improve. A six-month lead time seems long, although sometimes that will be to do with diligence having to be undertaken. I accept the general point that Scottish Enterprise can improve areas of its work, and they would say that. Perhaps one obvious way is that the number of account managed companies that they have perhaps does not cover a wide enough spectrum of the economy in Scotland, and I think that they are very alive to that. The one thing that I would say is that, since we had that debate in that Hustings, I have had responsibility for Scottish Enterprise. Despite having previously been a board member of Scottish Enterprise's Ford Valley, I am much more aware now of some excellent work that they do. Often it is unreported, because it is commercially confidential, but they save businesses and jobs on a regular basis. Of course, like everyone else, they can improve, and perhaps it is in that area of the amount of coverage. Do they have to do very few intensely or do more less intensely? That is one of the areas that I am sure that the strategic board on which Bob Keillor, the chair of Scottish Enterprise, also sits. I am sure that that is one thing that they will be addressing. I am very glad that that Hustings has made such a positive impact, cabinet secretary. Perhaps we could move on from the Hustings. I think that it might have been the Hustings to be at since, if I recall, most of the candidates and most of the parties that were there were elected. Here we are discussing the matters two years later. I will move on to a question from Colin Beattie. Cabinet secretary, on business gateway, a number of chambers have expressed concerns about the level of business gateway support in their areas. Given that business gateway services are delivered through local authorities, how is the 2018-19 budget going to deliver better or good-quality, consistent services across the board? That latter point that has been made is one for local authorities. Of course, the Government has a role to play in the settlement that is reached with local authorities, but the delivery of those services is for local authorities. As a former local government council leader, we were not too happy when the Government prescribed too closely what we should or should not do. However, it is also acknowledged among local authorities that, at the very least, the provision of business gateway services across the country is not consistent, and that some do exceptionally well and others have not put the same level of resource, for example, into business gateway services. It is right that the matters of local economic development are managed by those who are closest to the local economy. Having said that, the enterprise and business support project from the Enterprise and Skills Review is also working to help to provide that ecosystem that I talked about around the user, and business gateway is a core partner in that. That will allow, on an on-going basis, the improvement of products and services that will help to ensure good business, good-quality business gateway services. Going back to the previous point, if it is a case that those who are elsewhere in that ecosystem, such as Scottish Enterprise, if there are gaps in the provision that they have, if there are things that they do exceptionally well, and if business gateway services used to be part of the same service previously, if they can learn from what is done there, that has got to be a positive. I think that the whole system approach that we have undertaken will help to lead to an improvement in terms of all the different elements of that system. I would hope that business gateway, although it is for local authorities, would be part of that improvement as well. Looking at the evidence that has been provided by the different local authorities and so on, and this is my interpretation from that, it appears that business gateway is better in an urban environment rather than a rural environment. Would you agree with that? I think that there is probably an impact of what Highlands and Islands Enterprise has done in relation to that question. They have been seen to be very effective in our rural environments but, of course, our business gateway is there. I think that probably more frequently they are co-located in an urban environment. I am not sure that I would maybe have a perception—I am not disagreeing with the perception—but maybe there is something about the level of economies of scale in terms of delivering a service that is easier in an urban environment. As I said in my previous answer, there is certainly the perception of inconsistency across the country. Some areas do it exceptionally well and others less so. It is important that we try to help those who do it less well, even those who acknowledge that they have done it less well. I do not want to criticise anybody in this. Perhaps that is a tacit acknowledgement of the Ayrshire partnership, which has developed that they could do things better working in partnership. I think that what we want to do is try to make it as consistent as possible across the country whilst observing local governments' right to deliver those services. Just to take a specific example here, looking at Cathness and the Borders, both those local authorities seem to be indicating a lack of business gateway resources. That is very critical. If you do not have enough advisers, if you do not have the resources to back up those advisers, they are not going to be able to deliver. Just looking at the evidence from those two specifically, it would appear that that is an issue. I do not accept that. Maybe the resources are not the same in those areas, but those are decisions of local authorities. A settlement was made at the point that they took on the responsibility for business gateway. At that point, local authorities could decide what resources they wanted to allocate to that. I am not saying this specifically in relation to the two local authorities that you mentioned, but they might have put less resource into it, but they have made that choice to do that. I am not pretending that they are not constraints on resources, but they have made that choice to do that. It might be worth hearing from Mary McAllanis on the original dispensation when they took on that function the first place. I do not know if you were working on the same at the time, Mary. I was. I am happy to go through that, but you have to excuse me because it is a local government function now that I am reaching back into the back of my mind to the history of it. As you know, we handed over responsibility for business gateway to local government in 2008-9. I cannot be sure, but I think that the funding settlement at that stage was around 15-16 million, and it went into the local government settlement and became a local government function. The whole point of that was, the thought behind it was that in local economies it was helpful to have local control of business gateway because it could be flexed in order to meet the needs of particular circumstances across the country. As the cabinet secretary has said, it is arguably a variable service, but it can be variably very good. He has mentioned the Ayrshire example. I think that what you would find if you went and spoke to the Ayrshers, they would say that business gateway is not the only thing that we do in the local economic development space, we do a lot of activity, business gateway is the front end of that. They have chosen to integrate it very closely with what they do as a council, not just in North Ayrshire but across the three Ayrshers, and also to work very closely with Scottish Enterprise. It is fundamental, it is there, it is the public sector facing a bit of service to small business mainly, but not only. It is really about working very, very closely across the ecosystem that the cabinet secretary mentioned, because there is a linkage between business gateway and Scottish Enterprise in terms of growth companies. What business gateway does is to identify companies, help them to grow, and then pass them on to Scottish Enterprise for more specialist support. I think that I mentioned that local authorities tend to deliver it in different ways. Some of you have used trusts, second law development trusts in their area, some have just put it out to tender. If you looked at spending per head across the different local authorities, I think that you would find a remarkable range, although that is the right of local authorities to decide how to do that. What we want to try and get to is a position where we can learn from the best who has done it most effectively and try to get that practice across different local authorities. Given the importance of business gateway working in conjunction with Scottish Enterprise, how do we monitor success or failure in each of the council areas that we have done? That is for the various ways in which we monitor the performance of local authorities, whether it is the Accounts Commission or others to do it. The committee can do that by having an evidence inquiry session or the local government committee could do that, but that is a local authority function for them to do that. It may be that research on the level of spend and the level of activity might be quite useful for the committee. In their evidence, all of the chambers highlighted problems with skills and recruitment within their local areas. I am just wondering what the budget specifically looks at to address that, particularly in relation to workforce planning and changes in terms of technical, demographic and regional issues. That is a very good point. Obviously, from your part of the country, you have got extremely low unemployment, high employment, and that produces its own pressures on skills. I think that we are doing a number of things that it might be worth hearing from Hugh McAllune in relation to some of that, but I think that we are further expanding the modern apprenticeship programme, for example, to 30,000 starts a year. SDS is working with partners to deliver foundation apprenticeships that combine the benefits of school, college and work-based education. Although some of that spills into my colleague John Swinney's area, he has announced an ambition that by the end of 2019, up to 5,000 young people will start a foundation apprenticeship that is up from 351 starts this year. We also have the flexible workforce development fund that we introduced last year, and that will be delivered through the college sector, bringing it together with industry to better support in work training to improve skills there. The new schemes for which we have responsibility in terms of employment are very important for getting people further removed from the jobs market into productive work, not just into staying within it as well, which, of course, helps to improve the general pool of skilled labour that is available. There are a number of different interventions. Much of that work is undertaken, of course, by colleges and universities as well, but I do not know if Hugh McLoone wants to mention something in relation to that. A key element of the enterprise and skills review is around skills planning systems. We have two main bodies that are involved in skills planning, skills commissioning, if you like to call it that, which is Skills Development Scotland and Scottish Funding Council. Through the enterprise and skills review, we have identified the need to bring their planning much closer together and to link what employers need in the short, medium and long term, what the economy needs in the short, medium and long term. Across the two organisations, it is best that we can map out provisions so that people coming through the system are in a better place to go into the jobs that are there not just now but in the future. That is a challenging thing to do. I think that there are some clear differences within the system. If you look at the apprenticeship system, for example, that is very much tied to a job. If an employer is offering a job, then that is what is in offer. If you look at the college system or the university system, it is much more linked to learner choice and what learners want to do. Aligning those two systems that are possibly driven by two different things is a challenge, but the funding council and the SDS are heavily committed to that work and are moving it forward. Other things that we are doing are around bringing employers closer to the education and skills system. As part of developing young workforce, we have 21 industry-led regional groups across the country that are about having employers much more engaged in education in young people and more focused on recruitment of them. Also, within Skills Development Scotland, we have the Scottish Apprenticeship Advisory Board, which comprises employers who are heavily involved and interested in the development of apprenticeships. We are bringing employers much more closely into the running of the system as partners, not simply as representative bodies, but as employers who know their region and sector and bring them much more into what we are doing. During the enterprise and skills review, there was some work done on the tension between investment in tertiary education and production, if you like, of graduates as opposed to apprenticeships and other skills training. Whether a greater return on investment might come from skills training as opposed to graduates, I think, on top of the league table internationally in terms of graduates. However, the question was whether investment at other levels in terms of skills would be more economically beneficial. It is probably too early to say, having made that very substantial investment in graduates, but it is clear to me that a number of companies that I talk to, especially the larger ones, are more inclined now to have very strong apprenticeship programmes, sometimes in preference to graduate programmes, because they say that they feel that they get more loyalty and that people do not come expecting them to be MD within two or three years if they are postgraduate or graduates, whereas apprenticeships they sometimes feel are more effective. That tension is there. We recognise the benefit of both, and in fact we have brought both together through the graduate apprenticeship scheme as well, but there is that tension there. I think that it is interesting to hear about the greater employment involvement, which is obviously very important. You mentioned foundation apprenticeships and something that has been raised with me a number of times, particularly in the rural areas, has been a limited choice. I was just wondering whether that is going to, that is likely to expand, that is likely to be greater choice, particularly in rural areas going forward. We were looking to expand foundation apprenticeship opportunities across the country to 5,000 a year by the end of 2019, and there will be expansion in the year ahead towards that target. All local authorities have been involved, and SDS is looking at the range of frameworks available, so the occupations involved grows. There are challenges around anything that involves travel in or more rural communities. There are extra costs there, but there is no distinction between what we are trying to do in different parts of the country. We are trying to, first of all, introduce the programme, get young people, parents and schools more aware of and familiar with the programme and grow it quite significantly as a new pathway coming out of the senior phase into post-16 education through work-based learning. You would hope to see a widening of the subject choices that you have thought about in that period? I think that Skills Development Scotland is exploring routes into some of the work that we all like to term, but traditionally called the craft apprenticeships. That is apprenticeships in some of the construction sectors. I do not like to term them, because modern apprenticeships offer a range of opportunities right across the economy. Distinguishing between them does the sectors and the people who work in the sectors a bit of the service, but that is how they are traditionally referred to. I will get feedback on what you think of the particular demands, especially in your area. It is a very substantial expansion, so 351 last year, up to 5,000 in 2019, is a pretty rapid expansion and ambition, and it should be taking account of what local needs are. It has been led, as I say, by the Deputy First Minister, but if you want to give any feedback on what you think of the particular areas of demand, I am happy to pass that back. That is something that has been brought up a number of times by different organisations, particularly in my area, the Highlands and Islands. I am happy to write to you and give you more, because that would be very useful. Another issue that came up was that, in the evidence from the chambers, there was a relatively low awareness and appetite for members' businesses for exploring export opportunities. I am just wondering what the Government is doing to ensure that we are boosting internationalisation and looking particularly at things that are going on everywhere else to explore new markets? It is a huge area of concern. The First Minister regularly quotes that 70 businesses in Scotland account for half of their exports, and I do not know if it is still the case, but until recently, it is certainly about 7 per cent only of our businesses' exports. I have consistently said that internationalisation has to be a part of building productivity and ensuring future growth. It is also a good way to go back to the productivity point of if you are exporting into more efficient, more productive markets, then it tends to make you more productive and efficient as well. We have done a number of things. I have mentioned the SDI expansion in Europe, and we also have the local and regional export partnership pilots. Those are things that you are undertaking, but they also build on things that you industry does. For example, the Scotch, whisky association does a mentoring scheme to help with smaller companies in the supply chain to take them through the exporting side of things. Whether it is hard to know exactly what the inhibition is, there are some companies that simply do not want to export, they are happy with a domestic market and they do not intend to go further than that. However, if you have 7 per cent in Scotland and yet 70 per cent in Bavaria, then there is something going on there that we have to address. I have mentioned the partnerships, the expansion that we have in Europe. I have mentioned the London and Dublin hubs, which we have established. Examples would be, when we went to Abu Dhabi a number of months ago, we had an SDI event in which we had 80 Scottish businesses, small and medium-sized businesses there. Many of them would not have gone across to Abu Dhabi unless they had got that support. For one thing, once you are there, you have six months before your visas expired, so you have to make the best of that six months. We have provided, through SDI and other support, what you really have to do if you are seeking to establish yourself in other areas. We have also undertaken a round of appointments of trade envoys to help the first meeting with one of those last week to help local companies to become aware of market opportunities. It is a very big challenge for us internationalisation and the more we can do it, the more productive it will become. Follow-up from Tom Arthur. It is a documentary on the extra skills, cabinet secretary. In evidence that we received from the Edinburgh Chamber of Commerce, it stated that, since Brexit, our universities and hoteliers have raised concerns about access to the migrant labour market, social cohesion and currency that makes working in the UK and Scotland less attractive. I think that it was today or yesterday that we learned that in the second quarter of this year net immigration to the UK from the EU has fallen to its lowest level since records began. I wonder if you can share with the committee if the UK Government has indicated how it intends to attract skilled migrants to the UK and indeed to Scotland post-Brexit. No, and I am sure that the members are aware of the on-going debate that is about whether the use of more discretion and more powers in Scotland for immigration would be a useful way to go forward. I fundamentally think that it would and actually a previous administration undertook the fresh talent initiative, which was in its own terms very successful in doing just that. I think that it is a huge issue and if you travel round, you know, I was in Orkney a number of months back and he said, had we not had EU national serving in the hotel that was staying, we would have had breakfast or checked in or had rooms to go to essentially in a fit state. Absolutely important, especially in rural areas. Over and above that, I think in my own constituency going to the university, studying university, both in terms of the staff that they can attract, they know their staff that have said they are not going to come, that are thinking about being appointed to their staff that are leaving, and of course there are students choosing not to come to those universities as well. It is having a huge impact already. I think that we will probably only know the full extent of it in future months and years. There is action that can be taken and one of those things is, as in Canada, where provinces have particular powers, if we had powers to attract people, then also going back to previous points that were made by members about productivity, it is very clear that productivity has impacted hugely by net immigration. I think that it is a very important point. Hopefully, as we now move forward into further Brexit discussions, this will become something that the UK Government shows some willingness to move. Of course, in the United States, they had an equivalent of the post study work visa, which they abolished or stopped and almost immediately restarted it again when they realised the impact it would have on their economy. I think that this is a huge area of concern for us, but, as yet, there is no movement from the UK Government in terms of powers to Scotland or elsewhere, as far as I am aware. We will wait and see what happens in terms of Northern Ireland to allow them to keep that flow of people coming to the country that can add so much to the economy. On the skills gap, what analysis has the Scottish Government done in terms of how that might disincentivise skilled workers coming to Scotland? I might get you to talk about the analysis, including the work that we have done on the skills strategy, which was fairly recently produced. I do not agree that that is a case. The idea that people are looking at tax rates in Scotland is saying, I am not going to come. I am a skilled person and I am not going to come because of the tax changes. If you look at the tax changes last week, I think that about 70 per cent of people, if I get my figures right, will be paying less tax. Of course, the interrelationship between tax and a 3 per cent increase for many people—not everybody, but for many people in terms of their pay—more than overcomes that tax. We have a very competitive tax regime. If you also take the fact that, in Scotland, the average council tax is about £400 a year less than the UK level, if you take into account the fact that you do not pay tuition fees, if you take into account the fact that you do not pay prescription charges, I do not agree. I would be interested to know from Mr Lockhart, who has cited over the weekend 393,000 employees that were police officers, train drivers and nurses. I do not know whether 393,000 might let us know where they came from, but I am pretty confident that we are not about to see those people. Of course, in relation to nurses, we paid higher in Scotland than any event, even before any tax changes, where he sees those people wanting to leave Scotland, even though they have the benefits that they have just described. Even if there are 393,000 train drivers, nurses and police officers—I do not believe that they are—I was just referring to the Government's tax paper that shows a behavioural impact, resulting from the increase in the additional rate and the increase in the higher rate. I do not want to go into that detail right now, but the Scottish Government's very own analysis shows that there will be a behavioural impact. People are either not coming to Scotland or making different investment decisions, and the area that that behavioural impact will have is on skilled workers. All the commentary on the budget highlights the fact that that will have an adverse impact on the skills gap. I do not accept that. One of the tax changes was a reduction in the basic rate of tax, so that would have a beneficial impact. I think that there is some merit to what Dean Lockhart is saying at the very top range, and that is why it was very finely judged. If you start to go beyond that, as was said last week, you can start to see behavioural changes. They have been factored into analysis that has been undertaken, both in the tax papers that have been put forward, although that really falls into the portfolio of my colleague Derek Mackay. The analysis that was done in that consultation was undertaken in relation to the impact that it might have in different sections of the jobs market. I do not believe that. I would question why somebody would want to continuously talk about Scotland being the highest tax part of the UK for now, at best part of two years. What effect do they think that has on the Scottish economy and why they want to try to achieve that effect? I think that it is wrong to say it, both because of the effect that it could have and because it is not based in fact. I have just referred to the Scottish Fiscal Commission five-year forecast in terms of existing policy clearly as a working cabinet secretary. That is why I suggested earlier that it is now time for the Government to look at a new economic strategy. If the Scottish Fiscal Commission forecasts are to be true, your Government will have £2 billion less money to spend on public services. Just perhaps a follow-up on the issues raised by Tom Arthur, I think that your referred to immigration as being entirely positive was the impression given, but what about the impact in terms of, first of all, lower wages as a result of there being lots of labour available in second, the issue of the tens of thousands in Scotland who are unemployed, untrained and what steps is the Government taking to address those two issues and the opportunity presented by leaving the EU? First of all, in relation to employment, I think that I have mentioned already some of the employment schemes that we have responsibility for and those for which we are about to assume responsibility and how they are designed to try and make sure that that section of the workforce that is furthest removed from the market, jobs market, either through disabilities or other reasons, is able to access job opportunities. I am not sure that there are this—well, the two things cannot be true in relation to a labour shortage and huge numbers of unemployed people. We have unemployment sitting at around 4 per cent just now, although we also have some under-employment and we have some insecure employment as well, I acknowledge those points. However, the both things cannot be true that we also have, at the same time, a labour shortage. I think that there is a labour shortage in certain areas. I do not think that it is the case and I think that most of the studies—I am happy to have officials look at this and come back to you convener—show the fact that immigration has driven down wages. I think that the evidence is to the contrary, in fact. I also point out to the fact that, in Scotland, we have something like five times as many companies per head that have signed up to the living wage. We have the highest proportion of people paid the living wage, which is 81.6 per cent in Scotland compared to around 78 per cent. I would not do as Dean Lockhart would do and say that that is a crisis for the rest of the UK or that their higher unemployment levels are a crisis for the rest of the UK. It seems to be a crisis for Scotland if we have any indicators that are different from the UK. However, I think that we have higher numbers of people who are paid the living wage and we have a higher level of employment. That is also true for female employment and youth employment as well. I think that there are still challenges. One of the big ones—I go back to previous answers—is the issue of labour shortages. I have had certainly anecdotal evidence of people saying that they have advertised a number of times for staff, and they found it increasingly difficult to get staff over recent months. That does not seem to fit with huge numbers of unskilled people coming to this country and having that distorting effect on the jobs market. I think that it has been absolutely beneficial to Scotland to have the benefits of free movement in the EU. I accept that it is a fairly complex set of circumstances. However, in terms of forward planning and looking at the issues in the country, there are areas where there is unemployment and lack of training, which are not necessarily the same areas where there is a need for workers. If one looks at other EU countries, they perhaps deal with those things more successfully because, equally, they have internal issues in terms of distribution of jobs, distribution of workers and so forth. Perhaps, if you could follow up on that, that would be welcome. I will turn now to Andy Wightman. I thank the cabinet secretary. Returning to the Scottish Fiscal Commission, they note that, apart from the change to public sector pay policy, their judgment is that the policies in the budget are not of a large enough magnitude to have a significant aggregate impact on the Scottish economy, particularly with respect to forecast of earnings and employment. Do you agree with that? No, I think that they will have an impact. That is what they are designed to achieve. Obviously, they have a difference of view—or the SFC has a difference of view from many other economic commentators as well. I think that what we are doing, whether it is a national manufacturing centre of excellence, whether it is a lightweight manufacturing centre, the money that we are putting into the low-carbon economy or to business research and development, those are designed to have an impact on growth. I would point out again that there are other very major influences on the Scottish economy over which we have very little control, so control over inflation. The fact that the UK's national debt has gone nearly to £2 trillion in the past seven years, the fact that its credit rating has gotten substantially worse over the past few years, the fact that we do not control corporation tax and many other taxes or even tax allowances, those do inhibit the extent to which you can effect change. I do not deny that point, but I think that the measures that we are taking are designed to try and increase productivity, increase growth and, of course, increase well-paid and secure employment in Scotland. I also make the point that they accept that changes to public sector pay policy could have a some impact on the economy. However, they noted that they did not receive details of that policy until towards the end of the economic forecasting process. As a result, they could not really factor that into their economic forecasts. Why was that policy decision given to them so late? That would be part of the consideration of the budget for which Derek Mackay's response was way of question best asked of him, I think. I will do. Moving to the question of pay, the Scottish trade unions congress questioned why the additional revenues that the budget raises primarily fund tax cuts for businesses. They note that £100 million of additional revenue raised has essentially been used to provide cuts to non-domestic rates. What economic assessments have been made to the economic impact of cuts to non-domestic rates? I think that we have just seen a very substantial review through the Barthley review of non-domestic rates, which I think has been very useful in a number of areas. The output from that has led to Derek Mackay introducing a number of different measures that will leave us with, I think, the most competitive local business taxation system across the UK. Its benefits, for example, will no longer pay rates when you have improved or expanded your premises for up to a year. Of course, we have the small business bonus scheme, which I know you have raised previously, but I think that we have ample evidence that had an impact right through the recession when many companies did not have enough otherwise to have kept somebody on or to take somebody new on when the important thing was to retain employment. Maybe that is one of the factors why we have better employment figures than the UK does. The rigorous analysis of the Barthley review, which was a huge consultation exercise, has given us a very good idea of the benefits of a competitive local taxation regime and non-domestic rates among that. My question was about an economic assessment. Barthley did not do an economic assessment of his proposals. I am sure that if the Government has done any economic assessment, in other words, what the impact of that will be on the economy. Obviously, those businesses are paying less tax and that is presumed that they are very welcome, but the economic impact of that, as it appears to me, has not been assessed. I am happy to come back on it, but I think that it would refer up to the point that I made previously about retaining employment during the course of the recession, which was very important. I had the economic impact of bolstering employment, but I am happy to come back to the member on that. I do not know if Mary McCallan has anything to add to that. I think that we could write back to you and give you more information. That would be helpful. Turning to the enterprise and skills review, the new strategic board is going to be, as we have hoped, invested in it. What role will it have in assessing the amount of resources that go into enterprise agencies and how that is assessed? As I said to Parliament previously, the decision on the budgets for each of the agencies will still be a ministerial decision. However, I think that there will be a lot more collaboration undertaken. If one of the main functions of the enterprise and skills strategic board is to ensure that there is alignment between the different agencies and to improve the general level of economic performance, that will necessarily become involved in how effective the different things that different agencies do. Of course, they will have their strategic plan, but they will also have an interface with ministers. It will be a collaborative effort to ensure that the resources are used most effectively, but it will still be ministers that decide the individual allocations for each of the agencies. A big part or substantial part of the increase in the budgets this year is financial transactions. Financial transactions can be used quite flexibly, and things can happen quite quickly. We saw the situation around Ferguson's shipyard or the Alcan plant in Fort William. Will the strategic board have a role in allowing flexibility in how that money is deployed? For example, if you, in your budget next year, allocate half of the financial resources to Highlands and Islands Enterprise, half to the south of Scotland or a third to each of whatever, will you be able to have any flexibility between those agencies if, for example, significant opportunities arise in south Scotland? To that extent, it would be, of course, higher involved in the south of Scotland as well. To that extent, it would be obviously for the individual agencies who can collaborate just now, but take some of the examples that you mentioned or take BiFab, for example. I think that the strategic board will be much more interested in seeing the extent to which the different agencies work together in relation to that. They might also have a view, of course, on whether providing that level of support to the renewables sector, in particular, to the extent that BiFab is involved in the renewables sector. They might want to take a view on which of the sectors they think are most effectively supported in order to achieve the Government's ambitions and to achieve their central aim, which is to improve economic performance generally. They will certainly want to take a view on whether the agencies have worked more effectively together. They will not be able to direct one agency to pass money to another agency for a particular priority. It may be possible within agencies and for ministers to become involved in that discussion as well, but that will not be the role of the strategic board. The main function, as we discussed many times in the enterprise and schools review, is to try to achieve that alignment. I think that alignment will necessarily include things such as conments and joint working as between the different agencies, so that they become much more aware of the activities of each other. That might well lead to other collaborations of the type that you describe, but that will be for those agencies to take forward. It will not be something that is directed by the strategic board. I wonder whether I could return to the Scottish Fiscal Commission forecast for growth. At less than 1 per cent, that is the lowest trend growth that it is forecasting that we have seen in 60 years. Although I do not want to talk about crisis, I think that it is significantly serious to command our attention. The cabinet secretary suggested that this was an overly pessimistic forecast. Does he have a different target that he is working to? If he feels that it is overly pessimistic, in what area does he feel that the Fiscal Commission of perhaps God is slightly wrong? No, I did not say that. What I said was that they were more pessimistic than other economic commentators. There are quite a few, including Fraser Vallander, for example, who have higher growth forecasts. Our aim is to try and be in the top quartile, so that depends on the relative strength of those other economies to do that. What is very important for us is to lay out how we think that we can achieve higher economic growth. Economic growth is very important, but it is also very important that you have the requisite level of employment in the country. That is very important for equality. It is important for inclusion as well. There are other targets that we also have. Of course, driving down unemployment, driving up opportunities for those, especially those from the job market, is also extremely important. Making sure that people who are involved in a fair work environment are being paid, for example, living wage. Those are other aspirations that we have, too. What we are doing in terms of the manufacturing centre and increasing business R&D are designed to improve on the current levels of economic growth. I acknowledge the fiscal commission's projections. They are, by their own admission, I think, more pessimistic than many others. It is our job to try and exceed them. That would be by the methods that I have mentioned. You will be aware that the fiscal commission also considers that the problems are structural. If they are structural, they will take much longer to resolve. Indeed, one of the main methods of increasing productivity might be a problem for us, because there has been strong growth in the labour market previously. The fiscal commission thinks that we are at capacity or, indeed, over capacity. That is hidden a weakness in productivity. Do you recognise that productivity, which is determined by output per hour, has declined in the past seven quarters? I have already mentioned, over the past 10 years, the increase that we have seen in productivity. I have also acknowledged that it is not enough. It barely does not even close the gap with the rest of the UK. I have acknowledged that point. There is still that gap between the productivity that we have in the UK and that we have, say, in France or Germany, Holland or Norway. I acknowledge the fact that every Government, including previous devolve Governments and previous Governments at Westminster, has struggled with it. I understand the long-term nature of the issue. The fact that we have managed to see an improvement gives us some confidence about the measures that we might take to try and improve further. Those are about increasing skill levels, about increasing business R&D, and about increasing manufacturing, which, for too long, many Governments just wrote off the idea of manufacturing and left ourselves to be a service-based economy alone. Those are the actions that we are taking, given the fact that we do acknowledge that there is a job to do in terms of productivity. Let me come back to productivity, because I think that you said twice, or it may just be once, and I have misheard you, that productivity was improving, that the last seven quarters productivity has declined. In fact, the only reason that you are going up the table is because UK productivity has got weaker. If you look at the source for that, Scottish Government productivity series November 2017, the current statistics, productivity has actually got worse. Is that right? It depends on the timescale that you take it over. I have mentioned that it has increased by 6.6 per cent by 2007, but you might want to… It is said in the last seven consecutive quarters. You are picking that timescale. What has happened during that timescale, I wonder? What big event has taken place during that time? We have already had a discussion about the number of people no longer coming to this country, whether it is in terms of universities or some of the other sectors. Most commentators acknowledge the fact that there has been an impact from Brexit in terms of productivity already, not least through one of the biggest generators of productivity, both in the rest of the UK—in fact, to a greater extent, in the rest of the UK and Scotland—has been population growth. We are seeing a major impact on population growth just now through Brexit. I acknowledge that there are challenges. I am not sure what else there is for us to debate around that. I acknowledge that there are challenges. I have laid out what I think we should do to try to address that challenge. Yes, you are right. You have said that the last seven quarters are not growing, but since 2007 it has grown by 6.6 per cent. We have to learn the lessons of why that is the case in both those timespans and try to improve on it. I will move on, convener, but might I observe that the drop in productivity started before there was a referendum on leaving the European Union? I am concerned about a downward trend that started before that. I want to come back to exploring the choices that we have, because I think that that is a huge issue for us. If we accept that there are structural problems and those structural problems will take a long time to come through and grow the economy, then the choice left to us is to raise the tax tech. Do you therefore foresee for the next few years income tax having to rise in order for us to protect the block grant that we get from the UK Government? First of all, it is up to future finance secretaries and future Governments on decisions on tax, but I think that you only raise tax for particular purposes to try to achieve something in the economy or in society. Tax itself is, if you like, the hallmark of a civilised society, so I think that you do it for particular purposes. I do not think that you should give general commitments to increase the tax taking future. I think that it has to respond to the environment in which you find yourself. We find ourselves with another year's cut in our resource budget. We find ourselves with all the problems that Brexit has produced. Of course, your point about the seven quarters assumes that that has been a continuous thing. That has had one effect that has caused that. I am not sure how to explain previous quarters in the past 10 years where there has been a dip in air and increase as well. It depends on what you see has been the cause for that. No, I do not think that we necessarily have to continually increase our tax take year on year. It will depend on the particular circumstances of the economy and the particular demands of society. The point that we are all going to have to consider is that if we cannot grow the economy as quickly as we would like, because there are structural problems, then in order to protect our block grant, we need to increase per capita the income tax take. There are some stark choices ahead. Convenor, I will move on quickly to infrastructure. Perhaps you could wrap it up in response to the question. Could you tell me how the Scottish Government will use its borrowing powers for 1819? Am I correct in saying that already £234 million has been allocated to make up the shortfall in ESA 10 projects? Of course, you will recall that they were reclassified, so I am just looking to see if the £234 million is already accounted for in 1819 borrowing. To add to that, I am wondering whether you are using NPD as a financing model going forward. I will come back to the previous point. The point that Jackie Baillie makes about the pressures on the budget from economic growth is a big determinant of the income tax receipts as a level of employment as distinct from it in economic growth. I am not saying that the two things are not related, but we have very high employment just now. That does not necessarily mean that there is going to be that particular pressure in relation to the about to be pressures on future budgets, of course, but I think that the two things are quite distinct. In terms of the borrowing powers that we have and how we intend to use those, of course, we have once again agreed to a Derek Mackay set out that we will borrow the maximum available to us under the devol powers, around £450 million. Following the agreement with the fiscal framework, we have the ability to go up to £3 billion. In relation to ESA 10, I am not sure how this is something that the Scottish Government should have foreseen this. The UK Government certainly did not—many other European Governments did not see the redefining of the rules around borrowing or the further refinement of them subsequently, but it is the case that, of course, we had a substantial non-NDP programme of works and that that work continues. One project that you have mentioned—or you have mentioned the fact that some projects have been reclassified, with Aberyn Wesson peripheral route—means that there is more pressure on the public sector borrowing, but we are seeking to compensate for that by the fact that we are borrowing, if you like, to the maximum in relation to that. I think that what is perhaps more worrying is that, in relation to the Aberyn Wesson peripheral route and the M8 bundle, which was recently completed or recently opened, both of those were heavily invested in by the European Investment Bank. The European Investment Bank has now said that it will do no more business in the UK, even in the advance of Brexit. I think that that is more of an issue for us. Of course, we are currently examining the extent to which, through the Scottish Futures Trust, we can continue to use NDP or what other methods might be available to us. Jackie Baillie will know about things like tax incremental financing and growth accelerator models to try and maximise investment in infrastructure that we have undertaken as well. However, we will continue to look at that, and, despite all that has been said—perhaps many McCallan can come back on the £234 million figure that he mentioned—we have got one of the biggest infrastructure programmes of any Government in the devolution era, and that is across roads, rail and housing as well. I ask you to repeat the particular issue around the 234. It was my understanding that, as a consequence of the reclassification of particular projects, including the Aberdeen Western peripheral route that was mentioned by the cabinet secretary, we are now on the public balance sheet and, consequently, for £1819, £234 million of our £450 million ceiling on borrowing is having to be used for that purpose. Is that right? I am really sorry, but I cannot answer that question. I will have to write to you. I do not think that it has the effect—I am happy to come back to Jackie Baillian writing on that. We will check with Derek Mackay, but it does not have that effect on the input. It means that it is paid for in a different way, and it is not paid for in a way that we would like to pay for it. We prefer to pay for it through NDP rather than straightforward than the public borrowing, but we still undertake that activity. We will still be having the Aberdeen Western peripheral route. I understand that. I am just looking at the opportunity lost because we are having to borrow £234 million out of £1819 borrowing limits, which therefore cannot be spent on other projects. That is the point that I am wanting to establish. I think that that was the point that I was making about the other ways in which we can use finance for infrastructure projects to maintain that building programme. Can I ask you very quickly about the national investment bank in the context of what I call the Swinney rule on borrowing, in which 5 per cent is the limit for any repayments as a percentage of your discretionary budget for any borrowing items? Does the national investment bank count against that rule of borrowing? Mary is desperate to speak in this, but it would only depend on the nature of the finance financial transactions. Of course, the 5 per cent rule applies to the amount of borrowing that you have to repay in any given year. We do not know the final, as I mentioned in my response to Dean Lockhart previously, the final constitution or definition of the activities of the investment bank at this stage, but we will know that very shortly. I am happy to come back at the point that we do know that. I expect it to be January or February. Finally, on fuel poverty, the fuel poverty programme is predominantly through HEAP's budget line—there are too many acronyms in this cabinet secretary—but the Scottish Government committed, as I understand it, to spending £0.5 billion over four years when it refreshed its target to end fuel poverty. You will appreciate that the actual spend is £114 million for 2017-18. My understanding is that that is the same as it moves forward. That is short of £125 million that many of the organisations out there committed to tackling fuel poverty anticipate. Can we assume from that that the remaining years of the Parliament we will see much higher levels of funding, or is the scope to increase it now? That is the first part of the question. I will do with one at a time, given that it is an area largely looked after by Angela Constance, rather than myself. The total sheet-related budget for this year was £141.9 million, and that was made up of the 114 that Jackie Baillie mentions for fuel poverty and domestic energy efficiency, plus £27.8 million for non-domestic energy efficiency. The draft budget, which Derek Mackay has announced, makes available a further £144.1 million, which I think will have the effect of making sure that that £1.5 billion target is met. Thankfully, we have Chris Stark here who can give me even more detail on that. That is entirely accurate. The commitment was for half a billion for energy efficiency for four years and we are well on track to make that commitment. At the moment, we have separate schemes that deal with various aspects of energy efficiency. Heaps is one of them. I might agree that there are a lot of acronyms, but there will shortly be fewer. There will be a single integrated scheme that looks at energy efficiency. The amount that we have allocated for 18.19 towards those schemes that are relevant is 144.1, so we are on track. Within that scheme, there are a number of things, including the Heaps scheme, as it stands. We also look at various other ways of approaching energy efficiency. There are some non-domestic schemes. We also look at how we might decarbonise a heat system. All those schemes are in some way focused on reducing energy use and fuel poverty. My understanding of the £0.5 billion commitment was that that was about residential properties rather than non-residential properties. Although you might be allocating £141 million, you will forgive me if I focus on the residential properties and ask how much you are allocating for that. To confirm, I believe that the £0.5 million was for energy efficiency in the round, but I am very happy to answer that question. For domestic properties, it is 114, but there are other schemes that are relevant in the domestic setting, so we would have to disaggregate those headings underneath that. Something higher than 114 is allocated, but the various schemes underneath it would need to be disaggregated in that way. Is it fair to say that the schemes underneath it, some of them will in fact be loons and will be targeting those who perhaps do not experience fuel poverty, but there are issues of energy efficiency. I am keen to separate the two and look at fuel poverty for understandable reasons. Can you confirm within the 114 how much is granted and how much are loons, or are the loons the other separate schemes that you describe? Within the 114, it breaks down by notional allocations at this stage, but our plan is that 72 of it would be capital, 12.3 would be resource and 30 would be FTs, financial transactions or loons. You will appreciate the problem with loons. They tend to be targeted at those who are perhaps not in fuel poverty and have a level of income that would make them only eligible by definition. That means that it will take longer to deal with those who are the worst off in terms of fuel poverty by restricting the budget in that way. Has any thought been given to removing the loons and making it 114 at least, if not 125, grants rather than loons, if we are serious about tackling fuel poverty? We have done a great deal of analysis on how the programme works. I believe that the £30 million is well targeted. I accept the point that capital grants are more suitable for some recipients than financial transactions. I think that the scheme is well targeted and it will be even better targeted when we sweep it up into a new scheme. I am trying to remember, convener, but was it not the case that you underspent your loons last year? Yes, I think that we did. I am afraid that I do not know how much. I might go and find out. Thank you, convener. Thank you very much to the cabinet secretary and his team for coming in today to give evidence to the committee. I will suspend the meeting. We will move into private session now.