 Fyglwyddiant ar y mae'r ddiogel sydd wedi'i gael ei dweud o'r perthfodol a'r ddigelwyddiant gyda'r Gwyrddon Cymru yn 2017. Felly, rwy'n cael ei gael eich gael eich cyfleol o'r cyfleol neu eich cyfleol o'r cyfleol o'r cyfleol sydd yn cael ei gael ei gael ei gael eich gael ei gael eu cyfleol o'r cyfleol o'r cyfleol i'w cyffredinach o'r cyffredinach o'r cyffredinach o'r cyffredinach o'r cyffredinach, Alex. Alex i'n dechrau i chi i'n gael ei dweithio i'w ddangos I welcome today Liz Smith. Liz is a member of the Education and Skills Committee and I'm very keen to build links with other committees when we are discussing an audit that cuts across our remits. Item number one. Our first item today is to decide whether to take item four in private. Do members agree? Thank you. Item two. We will now take oral evidence on the Auditor General for Scotland's report entitled Audit of Higher Education in Scotland's Universities. I welcome to the meeting John Swinney, MSP Deputy First Minister and Cabinet Secretary for Education and Skills, and Aileen McEchnie, director of Advanced Learning and Science, the Scottish Government. It is rare for the Audit Committee to take evidence from a Cabinet Secretary. This recognises the fact that public bodies accountable officers are personally responsible for the economic, efficient and effective use of related resources. Further, the Auditor General does not make judgments on policy, which is a matter for Scottish ministers rather than officials. However, the committee considered it important to take further evidence from the Cabinet Secretary as there are various fundamental policy discussions under way that could significantly affect the future funding and performance of the higher and higher education sectors. I now invite the Cabinet Secretary to make an opening statement before moving to questions from colleagues. Thank you, convener. Education is this Government's defining mission, and our priorities are to ensure that our children and young people get the best possible start in life to raise standards in our schools and to close the educational attainment gap. We are absolutely committed to ensuring that every young person can access a positive and beneficial learning journey that will provide them with the right range of skills and qualifications to succeed in life. One of our key ambitions is to widen access to further and higher education, as well as to create greater flexibility across the senior school phase and into higher, further and vocational education, thus creating more high-quality opportunities for every child to succeed. I am heartened to see the recent SFC college statistics that show that over 41 per cent of all full-time college activity was in higher education in 2015-16, the highest proportion ever. As outlined in my written submission of 18 January, since the last committee meeting to discuss these reports, we have published the draft budget for 2017-18. Indeed, Parliament will vote on its stage 1 proceedings today. Despite the challenging context created by the UK Government's approach to public spending, we have increased college funding resource on capital by £41.4 million and £5.9 per cent. The increase in our investment to Scotland's colleges will help them to continue to improve young people's life chances and to generate the skilled workforce that is needed to secure economic growth. We will continue to maintain at least 116,000 full-time equivalent college places, equipping students with the skills to take them on to positive destinations in education and employment. Higher education has also benefited from continued investment from this Government for the six-year success and we intend to provide more than £1 billion to the sector, which will ensure core teaching and research grant investment is protected. This level of funding also enables us to continue to make progress on our commitment to widening access while protecting free tuition for all eligible Scottish and EU students. In our pre-Egypt budget discussions, we engage closely with the higher education sector to identify areas of savings and income generation opportunities. Our draft budget also identifies an increase in capital funding of 77 per cent to support research infrastructure and investment in excellent learning environments for students. The investment will support our universities to remain internationally competitive, to continue to be renowned for their research excellence and will ensure that access to higher education remains based on the ability to learn, not the ability to pay. In previous committee meetings, the number of Scottish domiciled students being accepted to Scottish universities has been an area of particular interest for members. The latest UCAS statistics show that the number of Scottish students accepted to a Scottish institution has increased by 2 per cent to 33,825 over this academic year, with an increase of 1.1 per cent in entry rates for 18-year-olds from the 20 per cent most deprived areas in Scotland. I hope that that helps to set out the Government's commitment to ensuring that our further higher education sectors continue to make a pivotal contribution to the Scottish Government's vision for excellence and equity within and across Scotland's education system, and I look forward to discussing those issues with the committee. I would like to ask a couple of questions on widening access. Looking at the performance of the universities in terms of widening access, on average, they seem to be well behind achieving the 20 per cent against the 20 per cent SIMD figure. Indeed, the ancient universities are only, if I recall correctly, I am talking from memory here, about 6 per cent against the lowest 20 per cent on SIMD. Do you have any comment as to why the universities are so far behind on this? That is, of course, a long-term issue. That is not something that is particularly new. There has been an access gap. That is precisely why the Government established the Commission on Widening Access. It is why we accepted the recommendations of the Commission on Widening Access and it is why we appointed Sir Peter Scott as the Widening Access Commissioner. Sir Peter has already started his work and he and I participated in a recent event just a couple of weeks ago at the University of St Andrews, which was focused very directly on the question of widening access and the commitments that were by the approach taken by Sir Peter has been clearly explained also to the Education and Skills Committee of Parliament. I would say from my observations about my dialogue with the sector that the sector recognises the issue and that it is engaged with the Government in trying to address the issue. Professor Mapstone, the principal at St Andrews University, was heavily involved in the Widening Access event that took place at St Andrews, which drew together a whole range of different interested parties in the debate on widening access. Professor Mapstone made it absolutely crystal clear in her inauguration address as the principal at St Andrews University's determination to make significant progress on the question of widening access. I think that the progress has been made, but obviously there is still a great deal more to be done in this area. Realising the complexity of creating a wider set of measures, do we have any timescale in which it is hoped to deliver the new set of figures? The Government has said that we want to get to our target levels of 20 per cent of students coming from deprived backgrounds at higher education institutions by 2030, and we are obviously making progress towards that objective. Just a quick question on SFC funding. Is SFC funding for teaching intended to cover the full cost of teaching both Scottish and EU students? The funding that is available to universities comes from a very wide range of different financial sources. Teaching grant is one component of all that. The Government takes forward an approach that is designed to support teaching activity in our universities and to ensure that it is appropriately and effectively funded by the contributions that the Government makes to that process. Obviously, institutions have to make their own decisions about the overall allocation of resources internally, given that the universities are independent institutions. Does the price paid per funded place by the SFC have an explicit efficiency target for universities built in? Not an explicit target, but there is clearly an assumption that is applied across the board within the public services of the importance of having a focus and an attention on efficiency given the challenges of the public expenditure climate in which we operate, but also recognising the fact that we have, just as a matter of good practice, to constantly be challenging the cost involved in the delivery of public services to make sure that we are maximising the value for public money that is being achieved as a consequence. The price paid per funded place by the SFC, is it linked to the SFC's monitoring of the universities' overall financial health? The overall financial health of institutions will be a factor of assessment by the Scottish Funding Council, yes. Just one last question. Do what extent does the Scottish Government expect universities to cross subsidise the costs of teaching Scottish and EU students with other income-generated non-EU tuition fees? My earlier answer was on the territory that universities attract finance from a range of different sources. As independent institutions, they have to make their own decisions about their fiscal sustainability, but they will be drawing resources from teaching grant, they will be drawing resources from research grants that are secured from external bodies, they will have a whole range of different sources of income that will be coming to universities, and they have to make judgments about the deploying of those resources as part of the overall judgment that they make about the fiscal sustainability of their institutions. Cabinet Secretary, the Auditor General notes in our report that it has become more difficult in recent years for Scottish students to gain a place at a Scottish university. That has been because there are more applications in places. Further, the Auditor General stated that the policy on widening access within the current number of funded places will have consequences for students. University principals in my region have been very clear with me that with rising demand from Scottish students, cap places and, therefore, fierce competition, the policy, as it is currently based on SIMD, is at serious risk of displacing able students. What is your response to that? The first thing that I would say is that, of course, there has been a significant rise in the number of Scottish domiciled students entering university. That fact that has risen 11 per cent in the past 10 years is a very welcome change in the patterns. I think that we should remember that point at the outset of this conversation. The second point that I would make is that, quite clearly, there will be competition for places. We do not operate a system on the basis that everybody that wants to go to university goes to university. That is not the system that we operate, and it would be impossible for us to deploy a system of that nature. Of course, there will be competition for places. The third thing that I would say is that, and this is a point that I think is central to the analysis about the issues of participation in higher education, is that in Scotland we have a fundamentally different approach, or a differently balanced approach, as the more appropriate way to say it, between participation in higher education at university level or within the further education sector. We have a much more significant proportion of individuals who participate in higher education courses at further education than is the case elsewhere in the United Kingdom. That does not address the issue that Mr Beattie has raised with me about access to ancient universities, but it does address the issue of access to higher education courses, which is undertaken in a different fashion. Of course, there will be competition for places, but by our work in partnership with the universities on the approach to widening access, which again I referred to in my response to Mr Beattie, there is an opportunity for us to make progress on a very important commitment that I know the universities are with us in trying to address. University principals have highlighted to me their genuine concern about the potential for those who are able to be displaced because of SIMD not being that sophisticated. In fact, Dame Silver at the education committee recently accepted and acknowledged that SIMD is not sophisticated a measure and can be hit and miss, just as the principal of Abertau said to me, he said that it risks actually advantaging affluent students in its current form. In fact, Paul Johnson accepted those points when he spoke to this committee and advised that they would be carrying out work to develop a more sophisticated model. Can the cabinet secretary advise when this work is going to be undertaken and when will it conclude? We look at all of those factors because I think that it is not this question that is not just relevant in relation to the question of university access. If Mr Thomson will be familiar with the announcements that I made yesterday on pupil equity funding and the judgment that I have arrived at in the distribution of that funding, which is essentially to try to target deprivation of where it exists within the country, has been to go beyond SIMD into a more comprehensive measure driven by an assessment of free school meal entitlement, which we believe essentially provides a more granular breakdown of the existence of or the prevalence of deprivation and is also sitting next year representing a large, disparate, rural constituency. SIMD indicators will identify the existence of poverty in groupings, much more in our larger settlements, but it will not. I absolutely concede that it will not identify the prevalence of deprivation in areas of the dispersed population nature that Ms Ross represents, so the free school meal assessment will do that more effectively. The work that Mr Thomson referred to in his previous appearance at the committee is work that is under way. We would expect that probably to conclude. It is a detailed piece of work because we have to look at existing datasets and to try to work at a more effective way of fine-tuning that information, but I expect that to be available during 2018. When Dame Silver again was questioned by my colleague Liz Smith at the Education and Skills Committee, in her evidence, she said that, in relation to the data sitting behind the Government's decision that universities accept students from the most deprived communities, the 20 per cent most deprived communities and that that should be increased by 20 per cent by 2030, she raised her own concern that the data suffers from, and I quote, the same disease, which is that it's not systemic and that the collection of data has been poor. Therefore, could the Cabinet Secretary advise the committee on what evidence the Scottish Government in reaching its policy target of 20 per cent and how robust has that evidence been? I'm not sure if I follow the point that's been made here. Let me try to address it, but if I'm not picking up correctly, please correct me. Essentially, we are looking at the data, which I'm yet to see any data that contradicts the Government's approach in relation to SIMD distribution across the general population base, and the Government is looking at that to essentially ensure that a situation that prevails just now, where currently we have 14 per cent of Scottish domicile and full-time first-degree entrance to Scottish universities were from the 20 per cent most deprived areas, and the Government is simply trying to ensure that that cohort of the population are appropriately represented at universities. That's obviously a better figure than it was in 2006-07—11.2 per cent in 2006-07. That's the objective of our policy, and I've not seen anything on that question that would dispute the data that drives the SIMD assessment. Thank you, cabinet secretary. What that nicely takes me on to is, again, there's been a number of questions that have been asked by Scottish Government officials about the collection of data and evidence for policy decisions, and that's what I was trying to tease out, was the robustness of it. I know that, in relation to HIE, when the cabinet secretary, Keith Brown, was before the Education and Skills Committee, again, that question was raised in terms of a proposal for a single superboard, where was the evidence during the consultation that this should be the policy position of the Government? At that point, there was no evidence whatsoever when the cabinet secretary provided the committee, no one during the consultation, actually suggested that a single board would be the solution to what were some problems that were identified. I was trying to seek clarity on the evidence base that the Scottish Government uses before taking policies forward. If the cabinet secretary could provide clarity on that particular issue around HIE, why the decision to move forward with a single board? In all of those questions, there will be two different elements to how we approach the question. The first will be to look at evidence—evidence of a problem or a challenge or whatever it happens to be—and then there will be a policy solution that is put in place. Evidence that drives the Enterprise and Skills review is the fact that we are concerned that we are not seeing the Scottish economy performing in the top quartile of the productivity assessments, which we believe in policy terms is where we should be. I do not really think that there is much disagreement in Parliament that that would be the place where we want Scotland to be performing. We all want the Scottish economy to be more successful and more dynamic. We need it to be more productive and there is plenty of data that tells us that we are not achieving that level of productivity. That is the evidence that says to us what our policy response should be. Just because somebody else has not suggested a solution that the Government is coming for does not mean that there is a lack of evidence. It is just that nobody has suggested that. If the Government only did things that other people had done before or that somebody else had suggested, which is the corollary of Mr Thomson's question, then we would not undertake much policy innovation. We have to look at the evidence. The evidence is about the fact that, despite the best efforts of lots of players and parties, private sector, public sector, enterprise agencies, skills agencies, funding council and people doing their level best, we do not feel as if the evidence shows that we have not reached the top quartile of productivity performance. The Government has looked at that and said, what do we do to try to intensify that? To intensify that, we believe that we have to have stronger alignment between the activities and choices made by our enterprise, skills and learning agencies, which is where the single board proposal comes from. I would venture to suggest that the evidence base is crystal clear. The policy conclusions are for ministers to consider and for ministers to be judged upon, and that is how policies arrived at. Lastly, convener, thank you for your answer, cabinet secretary. It is interesting to note that nobody has suggested a single board being the solution to the problem. You are right that things do have to be based on evidence. There is clear evidence from the University of Scotland that it is critically important to maintain the Scottish funding council, and it is clear that there has been no evidence base for proposing that that be scrapped. Therefore, what work, if any, has the Scottish Government undertaken around the risks of reclassification to universities? There are quite a number of issues in there. First, I am going to go back to some of what I have just said in my answer. I have given a clear explanation of the process that the Government goes through. We look at evidence, and the evidence is about economic performance. I do not think that Mr Thomson would be challenging me on the fact that the productivity performance of Scotland is not as strong as we would all desire it to be. The Government then has to think about what we should do about that. We listen to the ideas and suggestions that come forward. Mr Brown has engaged with a ministerial review group, which has been a broadly-based ministerial review group. What that dialogue suggested was a need to declutter the existing landscape, to simplify the whole system for users and to drive alignment across the agencies to maximise the collective impact of our economic activities. If I may give this discussion a little bit more direction, our job is to follow the public pound in this committee. I think that what Mr Thomson is getting at is the potential risk of the reclassification of universities, because that would have financial impact. Forgive me if you are about to come to that. I am going to, but with the greatest respect of you, Mr Thomson has just reinterpreted my answer to the question, which was not the answer that I gave. I am simply putting on the record the answer that I gave and to provide the detail to the committee that we look at that evidence and then we come to our policy conclusions as a consequence of that, which are informed by the views of the ministerial review group. Now, when it then comes to the subsequent questions that Mr Thomson asked me, the first is that the Scottish Funding Council has not been scrapped, which was Mr Thomson's words. It has not been scrapped and under the proposals that the Government is bringing forward. The final issue is on the issue of reclassification. I have already made clear to Parliament that I maintain a very close interest in the classification of universities and I will be assessing very carefully all proposals that come forward to ensure that nothing jeopardises the private sector classification of universities. I think that that would be an undesirable and unacceptable outcome. The Office of National Statistics has just this week set out the work that it intends to do in this area and it has made clear in the light of its assessment of the policy proposals that are in the public domain that there is nothing in their view that challenges the private sector classification of the universities. The ONS is going to do some work about whether the universities are classified as market or non-market institutions, but there is no question about the university's classification. There is no scope in the ONS work to question whether the universities are private sector institutions. That is a very welcome piece of information from the Office of National Statistics. If you were to receive any advice saying that reclassification might be on the cards, would you drop your reorganisation plans? What I have said is that I would be looking at all policy proposals to ensure that they did not lead to any risk of reclassification. What the ONS statements for this week make clear is that there is nothing in the enterprise and skills review that leads to such a conclusion. As a point of clarification, the Cabinet Secretary for Employment and Skills told the Education and Skills Committee that the Scottish funding council board would be abolished. Could you clarify whether that is correct? That is what the proposal is, but Mr Thomson said to me that the Scottish funding council has been scrapped, and those are two very different things. That is my next question, cabinet secretary. There are some who would argue that if the board of the funding council is scrapped, then that has obviously very significant implications for the way that the funding council or any new body would be run. Could you clarify exactly what is to happen? The Government is going through the second phase of the enterprise and skills review. We have set out the proposals that have been concluded from stage 1. We are now actively exploring the next stage of this work. The Cabinet Secretary for Employment and Economy has commissioned work to be undertaken on the governance arrangements to address those issues. We expect that work to come to hand fairly soon, and we will obviously engage in further dialogue with Parliament on those questions. It is correct to say that there will be a new funding council model, because the board of the existing one is to go. Therefore, the argument would be that there would have to be a new body. There will be changes to the arrangements under the proposals that have been set out to date. Could you spell out what the intention is? I have said that we have concluded the first phase of the enterprise and skills review. We are now looking at some of the governance issues in more detail in the second phase, and the Cabinet Secretary will provide an update to Parliament in due course. The issue that we had at the education committee, which was put by a variety of members around the committee, was that it appears that decisions have been taken to abolish the four individual boards in knowledge that there would be an overarching new board. I think that the evidence that you pointed out this morning, the evidence about why there could be great benefits from an overarching board in terms of the economy and strategic direction, is very clear. The evidence about what the advice is in terms of abolishing the boards seems to be completely non-existent. That is the concern that the Education Committee has—I am sure that the Audit Committee has it as well—and Parliament has it. What is the advice that you are getting from people in the enterprise agencies in Highlands and Islands and from the current Scottish funding council board as to why they should be abolished in their current form? The evidence that informs the Government's policy conclusions has been gathered through the ministerial review group, which called for us to declutter the system to make it more to increase alignment and to increase the focus of the organisations of working together to focus on this broader economic objective within the economy. The Government has come to the conclusion that the best way to do that would be to establish a single board that would enable that to be the case. We are developing further work on those proposals as part of the second phase of the enterprise and skills review. We have invited Lon Creerr, the chair of HIE, to work with the chairs of the different bodies to consider those points. We will receive that report in due course. Forgive me for laboring the point, cabinet secretary. It appeared after the phase 1 that a decision had been made to have an overarching board, which I think most people support, but also to abolish the four individual boards that currently govern the individual bodies. That decision had been taken. I think that Parliament and committees have got a right to know as to on what evidence was that decision proposed. You are arguing that in phase 2 changes can be made to that. I think that the concern that we all have is that at the end of phase 1, which was a very definite phase when, as I say, the cabinet secretary for employment and skills came to the education committee, he got himself into a bit of trouble about not being able to answer that question. That is the point that I think we really want to go about. I feel that I have gone through some of this territory already. What the ministerial review group dialogue raised in phase 1, what the call for evidence responses raised, was a desire for the decluttering of the existing landscape for simplifying the whole system for users and for driving alignment across the agencies to maximise collective impact and to realise our ambition for Scotland's economic performance. That is the evidence, the call for the need to drive alignment across the agencies. The Government looks at that evidence and judges—this is the point that I made to Mr Thomson a moment ago—we look at that evidence and then we make a judgment, which is in policy terms the best way to do that is to create a single board. That is the policy conclusion and response that we have come to to the evidence. Just because somebody else has not suggested it, it does not mean that it should not be taken forward. Where do new ideas come from? We always have old ideas. Somebody else has got to suggest the ideas before we do anything else. How do we get policy innovation if we do not have new ideas? We will never try anything different. We will never change anything. Conservative Government abolished the Scottish Development Agency and created Scottish Enterprise in the early 1990s. That was a policy response to evidence. I did not know what was going to work. Cabinet Secretary, there are two issues here. First, I do not think that anybody doubts the need for strategic oversight of skills and employment. I do not think that anybody doubts that at all. I can well understand why the Government believes that it has the necessary evidence to create that overarching board. The second point, however, is that very strong messages from the Scottish Government are given in the chamber and in committee that it was necessary to abolish the four boards. What I think is very important is that Parliament understands what the evidence was to support that decision to abolish the boards in view of the evidence that you want to pursue an overarching board. That is the problem that the Scottish Government has. I am afraid that I am just going to go over territory that I have gone over before. My answer is this. We have gone through an evidence process that has said to us that we need to drive greater alignment across the agencies. Our policy response to that is to have an overarching board, which Liz Smith tells me supports. I think that the arguments for an overarching board are made by the need to drive greater alignment amongst the agencies and to ensure that the agencies are working in alignment. That is the policy response. I think that we will have to disagree. I just want to explore a couple of matters that have come up. First of all, something Colin Beattie raised earlier on. Cabinet Secretary, in your written submission you say that the significant investment will support universities to remain internationally competitive and continue to be renowned for research excellence. Professor Andrea Nolan, the convener of Universities Scotland in response to the budget at the end of last year, said that this settlement does not enable recovery towards sustainable funding of universities' core teaching and research activities. That backs up anecdotal evidence that there is simply not enough money going into the sector. If I hear you right, your answer to Mr Beattie implied that you accept that and that the onus is on the sector to meet the shortfall itself. Is that correct? Am I hearing that right? What my answer to Mr Beattie said is that the income sources of the university sector are varied and they come from a whole variety of sources. They come from certainly funding council grants from tuition fees and education contracts. They come from research grants and contracts. They come from a variety of other income sources. They come from endowments and investment income, so they come from a whole variety of different sources, making up around about a total turnover of £3.5 billion. The Government's contribution to that is probably about a third to two-fifths. My point to Mr Beattie is that the university's financial sustainability is driven not just by Government funding. Government funding represents a minority of university income, but we make a contribution towards that and we make a contribution that we consider contributes to making our university sector internationally competitive and sustainable. What if Professor Nolan is correct and there is not sustainable funding? What is the long-term prognosis? We are engaged with the university sector on very active dialogue about the long-term financial sustainability of the university sector. We have gone through in relation to the formulation of the budget proposals over the course of the last couple of years. I have been strategic engagement with the university sector a year before this one. I led that as finance secretary and this year I have led it as the education secretary. We have a very good open dialogue with the universities, substantially at official level but also at ministerial level about the issues of financial sustainability. That is an on-going dialogue that we have with the sector to ensure that we are making a contribution that is appropriate and effective in ensuring the financial sustainability of the sector. Is there an expectation that if there were sustainability concerns or in general that they would start to eat into reserves? Obviously universities have a range of different financial mechanisms at their disposal, they are private organisations, they are private independent institutions, they have to be the judges of their own fiscal sustainability and obviously the Government makes a contribution but there will be contributions from other sources of income into the bargain. Just finally on this point, in evidence to last session's education culture committee, the Scottish Funding Council said that we do not allocate funding based on universities' overall incomes from other sources and I think that your response quotes the evidence provided by the SFC to this committee and said that the SFC considered the financial health of the whole institution, which just feels slightly ambiguous. Are you able to clear that up, please? Do the SFC allocate funding based on overall incomes? If my memory serves me right, Mr Kemp, the chief executive of the funding council, told either this committee or the education committee in early December that the SFC looks at the overall financial health of the institution, I'm not sure which committee it was, I can't quite recall, was it this one? Mr Kemp told this committee that point, which is the one that I made to Mr Beattie in my other answer. Just for clarity, I think that it's slightly different from what the SFC said to the education culture committee. I'll have somewhere in this folder a paper, the quote from Mr Kemp, but if I walk my way through it, I'm sure I'll find it, but I can assure Mr Kerr that what I've said to the committee is identical to what Mr Kemp said in evidence to the committee, I think, on 1 December last year. I just wonder whether it would be possible to clarify, perhaps afterwards, just whether it's that evidence that's the correct one or the evidence that the SFC gave? Well, I've just said that Mr Kemp is the chief executive of the funding council and he came to, I think, this committee on 1 December and said that the SFC takes into account the overall financial health of institutions, so that's what I'm, there's no contradiction in that. I think you are correct, I think that there are two slightly different statements from the SFC that we have on record at committee, but I think perhaps the question, if you may allow me, Mr Kerr, to you is, from the Scottish Government's point of view, which do you consider the overall reserves of the university or the overall substantial health? I mean, obviously, the SFC makes that judgment and consideration, but do you worry that some universities have much more reserves than others? Therefore, if you're cutting that core funding that is not covering the teaching grant, are some universities at more risk than others? The overall financial health of the university sector takes into account a range of different factors. I've cited to Mr Kerr the fact that the Government funding to universities represents somewhere between a third and two-fifths of the total turnover of universities. There's obviously reserves in universities. They will vary from institution to institution, but the funding council takes into account the overall financial health of institutions in determining the decisions that it makes in financial allocations. Can I just quote to you? Cabinet Secretary, the University of St Andrews relies on SFC grants to around 25 per cent, whereas the University of the Highlands and Islands relies on SFC grants to the tune of about 83 per cent. In terms of the risk, you must be concerned, as Cabinet Secretary, about some of those universities that are much more reliant on SFC funding, giving the fact that you're cutting that funding. The first thing to say is that the university sector, in cash terms, will get an increase in their budget in 2017-18 compared to 2016-17. That's the first thing. In cash terms, but not in real terms? Those are my words, convener. In cash terms, yes. The university sector will get an increase in the resources from the Government in cash terms in 2017-18. The second point is that, clearly, Mr Kerr, in his statement to the committee, and I've taken exactly the same approach in reinforcing the SFC position, taking into account the financial health of individual institutions, which will be a product of a whole variety of different factors in arriving at the financial decisions. The figures that you quote, convener, of the difference of dependence on Government funding of the University of St Andrews at one end of the spectrum and the University of the Highlands and Islands at the other end of the spectrum is a measure of that fact. The difference in the financial position of each institution is taken into account. However, to take the University of the Highlands and Islands as an example, we are seeing the emergence of a much stronger institution in the University of the Highlands and Islands that is now attracting significant credibility in its research work. I would imagine that, over the course of time, we will see the University of the Highlands and Islands broadening its financial base. It is an emerging institution that is being funded by the Government to support that development. However, as time goes on, the greater proportion of the University's income for entirely desirable reasons will come from other sources because of the growth and research excellence of the University of the Highlands and Islands. We would all hope the best for the University of the Highlands and Islands, but I do not think that they are satisfied with the fact that the Scottish Government is only managing to recover 94.2 per cent of the full economic cost of providing teaching. Are you telling me that you are not concerned, given the fact that you take the University's reserves and all its income, into account that you are still underfunding teaching in those universities that have less reserves to pull on? Is that not of concern to you? I look to the SFC to look at the overall financial health of institutions and taking the decisions that they take. I recognise that universities have a range of different financial sources at their disposal, and I recognise the importance of universities taking forward their operations as independent organisations responsible for the efficiency and delivery of efficiency within their organisations. Just on that point, cabinet secretary, when coming to that decision, are the size of a particular institution's reserves a relevant consideration in allocating funding? The overall financial health of institutions will be taken into account by the Scottish funding council. I do not take the operational decisions of the Scottish funding council, but I would be surprised if reserves are not a factor that is taken into account in that judgment. Does that concern you at all, because by definition reserves are reserves and are not necessarily to be used as a day-to-day funding stream? My recollection is that an awful lot of the sector's reserves are held in assets, so you are almost asking—is there not a question about asking the sector to liquidate its assets in order to sustain funding? Well, let me give Mr Kerr an example. A university that owns some buildings and land and wishes to sell those assets, to raise a capital receipt, to enable it to fund an improvement in the state and the development of some more world-class educational facilities would strike me as an absolutely prudent and sustainable decision for a university to make. That is the type of decision a university is free to make when they have control over their asset base and the resources at their disposal. Is that what universities do all the time? Yes, but I am not sure that that is what I was asking. The convener made the point that there is potentially a shortfall in the ability to provide a service. In order to cover that shortfall, there is a danger—is there not—that the institution is forced into a fire sale of assets to cover that shortfall? No, that is the answer to that. What I said to Mr Beattie earlier is that there is a need for all institutions in the public sector be they universities or anybody else to look at the way they undertake their operations and to maximise the efficiency and the value for money that are delivered. So our universities cannot be exempt from that process and I would be surprised if this committee took the view that the universities should be exempt from that process because we require it of absolutely every other aspect of the public services. So universities have to look, as they do, at the way they take forward their operations and their approaches to make sure that they are ffiscally sustainable, but the point that I am making to Mr Kerr and to the committee is that the Government's contribution to the funding of the university sector is a minority contribution given the other sources of income that universities have. So Cabinet Secretary, we know about your Government's policy for tuition fees for Scottish students. Is it your Government's intention to cover that full cost of teaching for Scottish students going to university? The Government makes its contribution. We have protected the teaching grant for the universities. We have made that clear as part of the funding settlement. We have protected the research grant for universities. We have protected the resources available for widening access. That is inherent in the funding settlement that we have given to universities. So you make a contribution towards teaching your Government. You do not cover the whole thing and then it is up to the university whether they can meet the shortfall in teaching Scottish students. Is that right? We make the contribution to the universities and our contribution represents a minority of the funding of universities. Its universities as private organisations have got to deploy their resources in the fashion that they see fit. So it really depends on which university the Scottish students are applying to, whether the cost of their teaching is met? I do not think that that is the case at all, no? Gail Ross. Thank you, convener. Good morning, Cabinet Secretary. I have a declaration of interest. I am a board member of North Highland College, which is part of the UHI. I think that, going back to what we were talking about funding for particularly the UHI and there is an elephant in the room that has not been addressed, that is EU funding. A third of the external funding for the UHI comes from the EU. Probably not a question for today, but we still have a lot of questions to ask and get answered about where that money is going to come from, unfortunately. I would like to touch on student debt, especially from deprived areas and rural areas. You touched on it yourself in an answer to Ross Thompson about calculating the deprivation in rural areas. We have said for a number of years now that the SIMD calculations often do not take that fully into account. I am pleased to hear that there is another calculation that is being used for that. You said in your opening statement that there has been an increase of 1.1 per cent from students from the most deprived areas. Given the audit report, it says that students from deprived areas have higher levels of student loan debt. In your opinion, are the projected levels of student debt preventing students from deprived backgrounds applying? The first point that I will make is that the data on first degree entrants to Scottish universities from the 20 per cent most deprived areas has risen from 11.2 per cent in 2006-07 to 14 per cent. Significant progress has been made in this respect as part of the Government's work. We have to look at the comparative information. The average student loan debt in Scotland is the lowest in the United Kingdom at £10,500, compared to £24,640 in England. Average support is the highest it has ever been at £5,720 per student in 2015-16, which was up by 2 per cent on 2014-15. I acknowledge that there will be judgments that individual students have to make about whether or not a university approach is appropriate for them and their own personal financial circumstances will come into mind in that respect. Those issues are underpinned by the approach that the Government is taking, but it has prompted us to commission the student support review, which is designed to look at many of the questions that Gail Ross raises this morning. Do you know when that review is due to conclude? It will be concluding in the spring of 2018. I was at an NUS event a couple of weeks ago here in the Parliament and that cuts across the college's report. It was mentioned to me that one of the main things that students are spending their money on is accommodation. A lot of the times they get to the end of the month and they are having to apply for extra funding, emergency funding, because they have spent all their grant on their accommodation. We have asked the UHI to do a survey of highlands to see what can be done there. Is there any support that the Government can give for students for accommodation? What is your general opinion on the costs? Obviously, the Government gives its support as part of a support package. It is not compartmentalised in the sense that there is an allocation for accommodation or other particular items. The general financial approach is taken. The cost of accommodation can be significant and it has to be borne in mind in the judgments that individual students will make as to whether that is the appropriate route for them to take. The specific point that Gail Ross makes is something that the student support review can explore as part of its responsibilities to ensure that we properly address on an on-going basis the needs of young people in that respect. The committee received written evidence from University of Scotland. Looking at it in front of me, I am quite struck by the top line, which is in bold, and it simply says that HE is underfunded. We have heard a lot today about the cocktail of funding that universities receive, but the report that we have from University of Scotland says that, in fact, since we received the report from Audit Scotland, the financial risks identified by the Auditor General have intensified. That will be of concern to everyone around the table today. The Audit Scotland figures that we received last year reported that a 6 per cent real-term reduction and, in the draft budget for 17 to 18 points to a further real-term cut of 1.4 per cent. I am wondering, cabinet secretary, do you accept that financial risk to the HE sector is increasing as set out in this paper by University of Scotland? Let me go through a few points in that respect in relation to the funding position of higher education. The first is in relation to the budget for 2017-18. As I have indicated already, there is a cash increase in the budget. As part of the agreement, the Government also agreed with the universities to enable them to charge for some postgraduate activity, which will boost income of the universities. We anticipate that that will generate probably of the order of at least £8 million of new income for universities as a consequence. When we take into account the impact of that factor, the net reduction in resource expenditure for universities is £5 million in 2017-18. However, as I have said to the committee already, there is an overall cash increase in the university's budget from the Government. The second point that I would make is in relation to the future financial outlook. Again, the Government is engaged in that proposal about charging for some postgraduate activity. It came out of the strategic financial dialogue between the Government and the university sector. We have enabled that to happen to assist the universities in raising more revenue. As part of that dialogue, we obviously look at the financial outlook and the challenges that the universities face. I acknowledge, as part of that discussion, the significant nervousness on the part of the universities about the future implications of the withdrawal from the European Union. That will be a very significant issue to be considered with the universities. We are committed to doing so. We do not know yet what the implications will be, but we can be certain that there will be implications. Obviously, our strategic funding dialogue with the universities will look at those very questions to make sure that we work in partnership with the sector in addressing those challenges. Does that mean that you agree that financial risk has increased and that you have touched on very rightly the EU implications? Is the University of Scotland right to be feeling increasingly nervous? I think that the universities are. I know that I have talked to the universities on a regular basis. I know that there is a lot of nervousness in the university sector about the implications of the Brexit decision. The Government could be engaging more closely with the sector on that question, because we share those concerns. Obviously, it is an integral part of the approach on the European question that the Government is taking to try to safeguard the interests of our universities. In the submission from University of Scotland, the number of universities that reported a deficit in 2014-15, seven Scottish institutions were in deficit. Are you able to update the committee this morning on any more recent figures on that? Is that remaining the same? Are there more universities in deficit? I do not have any more up-to-date information for the committee today, but, obviously, that information comes as part of an Audit Scotland report that fundamentally said that the universities were a successful sector and a financially strong sector. Back in October, the committee took evidence from Audit Scotland on the report that we were discussing today. In that session, the Auditor General was asked if the funding levels were sustainable. She said that that is a question for the Government rather than for her. I want to put that question to you, Cabinet Secretary, given that we have talked about some of the risks and the risks that are increasing. Is that a sustainable picture going forward? I think that it is. We have a cash increase in the university budget for the forthcoming financial year. We have a significant increase in the capital budget, and we have assisted the universities in increasing their income base. I think that the settlement is sustainable. I have reinforced the point that I have just made to Monica Lennon about the European question, which I think that the universities have taken input from the universities very close into the heart of the Government's deliberations on the issue. Professor Anton Muscatelli, the principal of the University of Glasgow, is immersed in the standing council of Europe that the First Minister has established. We are grateful to Professor Muscatelli and his colleagues for the high-quality input that they have made to our deliberations. We will continue to discuss with them the implications of the European situation as it becomes clear in the years to come. When we heard from the Auditor General in October last year, she told us that Audit Scotland is concerned at the ambitious policy commitments around widening access and the funding of student support, we will butt up against some of the cost pressures that universities already face. With that in mind, the Auditor General stressed how important it is for the Government and the funding council, together with universities, to understand how those pressures will be faced. Can we get some clarity on how those discussions are going? We have a dialogue process with the universities that informed the budget process. My officials met a group from Universities Scotland on many occasions in the run-up to the formulation of the 2017 budget. I met the Universities Scotland group on two occasions in advance of the budget process to discuss particular issues and to arrive at the financial settlement that we arrived at. As I have indicated, that dialogue will continue in the period going forward and it will address the issues that become prevalent, particularly the issues around the implications of the decision on the European Union membership. I want to raise another issue. The cabinet secretary spoke earlier about the different options and choices that universities have to make. I wanted to pick up on something that was reported in the press last weekend that was raised at First Minister's Questions. That was about the University of West of Scotland, in particular the Hamilton campus. Now, we have received a letter that I have here somewhere from the Scottish Funding Council in response to questions raised by the committee. This refers to the £50 million reprofiling clawback. I am not sure what the latest terminology for that is, but the cabinet secretary will be aware that the campus inquiry is in my region. From local knowledge and having followed that quite carefully, that appears to me very much a project that was abandoned. The university had to make a different decision and it means that the campus will close. Is it still your position, cabinet secretary, that that was in no way affected by the funding issues faced by the Scottish Funding Council? The first thing is that the campus inquiry will not close. It will move to modernised premises as a better way to express the issue. Secondly, there were, in my view, no implications from the decision of the Government to ask the Scottish Funding Council to transfer the underspend that it had acquired in 2012-13 back into the Government's funds, because the project in question was, as Mr Kemp makes clear in his letter of 1 February to the convener, that the project was not committed at any stage. I wonder then if the cabinet secretary could explain perhaps what his predecessor, Angela Constance, meant when she said in portfolio questions on 7 October 2015 that the redevelopment of the University of West Scotland-Hamilton campus, which she meant at the Elmadge Street location, will feature as one of the highest priorities in the Scottish Funding Council infrastructure investment plan? The funding council has dialogue with institutions on a regular basis about particular projects and proposals, but those projects and proposals have to go to a position of financial agreement and financial commitment. I have set out the fact that that was not the case with the project, but there are now the steps that have been taken forward to ensure that the campus is developed at the Hamilton International Technology Park. The background to this is that Bell College and Paisley University merged in 2006, and that created University of West of Scotland. Correspondence that I have obtained that was an email sent by the—I don't know if she is still in post—Tracy Slavin, Deputy Director and Head of Division of HE and Learner Support Division. That was back in March 2013. In that email, she made it quite clear that, at the point in the merger that happened in 2006, there was an expectation that the Scottish Funding Council would redevelop the existing campus, but some of the language in that email talks about the world had changed some of the global financial crisis, constraints on public capital. The Scottish Funding Council knew several years ago that it was not going to be in a position to support that project. That is a question that you would have to put to the Scottish Funding Council. That is a question to them. I don't know the answer to what their views are and that respect. The key point that I come back to is that this project has not been committed, but there are proposals that are now being taken forward. Mr Swinney, Monica Lennon asked you about the University of Scotland submission, and you said that the university sector was, I think, a sustainable financial health. However, the first key message on the University of Scotland submission—I have it in front of me—is in bold. It says that HE is underfunded. Do you agree with that? No, I don't. You simply don't agree with the fact that— I think that the Government has given an appropriate financial support to the university sector. We have increased in cash terms the budget that is available to the university in 2017-18, from what the sector had in 2016-17. In the constraints of the public finances, I think that the Government has given an appropriate and effective financial settlement to the universities. The fact that that is their first key message suggests to me that the University of Scotland feels that teaching and research should be meeting more of those costs and that the teaching costs should be fully funded. Do you think that that is their perception? I don't speak for the University of Scotland. I set out the Government's view as a product of dialogue with the university sector about what we consider to be an appropriate and sustainable financial approach. We have had extensive discussions with the university sector on those questions. We have explored ways in which we can assist to increase income for the universities, and we have come to that conclusion. We have put in place a financial settlement that leads to an increase in the resources available to the university sector in the forthcoming financial year. But not in real terms, as I think that you admitted it earlier. I have said that in cash terms. I completely accept that point. I set out all the detail on the numbers to the committee today, but I consider it to be an appropriate and sustainable financial settlement. From the tone of the University of Scotland submission, I do not think that they agree with that. To go back to an example, we talked about the University of the Highlands and Islands earlier. You said to me that they would need to pull on—their research capacity was increasing and they would need to pull on that success to meet teaching shortfall. I think that I have paraphrased what you said, but I think that I have got that correct. Your Government is not even meeting the full economic costs of undertaking that research, even when private research grants are given. If you are underfunding research and underfunding teaching, how can the financial settlement that your Government has given the sector be sustainable in your own words? Could you provide me with the detail of your point on research? Yes. The University of Scotland says that university research funding from all sources covered 84.8 per cent of the full economic cost of undertaking the research in 2014-15. I think that that was pulled from the Audit Scotland report. There are different points in here. The Government has a financial commitment. The Government does not fund all research activity in universities. It funds some of it. It gives a research grant that the Government has sustained. That has been our commitment to sustain that research funding in universities, but universities obtain their research funding from a variety of different sources. I understand that, cabinet secretary, but so many universities say to me, as I am sure they say to you, that even when they get private research grants from considerable institutions, Scotland does have its research reputation. When we get those grants, the cost that the Scottish Funding Council is supposed to meet by giving the facilities to allow them to pursue that research is not being met by your Government? I think that universities are autonomous institutions that must make their own decisions about the projects that they pursue and the research grants that they try to obtain and how they deliver those. They are internally responsible for the financial management of those. I come back to one of the points that I made earlier on, that the university sector must play its part in the efficiency agenda within the Government, within the context of the public finances today. Cabinet secretary, could we go back to the question about this £50 million, about which there seems to be some misunderstanding and perhaps some misinformation? I see at the outset that I completely understand the argument that differentiates the fiscal year and the academic year and how money can be carried over. Could you confirm that that £50 million was originally issued in 2011? Is that correct? I do not think that the cumulative underspent had built up over some time and became clear that it was of the higher magnitude that should be carried by the Scottish Funding Council at the end of 2012-13. Were universities informed in academic year 2011-12 that there was additional money available from the funding council? I would not see why the funding council would do that, because the funding council had made available all the financial commitments that it had made to the universities in that and every financial year. What is your understanding about how that money was to be used? The funding council makes its financial commitments to institutions, and once that is all done and dusted at the end of the financial year, they will reconcile their numbers. At the end of the financial year 2012-13, if my memory serves me correct, a cumulative underspend of about £69 million, all organisations are obliged to report underspends to the Government. The Government has a first call on underspends, and my judgment was that that was too high on underspends to be carried, given that the funding council had fulfilled the commitments made to universities and colleges. If my memory is correct, at the time, universities were very concerned about the potential for them to be in greater financial difficulty because of what was happening down south and the increase in university fees, which allowed institutions south of the border to bring in more money. Was the intention for some of that money that was additionally available to be used to help that situation? No, because the financial commitments that had been made to universities had been fulfilled. What the Smith sets out as to be the policy rationale of what was to be achieved at that time had been translated into a financial settlement by the funding council and delivered to the universities. Once that was done, there was then a cumulative underspend of £69 million. Was your predecessor under the intention that that money would then be clawed back at that time? When the cumulative underspend was made clear to me in my former role as the finance minister, I made it clear that that resource was going to have to come back into the Government. I am correct in saying that the Scottish Funding Council board received confirmation on 20 February 2014 confirming that the Scottish Government had advised them not to apply the £50 million fund. Is that correct, that date? Yes, but that was not the first time that the funding council had been advised of that position. Could you tell us when? The first discussion with the Scottish Government took place in September 2013. They knew that £50 million would have to come back in. I am also correct in saying that, on 2 October 2014, the Scottish Government issued further confirmation that it wanted the money back. Between that period of September 2013 and October 2014, could you just confirm that there was absolutely no discussion going on between the funding council and institutions about how that specific £50 million would be spent? I cannot confirm that point. That would be something that the funding council would have to confirm. My understanding is that the funding council is suggesting that there was no discussion with any institution about that. My point would be that, if that is correct, why did the Scottish Government not ask for that money back when it first confirmed that it was going to do so in September 2013? That is a different issue. When I was managing the public finances, I would be dealing with a whole range of different factors that would be impacting on cash management and budget management, which are different things within Government. When in budget management terms, this £50 million had arisen, I would have registered that as being an underspend that was coming back into the Government, which could be deployed for purposes determined by the Government, which is the way the financial rules of the Scottish Government work. However, there might not necessarily be a requirement for us to utilise the cash, because we had sufficient cash to cover our existing budget commitments. When it was recovered to the Scottish Government, it was at the moment at which we required to utilise the cash for expenditure purposes. That raises two further points, if I may. Clearly, we have had evidence presented to us and two members have questioned you this morning about the fact that universities are making a very strong complaint, if you like, that they feel that they are underfunded. Your argument, as the Scottish Government, is that all the financial commitments had been made. That could well be true, but that does not tie up with the fact that people are complaining that they feel that they would like some extra money naturally so. Does that beg the question whether the funding council is effective in its discussions with the Scottish Government about where that money should be put? Are you happy, as cabinet secretary, that we have a situation in which, obviously, there has been this underspend, yet at the same time we have universities asking for a degree of greater cash because they feel that they are so underfunded? I think that there are two very different questions in there. Obviously, the funding council operates independently, but it operates within the ambit of government. It gives a ministerial letter of direction. It has certain rules that it has to follow, and the financial rules apply to everybody who is a part of the Government's financial framework. That is part of the approach that I put into place, and I make no apology for it whatsoever. When people got into financial challenges, they would have to come to me to sort it out, and I had to have resources at my disposal to sort it out. Everybody was required to show their underspends, and they did it in good faith because they did not know when they might face a financial challenge, and the only one person who could come to fix it was me. I fixed it for them over a nine-year period, so that was the way that I ran the system. The funding council was doing exactly the right thing by highlighting their underspend, so they should and have taken the appropriate action to deal with that. The second point is about what people could do with more money. I would simply point out to Liz Smith that, in 2016-17, the Government allocated within the year, in addition to budget, over £46 million to the HE and FE sector for additional priorities. It is not just that this is a one-way street, but that there is other money going back into the sector for particular commitments and priorities. Liz Smith will be familiar with announcements that are made on capital acceleration and other factors to boost the funding of the sector as a consequence. The point still stands that we have evidence that suggests that universities feel underfunded. There is an issue notwithstanding what you have just said about some capacity for reserves. The other issue that is perhaps just as serious is that there was a report in the Herald newspaper two weeks ago that had obviously got hold of a Scotland-Creeff internal report about the way that the funding council had operated, and it was making the very strong recommendation that there had been a lack of transparency over and perhaps some mismanagement of the way in which the information had come to the public. The suggestion is that there was not very good communication between the Scottish funding council and the Scottish Government, and that is putting it mildly. I wonder if you could comment on this, because the Scottish funding council has an absolute obligation, given that it is spending public money to be as transparent as possible and to be completely upfront about the communication. I think that it is a great pity that we have had this issue, which has been dragged on for two or three weeks now, about a substantial sum of money. We are not entirely clear as to exactly what the communication process was. Would you accept that there is an issue here for the funding council? I think that the funding council has done absolutely the right thing. The funding council has commissioned Scotland-Creeff to look at the issues that arise for the funding council and its internal processes out of the issue. In my view, the funding council is exercising its responsibilities in an appropriate way to explore and examine issues in which it can strengthen its practice, and it should be commended for doing so. Is it correct that the Scotland-Creeff report was very critical of the actions of the funding council and not being fully transparent about the way in which the issue had come to light? It has taken two weeks for John Kemp to write to the committee to disagree with what was in the newspapers. Is that correct? That is my clarification. We just wrote to John Kemp a couple of days ago on that point. There are two points here. The first is that the funding council will constantly be looking to strengthen its processes and practices, and the commissioning of the Scotland-Creeff report is, in my view, in that context, and it should be commended for doing that to strengthen its practice. The second point on transparency is that those issues have been shared with Parliament, they were shared with Parliament on 29 June in response to issues on the provisional outturn by the fan secretary, and they have been included in the accounts and scrutiny of the accounts of both the funding council and the Government. I think that my final point, convener, is that I think that there is a very serious issue about lack of transparency here. It goes to the heart of the role of the funding council, which, as I say, is dealing with very substantial sums of public money. There are major issues here. Cabinet Secretary, in light of the earlier discussions that we had, we are obviously saying that there is going to be a changed role perhaps for the funding council structure to it, which you said this morning. Is that something that, as cabinet secretary, you will look at? Obviously, the funding council has its role to undertake and it does that well. I think that the issues that have arisen here, the funding council has looked to improve its practice as a consequence. With the funding council, I will be issuing them with a letter of ministerial direction in the normal fashion, and we will set out within that the approaches that we want the funding council to take. Just a quick supplemental, if I may. Monica Lennon asked about the impact of funding pressures, and Audit Scotland has said that it has become more difficult recently for Scottish students to gain places at Scottish universities as a function, as we have heard, of finite funding and need for the universities to access different funding streams. My question is simply, what are the cabinet secretary's thoughts on that? Is that acceptable that, as a result of decisions being taken at government level, a university education in Scotland will be denied to some who have suitable qualifications and ambitions? Well, the first thing is that the number of Scottish domiciled full-time first-degree entrants to Scottish universities has risen by 11 per cent. I accept that. So, I do not understand the premise of Mr Kerr's question. The premise is that an extraordinary number of constituents contact me to say that my child is qualified, my child is appropriate to go to university, but there is no place there as a result of decisions that have been taken. However, the evidence is undeniable that there are more Scottish domiciled students getting entry to university. It is the first point, and the second point—I have said this to Mr Thomson quite openly already—that not everybody that wants to go to university can go to university. There has to be an entry system that is applied by the universities, but, from our perspective, it is welcome news that the number of Scottish domiciled students is rising. That is a different answer to the question that I asked the cabinet secretary, because it appears to be true. I also accept that not everyone who wants to go to university can go to university, but the question that I am asking is around the number of places that are available to Scottish students who are qualified to go and who want to go. That would otherwise be their appropriate destination, but they are unable to because there are not places there as a result of decisions that have been taken. Mr Kerr has accepted my point that not everyone can go to university that wants to go. We are not in dispute with that. My statistics are correct about the number of Scottish domiciled full-time first-degree entrances that are risen by 11 per cent. My third point is that, and it comes back to a point that I made to Mr Thomson perhaps, is that, in the Scottish system, we undertake quite a proportion of higher education activity within colleges, so the higher education participation rate in Scotland is 55 per cent when you take into account HE and FE, but the higher education participation rate in England is 48 per cent. We just have a different model and approach of undertaking this activity. If I may continue that line of questioning, cabinet secretary, correct me if I am wrong on this, but I think that there is an expectation of young people in schools that, if they work hard, they get their appropriate qualifications, they gain what they need to get into university, that the Scottish Government, given its commitment to fund that education, that there will be a place for them. Do you think that that is an unreasonable expectation from them? I want to make sure that young people are able to fulfil their expectations, and we have a significantly higher HE participation rate than south of the border. We also have high levels of participation— With respect, cabinet secretary, I am really not interested in England. I am interested in the Scottish students who work hard at school and get their qualifications. Expect your Government to pay for a university place for them, but find that that is not possible. Yes, and we have a rising number of positive destinations for young people coming from school and going into either higher education, further education, modern apprenticeship, skills development, employment and other positive destinations. That is a rising trend of positive destinations, so we do everything that we can to ensure that young people are able to fulfil their potential. Do you agree with me that the situation that I described is that there are qualified young people in Scotland who want to go to university, are qualified to get that place at university and cannot go to university? Do you agree with me that that situation exists in Scotland? I am sure that it does exist because of my fundamental point that not everybody who wants to go to university is able to go to university. Do you accept that that situation is being created by other spending priorities of your Government? No, the Government is adequately and strongly supporting and funding higher and further education, given the fact that my point about the participation rate is spread across higher and further education, and given the financial settlements that have been put in place for both higher and further education sectors as a consequence of the Government's decisions. In your view, it is okay and it is quite correct that students who can work hard at school get the qualifications that they need to go to Scottish University and still not get a place? What is so okay for me is that young people are able to increasingly get positive destinations from their school and educational activity, and that is a rising trend under this Government. Is it satisfactory that they get a place at college rather than at university that they are qualified for? That is my very point, convener. You make my point for me that increasingly Scottish students are able to undertake higher education qualifications in a further education setting, and that is welcome. If I take Ms Ross's area as a consequence of the growth of the university of the Highlands and Islands, more young people in the Highlands and Islands are able to gain access to higher education qualifications in a further education situation and setting right across the Highlands and Islands without having to contribute to the rural depopulation of those areas. That is welcome. I think that the Government's expectations are at odds with General Population's expectations. I think that there is an expectation that the Government will fund places for students who work hard to get the qualifications that they need to go to university and have an expectation of going to university rather than being offered a place elsewhere, but that is maybe something that we can look at or the education committee can look at elsewhere. We are now going to turn to questions on further education. Cabinet Secretary, I do not disagree with the statistics that you have just read out, and many of these are very encouraging. The real statistic that is the problem here is the fact that the supply of places has gone up by 9 per cent over the last few years, whereas the demand has gone up by 23 per cent. Would you acknowledge that there is a serious issue, particularly because of the capping policy, for many very well-qualified Scots, just as Jenny Marra has said, who would like to go to university, maybe at college, maybe at university? However, as things stand just now because of the capping policy and because of other constraints on Government policy decisions, that is very difficult. What is the Government's intention to try to relieve that pressure? Many parents want to know—I am sure that the Scottish Government wants to know, because, obviously, we want to encourage as many of our very well-qualified Scots to stay and to work in Scotland, and that has obviously got huge economic benefit. Are you not concerned about that issue? Liz Smith, I know that she says that she welcomes the figures that I have given, but then proceeds to ignore the figures that I have given. I am not ignoring them at all. Fundamentally, I am underpinning the question of ignoring that point, because there has been an 11 per cent rise in first-degree university entrance from Scottish domiciled students. However, the second point is that we are also seeing that acceptance levels are increasing steadily and crucially in the inclusive way of people from deprived backgrounds. We have all of that pattern, plus the acceptance into the further education sector, where we have the commitments that we have set out, and the higher participation rate in higher education that I have set out. I accept that not everybody is able to get a place at university. I accept that. I am not trying to say that it is not the case, but what I am saying is that there is a very strong and high level of participation in the system. Those are not mutually exclusive. I completely accept all the statistics there. The problem is that there are more well-qualified domiciled Scots who would like to take up and add to those statistics, but because of the capping policy just now and other decisions, they cannot do it. That is the problem. I come back to the strength of the participation level that is highlighted across higher and further education, which must be taken into account in considering that question. We are now going to turn to questions on further education. Colin Beattie. Cabinet Secretary, I would like to look first of all at the treatment of depreciation funds, which have been a subjective conversation in this committee. There are two things to this. First, there is a feeling that they somewhat distort the results of colleges in terms of their financial viability, being non-cash expenditure. Secondly, depreciation funding is provided by the Scottish Government against this non-cash expenditure. However, as I understand it, every year the colleges have to get agreement as to what that money is going to be spent on, which implies that it is not necessarily a permanent arrangement. Will you be able to give a bit of information on that? This is a complex area of accounting treatment, and we actively work with the college sector to try to ensure that those issues can be handled in as effective ways as we possibly can. We have some work on going with the college sector on how we can make this process more operationally straightforward for colleges, and we expect to have some progress on that to reduce the complexity in due course. Do you have any timescale on that? I would like us to make progress on that in the short term, because I am aware that it has been an issue that has caused some considerable challenge and difficulty for the sector. Just looking at ALF's arm's length foundations, according to the information that I have, there was originally £100 million donated to ALF's, but the SFC estimated that around £55 million will have been returned to the sector by the end of 2016-17. There was at least £45 million. In your own submission to the committee, you said that, based on current spend levels, existing ALF resources will be fully utilised by 2019-20. What is that £45 million being spent on? There will be a variety of propositions around capital projects, given the nature of the resources that have been deployed. The ALFs are run by independent boards of trustees, so they have to make their decisions appropriately based on the terms and the statute of the trust. Presumably, since you have said that the resources will be utilised by 2019-20, the colleges must have submitted some sort of plans that indicate that the funds will be utilised in that period. Will that be information that will have been provided to us by the arm's length foundations? Obviously, we can provide more information to the committee if that would help. I would just like to ask a couple more questions. One is on regional boards. Regional boards have not really come under much scrutiny from this committee, so if you could forgive me, I will ask a sort of an open question. There has been a little bit of debate here and there about regional boards as to whether they are effective and what the level of effectiveness is. Do you have a view on that? Obviously, they are there to provide a function in areas of the country where we have a number of colleges operating within a particular locality. Their function is to try to provide clarity and direction to the way in which further education services are provided and deployed and to ensure that there is an effective read across amongst individual colleges that work within the regional board structure. It provides a very good and effective interface between the work of the funding council and individual colleges, particularly when we have some concentration of college activity in a particular locality. I am looking at the auditor general's report on paragraph 83. It says that the SFC's role in regulating college governance is not clear and has not been effective in dealing with some issues. On paragraph 85, the auditor general's report states that there is a draft document that proposes a more regulatory role for the SFC on governance arrangements, but it does not specify how the SFC should enforce that role. Clearly, there is a benefit in having a strong hand at the tiller, so to speak, but the SFC appearing before this committee only seems to have the option to withhold funding, which, of course, at the end of the day does not benefit the students if that line of penalties is put in place. Are there any plans to review this and find other ways as to how SFC can be more effective in this role? I think that there is work that needs to be undertaken to make sure that the issues raised by the auditor general are properly assessed and considered. Obviously, I am very happy to take that forward with the Scottish funding council. I am just looking, cabinet secretary, at the commitment to the full-time places in your statement, you point out that, over the past parliamentary session, we maintained 116,000 full-time equivalent college places. Do you accept that the policies being undertaken, however, come at the expense of part-time places? According to Audit Scotland's report, we seem to have lost about 152,000 part-time college places, which should be a 48 per cent drop. Is that a conclusion that you agree with? I certainly acknowledge that there has been a change in the balance of part-time and full-time courses within colleges that has essentially been driven to try to provide courses that would lead to skills that are more relevant for entrants into the workplace. We have a range of part-time courses that are available where the skills are necessary and appropriate to gain access to the workplace, but, fundamentally, that decision has increased the relevance of qualifications that lead to employment. The majority of total enrolments at college are on part-time further education courses at 65.9 per cent, so there is a substantial proportion of part-time courses that are still relevant to the world of work, but we have obviously seen a significant increase into the bargain of full-time courses of the order, I think, of about 33 per cent, if my memory is not let me down. Would you then accept that the significant reduction in part-time courses has had a disproportionate effect on women and those furthest removed from the labour market? It is certainly what Audit Scotland reports. Does that concern you at all? I think that we have got to bear in mind that, not surprisingly, women account for the majority of college enrolments. They account for 51 per cent in 2015-16. The number of women on full-time courses has increased by more than 12 per cent since 2006-07. Clearly, there has been a rebalancing of activity between part-time and full-time courses. Clearly, there will be some courses that are not available for women to participate on that are part-time courses, but two points are relevant. The majority of college enrolments are women at 51 per cent, and the majority of enrolments at college are still in part-time for their education courses. Does that not answer a slightly different question? The number of female part-time students has fallen by 53 per cent. There has been a disproportionate impact of this policy on women studying in further education. Is that not a matter of concern? I accept all the other points that you make, but does that of itself not concern you? What I am explaining is the change in policy. The Auditor General recognises in the report that there has been a shift of policy to concentrate on trying to enable people to have the skills to gain access to employment. I think that we have got to look at a wider context to this. If we look at employment, the level of female employment in Scotland has risen over the past couple of years, which indicates the positive destinations that are rising as a consequence of female participation in the college sector and acquiring the skills to be able to enter the labour market. We are just looking at a different profile of participation in the college sector compared to what has been the case before. The policy rationale is to equip people better to enter the labour market where we have seen rises in female employment. Thank you, convener. Just to continue on the point that Liam Kerr has been exploring, the Auditor General also said that she was concerned that the Government did not carry out an impact assessment in advance of making this policy decision in terms of what was likely to happen to the people who were not able to gain places in further education. Why was that not carried out? We undertook an assessment of that type in 2011, but it was not undertaken in 2009 and the Government should have done it in 2009. It was carried out retrospectively? It was, yes. I know, Cabinet Secretary, that you like to work with evidence. What evidence informed that policy shifts that came into effect in 2009? The evidence was about the need to ensure that we created a skills base that would enable more people to enter the labour market, particularly given the very challenging economic circumstances that we faced in 2009. The Government was acting as swiftly as we could. That is why there was no impact assessment done at that time, because we were acting swiftly in very difficult economic conditions to try to make it possible for people to acquire the skills to enter the labour market and to make sure that Scotland would have a workforce that was equipped to be able to make the most of the economic opportunities that arose in the period of economic recovery. The evidence that would come into that equation would be the evidence that is gathered in the skills assessments that are undertaken in different sectors of the economy, where we identify skills needs on an on-going basis. It is a core part of the responsibility of Skills Development Scotland, and that type of research process is gravitated towards skills investment plans that are now taken forward across a range of sectors. They are designed to identify what skills we require in the workforce and to provide individuals with the routes that enable them to secure those skills. Members in the committee are still rightly concerned about the huge numbers, a 48 per cent decrease, and a disproportionate impact on women who are often dealing with the responsibilities of childcare and other care responsibilities. I think that it is regrettable that that has happened. We have just turned to another point that we have explored with the auditor general, and that is in relation to college mergers. The evidence that we have received is that it is impossible to tell if the £50 million savings that were projected were actually realised due to a lack of baseline information. Would that be a fair summary? The Merger programme was evaluated by the Scottish Funding Council, and the evaluation process identified a range of different benefits that were required as a consequence of that. Obviously, trying to create the financial models that can look very carefully at and attribute all the savings to particular costs is slightly difficult to pin down because of the difficulty of attributing all financial benefits quite simply to a process of merger. Obviously, colleges are dealing with very complex arrangements as part of their work, but the evaluation that was undertaken by the funding council highlighted a number of strengths that emerged from the process and concluded that the £50 million savings that were being delivered. I am just refreshing my memory what the auditor general said in her opening remarks back in October that the Scottish Government is still not able to fully measure the benefits and costs of its merger programme. In the report that the funding council published on 22 August, the funding council found that college reforms are now delivering annual savings of more than £50 million, so there would be evidence from the funding council that was available prior to the auditor general's statement to the committee. The auditor general was incorrect when she advised the committee two months later? Again, I do not speak to the auditor general. I am simply saying that in the report published on 22 August, the funding council concluded on that point. The auditor general was very clear that she believed that your Government was not in a position to fully measure the benefits and costs of the merger programme. I think that the committee would want clarification. Was the auditor general incorrect? I would be surprised. It is not for me to speak on the auditor general's behalf. What I can do is make sure that the committee has got the funding council report that concluded that the £50 million of annual savings were being made. The funding council acts on behalf of the Government. The point that Ms Lennon is making to me of any Government obligation to address the issue is adequately addressed by the funding council report. Did the funding council implement all the recommendations made by Audit Scotland in that regard? I think that the funding council has set out a series of steps that it is taking to address the recommendations of the Audit Scotland report. If they are not with the committee, I am very happy to ask the funding council to provide some response to the committee in that respect. We would probably like to go back and look at that report, because the auditor general made clear points in her evidence in October about gaps in the information, such as the cost of harmonising pay that was included in the SFC's assessment. We were being advised that there was a lack of baseline information, but are you satisfied that that has all been addressed? I think that the funding council has addressed that issue, but I am happy to supply that information to the committee. Cabinet Secretary, you said in response to my last question on HE that there are a number of destinations other than universities, so clearly you are seeing a lot of qualified students also going into college. To that end, Audit General's report on page 26 says that between 2010 and 2015, Government funding to the FE sector decreased by 18 per cent. Given that you are expecting more and more students to take places at college, is that sustainable? Obviously, we have gone through a merger process. We have had a reform process here, so there has been change in the sector. When we undertake public sector reform, we do it to try to create a more efficient climate of operation. That means that resources that were previously required to support a model of operation that was more expensive to operate are no longer required. Obviously, we have a situation in the forthcoming financial year where the budget that has been allocated to the college sector is increasing, both on resource and on capital. That has been very warmly welcomed by the college sector. We also talked in the HE's session about demand. Clearly, demand for university places is very transparent because we get the UCAS figures of all student applications. There is no similar system in Scotland for colleges. There is no way of telling what the demand for college places is. Would you support a system that actually showed us, given the huge economic impact of students going to college and getting the skills that our economy needs? I think that there is merit in the activity of that type. Obviously, the Government has a commitment in our programme for government to review and simplify aspects of the learner journey, so that we can address issues such as articulation and make sure that pathways for articulation are as straightforward as we possibly can make them. There is merit in that, and the work that we undertake on simplifying the learner journey will help to address that. You are committed to supporting that work. I think that the SFC has said that they will look to undertake that work. The work on the learner journey is under way, and it will certainly cover issues of that type. It has been well rehearsed in this Parliament about workforce planning across the public sector. We have seen the implications of a lack of workforce planning on NHS budgets, but it was clear in the Auditor General's report on page 17 that she says that despite the significant changes that have taken place in the sector, colleges do not prepare organisation-wide workforce plans. Is that something that you think is a priority? I think that every organisation should undertake effective workforce planning, so yes. Okay, so why has it not been done to date? Well, the colleges are independent bodies. I don't run the colleges. I can certainly create the policy framework, and we try to do that through outcome agreements with individual colleges, but any institution is responsible for ensuring that it undertakes effective workforce planning, and I would expect the colleges to do so. Capital funding has decreased by over 77 per cent since 2010-11, according to the Auditor General. Given that we want a college estate that is fit for purpose, do you think that that is sustainable? There will be a number of things that will have to be borne in mind here. The first is the significant reductions that have taken place in capital funding available to the Scottish Government in the period since 2010. Capital funding has roughly fallen by—certainly until about 2015—about a third, if my memory serves me right, as a consequence of the decisions of the Conservative Liberal Coalition after 2010. So, quite clearly, there has been a significant fall in capital expenditure available to the Government. What we have then put in place to try to ameliorate that, which will not show up in the figures that the Auditor General has talked about, has been the investment through the non-profit distributing pipeline, which has delivered to the campuses at the city of Glasgow, Inverness and Ayrshire. The final thing is that the capital funding, by its very nature, varies from year to year because of the nature of projects that are under way. The Government has put in place a capital funding allocation of £47.4 million in 2017-18, which is in fact a 75 per cent increase in cash terms on what was available in 2016-17. Just to wind that up, to be fair to the Auditor General, she has cited that the Scottish Government is supporting investment of £300 million through a public-private partnership, so she does outline that in her report. Yes, but in the percentage decrease figure, convener, I doubt that that will be added into the figure. Just a quick question that arises on the back of those convenience questions. Scotland's Colleges report highlights that there are significant financial pressures on the sector with, I think, 11 out of 20 institutions forecasting deficits. The College of Scotland highlights that sustainability is becoming increasingly difficult. So, just to move that conversation forward, the stated aim of the Government is to increase the school attainment results. Obviously, if that works, one would have thought that at some time horizon there will be a need to provide further education in higher education places. My question is what modelling has been done, what scenario planning has been done to project if the Government is successful in its aims to project the demand on the sector, the financial demands, the resource demands, and assuming that modelling has been done, what is now being done to meet those requirements? The Government will look at those questions on an on-going basis with the sector to ensure that we have the necessary investment to support the delivery of services and to fulfil the opportunities for young people. Of course, there will be a range of different opportunities. The Government will have its profile on modern apprenticeships, profan colleges and universities, and we will have a variety of other access to work and employability measures that the Government brings forward to try to make sure that we meet the demand that presents itself from every individual. Those issues are assessed on an on-going basis. There is a need for us strategically to look at the learner journey to make sure that we make that as efficient and as cohesive as possible, because that ties up a lot of resources if it is not efficient and not cohesive for individuals. That is very much what the Government undertakes. For my clarification, I am not sure if I entirely followed you. Your stated aim is to use shorthand, if I may, to close the attainment gap. Assuming that you are successful in that, there will be a demand on various services, including the sector. Has the scenario planning been done yet as to what that demand might look like? That is the type of planning that the Government will undertake over a longer term with the sector to ensure that we adequately meet the needs of young people as they emerge and present themselves for further education. Do I take that as a no, cabinet secretary? That is the routine activity that we undertake with the sector in which the funding council takes forward on the Government's behalf to address those requirements. I want to touch on retention rates, if I may. It says in the auditor general's report on page 23, paragraph 45 and 46, that retention rates fell slightly. In paragraph 46, colleges suggested that the amount of change experienced by the sector in recent years could have contributed to the reductions in attainment and retention. They also suggested that increased efforts to target harder-to-reach students could be a factor, for example, in widening access to students from more deprived areas. I think that we would look at this question to determine the issues that underlie drop-out rates. If we are encouraging more people from harder-to-reach backgrounds to enter the system, we have to ensure that they have adequate support and resilience to enable them to fulfil their potential, and we have to make sure that we have that right. That might be one factor why there is a slight change in the drop-out rate. If we are actually now succeeding in reaching people who are harder-to-reach, they may need more support than is currently being put in place. It is a success if we are managing to reach these people, but having reached them, we have to make sure that they are supported. I do not know if that is the conclusion that will be arrived at from this analysis, but we will happily share with the committee the conclusion that will be arrived at on that question. That is on your radar to give them more support. Very much so, yes. That is on your radar to give them more support. Thank you. To touch on another subject really quickly, something that is certainly progressing up north is the developing Scotland's young workforce. It mentions it here. Can you give us an update on how that is progressing? Very well. The developing Scotland's young workforce is greatly strengthened by the very clear implementable report that Sir Ian Wood provided for us. There has been very good engagement from the private sector in taking forward this agenda. They have welcomed it very much as a route to take forward. I see increasing evidence within the schools of Scotland of the approach of developing Scotland's young workforce has been used to provide better routes through learning for young people. As a consequence, we have seen really good progress. We have the infrastructure of developing Scotland's young workforce present in virtually every area of the country now. I think that there is just a couple that we are still waiting to get those established. The leadership group that is chaired by Rob Woodward of the chairs of the DYW groups around the country are a very active and focused group of individuals who are taking forward this agenda. They apply very high standards of what they expect to be put in place at local level before they will acredit that as being a participant in the work of developing Scotland's young workforce. I think that a lot of good progress has been made. Do you have any information about the foundation apprenticeships, what is being offered and what they uptake on that? I do not have any. There are 480 young people participating in foundation apprenticeships as of academic year 2016-17. Just on the same question that I was talking about with universities and students of deprived background, the colleges have been a success story in that regard because they have exceeded the 20 per cent in the Auditor General's report in paragraph 39 that the percentage of students in the most deprived areas has increased from 17 to 22 per cent over the past 10 years. Given the fairly high level of participation in excess of what you might call or share, is there still room to improve that? Is that where it should be? I certainly would welcome further progress that has been made by the college sector. I think that the college sector manages to deliver accessibility demonstrably by the work that has been undertaken, but I do not by any stretch of the imagination believe that that is the end of the journey. Just continuing on that, in paragraph 47 of the Auditor General's report, it states that 82 per cent of students who left college in 2013-14 went on to a positive destination, and of the remaining 18, 4 per cent of leavers did not go on to further education or to employment, but there was 14 per cent, which is a fair number, that we really do not know what happened to them. Is there any real prospect of being able to understand what happens to that 14 per cent, or is it simply too complex, too expensive to do? I think that it is quite literally that it requires to be focused on identifying those individuals and to try to identify from their own experience what has resulted in them not reaching a positive destination. That is part of the work that I think has to be undertaken to look at the dropout rate from colleges. It is part of what has to be borne in mind in terms of designing the approaches and the access support that is available for young people, so that we can properly ensure that young people enter the system and are able to fulfil their potential as a consequence. Do you think that there is a realistic prospect of being able to track this missing 14 per cent? Practically, it is very challenging because you quite literally have to be able to speak to the individuals concerned. That is not easy, but I know that colleges place a particular attention on making sure that they understand the needs of their learners and try to deliver against the needs of their learners. It is a particular priority for them to make sure that no college wants to have students that do not succeed or that are not satisfied. They do not want that. They want to achieve the best for the young people. It is a question of trying to make sure that they can maintain that active attention to try to do that. Cabinet Secretary, I thank you for your lengthy evidence this morning. I now move the committee into private session.