 D roi'r prydd, yw'r cyfrifadau i'r prydd a'r cyfrifadau i'r prydd? y cyfnod hyfforddiadau i ddod o'i ddod o'i gwasanaethol iawn. The second item on the agenda is the question of witness expenses for the inquiry that we are doing on the economic impact of leaving the European Union. Is the committee happy to delegate these to myself as convener under the usual terms? Yes. Thank you. We will then move to item three on the agenda, which is the Audit Scotland report supporting Scotland's economic growth. We have, I think, three guests this morning. Fraser McKinley, Anthony Clark and Gemma Davidson from Diamond, bigger pardon. I've been to the optition but not managed to get my new glasses yet. Apologies for that. We'll commence by taking evidence from them. I would invite, first of all, on at Scotland, whichever one of you is tasked to do the opening five minutes statement. I'll kick off with a very short opening statement and good morning members. Thank you very much for giving us the opportunity to brief you today on the Auditor General's report on supporting Scotland's economic growth, which we published back in July. As you know, the report focuses on the roles of Scottish Enterprise and Highlands and Islands Enterprise, but it takes us at starting point the Scottish Government's economic strategy as this is what determines the strategies and plans for the enterprise bodies. First of all, convener, it's important to say that we recognise that supporting economic growth is not a straightforward or easy task. It is complex. There are many factors involved, which are outwith the direct control and responsibility of any Government. In fact, never mind just Scotland. We understand that it is not easy, but we also understand its importance. The economic strategy that the Government has set out is a high-level document setting out the broad approach to help to achieve the overall purpose of sustainable economic growth. However, we found in the report that the Government does not set out in the strategy or elsewhere how the various economic policies and initiatives will be implemented. It is important that the Government is clear about how it is to achieve its ambition of sustainable economic growth. In that sense, we think that how is as important as the what. The context for supporting economic growth is continuously changing, and public sector economic strategies and interventions have to respond to and be appropriate for the economic climate. As you will know better than I do, we have been through quite a period of late, and there is more to come with new financial powers for the Scottish Parliament and, of course, the result of the EU referendum back in June. All those things and others will clearly influence how the Scottish Government and Scotland supports economic growth in the future. Taking all this into account, the report recommends that the Scottish Government could strengthen its approach to developing, delivering and monitoring its economic strategy. That includes developing clear timescales and actions and setting out specific responsibilities for the public sector bodies involved. On the whole, we found that Scottish Enterprise and Highlands and Islands Enterprise are performing well. Their business plans and activities are based on a wide range of evidence, and each of the bodies has a good understanding of how to respond to opportunities and challenges in their respective areas. As auditors convener, we also found some areas for improvement. For example, both bodies offer some similar support, which is tailored to the needs of their customers and environment, but there are many different arrangements for delivering the support, and the rationale for that is not always clear. We found that there is some scope to deliver some activities such as their support to the growth sectors more efficiently. In addition, although we found that the Enterprise bodies are performing well against their individual performance measures, it is much more difficult to measure the contribution to the national outcomes in the national performance framework. It is important again that the Government understands the contribution that the Enterprise bodies are making, both individually and collectively, to both its economic strategy and the economic growth targets. Finally, convener, the committee will be aware that the Scottish Government has been undertaking a review of the skills and enterprise agencies. In fact, I understand that the first stage of that will be published imminently. We do not know what that is going to say yet, but we said back in July that we think that that review offers a great opportunity to address some of the issues that are identified in our report. With that, convener, Anthony Gemma and I are very happy to answer any questions that the committee has. Thank you very much. I start by asking a couple of general questions. In your report, you have key messages that you have sent out at the start. One of them relates to performance and performance measures. In paragraph 3, on page 5 of your summary, at the outset of your report, the NPF measures progress towards economic targets and outcomes, but it does not measure the contribution of policies and initiatives to delivering those outcomes. You have highlighted in the report different standards of measuring performance among the different bodies, as compared to the Scottish Government or the NPF, which you refer to. Are there other performance measures used by other UK public bodies that could be used to assess the criteria applied in Scotland on performance that you could tell us about that might be useful? I will kick off, convener, and then ask the team to come in with a bit more detail. It is fair to say that Scotland is ahead of the game in terms of having a national performance framework and an outcomes-based approach, so it is not always easy to find strong comparators in other parts of the UK. Northern Ireland is just beginning that journey that it is consulting on a wellbeing framework, and Wales is getting there, too. It is difficult to find things that are exactly comparable. We use the example of Northern Ireland in the report, specifically around the economy, of what we would see as good practice in the area. I might just ask Gemma to say a little bit about that, if that is okay. That was with regard to the economic strategy. What we say in the report about the economic strategy is that Scotland's economic strategy does not really break down into actions and timescales, so it is very hard to see what will be delivered and when it will be delivered by, so that it allows for that review of progress to be made. There were certain elements of what Northern Ireland does around that in terms of having a clear action plan and detailing which public bodies are responsible for delivering those actions in the timescales that we thought might be interesting for the Scottish Government to look at to see if they could replicate some of that. In terms of the performance measures, as Fraser was saying, Scotland has essentially been leading the way with an outcomes framework. It is quite difficult to find those kind of comparative measures. I would say that the enterprise agencies have a lot of performance measures. They do measure their performance a lot. They have a lot that they look at as part of running the business. They publish a lot. What we cannot see, however, is what they are measuring and what contribution that makes to the national performance framework. Is their success in meeting those performance measures actually making any difference to these national outcomes? What we would like to see is more of, I suppose, a step-by-step process as to how do these outcomes build up? What is actually going to make the difference? Which of the agencies are contributing to these national outcomes? If that outcome moves, what is it that has made the difference? Which agency or what partnership has actually made that difference? That is what we cannot see at the moment. If that is what you refer to when you are looking at recommendations on the following page at development of clear targets, timescales and actions, and then monitoring and reporting progress against those targets and actions. Is that what you specifically identify as lacking? That was when we looked at the economic strategy, absolutely, that kind of breaking it down so that the economic strategy is a very wide-ranging, high-level document. What we really wanted to see was that underlying detail as to how to make that strategy operational. What does it mean for the public bodies? What actions do they need to undertake? Who is actually going to do that? When will it be done by so that you can then review progress against that? That will make it easier for us to say how do we measure the performance? Once we know what the individual bodies have to achieve and by when and what is the performance target around that, what does that actually mean in terms of performance? The detail is lacking and whose responsibility is it to set that in motion to get that specific difficulty or problem dealt with. I think that the Government, in terms of measuring the contribution to the national performance framework, I think that that is the Government. Obviously working closely with particularly the two enterprise bodies but the other partners that are involved. The other part of that recommendation that you highlighted that we think is really important is better understanding the money and how much is spent on this. We had a go at estimating the amount of money and we focused on the £2 billion or thereabouts spent by the strategic partners. It is important that the Government understands if that is indeed the amount that they would recognise as being directly contributing to supporting economic growth and assessing whether that is being spent in the right way and in the right places to ensure that the outcomes are being delivered. Perhaps finally from me at this stage before I open up to other members of the committee, you talk about in your recommendations routinely reviewing the economic strategy to ensure that it remains relevant and fit for purpose. What are the sort of timeframes that you are talking about there? The timeframes for review, convener? Yes. Does it depend on the area involved? Yes. I think that one of the things that we found was that while the economic strategy has changed and evolved over the years and its most recent iteration was 2015, when we came along to look at the process of review, it was difficult to see that kind of clear and transparent and systematic process that said, so what are we trying to achieve? How have we done against that? What is happening in the world? What does that mean for how we want to change our objectives in the future? So it is that kind of systematic process of review that we did not really find much evidence for that we think is really important. It is not for us to comment on whether the economic strategy or the growth sectors are right or wrong. What we are looking for is evidence of government and the agencies taking a considered approach to ensure that indeed they are continuing to be the right things. I was reading with interest the official report from your last session on fair work and one of the new elements of the strategy last year is around inclusive growth. I think that there is an interesting question in there about what is the role of Scottish Enterprise and Highlands and Islands Enterprise in the agenda around fair work? Are we confident that we have gone through a process that ensures that they are clear what their role is and that we have measures in place to make sure that indeed they are contributing to that agenda and that we can measure that contribution? In terms of timescales, it would depend. I am not suggesting that they have to do it every year or every two years. I do not think that it is for us to come up with that kind of rigid approach and that they will be reviewing those things on an on-going basis. It seems to me that, given the degree of change that there has been in not just Scotland but the UK, Europe and the global economy of the last week, we might have expected to see more evidence of a more systematic review process. John Mason Thank you, convener. Good morning. I have, I suppose, over the years read a number of audit Scotland reports on a whole range of subjects. One seems quite positive in that there do not seem to be huge problems arising, whereas I have seen other reports where there were huge problems arising. Is that a fair comment? That is absolutely fair, Mr Mason. As you say, this is one where we recognise lots of good work that is happening. Particularly in relation to the job that the two enterprise agencies are doing, they do their job well, they take it very seriously, they measure how they are doing and they are able to account for the money that they are spending. Our area for improvement is at that higher level about looking more widely and assessing better the contribution of those agencies and others to the national outcomes. This whole question of the national performance framework and tying the detail into the national performance framework, if I am not mistaken, is a wide problem. It is not just to do with the Scottish Enterprise and Highlands and Islands Enterprise, but it has come up in the budget quite a lot on how to tie a budget figure into the big picture. You are nodding, so I guess that is the case. Is there an answer to that, or is it just one of those problems that does not go away? I would absolutely agree with that. It is something that we all need to keep working at. You could argue that the Government, having agreed an outcomes approach when it became the Government back in 2007, chose a difficult route to take. It is harder to do it this way. If we only continued to measure inputs and outputs, that is an easier way to do it. However, as a result of that, we will continue to challenge, push and expect more to ensure that, if we are setting outcomes in whatever area it is, be it health or social care or the economy or the environment, it is reasonable for us to expect clear plans and activities and measures to be in place about how they are being measured over time. Outcomes, we understand and accept the fact that outcomes are, by definition, delivered in the long term. Some can be 10, 20, 30 years, and because of that, it is even more important to know how you are doing it. Where would you expect to be in year 3, 5, 10, as you are making progress towards the outcome? That is the bit that we quite often, in lots of our work, see lacking. Okay, thank you. Now, another issue that came up once or twice in the report is the whole thing about what Scottish Enterprise and what HIE do, and is there duplication and why does one lead and one not lead? In particular, I was looking at paragraph 79 on page 32, which talks about it's not clear why some forms of support are delivered jointly or on behalf of the other, and it says there are historical reasons. I just wondered if he could maybe give examples of that, or tease it out a bit. It seems to me that, for example, on community broadband, it is mainly a rural issue, not entirely a rural issue. Therefore, it would seem pretty logical that HIE led on that. I do not know if that is written down somewhere, but it seems kind of logical to me. Are there other examples where there is a problem or an issue? You are absolutely right to highlight paragraph 79 and, in fact, the two previous paragraphs highlight some of the areas where it is a bit clearer, to be fair, where there is better rationale for why Scottish Enterprise and HIE led on some things, but I will ask Anthony just to say a little bit about the areas where it is not quite so clear. I think that the areas where I have identified a degree of duplication are where Scottish Enterprise and HIE have specialist teams for growth sectors, so they are both working across the growth sectors. We have also identified areas of potential duplication to do with support for particular industries as well, where they are developing training advice and supporting that way. Are there issues at the national level in terms of potential areas of duplication between the two bodies? The whole point of having the two bodies was that one would concentrate in the Highlands and Islands with its slow population and different challenges. Presumably, any business, even if they are doing a similar thing, even if they are growing, is going to face different challenges in the Highlands and Islands than they would in Glasgow or Edinburgh. If you look at paragraph 80, we highlight some of the areas there, so research and analysis at a national level is done by both bodies. Obviously, you might have a particular emphasis on either the lowlands Scotland or the Highlands Scotland, but we have also identified sector strategies as being areas where there is an element of duplication between HIE and SE2, so it is quite possible that one of those bodies could take a lead with a bit of support from the other, but at the moment it looks as though there are areas of overlapping duplication. I do not know if some of my colleagues might want to come in on that and I think that the last area that I wanted to touch on was again that was mentioned a couple of places, for example in case study 3, which is on page 41, about the whole issue of exiting and kind of ceasing support for a business. Now, I suppose that I had kind of felt from my experience with Scottish Enterprise especially that if a business kept growing then they would keep needing or should have Scottish Enterprise support because they keep on growing, which is what we would like, but there is a kind of a suggestion that maybe it should be more for a fixed term and there should be more of an exit, so do you think that we should be looking for or expecting more exits? Where are we getting the biggest bang for our buck question, Mr Mason? I think that it is about absolutely recognising as a business is starting up and growing, they are going to need some support, but at what point, even if it is continuing to grow, can we expect to not require public support on the basis that there is an opportunity cost to that if we are continuing to support business X over here, which is well established and continuing to grow and be successful? That is money that is not being spent somewhere else. It is not an easy fix, there is always going to be a judgement in there, which will be based on a whole range of factors and our sense is that both agencies are actually quite sophisticated at that. There was equally a couple of bits of evidence from supported companies who were kind of saying that we are not sure why we are still an account managed business, and if they are saying that, that suggests to us that, at least, it is worth asking the question, that there might be a set of criteria that you would recognise a point at which Scottish Enterprise or HiC is on your own now and we are going to exit and invest that support and time somewhere else. Back in, if either the business hit problems or it was going into some kind of new growth phase or something like that? Potentially. At some point, they might just decide that it is not to be supported by the public sector. I think that it is important to remember that the whole point of having state agencies involved in economic growth is to get involved in the higher risk activity. In a sense, they deal with market failure, so the stuff that the market is not supporting is where you would expect those agencies to be operating, so there is inherently a higher degree of risk. Therefore, I think that the agencies do and should continue to ask themselves the question, is it right to be continuing to focus our time and attention and scarce public resource on businesses that are well established and have grown as opposed to supporting others that might need a bit more help early on? It is about, again, clarity and having a rationale for those things rather than it is similar to your question earlier about why some things have been done the way they are. Some people were saying, well, it is I being. It is that kind of well. It has always been that way. I think that what we are saying is that it is worth checking. I have spent a good deal of time since the economic strategy was first published asking for action plans and measurement frameworks, so that is very welcome indeed. Is there any evidence that the Government between publication of its economic strategy and the report before us today has taken any action to improve that monitoring framework or indeed produced any kind of action plan? I think that the report as it stands as we published it in July is that we couldn't find what we would expect to see in terms of a plan certainly for the 2015 new strategy that says this is how this is going to be implemented. I think that there is an interesting debate and we had the debate with Government often in the process of this report, as you can imagine, about what we are expecting. People think that, as auditors, we are being a bit simplistic about that, which is why I was keen to emphasise that we understand the complexity of this. Equally, I think that it is legitimate for us to say that if you are setting out four ambitious outcomes around now the four eyes as they are known, then it is reasonable for us to say, well, how are you going to do that and how are you going to know if you are on target and what is the role of the bodies that are involved in it and how is the £2.2 billion or whatever the number is being used for that. As I say, we are hopeful that the current review will capture some of this. The timing in that sense was good because around about the same time as this, we also published some reports on higher education and colleges and some other of the bodies that are involved in the review. We are waiting with real interest to see what comes out of the review in its first phase and then later on how they are going to implement it. As far as we can tell, the story that we present in the report is the story as it stands. So what would you like to see in that review? Certainly we too are anticipating something being produced imminently. Given what you have said that this is a great opportunity to address some of these issues, what are the two or three things, headline things, you would expect to see in that review? For me, something about, as we say in the recommendations, a more detailed plan, if you like, for how the economic strategy and other strategies related to the skills and enterprise agencies are going to be delivered. Importantly, something about the way in which those agencies work together. My understanding is that the review has been focusing on not so much on the individual organisations but on how they work together and the system of support that they provide. It is important that that is clear and well set out. If there is any question about the role of individual bodies, whether it be SCE or HI, or the funding council, for example, that they take the opportunity to do that too, it would seem like a bit of a missed opportunity to do a review of those agencies if they do not also take the chance to look at the agencies individually in their colleges over a review report that we published earlier on the year. We had a specific recommendation about looking at the role of the Scottish funding council, which has not really been looked at fundamentally in 10 years plus. It would seem like a good opportunity to do that. If I were to pick two or three, those would be them, I think. I wonder whether I could focus on two key economic issues that are facing Scotland. Firstly, we have got the slowdown in economic growth. Secondly, and you comment on this in the opening to your report, the underperforming of the Scottish economy comparative to the UK economy, and I think the numbers you quoted were GDP in Scotland was 6.8% since 2012, but 8.8% across the UK over the same time period. If one was to level criticism at Audit Scotland, and of course I don't want to do so, but nevertheless I have a question, why was there no commentary, why wasn't this something that was considered by Audit Scotland when looking at what Scottish Enterprise and High's purpose was? There's no commentary about what they're doing to close that gap or indeed to improve economic growth in light of a slowdown. It's a very fair question. The scope of this audit was something that we grappled with because it could be very, very big and so what we didn't do was set out to do an audit on the performance of the Scottish economy, primarily because that's not our job and nor are we best placed to do it. I think there are lots of other people better placed to do it and we were particularly keen to focus on the agencies because we hadn't looked at the agencies for quite a long time. In a sense though, I think that what we're trying to say in the report is the discussion that we started off with the convener about making the link between the role of the economic agencies and what the what the Government is trying to achieve at a national level is in a sense the point you're making, I think, which is that you can't tell. You can make some assessment of how they're performing as organisations in their own right and those organisations do make an effort to link those to the national outcomes, but it is very difficult to assess the contribution and the role of the economic agencies to the performance of the Scottish economy. In the context, as I said at the start, there are lots of other things that are impacting on the performance of the Scottish economy, so there's always an element of needing to be realistic about what Government enterprise agencies can do in that context. I wasn't asking you to make an assessment of the Scottish economy and I think that you know that. It is the two principal agencies charged with developing the economy that I was asking for an assessment of and their contribution to closing that gap. Are you saying to me that you didn't have the information available to enable that assessment to be made and therefore the Government doesn't either? I think that the core point in our report is that it's hard to make that assessment of the contribution of those agencies and others involved in economic growth to the successful delivery of the outcomes. As I say, bearing in mind that there are lots of other things that aren't within the direct influence or control of the Government that impact on the performance of the economy. One final question, convener, if I may. Mackay consultants have been in touch with us to suggest that, although case studies are all interesting and informative, they really have not been subject to any objective analysis or commentary. How would you respond to that? The first thing to say is that we absolutely welcome that kind of engagement with people, with Mackay consultants and indeed other people that have been in touch. The case studies, we did really to provide a bit of colour and flavour to what otherwise might have been quite a dry subject. I think that it's important to give some real life stuff. We didn't, in a sense, ever set out to do an audit of them. We were just giving a flavour of the kinds of things that were out there and absolutely recognised that. We know not just Mackay consultants but other people have been in touch to say that they either agree with them or they really don't. I think that that's something that you find in this area. It's genuinely very important to people and people have very strong views about it and we absolutely welcome that. We like the fact that, if we publish a report, people engage with it. We're more concerned if nobody notices. Can I ask a general question? First of all, and then I'll come on to a couple of particular questions related to the questions that we want to ask. In the short existence of this committee, this new committee, what bedevils this committee, and I think it's come up at every single session since it's been formed, this term, the question of stats peculiar to Scotland. We just can't find them. We know that they exist because I've got a colleague sitting across from there and myself that we've been contributing to these stats, some of them minor stats, but some of them are really crucial not only to the run of business in Scotland but to the Scottish economy, so they're there but we just can't get their hands on them. My question to you is what's the source for your stats and can we get a hold of them so that we can interrogate those stats? I think that it would help us immensely. You're absolutely right to raise that question. In fact, I think that Dave Watson at your last session called us the best number crunchers we have, so I was pleased to see that. That obviously is a big chunk of our work, and very often we find it hard to make conclusions based on the data that's available for sure. I'll ask Gemma to say a little bit about the specifics of that. In general, we're very conscious of that. We're, as an organisation, more widely convener, very keen to make publicly available all the data that we have, so we've started routinely now publishing not just the reports but the data that underpins the reports. There's a bit of software called Tableau, which allows you to interrogate data in quite an interesting way depending on region and all sorts of stuff, so we're very keen to do that so that people can do their own analysis to help with that engagement that we were talking about a second ago. Gemma, do you want to say a little bit about the specifics of that? Yes, certainly. I think that with the data in this report, we didn't create any of it ourselves, so the data that we have, we've got from the Scottish Government or from the enterprise agencies. Some of that is publicly available and some of that was created by the enterprise agencies for us. We were trying to get data that we could get the same data from both of them so that we could compare with that. We found that quite difficult at times, but certainly everything that is in this report we obtained from the enterprise agencies, so it might be that you want to direct your questions to the enterprise agencies from that data. Certainly, we can provide you with further details of anything that we have in this report, but we did obtain that from the enterprise agencies or the Scottish Government themselves. I would be very useful. I would certainly like to see it because there's a conundrum, I think, that this committee's got to solve in some way or find out why we can't get the information. I would defer in particular to your Exhibit 1 on page 9. It's coming on from what Jackie already raised. You talk about productivity, and it's £30.23 an hour in Scotland compared to £30.97 in the UK as a whole. My first question is, does that figure actually include Scotland? In the back of that, can you separate Ireland and Wales, which I think might be a better comparator to the UK, and all that goes with that? Or is there a way to marry up the shape of the Scottish economy? Would it not be a fair way to do it and a more sensible way to do it, rather than compare it with the UK? I don't have the details of how that data is broken down at the moment, but I can certainly look into it and come back to you with it. What we wanted to do in that kind of exhibit is, I suppose, in one exhibit to show as many key points about the economy as we can, but I can certainly come back to you with the details of exactly what's included and excluded and how it breaks down to see if we can do those comparisons. I mean, the substance of my question really is this, that here we are, we're comparing Scotland with the United Kingdom and we know that black stars involved in the United Kingdom. That's London and London, you know, a black hole that just, you know, it disturbs everything that surrounds it, including the whole of England. So therefore, if we're comparing including it in Scotland, England, ISR, Ireland or the regions of England and include London and if you consider the massive subsidies that London enjoys with its infrastructure that the rest of us have to make a contribution, but we don't see the benefit of that. And of course, one of the biggest ones for an employer is London waiting and it goes wider than London. So if we're making a comparison on the figures that's in your report with all that in it, is it a reasonable comparison to make? Should we not be looking at somewhere else? Actually Scotland, if you take London out of it, might actually be performing extremely well. I don't know because it's only a comment, but there's no way that I can actually determine whether that statement is correct or not. Mr Paterson, convene, if I may, is that we are, you know, we take as a starting point what are seen to be, you know, credible and respected statistics. We tend not to, as Gemma said, create these things ourselves unless we've got a very clear reason to do that because, I think, as this conversation demonstrates, you can get into very big debate about the numbers. So that's why we use places like the Office for National Statistics, another recognised sources, and we report that on. You raise a good question and certainly we can come back to the committee with a breakdown of what's involved, particularly in that productivity number. We can give you that. I think that my main point here is that, back to my original question, is that if we don't have figures for Scotland that we can discern, we can interrogate, how can we possibly say that these figures are categoric if we can't find them, if I'm not there? I'm not blaming you for this because it's a very, very serious question, particularly at this juncture that Scotland finds itself and the rest of the United Kingdom with regard to Brexit. These questions are quite fundamental to the narrative when it comes to Brexit, so your agency and everybody else is sailing close to the wind when it comes to the factual results if we can't actually get figures that are peculiar to Scotland. I suppose that my final comment, convener, would be that there are lots of ways of cutting the data. I don't think that this touches on your core question, Mr Paterson. I don't think that the problem that we have is not enough data. It's the way that it's presented and what we do with it and the way in which you can compare it and make sense of it. I think that we've got loads of information and loads of data. It's making it usable. That's the challenge sometimes. There are lots of organisations out there in terms of the economy, Fraser of Allander, Mackay Consultants and loads of people doing lots of different kinds of analysis. I'm not sure that you will ever get a universally agreed set of figures that everyone's going to sign up to. There's lots of different ways of presenting it. I think that, in a sense, what we tried to focus on in this report was not so much those things because, as I say, we are not economists but trying to make that assessment of the contribution of the agencies. That's why we decided to focus on those things for this report. Mr McKinlay has said that Audit Scotland will come back to try and give some detail of the figures and where they come from, but I don't think that they wish to get involved in the debate of whether London is a powerhouse that subsidises the rest of the United Kingdom or a black hole, as you described it. I'll move to Dean Lockhart. Thank you, convener, and thank you for the guests coming along today. In the past decade, the Scottish economy has underperformed the rest of the UK in terms of economic growth, just touching on some of the issues that's been discussed in terms of GDP and employment growth, including, I must say, Wales and Northern Ireland in terms of employment growth. Latest GDP numbers that came out about two weeks ago show that that underperformance continues relative to the rest of the UK. Now that the Scottish Parliament has new fiscal powers, the relative, according to the Fraser of Alder Institute, the relative underperformance of the Scottish economy will now contribute to the Scottish budget and possibly lower public spending. Could I get your thoughts in terms of your report that says that the enterprise bodies are performing well, but the Scottish Government needs a clearer plan for delivering its economic strategy? Could you give me a couple of reasons why the Scottish economy is underperforming? What in your mind, and I appreciate that this is slightly beyond the scope of the report, but in your mind, why are we underperforming not only the UK but other small countries in the EU in terms of economic growth? Convener, if it's okay with you, I might politely sidestep that question, because genuinely that's not a thing that, A, we're just not best placed to do it, I'm afraid. I think that the interesting thing about this topic, and this is why it's such a fascinating piece of work to do, is that if you were to get 10 economists in this room, you would probably get 10 different answers to that question. I don't think that Audit Scotland is the best place to add a view. I can make the question more specific and thank you, and apologies for making it so broad. Maybe a more specific question. The gap between what the enterprise bodies do and how the four eye economic policy is measured, how do you think that gap is best measured or bridged? I can do that, Ms Hall. Thank you. I'll ask Gemma to come in. The 2015 strategy was obviously revised last year and had a couple of important changes, one of which was the inclusive growth, which has kind of been a theme running through economic policy for a long time, but this was the first time it was included specifically as an objective. I think that what we are saying to answer to giving an example is that I don't think that at any point we have specifically, or the Government has specifically said, our approach to delivering inclusive growth is X and the role of the agencies in delivering that bit of the strategy is Y. The other thing for us, which is interesting, and the Government, I think, has been very clear that the four eyes are complementary, that they support one another, that inclusive growth is an important element of investment and innovation and other things, and we think that sometimes there might be some tensions in there, and I think that it's important that the strategy and the plan for delivering the strategy recognises some of the challenges that, again, I think that you were talking about last week, or sorry, before recess, with trade union colleagues about fair work. The thing that struck me about that conversation was that it demonstrated what is quite a fundamental shift in the structure of the economy. The economy is a very different place than it was 10 years ago and will be very different again in 10 or 20 years' time. Our challenge, I suppose, to the Government and the agencies is how are you ensuring that the strategy and the plan for delivering that strategy remain fit for purpose, not just for now, but for what the economy is going on in 10, 15 or 20 years' time. I have a couple of questions, but I'll deal with them one at a time. I was mentioned paragraph 39 in the report where you say that all public bodies spending supports economic growth in some way, both directly and indirectly. There is no agreed definition of economic development activity, which means that the total public sector spending on direct support for economic growth is unknown. You then go on to acknowledge that areas such as education, whose primary purpose is not economic growth, obviously do support it, so you acknowledge that there are problems there. The EU court of auditors, for example, has identified millions of euros in agricultural subsidies in Scotland that do, to quote from their 2011 audit report, identified beneficiaries up to a million euros per year without having any agricultural activity on such land. Commentators have suggested that 25 per cent or 30 per cent of agricultural subsidies are doing absolutely nothing. Although we may have difficulty in identifying the areas that support economic activity, we can certainly potentially identify some areas that are doing absolutely nothing at all in public expenditure. I was just wondering whether what work needs to be done in your view to get over this very large deficiency that we do not know what public sector spending is doing to support economic growth and whether we need to do anything about the fact that there is no agreed definition of economic development activity. I will keep off on the last country to come in, if I may. On the definition front, we are keen that we understand the definition of economic development to the point that it is useful. What we are not suggesting is that we spend forever doing a kind of academic exercise to come up with a theoretical definition of what it is. We think that it is important to define it so that you can then figure out what money is being spent on it so that you can then figure out what difference it is making. That is the job to be done. I mentioned earlier that we are trying not to invent—or not invent, that sounds bad—but to do some analysis and come up with figures of our own. In actual fact, we did do that. On this occasion, the £12 billion figure was a bit of analysis that we did at our own hand. Indeed, it proved to be contentious because, as you said, there is lots of debate about the extent to which all that money is being spent on economic growth, so absolutely there is a job to be done there. Anthony, I will ask you to come in on the specifics of what we think should be done. I think that Mr Whiteman takes us back to an earlier part of the conversation this morning, which is about understanding the contribution that the different bodies are making to supporting Scotland's economic strategy. It is very clear that the money that is spent in schools, universities and colleges, the money that is spent on transport and infrastructure, or making contribution to supporting economic growth, we do not think that it is feasible to try and allocate every pound of shilling and pens to support for the economic strategy. What needs to happen is a better understanding of what alignment and contribution those bodies are making. It is about having a better understanding of how the university sector, how the colleges sector, how the school sector is supporting and contributing to that broader national strategy for supporting economic growth. You do make an attempt to come up with a figure there. We do make an attempt. My question really is that you would agree not very satisfactory to have to do that rather crude exercise, albeit that you were doing it to try and highlight the deficiency, but you say that it is unknown. Clearly, we need to do something. We do not, as Fraser said, need to do very complex exercises because this could end up being a very large academic and bureaucratic exercise, but clearly, we need something that makes it easier for those charged, us charged with scrutinising public expenditure to be able to come to a reasonable assessment of whether it is supporting economic development or not. When Mr McKinley was responding to Jackie Baill earlier in terms of the things that we would like to see coming out of the review that is taking place at the moment, I think that our assumption is that one of the outcomes of the review might be a better understanding of how the funding that is spent across those various bodies is supporting Scotland's economic strategy. Now, that may well necessarily be relatively high-level and it has to be underpinned by a load of assumptions, but that seems towards a reasonable step forward compared to where we are at the moment. Thank you. My second question relates to paragraph 85 on page 34, where you say that Scottish Enterprise and high operate in a high-risk environment, they should only invest when the private sector, including banks or other investors, is unwilling or unable to. When you say that they should only invest in those circumstances, is that your opinion? I think that that is more supposed to be a statement of fact, that is their job, in a sense. I am interested to know where you get that from, because clearly the enterprise agencies do invest where the private sector is perfectly willing. I give an example of the support that Highlands and Islands Enterprise gives to community land acquisition. There are plenty of people who are willing to buy that land, but they provide substantial support. Again, I think that there will be lots of reasons why they think that public support is able to do is a good idea there. I do not think that it is a case of, like all of this, it is never a black and white case of its only public sector, its only private sector. There are always going to be grey areas. I think that what we are clear about, and to be fair, what the agencies are clear about, is that there needs to be a good rationale for why public money in those cases and others is actually going to add value. That is getting to all the technical measurements about additionality and all those kinds of things. They are absolutely clear about that, and that forms part of the evaluation frameworks that the individual bodies have. When we talk in the report about the role of the individual bodies and then performing relatively well, that includes the fact that they measure how their investments have done and the extent to which they have met their objectives. That statement is not meant to be an apology if it reads too much like a black and white. They only do that, or it is either public or private. Very often it will be a combination of those things. Okay, so just to conclude, would you be able to let the committee see the footnote for that, as it were, the basis on which you understand that they should only invest in those circumstances? So, I do not think that there will be a specific reference to it, Ms Whiteman. I think that it comes back to my point earlier on, which is the whole point of having state enterprise agencies to work in a riskier environment where the market is not on its own going to deal with that. Becht, I do not think that that is the point. Well, it may or may not be the point. If it is the point, where does any statute or government policy say that is the point? I am just interested in that. If you were to footnote that, what would be your evidence for that statement? I accept it in very, very general terms, but post-war coal, gas, electricity, trains were not nationalised because the private sector could not do it all. They were done for a wide range of reasons and the public sector has intervened for a wide range of reasons ever since. Andy Wightman's question is, where is the policy guidance statutory basis or other reason for putting that statement in? Clearly, that is what you are looking for, is it not? We can certainly dig that out. I am hesitating slightly because we will need to double-check that it is written down in those terms somewhere. The way that we have written that is more categorical than it should be, but we can certainly double-check and come back to the committee, Mr Wightman. I would like to bring it back to the support for businesses. You make one of your key messages, the number four in your key messages, that starts with the full range of public sector support for businesses is not known, which creates a risk of duplication and inefficiency at one point, and the second point is that public sector support is not well understood by businesses and their scope to simplify. Could you give me some of the background as to why you made that statement and what investigation you did to come up with that analysis? Again, I will ask Gemma to talk to the detail, but part of it was from talking to businesses, and we always tried, and in this report was no different, that we went out and spoke to businesses. We tried to engage with businesses generally, which proved tricky. However, we also spoke specifically to businesses that are account managed and others that have had experience of working with the agencies. One of the messages that we got back was that there was quite a complicated landscape out there. We have not focused on, for example, the role of local government and councils in all this, but business gateways are another important part of the landscape. I think that what we are saying here is that if you put yourself in the shoes of a small business owner, it is quite a complicated landscape. Is there something that we can do to help to simplify that, Gemma? Do you want to add to that a bit? Absolutely. For example, the Government has tried to consolidate all the websites that were there for supporting businesses into the mygov.scot, but even that has over 600 different funding streams available for business, so it is a very complicated landscape for somebody to try and navigate their way through. Certainly when we looked at sector support for the food and drink sector and also for the energy sector, there was a wide range of different funding streams from different bodies with different criteria. It is, again, difficult to know whose door do you knock on. If you knock on that door and get refused, do you necessarily know that there is somewhere else to go? Certainly there had been a recent review done of the food and drink sector, and they could not identify all the money that was spent in supporting that sector. I think that what we are trying to say is that there needs to be a better understanding and more rational of trying to rationalise all those different funding streams and to make it very clear that there is one route in for businesses, and then there will be clear signposting between that. We think that there is more that can be done on that to make it easier for businesses to get that support. Did you identify or speak to people who were starting out in business as well when you were doing that investigation? What we did was we generally spoke to businesses that had had support from Scottish Shend Prize and Hands and Islands Enterprise. We also spoke to business representative organisations. We did not get involved with the business gateway side of things, which is where some of those smaller businesses would have their first engagement that was outside of the scope of this report, just to try and keep it manageable. We did speak to the FSB for example about some of the issues that they encountered. We tried to get as wide a range of opinions as we can, understanding that the business community is very large. There are lots of different types of businesses and they will have lots of different opinions on the types of support that are out there, but from the opinions that we gathered and from looking into ourselves, those were the conclusions that we had. On one of our learning points from doing this report, at the outset, we tried a social media campaign to engage the business community in general, which is something that we struggled with. It is fair to say that it was not a overwhelming success, so there is something for us to reflect on there about how we get at, get access to, speak to and engage with business owners and companies that are not already in the system, which we can get at quite easily. That is something that we are reflecting on for future work. The reason that I am asking is that, at the moment, I am from the northeast, we find quite a lot of people that are starting up businesses as a result of maybe being made redundant with oil and gas. I have been spending a lot of time, particularly, with women starting up in business in my area as well. It seems to me that that section, the potential business people of the future, who are not quite there yet, do not know how to access any of the help. Was that something that you looked at? It is not directly, as Gemma said. We would expect them to come through the business gateway route, but I think that it touches on the point that we make in the report about that. While we focus on Scottish Enterprise and High, we also recognise that there are lots of other bodies at play here, councils, colleges, universities and other things, which you might expect to be helping those people who are, for lots of reasons, designed to embark on a new career or build a new business. That is why it is important that there is that sense of coherence around the public sector partners, that this is part of everyone's job. If you happen to be coming across somebody like that in a different context, they are also able to think about providing some advice and guidance or at least some signposting to the right place to go. I think that there is that sense of joined up in this is exactly what we are looking for, and it will be interesting to see if the review touches on some of that. That is very helpful. Thank you. I would like to bring in the other members of the committee, and perhaps in light of time constraints, if they could make their questions brief, sharp to the point, and perhaps the best question, Liam Kerr. The best question out of four. Right. Thanks, convener. I just want to take on Julia Martin's point at the outset. In terms of, because I noticed at page 18 paragraph 36, you talked about that the agencies had tried to identify the 600 funding streams, the public support that is available, but abandoned it because it was too complex. Gemma Diamond said that something needs to be done, more can be done, but if even the agencies can't get through this, what practically can be done, or indeed is being done, and by whom? I think what we would recommend is that, yes, an attempt was made, but it was abandoned. I suppose it quite an early stage, and I think what we are saying is actually that this is a problem that is worthy of more investigation, and then it's not a case of accepting that, yes, there is that many funding streams, and yes, it's complicated, but it's too complicated and we can't do anything about it. I think what we're saying is here is actually that it's worthy of further investigation, it's worthy of further work, it's worthy of looking to see actually, can we map this out, can we simplify it, can we make it easier, and I think what we're doing is providing that push to say, actually, please, can you carry on with that work? I just checked, and I think our guests are able to stay for slightly longer than we scheduled for till, say, quarter two, which will give us a bit more time for those still wishing to ask questions, so perhaps Liam Keff you wanted to follow up on one of those points, thank you. Just, I thought Andy Wightman made an interesting point, and around the Samaria paragraph 87 you've talked about there's a return on investment of about 20 per cent, and write-offs of about £39 million on these investments. Do you have any view on whether that's good value to the public purse? It's not an assessment that we've done as part of this work, Mr Kerr, it's the short answer. I mean, this is in a sense that gets to the heart of the conversation that we're just having with Mr Wightman about what the job of an enterprise agency is. I think that where we get some assurance is that the systems around this whole area of what's invested and what's written off and all that is well governed. The measurement systems that they have in place within the agencies are, we think, sound. The judgment of value for money is an atoriously difficult one to make because you would need to bring in opportunity costs and if we hadn't invested it in that, could we have invested it in something else? There is a whole system and assessment process that the agencies go through to make those judgments. It's hard for us to second-guess that, I think. Thank you. Gordon MacDonald. A couple of quick points. First one is on paragraph 45 on page 21 you talk about city region deals and with the growth of the city region deals, I think that the six you've indicated are going to be taking part, are certainly being considered in Scotland at the moment. I'm just wondering what impact the growth of city region deals has on the role and the remit of the enterprise agencies given that city region deals give those areas the opportunity to set their own investment priorities. That's a great question and I think that one of the reasons that we say that the government and the agencies need to continually look at the changing environment is that city deals and growth deals are a great example of that. They are a relatively new phenomenon, they are quite complex, the funding comes from lots of different places, there is risk involved for lots of parties and because a lot of my work is with councils and certainly for the councils involved, in some ways city deals and growth deals, regional deals are the biggest show in town at the moment in terms of this stuff. There is a real need I think for the agencies to consider and set out more clearly what their role is in these things and is it the same everywhere? Is their involvement in Glasgow city region deal the same as the Inverness and the Highlands regional deal, for example, is a great example of how the world is changing quite fast and need therefore for the strategy, the plan and the contribution of the agencies to be more clearly set out? Do you have a particular view about what that role should actually be? We don't at the moment and nor is it for us necessarily to have that role. I think what's important is my guess is that it won't be a one-size-fits-all. I would imagine that the contribution that Highland regional growth deal will be different to the one that SE makes to Glasgow or the Ayrshaws or the Fife and Lothians version of that, because the whole point of those regional deals is that they are themselves all quite different. I think that what's important is that the agencies have an approach that identifies what best contribution they can make if indeed they make any contribution at all. Going back to the subject of data, I know that everybody has touched on that, but given the UK situation in terms of size and comparison in Scotland, are there any European nations of a similar size to Scotland that we should be looking at to see where good practice is in terms of how their enterprise agencies work? That is something that the review has been considering. They recently published some work that they had undertaken research that looked at the arrangements in other countries, so we would certainly look to see how that is taken forward as part of the review. My last point in terms of the data. You have made comparisons about Scotland and the rest of the UK. Would it not be more helpful that, if you published the 12 regions of the UK that ONS put in to see where Scotland sits rather than this very blunt comparison of the rest of the UK? An example is the House of Commons library that was produced at the end of August, the regional and local economic growth stats for 2010 to 2014. If you exclude London, which is obviously skews everything in the UK, you find that Scotland, out of the other 11 regions of the UK, is in fourth place in times of growth between 2010 and 2014. That surely is a better way of presenting the figures, showing it in the context of all the regions of the UK, to see exactly where we are rather than this very blunt UK figure that is skewed by London compared to Scotland. I am sorry, but I am asking the witnesses. It is very helpful feedback and we will reflect on that for the next time round. It is important to say that the reason that we included those figures was just to give some kind of context, but your point of view will certainly look at introducing some different measures on the basis that, as I said earlier on, I am not sure that we are going to get to an agreed set of numbers, but I think that your feedback is very helpful. I suppose that your difficulty in that may be that if one looks at specific areas such as the north-east, the oil industry, takes London out and looks at Birmingham, you could look at a whole variety of different areas that are very different. Is that something that really is part of your remit? That is the point that I have been trying to make. Our starting point is well recognised and well used figures. For the purposes of this exercise, in terms of setting context, the UK comparison was the most straightforward to get in a report, but I take the point that there are other measures available. I guess that all I am saying is that we will certainly consider that in future. Earlier on, you described the case studies as colour in the report. I wonder whether you could perhaps reflect on the colour that was sparked by the investment in Amazon at Dunfermline when, in 2013, it was revealed that it received £2.5 million of Scottish Government investment in the same year that it paid corporation tax of £2.4 million on a turnover of over £4 billion. I guess my question is whether you think that represents a sensible route of investment for the public purse. Secondly, you mentioned earlier on fair work as a growing part of the consideration of economic development. Amazon is notorious for being an employer that has used zero-hours contracts extensively and is not, as I understand it, a living wage employer and refuses to recognise trade unions. It would not qualify for the Scottish business pledge, I do not suppose. Do you have a view on that? Again, you might not be surprised to say not directly, but what I would say is that I think that Amazon is a good example, a good case study, and it is worth bearing in mind that very often the big inward investments are a competitive process. There were other places that we were looking for Amazon to invest, so at that point, and genuinely I make no comment about some of the points that you made there, Mr Leonard, in terms of Amazon as a business, but the judgment that I guess Scottish Enterprise and the Government are making is that, if we do not support it, they might go somewhere else. It is part of the judgment that they have to make. Your second point about fair work, I think, is an interesting question. I mentioned earlier on about the inclusive growth part of the strategy, and I mentioned some potential tensions. I think that those kinds of examples are one where in future, and that is why it is important that the enterprise agencies are absolutely crystal clear about what their role is in terms of inclusive growth and fair work. As those kinds of opportunities present themselves, the fair work and inclusive growth bit needs to be an important part of that consideration. I genuinely have no comment as to whether it was or it was not with Amazon or the Amazon employer, but it does need to be in future. If the Government has said that inclusive growth is one of the four equal strands of the strategy, it needs to feed through into how everyone does their work, including making decisions to support inward investment such as Amazon and others. You are not saying that that would make Amazon or an equivalent in the future ineligible for support. I genuinely have no idea. Convener, could I ask one other question on a different point? It is the one that you raised in paragraph 30, although I am not sure that it finds its way into your final list of recommendations. You do observe when you are discussing the strategic forum that no details of the strategic forum are publicly available, including its remit, how often it meets and what it discusses. There are also no details of the impact it has had on collaborative working. In light of those comments, do you have any recommendations about the strategic forum? That is a very fair question. If the strategic forum is a thing that is genuinely supposed to make a difference to how it works, it should be more transparent and clearer. We should have a better sense of the job that it plays. At the moment, our sense was that the role of the forum was a bit unclear. It was a place where people can get together and share some stuff. I think that there is something about if it is to be a decision making forum or an engine for some of that stuff, then it needs to be given the weight that that would bring with it. It is probably chaired by a cabinet secretary, is it not? May I just clarify? Are you saying that that is something that you would now recommend or something that you would want to look at and come back to us along with the other issues that have been raised that you will come back to us on? I am just thinking that there may be some parameters for the strategic forum guidelines or something. I do not know that you would want to look at before you commit to some particular recommendation, or are you happy to commit to a particular recommendation here and now? When we were making our recommendations, we were conscious of the fact that those weaknesses of the strategic forum, in making our recommendations and going forward into the review, that what we did not want to do was to narrow essentially who might be in the strategic forum in the future. For example, I think that that is all going to be considered as part of the views of who are the key bodies that are charged with supporting Scotland's economic growth, who should be in that strategic forum and what should it do. Essentially, we made those wider recommendations, acknowledging those weaknesses, but not making any specific recommendations about strategic forum until we know what the outcome of the review is and how that might look in the future. We did not want to narrow the options of the Government in making those recommendations. I suppose that it would fall under monitoring and reporting progress, which is one of your recommendations, because, as has been pointed out, if there is no transparency about the strategic forum, it can hardly be monitored. I think that the review is also a good opportunity for them to look at the role of the strategic forum, so I would have it under that recommendation as well. Did you want to come back on that, Richard Orr? No, it's fine. Thank you. I will move on to Ash Denham. I just wanted to pick up on a theme that emerged earlier. In your report, you said that the development agencies are performing well against their own performance measures, and that they account for only 2 per cent of public sector spending. My point here is that we need to be quite realistic about what can be achieved by these development agencies. In your report, you said that measuring their contribution to economic growth is difficult. You have stated a number of reasons for those, such as time lag, isolating the influence and other factors such as what is happening in the global economy. It seems to me that it is quite unreasonable to expect the development agencies to be able to have any radical effect on the Scottish economy. You have said that you felt that there was a lack of ability to measure the development agency's contribution to the national performance framework. Obviously, those are two different things. In paragraph 27, you said that you have looked at other countries' approaches to supporting economic growth. My question is, have other countries solved the problem of measuring the performance of development agencies in their support against very high-level performance indicators such as the national performance framework? I do not think that we have found anywhere that we would say that they have absolutely cracked it. I think that Northern Ireland seemed to us as good an example as we found of taking a high-level strategy and underpinning it with clearer timescales, clearer actions, responsibilities for organisations that can then be measured. As I said earlier, accepting the fact that the outcomes bet will be long-term in nature, it is absolutely reasonable for people to expect there to be some interim measures that allows us to know whether we are on track or not. As you say, recognising that there are lots of other things at play in the economy that you cannot just draw a straight line that, if the Scottish economy will perform well, it is clearly not that straight forward. However, you would expect them to have some kind of impact and some kind of influence on it. I think that it is clear about the roles and how they are doing it and how they are spending their money. As you say, that is why we felt that it was important, not while we focus mainly on the two agencies. We also made the attempt to look at the wider agencies in the strategic forum, which spend £2.2 billion. That is why we then made the wider assessment of the £12 billion that you could say was directed towards economic growth, recognising that the wider you draw the circle, the more complex that gets. That is why, as Anthony said earlier on, that is the alignment that is important to all of that. The recommendation that we make in the report, specifically around the money, is about estimating the total spending on the four strategic priorities. What we are suggesting is that, rather than starting with how much money each body spends, start with the priorities and say how much money is contributing to those things, which will inevitably come from lots of different places. From that end of the telescope, if you like, you have a better chance of coming up with a meaningful set of numbers that you can actually do something with. We will just thank our guests for coming today. I will suspend this meeting, move to private session and allow a few minutes for the gallery to clear up any visitors who are there. Thank you very much.