 Rwyf ni, ysgolwch, a chdiw i cyfweld i ddiwedd y 17 ym Professor of raceg길 yn 2017. The Constitution Committee, at its usual, has always been ready to issue mobile phones to say that they won't interfere with proceedings. The first item on agenda is to decide whether to take item 4 in private. Are we agreed? Yes. We're all agreed. The next item on agenda is to take evidence on the proposed contingent liability from Kevin Stewart, the Minister for local government housing. Mr Stewart is joined today by Scottish Government officials, Brad Gilbert, head of financial innovation unit, Nathan Good, who is from the financial innovation unit, and Rachel England from the finance programme management division. Members have received copies of the letter from the minister setting out the background of the request. I warmly welcome our witnesses to the meeting this morning, and I invite the minister to make an opening statement. First of all, I start off with an apology. In my letter, the figure quoted at paragraph 21, and referenced again at paragraph 11 in the committee clerk's paper to the committee, is unfortunately an error. It should have read £2 million. I am here today to seek— Is this absolute clarity? That's on paragraph 21. Paragraph 21 of my letter and paragraph 11 in the committee clerk's paper to the committee. Convener, I apologise again for that. I am here today to seek the committee's approval for a contingent liability on the Scottish Government budget for the rental income guarantee scheme. The scheme rigs for short is designed to help attract new institutional investment to the emerging bill to rent market in Scotland. It will help to deliver new high-quality private rented homes delivered at scale that are modern, energy efficient and professionally managed. Growing the bill to rent sector is in line with the aims of the Scottish Government strategy for the private rented sector. It is also one part of the delivery of our overall more home Scotland approach to increase housing supply across all tenures. It will make an important contribution to our broader economic strategy by boosting investment and house building. Builds to rent is a rapidly developing market. So far, it has mainly been focused in London and English regional cities such as Manchester. Although there have been some notable early investments in Scotland, rigs are designed to further boost the growth of this emerging market. Pension funds and other institutions have shown considerable enthusiasm for this sector and have set aside substantial capital for investment. Homes for Scotland have estimated that at £10 billion. I want Scotland to get a share of this investment and rigs is a key initiative to unlocking this. Rigs has been developed through close engagement with the industry who have told us that a rental income guarantee scheme is the appropriate financial stimulus for the Scottish market. That is because a new market brings with it uncertainty, which increases the risk for investors and can stall investment. Under the scheme, the investors will still be the primary risk takers. They must cover the first 5 per cent of their rental income before the guarantee comes into play. After that, the Scottish Government will only take half of the rental income risk and only to the extent that the rental income generated by the development remains at least 75 per cent of the original projections. In this way, the Scottish Government will ensure good commercial practice, retaining incentive for investors to let these homes. Extensive work has been done to ensure state aid compliance. The scheme needs to be a commercially viable initiative where investors pay a fee to participate. The actual costs of the scheme will depend on the nature of the proposals accepted and supported and how many calls are made under the guarantee. Extensive modelling has been done on the exposure to the Scottish Government. The maximum projected exposure for a contingent liability will be around £15 million. That would only arise if all the developments in the scheme systematically underperformed. My officials have estimated that the maximum probable cost will be around £2.6 million. In return, we believe that Scotland could attract investment of around £0.5 billion in value, building 2,500 new homes with the associated additional construction work and wider economic benefits. Given the significant leverage, I think that that represents excellent value for money. Just for the point of clarity to begin with, minister, you mentioned that £2.6 million. Is that not the figure that we have just corrected in the letter? The £2.6 million figure relates to the £2 million, which is the figure for potential calls on the guarantee plus the £600,000 that is the cost of running the scheme. In paragraph 10, the last sentence of the letter says that it is aimed to significantly boost new institutional investment in Scotland to build more homes by reducing some of the risk that investors see in the emerging market. I did not see much comment in the letter or, indeed, in the annex about what those risks are in the emerging market that investors see. It is a bit good to get an explanation of what those risks are, because that would underpin why you are bringing this proposal to us. Convener, we are operating in a very challenging economic environment, particularly post the EU referendum. The message from the industry has been pretty clear that investment to support the growth of this sector and reduce the risk for them is needed more than ever. The Scottish Government over the peace has made public its exploration of rigs, and the intention to introduce such a scheme. We have market tested it, and we have received a positive response to that. We have worked closely with industry to develop and refine the scheme further to create positivity within the industry itself. I think that if we were not to progress with this, we would expect some significant stakeholder backlash, particularly given the extensive time and effort that is involved with stakeholders in this proposal. I think that it would also send a negative signal about Scotland as a place to invest and to do business. I guess that my initial reaction is that the industry would say that, wouldn't it? It would be helpful for them to get the scheme in place. You are hearing that from the stakeholders and those involved. What other information sources and gathering has the Government done to show that there is a need and that the risk is real? It is not just coming from the house-building sector. We have done some extensive work. We have put in place a PRS champion. We have worked officials and the industry in the PRS working group. What we have tried to do here is to create a balance. Obviously, we recognise the fact that industry is always going to say that there are risks here and that the Government should intervene, but we recognise that there have been some difficulties out there in terms of institutional investment, particularly since the EU referendum. The rig scheme itself is designed to give early movers in the purpose-built PRS market greater certainty of income in those early years of letting through providing what is a limited Scottish Government guarantee. The market in Scotland is so limited at proving investment to give investors the confidence to back early developments in Scotland. I will bring in Mr Gilbert, who has been at the forefront of some of the discussions that there have been between industry and Government in the PRS working group and other fora. There has been considerable discussion with all the market players, investors and developers and local government stakeholders in the context of the private rented working group. There is agreement in terms of the potential demand for BTR in Scotland of between 7,000 to 10,000 homes. However, realising that potential requires us to ensure that we are putting in place the right conditions and support to achieve that. A range of measures have been put in place, and Riggs is one element of that. As the minister says, it is about trying to provide some support for the sector, which is the only tenure sector that is currently receiving some form of intervention from Government. I could maybe give the committee an example from Manchester as well, because they introduced a housing investment fund to deliver housing for sale and rent. Although relatively small scale delivering 119 new PRS homes, it has sent a positive signal to the market that PRS development is encouraged. Subject to the launch, we believe that Riggs here in Scotland will send a similar signal to the market here in Scotland. Obviously, you explained that the maximum if everything was to fail at once would be £15 million, but I think that the reality is something more like £2 million if there was a problem from what the paper has seen. You are estimating that, as a result of putting that up effectively as a potential guarantee to be drawn on, the scheme could draw in something up to the order of £500 million of new investment in Scotland into this sector, which seems on the face of it to be a good deal. However, why do you have that level of confidence in that number of £500 million? There has been a huge amount of work going on in terms of the modelling. The £0.5 billion figure with the associated jobs is part of that modelling. We have not only Scottish Government officials look at aspects of that. We also have had the Scottish Futures Trust, we have had Scott Mencrief and, of course, the working group itself. The amount of work that has gone on over the past 18 months has been pretty significant in that regard. I wonder if Mr Gilbert wants to add to that. The £500 million new investment figure is based on an estimated 200,000 per unit for each of 2,500 units that could potentially be supported through the guarantee. As I said, £2,500 is an estimate of the number of units that could be covered by the scheme. It is judged that that level of support is the appropriate level to help to establish the market for built-rent housing at scale in Scotland. To follow up directly from the convener's questions, can you help us to understand a little bit how robust the figure of 2,500 is? If the £500 million is based on the £2,500 unit figure, how robust is the £2,500 unit figure? I will bring in my colleague Nathan Shortley, who has been doing a lot of the modelling on the rig's work. As I said, we have considered this from the point of view of what would be a reasonable level of exposure to enter into. The judgment is that, within the modelling, that 2,500 units would be the appropriate number that would accommodate it. It is beginning to sound a little bit circular with respect. The amount of money that you are prepared to expose the taxpayer to is dependent on the number of new homes that you want to build or the number of new homes that you want to build is dependent on the exposure to the taxpayer. Where is the starting point in this? I think that, Mr Tomkins, the key thing in all of this is that we want to see more than those 2,500 homes built. What we have indicated is that this is basically a starting block. It is something that will entice future development. I go back to my point about Manchester, where they made investment in a small amount of PRS homes. That has allowed the sector to grow there in Manchester once the confidence in that area had been reached. Minister, the Manchester scheme that you have referred to a few times now, is that a UK central government scheme or is that a greater Manchester local government scheme? There is a UK government scheme, which is a guarantee on borrowing. The Manchester scheme is its own housing investment fund, as far as I am aware, Mr Tomkins. Why in Scotland do we need to do this through central government, rather than through Glasgow City Council? In terms of waiting for others to do it, it is right that the Scottish Government takes the lead in that regard. We have already said that that could lead to half a billion pounds of investment here in Scotland. I think that it is right that we show willing as a government to get on with the job and enticing folk to see this place as a good investment and to get on with building these houses. Mr Goode. Just to come back to the question about how we get to our £2,500 number. I have just underlined what the minister said. Our estimate of the total potential bill to rent in Scotland is somewhere around 7,000 to 10,000 units based on the work that we have done with the PRS working party. What we are saying is that a subset of that is appropriate for this level of support in order to entice in the investment for the sector overall. Just in terms of the £600k that has been quoted, is that part of the contingent liability or is that separate from the contingent liability? That is separate from the contingent liability. It is the cost of using the delivery partner to implement the scheme to administer the applications for guarantees and the assessment of those and the implementation of individual guarantee offers. That is a cost that will be drawn from this year's budget. What budget line will that be allocated against? Can I correct you there? It will not be allocated from the Dell budget per se. The accounting term here would be that the fee can be covered by using the income from the guaranteed fees since they are classified differently. That is from the annually managed expenditure budget rather than the Dell budget, Mr Kelly. Do you want to add to that, Mr Gilbert? No, that is an accurate description. Sorry. What is it that you are trying to say that there is an income line that that is going to go off against? Is that what you are trying to explain? Mr Gilbert? There are two elements to that. One is the provision that comes from the Dell budget to cover the cost of administering the scheme and the other is the calls on the guarantee. Sorry, I am just not really clear where the £600,000 is going to have to be spent. I understand that if the scheme goes ahead, but I am not clear where it is coming from. That is coming from the directorate's resource budget and has been factored into the forward budget planning. Miss England will provide a full explanation of how that all will work over the piece. The £600,000 is the administrative cost of making the scheme work over the lifetime of the guarantees itself. It is not a total cost in one year, so it is spread over the whole term of the guarantee operating and covers the work and the cost of that work to be undertaken by the delivery partner. It is right that it will be a Dell cost from the resource, but it is going to be over several years. Do we know how many years? We would expect to pay a sum of £175,000 roughly in the first two years. The scheme is established for that cost to reduce over time. Okay, moving on to another issue. The minister, in your opening statement, you outlined the fact that there would only be a call on this contingent liability if there was underperformance in terms of the scheme. What would cause underperformance? Underperformance, Mr Kelly would be if the investors were unable to find tenants to rent the properties, but there are a number of safeguards that are in place to reduce that risk, including chartered surveyors going in and looking at local rent levels and whether those levels would entice renters in looking at the market as a whole in those places to see what the element of risk is in that regard. Has your modelling covered what appropriate rent levels would be in order to attract people to rent these properties? Again, convener, that comes down to the fact that chartered surveyors will go and look at what the market in that particular area is and come up with the realistic rent levels that could possibly be garnered in that particular place. Again, that is in place to reduce the exposure and the possibility of a call on the guarantee scheme. Sorry, I am not really clear. Has there been appropriate modelling covering different scenarios on rent levels? In terms of the modelling of all of this, I will pass to Mr Gilbert. The answer to that is yes, but perhaps I will invite my colleague Nathan to say a little bit more on that front. In order to work out the overall potential exposure to Government, we needed to make certain assumptions about the rent levels that would apply to these units. Obviously, the scheme is a Scotland-wide scheme and, in practice, the rent levels could vary significantly depending on where the different projects are located. In order to analyse that further, we then looked at void rates within those areas to assess what the potential exposure was and how it might vary between locations according to the particular local market conditions. However, as the minister said, when it comes to considering applications in practice, we will have a mechanism in place for chartered surveyors to give a view on whether the proposed rent levels for the project are consistent with local market conditions. Ash, you wanted to go on issues of risk, I think. I am just interested to know how the Scottish Government has estimated the demand for the rigs scheme itself. Estimated the demand for the scheme itself. Obviously, as I said earlier, there have been numerous discussions over the peace with the PRS champion through the PRS working group and with the industry. There seems to be a fairly great appetite out there for that kind of scheme. Investors believe that that will help them to enter the market. Once investors have entered the Scottish market, we will see more following suit. It would be fair to say that, from my perspective, in the communications that I have had, the appetite out there is fairly substantial. The estimated demand that has been industry-led, for example, from homes for Scotland, is that the potential for Scotland is 7,000 to 10,000 homes over the next five years. I think that it would be fair to say that there is an appetite out there. I am just wondering whether we are in a fairly unstable economic situation right now. Do you estimate the demand to be fairly steady or do you think that it could be influenced if there was a change to the economic situation, maybe by Brexit or something similar? I think that, as I stated earlier, since the referendum, the European referendum itself, that has created a certain amount of instability in terms of investors. I think that we can attract investors if we have something like rigs in place. In terms of demand for housing itself, we know that that demand exists out there, including for housing within the private rented sector. We have already seen a small amount of build in certain places. Aberdeen proposals here in Edinburgh, I think that what we are proposing here could see that number increase. It would be fair to say that the likelihood is that the vast bulk of that demand and investment are likely to be in the four main cities first. Willie, you have a question on the number of units, I think, as well. Thank you very much, convener. I think that, Mr Gilbert, in one of your remarks, you said that this is the only, built in the only sector that does not receive any interventions from government. If we do not proceed with this, if we did not have rigs, how would we possibly fund this and see between 7,000 and 10,000 houses emerging? What model would we need to deliver that? Mr Coffey, it would be fair to say that if this scheme does not come to fruition, we are likely to see less investment here in Scotland. As it is at the moment, the vast bulk of the institutional investment in this area has been in London, in the south-east and in the major English regional cities, as I said previously. As I said, there has been some small developments here in Scotland in Aberdeen, in 292 units, built by Dandara. We have seen recent moves in Fenton bridge in Edinburgh, but it would be fair to say that it has been pretty slow here in Scotland compared to other areas. So, what rigs are designed to do is to create that attraction and to pump prime for further growth in this area. I think that in terms of the conversations that we have had over the peace, the scheme balances the risk between us as a Government and industry to get the sector in a much healthier state than it currently is here in Scotland, to attract the investment that is going elsewhere. Of course, it has already been said that it will attract half a billion pounds and create jobs in the construction industry as well. Just to clarify for me, the liability that you are asking for today from the committee, how many units does that get us for that potential investment? How many units do we get for that? The maximum amount of units is two and a half thousand, so it would be your intention to come back if that is successful, perhaps at a future date, to come back for another opportunity to do something that is to support up to between the seven and ten thousand additional units. I would hope that the scheme would be as successful that it attracts investors who do not feel the need in the future to have this rental income guarantee scheme. It is to show investors that the market here in Scotland is healthy to attract the additional investment in the sector in the future without the need for the scheme. It would be the great hope for all of this. First, I draw the committee's attention to my register of interests with respect to rental property. I thank you very much for coming on the long panel. I just wanted to touch on a few things, but first I want to clarify a couple of the numbers about there. I thank you very much for clarifying your point on the 2.6 versus the 2 million on paragraph 21. Comparing paragraphs 15 to 22 and 15, you are talking about schemes expected to be financial neutral, with a fee income of £1.4, balanced against the expected calls and administration costs. However, you are talking about a lightly guaranteed cost of potentially £2 million plus also the £600,000 fees on top of that. Is there a disconnect there in terms of tidying up those numbers to start with? Just to clarify, we have talked about paying out £600,000 in administration to run the scheme, and we have talked about a range of predicted calls between £200,000 and £2 million. The base case is in the middle. For backings in £800,000, your balance is in the one point. That is what you started to be clear on. As I say, it is modelling, based on assumptions. The actual reality may be a little bit different. That is fine. In general, the concept is great because it is an intelligent intervention to focus on where the gap in investors' concept is in giving them reassurance that it is de-risking for them. The way that you are talking about the void here seems to include what you would call under occupancy, as well as shortfall on the rental. You are combining both of those to get, as I understand it, what the rental income is going to be compared to the total rental income. That could be made up of either one of those components. A substantiated level of void rates in line with the local market conditions will be factored into the independently verified rent of projections. Therefore, any call on the guarantee would only come into effect at that particular point in time. Is that helpful to you? What you have said is that, for each unit, depending on where it is, you are going to assess a rental income and then anything that is 95 per cent or less you are going to be paying out the guarantee on. The 95 per cent represents a 5 per cent buffer on top of what would be expected as normal void levels. That 5 per cent is borne by the beneficiary to act as an incentive to secure that regular rental income. Void rates as a whole convener are well below 5 per cent in Glasgow and Edinburgh. We would expect that build to rent to have lower void rates than that. If I remember rightly and I look to Mr Gilbert, the original proposal received from the PRS working group, and I suppose that this is to be expected, the request was that the Government take on 100 per cent of rental income risk within a smaller band. Maybe Mr Gilbert can add to that and correct me if I am slightly skew with that point. That is correct, minister, in that the original proposal from the industry was that the Government take 100 per cent of the rental risk. Clearly, we deemed that that would not be acceptable. That is why we have got to the position where we have the proposal that we have, where there is a kind of 50-50 risk sharing between those defined bands at 95 per cent and 75 per cent. It is very much about finding that balance between public objectives and the Scottish Government interests. No, that is clear. I am totally clear on that. The concept is fine. That is at the point. I am drilling down the numbers and you are just confusing me a bit further here by what you just said. The way that I was reading that was that there was a market rent, the charter fits of every community in the market rent for that property is X. You would say, well, right now, 52 weeks of the year there for the income is Y. That is 100 per cent baseline. If it falls below 95 per cent of that, then the guarantee kicks in. But if I am understanding what you have just said and what you are saying is, you are then taking that, what you expect to be the income over 52 weeks, then you are factoring in what you expect to be an industry standard void rate in resetting that as your baseline 100 per cent. Is that correct or was my original interpretation correct? I might be inviting Nathan just to confirm that. Is this important to the market? No, you are absolutely right. Getting that balance right has been why we have been spending so much time thinking about this, but the way that you described it at the second time is correct. We would expect there to be an assumption about voids and bad debts that is plugged into the original baseline number that is then used for assessing whether the actual outcome is 95 per cent of that time. 100 per cent number that you will be basing the deal with investor on is a net number to take now risk, etc. That is fine. So, following on from that, my next question is what happens on the upside. There are two parts to that and I expect Patrick will come in on part of that later, but the two parts to that are if the yield is 110, 120 per cent, does the Scottish Government get some kind of claw back on that? Secondly, what implications does that have for market rents? Is there any envisaging any kind of rent cap situation to deal with that, to say to investors? We think that the rent should be x, you are charging x plus 10, 20 per cent, and you think that that is unfair. Either way, is there anything going on there or have you considered that in either direction? We considered those issues very carefully with the working party internally and came to the conclusion that this needed to be a simple straightforward proposal for the market. Also, having landed on a 50-50 risk share, so a situation where we are never fully indemnifying, we are only taking half of the risk at any particular point in time for the industry, we came to the view that we could not then look for an upside claw back mechanism. That was not consistent with the level of benefit that we were offering as part of this. In terms of rent capping, that was also something that was debated extensively. The conclusion was, and Brad may want to pick up on this as well, that there were other mechanisms to manage rent levels in Scotland's cities and that we should be relying on those to deal with that issue. I can certainly add to that. We have talked about the due diligence through the rig scheme, we will ensure that rents are in line with the local market, but the private tenancies legislation will add protection for tenants against excessive rent increases in two ways. Landlord can only increase the rents once every 12 months, and tenants will have the right of appeal if that is considered unreasonable. There is also the facility for local authorities to exercise discretion to provide evidence to make the case that rent increases are excessive in terms of the rent pressure zone mechanism. There are protections that are built into that tenacity reform legislation. Just on some of the mechanics, I am assuming that that is all in place, but I am assuming that if the investor sells the property on, the scheme moves with the property. I am assuming that you have got an audit process in place to check that what they are telling you in terms of their rental income is all verified, et cetera. One thing that we were very concerned about was to ensure that there was no cherry picking. What we do not want is investors selling off certain properties that they are having no difficulty letting and others leaving within the scheme and claiming under the guarantee. The structure will say that you are either in or out. As a scheme, you are either part of the guarantee scheme or you are not part of the guarantee scheme. The guarantee can transfer if the ownership of the entire scheme provides that the transfer is to an entity that the Scottish Government is comfortable with as a counterparty. That is very helpful. Thank you very much. Liam Kerr, the minister himself introduced the issue of state aid and I know you had issues around state aid. Do you want to just... Yes, thanks, convener. To go back before I go to state aid, to follow up on a couple of earlier questions, you have obviously done extensive modelling of the various scenarios, but I think that you do not intend to publish any of that modelling. Is that correct? If not, really why not? It just seems very odd that an awful lot of this is based on modelling that no one is able to see. Convener, a number of these things are commercially sensitive. I will bring in Mr Goode to explain further the reasons why we feel that we cannot go fully public in all of this. Yes, certainly. The essential point is that we are using this modelling to set our price for the guarantee and we do not want the people that are going to be taking up the guarantee to have access to our workings as to how we have derived the price, because we are providing them with an offer. It is for Government to determine what the appropriate balance of risk and reward is within that analysis, not for that to be shared with our counterparties. Briefly, you talk about the UK's guarantee support for the sector, but the feedback from industry indicated that it was not what was needed in Scotland. Could you just develop that? What is different about Scotland and did it work in the rest of the UK? I already pointed out, convener, that certain other areas, including Manchester, went above the UK scheme. It has been pointed out that the UK scheme is not the right thing for Scotland by potential investors. That is why we put together the PRS working group to come up with what was the right mechanism to ensure that investment. Mr Good, do you want to come in? Certainly. The UK scheme is a debt guarantee scheme. It provides lenders to projects with an underwriting, so it is fundamentally different from what we are proposing, which is a rental guarantee scheme. Development in Scotland can apply for that and have applied to be part of the debt guarantee scheme at a UK level. The two are potentially complementary as schemes. You ask whether the UK scheme has worked. It has certainly been very slow to take off and there are a number of reasons that we do not have time to go into today for that. The jury is out on the UK scheme. The reason why it was felt that Scotland needed something different was because the issue was not identified as being a finance issue. The issue that was being identified was one of visibility of future rental income because there is a lack of a track record in build to rent in Scotland. There is very little on which investors can base their investment assessment that is already in place in Scotland. That is discouraging them from making that investment decision to come to Scotland. Investors are like everybody else, a bit parochial very often. They tend to start with London and then move out to the English regions. What we are trying to do here is find a way of helping Scotland a little bit to jump the queue effectively and become more attractive to these investors who would otherwise just play a waiting game with Scotland and not come here until quite a bit later. The fundamental idea of this scheme was to basically bridge that analytical gap for investors and provide a tool for them to get over the line, if you like, about investability in Scotland. That leads on quite nicely to the state aid piece. You have designed it as a fee-based scheme in order to reduce the risk of an issue with state aid. I see that the state aid unit considers the risk of that being present as being low, but a low risk is nevertheless a risk. The question becomes, what if they are wrong? What if this is state aid? What is the impact of this being judged to be state aid? Why is there no assurance? Is there no possibility to just go and find out if this is state aid and assure ourselves? Well, as well as talking to the state aid unit, and as you rightly point out, Mr Kerr, they say that the risk is very low, and they are satisfied that the charging of the fee to beneficiaries of the guarantee, which is linked to commercial consideration, addresses the risk of non-compliance. Forgive me a second, Mr Kerr, if you'd like me. We have also commissioned Scotland Creeff as independent financial advisers to assess the approach to ensuring state aid compliance and to confirm that state aid principles have been followed appropriately. I accept that. I just wanted to clarify quickly because you said that the risk is very low, which is slightly different from your letter, which has a low risk. I just wondered if you might clarify that. But what if that assessment is wrong? What's the practical implication of that being wrong? I'll take Mr Gooden and then I'll come back. Obviously, the way state aid works is that the risk arises as a result of a potential challenge from a party who feels that they've been unfairly treated as a result of the state intervention. The first question that arises is who would challenge and why would they challenge, and that's quite difficult. It's difficult to actually find a rationale for that challenge, but we see the risk as being largely theoretical. It's conceptually possible, but largely theoretical. The consequences of that challenge would effectively be the kind of cost, the value that beneficiaries have received, and there is a provision in the guarantee documentation that will just make sure that beneficiaries of the guarantee are aware of the state aid position. They're stepping into this knowing that that's the situation. We just think that that's highly unlikely. As the minister said before, we have the appropriate assurance that we need that we would be looking for. The other point that I would make is that we could adapt the scheme very quickly if it appeared that there was likely to be some form of state aid challenge coming out of this. Thanks very much. Good morning. Can I just follow up on one or two of the issues about numbers, and then come on to a wider issue? You're accepting or you're citing the industry estimate of the built rent potential in the range of 7,000 to 10,000 homes in Scotland over the next four to five years, and there's an estimated 4,000 units in the pipeline, and that includes projects already being built or with planning approval, and early stage opportunities with identified investor interests. Am I right in assuming that those 4,000 will not be eligible for this scheme, given that they've clearly got to where they are without support? The developments in that pipeline, which is based on informal intelligence from the industry, are at different stages. We have a situation in which some developments, and we have recent examples, are proceeding without any Government support. What the RIG scheme is designed to do is to help to accelerate developments through providing a bit of support, particularly for those developments that wouldn't otherwise proceed. I accept that that's the intention, but does that mean that your projection of up to 2,500 is on top of the current 4,000 pipeline, or is it within that? Some of it could be within that. As I mentioned earlier on, the 2,500 is a subset of the overall 7,000 to 10,000 potential. Some of those developments in the pipeline may well seek guarantees support on the basis that the investment decisions haven't yet been taken and may not be. You presumably don't want those who don't need it to access it? Absolutely. I'm not exactly sure where the cut-off is. Is there surely some kind of eligibility to apply for the scheme based on demonstrable need? Each application that Mr Harvey will be looked at intensely by officials here to see if RIGs should apply to that particular scheme. Obviously, if we look at the Aberdeen situation, Forbes, where the units are already in place, they're up and running. They wouldn't qualify for the scheme, but there may be a need in some of those cases where it is in the pipeline to make that scheme a reality that there would be a need for a call on RIGs, but each case will be looked at on an individual basis. The 2,500 maximum, a bulk of that, could still be within the 4,000 that's identified as being in the pipeline. It could be, but it may not be. Can I just ask how this scheme connects to wider Scottish Government housing policy? Obviously, in looking at the financial merits of the scheme, we should be looking at the value that's obtained. Is that value judged purely in numbers of units? Is it judged in terms of the type of house building that's going on? We don't want surely the urban equivalent of gated communities. We don't want necessarily investment to be speculative in terms of high-end properties only. We want to build for the need that exists for housing that people can afford to live in. You've cited London as an example where the bill-to-rent model has been more successful. Surely, I hope, we don't want to get to the point that London is about to reach where the private rented sector is the biggest tenure, or do we? I think that we have got a situation where the Government has said quite clearly that we want to see a mix of tenures. This is not all about numbers. Obviously, I want to see quality in all builds that happen within Scotland. Of course, this scheme itself will have no effect whatsoever on the resources for the Government's ambition to deliver affordable houses £35,000 for social rent during the course of this Parliament. We know that the private rented sector has grown over the piece that has tripled in numbers since the 1990s. UK-wide is likely to hit 20 per cent of tenure by 2020. I don't want to restrict people's choices in what tenure they want to stay at. Convener, I choose to stay at home with my folks at age 49. I choose that. I don't know whether they choose that or not, but I don't want to restrict anybody in terms of what tenure they want to go into. However, I want those homes in whatever tenure to be the best that they possibly can be. This is not just a numbers game. It is also about providing the right homes for people in the right places in the tenure that they want. I have to say that having gone to the development myself in Aberdeen in recent times, the quality of the product there is very high indeed. I think that if we can achieve that level of standard, we will be doing very well. The scheme itself will set thresholds and standards around not just provision of numbers. You said that it is not just a numbers game. The scheme will have standards around rent levels, integration with the wider community and the proportion of social rent as we do with other developments. We are going to look at each of those schemes on an individual basis. Obviously, if those properties are not of a standard to be able to achieve the rent that is expected, Mr Harvie, that would lead us into some difficulties in being able to say that levels of income would be achievable and that in itself would, I think, restrict us in terms of that guarantee. I do not want to be too prescriptive in terms of what we are looking for here in some regards, but, in order for all of that to work properly, rental value has to be achieved. If they are not the right thing, that rental value is not going to be achieved. I take the point. To me, it reinforces that if the public sector is taking half the risk, then maybe the private sector, keeping all of the profit, is not the right balance to strike. Can I just ask about how we are going to judge the success of the scheme as it goes forward? You said that the modelling is not going to be published and you have given some reasons why you think that that is appropriate. Presumably, the application of the scheme, the kind of developments that are able to access it, the extent to which they have drawn on the guarantee that is provided to them, whether or not fees do match the cost of providing the guarantee and the calls on the guarantee, those details will be given to Parliament in due course in respect of each application, so that we can judge whether the Government has achieved something that is value for money? Overall, we will report to Parliament in terms of the costs of the scheme if that happens. In terms of individual schemes, I think that that would maybe cause some difficulty, convener, and I would like to clarify that and maybe write back to the committee on that particular point. I am not sure how we are able to judge the merits of the scheme until we hear an answer to that. In terms of individual developments, I think that I would need to check back. Overall, we can give you those numbers, but in terms of the cost to the scheme for each individual development, that might be commercially sensitive and I would like to get back to the committee on that particular point. We may have to come back to us on a confidential basis as well. Absolutely, Mr Crawford. Neil, have you still got some questions? No, I think that I have been covered. I thank the minister and his officials for the evidence today. The committee will consider its response to the request and private later in the meeting. We will then write to the minister to confirm the committee's decision and suspend this meeting to allow a changeover of witnesses. Thank you, minister, for you and your officials attending this morning. Colleagues, the next item on agenda is to take evidence on the implications of Brexit for the Scottish devolution settlement of any UK common frameworks, as discussed in the UK's governance white paper. We are joined for that purpose today in this item by Professor Michael Keating from the University of Aberdeen, Professor Charlie Geoffrey from the University of Edinburgh, Professor Eileen Macargue from the University of Strathclyde. I am very warmly welcome with witnesses to the committee. I am aware that Professor Geoffrey has another engagement that he has to be at, and we will be able to attend to, I think, about 11.45, so we will need to bear that in mind. Professor Geoffrey will need to necessarily go at the appropriate time. We have received written submissions from all of our panel, so we will go straight to questions. I will open the question session. We are probably an impossible question for you to answer. I think that it is probably the right place to begin, though. We have seen the outcome of the UK general election, so just like you are taking as best as you can what you think that might mean in terms of the likely impact on Brexit negotiations, particularly in regard to paragraph 11 of Professor Geoffrey's paper, where he observed that the great repeal bill will be irrelevant in the event of an election outcome other than a conservative majority. Before the meeting started, Professor Geoffrey was out to tell me he wrote this six days before the general election. For whatever clarity he can provide in the context that he is obviously in, that would be incredibly useful. Professor Geoffrey is probably going to start with himself. Thank you. I wrote that the day before. The day before? The general election. Clearly, the result of the election was a surprise to pretty much everybody, except the clever people at YouGov, who did that very elaborate forecasting model, which got it just about right. The point about the great repeal bill is pretty valid, because the Prime Minister is clearly weakened, clearly very much dependent on building a different kind of coalition of support within and beyond her own party. In those circumstances, I think much of what we have talked about in the Brexit debate hitherto is now subject to question, including the great repeal bill, and including those provisions that appear to set a direction in relation to devolution. I think that what I identified as perhaps a rather more muscular approach to cross-UK co-ordination vis-à-vis the various devolved administrations is one of those things that would need to be reflected on, given the relative political weakness of the Prime Minister now, as compared to one week ago. Professor Michael Keating, or Professor Le McArthur, do you want to contribute? Yes, it appeared before the election that the UK Government was going to pursue what it called a UK Brexit, but in which the decisions would be taken by the UK Government in consultation with the devolved administrations and legislatures, but not jointly with them. It was also clear that they were resisting any form of differentiation across the United Kingdom, possibly with exception of the Irish border. I think that has become much more difficult. I think that the UK Government is going to have to reach out in various directions in order to get the legislation through. It is going to have to pay more attention to Northern Ireland because of the proposed arrangement with the DUP, whatever that turns out to be, and it cannot open up to Northern Ireland without also taking into consideration the distinct circumstances and expressions of interest in Scotland, Wales and, indeed, London and the regions of England. I suppose that I would say that the lessons of the general election do not make predictions about anything, but since you have asked us to, I suppose that just one qualification in response to Professor Jeffrey's comment about the great repeal bill being irrelevant, I do not think that it will be irrelevant. The things that the great repeal bill purports to do have to be done, whatever form the Brexit takes. The question is, how do we do them? It provides for continuity of laws, it enables replacements where necessary. The only real question is, as the other two panellists have already said, what degree of compromise there is likely to be or that the UK Government is willing to concede. As they both said, it seems possible that a more conciliatory and more consultative approach will take place. On the other hand, perhaps the DUP's involvement in maintaining the Government, if that is what happens, perhaps that will reinforce the Irish exceptionalism. I do not know. I would like to ask about common frameworks. The devolution arrangements that we have in all three devolved nations were based on many assumptions, and one of those assumptions was that the whole of the Irish kingdom would continue to be a member state of the European Union. It is incompetent for any of the devolved parliaments or assemblies, and it is incompetent for any of the devolved administrations to act or to make law in a manner that is incompatible with EU law. Given that we voted to leave the European Union, that clearly needs to be revisited. As I understand it, what the UK Government is proposing, albeit that what is in the public domain about it is sketchy at best, is that there will need to be some kind of pan-UK common frameworks that do the job in a post-Brexit UK, that the requirement to act compatibly with EU law was doing in the pre-Brexit UK or in the current UK? Is that roughly your understanding of what this talk about common frameworks is? Maybe I query your premise that we voted to leave the EU. There was a very narrow vote. Different parts of the United Kingdom voted differently, and I think it is legitimate to take into account the need to reconcile both sides of this argument rather than simply saying that the pro-leaf side will have its own way. That relates to the earlier question from the convener. On the need for common frameworks, it is widely accepted that there is a need for common frameworks. The Scottish Government themselves have talked about cross-border frameworks, there are externalities, there are international obligations. The question is how far should those go? Who should set them and what should be within them? On the one hand, the UK Government has said, we will take over the common frameworks. These will revert to the UK. I think that is a leading interpretation. I think that the common frameworks must be built anew from nothing. The question then is how detailed should these be? There are experiences in other countries, for example in Spain and in Italy, they have framework laws which have proved to be a centralising measure and generated interminable litigation in the constitutional court, whereas in Germany where they still have framework laws, they have been reduced, these are negotiated bilaterally, these are negotiated in the past through the Bundesrat representing the federal regions. The question is not the principle of frameworks, it is really how those are set, what is in them, how detailed they are and who decides finally who has the last word in setting them, whether it is genuinely joint decision making or simply decision making by the UK Parliament. I agree very much with Michael, there is a real difference of substance and meaning if a framework is imposed as it were from the top down or agreed by the contracting parties from the bottom up, but there is a different question as well. The election result has brought into discussion a different conversation about the terms of departure from the European Union with some advocating continued membership of the single market and indeed other EU frameworks, so that may well if those who are advocating those positions win out in that conversation be rather less of a difference that is required in the internal arrangements for managing the relationship with the single market than if we were pursuing a different kind of Brexit which might require a very different approach. The extent of that conversation about top down bottom up will also depend on the nature of Brexit and I think the likely nature of Brexit may have moved since last week. I would say that we should be a bit wary about the argument that EU law provided us with UK common frameworks and therefore they must be replaced. I think that there is an element of post-hop rationalisation in that. First, in the sense that EU law only partially provides common UK frameworks, there are various ways in which internal differentiation is still permissible even within the context of EU law. In some of these areas, to the extent that I understand them, like agriculture, EU law provided us with a common framework. We didn't really have very much in place prior to joining the EU, so I would agree with the previous comments. We need to think about each area on its own merits and not simply assume that we have had an element of common reality, therefore it has to be replaced. What are the areas where we are going to meet? It seems that we are all agreed that we will need some sort of series of common frameworks, if I have understood your answers correctly. In what areas will we need these common frameworks? Agriculture is often mentioned, and I know that others want to talk about agriculture. Agriculture is an umbrella term that covers a lot of different things. It covers land holdings, agricultural subsidies, it also covers a lot of consumer protection law and product safety law. There has been some talk about the importance of the UK's internal market. Where else, in addition to agriculture, however you might want to define that and the UK's internal market, however you want to define that, and I would be interested to know how you would define that, where else in addition to those areas might we feel that there is a need for a pan UK or perhaps pan GB common framework post Brexit? Well, there is the whole area of environmental policy and again it is difficult to draw the boundaries of that to say what lies within that, but there are obvious externalities there in that pollution does not respect borders between parts of the United Kingdom. There are also international environmental obligations there. The notion of the UK internal market, Eileen pointed out in her paper, this is a recent idea, nobody ever talked about that before the Europe came in, but it's really to do with the level playing field, it's about fair competition within markets and controlling externalities and that could arise in all kinds of things. State aids for example would be an obvious one, that is not reserved, it's partially reserved, but it's not reserved. It's not a huge policy area these days, but just from your previous discussion, the state aids issues can pop up in all sorts of places where you didn't actually expect them. So maybe a UK competition policy will certainly have to be revised, the UK will have to have its own competition policy because its existing competition policy complements the EU competition policy and there that might apply within the UK as well. Professor Giddy, that's all reserved under the Scotland Act isn't it? I mean there's nothing, there's no devolved competence with regard to competition law? No, but competition issues may arise in relation to the action of governments for example in relation to state aids, that's really about competition or in relation to environmental regulation, that might be considered anti competitive in various ways or protectionist. So we don't have a comprehensive UK competition law that might have to be thought about now that we no longer have EU law to rely on because things that do come up under UK competition law that are devolved and that are not necessarily covered by existing UK competition law. One of the areas that was suggested in the Conservative party manifesto and again it's one of these rather conditional things now because we don't know the extent to which that manifesto will now be a guide for government given that the party has to negotiate with other partners on policy following the election. One area was in regional policy in relation to the consequences of withdrawal from the EU for EU structural funding and there was in the manifesto a commitment to establish a shared prosperity fund which would in so far as it was spelt out in the manifesto replace EU structural policy within the UK and claiming there with a UK wide role for the UK government and a framework for delivering that policy. Now that's probably a little bit more contentious given that regional economic development is clearly understood as a matter of devolved governance and the way in which this was phrased was quite interesting describing the devolved administrations as consultees in the development of whatever common framework might have been introduced under that policy. Now I suspect that we may have moved away from that but I think it shows the potential for thinking about the EU as a way of understanding differently how powers are exercised post Brexit. Okay, so just to pick up on what Michael said, state aids is devolved but there is no UK state aid policy and there never has been so that is an area where I expect that the UK government would want to create some kind of replacement for EU law not least because of once we're subject to international trade law there will be state aid implications of that so that's one thing. I think more generally we probably want to distinguish between two different kinds of reasons for common frameworks. One would be the level playing field kind of argument that if businesses based in different parts of the UK are subject to different requirements their business costs will be different and they'll be less able to compete. The other argument for common frameworks is an argument from policy effectiveness so something like emissions trading for instance which would be in principle devolved it probably doesn't make very much sense for the Scottish Government to set up its own emissions trading schemes indeed it doesn't really make very much sense for the UK to set up its own trading schemes. These are areas where for reasons of policy effectiveness doing these things on a larger scale makes more sense things like air quality we've got spillover effects your cross-border effects there you can't keep air in one part of the country animal health same sorts of reasons you know you you've got a risk of policies not being effective quite apart from any single market effects. Well thank you very much so I have to kind of just go back to this question of state aid as an example I mean a number of you have suggested that you think that the UK Government might want to have a single common pan UK state aides law but is it your judgment that it's in the UK national interest that there is only one UK state aides law or could you could you have four or potentially more than four if you take cities in England seriously for different laws of state aid in the same country without disrupting whatever we mean by the internal market within that country. Well I think the experience of other countries where these sorts of things are not controlled is of uncontrolled competition in subsidising industry it's a terrible problem in the United States where they don't have any way of regulating this it's ineffective because these efforts cancel each other out they waste a lot of public money they give subsidies where they're not needed and another general comment to all of this is that many of the competencies that the EU has in these fields of competition and environmental policy whenever in the treaties they were extended by the European Court of Justice on a near ad hoc basis and then they became law. Now the question would then be I mean you know very well the question would then be what would the UK frameworks look like would they be flexible and open ended in that way or entrusted to judges or would we have something much more much more rigid state aides as I said is a good example of that because it pops up in all sorts of unexpected places an environmental policy but before it was put in the treaties I think it's maybe Amsterdam it wasn't even in the treaties it just came along as a result of the what they call spillover effect from one policy area to another. There's one one addendum and that is the consequences for internal differences for brokering external trade agreements and state aides are non-tariff related factors which can impact on the terms of trade between different places and to the extent that the UK will need to negotiate international trade deals in the future and that extent is currently not clear then there may be an external rationale for stronger internal coordination. I would just point out that there is an ideological dimension to all of this so you know whether you think that maintaining a single market within the UK and the extent of that single market so what sectors it extends to are obviously highly politically contentious questions so I think we've got used to thinking of these things because of the effect of EU membership as sort of normal and natural but actually when we go back to we strip out that element of the UK constitution and go back to our own very thin constitution the idea of constitutionalising market principles actually becomes quite contentious and quite problematic. Thank you very much. Ash. Thanks, convener. Professor Keating, you've already touched on this already. You've mentioned that framework laws and provisions where they exist in other European countries are often a major source of contention between the parties so I guess my question would be that even somewhere that had a well-developed set of intergovernmental relations that was working well this would be challenging to sort of create and maintain this and we probably don't have that here so are there other you've mentioned there's a couple of other examples in Europe where they have models that would show us of our IGR maybe working better would you be able to explain a little bit about those and whether you think that could work here? Intergovernmental relations do two things one is to facilitate common working where there is a common perception of the problem and not a big political difference and the other is to deal with conflicts and our system of intergovernmental committees the joint joint ministerial committees doesn't either. When joint policy making is needed it is done but not through the joint ministerial committee mechanism where conflicts need to be resolved they're solved politically not through that either the only ministerial committee that regularly meets has been that on Europe and there have been concerns about that as well. There's a general question as to whether we want to go in the direction of intergovernmental policy making the tendency in most systems in recent years is to try and move away from too much intergovernmentalism because it's extremely costly it doesn't encourage transparency and accountability and it makes policy making sometimes more complicated it just over burdens the system now attempts to try and disentangle the laws never really work but that is the general tendency so I think we should think very carefully before moving down that road and what the implications of that are if we're going to go for intergovernmental policy making we need to address a question that's never been addressed in our system which is about power and where the power lies in Spain they have these sectoral conferences which are really quite active they make a lot of joint policy there's a voting system in there they don't vote very often but the fact that there is a voting system means that the central government can't always get its own way in other systems there's a second chamber that represents the territories as in Germany unless you think seriously about that power then the negotiation is never going to be one of equals it is going to be the center in consultation with the other levels of government really imposing its own way that is the experience of Spain and Italy where they don't have effective second chambers I can I add a little bit more on Germany on which I used to work quite a lot which has moved away from framework laws because neither side was particularly content with the way the system worked there was a tendency to specify too much at the central level which which annoyed the regional level but there is nonetheless a framework for enacting statewide legislation in areas which are ones in principle of regional competence and that works broadly well because there is agreement that certain things need to be certain conditions are good conditions to have met statewide that's partly expressed in in Germany in economic terms broadly in single market terms but it's also expressed in social terms the the phrase which is used in various parts of of the constitution is equality or equivalence depending on the place of living conditions so it's an equity based argument as well as a single market argument now german is a place which has general agreement on those economic and social dimensions of the purposes of central and regional governments working together I think you have to have that to make into governmental relations work and I'm not sure we have that in the UK I think Michael is right about the the question of power we we have an asymmetrical system not simply in terms of the differing devolution settlements in different parts of the country but also an asymmetry as between the UK level and the devolved level so we're talking about potential constraints on devolved governments but there are no equivalents on the UK government and we have to bear in mind that the background to all of this talk about common frameworks is the UK parliament can impose them if it chooses to subject only to the Sewell convention which we now know is is not legally enforceable so we are in a situation of of of significant imbalance so so am I understanding you correctly you're saying that all the European countries are kind of moving away from these type of frameworks is that is that would that be fair to say that and if so what are they moving towards how are they arranging it differently well child is the one who knows about germany so i'll leave that to him but but yes there's been in the reform of the autonomous communities in spain they've almost all reformed the statutes and updated them there's a binding of of competencies blend ac they call it armoring of competencies which is the principle that the central government cannot intervene in the guise of coordination or whatever in certain kinds of competence so that they are being strengthened and reinforced in the Italian system in principle they've been trying to do that not quite so successfully but they they've been trying to do that and recent canadian reforms too have been trying to make it clear that there are certain things that belong to the provinces that are theirs alone and cannot be interfered with by the central government in the guise of spending power or transversal legislation or whatever in the in the german case the move was away from framework laws in which both levels of government legislate the central level to set the framework and the regional level to work within that framework towards a concurrent power system which is one in which the central level is empowered to act if certain needs are met so single market needs or or equity needs and that led to effectively a disentanglement of those areas which have been subject to framework laws with some going to the responsibility of the central level others going to the responsibility of of the regional level but in some areas with the possibility of central legislation in areas of regional competence if those needs conditions were met but again i'd emphasise that's because that can work because there's a high degree of consensus across Germany about the purposes of government and again i'm not sure we have that kind of consensus here told us we've got a system of inter-government relations that it's creaky at best at disney work so we're about to have if we're not going to remain in the single market i think there's an agreement if that's the situation there's going to be some sort of common frameworks arrangements in place we've talked about the areas that might cover but the potential for conflict in this is enormous between the various devolved bodies and the UK government so really the question i've got the back of my mind at this stage and i think it refers to some of the stuff that Ailey MacArthur had on her paper on page 4 the ways that we could get a different type of common framework and what would best suit the devolved nations and obviously in this case suit the Scottish Parliament best in terms of the the way that we could come to that and you've described i think Ailey in three different ways an ad hoc way a permanent reservations and new cross-cutting constraints process and with the i think suggesting that the ad hoc way would be the probably the potential the best way forward for the devolved legislator of Scotland could you reflect more on that because you know this is where we're going to get to eventually in terms of these discussions yes i mean that that would be my preference partly for reasons of preservation of devolved autonomy partly for reasons of flexibility there's nothing permanent about ad hoc solutions but they don't achieve everything that the UK government might want to achieve so you know if you want to if you want to comprehensively protect international trade deals or in or comprehensively protect the UK single market whatever that is then the the kind of most obvious way to do it would be through replacing the the cross-cutting constraint of EU law with new cross-cutting constraints in relation to the single market and international trade i think that would be problematic for a number of reasons firstly in terms of its centralising impact potentially great and hard to hard to predict i also think that there are severe questions about the constitutional appropriateness of that with the cross-cutting constraints that we have at the moment relate to convention rights and to EU law both of which have a particular constitutional status and both of which apply more or less in a symmetrical way to the devolved governments and to the UK parliament convention rights are slightly different in that they bite more tightly on the devolved parliaments but they still have have a bite they have they constrain the UK parliament as well i would be very concerned about saying that you know the idea of the UK single market is something that would act as a cross-cutting constraint on the devolved parliaments when there is no equivalent for the UK parliament and where the UK parliament UK government in their in their English capacities actually could undermine i think it was in your paper could undermine the single market by their actions so i think anything that leads to asymmetrical constraints should be resisted so yeah i would prefer the the ad hoc model but obviously that does depend upon the ability of devolved and UK government to work together to reach agreements where where necessary just a side comment to that the the territorial relationships which exist within the UK are not simply mediated through governments and i think we're in a situation at the moment which which perhaps echoes others in the past where a particular territorial interest has has a certain amount of leverage over central government and may well use that leverage to extract territory specific concessions to to put it in a in a polite way in the US it's called pork barrel politics and i suspect we are to the extent that the proposed alignment which may be confirmed today persists for some time we we are going to be in a in a bit of a pork barrel era and that may also apply in part scotland because the the conservative party in scotland has has expressed a view that it will act in coherence in the UK parliament and has more votes than the dup and this could also be a route for the extraction of of concessions for scotland which are beyond intergovernmental relationships but which could have an impact for example in i think the dup has made it very clear that it wishes to have a significant increase in public spending in various ways in northern Ireland which might well have implications for some of the issues that we've been talking around about about state 8 so we're in a a rather interesting situation where the territorial politics of the UK are not going to be mediated only by the territorial governments of the UK but by for want of a better term territorial lobbies which have considerable bargaining power at the moment. I'd suddenly agree with Eileen's comment about the transversal frameworks and I think it could potentially fall fall of those and and it would be very difficult to define what was in what was outside that but another question concerns international agreements now some of these EU laws will lapse but they will be replaced by all there already exist international agreements on trade and environment and all kinds of other things presently the devolved administrations have some input into EU decision making maybe it's not adequate but they're there they're part of the delegation to the council of ministers they get the papers and so on they don't have an input into international treaties so there's a question there about how the devolved territories could safeguard their interests in these very same areas once they become subject to international treaties rather than just European laws. I think that probably leads very neatly into some of the areas that package how hard we want to double look at. I'm not sure any of this is neat convener so Humphrey once said to Jim Hacker if you must do this damn silly thing don't do it in this damn silly way and I'm afraid that thought is going to stay with me for the foreseeable future. It seems to me that there's one of the traps we need to avoid falling into is assuming that if the UK does withdraw from the European Union and complete that process we need to avoid thinking that what emerges is a unitary state which never existed in the first place but the the question about the extent to which common frameworks are required there's this tension between whether those decisions are made at UK level by the UK government or in a more collaborative open and participative way and there are two aspects I'd like to ask about this one relates to a specific example that Professor McHarg raised of emissions trading if for example and the UK has been an advocate of the EU ETS but it's had a lot of problems over the years as our energy sectors continue to diverge between different parts of the UK those problems will be experienced in different ways different jurisdictions within the UK may have different views about the relationship we ought to have in future with the EU emission trading scheme we also have legislation which has domestic climate change targets which interact differently with the EU ETS in the different jurisdictions so a decision has to be made whether to continue to cooperate as part of the EU ETS and how to deal with the different problems that emerge in different parts of the UK or whether to have a separate emission trading scheme within the UK and again those different tensions those different interests will need to be balanced or whether to have an alternative to emission trading which it seems to me would have to be based on tax and the relevant taxes are not devolved they are at present reserved so this question in in one specific example and there'll be many of how you balance the different needs and expectations of the different parts of the UK based on their different circumstances and the second aspect of this tension between UK and more open participative decision making in common frameworks relates to the northern island situation is it a reasonable interpretation of the new situation that the question of UK government decision making about the extent of common frameworks is no longer possible given that not only does one government and there is a difference between a government having this kind of influence and an opposition party in the devolved context between one government having an excess of influence on the UK government but also one side of what is a carefully balanced unionist nationalist dividing line in northern island isn't it clear that the idea of the UK government having the ability practically to make these decisions and oppose them is dead or tell me I'm wrong your first general comment yes I would agree that we should go into this realising the UK is not a unitary state and Brexit in many senses where it was promoted by some people was predicated on the notion that it is a unitary state and that power will come back and then you decide what to do with that that is not the default position for example the default position is these devolved competencies are devolved in such time as they are reserved they don't automatically go to the Westminster on the other one well yes maybe I'm risking being a bit political yet but I think there is a serious problem that the UK government and the Irish government have assumed the role of honest brokers successive UK government says they have no interest in either the union or unity Irish unification in relation to the Irish question because that's entirely up to the people of northern Ireland and if the UK government is in some kind of parliamentary alliance or whatever form with one of the parties in this side I think that does create problems for its role as an honest broker but a consequent problem in its ability to make decisions about this issue of common frameworks in a way that not only treats both sides in northern Ireland fairly but treats all the the nations of the UK fairly well indeed we're used to seeing northern Ireland is completely different than not saying a precedent for any of us but I don't think we can anymore I think there are precedents that will be set in northern Ireland that will then have to be playing particularly if we've got this notion of a UK framework then it becomes very difficult to say we'll differentiate for northern Ireland but for nobody else. Anyone else? I suppose a comment on the EU ETS point the point of the EU ETS is to set a carbon price but of course our carbon pricing system is set by multiple different instruments at the moment we've got climate change levees and climate change agreements we've got a carbon price slower we've got emissions performance standards we've got renewables targets etc etc so that whole area is quite a big mess you might see Brexit as an opportunity to sort out a mess whether that is in any way realistic I very much doubt it I mean that's but perhaps you know five years time these are the sorts of things that we can start to think about think about rationally we've got to we've got to get through the brexit process itself before we can probably take advantage of the of the policy opportunities that brexit gives us to to sort out some of the things we don't do so well perhaps but I mean I was raising this as one example where the tension between UK wide decisions and a more open flexible arrangement is is is going to be inevitably we're going to come up against that because for example one of the reasons why Scotland this week has has been able to say our emissions have gone up but we still met our target is the target became easier because of changes in the ETS not because of what we were doing domestically whereas in other parts of the UK that that particular aspect doesn't play out in the same way well yes I mean that we are in a complex multi-level governance system and removing one level of governance is going to have interesting and differential impacts throughout throughout the UK but yeah I think it's an example of a bigger problem we do need ways to deal with issues that cut across boundaries and recognise that we are in a multi-level system and that that taking out one level doesn't simply empower either the UK level or the devolved level it may affect both of them in ways which have to be which have to be managed thank you can I pick up a point which which I think mr mr Harvey raised Aileen pointed to a moment ago and that's England and the the challenges on emissions trading or pretty much anything else of of disentangling the policy responsibility for England when thinking about common UK wide frameworks from the role that the UK government performs as the policy maker for England and as the the guardian of the UK wide framework and to the extent that we we move towards post Brexit system of common frameworks in different areas there will be a need for the UK government to reflect carefully about that mix of responsibilities that it has both UK wide and England only because policies enacted for England inevitably have spillover effects on the other parts of the UK because of of England's very large size relative to the other parts of the UK and securing a full appreciation of that dual role is is something that has barely happened since since we entered the devolution era and could become all the more pressing in these circumstances and gentle question could you introduce to understandably that whole dimension around the English situation what happens to evil and the English votes for English laws in all this situation because obviously there's potential impacts here in Scotland if that began to unravel well at the moment the well assuming that the the the Tories do a deal with the dup they won't have an evil problem because they require a majority in England and a majority across the UK and they will have both of those things so it's not it's not a practical problem if it were to be a problem of course it would be in practical well it would be very easily undone because evil is only secured by an amendment of the House of Commons standing order so so that that can quite easily be changed if necessary. Okay it would stand generally it didn't matter either when it was a question house so you finished with that Patrick? For the moment I guess. William. Thank you just very briefly for me if there were a free trade agreement to be concluded between the UK government and the EU what is the impact of that on the EU common frameworks are some or many of them possibly ported in such that the scotch parliament will continue to be bound? That depends what's in the free trade agreement we've been talking about everything from a loose agreement to the Canada agreement to something like Switzerland there's been a lot of confusion about the single market most major parties in the UK would say withdrawing from the single market and then say we want to get back into bits of it the question is how much they want to get back into the government has already said in its white paper that British firms might be bound by European product standards seems to me very likely most of those are not devolved some of them are in relation to food safety so indeed the closer we get to a deep partnership closer we get to something like the single market the more of these issues will come up and some of them will indeed be devolved so it's entirely a function of the negotiation yes and moving from that so let's assume some free trade agreement is agreed do you have a view on the impact of that on the repatriation of powers from the EU is that a similar answer yes this would fall into the category now of the relationship of devolved competencies to international agreements because these will cease to be EU agreements come international agreements the devolved administrations are bound by international agreements whether these are in devolved competencies or not that raises the question of what the devolved input would be into making those and that gets us back to the question I raised earlier on do we need a mechanism to give the devolved administrations some say in the making of international trade agreements since those are going to become more and more important sir can I just pick up on that the devolved governments are not bound by international agreements because we have a a dualist system so we we distinguish between things that are binding in international law and things that are binding in domestic law international agreements are only binding domestically if if and to the extent that they've been incorporated by by statute and that may be acts of the UK Parliament or it may be acts of the devolved Parliament but at the moment you cannot you cannot challenge an act of the Scottish Parliament on the basis that it conflicts with an unincorporated international agreement there are some provisions in the Scotland Act which enable the UK government to try to secure compliance with international agreements they can the secretary of state can veto bills being sent for the royal assent if if the bill would would breach international agreements and there are some powers of direction to require ministers to take action to implement trade agreements but that but that's all there's there's no cross cutting obligation to comply with international agreements in the way that there is a cross cutting and comprehensive obligation to comply with EU law and that reflects the different constitutional status of EU law as a sui generis form of supranational rather than merely intergovernmental cooperation. This is a wider question about the extent to which devolved jurisdictions take the results of international negotiations or or contribute to them there are examples elsewhere of that contributory element working and the most fully developed is probably in Belgium where the internal competence the domestic competence is externalised so the Belgian regions and communities have the power to act in external affairs in the framework of their internal competencies which doesn't mean that Belgium has several foreign policies it means that there is quite careful coordination between the two levels of government and going back to Germany the the the german intergovernmental system has some some very dark recesses one of which is called the permanent treaty commission which in effect does something of that job of coordinating between regional and central government in areas where international treaties touch on regional competencies so there are there are frameworks which work in other places which could be used as are the very least prompts for thinking about some of the issues that brexit will raise where trade agreements inevitably will touch upon devolved competencies. I'm a little confused now by all of that and so I'll just try and really simplify that a little are you are you saying that the UK government cannot negotiate UK wide international trade deals that they have to just negotiate English trade deals no so negotiate international relations is a reserve matter so only the UK government can negotiate internationally on on behalf of the UK but because of the nature of our legal system there is a distinction between what is binding on us as a matter of international law and what is binding on us as a matter of domestic law a good example of this is the European Convention on Human Rights which we've been a member of since the 1950s we were able since 1966 to take cases to the European Court of Human Rights but only after the domestic incorporation of the convention by the human rights act and the devolution statutes did it become possible to use convention rights or rely directly on convention rights in the domestic courts and that's an important distinction which underpins our entire legal system so there's a difference between negotiating who has the the competence to get us into international obligations and enforcement and compliance and implementation of those international obligations. I'm in a strict legal position I may have been misleading I was going more a political perspective but yeah thanks for the clarification on the legal point. Okay so with with regard to I mean international trade is going to be significantly more important after Brexit and one of the areas that everybody is raising is an area of concern is agriculture now I represent the Highlands and Islands agriculture is a very significant part of the economy there agriculture tends to be a very thorny issue in international trade agreements and the thorny issue is the level of state subsidy and the ability to for example give farm payments to agriculture and you know make it a fair playing field in international trade. The pattern of agriculture in Scotland is very different from the pattern of agriculture in England and agriculture is a devolved issue and yet you know in terms of trading it is probably quite important I would imagine a worth more to trade to strike a trade deal UK wide. How are we going to navigate all of that? Well we have the same the same options as we as we were outlined earlier so we can have ad hoc legislation to implement particular trade deals which could be done by negotiation or it could be imposed we could try to have some kind of more cross-cutting mechanisms to ensure that the UK government can ensure that the devolved governments comply with the terms of international trade or you know we could just forget about the devolution of agriculture and we reserve it to the UK level but I mean I know from speaking to friends or farmers that they are very worried about about the implications of trade deals and I think one of the problems with the kind of the new era that we're about to go into is lack of transparency and lack of predictability so one of the positive things about the EU is that it is a very ordered system of governance it operates on the basis of treaties which of course may change from time to time but we know what the scope of competencies are we can predict what the likely policy outcomes will be it's an open policy making process it's a policy making process which the devolved governments can influence either via the UK government's position or directly because there are mechanisms at EU level for consultation of regional governments and so on so it's a relatively ordered relatively predictable relatively transparent system of international level decision making we're about to go into a system of much more ad hoc trade deals with different countries or different trading blocks potentially the terms of which may be different the negotiation of which will take place behind closed doors between negotiating teams and I think that's much harder then for the devolved governments either to anticipate or to anticipate what might be coming out of them or to influence can I ask one more question I mean you meant in a significantly different area than my area of health so you mentioned it in your paper as a as a non-marketised sector and of course it is non-marketised in Scotland but but it's a significantly different picture south of the border and there was a huge concern when TTIP was being negotiated that health the NHS might be vulnerable to international private providers is how would we is that likely is that a significant concern in this situation and it how would we protect the NHS which is significantly different in Scotland we're not marketised in it in the same way and we don't have anywhere near the theme level of private provision well TTIP was what I had in mind when I when I wrote that I mean I know there are there are different views about how real that threat was from TTIP but certainly in principle that that is a concern and you know it's not unique to international trade because of course EU law for many countries not so much for the UK but for many countries has been a route by which previously non-marketised sectors were subject to competition so energy telecoms transport and so on these international level free market rules have been used to push the boundaries between the state and the market so I think that you know whether it's likely or not that the possibility remains that that will be that that could happen through international trade deals. I wonder if I could go back to the point that Patrick Harvie introduced in relation to Northern Ireland and Professor Keating in your paper you talk about the Supreme Court ruling on the Miller case and so on and effectively Scotland's constitutional argument during that was pretty much dismissed in a sentence or two and the convention was merely a political agreement so now that the entire political situation is changed and changed significantly and that's effectively where the power lies. Do you think it's a dead duck now that the notion that the UK government could implement could impose legislation and devolved competencies in for example Northern Ireland without their consent now and if that's the case does the same apply to Scotland? Well this is a point about the British constitution which works largely on conventions some things are written down some things have the status of ordinary laws there's no single body of constitutional law now the supreme court said on the one hand that the civil convention was not binding in law we knew that already couldn't be enforced by the courts nor can other conventions but then in a kind of orbit addicted it went further and said that it's a mere political convention which to me betrayed a misunderstanding of what constitutional conventions do they're neither laws that are juicible in the courts nor are they just political agreements so they're something else and I think a point was missed there and it also surprised me that the supreme court went out of its way to make that point because it could have dismissed the Scottish government's intervention by saying it's foreign affairs it's not a normal situation but it chose to add this ground as well at the invitation of the advocate general from the UK government and that's left a bit of a hole in our understanding about the constitution now that really has to be resolved somewhere here there too the government had respected the civil convention it it worked pretty well if it is to be set aside this time then that sets aside a constitutional set this constitutional president that brings into question again the whole basis of our constitution which restrains the devolved government but it doesn't restrain the UK government that's very unusual that that's that's it means that we've not caught up with the federalising spirit which constitute which the devolution settlement seems to have been taken on so although in one sense you can say the supreme court judgment wasn't surprising told us or what we already knew it does raise a whole lot of questions now about our constitution and brexit is going to be a big test of those questions just just briefly by me um that there is a point there about the level of exceptionality which would justify the UK Parliament overriding the views of the Scottish Parliament and I guess the the Miller ruling has opened up that that debate beyond practice hitherto which which as Michael said has has been working rather well and going going back to to common frameworks you know there may be a sense in which in a place like Scotland the the notion of a common framework a more clearly specified set of of understandings about the relationship between central and devolved government might be perceived as as a threat to devolved powers there are circumstances in which it could be a protection given the rather labile interpretation of of the sewer convention that we had from the supreme court yeah in in one sense Miller told us what we already knew that that the sewer convention notwithstanding the 2016 act was not enforceable it wasn't inevitable that it wasn't just stitchable it the I think it was open to the supreme court and and in a different less high profile context they might have been willing to say whether the sewer convention was engaged by uh by the withdrawal by withdrawal bill in fact they did say some things about whether or not it was engaged but they didn't reach a reach a conclusion the court what the court said about the intention of the 2016 act was that it was to entrench the sewer convention politically as a convention what does that mean how do you entrench something politically when there is no there is no external enforcement machinery it's very difficult to understand what that could mean it has been suggested quite interestingly I think by Paul Reed that we should perhaps be thinking of procedural mechanisms for making the sewer convention have greater bites so so requiring for instance ministers when they introduce bills into the UK Parliament to make a statement equivalent to the kind of statement they have to make under the human rights act about whether in their view the sewer applies or not which could then be subject to subject to scrutiny by a committee so if sewer is to operate purely in the political realm we probably need to think about how we can give it more political bites because at the moment you get the situation and it's happened not just in relation to Brexit but it's happened in relation to other bills where the Scottish Government takes a view on whether sewer is engaged the UK government takes a different view on whether sewer is engaged there is no mechanism whatsoever for a duplicating on those different interpretations and the UK government always wins because sewer is only is only a convention and not a legal rule this is where it's doing the simple way from really the european union what would happen to the to the competencies of the Scottish Parliament if there was no adjustment to the Scotland acts they would increase exactly it would increase so anything that is currently within devolved competence but subject to EU law would fall to the the competence of the Scottish Parliament so unless the UK government takes an action then all of the powers that currently lie live within the European Union and I think they'll laid out quite neatly in Michael Keaton's paper at paragraph 4 would automatically become powers in the Scottish Parliament yes but they could be they could be overridden by the UK Parliament either on an ad hoc basis by the enactment of legislation on that topic or more permanently by by changing the Scotland act well I guess that would take us into the political realm in these circumstances then I just I just leave the question hanging about you know what would the political circumstances be if that if we were going to be in a situation where the scotland act was changed given that if there was no amendment to the scotland act which you'd immediately think that sewer was applyable and that the powers would come back to the scotland act I know willy sorry I'll interrupt his views it's got one exception to that which is that the funding would not revert to the scotland parliament which is critical in agriculture yes probably the main ingredient thanks we've said that that was getting to the heart I wanted to to explore with you that should a disagreement emerge for example between the northern island administration and the UK governor it's unthinkable now in the current political situation that the UK would impose some aspect of a retain some aspect of a devolve power against the will of the northern island assembly and given they're in a new relationship and whether that would whether he would see that effect taking place in scotland too now given given the changing political circumstances complication about school in relation to northern island whereas in wales in scotland we've got these two elements of the school convention it applies both to legislation within current devolve competence and to legislation shifting the boundaries of devolve competence in northern island it only applies in the former situation the practice there has not been to seek consent to changes to the boundaries of the devolution settlement and that reflects the situation as it existed in the earlier devolution settlement in northern island which actually is the origins of the school convention it wasn't it wasn't invented in 1998 it was a it was a prediction based on on previous practice but so that there's I didn't know that until miller I find that very interesting that that we have this apparently foundational convention that doesn't even apply in the same way to all the devolved settlements but the other complication of course is we may not have a we may not have a devolved Government in northern island to consent or withhold its consent to to anything you know you you you said that you were worried about straying into politics for for a moment there and just just to stray into politics a little bit at the UK level we have a minority government dependent on support by by a northern island party I think the capacities of that government are going to be very severely strained in managing the next stages of the process of Brexit and I think it would be a very unwise government which would in those circumstances take actions which would prompt conflict over matters of principle with devolved with fully functioning devolved administrations like the one here and the one in Wales. Now of course politicians sometimes do things which are not very wise however I think that does open up an opportunity for the devolved administrations to to seek a more constructive conversation I really don't think the UK government can easily afford lots of bus stops after the 2016 scotland that came into being a lot of us got used to using the terms shared competencies in terms of you know the new relationship that developed between the UK government and Scotland but you know does the idea of shared competence in the light of Brexit and everything that's flowed since make any sense given this UK's government's approach to sovereignty in these circumstances? We have shared competence at the moment in relation to the implementation of EU law so I suppose you could you could read across from that to the implementation of international trade deals that would be that would be a possibility. Again though I think you get back to this question about the status the constitutional status of international trade and EU law is not the same and that's an important point to emphasise. I think a common framework is a could be a way of describing a shared competence we will see what's what that means as the conversation evolves it probably meant something different last week I quote from the the conservative manifesto which may no longer be much of a guide we will protect the interest of Welsh farmers as we design our new UK farming policy now it wasn't entirely clear who the we was they're designing that policy I think the the tenor of the document was was one which I certainly read as as rather top down in intent I don't think the political situation now would easily allow such a top-down approach and I think that would suggest that you know we need the Welsh government helping us to think through at the UK level what a UK wide farming policy would be I think everybody recognises there needs to be some level of common framework around agriculture and a wise government might might well look to establish those collaborative conversations. Yes I still think we have to be worry about getting too many joint competencies but the difference between that and overlapping competencies that might be a problem take agriculture that that is very much tied up with environmental policy to the point that the ministerial responsibility in both England and Wales indeed has been shared so you might have arrangements about agriculture that then have spilled over to environmental policy so you'd have to look at classes of policies which would make it more difficult to say let's just pick out little bits of agriculture and devolve them and reserve other bits because they're knock-on effects so however we do it there's going to be a lot of need for some kind of mechanism whereby different policy fields that have spilled over into the other jurisdictions can be dealt with and we just don't have that at the moment and the EU has solved a lot of those problems hither too but that mechanism just won't be there panel we've covered a lot of ground today of course a wide variety of areas is there anything particular that you think that you want to let us hear about that we've missed out on or we've covered everything we think we need to to get over here okay I'm getting that that's we've covered we've covered as much as we're going to get out today until we know a bit clearer what the circumstances are so I think I thank you very much for coming along and giving us evidence today where we await the future to see what what the final picture begins to look like that may take some time but I now suspend this meeting this public part of the meeting and tell the public an official report to leave thank you very much