 Welcome to the 13th meeting of the Economy, Jobs and Fair Work Committee for 2018. May I ask all in the public alley to turn off any electrical devices or turn them to silent so as not to interfere with the work of the committee? I have this morning apologies from committee members Colin Beattie and Kezia Dugdale. The first item on the agenda is for the committee to take item 3 in private. Are we all agreed? Yes. As part of our inquiry into Scotland's economic performance, we have today the right honourable Greg Clark, Secretary of State for Business, Energy and Industrial Strategy, and with him Jenny Bates, the director of the EU exit and economic partnership from the UK government. Welcome to both of you this morning. I understand, minister or secretary of state, that you have an opening statement to make, so I'll hand over to you at this point. Thank you very much indeed. It's a pleasure to be here and thank you for inviting me to talk about the industrial strategy in particular. It's something that for all of the discussions that we have, it seems to me that around the world we can look at a time of very exciting opportunity for all parts of the United Kingdom. Around the world, industries are being transformed by new technologies, the way that we work, the way that we live, the way that we consume products and services is changing. It so happens that the UK, and in many particular respects Scotland, is uniquely well placed to benefit from that. If we think of breakthroughs in medicine, if we think of the revolution in clean energy that's taking place around the world, if we look at the insights that come from advanced manufacturing and the transition to how we get about, those are areas of great strengths. The approach that we've taken in the industrial strategy is to plan ahead deliberately for the future. Obviously, this has to be a collaborative effort to have a strategy. It has to be for the long term, short term strategy is a contradiction in terms, and the best way to root a strategy in the long term is to make it very collaborative, to distill the wisdom of people in the economy, whether they are entrepreneurs, whether they are people that run companies, whether they are employees, trade unions, whether they are scientists and people that run universities, trading institutions and, of course, the leaders of our economy, whether it's in the nations or whether it's in our cities. That's the approach that we've taken. I've been very grateful for what has been a tremendous response to the consultation right across the UK, but with a particular interest in Scotland. What we have published, and I think that members have seen before and have a copy of the white paper, is very much a distillation of the collective wisdom that came in the responses to the consultation. We'll, I'm sure, go into it in more detail, but it sets out four grand challenges in which we think that we need to give a particular push and input us to make sure that we reap all of the benefits of the future technological revolutions, but also to, as any good strategy must, to identify areas of historic underperformance. It's well known that across the economy, the levels of productivity compared to some of our competitors are not what they can be. The more productive we are, the more prosperous we can be and the better of our citizens can be. It addresses some of the principal drivers of productivity. In this, we've had a good co-operation with the Scottish Government. It's obviously very important that many of the responsibilities are devolved, and where we can join forces, that obviously helps. The four eyes approach has been something that's been contributed to the consideration of the strategy and the attention to investment, to innovation, to what is termed by the Government here inclusive growth and to internationalism. These are strong themes of the industrial strategy, and I hope that as we implement it, then this can be an area of shared prosperity. Thank you very much, and it may be too early to say, but are there specific examples of where the industrial strategy has started to work thus far? Yes, I think there are. Let me give two examples in particular. We know that in the automotive sector, for example, this is a time of particular change. If we think just about how vehicles of the future—we're talking about the near future, indeed the present in many cases—how they're powered, there's going to be a big move towards powering by electricity. We know also that in the global drive towards clean energy, we are making great strides, and Scotland obviously makes a major contribution to renewable energy. That provides a strategic opportunity to bring these together, because one of the features, as everyone knows, of renewable energy is that it is intermittent. The extent to which you can store energy that is generated when it is abundant and to be used when it's needed, the more successful your deployment can be and the more you can bring costs down. Through the industrial strategy, through the focus on clean growth and on the future of mobility, we've made a big investment—a commitment of a quarter of a billion pounds—called the Faraday Challenge to be the place in the world that not only develops the next generation of battery technology but manufactures it. That has already attracted a huge amount of interest. There is co-investment from across the automotive and energy sectors. It is a good example of how setting out what is a consensus and shared long-term ambition can give investors the confidence to invest now so that you can safeguard, in many cases, create jobs in the present through setting out a clear vision for the future. In both of those sectors, the Faraday Challenge is increasingly recognised as being an initiative that is commanding respect around the world. Thank you very much. We'll now turn to questions from Gordon MacDonald. Thank you very much, convener. To start off, what does the UK Government see as the key risks and opportunities for the UK and Scotland over the next 10 years? The opportunities to start with them first come from building on the strengths that we have and looking at whether those strengths are going to be in demand in the future, not just domestically but around the world. What you see in Scotland in particular, but it applies to the UK, is that some of the particular strengths that we have and that are felt here, we know are going to be in great demand. Science, for example, hardly bears emphasis that this is a nation of science. Some of the biggest breakthroughs in the world have come from brilliant researchers and scientists here. If we take artificial intelligence that is transforming industries all across the world, then here in Scotland, some of the earliest breakthroughs in AI were made. We can apply that. I mentioned, in response to the convener's initial question, mentioned renewable energy. Here again, we have a long-established set of strengths. When it comes to renewable energy, a lot of that is about marine engineering, which draws on the strengths of the present and the past, whether that is in the offshore sector or whether it is in shipbuilding and the skills and the research ingenuity that comes from that. I think that it is looking to what we have that is strong, but making sure that we invest in them for the future, investment both in further innovation but also to make sure that the workforce has the skills to be able to implement the opportunities that are there and to make sure that we internationally exploit those particular advantages. I think that we are very well placed both in Scotland and across the UK to do that. What is the risk? What is the challenge? I would say that, in preparing the industrial strategy—I dare say that you, as a committee, when you have taken evidence and when you have travelled overseas—you will have discovered that countries all around the world are coming to an equivalent realisation that the world is changing very rapidly. The areas that we are strong in and that Scotland is strong in are being noticed and there is a big effort to emulate and to catch up in some cases. We cannot take anything for granted and we cannot be complacent. We have to have, it seems to me, a long-term and deliberate programme to increase and improve our investment in research, in science and innovation that we need to train the workforce so that it has those skills of the future. We need to be active in promoting our products and services around the world. We need to invest in our infrastructure and we need to also make sure that we retain the strengths of being a business environment in which it is possible for new entrepreneurs to establish businesses and to see them grow. One of the key issues and areas that you spoke about earlier was energy. I want to ask you, the UK depends on Europe for 44 per cent of its gas supplies and 6 per cent of its electricity needs and in that set to double by 2023 and double again by 2030. Will the UK remain a member of the EU internal energy market after Brexit? Those are part of the discussions that are going on as part of the Brexit negotiations. What I have said on energy is that I think that it has been a positive source of resilience and diversity in our system that we have, for example, important interconnectors with the rest of the European Union. If you look in the context of the UK, for example, our biggest current energy infrastructure investment, the Hinkley Point C nuclear power station that is being built, as you know, by EDF, a French company. A lot of our co-operation crosses borders. My expectation and ambition is that we will be able to make an agreement to be able to continue the effective co-operation that we have at the European level. Clearly, that has got further to go. Post the March Council now is the time when that future relationship is being discussed. On that future relationship, does that include free movement of people? The House of Commons report on energy security report published in January said that, in reference to Hinkley Point C that you already talked about, that the energy industry is aligned on workers from the EU in particular to fill its engineering roles. Dependence on EU workers is particularly acute in the nuclear energy sector. Is it difficult to complete construction of a new nuclear power facility at Hinkley Point? The question of our future migration policy once we have the ability to set that domestically is obviously a big issue that I am sure the committee will want to take evidence on separately. Of course, that is an important part of our future relationship, but it has always been clear, post the referendum, that we should be in control of that. It is important to emphasise that, in my view, no part of the result of the referendum was to say that we should not have talented people, engineers in the case that you mentioned, able to come and work in the UK. In fact, quite the reverse. If we want to be even more successful, the future is to be exporting internationally, to have close relationships internationally. As in the case of nuclear power, of course, that will involve people coming to work here, just as UK citizens work in other countries. That is a very important part of it. All of the debates around the referendum I never encountered any view that we should be against talented people. Take our scientists, for example, that we should have fewer scientists working together. In fact, the industrial strategy makes a commitment to expand the number of places available for overseas researchers in UK universities. That is clearly understood. In the case of the project that you mentioned, it has some parallels in other areas as well. It is fair to say that because it has been a long time, it has been a long pause, if I can put it that way, in the implementation of a civil nuclear programme here. It was, I think, a sizewell, which was the last new nuclear power station. Of course, a lot of the skills that we used to have in that industry, a lot of people have retired from it. We have to, to some extent, reboot the skills that we have in these industries. Part of the industrial strategy, part of taking a long-term approach, is where you see areas of increasing focus and energy as one. As well as making those investments, you also think about the supply of skills. The national nuclear college, for example, has been established so that we can grow those skills domestically as well as having that co-operation. If we are a member of the EU internal market, what impact will that have on consumers? We already have £4 million households in the UK in poverty. The same report by the House of Lords says that it is likely that the UK's withdrawal from the EU will lead to less efficient energy trade, which could in turn increase the price paid by consumers for energy security. If the House of Lords is flagging up, that is a potential problem. We already have £4 million households in the UK in fuel poverty. What steps will the UK Government take to protect households from price increases as a result of Brexit and stop more families falling into poverty? Two things I would say, Ms McDonald. The first is that, as I said in reply to your earlier question, my aspiration and expectation is that we will be able to achieve a good agreement in energy. It is one of those areas in which it is evidently in joint interest. It is an area in which a lot of the discussions operate on a technical level between specialists, between engineers who have a long track record of working very well together and the discussions that we have been having have been very positive there. My expectation is that we will be able to continue to regard energy as an area of good co-operation. However, we have a responsibility domestically to look to the future and to make sure that we have energy supplies that will meet the demands of the population and the economy. It is one of the reasons why we have favoured a diversity of energy sources. That is important. The committee may know and may be interested to hear from Professor Dieter Helm, the great authority on energy, who, at my request, has made a very comprehensive review of the future costs of energy to make sure that we bear down on the costs that consumers pay, whether they are households or whether they are industrial users. You have talked about having more domestic energy supply, and one of those dependent areas is nuclear power, which is 21 per cent from electricity. What will the UK Government remember our Eurotom after Brexit? One of the consequences of leaving the European Union is that we have to leave Eurotom. That was something that was established. However, what we said at the time was that the co-operation that we have had with Eurotom over the years has been very successful. We want to see that relationship in terms of its substance being able to continue. There are very positive and fruitful discussions that have taken place with Eurotom and part of the negotiations to see how we can do that, but they have not been concluded yet. I will move on to questions from other committee members. The same House of Lords report states that, if the Government does not replicate the provisions of Eurotom by the date of departure, the UK will be unable to trade the nuclear goods and services as a UK Government got the timetable in place in order to replicate the provisions of Eurotom in time to avert that. There is a nuclear safeguards bill that has passed through the House of Commons in the House of Lords. For precisely that purpose, it is necessary to be well prepared. Those arrangements have been put in place, and that bill has been introduced many months ago. Gillian Martin, I have a follow-up question on opportunities. Obviously, we have just had the agenda pay cap reporting and the companies have been releasing their figures on that. We did an inquiry on that last year around the agenda pay cap. One of the things that we were looking at that strategy—we thought that, although it is well-meaning, it did not have any action plan associated with it. We were not asking for action plans to be put in place by the companies who reported, but I want to know, as a result of the figures that are coming out and some of them quite stark, what you are going to do in relation to unleashing the productivity that could be unleashed by closing the agenda pay cap? What are you going to take for that in the future in terms of policy to make that a meaningful exercise? I agree with you that you should see it in the context of productivity. When you are failing to make use of the full contribution that women can make to our economy and to our society, it is not just an injustice, which it is, it is also a missed opportunity. That is one of the reasons that this requirement to disclose the agenda pay gap was made. Sometimes we say that transparency has consequences and can achieve a momentum. That is a very good piece of evidence in favour of that proposition. It is not the end of the road, but what you have seen just in recent weeks, and it is just weeks, in fact days, since the deadline was there, has been a degree of varying from surprise to outrage at some of the differences that have been in display. You have already seen companies, including some public sector employers, changing the salaries, increasing the salaries of women and equalising the salaries that are paid for people doing in effect the same job. You are already seeing that from that disclosure. Part of the corporate governance reforms that we have set in place is that there is now a responsibility on boards to set out how they are addressing the interests of a range of stakeholders, but including the workforce. The agenda pay gap is a very important part of that. Not only do they have to disclose, but they have to set out what actions are being taken. One of the other reforms that we are making is to ensure that companies have a representative on the board who speaks for the workforce, whether that is a director appointed from the workforce or whether it is one of the non-executive directors that has that responsibility or whether it is an employee council that advises. These are actions that are already taking place, but the import of your question, we would not have required this disclosure if there was not a recognition that we want that gap to be closed. We have taken a set of actions of which the first has been evidently galvanising, and my commitment to this and my colleagues across Government is to do what is needed to make sure that we achieve the justice and the full productive potential that lies behind the disparities that are there at the moment. The other criticisms are that the ceiling is too high, 250. That misses out an awful lot of companies in Scotland, for example. We are an SME, we have run economy, and most of our businesses are like 100 employees or less. Do you think that having looked at it now that it could be looked at again in terms of the companies that have to have a duty to report? Do you actually bring that down as they have in other countries? I think that it is the right side. It has included many companies. In fact, some of the original suggestions were that it would just be listed companies and companies quoted on the stock exchange. My colleagues took a view that we should expand it beyond just a minimal requirement, and I think that that was the right thing to do. It is still literally very early days, but there will be intense interest in what this is disclosing. I am sure that this committee, your equivalent committee in the UK Parliament, will very closely scrutinise that and advise whether the model can be extended. Dean Lockhart Thank you very much, convener, and good morning, Secretary of State. I would like to move back to the industrial strategy and how it will work in practice and apply to Scotland. First of all, in relation to exports, I was on a trade mission to China with Scottish businesses earlier this week. As you well know, that represents a massive opportunity for exporting companies from the UK. In Scotland, only 50 companies or 60 companies represent half of our exports, so there is a significant opportunity for us to expand our export base. The industrial strategy, one of the objectives, is to encourage companies to access international markets. There is also a new export strategy being consulted on, so I wonder if you could talk us through how both those strategies will work together to encourage companies across the UK to increase exports. Absolutely. Pots outside, perhaps Jenny Bates may want to fresh it out, but you are absolutely right. Throughout the industrial strategy, there is a clear orientation to be more international. The opportunities in most of the technologies that I have talked about are not just confined to the UK, but they are firmly international. As Mr MacDonald was asking about in terms of risks, the risks are that if you do not internationalise, then other companies in other countries will come in a competitive way into your market. It is an imperative as well as an opportunity. The creation of the Department of International Trade is something that gives particular prominence to that. When we finish our discussions here, I am going to an event in which one of the international trade ministers will be speaking, emphasising the opportunities that are there. I think that there are a number of different ways in which that can be done. I think that in post overseas, raising the profile of the industries and the sectors in which we are strong is very important. The industrial strategy has become quite a calling card. In fact, we have had to translate it into an increasing number of languages because, in posts around the world, they are asking for it to be available. As I have said to Mr MacDonald, a lot of investment and trading relationships are decided not just on a short-term calculation, but whether the partner country is going in the right direction for the long-term. That is important. Your point, Mr Lockhart, is absolutely right that we have companies who are very well versed in exporting. We have some who perhaps have not been used to that. Just as small businesses sometimes need help and advice to grow into larger businesses, those who are dipping their toes into export markets for the first time can benefit, it seems to me, from active government support. We are supplying that, and the strategy that you mentioned is asking particularly those companies what do you need from us to be able to further your efforts. It is very important. Again, it is an area in which both the UK Government and obviously the international trade is the confidence of my colleague Dr Fox. However, all the different sectors in the economy and all the different places and towns and cities have a lot to contribute to that. It is an area in which we should work very closely together, and I hope we will. Just a couple of points. We are, as the Department for Business, Energy and Industrial Strategy, working very closely with our colleagues at the Department for International Trade. They are former colleagues of ours, because they used to be part of the department and have moved out to be part of the new trade ministry. We are focusing those discussions as we prepare the export strategy and do the development on it around the industrial strategy, so that the approach to the export strategy is grounded in the industrial strategy and that they are not seen as separate approaches. We are focusing very much on engagement around SMEs and how we can make sure that the export strategy delivers for SMEs in the UK, Scotland and across the UK. We are working particularly to identify where we think both the growth opportunities are and the traditional analysis around growth markets and where those opportunities are, but also what the barriers are to UK businesses operating overseas and how we can use that export strategy to address those barriers. It is obviously a strategy that is in development at the moment, but it is one that we are working very collaboratively with the Department for International Trade on. Thank you very much. What struck me from my visit is that the old model of exporting through distribution channels is no longer that important. It is all about e-commerce, or e-commerce that is becoming so much more important. Can you be through or talk us through some of the initiatives under the industrial strategy that will help to support the development of e-commerce across the UK? One of the things that we are doing as part of the industrial strategy and the export strategy is looking at how the nature of business is changing. In the work around the barriers to trade, the world has moved on significantly from the traditional barriers to the tariff barriers. It is much more in what people describe as the non-tariff barrier space, which is really often the regulatory structure of other countries and how you can come up with approaches that enable business to export. There is a strand of that that we are working with on the Department for International Trade around digital trade. A lot of trade obviously is delivered in a digital way through e-commerce, and we are engaging with them around how we do that, both through the export strategy but also in terms of our future trade policy, because some of this is about the promotion activity, but the other piece, of course, is the engagement that we need to have with other countries about their regulatory frameworks and how we can develop approaches that enable digital businesses to engage in the future. There is also a piece that is around, linked to that, intellectual property and the protection of intellectual property. It is embedded across a number of the aspects of how we are engaging with the Department for International Trade on the export strategy. It is certainly embedded that the approach to digital is embedded within those areas. Can I perhaps move on to a question about commercialisation of innovation? It is one of the key themes of the industrial strategy. Across the UK, we have seen examples of innovation from universities and other areas being bought by overseas companies or perhaps not making it to market because the support has not been in place for whatever reason. In particular, innovation that requires long-term patient capital has perhaps not been developed in the UK as much as it may have. It is great news that the industrial strategy is targeting this, the £2.5 billion investment fund to be run by the British Business Bank. I wonder whether you could talk us through how Scottish companies and Scottish universities can access that and get the benefit from that long-term patient capital that many of those innovative initiatives will require? Absolutely. You put your finger on a strength but also something that we have been less good at. We are brilliant at coming up with new inventions and new ideas and Scotland and Scottish universities and scientists and innovators prominent amongst that. Often, we have let the commercialisation and the manufacturing potential slip through our fingers in a way that other countries have not. The committee knows that, through the industrial strategy, we have got the biggest increase in R&D investment, £4.7 billion, the biggest for over 40 years. That is available for pure research, for discovery but, crucially, it is available for the development, the translation into the manufacturing and commercial processes. Part of that goes into the industrial strategy challenge fund, which is open to institutions, research and academic institutions in Scotland as every other part of the United Kingdom to Scottish businesses. If they have an idea that they need some help and support in being able to translate, that is very important. The committee is familiar with the catapults that make a big contribution to that translation. As Mr Lockhart says, the new injection of funds into the British Business Bank is a big attempt to try to bridge that gap that has often been diagnosed correctly to exist between the ideas and their commercialisation. It is something that I know across Scotland, whether it is the national government or whether it is the local administrations, there is a great interest in supporting that. We will now move back to Gillian Martin for a further question in a slightly different area. It is great to hear you talk about internationalisation and opportunities around internationalisation. I particularly want to target my questions around one of Scotland's most important sectors of trade across the world. That is the food and drink sector. I have a couple of questions around that. We have a number of products that are protected, geographical indicators, are both smokies, the Stornary Black Pudding of the Scottish whisky, particularly important. After Brexit, we have a situation where we have not really been having any kind of feedback from the UK Government about how that is going to be managed and if we are still going to have this protected geographical status for those products. It is causing considerable concern among those producers. Could you give us any indication of what is going to happen with the status of those products and how that is going to be protected? The first thing is to recognise exactly what you say, that the importance, the provenance of products is of vital importance. It is part of what consumers want to know, and they want to know where those high-quality products come from. It is an area of huge priority for us. My colleagues are principally in defer, of course, that are responsible for the negotiation of that, and it is not at the point in the discussions that we have not ended those discussions yet. However, if you were to perhaps have the opportunity to talk to some of my colleagues in the Environment, Food and Rural Affairs Department, you will see that that is very well recognised. I think that there is complete unity of view of what is behind your question and a determination that we will be able not just to continue to have the right protected descriptions, but in response to Mr Lockhart's question, to be even more successful in marketing them around the world. You mentioned building on strengths. Food and drink in Scotland is a major strength, not just for Scotland but for the UK in terms of the amount of money that comes into the country as a result of the export of products, particularly whisky. One of the things that I was quite surprised was that one of the trade deal negotiations that has happened recently, to take advantage of, as you called it, internationally exploit, was with Hong Kong. Food and drink did not feature in that. What are you doing to engage with food and drink producers and meet them so that, when those negotiations are happening, food and drink is front and centre of, as you say, internationally exploiting what we have in this country? I think that you will see that food and drink takes a much higher prominence than it has had for many years now in terms of our industrial competitiveness. Food and drink is our biggest manufacturing industry, for example. It is a sector in which, historically, people have not really thought of it as being one that is full of technological innovation, but it is from the farm to manufacturing techniques to storage and transport. It is one of the most innovative sectors. A couple of things. One is that we formed a sector council for the food and drink industry to bring together what you will recognise. It is often quite a fragmented and diverse set of companies and sometimes individuals in that, so that we can mass the voices together to sing more loudly, if I can put it that way. What I hope and expect to see from that is a very significant sector deal. We have, with a number of different sectors, the automotive sector, the life sciences sector, the Government, and it has responded to proposals from sectors as to how we can work together, how they can be better organised. There is a fear among the agriculture sector that the automotive sector, as a whole in the UK, is probably more of a priority for you and the needs and wants of the agriculture sector might be bargained with as a result of deals with the automotive sector. One of the things that I have been asked by NUFS Scotland is to ask you specifically whether you will be meeting with NUFS Scotland to look at the issues that they have around future trade deals with regard to food and drink, because they have been asking ever since the result of the referendum to have a meeting with Dr Fox and he has not responded to any of their letters around that. Given that food and drink is a major sector that should be involved in those trade deals, can that commitment be made to engage more with the Scottish agricultural sector on quite a lot of the issues that it has around that? Just a couple of points on that. The Scottish agricultural sector responded very well to the consultation that we had on the industrial strategy. In fact, at a round table event we had in the University of Edinburgh during the consultation period. I think that I am right in thinking that NUFS Scotland was there and certainly they made a substantial contribution to the consultation, so I very much see that as important. Already some of the early commitments that we have made from the innovation funding have been into agricultural research and its application. That is by no means—automotive is very important, aerospace is some of the advanced manufacturing sectors—but food and drink, in my view, is a sector that has not had the prominence that it deserves, both in terms of its current contribution to the economy and its potential, and in terms of breathtaking transformations that technology allows it to be part of. Through the sector council and through what I have encouraged to be a proposal for a sector deal in food and drink, I am certain that NUFS Scotland will be prominent in that, and I will make sure that it is. There are also concerns about any deals done with the United States or with Australia—for example, Australia in terms of beef, United States in terms of whisky—that might mean that there are products coming into the UK that maybe do not have the same kind of food standards or provenance rules around them, which might actually eat into the market that there is for homegrown products. What is your response to that? I think that it is a very important question. Obviously, that is some way down the road. You are talking about free trade agreements that have not been drawn up yet, but, of course, one of the things that Michael Gove has said very clearly is that the standards that we expect in terms of quality and animal welfare, for example, are intrinsic to what the British consumer but also what the British citizens regard as being essential. Even before we get into the negotiation of free trade agreements, that has already been flagged for the reasons that you say as being a very important matter. Coming back to GI, that is one of the areas that, by the letter of the law on the devolution settlement, should be devolved to the Scottish Government, but the UK Government is wanting to hold on to that. I see that as being an issue here. Why has that not been automatically brought back to the Scottish Parliament? There is a wider discussion that is going on, as members of the committee know, about the right treatment between the respective Governments of powers that will come back once we leave the European Union. I think that it is right that that is conducted through the negotiating teams that are responsible for that, rather than me here. Industry of Scotland? Of course, and it is very important, as is the case, that industries of different sectors set out what they would like to see future arrangements as being. That is an important contribution to the discussions that are taking place. I would like to pick up on a Dean Lockhart's line of questioning on the commercialisation of innovation. You make reference, Secretary of State, in the four words to the challenges that we face with productivity. We have businesses, people and places whose level of productivity is well below what can be achieved. Indeed, the strategy sets out in its vision for the world's most innovative economy, but crucially also good jobs and greater earning power for all. In evidence that this committee has taken over the course of this inquiry, we have learned that there is a barrier to businesses implementing innovations. A key reason behind that is potentially the nature of the UK labour market, i.e. that there is no incentive for businesses to adopt innovations. I would be keen to hear your response to that. What do you think the role is between businesses—or a relationship, rather—between businesses to having it shown a willingness to implement innovation and employment law? There are very important connections. I will ask Jenny to add her own perspective in a second. The reason that we have laid it out in the strategy in this way is that it is a very important challenge. It has different dimensions to it. To give you an example, there is a relationship between the level of technology that can be deployed and the skills that are available in the workforce. If you do not have people with the requisite skills, you can be constrained in the level of technology that you can deploy, which has implications for productivity. One of the things that we know across the UK and Scotland is not exempt from this is that there are skills shortages, particularly in those technical engineering disciplines. We see that right across the country. We are candid—the strategy ought to be what is it all, as it were, ought to show where you need to improve. Collectively, the profile and availability of technical education has not been as prestigious as it is in some other countries that are our competitors. One of the ways in which we can deploy more technology and therefore be more productive is to make sure that we have a more stem-literate workforce. That is an important contribution to it. The business has an incentive to adopt innovations when the national living wage is a pound less than the real living wage. The introduction of the national living wage has been a challenge, as we know. The committee has taken evidence to some employers, but it is the right thing to do. In some respects, that requires greater investment in innovation so that people can be supported in their work to make use of technology that is available. However, to address specifically your point about employment law and employment regulation, you are absolutely right to raise it. We commissioned the review called Good Work by Matthew Taylor, who runs the Royal Society of Arts. For precisely this reason, one of the consequences of new technology is that there will be different challenges to the existing model of employment. It seems to me that it is better to try to anticipate what they are and to establish whether you need to adjust your employment law to give the same degree of protection that we have wanted to provide workers with in the past—access to sick pay, for example. We know that flexibility can be to the advantage of many people, but for some people it can be something that they do not want. The Taylor review is an excellent piece of work. We have put it out for its measures for consultation. However, the fact that we are the first country in the world specifically to commission an investigation as to how we need to change employment law and regulation to be able to make sure that workers benefit from and are not disadvantaged by new technology is part of the strategic approach. One other point that came up in the evidence gathering work that we were doing around the industrial strategy, which is the difference between firms operating within the same sector and the same labour market framework. There has been lots of work on this by the OECD and others looking at laggard firms and leading firms and the evidence that those individuals that work in productivity-leading firms earn more than individuals working in the firms that are not applying that innovation and diffusion. They are operating in the same sector and within the same labour market framework. Where I think that takes you is some of the work in the industrial strategy to think about what it is that is going on within firms. They are operating in the same environment, but the ones that are higher productivity are paying their workers more and there are others that are not. Something in that space also around the management practices, the diffusion of ideas and technology does not seem to be happening as strongly in the UK economy as it was in the past. Part of the industrial strategy is also looking at how you can strengthen management capability and practices and ensure that the knowledge and ideas and the ability to transfer that technology is also in place. I believe what we are seeing is an acceleration of a trend that has been present since the early 1970s, which is a hollowing out of middle-skilled middle-income jobs. The reality is that those at the bottom end are going to require enhanced protections. My colleague Gillian Martin has added some concerns about post Brexit scenarios. Given that, and you made reference to Dr Fox earlier, who has described the working time directive as a burden, Boris Johnson has said that employment regulation is now backbreaking, including the working time directive, and Michael Gove has reported that the working time directive should be scrapped. Given that bonfire of regulation is that your colleagues, the Secretary of State and the Cabinet are calling for post Brexit, what do you think that that will do for workers' rights and what impact do you think that will have on productivity? We have been very clear, and the Prime Minister has been personally clear, that we want to maintain the high level of workers' rights that exist at the moment. In many respects, the rights that workers have here go beyond what is available in other EU countries. If you look at the Matthew Taylor report and the recommendations that we are consulting on, those are all ways in which we want to strengthen the rights that employers and workers have and to be on the front foot in taking that initiative. It seems to me that the future success of our economy in every part of the United Kingdom has to be on it being a highly productive good place of high standards. That is where the opportunities are in the world. There is no interest in looking to reduce standards. It is quite the reverse. I think that our place is as a country in the world that is associated with high standards, high quality and to be a place of confidence in which people can not only invest but can work and live. My final question is in regard to that. We have looked at some of these high-income sectors, but there are many sectors in the Scottish economy such as agriculture, fruit picking, meat processing and so on, which are highly dependent on migrant labour. What impact and productivity is an immigration policy that sees the end of free movement going to have? Two things. The first is that in the relatively lower productivity sectors, that is a challenge that we need to address as to whether they are inevitably low productivity. We were talking about food and drink earlier, and that is one such sector. In my view, there are big opportunities to increase the level of productivity and therefore the level of wages and salaries in that sector. Hospitality is another, and I think that those are areas that have not been seen for many years as being part of our industrial future in quite the same way as others. I regard them as very different to the past, so there is a very clear focus on that. When it comes to the future migration policy, I think that, as you know, the Home Secretary has asked the Migration Advisory Committee to make an assessment of the needs of the economy, including the points that you make about different sectors and, in some cases, there are seasonal requirements that change. There are not just sectors that are different parts of the UK, do you understand why they are causing a need for power over migration to be devolved to this Parliament? I think that one of the features that comes out very strongly in the industrial strategy is to recognise the needs of different industries and the different needs of different places. In its work, the Migration Advisory Committee has a remit to advise independently and objectively and they will publish their assessment as to what that needs to be. It is right that they should do it and then, as I said, the committee will want to look at its recommendations and see how they are translated into policy. Thank you very much, convener. I will be allowed to have a supplementary on something that you said previously, which was about energy storage. You emphasised battery technology, which is what you are stressing. We have looked at different forms of energy storage, which is obviously a challenge. We have got a little bit of pump storage in Scotland. There is the concept of the interconnector to Norway and then we could store when we have got extra power there. The whole concept of hydrogen is a way of storing energy and can be used as a fuel. Are you open to supporting all of these or are you very focused on batteries? Very much so. I mentioned batteries because it has a particular relevance to the automotive sector, so there is a coming together there. Of course, hydrogen does as well and that is very important. Scotland has a very long history of storage through pumped storage through hydro and that continues to be important. We know that the more storage you have, the more you can deploy renewables, the more resilient your system is and the more you can bring prices down. We are open to that. The reason for citing battery storage in particular is that because of its widespread use in products as well as the pure energy sector, we know that there is international interest in this. We know that we have got some of the world-leading innovators in this, so we want to capitalise on that. However, Mr Mason, it is certainly not at the exclusion of other forms of storage. That is great. However, my main area of questioning is regional inequalities, and I think that that is recognised in the industrial strategy. Again, there is the European link, because I think that parts of Scotland—I know Wales as well—has hugely benefited from European structural funds. Can you say a little bit about how you see that going forward? I think that there is talk of a shared prosperity fund, but I do not know how much detail we have got of that. There is a little bit of concern in Scotland, and I believe also in Wales, as to how that would be shared out and how it would be targeted. That is a very important question. To your point about disparities, very clearly throughout the industrial strategy is a recognition that the challenges—some of the challenges that we have—we have talked a lot about productivity this morning, which translates into earnings in many cases. Often it is a challenge of composition, as well as level. In other words, you have places and industries and companies, as Jenny was saying, that are some of the most productive and prosperous on the planet, alongside some areas and some sectors and some companies that seem to be a long way from that. Closing that gap is very important, and the geographical aspect of that is important. It is one of the reasons why, for example, the programme of city deals that I initiated in my previous role as the minister for cities and then communities secretary, I have always regarded as important. Structural funds have been important to that, and through the work that I have done in promoting local growth, they have made an important contribution to it. Obviously, when those funds, through the budget payments no longer need to be made, come back to the UK, we have made a commitment that there will be a replacement, the shared prosperity fund. There will be, and there obviously needs to be, an agreement between the devolved administrations, but also, given that they go to different parts of England, for example, in different ways, there needs to be an arrangement between the administrations and then, for us in England, at a more local level, how they are used. That is recognised and understood. It is one of the main agenda items, I think, for agreement in the discussions that my colleagues and yours have. I do accept that you cannot go into all of that detail as to what is being negotiated, but European structural funds have emphasised needs, so they have looked at if South Wales or the Highlands of Scotland have had particular needs, while roads in the Highlands have benefited from European money. Could you reassure us that it will be based on the allocation of the money rather than on population or on some other basis? Those are discussions for my colleagues who will discuss and negotiate with their counterparts in the Scottish Government as to what the basis of those allocations will be. I can say—and it is very evident in the industrial strategy—that we recognise, as a matter of policy and indeed long-term strategy, that we want a need to reduce the disparities in economic performance between places in the United Kingdom. That is a recognition that is made voluntarily through the industrial strategy. It is informed, as I say, by evidence that has been given from Scotland, Wales and Northern Ireland and across England. I think that the discussions of those conversations are from a starting point of a shared analysis that some assistance in helping areas live up to their potential by investing, whether it is in infrastructure or in skills or in other areas is very important. On timescale, I know that there are commitments in the short term, but can you say anything longer term that are you hoping to maintain that kind of funding at roughly the same level? A long-term commitment is quite important. I have a part of my constituents in East End of Glasgow, we have a Clyde Gateway urban regeneration company and things like decontaminating the land, which has been there for decades. Those are long-term commitments, and so a one or two-year guarantee is not really enough. I can see the benefits of having an agreed approach as early as possible, so that you can have that certainty about future projects. It is quite right that many of the most important uses of those funds, consistent with a strategy that is explicitly long-term, should allow the confidence for long-term investors to see that they can go into an area on the basis of confidence that it is decontaminated land that is going to be addressed. I, if I may convener, will go back to my colleagues in the cabinet and give you as much of an update as I can on where we have got to in the discussions and the perspective timetable on that, but I completely recognise the need for timeliness on it. That is great. Thank you so much. Thank you. Andy Wightman. Thanks very much. No, carry on. I will bring Jackie Baillie later. I think that she had one supplementary, but that can be dealt with afterwards. Andy Wightman. Thanks very much, convener. Welcome, Secretary of State. In your industrial strategy, you talk about grand challenges, one of them being clean growth. You have talked about the Faraday challenge and batteries. One of the strengths of the Scottish economy is renewables, and yet we have seven and a half give-go-ups of on-shore wind capacity in the planning pipeline without a viable route to market because of the decision that the Government has made on excluding on-shore wind from contracts for difference. I think that your minister, Clare Perry, made some indications at the end of last year that this might be under some reconsideration. Do you recognise that, with on-shore wind from your own Government's figures being 50 per cent cheaper than nuclear, it is a well-established technology and it also has multiplier effects that this should be revisited, particularly in the context of Scottish renewables? Renewables is a big success story for the whole of the UK and Scotland has a particularly distinguished contribution to that. A lot of jobs are being created through the supply chain that is now being established, especially for offshore wind. There are some choices that need to be made strategically. We took a strategic decision to concentrate the available funds on off-shore wind for two reasons. One is that you send a signal that investors can invest with confidence over the long term and that this is going to be a sustained commitment so that they can build facilities. That has been a success. All along the coastline in Scotland and the rest of the UK, you have industrial facilities that have been built because of that clear long-term commitment. The other aspect was that there is a kind of miles-on-the-clock aspect to cost. The more you do, the more costs come down. That has been very successful, the reasons that you say. I would not want to move away from what has been a very successful approach that has brought costs down, created jobs given what the industry wanted, which is a long-term confidence. I would not want to change that lightly. However, I would say two things. One is that I had some very fruitful discussions about a year or so ago with Paul Wheelhouse. We met on the Isle of Lewis and we were talking about the remote islands possibilities. As a result of the discussions that we had and the remote islands communities from across Scotland came to that. We have applied for state aid clearance for it to be possible to have onshore wind on remote islands, which I think addresses the concern that was felt there, that this was an opportunity. We have also said that it is important that local consent is in place. As we review our energy policy—I mentioned the Dieter Helm review, to which we will respond—we look at the whole range of commitments that we make, but I would not want to mislead the committee into thinking that the approach that we have taken by having real momentum on offshore wind is not as successful. It is very important that we do not, as it were, destabilise that progress lightly. Yes, it is not a matter of whether offshore wind is successful. I do not dispute that. Your minister, Claire Perry, said that she was currently looking at whether changes could be made to the contracts for difference system because she recognised that onshore wind is absolutely part of the future and that there are a lot of projects with planning consent sitting in Scotland. The fact that you want to promote offshore wind does not necessarily, in my view, preclude opening up contracts for difference for onshore as well. You said that this was a strategic decision. I would suggest to you that there is more to do with the Conservative manifesto commitment not to have any more onshore wind in England, which is strictly speaking a planning matter. Can you give any reassurance to the onshore wind industry that the work that it has done, the investments that it has made, the planning consent that has been granted, can yield developments? It was a strategic decision. It was a decision that, actually, if you really establish a very significant pre-committed pot of money for offshore wind, then investors can build manufacturing facilities with confidence. In response to earlier questions, we noted that sometimes we have not been good at having the manufacturing facilities and the supply chain by not joining up parts of the policy process. It is the case that, if you look at what has happened on offshore wind, it is a good example of the opposite. A decision was taken that there would be a large sum of money available for the long term and it has achieved jobs, it has achieved investment, not least in Scotland, and it has brought down prices. It was strategic. We commissioned this report from Dieter Helman. I do not know whether the committee has ever taken evidence from him, but he is a radical and authoritative thinker on energy matters. He made some suggestions about CFDs and how we approach it. Clare Perry, my colleague said quite rightly that we will consider his recommendations. We have asked for evidence, which I know that the operators of onshore in Scotland have contributed to that. We will review it and respond in that way. That is the right way to proceed, but I think that it would be wrong not to recognise the success of an approach that has been taken. It has been a success for Scotland as well as the rest of the UK. On sector deals, what are the criteria that you use to determine which sectors of the economy are eligible or you wish to negotiate sector deals with? We set out in the industrial strategy. Page 208 to 212 of the industrial strategy set out some of the criteria, some of the questions that need to be answered by a sector that is contemplating a sector deal. It is for the sector themselves. What we in effect did in the consultation in the industrial strategy, we said that, given that in the past some sectors, like aerospace, have benefited from creating an established institution, if you like, the Aerospace Technology Institute. It has brought the industry, the big players, the supply chain and the Government together around a table. Should that be available to other industries and sectors? The answer in the consultation was a resounding yes. In the consultation, we invited some sectors to come forward just to illustrate the potential of that. Life Sciences is one, the creative industries is another, the construction sector is a further one. It is open to any sector that feels that they can, by organising themselves, by coming together to do things in a shared way, whether that is research and development, whether it is training of the workforce, if they are prepared to organise and want a relationship with us, we will consider their proposals. There has been a great deal of interest. We set out some of the criteria that we would look for. There is a huge amount of interest. I mentioned food and drink and hospitality as two areas that have responded positively. I expect that we will be able to reach agreements with them. They are always and everywhere initiated by the sectors themselves and not initiated by central government. Yes, I understand that. I have seen the questions that you refer to that sectors have to address. What I was asking there was the criteria that the Government uses to determine whether it wishes to proceed with a sector deal or not. Are you essentially saying that those questions are the Government's criteria and if they are satisfactorily addressed, you will look favourably on a sector deal? Yes. The sector deals will be UK-wide deals for the whole sector right across the UK? Indeed. It is important to emphasise that they are proposed by the sector, they are not proposed by the UK Government, they are proposed by the sector. Where sectors operate across the UK, for obvious reasons you would expect them to represent every part of the UK. In so doing, I would hope that they would bring together policy makers both at the Scottish Government level and locally, where there are particular clusters. Obviously, if we are thinking of oil and gas, where a sector deal I hope and expect will be negotiated, Aberdeen and the Northeast will be prominent in that. It is for the sector to propose, but in scrutinising them, one of the questions that you would ask is whether does that reflect the real footprint of the industry? Are there any gaps? I would agree with you that in industries and sectors where there is a very important Scottish dimension, I would want to see that very fully represented. If the onshore wind industry came forward and addressed those questions, you would consider a sector deal. We have said that any sector can propose a sector deal. The model that we have taken is that I mentioned that I came up with the idea of city deals several years ago now. One of the features of city deals was that it was not a uniform requirement for every city in England, as it started, to have a city deal. It was an invitation. It said that if there are things that a city would like to do in a different way and has ideas of their own, we are up for talking about and agreeing a way forward on that. However, there is no compulsion and no requirement that every city has to have one at all or at the same time. That approach is the same with sectors. By all means, come together as a sector, think about what the opportunities are, whether it is in research and development, whether it is in training or whether it is exporting. If you have really good ideas and you can show that it would benefit from a good established connection with Government, we are up for that conversation. However, there is no requirement, no compulsion and no window by which they have to achieve it. Finally, convener, just one brief question on a different topic. Scottish Limited partnerships have been implicated in widespread criminality around the world. The Government has made some announcements about tightening up the regulations on that. Can you confirm that you continue to be committed to doing that? I can confirm that. We will be bringing forward proposals on that. They are under consideration, under development, but it is something that I recognise. We will respond to the investigations and the consultations that have taken place on that. I wonder whether I could take you to procurement, because I think that there is an increasing desire that is shared to maximise public investment in our economy by anchoring a lot of that in the country and, indeed, in the supply chain. SMEs make up the largest part of the Scottish economy, certainly, and some experience barriers to participation. Is there anything that you suggest in your industrial strategy or otherwise that would attempt to kind of remove those barriers? Yes, and a very good and important point. One thing that we've done is that we've changed the procurement rules to allow a greater consideration of local and social impact, for example, which was a change from what had taken place until then. However, we recognise, as with the discussion that we had about exporting, that there are challenges for small businesses to navigate some of the established processes that bigger businesses are either used to or have enough central resource to be able to deal with. We have a big commitment in Government but beyond, because it applies to big contractors as well, big OEMs as well, that they should open up their contracting to simplify it as much as possible and to enable SMEs to participate in that. That is something that is part of bringing into greater prosperity some businesses that have the potential but have been frustrated in their ability to realise it. Let me open up the whole question of social impact but also economic impact and reference specifically shipbuilding. I will wade through your industrial strategy. I did not find a reference to shipbuilding but I am sure that I will but you appreciate the significance to the Scottish economy. There has been a very recent decision, I think, yesterday, in fact, by the MOD to put a £1 billion shipping contract out to international competition. Do you agree that it might be better to tender just within the UK so that we retain the suggested up to 10,000 jobs that were created by the awarding of this public contract? It is £1 billion of our money that I would rather see, and I am sure that you would, spent in the United Kingdom, indeed in Scotland, rather than overseas. Changes that we have made to procurement are able, in a way that we have not in the past, to take into account some of the social impact. That is the right thing. We do engage in competitive procurements. That is important for value for money for the taxpayer. That is clearly important. We also benefit as a country and Scotland as every part of the UK benefits from winning orders from other procurers of defence equipment. It is important that we continue to be able to win bids from other countries. When it comes to the letting and the management of this particular tender, that really is a matter for my colleagues in the Ministry of Defence. These are obviously matters of great importance, and I think it would be wrong for me to intrude on their very important responsibilities. Let me invite you to intrude, because at the end of the day you have an industrial strategy that is the expression of the whole of the UK Government's position on growing the economy. Yet you have a department of government with big spending power looking overseas to invite companies that will actually receive state aid to bid against UK companies. Surely you could get the degree of competition you require within the UK because there is more than one ship building yard? Part of our industrial strategy is to be very clear that our economy and our society prospers when it is part of an international free trading world in which we can export. We have a lot of our discussions about how we can export better. To maintain, in fact, to increase our ability to export around the world is a very important feature of our economy, that reputation must continue. It is also important that we should have competition, not just because of the taxpayer's interest in securing value for money, but that competition can be an important driver of innovation and that you should always be able to make sure that you get the best product that is available. Those are very important values of the economic environment that we have and it is important to promote them. What the industrial strategy does very deliberately—it is an unashamantly activist industrial strategy—is that it addresses many, if not all of the factors that can contribute to us being successful there. In research and development, the research and development activities that take place in the defence sector are among the most important in the economy. We are spending more on R&D, which helps our domestic suppliers to be more innovative and to be more competitive. The labour force is crucial in making sure that we have a labour force that is trained in the skills that they need in the future. It is going to be very important when it comes to the tenders both in this country and around the world. Making sure that we have the right supporting infrastructure, including the attachment to place, which is unique in this industrial strategy compared to previous policy approaches from successive business departments, looks at making sure, for example, that particular places, clusters of excellence are supported. You have a very vigorous and very activist contribution to UK industry winning orders, but that has to be put in the context of us being one of the leading nations in the world that persuades others to reduce their barriers, to allow us to export, and we have nothing to fear from that. In fact, both the Scottish economy and the UK economy more widely will prosper more, the more markets we can enter. I will finish on that point, convener, but I love your explanation of the industrial strategy, the clusters of excellence that I consider shipbuilding in Scotland to be one of them. The test in my view of whether your industrial strategy will meet the mark is whether this contract for shipbuilding remains in the UK or not. At the end of the day, it is £1 billion of our money, and it is 10,000 jobs. That surely must count for something. I look forward to you beating a path to your colleague at the MOD to convince him of the area of his ways. I should just put on record that shipbuilding I do recognise is a very important industry. I think that it is a feature in the industrial strategy. I cannot remember offhand which page it is, but we have had a review of shipbuilding that is being conducted by the MOD. There is a very deliberate focus being placed on it, because, again, it is my view, that you can work with industries to enhance their competitiveness, and that is my commitment. Perhaps we can all review our glossy copies of the industrial strategy and see if we find the shipbuilding entry. I will come finally to Jamie Halcro Johnston. Thank you very much, convener. Good morning, Secretary of State. Just to reflect, going back to the energy side and renewables, as a Highlands and Islands MSP, somebody from Orkney recognises the importance of the remote island onshore wind. Obviously, to take advantage of the opportunity, the connectivity, the infrastructure has to be in place, so I do not know if you have got any update on that. Can I also ask, in terms of marine renewables, that you will be aware that the European Marine Energy Centre, EMAC on Orkney, is a world-leading marine test centre? Obviously, that kind of centre requires support to both attract business and development. How will the UK Government support that going forward? It does. Mr Halcro Johnston, I am grateful for the question. When we had our meeting, Orkney was represented as you might expect, and having got the state aid approval, obviously our intention now is to make available the funding pot for remote island wind. Of course, it requires the connections to follow, but that comes as a logical consequence of that. I am very interested and committed to new technologies, especially in renewables. Tidal, given the coastline that we have around the UK, but Scotland has more than its fair share of our coastline, has particular advantages there. I am hoping to visit EMAC in Orkney when I get the chance to do so, to see for myself what is being done there. One of the things that we have done is to establish as part of the industrial strategy an energy innovation fund that is available for technologies that may not be at the point that it is competitive in pure market terms, but with more investment in research and development, it can be brought up to the level that it can be competitive. Marine is one of those that falls into that category. I hope that you are able to visit Orkney in Neil Cymod. I am sure that we would be delighted to work with him there. Within the sector, Orkney has a huge amount of expertise. That is an area where innovation that is tested in Scotland can be commercialised across the whole of the world, so that would be excellent. I think that that more or less concludes our time. We have very limited time this morning, unfortunately, due to chamber business commencing at 20 and due to 12, I think. Therefore, we need to conclude our discussions subsequent to this session. Thank you very much, Secretary of State, for coming in today and also Jenny Bates. I will suspend the session and move into private session now. Thank you. Can I say, convener and colleagues, that it has been a great pleasure to be here. I have enjoyed the questions and the discussion. There are some points to follow up on. If the committee is interested, I talked about a long-term strategy. I think that a long-term and sustained engagement would be of great interest to me and my colleagues if the committee could bear to see us again in a few months time. Thank you very much. I will suspend the session.