House of Commons Scottish Affairs Committee

Supporting Scotland’s Economy

Oral and written evidence

Oral evidence taken and ordered by The House of Commons to be printed 1 December 2010 and 26 January 2011

HC 657 i-ii Published on 27 February 2012 by authority of the House of Commons London: The Stationery Office Limited £11.50

The Scottish Affairs Committee

The Scottish Affairs Committee is appointed by the House of Commons to examine the expenditure, administration, and policy of the Scotland Office (including (i) relations with the Scottish Parliament and (ii) administration and expenditure of the offices of the Advocate General for Scotland (but excluding individual cases and advice given within government by the Advocate General)).

Current membership Mr Ian Davidson MP (Labour/Co-op, Glasgow South West) (Chair) Fiona Bruce MP (Conservative, Congleton) Mike Freer MP (Conservative, Finchley and Golders Green) Jim McGovern MP (Labour, Dundee West) Iain McKenzie MP (Labour, Inverclyde) David Mowat MP (Conservative, Warrington South) Pamela Nash MP (Labour, Airdrie and Shotts) Simon Reevell MP (Conservative, Dewsbury) Mr Alan Reid MP (Liberal Democrat, Argyll and Bute) Lindsay Roy MP (Labour, Glenrothes) Dr Eilidh Whiteford MP (Scottish National Party, Banff and Buchan)

The following members were also members of the committee during the parliament: Cathy Jamieson MP (Labour/Co-op, Kilmarnock and Loudoun) Mark Menzies MP (Conservative, Fylde) Graeme Morrice MP (Labour, Livingston) Fiona O’Donnell MP (Labour, East Lothian) Julian Smith (Conservative, Skipton and Ripon)

Powers The committee is one of the departmental select committees, the powers of which are set out in House of Commons Standing Orders, principally in SO No. 152. These are available on the Internet via www.parliament.uk.

Publications The Reports and evidence of the Committee are published by The Stationery Office by Order of the House. All publications of the Committee (including press notices) are on the Internet at www.parliament.uk/scotaffcom.

Committee staff The current staff of the Committee are Dr Rebecca Davies (Clerk), Duma Langton (Inquiry Manager), James Bowman (Senior Committee Assistant), Gabrielle Hill (Committee Assistant) and Ravi Abhayaratne (Committee Support Assistant).

Contacts All correspondence should be addressed to the Clerk of the Scottish Affairs Committee, House of Commons, 7 Millbank, London SW1P 3JA. The telephone number for general enquiries is 020 7219 6123; the Committee’s email address is [email protected].

List of witnesses

Wednesday 1 December 2010 Page

Philip Rycroft, Director General, Innovation and Enterprise, and Chief Executive, Better Regulation Executive, Department for Business, Innovation and Skills, and Susan Haird, Deputy Chief Executive, UK Trade and Investment Ev 01

Wednesday 26 January 2011

Colin Borland, Public Affairs Manager, Federation of Small Businesses, Bernadette Kelly, Director General for Market Frameworks Group, Department for Business, Innovation and Skills, Iain McMillan, Director, CBI Scotland, Lauren McNicol, Policy Executive, CBI Scotland, Janette Harkess, Director of Policy and Research, Scottish Council for Development and Industry (SCDI), and Alf Young, Special Economic Counsel to the SCDI Board, Scottish Council for Development and Industry Ev 09

List of written evidence

1 UK Trade and Investment Ev 33 1a Supplementary UK Trade and Investment Ev 38 2 CBI Scotland Ev 42 3 Federation of Small Businesses Ev 43 4 Scottish Independent Advocacy Alliance Ev 46 5 RBS Group Ev 47 6 Lloyds Banking Group Scotland Ev 50 7 Supplementary Scottish Council For Development and Industry Ev 53 8 The Scottish Retail Consortium (SRC) Ev 54 9 Ann McKechin MP Ev 57

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Oral evidence

Taken before the Scottish Affairs Committee on Wednesday 1 December 2010

Members present: Mr Alan Reid (in the Chair)

Fiona Bruce Fiona O’Donnell Cathy Jamieson Simon Reevell Jim McGovern Lindsay Roy David Mowat Dr Eilidh Whiteford ______

Examination of Witnesses

Witnesses: Philip Rycroft, Director General, Innovation and Enterprise, and Chief Executive, Better Regulation Executive, Department for Business, Innovation and Skills, and Susan Haird, Deputy Chief Executive, UK Trade and Investment, gave evidence.

Q1 Chair: We welcome back Philip Rycroft and we promote private sector growth in Scotland, we are thank Susan Haird for coming. We are delighted to obviously working with SDI to encourage inward see both of you this afternoon. We are expecting investment into Scotland. I shall be happy to say more Divisions in the Chamber at any minute, so I am about that when we get to the question stage. We work afraid we could be interrupted. I start off by asking with companies throughout the UK to help them both of you to introduce yourselves and say what your internationalise. Most of our services are open to Departments are doing to encourage private sector companies in Scotland and those that are not are growth in Scotland. covered by SDI. For example, we have teams of Philip Rycroft: I am Philip Rycroft. I am the Director international trade advisers and frontline staff General of Innovation and Enterprise in the throughout the English regions. SDI has teams of staff Department for Business, Innovation and Skills. I am doing similar work throughout Scotland, but services also Chief Executive of the Better Regulation like our Tradeshow Access Programme that helps Executive in the same Department. I have not come companies to exhibit overseas, our missions and our with a long statement, so I shall keep this very brief chargeable service, called OMIS, are all available to as you probably want to get into the questions. The companies in Scotland and are taken up by them. key issue is: which areas of BIS’s responsibility are relevant to growth in Scotland? The very Q2 Chair: Is your remit to help companies in straightforward answer to that is: where BIS has Scotland to attract business from abroad, or would it responsibility for reserved policy areas that are also include attracting foreign-based companies to relevant to the Scottish economy, our policies will, come and set up in Scotland? hopefully, have a positive impact on growth in Susan Haird: Essentially, we do two things: we Scotland. In some respects, I can do no better than attract inward investors from around the world to draw to the Committee’s attention the paper The Path come into the UK, including Scotland—there are to Strong, Sustainable and Balanced Growth ways of working with the English regions and published on Monday by BIS and the Treasury, which devolved Administrations to ensure that—and then we gives you a very comprehensive record of policy help companies based anywhere in the UK to go domains where BIS is active. I would be very happy international through exporting outward investment, to talk through with you in some detail, if you wish, joint venturing and partnering. The arrangements for those that pertain to the UK as a whole and therefore Scotland are slightly different from England because are relevant to Scotland. Examples of those would be SDI has its own teams of frontline advisers. competition policy; regulation policy; issues around aspects of access to finance policy; and some aspects Q3 Chair: Perhaps you would explain how you of innovation policy. These are areas where BIS is operate differently in Scotland compared with, say, the active across the UK and where, therefore, our work English regions. Maybe you would explain where the is very relevant to growth in Scotland. division of responsibility is between yourselves and Susan Haird: I am Susan Haird, Deputy Chief SDI. Executive of UK Trade and Investment. UK Trade and Susan Haird: If I may, I will take the question in two Investment is the Government body, part-owned by parts: the trade side and the investment side. On the the Business Department and part-owned by the trade side, in the English regions at the moment we Foreign Office, with responsibility for both have an international trade director co-located within encouraging UK companies to go international and each regional development agency. Those inward investment into the UK. We work very closely international trade advisers have contract staff with the devolved administrations, and in Scotland we working throughout that region and they will do one- work very, very closely with Scottish Development to-one counselling with English companies in the International. In terms of what we are doing to region. They will advise those companies first about cobber Pack: U PL: COE1 [E] Processed: [22-02-2012 16:08] Job: 018777 Unit: PG01 Source: /MILES/PKU/INPUT/018777/018777_o001_th_Corrected 1 Dec 2010 HC 657-i.xml

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1 December 2010 Philip Rycroft and Susan Haird how they might get ready to export, if they aren’t it in practical terms, typically where those policies are ready, and which of our services might be appropriate. driven through Scottish Enterprise in Scotland that is They will signpost them to our posts overseas. We a matter for the Scottish Government, and where the have staff in 96 markets around the world and those arrangements are in England currently they are held staff are there to serve Scottish companies as well. by the RDAs but obviously they will move into a new space under the auspices of the new Government. In Q4 Chair: I am sorry to interrupt. Does SDI have that context clearly a lot of detailed work is driven staff abroad as well? through that which will help all different parts of the Susan Haird: They have some staff but not many, and community to start businesses. Work has been done by they are free to use the services of all our posts BIS on women entrepreneurs and entrepreneurs from overseas. We work very closely with SDI overseas. ethnic minorities and so on to encourage those groups The typical pattern would be that a Scottish company to get into the economy. In answer to your question, would go to an SDI frontline member of staff in respect of what the Committee is interested in and somewhere in Scotland and receive that advice. First, where the relevant responsibilities lie, the BIS do they have the capacity to export? If not, they will responsibilities are more at the macro-level; the be helped to get the capacity to export. If they do have micro-level responsibilities are more for the Scottish the capacity to export, they will have a discussion Government. about where they should export, where their products would best sell and which of our services might be Q6 Fiona O'Donnell: This is something I want to relevant. Do they want to go on a mission? Do they ask you about as well, Susan. As to the Government want to exhibit at a trade fair? Once the adviser in making statements about the number of private sector Scotland is into that sort of discussion in many cases jobs that it aims to create, if it is not within your the adviser will be signposting them to our services, power to create those jobs how does that relationship either missions that might be organised nationally by work with the devolved areas to ensure that the us for the UK as a whole or, for example, a chargeable Government is meeting its targets? service that our embassy in, let’s say, Beijing might Philip Rycroft: Let me take two examples of that. We do for them. It might be a bit of market research or are very, very concerned about the environment in the organisation of a visit programme for somebody which businesses can get themselves established, going out. It works very well. We hold events around thrive and grow. If we take two domains and look at the UK. For example, under Asia Task Force auspices, access to finance, are businesses able to access the we organise events around the UK to encourage finance they need to get established and grow? companies to export to the fast-growing markets of Therefore, from the BIS perspective, we run a number Asia. We bring staff back from our overseas embassies of UK-wide schemes—the Enterprise Finance and consulates to advise companies, and we hold a Guarantee scheme and various enterprise capital fund kind of roadshow round the country. There was one schemes—which are accessible to Scottish businesses in Scotland about a year ago; there will be another as well as any other business across the UK. If you one early next year, so they benefit from a lot of things look at the regulatory domain, a lot of regulation is in done on a nationwide basis. I will move on to inward reserved territory. If you think about employment and investment when you are ready. health and safety law and all the rest of it that is Chair: I think I have used up my five minutes, so I reserved to the UK Government, so the action we take will throw it open to other members of the Committee. to ensure that the regulatory environment is fit for Perhaps we can allow five minutes each. Fiona, do purpose will work for businesses again right across you want to go first? the UK. That is where the work that BIS does has a direct relevance to every business in Scotland, but on Q5 Fiona O'Donnell: Thank you for coming along the same basis it is relevant to every business in the today. If I may start with Philip, there is one UK- rest of the UK. wide area of enterprise that we do not tap into but particularly so in Scotland. The previous Government Q7 Fiona O'Donnell: Susan, Scotland is very much set up a working group that looked at women and dependent on Ireland for its exports. My enterprise. I wonder whether your Department is understanding is that we export more to Ireland than taking any measures to encourage women to set up all the BRIC countries put together. What action is businesses. If we could match, or even come close to, Government taking in particular to help Scotland cope the number of start-ups by men we could solve a lot with the impact on our exports of the financial of our problems. problems in Ireland? Philip Rycroft: That is a very fair question and goes Susan Haird: I think you would need to put that to the heart of where the different responsibilities lie. question to Scottish Development International, in In terms of encouraging business formation generally that they are the people with the frontline advisers and the conditions in which businesses can set up and who give advice to companies about which export grow, there are a number of policy domains for which markets to look to. Ireland has a higher share of our BIS is responsible that play directly into that space— exports than the BRIC countries put together, but that for example, the work we do on access to finance, is a slightly misleading figure, if I may put it that way, competition policy, regulation and so on. There is then because Ireland is basically like the domestic market. a series of economic development functions which To try to skew the behaviour of companies is not good relate particularly to supporting businesses to start up in economic terms. Company A may have a wonderful where the policy responsibilities are devolved. To put export opportunity in Ireland that has been going on cobber Pack: U PL: COE1 [O] Processed: [22-02-2012 16:08] Job: 018777 Unit: PG01 Source: /MILES/PKU/INPUT/018777/018777_o001_th_Corrected 1 Dec 2010 HC 657-i.xml

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1 December 2010 Philip Rycroft and Susan Haird for years. The person to whom they are selling may Susan Haird: The way companies go to trade shows be perfectly solvent and it may carry on for years. For is that it begins with a discussion with their us to say to them, “Leave Ireland alone and go to international trade adviser. That would be somebody China” would not be good. What we can and should on the ground in Scotland or England. It is very much do UK-wide is bring to the attention of all our up to the adviser whether he or she thinks that to exporters the opportunities in markets they may not exhibit overseas is right for that company. It is not have thought about. That is why we do a number of right for every company or every sector, so it is outreach events, like the Asia Task Force events I extremely difficult to say what the correct share talked about and Partner Middle East events, to should be. encourage companies to diversify into more markets. We began to do that even more during the recession Q10 Cathy Jamieson: Can you tell me what kinds because, frankly, many of our traditional export of companies have gone to these events? markets—Europe, including obviously Ireland, and Susan Haird: For example, energy companies have the US—were suffering negative growth when the gone to a major energy show in Houston, exactly as Asian and many Middle Eastern economies were still you would expect; companies have gone on sporting growing very fast. As Philip said, at macro-level it is events in Brazil. Scottish companies have taken part for us to paint a picture that shows where the in a whole range of our events. opportunities are and draws the attention of companies to those they might not otherwise have thought of. I Q11 Cathy Jamieson: I am genuinely trying to get a would be very wary of saying to a company, “You flavour of this. I wonder how that fits with what must abandon a particular export market and look Scottish Enterprise, for example, is doing on the high- elsewhere,” because we will never know the detail of growth industry sectors. Do they match or are they the circumstances, but we should absolutely different? encourage them to diversify. Susan Haird: I am not familiar with that piece of work, but UKTI has identified a number of high- Q8 Cathy Jamieson: I want to pick up a couple of growth sectors into which it puts more resources, for things specifically on the paper provided to us so I example energy, life sciences, ICT, creative industries can get my head around some of this stuff. I was and financial services. These tend to match other particularly interested in the Tradeshow Access people’s high-growth sectors as well. Programme. You mentioned that 185 Scottish SMEs had received grant support. A few pages over, it talks Q12 Cathy Jamieson: Has there been discussion on about the demand for the TAP perhaps being less than that, and do they match up? would have been expected from Scotland’s share of Susan Haird: I am not aware of specific discussions. UK exports. Could you say a wee bit more and give me some more examples of that? Do you think that Q13 Dr Whiteford: I want to ask about small has been a successful programme? businesses, particularly very small ones. Quite Susan Haird: The Tradeshow Access Programme is recently, I discovered that Aberdeen has the highest proportion of people anywhere in Scotland who are very successful. We have very rigorous economic self-employed. One of the things where very small impact evaluation in UKTI. Every pound we spend on business people, especially sole traders, seem to have the trade side turns into £19 of additional profit for a mental block, or perhaps just a logistical block, is our customers. That in turn results in £5 billion of taking the step to becoming somebody’s employer. I additional profit for the customers and £35 billion of wonder whether either of you has any thoughts about additional exports. Within that we evaluate all the how the process can be made less daunting for sole different services. The Tradeshow Access Programme traders, because it is a huge opportunity for growth. is a particularly high-performing service. Another Philip Rycroft: That is a very clear question. We measure we use is business impact. Has it changed know quite a lot about the thoughts and feelings of your business? The target is 50% of companies saying small businesses as they get on that path of growth “yes” and TAP scores about 80%, so it is a very high- and the sort of things that inhibit them particularly to performing service. We take companies both in groups take on people. The Better Regulation Executive did and individually; the individual part is a kind of solo a piece of work very recently, which I commend to programme. In the main, we take groups of companies you, on micro-businesses and regulation. It looked to exhibit at trade fairs overseas and all of them are across all the regulatory interface with small open to companies right across the UK. Where we businesses. think a particular region is not taking as much Chair: I am afraid we will have to break, hopefully advantage of a tradeshow programme as perhaps it for only 15 minutes. We will adjourn until 3.57. might we do more outreach to encourage it. It is Sitting suspended for a Division in the House. difficult to say exactly what the right share would be. On resuming— Chair: Thank you very much for staying, Susan. I am Q9 Cathy Jamieson: So that I have a flavour of the sorry about the long break. I am afraid that Philip had sort of companies that have been involved in this, do another appointment and had to leave. Several you think Scotland has taken as much advantage of members of the Committee also have other that programme as it could have done? If not, appointments. We had assumed we would all be specifically what has been done to try to encourage finished by half-past four. We very much appreciate more SMEs to take it up? your staying. cobber Pack: U PL: COE1 [E] Processed: [22-02-2012 16:08] Job: 018777 Unit: PG01 Source: /MILES/PKU/INPUT/018777/018777_o001_th_Corrected 1 Dec 2010 HC 657-i.xml

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1 December 2010 Philip Rycroft and Susan Haird

Q14 Jim McGovern: Susan, since I was elected in question for Philip Rycroft and the Business 2005 most of the people who have come along to my Department. It would be wrong of me to try to weekly surgeries have had problems with pensions, interpret what they are asking for. immigration or the benefits system. In the past year or two more and more people who have come to the Q21 Jim McGovern: That’s okay, Susan. I apologise surgery have been business owners and have had if I am directing a question to you that is for problems with banks. Is it also your experience that somebody else. banks have been giving business a hard time? Susan Haird: No, no; it’s fine. Susan Haird: Anecdotally, one hears that and reads it in the press. Interestingly, we have put questions about Q22 Jim McGovern: Do you believe the access to finance into the evaluation mechanism I Government should support businesses, whether described earlier. It has not come through as a small, medium or whatever, by tax breaks, for significant problem from our customers. I find that example? The previous Government before the interesting because it is not intuitively what I would general election said that it would give tax breaks to have expected. the computer games industry, which is a big thing in my constituency in Dundee. The new coalition Q15 Jim McGovern: So you do not regard it as a Government has said that it will not award tax breaks problem? to the computer games industry because they are Susan Haird: I read that it is a problem, but our poorly targeted. Do you have a view on that? customers have not been saying that to me. The Susan Haird: My view is the view of the Government present Government and the previous one have sought of the day. to ensure that lending continues to flow to SMEs. Q23 Jim McGovern: Yes. And? Q16 Jim McGovern: I would like to make clear that Susan Haird: The Government has said it does not it is not a party-political question. believe it appropriate to give grants to the games Susan Haird: I did not interpret it as such. industry. Q17 Jim McGovern: I do not look for a partisan Q24 Jim McGovern: If your view is the same as the answer. This has been happening maybe for a year or Government of the day, inasmuch as they are poorly two, certainly prior to the general election. I am targeted, why is that? surprised to hear your answer that it has not been flagged up to you. The Federation of Small Businesses Susan Haird: I am afraid it is not my field. If I may have said they would recommend the creation of a clarify it, I am here to represent UK Trade and business support scheme. How do you see the UK Investment. We help UK companies export and attract Government’s role in such a scheme? inward investment into the UK, so in that respect you Susan Haird: Could you explain exactly what their are asking questions that are outside my area. I proposal is, because what my organisation does is imagine that is a matter for the Department for business support? Culture, Media and Sport and the Treasury.

Q18 Jim McGovern: Unfortunately, the Federation Q25 Jim McGovern: That is fair enough. I am of Small Businesses do not seem to have a interested to hear you say that your view is the view representative here. I cannot explain exactly what of the Government, but you cannot answer the they mean. question as to why the Government’s view is fair. Susan Haird: I think they were due to give evidence Susan Haird: I am saying it would be wrong of me before me and did not make it today. to give you a different answer. It is not my field; I cannot elaborate. Q19 Chair: I think they were snowed in and could not make it. Q26 Jim McGovern: When UKTI send trade Susan Haird: I am not exactly sure what they are delegations abroad to try to attract inward investment referring to there. to Scotland, do they include representatives from Scotland? Q20 Jim McGovern: So, you would prefer not to Susan Haird: I think your question concerns both answer it? inward investment and trade. When we take trade Susan Haird: I do not have an answer I can give you, delegations overseas, that is UK-based companies I am afraid. We give support to companies large and seeking to export, the answer is yes, absolutely. All of small: 90% of our customers are small and medium our events and missions like that are open to size enterprises; 40% of them have fewer than 10 companies throughout the UK. SDI will take some employees. We give companies grants to exhibit at missions overseas on its own, but as far as we are trade fairs overseas. There are grants we can give to concerned any mission we organise is open to all companies to go on missions. We have a scheme in companies throughout the UK. On the inward England called Passport for Export—I believe there is investment side, UKTI has national responsibility for something similar in Scotland—which operates on the marketing the UK as an inward investment basis of matched funding. My organisation does give destination. We work very closely with the regional business support. If they are talking about a scheme development agencies and the devolved to do with access to finance that would have been a Administrations to attract inward investment into the cobber Pack: U PL: COE1 [O] Processed: [22-02-2012 16:08] Job: 018777 Unit: PG01 Source: /MILES/PKU/INPUT/018777/018777_o001_th_Corrected 1 Dec 2010 HC 657-i.xml

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1 December 2010 Philip Rycroft and Susan Haird

UK and then work with the investor to decide where could not have competed. So I think the FDI figures in the UK it wishes to locate. for Scotland are really encouraging. Scotland gets more than its proportion GDP-wise and a very high Q27 Fiona Bruce: Good afternoon, and thank you proportion of R&D-intensive projects. for coming, Miss Haird. It is estimated by one source that the 2012 Olympics will produce about £21 Q29 Fiona Bruce: Thank you. That is a very billion-worth of investment in our country. I would interesting general picture. To bring us back to the like to know how the UKTI is helping to ensure that 2012 Olympic Games which are now coming, can you a good proportion of that is gleaned by Scottish give specific examples of actual businesses or businesses. trades—I do not necessarily want you to advertise on Susan Haird: There are two ways in which we look their behalf—where UKTI has, if you like, added to maximise the international economic legacy of the value to them? games. One is to attract inward investment into the Susan Haird: Are you talking about inward investors? UK around the magic of the games—so using the Olympics to draw companies into the UK. Once we Q30 Fiona Bruce: I am talking about how you have have attracted them to think about the UK, we get into helped to boost trade. What particular businesses can the business of working with them on where in the you point to and say, “There’s a success for us.”? UK they would wish to go. Scotland has a very good Susan Haird: Let me give you a company called track record in receiving inward investment projects. Benoy which is based in England but is now Perhaps I may come back to that in a moment. Just to worldwide. I give you one example. On a trade look at the other side of the coin, trade, we are also mission with us to India, it won the design work for very keen to maximise the opportunities for UK 21 retail outlets all over India. Each one of those retail business around the world that come from having a outlets was bigger than Bluewater in Kent, which at major sporting event like the Olympics in the UK. We that time was the biggest retail outlet in the UK. I have signed host-to-host agreements with other cities mention that because the other day I was on a and countries that host the Olympic Games—for speaking platform with somebody from Benoy. Not example, Vancouver for winter games in 2010; Russia all companies want their successes made public, but for the Sochi winter Olympics in 2014; and Rio for the figures I gave you on the evaluation evidence 2016. Having signed those host-to-host agreements, show the scale of our impact. Recently, we received we would then work with the host nation on their an award from our peers for the best trade promotion needs around the games and how we right across the organisation in the developed world. That was in UK can best meet them. We would then take out recognition of one of our products in particular which sporting missions to the country concerned. There achieved a huge impact for customers. We work with have been several to Sochi, Rio and Vancouver. Let customers of all sizes. For example, when the Prime me emphasise that a major sporting event offers Minister went to India a number of contracts were opportunities not just in what might be viewed as a signed; similarly on his recent visit to China. A whole narrow definition of sport but right across architecture; range of companies from small to large benefits from design of stadia; security equipment, which is working with us. obviously very important; ticketing and all sorts of services. They are very broad-ranging missions. I Q31 Fiona Bruce: What is the annual budget of know that inward investment in Scotland is an interest UKTI? of the Committee. Would this be an appropriate Susan Haird: It is about £350 million and it is a mix moment to give some figures for inwards investment of programmes. We have three funding streams. We in Scotland? I am conscious that we have not got into have funding from Parliament direct on programme that yet. spend which we spend on companies, primarily on company support, trade fairs and that sort of thing; we Q28 Chair: Yes. have funding from the Foreign Office, which funds Susan Haird: Scotland is the second most important our overseas network primarily; and we have funding destination for foreign investment projects after the from the Business Department, which funds our South-East including London and gets between 8% headquarters operations in London and Glasgow. and 11% of projects into the UK. That is roughly in proportion to Scotland’s 8% share of the UK’s GDP. Q32 Fiona Bruce: How are you preparing for the If you look at projects involving research and change from the RDAs to what is likely to be the LEP development, 9% is the average for all projects over basis of working which is private sector-led in many the 10-year period Scotland receives 19% of R&D regions? It will be very different. I was interested that projects. So Scotland is doing particularly well and earlier you mentioned that, obviously, you supported punching way above its weight in getting R&D the Government of the day. How will you change the projects. Scotland’s share of R&D jobs over the past culture of UKTI to match this change in emphasis? 10 years has been 20%, which is the second top region Linked to that, I am interested to know how many after the South-East, including London. Scotland’s people who work for UKTI have run their own overall share of jobs was 14% over the 10-year businesses. period—again punching above its weight—though I Susan Haird: I will start with the RDAs and come must emphasise that in 2008 and 2009 that figure was back to that. We work with the RDAs in two main 8%. There were some very big expansions in the ways at the moment. On the trade side, we are automotive sector in England for which Scotland basically their international delivery arm. 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1 December 2010 Philip Rycroft and Susan Haird a system which I described partially earlier. We have to say they want to attract foreign companies? What an international trade director co-located with each is the balance of how it works? regional development agency. Susan Haird: Let me explain how it works. We have They work up an international trade strategy for the staff in 96 markets around the world. Not all of those region and the frontline staff are then employed under are active inward investment markets. We have inward contract with the likes of chambers of commerce. investment resources in some 30 markets around the Those arrangements will pretty well continue after the world. Typically, in major markets overseas some of abolition of the regional development agencies, except the RDAs and devolved Administrations will also that there will not be an obvious immediate have people overseas. We work together as a team and interlocutor at regional level. Over time, as growth there is a protocol that governs it. There is something hubs and local economic partnerships are set up, there called the International Business Development Forum will be other interlocutors to discuss the trade strategy which brings together UKTI, the devolved for the region. Administrations and the regional development On the inward investment side, the RDAs are a key agencies. We work out a modus operandi. I am sure part of our delivery, as are the devolved you agree the most important thing is that the UK Administrations. As an inward investor becomes wins the business. So the first goal for all of us is to interested in a particular region, or two or three try to get business into the UK. regions or a region and a devolved area, essentially we will pass at least part of the client handling to the Q34 Chair: But how do you avoid different parts of RDA or devolved Administration. They would go into the UK competing to offer the biggest subsidy, thus the detail of things like the location of sites, local cutting each other’s throats? infrastructure needs, access to skills and partnering Susan Haird: I have heard a colleague describe it as with local universities. We need to replicate that inviting the RDAs and devolved Administrations to granular level of regional delivery. Ministers have set out their wares on a cheeseboard and try to attract decided that responsibility for inward investment will the inward investor that way: in other words, slightly rise to national level; in other words, it will not go different specialities. In terms of how it works and solely to the local economic partnerships, though no how we build a pipeline, my staff round the world doubt they will be involved and will be a key partner. and the staff of the devolved Administrations and the We will look to have a national means of delivery regional development agencies will work together to throughout the English regions which will be sector- target prospective inward investors. There are various focused so we can talk in depth to companies and ways in which we can do that. We look at companies make a very strong sector proposition, but the sector in a market, for example a particular region of the specialists would not be bound by geography in quite US. Which are the up and coming companies? Who is showing signs of rapid growth? Who do we know the same way as they are at the moment because they or think might be interested in investing overseas? We work for particular regions. So it would be a national would talk to them. We, SDI, the RDAs and other scheme but regionally delivered with some flexibility. devolved Administrations will all be targeting Through that delivery mechanism we will also want companies but in a co-ordinated way. Having got a to work with local economic partnerships that will lead, as we call it, which might have come from one bring in a more local level of knowledge and help to of my staff or the SDI, it goes on to a computer system the inward investor. which in most cases is accessible by all the regions In terms of changing culture, UKTI is very private and devolved Administrations. They then pick the sector-focused. We use quite a number of business ones they think are most likely to want to come to specialists. We have sector champions who are their region. That will depend on things like clusters business specialists; we have a range of specialists and areas of comparative advantage. They will then who focus on fiscal stimulus initiatives around the make propositions. So for a particular inward world, unpicking major projects and matching them investment prospect we might have, say, three up with our companies. We have R&D specialists propositions from different regions. There is some whose task it is to understand the best of the UK’s competition, and I do not think that is a bad thing. R&D offer and match that with the interests of The important thing is to get the investor into the UK prospective inward investors. The international trade and to give them a choice that maximises the chance advisers, our frontline staff in the English regions, are of the investor coming to the UK as opposed to primarily from the private sector. About one fifth of another country. our staff are UK diplomats based overseas for a posting, and the remainder of our staff are locally Q35 Chair: Do you get into situations where engaged and many of them have private sector competitive bidding goes on in that each of the RDAs experience. In headquarters, a number of us have had and the SDI compete against each other to offer private sector experience. I do not have an exact figure more money? for you, but it is quite a significant proportion of our Susan Haird: Often there is not money on offer and staff, so I really do not think it is a culture shift. other things that matter more. It is often to do with the local industrial geography, if I may put it that way. Q33 Chair: Can you explain to me the mechanics of Is it a good place for a life sciences company? Is there the system and how it works? Do foreign companies a cluster? Is there a good university to partner with? approach you to say they want to come to the UK, or What kind of site is available? What is the access to do Scottish Enterprise, SDI and RDAs approach you skilled labour? cobber Pack: U PL: COE1 [O] Processed: [22-02-2012 16:08] Job: 018777 Unit: PG01 Source: /MILES/PKU/INPUT/018777/018777_o001_th_Corrected 1 Dec 2010 HC 657-i.xml

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1 December 2010 Philip Rycroft and Susan Haird

Q36 Chair: Referring to the protocols, is all of this made of why there is no take-up by Scottish open and above board? companies? Susan Haird: It is all open. Susan Haird: The assessment that has been made is that there is a need for greater outreach to try to Q37 Cathy Jamieson: I return to the paper to pick encourage companies to take it up. up two points in which I am interested, and then perhaps I will deal with a general point. On page 3, Q43 Cathy Jamieson: So, if a company in my you talk about 800 complimentary business class constituency, for example, wanted to know about how tickets which were offered via a BA and UKTI to access that particular fund, who would it go to? initiative of which Scottish companies took up only Susan Haird: My advice would be to talk to their 386. On page 7, you refer to this year, when BA has frontline member of staff from the SDI organisation again made available a further number of discounted around Scotland as part of a package because, on its tickets and you have been closely liaising with SDI own, it will not be enough. They need strategic advice about that offer. Does the fact that only half the tickets to discuss which markets to go to. were used first time around mean it was not a good scheme? Was it not what business needed? Was it Q44 Cathy Jamieson: With respect, in the past two poorly advertised? What is happening currently with weeks I have visited two very successful local the scheme? companies with a global market that have developed Susan Haird: It is difficult to say why the take-up products; they have got on and done it. The guys who was variable across the UK. As far as we were run the companies have come up literally from the concerned the tickets were allocated pro rata. shop floor. They have done all that bit; they know their business. What they say they need is added Q38 Cathy Jamieson: Did Scotland take up a lesser value. From what I hear at the moment, I cannot get percentage than other regions? a handle on what added value UKTI provides over Susan Haird: Yes, it did. It was for SDI to advertise. and above what SCDI and SDI provide. One suggestion that has been made is that BA does Susan Haird: We have the overseas network of staff not fly long haul from as many Scottish destinations. in 96 markets, so through SDI working with us Scottish companies can access all that in-depth Q39 Cathy Jamieson: If people want to find knowledge on the ground. If they want to go to a excuses, I am sure they will. market like Australia, they can commission some Susan Haird: Exactly; they could have come down work from us; we can do market research; we can on the shuttle. Having identified that there was a arrange a visit programme for them. Working with problem last time, there will be more outreach to their adviser in Scotland, they could access trade encourage companies to take them up this year, missions that we might be running to Australia, which because obviously it is a great offer. SDI itself might not be running. They could access our stands at exhibitions overseas, for example. We Q40 Cathy Jamieson: Is there any indication at the offer a wider range of services because they are UK- moment about the uptake so far? wide. What SDI offers in Scotland is very heavily Susan Haird: No; it is early days. focused on face-to-face advice to start companies off, and then they can signpost to a whole range of our Q41 Cathy Jamieson: In a similar vein, on page 7, services. there is reference to the Export Communications Review programme in 2009–10, where there was no Q45 Cathy Jamieson: Maybe you do not have the take-up by Scottish companies. Was that a surprise? answer to this question. If those services are there but Why did that happen? What is the learning from that? it appears from the paper you have given us that in Susan Haird: It was a surprise, but let me emphasise Scotland companies do not access those services for that we are not a product-driven organisation. What one reason or another—we do not quite know why— we and I believe SDI also try to do is tailor-make a that would be of concern to me. Again going through package of support for an individual company that is the paper, if we look at all the different organisations appropriate to its needs. We do not really want involved, UKTI, SCDI, SDI, IBDF, Scottish companies to come to us saying they produce X; we Enterprise in its various guises and local authority would much rather have a strategic discussion with economic development units, are there too many them and work out what is necessary. people involved in doing this? Is there an industry in there that could be streamlined and some of that Q42 Cathy Jamieson: I am sorry to interrupt you, money released back to the frontline to create jobs? but the paper talks about the programme providing Susan Haird: The International Business companies with advice on language and cultural issues Development Forum is simply a body that meets; it is to help them develop an effective communications not another organisation. Governments over the years strategy. If we are talking about Scottish companies have taken decisions that set up SDI and the RDAs, that look to a global market—that is exactly the kind which are going, so there is one layer coming out of of thing that some companies in my own area would the equation. We try to deliver an efficient service need—why have people not accessed it? Is it because working together and not duplicating. Perhaps I might they do not know about it or it is too complicated? return to the issue of participation. The Export What are the reasons? What assessment has been Communications Review is not a particularly big cobber Pack: U PL: COE1 [E] Processed: [22-02-2012 16:08] Job: 018777 Unit: PG01 Source: /MILES/PKU/INPUT/018777/018777_o001_th_Corrected 1 Dec 2010 HC 657-i.xml

Ev 8 Scottish Affairs Committee: Evidence

1 December 2010 Philip Rycroft and Susan Haird scheme, so I would not want to dwell on it too much. Susan Haird: Yes; it is broadly similar. Perhaps I may just give a few figures. Q53 Chair: The population share is about 1.5% Q46 Cathy Jamieson: With respect, you have higher. highlighted it in the paper, which is why I ask. Susan Haird: Yes. You could use a number of Susan Haird: I know, because I wanted to be very different measures. You could use the number of open. Some 8% of those participating in inward companies. missions were Scottish; 7.5% of companies going on outward missions were Scottish; 7.4% of companies Q54 Chair: Do you know why share of GDP was attending UKTI events overseas were Scottish; and chosen? 5.3% of companies attending events in the UK were Susan Haird: It was simply the one I picked, but Scottish. nobody gave me a choice. Please do not think I picked the one that put us in the best light. I just decided to Q47 Jim McGovern: Is that a low percentage? use GDP; it seemed to me to be fair. Susan Haird: No; it is roughly in proportion to Scotland’s share of GDP. Q55 Chair: What was the reasoning for that? Susan Haird: I think GDP is a fair comparison. One Q48 Jim McGovern: 7%? can use lots and lots of different measures. I do not Susan Haird: 7% to 8% is GDP; inwards missions, think population is a very good measure because you 8.3%; missions overseas, 7.5%; events overseas, would then have to weight it for the number of 7.4%; and attending UKTI events in the UK, 5.3%. working age and it becomes very complicated. If you The latter figure is a little low, but it does not surprise took the number of companies you would need to start me because SDI would be doing a lot of its own doing some pretty complex weighting about size and events in Scotland. Overall, the take-up of UKTI so on. GDP seemed to me to be the fairest. services by Scottish firms is good and is what I would expect. Q56 Chair: In your calculation, how have you allocated a company that operates, say, throughout the Q49 Jim McGovern: Are those figures in the UK or in two different parts of it? submission you have made to the Committee? Susan Haird: What I have allocated is where the Susan Haird: No, they are not. company is based in terms of how we have counted it. It will have been done by the address of the part of Q50 Jim McGovern: Can we have them, and the the company that took up the scheme. It is probably comparison you make with GDP? not a very exact science. Again, there are lots and lots Susan Haird: Yes, of course; I would be happy to of permutations. do that. Chair: Does anybody else want to put a final question? We very much appreciate your staying on. I Q51 Chair: Is GDP a valid comparison as compared am sorry you had an hour-long wait, but thank you with, say, population share? very much for coming. Susan Haird: The population share would be less. Chair: It would be about 9%.

Q52 Cathy Jamieson: It would be between 9% and 10%. cobber Pack: U PL: COE1 [SO] Processed: [22-02-2012 16:08] Job: 018777 Unit: PG02 Source: /MILES/PKU/INPUT/018777/018777_o002_th_Corrected 26 Jan 2011.xml

Scottish Affairs Committee: Evidence Ev 9

Wednesday 26 January 2011

Members present: Mr Ian Davidson (Chair)

Fiona Bruce Fiona O’Donnell Mike Freer Simon Reevell Cathy Jamieson Mr Alan Reid Jim McGovern Lindsay Roy David Mowat Dr Eilidh Whiteford ______

Examination of Witnesses

Witnesses: Colin Borland, Public Affairs Manager, Federation of Small Businesses, and Bernadette Kelly, Director General for Market Frameworks Group, Department for Business, Innovation and Skills, gave evidence.

Q57 Chair: Perhaps we can start a little earlier and Q58 Chair: Perhaps I can start off with Ms Kelly. get some sensational answers in quickly before we are One of our anxieties is that the demarcation lines recorded and broadcast. between what you do, and what the Scotland Office I welcome you to the meeting. We have been keen to and its various arms do, are not entirely clear to see you for some time. We want to look specifically people involved in business. Can you clarify for us at issues relating to the Scottish economy and its the point of BIS, as far as Scotland is concerned? development. We will verge towards some other Bernadette Kelly: I am very happy to do that. I agree inquiries we are conducting in relation to the Scotland with you that it is quite a complicated area. I was Act and so on. This was initiated originally because nominated as my Department’s devolution champion a number of my colleagues were keen to pursue the quite recently. I have found in briefing myself in advance of this hearing just how complicated it is, so relationship between economic development as I agree with that. Let me say a little about the conducted by the Scottish Parliament and the work of Department for BIS and our role. Clearly, we are the BIS and other agencies in the UK and how these Department for growth. We have a central role in meshed together. But, rather than restrict ourselves promoting economic recovery and growth. In the simply to that, we want to hear your views on growth strategy that we set out in the autumn, we improving the Scottish economy in general, identified, in particular, the role of Government as generating additional private sector employment and, being about: providing stability for investment; indeed, almost anything else you want to get off your making markets more dynamic; creating the chest while you have a captive audience here. Perhaps conditions for private sector growth; and ensuring that for the record you would introduce yourselves and growth is shared and sustainable. then give an indication of what you think we ought to A lot of our work in BIS directly or indirectly also take into account in developing the economy in supports Scottish businesses and the Scottish Scotland from your perspective. economy. There are probably three key generic areas Bernadette Kelly: I am Bernadette Kelly, Director that I would like to highlight on which I would be General of Market Frameworks in the Department for very happy to attempt to answer further questions. Business, Innovation and Skills. I am here principally First, a number of our programmes, investments and to try to give an account of, and answer questions you financial support are also of benefit to or are available might have about, how our work in BIS can support to Scottish businesses and institutions. The £3 billion and is supporting Scottish growth and the Scottish of Research Council funding, which has been economy, rather than give you direction as to how in relatively protected in the spending review, can be Scotland you might do that. I am happy to say a little accessed by Scottish institutions and, indeed, they do about that when we get into explaining our work. rather well in accessing it. Colin Borland: I am Colin Borland from the Secondly, as to the proposed green investment bank, Federation of Small Businesses in Scotland. There there is a proposal to earmark £250,000 out of the total funding of £1 billion for Scottish infrastructure should be few surprises from us this afternoon, in that projects. The work of the Technology Strategy Board, the themes we have been advocating over the past for example, is UK-wide. I know that it has supported 18 months to two years have scarcely changed. The a very large number of leading edge technology priorities for us going forward will certainly be about projects in Scotland. So there is a range of areas where jobs and how we create more of them in the Scottish we provide support to business or higher education economy, particularly through small businesses, with institutions on a UK-wide basis, including in Scotland. big business downsizing and the public sector getting Generally, there is a strand of work we do in the ready to do so, how we finance that job creation and Department for Business that is about creating the make sure businesses get the finance they need and conditions for growth. I would include in that, for whether that should be limited exclusively and example, our work on bank lending, on the pursuit of specifically to bank debt finance or if there are other open global markets and trade promotion, on better options we can explore to make it easier. regulation, competition and employment, and in cobber Pack: U PL: COE1 [E] Processed: [22-02-2012 16:08] Job: 018777 Unit: PG02 Source: /MILES/PKU/INPUT/018777/018777_o002_th_Corrected 26 Jan 2011.xml

Ev 10 Scottish Affairs Committee: Evidence

26 January 2011 Colin Borland and Bernadette Kelly

Europe, all of which is UK-wide and are factors which known my predecessor, Philip Rycroft, as the BIS will therefore be equally as relevant in Scotland as departmental devolution champion. I cannot yet lay they are in the rest of the UK. claim to a massive track record of progress and Thirdly, currently we are embarked on a growth delivery in this, but it is a very important role for us. review process jointly with the Treasury. We will be To give an example, I know it has been common reporting on the first significant phase of this work in practice to have a four-nations meeting, which Philip the Budget on 23 March. In that we have identified has chaired, and I will certainly want to continue that. 12 areas that we are looking at closely as areas where That is quite a high-level meeting between ourselves we want to identify further action. Those are both and the devolved Administrations to look at the sectoral and horizontal areas like planning and strategic priorities across our BIS area of competition. I would expect quite a lot of the action responsibility and what more we can do to link up and that comes out of that growth review process to work effectively with some Scottish bodies. impact on Scotland as well as England and the rest of Britain. Q61 Lindsay Roy: Can you tell us about some of the You are absolutely right that it is a very complex key things on your agenda? network of relationships. From my understanding and Bernadette Kelly: In terms of the policy agenda at the observation of how this works, it is complicated. You moment, working with Scotland on bank lending is an are probably right that some businesses and absolutely key priority. Clearly, this is where BIS has stakeholders on the ground may not see it as being an interest working with Treasury. It is UK-wide and transparent as it might be, but there is generally a is probably pretty close to the top of the list of good working relationship, I hope—although business concerns about the business environment at obviously I am interested in the Committee’s views— the moment, so continuing to work extremely closely between ourselves in Whitehall, the devolved on bank lending, competition and the wider longer- Administration, the Scottish Government, and bodies term issues around bank structure is critical. I know like Scottish Enterprise and Scottish Development there has just been an exchange of correspondence International. We try to make what is a relatively on that between Alex Salmond and Vince Cable. For complex settlement work well. example, I know that in the work on access to finance, which we in BIS led in the autumn, we had excellent Q59 Chair: I understand the points you make about contributions from Scotland and the Scottish your macro-involvement, but I am not clear whether Government on the action needed. That would the research funding, the green investment bank and certainly be one of the areas that would be high on the Technology Strategy Board are implemented by my list of priorities. staff on the ground and supported financially by the Scottish Parliament, or whether you have your own Q62 Jim McGovern: Bernadette, you have probably gang on the ground, as it were, and basically there are anticipated my question about bank lending in people tripping over each other. Job creation is a great advance. You said that that was one of the priorities job creation exercise itself, isn’t it? Lots of people on which you would have to work. I have said before, would be out of a job if unemployment was resolved. but it is probably worth repeating nevertheless, that I want to clarify the extent to which people know to for my first four years as an MP, when people came whom to go in these circumstances. to my surgery it was usually about pensions, child Bernadette Kelly: My understanding of the Research credit, tax credit and stuff like that. Increasingly, in Councils is that funding is about £3 billion a year. It the past year or 18 months, it has been the business is distributed through the Research Councils to higher community. People who own small businesses have education institutions. Therefore, in Scotland, it is been coming to my surgery to say their banks have distributed to Scottish higher education institutions. totally changed the way they deal with them now and My understanding is that, typically, they have been it is so difficult to get an overdraft or some kind of receiving about 12% of the annual budget. That is a loan. Therefore, when you say that that is one of the relatively strong share, and it reflects the fact that it priorities, could you define more specifically how you is excellence-based funding and so is a reflection on intend to encourage banks to promote businesses? Scottish higher education institutions. I don’t believe Bernadette Kelly: I can probably point to quite a lot there is particularly a tripping over. I think that means in this phase, but let me try to summarise it. First, we of distributing the funding on the ground is reasonably are doing a number of things directly to support SMEs well understood. My colleague Sir Adrian Smith to get access to bank finance. For example, the chairs a funders’ forum, which I believe brings enterprise finance guarantee, which is a UK-wide fund together all the relevant bodies including those in for which BIS is responsible, basically provides Scotland, and I understand that works very well. guaranteed backing to SMEs that seek finance. That is £2 billion over four years, so that is direct Q60 Lindsay Roy: We have heard a lot about intervention and support. devolution champions and it is very pleasant to meet one this afternoon. Can you tell us exactly what you Q63 Jim McGovern: Is it well publicised? The have been doing to co-ordinate the approach by the people from the business community who come to my UK Government and Scottish Government? Can you surgery are possibly unaware of it. give concrete examples of success? Bernadette Kelly: That is an interesting question. Let Bernadette Kelly: In terms of what I have been doing, me come back to that because my second point will I took on this mantle last week. Some of you will have probably pick it up. You are right that there is an issue cobber Pack: U PL: COE1 [O] Processed: [22-02-2012 16:08] Job: 018777 Unit: PG02 Source: /MILES/PKU/INPUT/018777/018777_o002_th_Corrected 26 Jan 2011.xml

Scottish Affairs Committee: Evidence Ev 11

26 January 2011 Colin Borland and Bernadette Kelly about perception as well as reality in terms of what is being done on the ground by Government and the available to SMEs. It is a fund of £2 billion over four banks themselves, but we do not think there are years and we know that already 924 Scottish enough, and we are continuing to try and negotiate businesses have been offered support under it, so it is with the banks to ensure the quantum of available a significant contribution to direct Government lending is what it should be to support growth. support for small businesses. There is an enterprise capital fund of £300 million to which Scottish Q67 Chair: Colin, you have heard all these things business also has access, which is aimed at supporting that are being done for you. How can you possibly equity investment, and I think that sits alongside your complain? own Scottish co-investment fund, which is obviously Colin Borland: Perhaps I can offer constructive focused on Scottish SMEs alone. We are doing some suggestions. One point about the EFG is that perhaps direct things to support SMEs in getting access to not so much that people are not aware of it, but there finance and making that easier for them to do. is an issue about how it is working on the question of The second big strand is working with the banks on personal guarantees. The bank may say, “We’re taking the 17 recommendations of the British Bankers a risk with you and we want you to share that risk.” Association taskforce that are aimed, basically, at Obviously, the counter-argument is that the taxpayer, improving access by small businesses and business in having already prevented the banking system from general to finance from banks and improving the collapsing, is putting up 75% of the risk. So, while it relationship between banks and small businesses. can take the matrimonial home, is it appropriate to Earlier this week, I attended a meeting of all the chief look for other assets to back that up or to de-risk it? executives of the banks where we discussed progress There is a fundamental question about definitions of against that, but there is a major trail of work in hand viability and risk. We are working very hard to make led by the BBA with Government support—for sure our members understand that and how the rules example, a big network of business mentors—to make of the game have changed. sure that small businesses know what is available and There is no doubt that interest rates are still at to signpost small businesses to the lending that banks historically low levels but we still see the cost of make available. Another element of that is the traditional debt finance to businesses increasing. The £1.5 billion business growth fund, which the banks most recent figure I have here is from December 2010. expect to launch in April, so there is a whole range of We asked, “Have you noticed the cost of credit to actions being led by the banks themselves with strong your business go up in the previous two months?” In support and, I might say, a lot of encouragement from Scotland, 23% say yes; UK-wide, 15% say yes, so and oversight by Government in terms of rapid there is a gap there. Why is that? We are not sure. It progress. may be down to the fact that we have an issue with competition in the Scottish banking industry, Q64 Jim McGovern: You brought in statistics and particularly for small business banking. It is difficult said that 924 small businesses have benefited from to get exact figures, but the best estimate is that 75% this. of the market is in the hands of RBS and Lloyds. Bernadette Kelly: In Scotland, yes. There are also questions about how affordable it is for banks to lend when we have rules such as Basel III Q65 Jim McGovern: A lot of the people who come and other questions about bank capitalisation. to my surgery from the business community, or even Obviously, their line would be that that makes it more people I meet in Dundee, say that their businesses expensive and difficult for them to give credit. But we have closed because of the banks. When you say that don’t want our banks to go down the tubes again, so 924 businesses in Scotland have benefited, do you we have to think about that. If they are have any idea how many have closed? undercapitalised, how can we help them rebuild that Bernadette Kelly: I am sorry; I don’t have that figure. balance sheet and not undertake reckless lending? It is for that reason we have been thinking about Q66 Jim McGovern: You have just the positive one. perhaps some other ways we can finance businesses, Bernadette Kelly: I have a positive figure. I am sure particularly in the longer term—for example, looking you are right that there will be other businesses that at an expansion of the equity market in Scotland. At obviously have not benefited. That takes me to my the moment, equity is a sort of Dragons’ Den. It’s a third point: where are we overall on SME lending? nice new high-growth start-up with people coming in. From the Government perspective, what we see It is a high-risk return rate but a venture capitalist or UK-wide is some improvement but not enough. We angel might think this is a viable proposition. Below are concerned, and I think Vince Cable said this in a that, there is the lower risk return rate you get with letter in the last week or so to Alex Salmond. We still bank lending, but there is a gap in there. think there are some viable proposals and businesses The question is: how do you fill that? The market in that do not get access to the finance they need to Scotland is not particularly well developed. One of the survive and grow, and that is what we want to address. questions we have put forward is: would institutional You will all have heard about the Project Merlin investors want to take this up? Would, indeed, small discussions. There is probably not a lot I can say in businesses want to do this because they have given up detail about those, but the Chancellor has made it a stake in the ownership of their business? Given the absolutely clear that an improvement in small business size of the financial services industry in Scotland, lending is a key ask by Government of the banks if surely we can have some expertise to go and examine we are to resolve that entire negotiation. Things are it. Following on from that, if there is a market, are cobber Pack: U PL: COE1 [E] Processed: [22-02-2012 16:08] Job: 018777 Unit: PG02 Source: /MILES/PKU/INPUT/018777/018777_o002_th_Corrected 26 Jan 2011.xml

Ev 12 Scottish Affairs Committee: Evidence

26 January 2011 Colin Borland and Bernadette Kelly there any detailed financial services rules that make it and what they think is a viable proposition. While it less attractive—or more burdensome or risky—to put is difficult or more expensive for them to lend than it in that kind of longer-term funding? Therefore, we used to be, that will continue. have a long way to go with the banks and bank finance. We have made progress. We are not in the Q70 Mike Freer: I have to come out of the closet situation we were in two years ago, but I think we and declare that I am a former banker, so I have to need to start thinking seriously about whether or not declare my sins. I don’t quite share the description of it is the complete answer to questions of business banks not understanding business. Perhaps I may go finance. to some of the issues about lending. I have had the same conversations with former colleagues. When you Q68 Chair: That is helpful, because every time we measure lending, do you measure gross lending, net hear representatives from Government and the banks, new lending or new lending? If you are looking at they assure us that lots of things are being done and declines, is it lending offers declined or lending really there should not be a problem for any viable declined by the borrower because the rates or cross- business to get money. You are saying that there are guarantees requested are too severe? What I am still problems. getting is that banks are putting the money on the table Colin Borland: If you rely on traditional short-term but the conditions are so penal that customers walk bank debt finance for your business, you will find it away. Or, is it straightforward rejections by the bank? more expensive and difficult to get, and it is a less That is a long shopping list. attractive proposition. By coincidence, just before the Colin Borland: You are absolutely right; it is a credit crunch hit, we asked our members in an annual mixture. The most recent figure I have is that about survey how they financed their business, and 58% of 40% say that their finance application was them said that it was a bank loan or overdraft as the unsuccessful. principal source of debt financing. When we asked them that towards the end of 2009 and the beginning Q71 Mike Freer: At application stage? of 2010, the figure had dropped to 38%. You might Colin Borland: Yes, but that does seem a high figure. think that is great because we are moving away from As you say, the issue is not that the money is not there over-reliance on a single source of business finance. but how it is packaged. It is not being granted as a We asked them what they are now running their flexible facility but as a fixed-term secured repayable business with, and it is savings or other assets they loan, which in a lot of cases does not suit people’s have saved up, and personal debit cards in some cases. needs. I believe that a piece of work was done on this All those are viable short-term solutions, but in the by the Scottish Government in the summer of 2009. long term they are completely unsustainable and They looked at what we call the finance gap, which is obviously finite. As the cupboard is bare and those exactly the point about, “How much did you go in and reserves go down and down, the time pressure to get bid for and how much did you actually get?”, because this sorted becomes greater. that’s another question we don’t capture in what we ask our members. “Did you go in looking for 30k and Q69 Chair: Before I bring in some of my colleagues, you were offered 10k?” The other thing is that you perhaps I may follow up one point with you. Some of weren’t offered a loan but you were offered another us met the construction and road haulage industries financial product such as factoring. That is something and people associated with video games. All of them else that has to be explored, which is again why we said that the banks don’t understand them. encourage members to think about every source of Presumably, they feel that the banks, while saying the finance. right words, are putting forward arguments as to why they can’t be helpful and constructive. Is it also the experience of your members that the banks are full of Q72 Mike Freer: Do you have evidence that the fine words, but when it comes to the crunch, there is margins have increased or the preponderance of cross- a feeling that they don’t understand the business many guarantees have gone up, and that therefore business of your members are in and don’t take account of the people are saying they don’t want the money with circumstances of their business? those conditions? Colin Borland: Yes. We held an event last autumn to Colin Borland: I think you are looking towards the try to break down some of these barriers and get an latter, with people saying, “Oh, yes, they offered it to understanding of how the rules of the game had me,” but I could go down Whitehall and sell buckets changed. One of the points that came from the floor of steam at £10 a go, and if I don’t have a queue down repeatedly was that although we are hearing good stuff to Nelson’s Column, it’s not my fault because I am at the top, how is that being translated into action on selling the wrong product at the wrong price. That is the ground? You are absolutely right. It is an issue the issue on which our members come back to us and with which we have to work. If those representatives say, “I would be a mug to accept that.” of financial services and big banks were here today, they would probably say the same and that they accept Q73 Mike Freer: I have one final question, if I may, that. I do not think it is confined to a single bank or to BIS. One of the old tricks of bank lending was to banks in general; it is a problem with a lot of large say that you have lent £100 million when all you have organisations with various layers of management. But done is rolled over the same £100 million, so it is you are absolutely right that there is still a gap not new lending—you have simply refinanced the old between how we would define a viable proposition lending. Is that measured by BIS? cobber Pack: U PL: COE1 [O] Processed: [22-02-2012 16:08] Job: 018777 Unit: PG02 Source: /MILES/PKU/INPUT/018777/018777_o002_th_Corrected 26 Jan 2011.xml

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26 January 2011 Colin Borland and Bernadette Kelly

Bernadette Kelly: Absolutely, yes. We are very Q79 Fiona Bruce: Imagine—and it will take a bit of interested in understanding the difference, as you say, imagination—that I have been employed by a between lending that has been rolled over and genuine company as a brickie but I am now in a position where new lending. If it is just refinancing of old loans, I want to set up in business myself. Therefore, I have clearly that does not contribute to new lending. So we the skills of the trade but I have never been an are certainly very interested. One of the areas that we employer. I don’t understand about employing people, are exploring in some depth with the banks through marketing, writing a business plan and getting finance. the BBA taskforce and other actions is the data and How can you help? information that are available. It is interesting to hear Bernadette Kelly: We have a host of initiatives aimed some of the data that Colin was presenting there. I at supporting small businesses to grow. I think most think a really clear picture of what is happening on of them are not UK-wide. I think that enterprise and the ground and by region is absolutely critical, so, yes, that sort of support is typically a matter that is this is something in which we are very interested. devolved. I can provide details separately of the kinds of support that BIS provides. There is a lot of business Q74 Mike Freer: Surely, the banks have that data mentoring and things of that kind aimed at helping the because they manage their people on it. individuals you are talking about. I do not have details Bernadette Kelly: They have data; indeed. here but I would be very happy to provide them. This is an area where the policies and initiatives are Q75 Chair: Do you have dialogue with the banks on principally devolved to the Scottish Government. behalf of your organisation? Does the FSB sit down with banks? Colin Borland: Yes. Q80 Fiona Bruce: Colin, perhaps I should declare an interest. I have run a small business for 20 years. Q76 Chair: Presumably, the things you are saying to While I understand that finance from banks is us now you must have said to them. What kind of important, I think the No. 1 factor in the success of a response do you get? small business is the sheer hard work and commitment Colin Borland: To be fair, they are good at telling us of those who build them up and their families who are what they are doing. We get global figures, but it is behind them, and I respect that. What do you see as how that breaks down and how much of it is new the barriers to success for small business people in lending and how much are a few single big deals. Scotland at the present time, excluding the banking What is the average size of a deal that is done? To be issue of which we are all aware? fair to them, they are open about the criteria on which Colin Borland: Perhaps we can park finance to one they judge finance applications. I come back to the side. There are a number of issues. As Bernadette point that I think our disagreement with them would said, a lot of this strays into devolved territory about be about what constitutes a viable and sound what is and is not the responsibility of Business investment. Gateway and is and is not the responsibility of Scottish Enterprise, and what local authority Q77 Fiona Bruce: Welcome and thank you both for economic development departments do and do not coming. Bernadette, I think you are in quite a choose to develop. If you are talking about start-up privileged position because you have an overview of support or deciding to establish it, we have that fairly a number of sectors. I am very interested to know, if comprehensively Scotland-wide. It is delivered I were thinking of setting up in business in Scotland through Business Gateway and a series of contractors today, which particular sectors have the potential for under the overall oversight of local authorities. If you growth. get three years down the road and you want to move Bernadette Kelly: We have an overview, I agree, in and you think you can take on staff, or perhaps you BIS. We also try not to say or direct where growth want to diversify or go into a different sector, that then should come from. It is probably interesting to think becomes difficult because there is really nothing in the about some of the sectors that we have highlighted in the first stage of the growth review. That probably enterprise network, by which I mean Business gives you an indication of the sectors that we think Gateway and Scottish Enterprise. You may have it in are potentially most significant in terms of the a local authority but that is a separate issue. There is contribution to growth. I wouldn’t say these are nothing there to give you that kind of ongoing exclusively the growth sectors in which you would be business development support, unless you hit an interested, but the six sectors we are looking at arbitrary growth criterion, which is projected growth currently are: construction; advanced manufacturing; in turnover of £400,000 over the next three years. professional and business services; healthcare; digital After some lobbying from us and others, there is to creative economies; and there is a sixth. I have just be a sub-growth pipeline of £200,000 introduced forgotten what it is. It is not renewables. I will come because of a lack of high-growth companies—that is back to the sixth one in a second. There are six sectors the economic reality in which we are working. One and I think those give an indication of where we see thing we have put forward is that, when the Business some of the critical areas in terms of growth. Gateway contracts are renegotiated in 2012, they have to look a little more at how we support those Q78 Fiona Bruce: That is very helpful. businesses that are established and looking to take a Bernadette Kelly: Sorry. I should have said retail. step to the next level. cobber Pack: U PL: COE1 [E] Processed: [22-02-2012 16:08] Job: 018777 Unit: PG02 Source: /MILES/PKU/INPUT/018777/018777_o002_th_Corrected 26 Jan 2011.xml

Ev 14 Scottish Affairs Committee: Evidence

26 January 2011 Colin Borland and Bernadette Kelly

Q81 Fiona Bruce: That is very helpful. To move that is already there. It needs to be safeguarded to give from micro to SME status is a jump for which assurances that it will remain and then to be better packaged support would be helpful. linked. Colin Borland: I think so. One of the points we made in our written submission, which is interesting Q84 Fiona Bruce: It needs to be accessible, because because it crosses both the devolved and the reserved when you are running a small business, your head is boundary, is that there are about 200,000 down making that business work, and so you need to self-employed people in Scotland. A lot of them will be able to pull it down quickly. be in professions—they could be a self-employed taxi Colin Borland: When we ask members what they driver or whatever. It is not likely they would take on think of the training landscape, they are confused; a member of staff, but judging just by our membership they don’t know where to go. One of the things we profile, it appears that over half of them would. When have said is that it should be a “no wrong door” we asked our self-employed members whether they approach. I know that is a horrible cliché, but it’s true. had ever thought of taking on an employee, 48% said Wherever I go to get this kind of information, whether yes. I am not for a minute optimistic enough to think it is my local college or Jobcentre, they should be able that might be replicated across the economy, but even to point me in the right direction. if just one quarter of those 200,000 took on one person, think of the extra jobs we could create. Q85 Fiona Bruce: That is absolutely right. May I put Support to help people through that process should be one further question about regulation? In a sense, available through Business Gateway, but we could Colin, you now have the chance because Bernadette also be doing things on a UK-wide basis as well, has said she is looking at deregulation. I know that whether it is through extending the national insurance regulation for small businesses is a complete holiday to all new jobs or looking again at some of nightmare at times. The fear of non-compliance—the the questions on employment law. Wonderful help is unknown unknowns—is a major concern and worry. available from HMRC, which does a great seminar on What regulations would you and your members like becoming an employer and what you need to know. to see attacked? It’s fantastic. Jobcentre Plus also does wonderful work Colin Borland: The easy one that would help a lot of in terms of giving you interview facilities. It will our members grow would be to raise the VAT advertise a job for you for nothing, give you interview threshold above £70,000 to about £90,000. A survey facilities and sift through CVs. There is all that sort of our members said that would help. We also have to of stuff, and it is making sure that stays and is applaud some good practice because you are right that integrated even closer. There are links already, but it our members don’t want to break the law and don’t should be integrated even closer into the offer to the want to become criminals, but they are terrified about employer. it. Therefore, it is how you enable and help the guys who are actually the good guys—not the criminals— Q82 Fiona Bruce: That is an excellent point that I with a light touch to stay within the four corners of hope we will take away from this. I would like to ask the legislation, while at the same time coming down a particular question regarding employment. I know like a ton of bricks on the guys who are at it. They certainly in my constituency, which is semi-rural, one are not in our interests, because those people are of the problems is attracting the right skills. There are undercutting us and all the rest of it. In Scotland, the businesses that would like to expand but cannot attract same kind of model has been adopted by SEPA—the the right skills for their business. Is that a particular Scottish Environmental Protection Agency—and, problem that you and your members have? again, we see some quite good work there. Colin Borland: It is an irony that, outside London, The final point I would make, which applies across Scotland is one of the highest qualified regions of the legislatures, is that we can talk about regulations and UK, but we still have a significant number of people how they work in practice, but we need to go back without basic literacy skills and members still report and have a look at how we design our primary the fact that they cannot get the right people for the legislation. Pieces of primary legislation have job. We have put forward a number of things about enabling clauses to let Ministers do things by order to making it easier to undertake workplace training— devolve power out to local authorities. I don’t know more bite-size courses and these kinds of things. how many local authorities there are across the UK, Again, this is devolved, but we are looking again at but in Scotland there are 32. We can have, for how the modern apprenticeship system works and example, 32 different licensing regimes and 32 why it is that so few modern apprenticeships are different forms to fill in. undertaken in small businesses when so many small business people want to take on a modern apprentice. Q86 Fiona Bruce: There is duplication. Yes, that is a significant issue, but again most of the Colin Borland: Yes. To cure that, we start at source, issues or the policy solution probably lie either with and that starts with good, robust primary legislation. local authorities or the Scottish Parliament. Fiona Bruce: Thank you very much indeed.

Q83 Fiona Bruce: But, in a sense, better co-working Q87 Chair: Perhaps I may follow up a couple of across the piece would still be beneficial? points on which I was not entirely clear. You seem to Colin Borland: Absolutely. There are all kinds of be saying there is nobody with the responsibility to things we could drag in if we are offering that kind of provide information to somebody who is self- support to make it better. In a lot of cases, it is stuff employed about taking on an employee. I have always cobber Pack: U PL: COE1 [O] Processed: [22-02-2012 16:08] Job: 018777 Unit: PG02 Source: /MILES/PKU/INPUT/018777/018777_o002_th_Corrected 26 Jan 2011.xml

Scottish Affairs Committee: Evidence Ev 15

26 January 2011 Colin Borland and Bernadette Kelly had the impression that there were agencies on almost responsibility for providing this single door to help every street corner tripping over each other to help somebody who is self-employed to employ somebody folk in business, but you say nobody is tasked with is a devolved responsibility, which I could understand helping people to employ somebody. and we would take that up with them? Is it your Colin Borland: If we are trying to get more people to responsibility or theirs? take on their first member of staff and make that step, Bernadette Kelly: Employment law is BIS there isn’t a uniform, identifiable service we can responsibility and it is UK-wide; it is not devolved. market and to which we can drive people to raise So I can talk about that. awareness of it. Equally, there may be private companies out there that are willing to do that and Q93 Chair: No; the provision of the information. take you through it, and that is absolutely great, but Bernadette Kelly: As I say, there are different areas. we think it is so fundamental to the economic To the extent that it relates to people’s employment challenges we are facing that if anything is going to and tax status, these are UK-wide matters, so they are be in the Business Gateway contract post-2012, it not devolved. To the extent that there is a Department should be something like that. in Whitehall that worries about whether business in general is getting access to the information it needs in Q88 Chair: I understand. Is that the fault of BIS? a form it can use, yes, I agree with you that that is a Bernadette Kelly: There are a number of issues BIS responsibility. involved in taking on people. Some of them are tax- related issues on which HMRC will have a key role. Q94 Chair: And you are not doing it? This is something for which we have at least some Bernadette Kelly: No, I do not think that is true, but responsibility. I would say that ACAS— I am sure we could do it better. Q89 Chair: What is the point of having some Q95 Chair: You are not doing it at all. What do you responsibility? If the issue is that there is nobody there mean that you could do it better? We have just heard to help people move from being self-employed to that that service is not being provided. There is not taking somebody else on, there is not much point in much doubt that it’s not being provided, so of course you telling us you have some responsibility for it. If you are saying that he wants a single door or a single you could do it better. person, or to know where to go, or a single scheme, Bernadette Kelly: Parts of this service delivery are you saying, “Well, I do a bit of it,” does not take us devolved. For example, in the UK, we are in the much further. process at the moment— Bernadette Kelly: It is a fair challenge about whether businesses have access to a coherent and complete set Q96 Chair: So it’s the lack of co-ordination that’s of advice. the problem? Bernadette Kelly: There is a regional support issue. Q90 Chair: What do you mean when you say it is a For example, in the English regions, we are moving fair challenge? He has just said that it is not there, so from a system whereby the RDAs are the principal it is not a fair challenge; it is a fact. delivery agents for a lot of business support in regions Bernadette Kelly: The question you asked me is to a system where we expect local enterprise whether this is something for which BIS is partnerships, which are local authority and business responsible. I am trying to explain, I guess, the partnerships, to provide that support in their place. I elements of this for which BIS is responsible. understand that in Scotland you have a different set of arrangements. Q91 Chair: No, no. I was asking you whether or not BIS had responsibility for providing this one door. Q97 Chair: If Colin or one of his members wants a You are telling me that BIS is responsible for some of single wee man or wee woman to be able to help him the elements of that, so effectively you are saying employ somebody and that service does not exist at there is no single door and you have gone along with present, I think a reasonable summation is that part of that for quite some time and not done anything about it is your fault. it. Perhaps I can clarify the point about basic literacy and Bernadette Kelly: There are a number of areas in numeracy being absent from substantial numbers of which BIS provides support to business; it has done the people you might wish to employ. How big a for many years through Business Links, for example. problem is that in Scotland for your members? Obviously, this is again part of the devolved area of Colin Borland: It is a significant problem, and not activity. There are a number of areas where BIS has just for those who are perhaps employing school led in seeking to provide more co-ordinated single leavers. There are poor literacy and written points of contact for business so that if somebody is communication skills. We have members who report trying to set up or grow their business they can go to that people who leave further and higher education one place and get an answer. So, yes, clearly we do. cannot write a report to the required standard. At the lower end, for schools leavers with fundamental Q92 Chair: I can spot waffle when I hear it. To tell literacy problems, it can be a problem. For example, us that BIS has led the way in trying to get a single somebody who is a cleaner needs to know how to read point of contact indicates that, basically, you have not instructions on cleaning fluids to know what done it. Is it devolved? Would you say that proportions to mix up so that they don’t endanger cobber Pack: U PL: COE1 [E] Processed: [22-02-2012 16:08] Job: 018777 Unit: PG02 Source: /MILES/PKU/INPUT/018777/018777_o002_th_Corrected 26 Jan 2011.xml

Ev 16 Scottish Affairs Committee: Evidence

26 January 2011 Colin Borland and Bernadette Kelly themselves and others. There are very few jobs now the year, we asked people how their business would for which those basic skills are not a prerequisite. fare and what they thought about it. Since about March 2010, the numbers looking to recruit have Q98 Chair: Fortunately, this is not a reserved halved and those looking to downsize their work force responsibility. Have you communicated these have trebled. Our members are not usually difficulties to the Scottish Government? pessimistic. They say they are determined to use every Colin Borland: Yes. trick in the book to keep going and will not give up lightly, because if they go it is not just the job that Q99 Chair: What response have you received? Have they lose; it could be their homes or employment for they been recognised? two or three members of the family. The fact they are Colin Borland: One thing that has changed recently saying that to us is a cause for concern. We have to is the curriculum for excellence that has just come start thinking seriously about questions of day-to-day in. It aims to hard wire basic literacy and numeracy cost pressures, as well as some of the more structural throughout the curriculum, so you are not learning questions on which we have touched this afternoon. spelling just in the English class but in the history class and science lab, etc. You will be picked up on Q101 Fiona O'Donnell: Bernadette, you spoke about poor spelling and grammar across the curriculum. It the construction industry sector as being one of the is not being sectionalised. We have welcomed that as potential areas of growth in Scotland. Most recent a positive step forward. However, it must be figures show 17% growth. We start from a very low acknowledged that it has been live since the summer base, so it is easier to achieve 17%. I have to say that of 2010, so we will have to wait a while to see in my constituency is the only cement plant in improvements coming out the other end. Other Scotland. When speaking to local businesses and surveys done by academics report that levels are construction workers who are out of work, it does not improving steadily. However, when we ask our feel to me as if there is 17% growth in that sector, but members for anecdotal experiences, they don’t seem who am I to question these figures? What is BIS doing to shift much. Therefore, however you look at it, there in particular to support the construction sector in is a way to go. Scotland? On the particular question of VAT, are any measures being considered to help businesses with Q100 Fiona O'Donnell: Welcome, Bernadette and increasing VAT bills? Colin. We have had disappointing figures for Bernadette Kelly: First, VAT is not a BIS economic growth across the UK and we are holding responsibility. That said, obviously when we hear our breath for the Scottish figures, which will these concerns from whatever sector of industry, we probably be even worse. I do not think anyone will see it as part of our role to seek to influence the say that is because we had even more snow in Treasury in the decisions they reach on all those Scotland. I am absolutely astounded that we have got things. These are things we will be doing very actively to quarter past three and no one has talked about the in the run-up to the Budget. Perhaps I may give a economic world in which businesses in Scotland are slightly more general answer and then deal also with trying to survive. Colin, you spoke about barriers to one or two issues to do with construction. As to what growth. What I pick up in my constituency is that the else BIS is doing generally to improve the prospects increases in fuel prices and VAT are the biggest and conditions for business, there is a whole host of barriers to growth. The last business to write to tell work. I know you have seen UKTI, but we see the me it was closing its door cited those two reasons. I role of trade and exporting as absolutely critical to would like Bernadette to talk about the construction economic recovery, and that applies equally to industry in particular, but what are you hearing from Scotland, where no doubt there are many businesses your members about the challenges they face in this with the potential to export and to grow through economic climate other than regulation and such like? exporting. We will be setting out a range of actions in Colin Borland: You are absolutely right, and I a trade White Paper in the next few weeks. apologise for that glaring omission in my earlier example. I mentioned rising overheads, which are a Q102 Fiona O'Donnell: Perhaps we can focus on the significant problem, particularly when cash flow is construction industry because, obviously, export is not tight. We spoke earlier about reserves being depleted so much part of that. but cash is difficult because we have clients and Bernadette Kelly: I agree it is not so much for customers paying us later for work we have done. You construction, but I hope many other sectors will think are absolutely right that that is a significant barrier. that is important. As to the construction industry, I am There are solutions to be found in this Parliament to not myself an expert on it. I agree it is an important do with those issues. sector. Because we have identified construction as one As to how the economy looks in general, earlier this of the key sectors for the growth review, on 23 March year we published our latest quarterly survey of the Budget will set out practical steps which we think business confidence, and there are some fairly need to be taken to support growth in the construction worrying figures in that as they relate to Scotland. It industry. I am not able to tell you what they are is a business confidence index. You subtract the because a whole range of things is being looked at. number of people who are pessimistic about the One area we are looking at in parallel, but which I months ahead from those who are optimistic about it. know is particularly relevant to the construction The Scottish index is about minus 31, which is the industry, is planning, where there are some issues third worst in the UK if you look at it that way. Over about the extent to which there is confidence and cobber Pack: U PL: COE1 [O] Processed: [22-02-2012 16:08] Job: 018777 Unit: PG02 Source: /MILES/PKU/INPUT/018777/018777_o002_th_Corrected 26 Jan 2011.xml

Scottish Affairs Committee: Evidence Ev 17

26 January 2011 Colin Borland and Bernadette Kelly certainty about development being properly supported Colin Borland: The Business Gateway contracts in through the planning system. There is a whole host of Scotland are going to be renegotiated anyway; the other areas. There will be a set of actions set out in new ones come into force in 2012. We need to make the Budget. I am sorry I can’t tell you what they are sure of two things: first, that whatever we tell them to now because they are under development. Some of do, they are sufficiently flexible to adapt to a change the more generic issues you raise on things like in the economic climate, because one of the problems regulation will be very critical. I know there are was that we had these contracts with fixed objectives particular issues on regulation about which the and they were too rigid to change when the economic construction industry is very concerned and which we crisis hit. Secondly, we have to put at the heart of the are specifically trying to pick up in that work. contracts things such as ongoing business development support, business diversification and Q103 Chair: Colin, we intend to ask a number of three-year-plus kinds of services that businesses look questions of the CBI and others when they come for. before us about energy supply, broadband and The counter-argument to that is that that’s not communications. I presume that there is not much economically sensible; it might feel very good, but it difference between your position and theirs on these is not really of any great economic value. The kinds of issues. question I’ve put about that is: what is of great Colin Borland: In terms of infrastructure you are economic value? Is it taking 20 people off the street right. The only point I make about broadband, which and saying, “Congratulations. You’re a start up,” or looking at somebody who has been in the game for is an interesting one, is that we need to be careful not 25 years, who perhaps employs 100 people and thinks to get too hung up on the infrastructure itself and look that the economic situation or change in the market in at what is called take-up. It is like new world access. which he is operating makes it difficult and he needs We know that in Glasgow we can get any one of I some advice about where he is to go? He needs some don’t know how many broadband providers to provide advice and think about where he wants to go. He us with high-speed broadband. We also know that wants to talk to somebody impartial, who is not trying only 39% of households take that up, compared with to sell him something or somebody who is trying to something like 60% or 70% elsewhere in the UK. It push him down a road that maybe he does not want is a question that goes beyond simply looking at to go down. Those are the kinds of people we need to cables, fibres and that kind of provision. It is a matter think about. If we look at the economic value of of studying why it is we have communities in keeping the latter versus the former in business, I Scotland that are, as Ofcom often describes them, would argue that the case falls on our side. digitally outside the tent. Q106 Chair: Ms Kelly, that seems to be quite Q104 Chair: We don’t yet have the power to force sensible, does it not? people to take broadband into their houses. We are Bernadette Kelly: Yes. concerned, in a sense, about the provision. I want to clarify that a whole number of these areas will be Q107 Chair: Will the Government accept that? covered by the CBI, and we will speak to them in due Bernadette Kelly: In the case of broadband? course. To come back to small businesses specifically, we wanted to clarify the support services. To some Q108 Chair: No; all the points made just now. extent what initiated this inquiry was an attempt to Bernadette Kelly: We will consider those points. Of identify whether or not they were working together. course we will listen very carefully to any sensible How many of your members do you think regularly— points. or indeed at all—use the business support services that are available and funded by the UK Government, the Q109 Chair: That’s a no then, is it? Scottish Government or local authorities? We get the Bernadette Kelly: No, it’s not a no. impression that they are on every street corner. Are they providing a service to small businesses and the Q110 Chair: Whenever somebody says he will self-employed such as your members? consider these points, it is usually a prelude to saying Colin Borland: One of the success stories about no; it is a polite way of saying no. business support services in Scotland is the Business Bernadette Kelly: Not at all. We consider points. I Gateway brand, which has a recognition rate among cannot give you an answer sitting here to issues that our members of about 93%. They are aware of it; they the responsible Ministers might not have had an know it is there. They use the website. They find a lot opportunity to consider. It’s not a no—of course it’s of it through Business Link, but they use that website. not—but I can only tell you what I have authority I suppose the problem arises when people talk to a to do. business support service and, because of the way contracts are drawn up and the economic policy being Q111 Chair: Is it fair to say there is less than total pursued, they don’t slot into any particular box and enthusiasm, then? therefore can’t get the sort of help and support they Bernadette Kelly: I didn’t say that. are looking for. Q112 Chair: No, you didn’t. You didn’t need to. Q105 Chair: That is helpful. What is the answer to Perhaps I can clarify with Colin to what extent there that, then? is duplication and a waste of money between the cobber Pack: U PL: COE1 [E] Processed: [22-02-2012 16:08] Job: 018777 Unit: PG02 Source: /MILES/PKU/INPUT/018777/018777_o002_th_Corrected 26 Jan 2011.xml

Ev 18 Scottish Affairs Committee: Evidence

26 January 2011 Colin Borland and Bernadette Kelly services being funded by BIS, the Scottish said earlier that 58% of businesses had said they Government and local authorities—by everybody else depended on the banks for start-ups, etc., and that had and their granny who has an involvement in this reduced to 38%. One interpretation of that could be general area. Do your members feel that it is that that is good because businesses are less dependent adequately focused? on banks now. I think you would agree that another Colin Borland: In terms of the way the services you interpretation is that businesses can no longer depend are talking about are funded through Business Link on banks. and the RDAs south of the border—although, Colin Borland: I think that is right. For whatever obviously, that is subject to change—where they stop reason, 20% of them no longer see the bank as a place and those provided by Business Gateway start is they want to go as the first port of call for finance. pretty clear. If you are in Scotland, this is who provides it and it is the responsibility of Scottish Q116 Jim McGovern: Given that they are almost Ministers, ultimately devolved down through local totally publicly owned now, do you think the authorities. There may be a question and we are Government are doing enough to encourage the banks probably not best placed to answer it. My colleagues to lend to businesses? at SCDI, who know a lot more about the international Colin Borland: I have always been very keen for the scene than we do, may be better placed to answer Government to get as big a bang for a buck as they questions on other things like SDI and smart export possibly can because as taxpayers we have been and whether or not there is any overlap there. incredibly generous. I think it is about time we had a The third area would be about what local economic little reciprocation; not a return to the bad old days development departments and local authorities are when people were buying products they didn’t doing versus core services provided by Business understand from people they couldn’t trust and getting Gateway and whether or not there are any questions themselves into all sorts of difficulties, but a little of overlap there. There should not be. However, understanding of what, in today’s climate, viability anecdotally I am aware of some projects where we get means. European money. When you look at the project you think it looks suspiciously like what Business Q117 Jim McGovern: Bernadette, you referred Gateway should be doing—how is this different? earlier to deregulation and at that time you were There may be a particular question about start-ups, for speaking specifically about the construction industry. example. That may be an area that we need to look My background is that I worked for a lot of years in at. It is a point that we have made repeatedly and we the construction industry, and unfortunately I had will continue to do so. more than one visit to the accident and emergency department of the local hospital due to injuries Q113 Chair: We are taking the view, not sustained in accidents working in the building unreasonably, that you are the users of these services. industry. When you speak about deregulation, I If it seems to you that people are tripping over each always get a bit scared that you are talking about the other, obviously that would be a cause for some Government thinking of a slackening of, or more concern. Having been involved in local government, I flexibility in, health and safety regulation. I hope I’m understand empire building among agencies. We are not picking you up incorrectly. just trying to clarify with you the extent to which you Bernadette Kelly: Could I make two points? Can I think that this is a missed opportunity and agencies just pick up your concern about something being filed are building their own empires at the expense of co- under “bin”? Perhaps part of the reason I am not ordinated working. providing as positive responses as you would like on Colin Borland: To be frank with you, my concern is this question of the configuration of support for that probably this will not be a problem for much Scottish businesses is that quite a lot of those longer because local economic development services responsibilities rest with Scottish agencies. Therefore, are not a statutory service. As funding cuts hit local even if BIS had a great view of how that should be government, councils will face very tough decisions. done, I rather suspect that the Scottish Government It will be a lot more palatable to make severe cuts and Scottish partners would have their own views on there than possibly elsewhere, so that is my concern that. Therefore, in part it is a reflection of how the in the long term, frankly. devolution settlement works in practice on the ground, so please don’t misunderstand me. Where we do have Q114 Chair: Abolishing the service reduces a responsibility, I am genuinely interested to hear from duplication. I can understand that, but that is not Colin and others where the problems are and what we necessarily what we were looking for. can do about them. Colin Borland: Yes. On your wider question about deregulation, the Government have been clear in setting out that they Q115 Jim McGovern: Bernadette, I have to say I want to be quite ambitious in reducing regulation and agree with the Chair. When somebody says he or she unnecessary regulatory burdens. We have a powerful is listening to the point being made or, in my range of institutional mechanisms designed to try to experience, an employer says, “We’ll monitor that and achieve more challenge right across Government get back to you,” or, “I take on board what you’ve where regulation is being proposed that will have a said,” usually it means it will be filed under “bin” and significant impact on business. That was a core part ignored. However, I put two quick questions—one for of the coalition agreement. Therefore, there is genuine Colin and one for you, Bernadette. Colin, I think you enthusiasm, energy and desire to grip those issues, cobber Pack: U PL: COE1 [O] Processed: [22-02-2012 16:08] Job: 018777 Unit: PG02 Source: /MILES/PKU/INPUT/018777/018777_o002_th_Corrected 26 Jan 2011.xml

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26 January 2011 Colin Borland and Bernadette Kelly which, as we hear time and time again from Colin and Q119 Chair: Perhaps I could raise a further point others in the business community, are one of the major with you, Colin, while you are here, because we are things that stop them from growing. looking in parallel at the question of the Scotland Bill. You are quite right that the reason we have regulation Are your members wildly enthusiastic or less than of any description on business is that there are many enthusiastic, or could they not care one way or another good reasons why it is needed to ensure decent about the Scotland Bill? Are there any particular standards of health and safety and employment, and issues that you wish to draw our attention? environmental standards. It is never simple, and I Colin Borland: By the nature of our membership and think it is one of the issues in government that we find organisation, we focus very closely on the practical genuinely most difficult. On the one hand, yes, we implications. I am not an economist. We do not want to be deregulatory and to look for opportunities pretend to be economists or constitutional experts, and to ease the burden on business. On the other hand, we will leave that debate to those far more qualified there will be the kinds of concerns you raise about than us. Obviously, the most likely impact on our standards and protections in key areas being eroded members who are employers is the introduction of the too far. So it is about getting a balance. This Scottish income tax. We sit on the ministerial pilot Government want to see the balance moved in the implementation group. We also have representation on general direction of where there is much more grit a technical tax sub-group that is looking at a number in the Government machine when regulation comes of very specific issues. We have made clear that the forward to test whether it is really necessary, impact on members must be as minimal as possible. appropriate and proportionate, and whether everything We are pushing for, and I understand this is broadly has been done that reasonably can be done to ensure accepted by the Government, a separate Scottish tax we do not just impose lots of new requirements on code, for example, which is determined by HMRC. businesses that simply add costs. We then do not have the risk of working out who is a Scottish taxpayer or not; they tell us who is a Scottish Q118 Jim McGovern: To me, what you have just taxpayer. When we come to do a payroll, we simply said suggests that any new regulation will be looked put in that tax code, as you would with anyone else at to see if it is necessary, but deregulation suggests who has an “S” on it or whatever, and the payroll to me that regulation that already exists might be software does the calculations automatically. We are scrapped. doing some work on that. We think that will cover the Bernadette Kelly: It is a combination of looking at vast majority of our members. There might still be new regulation coming forward and testing that in some who do it with Excel and by hand for whom terms of whether the impact has been assessed, that that might present a problem. However, in that sense, alternatives have been considered and that it is provided HMRC makes sure it is included in the proportionate, but I agree with you that it is also software updates, gives us the Scottish tax codes, does looking at the huge stock of regulation that sits on all the calculations for us and also makes sure we are the books and at opportunities where there might be making a single payment, the impact on our members possibilities to lift things. In my direct areas of should be kept to a minimum. responsibility, which include things like company law Chair: Thank you very much for coming along to see and employment, we are looking to see whether there us. I am sorry we have run slightly over. If there is are requirements that might have been put there for a anything else you think of that you wish we had asked very good reason but which now, given the you and you had an answer all ready, maybe you accumulation of requirements over a period of years, would drop us a note and let us know. provide an opportunity for review to think about whether we can lift some of it. But it is a very difficult balance in Government policy-making.

Examination of Witnesses

Witnesses: Iain McMillan, Director, CBI Scotland, Lauren McNicol, Policy Executive, CBI Scotland, Janette Harkess, Director of Policy and Research, Scottish Council for Development and Industry (SCDI), and Alf Young, Special Economic Counsel to the SCDI Board, Scottish Council for Development and Industry, gave evidence.

Q120 Chair: I welcome you to our hearing. Thank will come to our questions. Maybe I can ask Iain and you very much for coming along. As you are probably his team first. aware, we are interested in what can be done to help Iain McMillan: Thank you very much for inviting us the Scottish economy. You will have heard earlier on to visit the Committee. We regard this Committee as some of the strands we want to follow up. Perhaps you a very important instrument indeed in the democratic could first introduce yourselves. In particular, perhaps process. I am Director of CBI Scotland. With me is SCDI, would you tell us what you are for, in the sense Lauren McNicol, our policy officer in Scotland. The of what you bring to the party? We are aware of the CBI’s principal business is business advocacy. We are CBI as being the big brother of the Federation of there to represent the views of our members, of whom Small Businesses. Perhaps you would clarify what there are many of all sizes and from all sectors. Many you think we ought to take into account and then we trade associations throughout the United Kingdom are cobber Pack: U PL: COE1 [E] Processed: [22-02-2012 16:08] Job: 018777 Unit: PG02 Source: /MILES/PKU/INPUT/018777/018777_o002_th_Corrected 26 Jan 2011.xml

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26 January 2011 Iain McMillan, Lauren McNicol, Janette Harkess and Alf Young also members of the CBI. While we never claim to is quite good. That may not be typical, but these are represent the views of every business in Scotland and the messages we are getting. other parts of the UK, we believe we are pretty representative of business as a whole. Q123 Chair: My general experience is that business In 2011, there are many well-resourced pressure is not slow to complain if it is unhappy about groups out to influence the democratic process and something, so the fact that nobody is complaining to the views of Ministers, Members of both Houses of you about this is an indication that certainly for bigger Parliament, Members of the Scottish Parliament and firms things are working well. Is that also your others. Therefore, it is very important that business experience? also has a voice and principally that is what we exist Janette Harkess: While we hear some very positive to do. We work closely with other business things about collaboration between the Governments organisations and representative bodies such as SCDI. of Westminster and Holyrood, there are areas where I have never heard us described as the big brother of we believe that could develop further, particularly in the Federation of Small Businesses, but if that is the terms of allowing the Scottish business base to case we are a very kindly big brother. internationalise more effectively, and the role of SDI working with UKTI. We work very effectively with Q121 Chair: They were on first. both. SCDI has been taking cross-sector SMEs on Janette Harkess: SCDI—the Scottish Council for international trade missions for 50 years. We do so Development and Industry—was formed in 1931 by with funding from UKTI and work in partnership with the then Secretary of State at a time when Scotland SDI. Out in the field, however, some of the feedback had 25% unemployment. We are an independent we get is that there could be closer co-operation in membership network. Our aim is to strengthen terms of an understanding of the role of each Scotland’s competitiveness by influencing individual organisation in supporting businesses to Government policies to encourage sustainable internationalise. economic prosperity. We have a very wide membership, including large and small businesses, Q124 Chair: What is stopping the greater co- trade unions, local authorities, educational operation that you mentioned was important? Is it just institutions—for example, colleges and universities— empire building between rivals, or are there structural issues? third sector, voluntary sector and faith groups. I Janette Harkess: It is about having a commercial believe the SCDI could be regarded as a gathering export-oriented mindset. For example, businesses of civic Scotland. You will imagine that within that looking for market intelligence would be directed to grouping it is often difficult to get consensus, but the OMIS studies which are very expensive for SMEs when you do it is a very powerful voice to take to to access. It would be useful to have more Government. collaboration and easier access to that kind of information. Q122 Chair: The question that originated this investigation is how the Westminster arm of business Q125 Chair: I am not clear. Why is that not there? development works with the Scottish one and whether What is the barrier? What’s stopping that happening? or not there is duplication and they manage to provide Janette Harkess: Cost is one issue, but also it is just a service to business. I start with the CBI. Do you about engendering a more collaborative approach. think that the agencies involved, funded from different directions, are working as well together as they might, Q126 Chair: How is a more collaborative approach and, if not, what can be done? engendered? We keep hearing warm noises from Iain McMillan: Our principal interest is more about Westminster and Scottish Government Departments the performance of the macro-economy and how the and local authorities about how everybody wants to UK Government manage it. We are in a very difficult work together. Why is it not working? economic situation at the moment. We have come Janette Harkess: It is about taking that export- through a very significant recession. The public oriented mindset beyond the enterprise agencies and finances are not in good shape. While there will be into all arms of government. That would be very views about the length of time over which the public helpful. finances should be put in better shape, it is fair to say that both the previous Government and the present Q127 Chair: The BIS devolution champion we saw one regard that as a priority. Getting the public is presumably the person who should be taking that, finances right in future is also our greatest priority. As if it is accepted as a key issue, into the other arms of far as the instruments underneath are concerned, our government. Has that not been working up to now? members do not tell us that there are any significant Janette Harkess: It works and some feedback is very problems. They do not make representation to us at positive, but it could be developed further. all that, for example, the Department for Business, Innovation and Skills lets them down. We have heard Q128 Dr Whiteford: I would like to come back to a no complaints about that. What we do hear, and it question that Fiona asked the previous panel about might not be typical, is that there is a reasonably good the impact of VAT and increases in fuel duty on your relationship between, for example, Jobcentre Plus and respective memberships. Obviously, in Scotland, the not the equivalent department, but the one in Scotland fuel duty has a very disproportionate impact, but are with which they work most closely. That relationship there other factors that would be issues of concern to cobber Pack: U PL: COE1 [O] Processed: [22-02-2012 16:08] Job: 018777 Unit: PG02 Source: /MILES/PKU/INPUT/018777/018777_o002_th_Corrected 26 Jan 2011.xml

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26 January 2011 Iain McMillan, Lauren McNicol, Janette Harkess and Alf Young your memberships, given yesterday’s very that would be, I think it will be very difficult to disappointing growth figures? achieve. Alf Young: Dr Whiteford, of course we have a With regard to fuel duty and VAT, there is a tension. problem in Scotland because we don’t know what is To recover the public finances and get the structural happening beyond the end of October. We know the deficit back down to where it needs to be requires third quarter picture in Scotland; we won’t know the fiscal consolidation and, therefore, some taxes must fourth quarter picture for some time, so we have to go up. If VAT and fuel duty are not put up, other assume what it will be. We have some reasonably taxes would have to go up instead, which might affect clear indicators from most of the more up-to-date competitiveness even more, depending on what they surveys of opinion. The FSB talked about its survey; are. Certainly, the issue of fuel duty that comes on top there has also been a PMI recently; there is the of natural rises in the price of the product is not Scottish Chambers of Commerce Survey. Various helpful. The fuel duty is based on the value of the indicators all suggest that activity was slowing quite petrol or diesel being sold, as is the VAT. Therefore, significantly in that final quarter. Scotland was the higher the price goes, the yield exceeds the growing in the third quarter at 0.5% against 0.7% in expected yield from a lower price level, and perhaps the UK. We now know that the UK contracted by the Government can do something about that. 0.5% in that final quarter so, on that argument, you might say that Scotland would be at least minus 0.5%, Q129 Dr Whiteford: On a different subject but possibly rather worse than that. It is something altogether, a number of business leaders in Scotland that we cannot say with any certainty. have called for a reduction in corporation tax as a One thing that makes it more complicated to means of promoting business growth. I put the understand this time, compared with previous question to both of you: do you believe that lowering downturns, perhaps, is that some of the labour market corporation tax in Scotland would be beneficial to data is rather more encouraging but in a complex way. your members? More people are taking part-time employment. We Iain McMillan: Let me deal first with UK corporation know that there is a lot of strain at the youth end of tax, which is to be reduced from 28% to 25% over the employment. There is some confusing evidence in the next four years. Certainly at the UK level, the labour market data, to put it no stronger than that, but reduction in rate will put UK corporation tax more the evidence seems to be that a weakening economy towards the competitive position it was in a few years will now move into the first part of the current year ago. To come to the question of Scottish corporation against the backdrop of continued pressures not just tax, am I right in thinking, Dr Whiteford, that the on fuel but all sorts of raw material costs. Scotland question is whether that should be devolved so that a has a big agricultural sector and there are cereal and lower corporation tax could be enacted by the feedstock price increases. The whisky industry Scottish Parliament? depends on grain and there are further pressures there. You then add to that the VAT increase and raw Q130 Dr Whiteford: The question as I put it to you material cost increases in all sorts of sectors. Metal was whether it would be beneficial to your members. prices have also gone up. That is not a particularly I think that is the key question. optimistic scenario going forward, even in the early Iain McMillan: A lower corporation tax in Scotland part of 2011, to get back to something approaching would be beneficial to our members, but they would what the Scottish Government seek, which is argue that the costs of Scotland having a separate sustainable growth. corporation tax would probably outweigh the benefits. Iain McMillan: I would echo what Alf has said. First, The reason we take that view is that, first, there would until the UK figures are revised, we need to treat them certainly be costs in fragmenting corporation tax with a little caution. They are preliminary figures. I across the UK. If you give it to Scotland, you give it know that the Office for Budget Responsibility has to Wales; you give it to Northern Ireland; you might validated the split, but it is quite difficult to have to give it to the regions of England. Therefore, disaggregate the weather issues from the rest of the there is a cost involved in that. Taxable profits would figures, so I would like to be a little surer that the have to be accounted for separately in the different figures are accurate. jurisdictions including Scotland. Looking at Scotland, the last set of GDP figures were quite encouraging. The problem with them was that Q131 Dr Whiteford: I believe the CBI advocated the role played by the weighting of the construction lower corporation tax in Northern Ireland. industry in the figures almost rescued them from what Iain McMillan: The CBI in Northern Ireland has would have been a bad situation. Those in the explored how the Province can be assisted by the construction industry would say that what is Government. Lowering corporation tax is one way to happening on the ground is not reflected in these do it, but there are other Government interventions figures and they are a little puzzled about this. As to that can also be used there. They have a particular where we go this year, the jury is still out. Having said problem. They share a boundary on one island with that, our latest economic forecast for the UK expects a the Republic, which has a rate of corporation tax of 2% growth in GDP across the whole of 2011. We 12.5%. Therefore, the balance of advantage may don’t produce a separate forecast for Scotland, but for swing towards that, and that is what my colleagues those organisations that have, the median point is over there may have had in mind, but they are not about 1.9% or 2%. There is one over 2%, but nice as concentrated exclusively on just one intervention. cobber Pack: U PL: COE1 [E] Processed: [22-02-2012 16:08] Job: 018777 Unit: PG02 Source: /MILES/PKU/INPUT/018777/018777_o002_th_Corrected 26 Jan 2011.xml

Ev 22 Scottish Affairs Committee: Evidence

26 January 2011 Iain McMillan, Lauren McNicol, Janette Harkess and Alf Young

Scotland shares a border with England. England is our Q133 Jim McGovern: Iain, I think you said that principal market, and our members take the view that England was Scotland’s main market. You also the certainties that there would be costs involved are mentioned the difference in taxation between outweighed by the fact that lower corporation tax Northern Ireland, which is obviously part of the UK, would be only a possibility. It would have to be and the Republic of Ireland, which is independent. affordable and it is not clear that it would be. Can you foresee a situation where the fact that Corporation tax in Scotland brings in more than England is Scotland’s main market might be put in £3 billion a year. Therefore, if you reduce the yield of jeopardy if Scotland was separated from the rest of corporation tax there, where do you make up the the UK? shortfall from? It certainly could not come from a Iain McMillan: Our position on the question of subvention here. The European Court of Justice ruled Scotland seceding from the Union is that our members on a similar case in the Azores. The nation state is are yet to be convinced that the balance of advantage forbidden from subsidising a loss of yield from the for Scotland would lie in such an arrangement. There devolving of corporation tax, so there are also issues are various reasons for that. None of us can predict there. the future. An independent Scotland tomorrow may Alf Young: In economic history, it is the case that the have a very open border, but in 50 years’ time it might rate at which any particular tax is set affects not. What would be the arrangements, for example, in behaviour, in particular locational behaviour in terms our transport links? Would a high-speed railway ever of corporate taxes. Therefore, we have tax havens. In get north of Manchester if Scotland was independent? recent years, this Parliament has been exercised on the What would happen to our electricity transmission extent of these tax havens. We have the experience of infrastructure? Would that infrastructure be built north Ireland, which has had a very low rate of corporation of the main conurbations of England? These very tax for a number of years. Clearly, that has been a serious questions need to be thought about. To come factor in its ability to attract mobile foreign back to corporation tax, if an independent Scotland investment. The reality is that when a rate is set, brought in a lower rate, what do we do when it gets particularly if it is very different from that in other down to the level from which it cannot be cut any areas, it can have significant impacts, not just in more due to affordability, but our next-door putting a business there but in the locus from where neighbour—England—in 20 years’ time has a lower it incurs its tax liability. I know that in the period corporation tax than Scotland? These are all questions when Scotland had a lot of electronic inward that need to be considered. investment, a good deal of the activity that took place Jim McGovern: Certainly. was not accounted for in terms of the main profit Chair: We ought not to digress too much on the components of that activity, because a lot of these question of the impact of independence, because it is organisations put their sales and marketing a bit like shooting fish in a barrel. It is enjoyable but departments not in Scotland nor in the plants they really too easy. built in Scotland, or indeed elsewhere in the UK, but Jim McGovern: I would like it to be recorded. in Holland because that country had a particular fiscal Chair: It has been recorded now, and we will make arrangement that was very beneficial to them. A sure we also get the percentage of Scotland’s exports computer or printer made in Scotland might be good that go to England. That is probably worth placing in terms of creating jobs and economic activity, but a on record. lot of the added value was taxed in terms of corporation tax not here but in Holland. That was Q134 Fiona Bruce: I know that generalisations, like quite commonplace during the inward investment comparisons, can be odious, but I am interested in boom. Therefore, it has an impact. trying to get a picture of a typical member of the CBI As for whether or not it could happen in Scotland, in terms of size of business. For example, I would corporation tax, like every other tax, is a decision to assume that, in your membership, there would be a be reached by the Scottish and UK Governments. The manager; there may well be someone else who does main preoccupation of the debate at the moment does the accounts; there may well be someone with not seem to be about where corporation tax should lie, expertise in HR. What I want to establish is that there but whether, under the Scotland Bill proposals, there is a difference between you and a member of the FSB, is a new arrangement for income tax. That also has who might well have to do all those things and run consequences, but maybe that is straying too far from his business at the same time. the remit of this particular inquiry. Iain McMillan: That is a very fair point. Our members tend not to be those who are micro- Q132 Chair: Following on from that, I take it that in businesses where the owner-manager has to deal with general the CBI would be in favour of no corporation all these matters. Even our smallest members tend to tax at all for its businesses; presumably it would be in have some of these specialisms. favour of no fuel tax being paid by its businesses; and it would quite like to have no council tax. If you are Q135 Fiona Bruce: They have got beyond that jump honest, you wouldn’t mind none of your employees we talked about earlier this afternoon. paying income tax either provided somebody else paid Iain McMillan: Yes. for it at all. Iain McMillan: No, not at all. The CBI believes in Q136 Fiona Bruce: Thank you. Moving on, I would fair taxation. We have never made any such proposals. be interested to know what skills your membership Chair: I am glad to hear it. feels are lacking that impede their growth. cobber Pack: U PL: COE1 [O] Processed: [22-02-2012 16:08] Job: 018777 Unit: PG02 Source: /MILES/PKU/INPUT/018777/018777_o002_th_Corrected 26 Jan 2011.xml

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26 January 2011 Iain McMillan, Lauren McNicol, Janette Harkess and Alf Young

Iain McMillan: I think at this point I will bring in Q140 Chair: Those recommendations you made Lauren, if I may, who looks after this area for us. seem on their face to be sensible. Why have they not Lauren McNicol: From the development of our happened? Why have people not picked them up? manifesto and our last education and skills survey, it Janette Harkess: That is an interesting question. was clear that STEM skills were a key issue for our Perhaps we need to simplify the system of technology members. It is felt that these are the skills that we transfer and IP. It is a very complex system at the need to develop the economy. moment. We have identified that to simplify that system and have greater focus on one point of entry Q137 Fiona Bruce: Which skills did you say? would help to deliver more innovation. Lauren McNicol: STEM skills: science, technology, engineering and maths. In our last education and skills Q141 Chair: I understand the argument. It seems to survey, about 70% of our members were looking to be a statement of the bleeding obvious. I am not clear acquire these skills. About 45% feel that they are not why, if it is such a good idea, it hasn’t been picked up. Are there institutional or structural barriers? Are able to do so just now, so it is important for our there rules that prevent it? Obviously, we are looking members that these skills are carried on after high to make recommendations and comments on the school into further and higher education. That will be observations that people have made to us. I don’t about developing relationships between business, understand why, if it’s so sensible, it has not been higher education and skill levels. done already. Alf Young: I do some work with the SCDI, but I spent Q138 Fiona Bruce: That is very helpful, and it 30 years of my life writing about the Scottish enables me to move on to talk to the SCDI. Very economy and Scottish business. I have travelled all interestingly, you said that your membership included over Scotland and visited factories and businesses big educational establishments as well as business. I am and small for a very long time. One of the problems interested how you see the macro picture in terms of we face, as Janette explained at the outset, is that the interrelation between the educational sector and SCDI was a cross-interest group advocacy body born business serving one another so that we can have these in the years before the second world war and skills which are clearly lacking. flourishing at its height in the period just after the Janette Harkess: In our Blueprint for Scotland, which second world war when you had captains of industry, is our policy document in which we identify our politicians and people from right across Scottish life policy priorities for the next five years—the medium of all political persuasions making things happen. term—and then in the longer term of the next 10 If you look at what happened from 1945 to the early years, we absolutely identified that realising the 1950s in terms of the Industrial Estates Corporation potential of our young people is a huge priority for and the creation of the Hydro Board, there was an the economy of Scotland. One of the points we extraordinary flourishing of endeavour in the post-war identified, like the CBI, was prioritising places in effort that was brought forward in part by the STEM subjects. When you look at the potential for activities of the Scottish Council. In some way that is the economy of Scotland looking forward, areas like now missing. We have transparent political divides. clean energy, life sciences, financial services and The parties have their own positions and they fight digital media are all likely to be important growth very hard with each other. There are multiple lobbying sectors—domestically and also, importantly, groups for specific business interests, Iain for bigger internationally. We would like to see priority placed businesses and the FSB for smaller ones. Although on all of the subjects and skills that would feed those SCDI is still here, in that mix there is not a will right industries and offer opportunities to young people in across the country to put all the sectional differences Scotland to be part of those growth industries. aside and say there is a bigger issue here, which is about getting our economy back on its feet and finding a prosperous future for our kids and young people, Q139 Fiona Bruce: As a Committee, we went to and getting them jobs. I do some work for SCDI but Abertay university and saw some excellent innovation I don’t work for it. Janette works for it as an going on there in the computer and video games organisation. We are trying to drive that agenda, but sector. Do you see that translated into other areas having it heard and acted on requires others to accept adequately, and what could the UK Government do that there is a cross-interest group agenda that all of to assist? us must embrace. Janette Harkess: We would certainly like to see innovation being prioritised. One of the areas we Q142 Chair: Maybe I am slightly missing the point. identified is the creation of a single office of higher I had thought that Scottish Parliament was meant to education and technology transfer and also to ring- address these issues, in the sense that the structure of fence 0.5% of the procurement budget in Scotland— Committees was meant to be non-confrontational and that is a matter for the Scottish Government—to based on collective working. I suppose it is too easy stimulate innovation. However, we would also like to to characterise it as Jesus Wants Me for a Sunbeam, see an increase in business R and D in Scotland at but it was meant to get away from the yah-boo politics least to the UK average of 1.08%. We see both of of downstairs, and you would get joint working and those as a way to harness the potential of innovation people pulling together. that, as you rightly say, we have within our Alf Young: I don’t want to suggest that it is just yah- universities and colleges. boo and that is what is stopping it. It is a willingness cobber Pack: U PL: COE1 [E] Processed: [22-02-2012 16:08] Job: 018777 Unit: PG02 Source: /MILES/PKU/INPUT/018777/018777_o002_th_Corrected 26 Jan 2011.xml

Ev 24 Scottish Affairs Committee: Evidence

26 January 2011 Iain McMillan, Lauren McNicol, Janette Harkess and Alf Young to go for the structural switch that will solve the highly paid people don’t seem to have managed to get problem rather than addressing underlying issues. You their act together to make this happen. What is wrong had a very interesting discussion with the FSB about with the present system, and why is it wrong? not one of Iain’s members, but a sole trader who wants Fiona Bruce: Chair, I know it is not my place to to take on his first employee and to have a micro- answer questions but may I make a contribution? As business and then a slightly bigger one. If all these a local councillor, admittedly in England, I was struck sole traders in Scotland did that, you would solve an by the fact that there was almost no relationship with awful lot of problems overnight. But the problem, of the business sector in my local authority. In the 1950s, course, is that we have something called Business there would have been older men with perhaps Gateway, which is reasonably effective, but it used to businesses in the town who would become be part of the Scottish Enterprise network with its councillors. There would have been a more local enterprise agencies. We then changed all that and homogeneous society. I think we have lost something decided to give it to local authorities in 2007. As you in that division. That is just my experience. It is very have heard, the contract is up for grabs again in 2012. interesting that yesterday, when debating the Localism What we need is not just a business gateway which Bill, we talked about how perhaps we needed to look takes you from being a sole trader to a business. You not just at residents’ groups in neighbourhoods, but at need a business pathway that takes you along the business groups to ensure we had the pool of every stages and gives you all the kind of support discussed mind to solve community problems. I think you have in detail earlier. I don’t know that anybody is even touched on a very important point. To finish, my sitting down to think about business pathways rather question was going to be: how can the Scottish and than business gateways because there isn’t that English Governments work together to crack this nut, mindset that says, “Let’s face up to the challenges we bearing in mind that one is responsible for enterprise have and collectively come to an answer that no and the other is responsible for trade and industry? individual interest group will draw all the credit from, Chair: May I point out that normally we refer to it as but we will say we have done something to make the British Government? Scotland a better, more functioning economy.” Fiona Bruce: I apologise, but I am working on that one. Q143 Chair: That is why we are asking you these questions. I come back to the universities. I can Q144 Chair: It is just as well Eilidh has left, as that understand if people say they do not think that is the would confirm a whole number of prejudices she has way forward because of such and such. I would about the Tories, but never mind. Do you want to welcome hearing from you if, say, the universities respond to that? have said that, no, they have mechanisms that are Alf Young: In that time when I went round all those more efficient because they might be sent to businesses, the first thing you learned generally as you headquarters or somewhere. I can see there might be walked in the door of a small business and wanted to arguments against it. But if it is an issue that is know about it was that suddenly you became that link accepted, say, by the universities themselves, who to the big wide world. In the days when newspapers presumably are on your structure, and if it’s accepted could do it, sometimes I would spend four or five by the Scottish Government, who are presumably hours with someone talking about their problems, accepted in your structure, what is stopping these almost becoming a kind of sounding board for their things happening? It cannot just be a shortage of problems. To go from a one-person, self-employed money, presumably. Is there a shortage of will and venture to building a business around it is a lonely vision, and who then in these circumstances provides and challenging thing to do. I think there is a massive the vision in business? potential network of people who’ve done it before, Janette Harkess: I think it comes back to points made and then retired and do it no longer. There is a mission earlier about the nature of Business Scotland. The to get volunteering going and to get them out, active latest figures from Scottish Enterprise show clearly and involved in trying to assist a younger entrepreneur that of our 291,000 businesses in Scotland, 194,000 and business-builder. I don’t really like the word are one-man businesses. We have 2,700 growth firms, “entrepreneur”. The fact we have to borrow the word but, as Alf and others identified, the gap in the middle from the French to describe something does not in terms of the communication of how we build those capture the essence of it. businesses, get innovation into them and internationalise them is a challenge for all the Q145 Jim McGovern: I believe George W Bush agencies involved. once famously said, “The French don’t have a word Chair: With respect to Alf’s point about how for ‘entrepreneur’.” everybody was working well together in the 1950s Alf Young: I am referring to a mechanism for and so on, presumably the economic structure was volunteering. There are all kinds of ways we can pretty much the same then in terms of big and small begin to be much cleverer about tracking that pathway businesses and a gap in the middle, yet the mood, for people with other people who have the experience style and approach were different. Why is it that these and know the pitfalls, and sometimes know the things are not being picked up? I am struck by the answers. It can be done; it just takes the will. It goes fact that a single person wanting to employ somebody back to the Chair’s point about why it is not does not have a pathway or structure to see him happening. There are people like the Scottish Council through. Again, it seems to be a statement of the who try to advocate this kind of approach, but we bleeding obvious, yet all these extremely clever and seem to be so compartmentalised in our outlook as to cobber Pack: U PL: COE1 [O] Processed: [22-02-2012 16:08] Job: 018777 Unit: PG02 Source: /MILES/PKU/INPUT/018777/018777_o002_th_Corrected 26 Jan 2011.xml

Scottish Affairs Committee: Evidence Ev 25

26 January 2011 Iain McMillan, Lauren McNicol, Janette Harkess and Alf Young what we are here to do and trying to deliver that the Q150 Chair: Do you believe that that can be dealt messages don’t get across the interfaces and little or with in any way other than UK-wide? I am thinking nothing happens. back to what you said earlier about corporation tax. Iain McMillan: My understanding is that the Q146 Mr Reid: Iain said that fuel duty and VAT European Union needs to give its consent to increases were obviously affecting competitiveness, disaggregate fuel duty and allow a separate fuel duty but that we had to get the public finances in balance. in parts of the country. I believe that happened in Do you have any suggestions as to what taxes would Corsica. What the European Union will not permit is a be more business-friendly—or perhaps less business- further disaggregation. For example, if fuel duty were unfriendly? Is the basket of taxes right? devolved to the Scottish Parliament—and it could be Iain McMillan: In the current economic environment, under European Union rules—the Scottish Parliament it is extremely difficult to make these choices. They would then not be allowed to make further are very difficult for the Government and for us to disaggregation within Scotland. advocate because the only choice any Government have at the moment is to increase tax to the point Q151 Chair: So there is no possibility of a scheme where the structural deficit is eliminated. Therefore, for the islands? what you do with one tax, you do with another. I Mr Reid: As Iain said, only with European Union suggest that the principal tax at the moment that needs permission and that was given for Corsica. attention with regard to international competitiveness Iain McMillan: There could be a scheme for the is corporation tax. That does not mean you cut it to islands if it was under UK jurisdiction. If fuel duty the level of the south of Ireland or anything like that, was devolved, you would have two jurisdictions and but we need to get it back to an internationally the Scottish Parliament could not then devolve it competitive level. The other one that has been revised further. That was the information we got during the is employers’ national insurance contributions. We did Calman deliberations. not get the rise that was going to take place, and that is helpful because taxes on employment can hold back Q152 Chair: I misunderstood. I presumed you were the employment of people. Think of the one person in talking about Corsica being an administrative unit to a small business who is going to employ someone which it was devolved. else; he or she immediately has a cost with regard Iain McMillan: No; it is a legislative matter. to that. Alf Young: Of course, other mechanisms are already in use, for example the experiment that approaches a Q147 Mr Reid: What I am trying to tease out of you road equivalent tariff for some ferry journeys, notably from Ullapool to Stornoway. I am told that the net is not the taxes you would like to see reduced. If we effect—because my son lives in Ullapool—is that you are to balance the budget, are there other taxes that have to book a ferry about three or six months in you think could be put up that would not harm advance if you want to get across. The demand has competitiveness? grown so much because of that experiment. Iain McMillan: I am not going to answer your question in that regard. We had a position before the Q153 Fiona O'Donnell: I am not an economist and last Budget. We will release next week our submission I am still overawed by speaking to people that I’ve ahead of this Budget. I don’t want to be evasive, but only seen on the television before, so do correct me if the Director General won’t be pleased if I break his I get this wrong—I’m softening them. embargo. Chair: And people say that flattery doesn’t work. Fiona O'Donnell: I am being told that I look Q148 Mr Reid: But you will be announcing miserable when I am on the television, so there you something next week. go. Iain McMillan: We will be announcing it, and I The Scottish economy has been heavily reliant on the would be very happy to send that to the Committee. public and service sectors. We now have an economic Chair: It is very helpful to have somebody refusing plan which relies upon exports for a large part of our to answer the question and telling us that. The BIS economic growth. The private sector in Scotland is person earlier refused to answer a question but did not also dependent to a large extent on the public sector. tell us that, so honesty is to be commended. The question is how this increase in exports will happen. Iain and everyone will have seen that in the Q149 Mr Reid: On fuel duty, do you have any third quarter of 2010 our exports dropped, which is evidence that high fuel duty impacts adversely on really concerning. We rely on Ireland where the Scotland as a whole compared with England, or on economy is not in a good situation; we rely on the rest different parts of Scotland compared with other parts? of Europe. Where are the export opportunities? On the Iain McMillan: Of course there are some rural areas pathway you talked about, Alf, at some point we want of England and, as residents of the UK, we often say businesses in Scotland to think about exporting. that in Scotland there are vast distances that they don’t Where are the opportunities, and what more can we have in England. That is not strictly true. I lived in do to promote Scotland overseas? Anyone can have England and the distances are considerable, but it is a go. fair to say that, particularly in rural Scotland, the high Iain McMillan: First, we published our Scottish levels of fuel duty are a burden. They are more reliant industrial trends survey last week. I would be very on motorised forms of transport. happy to provide the Clerks with a copy of that for cobber Pack: U PL: COE1 [E] Processed: [22-02-2012 16:08] Job: 018777 Unit: PG02 Source: /MILES/PKU/INPUT/018777/018777_o002_th_Corrected 26 Jan 2011.xml

Ev 26 Scottish Affairs Committee: Evidence

26 January 2011 Iain McMillan, Lauren McNicol, Janette Harkess and Alf Young you. It showed that exports performed reasonably spending will come easily—but to use the resource we well. Export orders were up and demand was up as have much more effectively. well. The data are a little conflicting, but in terms of Alf Young: What the Scottish council does in its trade our surveys, this trend has been running a thread mission work is absolutely important to a whole through an improved performance of exports for quite stratum of Scottish businesses that need to get out into some time now, which is good. Domestic demand is markets and have a presence there, but even on the not good; it is showing a negative result. That does pathway we talked about earlier, tiny businesses that not surprise us because demand in the United use the internet and sell directly to consumers can Kingdom has been pretty soft for a while, as we know. themselves establish a global market very easily. What do we do to encourage more to export and There is a tiny village called Durness in the north of where do they go for that? Overall, the global Sutherland near Loch Eriboll. I know Durness quite economy in 2011 will probably grow by between 2% well because my younger son’s girlfriend comes from and 2.5%. While there are problems in parts of the there. In the craft village of Durness, there is a little eurozone and still problems in the US, there are parts factory called Cocoa Mountain. It produces very of the world—for example, China, India, the far east expensive handmade chocolates. They cost £1 a time, and Brazil—where economies are doing very well. so a box of chocolates would cost 20-odd quid. They Our members would take the view that it is good to are tremendous. They sell these chocolates to all sorts have a supportive Government in the various of places in the world via the internet. Not only do jurisdictions, but they have to get up, research the they do that, but the shipping of them through Royal markets, go out to these countries and put their foot Mail keeps the local post office alive. I have been told in the door and sell. There is no substitute for that. by people in Durness that there would not be a post Governments of any jurisdiction can’t do that for office in the village any more if it were not for Cocoa them. Business has a responsibility for itself here. Mountain, so it also has a social spin-off. When we hear doom and gloom about the future, even at the Certainly, the view among my members is that that is micro-level, by using the new capacities of our age their responsibility, albeit the Government can assist. through the internet, for small businesses there are We see that through the Scottish Manufacturing amazing opportunities out there, and that business is Advisory Service, part of Scottish Enterprise, and not alone. other support from the Economic Development Agency and, in the north, the Highlands and Islands Q155 Chair: What is the moral of that point about Enterprise. There is quite a lot of help out there. I Cocoa Mountain? I am tempted to say that if it can repeat that I don’t think this is all down to do it, presumably anybody can do it. Government; it can’t be. Alf Young: You must have the product; you must have people who want it; you have to be able to get your Q154 Chair: But are you satisfied that the support website known; and you have to find ways, whether services to help firms work abroad are working by viral marketing or what it is, to try to get that together well enough and there is no unnecessary message out there. There are lots of unexplored duplication and competition? avenues on the pathway. Iain McMillan: We do not have any representation from our members to suggest that the Departments of Q156 Chair: Did it do it with help from anybody— State and the Departments of the Scottish Government help that was not available from anybody else? and their agencies are not working well together. Alf Young: I suspect there must have been some Janette Harkess: International growth is absolutely contact with HIE at some point in its evolution. I don’t essential to the Scottish economy. We have strength know the story in that sense, but I know the story in in a number of sectors of which you will be very well terms of its impact. For a Committee conducting an aware: oil and gas; food and drink; education; and inquiry about whether the established linkages work, high-end manufacturing. It is important that our SMEs maybe a bit of it, if you can manage it, is to see the as well as our larger companies start to look at the other linkages out there that are flourishing but are not international market. That is where they benefit being heard about in this or other Committee rooms. hugely from support such as trade visits. As Iain said, Chair: Fiona, Cocoa Mountain: that’s the place for going to market and trying to understand on the you. ground what that market is like is incredibly Fiona O'Donnell: A heavy hint, because it is my important. birthday tomorrow. One of our long-term policy aims is to have a network Lindsay Roy: That is a very helpful anecdote for the of Scottish trade centres internationally where you work we have already done on the postal services and take all our resources in terms of the private sector Royal Mail. I want to deal with something a bit and Government, the SDI, the embassies in market, different. and the Scottish businesses already there that are Fiona O'Donnell: I have not finished. I might be successes in international markets, and bring all that overawed, but not that overawed. intelligence and resource together so that new Chair: And not by you. businesses coming to that market can get that support there. That does not have to be owned by the Q157 Fiona O'Donnell: The second question I want Government; it could be owned within the private to ask is: what do you think the impact could be if the sector. We think there is real potential not to add to green investment bank comes to Edinburgh, as I and it—we are not in an environment where additional other colleagues are pushing? cobber Pack: U PL: COE1 [O] Processed: [22-02-2012 16:08] Job: 018777 Unit: PG02 Source: /MILES/PKU/INPUT/018777/018777_o002_th_Corrected 26 Jan 2011.xml

Scottish Affairs Committee: Evidence Ev 27

26 January 2011 Iain McMillan, Lauren McNicol, Janette Harkess and Alf Young

Janette Harkess: That could have a significant and it’s cumulative. That is why the CBI is so impact. One of the immediate concerns of our concerned that the structural deficit in particular is members at the moment is exactly when that will dealt with fairly quickly. The second one is that we come and when those funds will be available for had been making representations to the Chancellor investment in the low-carbon economy in Scotland. If before the election and after that there were some there is to be a gap between that announcement and it areas, principally in corporation tax, that we needed happening that lasts up until 2013, we would have to move to a position where we would be more concerns about it, because investment in the low- competitive internationally. We had nudged above the carbon economy is needed now.1 optimum level for that. If the rate of corporation tax Chair: Lindsay—if that’s okay with Fiona. is reduced from 28% to 25% over the next four years, that is a good place to be going forward. Q158 Lindsay Roy: It is not surprising for me to Lindsay Roy: That is very helpful indeed. hear that you are not engaged in a dependency culture. You are working together as trade groups for a Q162 Chair: I wonder whether I might pick up some common purpose to try to achieve growth. You say in points relating to the previous discussion that you your paper that the UK Government must use their heard. The Federation of Small Businesses made a spending reviews to galvanise growth. What more can point about illiteracy and innumeracy among the work the Government do? What have you gained from any force. Is that something you would echo? growth strategy? Is there anything you have picked up Iain McMillan: Yes, it is. A couple of years ago, the that will assist businesses in the months ahead? Labour Education spokesperson in the Scottish Iain McMillan: Is this on the point made in the Parliament asked a number of people to come together speech by the Director General earlier this week? and form a literacy commission. Indeed, Lindsay and I were on the commission together until he translated Q159 Lindsay Roy: Yes. to another place, but he kept a very close eye on us. Iain McMillan: I think Sir Richard Lambert’s point We carried out an investigation into literacy levels in was that there had been a series of individual Scotland and, eventually, at the end of 2009, produced measures announced by the UK Government, but he a report that identified pretty significant problems with believed that an overall vision of the kind of UK the literacy and also a raft of recommendations about UK Government wanted to see in the future was what needed to be done about it. absent. I am very pleased with the direction of travel because the Literacy Commission’s report was put to the Q160 Lindsay Roy: The big picture? Scottish Parliament and there was a debate. The Iain McMillan: The big picture. It is quite difficult debate in the main Chamber lasted all morning. At for the Government because they are in coalition with the end of the morning there was a resolution in the another political party that has a different ideology. Parliament to accept and adopt the commission’s Therefore, getting a coherent big vision by the report. There was complete cross-party support for Government is probably harder to do than it would be that. Indeed, the Cabinet Secretary for Education if the Conservative party was in a majority, for pledged to take forward those recommendations with example. I don’t think we underestimate the the support of the other parties. In May there will be difficulties. Nevertheless, the largest party of an election. I don’t know whether the Scottish Government should express a vision for the future of Government will change, but we hope that the new the UK. Where do they see the UK’s place in the Administration will take that forward. world in a whole range of things? Where do they see the economy being at the end of this Parliament and Q163 Chair: Are these recommendations being even beyond? Previous Governments of both parties implemented now? have tended to articulate that vision, but with this Iain McMillan: We believe they are being taken particular party we do not hear that at the moment. If forward through the curriculum for excellence, and I you have the big vision there and you know where believe Colin Borland alluded to that in his evidence you are going to go, it is very easy to benchmark the to you earlier. Certainly the Cabinet Secretary has individual policies that you bring in as to whether or given a pledge that they will be embedded in the not they will assist that overall agenda. curriculum for excellence going forward, so being trusting as we are— Q161 Lindsay Roy: Within the limited budget, are there any concrete things that are available to assist Q164 Chair: I am going back to the point that Alf your members? made. There are circumstances in which people can Iain McMillan: There are two in particular. Before come together, and something is agreed and is moved the pre-Budget report and the Budget, our two forward. It is possible, and perhaps it is not as black principal concerns were, first, that consolidation of the as it might have appeared. public finances needed to happen. For example, we Iain McMillan: Certainly, in that regard the coming were very concerned not only about the structural together of all the parties in Holyrood was very good. deficit, but that on 5 April every year we don’t just put a rule under the national accounts and start a new Q165 Chair: We want to pick up a number of other year. Last year’s deficit goes on to the balance sheet issues, particularly the question of manufacturing 1 Ev xx (Supplementary memorandum submitted by Janette strategy. That is almost in a sense an investigation on Harkess) its own. Perhaps I can ask both of you to touch on cobber Pack: U PL: COE1 [E] Processed: [22-02-2012 16:08] Job: 018777 Unit: PG02 Source: /MILES/PKU/INPUT/018777/018777_o002_th_Corrected 26 Jan 2011.xml

Ev 28 Scottish Affairs Committee: Evidence

26 January 2011 Iain McMillan, Lauren McNicol, Janette Harkess and Alf Young one or two issues and tell us whether or not you think As to energy, our transmission and generation any of these are particularly significant and we ought infrastructure needs to be replaced. CBI Scotland and to mention them. There is the question of the CBI as a whole believe that to get the right balance communications with the rest of the world and the rest of affordability, reliability, consistency and of the UK; the issue of BMI perhaps cutting its sustainability, we need broad generation capability, service; the prospects for high-speed rail; the issue of including nuclear. The day may come when nuclear broadband and its roll-out across Scotland; and the energy will not be necessary but we don’t believe that issue of future energy supply, given the discussions day has arrived yet. If it is not part of the mix, taking place about whether or not it will be nuclear or reliability, competitiveness of pricing and so on could non-nuclear. Do you think all these issues are be compromised. That’s our position on nuclear. absolutely key to the future of business in Scotland, As far as the transmission infrastructure is concerned, or are they just trivial side issues in the sense there yes, that needs a great deal of investment. It looks as are other things that are more important? though the Government and regulator have taken Iain McMillan: No, they are not trivial, certainly not. some good steps in the right direction. There is a tension between putting in affordable transmission Q166 Chair: “Trivial” was the wrong word; they are infrastructure for renewables up in the north of not first-tier issues. Scotland and the price that consumers will eventually Iain McMillan: They are significant issues for pay for their power. I don’t pretend that this is an Scotland. If we take the issue of Heathrow airport, easy one to resolve. For example, I think the Scottish this Government abandoned the previous Government would like a postage stamp-type Government’s decision to build a third runway at arrangement where, no matter where in the UK you Heathrow. That was disappointing. Heathrow is the input to the grid, you pay the same amount, which is principal gateway to the United Kingdom. The a bit like posting a letter. The regime up until now— congestion there is awful by international standards. it is under consideration—has encouraged generation If you flew in and out of Heathrow at 11 o’clock in to go where the market is. There is no doubt that that the morning or three o’clock in the afternoon 20 years has given significant benefits to the consumer. At the ago, you would get on and off the runway very end of the day, I think some kind of compromise will quickly; today you don’t. When an airport of that size be needed so that wind generation in the north of and importance has only two runways, frankly, if Scotland and some of the renewable inputs to the something is not done about that, it will cause a lot of generation of electricity are recognised and given, problems for the UK. The decision not to have a third perhaps, some kind of intervention there. But the price runway was very serious. of electricity to industry, business and the consumer What is the alternative? There is a high-speed railway, is still very important in that regard. but the commitment extends only to Birmingham first and then Manchester. UK Ministers refer to an Q168 Chair: In terms of other issues relating to aspiration to go beyond there, but if Scotland is not to business in Scotland, once we finish this inquiry—we be disadvantaged in terms of its connectivity, that are doing one on the Scotland Bill and a couple of high-speed railway must reach at least Glasgow and other things as well—we have identified a number of Edinburgh. It would also be helpful if the UK issues to consider that are important for Scotland. Is Government said, “We’re not going to expand runway there anything else in particular that you think we capacity in the south-east of England but here is an ought to take into account and consider for an inquiry? aviation strategy for the UK. There will have to be Iain McMillan: The issue of connectivity that we more point-to-point flights rather than hubbing have discussed this afternoon is probably a good one through Heathrow, and here’s how we’re going to do for a deeper and more thorough investigation on the it.” I would like to hear from Philip Hammond how part of the Committee. That is of crucial importance. he is going to address that issue. I am not hearing it Whether it is the weightless or physical economy, time at the moment. to market is very important. That is something we would certainly welcome. Q167 Chair: Broadband and energy. Iain McMillan: Let’s go on to broadband. Clearly Q169 Chair: Janette, can you answer all of those? commercial companies will build broadband networks Janette Harkess: Starting from the end, we would where they get the greatest return on capital employed support a balanced energy mix for Scotland, with the and that will be in the conurbations. There will be key priorities being that it is affordable, accessible and emerging technologies, satellite technology and so on there is security of supply. We have argued that the that will enable that particular industry to reach rural existing market and regulatory frameworks are a areas and others that are difficult to reach. For the UK barrier to developing the full energy potential of as a whole, however, I think it would be helpful if Scotland. We would support investment in new perhaps there could be a consensus among our generation. We need reinforcement of and upgrades to political parties about how to get greater bandwidth to the existing system, coupled with an enduring greater parts of the UK. These are the highways of transmission, access and charging regime. today and tomorrow. It is important to do that not Hopefully moving backwards in the right order, as to just for business but for social reasons. Where there aviation, we absolutely agree that Heathrow is the is market failure and companies just cannot afford to UK’s hub airport and Scotland has an economy that put in these networks, there is a case for aspires to internationalise. We have not mentioned Government intervention. tourism here today. That is an incredibly important cobber Pack: U PL: COE1 [O] Processed: [22-02-2012 16:08] Job: 018777 Unit: PG02 Source: /MILES/PKU/INPUT/018777/018777_o002_th_Corrected 26 Jan 2011.xml

Scottish Affairs Committee: Evidence Ev 29

26 January 2011 Iain McMillan, Lauren McNicol, Janette Harkess and Alf Young part of the Scottish economy that also needs not important to them. When you look at the history connectivity to access the market. We would express of road improvement in Scotland over the past 40 concern that the present Government’s aviation policy years, there is a lesson there about how we get it does not seem that concerned with Scotland’s horribly wrong. How long did it take us to improve economic needs. We would like to see access to the road to Aberdeen despite the fact that we had oil Scotland’s regional airports maintained. In the long offshore? I can tell you all sorts of horrors. An term, we support the development of high-speed rail. apocryphal story goes round the Scottish civil service about the opening of the M9 between Edinburgh and Q170 Chair: Before you leave airports and high- Stirling. A major Japanese investor was taken to be speed delivery, are you also a third runway shown the sites. When driving along that road, he organisation? said, “How kind of your Government to close the Janette Harkess: Yes. motorway for me while I was making my visit,” As to rail, in the long term, we would totally support because nobody was using it. We had the M9, but no high-speed rail coming to Scotland. We believe that proper motorway to Aberdeen, and certainly no proper the economic case for high-speed rail is much more road network south from Glasgow and Edinburgh to compelling when Scotland is taken into the equation. what for Scotland’s economy is its biggest single export market, as a number of people have said this Q171 Chair: There would not be much of an afternoon. economic case for the UK Government to fund it beyond Manchester if Scotland was independent, Q174 Chair: Carry on. would there? Janette Harkess: Broadband. Full-wired high-speed Janette Harkess: No.2 broadband would be the aspiration for an internationally competitive Scotland. No country in Q172 Chair: The amount of trade that would be the world has managed the necessary investment of generated by extending it to Carlisle is limited, is it that kind of network without support. Alf mentioned not? the importance to the SME economy of businesses Janette Harkess: Without commenting on whether or that perhaps are remote geographically in Scotland but not Scotland is independent, but just in terms of can do business with the world if they have the right commenting on the geography of taking it to Scotland, broadband capacity. We would see that as absolutely we would now call for the UK and Scottish essential. That would be another area where the UK Governments and High Speed 2 to engage with each and Scottish Governments in partnership with the in looking closely at the detailed design work that telecoms industry, the wider public sector, businesses would look at how that would come to Scotland.3 and higher education could work together on how we deliver that. Q173 Chair: I understand that. It is Jesus Wants Me for a Sunbeam stuff, but we come to the question of Q175 Chair: Are there any other major issues that paying for it. This issue has been raised before. I we have not asked you about that you think ought to cannot see why any Westminster Government in their be the subject of further discussion by us, inasmuch right mind would want to pay to extend it beyond as they relate to the general economy of Scotland? Manchester. I can see why a Scottish Government You do not have to think of one. Even if you think would want them to pay for it beyond Manchester, but of one later on, you could maybe come back to us I can also see why the Scottish Government would about it. not be entirely keen to pay for it themselves beyond Alf Young: If I may add an addendum to the Manchester to link up. It is this question of who pays discussion, engineering has been surprising to many for the gap. Have either of your organisations thought of us. One of the rather more resilient parts of what is about that? The gap between Manchester and the left of engineering is the very high precision and Scottish border is not something that either highly skilled sector. It has done incredibly well not organisation would really want to pay for, unless the just in Scotland but in other parts of the UK. Witness UK Government did it, as it were, as an act of subsidy, the Formula 1 motor industry, which is based largely in which case there is an issue about whether it is round about London. There is a problem, I think, in Barnettable. If something is being done for Scotland’s that we lost so much of our engineering that our benefit, should it then be Barnettable and therefore younger generation lost any sense that there was any give Scotland more money? Is that something which standing in society from making things with your either group has discussed in any way? hands. Apart from literacy and numeracy, I think there Alf Young: I can’t speak for the CBI, but I am not is a real challenge going forward. Clearly, there are conscious that that has been a major issue. You are all kinds of commercial opportunities to make things right, Chair, in that we have been here already, on a small scale with high precision or of high quality because the last eight miles of the extension of the that people like me, who enjoyed the baby boomer M74 at the border to Carlisle was not something the years, have nice pensions and can spend money in our UK Government were minded to do because it was old age, will want to buy. I was astonished recently to get a catalogue of Scottish 2 Ev xx (Supplementary memorandum submitted by Janette craft furniture-makers. There are dozens of them Harkess) 3 Note by witness: Scotland’s inclusion in a UK HSR network scattered all over Scotland making small numbers of will not be achieved without the commitment and close bespoke furniture of the most exquisite quality. I did collaboration of both the UK and Scottish Governments. woodwork and technical drawing at school back in the cobber Pack: U PL: COE1 [E] Processed: [22-02-2012 16:08] Job: 018777 Unit: PG02 Source: /MILES/PKU/INPUT/018777/018777_o002_th_Corrected 26 Jan 2011.xml

Ev 30 Scottish Affairs Committee: Evidence

26 January 2011 Iain McMillan, Lauren McNicol, Janette Harkess and Alf Young

1950s. It is an awful lot harder to do that now, and it therefore it would be a land of milk and honey, is an awful lot harder to bash metal as well. One of my without taking into account— engineering friends, who was vice-president of one of Fiona O'Donnell: The Scottish Parliament already the big semi-conductor companies and now lives in has the power to vary income tax, but has chosen not California, was saying to me just before Christmas to exercise that right. when he came back home that the trouble with young people now is that they don’t feel the metal and don’t Q177 Chair: Can you just clarify what you mean? ever know what it is like to make something. I think Janette Harkess: We would not comment on whether going along with that is an attitude that says that there was the power to cut or raise taxes. Our key working in factories isn’t really for people who want priority in any change in fiscal regime is whether it to have social status and esteem. would be of economic benefit to Scotland. Does any I have watched engineering transform over the last 30 change make Scotland a stable and competitive place years. What is left of it and what is competitive are in which to do business? wonderful and fantastic facilities. There is a challenge, again, for all of us to get back into the heads of some young people that being engineers—not necessarily Q178 Chair: What does that mean? I hear the words going to university to do a degree in mechanical in a sense. It says here, “Strengthening the Scottish engineering and going off to work somewhere in the Parliament’s responsibility for tax and spending global oil or petrochemicals industry, or wherever— decisions”. So precisely what powers would you working with machines and just making things is a transfer? skill to be admired and held precious. We have gone Janette Harkess: We have not commented on the a long way from that and I would like to see us begin Scotland Bill at that level of detail because you will to recapture it. I think there are significant commercial appreciate that an organisation like SCDI has a variety and economic opportunities in those kinds of areas. of opinions within its membership. You have Young Engineers. Janette Harkess: We have Young Engineers, which is Q179 Chair: In a sense that is useless to us. a hugely successful network of 4,000 young people in Tomorrow we have the Second Reading of the Bill 350 schools. They do exactly that; it is this hands-on and amendments will be tabled. You do not table experience of engineering. But I would like to add to vague and woolly stuff in amendments; you have to Alf’s point about young people engaging in economic put down something concrete. I understand the activity. There is a real discussion to be had about concept of what you have there, but I don’t know what how to ensure we maximise their opportunities. There it means. is a lot of talk just now about the imbalance between Janette Harkess: I think we would be asking the generations. Alf mentioned the baby boomers. The questions of the legislation. Does it encourage and question is how we ensure that young people, who enable the Scottish Government to promote have many disadvantages in terms of accessing the sustainable economic growth? Does it safeguard and workplace, particularly with the challenges of literacy create a more competitive economy? We are not and digital literacy skills, can deliver for themselves making comment on the specifics of raising tax; we and for Scotland. simply raise the question.

Q176 Chair: We saw SCDI’s Blueprint for Scotland. Q180 Chair: But by raising the question, the Most of the points that you make we understand. implication is that what is being proposed does not There is one, however, on which I want clarification: and, therefore, I am trying to clarify what would. “Strengthening the Scottish Parliament’s Janette Harkess: We would like to understand and responsibility for tax and spending decisions which see the economic models that suggest the Bill delivers promote sustainable economic growth.” Can you on the points of sustainable economic growth. We are clarify what powers in particular you have in mind not saying that it will or will not; we would simply that perhaps are not in the Scotland Bill that is coming like to understand that the modelling would prove that forward? Is that just shorthand for saying that you it would create a sustainable economy for Scotland. want to give them the power to cut taxes because you assume that if they had that power, they would do so? Janette Harkess: Our position would be that the Q181 Fiona Bruce: I want to put one thing on the current financial arrangements do not provide record to do with the issue of skills. A one-word sufficient incentive or discipline on the Scottish answer will do. For the record, do you think the voice Parliament regarding spending decisions, because they of business in terms of the current skills gaps to which don’t have the responsibility for raising revenue. Our you referred, Lauren, and the skills required to move comments to the Scotland Bill inquiry will develop business forward, to which Alf referred, and thereby those points. to offer job opportunities, is being heard in the Chair: We are doing an inquiry into that as well. educational environment in both schools and While you are here we thought we would ask you. In universities, or do the Government need to take action terms of the Bill, you are assuming that if the Scottish to ensure that that voice is heard much more clearly? Government got more powers over tax, they would It is a long question. In other words, are schools and cut those relating to business. As I understand it, the universities able to hear what business needs in order Reform Scotland agenda assumes that if Scotland got to succeed and build and develop on the skills that any powers over anything, they would cut tax and they require? cobber Pack: U PL: COE1 [O] Processed: [22-02-2012 16:08] Job: 018777 Unit: PG02 Source: /MILES/PKU/INPUT/018777/018777_o002_th_Corrected 26 Jan 2011.xml

Scottish Affairs Committee: Evidence Ev 31

26 January 2011 Iain McMillan, Lauren McNicol, Janette Harkess and Alf Young

Chair: We were shaking our heads because a lot of wind, will say that this is one of the great answers to this is devolved, but it is a legitimate question to ask, our industrial future, getting there, building the since you are here. infrastructure and other aspects are a challenge. How Iain McMillan: I think they probably are. Schools and do you get the fabrications from where they are to, other actors in this environment do hear that. What say, an offshore location? Therefore, having good port we are doing here is not just to say that these skills are and fabrication facilities near to ports is also an issue. not here and they’re not there. This is also a journey of The Scottish Government have an N-RIP plan for continuous improvement. We will recommend things renewables to try to identify the top sites but, as you for tomorrow, not necessarily on the basis that they can imagine, we have a very long coastline, with a lot are wholly inadequate today. We must have that of sites where once upon a time we said we would forward look down range as well as today. My build oil rigs. I was recently in Portavadie. Portavadie experience is that those in the education environment, never built an oil rig, although it cost a lot of money whether it is in schools, local government or in the to dig the hole in the ground to make it do so. As you Scottish Government, do hear that. Whether or not well know, it is now a marina and has a wholly they always act on it is another question. I think that’s different purpose. It is not an easy challenge. variable. We probably need to do more in terms of Sometimes I worry that the rhetoric on renewable advocacy to get that across. There are roles for two of energy is way ahead of the challenges of putting the us there. chain of delivery and the businesses on the ground in Janette Harkess: There is definitely an appreciation a sustainable way so that they can make a profit and of the importance of getting it right, and those are the survive, employ people and still produce green results. aims of the work through the curriculum for Janette Harkess: That is certainly something we have excellence. The universities certainly recognise the recognised. We now need to articulate what the low- need to encourage innovation that will have economic carbon economy in Scotland is and try and understand impact. It is a journey, but there seems to be an the reality. There has been a lot of rhetoric on it. appreciation throughout the various important players Earlier this month, SCDI announced in partnership in this game, in terms of schools, universities and the with Fraser of Allander that we are going to publish a business community, that more needs to be done and low-carbon energy review of Scotland to look at the there needs to be more joined-up thinking. low-carbon supply chain to identify what is there at the moment, potentially where there are gaps and Q182 Mr Reid: We are always hearing that there is whether there are opportunities for inward investment tremendous potential for renewable energy off the to start identifying the supply chain and therefore Scottish coast with wind, wave and tidal power. How what the low-carbon economy is, and move it towards do we ensure that Scottish business benefits from all reality. What does that do in terms of the potential for that work and that it just does not go to foreign jobs, employment and manufacturing? competitors? Is there anything we can do to make sure the economic benefits stay in Scotland? Q183 Mr Reid: The Scottish and UK Governments Alf Young: I think that is quite a challenge, Alan. We have targets for renewable energy. Are we going talked earlier about the energy mix. If we go back through all this work to meet those targets? Yes, we down the road of nuclear new-build, we have already have to do it for that reason, but I think Alf shares my discovered in the UK that a lot of our capacity to do concerns that all the actual work is going to go to that has gone. For example, Howdens in Glasgow had foreign competitors and they might not even employ a whole division devoted to manufacturing the that many Scottish workers. If it is the construction of circulators within civil nuclear reactors. That has long a wind farm, the fear is that the foreign competitor gone, because we have not built a nuclear power will bring in their own workers from elsewhere, set station in an extremely long time. That bit of the up a temporary camp and all the money will be sent business has gone. home and the Scottish economy will benefit very little. When I first became a journalist 25 years ago, we had Therefore, are there any suggestions as to how we a demonstration wind turbine on Orkney. Again, the avoid that scenario? blades were made in Scotland, but that business went Janette Harkess: Certainly, they need to identify as well. We have had a number of iterations in an where the opportunities for inward investment are attempt to put some of that capacity into Scotland, now. Like the Scottish green investment bank, ring- first by indigenous businesses getting into those bits fencing might be available for renewable projects in of activity and then discovering that either they did Scotland. It is a matter of timing. It is not about not have the full skill set or were not competitive waiting until 2013. It is about trying to identify where enough, so the business went down and somebody those gaps, opportunities and potentials are now. else came in and took over the site. We have even had a number of world-leading Dutch and Danish Q184 Chair: I think we have now got everything off companies coming in. You will know from your own our chests, and vice versa, hopefully. Do you have any patch that the site at Machrihanish has gone through answers ready to questions we have not asked? Is a whole series of changes and is again in some there anything you are bursting to tell us? That applies difficulty as we speak. So it’s not easy. It’s no comfort particularly to Lauren. You have sat there while either to know that also in Denmark and Sweden sites everybody else has talked away. Is there anything that are being closed down. you were briefed to make sure you raised? Although most of the developed world that has any Lauren McNicol: No, I have not. My brief was the potential for renewables, whether it be tidal, wave or skills; that’s all. cobber Pack: U PL: COE1 [E] Processed: [22-02-2012 16:08] Job: 018777 Unit: PG02 Source: /MILES/PKU/INPUT/018777/018777_o002_th_Corrected 26 Jan 2011.xml

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26 January 2011 Iain McMillan, Lauren McNicol, Janette Harkess and Alf Young

Chair: Is there anything else you want to raise? If report, but there are other issues we will take forward not, thank you very much for coming. We have had a in future reports. Thank you very much for coming full and frank discussion of all the points we wanted along. to raise. We shall pick up a number of things in this cobber Pack: U PL: CWE1 [SO] Processed: [22-02-2012 16:08] Job: 018777 Unit: PG03

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Written evidence

Written evidence submitted by UK Trade and Investment How UKTI Operates UK Trade & Investment (UKTI) is the government organisation that helps UK-based companies succeed in the global economy, tailoring its services to the needs of individual businesses to help them maximise their international success. UKTI also helps bring high quality inward investment to the UK’s economy, providing support and advice to investors at all stages of their business decision-making. Current economic challenges mean that UK businesses must be flexible, innovative and able to seek out opportunities throughout the world. UKTI services help to position UK companies as the global trading partners of choice, promoting and building the UK’s reputation, and working to attract high-value investment to the UK. Our support is focused on: — strengthening the social networks (contacts, knowledge, advice, etc) that underpin international trade and investment flows, helping individual businesses to gain access to key contact networks by acting as a trusted intermediary; — building and strengthening the capability of innovative and high growth businesses to maximise their chances of succeeding in international markets; — providing access to information and advice the private sector alone would not or could not provide, both to inward investors and to potential UK exporters; — building the UK’s reputation as a backdrop for potential investors/overseas buyers; and — facilitating co-operation among businesses, enabling them to work together to overcome barriers and develop international trade and investment opportunities. UKTI trade services help companies from all parts of the UK and from all sectors. Helping these companies to gain access to new business overseas enables them to generate additional revenues and to maximise the returns on their investment in R&D and innovation, thereby increasing resources available for them to invest in growth and innovation. Many customers also improve their products and services by gaining exposure to new contacts and new ideas. UKTI offers a range of support services to UK companies, providing individually tailored packages of practical assistance to help them develop the capacity needed to trade internationally. These services can assist new and experienced exporters with information, contacts, practical assistance, advice, mentoring and ongoing help before they go overseas and while they are there.

Relations between UKTI and Scottish Development International (SDI) Key Messages: — SDI is a key partner for UKTI in Scotland. — Close joint working already exists to ensure the best possible outcome for businesses wherever they are located in UK. — Contacts are in place at all levels between the two organisations, from Senior Management Team downwards. — More formal mechanisms are in place such as the International Business Development Forum (IBDF). The IBDF brings together UKTI, the trade and investment promotion organisations of the Devolved Administrations, and the English RDAs. It acts as a discussion forum on trade and investment issues and sets the guidelines on process, shared issues and joint working. — Scottish companies are able to access the majority of UKTI services through SDI. SDI also has its own network of advisers (both at home and abroad) delivering SDI’s own programmes and services to Scottish businesses. Key Facts: — UKTI has the lead responsibility in the UK for the provision of support and assistance to new and existing exporters of goods and services and outward investors, both at home and overseas. UKTI also promotes the UK as a whole to foreign investors, as the international partner of choice for doing business in and with. — The Devolved Administration in Scotland, through SDI, is responsible for devising and implementing additional programmes to meet the particular needs of companies based in Scotland, and for promoting Scotland to overseas investors. — SDI is able to draw on the resources of UKTI trade teams at diplomatic posts around the world and can access the majority of UKTI’s national services. As UKTI partners, they also have access to internal information on the UKTI website, eg alerts to the latest and best business opportunities. cobber Pack: U PL: CWE1 [E] Processed: [22-02-2012 16:08] Job: 018777 Unit: PG03

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— Both organisations consult each other regularly on policy developments and activities to avoid duplication of effort and to avoid contradictory actions. SDI is also represented (alongside UKTI, the other Devolved Administrations and the RDAs) on the IBDF, which sets out guidelines for trade and inward investment activities. For example, promotion of the UK to foreign investors is co-ordinated through adherence of all parties to the International Investment guidelines agreed by IBDF.

Further Background The Devolved Administration for Scotland is directly responsible for the provision of international trade support, for which their development agency, SDI, has its own funding.

UKTI Trade Services in Scotland Scottish companies can use the majority of UKTI’s services on the same basis as companies in other parts of the UK. These services are summarised in more detail below. In 2009–10 usage of UKTI services in Scotland was as follows: — 387 Scottish firms were helped by overseas posts through the Overseas Market Introduction Service (OMIS). — Four missions to China, India, UAE and South Africa including 42 companies were run using Market Visit Support (MVS) funding. — 185 Scottish SMEs received grant support from the Tradeshow Access Programme (TAP). — Seven Scottish companies (out of 25 UK participants) took part in the British Lifestyle Showcase in Moscow in March. — In 2009–10 Scottish companies were offered 800 complimentary business class tickets through a British Airways/UKTI initiative, of which they took up 386. — Three research projects, total value £12,726, were supported under the Export Marketing Research Scheme (EMRS).

UKTI sectoral coverage UKTI currently runs 11 sector support teams, with UKTI Defence & Security Organisation providing additional support for these sectors. All sector support is UK-wide. Historically, UKTI and its predecessor organisations have always had some sector teams based in Scotland (the Glasgow office has been there since 1972), initially to support the UK oil and gas sector. UKTI is now particularly well placed to support the emerging energy renewables sector, where Scottish companies have an advantage technologically and geographically, particularly for the development of offshore wind technology. UKTI’s Advanced Engineering and Tradeshow Access Programme teams are also based in Glasgow. UKTI supports Offshore Europe, the major European bienniel show in Aberdeen (200+ companies supported in 2009 and a similar targets this year) and All Energy, the main annual renewables show, also in Aberdeen (150 companies last year, similar target this year). We estimate that around 70% of companies at the Aberdeen events are Scottish, although of course many global and other UK players participate too. Offshore Europe and All Energy are two of UKTI’s key events this coming year. UKTI also has a range of missions to various parts of the world where we are working actively with Scottish interlocutors, such as the Aberdeen Chamber of Commerce.

2012 Olympic Games The Olympic and Paralympics Games are the world’s most powerful event for nation building and re- branding. Just as we have seen in the efforts of the Australian Government through the 2000 Sydney Games, the revitalisation of Barcelona through the 1992 Games and the re-positioning of China through the 2008 Beijing Games, 2012 presents the UK with a once in a generation opportunity to promote the UK’s economic offer. Hosting a successful Games will be a cause for national celebration, and will come to symbolise the Britain that emerges from the downturn. The success of London’s bid was based on a promise that the Games would bring a lasting legacy of benefits for the whole of the UK. In the present financial landscape it is imperative that we demonstrate the return on investment of hosting this mega-event for the benefit of the economy and the rest of the country. A key part of this will be to ensure that London 2012 delivers an international business legacy through increased exports and high value inward investment projects. UKTI leads Government action to use the Games to promote the UK as the place to find outstanding business solutions, suppliers and partners and as an inward investment location that will enable international investors to secure strong returns on their investment. The scale of the opportunity is significant: Lloyds TSB are predicting that the 2012 games will deliver £21 billion of business value and boost GDP by £1 billion. UKTI sees the 2012 Games as a unique opportunity to showcase Britain throughout the world and to build a legacy cobber Pack: U PL: CWE1 [O] Processed: [22-02-2012 16:08] Job: 018777 Unit: PG03

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of globally competitive and innovative businesses. If this is done effectively UK companies can use the Games and the contracts secured from them as a platform for winning national and international projects in the future. To support this activity UKTI is developing a Supplier Directory to showcase UK expertise to future bid and hosting nations which will allow them to search for specific sporting infrastructure capabilities from the UK. All UK 2012 suppliers will be invited to be founding members. SDI has been offered the opportunity to nominate Scottish companies for inclusion in the directory that will act as a tangible example of projecting UK expertise gained by working on the London Games. During the Games UKTI is planning an extensive business promotion programme at the “British Business Embassy”—it may be possible to partner with SDI on specific events at the Embassy. Overseas Posts are already handling requests from organising committees for help to identify companies currently working on the London Games, something that we would expect to be replicated for Glasgow Commonwealth Games 2014 suppliers. Wider work on Glasgow 2014 is being planned now that the Delhi games are concluded. UKTI is working with partners in the devolved administrations, including the SDI, and throughout its international network, to run a series of business events in the run up to 2012 to promote UK investment opportunities. These events will supported by material highlights strengths across the UK.

UKTI Defence and Security Services UKTI Defence and Security Organisation (UKTI DSO) supports UK SMEs through its Small Business Unit (SBU), from where it provides export-related advice, information and support in the defence and security sector. These services are now being made available via a web-based business model that makes UKTI DSO assistance more readily available to the wider SME community. The new website aims to provide up to 95% of UK SMEs with the defence/security advice, information and support they seek, backed up by the personal assistance in the estimated 5% of cases that may need it. DSO became part of UKTI on 1 April 2008. On that day the SBU introduced its support and services, alongside new UKTI colleagues, to a number of Scottish SMEs as part of a collaboration with Glasgow University. Both Glasgow and Edinburgh were visited on that occasion. SBU has a regular speaking slot on a “Selling to Defence” seminar programme, administered by BiP Solutions, a Scottish-based publications and events company. This has allowed UKTI DSO to present its services to Scottish SMEs on a number of occasions since. The next opportunity is in Glasgow on 2 December 2010. SBU has also developed close relations with Scottish Enterprise and has made a few visits to the Glasgow HQ to brief the members of the SDI team. A representative from Scottish Enterprise attended the UKTI DSO SME Symposium, held in London in 2009 and will be invited back for the next one in March 2011.

UKTI Service Details The Overseas Market Introduction Service (OMIS) is a web-based application that puts business directly in touch with staff in UKTI offices abroad to provide focused business advice and in market support. It is a chargeable service, based on a series of clear price bands depending on the time taken to do the work requested. OMIS activities can include market advice, analysis of market entry strategies, identification of possible business partners, arranging meetings with key contacts in market, support during overseas visits, video and WEBex conferencing and help with events such as product launches. UKTI has an established relationship with SDI on the delivery of OMIS in Scotland and has delivered OMIS training to all Scottish Trade Advisers. SDI commissions OMIS support help from UKTI’s overseas teams in organising missions and events in markets on the same basis as English organisers. Reports are also commissioned on key sectors to increase Scottish companies’ knowledge of them. Univation Ltd, the commercial subsidiary of Robert Gordon University, Aberdeen, has made good use of the OMIS service in several markets including China, SE Asia, Venezuela and Ghana. Univation delivers customised education and training courses to the oil and gas industry. With help from UKTI, Univation was successful in winning a three-year contract to provide a production and engineering technology training programme in China. The Market Visit Support scheme (MVS) provides assistance, including financial support, to new to export or new to market SMEs who need to visit overseas markets either as part of an organised group, or individually. Funding can be used for grant and/or to pay a third party organisation to run missions. SDI contracts with the Scottish Council for Development and Industry to run MVS-funded missions on their behalf. All Tradeshow Access Programme (TAP) applications from companies based in Scotland must be approved by SDI (just as in England the applications are routed through UKTI regional teams). Scottish based companies claimed four% of the total grant allocated to TAP last year. This demand was lower than could be expected from Scotland’s share of UK exports, and the TAP team and SDI are co-operating to promote TAP to businesses cobber Pack: U PL: CWE1 [E] Processed: [22-02-2012 16:08] Job: 018777 Unit: PG03

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beyond SDI’s existing client base. Website from SDI to UKTI pages and TAP team participation in Scottish events will assist in this. — Participation in nationally organised trade missions and events is open to all regions of the UK. For example, six out of the 12 companies that made up the Healthcare trade mission to Japan last March were based in Scotland. — Scottish companies accounted for four out of the 14 participants that were recruited for an overseas visit to the African Development Bank in Tunis last June. — All five of the companies that were selected for a biofuels trade mission to Brazil last October were based in Scotland. — The British Lifestyle showcase in Moscow in March 2010 brought together outstanding businesses in fashion, textiles, interiors and giftware, many new to the Russian market. Close co-operation between UKTI Sectors Group and SDI saw seven Scottish companies take part. All have reported success in making new contacts and some have obtained orders. UKTI is devising another British Lifestyle event in Sao Paulo and SDI will again be closely involved.

The Export Marketing Research Scheme (EMRS) provides free advice on how to conduct marketing research plus the possibility of a grant towards in-house research, use of a market research agency or purchase of published market reports for approved marketing research projects. This service is delivered for UKTI by the British Chambers of Commerce (BCC).

The Export Communication Review (ECR) provides companies with advice on language and cultural issues to help them develop an effective communications strategy with overseas customers and contacts plus an in- depth website review. This service is delivered for UKTI by the BCC. (There was no take up by Scottish companies of the Export Communications Review (ECR) programme in 2009–10).

Points of Clarification — UKTI has two programmes, Passport to Export and Gateway to Global Growth that are only available in England. These are geographically based intensive assistance and capacity building programmes delivered by International Trade Advisers in the English regions. SDI has its own equivalents. — Work done by posts overseas for all UK companies is chargeable with some exceptions such as political lobbying and basic group briefing for missions. — For 2010–11 British Airways has made a further discounted tickets offer for UK SMEs. Scottish companies will again be able to take advantage of this. UKTI has liaised closely with SDI about the BA offer. — Considerable efforts have been made by UKTI and their contractor, the British Chambers of Commerce, to encourage Scottish companies to use the EMRS and ECR programmes and we hope the uptake will increase in the future.

Foreign Direct Investment (FDI)—UK and Scotland

UKTI markets the UK as a whole as a destination for FDI while specific marketing of Scotland as a FDI destination rests with SDI. However, the two organisations work together closely, under an agreed formal mechanism,1 to maximise inward investment success. This collaboration is guided by four core principles: 1. That we make a priority of winning the business for the UK and acting in the national interest; 2. That we are Client-oriented, ie we put the Client first and adopt a true service ethic towards them; 3. That we focus on building long term relationships with Clients; 4. That we maintain transparency across the network with prompt sharing of information whilst respecting Client confidentiality where appropriate in line with the IBDF Guidelines.

In 2009–10 the UK attracted 1,619 projects2 and 94,346 jobs. Of these, England attracted 1,409 projects and 79,384 jobs and Scotland attracted 96 projects and 5,471 jobs. Of the Scottish projects 19 (19.7%) were secured by UKTI, 41 by SDI and 15 (15.6%) in a collaboration between UKTI and SDI.

However, Ernst & Young’s European Investment Monitor3 shows that Scotland remains the second most attractive destination for inward investment projects in the UK and attracts between 6 to 11% of all projects. 1 The International Business development Forum which brings together UKTI, the trade and investment promotion organisations of the Devolved Administrations and the English regions 2 UKTI figures reported on financial year basis 3 EIM figures reported on calendar year basis 4 Source: Ernst & Young’s European Investment Monitor cobber Pack: U PL: CWE1 [O] Processed: [22-02-2012 16:08] Job: 018777 Unit: PG03

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FOREIGN DIRECT INVESTMENT ACROSS THE UK’S NATIONS AND REGIONS (BY NUMBER OF PROJECTS)5 Region 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 Total South East (1) 281 168 169 169 242 287 379 410 342 346 2,793 Scotland 55 35 25 39 64 33 62 69 53 51 486 West Midlands 48 31 17 32 46 43 49 54 37 51 408 North 17 11 34 46 50 49 31 42 37 39 356 North West 39 20 10 33 28 27 37 26 51 37 308 Wales 35 19 27 42 35 13 16 22 35 20 264 South West 27 9 31 28 22 20 23 9 29 32 230 Yorkshire & Humber 27 23 15 25 24 17 14 16 22 42 225 East Anglia 15 16 18 5 25 30 28 29 30 19 215 Northern Ireland 20 21 13 10 16 18 17 26 19 25 185 East Midlands 10 17 10 24 11 22 29 10 31 16 180 Total 574 370 369 453 563 559 685 713 686 678 5,650 Scotland’s % 10% 9% 7% 9% 11% 6% 9% 10% 8% 8% 9%

(1) includes London Scotland attracts a much higher proportion of R&D projects in the UK (19%) compared to overall projects (9%). UKTI statistics show that Scotland has been particularly successful in attracting R&D-intensive inward investment into the UK; 30 of the 96 inward investment projects (UKTI figures) attracted to Scotland last year had a strong R&D component. UKTI deploys a number of R&D specialists whose task is to understand the detailed strengths of the UK’s universities and research institutes, and to match them with the needs of inward investors. These specialists work closely with SDI and Scottish universities.

R&D PROJECTS IN THE UK Region 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 Total South East (UK) 18 14 8 6 12 12 12 15 18 14 129 Scotland 9734810121691492 East Anglia 3351710379553 Northern Ireland 452356455746 North 113223547331 Wales 212251265329 North West 212422 32927 West Midlands 4 2 112153827 East Midlands 31223412220 South West 2 1213214 16 Yorkshire & 2 2 1322 1316 Humber Total 47 39 27 28 48 54 47 63 65 68 486

Scotland’s % 19% 18% 11% 14% 17% 19% 26% 25% 14% 21% 19%

Sectors that feature strongly in Scottish FDI are oil and gas, pharmaceuticals, power, business and consumer services, electronics and IT hardware, software and computer services and food and drink. As mentioned above, UKTI has a team in Glasgow focussed on marketing the energy sector internationally as the business partner of choice. With industry representatives and in collaboration with SDI it has led the development of a marketing strategy to encourage inward investment in the sector. Examples of the success of UKTI’s work to attract FDI projects to Scotland include Falck Renewables Plc, an Italian owned renewable energy sector business that has worked with the UKTI Investment Team in Milan since 2000. In September 2009 the company opened a Remote Control Centre in Inverness to monitor all their active wind farms in Europe. All wind farms under construction at the moment will be linked to their monitoring centre in Scotland when operational. In addition to this, two new onshore wind farms began operating in September 2009. UKTI Milan maintains a close working relationship with the company’s top management in London. Similarly, Delmar Systems, which supplies mooring services to the offshore oil and gas industry was assisted by UKTI Houston with the opening of a European office in Aberdeen. UKTI Houston provided advice on setting up this office as well as providing introductions to SDI, Subsea UK, and other Aberdeen companies in need of Delmar’s services. UKTI also discussed the R&D capabilities of the University of Aberdeen and the potential for working with them in the future. For information, we have included FDI figures for Scotland for the past 20 years (see Annex 1). 5 Source: Ernst & Young’s European Investment Monitor cobber Pack: U PL: CWE1 [E] Processed: [22-02-2012 16:08] Job: 018777 Unit: PG03

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Figures are based on information provided by the company at the time of the announcement of the decision to invest in the UK, and the companies’ estimates of capital expenditure and jobs created/safeguarded in the first three years. These figures do not take account of subsequent developments, nor are investors required to notify UKTI of new investment projects, so the figures only include those projects where UKTI and/or a partner organisation such as SDI were involved, or which have come to our notice.

Annex 1 LIST OF INVESTMENT PROJECT SUCCESSES IN SCOTLAND SINCE 1989 Year No. of Projects Total No. of Jobs 1989–90 35 8,397 1990–91 40 6,629 1991–92 38 4,775 1992–93 61 8,686 1993–94 87 12,274 1994–95 81 10,795 1995–96 71 11,605 1996–97 76 11,997 1997–98 75 12,557 1998–99 56 7,545 1999–2000 75 13,823 2000–01 72 13,505 2001–02 59 7,092 2002–03 49 5,323 2003–04 74 4,613 2004–05 68 6,511 2005–06 60 2,915 2006–07 89 6,242 2007–08 91 6,012 2008–09 78 2,851 Total 1,588 200,897

January 2011

Supplementary written evidence submitted by UK Trade and Investment 1. Introduction At the Supporting Scotland’s Economy oral evidence session on 1 December the Committee requested the percentage share of Scottish companies taking up those UK Trade & Investment services quoted by Susan Haird. This information is provided below. Additionally, UK Trade & Investment has included details on the use Scottish companies have made of the Tradeshow Access Programme (TAP) and supplementary data on Foreign Direct Investment.

2. Scottish Companies taking up UK Trade & Investment Services 2.1 In the oral session reference was made to the following UKTI trade services: — Inward missions: sector focused delegations of overseas companies, buyers and/or governments brought to the UK to meet potential UK trade partners and better understand UK capabilities; — Missions overseas: sector focused groups of UK companies taken to overseas markets to explore targeted trade opportunities, meet potential trade partners and showcase UK capabilities; — Events overseas: events and seminars held in targeted markets and sectors to showcase UK excellence and provide UK companies with the opportunity to meet potential overseas trade partners; and — Events In the UK: events and seminars held in the UK where UK companies can learn more about trade opportunities, access their sectoral networks and meet with potential overseas trade partners. 2.2 The level of participation of Scottish companies within these activities in 2009–106 is as follows: — Inward missions: 8.3% of the attending companies were Scottish (206). Total UK companies recorded: 2,477; 6 UKTI’s Client Relationship Management system record is based on the address of the company and the recorded number does not necessarily refer to individual companies, but to the number of participations, attendances, etc recorded. A single company may have participated or attended a number of missions or events. cobber Pack: U PL: CWE1 [O] Processed: [22-02-2012 16:08] Job: 018777 Unit: PG03

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— Missions overseas: 7.5% of the attending companies were Scottish (137). Total UK companies recorded: 1,834; — Events overseas: 7.4% of the attending companies were Scottish (305). Total UK companies recorded: 4,141; — Events in the UK: 5.3% of the attending companies were Scottish (645). Total UK companies recorded: 12,261. Source: UKTI data 2.3 Scottish companies’ participation at inward missions (8.3%) is in line with its GVA of 8.2%.7 Overseas missions (7.5%) and overseas events (7.4%) are similarly in line. Scottish companies’ participation at events in the UK is lower at 5.3% but it is likely that this is due to Scottish companies attending events organised by SDI and held in Scotland.

3. Tradeshow Access Programme (TAP): Scottish Businesses Comparative Figures 3.1 TAP supports UK Small and Medium sized Enterprises to exhibit at overseas trade fairs, funds promotional activity to enhance UK exhibitor groups at those events and can provide assistance for businesses who buy speaker time at international conferences to promote their goods or services. It is part of UKTI’s suite of services which help UK businesses access international markets. 3.2 TAP is open to all eligible businesses regardless of where they are in the UK. It can be accessed either through discussions with an international trade adviser in England or their equivalents in Scotland. Companies in Scotland can enquire about TAP through “how we can help” and “exploring new markets” signposts at either UK Trade & Investment or SDI websites respectively. For TAP purposes SDI Is the delivery agent In Scotland for UKTI.

Table 1 BREAKDOWN TO DATE FOR 2010–11 UK No of grants % of total London 1,057 24% South East 781 17% East of England 505 11% South West 446 10% East Midlands 386 9% West Midlands 370 8% North West 338 8% Yorkshire & Humber 214 5% Scotland 187 4% Wales 87 2% North East 82 2% Northern Ireland 42 1% Total 4,495

4. Key Points about the Importance of Foreign Direct Investment to Scotland 4.1 Scotland is the second most important destination for FDI projects after the South East of England including London. According to Ernst & Young’s European Investment Monitor (EIM) figures, it attracted between 8% and 11% of projects over the period 2000 to 2010. (EIM figures have been used here to provide consistency. EIM figures were given in additional evidence to Scotland’s Economy, Energy and Tourism Committee’s inquiry into the public sector’s support for exporters, international trade and the attraction of inward investment8).

7 On a workplace basis, Scotland’s gross value added (current prices) stood at £103.8 billion in 2008, accounting for 8.2% of the UK total, (ONS Regional GVA) GVA and GDP Gross Value Added (GVA) provides a measure of the value added to materials and other inputs in the production of goods and services by resident organisations before allowing for depreciation or capital consumption. It is equal to GDP plus subsidies less taxes on products. To estimate regional GDP, these taxes and subsidies are regionally allocated. On a UK regional level, GVA per head is used when comparing regional economic performance while, on a European level, GDP per head is used to compare EU countries and regions. This does not affect comparison of regions within a country, as relative differences between regions are the same on both bases. Source: Office for National Statistics 8 Provided by David Smith, Interim Chief Executive, Scottish Development International in collaboration with UKTI on 6 July 2010 cobber Pack: U PL: CWE1 [E] Processed: [22-02-2012 16:08] Job: 018777 Unit: PG03

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Table 2 SCOTLAND REMAINS THE 2ND MOST ATTRACTIVE DESTINATION (BY UK REGION OR NATION) FOR INWARD INVESTMENT PROJECTS IN THE UK Region 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 Total South East 281 168 169 169 242 287 379 410 342 346 2,793 (including London) Scotland 55 35 25 39 64 33 62 69 53 51 486 West Midlands 48 31 17 32 46 43 49 54 37 51 408 North 17 11 34 46 50 49 31 42 37 39 356 North West 39 20 10 33 28 27 37 26 51 37 308 Wales 35 19 27 42 35 13 16 22 35 20 264 South West 27 9 31 28 22 20 23 9 29 32 230 Yorkshire & 27 23 15 25 24 17 14 16 22 42 225 Humber East Anglia 15 16 18 5 25 30 28 29 30 19 215 Northern Ireland 20 21 13 10 16 18 17 26 19 25 185 East Midlands 10 17 10 24 11 22 29 10 31 16 180 Total 574 370 369 453 563 559 685 713 686 678 5,650

Scotland’s % 10% 9% 7% 9% 11% 6% 9% 10% 8% 8% 9%

Source: Ernst & Young European Investment Monitor

Size of New Projects 4.2 According to UKTI data, although London and the South East of England attract more projects than Scotland, they tend to be smaller in scale. Almost three quarters (74%) of London’s new projects had equal to or fewer than 10 employees. For Scotland It was 52% of new projects that had equal to or fewer than 10 employees. London had 26% of its new projects with more than 10 employees. For Scotland it was 48%.

Table 3 COMPARISON OF SCOTLAND, LONDON AND SOUTH EAST OF ENGLAND’S NEW PROJECTS WITH FEWER, AND MORE THAN, 10 EMPLOYEES (2009–10) Number of NEW % of NEW projects with projects with Number of NEW % of NEW ALL NEW equal to or <10 equal to or <10 projects with projects with PROJECTS employees employees >10 employees >10 employees London 337 249 74% 88 26% South East 72 58 80% 14 20% Scotland 48 25 52% 23 48% cobber Pack: U PL: CWE1 [O] Processed: [22-02-2012 16:08] Job: 018777 Unit: PG03

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Research & Development Investment Projects attracted to Scotland

Table 4

R&D INVESTMENT PROJECTS ATTRACTED TO SCOTLAND Region 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 Total 2003 2006 2008 2009 South East UK 18 14 8 6 12 12 12 15 18 14 129 Scotland 9734810121691492 East Anglia 3351710379553 Northern Ireland 452356455746 North 113223547331 Wales 212251265329 North West 212422 32927 West Midlands 4 2 112153827 East Midlands 31223412220 South West 2 1213214 16 Yorks. & Humber 2 2 1322 1316 Total 47 39 27 28 48 54 47 63 65 68 486

Scotland’s % 19% 18% 11% 14% 17% 19% 26% 25% 14% 21% 19%

Source: Ernst & Young European Investment Monitor

4.3 Scotland has a strong R&D performance history. According to Ernst & Young’s European Investment Monitor (EIM) figures9 over the last 10 years, Scotland attracted 9% of all projects (see Table 2). However, it attracted 19% of all R&D projects (Table 4) and its share of R&D jobs has been 20% over last ten years (Table 5).

Table 5

BY NUMBER OFR&DJOBS 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 Total South East (UK) 1,100 1,013 138 470 315 734 157 600 487 456 5,470 Scotland 1,057 387 89 189 171 798 269 893 321 344 4,518 Northern Ireland 592 265 33 168 925 230 305 544 266 214 3,542 East Anglia 524 8 404 0 394 308 225 50 150 10 2,073 Wales 26 0 40 304 280 200 87 657 33 66 1,693 West Midlands 73 125002230701236082761,507 (UK) South west (UK) 120 0 146 50 50 640 22 0 86 0 1,114 North West (UK) 55 50 0 249 20 320 0 0 10 133 837 Yorkshire and 86 230 0 60 145 3 20 0 0 172 716 Humberside North (UK) 0 0 130 26 10 18 162 29 128 93 596 East Midlands 0 65 5 14 12 12 25 0 195 30 358 (UK) Grand Total 3,633 2,143 985 1,530 2,324 3,493 1,342 2,896 2,284 1,794 22,424 Scotland’s% 29% 18% 9% 12% 7% 23% 20% 31% 14% 19% 20%

Source: Ernst & Young European Investment Monitor

Foreign-owned Enterprises in Scotland

4.4 Since 2002 the number of foreign-owned enterprises in Scotland has risen more swiftly than in the UK overall. In Scotland the number has increased by 50%, where in the UK as a whole, it has only increased by 5%. Employment in those firms has also increased more rapidly in Scotland (up by 66%) than in the UK (up by 16%). (Source: Scottish Government). 9 EIM figures were given in additional evidence to Scotland’s Economy, Energy and Tourism Committee’s inquiry into the public sector’s support for exporters, international trade and the attraction of inward investment. cobber Pack: U PL: CWE1 [E] Processed: [22-02-2012 16:08] Job: 018777 Unit: PG03

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Conclusion Scotland is an attractive destination for foreign direct investment. Its take up of UKTI services such as inward missions (8.3%), overseas missions (7.5%) and overseas events (7.4%) are in line with its GVA of 8.2%. — Scotland remains the second most attractive destination for inward investment projects in the UK (Table 2, Source EIM). — 48% of new projects had more than 10 employees. This compares to London with only 26% and the South East of England with 20% (Table 3, Source UKTI). — Scotland attracted 19% of all R&D projects (Table 4) and its share of R&D jobs has been 20% over last 10 years (Table 5). January 2011

Written evidence submitted by CBI Scotland CBI Scotland’s Industrial Trends Survey The latest industrial trends survey published on 19 October 2010 revealed a confident outlook among Scottish manufacturers, with growth in total orders exceeding expectations and export prospects strengthening. Total new orders expanded at a surprisingly strong rate as foreign demand proved firmer than expected. Indeed, with firms now expecting export orders to grow at the fastest rate since July 2007, confidence surrounding export prospects is at a three-year high. Although production levels were broadly unchanged in the three months to October, after four consecutive quarters of strong output growth, firms forecast a return to growth in the three months ahead. Manufacturers reported a marked turn in the inventory cycle over the past quarter, with stocks of finished goods being rebuilt at the strongest rate since July 1980. But looking ahead, the pace of restocking is anticipated to slow, with only stocks of raw materials expected to expand further. Firms recorded a strong rise in average unit costs over the past three months, despite expecting no change. It would appear that firms had some success in passing the costs on to customers, with domestic prices rising at the fastest rate since April 1991. Headcount failed to grow quite as strongly as firms had predicted, with only very marginal growth reported. In the three months ahead, growth in numbers employed is set to falter further, with no change in headcount anticipated. Nevertheless, prospects for business investment in the year ahead have brightened somewhat. Firms expect to increase expenditure on product and process innovation for the first time in over two years, while spending plans for plant and machinery are positive for the first occasion since October 2007. Although output growth undershot firms’ expectations over the last three months, conditions within the Scottish manufacturing sector are steadily improving. Total orders are strengthening, confidence is growing and there are signs that investment intentions are becoming more positive.

Employment Levels In the past three months headcount grew at a very modest rate and by less than had been expected. In the three months ahead firms expect no change in numbers employed.

Inward Investment Grant aid for long-term commitment In an era of spending austerity we must protect grants which help companies to invest, expand and locate in Scotland. Indigenous firms should be given priority because they are more likely to have a long-term commitment to Scotland. There is a need for better communication and more support from public organisations so that businesses know, understand, apply and navigate their way through the grant schemes on offer.

Resource economic development agencies CBI Scotland has good working relations with Scottish Enterprise (SE) and Highlands & Islands Enterprise (HIE). We are consulted regularly on policies, services and business support at formative stages and work with directors and senior managers. Largely, SE, HIE and Business Gateway are delivering what our members want and we believe that as bodies promoting and encouraging the growth of the Scottish economy they should have sufficient resources at their disposal. We would be concerned by any further cuts in their budgets. cobber Pack: U PL: CWE1 [O] Processed: [22-02-2012 16:08] Job: 018777 Unit: PG03

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Exports

Commenting on the latest Scottish manufacturing export data released 14 October 2010. “These figures mark a welcome improvement in Scotland’s export performance in the second quarter of this year, with more sub-sectors reporting growth than in the previous quarter. This is broadly consistent with the findings of our own recent industrial survey which found an acceleration in the growth of export orders for the second quarter of this year.” “Overseas demand is beginning to return, but more needs to be done to help firms capitalise on the opportunities provided by the weak pound. If Scotland is to deliver a step change in its export performance then it is all the more important that the UK and Scottish governments’ use their upcoming Spending Reviews to galvanise growth. This means prioritising those areas which foster the economy’s ability to grow and enhance competitiveness, such as infrastructure investment and export assistance.”

For further information on CBI Scotland’s views on export policy please find below and extract from CBI Scotland’s Manifesto:

Set more ambitious export targets

The Scottish Government should set more ambitious targets for growing exports in support of the step change in performance required to rebalance Scotland’s economy. Support for exporters should be protected as much as possible in this period of public spending restraint. We require better promotion of existing, inspirational export success, as well as encouraging businesses to tap into networks such as GlobalScots, the Scottish North American Business Council and the China-Britain Business Council (Scotland).

It should not be left to SDI alone to improve Scotland’s capacity to benefit from and respond to the opportunities and threats posed by globalisation. Wider devolved public policy has a significant role in ensuring Scotland is, and better known as, a great place to do business and to invest.

A number of practical actions could assist exporters and tempt international businesses to continue to invest here or to invest for the first time: — Re-introduce the Air Route Development Fund to encourage and support direct international air services between Scottish airports and key business destinations and hubs. — Support an alternative strategy for international connectivity now that the UK administration has ruled out additional runways at Heathrow and Gatwick. — Maintain competitive business rates. — Develop a supportive planning and infrastructure regime. — Protect capital grants which help firms to expand or locate in Scotland.

Details of our Scottish manifesto and other recent policy documents are available on our website. January 2011

Written evidence submitted by the Federation of Small Businesses

Introduction

The FSB is Scotland’s largest direct-member business organisation, representing around 20,000 small business owners. The FSB campaigns for an economic and social environment which allows small businesses to grow and prosper. We welcome the opportunity to submit evidence to the Scottish Affairs Committee on the above subject.

Supporting Businesses in Scotland

Overview of the small business sector

Micro-businesses (enterprises with fewer than 10 employees) form the bulk of the business base in Scotland. Figure 1 (below) illustrates this, indicating that 93% of all private enterprises in Scotland are micro-businesses. Most FSB members fall within this category. cobber Pack: U PL: CWE1 [E] Processed: [22-02-2012 16:08] Job: 018777 Unit: PG03

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Figure 1 OVERVIEW OF THE SCOTTISH PRIVATE SECTOR BY SIZE OF ENTERPRISE

120%

100%

80%

60% 2000

40% 2005 2010 20%

0% Enterprises < Enterprises Unregistered Registered Small Medium sized 10 employees with no enterprises businesses 0- businesses to business to employees 49 employees overall overall enterprises enterprises

Source: Scottish Corporate Sector Statistics 2010 Note: Unregistered enterprises: enterprises which fall below the VAT threshold (generally sole traders, partnerships with no employees) Small business: 0–49 employees Medium sized business: 50–250 employees Using 2009 private sector statistics it is possible to compare the small business sector in Scotland with the sector across the whole of the UK. Below in Table 1 are the headline figures. Small businesses (0–49 employees) account for: UK 2009 Scotland 2009 Of total private enterprises ... 99% 98% Of private sector employment ... 48% 41% Of private sector turnover ... 36% 28%

Source: BIS Enterprise Directorate Analytical Unit This shows that while Scotland’s small business sector has a slightly smaller share of the overall private sector than the UK as whole its share of employment and turnover is lower, suggesting that Scotland’s small businesses are slightly smaller on average than those in other parts of the UK both in terms of size and growth. This is consistent with FSB membership survey responses which show that a consistently higher percentage of Scottish respondents employ no staff compared with members from the UK as a whole.

Economic Challenges Faced by our Members Small and micro-businesses in Scotland have of late faced many of the same well-documented issues as their counterparts in other parts of the UK, including: — Reduced access to finance; — Delays in payment from customers; — Lack of consumer confidence; and — Increased costs of complying with regulation and legislation. In addition to this, Scotland’s small businesses are at a disadvantage to most of their counterparts in the UK in relation to issues such as: — Lack of competition in the banking sector; — Broadband, Wi-Fi and mobile coverage; and cobber Pack: U PL: CWE1 [O] Processed: [22-02-2012 16:08] Job: 018777 Unit: PG03

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— Transport and infrastructure. FSB has therefore been calling, inter alia, for the following: — A full investigation into competition in the small business banking sector; — Assurance that broadband roll-out will reach as much of Scotland as possible, particularly rural areas where purely market-led initiatives would not consider; — More competition between airports, particularly in relation to commuter and business services to London; — A move away from reliance on short-term debt finance provision for business to longer term, sustainable finance through, for example, an expanded equity finance market in Scotland; — Funding for Companies House to implement the powers enshrined in the Companies Act 1985 to tackle late payment; — Public bodies to take timely budgetary decisions to instil confidence and enable the business community to plan; and — Smarter, joined-up regulation.

Re-balancing the Scottish Economy While not being directly concerned with the broader questions relating to the balance between the public and private sectors in Scotland, the FSB would caution against allowing communities in Scotland from again becoming over-reliant on a small number of large employers (whether public or private sector). The FSB believes it is important for Scotland to ensure that its own, broad, locally-grown business base is developed. In addition to the recommendations set out above, the FSB believes there is considerable potential amongst Scotland’s small businesses for contributing to economic stability and growth, that could be harnessed with relatively little support. This is particularly true when considering job creation, where small businesses in Scotland have a demonstrable track record.

The Promotion of Job Creation Schemes Over the last decade, Scottish Corporate Sector Statistics show that big business in Scotland shed 34,900 jobs, while small businesses created 67,400. It is encouraging that, even against the current challenging backdrop, around 35% of small Scottish businesses responding to the FSB’s monthly survey reported that they were operating at or above capacity. Further, a high proportion (69%) of Scottish FSB members who employ staff expected their staff numbers either to stay the same or increase over the next three months.10 There is therefore scope for small businesses to build on this record and provide the new jobs the Scottish economy needs. Given the scale of the task, there are several steps which the UK Government should consider in order to facilitate this. First, we welcome the Regional Employer National Insurance Contributions Holiday for new businesses on their first 10 employees as a sensible move to encourage entrepreneurship. However, we would like to see this extended to all genuinely new jobs created by existing small businesses in Scotland. Not only would this reduce the cost and risk of employing new staff for the business, it would nevertheless generate Income Tax revenues which the Treasury would not otherwise raise. Secondly, we would argue that Scotland’s 193,00011 strong army of single-member enterprises (ie businesses with no employees) represents a significant untapped resource. If only 20% of single-member enterprises in Scotland were to employ one person this would create a further 38,600 jobs in Scotland. In addition to the capacity figure noted above, there is also an appetite to make the move towards becoming an employer. According to the FSB-ICM survey in March 2010, approximately 48% of small businesses with no staff currently had considered taking on an employee. In investigating this potential, the FSB identified several barriers preventing single-member enterprises converting this consideration into reality. In addition to obvious questions of cost, which could in part be addressed through a wider NIC holiday as outlined above, self-employed individuals can find the prospect of becoming an employer daunting. The bureaucracy, extent of one’s liabilities, demands on time and other practical concerns can dissuade potential employers from making the transition. To that end, the FSB has proposed the introduction of an integrated support service for those seeking to take on their first member of staff. The FSB envisages that the service could provide: 1. One-to-one impartial advice to business owners considering taking on an employee to inform them of the requirements on—and potential benefits to—their business and to help them decide whether becoming an employer is appropriate for them. 10 FSB Member Survey Panel responses: June 2010 and September 2010 respectively. 11 Scottish Corporate Sector Statistics for 2009 cobber Pack: U PL: CWE1 [E] Processed: [22-02-2012 16:08] Job: 018777 Unit: PG03

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2. Mentoring and support for those businesses who decide to become employers—easing the process of taking on their first employee, enabling them to manage their new responsibilities and maximise the benefits of additional staff. Such support could include help with recruitment, drafting contracts of employment and setting up payroll and PAYE systems. While it is accepted that delivering much of this unified business development support will be a matter for the Scottish Parliament to deliver through the devolved enterprise network, the UK government can also play a role by helping ensure that those services provided on a UK-wide basis are effectively integrated into the scheme. The excellent support offered by Job Centre Plus to small businesses seeking to recruit staff is an obvious example.

Promoting Scotland as an Investment Location for Overseas Investors Clearly, the FSB in Scotland’s focus is on the promoting the interests of Scottish small businesses and the communities and jobs they support. We are therefore not best placed to comment in detail on matters relating to inward investment. However, for anywhere to be an attractive location to establish a business, it must have a workforce with the correct number of individuals with the right level and of skills. It is for this reason that the FSB in Scotland has recently raised concerns regarding the proposed annual limit on net non-EEA migration, drawing UK Ministers’ attention to the particular requirements of the Scottish economy. We believe the cap as currently proposed could have a negative effect across various sectors which are key to the Scottish economy. Potential inward investors with specific skills needs—oil, gas and renewables, for example—may share similar concerns to the smallest businesses who may act as sub-contractors in these specific industries. Further, we are deeply concerned that the qualifying wage level of £40,000 does not reflect average salaries and relative populations across the UK. In order to mitigate these effects we support the Scottish Government’s call on the UK Government to take a flexible approach to the annual limit in Scotland. In particular, we would like to see a regional variation introduced so that Scotland is provided with a distinct annual allowance in relation to Tier 2. We believe that this proposal, which is in line with the recommendations of the Commission for Scottish Devolution, provides a workable and practical flexibility. January 2011

Written evidence submitted by the Scottish Independent Advocacy Alliance (SIAA) About the Scottish Independent Advocacy Alliance The Scottish Independent Advocacy Alliance (SIAA) is a membership organisation which promotes, supports and defends independent advocacy in Scotland. It aims to ensure that independent advocacy is available to any vulnerable person in Scotland. The right to independent advocacy for those with mental disorders or who are potentially at risk is enshrined in Scottish legislation. However, independent advocacy can also have a key part to play in supporting other vulnerable groups such as black and minority ethnic groups and people with problem drug and/or alcohol use, amongst others. Independent advocacy helps people by enabling them to express their own needs and to make their own informed decisions. Independent advocates support people to gain access to information and explore their options. They speak up on behalf of those who are unable to speak for themselves or choose not to. Independent advocacy is not about making decisions for someone, counselling or providing advice, it is about tackling injustice by enabling a person to have control over their life and to make their views heard. Independent advocacy organisations do not provide any services other than advocacy. They are separate organisations in their own right, are financially independent, and all those employed in an independent advocacy organisation know that they are only limited in what they do by the principles of advocacy, resources and the law. This ensures they are able to assist vulnerable individuals whilst being as free as possible from any conflicts of interest.

Evidence to the Commission on the Future Delivery of Public Services Independent advocacy can play an important role in people’s lives. Independent advocates, alongside other third sector organisations, can help people into employment, help them get the most out of their employment, and help them to better contribute to Scottish society and economy. The SIAA believes that for any enquiry to fully consider the current economic situation in Scotland and the role of the UK Government, Scottish Government, and other agencies in supporting Scotland’s economy, then the key role of the third sector should also be explored. cobber Pack: U PL: CWE1 [O] Processed: [22-02-2012 16:08] Job: 018777 Unit: PG03

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In their response to the Scottish Parliament Finance Committee regarding the Efficient Delivery of Public Services,12 the Scottish Council for Voluntary Organisations (SCVO) noted that the third sector provides a substantial provision of social care, rehabilitation services, and employment initiatives, all of which can help people come out of poverty and improve their lives. Their response sets out several areas where the third sector can offer benefits to Scotland and Scotland’s economy through delivery of public services: — Community empowerment Independent advocacy plays a key role in helping people gain access to information and explore and understand their options. As a result they can help communities to take forward community based projects and drive forward community led innovation. Indeed, many independent advocacy organisations began as community groups looking to address community issues. — Co-production and the personalisation of services Independent advocates enable service users to comment on the service they receive and actively support service user engagement. The importance of independent advocacy’s role in this areas is shown by its inclusion in the Mental Health (Treatment and Care) (Scotland) Act 2003. — Alternative community led service Independent advocacy organisations are often set up in response to local need and where local people wish to take action on local issues. This is particularly true for collective independent advocacy groups who have played a key role in informing the development of current mental health legislation and provision. Many of them have service users represented on their boards to ensure that as the organisation evolves over time this community led element of their work is actively maintained. The SCVO also identified several threats to the third sector’s ability to support public services and the people of Scotland. These included poor procurement practices, ineffective funding models and severe funding cuts at local authority level. More generally the SIAA are concerned about the impact that changes to welfare benefits and other forms of support which are reserved to the UK Government will have on Scotland’s most vulnerable people. When exploring how best to support Scotland’s economy the Scottish Affairs Committee should address how the UK Government, Scottish Government, and other agencies, can support the third sector to improve the lives of the people of Scotland and to help those currently out of work back into employment. January 2011

Written evidence submitted by RBS Group Executive Summary — We are pleased to respond to the Committee’s inquiry into Supporting Scotland’s Economy.We are acutely aware that we have special responsibility to Scotland and an important role to play in its future as a prosperous and successful country. The central position we occupy in Scottish society and its economy brings responsibilities to customers, employees and wider society that we are determined to fulfil. — We are currently entering year three of our business plan to restructure the bank into a smaller, safe, customer focused and profitable organisation. To make the bank safe we are undertaking one of the largest restructures in corporate history. We have a new Board and management team. We are targeting a balance sheet reduction the size of Standard Chartered and are already more than 40% there. To serve our customers well we have invested over £6 billion on improving our systems and becoming more efficient. Through our Customer Charter we have also made a series of important promises to our customers. We will monitor delivery of these pledges and will make the results public. — When we are successful and the market can have confidence in our progress and clarity on the external economic and regulatory risk, the potential should be reflected in the investment opportunity. For every 1p our share price rises above 50.2p the Government will make £906 million profit in its investment in our shares. The Government’s opportunity to sell its stock in us will be emblematic of confidence both in the progress of RBS and that of the wider economy. — We wrote to the Committee in October 2010 with a full explanation of our actions and activities in relation to employment, supporting home owners and lending to businesses in Scotland. In this submission we provide the Committee with our view of the outlook for the Scottish economy, and highlight RBS’ investment in communities and businesses in Scotland. — We believe that a strong and successful RBS can contribute significantly to a strong and successful Scotland. For this reason it is essential that we work together with staff and customers to ensure RBS is able to reform and rebuild for the benefit of everyone. 12 http://www.scvo.org.uk/policy/funding-policy-sustanability-consultation/finance-committee-budget-strategy-phase-efficient- delivery-of-public-services/ cobber Pack: U PL: CWE1 [E] Processed: [22-02-2012 16:08] Job: 018777 Unit: PG03

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Outlook for the Scottish Economy

1. Scotland’s recession and recovery have been similar to those in the rest of the UK, but with some important differences. Scotland entered recession in the third quarter of 2008. Following a sharp fall in output of 5.7% to the second quarter of 2009, output was flat until the second quarter of 2010 when the recovery began. In contrast, the UK recession began earlier, finished sooner and involved a bigger loss of output, with the economy contracting throughout the recession.

2. To date, Scotland’s recovery has been weaker than in the rest of the UK: output in the third quarter of 2010 was up 1.9% on the year compared with a rise of 2.7% across the UK. In addition, while the recovery in the UK had been broad-based, at least until the third quarter of 2010, Scotland’s recovery appears to have been more narrowly founded, with only construction output growing strongly. In contrast, output of the service and production sectors was close to static.

3. The UK economy contracted again in the final quarter of 2010, by 0.5%. The corresponding data for Scotland will be published in April. On the basis of the UK figures, there is cause for concern about how Scotland fared in this period. The UK downturn was due, in part, to the severe weather conditions in December, during which, conditions in Scotland were more severe still. The sector of the UK that contracted most was construction, the industry on which Scotland’s recovery appears to have been especially dependent. It seems likely, therefore, that Scotland’s economy will have contracted in the final quarter of 2010.

4. Scotland’s job market weakened by slightly more than the rest of the UK during and after the recession. While Scotland’s employment and unemployment rates had been better than those of the rest of the UK before the recession, they are now worse. We know that recessions rooted in high levels of private and public debt are long and deep. The subsequent recoveries are long and protracted as demand is weighed down by deleveraging (businesses reducing their reliance on external debt). Recovery can also be punctuated by periods of slow or negative growth as debt makes the economy especially vulnerable to shocks and surprises. For Scotland and the UK, this recovery will be a long and winding road. The prospects for the UK and Scottish economies in 2011 and beyond will be determined by a race between private sector resilience and recovery, and public sector contraction.

5. Despite the weakness of UK output in the final quarter of 2010, surveys are consistent with a resumption of recovery in 2011, led initially by the manufacturing sector and by exporters. Continuing recovery should see spare capacity within firms largely eroded by the middle of the year, with business investment then beginning to recover. In contrast, reduced government spending will withdraw demand from the economy. Consumers will add little to demand as they pay down debt in the face of a weak labour market, falling real wages and higher taxes.

6. In Scotland, the headwinds to growth are stronger. First, the output data for the first three quarters of 2010 show a strong contribution from construction, in part because the public capital programme was accelerated. That money now has to be “paid back” and this has to be done in the context of the first stage of the austerity programme. This highlights the second headwind: that while the relative size of the public sector in Scotland is sometimes exaggerated, it is proportionately larger than in the rest of the UK, leaving Scotland more vulnerable to the loss of output that will entail.

RBS and the Scottish Economy

7. RBS has a considerable footprint in both retail and business banking in Scotland. We are a significant employer and purchaser of services and we have over many years demonstrated a strong commitment to serving the Scottish communities of which we are an integral part.

8. We have over 300 branches in Scotland. Of these, 23 serve customers in the most deprived areas of Scotland. We have 15 mobile banks serving rural communities and one flying bank serving our hard to reach customers. We have the last bank in town in 75 locations. Under our Retail Customer Charter we have pledged not to close the last bank in town to ensure that communities have access to a banking service.

9. As an employer, we injected £570 million into the Scottish economy in 2009—through wages and pensions—to almost 20,000 people living in Scotland. As well as indirect employment, such as contractors, RBS has almost 15,000 Scottish-based employees making up 15% of all RBS UK employees. The main centres of employee population in Scotland are: Edinburgh (c8,000); and Glasgow (c3,000). We estimate that around 55,000 people in Scotland live in households dependent on RBS for their income/pension.

10. Since the beginning of the financial crisis, we have announced a planned reduction of around 27,000 jobs (c21,000 in the UK and c6,000 in the rest of the world). As our plans have been implemented we have sought to mitigate the impact on those affected. We are doing all we can, in partnership with our employees’ representatives, particularly Unite, to keep the number of compulsory redundancies to a minimum and give staff the support they require. So far only one in four employees who have left via redundancy were subject to compulsory redundancy. In Scotland that figure is one in seven. In Scotland 1,700 people have left so far since the beginning of the crisis through compulsory redundancy, voluntary redundancy and early retirement. cobber Pack: U PL: CWE1 [O] Processed: [22-02-2012 16:08] Job: 018777 Unit: PG03

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11. We work closely with other financial services companies, the Scottish Government, the Scottish Financial Services Jobs Taskforce, and public sector organisations to ensure that redeployment opportunities are maximised.

RBS Supporting Scottish Businesses 12. We are “open for business” and committed to supporting Scottish businesses through advice, guidance and lending. We have launched a range of lending initiatives designed to support SMEs and help keep their costs down. For instance we have capped our fees charged to SMEs at 1.5% of borrowing and we have committed to keep overdraft margin pricing the same if there has been no deterioration in risks associated with the customer. Over nine out of 10 customers have benefitted from this which would equate to around 37,000 Scottish businesses that have seen no increase in overdraft margins. The average price of new loans to SMEs has also fallen over recent years. During the third quarter 2010 the average price of an SME loan was 3.44%, a small increase from Q3 2009 largely driven by the rising cost of term funding, but considerably lower than the average of 7.01% during the third quarter of 2008. 13. At the end of 2010, RBS has over £5bn in loan and overdraft balances outstanding to Scottish SMEs, although, as previously advised to the committee, this has decreased across the year in line with the trend in the rest of the country as demand has reduced and businesses have repaid loans. Lending to Scottish businesses represents approximately 10% of UK lending, which has remained stable. 14. As a Group, we continue to approve more than 17 out of every 20 applications. This is the same in Scotland as in the rest of the UK. However, overall business lending levels have been somewhat subdued as many businesses continue to reduce their existing borrowings and many facilities remain undrawn, partly reflecting continuing uncertainty about the future state of the economy. Our business customers have access to £43 billion of undrawn facilities extended by RBS, and available for when credit demand increases. In our Q3 2010 statement we reported that we were on track to deliver our business lending commitments. 15. Before the financial crisis, around 70% of the demand for borrowing from businesses was for property. Since the crisis commercial property prices in Scotland have fallen by up to 40% in some cases. This fact alone lowers the average amount of credit demanded from the sector and is a significant contributory factor to the slightly lower number in 2010. 16. We have however, led the field in lending for the Government’s Enterprise Finance Guarantee, making loans available to SMEs not eligible for mainstream lending. Of the £131 million offered under the scheme in Scotland RBS accounts for £57 million and of the £119 million drawn under the scheme, RBS accounts for £54 million, that is, 45% of total EFG lending in Scotland. We have also lent £11 million to Scottish businesses at discounted rates with funds raised from the European Investment Bank. 17. We have also been active in supporting Scottish Start-ups and offer two years free banking to new businesses. We assisted 11,678 Start Ups in 2010, which was up 6% on 2009. For businesses declined for credit we set up our Business Hotline service. This service has handled over 200 cases from SMEs and start- ups in Scotland since March 2010 and provides an opportunity for businesses to have their cases reviewed by experienced bank managers.

RBS and Scottish Communities 18. Ensuring that everyone has access to financial services has always been a priority for the RBS group. Providing third sector affordable credit is a critical area where we believe we have made significant progress. However we recognise that more can and must be done. We believe the need to create a stable first rung on the ladder towards financial inclusion is often best met by third sector organisations which work closely with the communities they serve. For example, many individuals requiring affordable credit may not have a bank account. We are training a number of Third Sector affordable credit providers to undertake account opening and ID verification procedures on their own premises. A number of partner organisations including Scotcash have this “Trusted Partner status”. 19. We support local communities by focusing our resources on a number of strategic programmes, including: increasing financial capability and inclusion; supporting small businesses and supporting volunteering activities which our employees are engaged in. In 2010, approximately 4,000 RBS group employees (in Scotland) were given 17,000 hours off work to get involved in fundraising and volunteering in their local communities. 20. We are committed to supporting social enterprise. We launched the RBS SE100 Index with Society Media as an initiative to put the facts and figures behind the great stories of social enterprise. The Index has created a simple set of questions to establish how effectively social enterprises measure and communicate their social impact and is linked to a campaign to encourage social enterprises to do just that. With funding from RBS, Social Enterprise magazine launched the Index in 2009. It has been endorsed by the Minister of the Third Sector, and key representative bodies. In addition to our support for the Social Enterprise sector, we also provide banking services to a broad range of organisation in the not for profit sector. 21 Via our MoneySense for Schools initiative, RBS employees deliver lessons in secondary schools, designed to better equip young people to manage their money and make financial decisions. The programme has been cobber Pack: U PL: CWE1 [E] Processed: [22-02-2012 16:08] Job: 018777 Unit: PG03

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running for 16 years and has reached 60% of secondary schools across the UK. We delivered over 5,000 MoneySense lessons to over 140,000 students in Scotland last year. 22. The Group’s 21 year relationship with the Prince’s Scottish Youth Business Trust (PSYBT) is concentrated on the “hardest-to-reach”—allowing the charity to increase their outreach and support to the most disadvantaged young people in Scotland who aspire to work for themselves but who face particular challenges in achieving their goal. In 2009, 46 RBS employees provided direct support to young entrepreneurs across Scotland either as volunteer Panel Members or Aftercare Advisers with PSYBT. 23. RBS RugbyForce is an initiative designed to improve club rugby facilities by uniting club members and local volunteers across the country. The initiative encourages rugby supporters, their friends and families to give something back to their local community rugby club by volunteering to undertake renovations to clubhouses and grounds. During the past season 85 Scottish clubs registered for RBS RugbyForce. 24. In July 2010 we launched our £2 million Retail Community Fund. This is an initiative that allows senior branch managers and local community representatives to award a project or charity up to £3,000 for a significant contribution to the local community. We received almost 30,000 nominations both online and in branch, and awards have been made across Scotland. Scottish projects funded include South West Scotland RNR, a charity which helps wounded soldiers recuperate from their injuries, and a contribution to repair the damaged roof at the Swimming Pool in Ullapool. 25. We recently announced a new partnership with the Scottish Rugby Union (SRU) and the children’s charity Barnardo’s Scotland. A big focus of the sponsorship will be on helping support the wider community as well as the domestic and national game of rugby. Disadvantaged young people will get the chance to play rugby through our ongoing relationship with Barnardo’s Scotland. We have a number of other major community sponsorships in Scotland including the Royal Highland Show; the Royal Edinburgh Military Tattoo; and the Royal National Mòd.

Conclusion 26. Our aspiration is that RBS should become a smaller, safe, customer focussed, profitable organisation. To that end we are undertaking one of the largest restructures in corporate history and are well on our way to fulfilling our objectives. We want to be one of the world’s premier financial institutions, headquartered in Scotland, contributing to the Scottish economy, anchored in the UK and serving individual and institutional customers in the UK and globally. Scotland is an outstanding location in which to do business and we look to playing our full part in helping it to stay this way. January 2011

Written evidence submitted by Lloyds Banking Group, Scotland Executive Summary 1. After nearly two years of falling or static output, the Scottish economy witnessed robust growth in the second quarter of 2010—with manufacturing leading the growth. 2. While Bank of Scotland research indicates that the Scottish economy suffered due to the severe weather experienced in the winter, reflecting the pattern from the weather in January 2010, we anticipate that most of the output lost will be recovered during 2011. 3. Overall, we forecast that the Scottish economy will grow in 2011—although it is likely to be at a low level. 4. Through Bank of Scotland and LloydsTSB Scotland we have an absolute priority to supporting our business customers protect and grow their businesses. 5. We are committed to supporting any reasonable request for finance from customers—and we continue to approve 80% of all requests for finance. When we are unable to provide this support we will explain why. However, in the current economic climate demand for finance from businesses has fallen. 6. Our support is not limited simply to providing finance. We are committed to being a long term relationship bank. As such, we have an extensive contact programme with our customers. This has included 19 road shows held the breadth and length of Scotland in 2010. Additional events are being held throughout 2011. 7. We are keen to ensure that our business customers have best access to all forms of capital that they will need to be successful and sustainable, including equity finance.

The Economy 8. The Scottish economy entered recession in Q3 2008 with a fall in output of 1.6%. After 7 quarters of falling or virtually static output, figures showed that the Scottish economy grew by a robust 1.3% in Q2 2010 and by 0.5% in Q3 2010. In the latest quarter (Q3 2010), manufacturing led the emergence from recession cobber Pack: U PL: CWE1 [O] Processed: [22-02-2012 16:08] Job: 018777 Unit: PG03

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with growth of 0.7%. After significant falls during the recession, output from the construction sector increased by 6.2%. The recovery in the service sector is more muted with growth of 0.1%. 9. Following harsh weather in Scotland, the Bank of Scotland Purchasing Managers Index (PMI) in January signalled a contraction of Scotland’s private sector economy in the final month of 2010, falling almost ten points to 39.6 (from 49.5 in November; a figure above 50 indicates growth). Quarterly averaged PMI data showed that output performance in Q4 was the weakest since Q1 2009. 10. Independent research from the Fraser of Allander Institute (FAI) at the University of Strathclyde suggests that growth in 2011 will be subdued. While it suggests the Scottish economy overall will grow by 1.1%, manufacturing is forecast to grow at 3.1%, construction 0.8% and services at 0.7%. 11. A slowdown in economic activity was evident in Q4 2010 which may extend through 2011. However, a return to recession (two successive quarters of falling output) is less likely than a year of low growth. 12. At December 2010, the employment rate in Scotland was 70.7%, with 2.47 million in employment. The ILO unemployment rate was 8.4%, with 229,000 unemployed. The number of people claiming Job Seeker’s Allowance was 138,300 giving a claimant count rate of 5.0%. This rate has nearly doubled from the middle of 2008, although it has remained reasonably level since the end of 2009. 13. The January Bank of Scotland Report on Jobs showed the Scottish labour market began to deteriorate in mid-2007 and reached its lowest point in mid-2009, a few months after the UK. The Bank of Scotland Labour Market Barometer showed that the Scottish labour market improved until mid-2010 when there was deterioration (unlike in the rest of the UK). However, this deterioration has been arrested and the gap closed with the UK. The number of vacancies rose and appointments to permanent and temporary jobs increased in December 2010. 14. All research from the bank on the Scottish economy can be found at the following website: http://www.lloydsbankinggroup.com/media1/research/bos_research.asp 15. The outlook for employment in 2011 remains uncertain. The FAI forecast is for a net jobs growth in 2011 of 21,224. This is compared to a net jobs loss of 12,794 in 2010. However, the FAI also suggests that the ILO unemployment rate will increase from 9.1% over the whole of 2010 to 9.6% in 2011 while the claimant count rate will also increase from 5.2% averaged over 2010 to 5.9% in 2011. These figures assume public sector job losses with the burden of job losses in the private sector being borne by the service sector. 16. The impact of spending cuts on public sector employment in Scotland was estimated by the FAI in a range of 64,000 to 126,000 with the precise outcome depending on the flexibility of the private sector response. A PwC report on the impact of the spending cuts in October 2010 estimated that 4.1% of private and public sector jobs in Scotland would be lost by 2014–15—some 95,000 roles.

Exports 17. Scottish exports (outwith the UK) in 2009 (excluding oil & gas) are estimated at £21.1 billion, of which £13.2 billion is attributable to manufacturing exports. This represents an increase in the overall exports of £535 million since 2008. This can be principally attributed to a £710 million increase in service sector exports. 18. The top five exporting industries in 2009 were food and beverages (£3.6 billion), chemicals (£2.7 billion), business services (£2.7 billion), electrical & instrument engineering (£2.0 billion) and mechanical engineering (£1.5 billion). Together these industries accounted for well over half of total exports from Scotland. 19. The single largest export destination for Scotland is the USA, with an estimated £3.3 billion of exports in 2009. However, the EU continues to be the largest export market, with an estimated £9.6 billion of all Scottish exports are destined for the EU. Within the EU, The Netherlands is the largest market, followed by France. 20. The combined value of Scottish exports (outside and to the rest of the UK) in 2009 (excluding oil & gas) is estimated at £65.6 billion of which £32.5 billion is attributable to service sector companies and £25.9 billion to manufacturing. 21. The volume of Scottish manufactured export sales decreased by 0.7% in Q3 2010 compared to the previous quarter, but rose 0.7% over the year to Q3 2010. 22. Scottish exports (outside the UK, excluding North Sea GDP (£115,834 million in 2008–09).) are important to the Scottish economy accounting for 18% of GDP. 23. While 5,500 Scottish business export, just 60 companies account for 50% of exports. Reported barriers to more companies exporting include insufficient time, inadequate financial resources and lack of knowledge of foreign markets.

The Role of Banks 24. We seek to create long term and sustainable relationships with our customers. In the current economic climate our priority has been to support our customers. cobber Pack: U PL: CWE1 [E] Processed: [22-02-2012 16:08] Job: 018777 Unit: PG03

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25. Through Bank of Scotland and LloydsTSB all of our Scottish business customers are managed through a dedicated business division. Our Commercial division typically serves SMEs of up to £15 million turnover. We have a dedicated website for our business customers, which has a range of advice material: http://www.bankofscotlandbusiness.co.uk/ 26. In the first half of 2010, we committed £23.7 billion of gross lending to businesses in the UK (of which £5.7 billion was for SMEs) and again achieved net positive lending growth to SMEs. The approval rate of applications for finance from SMEs remains at around 80%, the vast majority of which is provided on normal commercial terms without taxpayer liability. 27. In common with previous recessions, the demand for finance has been subdued and we have seen a fall of more than 20% in SME loan applications while voluntary additional repayments have increased. Another indicator of this fall in demand is the continued low utilisation rate of SME overdrafts which stands at around 60%. 28. LBG recognises that a key driver of recovery will be the confidence of businesses to invest. We have been working to rebuild that confidence and ensure that businesses are aware that we are open for business. LBG has committed through our award winning SME charter to support all viable requests for finance from our customers; not to increase the price of existing lending unless there has been a material increase in risk; and to encourage enterprise by, for instance, running 200 seminars a year up to 2012. The Government, business organisations and commentators have an important role to play in contributing to that increase in confidence. 29. In Scotland we have 19 regional business centres where local decisions can be made to support local businesses. In the first six months of 2010 we provided over £800m of finance to business in Scotland. 30. As part of our commitment to helping our customers grow, we have held a number of roadshows where senior members of the Bank have provided free of charge advice to our existing, prospective and adviser communities. In 2010 we held a series of events which focussed on help in exporting, manufacturing and sustainability which was attended by over 2,000 businesses: Date Location Date Location February Edinburgh November Edinburgh February Aberdeen November Inverness February Glasgow November Lanarkshire March Stirling November Kelso March Kelso November Dumfries March Dundee November Falkirk March Ayr November Aberdeen March Dunfermline November Fife November Tayside November Paisley

31. Additional events will run in Scotland in 2011—in May, October and November. 32. The Bank also provides a range of business support guides, which can be found here: http://www.bankofscotlandbusiness.co.uk/business-guidance/all-guides/

Supporting Businesses in Difficulty 33. LBG Commercial applies a “through the cycle” approach to providing credit to our customers, adopting a strategy of responsible and prudent lending. This means that we are consistent in our overall approach, lending responsibly and treating customers fairly and reasonably. In particular it means we are less aggressive during times of boom, but conversely have sustained availability of lending during the economic downturn. 34. As part of this, we have a dedicated Business Support Unit that helps business customers experiencing varying degrees of financial difficulty. Wherever possible, Business Support aims to turn these businesses around and restore financial stability, enabling a return to mainstream banking. 35. This approach is a critical part of our support for businesses through the economic cycle. The support we provide includes helping customers with finance to maintain cash flow, management advice on how to improve business performance and capital restructuring. 36. Every business is different, so Business Support always takes a bespoke approach. This involves an in- depth analysis of where things have gone wrong and then developing a tailored solution with the customer. This ensures that we can protect employment and economic growth in Scotland. 37. In recognition of our success in supporting our customers LBG picked up two awards at the prestigious “Institute for Turnaround” Annual ceremony: — SME Company Turnaround 2009. — Private Company Turnaround 2009. cobber Pack: U PL: CWE1 [O] Processed: [22-02-2012 16:08] Job: 018777 Unit: PG03

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Non-Bank Lending 38. Traditional bank lending continues be an important source of funding for businesses in Scotland. However, it is important that businesses consider a range of alternative sources of finance, including asset based lending, supplier finance and equity to grow. 39. LBG believes that more can be done to encourage access to and use of these forms of finance and whether through development of our own offers or partnership with and reference to other suppliers, we are working hard to ensure that SMEs have the right mix of finance. The Group has has produced a finance guide helping businesses to plan for the right type of investment to keep their businesses running in the current economic conditions, which can be found here: http://www.lloydstsbbusiness.com/media/lloydstsb2004/business/pdfs/Finance_For_Change.pdf. 40. There is a vibrant business angel community in Scotland making investments in Scottish businesses. We are keen to ensure that our business customers have best access to all forms of capital that they will need to be successful and sustainable. 41. We support the British Business Angels Association (BBAA) in their important work in helping and encouraging SMEs to access equity from private investors. We support the position of the Government’s green paper on finance, that there is scope for this to grow to ensure growth businesses have the capital they require, alongside bank finance, to expand. LBG is the only Bank to sit on the BBAA Board, highlighting our serious commitment to establishing this form of finance to the start-up and growth businesses that are better suited to it. For example we have started to run pilot business angel training programmes with our frontline colleagues. 31 January 2011

Supplementary written evidence submitted by Janette Harkess, Director of Policy & Research, Scottish Council For Development and Industry

Scottish Affairs Committee Oral Evidence Session, Wednesday 26 January 1. With regard to the points made in response to Q157 I would request the following addendum is noted: “SCDI welcomes the UK Government’s commitment to increase renewable energy spending in Scotland and the plans for the UK Green Investment Bank. However, we remain concerned about two aspects of the announcement made in the Comprehensive Spending Review. The first of these is the issue that any money drawn down from the Fossil Fuel Levy by Scottish Ministers will result in a corresponding decrease in Scotland’s block grant. As a result, it is still not clear that either current or future Scottish administrations will be able to increase investment in renewables infrastructure to the necessary levels while balancing other spending commitments. The second of these is that we understand that the £250 million Green Investment Bank funding which would be ring-fenced to Scottish projects will not be available until 2013. This means that the money will not be available to invest in the necessary infrastructure to attract offshore wind manufacturing as manufacturers choose their sites over the next year ready for the increase in offshore wind development around our coast. We hope that for the sake of the economy, jobs and action on climate change that a solution can be found to both these issues and to supporting public sector investment in the biggest opportunity for green jobs in a generation. We hope that both governments will work together to deliver a pragmatic and timely outcome that will ensure progress against renewable energy and climate change targets and support the development of employment here in Scotland.” 2. With regard to the points made in response to Q171 I would request the following addendum is noted: “While politically the case for bringing High Speed 2 to Scotland might be regarded as weaker the considerable economic and environmental benefits would remain. Business advantage generated would be two-way. Edinburgh and Glasgow are among a number of cities which have called for a UK network. Including Glasgow and Edinburgh in HS2 from the outset significantly improves the business case and provides increased value for money to the taxpayer. HS2 to Scotland adds some 10–11 million trips to the network. A route including Glasgow and Edinburgh transforms the business case generating revenue and benefits worth almost £55 billion. Over 60 years, it pays for itself 1.8 times over. The benefits of the taxpayers’ investment can only be maximised over the longer London- Scotland distance. Overseas evidence indicates that when a journey can be made in under three hours, railways capture 50% of the market. HS2 to Scotland would deliver the journey times required at two and three quarter hours between Glasgow and Edinburgh and London. Running High Speed trains on existing lines north of Manchester and Leeds would not. cobber Pack: U PL: CWE1 [E] Processed: [22-02-2012 16:08] Job: 018777 Unit: PG03

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It’s also been estimated by Network Rail that new lines to Scotland would add 10–11 million trips to the network but using existing lines north of Preston cuts the benefits and cuts demands by 62% to 4.1 million trips.” February 2011

Written evidence submitted by The Scottish Retail Consortium (SRC) Introduction 1. The Scottish Retail Consortium (SRC) is the trade association of the Scottish retail sector and is the authoritative voice of the industry to policy makers and to the media. The SRC brings together the whole range of retailers across Scotland, from independents to large multiples and department stores, selling a wide selection of products through centre of town, out of town, rural and online stores. The SRC is based in Edinburgh and is supported by its parent company, the British Retail Consortium, based in London and Brussels. 2. Retailing is the lifeblood of communities across Scotland. Not only does it directly employ one in nine of the Scottish workforce and provides millions of consumers with the goods and services they rely on, on a daily basis, it also has a considerable indirect influence. Investment in communities brings with it jobs in industries such as construction and we estimate that the development of a new store typically provides employment for approximately 200 construction workers. Likewise, the retail sector is at the heart of a remarkable supply chain, providing opportunities for businesses across Scotland supplying, for example, local produce, logistics solutions, waste management and other services contributing to a well run and efficient retail industry. The Scottish Government’s own figures show that retail sales of Scottish products rose by 18% between 2007 and 2009 alone (equivalent to a sales value of £270 million across the UK). Investment in new stores has made a concrete contribution to delivering this growth for Scottish businesses. 3. With this in mind, Scotland’s economy is of particular interest to the SRC and the retailers we represent. Retail is a naturally entrepreneurial sector but we rely on the correct economic conditions to be able to grow. We believe that both the Scottish and Westminster Governments have roles to play in this, which has been ever more apparent during the economic downturn.

Executive Summary 4. Retail is a visible barometer of the economic climate and its health is important on both a national and local level. 5. Retail is particularly important to Scotland, employing 250,000 people, making up 7% of Scotland’s Gross Value Added (GVA). Retail accounts for 15% of GVA in Scottish service industries as a whole. 6. The economic outlook is already uncertain, affected by increasing costs such as VAT, consumer confidence (which is already fragile) and public sector cuts, slowing economic growth. 7. From a retail perspective, Scotland has traded below the rest of the UK for the last few years, with the recession hitting harder. 8. The UK Government retains control of many of the fiscal levers impacting on the Scottish economy, meaning it retains responsibility for some aspects of the economic performance of Scotland. 9. All Governments should consider the impact of the regulatory burden on Scotland’s economy. 10. As the Member State, the UK Government should represent Scotland’s interests in Europe, and retain powers on issues of EU competence such as food labelling.

Current Economic Situation in Scotland 11. Retail is a visible barometer of the economic climate and often leads the economic cycle of the business community; when the economy falters, retail experiences the challenges first and, likewise, when the economy starts its recovery, it is often the retail sector that first begins to see growth. 12. Currently, just under 250,000 people are employed in retail in Scotland, 9.8% of enterprises in Scotland are retailers and retailing makes up 7% of Scotland’s Gross Value Added (GVA). In Scotland, 98% of retailers employ fewer than 50 people. However, over two thirds of retail jobs and three quarters of turnover are within the large multiples. 13. It is important also to emphasise the range of opportunities offered by the retail sector. Retail provides excellent jobs for people from a very diverse range of backgrounds in perhaps the broadest range of geographical locations of any sector. In so doing, the sector makes a concrete contribution to providing employment and skills training in some of the country’s most deprived communities. 14. Retail makes a significant contribution to tackling youth unemployment, with 88,000 Scottish retail workers under 25 years of age. Of these, 49% have their highest qualification at SVQ level 3. Only 4% have no qualifications. Retailers spend an average of £1,440 per employee on training. cobber Pack: U PL: CWE1 [O] Processed: [22-02-2012 16:08] Job: 018777 Unit: PG03

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15. From a retail perspective, the outlook in Scotland is already uncertain. Crucially consumer confidence will continue to be fragile for some time to come, especially in view of the increases in VAT and National Insurance contributions this year. Over the past year, UK retail sales, whilst fragile, have held up, driven by households running down their savings rates from 8% in mid 2009 to just over 3% a year later, following a year of restraint at the height of the financial crisis. Given a weak UK housing market and consumer nervousness about austerity measures, it is difficult to envisage a further depletion of savings boosting consumption in the coming months. In addition earnings growth has remained weak over the past year and unemployment and fear of unemployment continue to grow. 16. Retailers will have to do all they can to contain and absorb costs if they are to encourage consumers to continue to spend in 2011. The Office of National Statistics (ONS) shows inflation data for January, as measured by the Consumer Price Index (CPI), as solidly ahead of the Bank of England’s preferred rate of 2%, coming in at 4%. While CPI is firm, the Retail Price Index (RPI), is substantially higher at 5.1% year-on-year, up from 4.8% in December. Average wage growth is currently running materially below such levels at 2%. The SRC’s parent company, the British Retail Consortium’s Shop Price Index data shows that overall shop price inflation increased to 2.5% in January from 2.1% in December. Food inflation accelerated to 4.6% from 4.0% in December and non-food inflation increased to 1.3% from 1.1% in December. 17. The rate of inflation for non-food goods—mainly the ones subject to VAT—was only 0.2 percentage points higher after the VAT rise than before, showing retailers generally took the hit on behalf of customers. However, retailers will struggle to continue to absorb the rise as other cost pressures continue to squeeze margins. 18. In a recent Bank of England survey the vast majority of households anticipated that they would experience some impact as a result of the Government’s proposed fiscal consolidation. Ninety% of households did expect to be heavily affected, mainly through higher taxes on earnings and consumption, and reduced spending on good and services. 19. From a Scottish perspective, the SRC/BRC’s own retail statistics show that Scotland has traded below the rest of the UK for the last few years (see figure below), suggesting the economic downturn (and government responses to it) has been particularly difficult for the Scottish economy. BRC-KPMG Retail Sales Monitor LIKE-FOR-LIKE SALES

5

4

3

2 UK 1

0 % change on year ago on year change % -1 Scotland -2

-3 JFMAMJJASONDJFMAMJJASON

2009 2010

20. As a result the gap in performance of the sector in Scotland compared with the UK as a whole is widening. Retailing accounts for seven% of GVA compared with nine% in the UK, rising by 85% since 1998 compared with 126% in the UK as a whole. This impeded growth is all the more important since retailing accounts for 20% of turnover and 15% of Services Sector GVA in Scotland as against 15% and 11%, respectively, across the whole UK. In other words, retail is more important to the Scottish economy but is failing to thrive in the same way as elsewhere in the UK. Fiscal policy choices by the Scottish Government will be critical to turning this state of affairs around.

The Role of the UK Government in Supporting Small Business, Creating Jobs and Promoting Growth in the Private Sector in Scotland 21. The SRC believes that the UK Government has an important role to play in creating the correct conditions for growth in Scotland. It is accepted that economic recovery is reliant on business growth and, therefore, the Government has to ensure that business has the tools necessary to play its role in job creation and investment. 22. Despite devolution, the UK Government retains control over the majority of fiscal levers across the UK. Whilst some of this is set to change should the Scotland Bill be passed in its current form, the UK Government cobber Pack: U PL: CWE1 [E] Processed: [22-02-2012 16:08] Job: 018777 Unit: PG03

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will retain control of the main drivers of the economy, such as the levels of income tax, VAT, corporation tax, and duty. 23. Following the implementation of the current Scotland Bill, the UK Government will still retain a significant control of the financial settlement received by Scotland, thereby having a key role in setting a significant proportion of Scotland’s public sector budget. 24. With this in mind, the UK Government needs to be alive to the particular challenges affecting Scotland’s economy and the differences between it and other parts of the UK. As demonstrated above, Scottish consumer confidence and Scottish sales have been lower than the rest of the UK for some time, suggesting the downturn has had a greater impact on Scottish consumers and businesses. 25. Scotland also has a higher number of people employed in the public sector and the UK Government should consider how its plans for public sector cuts will impact in those towns and villages more dependant on those jobs. There is a danger, if appropriate safeguards are not in place, that particular localities may be affected quite severely. 26. The UK Government also has a key role in reducing the regulatory burden affecting Scottish businesses, as well as those in England. The SRC welcomes the UK Government’s stated deregulatory agenda and, particularly the “one-in, one-out” approach. We have suggested to the Scottish Government that it considers adopting this approach. However, to be effective, the regulations removed must bear some relevance to the sector(s) impacted by the new area of regulation. Consideration should also be given to the impact of voluntary agreements and other more informal forms of regulation which continue to impose burdens on those involved. We are disappointed that the commitment to this deregulatory agenda does not to date extend to regulations originating in Europe. Additionally, since devolution, Scottish businesses face regulations that have emanated from the Scottish parliament, as well as the UK Parliament. In some instances this creates another layer of red tape with which businesses, and especially small businesses, need to comply. For multiple retailers operating across the UK, this means members have to comply with four sets of regulations on the same issues. This is a significant challenge and adds considerable time and costs to members’ operations. 27. With reference to Europe, with the UK as the Member State, it is essential that the UK Government represents Scotland’s specific interests, as well as the UK more generally at Council, as well as in other fora. Scotland’s food and drink offer, as an example, contains many world-leading products and the country is particularly susceptible to regulatory requirements on food and drink and agriculture. 28. The UK Government’s growth strategy must also recognise the particular challenges affecting Scotland. The strategy covers a number of reserved issues such as skills development. Skills are a crucial part of the economic recovery and of considerable importance to Scotland. Any changes in this area must take into account the needs of Scottish people, bearing in mind different education systems, the demographics and the levels of employment in different industry sectors.

Co-operation between the UK Government and the Scottish Government in Supporting the Economy in Scotland 29. The SRC and the BRC have long argued for better joined up thinking within government—both in reference to the UK Government and the Scottish Government. We believe that this is also relevant between all UK governments, not just of Scotland and the UK but also with the Executives in Wales and Northern Ireland. 30. Multiple retailers currently have to comply with four sets of regulations on some issues. Some of these regulations are very similar, with just small differences that have been introduced on no apparent evidential basis. We feel that this hinders economic growth by adding unnecessary burden. When the Governments share the same goal, they should learn from the experiences in other jurisdictions and work together to develop regulations alongside each other, rather than duplicating work. 31. For example, consider the ongoing discussions on the tobacco display ban. Whilst currently in a state of limbo in Westminster and delayed in Scotland, Northern Ireland is still looking to implement the ban in July this year. Whilst we oppose the ban, believing there is no evidence to suggest it will have the desired public health impact, what is more frustrating is the different timetables, the different requirements on exemptions, different solutions on stocktaking and different requirement on allowable labels. If the Governments had worked together more, including industry, far better systems could have been developed that meet the Governments’ stated objectives of introducing a ban, whilst also keeping the costs of compliance to a minimum. This lack of communication adds costs to retailers’ bottom line, therefore affecting their margins and reducing their potential for growth and job creation. 32. Another area of potential conflict is the Scottish Government’s current discussions on its obesity route map. We support the Government’s desire to tackle this issue, which we know has an impact on people’s health and productivity and, thereby, the economy. Much of what has been achieved in Westminster has been positive. We see scope for the Scottish Government to extend some of the UK Government’s policies in tackling obesity across the UK, driving awareness amongst consumers and enabling businesses to replicate already existing campaigns. Devolution does not have to mean a rejection on the grounds of “not invented here”. cobber Pack: U PL: CWE1 [O] Processed: [22-02-2012 16:08] Job: 018777 Unit: PG03

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The Role and Effectiveness of Government Agencies in Supporting Businesses in Scotland to Increase their Exports 33. Scotland has a rich history in producing excellent and well regarded products. From small, specialist jewellers and niche clothing products, to a vast array of food, Scotland’s reputation extends far beyond its borders. 34. The SRC believes that Government agencies, in both Scotland and UK Government, could improve the effectiveness of its promotion of Scottish enterprises. With reference to food in particular, the Scottish Government has tended to focus on increasing the availability of Scottish produce in Scotland, rather than the export potential of products. Whilst this is undoubtedly important in growing Scotland’s reputation for food and drink internally, the benefits of greater exports are significant for businesses of all sizes. 35. There are particular foods where Scotland has an arguably unparalleled reputation. An enhanced focus from Government agencies, including UKTI, could certainly boost the Scottish economy and enable businesses to grow.

The Role of UK Banks in Providing Finance and Support for Businesses in Scotland 36. The current issues with banks lending to businesses is not a short term problem and therefore the banks, as well as Governments and businesses need to consider new and effective ways to ensure businesses, and particularly small businesses, have the funds available to them to succeed and grow. 37. This is an issue for all retailers; smaller companies need flexibility in capital to be able to make or pay for their goods and services. Larger retailers, who stock a wide range of products from smaller suppliers, require these suppliers to be able to fulfil orders and meet customer demand. 38. One example of more innovative thinking is AIM Investments Plc’s work with FSB members, pre- floatation, to explore private equity in medium-sized companies to help them expand. 39. We agree that the banks do have an important role but it is also important that businesses, other organisations and each Government also look beyond the banking sector when looking at financing options. Given Edinburgh’s reputation as a financial hub, this could be a particular role, and opportunity, for Scotland. November 2011

Written evidence from Ann McKechin MP As you will no doubt be aware, recent Labour Market Statistics show that women have been particularly badly hit by job losses in Scotland, with the number of female claimants of Job Seekers Allowance having risen by 20% over the past 12 months, while the male number of claimants has fiat lined or in some areas decreased. At the same time, industry experts are highlighting there are particularly acute problems around female representation at a high level in both listed and private Scottish firms that need to be addressed urgently. A recent survey by the Herald newspaper revealed that in Scotland, 30 of the largest listed companies have just 29 female board directors between them—and 10 have no women at the top table. Even at those firms with female representation, women tend to have a solitary boardroom position, which means they hold only around one in 10 of the 254 directorships offered by the country’s leading firms. The figures put Scotland below the UK average. Apart from the obvious inequity of women in Scotland struggling to reach the top of their chosen professions, it has also been suggested by several studies that the gender gap in representation at the top is bad for business. A report by consultants McKinsey concluded that the companies where women are most strongly represented at board or top level management are also the companies which performed best financially. It is clear to us that Scottish women are bearing the brunt of a difficult employment market, and our concern is that these challenges will only inhibit the development of the vital “talent pipeline” required to tackle the lack of representation at the top of Scottish companies, and to ensure a successful gender balance throughout both the private and public sector and to make the most of Scottish women’s talents and expertise. We the undersigned are writing to you as Chair of the Economy Committee/Scottish Affairs Select Committee because we believe that the causes of the disproportionate number of unemployed women needs to be subjected to serious analysis and an urgent action plan needs to be put together to combat such unemployment and get Scottish women back to work. We also believe that there needs to be greater engagement with companies and organisations to learn from them what measures they have implemented to successfully improve female representation within their organisation. Our hope is that from your conclusions, we may be able to work together to create a Scottish voluntary code of practice to encourage diversity. Such a code could comprise of a menu of measures that firms and organisations could choose to implement according to the size and nature of their organisation. From our cobber Pack: U PL: CWE1 [E] Processed: [22-02-2012 16:08] Job: 018777 Unit: PG03

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discussions as a group, we have learnt that even the smallest of changes in practice, at minimum cost, can make a substantive difference. Scotland has a wealth of talent within its female workforce which we fear is currently being left untapped. We ask the Committee to use the impressive array of investigative powers at its disposal, to stand up for women throughout Scotland and to probe the issues we have raised as a matter of urgency. Yours sincerely Ann McKechin MP for Glasgow North Pamela Gillies, Vice Chancellor and Principal at Glasgow Caledonian University; Professor Alice Brown, Emeritus Professor, University of Edinburgh; Stephen McCafferty, Director, Leader, Talent, Performance; Jackie Hunt, Director and Chief Financial Officer at Standard Life; Andrea Montague, Non-Executive Director at Standard Life; Marcia Campbell, Ignis Asset Management; Niki Kandirikirira, Executive Director of Engender; Ewan Hunter, Director of Hunter Search Recruitment; Ailsa McKay, Professor of Economics and Vice Dean, Glasgow School for Business and Society Glasgow Caledonian University; Pamela Reid, Director at ekosgen; Linda Somerville, Scottish Resource Centre for Women in Science, Engineering and Technology Napier University; Scottish Trade Union Congress November 2011

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