To be published as HC 657-i i

House of COMMONS



Scottish Affairs Committee


Wednesday 26 JANUARY 2011

COLIN BORLAND and bernadette kelly

iain mcmillan, laUren McNICOL, janette harkess and alf young

Evidence heard in Public Questions 57 - 184



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Oral Evidence

Taken before the Scottish Affairs Committee

on Wednesday 26 January 2011

Members present:

Mr Ian Davidson (Chair)

Fiona Bruce

Mike Freer

Cathy Jamieson

Jim McGovern

David Mowat

Fiona O’Donnell

Simon Reevell

Mr Alan Reid

Lindsay Roy

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 get some sensational answers in quickly before we are recorded and broadcast.

I welcome you to the meeting. We have been keen to see you for some time. We want to look specifically at issues relating to the Scottish economy and its development. We will verge towards some other inquiries we are conducting in relation to the Scotland Act and so on. This was initiated originally because a number of my colleagues were keen to pursue the relationship between economic development as conducted by the Scottish Parliament and the work of BIS and other agencies in the UK and how these meshed together. But, rather than restrict ourselves simply to that, we want to hear your views on improving the Scottish economy in general, generating additional private sector employment and, indeed, almost anything else you want to get off your chest while you have a captive audience here. Perhaps for the record you would introduce yourselves and then give an indication of what you think we ought to take into account in developing the economy in Scotland from your perspective.

Bernadette Kelly: I am Bernadette Kelly, Director General of Market Frameworks in the Department for Business, Innovation and Skills. I am here principally to try to give an account of, and answer questions you might have about, how our work in BIS can support and is supporting Scottish growth and the Scottish economy, rather than give you direction as to how in Scotland you might do that. I am happy to say a little about that when we get into explaining our work.

Colin Borland: I am Colin Borland from the Federation of Small Businesses in Scotland. There should be few surprises from us this afternoon, in that the themes we have been advocating over the past 18 months to two years have scarcely changed. The priorities for us going forward will certainly be about jobs and how we create more of them in the Scottish economy, particularly through small businesses, with big business downsizing and the public sector getting ready to do so, how we finance that job creation and make sure businesses get the finance they need and whether that should be limited exclusively and specifically to bank debt finance or if there are other options we can explore to make it easier.

Q58 Chair : Perhaps I can start off with Ms Kelly. One of our anxieties is that the demarcation lines between what you do, and what the Scotland Office and its various arms do, are not entirely clear to people involved in business. Can you clarify for us the point of BIS, as far as Scotland is concerned?

Bernadette Kelly: I am very happy to do that. I agree with you that it is quite a complicated area. I was nominated as my Department’s devolution champion quite recently. I have found in briefing myself in advance of this hearing just how complicated it is, so I agree with that. Let me say a little about the Department for BIS and our role. Clearly, we are the Department for growth. We have a central role in promoting economic recovery and growth. In the growth strategy that we set out in the autumn, we identified, in particular, the role of Government as being about: providing stability for investment; making markets more dynamic; creating the conditions for private sector growth; and ensuring that growth is shared and sustainable.

A lot of our work in BIS directly or indirectly also supports Scottish businesses and the Scottish economy. There are probably three key generic areas that I would like to highlight on which I would be very happy to attempt to answer further questions.

First, a number of our programmes, investments and financial support are also of benefit to or are available to Scottish businesses and institutions. The £3 billion of Research Council funding, which has been relatively protected in the spending review, can be accessed by Scottish institutions and, indeed, they do rather well in accessing it.

Secondly, as to the proposed green investment bank, there is a proposal to earmark £250,000 out of the total funding of £1 billion for Scottish infrastructure projects. The work of the Technology Strategy Board, for example, is UK-wide. I know that it has supported a very large number of leading edge technology projects in Scotland. So there is a range of areas where we provide support to business or higher education institutions on a UKwide basis, including in Scotland. Generally, there is a strand of work we do in the Department for Business that is about creating the conditions for growth. I would include in that, for example, our work on bank lending, on the pursuit of open global markets and trade promotion, on better regulation, competition and employment, and in Europe, all of which is UK-wide and are factors which will therefore be equally as relevant in Scotland as they are in the rest of the UK.

Thirdly, currently we are embarked on a growth review process jointly with the Treasury. We will be reporting on the first significant phase of this work in the Budget on 23 March. In that we have identified 12 areas that we are looking at closely as areas where we want to identify further action. Those are both sectoral and horizontal areas like planning and competition. I would expect quite a lot of the action that comes out of that growth review process to impact on Scotland as well as England and the rest of Britain.

You are absolutely right that it is a very complex network of relationships. From my understanding and observation of how this works, it is complicated. You are probably right that some businesses and stakeholders on the ground may not see it as being transparent as it might be, but there is generally a good working relationship, I hope-although obviously I am interested in the Committee’s views-between ourselves in Whitehall, the devolved Administration, the Scottish Government, and bodies like Scottish Enterprise and Scottish Development International. We try to make what is a relatively complex settlement work well.

Q59 Chair : I understand the points you make about your macro-involvement, but I am not clear whether the research funding, the green investment bank and the Technology Strategy Board are implemented by staff on the ground and supported financially by the Scottish Parliament, or whether you have your own gang on the ground, as it were, and basically there are people tripping over each other. Job creation is a great job creation exercise itself, isn’t it? Lots of people would be out of a job if unemployment was resolved. I want to clarify the extent to which people know to whom to go in these circumstances.

Bernadette Kelly: My understanding of the Research Councils is that funding is about £3 billion a year. It is distributed through the Research Councils to higher education institutions. Therefore, in Scotland, it is distributed to Scottish higher education institutions. My understanding is that, typically, they have been receiving about 12% of the annual budget. That is a relatively strong share, and it reflects the fact that it is excellence-based funding and so is a reflection on Scottish higher education institutions. I don’t believe there is particularly a tripping over. I think that means of distributing the funding on the ground is reasonably well understood. My colleague Sir Adrian Smith chairs a funders’ forum, which I believe brings together all the relevant bodies including those in Scotland, and I understand that works very well.

Q60 Lindsay Roy: We have heard a lot about devolution champions and it is very pleasant to meet one this afternoon. Can you tell us exactly what you have been doing to co-ordinate the approach by the UK Government and Scottish Government? Can you give concrete examples of success?

Bernadette Kelly: In terms of what I have been doing, I took on this mantle last week. Some of you will have known my predecessor, Philip Rycroft, as the BIS departmental devolution champion. I cannot yet lay claim to a massive track record of progress and delivery in this, but it is a very important role for us. To give an example, I know it has been common practice to have a four-nations meeting, which Philip has chaired, and I will certainly want to continue that. That is quite a high-level meeting between ourselves and the devolved Administrations to look at the strategic priorities across our BIS area of responsibility and what more we can do to link up and work effectively with some Scottish bodies.

Q61 Lindsay Roy: Can you tell us about some of the key things on your agenda?

Bernadette Kelly: In terms of the policy agenda at the moment, working with Scotland on bank lending is an absolutely key priority. Clearly, this is where BIS has an interest working with Treasury. It is UK-wide and is probably pretty close to the top of the list of business concerns about the business environment at the moment, so continuing to work extremely closely on bank lending, competition and the wider longer-term issues around bank structure is critical. I know there has just been an exchange of correspondence on that between Alex Salmond and Vince Cable. For example, I know that in the work on access to finance, which we in BIS led in the autumn, we had excellent contributions from Scotland and the Scottish Government on the action needed. That would certainly be one of the areas that would be high on my list of priorities.

Q62 Jim McGovern: Bernadette, you have probably anticipated my question about bank lending in advance. You said that that was one of the priorities on which you would have to work. I have said before, but it is probably worth repeating nevertheless, that for my first four years as an MP, when people came to my surgery it was usually about pensions, child credit, tax credit and stuff like that. Increasingly, in the past year or 18 months, it has been the business community. People who own small businesses have been coming to my surgery to say their banks have totally changed the way they deal with them now and it is so difficult to get an overdraft or some kind of loan. Therefore, when you say that that is one of the priorities, could you define more specifically how you intend to encourage banks to promote businesses?

Bernadette Kelly: I can probably point to quite a lot in this phase, but let me try to summarise it. First, we are doing a number of things directly to support SMEs to get access to bank finance. For example, the enterprise finance guarantee, which is a UK-wide fund for which BIS is responsible, basically provides guaranteed backing to SMEs that seek finance. That is £2 billion over four years, so that is direct intervention and support.

Q63 Jim McGovern: Is it well publicised? The people from the business community who come to my surgery are possibly unaware of it.

Bernadette Kelly: That is an interesting question. Let me come back to that because my second point will probably pick it up. You are right that there is an issue about perception as well as reality in terms of what is available to SMEs. It is a fund of £2 billion over four years and we know that already 924 Scottish businesses have been offered support under it, so it is a significant contribution to direct Government support for small businesses. There is an enterprise capital fund of £300 million to which Scottish business also has access, which is aimed at supporting equity investment, and I think that sits alongside your own Scottish coinvestment fund, which is obviously focused on Scottish SMEs alone. We are doing some direct things to support SMEs in getting access to finance and making that easier for them to do.

The second big strand is working with the banks on the 17 recommendations of the British Bankers Association taskforce that are aimed, basically, at improving access by small businesses and business in general to finance from banks and improving the relationship between banks and small businesses. Earlier this week, I attended a meeting of all the chief executives of the banks where we discussed progress against that, but there is a major trail of work in hand led by the BBA with Government support-for example, a big network of business mentors-to make sure that small businesses know what is available and to signpost small businesses to the lending that banks make available. Another element of that is the £1.5 billion business growth fund, which the banks expect to launch in April, so there is a whole range of actions being led by the banks themselves with strong support and, I might say, a lot of encouragement from and oversight by Government in terms of rapid progress.

Q64 Jim McGovern: You brought in statistics and said that 924 small businesses have benefited from this.

Bernadette Kelly: In Scotland, yes.

Q65 Jim McGovern: A lot of the people who come to my surgery from the business community, or even people I meet in Dundee, say that their businesses have closed because of the banks. When you say that 924 businesses in Scotland have benefited, do you have any idea how many have closed?

Bernadette Kelly: I am sorry; I don’t have that figure.

Q66 Jim McGovern: You have just the positive one.

Bernadette Kelly: I have a positive figure. I am sure you are right that there will be other businesses that obviously have not benefited. That takes me to my third point: where are we overall on SME lending? From the Government perspective, what we see UKwide is some improvement but not enough. We are concerned, and I think Vince Cable said this in a letter in the last week or so to Alex Salmond. We still think there are some viable proposals and businesses that do not get access to the finance they need to survive and grow, and that is what we want to address.

You will all have heard about the Project Merlin discussions. There is probably not a lot I can say in detail about those, but the Chancellor has made it absolutely clear that an improvement in small business lending is a key ask by Government of the banks if we are to resolve that entire negotiation. Things are being done on the ground by Government and the banks themselves, but we do not think there are enough, and we are continuing to try and negotiate with the banks to ensure the quantum of available lending is what it should be to support growth.

Q67 Chair: Colin, you have heard all these things that are being done for you. How can you possibly complain?

Colin Borland: Perhaps I can offer constructive suggestions. One point about the EFG is that perhaps not so much that people are not aware of it, but there is an issue about how it is working on the question of personal guarantees. The bank may say, "We’re taking a risk with you and we want you to share that risk." Obviously, the counter-argument is that the taxpayer, having already prevented the banking system from collapsing, is putting up 75% of the risk. So, while it can take the matrimonial home, is it appropriate to look for other assets to back that up or to de-risk it? There is a fundamental question about definitions of viability and risk. We are working very hard to make sure our members understand that and how the rules of the game have changed.

There is no doubt that interest rates are still at historically low levels but we still see the cost of traditional debt finance to businesses increasing. The most recent figure I have here is from December 2010. We asked, "Have you noticed the cost of credit to your business go up in the previous two months?" In Scotland, 23% say yes; UK-wide, 15% say yes, so there is a gap there. Why is that? We are not sure. It may be down to the fact that we have an issue with competition in the Scottish banking industry, particularly for small business banking. It is difficult to get exact figures, but the best estimate is that 75% of the market is in the hands of RBS and Lloyds.

There are also questions about how affordable it is for banks to lend when we have rules such as Basel III and other questions about bank capitalisation. Obviously, their line would be that that makes it more expensive and difficult for them to give credit. But we don’t want our banks to go down the tubes again, so we have to think about that. If they are undercapitalised, how can we help them rebuild that balance sheet and not undertake reckless lending?

It is for that reason we have been thinking about perhaps some other ways we can finance businesses, particularly in the longer term-for example, looking at an expansion of the equity market in Scotland. At the moment, equity is a sort of Dragons’ Den. It’s a nice new high-growth start-up with people coming in. It is a high-risk return rate but a venture capitalist or angel might think this is a viable proposition. Below that, there is the lower risk return rate you get with bank lending, but there is a gap in there.

The question is: how do you fill that? The market in Scotland is not particularly well developed. One of the questions we have put forward is: would institutional investors want to take this up? Would, indeed, small businesses want to do this because they have given up a stake in the ownership of their business? Given the size of the financial services industry in Scotland, surely we can have some expertise to go and examine it. Following on from that, if there is a market, are there any detailed financial services rules that make it less attractive-or more burdensome or risky-to put in that kind of longer-term funding? Therefore, we have a long way to go with the banks and bank finance. We have made progress. We are not in the situation we were in two years ago, but I think we need to start thinking seriously about whether or not it is the complete answer to questions of business finance.

Q68 Chair : That is helpful, because every time we hear representatives from Government and the banks, they assure us that lots of things are being done and really there should not be a problem for any viable business to get money. You are saying that there are still problems.

Colin Borland: If you rely on traditional short-term bank debt finance for your business, you will find it more expensive and difficult to get, and it is a less attractive proposition. By coincidence, just before the credit crunch hit, we asked our members in an annual survey how they financed their business, and 58% of them said that it was a bank loan or overdraft as the principal source of debt financing. When we asked them that towards the end of 2009 and the beginning of 2010, the figure had dropped to 38%. You might think that is great because we are moving away from over-reliance on a single source of business finance. We asked them what they are now running their business with, and it is savings or other assets they have saved up, and personal debit cards in some cases. All those are viable short-term solutions, but in the long term they are completely unsustainable and obviously finite. As the cupboard is bare and those reserves go down and down, the time pressure to get this sorted becomes greater.

Q69 Chair : Before I bring in some of my colleagues, perhaps I may follow up one point with you. Some of us met the construction and road haulage industries and people associated with video games. All of them said that the banks don’t understand them. Presumably, they feel that the banks, while saying the 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 fine words, but when it comes to the crunch, there is a feeling that they don’t understand the business many of your members are in and don’t take account of the circumstances of their business?

Colin Borland: Yes. We held an event last autumn to try to break down some of these barriers and get an understanding of how the rules of the game had changed. One of the points that came from the floor repeatedly was that although we are hearing good stuff at the top, how is that being translated into action on the ground? You are absolutely right. It is an issue with which we have to work. If those representatives of financial services and big banks were here today, they would probably say the same and that they accept that. I do not think it is confined to a single bank or banks in general; it is a problem with a lot of large organisations with various layers of management. But you are absolutely right that there is still a gap between how we would define a viable proposition and what they think is a viable proposition. While it is difficult or more expensive for them to lend than it used to be, that will continue.

Q70 Mike Freer: I have to come out of the closet and declare that I am a former banker, so I have to declare my sins. I don’t quite share the description of banks not understanding business. Perhaps I may go to some of the issues about lending. I have had the same conversations with former colleagues. When you measure lending, do you measure gross lending, net new lending or new lending? If you are looking at declines, is it lending offers declined or lending declined by the borrower because the rates or cross-guarantees requested are too severe? What I am getting is that banks are putting the money on the table but the conditions are so penal that customers walk away. Or, is it straightforward rejections by the bank? That is a long shopping list.

Colin Borland: You are absolutely right; it is a mixture. The most recent figure I have is that about 40% say that their finance application was unsuccessful.

Q71 Mike Freer: At application stage?

Colin Borland: Yes, but that does seem a high figure. As you say, the issue is not that the money is not there but how it is packaged. It is not being granted as a flexible facility but as a fixed-term secured repayable loan, which in a lot of cases does not suit people’s needs. I believe that a piece of work was done on this by the Scottish Government in the summer of 2009. They looked at what we call the finance gap, which is exactly the point about, "How much did you go in and bid for and how much did you actually get?", because that’s another question we don’t capture in what we ask our members. "Did you go in looking for 30k and you were offered 10k?" The other thing is that you weren’t offered a loan but you were offered another financial product such as factoring. That is something else that has to be explored, which is again why we encourage members to think about every source of finance.

Q72 Mike Freer: Do you have evidence that the margins have increased or the preponderance of cross-guarantees have gone up, and that therefore business people are saying they don’t want the money with those conditions?

Colin Borland: I think you are looking towards the latter, with people saying, "Oh, yes, they offered it to me," but I could go down Whitehall and sell buckets of steam at £10 a go, and if I don’t have a queue down to Nelson’s Column, it’s not my fault because I am selling the wrong product at the wrong price. That is the issue on which our members come back to us and say, "I would be a mug to accept that."

Q73 Mike Freer: I have one final question, if I may, to BIS. One of the old tricks of bank lending was to say that you have lent £100 million when all you have done is rolled over the same £100 million, so it is not new lending-you have simply refinanced the old lending. Is that measured by BIS?

Bernadette Kelly: Absolutely, yes. We are very interested in understanding the difference, as you say, between lending that has been rolled over and genuine new lending. If it is just refinancing of old loans, clearly that does not contribute to new lending. So we are certainly very interested. One of the areas that we are exploring in some depth with the banks through the BBA taskforce and other actions is the data and information that are available. It is interesting to hear some of the data that Colin was presenting there. I think a really clear picture of what is happening on the ground and by region is absolutely critical, so, yes, this is something in which we are very interested.

Q74 Mike Freer: Surely, the banks have that data because they manage their people on it.

Bernadette Kelly: They have data; indeed.

Q75 Chair : Do you have dialogue with the banks on behalf of your organisation? Does the FSB sit down with banks?

Colin Borland: Yes.

Q76 Chair : Presumably, the things you are saying to us now you must have said to them. What kind of response do you get?

Colin Borland: To be fair, they are good at telling us what they are doing. We get global figures, but it is how that breaks down and how much of it is new lending and how much are a few single big deals. What is the average size of a deal that is done? To be fair to them, they are open about the criteria on which they judge finance applications. I come back to the point that I think our disagreement with them would be about what constitutes a viable and sound investment.

Q77 Fiona Bruce: Welcome and thank you both for coming. Bernadette, I think you are in quite a privileged position because you have an overview of a number of sectors. I am very interested to know, if I were thinking of setting up in business in Scotland today, which particular sectors have the potential for growth.

Bernadette Kelly: We have an overview, I agree, in BIS. We also try not to say or direct where growth should come from. It is probably interesting to think about some of the sectors that we have highlighted in the first stage of the growth review. That probably gives you an indication of the sectors that we think are potentially most significant in terms of the contribution to growth. I wouldn’t say these are exclusively the growth sectors in which you would be interested, but the six sectors we are looking at currently are: construction; advanced manufacturing; professional and business services; healthcare; digital creative economies; and there is a sixth. I have just forgotten what it is. It is not renewables. I will come back to the sixth one in a second. There are six sectors and I think those give an indication of where we see some of the critical areas in terms of growth.

Q78 Fiona Bruce: That is very helpful.

Bernadette Kelly: Sorry. I should have said retail.

Q79 Fiona Bruce: Imagine-and it will take a bit of imagination-that I have been employed by a company as a brickie but I am now in a position where I want to set up in business myself. Therefore, I have the skills of the trade but I have never been an employer. I don’t understand about employing people, marketing, writing a business plan and getting finance. How can you help?

Bernadette Kelly: We have a host of initiatives aimed at supporting small businesses to grow. I think most of them are not UK-wide. I think that enterprise and that sort of support is typically a matter that is devolved. I can provide details separately of the kinds of support that BIS provides. There is a lot of business mentoring and things of that kind aimed at helping the individuals you are talking about. I do not have details here but I would be very happy to provide them. This is an area where the policies and initiatives are principally devolved to the Scottish Government.

Q80 Fiona Bruce: Colin, perhaps I should declare an interest. I have run a small business for 20 years. While I understand that finance from banks is important, I think the No. 1 factor in the success of a small business is the sheer hard work and commitment of those who build them up and their families who are behind them, and I respect that. What do you see as the barriers to success for small business people in Scotland at the present time, excluding the banking issue of which we are all aware?

Colin Borland: Perhaps we can park finance to one side. There are a number of issues. As Bernadette said, a lot of this strays into devolved territory about what is and is not the responsibility of Business Gateway and is and is not the responsibility of Scottish Enterprise, and what local authority economic development departments do and do not choose to develop. If you are talking about start-up support or deciding to establish it, we have that fairly comprehensively Scotland-wide. It is delivered through Business Gateway and a series of contractors under the overall oversight of local authorities. If you get three years down the road and you want to move and you think you can take on staff, or perhaps you want to diversify or go into a different sector, that then becomes difficult because there is really nothing in the enterprise network, by which I mean Business Gateway and Scottish Enterprise. You may have it in a local authority but that is a separate issue. There is nothing there to give you that kind of ongoing business development support, unless you hit an arbitrary growth criterion, which is projected growth in turnover of £400,000 over the next three years. After some lobbying from us and others, there is to be a sub-growth pipeline of £200,000 introduced because of a lack of high-growth companies-that is the economic reality in which we are working. One thing we have put forward is that, when the Business Gateway contracts are renegotiated in 2012, they have to look a little more at how we support those businesses that are established and looking to take a step to the next level.

Q81 Fiona Bruce: That is very helpful. To move from micro to SME status is a jump for which packaged support would be helpful.

Colin Borland: I think so. One of the points we made in our written submission, which is interesting because it crosses both the devolved and the reserved boundary, is that there are about 200,000 selfemployed people in Scotland. A lot of them will be in professions-they could be a self-employed taxi driver or whatever. It is not likely they would take on a member of staff, but judging just by our membership profile, it appears that over half of them would. When we asked our selfemployed members whether they had ever thought of taking on an employee, 48% said yes. I am not for a minute optimistic enough to think that might be replicated across the economy, but even if just one quarter of those 200,000 took on one person, think of the extra jobs we could create.

Support to help people through that process should be available through Business Gateway, but we could also be doing things on a UK-wide basis as well, whether it is through extending the national insurance holiday to all new jobs or looking again at some of the questions on employment law. Wonderful help is available from HMRC, which does a great seminar on becoming an employer and what you need to know. It’s fantastic. Jobcentre Plus also does wonderful work in terms of giving you interview facilities. It will advertise a job for you for nothing, give you interview facilities and sift through CVs. There is all that sort of stuff, and it is making sure that stays and is integrated even closer. There are links already, but it should be integrated even closer into the offer to the employer.

Q82 Fiona Bruce: That is an excellent point that I hope we will take away from this. I would like to ask a particular question regarding employment. I know certainly in my constituency, which is semi-rural, one of the problems is attracting the right skills. There are businesses that would like to expand but cannot attract the right skills for their business. Is that a particular problem that you and your members have?

Colin Borland: It is an irony that, outside London, Scotland is one of the highest qualified regions of the UK, but we still have a significant number of people without basic literacy skills and members still report the fact that they cannot get the right people for the job. We have put forward a number of things about making it easier to undertake workplace training-more bite-size courses and these kinds of things. Again, this is devolved, but we are looking again at how the modern apprenticeship system works and why it is that so few modern apprenticeships are undertaken in small businesses when so many small business people want to take on a modern apprentice. Yes, that is a significant issue, but again most of the issues or the policy solution probably lie either with local authorities or the Scottish Parliament.

Q83 Fiona Bruce: But, in a sense, better co-working across the piece would still be beneficial?

Colin Borland: Absolutely. There are all kinds of things we could drag in if we are offering that kind of support to make it better. In a lot of cases, it is stuff that is already there. It needs to be safeguarded to give assurances that it will remain and then to be better linked.

Q84 Fiona Bruce: It needs to be accessible, because when you are running a small business, your head is down making that business work, and so you need to be able to pull it down quickly.

Colin Borland: When we ask members what they think of the training landscape, they are confused; they don’t know where to go. One of the things we have said is that it should be a "no wrong door" approach. I know that is a horrible cliché, but it’s true. Wherever I go to get this kind of information, whether it is my local college or Jobcentre, they should be able to point me in the right direction.

Q85 Fiona Bruce: That is absolutely right. May I put one further question about regulation? In a sense, Colin, you now have the chance because Bernadette has said she is looking at deregulation. I know that regulation for small businesses is a complete nightmare at times. The fear of non-compliance-the unknown unknowns-is a major concern and worry. What regulations would you and your members like to see attacked?

Colin Borland: The easy one that would help a lot of our members grow would be to raise the VAT threshold above £70,000 to about £90,000. A survey of our members said that would help. We also have to applaud some good practice because you are right that our members don’t want to break the law and don’t want to become criminals, but they are terrified about it. Therefore, it is how you enable and help the guys who are actually the good guys-not the criminals-with a light touch to stay within the four corners of the legislation, while at the same time coming down like a ton of bricks on the guys who are at it. They are not in our interests, because those people are undercutting us and all the rest of it. In Scotland, the same kind of model has been adopted by SEPA-the Scottish Environmental Protection Agency-and, again, we see some quite good work there.

The final point I would make, which applies across legislatures, is that we can talk about regulations and how they work in practice, but we need to go back and have a look at how we design our primary legislation. Pieces of primary legislation have enabling clauses to let Ministers do things by order to devolve power out to local authorities. I don’t know how many local authorities there are across the UK, but in Scotland there are 32. We can have, for example, 32 different licensing regimes and 32 different forms to fill in.

Q86 Fiona Bruce: There is duplication.

Colin Borland: Yes. To cure that, we start at source, and that starts with good, robust primary legislation.

Fiona Bruce: Thank you very much indeed.

Q87 Chair: Perhaps I may follow up a couple of points on which I was not entirely clear. You seem to be saying there is nobody with the responsibility to provide information to somebody who is self-employed about taking on an employee. I have always had the impression that there were agencies on almost every street corner tripping over each other to help folk in business, but you say nobody is tasked with helping people to employ somebody.

Colin Borland: If we are trying to get more people to take on their first member of staff and make that step, there isn’t a uniform, identifiable service we can market and to which we can drive people to raise awareness of it. Equally, there may be private companies out there that are willing to do that and take you through it, and that is absolutely great, but we think it is so fundamental to the economic challenges we are facing that if anything is going to be in the Business Gateway contract post-2012, it should be something like that.

Q88 Chair: I understand. Is that the fault of BIS?

Bernadette Kelly: There are a number of issues involved in taking on people. Some of them are tax-related issues on which HMRC will have a key role. This is something for which we have at least some responsibility. I would say that ACAS-

Q89 Chair: What is the point of having some responsibility? If the issue is that there is nobody there to help people move from being self-employed to taking somebody else on, there is not much point in you telling us you have some responsibility for it. If you are saying that he wants a single door or a single person, or to know where to go, or a single scheme, you saying, "Well, I do a bit of it," does not take us much further.

Bernadette Kelly: It is a fair challenge about whether businesses have access to a coherent and complete set of advice.

Q90 Chair: What do you mean when you say it is a fair challenge? He has just said that it is not there, so it is not a fair challenge; it is a fact.

Bernadette Kelly: The question you asked me is whether this is something for which BIS is responsible. I am trying to explain, I guess, the elements of this for which BIS is responsible.

Q91 Chair: No, no. I was asking you whether or not BIS had responsibility for providing this one door. You are telling me that BIS is responsible for some of the elements of that, so effectively you are saying there is no single door and you have gone along with that for quite some time and not done anything about it.

Bernadette Kelly: There are a number of areas in which BIS provides support to business; it has done for many years through Business Links, for example. Obviously, this is again part of the devolved area of activity. There are a number of areas where BIS has led in seeking to provide more co-ordinated single points of contact for business so that if somebody is trying to set up or grow their business they can go to one place and get an answer. So, yes, clearly we do.

Q92 Chair: I can spot waffle when I hear it. To tell us that BIS has led the way in trying to get a single point of contact indicates that, basically, you have not done it. Is it devolved? Would you say that responsibility for providing this single door to help somebody who is self-employed to employ somebody is a devolved responsibility, which I could understand and we would take that up with them? Is it your responsibility or theirs?

Bernadette Kelly: Employment law is BIS responsibility and it is UK-wide; it is not devolved. So I can talk about that.

Q93 Chair: No; the provision of the information.

Bernadette Kelly: As I say, there are different areas. To the extent that it relates to people’s employment and tax status, these are UK-wide matters, so they are not devolved. To the extent that there is a Department in Whitehall that worries about whether business in general is getting access to the information it needs in a form it can use, yes, I agree with you that that is a BIS responsibility.

Q94 Chair: And you are not doing it?

Bernadette Kelly: No, I do not think that is true, but I am sure we could do it better.

Q95 Chair: You are not doing it at all. What do you mean that you could do it better? We have just heard that that service is not being provided. There is not much doubt that it’s not being provided, so of course you could do it better.

Bernadette Kelly: Parts of this service delivery are devolved. For example, in the UK, we are in the process at the moment-

Q96 Chair: So it’s the lack of co-ordination that’s the problem?

Bernadette Kelly: There is a regional support issue. For example, in the English regions, we are moving from a system whereby the RDAs are the principal delivery agents for a lot of business support in regions to a system where we expect local enterprise partnerships, which are local authority and business partnerships, to provide that support in their place. I understand that in Scotland you have a different set of arrangements.

Q97 Chair: If Colin or one of his members wants a single wee man or wee woman to be able to help him employ somebody and that service does not exist at present, I think a reasonable summation is that part of it is your fault.

Perhaps I can clarify the point about basic literacy and numeracy being absent from substantial numbers of the people you might wish to employ. How big a problem is that in Scotland for your members?

Colin Borland: It is a significant problem, and not just for those who are perhaps employing school leavers. There are poor literacy and written communication skills. We have members who report that people who leave further and higher education cannot write a report to the required standard. At the lower end, for schools leavers with fundamental literacy problems, it can be a problem. For example, somebody who is a cleaner needs to know how to read instructions on cleaning fluids to know what proportions to mix up so that they don’t endanger themselves and others. There are very few jobs now for which those basic skills are not a prerequisite.

Q98 Chair: Fortunately, this is not a reserved responsibility. Have you communicated these difficulties to the Scottish Government?

Colin Borland: Yes.

Q99 Chair: What response have you received? Have they been recognised?

Colin Borland: One thing that has changed recently is the curriculum for excellence that has just come in. It aims to hard wire basic literacy and numeracy throughout the curriculum, so you are not learning spelling just in the English class but in the history class and science lab, etc. You will be picked up on poor spelling and grammar across the curriculum. It is not being sectionalised. We have welcomed that as a positive step forward. However, it must be acknowledged that it has been live since the summer of 2010, so we will have to wait a while to see improvements coming out the other end. Other surveys done by academics report that levels are improving steadily. However, when we ask our members for anecdotal experiences, they don’t seem to shift much. Therefore, however you look at it, there is a way to go.

Q100 Fiona O'Donnell: Welcome, Bernadette and Colin. We have had disappointing figures for economic growth across the UK and we are holding our breath for the Scottish figures, which will probably be even worse. I do not think anyone will say that is because we had even more snow in Scotland. I am absolutely astounded that we have got to quarter past three and no one has talked about the economic world in which businesses in Scotland are trying to survive. Colin, you spoke about barriers to growth. What I pick up in my constituency is that the increases in fuel prices and VAT are the biggest barriers to growth. The last business to write to tell me it was closing its door cited those two reasons. I would like Bernadette to talk about the construction industry in particular, but what are you hearing from your members about the challenges they face in this economic climate other than regulation and such like?

Colin Borland: You are absolutely right, and I apologise for that glaring omission in my earlier example. I mentioned rising overheads, which are a significant problem, particularly when cash flow is tight. We spoke earlier about reserves being depleted but cash is difficult because we have clients and customers paying us later for work we have done. You are absolutely right that that is a significant barrier. There are solutions to be found in this Parliament to do with those issues.

As to how the economy looks in general, earlier this year we published our latest quarterly survey of business confidence, and there are some fairly worrying figures in that as they relate to Scotland. It is a business confidence index. You subtract the number of people who are pessimistic about the months ahead from those who are optimistic about it. The Scottish index is about minus 31, which is the third worst in the UK if you look at it that way. Over the year, we asked people how their business would fare and what they thought about it. Since about March 2010, the numbers looking to recruit have halved and those looking to downsize their work force have trebled. Our members are not usually pessimistic. They say they are determined to use every trick in the book to keep going and will not give up lightly, because if they go it is not just the job that they lose; it could be their homes or employment for two or three members of the family. The fact they are saying that to us is a cause for concern. We have to start thinking seriously about questions of day-to-day cost pressures, as well as some of the more structural questions on which we have touched this afternoon.

Q101 Fiona O'Donnell: Bernadette, you spoke about the construction industry sector as being one of the potential areas of growth in Scotland. Most recent figures show 17% growth. We start from a very low base, so it is easier to achieve 17%. I have to say that in my constituency is the only cement plant in Scotland. When speaking to local businesses and construction workers who are out of work, it does not feel to me as if there is 17% growth in that sector, but who am I to question these figures? What is BIS doing in particular to support the construction sector in Scotland? On the particular question of VAT, are any measures being considered to help businesses with increasing VAT bills?

Bernadette Kelly: First, VAT is not a BIS responsibility. That said, obviously when we hear these concerns from whatever sector of industry, we see it as part of our role to seek to influence the Treasury in the decisions they reach on all those things. These are things we will be doing very actively in the run-up to the Budget. Perhaps I may give a slightly more general answer and then deal also with one or two issues to do with construction. As to what else BIS is doing generally to improve the prospects and conditions for business, there is a whole host of work. I know you have seen UKTI, but we see the role of trade and exporting as absolutely critical to economic recovery, and that applies equally to Scotland, where no doubt there are many businesses with the potential to export and to grow through exporting. We will be setting out a range of actions in a trade White Paper in the next few weeks.

Q102 Fiona O'Donnell: Perhaps we can focus on the construction industry because, obviously, export is not so much part of that.

Bernadette Kelly: I agree it is not so much for construction, but I hope many other sectors will think that is important. As to the construction industry, I am not myself an expert on it. I agree it is an important sector. Because we have identified construction as one of the key sectors for the growth review, on 23 March the Budget will set out practical steps which we think need to be taken to support growth in the construction industry. I am not able to tell you what they are because a whole range of things is being looked at. One area we are looking at in parallel, but which I know is particularly relevant to the construction industry, is planning, where there are some issues about the extent to which there is confidence and certainty about development being properly supported through the planning system. There is a whole host of other areas. There will be a set of actions set out in the Budget. I am sorry I can’t tell you what they are now because they are under development. Some of the more generic issues you raise on things like regulation will be very critical. I know there are particular issues on regulation about which the construction industry is very concerned and which we are specifically trying to pick up in that work.

Q103 Chair: Colin, we intend to ask a number of questions of the CBI and others when they come before us about energy supply, broadband and communications. I presume that there is not much difference between your position and theirs on these kinds of issues.

Colin Borland: In terms of infrastructure you are right. The only point I make about broadband, which is an interesting one, is that we need to be careful not to get too hung up on the infrastructure itself and look at what is called take-up. It is like new world access. We know that in Glasgow we can get any one of I don’t know how many broadband providers to provide us with high-speed broadband. We also know that only 39% of households take that up, compared with something like 60% or 70% elsewhere in the UK. It is a question that goes beyond simply looking at cables, fibres and that kind of provision. It is a matter of studying why it is we have communities in Scotland that are, as Ofcom often describes them, digitally outside the tent.

Q104 Chair: We don’t yet have the power to force people to take broadband into their houses. We are concerned, in a sense, about the provision. I want to clarify that a whole number of these areas will be covered by the CBI, and we will speak to them in due course. To come back to small businesses specifically, we wanted to clarify the support services. To some extent what initiated this inquiry was an attempt to identify whether or not they were working together. How many of your members do you think regularly-or indeed at all-use the business support services that are available and funded by the UK Government, the Scottish Government or local authorities? We get the impression that they are on every street corner. Are they providing a service to small businesses and the self-employed such as your members?

Colin Borland: One of the success stories about business support services in Scotland is the Business Gateway brand, which has a recognition rate among our members of about 93%. They are aware of it; they know it is there. They use the website. They find a lot of it through Business Link, but they use that website. I suppose the problem arises when people talk to a business support service and, because of the way contracts are drawn up and the economic policy being pursued, they don’t slot into any particular box and therefore can’t get the sort of help and support they are looking for.

Q105 Chair: That is helpful. What is the answer to that, then?

Colin Borland: The Business Gateway contracts in Scotland are going to be renegotiated anyway; the new ones come into force in 2012. We need to make sure of two things: first, that whatever we tell them to do, they are sufficiently flexible to adapt to a change in the economic climate, because one of the problems was that we had these contracts with fixed objectives and they were too rigid to change when the economic crisis hit. Secondly, we have to put at the heart of the contracts things such as ongoing business development support, business diversification and three-year-plus kinds of services that businesses look for.

The counter-argument to that is that that’s not economically sensible; it might feel very good, but it is not really of any great economic value. The question I’ve put about that is: what is of great economic value? Is it taking 20 people off the street and saying, "Congratulations. You’re a start up," or looking at somebody who has been in the game for 25 years, who perhaps employs 100 people and thinks that the economic situation or change in the market in which he is operating makes it difficult and he needs some advice about where he is to go? He needs some advice and think about where he wants to go. He wants to talk to somebody impartial, who is not trying to sell him something or somebody who is trying to push him down a road that maybe he does not want to go down. Those are the kinds of people we need to think about. If we look at the economic value of keeping the latter versus the former in business, I would argue that the case falls on our side.

Q106 Chair: Ms Kelly, that seems to be quite sensible, does it not?

Bernadette Kelly: Yes.

Q107 Chair: Will the Government accept that?

Bernadette Kelly: In the case of broadband?

Q108 Chair: No; all the points made just now.

Bernadette Kelly: We will consider those points. Of course we will listen very carefully to any sensible points.

Q109 Chair: That’s a no then, is it?

Bernadette Kelly: No, it’s not a no.

Q110 Chair: Whenever somebody says he will consider these points, it is usually a prelude to saying no; it is a polite way of saying no.

Bernadette Kelly: Not at all. We consider points. I cannot give you an answer sitting here to issues that the responsible Ministers might not have had an opportunity to consider. It’s not a no-of course it’s not-but I can only tell you what I have authority to do.

Q111 Chair: Is it fair to say there is less than total enthusiasm, then?

Bernadette Kelly: I didn’t say that.

Q112 Chair: No, you didn’t. You didn’t need to.

Perhaps I can clarify with Colin to what extent there is duplication and a waste of money between the services being funded by BIS, the Scottish Government and local authorities-by everybody else and their granny who has an involvement in this general area. Do your members feel that it is adequately focused?

Colin Borland: In terms of the way the services you are talking about are funded through Business Link and the RDAs south of the border-although, obviously, that is subject to change-where they stop and those provided by Business Gateway start is pretty clear. If you are in Scotland, this is who provides it and it is the responsibility of Scottish Ministers, ultimately devolved down through local authorities. There may be a question and we are probably not best placed to answer it. My colleagues at SCDI, who know a lot more about the international scene than we do, may be better placed to answer questions on other things like SDI and smart export and whether or not there is any overlap there.

The third area would be about what local economic development departments and local authorities are doing versus core services provided by Business Gateway and whether or not there are any questions of overlap there. There should not be. However, anecdotally I am aware of some projects where we get European money. When you look at the project you think it looks suspiciously like what Business Gateway should be doing-how is this different? There may be a particular question about start-ups, for example. That may be an area that we need to look at. It is a point that we have made repeatedly and we will continue to do so.

Q113 Chair: We are taking the view, not unreasonably, that you are the users of these services. If it seems to you that people are tripping over each other, obviously that would be a cause for some concern. Having been involved in local government, I understand empire building among agencies. We are just trying to clarify with you the extent to which you think that this is a missed opportunity and agencies are building their own empires at the expense of co-ordinated working.

Colin Borland: To be frank with you, my concern is that probably this will not be a problem for much longer because local economic development services are not a statutory service. As funding cuts hit local government, councils will face very tough decisions. It will be a lot more palatable to make severe cuts there than possibly elsewhere, so that is my concern in the long term, frankly.

Q114 Chair: Abolishing the service reduces duplication. I can understand that, but that is not necessarily what we were looking for.

Colin Borland: Yes.

Q115 Jim McGovern: Bernadette, I have to say I agree with the Chair. When somebody says he or she is listening to the point being made or, in my experience, an employer says, "We’ll monitor that and get back to you," or, "I take on board what you’ve said," usually it means it will be filed under "bin" and ignored. However, I put two quick questions-one for Colin and one for you, Bernadette. Colin, I think you said earlier that 58% of businesses had said they depended on the banks for start-ups, etc., and that had reduced to 38%. One interpretation of that could be that that is good because businesses are less dependent on banks now. I think you would agree that another interpretation is that businesses can no longer depend on banks.

Colin Borland: I think that is right. For whatever reason, 20% of them no longer see the bank as a place they want to go as the first port of call for finance.

Q116 Jim McGovern: Given that they are almost totally publicly owned now, do you think the Government are doing enough to encourage the banks to lend to businesses?

Colin Borland: I have always been very keen for the Government to get as big a bang for a buck as they possibly can because as taxpayers we have been incredibly generous. I think it is about time we had a little reciprocation; not a return to the bad old days when people were buying products they didn’t understand from people they couldn’t trust and getting themselves into all sorts of difficulties, but a little understanding of what, in today’s climate, viability means.

Q117 Jim McGovern: Bernadette, you referred earlier to deregulation and at that time you were speaking specifically about the construction industry. My background is that I worked for a lot of years in the construction industry, and unfortunately I had more than one visit to the accident and emergency department of the local hospital due to injuries sustained in accidents working in the building industry. When you speak about deregulation, I always get a bit scared that you are talking about the Government thinking of a slackening of, or more flexibility in, health and safety regulation. I hope I’m not picking you up incorrectly.

Bernadette Kelly: Could I make two points? Can I just pick up your concern about something being filed under "bin"? Perhaps part of the reason I am not providing as positive responses as you would like on this question of the configuration of support for Scottish businesses is that quite a lot of those responsibilities rest with Scottish agencies. Therefore, even if BIS had a great view of how that should be done, I rather suspect that the Scottish Government and Scottish partners would have their own views on that. Therefore, in part it is a reflection of how the devolution settlement works in practice on the ground, so please don’t misunderstand me. Where we do have a responsibility, I am genuinely interested to hear from Colin and others where the problems are and what we can do about them.

On your wider question about deregulation, the Government have been clear in setting out that they want to be quite ambitious in reducing regulation and unnecessary regulatory burdens. We have a powerful range of institutional mechanisms designed to try to achieve more challenge right across Government where regulation is being proposed that will have a significant impact on business. That was a core part of the coalition agreement. Therefore, there is genuine enthusiasm, energy and desire to grip those issues, which, as we hear time and time again from Colin and others in the business community, are one of the major things that stop them from growing.

You are quite right that the reason we have regulation of any description on business is that there are many good reasons why it is needed to ensure decent standards of health and safety and employment, and environmental standards. It is never simple, and I think it is one of the issues in government that we find genuinely most difficult. On the one hand, yes, we want to be deregulatory and to look for opportunities to ease the burden on business. On the other hand, there will be the kinds of concerns you raise about standards and protections in key areas being eroded too far. So it is about getting a balance. This Government want to see the balance moved in the general direction of where there is much more grit in the Government machine when regulation comes forward to test whether it is really necessary, appropriate and proportionate, and whether everything has been done that reasonably can be done to ensure we do not just impose lots of new requirements on businesses that simply add costs.

Q118 Jim McGovern: To me, what you have just said suggests that any new regulation will be looked at to see if it is necessary, but deregulation suggests to me that regulation that already exists might be scrapped.

Bernadette Kelly: It is a combination of looking at new regulation coming forward and testing that in terms of whether the impact has been assessed, that alternatives have been considered and that it is proportionate, but I agree with you that it is also looking at the huge stock of regulation that sits on the books and at opportunities where there might be possibilities to lift things. In my direct areas of responsibility, which include things like company law and employment, we are looking to see whether there are requirements that might have been put there for a very good reason but which now, given the accumulation of requirements over a period of years, 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.

Q119 Chair: Perhaps I could raise a further point with you, Colin, while you are here, because we are looking in parallel at the question of the Scotland Bill. Are your members wildly enthusiastic or less than enthusiastic, or could they not care one way or another about the Scotland Bill? Are there any particular issues that you wish to draw our attention?

Colin Borland: By the nature of our membership and organisation, we focus very closely on the practical implications. I am not an economist. We do not pretend to be economists or constitutional experts, and we will leave that debate to those far more qualified than us. Obviously, the most likely impact on our members who are employers is the introduction of the Scottish income tax. We sit on the ministerial pilot implementation group. We also have representation on a technical tax sub-group that is looking at a number of very specific issues. We have made clear that the impact on members must be as minimal as possible. We are pushing for, and I understand this is broadly accepted by the Government, a separate Scottish tax code, for example, which is determined by HMRC. We then do not have the risk of working out who is a Scottish taxpayer or not; they tell us who is a Scottish taxpayer. When we come to do a payroll, we simply put in that tax code, as you would with anyone else who has an "S" on it or whatever, and the payroll software does the calculations automatically. We are doing some work on that. We think that will cover the vast majority of our members. There might still be some who do it with Excel and by hand for whom that might present a problem. However, in that sense, provided HMRC makes sure it is included in the software updates, gives us the Scottish tax codes, does all the calculations for us and also makes sure we are making a single payment, the impact on our members should be kept to a minimum.

Chair: Thank you very much for coming along to see us. I am sorry we have run slightly over. If there is anything else you think of that you wish we had asked you and you had an answer all ready, maybe you would drop us a note and let us know.

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 you very much for coming along. As you are probably aware, we are interested in what can be done to help the Scottish economy. You will have heard earlier on some of the strands we want to follow up. Perhaps you could first introduce yourselves. In particular, perhaps SCDI, would you tell us what you are for, in the sense of what you bring to the party? We are aware of the CBI as being the big brother of the Federation of Small Businesses. Perhaps you would clarify what you think we ought to take into account and then we will come to our questions. Maybe I can ask Iain and his team first.

Iain McMillan: Thank you very much for inviting us to visit the Committee. We regard this Committee as a very important instrument indeed in the democratic process. I am Director of CBI Scotland. With me is Lauren McNicol, our policy officer in Scotland. The CBI’s principal business is business advocacy. We are there to represent the views of our members, of whom there are many of all sizes and from all sectors. Many trade associations throughout the United Kingdom are also members of the CBI. While we never claim to represent the views of every business in Scotland and other parts of the UK, we believe we are pretty representative of business as a whole.

In 2011, there are many well-resourced pressure groups out to influence the democratic process and the views of Ministers, Members of both Houses of Parliament, Members of the Scottish Parliament and others. Therefore, it is very important that business also has a voice and principally that is what we exist to do. We work closely with other business organisations and representative bodies such as SCDI. I have never heard us described as the big brother of the Federation of Small Businesses, but if that is the case we are a very kindly big brother.

Q121 Chair: They were on first.

Janette Harkess: SCDI-the Scottish Council for Development and Industry-was formed in 1931 by the then Secretary of State at a time when Scotland had 25% unemployment. We are an independent membership network. Our aim is to strengthen Scotland’s competitiveness by influencing Government policies to encourage sustainable economic prosperity. We have a very wide membership, including large and small businesses, trade unions, local authorities, educational institutions-for example, colleges and universities-third sector, voluntary sector and faith groups. I believe the SCDI could be regarded as a gathering of civic Scotland. You will imagine that within that grouping it is often difficult to get consensus, but when you do it is a very powerful voice to take to Government.

Q122 Chair: The question that originated this investigation is how the Westminster arm of business development works with the Scottish one and whether or not there is duplication and they manage to provide a service to business. I start with the CBI. Do you think that the agencies involved, funded from different directions, are working as well together as they might, and, if not, what can be done?

Iain McMillan: Our principal interest is more about the performance of the macro-economy and how the UK Government manage it. We are in a very difficult economic situation at the moment. We have come through a very significant recession. The public finances are not in good shape. While there will be views about the length of time over which the public finances should be put in better shape, it is fair to say that both the previous Government and the present one regard that as a priority. Getting the public finances right in future is also our greatest priority. As far as the instruments underneath are concerned, our members do not tell us that there are any significant problems. They do not make representation to us at all that, for example, the Department for Business, Innovation and Skills lets them down. We have heard no complaints about that. What we do hear, and it might not be typical, is that there is a reasonably good relationship between, for example, Jobcentre Plus and not the equivalent department, but the one in Scotland with which they work most closely. That relationship is quite good. That may not be typical, but these are the messages we are getting.

Q123 Chair: My general experience is that business is not slow to complain if it is unhappy about something, so the fact that nobody is complaining to you about this is an indication that certainly for bigger firms things are working well. Is that also your experience?

Janette Harkess: While we hear some very positive things about collaboration between the Governments of Westminster and Holyrood, there are areas where we believe that could develop further, particularly in terms of allowing the Scottish business base to internationalise more effectively, and the role of SDI working with UKTI. We work very effectively with both. SCDI has been taking cross-sector SMEs on international trade missions for 50 years. We do so with funding from UKTI and work in partnership with SDI. Out in the field, however, some of the feedback we get is that there could be closer cooperation in terms of an understanding of the role of each individual organisation in supporting businesses to internationalise.

Q124 Chair: What is stopping the greater co-operation that you mentioned was important? Is it just empire building between rivals, or are there structural issues?

Janette Harkess: It is about having a commercial export-oriented mindset. For example, businesses looking for market intelligence would be directed to the OMIS studies which are very expensive for SMEs to access. It would be useful to have more collaboration and easier access to that kind of information.

Q125 Chair: I am not clear. Why is that not there? What is the barrier? What’s stopping that happening?

Janette Harkess: Cost is one issue, but also it is just about engendering a more collaborative approach.

Q126 Chair: How is a more collaborative approach engendered? We keep hearing warm noises from Westminster and Scottish Government Departments and local authorities about how everybody wants to work together. Why is it not working?

Janette Harkess: It is about taking that export-oriented mindset beyond the enterprise agencies and into all arms of government. That would be very helpful.

Q127 Chair: The BIS devolution champion we saw is presumably the person who should be taking that, if it is accepted as a key issue, into the other arms of government. Has that not been working up to now?

Janette Harkess: It works and some feedback is very positive, but it could be developed further.

Q128 Dr Whiteford: I would like to come back to a question that Fiona asked the previous panel about the impact of VAT and increases in fuel duty on your respective memberships. Obviously, in Scotland, the fuel duty has a very disproportionate impact, but are there other factors that would be issues of concern to your memberships, given yesterday’s very disappointing growth figures?

Alf Young: Dr Whiteford, of course we have a problem in Scotland because we don’t know what is happening beyond the end of October. We know the third quarter picture in Scotland; we won’t know the fourth quarter picture for some time, so we have to assume what it will be. We have some reasonably clear indicators from most of the more up-to-date surveys of opinion. The FSB talked about its survey; there has also been a PMI recently; there is the Scottish Chambers of Commerce Survey. Various indicators all suggest that activity was slowing quite significantly in that final quarter. Scotland was growing in the third quarter at 0.5% against 0.7% in the UK. We now know that the UK contracted by 0.5% in that final quarter so, on that argument, you might say that Scotland would be at least minus 0.5%, but possibly rather worse than that. It is something that we cannot say with any certainty.

One thing that makes it more complicated to understand this time, compared with previous downturns, perhaps, is that some of the labour market data is rather more encouraging but in a complex way. More people are taking part-time employment. We know that there is a lot of strain at the youth end of employment. There is some confusing evidence in the labour market data, to put it no stronger than that, but the evidence seems to be that a weakening economy will now move into the first part of the current year against the backdrop of continued pressures not just on fuel but all sorts of raw material costs. Scotland has a big agricultural sector and there are cereal and feedstock price increases. The whisky industry depends on grain and there are further pressures there. You then add to that the VAT increase and raw material cost increases in all sorts of sectors. Metal prices have also gone up. That is not a particularly optimistic scenario going forward, even in the early part of 2011, to get back to something approaching what the Scottish Government seek, which is sustainable growth.

Iain McMillan: I would echo what Alf has said. First, until the UK figures are revised, we need to treat them with a little caution. They are preliminary figures. I know that the Office for Budget Responsibility has validated the split, but it is quite difficult to disaggregate the weather issues from the rest of the figures, so I would like to be a little surer that the figures are accurate.

Looking at Scotland, the last set of GDP figures were quite encouraging. The problem with them was that the role played by the weighting of the construction industry in the figures almost rescued them from what would have been a bad situation. Those in the construction industry would say that what is happening on the ground is not reflected in these figures and they are a little puzzled about this. As to where we go this year, the jury is still out. Having said that, our latest economic forecast for the UK expects a 2% growth in GDP across the whole of 2011. We don’t produce a separate forecast for Scotland, but for those organisations that have, the median point is about 1.9% or 2%. There is one over 2%, but nice as that would be, I think it will be very difficult to achieve.

With regard to fuel duty and VAT, there is a tension. To recover the public finances and get the structural deficit back down to where it needs to be requires fiscal consolidation and, therefore, some taxes must go up. If VAT and fuel duty are not put up, other taxes would have to go up instead, which might affect competitiveness even more, depending on what they are. Certainly, the issue of fuel duty that comes on top of natural rises in the price of the product is not helpful. The fuel duty is based on the value of the petrol or diesel being sold, as is the VAT. Therefore, the higher the price goes, the yield exceeds the expected yield from a lower price level, and perhaps the Government can do something about that.

Q129 Dr Whiteford: On a different subject altogether, a number of business leaders in Scotland have called for a reduction in corporation tax as a means of promoting business growth. I put the question to both of you: do you believe that lowering corporation tax in Scotland would be beneficial to your members?

Iain McMillan: Let me deal first with UK corporation tax, which is to be reduced from 28% to 25% over the next four years. Certainly at the UK level, the reduction in rate will put UK corporation tax more towards the competitive position it was in a few years ago. To come to the question of Scottish corporation tax, am I right in thinking, Dr Whiteford, that the question is whether that should be devolved so that a lower corporation tax could be enacted by the Scottish Parliament?

Q130 Dr Whiteford: The question as I put it to you was whether it would be beneficial to your members. I think that is the key question.

Iain McMillan: A lower corporation tax in Scotland would be beneficial to our members, but they would argue that the costs of Scotland having a separate corporation tax would probably outweigh the benefits. The reason we take that view is that, first, there would certainly be costs in fragmenting corporation tax across the UK. If you give it to Scotland, you give it to Wales; you give it to Northern Ireland; you might have to give it to the regions of England. Therefore, there is a cost involved in that. Taxable profits would have to be accounted for separately in the different jurisdictions including Scotland.

Q131 Dr Whiteford: I believe the CBI advocated lower corporation tax in Northern Ireland.

Iain McMillan: The CBI in Northern Ireland has explored how the Province can be assisted by the Government. Lowering corporation tax is one way to do it, but there are other Government interventions that can also be used there. They have a particular problem. They share a boundary on one island with the Republic, which has a rate of corporation tax of 12.5%. Therefore, the balance of advantage may swing towards that, and that is what my colleagues over there may have had in mind, but they are not concentrated exclusively on just one intervention.

Scotland shares a border with England. England is our principal market, and our members take the view that the certainties that there would be costs involved are outweighed by the fact that lower corporation tax would be only a possibility. It would have to be affordable and it is not clear that it would be. Corporation tax in Scotland brings in more than £3 billion a year. Therefore, if you reduce the yield of corporation tax there, where do you make up the shortfall from? It certainly could not come from a subvention here. The European Court of Justice ruled on a similar case in the Azores. The nation state is forbidden from subsidising a loss of yield from the devolving of corporation tax, so there are also issues there.

Alf Young: In economic history, it is the case that the rate at which any particular tax is set affects behaviour, in particular locational behaviour in terms of corporate taxes. Therefore, we have tax havens. In recent years, this Parliament has been exercised on the extent of these tax havens. We have the experience of Ireland, which has had a very low rate of corporation tax for a number of years. Clearly, that has been a factor in its ability to attract mobile foreign investment. The reality is that when a rate is set, particularly if it is very different from that in other areas, it can have significant impacts, not just in putting a business there but in the locus from where it incurs its tax liability. I know that in the period when Scotland had a lot of electronic inward investment, a good deal of the activity that took place was not accounted for in terms of the main profit components of that activity, because a lot of these organisations put their sales and marketing departments not in Scotland nor in the plants they built in Scotland, or indeed elsewhere in the UK, but in Holland because that country had a particular fiscal arrangement that was very beneficial to them. A computer or printer made in Scotland might be good in terms of creating jobs and economic activity, but a lot of the added value was taxed in terms of corporation tax not here but in Holland. That was quite commonplace during the inward investment boom. Therefore, it has an impact.

As for whether or not it could happen in Scotland, corporation tax, like every other tax, is a decision to be reached by the Scottish and UK Governments. The main preoccupation of the debate at the moment does not seem to be about where corporation tax should lie, but whether, under the Scotland Bill proposals, there is a new arrangement for income tax. That also has consequences, but maybe that is straying too far from the remit of this particular inquiry.

Q132 Chair: Following on from that, I take it that in general the CBI would be in favour of no corporation tax at all for its businesses; presumably it would be in favour of no fuel tax being paid by its businesses; and it would quite like to have no council tax. If you are honest, you wouldn’t mind none of your employees paying income tax either provided somebody else paid for it at all.

Iain McMillan: No, not at all. The CBI believes in fair taxation. We have never made any such proposals.

Chair: I am glad to hear it.

Q133 Jim McGovern: Iain, I think you said that England was Scotland’s main market. You also mentioned the difference in taxation between Northern Ireland, which is obviously part of the UK, and the Republic of Ireland, which is independent. Can you foresee a situation where the fact that England is Scotland’s main market might be put in jeopardy if Scotland was separated from the rest of the UK?

Iain McMillan: Our position on the question of Scotland seceding from the Union is that our members are yet to be convinced that the balance of advantage for Scotland would lie in such an arrangement. There are various reasons for that. None of us can predict the future. An independent Scotland tomorrow may have a very open border, but in 50 years’ time it might not. What would be the arrangements, for example, in our transport links? Would a high-speed railway ever get north of Manchester if Scotland was independent? What would happen to our electricity transmission infrastructure? Would that infrastructure be built north of the main conurbations of England? These very serious questions need to be thought about. To come back to corporation tax, if an independent Scotland brought in a lower rate, what do we do when it gets down to the level from which it cannot be cut any more due to affordability, but our next-door neighbour-England-in 20 years’ time has a lower corporation tax than Scotland? These are all questions that need to be considered.

Jim McGovern: Certainly.

Chair: We ought not to digress too much on the question of the impact of independence, because it is a bit like shooting fish in a barrel. It is enjoyable but really too easy.

Jim McGovern: I would like it to be recorded.

Chair: It has been recorded now, and we will make sure we also get the percentage of Scotland’s exports that go to England. That is probably worth placing on record.

Q134 Fiona Bruce: I know that generalisations, like comparisons, can be odious, but I am interested in trying to get a picture of a typical member of the CBI in terms of size of business. For example, I would assume that, in your membership, there would be a manager; there may well be someone else who does the accounts; there may well be someone with expertise in HR. What I want to establish is that there is a difference between you and a member of the FSB, who might well have to do all those things and run his business at the same time.

Iain McMillan: That is a very fair point. Our members tend not to be those who are micro-businesses where the owner-manager has to deal with all these matters. Even our smallest members tend to have some of these specialisms.

Q135 Fiona Bruce: They have got beyond that jump we talked about earlier this afternoon.

Iain McMillan: Yes.

Q136 Fiona Bruce: Thank you. Moving on, I would be interested to know what skills your membership feels are lacking that impede their growth.

Iain McMillan: I think at this point I will bring in Lauren, if I may, who looks after this area for us.

Lauren McNicol: From the development of our manifesto and our last education and skills survey, it was clear that STEM skills were a key issue for our members. It is felt that these are the skills that we need to develop the economy.

Q137 Fiona Bruce: Which skills did you say?

Lauren McNicol: STEM skills: science, technology, engineering and maths. In our last education and skills survey, about 70% of our members were looking to acquire these skills. About 45% feel that they are not able to do so just now, so it is important for our members that these skills are carried on after high school into further and higher education. That will be about developing relationships between business, higher education and skill levels.

Q138 Fiona Bruce: That is very helpful, and it enables me to move on to talk to the SCDI. Very interestingly, you said that your membership included educational establishments as well as business. I am interested how you see the macro picture in terms of the interrelation between the educational sector and business serving one another so that we can have these skills which are clearly lacking.

Janette Harkess: In our Blueprint for Scotland, which is our policy document in which we identify our policy priorities for the next five years-the medium term-and then in the longer term of the next 10 years, we absolutely identified that realising the potential of our young people is a huge priority for the economy of Scotland. One of the points we identified, like the CBI, was prioritising places in STEM subjects. When you look at the potential for the economy of Scotland looking forward, areas like clean energy, life sciences, financial services and digital media are all likely to be important growth sectors-domestically and also, importantly, internationally. We would like to see priority placed on all of the subjects and skills that would feed those industries and offer opportunities to young people in Scotland to be part of those growth industries.

Q139 Fiona Bruce: As a Committee, we went to Abertay university and saw some excellent innovation going on there in the computer and video games sector. Do you see that translated into other areas adequately, and what could the UK Government do to assist?

Janette Harkess: We would certainly like to see innovation being prioritised. One of the areas we identified is the creation of a single office of higher education and technology transfer and also to ring-fence 0.5% of the procurement budget in Scotland-that is a matter for the Scottish Government-to stimulate innovation. However, we would also like to see an increase in business R and D in Scotland at least to the UK average of 1.08%. We see both of those as a way to harness the potential of innovation that, as you rightly say, we have within our universities and colleges.

Q140 Chair: Those recommendations you made seem on their face to be sensible. Why have they not happened? Why have people not picked them up?

Janette Harkess: That is an interesting question. Perhaps we need to simplify the system of technology transfer and IP. It is a very complex system at the moment. We have identified that to simplify that system and have greater focus on one point of entry would help to deliver more innovation.

Q141 Chair: I understand the argument. It seems to be a statement of the bleeding obvious. I am not clear why, if it is such a good idea, it hasn’t been picked up. Are there institutional or structural barriers? Are there rules that prevent it? Obviously, we are looking to make recommendations and comments on the observations that people have made to us. I don’t understand why, if it’s so sensible, it has not been done already.

Alf Young: I do some work with the SCDI, but I spent 30 years of my life writing about the Scottish economy and Scottish business. I have travelled all over Scotland and visited factories and businesses big and small for a very long time. One of the problems we face, as Janette explained at the outset, is that SCDI was a cross-interest group advocacy body born in the years before the second world war and flourishing at its height in the period just after the second world war when you had captains of industry, politicians and people from right across Scottish life of all political persuasions making things happen.

If you look at what happened from 1945 to the early 1950s in terms of the Industrial Estates Corporation and the creation of the Hydro Board, there was an extraordinary flourishing of endeavour in the post-war effort that was brought forward in part by the activities of the Scottish Council. In some way that is now missing. We have transparent political divides. The parties have their own positions and they fight very hard with each other. There are multiple lobbying groups for specific business interests, Iain for bigger businesses and the FSB for smaller ones. Although SCDI is still here, in that mix there is not a will right across the country to put all the sectional differences 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, and getting them jobs. I do some work for SCDI but I don’t work for it. Janette works for it as an organisation. We are trying to drive that agenda, but having it heard and acted on requires others to accept that there is a cross-interest group agenda that all of us must embrace.

Q142 Chair: Maybe I am slightly missing the point. I had thought that Scottish Parliament was meant to address these issues, in the sense that the structure of Committees was meant to be non-confrontational and based on collective working. I suppose it is too easy to characterise it as Jesus Wants Me for a Sunbeam, but it was meant to get away from the yah-boo politics of downstairs, and you would get joint working and people pulling together.

Alf Young: I don’t want to suggest that it is just yah-boo and that is what is stopping it. It is a willingness to go for the structural switch that will solve the problem rather than addressing underlying issues. You had a very interesting discussion with the FSB about not one of Iain’s members, but a sole trader who wants to take on his first employee and to have a micro-business and then a slightly bigger one. If all these sole traders in Scotland did that, you would solve an awful lot of problems overnight. But the problem, of course, is that we have something called Business Gateway, which is reasonably effective, but it used to be part of the Scottish Enterprise network with its local enterprise agencies. We then changed all that and decided to give it to local authorities in 2007. As you have heard, the contract is up for grabs again in 2012.

What we need is not just a business gateway which takes you from being a sole trader to a business. You need a business pathway that takes you along the stages and gives you all the kind of support discussed in detail earlier. I don’t know that anybody is even sitting down to think about business pathways rather than business gateways because there isn’t that mindset that says, "Let’s face up to the challenges we have and collectively come to an answer that no individual interest group will draw all the credit from, but we will say we have done something to make Scotland a better, more functioning economy."

Q143 Chair: That is why we are asking you these questions. I come back to the universities. I can understand if people say they do not think that is the way forward because of such and such. I would welcome hearing from you if, say, the universities have said that, no, they have mechanisms that are more efficient because they might be sent to headquarters or somewhere. I can see there might be arguments against it. But if it is an issue that is accepted, say, by the universities themselves, who presumably are on your structure, and if it’s accepted by the Scottish Government, who are presumably accepted in your structure, what is stopping these things happening? It cannot just be a shortage of money, presumably. Is there a shortage of will and vision, and who then in these circumstances provides the vision in business?

Janette Harkess: I think it comes back to points made earlier about the nature of Business Scotland. The latest figures from Scottish Enterprise show clearly that of our 291,000 businesses in Scotland, 194,000 are one-man businesses. We have 2,700 growth firms, but, as Alf and others identified, the gap in the middle in terms of the communication of how we build those businesses, get innovation into them and internationalise them is a challenge for all the agencies involved.

Chair: With respect to Alf’s point about how everybody was working well together in the 1950s and so on, presumably the economic structure was pretty much the same then in terms of big and small businesses and a gap in the middle, yet the mood, style and approach were different. Why is it that these things are not being picked up? I am struck by the fact that a single person wanting to employ somebody does not have a pathway or structure to see him through. Again, it seems to be a statement of the bleeding obvious, yet all these extremely clever and highly paid people don’t seem to have managed to get their act together to make this happen. What is wrong with the present system, and why is it wrong?

Fiona Bruce: Chair, I know it is not my place to answer questions but may I make a contribution? As a local councillor, admittedly in England, I was struck by the fact that there was almost no relationship with the business sector in my local authority. In the 1950s, there would have been older men with perhaps businesses in the town who would become councillors. There would have been a more homogeneous society. I think we have lost something in that division. That is just my experience. It is very interesting that yesterday, when debating the Localism Bill, we talked about how perhaps we needed to look not just at residents’ groups in neighbourhoods, but at business groups to ensure we had the pool of every mind to solve community problems. I think you have touched on a very important point. To finish, my question was going to be: how can the Scottish and English Governments work together to crack this nut, bearing in mind that one is responsible for enterprise and the other is responsible for trade and industry?

Chair: May I point out that normally we refer to it as the British Government?

Fiona Bruce: I apologise, but I am working on that one.

Q144 Chair: It is just as well Eilidh has left, as that would confirm a whole number of prejudices she has about the Tories, but never mind. Do you want to respond to that?

Alf Young: In that time when I went round all those businesses, the first thing you learned generally as you walked in the door of a small business and wanted to know about it was that suddenly you became that link to the big wide world. In the days when newspapers could do it, sometimes I would spend four or five hours with someone talking about their problems, almost becoming a kind of sounding board for their problems. To go from a one-person, self-employed venture to building a business around it is a lonely and challenging thing to do. I think there is a massive potential network of people who’ve done it before, and then retired and do it no longer. There is a mission to get volunteering going and to get them out, active and involved in trying to assist a younger entrepreneur and business-builder. I don’t really like the word "entrepreneur". The fact we have to borrow the word from the French to describe something does not capture the essence of it.

Q145 Jim McGovern: I believe George W Bush once famously said, "The French don’t have a word for ‘entrepreneur’."

Alf Young: I am referring to a mechanism for volunteering. There are all kinds of ways we can begin to be much cleverer about tracking that pathway for people with other people who have the experience and know the pitfalls, and sometimes know the answers. It can be done; it just takes the will. It goes back to the Chair’s point about why it is not happening. There are people like the Scottish Council who try to advocate this kind of approach, but we seem to be so compartmentalised in our outlook as to what we are here to do and trying to deliver that the messages don’t get across the interfaces and little or nothing happens.

Q146 Mr Reid: Iain said that fuel duty and VAT increases were obviously affecting competitiveness, but that we had to get the public finances in balance. Do you have any suggestions as to what taxes would be more business-friendly-or perhaps less business-unfriendly? Is the basket of taxes right?

Iain McMillan: In the current economic environment, it is extremely difficult to make these choices. They are very difficult for the Government and for us to advocate because the only choice any Government have at the moment is to increase tax to the point where the structural deficit is eliminated. Therefore, what you do with one tax, you do with another. I suggest that the principal tax at the moment that needs attention with regard to international competitiveness is corporation tax. That does not mean you cut it to the level of the south of Ireland or anything like that, but we need to get it back to an internationally competitive level. The other one that has been revised is employers’ national insurance contributions. We did not get the rise that was going to take place, and that is helpful because taxes on employment can hold back the employment of people. Think of the one person in a small business who is going to employ someone else; he or she immediately has a cost with regard to that.

Q147 Mr Reid: What I am trying to tease out of you is not the taxes you would like to see reduced. If we are to balance the budget, are there other taxes that you think could be put up that would not harm competitiveness?

Iain McMillan: I am not going to answer your question in that regard. We had a position before the last Budget. We will release next week our submission ahead of this Budget. I don’t want to be evasive, but the Director General won’t be pleased if I break his embargo.

Q148 Mr Reid: But you will be announcing something next week.

Iain McMillan: We will be announcing it, and I would be very happy to send that to the Committee.

Chair: It is very helpful to have somebody refusing to answer the question and telling us that. The BIS person earlier refused to answer a question but did not tell us that, so honesty is to be commended.

Q149 Mr Reid: On fuel duty, do you have any evidence that high fuel duty impacts adversely on Scotland as a whole compared with England, or on different parts of Scotland compared with other parts?

Iain McMillan: Of course there are some rural areas of England and, as residents of the UK, we often say that in Scotland there are vast distances that they don’t have in England. That is not strictly true. I lived in England and the distances are considerable, but it is fair to say that, particularly in rural Scotland, the high levels of fuel duty are a burden. They are more reliant on motorised forms of transport.

Q150 Chair: Do you believe that that can be dealt with in any way other than UK-wide? I am thinking back to what you said earlier about corporation tax.

Iain McMillan: My understanding is that the European Union needs to give its consent to disaggregate fuel duty and allow a separate fuel duty in parts of the country. I believe that happened in Corsica. What the European Union will not permit is a further disaggregation. For example, if fuel duty were devolved to the Scottish Parliament-and it could be under European Union rules-the Scottish Parliament would then not be allowed to make further disaggregation within Scotland.

Q151 Chair: So there is no possibility of a scheme for the islands?

Mr Reid: As Iain said, only with European Union permission and that was given for Corsica.

Iain McMillan: There could be a scheme for the islands if it was under UK jurisdiction. If fuel duty was devolved, you would have two jurisdictions and the Scottish Parliament could not then devolve it further. That was the information we got during the Calman deliberations.

Q152 Chair: I misunderstood. I presumed you were talking about Corsica being an administrative unit to which it was devolved.

Iain McMillan: No; it is a legislative matter.

Alf Young: Of course, other mechanisms are already in use, for example the experiment that approaches a road equivalent tariff for some ferry journeys, notably from Ullapool to Stornoway. I am told that the net effect-because my son lives in Ullapool-is that you have to book a ferry about three or six months in advance if you want to get across. The demand has grown so much because of that experiment.

Q153 Fiona O'Donnell: I am not an economist and I am still overawed by speaking to people that I’ve only seen on the television before, so do correct me if I get this wrong-I’m softening them.

Chair: And people say that flattery doesn’t work.

Fiona O'Donnell: I am being told that I look miserable when I am on the television, so there you go.

The Scottish economy has been heavily reliant on the public and service sectors. We now have an economic plan which relies upon exports for a large part of our economic growth. The private sector in Scotland is also dependent to a large extent on the public sector. The question is how this increase in exports will happen. Iain and everyone will have seen that in the third quarter of 2010 our exports dropped, which is really concerning. We rely on Ireland where the economy is not in a good situation; we rely on the rest of Europe. Where are the export opportunities? On the pathway you talked about, Alf, at some point we want businesses in Scotland to think about exporting. Where are the opportunities, and what more can we do to promote Scotland overseas? Anyone can have a go.

Iain McMillan: First, we published our Scottish industrial trends survey last week. I would be very happy to provide the Clerks with a copy of that for you. It showed that exports performed reasonably well. Export orders were up and demand was up as well. The data are a little conflicting, but in terms of our surveys, this trend has been running a thread through an improved performance of exports for quite some time now, which is good. Domestic demand is not good; it is showing a negative result. That does not surprise us because demand in the United Kingdom has been pretty soft for a while, as we know.

What do we do to encourage more to export and where do they go for that? Overall, the global economy in 2011 will probably grow by between 2% and 2.5%. While there are problems in parts of the eurozone and still problems in the US, there are parts of the world-for example, China, India, the far east and Brazil-where economies are doing very well. Our members would take the view that it is good to have a supportive Government in the various jurisdictions, but they have to get up, research the markets, go out to these countries and put their foot in the door and sell. There is no substitute for that. Governments of any jurisdiction can’t do that for them. Business has a responsibility for itself here. Certainly, the view among my members is that that is their responsibility, albeit the Government can assist. We see that through the Scottish Manufacturing Advisory Service, part of Scottish Enterprise, and other support from the Economic Development Agency and, in the north, the Highlands and Islands Enterprise. There is quite a lot of help out there. I repeat that I don’t think this is all down to Government; it can’t be.

Q154 Chair: But are you satisfied that the support services to help firms work abroad are working together well enough and there is no unnecessary duplication and competition?

Iain McMillan: We do not have any representation from our members to suggest that the Departments of State and the Departments of the Scottish Government and their agencies are not working well together.

Janette Harkess: International growth is absolutely essential to the Scottish economy. We have strength in a number of sectors of which you will be very well aware: oil and gas; food and drink; education; and high-end manufacturing. It is important that our SMEs as well as our larger companies start to look at the international market. That is where they benefit hugely from support such as trade visits. As Iain said, going to market and trying to understand on the ground what that market is like is incredibly important.

One of our long-term policy aims is to have a network of Scottish trade centres internationally where you take all our resources in terms of the private sector and Government, the SDI, the embassies in market, and the Scottish businesses already there that are successes in international markets, and bring all that intelligence and resource together so that new businesses coming to that market can get that support there. That does not have to be owned by the Government; it could be owned within the private sector. We think there is real potential not to add to it-we are not in an environment where additional spending will come easily-but to use the resource we have much more effectively.

Alf Young: What the Scottish council does in its trade mission work is absolutely important to a whole stratum of Scottish businesses that need to get out into markets and have a presence there, but even on the pathway we talked about earlier, tiny businesses that use the internet and sell directly to consumers can themselves establish a global market very easily. There is a tiny village called Durness in the north of Sutherland near Loch Eriboll. I know Durness quite well because my younger son’s girlfriend comes from there. In the craft village of Durness, there is a little factory called Cocoa Mountain. It produces very expensive handmade chocolates. They cost £1 a time, so a box of chocolates would cost 20-odd quid. They are tremendous. They sell these chocolates to all sorts of places in the world via the internet. Not only do they do that, but the shipping of them through Royal Mail keeps the local post office alive. I have been told by people in Durness that there would not be a post office in the village any more if it were not for Cocoa Mountain, so it also has a social spin-off. When we hear doom and gloom about the future, even at the micro-level, by using the new capacities of our age through the internet, for small businesses there are amazing opportunities out there, and that business is not alone.

Q155 Chair: What is the moral of that point about Cocoa Mountain? I am tempted to say that if it can do it, presumably anybody can do it.

Alf Young: You must have the product; you must have people who want it; you have to be able to get your website known; and you have to find ways, whether by viral marketing or what it is, to try to get that message out there. There are lots of unexplored avenues on the pathway.

Q156 Chair: Did it do it with help from anybody-help that was not available from anybody else?

Alf Young: I suspect there must have been some contact with HIE at some point in its evolution. I don’t know the story in that sense, but I know the story in terms of its impact. For a Committee conducting an inquiry about whether the established linkages work, maybe a bit of it, if you can manage it, is to see the other linkages out there that are flourishing but are not being heard about in this or other Committee rooms.

Chair: Fiona, Cocoa Mountain: that’s the place for you.

Fiona O'Donnell: A heavy hint, because it is my birthday tomorrow.

Lindsay Roy: That is a very helpful anecdote for the work we have already done on the postal services and Royal Mail. I want to deal with something a bit different.

Fiona O'Donnell: I have not finished. I might be overawed, but not that overawed.

Chair: And not by you.

Q157 Fiona O'Donnell: The second question I want to ask is: what do you think the impact could be if the green investment bank comes to Edinburgh, as I and other colleagues are pushing?

Janette Harkess: That could have a significant impact. One of the immediate concerns of our members at the moment is exactly when that will come and when those funds will be available for investment in the low-carbon economy in Scotland. If there is to be a gap between that announcement and it happening that lasts up until 2013, we would have concerns about it, because investment in the low-carbon economy is needed now.1

Chair: Lindsay-if that’s okay with Fiona.

Q158 Lindsay Roy: It is not surprising for me to hear that you are not engaged in a dependency culture. You are working together as trade groups for a common purpose to try to achieve growth. You say in your paper that the UK Government must use their spending reviews to galvanise growth. What more can the Government do? What have you gained from any growth strategy? Is there anything you have picked up that will assist businesses in the months ahead?

Iain McMillan: Is this on the point made in the speech by the Director General earlier this week?

Q159 Lindsay Roy: Yes.

Iain McMillan: I think Sir Richard Lambert’s point was that there had been a series of individual measures announced by the UK Government, but he believed that an overall vision of the kind of UK the UK Government wanted to see in the future was absent.

Q160 Lindsay Roy: The big picture?

Iain McMillan: The big picture. It is quite difficult for the Government because they are in coalition with another political party that has a different ideology. Therefore, getting a coherent big vision by the Government is probably harder to do than it would be if the Conservative party was in a majority, for example. I don’t think we underestimate the difficulties. Nevertheless, the largest party of Government should express a vision for the future of the UK. Where do they see the UK’s place in the world in a whole range of things? Where do they see the economy being at the end of this Parliament and even beyond? Previous Governments of both parties have tended to articulate that vision, but with this particular party we do not hear that at the moment. If you have the big vision there and you know where you are going to go, it is very easy to benchmark the individual policies that you bring in as to whether or not they will assist that overall agenda.

Q161 Lindsay Roy: Within the limited budget, are there any concrete things that are available to assist your members?

Iain McMillan: There are two in particular. Before the pre-Budget report and the Budget, our two principal concerns were, first, that consolidation of the public finances needed to happen. For example, we were very concerned not only about the structural deficit, but that on 5 April every year we don’t just put a rule under the national accounts and start a new year. Last year’s deficit goes on to the balance sheet and it’s cumulative. That is why the CBI is so concerned that the structural deficit in particular is dealt with fairly quickly. The second one is that we had been making representations to the Chancellor before the election and after that there were some areas, principally in corporation tax, that we needed to move to a position where we would be more competitive internationally. We had nudged above the optimum level for that. If the rate of corporation tax is reduced from 28% to 25% over the next four years, that is a good place to be going forward.

Lindsay Roy: That is very helpful indeed.

Q162 Chair: I wonder whether I might pick up some points relating to the previous discussion that you heard. The Federation of Small Businesses made a point about illiteracy and innumeracy among the work force. Is that something you would echo?

Iain McMillan: Yes, it is. A couple of years ago, the Labour Education spokesperson in the Scottish Parliament asked a number of people to come together and form a literacy commission. Indeed, Lindsay and I were on the commission together until he translated to another place, but he kept a very close eye on us. We carried out an investigation into literacy levels in Scotland and, eventually, at the end of 2009, produced a report that identified pretty significant problems with literacy and also a raft of recommendations about what needed to be done about it.

I am very pleased with the direction of travel because the Literacy Commission’s report was put to the Scottish Parliament and there was a debate. The debate in the main Chamber lasted all morning. At the end of the morning there was a resolution in the Parliament to accept and adopt the commission’s report. There was complete cross-party support for that. Indeed, the Cabinet Secretary for Education pledged to take forward those recommendations with the support of the other parties. In May there will be an election. I don’t know whether the Scottish Government will change, but we hope that the new Administration will take that forward.

Q163 Chair: Are these recommendations being implemented now?

Iain McMillan: We believe they are being taken forward through the curriculum for excellence, and I believe Colin Borland alluded to that in his evidence to you earlier. Certainly the Cabinet Secretary has given a pledge that they will be embedded in the curriculum for excellence going forward, so being trusting as we are-

Q164 Chair: I am going back to the point that Alf made. There are circumstances in which people can come together, and something is agreed and is moved forward. It is possible, and perhaps it is not as black as it might have appeared.

Iain McMillan: Certainly, in that regard the coming together of all the parties in Holyrood was very good.

Q165 Chair: We want to pick up a number of other issues, particularly the question of manufacturing strategy. That is almost in a sense an investigation on its own. Perhaps I can ask both of you to touch on one or two issues and tell us whether or not you think any of these are particularly significant and we ought to mention them. There is the question of communications with the rest of the world and the rest of the UK; the issue of BMI perhaps cutting its service; the prospects for high-speed rail; the issue of broadband and its roll-out across Scotland; and the issue of future energy supply, given the discussions taking place about whether or not it will be nuclear or nonnuclear. Do you think all these issues are absolutely key to the future of business in Scotland, or are they just trivial side issues in the sense there are other things that are more important?

Iain McMillan: No, they are not trivial, certainly not.

Q166 Chair: "Trivial" was the wrong word; they are not first-tier issues.

Iain McMillan: They are significant issues for Scotland. If we take the issue of Heathrow airport, this Government abandoned the previous Government’s decision to build a third runway at Heathrow. That was disappointing. Heathrow is the principal gateway to the United Kingdom. The congestion there is awful by international standards. If you flew in and out of Heathrow at 11 o’clock in the morning or three o’clock in the afternoon 20 years ago, you would get on and off the runway very quickly; today you don’t. When an airport of that size and importance has only two runways, frankly, if something is not done about that, it will cause a lot of problems for the UK. The decision not to have a third runway was very serious.

What is the alternative? There is a high-speed railway, but the commitment extends only to Birmingham first and then Manchester. UK Ministers refer to an aspiration to go beyond there, but if Scotland is not to be disadvantaged in terms of its connectivity, that high-speed railway must reach at least Glasgow and Edinburgh. It would also be helpful if the UK Government said, "We’re not going to expand runway capacity in the south-east of England but here is an aviation strategy for the UK. There will have to be more point-to-point flights rather than hubbing through Heathrow, and here’s how we’re going to do it." I would like to hear from Philip Hammond how he is going to address that issue. I am not hearing it at the moment.

Q167 Chair: Broadband and energy.

Iain McMillan: Let’s go on to broadband. Clearly commercial companies will build broadband networks where they get the greatest return on capital employed and that will be in the conurbations. There will be emerging technologies, satellite technology and so on that will enable that particular industry to reach rural areas and others that are difficult to reach. For the UK as a whole, however, I think it would be helpful if perhaps there could be a consensus among our political parties about how to get greater bandwidth to greater parts of the UK. These are the highways of today and tomorrow. It is important to do that not just for business but for social reasons. Where there is market failure and companies just cannot afford to put in these networks, there is a case for Government intervention.

As to energy, our transmission and generation infrastructure needs to be replaced. CBI Scotland and the CBI as a whole believe that to get the right balance of affordability, reliability, consistency and sustainability, we need broad generation capability, including nuclear. The day may come when nuclear energy will not be necessary but we don’t believe that day has arrived yet. If it is not part of the mix, reliability, competitiveness of pricing and so on could be compromised. That’s our position on nuclear.

As far as the transmission infrastructure is concerned, yes, that needs a great deal of investment. It looks as though the Government and regulator have taken some good steps in the right direction. There is a tension between putting in affordable transmission infrastructure for renewables up in the north of Scotland and the price that consumers will eventually pay for their power. I don’t pretend that this is an easy one to resolve. For example, I think the Scottish Government would like a postage stamp-type arrangement where, no matter where in the UK you input to the grid, you pay the same amount, which is a bit like posting a letter. The regime up until now-it is under consideration-has encouraged generation to go where the market is. There is no doubt that that has given significant benefits to the consumer. At the end of the day, I think some kind of compromise will be needed so that wind generation in the north of Scotland and some of the renewable inputs to the generation of electricity are recognised and given, perhaps, some kind of intervention there. But the price of electricity to industry, business and the consumer is still very important in that regard.

Q168 Chair: In terms of other issues relating to business in Scotland, once we finish this inquiry-we are doing one on the Scotland Bill and a couple of other things as well-we have identified a number of issues to consider that are important for Scotland. Is there anything else in particular that you think we ought to take into account and consider for an inquiry?

Iain McMillan: The issue of connectivity that we have discussed this afternoon is probably a good one for a deeper and more thorough investigation on the part of the Committee. That is of crucial importance. Whether it is the weightless or physical economy, time to market is very important. That is something we would certainly welcome.

Q169 Chair: Janette, can you answer all of those?

Janette Harkess: Starting from the end, we would support a balanced energy mix for Scotland, with the key priorities being that it is affordable, accessible and there is security of supply. We have argued that the existing market and regulatory frameworks are a barrier to developing the full energy potential of Scotland. We would support investment in new generation. We need reinforcement of and upgrades to the existing system, coupled with an enduring transmission, access and charging regime.

Hopefully moving backwards in the right order, as to aviation, we absolutely agree that Heathrow is the UK’s hub airport and Scotland has an economy that aspires to internationalise. We have not mentioned tourism here today. That is an incredibly important part of the Scottish economy that also needs connectivity to access the market. We would express concern that the present Government’s aviation policy does not seem that concerned with Scotland’s economic needs. We would like to see access to Scotland’s regional airports maintained. In the long term, we support the development of high-speed rail.

Q170 Chair: Before you leave airports and high-speed delivery, are you also a third runway organisation?

Janette Harkess: Yes.

As to rail, in the long term, we would totally support high-speed rail coming to Scotland. We believe that the economic case for high-speed rail is much more compelling when Scotland is taken into the equation.

Q171 Chair: There would not be much of an economic case for the UK Government to fund it beyond Manchester if Scotland was independent, would there?

Janette Harkess: No.2

Q172 Chair: The amount of trade that would be generated by extending it to Carlisle is limited, is it not?

Janette Harkess: Without commenting on whether or not Scotland is independent, but just in terms of commenting on the geography of taking it to Scotland, we would now call for the UK and Scottish Governments and High Speed 2 to engage with each in looking closely at the detailed design work that would look at how that would come to Scotland.3

Q173 Chair: I understand that. It is Jesus Wants Me for a Sunbeam stuff, but we come to the question of paying for it. This issue has been raised before. I cannot see why any Westminster Government in their right mind would want to pay to extend it beyond Manchester. I can see why a Scottish Government would want them to pay for it beyond Manchester, but I can also see why the Scottish Government would not be entirely keen to pay for it themselves beyond Manchester to link up. It is this question of who pays for the gap. Have either of your organisations thought about that? The gap between Manchester and the Scottish border is not something that either organisation would really want to pay for, unless the UK Government did it, as it were, as an act of subsidy, in which case there is an issue about whether it is Barnettable. If something is being done for Scotland’s benefit, should it then be Barnettable and therefore give Scotland more money? Is that something which either group has discussed in any way?

Alf Young: I can’t speak for the CBI, but I am not conscious that that has been a major issue. You are right, Chair, in that we have been here already, because the last eight miles of the extension of the M74 at the border to Carlisle was not something the UK Government were minded to do because it was not important to them. When you look at the history of road improvement in Scotland over the past 40 years, there is a lesson there about how we get it horribly wrong. How long did it take us to improve the road to Aberdeen despite the fact that we had oil offshore? I can tell you all sorts of horrors. An apocryphal story goes round the Scottish civil service about the opening of the M9 between Edinburgh and Stirling. A major Japanese investor was taken to be shown the sites. When driving along that road, he said, "How kind of your Government to close the motorway for me while I was making my visit," because nobody was using it. We had the M9, but no proper motorway to Aberdeen, and certainly no proper road network south from Glasgow and Edinburgh to what for Scotland’s economy is its biggest single export market, as a number of people have said this afternoon.

Q174 Chair: Carry on.

Janette Harkess: Broadband. Full-wired high-speed broadband would be the aspiration for an internationally competitive Scotland. No country in the world has managed the necessary investment of that kind of network without support. Alf mentioned the importance to the SME economy of businesses that perhaps are remote geographically in Scotland but can do business with the world if they have the right broadband capacity. We would see that as absolutely essential. That would be another area where the UK and Scottish Governments in partnership with the telecoms industry, the wider public sector, businesses and higher education could work together on how we deliver that.

Q175 Chair: Are there any other major issues that we have not asked you about that you think ought to be the subject of further discussion by us, inasmuch as they relate to the general economy of Scotland? You do not have to think of one. Even if you think of one later on, you could maybe come back to us about it.

Alf Young: If I may add an addendum to the discussion, engineering has been surprising to many of us. One of the rather more resilient parts of what is left of engineering is the very high precision and highly skilled sector. It has done incredibly well not just in Scotland but in other parts of the UK. Witness the Formula 1 motor industry, which is based largely round about London. There is a problem, I think, in that we lost so much of our engineering that our younger generation lost any sense that there was any standing in society from making things with your hands. Apart from literacy and numeracy, I think there is a real challenge going forward. Clearly, there are all kinds of commercial opportunities to make things on a small scale with high precision or of high quality that people like me, who enjoyed the baby boomer years, have nice pensions and can spend money in our old age, will want to buy.

I was astonished recently to get a catalogue of Scottish craft furniture-makers. There are dozens of them scattered all over Scotland making small numbers of bespoke furniture of the most exquisite quality. I did woodwork and technical drawing at school back in the 1950s. It is an awful lot harder to do that now, and it is an awful lot harder to bash metal as well. One of my engineering friends, who was vice-president of one of the big semi-conductor companies and now lives in California, was saying to me just before Christmas when he came back home that the trouble with young people now is that they don’t feel the metal and don’t ever know what it is like to make something. I think going along with that is an attitude that says that working in factories isn’t really for people who want to have social status and esteem.

I have watched engineering transform over the last 30 years. What is left of it and what is competitive are 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 going to university to do a degree in mechanical engineering and going off to work somewhere in the global oil or petrochemicals industry, or wherever-working with machines and just making things is a skill to be admired and held precious. We have gone a long way from that and I would like to see us begin to recapture it. I think there are significant commercial and economic opportunities in those kinds of areas. You have Young Engineers.

Janette Harkess: We have Young Engineers, which is a hugely successful network of 4,000 young people in 350 schools. They do exactly that; it is this hands-on experience of engineering. But I would like to add to Alf’s point about young people engaging in economic activity. There is a real discussion to be had about how to ensure we maximise their opportunities. There is a lot of talk just now about the imbalance between the generations. Alf mentioned the baby boomers. The question is how we ensure that young people, who have many disadvantages in terms of accessing the workplace, particularly with the challenges of literacy and digital literacy skills, can deliver for themselves and for Scotland.

Q176 Chair: We saw SCDI’s Blueprint for Scotland. Most of the points that you make we understand. There is one, however, on which I want clarification: "Strengthening the Scottish Parliament’s responsibility for tax and spending decisions which promote sustainable economic growth." Can you clarify what powers in particular you have in mind that perhaps are not in the Scotland Bill that is coming forward? Is that just shorthand for saying that you 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 current financial arrangements do not provide sufficient incentive or discipline on the Scottish Parliament regarding spending decisions, because they don’t have the responsibility for raising revenue. Our comments to the Scotland Bill inquiry will develop those points.

Chair: We are doing an inquiry into that as well. While you are here we thought we would ask you. In terms of the Bill, you are assuming that if the Scottish Government got more powers over tax, they would cut those relating to business. As I understand it, the Reform Scotland agenda assumes that if Scotland got any powers over anything, they would cut tax and therefore it would be a land of milk and honey, without taking into account-

Fiona O'Donnell: The Scottish Parliament already has the power to vary income tax, but has chosen not to exercise that right.

Q177 Chair: Can you just clarify what you mean?

Janette Harkess: We would not comment on whether there was the power to cut or raise taxes. Our key priority in any change in fiscal regime is whether it would be of economic benefit to Scotland. Does any change make Scotland a stable and competitive place in which to do business?

Q178 Chair: What does that mean? I hear the words in a sense. It says here, "Strengthening the Scottish Parliament’s responsibility for tax and spending decisions". So precisely what powers would you transfer?

Janette Harkess: We have not commented on the Scotland Bill at that level of detail because you will appreciate that an organisation like SCDI has a variety of opinions within its membership.

Q179 Chair: In a sense that is useless to us. Tomorrow we have the Second Reading of the Bill and amendments will be tabled. You do not table vague and woolly stuff in amendments; you have to put down something concrete. I understand the concept of what you have there, but I don’t know what it means.

Janette Harkess: I think we would be asking questions of the legislation. Does it encourage and enable the Scottish Government to promote sustainable economic growth? Does it safeguard and create a more competitive economy? We are not making comment on the specifics of raising tax; we simply raise the question.

Q180 Chair: But by raising the question, the implication is that what is being proposed does not and, therefore, I am trying to clarify what would.

Janette Harkess: We would like to understand and see the economic models that suggest the Bill delivers on the points of sustainable economic growth. We are not saying that it will or will not; we would simply like to understand that the modelling would prove that it would create a sustainable economy for Scotland.

Q181 Fiona Bruce: I want to put one thing on the record to do with the issue of skills. A one-word answer will do. For the record, do you think the voice of business in terms of the current skills gaps to which you referred, Lauren, and the skills required to move business forward, to which Alf referred, and thereby to offer job opportunities, is being heard in the educational environment in both schools and universities, or do the Government need to take action to ensure that that voice is heard much more clearly? It is a long question. In other words, are schools and universities able to hear what business needs in order to succeed and build and develop on the skills that they require?

Chair: We were shaking our heads because a lot of this is devolved, but it is a legitimate question to ask, since you are here.

Iain McMillan: I think they probably are. Schools and other actors in this environment do hear that. What we are doing here is not just to say that these skills are not here and they’re not there. This is also a journey of continuous improvement. We will recommend things for tomorrow, not necessarily on the basis that they are wholly inadequate today. We must have that forward look down range as well as today. My experience is that those in the education environment, whether it is in schools, local government or in the Scottish Government, do hear that. Whether or not they always act on it is another question. I think that’s variable. We probably need to do more in terms of advocacy to get that across. There are roles for two of us there.

Janette Harkess: There is definitely an appreciation of the importance of getting it right, and those are the aims of the work through the curriculum for excellence. The universities certainly recognise the need to encourage innovation that will have economic impact. It is a journey, but there seems to be an appreciation throughout the various important players in this game, in terms of schools, universities and the business community, that more needs to be done and there needs to be more joined-up thinking.

Q182 Mr Reid: We are always hearing that there is tremendous potential for renewable energy off the Scottish coast with wind, wave and tidal power. How do we ensure that Scottish business benefits from all that work and that it just does not go to foreign competitors? Is there anything we can do to make sure the economic benefits stay in Scotland?

Alf Young: I think that is quite a challenge, Alan. We talked earlier about the energy mix. If we go back down the road of nuclear new-build, we have already discovered in the UK that a lot of our capacity to do that has gone. For example, Howdens in Glasgow had a whole division devoted to manufacturing the circulators within civil nuclear reactors. That has long gone, because we have not built a nuclear power station in an extremely long time. That bit of the business has gone.

When I first became a journalist 25 years ago, we had a demonstration wind turbine on Orkney. Again, the blades were made in Scotland, but that business went as well. We have had a number of iterations in an attempt to put some of that capacity into Scotland, first by indigenous businesses getting into those bits of activity and then discovering that either they did not have the full skill set or were not competitive enough, so the business went down and somebody else came in and took over the site. We have even had a number of world-leading Dutch and Danish companies coming in. You will know from your own patch that the site at Machrihanish has gone through a whole series of changes and is again in some difficulty as we speak. So it’s not easy. It’s no comfort either to know that also in Denmark and Sweden sites are being closed down.

Although most of the developed world that has any potential for renewables, whether it be tidal, wave or wind, will say that this is one of the great answers to our industrial future, getting there, building the infrastructure and other aspects are a challenge. How do you get the fabrications from where they are to, say, an offshore location? Therefore, having good port and fabrication facilities near to ports is also an issue. The Scottish Government have an N-RIP plan for renewables to try to identify the top sites but, as you can imagine, we have a very long coastline, with a lot of sites where once upon a time we said we would build oil rigs. I was recently in Portavadie. Portavadie never built an oil rig, although it cost a lot of money to dig the hole in the ground to make it do so. As you well know, it is now a marina and has a wholly different purpose. It is not an easy challenge. Sometimes I worry that the rhetoric on renewable energy is way ahead of the challenges of putting the chain of delivery and the businesses on the ground in a sustainable way so that they can make a profit and survive, employ people and still produce green results.

Janette Harkess: That is certainly something we have recognised. We now need to articulate what the low-carbon economy in Scotland is and try and understand the reality. There has been a lot of rhetoric on it. Earlier this month, SCDI announced in partnership with Fraser of Allander that we are going to publish a low-carbon energy review of Scotland to look at the low-carbon supply chain to identify what is there at the moment, potentially where there are gaps and whether there are opportunities for inward investment to start identifying the supply chain and therefore what the low-carbon economy is, and move it towards reality. What does that do in terms of the potential for jobs, employment and manufacturing?

Q183 Mr Reid: The Scottish and UK Governments have targets for renewable energy. Are we going through all this work to meet those targets? Yes, we have to do it for that reason, but I think Alf shares my concerns that all the actual work is going to go to foreign competitors and they might not even employ that many Scottish workers. If it is the construction of a wind farm, the fear is that the foreign competitor will bring in their own workers from elsewhere, set up a temporary camp and all the money will be sent home and the Scottish economy will benefit very little. Therefore, are there any suggestions as to how we avoid that scenario?

Janette Harkess: Certainly, they need to identify where the opportunities for inward investment are now. Like the Scottish green investment bank, ring-fencing might be available for renewable projects in Scotland. It is a matter of timing. It is not about waiting until 2013. It is about trying to identify where those gaps, opportunities and potentials are now.

Q184 Chair: I think we have now got everything off our chests, and vice versa, hopefully. Do you have any answers ready to questions we have not asked? Is there anything you are bursting to tell us? That applies particularly to Lauren. You have sat there while everybody else has talked away. Is there anything that you were briefed to make sure you raised?

Lauren McNicol: No, I have not. My brief was the skills; that’s all.

Chair: Is there anything else you want to raise? If not, thank you very much for coming. We have had a full and frank discussion of all the points we wanted to raise. We shall pick up a number of things in this report, but there are other issues we will take forward in future reports. Thank you very much for coming along.

[1] Ev xx (Supplementary memorandum submitted by Janette Harkess)

[2] Ev xx (Supplementary memorandum submitted by Janette Harkess)

[3] Note by witness: Scotland’s inclusion in a UK HSR network will not be achieved without the commitment and close collaboration of both the UK and Scottish Governments.

Prepared 17th October 2011