PROCEEDINGS OF THE 6th BUSINESS IN THE ... -12 November 2010 PROCEEDINGS OF THE 6th BUSINESS IN THE...

11 -12 November 2010

PROCEEDINGS OF THE 6th BUSINESS IN THE PARLIAMENT

CONFERENCE

Published by the Economy, Energy and Tourism Committee on behalf of The Scottish Parliament and The Scottish Government, November 2010

CONTENTS Page

Programme 1 List of delegates 3 Notes and background papers from the discussion sessions 9 Transcript of proceedings 42

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PROGRAMME

“Building a stronger economy - priorities for partnership between businesses and the public sector”

Thursday 11th November, 2010 6.00pm 6.30pm 7.30pm 10.00pm

Guests arrive Drinks reception – Hosted by The Rt. Hon Alex Fergusson MSP, Presiding Officer (Main Public Hall) Formal Dinner (Garden Lobby) Close

Friday 12th November, 2010 8.15am Arrival and registration with refreshments and a light breakfast

9.00am Welcome – The Rt. Hon Alex Fergusson MSP, Presiding Officer (Debating Chamber)

9.10am Opening Address - The First Minister, The Rt. Hon Alex Salmond MSP

9.20am Views from the Committee – Iain Smith MSP, Convener of the Economy, Energy and

Tourism Committee

9.30am

Views from the business community – keynote business speakers

Sir Winfried Bischoff, Chairman, Lloyds Banking Group

Rupert Soames, Chief Executive, Aggreko

Dr Janet Lowe, Board member of Skills Development Scotland and the Scottish Funding Council and chair of the joint Skills Committee

10.20am Discussion Sessions (Committee Rooms)

12.20pm Question and answer session on the priorities facing businesses in Scotland

(Debating Chamber)

Panel consisting of Jim Mather MSP, Minister for Enterprise, Energy and Tourism, a cross party selection from the Economy, Energy and Tourism Committee (including Iain Smith MSP, Wendy Alexander MSP and Gavin Brown MSP) and the keynote business speakers

1.15pm Closing speech – John Swinney MSP, Cabinet Secretary for Finance and

Sustainable Growth

1.30pm Closing Remarks - Alex Fergusson MSP, Presiding Officer Note Following the conclusion of the conference, all delegates are offered the opportunity of attending an informal, open roundtable discussion on the emerging issues from the conference. This will be attended by a small number of Scottish Government ministers and backbench MSPs. A light lunch will be available.

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Discussion Sessions

Session Minister or Committee MSP to host

Facilitator

1 – Reforming the banking sector and access to finance

Committee Room 1

John Swinney MSP, Cabinet Secretary for Finance and Sustainable Growth

Owen Kelly, Chief Executive, Scottish Financial Enterprise

2 – Going international Committee Room 4

Iain Smith MSP, Convener, Economy, Energy and Tourism Committee

Anne MacColl, interim Chief Executive, Scottish Development International

3 – Transport and Climate Change – Emerging Technologies

Committee Room 6

Stewart Stevenson MSP, Minister for Transport, Infrastructure and Climate Change

Steve Montgomery, Managing Director, First ScotRail

4 – Workforce development and leadership and management

Committee Room 5

Keith Brown MSP, Minister for Skills & Lifelong Learning

Ann Douglas, Board Member, Skills Development Scotland

5 – The Unipart Way - Achieving Operational Excellence by Engaging People

Room P1.02

Jim Mather MSP, Minister for Enterprise, Energy and Tourism

John Neill, Group Chief Executive, Unipart Group of Companies

6 – Supporting Scotland‘s Food and Drink Industry in the Year of Food and Drink and beyond

Committee Room 3

Rob Gibson MSP, Deputy , Convener, Economy, Energy and Tourism Committee

Maggie McGinlay, Scottish Enterprise

7 – Local Support for Scotland‘s Businesses

Committee Room 2

Bruce Crawford MSP, Minister for Parliamentary Business

David Valentine, Chair, Business Gateway Scotland Board

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LIST OF DELEGATES WHO REGISTERED TO ATTEND THE 6TH BUSINESS IN THE PARLIAMENT CONFERENCE AND DINNER

Name Organisation Role

Sam Walker Aberdeen Asset Management Head of Public Affairs

Natasha Elder Action for Children Client- Young Person

Aimee Lightowler Action for Children Project Worker

Rebecca Murray Action for Children Client- Young Person

Nicola Raine Action for Children Project Worker

Richard Lockhart Adam & Company Senior Client Partner

Rupert Soames Aggreko plc Chief Executive

Callum Findlay Albatern Ltd Business Development

John Whigham Alliance Boots Divisional Director Scotland and Northern Ireland

Jacqui Hepburn Alliance of Sector Skills Councils Director, Scotland

David Valentine Angus Council Head of Economic Development/ Chair of Business Gateway Committee

Neil Davidson Aquamarine Power Public Affairs Manager

Hugh Clarkson ARC Printing Proprietor

Robert Pattullo Archangel Informal Investment Limited Finance Director

Iain Pittman Arran Aromatics MD

David McGinley Babcock International, Marine Division Business Development Director

John Andrew Balfour Beatty Regional Civil Engineering Business Development Director

Sam Crawford Bathgate Bathroom Studio Director

Iain McGregor Bootlace Creative Owner

John Silcock Borland Financial Services Ltd Director

Tom Cox Braefoot Cox Ltd

Miriam Smith Bright Business Partnership Director

Derek Provan British Airports Authority MD Aberdeen Airport

Dennis Williams Broadway Convenience Store

Charles Livingstone Brodies LLP Associate

John Robertson Burntisland Fabrications Ltd Managing Director

Rod Manson Buro Happold Regional Director

Jonathan Lamb Business & Enterprise North East Director of Marketing

James Bream Business Stream Regulatory Manager

Peter Southcott Carters Chartered Accountants Partner

Gerard Cassels Cascade Technologies Finance Director

Rona Campbell CBI Scotland Assistant Director

David Lonsdale CBI Scotland Assistant Director

Lauren McNicol CBI Scotland Policy Executive

Dr Sandy Dobbie Chemical Sciences Scotland Chairman

Greg Ward City of Edinburgh Council Head of Economic Development

Cameron Macdonald Controlled Therapeutics Ltd Managing Director

Sarah Deas Co-operative Development Scotland Chief Executive

Jenny Hughes Datec Technologies Ltd

Douglas Norris Datec Technologies Ltd

Dr David Fraser David Fraser Ltd Managing Director

Alan Kilpatrick Devro (Scotland) Managing Director

Ian Stewart Devro (Scotland) Ltd HR Director

Sharon Davies DHL Express UK & Ireland Director of Corporate Affairs UK & Ireland

Gordon Ritchie Dialogue Marketing Director

Stewart Wright Doricmor Director

Mary Martin Douglas Hotel Manager

Morris Meikle Doune Angling Services Owner

Professor Ferdinand von Prondzyski

Dublin City University Professor

John Corcoran Dunbartonshire Chamber Of Commerce Chief Executive

Thomas Glen East Dunbartonshire Council Head of Development and Enterprise

Lindsey MacDonald Enterprise Rent-A-Car UK Ltd Business Rental Strategic Account Manager (Scotland

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Gary Campbell Environmental Hygiene Products Limited Managing Director

Angus MacPherson Execution Noble Deputy Chief Executive

Clare Reid Experian Strategic Development Director - Scotland

Councillor Craig Martin Falkirk Council Leader of the Council

Rory MacKail Federation of Small Businesses Scottish Policy Vice Convener

Gillian McEwan Federation of Small Businesses Branch Chair

Andy Willox OBE Federation of Small Businesses Scottish Policy Convener

Steve Montgomery First ScotRail Managing Director

Stuart Mathieson FishonScotland

Michael Bruce Glen Tanar Estate Owner

Duncan Walker GMB and STUC General Council member

Mr Roger Parry GMP Print Solutions Ltd Managing Director

Scott Willox Goldstar Group Partner

Gordon Wilson Gordon Wilson Company proprietor

Ian Gittens Haig Consortium Chairman

Mr Chic Henderson Henderson Group Owner

Ian Cleaver Highland Heritage Ltd Managing Director

Carroll Buxton Highlands and Islands Enterprise Director of Regional Competitiveness

Douglas J Whyte Hydro Group Managing Director

Ken Higgins Hydrologic Sales Manager UK and Ireland

Neil Hamilton IBM Client Manager

Katherine Eland IBM UK Client Manager

Stuart Fowler IBM UK

Amjid Akram Institute Of Asian Professionals Chief Executive Officer

Saftar Sarwar Institute Of Asian Professionals Director

Peter Russian Investors in People Scotland Chief Executive

Iona Crawford Iona Crawford Owner

Zoe Hamilton Jarvis King Associates Ltd Chief Executive

Mandy Exley Jewel & Esk College Chief Executive

Trisha Pirie Journeycall ltd Managing Director

Khalid Javid KA Javid and Co Owner

Andrew Dickman Kennedy Power Managing Director

Fraser Ferguson Kube Networks (CBI delegate) Director

Douglas Leask Leask Marine Ltd Managing Director

Keith Ewing Lifestyle Stirling Ltd Owner

Sir Winfried Bischoff Lloyds Banking Group Chairman

Ian Collins Lloyds Banking Group Commercial Area Director

Alasdair Gardner Lloyds Banking Group Regional Managing Director Scotland Large Corporations

Anthony Thompson Lloyds Banking Group Head of Public Affairs

Kristina Macaulay Macaulay Services Scotland Ltd Managing Director

Catriona Munro Maclay Murray & Spens Head of EU, Competition & Regulatory Department

Ed Monaghan Mactaggart & MIckel Group Ltd Chief Executive

Margaret Wright Margaret Wright Sole Trader

Elliot Jardine McDonald's Restaurants Franchisee

Alastair Ross McGrigors LLP Director - Public Policy

Mark Cook Medtronic Health Economics and External Affairs Manager

David McHutchon Midnight Oil Books Manager

Brian McQuade Miller Construction Managing Director

Duncan Dallas Millstream Associates Project Manager

Bob Stewart Moray Council Director of Environmental Services

Mike Mulraney Mulraney Group Managing Director

Mark Laing Nairn's Oatcakes Ltd Managing Director

Alex Miller National Library of Scotland Director of Strategy & Communications

Graeme Downie NESTA Communications Manager, Scotland & Northern Ireland

Jenny Brown NewsDirect General Manger

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Carla Simpson NewsDirect Researcher

Caitriona McAuley North Lanarkshire Council Economic Development Manager

Charles Gallacher Ofgem Director, Scotland, Wales and the Regions

Gillian Black OPITO Policy Affairs Director

Paul Munn Par Equity Partner

Paul Shields Perthshire Chamber of Commerce President

Alistair Campbell Powerwall Space Frame systems Sales Manager

Marion Sinclair Publishing Scotland (CBI delegate) Chief Executive

Blair Syme PW Hall Limited Operations Director

Alastair Grier RBS Insurance Commercial Director, Growth Portfolio

Gary Reid Reids of Caithness Director

Dr Dave Anderson Renewable Devices Ltd Director

Dr Charlie Silverton Renewable Devices Ltd Director

Lynne Highway Royal Bank of Scotland Head of HR, UK Retail

Krystal Miller Royal Bank of Scotland Group Public Affairs

Louise Haggerty Royal Bank of Scotland Group HR Director, Retail, Wealth and Ulster

Ian McKay Royal Mail Scottish Affairs Director

Robert Armour SCDI Chairman

Paul McLaughlin Scotland Food and Drink Chief Executive

Moira Birtwistle Scottish Agricultural College Chair of the Ayrshire & Arran Chamber Tourism Partnership

Liz Cameron Scottish Chambers of Commerce Chief Executive

Garry Clark Scottish Chambers of Commerce Head of Policy and Public Affairs

Anne MacColl Scottish Development International Interim Chief Executive

Ed Payne Scottish Development International Senior Manager

Crawford Gillies Scottish Enterprise Chairman

Paul Lewis Scottish Enterprise Managing Director of Operations

Linda McDowall Scottish Enterprise Senior Director, Business Networks & Communication

Dr Jim McFarlane Scottish Enterprise Managing Director, Operations

David Sigsworth Scottish Environment Protection Agency Chairman

Laurence Howells Scottish Funding Council Senior Director of Skills, Research and Knowledge

Janet Anderson Scottish Government Committee Assistant, Economy, Energy and Tourism C

Joe Brown Scottish Government Head of Better Regulation and Industry Engagement

Bruce Crawford MSP Scottish Government Minister for Parliamentary Business

Leslie Evans Scottish Government Director General Education

Fiona Hyslop MSP Scottish Government Minister

Kenny MacAskill MSP Scottish Government Cabinet Secretary for Justice

Dr Teresa Martin Scottish Government Events and Briefing Manager

John Mason Scottish Government Director of Business

Jim Mather MSP Scottish Government Minister for Enterprise, Energy and Tourism

Andrew Scott Scottish Government Director of Lifelong Learning

Stewart Stevenson MSP Scottish Government Minister for Transport, Infrastructure and Climate

John Swinney MSP Scottish Government Cabinet Secretary for Finance and Sustainable Grow

Fiona Godsman Scottish Institute for Enterprise Chief Executive

Jim Galloway Scottish Local Authority Economic Development Group

Spokesman for Business Growth

Brian Adam MSP Scottish Parliament MSP

Wendy Alexander MSP Scottish Parliament MSP

Diane Barr Scottish Parliament Assistant Clerk, Economy, Energy and Tourism Committee

Gavin Brown MSP Scottish Parliament MSP

Angela Constance MSP Scottish Parliament MSP

Nigel Don MSP Scottish Parliament MSP

Helen Eadie MSP Scottish Parliament MSP

Linda Fabiani MSP Scottish Parliament MSP

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Alex Fergusson MSP Scottish Parliament Presiding Officer

George Foulkes MSP Scottish Parliament MSP

Murdo Fraser MSP Scottish Parliament MSP

Rosemary Gallagher Scottish Parliament Senior Media Relations Officer

Kenneth Gibson MSP Scottish Parliament MSP

Karen Gillon MSP Scottish Parliament MSP

Paul Grice Scottish Parliament Clerk/Chief Executive

Joanna Hardy Scottish Parliament Senior Assistant Clerk, Economy, Energy and Tourism

Prof. Christopher Harvie MSP

Scottish Parliament MSP

Stephen Imrie Scottish Parliament Clerk, Economy, Energy and Tourism Committee

Andy Kerr MSP Scottish Parliament MSP

Lewis Macdonald MSP Scottish Parliament MSP

Jamie McGrigor MSP Scottish Parliament MSP

Nanette Milne MSP Scottish Parliament MSP

Margaret Mitchell MSP Scottish Parliament MSP

Mary Mulligan MSP Scottish Parliament MSP

John Park MSP Scottish Parliament MSP

Mary Scanlon MSP Scottish Parliament MSP

John Scott MSP Scottish Parliament MSP

Iain Smith MSP Scottish Parliament Convener, Economy, Energy and Tourism Committee

Jamie Stone MSP Scottish Parliament MSP

Dave Thompson MSP Scottish Parliament MSP

Jim Tolson MSP Scottish Parliament MSP

David Whitton MSP Scottish Parliament MSP

Arthur McIvor Scottish Parliament & Business Exchange Chief Executive

Ewan MacDonald Scottish Parliament and Business Exchange

Membership Manager

Debbie Harper Scottish Power Development & Policy Manager

Mr Grahame Smith Scottish TUC General Secretary

Hugh Riley Secretary General & CEO of Caribbean Tourism Organisation

The Caribbean Council

Prof Campbell Gemmell SEPA Chief Executive

Stephen Arnott Serendipity Interactive Ltd Managing Director

Mike Smith SG Hambros Bank Limited Senior Private Banker

Anna McCaffrey Shepherd and Wedderburn Partner

Ann Douglas Skills Development Scotland Board Member

Dr Janet Lowe Skills Development Scotland Board Member

Stephanie Young Skills Development Scotland Director of Strategic Relations

Stuart McMillan MSP SNP MSP

Sandy Adam Springfield Properties PLC Chairman

Steve Borley SQA Head of Business Intelligence Services

Jeff Newton Standard Life Senior Public Affairs Manager

Robert Mooney STUC NEC Member

Katrina Murray STUC General Council Member

Colin Donald Sunday Herald Business Editor

Douglas Lamb The Boxshop Limited Managing Director

The Hon. Richard Skerrit The Caribbean Council Minister of Tourism & International Transport, St. Kitts & Nevis

The Hon. Glynis Roberts MP The Caribbean Council Minister of Tourism and Civil Aviation, Grenada

The Hon. Edmund Bartlett MP

The Caribbean Council Minister of Tourism, Jamaica

Marilyn Austin Cadore The Caribbean Council Permanent Secretary

John Anderson The Entrepreneurial Exchange Chief Executive

Lynn Adams The George Bar Owner/ Licensee

Iain Hardie The Institute of Chartered Accountants of Scotland

Business Development Manager

Paul Provan The Institute of Chartered Accountants of Assistant Director, Business Policy

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Scotland

June Grindley The Listening Business Owner

Nathalie Thomas The Scotsman and Scotland on Sunday Chief Business Correspondent

Angela Mathis ThinkTank Maths Limited Chief Executive

Mike Connelly TIE Ltd Public Affairs Manager

Donald Carmichael Transport Scotland Director - Transport Policy

John Curtis Transport Scotland Head of Low Carbon Vehicles and Fuels

Alan Burton Tree of Knowledge Director

Doug Ross Tullibardine Distillery Director

Ian Arbuthnott Unipart Expert Practices Head of New Business

Steve Riddlestone Unipart Expert Practices Business Development

Amanda Molloy Unipart Group Business Development

Neil McLean United Auctions Managing Director

Alan Kerr Velos-IT Commercial Director

Dr Mike Cantlay VisitScotland Chairman

Colin Craig West Coast Motors Managing Director

Sharon Low William Anderson and Sons Consultant

William Gray William Gray Construction Managing Director

Dennis Gunning Willy Roe Associates Supporting Review of Post 16 Vocational Education

Peter Quinn

Please note that this is not a list of attendees.

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NOTES OF THE DISCUSSION SESSIONS As part of this year‘s Business in the Parliament Conference, seven discussion groups Were held for delegates on the following themes: 1 – Reforming the banking sector and access to finance 2 – Going international 3 – Transport and Climate Change – Emerging Technologies 4 – Workforce development and leadership and management 5 – The Unipart Way - Achieving Operational Excellence by Engaging People 6 – Supporting Scotland‘s Food and Drink Industry in the Year of Food and Drink and beyond 7 – Local Support for Scotland‘s Businesses Each session was hosted by either a minister, or a member of the Parliament‘s Economy, Energy and Tourism Committee. Notes of each session have been prepared by officials from the Scottish Government. Disclaimer The views expressed in these notes may not necessarily represent those of all the delegates that took part in each session, or the opinions of the Scottish Government or Scottish Parliament.

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Discussion Session 1

Reforming the Banking Sector and Access to Finance

BACKGROUND PAPER Overview While the regulation of the financial services industry in Scotland, including banking, is a reserved matter, the Scottish Government has a legitimate interest in ensuring the success of the sector. This is due not only to its importance in terms of employment and direct contribution to output, but also because of the impact the banking sector has on the wider Scottish economy. Banks control access to finance, which in turn is central to private sector growth. Access to affordable finance to support the cash, credit and capital needs of viable Scottish businesses with good prospects is a pre-requisite for a modern economy. One of the key features of the credit crunch has been constraints on access to finance – it has been through this channel that some of the turbulence in the financial sector has spread to the real economy. This is not unique to Scotland and has been a feature of many economies through the downturn. For the financial year 2010/11, the targets set by the last UK government commit RBS to gross lending to businesses of £50bn and Lloyds Banking Group of £44bn. The combined gross lending to businesses target for both banks is £94bn - half of this lending will be to SMEs. (n.b. these targets will be subject to review by the new UK Government who are considering reverting to net lending targets) The Basel Committee on Banking Supervision announced on the 12th September 2010 proposals to raise the international capital requirements for banks. These proposals are expected to be ratified at the G20 summit on the 11th – 12th November 2010. However, a number of key regulatory failures which contributed to the international financial crisis still need to be resolved, in particular, the need to address systemic risk in the international financial sector from the presence of large banks. Scotland‟s Banking Sector Scotland has a long and distinguished history in banking and the latest data available from the Annual Business Inquiry (2008) shows that there were 95,500 people employed in Scotland‘s financial services industry. The banking sector formed the largest component of this, employing 50,000 people and accounting for 52% of the total. Although employment levels in the sector continued to increase in 2008, it remains to be seen what the net impact has been on overall levels of employment in the sector since then. Banks and building societies are estimated to account for around 5% of Scottish GVA whilst the financial services industry overall contributes to around 8% of the country's GVA. Recent trends in output are available from the Quarterly Scottish GDP index which draws on information collated by the Committee of Scottish Clearing Bankers (CSCB). The most recent data indicate that output in the banking sector has fallen by 6 per cent in real terms between 2007 and 2009. Despite the fall in recent years, output in the Scottish banking sector remains around 89 per cent higher in real terms than in 1998. Positive growth in the Scottish banking sector returned in Q4 of 2009. Organisational restructure has continued as a result of the need for some of our major banks to seek aid from central government as well as agreeing divestment plans with the EC in order to meet State Aid rules. However, while the banking sector is experiencing a period of change, RBS remains headquartered in Scotland, while the Lloyds Banking Group has committed to retaining the headquarters of its major Scottish brands in this country. At the same time, investment and expansion plans have continued to be announced e.g. Tesco Bank; Virgin Money and HSBC all plan to create new jobs Divestments The divestment plans agreed with the EU are:

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RBS – branch network in England & Wales and NatWest branches in Scotland (7 branches); Direct SME customers across the UK; RBS insurance arm including Direct Line which employs around 1500 in Glasgow and Williams & Glyns brand to be made available to acquirer.

Lloyds - at least 600 branches across the UK including Cheltenham and Gloucester savings accounts and all branch-based mortgages (4 in Scotland) but not the brand; Lloyds TSB Scotland, including all branch based customers (180 branches and 1500 staff in Scotland); including a banking license but not the brand - and the TSB brand - note not the Lloyds TSB brand; Intelligent Finance internet bank (based in Scotland).

The divestments from each bank will therefore represent a viable stand-alone entity, together representing nearly 10% of the UK retail banking market. They offer an opportunity to promote competition in the retail and business banking sector in Scotland. This market is already highly concentrated, and the competition commission waiver at the time of the merger of Lloyds TSB and HBOS noted the exacerbation of this situation. RBS has now agreed the sale of its branch network in England and Wales to Santander and this is expected to be completed by the end of 2011. From Scotland‘s point of view, this divestment offered little opportunity for either job creation or increased competition as the majority of branches concerned are located in England. Potential impact in these areas of the Lloyds Banking Group divestment of its branches and other assets in Scotland is therefore greater, however to date there has been no indication of the company looking to divest in the near future. Regulation The issues of regulation and supervision continue to be debated at UK, EU and international levels. The G20 has agreed that there is a need for fundamental reform of the financial system; the quality and quantity of bank capital must be increased and banks must implement strengthened liquidity requirements to ensure they are more robust to potential future losses or funding crises. In the UK, the new coalition government has announced changes to the regulatory regime as well as the establishment of an independent commission on banking. This will consider the structure of the UK banking sector, and look at structural and non-structural measures to reform the banking system and promote competition. It is, at this stage, not possible to assess what the likely implications are for the Scottish banking system of all of these issues, particularly as our large institutions operate not only in Scotland but across Europe and internationally. Decisions taken by regulators across the globe, therefore, will impact on the operations of most of our banking institutions at some level which may then impact on operations in Scotland. Additionally, increased capital requirements (as recently agreed by the Basel Committee to be phased in from 2013) or other regulatory measures could increase costs to banks which could then also have an impact on the levels and/or cost of lending. However, at the same time they are expected to reduce the probability of a financial crisis from occurring in the future, thereby providing a net benefit to the economy in the long-term. Access to Finance for SMEs In July 2009, the Scottish Government published its first survey on SME Access to Finance which assessed credit conditions for firms in Scotland during the height of the economic and financial crises. A follow up survey was conducted in November 2009 to monitor levels of demand and supply for business finance over the subsequent six month period. The first survey identified constraints on lending to business as a serious issue for SMEs in Scotland. This survey formed the basis of Scottish Government‘s dialogue with the banks and in correspondence with the UK Government on improving access to finance and reform to the Banking sector. The second survey showed that while there are some positive signs, particularly a reduction in rejection rates and less suppressed borrowers, many firms continue to report that the costs of securing finance remains an issue for them. The results cover a 6 month period and therefore should be viewed as an update on the earlier survey which was more comprehensive. They however, provide an indication of the direction of travel –

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Cost of finance remains an issue for SMEs and it appears that fewer SMEs are securing the full amount of finance sought than previous surveys.

On supply, the emerging evidence on new lending indicates lower outright rejection rates compared to March 2009, showing a marked improvement in initial approval rates.

Overall, however, fewer firms appear likely to secure 100% of the funding sought. This may reflect either lower final offers from banks who are reflecting risk more appropriately, or firms being unable (or unwilling) to meet the terms secured, or deciding not to proceed with the offer for other reasons.

The main experience for SMEs refinancing over the period from March 2009 was an increase in costs. Either increased margins over the base rate or increased fees and charges for arrangement were noted.

This may reflect the fact that low cost finance is no longer as freely available as banks move towards pricing risk more appropriately. Firms may perceive this adjustment on the pricing of finance as an increase to the cost of borrowing.

Further work is required to understand the price/costs of finance, and the extent to which this is resulting in lower finance being secured. There is also uncertainty whether this remains a temporary phenomenon or a more long-term trend toward a re-profiling of risk which is more conservative. The Scottish Government plans to conduct a further survey later in the year. Scottish Government is making efforts to widen availability of affordable lending - the East of Scotland Investment Fund project has been accelerated and fast tracked through the European Regional Development Fund (ERDF) process so that companies in the East will have the same opportunity to access local debt finance, up to £50,000, as companies in the west, south and highland areas of Scotland. Additional ERDF resources have also been allocated to the West of Scotland Loan Fund to meet future demand to 2013. Also, under the Scottish Investment Bank, a new £50m loan fund has been announced to assist growth and exporting companies, this is in addition to the existing risk capital equity schemes supporting early stage investment, which in 2009/10 invested £32m in 106 companies leveraging £68m investment from the private sector.

Proposed discussion questions

What may the opportunities and risks be of bank restructuring and divestment plans on future competitiveness of lenders in Scotland, and so on future financing costs for Scottish businesses? What impacts might we expect on Scotland‟s banking sector in terms of employment and lending of national and international proposals on financial regulation? What impacts might we anticipate for the wider Scottish economy in relation to the proposed regulatory changes? The UK Enterprise Finance Guarantee is in place until March 2011. The UK Coalition agreement pledged to develop effective proposals to ensure the flow of credit to viable SMEs. This will include consideration of both a major loan guarantee scheme and the use of net lending targets for the nationalised banks. Views welcomed.

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NOTES FROM THE DISCUSSION GROUP

Introduction The discussion during this session was informed by a briefing paper made available to attendees prior to the Conference. The paper set out four issues for discussion:

What may the opportunities and risks be of bank restructuring and divestment plans on future competitiveness of lenders in Scotland, and so on future financing costs for Scottish businesses?

What impacts might we expect on Scotland‘s banking sector in terms of employment and lending of national and international proposals on financial regulation?

What impacts might we anticipate for the wider Scottish economy in relation to the proposed regulatory changes?

The UK Enterprise Finance Guarantee is in place until March 2011. The UK Coalition agreement pledged to develop effective proposals to ensure the flow of credit to viable SMEs. This will include consideration of both a major loan guarantee scheme and the use of net lending targets for the nationalised banks. Views welcomed.

SUMMARY Summary of the main points raised in discussion are set out below. These are not provided in chronological order of the discussions, rather they are grouped in themes emerging from the range of issues discussed. The main themes identified were: Competition in Scotland’s banking Sector

Scotland has suffered a loss of competition in the banking sector - imperative that the Independent Commission on Banking recognises the consequences of restructuring banks.

Divestments required by the EC may make some difference - as well as new entrants.

Important to recognise that competition is not just about numbers of banks but we need to deliver a competitive market.

Interesting issue highlighted in recent Office of Fair Trading report in relation to brand loyalty in Scotland - need a cultural change and to be open minded re how we do business and with whom.

Challenge to the underlying premis that more banks mean more competition - pre-recession SMEs also had difficulties in their treatment by banks - what we need is more products

If Scotland is an attractive place to do business - people will come here - e.g. Barclays Wealth - they put other firms on their toes - competition is good but new players take a bit of time to become established.

There is a need for single branch banks rooted in the local community lending to private individuals and local businesses, difficulties for SMEs with banks predate the current crisis and we need a new approach, for example, there is a different type of banking system in Germany which includes postbank etc.

Access to Finance for Businesses

SMEs have seen an increase in cost of obtaining finance e.g. in arrangement fees.

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Local business managers are no longer the ―decision maker‖ - applications now passed ―up the line‖ - decision making slower, local knowledge not valued

Acceptance by one bank present at the conference that difficulties created when decision making is further away from the business location

Lloyds Banking Group accepts that there has been a loss of confidence in banks - it is investing significantly in staff training and they have achieved an 83% loan approval rate. Accept it will take time to regain confidence of customers and the public.

Construction and property based companies have particular problems - irrespective of track record - banks will not lend to these sectors.

Current cost of bank debt has never been cheaper - rates of interest have never been cheaper. Banks margins have increased - however where we are now used to be the norm - prior to the decade of easy money. Adjustment has been hard - but this is no different now to the period before the ―boom‖ years.

Costs - why are costs high when base rates are so low? - Complex issue - made up of capital risk calculations/ weighting on trends and e.g. capital requirements rules have also added to costs

some assets are now quite difficult to value - no longer providing easy deals but should avoid future bubbles although accept adjustment is difficult

Cost of capital never cheaper - borrowing in Germany at 3% rate why not here? - UK banks are repaying UK Government.

Cost of wholesale funding for banks is significantly higher than it was 3 years ago.

Country looking to private sector to create jobs - in the last decade big business created 33,000 jobs - SME sector created 79,000 - imperative we make sure SMEs can access finance.

Other issues in terms of relationships between banks and business customers

What SME businesses consider to be viable propositions are not necessarily seen in the same way by banks.

Business needs to accept that times have changed - need to ensure that applications for finance are fit for purpose.

FSB is providing Bank Training Days to help SMEs.

Banks are also looking at other selling points (e.g. asking who finances your vehicles?)

Recent BBA Taskforce report commits to mentoring for SMEs - considered a good idea. SMEs have been using other forms of finance e.g. savings etc rather than applying to banks for finance - for many the cupboard is now bare.

Need to recognise it is not just banks who take risks - SMEs do too.

Speed of decision making is too slow - linked to changes in local decision makers by main banks

Banks accepted that the changes banks have had to go through in restructuring etc have not been properly communicated - this may be an issue banks need to reflect on.

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We all want profitable banks - but not at the expense of SMEs. Investments in long term projects

Major issue around finance for long term projects - in two sectors in particular, energy and tourism.

SMEs in Tourism traditionally used property as security for finance from the bank - usually for long term projects to come to fruition. Times have changed and valuation of property has also changed.

Banks‘ systems on valuations also changed - previously accepted the applicant‘s valuation from their surveyor - now the Banks have their own panels of valuers and will only use them.

Basel III Capital Requirements have made ―long term‖ money more expensive - financing for long term projects is not for the banks and must come from equity investors.

Tremendous opportunities in Scotland in the long term - 2015 - major opportunities in renewables sector. Danger we will be left behind if we don‘t move now and we need to engage with the banks/investors on this.

Banks want to engage wholesale funding is loosening up - need to have difficult conversations also with investors re taking a longer perspective - 10/15 years.

Specific difficulties in the for the construction sector

Construction has suffered severely through the recession - but as in other recessions the sector was the first into recession and the first to emerge.

Difficulties already expressed about access to finance for long term projects apply to construction.

A major impact of company failures is not just loss of employment - but importantly - loss of skills.

In terms of the built environment e.g. we are losing stonemasons, and these people will not return and we risk losing the skills forever.

Scotland previously experienced a move of people out of shipbuilding and into the oil & gas sector - transferable skills and up-skilled/re-skilled in the new sector. Now seeing oil & gas workers moving to renewables - important that the construction industry supports renewables.

Optimism for the future?

Yes - but leadership and ambition are the challenges in building companies of scale - in Scotland we have a lack of role models and we therefore need to look elsewhere for inspiration - also plenty of personal ambition around but perhaps not global ambition.

Consumer confidence is at the root of future success - seeing a lack in demand for new loans from consumers.

Worries about rise in unemployment and its impact on the economy - big implications for Scotland‘s recovery.

Lloyds Banking Group - recent surveys see significant uplift in confidence - many companies are positioned well for coming out of recession - we need to be more upbeat.

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What can Government do?

Need to ensure flow of credit to SMEs and for project finance - need some kind of public sector guarantee for riskier projects

Need to look at post Angel funding and providing equity - make a link with the co-investment fund to take new companies to the next stage.

Enterprise Finance Guarantee Scheme - very supportive of this - main issue was that it took quite some time for banks to get it working properly - anything we establish needs to be able to be put in place and to work right away.

EFGS is for ―viable‖ businesses - not used for ―start ups‖ - one way would be to re-establish the small firm loan guarantee scheme.

Archangels assess long term future prospects of projects by looking at the market and the people involved - they do however need a portfolio of investments to spread risk - it is incumbent on Government to ―back a number of horses‖.

Micro finance - ICAS and SFE have been looking at this and recommend that an Enterprise Investment Scheme (for loans up to £5,000 over 3 years) be established to open up the micro end of the business start ups substantially.

Scottish Futures Trust needs to get its act together to ensure funding of more capital projects - these are drying up from the public sector

Government should look to assist first time buyers to help young people to get onto the housing market and also assist the construction industry.

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Going International

BACKGROUND PAPER How to raise the aspirations of more Scottish businesses to actively consider expanding into international markets Introduction 1. If Scotland is to accelerate economic recovery then the ability of Scottish businesses to win

more business overseas will be critical. Exports are vital in supporting sustainable economic growth for Scotland. The recent Trade and Investment inquiry conducted by the Economy, Energy and Tourism Committee of the Parliament emphasised the need to increase the number of exporters from Scotland.

2. In 2008 Scotland exported £20.7bn of goods to overseas markets1. The ratio of overseas

exports to total turnover in Scotland is around 10%. Exports to the rest of the UK are estimated to be £42.3bn. Are we too dependent on the rest of the UK?

3. Scotland, in a global context, is a very small market with slow growth forecast in the medium

term2. Therefore overseas markets are even more critical in accelerating economic recovery through both increased international trade and attraction of further investment into Scotland. World trade is predicted to expand by 13.5%3 in 2010, compared to world GDP growth of 4.8% and UK growth of 1.7%4. Imports are likely to increase and make the home market more competitive therefore staying at home may not be a low risk option, how do we best exploit this growth in trade?

4. The devaluation of Sterling, (which is 21% lower against the $ compared to June 2008, 8%

against the Euro and 37% against the Yen) presently gives an advantage to Scottish exporters to enter new overseas markets. Does this give us a new advantage where before we did not have one?

Some evidence to consider 5. Overall it is estimated that there are 5,500 active exporters from Scotland. Looking at goods

exported HM Customs and Revenue data suggests that the number of Scottish exporters represents 5% of the UK total, whereas Scotland accounts for 7.5% of the UK‘s VAT registered businesses.

6. The latest Global Connections Survey sets out the top ten perceived barriers to international

trade for Scottish businesses:

5 HSBC Going International, August 2009 14% products/services unsuitable for export

7% lack of market information

11% transport costs 6% legislation and standards

10% lack of resources/ management time 6% payment issues

9% currency/ exchange rate 6% cultural barriers

7% setting competitive prices 4% lack of trained staff

7. A HSBC study which looked at Going International summarised the challenge well:

„The key finding of this study is that the reality of international trade is less expensive than domestic businesses currently perceive and the returns from setting up an international venture are actually greater than they expect. This dichotomy is one of the greatest hurdles that businesses need to overcome in order to take that first step abroad.‟

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8. A recent independent evaluation from SDI shows the benefits to Scotland of Scottish businesses doing international trade. For example:

Businesses operating internationally had higher productivity

16% had invested more in R&D. This rises to 30% when those that expect greater investment are included.

49% of assisted business had been exposed to new ideas and of these 90% had adopted new ideas; most considered this had made them more competitive.

9. Initiatives are already in place to achieve some of this, for example the recently launched Smart

Exporter initiative:

To upskill the wider company base and maximise the potential of Scottish business growth. Scottish Development International and Scottish Chambers International (SCI) have developed a strategy to deliver services and support to a wider range of businesses. It will encourage more SMEs to become exporters for the first time and will both reduce the risks and increase the benefits to them. The intention is to reach over 12,000 individuals and 8,000 businesses over 3 years with support ranging from awareness raising to fully integrated international business skills training. This will be achieved by: • Joint working across partners to deliver services • delivery of new services • delivery of services through web channels. ESF funding of over £3m has been approved for the additional delivery of services to enhance management skills in Scottish companies to enable exploitation of growth opportunities in international markets. The initiative was launched in September: http://www.smartexporter.co.uk/

Questions for discussion:

How can we support the business culture to positively change to embrace international trade?

What role could different public/ private sector partners have in supporting this?

NOTES FROM THE DISCUSSION GROUP Introduction

The session was set in the context of the recent export performance from of Scotland and the recent inquiry by the Economy, Energy and Tourism Committee The discussion centred on the following tree questions:

What are the key enablers for Scottish companies to internationalise?

What are the key barriers which prevent Scottish companies from going international?

If things were brilliant what would it look like? The group contained a number of both small and larger businesses who had experience of trading internationally and the discussion very much drew on their experiences of going international and some of the common themes / challenges coming out of this.

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What are the key enablers for Scottish companies to internationalise? The group discussed some of the key enablers which they felt support companies to go international. Key themes coming out of the discussion included:

The willingness of companies to take the fist step. There was a need for more businesses to ‗put themselves out there‘. This included having the will and belief and an understanding that there are large markets overseas which, in most cases, are looking for similar products and services.

In doing this the first step may be an opportunity which suddenly arises e.g. low rate of Sterling or an event which gives a sudden demand for your product/ service. The key was to act on the opportunity, achieve a first toe hold, and then progress and push forward from this.

Being aware of your competitive advantage e.g. in doing business with Australia being on the completely opposite time zone gave an advantage in offering a night-time service.

Opening doors was valued by businesses and the use of networks was seen as very important. This included the use of Globalscots, Enterprise Europe and SDI Overseas Trade and Investment Offices. These networks could give valuable guidance on local cultural differences which needed to be considered in securing new business.

Being savvy about the approach was seen as important and having a thought out approach. This may vary dependent on sector and circumstance – but examples including: establishing a physical presence (even if only a postal address); joint ventures; using channel partners.

Having an international mindset and viewing the world as a market. By going overseas businesses also gain new ideas which can make them more competitive.

What are the key barriers which prevent Scottish companies from going international? The group discussed some of the barriers preventing Scottish companies going international, the themes coming out of the discussion included:

Present regulation could put Scotland at a competitive disadvantage. For example the banks were seen to be more flexible and customer focussed in some overseas countries (e.g. Canada).

It was felt that, at times, the pace of decision making, relative to other countries, was slow, in particular getting decisions from banks and the public sector. An example highlighted was in the area of renewables where opportunities may be lost if decisions are not taken quickly enough for business to be able to respond to the global opportunities.

The group discussed the role of Scotland‘s historic mindset and culture and that this sometimes inhibited business. It was felt that in general we tend to think local and the group felt there was more need to think on an international basis.

The fear factor and managing risk e.g. getting paid, seemed to be a bigger issue in Scotland compared to other countries.

Presently Scotland depends on a relative small number of companies to (60 companies account for 50% of exports). There was a view that, in general, we needed more ambitious leaders.

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If things were brilliant what would it look like? The Group discussed what a future Scotland would look like if it was a more vibrant trading nation. Key points coming out included:

Everyone would be pro-active in seeking out international opportunities rather than dependent on others to persuade them.

Support for going international would be very easy to access (like a one stop shop approach) especially for the middle ground of companies where support could benefit the most.

Our young people would have a cohesive understanding of the future world through education and young people would have a global outlook and be motivated to be part of this.

Scotland would have the ability to export on a larger scale by connecting up the supply chain to export complete solutions (rather than on a company by company)

A wider partnership approach across the public and private sector with high degrees of trust.

Young people would aspire to be successful entrepreneurs (rather than being, for example, a lawyer or doctor).

Scotland would have many iconic events which would positively showcase Scotland‘s strengths and support a more international mindset across the population.

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Transport and Climate Change – Emerging Technologies

BACKGROUND PAPER This session will explore the opportunities for Scottish businesses by developing emerging transport technologies. Transport emissions account for up to 25% of all green house gas emissions and total transport emissions have risen by 7% since 1990, despite ever more efficient engines and technological advances. There is need to focus on reducing transport emissions and a real opportunity to focus on Scotland‘s place in these emerging markets to become a centre of excellence for low carbon transport solutions. Low Carbon Vehicles and fuels Sustainable economic growth is the first priority for the Scottish Government. Efficient transport is an essential support to the country‘s economic activity. Against a backdrop of world leading climate change targets The Scottish Government undertook a public consultation on Low Carbon Vehicles which asked stakeholders to consider what objectives should be set and to suggest actions that could be taken to implement relevant targets, deal with cost issues, the ability of technology to deliver and how best to change consumer behaviour. The consultation identified three keys areas where the Scottish Government and local authorities could play a key role:-

Leadership

Funding

Implementation Action is required across the board to deliver:

Cleaner fuels

More efficient vehicles (including road freight vehicles and buses)

Smarter consumer travel choices The challenge before us is to perform these roles and undertake the necessary actions to deliver jobs and economic growth for Scotland. The low carbon vehicle challenge is around ensuring that there is a supportive policy framework and support available to enable our world leading R&D activity to be brought to market swiftly, efficiently and at a cost that will allow a sustainable commercial model to develop for our businesses. We have a proven record of innovation in electric vehicles, massive renewable energy resources and world leading research into biofuels, hydrogen and intelligent transport systems. Rail technologies Continuing enhancements to the rail network in Scotland will effectively contribute towards the Government‘s purpose of promoting sustainable economic growth by improving connections across Scotland. The new Airdrie to Bathgate (A2B) service, scheduled to commence public services in December 2010, will enable direct access by public transport for communities in West Lothian and North Lanarkshire to Glasgow and Edinburgh‘s labour market and improve social and educational opportunities. The electrification of these new services will provide savings of up to 25% on traditional diesel services. The Edinburgh and Glasgow Improvements Programme continues the Government investment in electrification with over 350 single track kilometres of railway electrification to enable a cleaner greener and quieter railway with lower carbon emissions. The Sustainable Rail Programme (SRP) is administered by the Rail Safety and Standards Board (RSSB), with officials representing government, infrastructure manager, operating companies and

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suppliers. The SRP has identified many potential interventions to improve efficiencies ranging from large scale electrification of lines (as with EGIP and A2B) to solar powered CIS (Customer Information System). Other research is examining the potential benefits associated with:-

Regenerative braking – cost of wider implementation.

Rolling Stock design – lightweight, energy efficient and aerodynamics

Driver Advisory Systems – active system for efficient traffic management

Eco-driving – improving fuel efficiency through driver training

Eco-timetabling – creating a timetable to maximise fuel efficiencies for required passenger and freight movement.

Micro-generation at stations and depots. Intelligent Transport Systems As outlined in Project 9 of the Strategic Transport Projects Review (2008), we will look to use Intelligent Transport Systems (ITS) to improve the operational efficiency of our trunk road network through the application of measures such as hard shoulder running, variable speed limits, ramp metering and average speed enforcement. We envisage the deployment of these measures on the most congested parts of the trunk road network will improve safety and journey time reliability, and in some cases result in journey time savings. Smoother traffic flows can also result in reduced fuel consumption and emissions per vehicle. A variety of these measures are in operation across the world and has been shown to be publicly acceptable given the associated reduction in congestion together with improvements to journey time reliability - both of which are key to supporting economic growth – and work is underway to identify the optimum deployment of these measures on the most congested parts of the Scottish network. Proposed discussion questions How can different modes develop better partnership working to achieve the efficient movement of people and goods across Scotland? How can Scottish Business be encouraged to compete in design and manufacture of technologies and infrastructure required to support future widescale electrification programme of Scotland‟s Railways? „Scottish R&D - it‟s the successful exploitation of ideas in the areas of low carbon vehicles and renewables that we need to make our businesses even more competitive‟

Scotland has world-class research and development. This provides huge opportunities to make our businesses more competitive. In making the most of our strengths in research and development , what is working well, and where are the opportunities to improve our approach? What do we need to do to realise those opportunities.

„With very limited vehicle production based in Scotland is there a role for Scottish businesses in the automotive supply chain and which low carbon technologies should we invest in and develop?‟

The Scottish Government has a technology neutral position as far as low carbon vehicles in concerned. Which technology offers the greatest opportunity to reduce emissions and what action needs to be taken to deliver low carbon commercial success in the short, medium and long terms.

“How else could the ITS technological approach be used to deliver greater emissions benefits?”

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NOTES FROM THE DISCUSSION GROUP The three main areas for in depth discussion are outlined below:

Emerging transport technologies Knowledge transfer Behaviour change

Emerging Transport Technologies Stewart Stevenson, Minister for Transport, Infrastructure and Climate Change gave an introduction by setting out the importance of the transport challenges and opportunities faced by Scotland. The facilitator, Steve Montgomery, Managing Director of First Scotrail then asked the group to consider if we are best positioned to have the debate to realise transports carbon emission opportunities and whether we have the correct infrastructure etc in place and what else do we need? It was broadly agreed that hydrogen power is a major opportunity for Scotland and that we are a leading power in what is still an emerging technology, especially for transport. A road map is required to set out how we can work together across academia, government and industry to utilise hydrogen as a transport fuel. It is imperative that hydrogen is made using energy from renewable sources to generate a green house gas emission reduction. It is essential that government transport policy is long term and extends beyond the life of a parliament to ensure that sufficient funding and cross party political commitment to bring about genuine benefits and lasting change. Short termism prevents businesses from investing and aligning their businesses to capitalise on the benefits brought by new Technology. As an illustration, Germany has announced a €2bn hydrogen infrastructure programme to be delivered by 2015 in conjunction with BMW and VW bringing commercially available hydrogen powered cars to the market at the same time. It is essential that we integrate with Europe to avoid Scotland becoming increasingly isolated in terms of Transport policy and deployment. It is necessary to undertake a range of interventions that are a mix of ―hard‖ activities that deliver the necessary infrastructure & investment and ―soft‖ behaviour change and education type activities. How a car is driven, irrespective of fuel type impacts heavily on how efficiently it can run and consequently how much fuel is used. Driver software in vehicles can reduce or increase emissions dependent upon how it is managed but businesses have an opportunity to positively effect behaviour change. It was suggested that a scrappage scheme for HGVs and buses would help incentivise the uptake of new technologies, along similar lines to the UK scrappage scheme for cars. As well as focussing on the short term technological advances the forum afforded an element of ―blue skies‖ thinking. It was suggested that we can achieve better use of our current road infrastructure through the better use of the road network. It is fully possible to envisage the use of automated vehicles that steer and avoid collisions using gps technology. The internet could be harnessed to much better organise transport online. It was noted that biofuels are widely available and there is an opportunity for the public sector to lead the way in using high concentrations of biofuels to reduce emissions. Many diesel vehicles can run on a 30% mix of biofuels with no engine modification required and no performance reduction.

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Scottish low carbon businesses are being enticed to re-locate abroad by payment of large incentives from European countries. The UK should seek to retain indigenous businesses and attract new foreign low carbon business through the payment of incentives. The Scottish Government‘s lack or borrowing powers makes this problematic. Knowledge Transfer Knowledge exchange is a major opportunity and cross business forums should be supported to encourage this activity. This not only provides an opportunity to spread learning but to benchmark across businesses by sharing the available data. Businesses should see the sharing of data and objectives as a way of driving up performance and an efficiency measure. The transport landscape will require many different technological solutions. This is not a one size fits all solution. It is necessary for all businesses and consumers to know what it is they want their vehicles to be able to do and then select the appropriate vehicle type, fuel and ownership model to meet those needs. It is necessary to identify what the real benefits are of each type of vehicle/ fuel permutation. Behaviour Change The first principle of transport policy should be that we need to get people out of their cars. If they do drive they should drive the most efficient cars and for the minimum amount of miles. Public bodies allow staff to use their own cars for official business and to claim this mileage. This is known as the ―grey fleet‖. It is estimated that this costs the public purse £110m a year in mileage claims. Using eco driver training and incentives to use more efficient engined vehicles or public transport could reduce this cost by up to 30% saving up to £30M. For a parcel distribution company like DHL transport fuel is the 2nd largest cost, after people, and the highest generator of green house gas emissions. We need to get people onto public transport but ticketing needs to be integrated and seemless. It can be done as London has shown. Scotland needs an ―oyster card‖ equivalent. 1.1m people using ITSO standard cards for concessionary travel – 7000 readers on buses. Integrated price ticketing should be the objective, not just integrated ticketing providing one known price for travel between A-B irrespective of mode. Park and ride facilities should become ―Park and Choose‖, being extended to give access to multiple modes of onward travel. For Scotland to be fully enabled to effect behaviour change it needs powers to leverage the taxation regime, powers currently reserved to the UK Government. Congestion charging could have a major positive impact if revenue was ploughed back into infrastructure investment. It was agreed that what gets measured gets done and having readily available data prompts behaviour change if managed closely. Guilt over what journeys an individual makes can be made readily available using intelligent transport systems on to smart phones. Incentivisation of the private sector is important to ensure that emissions are reduced. Government initiatives should target the public sector, then the private fleet, then the private individual. It is necessary to invest in infrastructure to show people that new technologies will work and that they offer a long term solution. We should learn from the massive investment in the rail industry that was made for the initial installation across the UK. Government needs to be bold. Sufficient

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investment needs to be identified and made available now to ensure we are not left behind more progressive nations. The media have a key role in influencing behaviour and a communications plan will be necessary to ensure that simple, consistent messages about alternative transport options and technologies are made available. Summary Initiatives have to work commercially for them to be successful. Business will do what is right for them. The challenge is to have policies that make transport improvements right for business. The best savings of money and green house gas emissions can be achieved by not making people travel. We continue to live in a culture where travel is the first option. Development of community hubs and video conferencing could reduce the need to travel. It is time to embrace the downsides of new technologies. They are new and therefore will have drawbacks but we have an opportunity to see a revolution happen and to help shape the transport solutions of the future. This is about doing things better, more efficiently and so it is necessary to embrace the difficulties. People change of their own volition and government‘s role is to ―squeeze‖ the change through use of the legislative process.

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Workforce Development and Leadership and Management

BACKGROUND PAPER With around 70% of the workforce of 2020 already in place, creating the conditions that encourage and support the development of those already in the workforce will be essential to Scotland‘s economic performance. Future success will increasingly depend on the capacity of organisations to identify and develop the skills required to support their business goals and to make effective use of the skills and experiences of their current employees. A Workforce Development Action Group was established in 2009/2010 by the Joint Skills Committee of the Scottish Funding Council and Skills Development Scotland to bring together representatives from key partners to develop a more cohesive, visible and demand-led system. The Group has defined ‗workforce development‘ as “learning and organisational development activity for those in employment” and has articulated a vision for ―a system to be tailor-made (local and sectoral), responsive and agile, fitting to the Scottish system, and value for money”. Through the implementation of the framework for action developed by the Action Group, government and its agencies will improve the accessibility, responsiveness and effective design of learning and business development services for employers and employees. Raising business investment in workforce development will be crucial for success. The Review of Post 16 Education and Vocational Training, being led by Willy Roe, will, among other things, make recommendations to government on workforce development policy priorities and ways to lever in co-investment by both employers and individuals. The refreshed Skills for Scotland Skills Strategy, published in October, outlines that key public agencies will pilot new innovative approaches to help facilitate organisations, particularly SMEs, to come together to address workplace-related issues, including identifying the skills required to support business needs and investing in them as an integral element of a wider business development planning. Proposed discussion 1. What should the policy priorities be for workforce development? 2. How can greater levels of co-investment by employers and individuals best be

encouraged? 3. How can public agencies best encourage SMEs to come together to address workforce

development issues?

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AMBITIOUS, PROGRESSIVE AND INNOVATIVE LEADERSHIP AND MANAGEMENT IN SCOTLAND The refreshed Skills for Scotland Skills Strategy makes clear that a renewed focus on improving leadership and management is a priority to increase productivity and growth. Leadership and management are key enablers supporting business productivity and growth, boosting survival and competitiveness while also helping business manage change in a period of significant business uncertainty. The development of ambitious, progressive and innovative leadership and management is the issue that is common across all drivers of productivity, affecting how enterprising a firm is, how it innovates, invests, responds to competition and how well skills are used. Scottish Enterprise has been invited to develop a framework for action that includes a vision and strategic objectives to help align the activities of key public agencies and to act as a catalyst for action more widely. We need to be clear about what we are seeking to achieve as we recognise that our ambitions won‘t be realised without the active participation of a wide range of partners across all sectors in Scotland. Draft vision

A nation known for exceptional leadership and management in all sectors of society; where leaders set a clear direction and purpose, using their best talent and supporting employees at all levels to do their best, as individuals and as a team.

A Scotland where more people work in ambitious, innovative and progressive organisations with a leadership culture that fosters continuous development and collaboration and promotes equality of opportunity and diversity

A place where existing and future leaders and managers have the opportunity to develop their full potential and the talent of their people and where success is celebrated, and

Where exceptional leadership is demonstrated through growth, performance improvement, sustainability and an engaged, productive and healthy workforce.

Draft strategic objectives 1. To give clarity of purpose and of responsibilities 2. To support individuals to value leadership and management at all ages and stages of their life

and to pursue roles in them 3. To raise awareness, knowledge and understanding of the benefits of investing in leadership

and management development 4. To support organisations and sectors to develop a culture of leadership and build their

capacity 5. To improve the capacity and effectiveness of intermediary organisations that influence

individuals and organisations to invest in leadership and management by better supporting them

6. To enhance the contribution of Scotland‘s colleges and universities in encouraging and developing ambitious, progressive and innovative leadership and management

Proposed discussion a. Is the draft vision and strategic objectives, identified above, the right way forward? b. What can participants do to help realise our ambitions for leadership and management in Scotland?

NOTES FROM THE DISCUSSION GROUP Workforce Development With over 70% of the workforce of 2020 already in place, creating the conditions that encourage and support the development of those already in the workforce will be essential to Scotland‘s economic performance. It was noted that future success will increasingly depend on the capacity of organisations to identify and develop the skills required to support their business goals and to make effective use of the skills and experiences of their current employees.

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The discussion focused around three key questions:

1. What should the policy prorities be for workforce development? 2. How can greater levels of co-investment by employers and individuals best be

encouraged? 3. How can public agencies best encourage SMEs to come together to address workforce

development issues? Key messages

Clear willingness of employers to invest in skills of their workforce given benefits in terms of increased productivity, profitability and a strong, confident workforce.

Education system is responsible for developing core and basic skills. Employers will pay for technical skills development.

Policy focus should be on what workforce will be doing in 2020 as this will be very different from what they do now

Technology gives huge potential for lifelong learning opportunities although scale is not yet fully understood.

Need to increase focus on employer led training with reduced reliance on college sector.

Need to encourage young people to think more about way they will work and look at options to improve experience.

Education system needs to be more responsive to pace of change in the world.

Need to encourage greater diversity in workforce rather than current safe and secure practice. Role of employers and industry Employers were acknowledged to have a critical role in workforce development and the proper functioning of the education and skills system generally, particularly in terms of the development of National Occupational Standards (NOS). There was a strong view that employers should not make up for any deficiencies in the core education system, including the development of basic employability skills. There was a suggestion that public policy currently places too much focus on college provision and not enough on employer training. Going forward there should be a stronger focus on ensuring training providers develop from industry, which may allow a stronger technical edge to workforce development related activity. Improved technical performance through colleges must also be driven through NOS. It was also suggested that there is currently a lack of recognition of qualifications developed by employers and that a more strategic approach was required around this – helping to both increase employment opportunities for individuals and give employers the skills they need. It was generally accepted that employers also had a role in terms of the funding of workforce development activity. Businesses do, however, expect a minimum standard of competence. If going forward employers are expected to make a higher financial contribution then they will expect high quality skills and training provision. The use of incentives (including for example, tax credits) were also suggested as a means of reducing the reliance on central public funding. Public procurement also offered opportunities for the government to set conditions for skills investment. Alignment with labour market and employer needs In terms of Sector Skills Councils (SSCs), there was a suggestion that the model of SSCs funded by government means that they move away from employer need. A higher proportion of industry funding was required with ―seed‖ funding from government and a move towards a loan system for skills interventions. It was noted, however, that the SSCs are UK controlled and that Scottish Government funding was restricted to the Alliance of Sector Skills Councils Scotland. A mixed performance of SSCs in Scotland was noted and that it was important to build upon those that do

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work well. It was also noted that all SSCs are partially funded via employer contributions, although amounts will vary. At a strategic level, the policy debate must be forward looking – where is industry in Scotland going over the next 10 to 15 years – with public investment in skills and training prioritised accordingly. This should also be focus for workforce development activity. Need to think carefully around what the workforce will be doing in 2020 and the types of skills and qualities that will be needed by businesses to be successful. It was also suggested that technological progress offers significant opportunity for lifelong learning activity, although it was also acknowledged that the scale of this is not yet fully understood. This uncertainty may also extend to employers so some caution is required around the notion of an ―employer-led‖ system. Consequently, this might not always be the answer. Young people and transitions It was suggested that a stronger policy focus was required to encourage young students to consider they way they will work and to look more at options to capture experience on CVs, including volunteering opportunities. It was suggested that the workforce does not currently work in that way. Therefore greater consideration was required around options to increase diversity in the workforce and stimulate a move away from the current safe and secure practice. It was also suggested that changes were required in the education system to make it more responsive to labour market needs. An example was the teaching of languages in secondary schools, and moving towards teaching, for example, Spanish and Chinese given the development of them in international markets. It was noted that Curriculum for Excellence is the way to bring the world of work into the classrooms and help develop the life-skills of young people. It was also suggested that better Labour Market Intelligence (LMI) was also required at a national, regional and local level to help young people make informed choices around their learning and career paths. Without this then it is difficult to drive the ambition of young people. Encouraging SMEs to address workforce development issues A clear need for the public sector to co-ordinate any collaboration and communication was recognised. For any collaborative models to be successful it was agreed that they needed to be built on trust and the benefits of any investment had to be clearly articulated. Leadership, Management and Ambition The introduction identified that leadership and management are key enablers supporting business productivity and growth, boosting survival and competitiveness while also helping business manage change in a period of significant business uncertainty. It was suggested that the development of ambitious, progressive and innovative leadership and management is the issue that is common across all drivers of productivity, affecting how enterprising a firm is, how it innovates, invests, responds to competition and how well skills are used. It was noted that Scottish Enterprise was invited to develop a framework for action that includes a vision and strategic objectives to help align the activities of key public agencies and to act as a catalyst for action more widely. A draft version of the vision and strategic objectives was circulated for discussion (attached for reference at Annex A). Key messages

General agreement on the importance of leadership, management and ambition and the increasing policy focus on these themes.

Welcome the development of an action plan but made clear that the purpose of it must also be defined to set out the underlying rationale.

Clear distinction needed between leadership and management as both covered a different set of skills and attributes.

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To help realise the ambition there is a need for leadership competencies to be embedded within organisations and their business plans.

Responsibility for larger companies to develop systems and processes that work and then share them to smaller companies with less capacity, with facilitation role for public sector.

This discussion focused around two key questions:

1. Is the draft vision and strategic objectives, identified above, the right way forward? 2. What can participants do to help realise our ambitions for leadership and management in

Scotland? Draft vision for leadership, management and ambition action plan The renewed focus on leadership, management and ambition, both in refreshed Scottish Government Skills Strategy and associated policy documentation, was a welcome step forward. The draft vision and strategic objectives were considered to be appropriate but a clear purpose was also required to set out why the action plan was needed. It was noted that the full action plan would set out this purpose. It was generally agreed that improving leadership, management and ambition across the public, private and third sectors could be an important mechanism in realising significant economic and social benefits. Distinction between leadership and management A clear distinction between leadership and management is required given the different set of skills and attributes associated with each. This point was accepted and a commitment was made to clearly separating each theme in the final action plan. Barriers to effective leadership It was suggested that the barriers which restrict the ability of individuals to be effective leaders need to be clearly identified. The point was made that we need to be satisfied that we fully understand the problem before devising a framework for action in response. It was also recognised that leadership skills is not solely about people at the top of organisations but about the people at all levels and the context in which they operate. It was acknowledged that leadership skills could be better encouraged at schools in the first instance and then developed over time. What can be done to help realise ambition? A range of suggestions were made including a stronger emphasis on internationalisation, including businesses looking to develop new markets or improve business models; and action to better identify and develop future leaders. It was suggested that leadership competencies could be better embedded within organisations of all sizes. It was accepted that the barriers may be greater for smaller businesses with less capacity so further thought should be given to how successful models could be shared from larger organisations with appropriate facilitation from the public sector. Opportunities to encourage ambition through a refocused cultural approach were also noted. This could include an increase in the personal commitment of people in current role who can exercise leadership. It was noted that Scottish Government leadership programmes were helping this in cross-sector groups and could be expanded.

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Annex A Framework for Action –Leadership, management and ambition Vision Our vision is of a Scotland internationally renowned for its excellent leadership and management in all sectors of society where:

People from all backgrounds are ambitious, have excellent leadership and management capabilities, and exhibit progressive and innovative behaviours;

Ambitious leaders set clear direction and purpose, inspire ambition and trust and enable others to excel and perform at their best, as individuals and as a team;

Organisations have a culture of leadership at all levels that supports collaboration, fosters innovation and promotes equality of opportunity and diversity; and

Society celebrates and values excellent leadership and management, demonstrated through a diverse, engaged, well-skilled, productive and healthy workforce; increased sustainable economic growth; environmental sustainability; and strong and vibrant communities.

The role of the public sector is to both lead by example and address the barriers faced by the private and third sectors in realising the vision. The Framework for Action will therefore focus on the following strategic objectives: People To help people from all backgrounds and at all ages and stages of their life to develop the skills and ambition to pursue leadership and management roles and exhibit progressive and innovative behaviours Organisations To help organisations and sectors foster a culture of leadership and build their leadership and management capacity, supported by strong collaboration within and across sectors Investment and Responsiveness To support more people and organisations to invest in high quality leadership and management development and ensure that provision is responsive and relevant to their needs.

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The Unipart Way- Achieving Operational Excellence by engaging people

BACKGROUND PAPER This session will explore the use of the principles behind systems thinking and ―lean‖ manufacturing techniques across both public and private sectors. John Neill, Chief Executive of the Unipart Group will explain how his company has pioneered a philosophy of working that is underpinned by a set of integrated tools, each of which can be mastered over time by people at every level of an organisation. At the heart of The Unipart Way are business principles that provide the framework for people to understand the company‘s values and to advance their personal knowledge, skill and ability as far as their ambitions will take them.

Achieving Operational Excellence by engaging people

Scan the pages of the business press and you will find dozens of organisations in the public and private sector that are engaged in an almost unrelenting quest to implement an approach to operational excellence that is referred to simply as ―Lean‖. It is actually far from simple. Operational excellence requires an organisation-wide commitment to creating a culture of continuous improvement, and an understanding that is as much about people as it is about process. Twenty Years of Development Over twenty years ago, guided by expert companies like Honda and Toyota, Unipart pioneered the implementation of Lean in a European company. Through trial and error and careful coaching from those who understood Lean deeply, Unipart created an approach to Lean that is both accessible and transferable across both public and private sectors. At the heart of Unipart‘s approach is the deep engagement of people at every level of the organisation. Philosophy of Working The Unipart Way is much more than a technique or initiative. It is a philosophy of working that is underpinned by a set of integrated tools, each of which can be mastered over time by people at every level of an organisation. It is also dynamic; new developments that come from innovation and the ―doing‖ in the day-to-day business are captured, codified and shared through best practice knowledge management systems. At the heart of The Unipart Way are business principles that provide the framework for people to understand the company‘s values and to advance their personal knowledge, skill and ability as far as their ambitions will take them. Impressive Results The Unipart Way has created a competitive edge that is delivered through the outstanding capability of its people. But when put inside other organisations, ―The Unipart Way‖ delivers equally impressive results. For instance, the National Audit Office reported that the fifteen months of knowledge and culture transfer that took place when Unipart‘s Expert Practitioners worked in close partnership with people in HMRC to implement Lean is expected to deliver over £400m in savings. It also visibly changed the way people worked on a day-to-day basis. Proposed discussion questions: What is “Lean”? How does it relate to systems thinking?

Scan the pages of the business press and you will find dozens of organisations in the public and private sector that are engaged in an almost unrelenting quest to implement an approach to operational excellence that is referred to simply as ―Lean‖. What are the principles behind ―Lean‖? What does systems thinking mean in practice for organisations?

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„The theories and practice of lean can be transferred to all organisations with powerful results in performance at all levels.

The main principles behind the lean approach are well known to high-performing manufacturing companies: what do we need to do to take these messages out to other organisations in the services and public sectors? Can the Unipart experience show us how to do it? „Unipart talks about “Achieving Operational Excellence by engaging people.” What does that mean in practice for companies and public sector bodies?

Unipart says that ―Operational excellence requires a company-wide commitment to creating a culture of continuous improvement, and an understanding that is as much about people as it is about process. At the heart of Unipart‘s approach is the deep engagement of people at every level of the organisation.‖ How can others follow that example and what will it mean for performance and morale? NOTES FROM THE DISCUSSION GROUP

Summary John Neill presented on the Unipart Way, a systems-thinking-led approach to operational excellence that achieved outstanding results by engaging all staff. He recalled Paul Krugman‘s quote that ―Productivity isn‘t everything but in the long run, it‘s almost everything.‖ Despite the research showing that engaging staff was key to improved productivity, in the average workplace, only 14% of staff felt engaged. The Unipart Way was a strategy and implementation process that sought not only to engage people but to inspire them. Coach them and elevate them to greatness. He outlined the key elements of the strategy: Unipart Way Strategy

Engage People - Inspire them, Coach Them - elevate them to greatness

Senior management must show a commitment to work this way forever

Build a world class body of knowledge around their business

Create a virtuous reinforcing circle of positive feedback from progress

Spend time and effort growing and building people and their capabilities

Design the System

Coach People

Make time to practice

Take Systematic approach

Do not accept that sad mantra "We're different"

Use data for insights and indicators but never to inflict pain

Learn by doing and teaching

Codify Knowledge

Seek to build a symphony of integrated and coordinated components In designing the system, the key points were:

Start by asking "Who is the customer?" How would they define our purpose?

Engage everyone

Confirm metrics – need to be simple and low-tech, i.e. How many Jaguars are immobilised due to absence of a spare part?

Coach

Inspire

Create a climate where people relish change and see the delivery and management of

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change as a key part of their jobs

Design of the system - not democratic - cannot afford camel In implementing the approach the key elements were: Branch Roll Out

All Branch staff to HQ in batches for course

Time and attention to detail and people comprehensive and focussed

Expert practitioners join attendees back in the branches on the Monday after a weekend

Course and stay there for 4 to 9 weeks

Commitment to work this way forever Key tools

Metric - Problem Finder

Actual deviating from Goal or Norm

Identify Concern - Find Cause - Take Countermeasure

Use Pareto Charts to identify priorities

Sign

"No Problem is big Problem"

Green dots all the time - especially big problem

Business is about solving problems

That is what fights entropy People

Like Dee Hock - Hire for Attitude Train for Skills

Recruit youngsters who 1) Can Read, 2) Can Write and 3) Have a passion to learn

Make the place a Jerk-free zone

Fire those who block and those who only pay lip service

Establish the fact that working is learning to do better

Encourage people to see themselves as "Practitioners" of the Unipart way

Test for their understanding of the Unipart Way - is there evidence of utilisation of Unipart principles in their work?

Inculcate Deep Domain Knowledge

Build Trust - by giving trust

Commitment to work this way forever o Meetings: o Daily in the team o Weekly at wider Level o Quarterly Reviews by senior management to ensure adherence to the Unipart Way

Unipart‟s Corporate philosophy:

Short-termism rejected

Private Company

Shared ownership

Focus on helping people control their own lives

Healthy environment and focus on employee well-being

Education - in house University

Finance - good terms and conditions and participation How to help others see the light and emulate the Unipart Way:

Go see it

Talk to the people who are positively and emotionally charged about this approach.

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Supporting Scotland's Food and Drink industry in the Year of Food and Drink and beyond

BACKGROUND PAPER Background The food and drink industry is a key sector of Scotland‘s economy. It is a fundamental part of Scotland‘s character as a nation. From fisherman and farmer to multinational whisky company and supermarket retailer there are complex supply chains, key dependencies, and fantastic opportunities to build on our success. Scotland Food & Drink is the industry advisory body, a forward-looking industry-led organisation which last year delivered a comprehensive strategy for the growth of the food and drink industry from £10bn to £12.5bn by 2017. The Scottish Government and associated agencies are fully behind the industry strategy, with the national food & drink policy, Recipe for Success, providing a framework and rationale for government activity and investment in food and drink. As part of this, 2010/11 has been designated the Year of Food & Drink with key activity by EventScotland. Key challenges

Productivity – for food manufacturing is low and needs to step change

Research & Development - needs to rise from 0.25% GVA to 0.75%

Collaboration for scale - the food industry in Scotland has many small and medium-sized organisations and a complex supply chain

Building our reputation as a Land of Food & Drink – how do we ensure that our collective activity builds a sustainable future of this key sector?

Delivering Environmental Sustainability – What does sustainable production mean and how can the industry meet climate change targets

Proposed discussion questions

What can be done to assist Scottish companies to improve productivity and research and development?

How can businesses collaborate with similar businesses, within a supply chain?

How can we improve collaboration between businesses and key suppliers of R&D and innovation, i.e. Scotland‘s universities and research centres?

How can Scotland‘s businesses use this reputation to remain competitive in an increasingly global market place? NOTES FROM THE DISCUSSION GROUP Background The food and drink industry is a key sector of Scotland‘s economy. It is a fundamental part of Scotland‘s character as a nation. From fisherman and farmer to multinational whisky company and supermarket retailer there are complex supply chains, key dependencies, and fantastic opportunities to build on our success. Scotland Food & Drink is the industry advisory body, a forward-looking industry-led organisation which last year delivered a comprehensive strategy for the growth of the food and drink industry from £10bn to £12.5bn by 2017. The Scottish Government and associated agencies are fully behind the industry strategy, with the national food & drink policy, Recipe for Success, providing a framework and rationale for government activity and investment in food and drink. As part of this, 2010/11 has been designated the Year of Food & Drink with key activity by EventScotland.

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Key Challenges • Productivity – for food manufacturing is low and needs to step change • Research & Development - needs to rise from 0.25% GVA to 0.75% • Collaboration for scale - the food industry in Scotland has many small and medium-sized organisations and a complex supply chain • Building our reputation as a Land of Food & Drink – how do we ensure that our collective activity builds a sustainable future of this key sector? • Delivering Environmental Sustainability – What does sustainable production mean and how can the industry meet climate change targets Discussion questions • What can be done to assist Scottish companies to improve productivity and research and development? • How can businesses collaborate with similar businesses, within a supply chain? • How can we improve collaboration between businesses and key suppliers of R&D and innovation, i.e. Scotland‘s universities and research centres? • How can Scotland‘s businesses use this reputation to remain competitive in an increasingly global market place? Discussion points These discussion points are an attempt to show the wide range of opinions and views set out in the discussion. 1. Scotland‟s reputation as a Land of Food & Drink There was a wide ranging discussion on what Scotland‘s reputation for food & drink actually meant. It was readily recognised that Scotch Whisky had done a marvellous job in putting Scotland on the map all across the world. The discussion moved on to the need to back up our reputation at a local level, through local initiatives. Part of this was through food designation like PGI, PDO and GI (legal terms which guarantee a products‘ authenticity) – Scotland has a number of these like Scotch Beef, Arbroath Smokies and Scotch Whisky. These help to build a sense of place and character – a cited good example of this is the Taste of Arran brand and marketing initiative. Others brought up the good work at council level such as in East Lothian. We also should not isolate the idea of food from the whole experience of Scotland – and this is especially important in the tourism industry. Our specific products also have many advantages, with very natural production, high levels of traceability and food safety. We also need to engender pride in those who make the products, and their communities. These are highly skilled jobs which bring a lot to society. We should also pay more for the great things on our doorsteps. – e.g. seafood that is shipped to other countries without any local getting the chance to eat it. Restaurants should discuss the provenance of the food they serve. For example in Ireland there is a campaign - ―Just Ask‖ - where food came from?

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Training on food can be an issue with staff. Is there work to be done with the colleges to provide training on provenance? 2. Collaboration in the supply chain The food and drink industry in Scotland is made up of many thousands of companies, most of which are very small. In order to grow sustainably and compete in a competitive world they need to work together effectively. This is especially critical if the owners and employees of these companies want to remain relatively small and artisanal. It was noted that some different companies do co-operate with each other. A major area of discussion focused on transportation and getting goods to market. Some were of the view that in the future there needed to be more of a focus on rail. Should Scotland develop branding and brand ambassadors for food – or should this be left to the right companies? Working together could also lead to a co-operative approach to procurement, eg buying groups or producing groups. There was also a question of whether we needed companies to get bigger quicker in order to capitalise on scale. The flip side of this was that many businesses choose not to grow. There were some questions about how Scotland Food & Drink as the industry leadership body engage with the workforce. Comment was also made about the predominance of female employment in the industry and whether that was recognise and capitalised on – as a great story. Questions were also raised as to why do we have so many agencies working in Food and Drink eg Visit Scotland, SE, Event Scotland? There was some criticism, but also some defence as these bodies are all working together now – with others – to support the Scotland Food & Drink plan. 3. Supporting research and development The challenge of effective research and development was discussed in detail. It is important that local colleges meeting local businesses‘ needs. It was felt that uncertainties pushed back the market place. Change mindsets to commercialisation of resources from universities and businesses (not enough coming from universities). The role of the Interface team, who provide knowledge connection for businesses with academics was highlighted as a very good service which should be used more. They have worked with more than 100 food and drink companies on a diverse range of problems. It was also agreed that businesses needed to be hungry enough to want to change their processes and use the latest research and development.

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Local Support for Scotland‟s Businesses

BACKGROUND PAPER Purpose of session This session will explore the opportunities to look at the current support for Scotland‘s small businesses and start-ups. It will provide a platform for an open discussion on how current systems and programmes of support, such as the Business Gateway, meet customers needs and whether there is scope for additional services to develop and grow new start and existing small businesses, form both public and private sector. It will also provide an opportunity to discuss factors influencing start-up rates and identify the key barriers to growth in the current economic climate. Overview of Scotland‟s small business sector Scotland‘s small businesses are a vital contributor to the sustainable growth and recovery of the national economy, across all key business sectors – life sciences; energy; creative industries; financial and business services; food and drink; and tourism. The Scottish Government recognises that supporting new and growing businesses is essential in helping the economic recovery because they are a key component of economic growth. Around 98% of enterprises in Scotland are small businesses employing fewer than 50 people. These businesses make a significant contribution to Scotland‘s economy with turnover of some £65 billion in 2009. Around 40% of private sector jobs are in small businesses and this rises considerably in some sectors: 94% in agriculture, 60% in construction and 54% in hospitality. As at March 2009, the total number of private sector enterprises in Scotland was 291,380, a 3.3% increase since March 2008. The associated employment was 2 million, a 2.2% increase. Support mechanisms Developing the environment for business growth is critical. An extensive range of support and advice services are available to businesses of all sizes from a wide range of public and private sector organisations including: local authorities; Business Gateway; Highlands and Islands Enterprise; Scottish Enterprise; Scottish Development International; Skills Development Scotland; the third sector; financial institutions; and other specialist sectoral advisory bodies. In addition, accountants. lawyers, banks and business advisers in the private sector contribute to the support and services available to start-ups and businesses. The Business Gateway The main public sector service for new and small business is the Business Gateway. Support can include general information, start-up training, business advice and information on possible financial support. The responsibility of the delivery of local Business Gateway services falls to local authorities and forms part of their overall responsibility for local economic development. This ensures better integration with other services such as planning, environmental health, consumer and trading standards, tourism, and community planning. Through Business Gateway ,local authorities are able to identify emerging businesses with high growth potential, such businesses are referred to the enterprise agencies for further support to meet their growth potential. The Business Gateway website and enquiry handling service is delivered by Scottish Enterprise. This enables an integration for customers with other services and ensures that they are directed to the most appropriate service whether they call Scottish Enterprise or Business Gateway direct. The structure of Business Gateway support is designed to generate maximum net economic impact. In 2009-10 Business Gateway assisted:-

almost 11,000 start-up businesses through its network across Scotland.

received on average 30,000 visits per month to its website

received between 2,500 and 3,500 enquiries every month from existing and start-up businesses.

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supported 4,000 existing businesses and dealt with more than 7,200 enquiries from such firms in the year to March 2010.

Creating the right environment for business to flourish The Scottish Government recognises the vital importance of Scotland‘s small businesses to the sustainable growth of the national economy. Small businesses are the lifeblood of local town centres and communities. Fundamental to the Scottish Government‘s plans will be improving the prospect for greater business creation and growth of small businesses in Scotland... Entrepreneurship is a key factor in addressing the goals of the Government Economic Strategy. The provision of good quality support and assistance will remain crucial to that work - but in the longer term, real improvements in our cultural approach to entrepreneurship and enterprise will provide the greatest and most long lasting benefits. The Scottish Government is committed to better regulation, which has an important role in promoting competitiveness and delivering sustainable economic growth. Better regulation helps small business by reducing unnecessary burdens and delivering a favourable business environment in which companies can grow. The principles of better regulation state that regulation should be transparent, accountable, consistent, proportionate and targeted. Proposed discussion questions

How should business support services be delivered? Do we have the balance right between help for start ups and help for growing businesses? Is the current service accessible, delivering the right support and well aligned with private sector providers?

What is missing from current support services and what is working well that could be built on – is there scope for more web based services, addressing regulation issues or improving access to public procurement contracts?

How do we ensure delivery of a business support service in an environment of public sector cuts and competing demands within local authorities/enterprise agencies for limited resources? What role can the private sector play in meeting demand from customers?

NOTES FROM THE DISCUSSION GROUP The three main areas for in depth discussion are outlined below:

Current delivery of business support services;

Future delivery; and

Potential impact of public sector spending cuts.

Summary The session provided an opportunity to reflect on current provision, how it might be improved and shaped in future and how public and private sector funding could be used to best effect. Views from the session would contribute to the ongoing discussion shaping the way forward for the delivery of business services. Discussion was wide ranging and looked ensuring that: support services were relevant to and accessible to businesses shaped by their actual needs; the contribution of the private sector was recognised; improvements to the public procurement process continued to be made; the role of mentoring was further explored; the Business Gateway looked at improved signposting and joining up of services, marketing the range of services it offered; radical thought should be given to what was necessary; and the impact of the rates and taxation systems on business growth should be looked at.

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Introduction The facilitator gave a brief introduction to set the context for discussion. Local authorities were responsible for local economic development across Scotland, including the delivery of the Business Gateway. The Business Gateway service was governed by contracts due to come to an end in October 2012. It represented about 6% to 10% of local authorities total local economic development activities. Local authorities were able to respond to the different needs and opportunities in their areas. The group was invited to reflect on what was currently working well and what could be done better. It was a good time to look at how services could be delivered in future, what should be the priorities for support and what was affordable. Question 1 - What is missing from current support services and what is working well that could be built on – is there scope for more web-based services, addressing regulation issues or improving access to public procurement contracts? There was some concern that the support services being delivered were not always relevant to the existing business community but rather reflected the business community that those in government hoped that Scotland rather than the actual community that existed. There was a degree of inflexibility in the way that services were delivered and they needed to be more responsive to changing economic circumstances. Local discretion was generally welcomed and appreciated by local businesses as being relevant to their circumstances, but there needed to be a balance in a consistent offering across Scotland with variations in different areas through top up services by local authorities. It was suggested that there was a mixed picture in the quality of services being delivered, some good, some not so good and there was a need to work more closely with the private sector to fill the gaps, so that the public sector was not duplicating what the private sector could deliver effectively. There was scope to look at improved public-private partnership delivery. Procurement The group heard about improvements that the Scottish Government was making to e-procurement. Improvements such as the e-procurement portal were welcomed but more needed to be done to reduce the burden on SMEs who wanted to bid for contracts. Government was urged to look at the experiences in other countries – for example in the USA where companies were legally obliged to procure a percentage of goods locally and were fined if they did not meet the requirements. SMEs were finding it hard to compete for large contracts which meant that they were losing out to large companies and care needed to be taken to ensure that small companies were not excluded. More needed to be done to support SMEs to feel comfortable with e-procurement and to simplify system. SMEs needed to be made aware of potential opportunities to local contractors and to help them through the system and trade bodies could help them in this. The work in hand to address burdens that SMEs had encountered in the past, for example around the need to fill in multiple, time consuming pre-qualification questionnaires (PQQs) was welcomed but needed to go further. Local authorities needed to be prepared to look at the services they delivered at their own hand and to consider whether it was the most effective way of delivering such services. They should be prepared to look at making more use of private sector providers How should business support services be delivered? Do we have the balance right between help for start ups and help for growing businesses? Is the current service accessible, delivering the right support and well aligned with private sector providers? There was a need to ensure that definitions were relevant so that businesses could qualify for support. In rural or fragile areas, key businesses might not meet national definitions of businesses of scale but those businesses made an essential contribution to the local economy. Support should be given to clusters of businesses.

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Some sectors felt excluded from the support on offer and felt that they were offered little support from the Business Gateway, for example those involved in retail and the hospitality trade. They had turned to other sources of information and support. The potential role of mentoring was widely supported and welcomed by SMEs. There were many examples where mentors had played a key role in helping other businesses be successful. They helped in improving businesses confidence and knowledge and in finding quick answers to questions from people who understood issues and had been through them themselves. There was considerable potential for increased mentoring and while government may not be able to pay them there was a wide range of people who would be prepared to volunteer their experience. There needed to be a way of capturing that experience and identifying those who wanted to be involved. The scheme being run by the Scottish Chambers of Commerce was welcomed. Large companies also had experienced staff who were willing to get involved and could find the time and their enthusiasm needed to be captured. Schemes like business ambassadors in Stirling for various sectors or Angus Champions should be built on and extended. SMEs often felt isolated and a mentor could offer impartial, informed advice. The Business Gateway was perceived by some to be only for start ups and there was a need to look at how better to market its wider range of services. The Business Gateway statistics showed that 50% of its activity that was focused on existing businesses, for example survive and thrive events, however, this activity appeared invisible to many SMEs. It was felt that that the Business Gateway was being driven by targets in the operating contracts which concentrated activities on getting the volume of start ups rather than supporting sustainable businesses which wanted to grow. In the future delivery of services, careful thought needed to be given to the impact of targets. Business Gateway offered a range of services, however, there was a need to prioritise resources and look at where Business Gateway could add most value. There was a need for local authorities and the enterprise agencies to work closely together to ensure that growth companies were supported. A key role for the Business Gateway should be in signposting sources of advice and support, such as the services offered by the Prince‘s Scottish Youth Business Trust, the chambers of commerce, colleges and banks. There was confusion about what was available and how best to access the support. The Business Gateway could look at how to improve signposting to help businesses get to the relevant advice more quickly and ensure services and service providers were better joined up. How do we ensure delivery of a business support service in an environment of public sector cuts and competing demands within local authorities and enterprise agencies for limited resources? What role can the private sector play in meeting demand from customers? There was the opportunity to look more radically at what was being provided and to consider whether it was what was needed. The views of businesses were key in identifying what was of most value to them. With finite resources, support needed to be targeted on those businesses which most needed it, rather than simply on those businesses which would be successful regardless of support. Support services needed to respond to the reality of businesses, SMEs would not have time to engage with services that were unwieldy and costly in time. There was a need to look at incentives for businesses, such as rates incentive schemes which would help in the regeneration of high streets and to fill vacant buildings. While general taxation policy was not in the power of the Scottish Parliament, the system needed to be carefully looked at to see what could be done to incentivise business to grow. It was important to look at the experiences of other countries, for example Switzerland and Hong Kong where the rate of taxation on businesses was very low allowing businesses to reinvest and employ more people. Although the taxation rate had decreased, the tax revenue to government had increased as turnover

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improved with reinvestment. The UK system with its various VAT and taxation thresholds was often seen as a disincentive to grow.

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TRANSCRIPT

Friday 12 November 2010

Col. BUILDING A STRONGER ECONOMY ...................................................................................................................... 1

Priorities for Partnership between Businesses and the Public Sector ......................................................... 1 WELCOME ......................................................................................................................................................... 1

The Presiding Officer (Alex Fergusson) ....................................................................................................... 1 OPENING ADDRESS ............................................................................................................................................ 4

The First Minister (Alex Salmond) ................................................................................................................ 4 VIEW FROM THE COMMITTEE ............................................................................................................................ 11

Iain Smith (North East Fife) (LD) ................................................................................................................ 11 VIEWS FROM THE BUSINESS COMMUNITY .......................................................................................................... 16

Sir Winfried Bischoff (Lloyds Banking Group) ............................................................................................ 16 Rupert Soames (Aggreko) .......................................................................................................................... 21 Dr Janet Lowe ............................................................................................................................................. 27

GROUP DISCUSSION SUMMARIES ..................................................................................................................... 33 QUESTION AND ANSWER SESSION .................................................................................................................... 39 CLOSING SPEECH ............................................................................................................................................ 52

The Cabinet Secretary for Finance and Sustainable Growth (John Swinney) ........................................... 52

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Business in the Parliament

Building a Stronger Economy

Priorities for Partnership between Businesses and the Public Sector

Friday 12 November 2010

[The Presiding Officer opened the meeting at 09:02]

Welcome

The Presiding Officer (Alex Fergusson): A very good morning to you, ladies and gentlemen. For those of you who were unable to join us for yesterday evening‘s reception and dinner, my name is Alex Fergusson and I have the great privilege and pleasure of being the Presiding Officer of the Scottish Parliament. In that capacity, I am delighted to welcome you to the Parliament and to the business in the Parliament conference.

I am delighted that those of you who joined us last night appear to have survived the experience uninjured; it is good to have you back with us this morning. I must confess that, for a while last night, I was not entirely sure that I was going to survive the experience, and I apologise profusely for my abrupt departure. The good news, however, is that it appears—for those of you who doubted it—that there is life after death. I am delighted to be here this morning.

This conference, in which the doors of the Parliament are very much open to members of the Scottish business community, is now in its sixth year. That reflects two things: first, the importance of a good working relationship between Scotland‘s business and political leaders; and, secondly, the need for a continuing dialogue between Parliament, Government and the business community, particularly in the very difficult economic times that we continue to face.

This year‘s conference focuses on the theme of growing our economy and developing priorities for partnership between businesses and the public sector. It goes without saying that difficult decisions lie ahead and that those decisions will have a massive impact on Scotland‘s public sector. Just how the public and private sectors can help each other through these difficult times is a subject of continuing debate, and one that we will cover today. There is a conversation to be had on how businesses can best work with Parliament and the Government in meeting some of the challenges that have been set for us in growing our economy during the next few years.

The Scottish Parliament, which employs around 500 staff, tries to do its bit to contribute to the success of that partnership. The Parliament has contracts with more than 50 small and medium-sized enterprises, to a total value of around £15 million. Those contracts cover a wide range of services, from maintenance and professional property services to information technology solutions and newspaper delivery.

Our procurement policies try to address the particular pressures that SMEs face—for example, we operate a policy of paying our invoices either within the agreed payment terms or within 30 days of invoices being received. In doing so, we aim to comply with the Confederation of British Industry‘s prompt payers code, and I am delighted to report that, on those criteria, the Parliament achieved an average payment performance of 99.5 per cent.

The Parliament also has a responsible purchasing policy, which seeks actively to remove any barriers to SME participation in our procurement exercises. The Parliament‘s commitment to its training and development programme reflects a wider national effort to retain and develop skills as we emerge from the grip of recession into a period of economic recovery.

Business in the Parliament is a joint initiative by the Scottish Government and the Scottish Parliament, primarily through the Parliament‘s Economy, Energy and Tourism Committee. It is a pretty good example of co-operative working, and today, as representatives of Scotland‘s business community, you have the opportunity to address your concerns and put your views and suggestions to Government ministers and the committee‘s members.

Events such as this, held in the Parliament‘s debating chamber, form a large part of our wider engagement programme, which aims to ensure a culture of openness and accessibility—two of the key principles on which the Parliament was founded 11 years ago. As Presiding Officer, I consider it a hugely important part of my role to try to ensure that the Scottish Parliament is accessible and accountable to the widest possible spectrum of the Scottish population.

Ahead of today‘s event, all 129 members of the Parliament were invited to nominate local business representatives from their constituencies and regions to participate, and I am pleased that a large number of members did so. I welcome members and those delegates who represent some of the major business associations, as well as representatives from the Scottish Trades Union Congress.

I stress that today‘s conference has been designed to provide a forum in which you can have those crucial conversations, particularly in

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the discussion sessions later this morning. The sessions will be chaired by ministers and the convener of the Economy, Energy and Tourism Committee, Iain Smith, from whom we will hear shortly. We want to hear your views today, and I encourage you to be frank and forthcoming in your contributions. I trust that you will have a most productive and enjoyable day.

Opening Address

The Presiding Officer (Alex Fergusson): I now have the great pleasure of inviting our First Minister, the Rt Hon Alex Salmond MSP, to give an opening address.

09:08

The First Minister (Alex Salmond): Presiding Officer, ladies and gentlemen, I love this conference, on the basis of what Robert Burns said:

―O wad some Pow‘r the giftie gie us To see oursels as others see us!‖

This is the only opportunity that I get to witness the Parliament from this vantage point, as the Presiding Officer does virtually on a daily basis. It is quite different. I usually stand in the well of the chamber, and with a bit of a swivel I can speak to the Labour Party to the left, in incredibly polite terms, and to the Conservative party on the other side, in polite and humorous terms; I can even speak to the Liberal Democrats. I cannot speak at all to my own party, which is right behind me and sometimes above me, too. This is a much better vantage point, and I think there is a case for rearranging the horseshoe Parliament. It would be a much better way to do First Minister‘s questions—although such changes are not my province, of course.

I offer you a quick story to start with, which has some relevance to the rest of my speech—perhaps not much, but some. I had a conversation last night in which—without any disrespect to the current of the Metropolitan Police commissioner, whom I saw being interviewed a couple of nights ago—I contrasted the modern style of policing with that of the formidable Scottish ex-police chief of Strathclyde from the 1970s, Commissioner David McNee. Some of the older members may remember him; I saw Jim Mather nodding when I said that. Suffice it to say that David McNee was a no-nonsense policeman.

The story that I am about to tell you was told by David McNee in the 1980s in a speech that I heard him make at the Mansion house—my memory of it was triggered when I discussed policing and the Metropolitan Police.

David McNee‘s story is about a fishermen who retired from the sea. He found, much to his chagrin, that the angel who had been his wife for the previous 30 years, never causing a moment of difficulty in a long and happy marriage, suddenly turned into a tartan terror. As he loafed about the house in his retirement, she hoovered around him; she objected every time that he tried to have a fag or two, and got the hoover out straight away—that is a bit like the Parliament. She objected to him

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smoking indoors, and she objected every time that he had the guys round for a drink—minimum pricing or no minimum pricing. It was a total transformation and he was having a dog‘s life.

The fisherman died and went to heaven, and his wife went to the lawyer to find out what the score was with the substantial wealth that he had built up over a life at sea—no doubt, these are changed days for fishermen. The lawyer told her that there was good news and bad news, and she asked for the good news first. The lawyer said, ―Well, he‘s left you everything. You‘ve got the lot. The whole bundle goes to you.‖ She said, ―Excellent. What‘s the drawback?‖ The lawyer replied, ―Well, he wants to be cremated.‖ She said, ―That‘s no bother. His ashes can go anywhere. We could bury him at sea and scatter the ashes off Kinnaird head. No problem whatever—cremate him if you like.‖ The lawyer said, ―You don‘t understand—his ashes have to be scattered on your living room carpet.‖ [Laughter.]

If you liked the story, I told it; if you did not like the story, it was told by David McNee, the former Metropolitan Police commissioner from the 1970s. I make the reference for this reason: when David McNee was Metropolitan Police commissioner, public spending was in substantial decline after the International Monetary Fund was brought in during the mid to late 1970s. The same thing happened in the 1980s, and there was also a period of retrenchment in public spending in the 1990s. However, the retrenchment in those periods was on nothing like the scale of the retrenchment that is envisaged for the coming period. The last comparable decline in planned public spending in the United Kingdom was in the late 1940s. Obviously, no one here remembers that intimately, but our parents or grandparents, who experienced that period, would be able to tell us about its nature and its consequences.

It seems to me that there are some substantial differences between now and the 1940s. It is true that the country and the world are a great deal more prosperous now than they were in the 1940s, but prosperity and an appreciation of living standards depend on one‘s experience. A decline in living standards now is measured not in absolute terms but in relative terms, against what people expect.

In the 1940s, there was huge social solidarity when it came to implementing a programme of substantial public spending cuts. The country had just come through a war—a conflict that no one seriously disputed was necessary; it was a just war. People accepted, just as they did during the war, that sacrifices had to be made. In the post-war period, people had an explanation for why sacrifices in economic terms were still necessary. Incidentally, that did not stop people complaining.

For example, there were many complaints about rationing: people could not understand why there was still rationing when there was no risk of ships being sunk by submarines. Nonetheless, there was an explanation for and an understanding of how the country had got into a mess and therefore there was a collective attitude to pulling it out of the mess.

My first point is that that attitude is not there now. Many people, for understandable reasons, take the attitude that the financiers, the bankers or whoever got us into this mess—with no particular banker or financier in mind, I should say—so why should we pay the penalty to get out of it? I raise the question because, apart from its being an interesting political question, it is also a question of economics: how do we manage, in terms of social solidarity, a substantial retrenchment in public spending in these circumstances? Some of us might feel that the current degree of retrenchment in public spending is not necessary or advisable, but there is also a question about how such a situation can be managed in terms of social solidarity.

My second point is that, whatever view people hold of current public spending or the resources that are necessary to rebalance the economy, I am bemused by their attitude to capital spending. For Government and large companies, as opposed to small to medium-sized enterprises, the cost of capital is at an historic low. By any rationale, this would be the moment to say, ―This is an opportunity that we must take‖. The situation is very unusual, given that at various times over the past 20 years the cost of capital has been extremely high, sometimes through the mismanagement of mechanisms to mobilise it such as the private finance initiative, and sometimes because of the pressure on the availability of savings to finance it. However, there are shedloads of money looking for safe capital investments—the building of infrastructure, for example, or other investments in the future—in which large companies and Governments are involved. As I say, given an understanding of the nature of public debt, I am bemused that, whatever one‘s attitude to public spending—which is, of course, often dictated by one‘s politics—there is no consensus around the mobilisation of capital spending to lead the economy into sustained recovery.

The previous business in the Parliament conference was held on 19 June 2009. As that is almost the exact day on which the recession ended and the recovery started, I have to congratulate the convener of the Economy, Energy and Tourism Committee, Iain Smith, on being the man who led the economy of the United Kingdom and, indeed, of Scotland into recovery. Last year, the recovery in Scotland was faltering,

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to say the least, but I am very interested in the revised and consolidated gross domestic product statistics for the second quarter of this year, which show that growth in the UK was 1.2 per cent and in Scotland 1.3 per cent. Annualised growth is more than 5 per cent, which, with the exception of the Federal Republic of Germany, is the highest in the G8—and, with the exception of Germany and the Scandinavian countries, Scotland has the highest growth in Europe. People say that that quarter‘s results were unsustainable. I simply do not understand why, after an economic shock resulting in a 6 per cent loss in output, 5 per cent annualised growth should be seen as unsustainable. In normal times, a 5 per cent growth rate beyond the economy‘s productive capacity would be unsustainable, but I do not believe that, after an economic shock that has removed such a sustainable amount of GDP, it is unreasonable to have that kind of growth over a period of time to redress the position. After all, the economy‘s productive capacity has not changed—or has changed only slightly because people have entered unemployment and their skills have reduced or because certain companies have gone under in the recession. Given the relatively benign international environment—at least it is relatively benign at the moment; I agree that it might be dangerous in future—I do not see how such a position is unsustainable. Instead of simply chugging along with growth, we should be trying to recapture the output that we lost in the recession, because that is the route to prosperity and genuine recovery.

You might have divined some political aspect in my comments, but I have been trying to put these matters into a context that is slightly separate from party politics or ideology. Given the circumstances and the route that has been chosen by the UK Government—which controls aggregate demand in Scotland, certainly from the public sector—we should consider Andrew Goudie‘s triangle. Although it is well known to parliamentarians, I should perhaps spend a moment telling you what it is.

Andrew Goudie, who is the Scottish Government‘s chief economist and chief economic adviser, has devised what is known as the Goudie triangle, which is a graphical representation that shows the full extent in real terms of the withdrawal of planned public spending over the next 12 to 15 years. The area under the graph gives the cumulative amount, year by year, of what that represents. In Scotland, it represents around £40 billion; for the sake of argument, it represents around £400 billion in the UK. Whether people think that that is right or wrong or that there is a good balance between current spending and capital spending, it is still an enormous withdrawal of demand from the economy. I hope and believe

that some of today‘s debate will be about what might replace that withdrawal of demand. I can see several likely areas in which capital mobilisation on that scale will be required. In one in particular, capital mobilisation on a scale of hundreds of billions of pounds will be required if we are to be successful in rebuilding capital infrastructure and productive capacity in the economy. I refer to the energy industries, and particularly the renewable energy sector.

At the business in the Parliament conference back in June 2009, there were a number of debates about generating possibilities and seeing the renewables sector of the economy moving in on energy production. I am delighted to say that a number of key decisions have been made on planning and consents for renewables since then. Over the past three years, some 35 consents for major renewables developments have been granted in Scotland. It should be remembered that a major consent for the Government means production of more than 50MW. In Scotland, a total of 7GW from renewable forms of electricity is in production, will be produced from facilities that are under construction, or has been consented to. That means that, without any question, we will be substantially through our target for next year of 31 per cent of consumption from renewable sources. That has led the Scottish Government to revise its target of 60 per cent of consumption from renewable sources by 2020 to 80 per cent, and to look confidently to meeting the target that all Scotland‘s electricity consumption will come from renewable sources by 2025. Incidentally, I believe that we will exceed those targets as well. To get to the 2020 target, we have to assume that there will be only some 2GW of electricity from offshore sources in Scotland. Given that, with the Crown Estate Commission, we have already licensed 12GW, a 20 per cent hit rate from that licence round is not an unreasonable expectation. I think that we will do better than that.

We have around seven times the installed renewables capacity per head of population that there is south of the border, which is nowhere as advanced in meeting the targets. Nonetheless, I detect in the new Secretary of State for Energy and Climate Change real determination to see the mobilisation that is required substantially to meet the targets. However, that is not inevitable; there are dangers along the way.

First, I strongly caution against interfering in the renewables obligation certificate system. As much certainty as possible should be kept in a market in which there are certain uncertainties. ROCs allow the securitisation—if that is not too dirty a word now—of investments because they give a reliable income stream for the future. It is important to keep them.

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Secondly, it is necessary to adjust the charging regime for access to the grid to make it resource influenced as opposed to population influenced. I am delighted to say that we are within sight of a reasonable settlement of that matter. I hope and believe that we shall have such a regime in place by next summer. The Secretary of State for Energy and Climate Change is determined about that as well.

Thirdly, of course, we need to be able to access capital in order to mobilise infrastructure and prepare for the opportunities. That brings us to the oft-referred-to cross-party anxiety in the Parliament about Scotland‘s access to the fossil fuel levy to mobilise that money.

Let us imagine that those matters will be addressed and that measures will be brought into effect. If so, it is possible that some £200 billion will be required over the next 10 to 15 years to mobilise the energy revolution that will be required if the UK is to come anywhere close to meeting its renewables targets. Scotland‘s contribution to that could be substantial. Our valuation study of the potential resource indicates that, by 2050, Scotland could be producing 60GW of power, which is enough to power the Federal Republic of Germany—or England, for that matter.

We might imagine that, by then, plans will have been brought into effect south of the border to achieve a substantial part of that capacity, so we will come to talk about grid connections on a continental scale. The Scottish Government was the first Government—the only Government at one point—on the European Commission‘s grid co-ordination group for forward planning for that horizon.

In economic terms, my point is that, given the likely withdrawal of substantial amounts of public spending, the energy revolution is one area—perhaps it is the most important area—where substantial replacement demand should be generated if economic capacity is to grow at the level that we expect.

In today‘s deliberations, you will probably pinpoint other obstacles and difficulties along the way, but, to strike an optimistic note, I observe that we can bring a new world into existence to rebalance the difficulties that we are experiencing with public spending.

I wish you well in your deliberations today. I apologise to you, Presiding Officer, because I am not able to stay—I am required to be at my old university, St Andrews, to open its magnificent new medical building, which is a wonderful construction. However, an array of ministers and senior parliamentarians from across the chamber will be taking part as the day proceeds.

Believe me, the business in the Parliament initiative is supported on a cross-party basis, and it is regarded as highly influential and highly important. In one respect, it is an example of the social consensus and the ability to communicate that are required if we are to have a true and lasting economic recovery—not just for one quarter of statistics, but over the long term.

The Presiding Officer: Thank you, First Minister, for that challenging beginning to the conference. We are very grateful to you for your time.

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View from the Committee

The Presiding Officer (Alex Fergusson): I now ask the convener of the Economy, Energy and Tourism Committee to address us and to give us some thoughts on the conference from the committee‘s perspective.

09:27

Iain Smith (North East Fife) (LD): Thank you, Presiding Officer. For a whole host of reasons I am particularly pleased that you are feeling better this morning and that you are able to preside over our proceedings. I am sorry that the First Minister cannot stay for the rest of the day, but I hope that he enjoys his visit to my constituency to open the new medical school in St Andrews.

I saw the Cabinet Secretary for Finance and Sustainable Growth looking rather anxiously at his notes during the First Minister‘s remarks. I could not quite see whether they said ―Draft Budget‖ on the front, but I am sure that we will be able to tell on Wednesday next week.

On behalf of the Economy, Energy and Tourism Committee, I add my welcome to you all to the conference, and I thank you for taking time out of your busy schedules to participate in this, the sixth business in the Parliament event. This year is a record-breaking year—more people have registered for the conference than ever before. I add my thanks to the organisers—the Scottish Government and the Scottish Parliament—in particular, the Economy, Energy and Tourism Committee‘s clerk, Stephen Imrie, for the efforts that have been made to make this one of the unmissable events of both the parliamentary and business calendars.

I welcome the partnership nature of the conference. It is not just a partnership between the Parliament and the Government; it is also a partnership between MSPs and the business community, its employees and their representatives, through the unions. I thank the business organisations and the Scottish Trades Union Congress for their partnership and support for the event over the six conferences.

This year‘s themes are: building a stronger economy, and the importance of partnerships. I want to start on a positive note with regard to building the economy. All of us are aware of the difficulties that businesses and their employees have faced during the recent recession. We are by no means out of the problem, and although the latest gross domestic product figures, to which the First Minister referred, show some signs of encouragement—as do other business surveys—

we cannot be complacent, although we do have things to be optimistic about.

Professor Donald MacRae of Lloyds Banking Group, who is with us today, said recently in the press:

―The Scottish economy has slowed but has not gone into reverse‖.

I believe that his forecast is right and that we can see in our economy signs of hope.

This morning I will focus on three areas that have been of particular interest to the Economy, Energy and Tourism Committee over the past year or so: renewable energy, international trade and the role of the banking sector.

Both the committee and I have been hugely supportive of the development of new sectors of our economy, such as renewable energy. I know that many representatives of companies that are active in the sector are here today. It would be wrong of me to name all of them, but I would like to mention one; as an MSP representing a Fife constituency, I hope you will indulge me in that.

I am pleased that John Robertson from Burntisland Fabrications Ltd is with us. His company—there are many like it—is an example of the success that we want to see being replicated throughout Scotland. Only last week, BiFab announced a £12 million contract to build two offshore substations for RWE npower. In Fife we have had the good news in the past week or so that the Tyneside-based marine firm Shepherd Offshore has secured the long-mothballed Hyundai plant in Dunfermline to create a renewables manufacturing facility. I welcome those and other successes in the renewables and other growth sectors of the Scottish economy. We need to see more of them if we are to start to see growth in our economy.

I welcome the First Minister‘s announcement at a conference last week of a £70 million fund for infrastructure development for Scotland‘s ports and harbours to support the renewables industry. The committee called for just such a development in its energy inquiry back in 2009. I am glad that the Scottish Government is now delivering on a promise and helping to ensure Scotland's place at the forefront of the global offshore wind and marine industry. During its scrutiny of the Scottish budget, the committee may ask questions about how much of that £70 million is new money, but for now let us support the sentiment behind the announcement and the positive signal that it sends.

We should also support the sentiment behind the UK Government‘s announcement that it will guarantee £250 million of investment in renewables in Scotland from the green investment

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bank if the Scottish Government agrees to draw down for investment in renewables the money that is locked in the fossil fuel levy. I hope that, rather than gainsay the efforts of those in the UK Government who are seeking a solution to that previously intractable problem, the Scottish Government will begin to work positively with UK ministers to work out imaginative and creative ways in which Scotland can take advantage of that potential investment boost.

Later this morning, I will chair the discussion group on how we can build international trade and attract inward investment. That is another area on which the Economy, Energy and Tourism Committee has recently produced an inquiry report. In that report, we welcomed the success of bodies such as Scottish Development International in supporting companies to begin the journey towards trading internationally, but we want to see much more.

The stark fact is that, according to HM Revenues and Customs, Scotland is home to around 8 per cent of the UK‘s VAT-registered firms, but only 5 per cent of all of the UK‘s exporters are based in Scotland. In short, we are underperforming on the number of exporters, particularly small and medium-sized enterprises, that are prepared to look beyond Scotland as a source of future growth. That is why the committee is particularly supportive of initiatives such as the smart exporter programme and why we want Scottish Development International‘s prime focus to be on increasing the number of SMEs that are prepared to take the first step and to look at international trade as an opportunity.

Many of the delegates here today represent real-life companies that demonstrate the benefits of international trade. I will highlight just one such company: Aggreko Ltd. In a few moments, we will hear from Rupert Soames. Having talked to Rupert over dinner last night, I know that I may not relish what he is going to tell us, but all of us will relish the success that he, his company and his employees are having. In recent days, Aggreko has been able to announce that it expects to make pre-tax profits of about £300 million this year, much of that on the back of international activities including its contracts to power the Asian games in November and the Asian para games in December in China.

Let me embarrass Mr Soames slightly by reminding him of a few words from his famous grandfather, Sir Winston Churchill. Sir Winston said:

―A pessimist sees the difficulty in every opportunity; an optimist sees the opportunity in every difficulty.‖

A little later last night, someone else put it to me as follows:

―Where some see obstacles, others see stepping stones.‖

Mr Soames and many of you in the audience are clearly not pessimists, and the partnership working that we need to show between Parliament, Government, business and employees must convince others of the opportunities that exist to trade successfully internationally.

I turn, finally, to the crucial importance to Scotland of the banking and wider financial services industry. Later this morning, we will hear from Sir Winfried Bischoff, chairman of the Lloyds Banking Group. We will also have a discussion session on access-to-financing issues and reform of the banking sector. I do not want to prejudge the discussions that we will have or what we will hear from Sir Win. However, as the Economy, Energy and Tourism Committee reported in its banking inquiry, which was published in the summer, there remains discontent about what happened and where that has left the so-called real economy in terms of access to finance and the lack of competition in lending.

Indeed, the committee and the Scottish Government continue to call on the Office of Fair Trading to conduct a formal inquiry into the markets for retail and business banking, personal current accounts and mortgages in Scotland. Although the OFT has yet to yield to that pressure, its report on barriers to entry, which was published earlier this month, indicated that we have a problem with a lack of competition in Scotland and that existing players have a far larger share of those markets in Scotland compared to their shares in the markets in the rest of the UK. To reach around 80 to 90 per cent of the market for SME banking in the rest of the UK, we must add together the market shares of at least five high street banks. In France, the number is 10; in Scotland, it is only two.

Despite the negativity, I believe that it is very positive that the most senior representative of the Lloyds Banking Group has accepted our invitation to speak to us, and that we have so many representatives from the banking and financial services industries with us today. I am sure that the first discussion group will be lively; I hope that it will also be constructive and forward looking. It is in all our interests that we reform the banking sector, and that we support our leading Scottish banks, recognising the huge success story that is the wider financial services industry.

The current governor of the Bank of England paraphrased Sir Winston Churchill when he said, in 2009, that

―never in the field of financial endeavour has so much money been owed by so few to so many. And, one might add, so far with little real reform.‖

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Some people in the banking sector do not appear to have learned the lessons of the banking crisis, and they are already pursuing the same practices that have been described as having no social worth, as well as the bonus culture that got us into this mess in the first place. They need to remember that banks exist to serve society and the economy, rather than society and the economy existing to serve the banks. I feel that it is time to move on from the 2007-09 period and to work in partnership with the banks as we engage in regulatory reform and seek to ensure that they best serve businesses and consumers in Scotland.

I close by thanking everyone here for their attendance. I very much look forward to our discussions today and to learning how the Scottish Government will deliver on the recommendations that we make today. The business in the Parliament conference works best when it is a forum for the exchange of ideas and agreed actions, which then provide a blueprint for the Government and the Parliament for the year ahead. How well politicians of all parties are performing in that respect is a matter that concentrates our minds—particularly as we approach the elections next year. So, let us hear from you all today.

The Presiding Officer: Thank you for that, Iain.

Views from the Business Community

The Presiding Officer (Alex Fergusson): Ladies and gentlemen, we have heard from two distinguished politicians; it is now time to hear from the first of our three very distinguished speakers from the business community. I have great pleasure in welcoming the first of those, the aforementioned Sir Winfried Bischoff, chairman of the Lloyds Banking Group. Sir Win joined the board and was appointed chairman in September 2009, having previously been chairman of Citigroup from December 2007. He also holds a number of non-executive positions and sits on a variety of advisory boards and councils. Of particular interest to us today is his role as chairman of the advisory council of TheCityUK, the body that has been set up to promote the UK-based financial and associated professional services industry. Having spoken to him last night, I know that he sat patiently on a stationary aeroplane for five and a half hours before making the journey to Scotland. We are delighted that he had that patience and that he is with us this morning. Sir Winfried, the floor is yours.

09:39

Sir Winfried Bischoff (Lloyds Banking Group): Thank you, Presiding Officer. Ladies and gentlemen, it is a great pleasure for me to be here. The First Minister said that addressing this room from this position was a privilege. For a simple banker, I get a Water Mitty-ish feeling from standing in one of the great iconic buildings that we have in this country, and I am delighted to do so.

At a time when the most common charge that is levelled at bankers is that we are restricting economic growth—we heard it just now from the convener of the Economy, Energy and Tourism Committee—I am keen to discuss the role that we are playing in supporting the Scottish economy through the downturn. Scotland and the success of the Scottish economy—which were also alluded to by the First Minister—remain crucial not just to the United Kingdom, but to the future of Lloyds Banking Group. This is, after all, our natural home.

The story of the Bank of Scotland began right here back in 1695 when the Scottish Parliament passed an act establishing the new bank. Of course, Lloyds Banking Group looks somewhat different from the Bank of Scotland that opened its doors in 1695, but we remain fiercely proud of our Scottish foundations. We retain a strong Scottish base to our business: our Scottish headquarters remain up the road at the Mound. Scotland is home to many of the group‘s major businesses, including the Bank of Scotland, Lloyds TSB

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Scotland, Scottish Widows and Scottish Widows Investment Partnership. We are one of Scotland‘s largest employers with about 20,000 employees, and our businesses and people are rooted in the communities that we serve. We have more than 58 offices and 19 regional business centres dotted around Scotland, on top of the 300 Bank of Scotland and 185 Lloyds TSB Scotland branches.

Today, our success rests on the success of our customers, just as it did in 1695. Quite simply, when our customers succeed, we succeed. So where is Scotland on the road to recovery? Our business confidence report shows that the recovery is patchy and prone to pauses and that, above all, confidence remains somewhat shaky. What role can we at Lloyds play in reviving confidence and helping the Scottish economy? We are already supporting the recovery in a number of ways. As I said, we are one of Scotland‘s largest employers, with 20,000 people, and nearly 20 per cent of our group‘s senior decision makers are based in Scotland. The roles that we have created here are valuable ones that strengthen the group and the wider financial services industry in Scotland. We also spend a significant amount on procurement in Scotland. In 2009 alone, the group spent close to £0.5 billion on Scottish suppliers. Given the scale of Lloyds Banking Group‘s operations, the trickle-down effect of that is important.

However, the area that everybody is interested in is how banks are supporting businesses in the wider economy, and it is on that area that I want to focus my comments this morning. We accept that people feel let down by the banking sector, and there is a legitimate debate about our role in society. We know that we will win back people‘s trust only by ensuring that we get the basics right, and that we deliver the world-class customer service that our customers expect and deserve.

It is important to recognise that Lloyds is not an investment bank; we do not have armies of people creating the types of esoteric and often too-hot-to-handle financial instruments that caught the financial services sector out in 2008. You will have read all about bonuses, which were mentioned earlier this morning, but it is worth pointing out that, with our business model, Lloyds staff do not enjoy the large bonuses that are awarded to other parts of the financial services sector, whatever one may think of that. At Lloyds, we are focused on what most people would accept are the socially and economically useful functions of banking. They are the things that Adair Turner, the chairman of the Financial Services Authority, mentioned—helping people to purchase their homes, save for their future, set up and grow their businesses, and become more financially capable and knowledgeable. We are committed to rebuilding the trust of our customers through some

practical actions, such as responsible lending, good and easy-to-understand products and increased attention to customer service. Everything that we do, or try to do, is about broadening and deepening our customer relationships so that we can understand how our customers‘ businesses run, their ambitions and plans, and the challenges that they face.

That has not always been the case. The stark reality is that HBOS and, as a result, the Bank of Scotland, had to stop lending altogether in 2007—there was no money. The business switched its strategy overnight from being heavy on lending to being entirely dependent on deposit taking. We are deeply conscious of the impact that that had here in Scotland, the damage that it did to the Bank of Scotland‘s reputation at the time, and the concern that it caused among many customers, not to mention the staff.

Thankfully, Lloyds is now breathing new life into the Bank of Scotland and we are very much open for business. We are investing in our people, our systems and our branch network. It is important that our acquisition of HBOS has meant that we have been able to reopen the bank‘s lending business. Our ensuring that we meet business demand for lending is the single most important role that we can play in supporting the country‘s economic recovery.

At Lloyds, our strategy has always been to be a strong, through-the-cycle, relationship bank. We manage our business and risks prudently and we are committed to supporting our customers in the bad times, not just the good. That is the strategy that we have developed in the past, and it is the strategy and customer commitment that we are bringing to the Bank of Scotland.

Clearly, there is genuine concern about whether banks, ourselves included, are lending enough. To be frank, there will always be people who want more money than we can and should provide and we do not apologise for remaining a responsible lender. We have a moral, as well as a fiduciary, responsibility to ensure that we lend money only to viable businesses and viable business proposals. That said, we are extending an enormous amount of money to businesses across the UK, as well as here in Scotland. Our view remains that for viable commercial propositions, funding is not an issue, even if price sometimes is, but that overall demand for new lending remains low. Of course, there is a counterview, and we have heard many stories of companies not getting lending, or getting it only on terms that they cannot meet.

Let me provide an insight into what is happening with lending at Lloyds. First, we have ensured that our capital position is robust, but without restricting our ability to lend. We have significantly improved the group‘s capital position. We now hold 9 per

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cent of core tier 1 capital, which is 2 per cent higher than the proposed benchmark that was set out in the new Basel III rules. Holding more capital narrows some of our options, however. It is estimated, for example, that for every pound that banks retain in capital—or increased capital—£15 is foregone to lending potential. The reality is that our capital position is not restricting our ability to lend; in fact we have lent more this year than we did last year. Here in Scotland, we provided SMEs with £300 million of new lending in the first half of the year, and our net lending position is up by 10 per cent on last year. That is during a period when small firms continue to de-stock and pay down debts. In the first half of the year, we lent £0.5 billion of new finance to our corporate customers in Scotland. What is interesting is that we have also seen a 20 per cent rise in deposits from those clients in the same period.

Secondly, the cost of funds and the wholesale funding market are more expensive, but our margins are not changing. The wholesale funding market has thawed out. We are now long past the great freeze in interbank lending at the height of the crisis, and it is possible to raise funding on the market. In fact, we have recently been successful in raising funding through the first SME securitisation since the crisis. Despite central banks maintaining low interest rates, I suspect that most people—certainly those in the business community—understand that the price of wholesale funding has increased post the financial crisis.

The key variable to look at is the spread between interbank rates, such as three months‘ London interbank offered rate, and the future expected Bank of England interest rate. Without going into too much detail on banking 101, it is useful to spend a few moments on this subject. Before the financial crisis, there was little difference between the two rates—the spread was no more than 10 basis points. At the height of the crisis in autumn 2008, the spread rose to around 300 basis points. That spread has fallen back now, thankfully, but at its current 30 to 40 basis points, it is still three to four times higher than pre-crisis. For SMEs, the cost of funds is linked more directly to the Bank of England base rate, and the absolute cost of borrowing is now around half what it was in 2007. So, for example, for SMEs in September, 82 per cent of variable rate new-term lending and 69 per cent of lending on overdraft facilities in the first half of the year was at an interest rate of less than 4.5 per cent—the very fact to which the First Minister alluded when he spoke about the overall cost of lending or borrowing.

In addition, we have committed not to increase our margins on lending for small firms unless there has been a significant change in the risk profile of the customer. Our own internal figures show that,

for the past year, margins on lending to our SME customers have been flat. To help further, we have capped our arrangement fees at no more that 1.5 per cent.

The lack of confidence that I mentioned earlier means that demand for new lending remains subdued. The number of loan applications has fallen since 2007. We saw demand volume among SMEs fall by 21 per cent between 2008 and 2009, and it fell a further 10 per cent in the first nine months of 2010. The lack of confidence extends to overdrafts, where SMEs have substantial headroom. Less than 60 per cent of agreed borrowing facilities are being drawn on—in other words, customers are not drawing on the remaining 40 per cent of what has been committed to them—which demonstrates that firms are taking the prudent approach of preferring to repay rather than take on debt.

Finally and importantly, I underline that there is no sector and no type of business to which we will not lend. Some people have speculated that we will not lend to certain sectors. I state categorically that that is not the case. We take a prudent approach to lending—at Lloyds, that has always been the case. We are interested in four issues: the performance of a company, the track record of the management, the ability to repay debt and the security that we have in place if things go wrong.

Our approval rates for loans and overdrafts remain consistently high; over 80 per cent of applications are being approved. The rate is the same as it was in 2009, and it reflects approval levels prior to the crisis. However, that still means that between one in five and one in six applications are being turned down, and one of my priorities is to do more to help in some way those no doubt disgruntled SMEs that we have turned down for lending. At the same time, no one in this room or elsewhere would argue that we should approve 100 per cent of loan applications.

Even when our legal lending commitments end next February, our moral commitment to our customers remains. That is why we have pledged to support 300,000 new start-ups by 2012 and why we are making significant investment in a range of measures to ensure that businesses are aware of the availability of funds. For that reason, every year we run 200 seminars around the country with bankers, lawyers and accountants to provide expert guidance and support for 100,000 SMEs on starting up, employment, exporting, sustainability, finance and how to create business plans.

The recent announcement by the UK‘s major banks should help further. You will recall that, over the summer, we came together with five other major banks to work out whether and how we should collectively be doing more on lending. Last month, we announced a range of measures,

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including a new £1.5 billion business growth fund for SMEs, which we believe will help to provide better access to finance, give more information and guidance to companies and ensure that business customers receive the service that they deserve.

In conclusion, I hope that all that has given some reassurance that our lending commitments are real and are working to the benefit of the vast majority of businesses in Scotland, and that we are playing our part in trying to kick-start economic recovery.

Do we get it right all the time? Probably not. Do we try to get it right all the time? Absolutely. We understand the public‘s concerns and are endeavouring to do all that we can to ensure that viable firms can access the finance that they need to expand their businesses. As Scotland‘s major commercial and retail bank, it is in our interests that the upturn continues and that the economy returns to growth. As I said before, Scotland‘s success is our success. The bottom line is that I am committed to a dialogue with the Government here in Scotland, as well as the Government in the UK, to move the debate on and to help secure the long-term success of the economy.

Thank you.

The Presiding Officer: Thank you, Sir Winfried. All that I can say is that, from our point of view, your six-and-a-half-hour, nightmare journey of yesterday was more than worth while.

I am now pleased to invite our next speaker, Rupert Soames, who is the chief executive of Aggreko, to address the conference. Rupert joined the board of Aggreko as chief executive on 1 July 2003. He was formerly with Misys plc, where he was chief executive of the banking and securities division. Before joining Misys, he was with GEC plc for 15 years, working in a number of its subsidiaries. He is a man of huge experience and we are very fortunate to be the beneficiaries of it.

09:55

Rupert Soames (Aggreko): When, in my late twenties, having just ceased to be a disc jockey, I gave up my political ambition and devoted myself to life as a fat cat in industry—you will see that I have achieved at least one of those objectives—I never dreamed that I would have the opportunity to speak in Parliament. What an unexpected treat; what a dream fulfilled; and what a privilege it is to be able to stand and speak in Parliament without licking a single envelope, canvassing a single street or doing battle with bureaucracy on behalf of a single constituent. In recognising that privilege, let me also say to the politicians here that I salute you. When I use the word ―politician‖, I use it as a term of endearment. Many people, and

businessmen in particular, do not appreciate just how bloody hard politics and public service is. For those of us in business who can say ―go‖ and they goeth and say ―come‖ and they cometh, it can be difficult to understand how hard it is to get things done when people are elected and paid to oppose your every action, when the press are paid to peruse your every mistake and when people around you are volunteers rather than employees or conscripts. So, as Ali G would say, ―Respec!‖

However, respect should be a two-way thing. If businessmen are naturally inclined to believe that politicians are dozy, idle and incompetent, politicians secretly believe that all businessmen are overpaid, self-interested and generally incapable of making judgments that do not accord with their immediate self-interest. So let me ask you to grant me the favour of some respect when I talk about an issue that I do know something about, and to suspend for a moment your disbelief that I might want to talk in the national, rather than necessarily my company‘s interest.

I want to talk about energy; specifically, about electricity supply. Please forgive me if I use those two terms interchangeably. My qualification for doing so is that I am responsible for managing a FTSE 100 company that provides power to more than 100 countries worldwide. In my job, I see daily the consequences for countries whose energy policies have not worked out as intended. Customers come to us when demand for power exceeds supply; when they have power cuts for five or six hours a day; when hospitals operate by candlelight; when traffic lights do not work; and when sewage works stop.

I know that what I will say in a few moments will be unpopular in some quarters and I will be accused of having heretical beliefs. It is safe to say that at dinner last night I tested Jim Mather‘s belief that you should listen to your sceptics. I would therefore like to get my retaliation in early—as the First Minister did earlier on—and tell you what I believe. I believe that it is a bad idea to keep on pumping billions of tonnes of CO2 into the atmosphere. Given that I own a house on the west coast within a few feet of the high water mark, I declare a very personal interest in not seeing the ice cap melting and sea levels rising.

I believe that Scotland is advantaged in terms of renewable resources and can use them to build long-term competitive advantage. I believe that demand for electricity will increase quite substantially as we move to decarbonise transport.

I believe that in an uncertain world it makes sense to have diverse sources of energy.

So far, so impeccably politically correct. However, I also believe that, in many countries, politicians have found energy policy to be an

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irresistible sandpit in which to play. Talking about CO2 reduction allows people to project all sorts of appealing political characteristics—it is clean, caring, modern, technically savvy, far-sighted and broad-minded. All that can be achieved without any real consequences, no matter how bonkers the policy is.

So far, politicians have had the luxury of sounding good by setting targets that are so far out in time that nobody can possibly know whether they are achievable. That leads to a temptation to bid up targets. A 20 per cent reduction in UK carbon emissions by 2025? One person says, ―Don‘t be a bloody Jessie—let‘s make it 34 per cent and by 2020.‖ Another says, ―Let‘s make it legally binding.‖ In the words of the late, great James Brown, ―I feel good.‖ The problem is that, sooner or later, the happy passengers on the good ship Energy Policy will meet the jagged rocks of the three great truths of electricity generation and supply.

The first great truth is that we cannot live without reliable and plentiful electricity. Like water, air and food, we cannot do without it, and even brief shortfalls would be catastrophic, so any policy must be prudent and practical in terms of technology, engineering, resourcing and financing.

The second great truth is that everything about the equipment that is required to generate and distribute electricity takes a long time to build and is fantastically expensive. The cleaner the source of energy, the more fantastically expensive the equipment is.

The third great truth is that that fantastic expense must be financed by global capital markets and paid for by consumers and businesses that use electricity. There is no third way in energy policy.

Those great truths mean that, in reality, Governments have much less room for manoeuvre than they like to think. For policy to work, it must convince very hard-headed investors that their clients and shareholders will make money if they build power stations here rather than elsewhere.

I wanted to give delegates the background before saying why I am concerned for the UK as a whole and for Scotland in particular. Before Jim Mather gets out of his seat, I will start by addressing UK-wide issues because, as Scotland is part of the national grid and energy is regulated UK-wide, Scotland cannot be immune from problems down south.

Down south, the coalition Government is doing a good job of trying to get to grips with many of the issues that it has been bequeathed. The review of future regulation by the Office of Gas and Electricity Markets is an important step forward.

Ministers strike me as thoughtful, energetic and seized by the difficulties that we face, but all that is happening 10 years too late. The good ship Energy Policy is now perilously close to the rocks.

To extend the nautical analogy, accidents at sea are rarely due to a single event. The problem is not that the ship is close to rocks but that, while it is close to rocks, the navigator loses his bearings and then a storm blows up.

In the UK—as I said, Scotland cannot be immune from the UK situation—we are close to the rocks because, in the next eight years, one third of our coal-fired capacity, two thirds of our oil-fired capacity and nearly three quarters of our nuclear capacity will be closed through age or the impact of the European large combustion plant directive. I know of no major industrial country anywhere in the world that plans to lose so much of its generating capacity so quickly. Absent a massive and immediate programme of new power station construction, with concrete being poured in the next two years, we will be in serious danger of lights going out.

At the same time, our market and regulatory system, which should be our navigator, has lost its bearings and is using a map over which the first mate has just poured his coffee. That markets are transparent and are supervised by independent regulators and that investors, the Government and the regulator trust each other are all preconditions of attracting investment in new power infrastructure. When it was created, the UK‘s wholesale market system for electricity was a beast of great beauty and was widely admired and copied in other jurisdictions. However, in recent years, it has sprouted terrible warts and pimples. Previous Governments believed that they could achieve policy objectives by sending signals, also known as bungs, to favoured technologies. As a result, we had bungs for wind, bungs for microgeneration, bungs for solar energy and bungs for tidal energy and negative bungs, or anti-bungs, for coal and nuclear power. Each bung is regularly tampered with or changed. In isolation, the bung tries to achieve a laudable goal, but in combination they produce not a symphony to delight and warm the heart of overseas investors and lure them to our shores, but a confusing and discordant cacophony.

In the meantime, a storm is brewing. By 2015, 25 per cent of the world‘s power stations will be more than 40 years old. From Tokyo to Timbuktu, from São Paulo to Seattle, utilities will be buying new power generation and distribution.

Government seems to be of the view that there is an orderly queue of investors wanting to pour money into UK infrastructure. That is wrong. International investors who specialise in energy infrastructure are very experienced; measure risk

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and reward very carefully by country; and have a choice of where to invest their money. In my experience, if you want to borrow £200 million from, say, Lloyds TSB, you have to wear a tie, brush your teeth in the morning, have a good business plan and ask very nicely. If, like Britain, you want to raise £200 billion, you have to have a very good plan and ask very nicely indeed. At the moment, we as a nation are turning up to meetings with the bank manager wearing jeans and a T-shirt saying, ―Jesus Loves You‖.

The great danger facing UK energy policy is that our history of meddling with markets, our persistent reiteration of unachievable goals for emissions reduction and our wildly optimistic forecasts of the availability, cost and performance of new technologies leave serious investors, the institutions whose billions we need, shaking their heads. I am worried that the UK will become an unattractive place in which to build new infrastructure at a time when we are going to lose around 30 per cent of our generating capacity.

Am I being alarmist? Well, let us look at what the people responsible for building the UK‘s power infrastructure are doing, rather than saying. In the past 12 months, the construction of three major new power stations—Kingsnorth, Baglan Bay and Drakelow—have all been put on hold. The First Minister referred proudly to the wind capacity that has been and is about to be given consent in Scotland, but that is not the problem. In the UK, 7,000MW-worth of wind farms have been granted planning consents in which people have invested money, time and effort, but only a third of them are actually being built.

At a time when the UK has the lowest level of gas storage in Europe, both Centrica and Scottish and Southern Energy have recently announced that they are putting on hold plans to build new gas storage facilities. Two days ago, E.ON, one of the UK‘s largest energy suppliers, said that it was going to follow EDF in moving its focus to emerging markets and selling its UK power distribution business. The evidence that something is amiss—that, between the rhetoric and what is happening on the ground, something is not quite right—is plain before our eyes.

So what is the solution? I recognise that it is fearsomely complicated. Lord Palmerston said of the Schleswig-Holstein question that only three people knew the answer. One was Prince Albert, and he was dead. Another was a German professor who had gone mad thinking about it. Lord Palmerston knew the answer but had forgotten what the question was.

My prescription is as follows. First, as the ship heads towards the rocks, it is important that the people who talk nonsense are not allowed on to the bridge. Before anyone is allowed on to the

bridge, they should be asked a number of questions. Do you believe that the UK can decarbonise its power generation without significant amounts of nuclear power? Do you believe that we can cut domestic electricity consumption by 30 per cent by 2020? Do you believe that the first new nuclear power station to be built can be brought into full production by 2018? Do you believe that tidal energy will make a meaningful contribution in the next 15 years? Do you believe that the world will run short of gas in the next 40 years? Do you believe in the tooth fairy? If they answer yes to any of those questions, they should not be allowed on to the bridge.

Secondly, we must set about mobilising the finest brains in our diplomatic and civil service either to reduce the level or to delay the dates of our commitments to reduction in CO2 intensity in power generation. I hasten to add that, in my view, the problem is not the targets but the speed with which they are being implemented. Broadly, I recommend that we add 10 years to all the current targets.

Thirdly, we need to accelerate current Ofgem work on future regulation of the wholesale electricity market. I favour two main actions. One is to establish minimum pricing for hydrocarbon fuels that are used in power generation, with the difference between the world market price and the minimum price being a levy that is used to fund measures to reduce energy consumption. Alongside that, I would offer payment per megawatt of capacity, to help secure minimum levels of availability of power generation.

I have a specific analysis for Scotland. In some quarters, there is a danger of believing that, if you wish things to be true, they will be true. Scotland has abundant wind resource, and one might wish that the largest offshore wind installation in Europe were being built off the east coast of Scotland. Actually, it is being built off the east coast of England, which has shallower waters and wind that is just as good, and is closer to the major centres of demand.

Scotland might wish to be a major exporter of renewable energy to Europe and for an interconnector to be built across the North Sea, but does anyone really believe that we will get that within the next 10 years? Scotland might wish to have an energy policy that was completely independent of England and Wales, but if we also wish to sell energy to England and Wales and to have the security of being part of the national grid, we cannot ignore what consumers in England and Wales need by way of power. Just sitting here and saying, ―We‘ve got this stuff—you must take it,‖ is not good enough. We will have to produce energy that suits the demand.

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My argument is not that the policy makers are looking at the wrong policy, that the long-term vision is wrong or that Scotland should not have a fantastic presence in renewables, but that policy making is so focused on the end of the road that you cannot see the pothole 300 yards ahead.

In Scotland, as in England, we cannot ignore the financial realities of what is possible in engineering. If we persist in thinking only about 2030, Scotland and renewables will be in deep trouble in pretty short order. I urge policymakers in Scotland to do more on the question of how Scotland will respond to the fact that the national grid, on which we all depend, will lose 30 per cent of its generating capacity by 2018. We might wish the replacement to be wind, or tidal, but wishing ain‘t gonna make it happen. You have a responsibility to make plan B—a short-term plan—as well as a long-term strategy.

In conclusion, we have to move on from the days of holding hands and singing ―Kumbaya‖ to the great green god, or believing that Scotland will be the centre of the renewables universe. We need to deal with the cold realities of financing, project management, power engineering and 2018. It will require considerable political leadership in Scotland and more widely in the UK to reset expectations of what is possible and to help steer the ship away from the rocks.

The Presiding Officer: Thank you for that contribution. I entirely understand why you were so polite about politicians at the start of your speech. I thank you for a genuinely thought-provoking contribution that will colour much of the debate in this building for some time to come.

Our final speaker this morning is Dr Janet Lowe, who served as principal of Lauder College in Dunfermline, which is now Carnegie College, for 10 years and retired in 2005. During her 30-year career in further and higher education, she held posts at the University of Hull, Edinburgh Napier University, and Duncan of Jordanstone College of Art and Design. She is now an honorary professor at the University of Stirling. In 2003, she was awarded the CBE for her services to education. The last time I was speaking to her, I walked out halfway through a sentence. We are delighted to have her here, and I promise not to do that again.

10:17

Dr Janet Lowe: Presiding Officer, ladies and gentlemen, thank you for the opportunity to speak to you today. As my fellow speakers have said, it is a considerable honour and privilege to stand here.

I hope that we can all agree that Scotland‘s economic recovery and our ability to achieve an inclusive society ultimately depend on employment

and productivity—how many people are in work and how productive they are when they are working. For an individual, having the right skills increases the likelihood of being in employment and earning a good wage. For businesses, skill levels are associated with survival, growth and productivity. In short, a strong skills base and a culture of valuing skills are pivotal for jobs, growth and equity in society. That is easily said. How can we best move forward to make that more of a reality?

I will look briefly at some economic indicators, outline some of the successful partnership work that is already under way, and pose some questions for discussion.

The UK Commission for Employment and Skills reports some positive indicators on skills for Scotland. Relative to the rest of the UK, more of Scotland‘s working population is qualified to at least Scottish credit and qualifications framework level 6, which is highers level or above, than the working population of any other UK nation. More of our working population is qualified to at least level 7, which is modern apprenticeship, higher national certificate or diploma, or degree level, than the working population in any other UK region except London. Scotland is on track to be third in the world on high-level qualifications in the economy by 2020.

We should, of course, beware of international comparisons that presuppose that we keep pace with our competitors. While UK skill levels have been improving overall, particularly in Scotland, other countries have also increased theirs, and in many cases, significantly faster than we have. However, Scotland still has a very good record of public investment in qualifications and, in a typical year, two out of every three Scottish employers provide training for their staff. So, there is a lot of good news.

On the down side, our productivity gap is well documented. The latest UK Commission for Employment and Skills report puts it in stark terms. To attain a position in the top eight Organisation for Economic Co-operation and Development countries would require a 13 percentage point improvement in productivity in Scotland.

It is argued that Scotland has too few businesses in high-skill, high-value-added industries, that we have too few ambitious, high-growth businesses and that we are creating too few highly skilled jobs. The increase in the proportion of people who have completed university or college qualifications has not been accompanied by a corresponding increase in the number of skilled jobs. That could imply a degree of overskilling and overqualification or it could imply that highly qualified people lack the right

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skills. However, research suggests that the major problem lies in the fact that too few employers are pursuing high-skill strategies and, consequently, that we are not capitalising fully on the qualified people in whom we have invested.

The answer surely lies in bringing the two sides of the equation together. We have a well-qualified workforce in Scotland, but does that mean that people have the right skills? Can employers capitalise more on the skills base and continue to develop the skills of their workforce? Too often, in Scotland, we try to answer those two questions separately. The trick is to answer them together, which requires partnership.

Let us look at some things that we are already getting right in Scotland. Employers consistently say that the people whom they employ lack employability or business skills and that students need more exposure to the workplace. On the back of a sustained programme of investment in building employability skills in all college and university courses, the Scottish Further and Higher Education Funding Council recently announced four large-scale investments to give more students work placements in the information technology sector, in the third sector, in the Government‘s key industry sectors and in SMEs. In addition, a partnership of the enterprise networks, the funding council and Skills Development Scotland has invested in a similar placement programme for new graduates under the banner of talentScotland. All those projects have strong employer support and will make a difference to the ability of future cohorts of graduates to contribute to business competitiveness. At the launch of the talentScotland project, an employer spoke about how a graduate intern had introduced new ideas that boosted turnover by hundreds of thousands of pounds. The individual had the right skills and the employer was keen to exploit those skills and grow the business.

The industry advisory boards play a new and critical role in Scotland. They can each set skills policy in their industry context and work with Skills Development Scotland to generate skills demand statements and skills investment plans that are employer led. SDS, the funding council, colleges and universities will then ensure that the public skills system responds. Yes, some of that work is at an early stage, but it will have long-term benefits if we get it right. For example, SDS is working with sector skills councils and employers through the Scottish energy advisory board to develop a skills investment plan for the energy sector, which is close to completion. It will ensure that the changing and growing demand for skills in that essential sector is met by the right supply of a highly qualified and skilled workforce.

There are lots of other good examples. The National Skills Academy for Food and Drink Manufacturing is helping to provide the training that employers and employees need. The media were quick to report criticism of the supply of skills for the tourism sector. What is less well reported is the fact that at the most recent meeting of the skills committee of the funding council, which I chair, we discussed the tourism framework for change and approved a comprehensive action plan that involves SDS, the funding council, the sector skills councils, colleges and universities working with employers to develop the right training. SDS is also supporting the establishment of a national retail academy with Skillsmart Retail Ltd. The academy model provides training to prospective employees and is shaped and delivered by employers in partnership with local training providers. I could give you lots more examples. Taken together, they represent a step change in partnership between employers and the public sector agencies that will deliver results.

Let us turn to some of the challenges and opportunities that we still face. Reforming the supply of skills and using them effectively requires long-term commitment. The first challenge is to sustain the excellent partnership work that I described and to make it deliver change on the ground, for employers and for individuals who need skills and jobs.

We have a new opportunity to work together in response to the Government‘s strategy to move Scotland towards a low-carbon economy. That represents a fantastic opportunity to capitalise on the evident appetite for partnership between the public and private sectors.

The Scottish funding council‘s skills committee led the development of a skills action plan specifically for renewables. Can we extend that to all aspects of a low-carbon economy, including construction, tourism and waste management? That challenges us all to work together to understand future skills requirements and to develop the right provision. Can employers across different sectors forecast what skills will be needed in the current and future workforce? Can SDS provide access to new modern apprenticeships and to flexible training opportunities? Can the Scottish funding council ensure that our investment in colleges and universities is integrated with a low-carbon economy? Can colleges, universities and employers develop the right qualifications? The answer to all that is yes, of course we can, if we set our minds to it. Colin Hood of Scottish and Southern Energy, a member of the skills committee, recently said that the education and training system is in good shape and is capable of responding to industry demand.

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Ensuring that the skills system is geared up to respond to the needs of employers is only one part of the picture, however. As we all know, employers often comment that they find it hard to find out what the public sector offers to support workforce development and that there are too many agencies with confusing messages about funding. The Government‘s refreshed skills strategy makes it clear that we are tackling that. The skills committee has set up a workforce development action group that will make the system of financial support for training more visible to and accessible for employers, but that still will not be enough.

The second big challenge is to think differently about how we invest public money in skills development at a time when there is likely to be less public resource to invest for the foreseeable future. The pressure on public spending creates an incentive to leverage more value from lower levels of public investment. That means more co-investment in skills by individuals, employers and government.

There are some very good examples of co-investment already: in modern apprenticeships, individual learning accounts, new flexible training opportunities, work placements and internships. There are some excellent examples of colleges and employers working together to deliver customised training for employers and for those who are seeking jobs. I agree that we need more clarity about how the system of public support for training works. We also need more employers who demand the skills that they need to drive forward their business strategies, and who are prepared to invest.

Can we find more ways to match business investment in skills with contributions from the public sector and from individuals—a something-for-something approach? Could more employers work together to co-invest in cost-effective training, in partnership with colleges or universities? I hope that you will discuss some of those questions later on, in the workshops.

For too much of this address I have spoken about skills in the abstract. Skills are about people. The cabinet secretary‘s skills utilisation leadership group has found that what makes the most difference in the effective use of skills in the workplace to promote productivity is good leadership and management, as well as employee trust and motivation. It is all about how people behave and perform at work.

We tend to think about competitiveness in terms of capital investment and intellectual property—machinery and knowledge. I suggest that, for the future, Scotland needs people with the right skills, not just qualifications; and it needs leaders and managers who understand the value of skilled people for creating and sustaining jobs.

Economic recovery must be business led, with strong partnership—not just money—from the public sector. I believe that, as far as skills are concerned, those partnerships are in good shape in Scotland, and that we should build on them together for the future.

The Presiding Officer: Janet, thank you very much.

Ladies and gentlemen, I ask you to join me in thanking all the contributors to this morning‘s session. [Applause.] What a wonderful basis they have given us for the discussions that we are about to move into, and to which I am sure you are greatly looking forward. We will reconvene here at about 20 past 12. I ask delegates to remain in their seats for now, so that officials can assist you in getting to the appropriate room for your discussion sessions. Thank you all very much; we will see you later on.

10:30

Meeting suspended.

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12:23

On resuming—

Group Discussion Summaries

The Presiding Officer (Alex Fergusson): Welcome back. It does not seem that long since I left this chair, but I hope that it was long enough to enable the groups to have fruitful discussions. It is good to see everyone back remarkably on time.

The facilitators of each group will now deliver a brief—I stress the word ―brief‖—summary of each group‘s discussion. I ask them to outline just one or two of the key points that were raised. Following that, we will move to a panel session, which is your chance to get involved—I am sure that you will not be slow in doing so.

I ask Owen Kelly, the chief executive of Scottish Financial Enterprise, to outline a few of the points that were raised by the group that discussed reforming access to the banking sector and access to finance.

Owen Kelly (Scottish Financial Enterprise): There was quite a lot of discussion of competition in the banking sector in Scotland. There was a recognition that competition is important and that more competition and variety among the providers would be good. However, there was an acknowledgment of the fact that, because of the cost of capital and other issues, that is not the whole story or the complete answer to the concerns that are currently there.

Another interesting point—I am being quite selective—was about the availability of long-term funding. Quite a lot of concern was expressed by business customers about the availability of long-term investment money. That is an issue that affects the whole Scottish economy.

We had a varied discussion that covered a lot of issues, but those were the two that struck me as being the most important.

The Presiding Officer: I ask Anne MacColl, the interim chief executive of Scottish Development International, to summarise the discussion of her group, which was concerned with the issue of going international.

Anne MacColl (Scottish Development International): We considered three key themes around the question of going international. The first was about the enablers; the second was about the barriers; and the third was the vision of what success might look like in the future.

With regard to the enablers, the group felt that the people who were key to making a success of exporting internationally were those who made the effort to put themselves out there and had the will

and belief to succeed. They act on opportunity and use opportunities such as currency exchange rates to achieve a toehold in the market. They make good use of networks such as our global Scots, the European Commission‘s enterprise Europe network and Scottish Development International‘s overseas offices. Simply having an international mindset is incredibly important.

On barriers, mention was made of regulation, which can create a competitive disadvantage. The group felt that, sometimes, the pace of decision making in banks and the public sector in Scotland was too slow compared with that in other countries. It was suggested that the mindset and culture of thinking too locally about business rather than on an international basis was a key barrier. The group also raised the fear factor and discussed ways of managing risk better when we choose to go international.

On the vision of success, the group felt that everybody should be proactive rather than dependent on one another. Mention was made of the need to connect up the Scottish supply chain in a way that would ensure that everyone in the supply chain can reap the benefits of some of our larger exports. Staging some iconic events in Scotland and examining the leadership that some key exporters can bring was also raised as in important issue, as was getting young people to think internationally and aspire to be real entrepreneurs rather than being dependent on other forms of employment.

The Presiding Officer: I ask Steve Montgomery, the managing director of First ScotRail, to summarise the issues that were raised by the climate change and emerging technology group.

Steve Montgomery (First ScotRail): Our group was wide and varied in terms of our thought processes and ideas about taking the policies forward. It became quite clear that one size does not fit all, and that there are various things that businesses in particular would not be happy to get tied into. Businesses want the ability to vary their approach to tackling climate change so that they can invest in the right areas. However, that drove us to a different position and led us to consider how the behaviours of businesses can drive change in the short term. Setting out the longer-term policies involves a political change, but the short-term measures must involve some input from businesses with regard to what we are trying to achieve.

One of the key issues that we talked about with regard to the changes that businesses must make was taxation. Where is the incentive to invest in modern, low-carbon emissions? Taxation was felt to be a way of ensuring that businesses get some return from that investment.

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On the long-term policies, we discussed the need for Government to set out a strategy that enables businesses to understand exactly what is happening with regard to future low-carbon policies and how they can budget for that, so that they do not end up chasing something that will not arrive for the next 10, 15 or 20 years.

12:30

The Presiding Officer: Thank you, Steve. Next is Ann Douglas, who is a board member of Skills Development Scotland and facilitator of the workforce development and leadership and management group.

Ann Douglas (Skills Development Scotland): Our group had an interesting discussion about visions for the future in two main areas—workforce development and leadership and management. There was not always consensus, but there was a lot of discussion.

On workforce development, the thing that came over more than anything else was that the strategy that the supply of skills should be led by employers‘ demand is absolutely right, although there was some discussion about whether employers are being vociferous enough in what they are demanding. There was general consensus that there is no reluctance on the part of employers to train people and no reluctance on the part of employees to be trained, although there was some debate about whether employers should have to back fill when they take people on as employees. Is the education establishment actually providing what employers need? Why should employers have to train people the minute they start work? That takes us back to the point that skills should be demand led. Employers need to tell the two public sector bodies—the Scottish Further and Higher Education Funding Council and Skills Development Scotland—what skills they want and need, and colleges and other educational establishments should then provide them.

There was also consensus that, in relation to training and upskilling, collaboration within industries works. We heard some good examples of where it is working in the construction, tourism, and oil and gas industries. All employers benefit from such collaboration. It was suggested that a carrot-and-stick approach should be used whereby those employers who participate in training could perhaps receive business tax credits and those who did not choose to train could perhaps pay more tax. We did not quite get to a national training levy, but the idea was there.

On leadership and management, we welcome the paper that has been circulated. There was a big debate about whether leadership and

management are similar or different. Is it nature or nurture? Can we teach somebody to be a leader? There was no consensus on that, but the group was clear that what is needed is for us all to be ambitious, to show commitment, and to practise what we preach rather than just expecting other people to be the leaders and managers of the future. Thank you.

The Presiding Officer: Thank you, Ann. Next up is John Neill, who is group chief executive of Unipart Group of Companies Ltd. He led a group that looked at the Unipart way of achieving operational excellence by engaging people.

John Neill (Unipart Group of Companies): Good afternoon, everyone. We had a great debate. It was very lively, with lots of emotion in the discussion, and there was total consensus. We agreed on everything. Is not that right, minister? Absolutely.

We focused on the fact that only 14 per cent of people in Western Europe are engaged. The other thing that we focused on is that productivity is at the heart of a nation‘s quality of life. If we could match the productivity of our global competitors in industry, we could win a £60 billion prize in terms of GDP improvement, and if we could get the same level of productivity gain in the public sector, the prize would be £300 billion. That is topical, given all the cuts that are happening. The opportunity is out there if we can engage the people through a world-class body of knowledge and inspire them to improve quality, cost and delivery for their customers.

We debated that. We had a lot of great input, and I think that there was consensus that the route to a better quality of life for everybody in Scotland is to engage people and inspire them to learn and grow. The previous speaker said that there was a debate in her group about nature and nurture. I am passionately convinced that anybody can be great. That is the theme in our company. It is called gate to great. If someone comes through the front gate and they have the motivation to be great, then through the Unipart way and deliberate practice, they can become great. The only thing you have to do to become great is to engage in 10,000 hours of painful hard work and deliberate practice. If you are prepared to do that, you can be great. Unfortunately, not enough of us—I include myself—are prepared to do that, which is why my golf is lousy.

Thank you.

The Presiding Officer: Thank you very much. Our next presentation is from Margaret McGinlay, who led a group on supporting Scotland‘s food and drink industry in the year of food and drink and beyond.

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Maggie McGinlay (Scottish Enterprise): Continuing the theme of greatness, I think that everyone in the room agreed that the food and drink industry was a great one to be in. A couple of key themes were discussed, the first of which was improving research and development. That represents a big challenge to industry and I sensed great energy from and a real willingness by the representatives from universities, research institutes, manufacturers and companies in the room to take the opportunity to do all this better. It was felt that, although good progress is being made, there was still a way to go and one general point was that, with regard to what is happening in the universities and research institutes that companies can take advantage of, it was a case of we do not yet know what we do not know. Nevertheless, the discussion was very positive.

The second theme was on building Scotland‘s reputation as a land of food and drink. On the question whether we have got to—or are close to getting to—that point, it was felt that as far as the domestic market was concerned more needed to be done to ensure that employees and, indeed, companies took pride in the industry and that our customers benefited from that. We also have fantastic opportunities such as a very successful whisky industry to build on and a great competitive advantage in many sectors, and all the assets are in place to build our reputation as a land of food and drink.

Finally, on the question of what has to be done, it was felt that we have the unique selling points but that, although there is a plan in place, it has to prove that it can deliver for business. As a result, the challenge is to ensure that it is being implemented and supporting businesses and that Scotland‘s reputation as a land of food and drink is working not only in Scotland but globally.

The Presiding Officer: Thank you. Last, but certainly not least, I ask David Valentine, chair of the business gateway Scotland board, to give us his presentation on local support for Scotland‘s businesses.

David Valentine (Business Gateway Scotland): Our group had a very good discussion in which widely diverging views were expressed. On areas of possible change for business gateway, although our discussion on the balance between work with start-ups and work with existing businesses did not reach a firm conclusion, there was a strong feeling that targets are often too prescriptive; that they, rather than customers‘ needs, drive delivery; and that, as we move forward with the review of business gateway post-2012 and given the current economic climate, we certainly need to talk more to our customers.

It was felt that we should be more flexible, particularly in recognition of the change in

economic circumstances, and that local authorities and other partners should be more enabling and step back and look at some of the good work that chambers of commerce and various organisations around the country are doing. Those of us in the local government sector and others were certainly willing to consider such matters in our option appraisals.

There was quite a bit of discussion about the need to review e-procurement policies and I am sure that most people will agree that we are looking at the need to be more pro-local in our approach to procurement. There was another raft of discussion about other national mechanisms, not just fiscal ones, that are having a huge impact, and I know that the Scottish and UK Governments are discussing those issues. However, it was also felt that certain local mechanisms tend to work against some businesses—for example, those that as a result, perhaps, of growth, are going over local taxation thresholds—and that such measures are creating a counterproductive dynamic.

Those were the main points of our discussion.

The Presiding Officer: Thank you very much. Indeed, I thank every one of the speakers, who brilliantly performed the extraordinarily difficult task of condensing about an hour and 20 minutes‘ discussion into a couple of minutes. That is quite a skill.

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Question and Answer Session

12:40

The Presiding Officer (Alex Fergusson): We will now have a panel session with a bit of a difference. Normally the panel sits in front of you, but this time you will be looking largely at the back of their heads. However, I am sure that we will manage to make it work. The panel is seated in the front row before me and I will introduce them briefly—from left to right we have: Wendy Alexander MSP, who I am sure needs no introduction; Alasdair Gardner, who represents Lloyds Banking Group; Jim Mather, the Minister for Enterprise, Energy and Tourism; Iain Smith, the convener of our Economy, Energy and Tourism Committee; Dr Janet Lowe, who we have already heard from this morning; and lastly, Gavin Brown, who is a member of the Economy, Energy and Tourism Committee and who also chairs the Scottish Parliament and Business Exchange.

Gavin Brown (Lothians) (Con): Not any longer.

The Presiding Officer: Not any longer—nonetheless, he has that expertise. We have in front of us a panel of great expertise and I am really looking forward to questions from the floor. Just before we begin, if any panel members want to address any particular points that have arisen from the summaries that we have heard, now would be the opportune time to do so.

The Minister for Enterprise, Energy and Tourism (Jim Mather): I am keen to do so. We have had a special session courtesy of John Neill and his proposition of engaging people in a Unipart way. People might not know that he has managed to break down the classic objection of, ―We are different; we can‘t use this‖ in factories, in the distribution element of his business, in offices and also in the public sector, where he took his approach into HMRC. He has an interesting business model, which is in essence a rejection of the short termism driven by the City that we see in many public companies, and which creates wider ownership of his organisation. He is giving many of the working people in the organisation control of their lives by helping them on the health and education fronts, but particularly in giving them a real sense of ownership of the business. He laid out to us with great clarity how we can follow his example in designing systems and setting up metrics, but the really important aspects of his model are in coaching and inspiring, and the wonderful open nature of Unipart in inviting people down to see that approach in practice, talk to working people at their own level and hear the passion that exists down there. There is

something very special there that we can use to cross-contaminate Scotland.

The Presiding Officer: Thank you. Does anybody else want to pick up on any points?

Gavin Brown: There was discussion in the business gateway session of what is called the gap. The term refers to companies that are not start-ups, which would be dealt with by business gateway, and are not necessarily high-growth companies, which might be the 2,000 or so that would be dealt with by—[Interruption.] I have just seen my dreadful moustache on the television screen and it is quite disconcerting. [Laughter.]

We have about 250,000 companies in Scotland, the vast majority of which are not dealt with by the state at any meaningful level. Do businesses think that that is the right way to go, or should we be spreading support more thinly? I am interested to hear more comments on that from businesses.

The Presiding Officer: Just in case anyone is too worried, a charitable exercise is under way whereby some elected representatives are growing a moustache in aid of prostate cancer—that is to explain Mr Brown‘s horror at seeing his face on the large screen.

It is now your turn, ladies and gentlemen, to take part and put questions to the panel. If you wish to do so, I ask you to press the large button in the centre of the console on the desk in front of you—the one that is nearest to you. When I call you to speak, I ask you to state your name and organisation first and then ask your question; if the question is to any particular panel member, please state which. If not, we will choose a victim. Without further ado, who would like to go first? Given the immediate silence, we could have an early lunch, but that would be a waste of a wonderful opportunity. We do not usually have such shyness at these conferences.

12:45

Alistair Campbell (Powerwall Space Frame Systems Ltd): I am Alistair Campbell from Powerwall Space Frame Systems in Wishaw—that is Powerwall Space Frame Systems in Wishaw, ladies and gentlemen.

I do not really have a question for the panel, but I would like to make some comments, if that is okay. First, I thank you, Presiding Officer, for last night‘s reception, which was very good. The food was lovely. The lambs were delicious—they must be frightened every time you drive back to your area. I suggest that if you want to test Scottish delicacies, you should try the Scottish pies from East Kilbride, which are absolutely delicious. I hope that you do not mind me mentioning Scottish pies in the Scottish Parliament.

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We are a small innovative construction company. We are innovative in as much as we now have in Scotland the most energy-efficient, cost-efficient house in the world. I have brought the drawings so that people can come and look at them. The house is a three-bedroom semi-detached council house for £57,000. It already outstrips the new values that the Scottish Government and Parliament have set. We are way ahead of those standards already—way ahead of 2013. Scotland should be proud of that. We spoke about it in the discussion session that we had 15 minutes ago. As a nation, we have a proud history. We can still achieve a proud future.

Those are the only comments that I want to make—a typical salesman, but there we have it.

The Presiding Officer: If any member of the panel wants to respond to any of those points, they should just catch my eye. Comments are welcome, as is company advertising.

Lynn Adams (George Bar): I was on the discussion group to do with the business gateway. A very interesting point came out of it and I would like to hear the panel‘s views on it: give businesses back the taxes and they will invest in their businesses. I know that tax powers in Scotland are not wholly with the Scottish Parliament, but there are taxes that can be given back in the form of rates and so on. I would appreciate comments on that.

The Presiding Officer: Just in case anyone did not hear the point, it was basically, ―Give taxes back to businesses and they will thrive.‖ I think that that was the gist of the question. I ask the minister to respond to that first.

Jim Mather: We started that good and early in this Government with the small business bonus. That took all the businesses at that time with a rateable value of less than £8,000 totally out of the business tax net. Those with a rateable value of between £8,000 and £10,000 got a 50 per cent reduction and those with a rateable value of between £10,000 and £15,000 got a 25 per cent reduction. We made that move, which was very timely, given what happened in late 2007 and 2008.

The business gateway was mentioned. We ran a very important session this week. We started the process of trying to bring business gateway together with the greater ecology that is out there helping to start business: the licensing and planning departments of local government; the economic development departments of local government; the accountancy profession; the legal profession; our banks; our regulators; our business organisations; our schools; and our colleges. I went to a Federation of Small Businesses in Scotland dinner this Wednesday

and was heartened to discover that people there were planning to do the same thing in Fife and other places.

It is about us all coming together. Sure, we would love tax powers. In fact, I spent my time between 2001 and 2007 going around the boardrooms of Scotland saying that the lack of tax powers was the core problem. If we have tax powers, we have more head offices, more spin-outs, more research and development and a bigger skills base. Do we want tax powers to earn our way out of the current situation? Absolutely.

The Presiding Officer: Does anyone else on the panel want to respond?

Alasdair Gardner (Lloyds Banking Group): The question probably raises the bigger issue of how we raise equity for Scottish businesses, which was discussed in the session that I was involved in. To address that challenge, we must work out how to stimulate the economy and attract into businesses the equity growth that will allow the banks to provide support.

Ms Wendy Alexander (Paisley North) (Lab): The outstanding phrase that I will take away from today‘s conference is Rupert Soames‘s about fixing the potholes, which was about the need for us, collectively, to be a bit more suspicious of politicians and a bit more restrained when we talk about what we are going to do in 2015, 2020, 2025 and 2050.

One pothole is what has happened to rates. To give the current Government due credit, it took our small business rates relief scheme and expanded it, but the popularity of the small business bonus scheme has been wiped out by this year‘s £150 million hike in business rates, the absence of a transitional relief scheme and the fact that 20,000 businesses in Scotland are paying 12.5 per cent-plus more. That has taken away a level playing field and, in my view, is a mistake.

The right thing to do—this would be a quick and easy piece of legislation, which we should all commit to bringing in after next May—would be to provide a legislative right to a transitional relief scheme. There is a legislative right to a transitional relief scheme in other parts of the UK. That is one pothole that we should get on with fixing.

The Presiding Officer: I will move on to another question because, I am glad to say, many people are waiting to ask one.

David Hutcheson (Glen Abbot Ltd): I am managing director of a company called Glen Abbot.

My question is for the minister and the MSPs. I was in the going international group, which had some extremely good ideas and suggestions about things that could make a big difference

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quickly. I am sure that the other groups were the same. My question is: what now? We have given up our time to give you ideas. How will you deliver for us?

The Presiding Officer: Everyone on the panel is looking at me with dread—―No, we‘re not,‖ they say. I will invite the minister to go first.

Jim Mather: I think that the idea that it is over to anyone is the wrong idea, as we are all in this together. That is the approach that we have taken as we have gone round the country running our sessions. We have brought together communities and sectors in the same room as the regulators and people from local government, the enterprise agencies, the supply chain and academia. The key thing is that we are all in this together.

In a speech last night, I talked about the ladder of unity, which has six rungs. We can unite in opposition; we can have a worthy goal; we can have a fair process; we can have a good strong relationship that is built on the worthy goal and the fair process; we can have the resilience that comes from working in that way; and we can eventually get to a position in which we genuinely care about each other. If we start lifting all the boats as well as our own, I think that we will move forward really well together. We are in this together.

Gavin Brown: It is probably worth reiterating Iain Smith‘s comment about how we have performed on internationalising. He said that although 8 per cent or so of the VAT-registered UK companies are headquartered in Scotland, only 5 per cent of the UK‘s exporters are based here, so we have been punching below our weight.

A short time ago, the Economy, Energy and Tourism Committee made recommendations on measures that were necessary. A key measure is the smart exporter initiative that has been launched. It is a collaboration between the public and private sectors in which a number of organisations are involved. It seems to have hit the ground running, and it is critical that it does well in the future.

Sometimes, it is small, subtle changes that make the difference. Our committee concluded that instead of being too concerned about how many offices SDI have across the world, we could, rather than provide bricks and mortar, just set up an individual in a country, who could arrange meetings on the ground to help our companies. The point that it was quite tough to target eastern Europe from the Düsseldorf office was made to the committee. Having an individual on the ground in a country would be a far cheaper, as well as a more flexible and responsive, option. That is one small suggestion.

Iain Smith: I was in the same discussion group as David Hutcheson. The number of issues that were raised in that discussion that were also picked up by the Economy, Energy and Tourism Committee in its report on internationalisation and its recommendations to the Scottish Government about things that need to be done is interesting. Those things do not need to cost a lot of money; it is a question of working in partnership with private sector organisations such as the Scottish Council for Development and Industry, Scottish Chambers International and other organisations that work in the field, and being a bit smarter about how we use things such as the globalscot network to ensure that we provide as much support as possible to Scottish businesses that are looking to expand abroad. The Government cannot make companies export—it is businesses‘ attitudes and their willingness to export that matter. Representatives of a number of very active businesses took part in our session. We want those businesses as mentors to other businesses, to sell their message and get them involved in the international market.

Ms Alexander: As others have said, our real problem is that only one in 20 Scottish companies is involved in exporting. We will not change that simply by having Scottish Development International do its job better. The smart exporter programme is a step in the right direction towards making it the daily business of every chamber of commerce and local organisation to talk about growing the export base, but I want to make a bigger point.

There have been two step-change transformations in the Scottish economy over the past 30 years. One was in the 1990s, with the growth of inward investment, which was driven by Locate in Scotland. Some 100,000 jobs a year came into Scotland. It can be argued that the other such transformation happened more recently. Notwithstanding the difficulties of the past two years, financial services have grown. At its peak, Locate in Scotland chose to go after semiconductors around the world, and Scotland benefited from that. SDI, however, has not had a dedicated chief executive for four years. That is wrong, and we must take collective responsibility for that. The post has been combined with other posts and has been empty for the past year. The new incumbent is to be answerable to all ministers and will have an ambassadorial role. I wanted to cry when I saw that the UK Government had appointed Stephen Green as its international trade minister and taken four ministers to China this week. That is where we should be because that is where eight of the top 12 wind turbine manufacturers are based. We need to have the political courage to appoint someone to head SDI who says, ―My job will be to bring that renewables

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supply chain to Scotland, and I will go after that with single-mindedness. That will be my capability, and I am not going to be answerable to every other minister on ambassadorial issues.‖ I hope that we can find common ground to fix that, as that is what it will take to build an international supply chain in renewables.

Dr Lowe: For absolute clarity, I should say that I am not a politician.

I will give a short response to the question. It is important that we build on the discussions and that, when we go away from here, we do not carry on doing what we were doing. Much of what I spoke about in discussing skills this morning was work in progress. In the workforce development discussion group, the point was made that our systems and our ability to achieve collaboration between industry, employers and the public sector are the envy of other nations in the UK. Although we may not have ideal systems yet, we are working on getting them right in ways that involve employers. Let us keep on doing that, deliver on the initiatives that are in place, and make them really work for employers. We have the ability to do that in Scotland.

The Presiding Officer: That was a good response to a very good question.

Douglas Lamb (The Boxshop Ltd): I am from the Boxshop Ltd, which is based in East Kilbride. I was in the session with the minister and John Neill, which was very interesting. One point that the minister mentioned was that short-termism in the City could be a potential block for productivity gains in the private sector. What is the panel‘s take on that? Is there a similar barrier in the public sector with the short-termism that is created by the four-year election cycle?

Alasdair Gardner (Lloyds Banking Group): I understand that the question was about the impact of the short-term cycle in the City on the public sector.

The Presiding Officer: Is that a fair summary?

Douglas Lamb: No—the question was more about the panel‘s thoughts on whether the four-year election cycle creates a barrier to productivity gains in the public sector because politicians focus more on what will be improved this year than 15 or 20 years from now.

13:00

The Presiding Officer: I had not quite picked up the political side to the question. I will go to the minister first and give Alasdair Gardner time to think about the question.

Jim Mather: The question is fascinating. As I have been in politics for a relatively short time and

will stand down in May, I focus quite a lot on the issue that the question raises. I have been keen on John Neill‘s approach of continuous improvement, challenging the orthodoxies and bringing into government what has worked in manufacturing and the service sector. That is gaining considerable traction, to the extent that a number of civil servants are beginning to see that approach as hugely rewarding for them. That provides the chance to break short-termism in an interesting way.

We can take a more scientific approach to what we are trying to achieve on, say, the number of people who are in work, and we can control the data and see the results. Over the piece, we can take different interventions and have different policies, start to operate in that way at a much higher level and have better performance and a more stable system. If we do that, we will get into the public psyche the fact that we are all working together. That will make it much more difficult for subsequent Administrations to remove policies that have had a palpably positive effect.

Civil servants must be recognised for what they are. I have always reckoned that I am a temp here—I am standing on a short service commission. The officials are the continuity figures. We must treat them as the serious quality people they are. If all of us, together, manage the data and the results, we will achieve better results and create the continuity that the political process perhaps does not offer us.

Gavin Brown: A simpler answer to the question might be yes—the political cycle leads to short-termism. I am pretty sure that I have been guilty of that as an MSP and that most elected politicians have been guilty of it at some point. What Douglas Lamb suggested could be an argument for longer terms for MSPs, MPs and other politicians, which I suspect would find favour with politicians but not with the public.

Politicians can work and have worked together on some issues—the Climate Change (Scotland) Act 2009 is a pretty good example of that. Every party put party politics aside to focus on climate change, which is a longer-term issue. We should probably do that a little more on other issues, but our cycles probably lead to some short-termism.

The Presiding Officer: I will twist the question a little for Alasdair Gardner. Does he feel that the City or banks are short-termist? Do they consider only short-term returns? If so, how does that fit in with longer-term strategic policy needs, such as building up a new energy infrastructure, which we heard about this morning?

Alasdair Gardner: A criticism of the banks is that they are short-termist. We need to lend to long-term sustainable projects and to support

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long-term sustainable businesses. If Rupert Soames were here he would be far more vehement than I was about the change of energy policy, and speak out more clearly.

When long-term planning is being done, change is not good, but we need to be flexible enough to deal with it. In the discussion session that I attended, we talked about the short-term nature of bank funding and the hope that that will change. Sir Win Bischoff referred to shrinking in the cost of funding. When that shrinks, mid-term funding from banks will start to return, which will help.

Elma Murray (North Ayrshire Council): I am North Ayrshire Council‘s chief executive and I was part of the discussion session on local support for Scotland‘s businesses. A number of excellent and useful practical ideas came from local businesses about what we could do better and what local authorities could do. I will take some of that back to my local authority and to my economic and business development staff.

I am interested in hearing the panel‘s views on one issue. The businesses that are represented in the chamber today are extremely confident and very able and articulate in putting across their views and ideas about what needs to happen and to change. It strikes me that this is a minuscule proportion of our small business sector across Scotland, so my question to the panel for their views is: what do we do about all the other businesses that need advice, guidance and support, and maybe some of the aspiration building that needs to take place in Scotland, to help them think about their business a bit more than they have so far?

Ms Alexander: Your first point was that this has been a great conference. I think that that is true. One thing that has struck me is the optimism of the private sector and its desire to rise to the challenge. Some of you will have been here four years ago. Who in 2006 could possibly have predicted the convulsions that we have been through in the intervening four years? None of us can predict where we will be in 2015, which is partly what makes it all exciting. Given the challenges for the public sector that we will deal with in next week‘s budget, I hope that the optimism of the private sector is reported this weekend.

How should we support business? One way is to look at more continuity in the support organisations. I will speak candidly. People will know that the Labour Party had reservations about the splitting of the local economic development function and the business gateway to local government. My own view is that, whatever we thought about that issue four years ago, the worst thing we could do is tear it all up and start again. The danger is that politicians think that shifting the

deckchairs on the Titanic is a substitute for support.

The same point applies to Skills Development Scotland. It has had a rocky passage and, politically, I and others have given it a hard time on occasions, but to get the public sector to focus on the client that it is trying to serve in the private sector, we cannot constantly change the enterprise support network, which has undergone a huge amount of change—some of it at my own hand—in the past 10 years. I personally think that it needs some stability so that the focus can be on the customer proposition and not on an internal deckchairs-on-the-Titanic dimension.

I should say that I speak as an individual on that.

Dr Lowe: I had better speak as a member of the board of Skills Development Scotland rather than as an individual.

I endorse what Wendy Alexander said. I serve on the boards of two of the agencies that help implement Government policies: Skills Development Scotland and the Scottish funding council. We are very conscious that we have to work better to join up all the services that we provide and to work with Scottish Enterprise and Highlands and Islands Enterprise.

The business community is not really interested in our respective responsibilities; it is interested in how we join them together to make the services visible and accessible. We are all prepared to admit that we do not yet do that as well as we should, but during the time that I have served on the boards of the organisations I have detected a new and different willingness to collaborate, talk and join up the services. One thing that I will take from the conference back to my work with all of the agencies is that we need to do that better and faster, because that is what we hear businesses want. As I said earlier, in Scotland we have the capability to do that, so the responsibility is now on us to do so. I promise that I will take that message back. We will accelerate the work and hope to report on it in future.

Alasdair Gardner: The only point that I will make is that it is the responsibility of everybody—not just the private or public sector. If we all work together we can raise the ability and performance of Scotland and, by buddying and ensuring that there is good communication, improve things.

The Presiding Officer: Minister, do you want to make a brief response before we move on?

Jim Mather: Yes. To answer the question, we have run about 120 sessions with businesses and another 60 with communities, getting people in the room to work together and create the feeling that collaboration will work. Whether they are from an

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industry sector or a community, we have asked them simple questions such as: who do you serve? Once we get that clear, we ask: how would the people you serve define your purpose? We then run sessions to identify how better to meet that purpose in the future.

The best example that I can give is what we have done on my Fridays in Argyll and Bute, where we have taken all the sectors through the process. The community is now more aware of the benefits of one sector doing business with another—construction doing business with tourism, or tourism doing business with local food and drink—is recognising that we are genuinely in this together and that cohesion across transport, food and drink, tourism, and culture, heritage and the arts makes for a better visitor experience and more profitable businesses.

Michael Bruce (Glen Tanar Estate): I represent the Glen Tanar estate in Aberdeenshire. Everyone is being nice to one another, but I would like to put a slight challenge to our political representatives. Does anyone analyse the cost of legislation, by which I mean the cost to private businesses of participating in the process before legislation is enacted and the cost of the regulatory impact assessment regime? If you want to release business to do what we understand it needs to do now—to earn our way in the world—perhaps its cost structure needs to be reduced. Parliamentarians can play a big role in that regard. My question comes back to the issue of fixing the potholes. Can we improve the regulatory impact assessment regime?

Jim Mather: It is right that we should be bold and frank with one another. If we all act like one happy-clappy hippy commune we will not have the best possible results; abrasion is somewhat necessary.

Recently, some top mediators have come here and asked how we can manage conflict intelligently to get better results and make space for multiple truths. I regularly make space for multiple truths on this issue. Although I know that the Parliament scrutinises the cost of bills it is considering, I also know that I meet on a three-weekly cycle Russel Griggs, who runs the regulatory review group. We are really pressing for better regulation. Russel has been an absolute powerhouse on the issue; anyone who has not yet met him can meet him here today. The Government shares his passion for better regulation. We are working assiduously on the issue and understand the message that you are sending. I represent a political party that is 77 years old. We were in opposition for 74 years, so most of us were in your ranks before we came here.

Gavin Brown: It is refreshing to be accused of being too nice to one another in the chamber—long may that last.

The issue of regulation is critical. In fairness to the Scottish Government, it set up the regulatory review group to which Jim Mather has referred. The group came up with the excellent idea of a business impact assessment, which meant that civil servants were required literally to leave their offices to speak to a number of businesses to find out exactly what the impact of any piece of legislation or regulation would be on the ground. I know that the minister probably will not have time to respond, but my challenge to the Scottish Government is for it to say to what degree that excellent idea from an excellent group has been implemented and made any difference on the ground.

The business impact assessment deals with new legislation—what is sometimes called the flow of legislation. We also have a problem with what is called the stock of legislation—the existing legislation that costs businesses money week in, week out.

I also have a challenge for the business community. Every time I and others have asked which regulations business wants us to get rid of, we have had difficulty getting it to identify specific regulations and pieces of legislation—even sections—that we could attack. I and, I am sure, others are prepared to look at any specific regulation that is given to us.

Iain Smith: When new legislation is going through Parliament, businesses need to let us know if they think it will have a serious financial impact on them. Too often we legislate without knowing the full cost implications of the legislation we are passing.

We also need to look at some of the bodies that are responsible for implementing legislation. I pick out at random the Scottish Environment Protection Agency, which gets a lot of criticism. One problem with the way in which SEPA was set up—we must all take responsibility, because we helped to set it up—is that it must, by law, recover its costs, but it does not have a duty to ensure that those costs are kept to a minimum or to implement regulations in a way that minimises costs. SEPA has no incentive to ensure that it keeps down the costs to businesses, which is a problem.

13:15

Ms Alexander: The problem with the regulatory impact assessment is that it is a guess about what the impact will be when the legislation is implemented. The same applies to the financial memorandum for any bill; it is a guess—albeit an

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educated and modelled guess—about how much the legislation will cost.

The business community should challenge us—and there is a degree of momentum in the Parliament on this—on our willingness to go back to the legislation that we have passed in the past 12 years and subject it to post-legislative scrutiny. The Parliament will be 12 years old in May, so we are not babies any more. We should ask whether the legislation has cost the public purse more than we thought, and whether it has proved more difficult for the private sector to implement than we thought.

I say to the organisers of this conference that, as the Parliament is 12 years old, when we reach the start of the new parliamentary session we should agree jointly on the legislation that has in practice—whatever the regulatory impact assessment said at the time—proved to be more costly or difficult. That legislation should be near the top of the list for post-legislative scrutiny.

The Presiding Officer: I am sorry but, as with all good things, we have run out of time; there is never enough time for these sessions. I hope that the minister will not mind me saying that I am sure that anyone who has not asked a question—there are a number of you—can write to him or to anyone else on the panel. I see that the minister is indicating enthusiastically that he will be happy to provide a written response if anyone has a specific point to make. You can write to Jim Mather at the Scottish Parliament, EH99 1SP.

I hope that you will join me, ladies and gentlemen, in thanking the panellists for their input—they have been excellent. [Applause.]

Closing Speech

The Presiding Officer (Alex Fergusson): For our final item of business—although there is an informal lunch afterwards at which one can carry on working—I am delighted to invite John Swinney, the Cabinet Secretary for Finance and Sustainable Growth, to draw the formal session to an end. Last night, I joked that he was unable to join us probably because he had succumbed to the pressure of having to relearn the art of nappy changing. He looks as well on it as he always does, and we are delighted that he has survived probably yet another disturbed night to come and speak to us.

13:18

The Cabinet Secretary for Finance and Sustainable Growth (John Swinney): It is remarkable how long one can survive on so little sleep, as I am finding out again. It is a pleasure to be here, and I apologise that I was unable to join you last night—a combination of the budget and Matthew Swinney got the better of me.

The most troubling and perhaps alarming remark that I have heard this morning was Wendy Alexander‘s comment that financial memorandums are a guess. As the author of all the financial memorandums that come before the Parliament, I assure her that there is no guesswork involved. She qualified her remark by saying that it is an educated guess, which I suppose tempers the scale of the insult, but financial memorandums are an important part of parliamentary scrutiny and we should be held to them. They involve assessing the impact of legislation and trying to get it right, because we cannot recklessly apply costs to businesses or organisations in the public or private sectors without thinking through the implications of the legislation that we bring forward. I give you that commitment.

David Hutcheson asked, ―What now?‖, and I will address that question first. Ministers and members of Parliament listen to this event carefully, and as a consequence of what we hear in the dialogue many different things happen. A number of years ago, I came along to the event as a member of the Opposition, and the Government got a hard time about procurement. The ministers said that day that they would go away and consider all the questions, and to their credit they did so. They set up a review led by John McClelland of IBM, and he produced a substantial and thorough report that, it is fair to say, castigated the public sector in Scotland for its inefficiency in procurement. The previous Government took some steps to remedy that, and when we came to office in 2007 we accepted that agenda and pursued it uninterrupted. We are now seeing the fruits of that

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improvement in procurement efficiency in delivering better value for the taxpayer.

A few weeks ago, Sir Philip Green gave a report on appalling instances of procurement in the UK Government. It was seized on by the new Government as an illustration of how bad practice was. That report could not be written about the situation in Scotland. I am not standing here saying that procurement is perfect; I am saying that it is a great deal better because of a difficult debate that took place in the chamber that was led by business representatives and that changed Government policy. We are and will be listening carefully to the conclusions that come out of today‘s proceedings, and the Government will address a number of issues as a consequence.

I say to Mr Hutcheson that, after this event, there will be a discussion to work on some of the details that have come out of the discussion groups, and that will feed into Government thinking.

I cannot leave the ―What now?‖ question without referring to Mr Alistair Campbell of Powerwall Space Frame Systems in Wishaw. After the previous business in the Parliament conference, the said Mr Campbell made it his business to make sure that I visited his company and saw the innovative technology that it deploys. I use that illustration to put into context some of what Jim Mather said in terms of his agenda as a Scottish Government minister. Being a minister involves a lot of paperwork and meetings—it is a treadmill, and the civil service is kept as busy as it needs to be kept with all the paper that floats around—but Jim has avoided falling into the trap and has challenged that by spending more of his time outside the channels of government, talking to businesses, organisations, sectors and everything else, than he spends inside government. During the precious moments when he comes in to tell us all about it, we hear big style about what the business community and the wider community are telling him about the issues of importance. It is vital that that dialogue is maintained and that we explore those questions, whether through visits to Powerwall Space Frame Systems in Wishaw or to any other company. It is important to understand all that information.

Michael Bruce mentioned regulatory impact assessments and the cost to business, which led to a discussion about the role of some of our agencies. Iain Smith mentioned the role of SEPA. I am acutely aware that the Government has to be careful about the cost that we attach to business. We should also recognise that how the Government conducts its business should take into account the cost of government to business. I will give one example.

A year ago, I opened the Broadway One office development in Cowcaddens in Glasgow. The developer explained to me the importance of quick decisions in the planning process. They told me that Glasgow City Council had taken 12 weeks to determine the planning application from start to finish, which is a good achievement. At the end of the 12th week, with planning consent delivered, the company was able to get the finance in place from the banks. A week later, the financial collapse arrived, all the shutters came down and there was no money to be had from any of the banks. The developer‘s point was that if Glasgow City Council had taken 14 weeks, which would still have been a really good performance, the office block would not have been built, there would have been no construction jobs, and there would have been no ready-made building where Tesco Personal Finance could base several hundred workers.

That example says it all to me about how Government must go about business. We cannot faff about. If we are going to say no to something, we should get on and say it quickly and let folk get on with their lives. If we are going to say yes, we should do the evaluation, make sure that the decision is soundly based, then take it. That is the ethos that we have brought to the planning system. For example, 80 per cent of planning appeals now take place within 12 weeks. When we came to office, that figure was 27 per cent. That was an absolutely terrible performance; it is now very good. Local authority planning decisions are now being made more quickly.

Iain Smith mentioned SEPA. In my opinion, it has gone from being viewed as a hindrance to economic and business development in Scotland to being an ally of economic and business development, because its leadership, under David Sigsworth, has accepted the Government‘s message that we need to use our agencies not as inhibitors to delivering business growth but as allies. We should put in front of businesses not a list of insurmountable problems but an approach that says that there are regulations that have to be complied with, and if you want to comply with them this is what you have to do. We should help business through that process rather than leave it as a curious mystery tour around the labyrinth of regulation that we happen to pass in the Parliament.

Such decisive leadership has been very important in changing the approach to planning, environmental regulation and a host of other matters, such as the role of Transport Scotland and some of the strategic decision making about our transport network, to ensure that it supports and assists business rather than gets in the road of business.

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I was struck by some important points that Janet Lowe made in her speech. Janet made two points about the skills agenda that are fundamental to the economy. The first was about the importance of public sector intelligence on skills provision being driven by employers. You would think that that is a statement of the bleeding obvious, but it has to be stated. I was delighted to hear Janet express that so clearly. The type of role that she occupies in Skills Development Scotland and the Scottish Further and Higher Education Funding Council—which address the same question in our skills sector and our university and further education sector—is vital. There is no point in us educating and training people to give them a skills mix that does not address the needs of employers, as we have done in the past. We have to get over that, and the work that is going on in that respect is very important.

One way of delivering that goes back to the second point that Janet Lowe made, which was about the collaboration between our key economic agencies: Scottish Enterprise, Highlands and Islands Enterprise, VisitScotland, Skills Development Scotland and the Scottish Further and Higher Education Funding Council. Those five organisations are brought together a couple of times a year by Mike Russell, Jim Mather and myself when we look at all our respective policy areas and ensure that our agencies are well aligned with the same approaches, so that the steer you get from Scottish Enterprise is not different from the one that you get from Skills Development Scotland. I have to say that all the organisations have responded magnificently to the challenge of partnership working. That might sound like a terribly process-driven paragraph that was written for me by a civil servant—it was not written for me by a civil servant, by the way—but it is crucial to how we join up the public sector to work to satisfy the needs and aspirations of business.

I would like to respond to many points that have been made. There has been a lot of talk about the international dimension. I think that we are very well served by Scottish Development International, which is one of the most highly rated inward investment and export agencies in the world. That is not just my view; it is from an international survey assessment of SDI‘s performance.

I was delighted by the recent announcement of a partnership between Scottish and Southern Energy and Mitsubishi on renewables developments in Scotland, because the best part of 18 months ago I went to see Mitsubishi in Japan with SDI—which had been coaxing and encouraging Mitsubishi in that direction for years before I darkened its door—before Mitsubishi came here to meet the First Minister and do that deal with Scottish and Southern Energy. Please

be assured that we have a very strong and high-performing international development agency. The key challenge for it—which I accept unreservedly—is that we have to engage more Scottish companies in the art of exporting and international development, which is why that is one of the central features of the Government‘s economic recovery plan.

I could respond to many points that have been made, but I will make one final point. In the discussion about where advice comes from, Gavin Brown made the point that the business gateway provides advice to small emerging companies and the account-managed system in Scottish Enterprise and Highlands and Islands Enterprise provides advice to high-growth companies—which I stress are not all big companies; they are high-growth companies, so they can be small companies as well as big companies—but he asked what happens to the rest. As he fairly pointed out, the public sector cannot speak to all those companies, which is why it is so important to have a vibrant chambers of commerce network and why we have organisations such as the Prince‘s Scottish Youth Business Trust, which provides fabulous mentoring to our country‘s young people, those aspiring entrepreneurs who can get involved in great business developments. What the public sector does is to ensure that all those things fit together.

As always, we have had a very interesting discussion that has covered a great deal of ground. I assure you that the Government has listened carefully to all the issues that have been raised and you should not be surprised if, over the next year or two, you happen to see some of the topics that have been discussed this morning percolating through into the Government‘s agenda. It happened with procurement a number of years ago and I assure everyone that the strong messages that we have heard will be reflected in the thinking of Parliament and Government. I thank you all warmly for your contributions.

The Presiding Officer: Thank you, cabinet secretary. I am sure that everyone agrees that that speech perfectly wrapped up what I get the impression has been a very constructive and worthwhile exercise. I hope that, if nothing else, delegates take comfort from the cabinet secretary‘s comment that today‘s event matters and will make a difference. I know that many of you have given up a lot of time to be here, so I hope that that statement justifies your attendance and makes you feel that your presence has been worth while.

Before we close, I ask you to join me in thanking everyone who has taken part today, and while doing so you should give yourselves a pat on the back. Take my word for it—you are a lot better

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behaved than the people who normally occupy these seats.

If you are staying for the informal lunch, you should hang back for a bit; you will be told where to go. Again, I ask you all to join me in thanking everyone who has taken part. [Applause.]

Meeting closed at 13:32.

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