Chamber and committees

It is really important to understand that, within the budget that we receive, we do not get, for example, a ring-fenced fund for national insurance contributions from the UK Government. We get our overall budget, which has been well scrutinised. The Scottish Fiscal Commission has talked about it being 5.2 per cent down, in real terms, on this year’s budget. We get an overall pot and we allocate the funding within that pot. We have done that—we have identified funding for local authorities and for other parts of the public sector. There has not been specific ring-fenced funding for any part of the public sector.

People cite to me that the national health service is getting additional money for national insurance contributions in Scotland, but that is not true. I provide the health budget. When it comes to responsibility for how that funding is divvied up, it is entirely up to the relevant cabinet secretary, the chief executive and so on to identify how they do that. They have identified funding within that overall pot for national insurance contributions. Any other part of the public sector could do that. Some of the public bodies that we have discussed, such as HIE and VisitScotland, face the same challenge. They, too, will need to manage national insurance contributions, which is essentially an inflationary impact.

I am suggesting that I cannot tell you how much money has or has not been given for national insurance contributions within the overall budget that we receive from the UK Government, as that does not have a specific line that identifies national insurance contributions. I can only tell you what the overall pot is. I cannot tell you where there has been movement. This is a technical tangent, but that is because this is a spending review year. In normal years, we would get all the identified lines showing where there were rises and falls in budgets. This year, because it is a spending review budget, we just get the overall pot; things are not divvied up.

As part of that, I have sought to protect the local government budget in cash terms—the core budget. Obviously, that is significantly supplemented by funding for social care and education, to name just two areas of pressure that local government has cited.

That is a hugely important question. There are two parts to that question of measurement: what the agencies do now and what I would like them to do. What they do now is develop performance management frameworks, which are published with the annual business plans and approved by ministers. We monitor the delivery through the agencies’ boards and through regular discussions with me and Ivan McKee. The agencies formally report on progress in the annual report and accounts. That is the sum of their internal and external reporting on performance.

After the economic strategy is published, I would like us to be crystal clear. I will not pre-announce the national strategy, but there are five aims and objectives in it, all of which relate to areas where the Scottish economy has big opportunities or needs to deal with some of the structural challenges. I have already referenced productivity. There is also a big opportunity in some of the new markets—there are new growth and economic opportunities, particularly in energy transition. There are also areas where we have skills challenges, and we need to ensure that we have a skilled population for the jobs that are available. We also have to deal with some of the structural inequalities.

That is a quick overview. The enterprise agencies and other public bodies that have an interest in Scottish economic growth should all be held responsible, as I will be held responsible, for delivering against those objectives. The national strategy will also include a real hard look at the delivery mechanisms. Basically, there will be a ruthless focus on delivering a step change against those five objectives. I have told you how the agencies publish and monitor progress at present.

Ultimately, to go back to what Colin Smyth said—I agree with him in part—the enterprise agencies need to deliver, as I need to deliver and as other public bodies need to deliver when it comes to economic activity and economic prosperity. That is where the accountability should be.

There is a lot in those questions. I noted the committee’s recommendation that covered some of the points that the member has raised.

The Scottish Government absolutely wants more disaggregated data to be published. We cannot deliver change unless we understand what the problems are, and the problems can be understood only if we have the data. We absolutely need to understand the data.

Some good work has been done. The Scottish Government has paid for or invested in studies and the provision of information on gender disaggregation, but we need to do more. We are planning for how we can capture and publish more information, particularly on gender, for future published analysis of businesses and their employees. I would like to come back to the committee and perhaps take your views on how we can do that as effectively as possible.

We are also working on how we can capture data on women-owned businesses and their participation in public procurement. That is an example of a specific issue.

It sounds as if Colin Smyth and I are on the same page. It is entirely because of the huge economic challenges that we face that the total allocation across the three enterprise agencies—Scottish Enterprise, Highlands and Islands Enterprise and South of Scotland Enterprise—is the highest that it has been since 2010. In the overall budget this year, we have not just protected the enterprise agencies’ budgets, but ensured that there is funding to help them to respond to the economic challenges that we face.

I have discussed the budget allocation with each agency’s chair and chief executive, and they are planning their business activity right now. We are also fully funding the financial transactions requirements for the Scottish National Investment Bank. You cannot get away from the fact that not only have the enterprise agencies been protected, but there is funding in place to help them respond.

You talked about cuts to HIE and South of Scotland Enterprise. There are two changes to their budgets. One is removing the ring-fenced Covid funding, which I have explained already, and the second is the non-cash element that seems to be dominating discussions. Non-cash funding is not spending power. It is just to cover depreciation and accounting standards, and it is determined by what the enterprise agencies tell me they need. That is where there is fluctuation, particularly for HIE and South of Scotland Enterprise. Incidentally, Scottish Enterprise’s non-cash allocation has gone up significantly, because of the need to cover some of those issues. It is not about spending power.

I can go into that in great detail, but anybody who suggests that the structural challenges in the Scottish economy are entirely the result of budget decisions on the enterprise agencies is missing the point in the SFC’s evidence and the evidence from many other commentators.

There are a number of challenges. Productivity is an obvious example. Although productivity has increased in Scotland over the past decade and a bit, it still lags behind. We need more significant investment in businesses from the private and public sectors. We need to tackle the skills challenges and try to reduce economic inactivity. There is a whole host of issues on productivity and growth. There is also our dependency on particular sectors in the economy. When those take a hit, as happened with the oil and gas sector in the Covid period, there is a disproportionate impact on the Scottish economy compared with the impact in other parts of the UK.

We could probably spend an entire evidence session on the structural challenges and also the opportunities, but suggesting that the entirety of the structural challenges is purely linked with enterprise agencies’ budgets is probably short-sighted.

One way of doing that is to apply fair work conditionality. For example, if a company cannot access a grant or get a public contract unless it is investing in its employees, there is an incentive for it to invest in its employees. The primary way of creating incentives is through conditionality. We are trying to embed conditionality in all forms of business support.

I think that they get it, increasingly. My sincere hope is that they take the approach that once a strategy is published it will become a defining mission. There is a lot to be considered about dealing with structural inequalities in participation and about the benefits of a thriving economy. I think that the enterprise agencies are getting there. A more nuanced approach is being taken. Clearly, enterprise agencies are—to go back to the previous question—leading the charge on net zero, for example. They have expanded their approach.

Yes, we are absolutely doing that. The primary way that we do it is through working with Co-operative Development Scotland and the enterprise agencies to support the growth of co-operatives and other alternative business models. The matter is very much on our radar and we have mechanisms to work with and invest in alternative business models.

We have extended the deadline for the voucher scheme because we understand some of the challenges for businesses. The overall value of a voucher is determined by whether a household or business property is likely to get access to commercial build or R100 build. The voucher is worth less for those that are in the scheme’s scope. That might have come into it, but the deadline has been met. In terms of overall contract delivery date, you are probably more interested in the R100 north lot contract, which is expected to be let by 2026-27. The delivery years for the central lot and the south lot are earlier because the more remote and rural areas will require more investment and will take longer.