Pre-Budget Scrutiny 2022-23 Report
Letter to the Cabinet Secretary for Finance and Economy, 04 November 2021
Dear Kate
Economy and Fair Work Committee pre-budget views
In line with the written agreement on budget scrutiny, please find attached the Economy and Fair Work Committee’s pre-budget views. We look forward to receiving your response alongside publication of the budget on 9 December.
With the work of the new Economy and Fair Work Committee beginning in earnest following summer recess, we prioritised gathering views from key stakeholders on the impact of and recovery from the pandemic, the current position of the Scottish economy and the support and policies required to encourage investment and employment opportunities. The budget is being brought forward in challenging circumstances and will be expected to support a major recovery effort. The attached document highlights budget priorities identified by this Committee.
While we await publication of the Scottish Government’s new 10-year economic strategy, we continue to develop our work programme and scrutiny priorities, starting with an inquiry into supply chains. We look forward to the budget responding to the concerns of this Committee and will pay close attention to how spending decisions align and support the new economic strategy and the National Performance Framework.
Kind regards
Claire Baker MSP
Convener
Economy and Fair Work Committee 2022-2023 pre-budget comments
- We held evidence sessions during September[1] to discuss how the Scottish Government budget for 2022-23 could best support a post-pandemic society and drive business recovery. Our sessions focused on business, employment and skills, the economic development agencies and Visit Scotland and a snap-shot session to inform the scope of our supply chains inquiry.
- Looking to the budget for next year, front and central must be support to encourage investment, growth, prosperity and employment opportunities, whilst building resilience and protection against any future economic shocks.
- The Committee recognises that significant resources for economic recovery will be stimulated by capital investment. We will be looking for the budget to clearly signal what the Scottish Government’s capital investment programme will do to support the economy across all policy areas.
- There is considerable opportunity to challenge and re-set what we do and how we do it, having regard to our ambitions on fair work and Net Zero and other cross-cutting and cross-party national aims towards a wellbeing economy. Our budget commentary and suggestions are provided under four headings below.
Business Recovery and Support
- There are a number of public bodies with economic development roles, but Scottish Enterprise, Highlands and Islands Enterprise and South of Scotland Enterprise (the economic development agencies) have the key roles in supporting business recovery. Their budget allocations represent a significant area of Scottish Government spend.
- Scottish Enterprise (SE) has seen a significant income reduction from Financial Transactions, down from £27.3m to £6.7m. Its baseline Financial Transactions budget has reduced from £48.8m to £28.2m. We recognise that other income can fluctuate and note that in the current year income was more than enough to compensate. SE told us it also expects to recoup some returns on investments. However, we note that a reduction in Financial Transactions next year, may present a significant challenge.
- Highlands and Islands Enterprise (HIE) has an indicative capital budget of £25.6 million, received an increase in the green jobs fund to £1.4 million and is in discussion about further funding for the funicular railway at Cairngorm. It has a Financial Transactions budget of £2.6 million but due to this being a new funding stream, has struggled to encourage uptake.
- South of Scotland Enterprise (SOSE), more newly established, is building expertise and increasing awareness of its services. It takes a less rigid approach to criteria to maximise flexibility. It has a 5-year capital plan, expects around £17 million in revenue and around £5 million in Financial Transactions next year.
- A one-stop portal, findbusinesssupport.gov.scot, was introduced and supported businesses during the pandemic. The Cabinet Secretary acknowledged that more work can be done to simplify the business support landscape—
“The challenge after Covid will be reflect on what has become even more complex for businesses to navigate and to streamline that…There is an action there for the Government, working with the enterprise and skills strategic board, to streamline further, taking into account the complications that Covid has added.”
- We agree with Colin Cook, the Scottish Government’s Director of Economic Development, that—
“the key issue is how we will deliver the 10-year economic strategy. We need to redesign the support we offer businesses from the perspective of the businesses themselves”
- We recommend that the Scottish Government build on the portal to develop a one-stop shop approach for businesses, both online and by improved joint working between agencies, recognising that support must be tailored to local needs.
Business support for Women
- Women’s Enterprise Scotland (WES) highlighted difficulties in accessing financial support from some traditional funding sources and a lack of gender-disaggregated data on women’s business activity and procurement. Carolyn Currie said—
“Women tend to run smaller businesses. You have seen the grant data, so you will know that they tend to lack access to finance, and businesses need that structural capital in order to be able to trade internationally in the first place and they need to have the networks in place in order to get the insight and expert information on the opportunities that are open to them.”
- We welcome the commitment in the Programme for Government to progress a women’s business centre, backed by £50m, during this Parliament. There is significant economic opportunity from enhancing the contribution women make to the Scottish economy.
- We recognise the vital role women play as part of our workforce; as employees, entrepreneurs and business owners, and we would like to see the establishment of a women’s business centre prioritised in next year’s budget.
Co-operatives and small businesses
- The Committee believes a prosperous economy needs businesses of all models and sizes. SMEs make up the majority of Scotland’s business base. Support for small businesses should focus on building resilience and sustainability.
- Co-operatives UK highlighted the strengths of the co-operative model such as gender equality and fair wages. Rose Marley of Co-operatives UK observed—
“the islands have the highest number of co-ops per capita. They are a really resilient way to build communities.”
- However, Ms Marley also said business support for co-operatives is not provided on the same terms as support for other business models and that there could be better understanding of the co-operative model.
- Co-operatives could play an important role in our drive towards a wellbeing economy. We want to ensure that appropriate support is provided for them. The Scottish Government is asked whether it proposes to take any action to raise awareness and promote the co-operative model and if so, what funding will be made available for this.
- We recognise many smaller businesses have accumulated significant debt during the pandemic. FSB Scotland made a number of suggestions for managing business debt, including extending the term for loan repayment, repayment only starting when a certain level of profitability is reached and controlling costs such as non-domestic rates. We ask the Scottish Government to consider these suggestions in the context of next year’s budget.
Moving to Net Zero
- Any consideration of economic recovery must be in the context of moving to Net Zero but we were told many businesses are still in survival mode and may not feel able to look further ahead. Barry McCulloch of FSB Scotland said—
“I am not sure that businesses can be in survival mode and also make the transition to substantial decarbonisation.”
- We heard from a cross-section of businesses about the steps already taken. But FSB Scotland told us there is little business appetite for taking on further debt to invest in such measures and a lack of clarity on practical steps businesses can take.
- We call for a clear roadmap for businesses, particularly smaller businesses, backed by practical support and non-loan-based funding in next year’s budget, to drive the necessary and sustained efforts needed to decarbonise.
Conditionality
- The Committee would like to see more recognition of the key role that public support can play in helping our businesses innovate and transform. We acknowledge the Scottish Government’s recent announcement about fair work and public procurement contracts. We believe increased conditionality could be an important driver of the fair work agenda. The Committee recognises the pressures on businesses and that measures must be accompanied by appropriate engagement, advice and support. We want businesses and initiatives that contribute to a wellbeing economy; better-quality jobs, fair pay and conditions, equality, inclusive growth.
- Dave Moxham of the STUC, told us—
“Many of the factors that we want to take into account already exist, such as the Scottish Government’s wellbeing agenda and its commitment to community wealth building and the living wage and so on. However, I am not sure that these are locked together in terms of the enterprise agencies’ mission and what the Government says is part of its mission.”
- We note the more explicit reference to fair work in the remit and underpinning legislation for the South of Scotland Enterprise, relative to Scottish Enterprise and Highlands and Islands Enterprise. The Committee is keen to ensure there is consistency of fair work outcomes nationally and across all of our regions.
- We would like to see Scottish Government do more to ensure that our economic development agencies direct financial support in this way. We call on the Scottish Government to encourage a consistent approach to conditionality for business support, to help drive the changes we need to see.
Tourism
- Tourism plays a vital role in Scotland’s economy and Visit Scotland’s core budget has been impacted by a loss of self-generated income due to the reduction in marketing and events activity. Pre-pandemic, this added between £4m-£5m to Visit Scotland’s budget and the challenge for Visit Scotland now is how to re-instate that income.
- Visit Scotland chairs the Scottish Tourism Emergency Response Group (STER). STER’s current priority is delivering Phase One of the Scottish tourism recovery plan for which £25 million of Scottish Government support was received. STER has submitted its Phase 2, longer-term recovery plan, to the Scottish Government and awaits a decision. No Phase 2 funding has been secured as yet.
- Given the importance of tourism to Scotland’s economy, the Committee is keen that funding is secured for Phase 2 of the tourism recovery plan.
Scottish National Investment Bank
- The purpose of the Scottish National Investment Bank, launched a year ago, is to provide long-term capital and funding to businesses and projects in Scotland to support the development of a fairer and more sustainable economy. The working assumption is that it will be funded by Financial Transactions. Earlier this year, there was a significant reduction to the Scottish Government’s financial transaction allocation. We asked the Cabinet Secretary about future SNIB funding, who responded—
“The short answer is that we will continue to prioritise FTs for the SNIB. Our commitment to capitalising the SNIB – remains undiminished. How I do that is a headache for me in collaboration with the UK Government, but that commitment to ensuring that the SNIB has the funding it needs is undiminished.”
- We note a significant challenge for next year’s budget may be to mitigate a reduction in Financial Transactions to fund the Scottish National Investment Bank. We would like assurance that funding to replace any significant reduction in Financial Transactions will not be at the expense of other areas of economic development spend.
Fair work and support for employment and skills
- This Committee’s remit covers fair work, employment, the labour market and just transition.
- We saw younger people’s employment opportunities heavily impacted by the pandemic including a fall in the number of modern apprenticeship starts. We are now seeing increasing job vacancies but, according to the Enterprise and Skills Strategic Board, a degree of mismatch between vacancies and the skill-sets of those looking for work. Nora Senior told us about—
“skills shortages in certain localities and regions of Scotland. There will be job vacancies, but people will not be in the right locations to take up the opportunities”
- We want to see a clear commitment in this budget to ensure wherever possible that our work-ready young people have access to training and support to equip them with the breadth of skills needed to match our vacancies.
- Once in employment, job-related training is the mainly the responsibility of employers. We asked Skills Development Scotland (SDS) why there had been a steady decline in job-related training over the last fifteen years and whether the infrastructure and incentives are in place to support employers. SDS told us that college and university systems provide opportunities for in-work training and developing practical skills but that the decline is in upskilling, reskilling and developing management skills.
- The Fraser of Allander Institute drew attention to the employer skills survey and emphasised the importance of ensuring employees and young people coming to the labour market have more rounded skill-sets.
- We call on the Scottish Government to demonstrate how the budget will support stronger links between employers and our employability services and the PACE programme and encourage employers to invest in their employees to develop the skills base.
- Longer-term, we know there is a significant challenge in Scotland to ensure our workforce and businesses make a just transition to net zero. It is essential to see leadership from Government that drives forward the mapping of skills currently in the oil and gas sectors, against the skills needed for the renewable energy sectors.
Conclusions and Recommendations
- We recommend that the Scottish Government build on the portal to develop a one-stop shop approach for businesses, both online and by improved joint working between agencies, recognising that support must be tailored to local needs. including support in transitioning to Net Zero. It would be helpful to see a plan with timeframes to map progress and see this commitment reflected in the budget for 2022-23 by way of appropriate direction to the relevant bodies.
- We recognise the vital role women play as part of our workforce; as employees, entrepreneurs and business owners, and we would like to see the establishment of a women’s business centre prioritised in next year’s budget. The Committee would be grateful for sight of the timeline for establishment and details of funding and how it will interact with existing agencies and Business Gateway.
- Although not directly budget-related, we encourage the Scottish Government to ensure gender-disaggregated data on women’s business activity and procurement in Scotland is gathered. This will be helpful when measuring outputs and disaggregation could also be considered more broadly.
- The Scottish Government is asked whether it proposes to take any action to raise awareness of and promote the co-operative model, and if so, what funding will be made available for this.
- We ask the Scottish Government to consider the suggestions made for managing business debt.
- We call for a clear moving to Net Zero road-map for businesses, particularly smaller businesses, backed by practical support and non-loan-based funding in next year’s budget, to drive the necessary and sustained efforts needed to de-carbonise.
- We call on the Scottish Government to encourage a consistent approach to conditionality for business support, to help drive the changes we need to see.
- Given the importance of tourism to Scotland’s economy, the Committee is keen that funding is secured for Phase 2 of the tourism recovery plan.
- We note a significant challenge for next year’s budget may be to mitigate a reduction in Financial Transactions for support provided through Scottish Enterprise and to fund the Scottish National Investment Bank. We would like assurance that funding to replace any significant reduction in FTs will not be at the expense of other areas of economic development spend.
- On skills, we want to see a clear commitment in this budget to ensure wherever possible that our work-ready young people have access to training and support to equip them with the breadth of skills needed to match our vacancies.
- We call on the Scottish Government to demonstrate how the budget will support stronger links between employers and our employability services and the PACE programme and encourage employers to invest in their employees to develop the skills base.
- Longer-term, we know there is a significant challenge in Scotland to ensure our workforce and businesses make a just transition to Net Zero. It is essential to see leadership from Government that drives forward the mapping of skills currently in the oil and gas sectors, against the skills needed for the renewable energy sectors.
- The Cabinet Secretary has committed to using the levers available to address supply chain concerns. This Committee’s recently launched inquiry will consider the issues in more detail, but we take this opportunity to emphasise the need for initiatives in the budget to support resilient supply chains.
- We look forward to seeing these priorities reflected in both the forthcoming budget and the new 10-year national strategy for economic transformation.
Economy and Fair Work Committee
November 2021
[1] The official reports of those meetings can be found here.