Official Report 889KB pdf
Good morning, and welcome to the 36th meeting in 2024 of the Finance and Public Administration Committee. The first item on our agenda is an evidence session on the Scottish budget 2025-26. I welcome to the meeting Andy Witty, director of strategic policy and corporate governance at Colleges Scotland; Reuben Aitken, managing director of Scottish Development International; Sandy Begbie CBE, chief executive officer of Scottish Financial Enterprise; Claire Mack, chief executive officer of Scottish Renewables; Gordon McGuinness, director of industry and enterprise networks at Skills Development Scotland; Dr Alastair McInroy, chief executive officer of Technology Scotland; and Professor Alastair Florence, director of the continuous manufacturing and crystallisation centre at the University of Strathclyde.
I intend to allow around 90 minutes for this session, with everyone having an opportunity to speak. If witnesses or members would like to be brought into the discussion at any point, please indicate to the clerks and I can then call you. I will ask the first question to Gordon McGuinness, and we will carry on from there.
Gordon, in your excellent submission, you have said that,
“In the next decade, Scotland has a generational economic opportunity, driven by a projected £230bn investment in key sectors.”
However, you also said—and frequently emphasised this issue throughout your submission—that
“there is an urgent need for action to significantly grow Scotland’s workforce.”
Given the fact that the Scottish Parliament has no powers over migration, what do you feel would be the best approach to growing Scotland’s workforce?
There are levels of economic inactivity that have been a bit of a plague in the Scottish system for some time, and we feel that there is a real opportunity to reprioritise some of the existing spend. The papers from the Scottish Parliament information centre continue to reference a high level of investment of £2 billion per year, which is accompanied by around £1.1 billion or £1.2 billion of support costs. We feel that more could be done to involve employers and to create and build the system around them; to create more work-based learning opportunities; and to increase the level of the apprenticeship programme, in relation to which we can evidence that, for every pound that is invested by the Government, employers would probably invest in the region of £10. We want to turn the colleges into the engine room for a renewed focus on work-based and vocational learning, with apprenticeships at its heart. We have examples of having done so in the past: the last time the Government increased the level of early years learning funding for young people, it set a clear target and, between SDS and the Scottish Funding Council, we injected an extra 10,000 employees into the early learning and care sector over a period of three years.
What we see in front of us is a generational opportunity and, with the joint commitment from the United Kingdom Government and the Scottish Government around clean electricity by 2030 and the creation of GB energy, the pace of that investment will increase. We have done significant work with the University of Strathclyde, the Scottish Power Energy Network, the Scottish and Southern Electricity Network and the National Energy System Operator—the network electricity supplier—on their future needs, which, in terms of their workforce, will be significant if we are to capitalise on the opportunity before us.
There is a danger that we will be able to truly use our capabilities around offshore energy only if we have the energy infrastructure to connect it to the grid. As I said, it is probably a bit of a national endeavour, with a need to really focus on the key skills that employers will need and to jointly design that system with them. We have good examples in some of the work that we have done in that regard on the Clyde with BAE Systems and a cluster of other employers who are taking greater ownership of the issue. BAE Systems has made significant investment in its workforce academy and other employers have come to the table to collaborate and work with the colleges to help to shape the curriculum that they will deliver.
I will bring Andy Witty to talk about colleges in a wee minute. Your submission also mentions that
“41.8% of graduates who left full-time education within the last five years in Scotland worked in a nongraduate role.”
Does SDS have a view on whether there are too many people at university or whether universities are offering the wrong degrees?
On the provision of workers, a significant number of working-age people in Scotland are economically inactive. Is SDS looking to use employability initiatives to try to bring more of those people into the workforce?
On the existing workforce, we know that Scotland has a much higher share of people working in the public sector. Are you looking at whether we can bring people from the public sector into private industry and attract people, if not from overseas because of the difficulties that we have with the devolution settlement and the structures around that, then other parts of the UK?
That question was in about four different parts, but I will do my best to answer.
I know. I am trying to cover a lot of ground so I can get everyone in.
Fair point. On employability programmes, the main employability services now sit with the Department for Work and Pensions and local authorities. Skills Development Scotland no longer has an adult training programme under the employability fund. We are working through regional economic partnerships on a piece of work that came out of the convention of the Highlands and Islands with Inverness and Cromarty Firth Green Freeport, Highlands and Islands Enterprise, the University of the Highlands and Islands and the local authorities to pool resources.
We will also look at the UK shared prosperity fund. In my experience, since the new UK Government has come in, there has been much more co-operation between the UK and Scottish Governments, which gives us an opportunity to blend some of the resources from initiatives such as the shared prosperity fund to create more meaningful programmes and link them to provision through UHI and particularly the college sector.
On increasing the number of people coming in from other areas, the visa waiver system is being used increasingly, particularly in the engineering sector. Because of the changes to language capability requirements and the situation after Brexit, it is easier to bring people in from areas such as the Philippines and South Africa. We have seen that being reflected in some of the large engineering companies.
We have worked with the Scottish Government on its new service and we would like to see more resource dedicated to focused campaigns. We have had some initial discussions at Government level on supporting the space sector to do targeted recruitment, but if we do that in the UK, we simply displace key skills from other parts of the UK, so there is a bit more work to be done in that area.
Andy Witty, the college sector is fundamental. You say in your submission that
“Key Scottish Government initiatives, including the country’s ability to meet the upskilling demands of the green economy and the NHS, depend on college graduates to contribute to economic productivity”,
and other submissions have also touched on that point. You obviously have concerns about the budget in terms of the college sector.
That is right. Back in April, we provided the Public Audit Committee with evidence of the risk to the college sector’s ability to help and support industry with what it needs if there is poor investment or a lack of investment in the college sector. Unfortunately, we have seen that come to fruition with the draft budget making what Audit Scotland called a 70 per cent real-terms cut in the past three years. Added to the underinvestment, that disinvestment in the college sector will have a devastating impact.
It is clear from the written submissions from the people who are around the table today that there is ambition, but there is also a need for a skilled workforce and the opportunities that Scotland would get from the investment that could come in. However, all that ambition relies on a responsive college sector. There is unmet demand for entry into the college sector, which is the point where training in those high-end technical skills is required. We need to support industry to help it to expand and in order that Scotland and the economy can make the most of the opportunities, but we are being asked to do that on a falling budget, which has huge impacts. Colleges can expand provision with the right investment.
There are great examples around the country of the co-creation of courses and of working with industry, but much more could be done. As I said, it is clear from the written submissions that the need for a skilled workforce is a real barrier for industry. Only the college sector has the volume, capacity and potential to meet the need, given the percentage of those jobs that involve high-end technical skills. However, investment is needed to do that.
Gordon McGuinness, the Public Audit Committee took evidence from the Auditor General for Scotland in 2022, at a time when he had raised serious concerns about skills alignment between the various bodies, including Colleges Scotland, the Scottish Funding Council and the Scottish Government. At the time, he said that the arrangements that were in place were unlikely to deliver on the Scottish Government’s ambitions. In your submission, you say:
“Policy priorities need to drive out simplified and demand-led provision which better balances the needs of the learners, workers and the economy.”
Again, in effect, that is about skills alignment. What has changed in the past two years since the Auditor General first flagged that concern, and specifically what could be done to accelerate the process of skills alignment? That seems quite fundamental because, regardless of how much we are spending, the spending needs to be effective.
We have gone into more detail in our submission. On what has changed since that time, the Government has carried out a review of the skills and education landscape. The consultation exercise closed recently and civil servants have been working on all the evidence and documents that have been submitted. Our submission to that was more detailed but we were asked not to circulate that in advance of the minister reaching decisions, which we have respected.
When we consider the new and increasing investment that will be coming, we can see that our challenge is the speed that we need to move at to capitalise on the skill sets that we have. Those are not just acquired overnight. I referred to the early years learning programme, but that probably required a less complex set of skills. Therefore, although that programme was a success, the situation that we face in this case with regard to engineering, welding, fabrication and electrical skills is more difficult, because it takes at least four years to get people to the required level of competence. We are going to capitalise on a lot of the new inward investment and investment in infrastructure in areas such as rail, too. I would add that to transmission and distribution as an area in which we need to move at a quicker pace.
On industry responsiveness, what would be the silver bullet to inject into the system—or to fire into the system, to use a better analogy—to ensure that the whole system and structures are more responsive to the evolving needs of industry?
That is a complex issue. A large number of employers probably feel pretty aggrieved about the structure of the apprenticeship levy in Scotland. Some employers operate north and south of the border, and they probably receive about three times more for engineering places south of the border than they can get here. The system in Scotland is structured differently and it has other benefits.
We need a willingness to co-invest with employers. Earlier, we talked about tax breaks and tax incentives for investment in new facilities. Employers are taking more ownership of that, but we do not want that to drift too far from where the colleges are. We want the investment to be co-investment, but employers need to see that, compared to the current system, their investment will improve their return.
That is super, thanks.
09:45
Good morning. I have a question for Andy Witty on the growth of the college sector, which, 10 or 15 years ago, was very successful. Part of that success was about its responsiveness to the local economy in each area. However, that has been put under pressure, not least because of funding issues, but also because of various college mergers and so on. To what extent is the college sector as responsive as it could be to local demand for skills, which is obviously very different in the north-east compared to in the south-west or Glasgow, for example?
There are some great examples of where colleges are responsive locally.
Liz Smith is right that different regions require different elements. However, there is some commonality around what needs to happen to increase that responsiveness and help it even more. Gordon McGuinness touched on the need for pace a few moments ago, for example. The ambition of the college sector also needs to be matched by the ambition of the Scottish Government and its agencies, and some of the shackles that colleges have to operate under need to be removed.
Are there shackles, other than the funding issue, that you would like to see removed?
Clearly, one of the shackles is lack of funding, but other areas and shackles could also be dealt with, which do not necessarily need new money, but rather repurposed or reprioritised money. Other areas, outwith strict finance, could also be looked at.
When you say “shackles”, are there specific issues other than the funding problem that you would like to see changed that would free up the college sector to be more responsive?
Yes. There are issues such as the bureaucracy around reporting and the multitude of different ways that that needs to be done. Clearly, there needs to be accountability for public money. I am not decrying that, but there is a lot of bureaucracy around it.
The current funding model needs fundamental review and reform in order for it to work for industry—we need to ensure that the right ambition is there for that. We need to be looking at not only changes to the current, basic, activity-based counting-bums-on-seats funding, but output. We need the ambition to look at that more widely, which I am not sure is shared by everybody who is in that space.
There also needs to be flexibility around the funding: it is about not only the amount of funding but the flexibility around it, in order to provide agility. Colleges showed what they could do when monies were given out under the current credit funding model, in the form of the flexible workforce development fund, which, unfortunately, has stopped now. The Scottish Government has done independent reports that show the value and impact of that fund, with flexibility around funding. That whole area needs to be looked at.
We also have a technical issue. Colleges have been able to change capital funding to revenue funding in certain circumstances but, this year, we were told that they could not do that because of accounting rules. Accounting rules have therefore stolen £17 million from the college sector at a point at which everybody knows how tight funding is. I would not want to see accounting rules mean that we remove funding from the college sector.
Regional skills planning is another area. It has been shown that, where colleges are involved in the development of regional skills planning it is much more successful and delivers more than when they are involved only at the end, once decisions have been made, and it is a case of saying, “Oh well, can the college sector now deliver that?”
Colleges also need to be involved in the regional economic partnerships. Although the rhetoric is that they are all involved, the reality on the ground is that that varies across Scotland. Some of the colleges are not actively encouraged to be around those tables.
There are also issues around apprenticeships and how they are funded. For every pound that leaves the Scottish Government, for some of the trades, only 40 per cent actually gets to the college to deliver the training, with 60 per cent used elsewhere. I am not saying that all of that 60 per cent is not needed—some of it will be—but that can be streamlined. That is not about new money, but about repurposing existing money in that wider budget.
There are a whole load of areas where the shackles can be removed from the college sector.
I want to pick up on something that Andy Witty said—the issue might also affect others. Obviously, the colleges sector would like more money, and I wonder whether you think that the Scottish budget is spread out in a reasonable way, or whether we should be giving more money to colleges and universities, which would mean less money for other sectors. Over the years, we have been generous to health, which has received a real-terms increase every year, and social security spending is going up quite a lot due to things such as the Scottish child payment, which has been very successful. Have we got the balance wrong between investing directly in the economy, via the universities and colleges, and investing in health and social security?
I will ask Sandy Begbie to answer that. Sandy, you are the only one who has not given us a written submission, so I will pick on you.
That is a great question. One of the things that frustrate business is the lack of public sector reform. A lot of money goes into different parts of the system but the fact is that high-performing economies around the world do three things really well: education, skills infrastructure and health. If you get those things right, you will not go far wrong. Health is really important. It is a deeply complex issue, but there is a general sense in business that a degree of public sector reform is required at various levels. That reflects part of what Andy Witty was just saying: for every pound that goes in, only so much ends up going to the front line. That is an element that we must consider.
Can I press you on what you mean by public sector reform? Do you just mean cutting jobs, or is it something else?
Reform is never just about cutting jobs; it might be about changing what jobs are done. Of course, it might be about reducing headcount, but it is predominantly about improving productivity, which is about getting more out of the resources that you put in.
Our economy is growing at somewhere between 0.5 and 0.7 per cent a year. If we continue to grow at that level, that will, by default, restrict some of the funding that will be available for the public sector.
For the sake of complete transparency, I declare that I sit on the public sector reform steering group as an independent member, so I can see at first hand the need for the reform that is coming through. The issue is about how we improve productivity and how we get more money to the front line. There is a big debate about the role of technology, particularly in the delivery of health and so on, and that needs to be seriously considered.
There is a need to free up some of the money in those sectors, and there needs to be longer-term investment in certain things—infrastructure is a good call. Although we did not include this in our pre-budget submission, we have called for a proper debate about public-private partnership and how we pull in private capital to complement public investment in infrastructure. We have already mentioned roads, railways and so on, but the bottom line is that there is not enough public money around, so there will have to be a debate about what models exist. We are still dealing with the legacy of private finance initiatives, but the world has moved on in that respect, and many countries in Europe have different models in place that have addressed some of the weaknesses of the previous models. As I said, we have called for a proper debate about that, which, in itself, would help to address some of the issues around public sector reform. Public sector reform needs to be part of the debate about economic growth.
I will bring in Claire Mack.
Thank you, convener. Hopefully, to build—
Sorry, Michelle Thomson wants to come in on the specific point that was just made; I will bring you in after that.
I am intrigued by your comment, Sandy, and I have to say that I do not disagree with you. However, to what extent do you think that the complexity around public sector reform is understood? My perception is that the conversation has coalesced around the need for it, but that is arguably the easy bit, and, as soon as you start talking about the how of it, the issue suddenly gets complicated and will bring up the question of priorities, which is what John Mason was alluding to. As someone who is across a lot of this stuff, to what extent do you think the discussion is starting to mature in a way that involves the consideration of complex issues as well as issues of cost?
You are right; I am across a lot of this stuff because I see it through other things. I have chaired the developing the young workforce group and other things, so my views come as a result of touching the system in a variety of ways. I should also say that I was a non-executive director with the Scottish Government for many years.
You make a good point and I think that the debate around prevention that is being had is the right one to have, but although that has been talked about a lot for years now, it has never really gained traction. My sense is that there is a lot more discussion about how to stem the demand side with regard to the public sector; after all, you cannot continue to deal just with the supply side. You need to look at the demand side. There is a bit of that when it comes to skills, too; I have views on supply and demand with regard to skills, and on the need to be much clearer on the demand side of things.
Dealing with the demand side—or, indeed, aiming to put in interventions that stop it becoming a downstream issue—is really important, and I hear that debate happening. The problem arises with taking the resources and reprioritising them across the system. For example, I was involved with an approach aimed at stopping young people ending up in the justice system through the use of apprenticeships and the involvement of employers and local authorities. I should say to Michael Marra that it was up in Dundee; we worked with schools, and of the 70 young people involved, 69 ended up in a positive destination, instead of the schools just saying, “They’re probably going to end up in a difficult situation.” We need to shift the debate and our actions towards the demand side of things and give people a different pathway in life.
The issue is deeply complex, there is no shadow of a doubt about that, but we need an honest conversation—I am hearing that in the public sector reform steering group—about the fact that there are parts of the organisation that might once have been fit for purpose but which are no longer and whose ways of thinking need to be changed. The impact of technology, artificial intelligence and other such things need to be seriously considered when it comes to delivery, and that includes health, education and so on.
Finally, I want to pick up Andy Witty’s point about pace, which I think is part of the whole debate. When it comes to the skills space, we would love the college system, in particular, to be given a lot more freedom to be responsive. As an industry, we need short, sharp interventions—say, six months for retraining people. Yesterday, I was on a call with Lloyds, which employs 14,500 people in Edinburgh. Basically, it is retraining its tech people almost every six or nine months at the moment. That gives you a sense of the pace at which it is working, and the same will be true for NatWest, BlackRock, Barclays and others. The question, then, is: how can we free up the education system in a way that can respond to that sort of thing? I am sure that other industries will have a similar view.
I will bring Claire Mack in next. I note that, in your submission, you say that you
“welcome that the Scottish Government has prioritised investment in renewable energy given it is our greatest opportunity to create sustainable economic growth which will deliver benefits for our entire society.”
Absolutely. The point that I was going to come in on was about the growth agenda, of which the public sector is a really important part. Indeed, it enables a lot of the work of my industry, particularly in the planning and skills space.
Therefore, it is important to understand the role of Government and the public sector. The projects that we are talking about face the full force of the market’s headwinds; one of the key roles that Government and the public sector play is to help de-risk such projects, and they can do so through the creation of skills pathways that really meet the industry’s needs.
I would not disagree with anything that any of my colleagues have said in their excellent answers. Vocational pathways are absolutely key and, as we have seen in some of the most productive economies in the world, work-based learning options work. The Lloyds example that was just mentioned is really important, because it shows that you can take a foundation level of skills and develop and build on it to meet the opportunity sitting in front of you at the time.
There is a lot of private sector provision. I should say that this is not just about adding more money; as has been said, it is about reprioritisation and understanding the outcomes that you are playing for. In that respect, Gordon McGuinness mentioned skills academies—I know of at least 12 in my sector around the country. We need to map them all, acknowledge their existence and bring them in as part of the wider skills system. After all, we have, as has been accepted across the board, a funding challenge, but that does not mean that we cannot do something really important here.
10:00
Reprioritisation in each budget is an issue—I think that everyone would accept that. Andy Witty talked about that issue in relation to the college sector. The size of individual budgets is also an issue, which Andy raised specifically. The Scottish Government has set out spending priorities that are worth more than £63 billion. Do the witnesses have any views on where we should move money within the budget? If any of you think that money would be better moved from A to B, please let me know.
My question to Claire Mack is on the allocation of money to renewables. The committee has received various pieces of evidence suggesting that the ScotWind money has been used as a second reserve by the Government. It looks like we are beginning to get a commitment to spend that money on what it was intended for, which is the creation of jobs, particularly in the north-east of Scotland but also across the country. I welcome that.
What kind of projects do you see that money being committed against? You have talked about ring fencing, but can you give us some examples of what it should be funding and when those projects will be possible?
That is a great question. I, too, am pleased to see that the money is being put to good use to enable the growth agenda, which is really important.
It comes back to the point that I made about de-risking key projects. Enabling of infrastructure is hugely important. For example, across Scotland, although there is a patchwork quilt of ownership models for the various ports and harbours, there has been great success in joint use of money from the UK Government, the Scottish Government and the private sector.
The critical point is that the private sector must be enabled to have the confidence to place its money in Scotland. That money is available, but we have to be clear that the deployment of projects is what creates employment. The Scottish Government’s role is to help to de-risk those projects through the enabling infrastructure, such as ports and harbours. The kinds of successful labour market interventions that my colleagues talked about have also been helpful.
There is a huge role for building confidence and public acceptance, and we can happily work with the Government on that. We need confident partnership—that means support for key projects and involves a relationship with the UK Government. In the energy sector, it is inescapable that we need to build a successful relationship with the UK Government, because there are huge plans at the UK level. The way that the funding and the fiscal formula work means that we have to match the growth that is happening elsewhere in the UK. That is a critical part of the next step in our growth story.
Another element to encourage the placement of money and enabling infrastructure involves statutory consultees and skills investment. Those things are really important and will help to unlock the private sector funds that are currently sitting unavailable to us in Scotland.
Those points on leveraging private sector funds and enabling infrastructure are really interesting. We have talked not just about development of the workforce but about availability of skills. Some people have said that some of that money should be used to build housing to allow a workforce to come in. However, we have other budgets for that, even if they have been cut over time, and my concern is that this money was really intended for building the supply chains that are needed to make good on the commitment to have manufacturing and service industry jobs that are connected to renewables. How would you react if some of that money went into things like housing?
First and foremost, we have been clear that we need more clarity on how the £150 million that is allocated to the offshore wind supply chain for this year will be utilised.
We have started to see companies such as SSEN making commitments to build housing. That comes back to the point that I made about the growth agenda and enabling mega-projects. Companies can do a lot more than just build the energy infrastructure; they can help to build regional and local economies, including through housing projects, such as those that SSEN is involved in.
We need to be open and transparent—with the offshore wind market in particular, but also the onshore wind market—about what we mean when we say that we will allocate money to the offshore wind supply chain. We need to be quite specific about it, because the offshore and onshore wind supply chains are going to serve very particular projects in very particular localities.
It is important to make, in the words of the National Energy System Operator, “swift funding decisions”. We are about to see regional energy spatial plans and will see opportunities at a more granular level than ever before. However, we must be clear that the enabling infrastructure that we see as being necessary sits within the renewable energy project space.
Alastair McInroy, your submission is a positive one. You say:
“Scotland is home to a Supercluster in Critical Technologies, a constellation of overlapping and mutually supporting technology sub sectors—photonics, quantum, semiconductors, and wireless and sensing technologies.”
You rightly say that that is
“largely invisible to the general public”
but that it
“generates £4.2bn in revenues for Scotland, with over 150 companies supporting nearly 11,000 jobs”.
You say that
“A recent initiative, developed in partnership between Technology Scotland, Scottish Government, Scottish Enterprise, University of Glasgow and University of Strathclyde, sets out an ambition to grow the supercluster beyond £10bn in revenues by 2035, adding a further 6,600 jobs”
but go on to say that
“There is also a reported shortage of modern buildings suitable for advanced manufacturing in Critical technologies.”
and that
“Start-ups and SMEs find it difficult to secure investment”.
We have a fantastic industry that is moving forward, but you have made a number of points about where the Scottish Government could assist you further in growing that successful industry for Scotland. Can you talk about that for a minute or two?
I will speak using broad strokes across three key areas. One is skills, which has been touched on a lot today already, so I will deal with it briefly. Another area is investment in infrastructure, which has also been touched on, and the final one is internationalisation, which is particularly important for our sector.
The skills issue is multifaceted. I do not want to drag this out too long, but we, like most sectors, have a skills pyramid in operation. At the top of that pyramid are very specialised roles that largely require highly specialised and technical skill sets that come from our university system. We must ensure that we are generating enough of the required physicists and engineers in Scotland’s graduate and postgraduate systems to support that need.
That said, we are also aware that, for every quantum physicist that we employ, we need another eight people in adjacent roles in the broader base, in areas such as testing, manufacturing, technician roles, health and safety and so on. That is important because, as you move away from the specialisms at the top of the pyramid, you see a lot of overlap among subsectors and adjacent sectors. More needs to be done to understand the aggregation of demand. We tend to think about technology sector skills in silos, but that is not particularly useful in understanding wider industry demand.
We have spoken a lot about further education and the roles of apprenticeships, reskilling and upskilling, so I will not speak about those, but there is an issue about invisibility of the sector, which applies to a lot of technology and engineering jobs.
There is a longer-term goal, in that schoolchildren and younger children simply do not understand our sector or the opportunities that lie within it. We have worked with industry: there are no qualms about what is being taught in the classroom per se, but employers tell us that little or no effort is being made to link the fundamentals that are taught in the classroom to the career opportunities that exist further down the line. They understand the need to teach the fundamentals, which are often a bit dry because they are fundamental, but it is possible to excite children by extrapolating to show them where that could lead them in the longer term, and to increase awareness of the opportunities. Otherwise, we will lose a huge number of capable science, technology, engineering and mathematics students because they will move into other areas at an early age. That is a key problem.
There is still an issue with the gender balance. Is it still the case that a lot more males than females go into the industry?
It is certainly the case in our sector. There is an 80:20 split, which is clearly very poor.
That is a lot of untapped talent, straight away.
Of course it is, and it is not sustainable that a sector that is crying out for skills is largely ignoring 50 per cent of the population. That goes back to school-age education and understanding opportunities, and to linking that with things that excite children, such as space technologies or combating climate change. That is really important.
On the infrastructure side, unlike some of the digital technologies, the critical technologies are very capital intensive. They are, largely, from manufacturers that require frequent investment cycles as well as longer-term investment pipelines, which generally makes them less attractive to private money. There are ways of addressing that. Targeted—of course—but also larger-scale and quicker access to finance for those companies would certainly help.
Access to infrastructure is also important. Where it is not possible—often it is not—for companies to build their own infrastructure, access to shared infrastructure is really important. As was announced in the programme for government, a deep tech cluster review is on-going, which is examining exactly the question of where we can invest in shared infrastructure. There is actually already quite a rich tapestry of shared infrastructure in Scotland, but it is expensive. SMEs often struggle, because their levels of manufacturing and prototyping are deprioritised as the levels are too low and contract manufacturers can make a lot more money on larger orders. Some kind of incentivisation process must be in place to link the contract manufacturers with our SME and spin-out base.
To link that to skills, I should point out that we need to invest in the infrastructure and we could have the best infrastructure in the world, but we also need to develop the commercial skills for those smaller companies to leverage it and build from it. There is a huge disconnect between our genuinely world-leading innovation and university base and our ability to commercialise and scale innovation: we are underperforming by a significant margin in that regard. Research that has been done on that suggests that it is not about the lack of strength of the technologies or of the market opportunity, but that it is often down to the commercial teams and the leaders of the companies.
I will bring in Alastair Florence, then ask Reuben Aitken to come in. A couple of colleagues are keen to come in, too, but I want to finish off this subject before they do and see whether we can move the discussion on a wee bit.
The reason why I want to bring you in, Alastair, is that I visited your facility just a few weeks ago and was very impressed by what you have. I will give a wee ad for your sector, just as I did for Alastair McInroy’s. In your submission, you say that
“Scotland has a life sciences sector that is rich in drug discovery, biotech, personalised medicines and medical devices spin-outs and start-ups building on the vibrant academic research track record in these fields.”
However, there is an element of frustration in your paper, because you talk about some of the amazing successes where investments in new capacity have boosted the industry in competitor economies such as in Indiana and North Carolina in the United States, and Kinsale, Limerick and Dublin in Ireland. You say that
“these investments align with locations where governments have made strategic investments in strategic national manufacturing research infrastructure enabling countries to drive innovation and develop homegrown talent.”
You suggest
“a different approach to funding.”
Indeed, you say that
“competitive funding seeks to promote excellence”
but just
“leads to ... increased administrative burden,”
and to people “chasing” the same money, with “cliff edges”, “high uncertainty” and so on. I will give you a few minutes to talk about what you think could be done better and more effectively by the Scottish Government.
On the international picture, a fundamental university role is the creation of new knowledge, which is the foundation of any innovation. If we do not have a strategic commitment to the long-term health of such areas, we are reliant on importing that know-how. The potential to generate the knowledge in, and translate it to, this country—and to attract new investment on the back of that, because we would have the talent pipeline, the technologies and the know-how—is obviously not something from which we can benefit overnight. It is not a quick win, and realising the bigger benefits to society—through better healthcare, faster access to new medicines and lower-cost medicines—needs a long-term commitment.
We saw the fragility of supply chains during the pandemic and we heard about the issue of the level of sickness and illness in the workforce. There is a national security aspect to access to medicines—we need access to them.
Can Scotland be a global superpower in development, manufacture and supply of medicines? We are very rich in life sciences and discovery of medicines, but they are being manufactured elsewhere around the world.
10:15Given our experience in the research base in chasing competitive grants and building up world-leading infrastructure, particularly in securing investments for doctoral training, and given our vibrant research base, we have a suite of technologies that are ready for commercialisation. However, what is that pathway? How do we anchor the impacts of our research in Scotland in order to attract investment? We have a technology cluster and the ecosystem is building. We need to create opportunities for start-ups and spin-outs from the life sciences sector to benefit from manufacturing and add that to their portfolios.
Advanced manufacturing technologies offer a lower entry point than some of the traditional routes, which involve large-scale capital-intensive infrastructure. There is an exciting opportunity. We need to support the incumbents—the global multinational pharmaceutical manufacturers—but we also need to enable the next generation of agile, targeted and personalised medicine-based manufacturers.
Your requests appear to me to be relatively modest. For example, you say that an
“investment of £66M over 5 years, a scale similar to other UK strategic centres such as the Royce, Turing, or Rosalind Franklin institutes, would establish a global-scale hub able to compete with the best centres in the world.”
You go on to say that analysis by UK Research and Innovation
“of prior critical mass investments in manufacturing research estimated that £63 is generated for the wider economy for every £1 spent.”
You continue:
“On this basis a total ROI”—
return on investment—
“of over £4Bn of economic return could be realised from the proposed institute investment.”
If you know me well enough, you will know that I am not used to being quite so modest in my asks. Recognising the budget tensions that we have, and that this is a long-term commitment, it is right to take a phased approach. You can make a long-term commitment, but demonstrate that, in the first phase, you want to see evidence that it is successful. Can we attract a supply chain? Can we support the spin-outs? Can we start to get the engagement with the large multinationals that means that we stand a chance? Can we join Ireland among the top medicines manufacturers in the world with exports of £100 billion, which is three times the value of those for the entire UK, never mind the Scottish medicines manufacturing sector?
In some areas, we are ahead in terms of our research and development base for manufacturing. If we can bring the digital skills that are absolutely essential to digital transformation in the industry, as well as bringing in green chemistry and sustainability, all that will add to our competitiveness internationally. However, it requires a long-term commitment across all those areas.
You talk about real investments that are taking place now in other countries. Eli Lilly has made a $1 billion investment in Limerick and an $800 million investment in Kinsale. Pfizer is investing $1.2 billion in Ireland and AstraZeneca is investing $360 million in Dublin. You say that with that kind of support and investment from the Scottish Government, Scotland could be in a position to compete and attract similar types of investments in the future.
It would line up with other investments that are happening. I know that the First Minister was involved in the ground breaking for the nucleotide manufacturing innovation centre of excellence, which will sit alongside the medicines manufacturing innovation centre at the advanced manufacturing innovation district Scotland—AMIDS—and alongside the National Manufacturing Institute Scotland. In building that infrastructure, is the west of Scotland becoming a global hub? That is the direction of travel that we are taking, but there is always a risk.
To go back to the competitive funding landscape, in our area, we have been successful in having nearly 14 years of continuous funding, but there is attrition at each of the cliff edges as you go through the process. If you make a commitment with checks and balances, so that it remains aligned with economic, social and environmental benefits, I believe that we can position ourselves to be much more aligned with what the US is doing. For example, there are investments in Nimble Therapeutics of over $240 million in Singapore in pharmaceutical innovation and biopharmaceutical manufacturing, as well as the examples in Ireland that I mentioned.
We are well poised to do that. We should lead the world in research and anchor the impacts here, including the international impact from being seen as a global leader in the sector.
You need lab space, do you not?
In general, we are fantastic in life sciences when it comes to basic research, and to spin-outs and start-ups coming from universities. However, we lose too many of those to the south-east. As a recent report highlighted, one of the contributing factors—this is a big factor, and is similar to the issue that other areas in advanced technologies face—is access to the right facilities at low cost in order to nurture and support companies and to make it cost effective for them to stay. However, we are delivering the talent pipeline alongside that. Getting those ingredients together could be really transformational.
Sandy Begbie wants to make a specific point on that issue, so I will bring him in, to be followed by Reuben Aitken.
I want to pick up a couple of Alastair Florence’s points. Ireland is an interesting example—financial services is big there, too. One thing that Ireland has mastered is the ability to be politically agnostic on the sectors that it wishes to support. Regardless of any change in Administration, financial services, for example, will remain a core business in Dublin. It will not go through a change of commitment—I think that that is kind of what Alastair was saying. That political stability means that people can make long-term investments; investors like that type of environment. That is important.
Earlier this year, we did a lot of work on what factors are constraining investors. Basically, four things came through consistently. We presented a paper to the First Minister on that, and we have been quite open about it. One factor is the pipeline of projects. We do not have the development and maturity of investable projects. That happens more in the infrastructure sector, where investors are able to sit round and have discussions.
A second factor is that planning and consents take too long. I am sure that Claire Mack has got lots of examples of how the situation here compares with that in other countries.
One of the Government’s objectives is to triple the number of planners—if they can find people to actually do it.
The third factor, which Alastair Florence also mentioned, is the supply chain. That is to do with skills and manufacturing capability.
The fourth factor is the general business tone and being supportive of business and economic growth. That has definitely changed in the previous period, at both UK and Scotland levels.
The clear message is that, if we can aim to make progress in the first three areas—many countries suffer from the same issues—capital will flow in. That will happen, especially if you can improve planning and consents, projects and the commitment to long-term investment.
The political agnosticism that you mentioned is interesting. Ireland has more or less had that since about 1986, I believe, when it was at a nadir in economic terms. It has grown phenomenally ever since.
I turn to Ruben Aitken. Scottish Enterprise has produced a very impressive paper about all the successes that it has achieved. For example, it mentions supporting more than 960 companies with 1,340 projects, which will safeguard and create 16,782 jobs. It also mentions reducing 468,000 tonnes of carbon dioxide equivalent, and levering £1.9 billion in capital expenditure and £449 million in research and development and innovation.
However, Scottish Enterprise’s budget appears to be reducing quite substantially in the 2025-26 budget. What is your view on that, and how will you maintain that level of success if, indeed, your allocation is reduced when we finally agree the budget?
Thank you so much for the opportunity to contribute today, convener. There is an incredibly strong bedrock of Scottish business, Scottish innovation and Scottish dynamism that we look to capitalise on and to harness as Scottish Enterprise. We have had real success in that.
From the other comments today, we see that there is a huge opportunity, particularly around energy transition but also in life sciences and high-value manufacturing, to further that and to continue the pathway to transformative economic impact. That is not without challenges, but our businesses need to innovate, and they need support to help them to commercialise and further those innovations. We also need to make sure that we are supporting our businesses with the right investment at the right times. We can help with investor readiness and then internationalise.
It has been a fundamental theme of our success that businesses that export more are more innovative and pay higher wages, as do inward investors. When inward investors come in, they want to see clarity and consistency of policy but also dynamism, and we have that around this table and in team Scotland. I am thinking about the comment that Andy Witty made when he talked about how we can be dynamic and responsive to the needs of business and industry in order to create the high-value jobs that we want to see.
I had an amazing example last year. One of my roles is to lead foreign direct investment and get businesses from all over the world to set up in Scotland, and the dynamism of a college resulted in a project landing. I set out Scotland’s wares and what a fantastic place it is to be, and the college said, “We can create a course and begin to churn out talented, entry-level staff within six months of this company telling us that it’s going to set up here.” The company said that no one else around the world had offered it that.
When we get it right, with that dynamism and all the folks of the team Scotland partnership working together, we can make a huge difference. I hope that the budget will support those elements of innovation, internationalisation and investment. It is great to see the commitment to offshore wind. I think that that has to focus on the enabling infrastructure and the supply chain. My inward investment pipeline of jobs has never looked so strong, but it keeps moving out to the right, and those investors need clarity. They need confidence to be able to invest at the scale that they want to invest given the enormous opportunity that ScotWind presents to us.
The opportunity is huge. I am hoping that we will get a good budget settlement in the end because, as Scottish Enterprise has shown, we can deliver a real return on investment. It is an investment when you put money through us, because we are able to leverage in those big impacts that the economy needs at the moment.
You say:
“Our international team is based in Scotland and overseas with approximately 270 staff in total. Over 100 staff are based overseas across 23 different countries from 32 different offices”.
You also say:
“Foreign Direct Investment ... projects in Scotland have enjoyed continuous growth for the fourth consecutive year, increasing by 3.3%, against a background of total UK projects declining by 6.4%.”
You note that Scotland’s market share is 13.6 per cent of inward investment projects and that 26 per cent of the companies that were surveyed said that they plan to invest in Scotland, which represents a significant increase on last year. How valuable are the overseas offices? Some colleagues are of the view that they could be closed.
The ability that we have through our overseas footprint to help companies to export by targeting the opportunities, and through introducing them to the right buyers, suppliers and supply chains, is incredibly valuable. I would say that it is invaluable.
Last year, we supported companies to export £2.15 billion of sales and enter hundreds of new markets with new products, and that is down in no small part to our working intensively with them in Scotland to help them with their export strategies and targeting the right markets. There is then some intensive, one-on-one introduction work that makes a real difference on the ground, because people still do business with people. When we can broker those relationships and leverage GlobalScots, who are a hugely beneficial asset, that makes a difference.
We can rightly be proud of the inward investment performance. That Scotland is the top destination outside London year on year is a huge feather in our cap, and other businesses see that success and want to follow that route. The overseas footprint enables me to generate those leads and build the relationships that bring that investment in, and it also enables me to help our brilliant, innovative companies to have those routes to market in order to really scale and grow.
I was in India last year and, in Delhi, I met people in fintech and from Tata and a number of organisations. SDI has only two staff in Bombay, which is in a country of 1.5 billion people with an economy that is growing 7 per cent a year. Last year, India had 139 unicorns with $1 billion or more of start-up investment. Do you not feel that our overseas presence is too light in such emerging economies and that opportunities are perhaps being missed as a result?
10:30
I would love to increase the overseas footprint because, as we can demonstrate from our results, it would increase our impact. However, budgets are tight and where we allocate resources is a battle for us. In terms of trade performance, the standard gains of trade mean—and trade theory says—that you trade more with your nearest most-developed neighbours, which is where our pretty lean resources are focused to ensure that we do all that we can to ameliorate the challenges from Brexit and other trading barriers that have been set up.
If I had more folks, I would definitely target emerging markets. They are slightly slower burn, and it takes longer to build relationships, but we are seeing our work bear fruit. We have seen incredible results this year in Malaysia, Indonesia and such markets, but it has taken more than three years to build the relationships Government to Government. We talked earlier about the space sector, in which there is often a Government-to-Government relationship and a senior official relationship, which can be bridgeheads through which we work.
I would love to increase our overseas footprint—the impact would be there—but it is hard.
I understand what you say about neighbours. I think that England, Ireland and the Netherlands are among our biggest trading partners, if not the three biggest.
After letting in Alistair McInroy with a brief supplementary point, I will let in Andy Witty, who has been very patient for the past 15 or 20 minutes.
Convener, on your point about the reducing SDI footprint abroad, it should be the exact opposite: it needs to be massively expanded. Not only that—the expansion must include the integration of the specialised skill sets that are required. We have too many generalists, which is through no fault of their own, because they are asked to cover multiple different market areas. Credibility is needed and the customer-facing element is so important. Therefore, we have to expand. Using Ireland as an example again, I note that its overseas presence is significantly larger than ours. We must ensure that the necessary specialised technical expertise is part of that.
It is great to hear about the dynamism that Reuben Aitken has mentioned, and there are examples of that among colleges where they have capacity. As we talk to our members about the impact of the draft budget, I am aware that there are at least three colleges that are looking at whole-campus closures. That is a geographical community impact, but it also hugely impacts the ability to deliver for industry.
If you look at the Scottish budget, you will see that there is huge investment in green skills, which is right. There is huge investment in the national health service, which is correct. We have heard from witnesses about where industry wants to invest, but a skilled workforce is needed. All that hinges on the capacity of the colleges to deliver.
In the draft Scottish budget, there is a £30 million increase in the education reform budget, and there is a separate £30 million budget for public service reform. It is about industry and the colleges working together. We need to get more detail on the £150 million for the offshore wind supply chain, which Claire Mack asked about. It is also about the wider budget and understanding what the colleges’ share is of all the budget increases, because, if it is not there, we will not be able to serve industry and Scotland will not benefit from all this potential. There is a huge opportunity, but it is a huge risk if the colleges do not have capacity.
The dial needs to shift between the draft budget announcement and the final vote on the budget—and not just around green skills. In the UK Government autumn budget, £300 million extra was given to FE. There are Barnett consequentials of about £29 million, which is clearly not being given directly to colleges. Therefore, where is that money in the other funding? I think that that starts to address John Mason’s point about whether it is one or the other, because, actually, we need it to be a collaborative process of both together.
As well as the need for the dial to shift on funding to stop some of the impacts and some of the other shackles that I touched on, another area where we can directly help is with the link-up in Government between economic need and education and skills planning. Therefore, in the discussions around inward investment, industry and private sector investment, all too often the question about the skills that are needed is not asked or not asked early enough. Asking what the skills needs are must be integral to the early stages of conversations. Where that has happened, it has worked successfully.
A few years ago, there was ministerial backing and ownership with regard to the increase in funded childcare hours to 1,140, and we saw the corresponding investment in colleges to train the additional workers and managers that were needed for the increase. However, we are not seeing that in relation to green skills. There is not a single minister who has responsibility for this—the responsibility is spread across different portfolios—and a greater connection is needed between discussions in Government about economic needs and how we deliver on that for Scotland and the education and skills needs.
Industry wants to invest and it will invest. We are speaking to the industry, which is saying that, due to the lack of capacity in the college sector, it will be training workers outwith Scotland and bringing them in. Industry will invest, so there will be some benefit to Scotland, but the additional benefit of skilling up the people who live in Scotland for high-end technical jobs will not happen. People will be trained elsewhere and brought in, so Scotland will miss the full potential of what could be achieved. That is why the investment in colleges is for the benefit of the economy and to support industry.
Obviously, the budget sets out the Government’s tax strategy. Tax has been alluded to tangentially at various points—
That is what I was going to move on to.
Okay—I am leading you in, in a way—
It is a nice segue.
Yes—this is not rehearsed in any way. Earlier, we were talking about internationalisation. The fourth bullet point in Alastair McInroy’s submission was about attracting international talent into the UK. However, we do not compete only with California or Cork; we also compete with Cambridge—for example, in life sciences.
I am interested to get a view, including from Sandy Begbie, on this. The Government set out a plan in its tax strategy to support a “more productive and competitive” economy and, as a result, is taking action to grow Scotland’s tax base—that is what the strategy says. Is that borne out by recent experience in relation to the Scottish tax system?
Corporation tax has been referred to in relation to the Republic of Ireland, which has a corporation tax rate of 12.5 per cent. I think that it ranks ahead of the Bahamas on Tax Justice Network’s global league table of tax havens, but that is obviously a reserved matter. However, is the tax situation in Scotland and the differential with the rest of the UK one of the issues that might be holding your sector back, Andy Witty, or perhaps holding back the UK financial sector in relation to Scotland, Sandy Begbie?
Before I let the witnesses answer, I should say that the Scottish Government has said that it has a commitment to
“work with businesses across Scotland to understand the cumulative impacts of tax on competitiveness.”
We would argue that tax is a big factor in somewhere being an attractive place to do business. You must have a competitive tax landscape. It is not the only factor—there are clearly lots of other factors in the decisions of businesses and individuals. However, in our research with our members and in the report from the Institute for Fiscal Studies, you can start to see what is coming through. One factor, certainly in our sector, is that encouraging people to come to Scotland is a much harder sell now than it was previously. Some of that is still linked to Covid and people not being required to be in the office five days a week, which means that they would rather remain where they are. A second factor, which the IFS calls out, is that there is a tipping point with regard to tax rates. There is a law of diminishing returns and there will be less coming in as a result of that. The early indication from the IFS is that that is the point that we are at.
As I have said to the committee before, I think that the focus needs to be on increasing the size of the tax base. In focusing on economic growth, we should be attracting well-paid, highly skilled jobs to this country. We have a low average wage, and too many people in this country are earning well below £30,000 a year. Everything is connected, including skills and career advice. There are opportunities for young people at school. If we give them the right career advice, we will take them in a very different direction.
If you have not considered it already, Prestwick provides a great example of where apprenticeships have lined up with needs. There are thousands of apprenticeship programmes there, and young people in their early 20s are now earning £40,000 or £50,000 a year, having qualified. There are examples there of businesses such as Ryanair investing. If you get that ecosystem connected, it is powerful.
The tax system is part of it. We were pleased that the Scottish Government came out and said that there would be no further changes in this parliamentary session and that it will engage with business to understand the behavioural changes resulting from the current tax approach. The tax system is a factor in attracting people here. Our research indicates that not many people are leaving Scotland at this point, but people are restructuring their tax affairs or how they work to try and reduce the tax that they pay. That may involve going part time, dropping to four days a week and so on. These things happen, and we are pleased that the Government will take some time to engage with business to understand the situation.
Someone earning £125,000 a year would pay about £5,300 more in Scotland than they would pay in England. When we spoke to people at the University of Dundee, they said that folk could earn twice as much in California or Cambridge as they would here, but would they like the quality of life there? There are a number of factors. The Scottish Government has said that, last year, 32,000 more people of working age came to Scotland than left—and that included higher earners. At all tax band levels, more people have come in.
I have asked—and colleagues are keen to ascertain—what the sweet spot is in terms of behavioural change. In other words, where does tax go up and revenue go down? Where is that tipping point? We are still a wee bit away from that. You are of the view that we have already reached that tipping point. Would I be right in saying that?
Yes, I would say so. On the breakdown of those 32,000 jobs, you should consider the context of their earning power. I have understood that, at the top end, the number is diminishing. I will take that away and check it. Those are decisions that people will make.
We should mention land and buildings transaction tax, which is not necessarily well understood. It is only based on the purchase of a property. Above a certain level, people will pay significantly more in Scotland than elsewhere. For people who are coming to Scotland to take up well-paid jobs, that is a significant difference: it could be tens of thousands of pounds.
Someone who moves from London can buy a castle here for the price of a bog-standard house there.
Correct, but we need to think about ourselves.
That is the case land and buildings transaction tax or no.
In our industry, we are competing against Manchester, Belfast, Leeds and so on. Those are all growing financial services centres. You are right that London is a tier 1 financial centre—it is a bit like New York, Singapore and so on—but we are not really competing with London for talent, and people will choose to live there for particular reasons. We are trying to attract people to Scotland from other locations.
I will continue on that theme with two questions, and I go back to Andy Witty first.
You suggest that we have more money for colleges, as there is money coming through in the consequentials. The simple answer is that the money is going to social security. There has been a huge increase in that area last year and this year. Would you go as far as saying that we should cut back on social security, which would hurt some of the poorest people, in order to put more into colleges or other sectors? I aim that question at you to start with, but others might want to come in.
On a slightly similar theme, Mr Begbie, you said that we have a lot of people in low-paid jobs. Presumably, that includes cleaners and people who work in Tesco. If they all go into the tech sector, we will still need cleaners. Should we just be upping the minimum wage so that people in basic jobs are paid much better? Is that what you are arguing for?
10:45
Let us see whether Andy and Sandy want to answer those direct questions. I am not convinced that John will get the answers that he is looking for.
On public service reform, the report that Audit Scotland and the Royal Society of Edinburgh did talked about redesign and decluttering and about placing greater trust in leaders to make local decisions. It is about different ways of doing things.
In answer to John Mason’s question, some colleges have spare physical spaces. Can we look at co-location? For example, can we look at co-locating some of the industries that Alastair Florence is talking about with some of the eight high-end technical skills supporting the top of the pyramid? Can we relocate social services and health? Can we relocate general practitioner practices in colleges so that people not only go in for a medical intervention for a challenge that they are facing, but can see whether there is also an educational or employability answer to their situation? Is it easier if those services co-locate?
There are also answers to public service reform that are not just about the physical estate. Last week, I had a useful call with Scottish Government officials about the single Scottish estate. We will be speaking to colleagues about public sector reform and how we do that. There are opportunities to look at collaboration to see how we can help the public pound to go further.
If you run a business, you have a top line and a certain amount of revenue that comes in from the products that you sell, so you have a minimum number of levers to pull. You could put your prices up or you could control your costs.
One of the factors in countries that pay higher wages for jobs in hospitality, for example, is that their running costs are lower, which means that they can pay people more. For example, they have lower rates and energy costs. We all know that the UK has some of the highest energy costs in the world, and business rates are also very high. Places such as Australia have far lower business rates so that people can set up businesses, and—this is quite interesting—they have clear rules about how people are paid in those industries. Bluntly, people end up earning more. They have a slightly lower rate of tax, but that is not a big factor—it is just slightly lower.
It is about creating a business environment that allows businesses to make more and keep more of their top line, but also making sure that that is passed on to the people they employ. That is how you move to a higher-wage economy as a result.
Is it a legal requirement in Australia that people pay more wages?
Yes, that is correct for sectors such as hospitality. I only know that because my youngest daughter has been there for three years and is earning significantly more than she was earning in Glasgow. A lot of that is to do with, for example, double time for weekend working, triple time for bank holiday working and so on. It is all legally required, and businesses retain a lot more of what they earn.
It is about reducing the cost of business but making sure that some of that value is then passed on to the people the businesses employ.
Time is marching on. Normally, I let these sessions run on, as colleagues will know, but the following session on the financial memorandum to the Assisted Dying for Terminally Ill Adults (Scotland) Bill is likely to be heavy, so I do not want to run on too long. I will take Alastair Florence and then, afterwards, I will allow all our guests to have a final say on any point that they wish to make that they feel has not been covered or has not been emphasised enough. I am not necessarily expecting this, but if people are seeking additional funding for their sector, it would be helpful if they say where in the Scottish budget it should come from. That is always the most difficult one.
The last person to make a point will be Gordon McGuinness. You were the first to kick off, Gordon, so you will have the final word.
I want to follow up on one of the points that was made about the tax position in the longer term. Taking a longer-term view of the medicines and pharmaceutical industry, the Association of the British Pharmaceutical Industry’s review of the workforce shows that we are good on gender and ethnic diversity, but less good on social mobility. It is all about taking that long-term view. We need to go into schools and excite people about jobs in manufacturing by demonstrating what the workforce of the future in manufacturing might look like in Scotland and getting them excited about AI, robotics, extended realities and some of the different capabilities that will be part of the skill set that we will need in that workforce.
That is, as I have said, a longer-term piece of work, but it can be done. Indeed, we are targeting certain areas, particularly areas of social deprivation, and bringing people into higher and further education perhaps for the first time in order to bring them into industry. If we can commit to those sectors and paint the picture of what employment might look like in the future and what opportunities it will bring our youngsters, we can start to tell that story not just in universities but in colleges and other places, too.
I just wanted to flag the sectoral view that there is a gap here and that we need to be very targeted in addressing it. It will not resolve itself overnight; it needs a commitment to a clear, long-term vision.
Thank you.
Who is going to be the first of our volunteers for the final say? I see that you are all trying not to catch my eye.
Well done, Claire.
Thank you for the opportunity to sum up. We have had a great session, and I would echo a lot of what my colleagues have said.
A theme arising from what all of us have said is that a number of low and no-cost options are available to the Scottish Government, notwithstanding the fact that there are some very difficult decisions in the offing. It will require bravery, and you are right to press us on where the money might come from.
We must be clear that decisions on resource allocation need to respond to the growth opportunity that exists. In that respect, there is, unfortunately, a gap to be bridged, and we need to invest money in that growth opportunity right now if we are going to reap the benefits in the future. If we are very good at setting out the clear outcomes that we are looking for, and if we hold ourselves to them—for example, when it comes to what we expect from the planning system with regard to enabling growth and skills—we might be able to make best use of the opportunity in front of us and the finite resources that we have. It is all about focusing those resources.
As for areas where, from a Scottish Renewables perspective, we think that there should be more investment, we have not touched on heat decarbonisation, which is a huge element of the next stage of Scotland’s decarbonisation journey. We can think cleverly about that and how we allocate resources. For a start, heat is a public health issue, and there are ways for us to think about how we allocate budgets in the short, medium and long term to achieve the objectives that I was talking about.
Another key issue is investment attractiveness, and that is all about how we fund capital projects, people and skills. It is always that equation—capital plus people—that leads to economic growth. The investment of the ScotWind revenues, which was rightly alighted on, could be a strong enabler of that growth agenda, and we are keen to see those resources being plumbed towards that growth opportunity in offshore wind in particular.
I want to highlight three things that chime really well with what Claire Mack has just set out. The first is focus. In order to get the economic transformation that we want in Scotland, we need to have focus, which means allowing some elements of the public sector not to do what they have always done and to focus instead on the things that are going to deliver the biggest outcomes. Indeed, I think that there is an element of allowing that focus to come through in the budget.
What should those areas of focus be? One area that has come through strongly today is the need to scale up innovation so that we can commercialise it, and another is driving higher levels of capital investment that will boost productivity. Ultimately, we need to focus on the energy transition, and I think that the way forward in that respect is to look at it through the prisms of innovation, investment and internationalisation. It is that sort of clarity and consistency that will build the investor confidence that we need. Private sector capital will drive most of the spend, but it needs to be de-risked by really good measures such as the £150 million for offshore wind.
Finally, we need to set really clear return on investment metrics. It is really important that we are all held to account for delivery, and I know the committee plays an important role in that respect. However, I think that the budget can be tied to the return on investment metrics in a way that lets you know that you are in the foothills of what are often 10-year transformation programmes.
That would be my own summary, and thanks again for the opportunity.
The only thing that I would add to what I have already said is that Government and business could work together in better articulating the strategies for key sectors. We launched a sector strategy at the end of last year. To answer Reuben Aitken’s point, it had very clear metrics around gross value added, jobs, productivity and so on. The Government should work with the key sectors to make sure that those strategies are in place. That would help the economic growth agenda.
In one of your first questions, convener, you posed the challenge about where the money could come from. I am not sure that reallocation is the right question to ask, because I am not sure that getting into reallocation will work. For me—again, just because of the hats that I wear—there is something to do with the organisation of the public sector as a whole and, almost, something about the answer to this question: for every pound that is invested, how much reaches the front line? Inefficiency will be inherent in the system. Every large organisation is the same—all have inefficiency—and trying to understand the answer to that question would help in thinking about how you then reallocate. Whether it is because of wearing my day hat, my developing the young workforce hat or my other hats, I can see that there are inefficiencies in how the system works, and something is needed on productivity. Improving productivity in the public sector frees up money for investment.
Think about the £63 billion as an envelope, then about much of that reaches the front line, how much is productive and how much change could be made to how it is used. I am not sure that moving one budget from another place will work. It needs to be a different question.
For example, some public sector departments might spend a much higher percentage on administration, if they want to call it that, than others.
And there is connectivity between certain briefs.
Indeed.
Flexibilities can make a huge difference. We have made investments in companies that will land late in the financial year; we then have to give that money back rather than being able to reinvest it in the economy the next year. As we discussed earlier, sometimes it is about how we use that money, and the rules around it, rather than just the quantum.
The committee is committed to ensuring that Governments are committed to multiyear funding—I think that the new UK Government is, now, which will certainly help the Scottish Government on that issue and remove short termism. That is a very important point, Reuben.
Okay then, folks, a few people have still not contributed.
You mentioned multiyear funding, and summarising the importance of that sprang to my mind. There is a paradox in relation to some of the awful decisions that principals are having to make about potentially closing campuses—some in areas where we know that there will be big inward investment in two or three years. In this budget and in subsequent budgets, there needs to be something about bridging that gap, in order to allow the ambition of the sector—this is the paradox—to support industry, green skills and the NHS. It is about the role of colleges in dealing with poverty and child poverty. It is about the pace of reform, enabling the colleges to outwork their ambition and loosening the shackles that I touched on earlier.
In addition, one area that has not really been touched on is infrastructure investment. In the draft budget, capital funding for colleges is down by 20 per cent—nearly 25 per cent, actually—yet we have no answer to the reinforced autoclaved aerated concrete issue, and we have wind and watertight issues in some buildings that we need to deal with. That area needs to be looked at.
Thank you very much. Which of our two Alastairs wants to go next?
To come back to the pharmaceutical aspect, medicines manufacturing is a global industry that is projected to grow to £2.8 trillion by 2032. Our need for medicine is ubiquitous and will continue. It is about the potential—what Scotland’s appetite is—to be a leading global hub for that, building on the research, building the skilled workforce for the future and creating the environment to attract and retain business.
11:00Finally, the coupling of manufacturing capability and discovery in our healthcare system might give a systems-level transformation that could start to identify areas for further investment, because addressing some of those systemic issues might create savings in the healthcare bill. Systems-level thinking could be hugely important. There are challenges within that, but manufacturing could be part of a fantastic opportunity for Scotland to show leadership in addressing the challenge of providing sustainable, affordable healthcare for an ageing population.
That £2.8 trillion is almost Michelle Thomson’s bank balance.
What do you think, Dr McInroy?
This has been a great session.
The growth in our sector for the next 10 years will ultimately be fuelled by our ability to identify and attract new inward investment and, crucially, to retain the investment that we currently have. That will be quite a challenge when our sector is dominated by large multinationals in a globally competitive world of multibillion dollar CHIPS—creating helpful incentives to produce semiconductors—acts and attractive tax regimes.
There are things that we can do. Investment in skills is a big issue. We rightly spoke about that as being a challenging area, but must also remember, particularly in our sector, that it is an attractor for inward investment at the moment because the talent pool is as attractive in Scotland as it is anywhere else. We have challenges, but they are not as acute as they are in certain other areas and we must ensure that we maintain or improve the position or we will go backwards.
Investment in infrastructure is also important, as is co-investment. We must incentivise inward investment in Scotland by using skills, co-investment programmes, tax or whatever we need to use to maintain Scotland’s position, to retain the multinational and international companies that we have here and to bring more in. That will take investment. I understand the need for prioritisation and I know that public money is not infinite, but the Scottish Government has identified 11 strategic industry clusters in Scotland, including critical technologies, renewables and life sciences, and it seems to me that those provide a reasonable framework for initial prioritisation.
Last but not least, I turn to Gordon McGuinness.
Budgets are incredibly tight. We spoke earlier about prioritisation and optimisation of our assets. The most recent employer skills survey undertaken by the Department for Education and the Scottish Government indicated that the private sector invested £4.1 billion per annum in skills and workforce development. We think that that is where the model of co-investment, along with investment from the public sector, is optimised.
Sandy Begbie spoke about Prestwick as an example, and Ryanair is a good model, because it has an effective partnership with the college but has also done more itself. The company has invested heavily in retraining for mature workers and it offers attractive salaries. It invests in attracting people, while at the same time working with the college and for the college’s benefit, making that a good example of the co-investment model.
I will close by offering to come back at some point talk about the public sector reform work that SDS has done as part of a programme called transform 2027. By the end of this financial year, we will have reduced our headcount by 17 per cent. We have halved our property costs by making local partner agreements, some with colleges and others with employment hubs, and have saved another £3 million through shared services and internal training. We have a reducing budget, but have been able to protect front-line services because of that work and I would be happy to come back and give some more detail about that.
Perhaps you could touch on that when we meet in Kilbirnie on 10 January.
I thank all our witnesses for their excellent contributions, which have been very helpful to the committee. I am sorry that we could not continue for longer, but our next witness, Liam McArthur, is pacing up and down outside like an expectant father and we must start that session in a few minutes.
We will continue taking evidence on the Scottish budget for 2025-26 in the new year. I wish you all a merry and restful Christmas.
We will take a five-minute break before we restart the meeting.
11:04 Meeting suspended.