The economic development landscape in Scotland - Scottish Parliament

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Jun 10, 2011 - created in 1975 to give effect to state interventionism in business and .... To support growing businesse
The Sc ottish Parliament and Scottis h Parliament Infor mation C entre l ogos .

Financial Scrutiny Unit Briefing

The Economic Development Landscape in Scotland 10 June 2011 11/38 Scherie Nicol Scottish Enterprise and Highlands & Islands Enterprise work in partnership with other public sector bodies, including local authorities, and the private sector to increase sustainable economic growth in Scotland. This briefing provides a brief overview of the recent changes in relation to the economic development landscape in Scotland, looking specifically at the 2007 reforms and the recent Scottish Parliament inquiry into the enterprise networks. It then outlines what is currently known about the future direction of economic development in Scotland.

CONTENTS

BACKGROUND............................................................................................................................................................ 3 2007 REFORMS ........................................................................................................................................................... 3 THE CURRENT SITUATION........................................................................................................................................ 4 THE SCOTTISH PARLIAMENT INQUIRY INTO THE ENTERPRISE NETWORKS .................................................. 6 LOOKING AHEAD ....................................................................................................................................................... 7 SOURCES .................................................................................................................................................................... 9 RELATED BRIEFINGS .............................................................................................................................................. 12

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BACKGROUND There are two main economic development agencies in Scotland – Scottish Enterprise (SE), Highlands and Island Enterprise (HIE). Scottish Development International (SDI), is a joint venture between SE, HIE and the Scottish Government which promotes international trade and inward investment to Scotland. These organisations work in partnership with other public sector bodies, including local authorities, and the private sector to contribute to the growth of the Scottish economy. HIE, formerly Highlands & Islands Development Board (HIDB), was formed in 1965 and is one of the oldest regional development agencies in Europe. It was established to address socioeconomic problems in the region, specifically high unemployment, net out-migration and declining industries. SE has evolved from the Scottish Development Agency (SDA) which was created in 1975 to give effect to state interventionism in business and industry and the remediation of derelict land. A major change occurred following the passing of the Enterprise and New Towns (Scotland) Act 1990 which made provision for the establishment of the agencies as they are currently named. They were given the general functions of furthering the development of Scotland’s economy, safeguarding employment, enhancing skills, promoting industrial efficiency and international competitiveness and improving the environment of Scotland. HIE also retained responsibility for the social development of the region, a task previously undertaken by the HIDB. The advent of the Smart, Successful Scotland enterprise strategy in 2002 brought the Careers Service (Careers Scotland) into the agencies as well.

2007 REFORMS In September 2007, following a Review of the Enterprise Networks, the Scottish Government announced major reforms to SE and HIE. The ambition was for re-energised enterprise networks to be the foundation on which sustainable economic growth was built in Scotland. The changes were to make SE and HIE more clearly focussed on the goal of delivering sustainable economic growth and more responsive to the needs of businesses and the Scottish economy as a whole (Scottish Government 2007). In terms of organisational change these reforms resulted in the transfer out of Careers Scotland and skills activities to Skills Development Scotland (SDS) and the transfer of Business Gateway and local regeneration activities to local authorities (LAs). In addition, these reforms included the cessation of operational delivery through Local Enterprise Companies, although local offices remained in place. These changes were deemed not to require legislation and most of the changes were implemented by 1 April 2008. 3

THE CURRENT SITUATION Scotland’s economic development is currently guided by the Government Economic Strategy (GES) published in November 2007 with the Purpose of creating a more successful country with opportunities for all to flourish, through increasing sustainable economic growth. The Strategy has a particular policy focus on growth and highlights a number of key sectors; the creative industries, energy (particularly renewables), financial & business services, food & drink, life sciences and tourism. In addition the GES has broader aims on economic participation, addressing inequalities and building greater cohesion. The practical implications of the Government Economic Strategy published in November 2007 and the transfer of functions from SE and HIE to LAs and SDS has been a slimming down of the agencies. Currently: 



SE employs 1,081 FTEs and the SE business plan 2011-2014 states that it has a budget of £331.8 million in 2011/12. 72% of this is received in the form of grant-in-aid from the Scottish Government. In addition, SE also receives £14.2 million for the Co-Investment Fund and £10 million for the Scottish Loan Fund from the Scottish Government. The remaining funding is made up of EU income, property income, property disposals and other business income. SE has 12 local offices throughout Scotland – Aberdeen, Bellshill, Clydebank, Dumfries, Dundee, Edinburgh, Galashiels, Glasgow, Glenrothes, Kilmarnock, Paisley and Stirling (SE 2011). HIE employs 246 FTEs and the HIE operating plan 2011-2014 states that it has a budget of £75.3 million in 2011/12. 64% of this is received in the form of grant-in-aid from the Scottish Government and a further 17% is ring-fenced DEL (non-cash resource). The remaining 19% is made up of EU income, capital and revenue receipts. Organisationwide functions are located in Inverness, Dingwall and Benbecula, but discrete elements are located around the region (HIE 2011).

Another practical implication of the changes announced in 2007 was the creation of a number of working groups to consider different aspects of economic development, such as the Strategic Forum, Regional Advisory Boards and Local Area Panels. This, together with the transfer of functions to SDS and LAs means that the landscape of organisations and groups undertaking economic development activities has changed substantially. The following chart shows the focus of the different organisations and groups:

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A brief description of each of these is provided below: 

Scottish Enterprise: the Scottish Government's economic development agency for lowland Scotland.



Highlands & Islands Enterprise: the Scottish Government's economic and community development agency for the north and west of Scotland.



Scottish Development International: promotes international trade and encourages overseas companies to invest in Scotland. It is a joint venture between the Scottish Government, SE and HIE.



VisitScotland: the national tourism organisation with the purpose of maximising the economic benefit of tourism to Scotland.



Skills Development Scotland: delivers careers, skills and training services in Scotland. Created in 2008, it brought together the careers, skills, training and funding services of Careers Scotland, Scottish University for Industry (learndirect scotland) and the skills intervention arms of Scottish Enterprise and Highlands & Islands Enterprise.



Scottish Funding Council: the national, strategic body that is responsible for funding teaching and learning provision, research and other activities in Scotland’s colleges, universities and higher education institutions.



COSLA: the Convention of Scottish Local Authorities is the representative voice of Scottish local government, lobbying on behalf of Scotland's 32 councils.



Local authorities: there are 32 directly elected local authorities in Scotland which provide local services and receive a large part of their funding from the Government. The Scottish Government gave the lead for local economic development to local authorities in 2008.



SLAED: the Scottish Local Authorities Economic Development Group comprises senior officials from economic development teams across all 32 Scottish LAs. It is a forum for discussing and sharing experience, expertise and best practice on a number of economic development issues relevant to Scotland’s local authorities, and the Scottish economy.



Strategic Forum: involves Ministers, Scottish Government officials, SE, HIE, the Scottish Funding Council, SDS and Visit Scotland and aims to provide clear ministerial leadership on economic development and promote greater integration and collaboration between organisations.



Regional Advisory Boards: comprised of up to 18 board members, mainly from the private sector but also partner organisations, such as local authorities and the higher education sector. These help advise SE on the best way to maximise the contribution of each region to Scotland’s economic growth.



HIE Local Area Panels: fulfil the function undertaken by regional advisory boards (business and community engagement) in the Highlands & Islands.



Community Planning Partnerships: involve the local authority, health board, fire, police, enterprise agency and transport partnership. Local leaders work with communities, the third and private sectors to develop the long term vision for the area and work towards that vision. 5

THE SCOTTISH PARLIAMENT INQUIRY INTO THE ENTERPRISE NETWORKS In July 2010 the Scottish Parliament’s Economy, Energy & Tourism Committee began an inquiry to review the purpose of an enterprise agency and the success of the 2007 reforms. The Committee scrutinised the work of SE, HIE, SDI and SDS as part of its in-depth review. At the end of the inquiry, the Committee produced a report to Parliament. It did not recommend significant structural reform of the network given the disruption that it felt it may bring, particularly in light of major changes in recent years. However, it did identify significant failings in the current set up and some of the key conclusions were that: 

Different types of intervention will be appropriate to different areas but the common aim should be to offer a level playing field that will support communities to undertake projects that will allow them to develop economically.



It is not persuaded that the reforms have assisted, nor that they have decluttered the delivery landscape.



Greater clarity is required on the roles and responsibilities of public and private sector players in economic development.



Issues have arisen over the visibility and accountability of structures such as the strategic forum and Regional Advisory Boards.



HIE’s local presence felt before the 2007 reforms has been reduced and a perceived dilution of HIE’s strengthening communities remit has taken place.



The formation of Skills Development Scotland has had mixed success and it has been slow to engage with stakeholders.



The Scottish Government needs to recognise that to seriously exploit emerging opportunities, such as those relating to renewables, additional resources will be required.



Access to investment capital is hindering businesses’ ability to grow and therefore undermining economic recovery and Scotland’s long term competitiveness.



A key focus going forward should be on supporting access to capital for both businesses and community groups, regardless of where they are based.

The Committee also outlined in its report that the issues facing the Highlands and Islands are substantial enough to merit a dedicated regional agency (Scottish Parliament 2011a). The Scottish Government responded to the report in a letter to the Convenor of The Economy, Energy & Tourism Committee on 22nd March 2011. It highlighted the Scottish Government response to individual Committee comments and recommendations, and key developments in these areas. A small selection of these developments is as follows: 

The Business Gateway Board is considering future arrangements for Business Gateway services following the expiry of the current contract in October 2012. An economic evaluation of Business Gateway has been commissioned to inform future decisions.



A review of Post 16 Education and Vocational training, independently led by Willy Roe, is considering the existing skills infrastructure with a final report in May 2011.

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SDS has been working with Community Planning Partnerships and local authorities to develop Service Delivery Agreements.



The Scottish Investment Bank will explore opportunities to make available additional funds for investment in risk capital at a Scottish, UK and European level.



The Government is keen to reflect on the purpose of the Regional Advisory Boards and how that regional perspective and business engagement is effectively captured and knowledge best used.

LOOKING AHEAD The SNP Manifesto outlined some specific commitments that an SNP Government propose to deliver over the next five years. Some of the key commitments relevant to enterprise and economic development are as follows: 

To take forward a Scottish Growth Strategy, focusing efforts on growth companies, growth sectors and growth markets in order to grow jobs and wealth in Scotland.

Access to finance 

To introduce an online One-Stop Finance Information Service – a single point of information for businesses on government financial support that is available and an advice point for small businesses looking for commercial loans or finance. And to look to expand initiatives, such as the East of Scotland Investment Fund, to widen availability of affordable lending and continue with the Scottish Loan Fund.



To take forward the Scottish Loan Fund as part of the Scottish Investment Bank, building on the £250 million already in place to widen support and loan funding for high growth Scottish companies, big and small.



To keep the Small Business Bonus Scheme.

Support for exporting 

To support growing businesses with a new Export Support Package. To provide £2.5 million in the year ahead for a new Export Support initiative to deliver bespoke advice and support for 100 Scottish companies looking to enter new markets overseas.



To continue to support and fund the new Smart Exporter initiative.



To develop a new online export tool – Virtual Trade Centres – providing information and advice for Scottish companies looking to expand overseas



To work with existing export companies to deliver a business-to-business mentoring service for small and medium-sized enterprises.

Enterprise Zones 

To maintain investment in grants designed to attract inward investment and establish four new Enterprise Zones.

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To explore the creation of one or more Low Carbon Enterprise Zones as a way of attracting new green energy and low carbon companies to set up in Scotland.

Other 

To actively support the creation and entry of new retail banks offering services throughout Scotland.



To invest £45 million through SMART: SCOTLAND to support near market research and development projects by small and medium enterprises. And, in the year ahead to provide £17 million, specifically to stimulate growth in the key industries set to drive the global economy, like life-sciences, digital and energy.



To establish a Youth Enterprise Scotland Challenge with a national prize fund of £100,000 to be awarded to the teams with the best ideas for taking forward a new business enterprise. This prize fund will be matched by a further £100,000 to provide mentoring and other support to the 10 finalists as they develop their concepts.



To create a new Graduate Apprenticeship to enable new links between business, students and our universities (SNP 2011).

In the debate on the 1st of June 2011 at the Scottish Parliament entitled “Taking Scotland Forward: Finance, Employment and Sustainable Growth” the Cabinet Secretary for Finance, Employment and Sustainable Growth, John Swinney reaffirmed the Scottish Government’s commitment to an overarching Purpose of increasing sustainable economic growth. He also outlined that: 

A Government economic strategy will be brought before Parliament in the autumn.



At the heart of delivery will be the economic agencies: Scottish Enterprise, Highlands and Islands Enterprise, Scottish Development International and VisitScotland.



No structural changes in these bodies are proposed but they will be required to work more closely together and with Government, in the name of efficiency and effectiveness (Scottish Parliament 2011b).

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SOURCES Highlands and Islands Enterprise. (2011) HIE Operating Plan 2011-2014 [Online] Available at: http://www.hie.co.uk/common/handlers/download-document.ashx?id=7ec4e9d5-4103-4503a154-0b5da9fcf32d [Accessed 10 June 2011] Scottish Enterprise. (2011) Business Plan 2011-2014 [Online] Available at: http://www.scottishenterprise.com/~/media/SE/Resources/Documents/ABC/Business-plan-2011-14-revised-2june.ashx [Accessed 10 June 2011] Scottish Government. (2007) News Release: Future of Scotland’s Enterprise Networks. 26th September 2007 [Online] Available at: http://www.scotland.gov.uk/News/Releases/2007/09/26143846 [Accessed 10 June 2011] Scottish Parliament. (2011a) Economy, Energy and Tourism Committee Report – A fundamental review of the purpose of an enterprise agency and the success of the recent reforms [Online] Available at: http://www.scottish.parliament.uk/s3/committees/eet/reports11/eer11-02-01.htm [Accessed 10 June 2011] Scottish Parliament. (2011) Official Report: Meeting of the Parliament 01 June 2011 [Online] Available at: http://www.scottish.parliament.uk/apps2/business/orsearch/ReportView.aspx?r=6258&mode=ht ml [Accessed 10 June 2011] SNP. (2011) Scottish National Party Manifesto 2011 [Online] Available at: http://manifesto.votesnp.com [Accessed 10 June 2011]

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RELATED BRIEFINGS SB 11-37 Borrowing Powers (469KB pdf) - 8 June 2011 SB 11-33 Economic Indicators (652KB pdf) - 23 May 2011 You can also listen to SB 11-33 Economic Indicators - audio summary (5 minutes 28 seconds) SB 11-32 Unemployment - April 2011 (1.06MB pdf) - 18 May 2011

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