Scottish Budget: draft budget 2018-2019

Chapter 9: Economy, Jobs and Fair Work

Portfolio Responsibilities

The Economy, Jobs and Fair Work portfolio plays a crucial role in fulfilling our purpose of creating a more successful country, with opportunities for all of Scotland to flourish through increasing sustainable economic growth. The portfolio is central to driving progress towards achieving our renewed ambition for a vibrant, high-tech, low carbon and inclusive economy. Working together with the Enterprise and Skills Strategic Board our investment aims to help businesses and individuals seize the opportunities of a rapidly changing economy and create the conditions for innovation, internationalisation and inclusive growth to thrive.

The portfolio is guided by ‘Scotland’s Economic Strategy’ and the focus on the two mutually supportive pillars of boosting competitiveness and tackling inequality. The economic strategy has established the four priorities which are vital to our approach to growing an inclusive economy:

• investing in our people and our infrastructure in a sustainable way;
• fostering a culture of innovation and research and development;
• promoting Scotland on the international stage to boost our trade and investment, influence and networks; and
• promoting inclusive growth and creating opportunity through a fair and inclusive jobs market and regional cohesion.

Our Priorities

While our economy continues to show resilience in the face of global headwinds we know that productivity remains too low, that we need more businesses to scale-up and export, that too many have low-paid or insecure jobs and that growth is not spread evenly enough between our communities.

The Programme for Government articulated the Scottish Government’s vision for Scotland as an inventor and producer of the goods, industries and skills of the future not just a consumer. An economy that would seize the opportunities of global competition and secure more, better jobs for our people.

To achieve this vision, the commitments set out in this chapter total an overall rise of £270 million (39 per cent) in the portfolio. This includes uplifts of:

• over £194 million (62 per cent) in the enterprise and energy budget to support entrepreneurship, construction and productivity;
• £9.9 million (23 per cent) in the employment and employability budget to support the delivery of new devolved employability programmes; and
• more than doubling our investment in city deals from £56.9 million to £122.2 million.

Taken with our £2.4 billion investment in our Enterprise and Skills bodies (for which see Chapter 4), this is a massive investment in Scotland’s economy at a time of great challenge but also opportunity. This budget commits us to:

• the establishment of a Scottish National Investment Bank. The Bank’s establishment will begin in 2018 and this budget commits us to providing initial capitalisation of £340 million over 2019-21 to ensure it can make an immediate impact once operational. Early in 2018, Benny Higgins’ Implementation Plan will be published and, following that, we will make a number of key early appointments (the Chair and Board of Directors) to act as a ‘Shadow Board’ whilst the Bank is being formally established;
• as a precursor to the Bank’s establishment, a new £150 million Building Scotland Fund – starting with investment of £70 million this year – that will provide support to secure: new public and private sector house building; provision of modern industrial and commercial facilities; and research and development. Providing, along with our capital investment programme, an important boost to construction but also to provide additional housing supply and improved facilities to allow businesses to improve productivity and expand;
• boosting investment in business research and development and additional funding to support entrepreneurship. Both key means of increasing productivity and making the most of our ambitious businesses and talented workforce; and
• supporting our key industries for the future. For example, we will provide the National Manufacturing Institute with £18 million in 2018-19 to make Scotland a global leader in advanced manufacturing and will invest £60 million in a Low Carbon Innovation Fund to deliver innovative low carbon energy infrastructure solutions.

As with previous budgets, we present our key investments under each of the four key themes of the Economic Strategy.

Investing

We will:

• establish a Scottish National Investment Bank. To give the bank the financial platform and clout it needs to make a transformational impact from the outset, we will provide initial capitalisation of £340 million over the first two years of its operation;
• deliver a new £150 million Building Scotland Fund as a precursor to the Bank, to support the development of new public and private sector housing, of modern industrial and commercial space and industry-led research and development. The cross portfolio fund will be supported by £70 million in 2018-19 and £80 million in 2019-21;
• work closely with the construction sector and Construction Scotland Innovation Centre to ensure this investment acts as a catalyst for skills development and innovation across the sector;
• drive regional economic growth through the Glasgow, Inverness, Aberdeen and Edinburgh city region deals; and work to secure deals for the Tay Cities and Stirling and Clackmannanshire as well as regional deals for Ayrshire and Borderlands;
• help businesses access the finance they need to grow by making further investment under the Scottish Growth Scheme – expanding the SME Holding Fund by £25 million; and
• help realise the huge opportunity from decommissioning in the North Sea through our Decommissioning Challenge Fund and by investing £7.5 million in an Ultra-Deep Water Port while challenging the UK Government to commit funding as well.

Innovation

We will:

• invest in the talented individuals and early-stage entrepreneurs who have big ideas through the Unlocking Ambition Challenge;
• help more businesses invest in research and development (R&D) by increasing
  our grant support for business R&D by over 70 per cent – from £22 million to
  £37 million per annum;
• continue to deliver our Manufacturing Action Plan and open the £8.9 million Lightweight Manufacturing Centre;
• start construction of the National Manufacturing Institute for Scotland to bring together research, industry and the public sector to help companies right across Scotland embrace new manufacturing techniques, support cutting-edge research and develop the skills of our workforce; and
• drive low carbon investment through a range of support mechanisms including project development, expert advice, financial support and support for community investment.

International

We will:

• maximise trade and investment opportunities by opening new Innovation and Investment Hubs in Paris and Berlin to complement those already established in London and Dublin, and develop our existing presence in Brussels into a Hub;
• deliver the ‘One Scotland’ approach set out in our trade and investment strategy, implementing ‘Global Scotland – Scotland’s Trade and Investment Strategy 2016-21’, driving forward our actions on growth sectors and continuing to target areas where we have a clear advantage, such as food and drink, and tourism;
• complete the expansion of the number of people working for Scottish Development International across Europe to market Scotland as an open economy and welcoming society; and
• pilot local and regional export partnerships to provide business-to-business support in Scotland for small and medium-sized enterprises ( SME) that have limited experience of exporting.

Inclusive Economic Growth

We will:

• build on the insights from our international Inclusive Growth Conference in October to further our pioneering approach in which Inclusive Growth is placed at the heart of our economic strategy;
• provide tailored, person-centred support to people who face barriers to work through Fair Start Scotland;
• deliver programmes and structures that meet the needs of those who face the greatest barriers to work, building on our success in meeting our target to cut youth unemployment by 40 per cent four years early. In the Year of Young People we recognise the value of their contribution to our dynamic economy and communities and will create new opportunities for them to shine;
• working with the Fair Work Convention and through the Scottish Business Pledge, continue the shared mission between government, trade unions and business on the promotion of fair work. We will continue to fund Scottish Union Learning, allowing trade union members to access skills opportunities;
• set our sights on making Scotland a Living Wage nation, continuing to work with the Poverty Alliance and other partners to create the first Living Wage towns, cities and regions;
• over the next three years, we will double the number of low-paid workers who receive a pay increase as a result of their employer becoming Living Wage accredited (from 25,000 to 50,000) and we will increase the proportion of accredited employers in low-paid sectors such as hospitality and tourism; and
• help local communities take control of their own local energy through the Community and Renewable Energy Scheme, including support for community investment in commercial schemes, negotiation of community benefits and directly-owned community projects, as well as working in partnership on smart, local energy systems.

Employability and Training Priorities

In 2018-19 we will:

• deliver a fully devolved, distinctly Scottish employment support service, Fair Start Scotland. From April 2018 the Fair Start Scotland service will help at least 38,000 people to find employment. It will treat people with respect, and encourage them to take up the opportunity for finding work on a voluntary basis, rather than driven by the threat of benefit sanction;
• invest in the Employability Innovation and Integration Fund to support projects across Scotland that will test new local approaches to join up employment and skills support with health and social care, justice and housing services;
• continue our focus on achieving the five labour market outcomes set out in ‘Scotland’s Labour Market Strategy’:
  • a skilled, productive and engaged workforce capable of meeting the needs of employers;
  • equality of opportunity to access work and to progress to ensure everyone is able to maximise their potential;
  • fulfilling, secure and well-paid jobs, where employees’ contributions are encouraged, respected and valued;
  • low unemployment and high employment; and
  • a sustainable working population and that can retain and attract new talent, to meet our wider economic and social ambitions;
• provide skills development and employability support to minimise the time individuals affected by redundancy are out of work through our initiative, Partnership Action for Continuing Employment ( PACE).

Enterprise and Energy Priorities

In 2018-19 we will:

• help businesses access the finance they need to grow by making further investment under the Scottish Growth Scheme – expanding the SME Holding Fund by £25 million and providing a further £15 million for loan and/or equity support;
• establish a Low Carbon Innovation Fund to invest a further £60 million to deliver innovative low carbon energy infrastructure solutions, building on the momentum generated by the European-supported Low Carbon Infrastructure Transition Programme;
• accelerate our work on funding commercial and industrial projects in Scotland’s Energy Efficiency Programme ( SEEP) – including pilot projects, district heating and energy efficiency loans – helping to provide more affordable energy for consumers, create a market for energy efficiency services and technologies and substantially reduce greenhouse gas emissions;
• provide leadership on carbon capture and storage ( CCS), continuing to emphasise the North Sea’s potential as the largest carbon storage resource in Europe;
• continue to negotiate with the UK Government to ensure future financial support is fair and equitable and maintain our commitment to pass on the UK Government’s guarantee on European Structural Fund finance in full meaning that all projects formally approved will be honoured should the UK leave the EU, recognising that negotiations are ongoing regarding the UK’s continued participation in the 2014-20 EU budget round beyond exit day; and
• work to simplify the innovation landscape including making best use of university research knowledge and talent to increase the conversion of academic research and knowledge into business growth.

Accountant in Bankruptcy Priorities

In 2018-19 we will:

• deliver, with stakeholders, a range of options for individuals seeking debt relief and debt management, supervise insolvency in Scotland, and maintain the public register of insolvencies and the Debt Arrangement Scheme register;
• implement legislative changes to the Debt Arrangement Scheme and Protected Trust Deed regulations and commence a review of the wide-ranging reforms introduced through the Bankruptcy and Debt Advice (Scotland) Act 2014;
• take forward the reform and modernisation of diligence legislation; and
• improve functionality across our core IT systems to help drive forward the Scottish Government’s digital agenda.

Parliamentary Business and Government Strategy

In 2018-19, we will:

• support economic development in cities and city regions through the Scottish Cities Alliance, city region deals and other appropriate mechanisms;
• support social research and analysis to improve policymaking at local and central government in Scotland, focusing particularly on topical and cross-cutting issues; and
• support the procurement of data and specific technical assistance to strengthen understanding of key developments in the economy and public finances.

Spending Plans

Table 9.01: Economy, Jobs and Fair Work Spending Plans (Level 2)

Level 2	2016-17 Budget £m	2017-18 Budget £m	2018-19 Draft Budget £m
Employability and Training	20.0	43.0	52.9
Enterprise and Energy	313.9	314.6	508.6
Accountant in Bankruptcy	1.2	1.2	3.6
Parliamentary Business and Government Strategy	33.9	60.8	124.7
European Regional Development Fund – 2014-20 Programmes	–	–	–
European Social Fund 2014-20 Programmes	–	–	–
Total Level 2	369.0	419.6	689.8
of which:
Fiscal Resource	204.3	234.8	256.2
Non-cash	26.2	12.1	9.8
Capital	103.0	123.7	243.8
Financial Transactions	35.5	49.0	180.0
AME	–	–	–

Table 9.02: Economy, Jobs and Fair Work Spending Plans (Level 2) real terms

Level 2	2016-17 Budget £m	2017-18 Budget £m	2018-19 Draft Budget £m
Employability and Training	20.3	43.0	52.1
Enterprise and Energy	318.7	314.6	501.2
Accountant in Bankruptcy	1.2	1.2	3.5
Parliamentary Business and Government Strategy	34.4	60.8	122.9
European Regional Development Fund – 2014-20 Programmes	–	–	–
European Social Fund 2014-20 Programmes	–	–	–
Total Level 2	374.6	419.6	679.7
of which:
Fiscal Resource	207.4	234.8	252.5
Non-cash	20.6	12.1	9.7
Capital	104.6	123.7	240.2
Financial Transactions	36.0	49.0	177.4
AME	–	–	–

Employability and Training

Table 9.03: Employability and Training Spending Plans (Level 3)

Level 3	2016-17 Budget £m	2017-18 Budget £m	2018-19 Draft Budget £m
Employability and Training	20.0	43.0	52.9
Total	20.0	43.0	52.9
of which:
Fiscal Resource	20.0	43.0	51.9
Non-cash	–	–	–
Capital	–	–	1.0

What the Employability and Training budget does

The Employability and Training Budget directly supports the Scottish Government’s approach to employability and fair work and supports the delivery of a fully devolved employment support service, Fair Start Scotland.

Enterprise and Energy

Table 9.04: Enterprise and Energy Spending Plans (Level 3)

Level 3	2016-17 Budget £m	2017-18 Budget £m	2018-19 Draft Budget £m
Enterprise	273.9	223.8	299.3
Energy	71.2	80.1	93.6
Innovation and Industries	8.8	10.7	115.7
Strategic Forum	(40.0)	–	–
Total	313.9	314.6	508.6
of which:
Fiscal Resource	180.9	188.6	200.4
Non-cash	25.2	10.6	8.3
Capital	72.3	66.4	119.9
Financial Transactions	35.5	49.0	180.0

What the Enterprise and Energy budget does

The Enterprise budget funds Scottish Enterprise and other Enterprise related activity. The Energy Budget will seek to develop the balanced energy mix proposed in the Energy Strategy. The Innovation and Industries budget will invest in the development and application of research, innovation and technology, support entrepreneurial activity and includes the Building Scotland Fund.

Accountant in Bankruptcy

Table 9.05: Accountant in Bankruptcy Spending Plans (Level 3)

Level 3	2016-17 Budget £m	2017-18 Budget £m	2018-19 Draft Budget £m
Operational Costs	13.3	13.0	12.8
Capital	0.7	0.7	1.0
Less Retained Income	(12.8)	(12.5)	(10.2)
Total	1.2	1.2	3.6
of which:
Fiscal Resource	(0.5)	(1.0)	1.1
Non-cash	1.0	1.5	1.5
Capital	0.7	0.7	1.0

What the Accountant in Bankruptcy budget does

Accountant in Bankruptcy (AiB) is responsible for administering and supervising the process of personal bankruptcy and recording corporate insolvencies in Scotland. Most of the costs of the Agency are met by fees from those using our services.

Parliamentary Business and Government Strategy

Table 9.06: Parliamentary Business and Government Strategy Spending Plans (Level 3)

Level 3	2016-17 Budget £m	2017-18 Budget £m	2018-19 Draft Budget £m
Cities Investment and Strategy	30.3	56.9	122.2
Office of the Chief Economic Adviser*	0.5	0.5	1.0
Office of the Chief Statistician**	1.6	1.9	–
Strategic Research and Analysis Fund	0.8	0.8	0.8
Citizen Advice Direct	0.6	0.6	0.6
Council of Economic Advisers	0.1	0.1	0.1
Total	33.9	60.8	124.7
of which:
Fiscal Resource	3.9	4.2	2.8
Non-cash	–	–	–
Capital	30.0	56.6	121.9

* Includes a £0.5 million baseline transfer to reflect responsibility moving from the Directorate for Education Analytical Services within the Education and Skills portfolio to the Directorate for Chief Economist.
** Responsibility for the Office of the Chief Statistician has been transferred to Rural Economy and Connectivity portfolio.

What the Parliamentary Business and Government Strategy budget does

The Parliamentary Business and Government Strategy budget provides analytical support for Ministers and colleagues across the government. It ensures the government can develop data and make it easier for the people of Scotland to access the data they need.

It supports the Council of Economic Advisers, supports economic development in cities and city regions and pays for the provision of detailed information on Scotland’s economy.

European Regional Development Fund – 2014-20 Programmes

Table 9.07: European Regional Development Fund Spending Plans (Level 3)

Level 3	2016-17 Budget £m	2017-18 Budget £m	2018-19 Draft Budget £m
Grants to Local Authorities	–	–	–
Central Government Spend	–	–	–
Grants to Local Authorities – EC Income	–	–	–
Central Government Spend – EC Income	–	–	–
Total	–	–	–
of which:
Fiscal Resource	–	–	–
Non-cash	–	–	–
Capital	–	–	–

European Social Fund – 2014-20 Programmes

Table 9.08: European Social Fund Spending Plans (Level 3)

Level 3	2016-17 Budget £m	2017-18 Budget £m	2018-19 Draft Budget £m
Grants to Local Authorities	–	–	–
Central Government Spend	–	–	–
Grants to Local Authorities – EC Income	–	–	–
Central Government Spend – EC Income	–	–	–
Total	–	–	–
of which:
Fiscal Resource	–	–	–
Non-cash	–	–	–
Capital	–	–	–

What the European Social Fund budget does

The European Regional Development Fund ( ERDF) and European Social Fund ( ESF) make significant resources available to Scotland over the EU’s seven-year budget cycle. For the period 2014 to 2020 some €944 million has been allocated to Scotland. The Scottish Government will manage these funds and allocate them according to programmes agreed with the European Commission and in accordance with EU regulations.

In addition to managing ERDF, and ESF the Scottish Government plays a role in the implementation of trans-national and territorial co-operation funding programmes.

ERDF, ESF and the trans-national and territorial funds aim to support economic and social cohesion across the EU. They do this by providing financial support to projects which will encourage economic growth by improving business competitiveness, encouraging business innovation, improving skills, tackling poverty and promoting social inclusion, and facilitating the development of the green economy.

The Scottish Government, working through a network of lead partners, will allocate the funds to projects, schemes or programmes across Scotland. When funds have been allocated and spent the lead bodies will seek payment of the funds from Scottish Government. As the Scottish Government pays out to these bodies it will recover the funds from the European Commission. The funds do not impact the Scottish Government’s overall budget and therefore are represented as zero in the budget tables.

During 2018-19 EU funds will continue to be allocated and spent from the 2014-20 programmes. In addition, the final closure report by the European Commission of the
2007-13 programmes is expected to be completed in 2018-19. Figures submitted anticipate a repayment of around €37 million (c.£31 million) to the European Commission.

The 2014-20 programmes are markedly different to previous programmes by focusing on strategic and thematic concentration of the funds prescribed by the European Commission. This concentration aims to encourage more rapid growth and ensure the funds contribute as fully as possible to the EU 2020 objective of smart, sustainable and inclusive growth. The Scottish Government’s approach to concentration is to focus the funds on strategic interventions which means large-scale projects, schemes or programmes aiming for transformative change, delivered by public bodies and local authorities who can contribute match funding to the total project funding and comply with the requirements laid down by the European Regulations.

The Scottish Government has confirmed that the UK Government’s guarantee on European Structural Funds awarded to operations before the UK leaves the European Union will be passed on in full, recognising the ongoing negotiations and the possibility that the UK will continue to participate in the full 2014-20 EU budget round beyond exit day. The Scottish Government has already committed over £395 million of funds to projects and has begun allocating a second phase of projects to be delivered over the remainder of the ESF and ERDF programme period.