Welcome to the 15th meeting of the Economy, Energy and Fair Work Committee for 2019. May I ask everyone present to turn electrical devices to silent so as not to interfere with proceedings. The first item on the agenda is a decision on taking business in private. That is items 3 and 4, as the committee agreed on that. We turn now to our session on the Scottish National Investment Bank Bill, which is item 2 on the agenda. We have with us today a number of witnesses. I will start first from my right, Benny Higgins, who is the strategic adviser for the establishment of the Scottish National Investment Bank, Paul Brewer and Alan MacFarlane. The latter two are both former members of the advisory group on the implementation plan for the SNP, as we call it in short.  Thank you for coming in this morning. Perhaps I can just start with a question about the implementation plan. I wonder if you could explain one of you. Possibly Benny Higgins might be the one to do this. What went into developing the implementation plan and whether the 21 key recommendations are adequately reflected in the bill that is before Parliament? Perhaps I can start with Benny Higgins. I will start with the two parts of the question. On the former, we had a reasonably large advisory group drawing skills and experience from various parts of the Scottish economy and business sector. We also had Mariana Matsukata on board as one of the key advisers. Of course, our work on mission-related patient capital investment is a key part of the work that we pursued. More important, we had a large number of sessions with different participants and actors across the ecosystem in Scotland. I personally sat through a large number of dinners, breakfast meetings and other sessions where we attracted a huge number of people to ensure that we listened carefully to what people thought were the issues that needed to be tackled. We were able to, as we went through the implementation plan process, start to test drive some of the thoughts that we had. That proved to be very successful. We got a good understanding of where people thought the issues had to be tackled. Much of that process is carried on into where we are now. As far as the 21 recommendations that we are all accepted are concerned, I am probably not at the best place to talk about the details of the bill itself. Others are more qualified to do that, and I think that you have heard from some of them. Certainly, from my perspective, the bill has been chosen to be picked together in a relatively light fashion. It does mean that it will not get in the way of any of the recommendations that are being implemented, but they are not all set out as part of the bill itself. The bill is an enabling bill to allow us to do everything that we need to do, and it will do so. Do either of the other two want to comment on those issues? Very fully from my point of view. Yes, there has been the broad thrust of the discussion in the group that was working is reflected. The detail is everything. Some of the aspects of the detail will be the focus of your discussions, but working through those details will be critical. Dean Lockhart, you have seen from other recent Government initiatives such as the Scottish Growth Scheme that a supply of money and a supply of capsules has been available to the economy, but there has been insufficient uptake in those financing initiatives because there has been a lack of demand in the economy itself. There has not been a sufficient number of growing businesses to access that supply of financing capital. Do you still see that lack of demand being an issue? If so, how will the bank address that? Paul Brewer. It is difficult to talk about supply and demand across the whole system of investment because it varies a lot at different levels. You need different interventions at the microfinance level where businesses are still developing their capacity to raise finance. They are understanding what financiers are seeking and can often require development before you can raise the finance as compared with companies that are going into their second or third phases of financing. You are dealing with investors who are going to be looking very closely at your performance and your products and bringing in larger amounts of money and taking greater risks. If you can generalise broadly about Scotland, the microfinance and business angels, the Scottish Investment Bank and so on compare very well with any other jurisdiction that you look at those activities. I think that Scotland is particularly strong in the angel investment network, but when companies are getting on to their second or third phases of growth, there are far fewer indigenous investors and they have got to look more widely for finance, which is not a bad thing in itself, but it means that they are competing in a much more crowded market. There are areas where you need to stimulate demand or support companies to create demand that financiers will respond to, but there are other areas where there are gaps, particularly for companies growing beyond the Scottish Investment Bank's capability to invest and looking for larger sums. Alan McFarland, your question touches on one of the reasons why this is fundamentally a good idea to form this type of institution. Making funds available through a particular period of time and expecting them to be automatically to be demand for it, that is not how life goes on. However, to have an entity that is here for the long term, which is demonstrably patient, which is evergreen, which is continuing, and one of the things that is very striking about the British Business Bank and its website is a recognition about making it clear to people what is available. Having a programme at a particular time and hoping for uptake is great, but there can be no guarantee in that. However, an enduring and continuing entity that makes it its business to let everybody know that this is here and it is available is a big step forward. You are right, it would be great if there had been more uptake, but I would not say that it dams anything. Your question is a very good question. Obviously, a supply of capital does not solve anything unless there is sufficient demand. I see the creation of the bank not only as something that will add a very important new piece to the ecosystem in Scotland, but it is also an opportunity for Scotland to use it as a catalyst to start to unclutter the landscape and to ensure that other parts of the apparatus work together properly. Specifically, Scottish Enterprise, High, the Developing South of Scotland Enterprise, other Government departments and various bodies, has got to be the time over the next couple of years where we get all of those pieces of apparatus working together in an uncluttered way. We have got to get out of finding refuge if we do find refuge in complexity and look for simplicity. There has got to be a level of collaboration that I do not think that we have seen as effectively as it should be. We have a lot of strengths in Scotland. A very obvious one is the university sector, but far too many of our great research projects that move into development get trapped at the micro level. That is because there is not a sufficient understanding and level of support about how to use different kinds of finance, equity and debt. It is a good question. The bank in itself does not solve demand. Origination will come from some of the other parties that I have mentioned, but we need to use it as a catalyst to resolve the issues. I think that we have a great opportunity to do so. It would be a missed chance if we did not. That brings me on to the next question. You have touched on interaction with other agencies. The question of demand raises the question of whether the bank is a supplier of capital. Your reach can only go so far. That underlying stimulus and changing culture, generating a more enterprising economy is going to need more than a supply of capital. How do you see that being done in order for the bank's mission to be successful? How will that interaction with the other agencies work in practice? Will demand and origination still sit with Scottish Enterprise and the Enterprise agencies? Or what part might the bank have in stimulating demand? We are working very closely at project level just now. We are effectively running to an extent a shadow bank using the resources available from the building Scotland fund and other pools of resource. The Scottish investment bank Sib that exists today, as part of Scottish Enterprise, will come across. We are working very closely. Origination will take place not in the bank itself, although we have to distinguish between the SME sector and the long-term patient capital projects that will be mission-related. The mission-related ones will be—the bank will effectively be working on more of the origination there, but as far as SMEs are concerned, that will be the existing agencies and also government departments, but principally existing agencies. British Business Bank, as you probably know, basically funds funders. That will be open to the bank, so some of that will take place, but we also want to make sure that there is direct investment coming from the bank. The origination engine will be in other parts of the apparatus. That is why we have to work closely. However, we are working hand in glove with Scottish Enterprise, and we will be with high over the rest of this year to make sure that—as Alan said, the devil is in the detail—it is easy to say that that is where our origination lies. We have got to work hand in glove. If you say that quickly, it sounds straightforward. What you have to do is work out precisely how you do that, and that is what we are doing. I have to say that Steve Dunlop, who is the relatively new chief executive of Scottish Enterprise, has been committed to making sure that this working relationship and collaboration get to the right place. I have a few other questions, but I will come back to them later. I will make a comment. I used to work for one of the sort of predecessors of what is proposed here. One of the things that I hope is useful to the committee is that this rests on about 40 or 50 years of experience. We have had organisations—some of you will have known them—called ICFC, which is now called 3i, which was partly owned by the Bank of England. Under the SDA, the Scottish Development Fund. Before George Matheson left the SDA, he had brought with him some people who were specialists in small business investing. Your point about demand. The demand in the early 1980s was a very rapidly changing economy, and a lot of it was management buyouts. It was taking—some of you might remember the Karen Steelworks at Falkirk. Scottish Development Agency for Finance was instrumental, along with the private sector, in helping to buy out at least three of those divisions. Not so much of that today. The demand is changing, and it is changing to do with technology and marketing, and some of the other industries in which we are active. Forgive me, your point was how cyclical is the economy and how cyclical is demand. I am afraid that I cannot help you on that one. However, if you have an institution that is permanent, the likelihood of matching the supply to the demand rises. It seems to this interested layman that to have a body that is ultimately not part of SE and that is financial and acts as a serious long-term investor, the net effect is good. Whether it will stimulate demand, I think that it is highly likely that the answer is yes, the extent is the question. We can come back to this a little bit later. I do not want to hog the microphone. I think that my question was more structural in terms of the missing middle. The committee has heard evidence before. We have got many micro businesses in Scotland, a couple of very large ones, but it is the missing middle that we need to scale up on. The bank might be part of that answer, but there is a wider restructuring of the landscape that seems to me necessary to grow that missing middle. Perhaps we can come back to that later. Unless one of the panellists wants to comment on that, Paul Brewer. The only thing that I would add is that Benny's distinction between the investment into the SME sector and the mission-oriented element is very important, because in those areas where the bank is going to focus, it will make a real difference to our economy, it is going to have to bring considerable expertise and work as part of the whole ecosystem, whether it is low-carbon or digital in data, where we have fantastic academic expertise, and it is going to have to work with academia, with existing businesses, with other investors, and it will make Scotland a place where people will see a really fertile investment environment and bring considerable expertise, which is a different environment to the one that supports SMEs. The bank is going to have expertise in both of those areas. Gordon MacDonald. The bank is to be capitalised over the first 10 years by about £2 billion. What impact could that have on the Scottish economy? I do not know the answer precisely. What I do know is that if we deploy £2 billion in both the area of the market, which has been alluded to a number of times already, which is the opportunity for SMEs to scale up, it can actually feed ambition, because that is what we need. We need to have SMEs that are prepared to go from a microbusiness to a more credible small business to a bigger business. We do also need to ensure that we are… The hallmarks of successful economies in the 21st century will be those that are focused on carbon neutrality, which are focused on automation, artificial intelligence, machine learning and those that are responding to demographic changes. Scotland is quite well placed in some of that and not so well placed in others. We have a good track record and renewable, but we have not industrialised the impact for ourselves in terms of what goes on in the universities around data, robotics, automation—a great basis, but as I mentioned earlier, the opportunity to make those businesses grow is a place where the bank can play a part. As far as responding to the demographic challenge, we start in quite a difficult place because our demographic challenge is probably harder than on average, but we need to make sure that the bank can make contributions so that we are better placed. £2 billion is 1.3 per cent of GDP. It is about in line with what many of the other national investment banks around Europe do, especially if you look at some of the smaller advanced nations, which we have to consider ourselves to be one of them. 1.3 per cent of GDP is not unreasonable. We also, in the longer run, will look to ways in which we can leverage that. Direct leverage would require a change of… would require a dispensation from treasury, but there are other ways in which you can use the capital to leverage through co-investment and guarantees and so on. What the impact will be, I think, would be a very difficult thing to speculate about, but putting £2 billion into the economy, if we can manage to use this as the catalyst to get the rest of the framework in place, it gives us a wonderful opportunity to make a big difference. Will that act as leverage to get private investment into companies and organisations? One of the things that would be commonplace would be co-investment. That is what Green Investment Bank was doing, for example. Green Investment Bank, there are many examples of things that give us some encouragement about the type of things that the bank will do, but we have also talked to some of the banks around the world. We visited KFW, we have been to the Irish banks, and I will go out and see the Finnish bank quite soon. It does very similar things. We have just got to look and learn from other organisations, but co-investment is one of the ways in which we can also start to create markets. In the long-term, mission-related projects, the private sector's risk appetite is such that it will not invest in some of those projects because of the timelines involved. We would rather hope that, with an anchor investment from the Scottish National Investment Bank, we may encourage some more investment, but that has to be played out. That is not entirely incremental money. Scottish Enterprise's own report from last year—I am sure that they send you—was worth £538 million worth of deals done in Scotland. It has been on an upward trend since 2012, so £200 million per annum over 10 years. I do not want to disagree with my chair, but Benny is absolutely right, but you could argue that the denominator is not £170 billion of Scotland's GNP, but 10 times that number. In back to Mr Lockhart's question, it is potentially very significant if targeted, but it cannot be a blunder bus. I think that one of the key missions for its board of directors, when constituted, will be to work that out, just to take the point about the middle. Let's assume that there are a group of companies in Scotland for which £10 million would be the appropriate financing. This bank will not leverage on its current. That is just clear what we are talking about in terms of leverage here. Leverage traditionally means that you take your own balance sheet and you borrow money against it. That is not intended. It is explicitly forsworn in the draft bill, so leverage would need to be influencing others to behave differently than otherwise they would. There is clear evidence from Scottish Enterprise that the Scottish Investment Bank has been quite good at that already with the co-investment fund, so that is a solid foundation of optimism. Where there to be £10 million, that is 200 companies ignoring the mission stuff, if that is all it did. 200 companies in a cash-out of £10 million each, where they are the missing middle and where they are constituted differently, yes, that would be a great success. That is what I mean by the detail in numbers. It is the ambition that is measured by the actual funds that are available. I should add that it is very clear from the draft bill that the money is committed to 2021. Bearing in mind that things do change in politics, the more there is a cross-party parliamentary commitment to the £2 billion, because what is committed is £320, plus the £300 coming from SIB's Scottish Investment Bank's existing portfolio, and you run all those numbers together. There are bits of this that are a stretch, but they are not damming. There is a real basis for incremental improvement in the middle, but those are the kind of numbers that I would be delighted that you took away. I am sure that some of my colleagues will talk about the mission statement and the focus of the bank. I have a couple of questions left to ask. The financial memorandum highlights that in year 1 operating costs will be £15.6 million, rising to just over £25 million by 2025-26. Are the proposed levels of operating costs in its first few years realistic? Yes. We have basically modelled it on the basis of what we think the activity will be, the number of people involved. It is our best guess. We have taken as many readings against similar organisations, so we think that it is realistic. Why is RSE saying that it is evidence that there could be problems with that level of operating costs? You should ask them, but we have sought to try and be as realistic as possible about the cost structure. Once the bank is established, it would have probably between 85 and a bit more than 100 people in the business and the institution. It is a real test that has been driven by various people to try to make sure that we are in the right ballpark. There is a related issue around pay, which we have talked about, but that will still have to be ultimately handled before we are done. Angela Constance, do you want to? Thank you, convener, and good morning to the panel. Following on from my colleague Mr MacDonald, I always like to cut to the chase. I just wondered if there had been any projections or modelling done about what the Government can expect for £2 billion worth of investment, any projections over the numbers of jobs created or supported, the number of businesses started or supported to grow, or the ratio of capital that can be then leveraged in? I think that it is another version of the question that was asked earlier. What do you get for your £2 billion? What will the impact be on the economy? I am not sure that I can do much better than the answer that we gave you. We are working at the moment on what the key performance indicators for the bank should be. One has to remember that we have to get back to the national performance framework. That is what we are trying to achieve in Scotland, and the bank should play its part in achieving that. Once we have still got quite a lot of work to do, Royal Ascent will probably take place around this time next year. By that point, we will have a chair, a board and an executive team. There is quite a lot more work to do. We will have to start to develop what the KPIs will be, but at this juncture, we are trying to project what the numbers of jobs created or businesses created. We know that we need to create more jobs, more businesses in Scotland, and we need to help the microcaps to become midcaps and midcaps to become bigger businesses. That is a great chance to make a big impact on that. I am not asking you to look into your crystal ball, but bearing in mind that there are some reasonably solid work done that, for example, we demonstrate that for every £100 million of capital investment, that can support 1,400 jobs. However, there must be some sort of modelling or projections or some sort of aspiration about what sort of ballpark we are in, in terms of job creation and supporting businesses. We have not got those projections at the moment. I think that a starting point that is really important is not to put a huge short-term burden of expectation on the deployment of those resources, because the whole purpose of the bank is to take a long-term view. What is going to be really important is that, when it is subject to regular scrutiny from ministers and their teams and periodic independent scrutiny that is proposed, that there is real thought about the balanced set of measures that you are looking at. To take an example on jobs, it would probably be seen as a success if the bank, in its early days, funded another unicorn, a sky scanner. Yet that is relatively few jobs. It is a big economic success. It is a big success in helping the sector in which it operates, has high prominence and pulls people into new jobs, but it does not create a lot of jobs in itself. If it supports a more effective approach to care of the elderly through its investment, that is something that is likely to involve a very high number of jobs per pound invested, because it is a very people-intensive business. The measures against which it is going to have to be accountable are going to have to cover quite a widespread. I think that if you were to start out with an expectation of targets for jobs created, incremental GDP generated in the early days, taxes put into the economy by these companies operating and so on, it will be very difficult to target in a way that is constructive to the bank's mission for the first few years until you see how it is delivering. On the other hand, you will have to have robust scrutiny to make sure that it is delivering. If you start with SE in Scottish Investment Bank, the annual report, which I presume was published before it was published, says that in 2017-18 it invested £43.5 million. That would be a run rate of £200 million, so four times more. 147 Scottish companies, and I think that is where the demand question will come in, are they there? Patience will be a virtue. Based on the whole book—not that one year, but the whole book—SE claims that on a £300 million portfolio—that is the only number that I can extract from their accounts that equates to the asset value of what they have got—that that led to turnover of £400 million. That would be a one-point times factor. If £2 billion went in and did 1.25 million, the Scottish GDP would not be 175 million, it would be near 180 million. A significant proportion of that turnover was export. Some of that will be to export to the rest of the UK, and that is 3,400 jobs. Their numbers would suggest that £88,000 of investment generates a job. Whether that is their investment or leveraged via others, I do not know, but the baseline must be the existing effort. The working assumption is that more is better, but it must be targeted. I will propose the demand point. I am all for us having the courage to take a long-term view as long as we are setting our ambitions high enough. I am sure that the panel is well aware that there is a good solid business case for getting more women into business. There has been a dream of work evidence that the committee has made available to it in terms of that, if we address the gender balance and the number of women-led companies, that would have a real positive impact—£13 billion to our GVA, for example. I wondered in terms of the initial thinking of the strategic purpose of the bank. What consideration has been given to have some targeted endeavours that would see the number of women participating in business in Scotland grow? That is just a given these days. It is the best people and the best jobs. The notion now that any candidate would be debarred for a job, let alone entrepreneurial backing on race, creed, colour or gender, I do not want to be dismissive. I completely agree with you, but I am trying to speak from the side of how much has been achieved and only more can be. I am optimistic that some of the demand will come from all walks of Scotland's population. If you are suggesting that there needs to be a key element in the mandate that that should be taken as a given, that would be a good thing. I am not implying that it is redundant, but in my day-to-day life I do not see those barriers operating in any way any more. Given that organisations such as Women in Business Scotland and Women's Enterprise Scotland would be able to able to demonstrate that, quite often, women face a lot of additional barriers to access and finance for their companies as well as a lot of assumptions about perhaps some of the types of businesses that women lead as well. Do you think that there should be consideration given to quite a strategic focus about women in business bearing in mind that it is not just about re-badging what has not already worked to increase the number of women in business? If that evidence exists, then yes. Since it exists, then yes, not if. Since it exists. We all work in different industries. Some industries are way more integrated than others, and there may well be areas that we wish were up with best practice. If the evidence is clear, since it is clear, putting that in the bank's mandate that it should be open to all, regardless of all the things that we hold dear as openness in society, then yes, that would be great. It would be even greater if the outturn was that way. Certainly, if you look at the British Business Bank's reporting, they are very hot on this. They are very hot on it in terms of who they invest with, their staff make-up and so on. All I am trying to convey is that, I think, in many, many parts of the economy now, why would anyone deny themselves access to the very best talent? To reinforce everything that Alan said, there will be a broader question of what is going to be the ethical code that the bank will pursue on a much broader set of questions, but the opportunity, as I said a number of times already, to use this as the catalyst to make a lot more change than simply create a greater supply of capital, which in itself is a good thing, but it is a great opportunity for us to change things. Certainly, as far as the bank itself is concerned, we will be setting out to make sure that it embraces diversity in its broadest sense. Just remember, quite apart from all the moral reasons for pursuing diversity, cognitive diversity makes you a better institution, it is the right way forward. We have to lay down some markers about the way that we want to go forward in Scotland. Andy Wightman I want to ask some questions about governance, but first of all I just want to follow up Gordon MacDonald's line of questioning on investment. It is my understanding that the capitalisation of the bank up to 2021 is to be provided through financial transactions, and the rules about how they are used are set down by HM Treasury, and they can only be used for the provisions of loans or equity to the private sector. Yet the policy memorandum does say in paragraph 17, in page 3, that the bank will lend solely to the private sector. It will not lend to public institutions, including local authorities, government agencies or arms length bodies. There is nothing to stop the bank in law in this bill doing that, and there are no rules around beyond financial transactions. Beyond 2021 there will be resources voted by Parliament. I am just wondering where you think this statement comes and whether you agree with it. To be honest, when we set about asking ourselves what it is that the bank should do, we have got to make sure that the bank makes a difference. We are trying to address the issues in Scotland that do not get tackled either well enough or at all at the moment. The two very specific areas are ensuring that, where we can stimulate ambition, businesses can grow from being small to being bigger and be on a path to becoming much bigger companies. The other is the mission-related, which gives us an opportunity to invest in the areas that will give us, if you like, the place in which we have the hallmarks of an economy that can succeed in the 21st century. That was what we discovered during our implementation plan phase, and, therefore, the bank investing in private companies that will participate in those ways is the focus of the bank. I understand that that is the focus. There is nothing in legislation to stop the bank doing that, and there is nothing proposed in the draft memorandum and articles to do that, just as a factual point is that correct? If a mission was set by ministers in two or three years' time on infrastructure and housing, for example, it is self-evident that the public sector, co-operatives and mutuals are well-placed to deliver that, and the bank would be in a position if it is so chose to lend for that. We are clear on that. There is no strict legislative prohibition, and it is not really ruled out. It is just absolutely not. On the question of governance, a lot of the governance of the bank is laid down, set out under company law, but, of course, it is overlaying with statutory provisions in this bill and a certain role for Parliament as well. First, I wanted to ask a question about ownership. The bill makes clear that ministers are the only member of the bank. KFW in Germany, for example, 20 per cent of the membership is the lender. Is there not a role for other bits of government, particularly local government, in a national investment bank? We gave consideration to different models. We believed that the best way in which to serve the Scottish economy in the long run was to have clear unequivocal ownership by the Scottish Government, but we looked at different alternatives. We concluded that that was the best. Can you supply us with any more information on the valuation that you made? We can probably get back to you on that. We can look at some of the papers that we looked at, but we had extensive conversations about different models of ownership, and we judged that 100 per cent owned by the Scottish Government was the right answer. I'm sorry, but the obvious difference is that the lender is probably all five million in population. In terms of an economic unit in which that could operate, you could argue that the structure that the UK has got now is that the British Business Bank can operate here and has already, on its website, there are a number of examples of Scottish-based companies that are being supported by the British Business Bank. The diversity question that you were implying not only about ownership but operation generally, my view is that that is quite well served. Remember that a lot of the angel investment in Scotland essentially comes through the public purse through tax relief. From the standpoint of a diverse public sector involvement in activity across the SME sector in Scotland, I'm content that there's a huge amount of diversity. I think that at this stage, the obvious argument might be that HIE or SE or some others might have a stake. I think that for where we are just now and Benny's comments about 20 minutes ago about the benefit of focus, I think that the outweigh multiple ownership doesn't say never, but for today I think that it's strongly argued in favour of a single point of ownership in contact. Yes, just to be clear, I wasn't suggesting multiple ownership or Scottish interests or any of those bodies because they are governed by Scottish ministers. I was purely looking at the local Government point of view. Another bit of the governance is the so-called advisory group, which is talked about and discussed. It's not put on a statutory footing, so this is something that the legislation doesn't say anything about. The Royal Society of Edinburgh, for example, advises against giving the body a significant role. Others have questioned what role it might play and whether there would potentially be any clash with the board of the bank. Can you elaborate a little bit more on the thinking behind this advisory board and in particular whether, if it is to play a significant role, that role should be set out in the bill? Perhaps I'll start and then my colleagues can join in. First of all, we have to be very clear that, if I just take a step back, there will be a strategic framework, which I see as an envelope within which the bank will operate. What we're seeking to create is an envelope that allows the bank to be operationally independent with a board and an executive team to pursue the aims of the bank within a risk appetite that's set out in that envelope was obviously some reserved matters that would go back to ministers. The advisory group was really, the genesis of that was, as we did go around and talk to people, there was a belief that it was important to have a voice that could advise ministers on the bank's operation and how the bank's pursuing its strategy. However, we have to be very clear, if we want an institution that's going to be a bank, we need to have people who are bankers running it. There is no alternative to that, and we have to make sure that they can operate independently within the envelope. An advisory board will have a voice to inform ministers as the owners of the bank, but they will not inhibit the bank's operation on a day-to-day basis. There are examples of advisory boards being given quite significant power and say in organisations like, which have a public sector mission, like Network Rail and Wealth Water, but what you find is that if you've got a very diverse group of voices contributing to something that has to make decisions, it is very difficult for it to be an effective decision maker, and those bodies sometimes then find themselves just being rather led by a chairman's views because they can't get everyone else to agree. Although Benny has emphasised the importance of ministers getting a diverse group of voices giving them that advice on the bank, if you start to wire that directly into decision making or supervision of decisions, it is actually quite difficult to make it work at a practical level. Coming back to your point on making investment into public bodies just briefly, I think that wider minds than mine on public sector finance would have to verify that, but I suspect that if you started investing directly into public sector bodies, the budget that you're putting into that would score in a different way and potentially come out of capital resources depleting the finance available for other uses of those resources, whereas financial transactions is clearly quite delineated for going into the private sector and is additional to Government's other resources, so it's possible that you would end up effectively in the same place as if the money had been put in directly by Government rather than by the bank. I could follow that up later. I mean, I'm not sure that Scottish ministers have the power to provide financial transactions that are not backed by the Treasury, but we can— No, no, but— So it would be a resource. Yeah, but that's Scottish, but it would be a resource money if it was put in directly, I think. I think that the advisory board, Benny's continued to be involved in the last year since the paper, so I've gone back and refreshed everything. There's clearly a role for an advisory board, but I would argue much later. It didn't be right up front. If you think about what's here, and this is the same model as Development Bank of Wales and the British Business Bank. This bank's board of directors will have all the responsibilities under Companies Act that any of you have as directors of any company that you have, so the annual audit will have to address solvency, going concern, all of that, and it's going to make losses for the first three or four years, so it's going to be imperative that they have an extremely close and confident relationship between the board of directors and their shareholders, which will be the Scottish ministers. I think that to have, and let's put it in its worst terms, possible an audience of fans being for the manager to be sacked three games in, that's the worst possible outcome. An advisory board that, once it's up and running, once it's established itself, once it's answered the very big questions that Benny addressed about some of the mission-led work, it seems to me that that would be a moment, so I wouldn't be, despite having me involved in the report, looking at the detail, I would want to put that down the track rather than up the front. I just want to underline the responsibilities of directors may have been aggregated in far too many British and A Scottish companies in recent years, but they are serious and onerous obligations, and so vesting it in this structure, I think, brings many things, one of them, infinitely greater clarity about investment making and performance. I'm going to disagree slightly with the chairman again. I get the point about bankers, but this isn't a bank in the sense that it's borrowing money, so I would argue that it's people with an investment focus, and he would say that given his background, but I think that combination of credit evaluation for loans and investment capability, which is exactly what Scottish Development Finance had under the SDA, so that's why you're building on past experience here. I think that that structure with the obligations under companies that are very powerful billworks to the Scottish Government in making these investments is a different regime of governance than current exists through SE and the SIB. Okay, if I could just maybe just finally just clarify this question about the advisory group, Mr Higgins, so is your understanding the advisory group advises ministers? Not the bank. It has a voice, I think that we'll go and be very careful about the word advisory. Okay, we'll set aside the advisory, it is a voice, but it advises ministers, not the bank. Not the bank, that's the way I see it, yeah. Ah, right. Can I also just say something else? Inevitably, the strength and effectiveness of this institution will be dependent on the quality of people that we get to chair beyond the board and beyond, especially the senior executive positions. If we were to create an environment where there was another board that was meddling in decision making or strategic development, you wouldn't get the right kind of people. But no one's suggesting that. No, no, I'm just making the point absolutely. I see the advisory board, and I take Alan's point. It may well be that it doesn't need to be there on day one, but it was responding to a desire from a broad church of people who said, we'd like to have a voice that ministers would hear as they go through the strategic cycle, if you like. And I also agree with Alan that it's not traditional banking here, but we do need people with investment and banking experience, and we need to get the very best who are committed to making our success of this. I don't want to spend a lot of time on this here, but you make the point, Alan McFarlane, about the director's duties and so forth. I'm not entirely persuaded by that sort of argument. I don't know whether it's possible for you to provide something in writing following the committee meeting just to give us an idea of how you envisage that all working in terms of the bank. Mr Chairman, if you don't mind, I won't. I'll just direct you to the company's act page of the UK Government website and the duties of directors. Well, I'm fully aware of the duties of directors, but the question is, how effective are these in terms of what is being set up here? Well, that goes back to the point about the calibre of the folks you want to have who are going to implement this. In a sense, the greatest power is resignation. It's the maximum independently minded people who agree with the principles that are undertaken here and who agree and take the responsibility to carry that forward. In a sense, receive the mandate from Scottish ministers and then say, well, we'll get on with this, but we're accountable for coming back. All you're hearing is that disclosure by public companies now is getting ever bigger. It's disclosure on gender equality. It's disclosure on economic and environmental impact. It's disclosure on pay disparity. It's disclosure on all of these things. I'm presuming that, and it may be the wrong presumption, the new entity will be expected to provide a degree of reporting on the companies in which it invests. The best standards of disclosure now are extremely high. Anyone taking on the responsibility and signing that company's act document to say, I will sign the annual report and accounts of this organisation, I repeat, is undertaking a degree of transparency that is not presently available, I understand, through the accounting models applied to Scottish Enterprise and other similar public bodies. All right, well, we'll move on from that. Jamie Halcro Johnston Thank you very much, convener. My questions around the Scottish Government's consultation process on this, I was wondering if the panel are confident or satisfied that the Scottish Government's consultation included, I suppose, enough businesses of all sizes, communities, individuals, trade unions and the like in the development of the bill, whether that was enough and whether the key concerns that came up during that consultation process have been addressed. Open consultation is open to anybody to make a contribution. We had a very large number in widespread contributions. I would say that I'm certainly satisfied that anyone who wants to put forward an opinion or a view or raise a concern had the opportunity to do so. We've also been informally, as I said, speaking to as many people as possible. I should say that I'm delighted that there is very broad support for the bank from across the political spectrum and across the kind of ecosystem within the Scottish economy. There were some issues raised. Is it big enough? Questions over pay? How will we operate policy? Will it be within the public pay policy or not? How many will be and how many not? Those questions about whether there will be an ethical code? How would the approach to missions be? How many would there be and how would we start to develop more missions? All legitimate questions, but from a position of almost universally strong support for the bank. Those areas of concern, how are they engaged within this development process? We're continuing to work on them as we speak on each of them. An ethical code will be put together. We've started to have conversations within the project about creating a pay policy. We've been the question of scale, as we've already covered it. Obviously, if you had more money to invest in the economy, you could go further, but £2 billion is a decent balance between aspiration and impact. I think that we're working our way through all of the issues. Some of those areas, particularly around ethical investment, will be followed up by colleagues later. I'll just move on to another area. Someone mentioned earlier that there had been engagement with HIE. I'm just wondering how that regional aspect has been incorporated into the development process—into the consultation and development process. Obviously, some of the regions of Scotland may feel that they're focused perhaps on the central belt. I'm just wondering if that's been taken into account and how we can ensure that the bank doesn't focus on perhaps the more traditional areas of investment that Scotland's regions are included in. It's quite important to understand that the project is about fundamentally building the capability to be able to do the right thing for the Scottish economy. I'm visiting the High Board in about a month's time to talk to them through what we're doing, talk to them through what the opportunities for them will be. We see the opportunity for the bank to participate in investing in investments across Scotland is really important so that the agenda outside the central belt will be important but we're not at a phase at the moment where we're executing that change but it is very much clear that it's an important part of what we have to do. Okay, just a very quick and last point. It was touched on by Angela Constance when she was talking about the role of women and making sure that opportunities for women within the bank and the structure are there. I was just running about other areas of diversity and particularly areas around young people, small business owners, ethnic minorities in the third sector, how you can ensure that they are not only involved in the consultation process but also represented in the bank's activities going forward. I think that we would be repeating some of the things Alan and Paul said and I said earlier. As we move forward, it's important that this is the chance to tackle making sure that all of those areas get appropriate investment. We can't imagine that the bank is going to be created to solve every problem, let's be clear. The bank is adding an important, critically important, additional piece of apparatus. However, as I keep coming back to it, this is also the opportunity for us to start to ask how does high Scottish Enterprise, South of Scotland and other Government departments start to pull together in a different way to make sure that we tackle all of those issues that are being mentioned? Right, thank you very much. The convener has had to leave temporarily to attend another committee, so I am temporarily convening. I think that Angela Constance has already asked your questions, so it's on to Jackie Baillie. I want to turn to the mission approach, because evidence given to the committee suggests that it's going to be complex to introduce, it's going to be difficult to operate and evaluate. What's your view on that? Start with Benny Higgins. I don't agree with whoever said that, first of all. Clearly it wasn't you. It wasn't me. I think that we've got to be clear. There is an argument for us not having very many missions at the start. This is a bank that we're setting up. This is probably a moment to also say the following. To use, maybe it might not be the best analogy, but we want to give birth to a bank this time next year. The bank will develop over the decades ahead of us. There are very important tectonic shifts taking place in the world economy, and they have to be reflected in how we manage the Scottish economy. Carbon neutrality, automation, demographic change are the obvious candidates. Therefore, what we need to do is create a process for the bank that allows Government to understand where the mission focus should be, and that mission focus will change over time. As I said, there is an argument for not having too many. Carbon neutrality seems to be a very obvious one. As we follow through the process of deciding which ones they'll be, that will be one. We've got to make sure that the investments that we make we find refuge in simplicity, not in complexity. We find refuge in doing the right thing. I think that the others that I've mentioned will be strong candidates, too. Along with social housing is a very important part of what we need to do in the Scottish economy. In all the businesses that have been part of what you've got to do is find simplicity as far as you can. Complexity is an easy place to go. It can often be a refuge because it's a place to hide. We can't hide in complexity. We've got to make big decisions, get them right and move on with a clear strategic focus. I think that it's in our own hands to keep it simple. You always start with complexity when you're trying to prioritise limited resources in areas where there's a huge scope to deploy them. I think that determining the missions for the bank is incredibly important from two dimensions. One is its relevance to achieving the national performance outcomes that you're aiming for, and the second is its effect in doing that. I agree with Benny that it may be difficult to decide what to prioritise, but if you start with too many missions at the outset, you will probably underachieve in all of them. If you look back at the green investment bank, for example, they caused great frustration in their early days about the things that they were not investing in. They didn't invest in green technologies. They were very focused in investing in projects that took technologies into reality, for example. That was probably the right decision in terms of the effects that they had. They made a very significant difference at scale to the flow of finance into offshore wind. Many of the technologies that they were being strongly encouraged to support were part of a great span of technologies, many of which exceeded many of which didn't. However, if they put resources into that, it would have drawn a huge amount of their capability, so the bank will have limited resources and it's only going to be effective if it prioritises where it places them. There's lots of competing options. One of the difficulties is that the term mission is undefined. I don't mean in this document, in wider life. We haven't got a common grasp of what we mean by that. Certainly, as Benny indicated, there are a few commonly agreed mishons without agreeing what mishon is. The best way, if it's slightly not a way to do it, is to think of what you wouldn't want to do. If there was still a coal mine in Scotland that it was about to expand, we'd snub invest in it. If any of us got the chance to frack, would you fund a community organisation that wanted it to happen? All of those things—some of them answer themselves for just very obvious reasons, but then there's the more ticklish ones about oil supply or if somebody in Scotland made the best vaping cigarette, would you invest in that? Those are generally problematic, but usually individually much easier. It's my experience of ethically-based investing and working with clients from all religious and philosophical backgrounds as to how you implement that. I think that the mission of the British Business Bank is very, very good. If we could take, when we're framing these missions in Scotland, to take some of the ambitions about having a less carbon-intensive economy and indicating how those two might interact, that is where it has to be left to the board and management. That is where it will be their job to interact between the friction of optimism and the reality of what's available to do and turn that into wealth and job-generating businesses. It's the most patronising answer that I can give you, but it's absolutely true in day-to-day activity. You wouldn't put any question of the mission on the face of the bill because you would want to retain flexibility to do it over time, yet you yourself said that this whole thing needs to be owned by Parliament as well. I think that it's a classic example of where the dialogue will occur through the annual report and accounts of this organisation. It's dialogue between a shareholder and between the company that is created by those shares. As Benny said, if you start at the beginning with a few missions and one or two, which all the consensus of all the consultation indicates that people are broadly behind, start with one or two, indicate how that friction happens between the Government will and the practice of the bank in its day-to-day investments and indicate where tension occurs. I'm a great believer that friction creates heat but also creates light, and I think that that is the way to go forward. If I rule the world and that would be great if all that happened, we both know that it's not like that, but it would be appalling not to have high ambition at the outset. The question is how much of it and in what form and how does it hit the road between the board of directors, the executive and the shareholder? Let me continue with the theme of ambition, certainly in my head, about how the Government would ensure that what happens is legitimate, what happens delivers societal value because that's one of the objectives. I've always believed that assessing social costs and benefits is very much at the heart of economic appraisal. If you consider how it's done currently, for a particular project, say, you would assess net present value against Her Majesty's Treasury's green book, what approach will you take in terms of assessing societal value? I still agree precisely how we do that. We recognise that it is a very important part of what the bank is being created to achieve, so that's work in progress. That is key to realising whether this additionality actually works for the economy of Scotland. We've not yet done anything with it. We've got the national performance framework, which I think is a very important starting point. We've got to try and address how we measure the bank's progress against that national performance framework. So Her Majesty's Treasury's green book approach, is that featured in any of the discussions or debate? It's been part of the conversations, but the national performance framework is the outputs that we're trying to achieve. We have a national performance framework for a reason. I think that it's a very progressive thing. I say that very apolitically. We also have the green book for a very good reason, and it's been there for a while and been updated. You say that it's not being ignored. I would appreciate evidence as to how that's been considered. I don't know if either Alan McFallen or Paul Brewer have anything to add. The topic came up in terms of wider impact and wider discussion. Forgive me, but I would put it back to you as well. Are you content with the SIB's current reporting? Would you like more? Indeed. Start with what you have and make it better, if that's the baseline. We have… A couple of people want to come in with supplementaries. Do you want to? No, I'll let people come in on supplementaries. I will pursue this. If you have a good time, I'll let you come back. Andy Wightman, I think, first and then do you want to start. Yes, just briefly. I mean, we're scrutinising the bill. I'm curious that section 2 of the bill specifies that the bank's objects are set out in legislation and shall be subject to the resolution of Parliament, so Parliament has to sign off the bits of the objects of the company. On the strategic missions in section 11, there's no such role for Parliament to approve them. They'll just be laid before Parliament is… The bill itself. The bill itself, yes. I'm just wondering whether, given the potential significance of the strategic mission that ministers should also seek a resolution of Parliament to approve these, or was there a good reason for not doing so? I think that we've got to be careful not to assume that the three of us sitting here, even myself, who's been a strategic adviser to the project, are the experts on the positioning of the bill. I think that there are others who are probably better qualified to talk about how the bill's been put together precisely the way it has, but it has been put together to try to make sure that it gives the opportunity for the smoothest and strongest governance of the running of the bank. That is, as you say, it would be up to ministers to choose the missions and that's the way that the bill's been proposed. You don't have a view on whether… I think that it's the right… I agree with it. I think that having to go through a parliamentary process to address the missions, I think that we could over-intellectualise this. There are very big, obvious missions that we need to pursue in this country. Alan has quite rightly said that the expression may not be very well defined or uniquely defined, but what we do know is that we need to aim for carbon neutrality. We need to respond to the other things that we have talked about earlier. You say that we need to. There are different views on what we need to do. A resolution of Parliament is not a complex parliamentary procedure, it's merely a resolution that is debated and voted on. It's not like this today, it's not legislative or anything like that. The objects in section 2 have to be subject to a resolution. One would not anticipate the objects however they end up changing very often at all, if ever, so that's fair enough. The mission will be a little bit more flexible, it can be reviewed and all the rest of it. You're clear that that shouldn't be subject to the same process. Sorry, I have no decision making power on this. No, no, I'm asking if you're viewed. I'm expressing my opinion. That's fine. I think that this makes perfect sense. In the financial memorandum, I apologise, I didn't bring the whole thing, but in the financial memorandum paragraph 11, which is what I thought you were talking about anyway, I know that you're not, it says that it talks about the mission approach in a sense that highlights the vastness of this to support transformational change across a number of grand socio-economic challenges, which we can agree exist, and I take your point, we might disagree about how to implement them, but then it says this, it is envisaged that the bank will respond to these missions through its investment strategy. So that's my point about the friction, that the wish is expressed and you've willed the means in part in the creation of the bank, and the means must respond with what it can achieve. No, my question is simply… Another supplementary. Final point? Yeah, that's fine. You're okay, right. Dean Lockhart. To move from the micro to the micro, from the mission investments to investments in private sector business, will investments in individual companies be merit-based or will the bank also have a regional allocation in terms of investments to make sure that each region of Scotland gets a roughly pro-ratashare or will it be purely merit-based? To be honest, at the moment the assumption is merit-based, but we will have to make sure that we paid you attention to stimulating the right kind of demand across the country because there is no desire for us simply to serve the central belt, which came up earlier. It will be absolutely critical to monitor the levels of investment that are being made in the different regions in Scotland, but at this juncture we're not trying to force feed certain regions. It would be trying to encourage the right kind of demand and feed that demand. Looking at the book of investments, will there be an ROI or a target, a hurdle target, established early on to make sure that investments are creative? Yeah, just for the point of doubt, the bank is being set up to make a return on capital. We haven't set out precisely the numbers that are associated with that yet. We have to also take into account the other comments that have been made around societal benefit 2, but the intention is that the bank will make a return on capital. Some of the issues relating to the long-term patient capital will be interesting because in some of those examples there will not be an existing market to make the comparisons in terms of returns, but that is work in progress to set out precisely what those returns need to be. The British Business Bank has some very clear numbers that use these, which are from the British Venture Capital Association about what expected returns are. I just wanted to underline in the bill that it makes crystal clear that it is expected that this organisation will not be cash neutral in terms of its cost until 2023. There's going to be red ink spilled in those annual report and accounts every single year until 2023. That's what I said at the beginning. If you want to be long-term patient capital, you have to have long-term patient investors. Just to underline that point, coming back to the gap that we talked about in the first place, a lot of venture capital and private equity investors have time horizons on their funds. They've got investors standing behind them who want to see a return in five to seven years. Sometimes, to the point where the fund has a hard end date, they have to realise those investments in that timescale. It's very important that, in setting its ROI, the national investment bank doesn't have the time pressures because that influences investment behaviour in ways that would work against the outcomes that you're seeking to achieve. Okay, thanks so much. I've got a few questions just myself before I'll go through the final questions. On the point on missions, I think that the question I have is how distinct are those or is it possible that they overlap with each other? Looking at the German, what we're told, the German investment bank, they've got a couple, for example, climate change in the environment, globalisation and technical progress. I would see those as potentially overlapping quite a lot. Do you see the missions as distinct, so this bit of money will go for that mission, this bit of money will go for that mission or is it more like we are looking at all of these missions and this investment fits a number of them? I'll start, maybe, and others can join in. I think that we shouldn't be setting out to try and make the very hard and fast rules around us. The point is that the missions are the direction of travel to make sure that we do the right things in the economy. I've mentioned earlier that we've been in dialogue with other national investment banks. We've got to be careful not to try and be like any one of them in particular because we have to be spoke for our own specific needs in Scotland. KFW in particular is a very interesting case study but, of course, it's been around since after the Second World War is an absolutely huge institution. I don't think that it's probably the best place for us to look for most of our learnings. In other countries, which are similarly small advanced economic nations, I think that we see probably better comparisons. There will inevitably be examples of investments that we make that serve different missions, whether it be a crossover between carbon neutrality and automation. Some of that is inevitable, but I think that the purpose of the missions is to give us guide rails to allow the investment strategy to unfold within the operationally independent bank. On that, the bank's resources come in two forms. One is the capital and the other is the people. What you absolutely need is people who have the knowledge, experience and capability to have a real impact through investing in the missions. I can't anticipate what the bank would do, but I'd be surprised if it made hard allocations of capital between the missions because it's about getting the maximum overall outcome, but the people who bring the expertise in these will all speak to each other and where they overlap, I suspect. Overlapping investment is unlikely to be an issue. I mean another word that's been used has been ethical and that's been mentioned already this morning. The thought is that the bank would invest in an ethical way, but that word ethical I think is difficult, or at least people understand different things by it, let's say. So what do you understand by the bank investing in an ethical way? Anyone? Who haven't? Mr McFarlane? Good place to start is the UN's Sustainable Development Goals, which across the investment industry now are becoming, so it's I think called the PRI, Principles for Responsible Investment, promulgated by the UN, fit in the sustainable development goals, which I'm sure are very familiar here. Then there's the ethics of upholding the law, the questions about openness in society. The point is that to have a bank where there's a silo of carbon neutral, a silo of that, to answer your earlier question, it's not possible and it ties in with this. The shareholder makes it clear, partly client, partly shareholder, these are the outcomes I desire or we desire, evidence your journey, your path towards that and evidence the manner in which you're conducting yourself. When the classic example is that some religious traditions prohibit interests, others don't. Different religious traditions have different attitudes towards some health products and others, so investment people are very familiar with dealing with the client's mandate. I think what's going to happen here is that if the Scottish ministers can say, well, the UN Sustainable Development Goals are a really good broad framework, plus these other things, that will help a lot to guide the board of this institution as to how to conduct itself. Can you imagine a situation where someone's going to stand up in Parliament and say, you're claiming to be ethical and this particular decision is not ethical? Is the answer just that, while that will be reviewed at the end of the year? It's unanswerable, because then we're dealing with axiomatic assumptions about ethics, we're not dealing with an investment question. One thing I can say is that we will document an ethical code for the bank, so that will be documented. That will not prevent arguments about whether it's been followed or not. Okay. I think that will be one we come back to. I'll leave that just now. Just finally, to wrap up really on some kind of practical questions, the timetable, I think one or two people have suggested that we've got quite a tight timetable to get the legislation passed, get things into effect, get the board in place. Have you got feelings about that? Are you relaxed about where we are? Probably best to answer that question. I'm speaking to all of my colleagues involved in the project. There is an awareness that this is a tight timetable, but there is also a degree of confidence that we can push through. The first vote would be scheduled for September, probably the second and November in a final vote in March. In parallel with that voting schedule, Stay Aid will be going through. It's independent but not unrelated. We're reasonably confident on the bill that we'll get to Royal Assent by this time next year. Of course, in parallel, we have to build a bank, not just get a bill through, and we've got to get the people involved, we've got to get the business set up. We're going through detailed design authority meetings at the moment, the process of looking for a chair is just about to be kicked off, finding a chair will then unfold into finding the rest of the board and finding a chief executive and other senior executives. I don't take it for granted that that will be a straightforward process. I'm hopeful that if we get on with it and get going now that we can follow through and get this done in the schedule that I've just referred to, it's not easy and there's some unknowns, but my concern is more about just getting the right people because the organisation and the institution will ultimately be as good as the people that run it. Thank you very much to all of our panel for coming in today. I'll now suspend the session to allow a changeover of witnesses. We'll now come to the next part of the item on the agenda, and that is our second panel of witnesses on the Scottish National Investment Bank, Bill. First of all, I'll ask any members to declare any interests that they may have. Angela Constance. Thank you very much, convener. In the interest of transparency, I would like to declare that I'm in the process of joining the board of Commonwealth that's a non-financial interest, but I thought, given that one of our witnesses is from that organisation, that I should declare that for today's purposes. Thank you very much, and with that, I'll turn to today's witnesses. We have Robin McAlpine, director of Commonwealth, Aileen Dixon, policy and parliamentary manager of Engender, and Ray Perman, who is a fellow of the Royal Society of Edinburgh.  If I might just start about the rationale of the bank, which is to improve Scotland's innovation performance and enhancing SME access to finance, what do the panel think of that purpose or rationale and also whether or not you're satisfied with the objectives of the bank as set out in section 2 of the bill? I don't know who would like to start on that. I'm happy to start. We are very happy with the bill. It's been a project that's been very close to our heart for a long way through, and we've been following it very closely. A strong confidence in the way that it's been taken forward. The most important thing for me is not to see this excessively from the producer side, so the objectives in terms of what we are going to do is useful. The important thing is that it must be demand led and that we have to encourage people to come forward. The objectives are broadly right, and what we have to do is make sure that there's sufficient demand in Scotland to bring those objectives through. Partly that's about signalling that those objectives are the things that the bank is looking to support. All the way through this, I've been quite clear that missions will change and adapt and must be interpreted openly as they go along. The one thing that I would have liked to have seen a little more emphasis on was lending to public sector, so assisting the finance of public infrastructure, working with local authorities, housing associations and others. I think that there's a couple of times when the wording at the moment slightly implies that this is going to be just an SME bank a little more than I would have liked to have seen. Broadly, yes, we are quite happy with that, and the key thing is, like I say, it's about stimulating demand and it's about being helpful and flexible and developing the right suite of lending to make sure that that demand first of all comes forward and second of all that it signals the kinds of projects and the sort of work that we are hoping people will come forward with. Eileen Dixon. We are slightly more concerned about the objects that are listed within the bill at the moment, not necessarily because there is anything wrong with those that are listed, but because they are primarily focused on the economic aspects of the bank, the core economic aspects of the bank, rather than the social wellbeing and environmental impact that the bank is supposed to have. The bank is supposed to be about doing something different, it's supposed to be about releasing untapped potential. That does not translate into the objects as they're currently listed, and we don't believe that without an equality and non-discrimination objective, there won't be any radical change in the way that things are currently done in the economic development field. Right, Ray Carman. Our position is set out in the written submission that we gave. We are broadly supportive of the objectives of the bank. We think that they should be clear. We would disagree with Robin McAlpine on the investment in infrastructure because I think a decision was taken very early not to incorporate Scottish Futures Fund, which does infrastructure into the bank, so there should be a clear division between those two. I don't think that it's going to do any lending. It is an investor, although it's called a bank, rather than a bank. Broadly, we would think that the objectives are clear. We have reservations about the mission-led side of things, agreeing with what Alan MacFarlane was saying in the previous session that it should start off with a simple mission, a single mission, and maybe build on that later rather than starting with a weight of expectations that might be difficult to fulfil. I ask this question in the previous panel. We've seen other policy announcements and initiatives from the Scottish Government to supply capital and supply finance to the Scottish economy, but there hasn't been sufficient demand, as Robin McAlpine referred to earlier. It strikes me that the bank, in giving answers, thought that it could play a role in increasing that demand. I'm not entirely convinced by that, because they're not going to originate, they're not going to go out there and find business, their job is to supply money to business, that is found by other agencies. I'd be interested to get your views on overall how we can stimulate that demand for finance and then how other agencies can deliver businesses to the bank in order for the bank to finance it. If I can answer that, I think that you're absolutely right, and Benny did allude to this, that the bank will not originate deals itself and therefore has to work very closely with those agencies and also with private sector bodies like the commercial banks, for example, in bringing people forward to stimulate demand to take up the capital. So important links between the existing economic agencies and other stakeholders and the bank must be made at the beginning. If I can just give you an example from UK and the British Business Bank, I was chair of an advisory group to the Department of Business in London for eight years. We set up in the 2005 an organisation called Capital for Enterprise, which was to do the things that the British Business Bank is doing now. It didn't have a particularly grab-me-name. It had a pretty high profile within the investment industry, but generally among companies it was an unknown quantity. Mili renaming that as the British Business Bank has expanded those activities. Mili renaming it as the British Business Bank, a much clearer name, gave a visibility to the activities that were going on, which was important. I think that just the publicity around renaming what is the Scottish Investment Bank currently as the Scottish National Investment Bank and building on that foundation to expand could have a positive effect. I would agree that there is some work to be done around awareness raising and there will be a rule for the precursor funds to do that. I would disagree that we should be looking at what we already have and building on it. The current structure of economic development in Scotland is not reaching everybody. We know that Ms Constance already referenced the potential GVA of women's business in this country. We know that that does not necessarily come from sectors that are prioritised within the Government's economic growth strategy. It has to be about looking at other sectors and other ways of doing it and other types of businesses. We are dismantling some of those additional barriers that are in place for people who are looking to access finance but may not have the particular traditional style of business. They may be working in childcare or care sector. There may not be a huge amount of growth potential, so they may be discouraged from seeking funding in the first place from the private actors that already exist and the current public actors. We were developing those proposals earlier on by conversations largely with a lot of small businesses, medium-sized businesses. One of the things that we kept coming across again was that there was a lot of fairness in fair or not. They were quite scared of banks. They saw the banks as predatory. That was a period in which a lot of those small businesses had come out of the wrong side of lending arrangements with banks, on top of which we talked to others who, to my eyes, had viable business proposals, but the kind of lending horizons, the periods that the banks were willing to lend, the times that they were willing to lend on, were not conducive to encouraging those businesses to come forward. The first thing that we thought was important was to say that here is a bank whose sole purpose is to support you. It is not a profit-generating bank, we are not going to extract profit. Our only purpose in existing is to help your business grow and become better, to be long-term partners with you. That messaging, simply to send out that message, I think will have a positive effect on a lot of businesses who are nervous about bank lending and who are not coming forward for that reason. We would suggest that those concerns are probably even stronger in the social enterprise and cooperative sectors, which are sectors that we should want to grow substantially in Scotland. The other important factor here, and this is when we come to the there's a fund here, there's a grant set here, there's a pocket of money here, this is a bank that should be here in 100 years. This should become to Scotland what national investment banks become to Germany, a fundamental permanent part of their economy, which people assume will always be there to support the kind of long-term developmental activity. As well as getting the lending terms right, as well as creating the right lending horizons for small businesses, as well as making all those things work for it, the message that we want this to be how this bank works will be something that will build demand, and I genuinely believe that to be the case. We're already talking to people, small businesses, and we're saying to them, you know this is coming, you know these opportunities are coming, and people are going, ah, so I genuinely think that one of the most important things this does, as it says, there is a place you can build your business through time, which you can trust, which will work with you as a partner, and you should look again at ideas and thoughts that you had in the past and were perhaps nervous to come forward with, and I think that that's one of the first and most important things that the bank can do. Thanks very much. I can follow up with one specific supplemental. We heard evidence from the previous panel that the investment policy of the bank will be merit-based on an individual case-by-case basis. There won't be any concept of a pro-rata distribution of investment across Scotland in terms of region. I'd like to get your views on whether you think that is the right approach. I think that it is absolutely the right approach. There is a danger in a pro-rata allocation, and we saw this in the UK generally with the regional development, regional venture capital funds, which were set up in the early 2000s on the lines that you suggested. That is, regions were given an allocation of money. What happened was that some regions ran out of money, they had more demand than they had supply, some regions had a shortfall in demand, and in some cases, in one particular case, I think in the south west of England, the costs of administering the fund were greater than the amount invested. The National Audit Office produced a corresponding report on the running of the regional development funds, the regional venture capital funds. I think that the money should be held centrally, but it should go where the demand is. Stimulating demand in those areas that are not traditionally coming forward with investment propositions is a very important job and should be done. However, to arbitrarily allocate the money in advance of seeing what the demand is, I think that it is going to be counterproductive. I agree with that. There is a theme that I will mention a couple of times here. Sometimes people see that this bank is a one-stop shop for fixing everything. It is a source of funding. It should be giving the right kind of packages to the right kind of projects. It is not inventing the projects, it is not directing the projects, it is not travelling around the country saying that we are going to invest here. It has to be demand-driven. The purpose of the tasks of getting different regions of Scotland to increase the demand pool is a different task. It is for local authorities, that is for Scottish Enterprise and its local arms. In terms of lending, I do not think that I can accept that yet, but you do not really want small businesses borrowing largely from a central bank in the centre of the town. We need to have a banking network, a local banking network that creates the kind of support that small businesses need. If you are running a hairdresser, you need to cash up. You need a relationship with a good banking network. One of the things that we would argue is that we do not assume that every micro-business will be going to the Scottish National Investment Bank for lending. It is more likely that we could do with a better local banking network. We are going to come forward with proposals for a mutual or public local banking network, both to sustain banking services in communities in Scotland, which are losing them, but also for the sole purpose that long-term relationships with a close nearby bank is the best solution for a lot of small businesses. The National Investment Bank can play a very important role in supporting and capitalising that, but it cannot do everything. I absolutely agree that Scotland has got a problem with differential investment in different regions of Scotland. I mean, I have to see this everywhere I go. What I think would be very important is that the bank does monitor where regionally its investment goes, but it must be driven by demand. If there is a demand failure in a region in Scotland and people are not coming forward, it is the rest of the public agencies that are supposed to be working in economic development. They need to address that. The bank has to be lending on the basis of business cases that are brought to it. If they are not coming, that is not the failure in the bank. We do not have a position on whether to take a regional approach, but the question would be, how would merit be assessed? Before I go on to my own questions, on the subject of demand, I was reading the RSE's report from 2014, the supply of high growth capital for emerging high potential companies in Scotland. It was saying that banking regulations have introduced more stringent risk criteria, reduced access for small companies to conventional overdraft or term lending arrangements and has had significant effect on the capitalisation of early-stage companies. As a result, growth aspirations have had to depend on equity investment. Is that the gap that the new Scottish National Investment Bank is trying to fill and is the criteria that was highlighted back in 2014 still applicable today and that is what suppress in demand? I think that the criteria is still applicable today. I do not think that that position has eased any. I imagine that one of the gaps that the National Investment Bank will be trying to fill is going to be an investment bank. It will make equity investments. It may do some lending. The Scottish Enterprise and the Scottish Investment Bank at the moment do a minority. A small amount of their investment is in lending rather than in equity, in investment, long-term patient capital. I imagine that the vast bulk of the money that the National Investment Bank invests will be equity. It will be patient capital. It will not be lending where you need to get the money back and sometimes you need to get it back quite quickly. It will be patient capital. If I just add to that, that is exactly the kind of gaps, barriers and parts of the lending or equity environment where there are problems. I emphasise that what I have found exciting about this is that we have been working on this for five years and we have got a clear idea in our head what we think the kind of projects that might come forward would be. What I have found really encouraging is that we keep talking to projects that we did not realise would potentially come forward. I would expect that there will be quite an interesting and diverse range of different projects that come forward, of different enterprises that come forward. Those are some of the kind of barriers that I think can be addressed. I will give you one other example. We were talking to a project that is a company of business that is looking to expand and it just so happens that, at the time that they were looking to expand their bank, because it had been burned in a couple of things, had just pulled out of investments on retail properties. They said that they were not investing. We are just blanket not investing. We have been stung too much by overpriced commercial property investments, but they were looking at a specific property, which is a very strong business case. The bank had just said that we are a big bank and we are just not doing this category just now and they could not get the lending. What are they going to do? Close the bank account, go to another bank or just say, well, we will not bother them. There is a wide range of different barriers why people do not come forward. A lot of it is to do with confidence and other things to do with straightforward strategic decisions by commercial banks at any given moment. There is a range of different reasons why there is potential, which is not coming forward and looking for the investment that will help it to grow. Those are the kinds of examples, but I am still coming across them now. We keep coming up against things and they say, well, we did not do it because of this. We say, really? That is surprising. We thought that you would have been more advanced in coming forward and getting lending. There are genuine barriers. I do not think that you will talk to an awful lot of medium-sized enterprises who will say everything about our equity and lending environment is exactly as we would like it, and this will be a part of filling a hole in that jigsaw. What do you hope the impact will be on the Scottish economy of this £2 billion investment over 10 years? That is the point. We would like to see that to be substantially larger. One of the reasons why I think that it is quite important that it is not just an SME lending bank, is that SME lending is quite risky. The SMEs across the portfolio are quite risky. As far as I am concerned, where we should be moving to as quickly as possible is to ensure that, first of all, we need treasurer dispensation for this, but to make sure that the bank's lending is not counted against Scotland's public sector borrowing requirement. As soon as that happens, you can start to leverage additional capital, for example, from pension funds. For me, what I would like to see is a situation in which you are aiming to have a loan book or an equity book, which involves perhaps 70 per cent, which is housing and public infrastructure. Those are really safe, solid and profitable investments, which means that the 30 per cent, which is SME lending, you can take much more chance with. If we get this right for an economy that is like Scotland, £2 billion over 10 years is not transformative. It should be more than that, but you start somewhere and you do something. The first step—we have been working quite closely with the team developing this, and I think that they are right in saying that the first thing that we need to do as a nation is to demonstrate that there genuinely is demand, so hopefully eventually we will go to treasurer and ask for a dispensation that will enable the bank to capitalise more fully and more effectively. We will be able to go and do that with evidence that there is demand and that Scotland does have an economy that is capable of absorbing that kind of advanced investment. Everything has to start somewhere. I think that this is a good starting point. We are much more ambitious for its future than that. We think that there is a very large scope to bring in pension funds and a number of other investors. Once you do that, you are looking at a scale of 10 times plus what the bank can lend. When we get there, you will start to have a bank that is changing an economy fundamentally. We have taken no position on whether the £2 billion is sufficient or insufficient. What will be more important for women and gender equality more generally is how that £2 billion is utilised, where it is utilised. The committee has recommended in the past that care and childcare be designated as part of infrastructure spend. Doing so would have a long-term enabling effect for women's economic participation as well as having a direct benefit for their current high prevalence within those industries and their take-home pay as a result. It is not so much for us about how much but where and how you take the long-term view but also the wide view about where you free up participation in other parts of the market that you are not necessarily looking at. I think that the bank has plastic to make a substantial difference to the Scottish economy, particularly in not only new company formation, but we do pretty well in Scotland at starting new companies. However, as our colleague was saying earlier on, in growing companies to a reasonable size and, importantly, in keeping the ownership and decision making in those companies in Scotland, we have done less well. Part of the reason for that is access to finance. It is not the whole reason, but it is part of the reason. The Scottish National Investment Bank will most commonly invest alongside the private sector as a co-investor. Its capacity there is to catalyse a lot of private sector funds and to make an impact much bigger than the amount of money that the Government puts into it. My last point is a question that I raised with the earlier panel about operating costs. RAC raised a question over the £25 million, which was the midpoint. I just want to know what RAC's views are and how they justify the criticism that they had. There are a couple of reasons why we came to that conclusion. One is pure arithmetic. The bank is going to have something like 100 people, £25 million is a quarter of a million per person. That seems a very high figure to us. There is also a comparison with the operating costs of the British Business Bank, which, from memory, are about 50 per cent higher for a bank that is over twice the size. It seems to be a very high expectation of costs for this bank. One particular thing stood out for us, which is the sponsoring department, which I think in the implementation plan says that it is going to have 40 people within the civil service, not in the bank, costing £4 million a year. That seems to us rather excessive for monitoring a bank that is only going to have 100 people. In terms of the rate of return on its investments, what sort of level of rate of return would it require in order to cover its costs? I have not done the arithmetic, but I think that the British Business Bank has a target rate of return of its cost of capital, which at the moment is, I think, 2.5 per cent, or maybe even a bit less than that, and achieves just more than that. However, it is important that the rate of return, I think that it would be good discipline for the bank in the long term to at least cover its costs, its running costs and its cost of capital, but it should not be looking to earn a commercial rate of return. If you take the British Business Bank as a model, it invests alongside the private sector at the same level of risk. That is, if an investment fails, both the private sector and the public sector take the same hit. The public sector does not take more of a loss than the private sector. That is a lesson that was learned from very early investments where the Government did that. However, going forward, the British Business Bank for successful investments would expect to earn a return that covers its own costs and covers its cost of capital, but it allows the private sector to make an enhanced return. Part of its commercial return, it cedes to the private sector as an investment to bring more private sector funds into the total investment of the British Business Bank. I would imagine that the Scottish National Investment Bank would want to look at a similar framework. It might not be exactly the same, but, in the long term, as Alan McFarlane was saying, 2023, before the expectation of break-even, it should look to cover its own costs and its cost of capital, but being a patient investor means not maximising the return that it gets from the investments. You said that it should largely model the British Business Bank. The British Business Bank has substantially increased its rate of return over the past four years—it is an average of 3 per cent—but 2017-18 was 4.7 per cent and 2016-17 was 4.1 per cent. Even taking that 3 per cent by 2023 in my calculations, its costs would be covered by the Scottish National Investment Bank. I do not think that you can go on individual year figures because there may have been—I have taken the average of 3 per cent over four years—but those two figures that you gave for the higher return, it may have been impacted by the fact that there was a particularly successful investment sold that year. Other years, you may have a lower rate of return because you do not get successful investments in that year. However, taking a longer-term view, the bank should aim to cover its costs of capital and its own running costs, but not to make an enhanced return. Otherwise, I do not think that it is not fulfilling the expectations of it in taking risk and putting capital into areas that currently are under-capitalised. Thank you very much, convener. Just following up on a point that Perman raised earlier about loans, the bill makes clear that the bank is in power to provide loans. The question is how much the bank should make loans, as opposed to investment, is not indicated anywhere. Your views and your response to the first question about not making loans are just your views. We do not have any indication as to what is expected. Making loans is an expensive business if you are doing it on a micro-scale because you need to process those loans, you need to monitor their loans and you need to get the money back. I do not think that the bank is going to be set up to be able to do that on any big scale. It cannot compete and it should not compete with the commercial banks. I wholly take Robin's point that commercial banks have not done themselves any favours in the way that they have behaved, particularly towards small businesses, but generally in their activities over the last 10 or 20 years. Expecting the Scottish National Investment Bank to replace that bank lending is unrealistic. Where it could make a difference is in areas of lending, but in quite specific areas where there is a deficiency at the moment. The example that I gave was the Scottish Growth Fund, which is essentially a mezzanine fund. It makes loans, but it makes loans in specific cases for growing companies. I think that that has been quite successful and the Scottish National Investment Bank might want to build on that example. The world is filled with countries that have large mutual banking networks. The hard, private, commercial banking model that we have in the UK has done nothing but create risk, massive profits and all sorts of problems. To say that they have done themselves some favours, I mean they have acted absolutely criminally in the last 15 years, some of the commercial banks. So what I think is important is that we have a sense of scale. This bank is not going to transfer everything straight away. It is £2 billion over 10 years. That is not going to change everything. What I want to emphasise is the first step in creating an institution that should exist many generations as far as I am concerned. Where it goes to, I think, is something that we should be much more open-minded about and that we may have a quite different kind of lending framework into the future. As for equity versus loans, what I absolutely agree with is, I said it earlier on, that micro-businesses and even most small businesses benefit from being near their banking. They benefit from being close to people. One of the biggest failures in the banking network is the breaking of the long-term relationship between small businesses and lending managers in a lot of banks. They were supportive and positive. Relationship would help small businesses grow and small businesses are losing a trust in that because of what they have read about how the banks operate. What I keep saying over and over again—the first thing to say is that this bank must operate like a commercial bank. If it starts subsidising loan rates to below something that looks roughly broadly like a fair market, it will get into trouble with European Union competition laws. It cannot be heavily subsidising interest rates to increase or decrease rates of return. What it can do is create a suite of lending and equity investment packages that are tailored to the demand that is coming forward. For example, a housing association or a small community housing project may wish to borrow, if it can, mortgage style over 30 years. It would find that quite difficult to do that with existing commercial banks. We have modelled the costing of this and a Scottish National Investment Bank could lend over 30 years at rates that would comfortably come in under European competition grow problems but would enable mass public rental house building in Scotland, not by subsidising but by giving different forms of loan. Other kinds of loans—again, there are examples of them—would say that we think that you have a solid business proposal, your medium-sized business. We recognise that your investment will be heavy and the time that it takes for you to start to grow that such that you will get the returns may be a little longer. We can look at a phased package, which would see loan repayments start a bit lower and climb over the relationship period with the enterprise. Another thing to pick up, for example, for gender. It may very well be that the bank does say that we will give some waiting to certain public goods. For example, we want to see more enterprises that are led by women. They may say that we will give a slight waiting to enterprises that come forward to do certain things that are particularly good for the economy, but they must be commercial loans. They must still be behaving roughly in line with the broad market. The most important thing is that the bank listens incredibly carefully to its customers and its potential customers. It devises either its lending or its equity into packages that are best suited for the enterprises and the kinds of projects that it is lending to. Once it does that, it will compete not by being cheaper but by being better and by being more in line with the needs of those businesses, because it is not profit maximising, it is development maximising, and that is where the value comes. Okay, thanks for that. I was just picking up on a point that I raised at the earlier panel. Robin McAlpine has already touched on that. Benny Higgins made clear that the bank is not prohibited from lending to the public sector, but it is not anticipated that it would. That view is probably predicated on the idea that it might lend to existing public organisations such as local government or other public organisations. We have state-owned enterprises such as Swedish Vattenfall, which has been around 100 years. The idea that we would not fund enterprises that are designed to transform the energy system just because of an ownership model seems to be a bit strange. We have also got one of the biggest forms of patient capital in the private sector, which is pension funds, who play a huge role in investing in housing across Europe. It is one of the panel's views on the scope and the role of the bank to invest in public-led enterprise. I was saying that it is a very big opportunity. The public sector is a very reliable repair of its loans. It is a very stable repair of its loans, and I will just pick that one example. I am not going to be applying to earn a bank, I can promise you, but one of the first things that I would be looking at is an enormous scope for patient lending to public house building in Scotland. I say again that we have costed it that you can build very, very high-spec houses, rent them at below market rates, and if you borrow over 30 years, you can do this with no public subsidy. That is the big gap that I believe we have in public rental house building. We still have to subsidise every house because nobody does mortgage-style lending for those large public sector housing developments. If that is not a mission that Scotland should really be cracking on with, I really do not know what it is. I genuinely do not know why anyone would be dogmatic about who you are lending to. If someone comes forward with a proposal and says that this transforms Scotland in the way that you want it to, why not lend to them? I do not have any problem with the Scottish National Investment Bank lending to public sector organisations if the proposition is a good one. Repairman, in the RSE's response, you are quite concerned about the role of this advisory group, which I was discussing with the previous panel. They were concerned that it would inappropriately interfere with the workings of the bank, but the way that it is anticipated is that it would be an advisory panel for ministers. However, the policy memorandum does make clear that it is anticipated that the chair of the advisory board would be a non-executive member of the board. I am just wondering if you can say a little bit more to elaborate. Do you draw our attention to the 2017 and 2018 responses that you made? I think that our problem is two for one is efficiency. Benny went into this in some detail that having two people interfering in the running of the bank is not an efficient way to run it, but our other response and perhaps our larger concern is accountability. What is the chain of accountability if you have an advisory group or the board of the bank or the minister or the executive of the bank and at least one common person on the board and the advisory committee? The chain of responsibility should go from the executive through the board to the shareholders in the shape of the minister. That should be clear so that we know where accountability lies. It blurs things if we have an advisory group advising the minister where one member of that group is also a member of the board. If we just take that one point and accept that for the sake of argument, that is probably not a good idea. Benny Higgins did say earlier on about missions, for example. He said that carbon neutrality is an obvious one. He talked about automation and demographics. He also mentioned social housing. Do you not see it as a benefit? If you were Scottish ministers and Parliament has no role in this bill in approving any missions, so you are doing this yourself, do you not see a role for ministers having an advisory group to advise ministers on how they should frame their mission instructions? That is entirely for the minister, yes. If the minister wants that, that is fine. So you have no fundamental objection to this? No, it is not the group advising the minister that we have the objection. It is the blurring of the accountability of the board that is the problem. That is very helpful to clarify your objection. I just want to pick up on some of the confusion that has come around what the advisory board anticipated it will do and how it will be structured differently to the bank's executive board. There is a question about expertise, particularly given the underrepresentation of women in the finance sector and in economics and women and others with multiple characteristics and disadvantages. There may be a role for an advisory board that picks up on some of the different expertise that is not captured within an executive board. It also comes back to something that Madagata says in her paper about that there may be a role for civil society around consensus building and missions, and the bank will need to have a considerable amount of social licence for it to deliver or to invest public funds. I think that there is a role for an advisory board. I do agree that we need to crystallise who will be on it, how it will be structured differently and what that role is. That is the one area. I am very happy with the legislation. I think that it is broadly fine a few tweaks. We did not put an awful lot of comments in it and I have got high confidence in the team that is doing the building work, so we are very relaxed about this. I think that it is going well. The one area that we would have definitely gone further is in the governance, so when we did our first proposals for this, when we wrote this down the first time, the advisory group, and I would still like to see this changed personally, the advisory group, the dotted line was not into the ministers, but straight into the board. It was advisory, not instructive. It is an advisory board. Just like the ministers, while they are the shareholder, this is a limited company and the board has the legal responsibility for all of the successful operation of the company. The minister can fire the board if they are not happy, but they are not executive members of governing the bank. What we wanted to see was the advisory group feeding straight in there and it was a very specific purpose. We had originally proposed that it is a tripartite advisory group picking up the broad missions, whereby a third of them would be representatives of medium-sized enterprises. That was about the people who are borrowing, the people who are approaching the bank, giving them a clear voice on how the bank should be run. A third of them being for our local authorities, housing associations, public sector bodies and a third to represent the public good element of it, including gender, trade unions and things like that. That was about balancing. The board is going to have a very strong fiduciary duty to operate like a proper bank. It will have to be hard and make decisions. We cannot do this, because lovely as it is, it is not going to meet our lending criteria or financial criteria. To balance that, we had wanted to see an advisory board, which was all about the customer effect. This was a customer board. These are the people, the customers being Scotland as a whole, the private sector and the public sector. I think that the fear that banks are sometimes a little bit tenured when it comes to fiduciary duty was to say to them that they should have a regular place to say that we represent the people that you are supposed to be lending to and that we are telling you that this thing that you are doing isn't helping us or could be done better or that this would be a great thing to try. I take conflicts of interest and I am not particularly bothered about the exact who is sitting where, but the model of saying that the board of the bank should have a direct line to a group of people who are saying that we represent the people that you should be serving and that we want to give you some advice. It is now for you to take that advice or not to take advice because you are a board of a limited company. There are a variety of views on this question and we will explore them further, but do you think that whatever provision is made for such an advisory board should be embedded in the bill or just left to the board and ministers to work out? For me, I always have the concern that, and do not take this wrong, long-term initiatives like this need to be protected from politicians. Do not take that personally. It is just the case that the point of this bank is 10, 20, 30-year time horizons and the point of politicians with the best will in the world is often 4 and 5-year time horizons. The purpose of the advisory board was to give a voice in there, which is not moving to those three or four-year cycles. Just to be clear that I understand all that, do you think that it should be provided for in the bill or not? Personally, again, we would have said that it is tripartite. No, but do you think that the existence of an advisory board should be provided in the bill? Oh yes, absolutely. Sorry, I would go further and I would say that the advisory board should exist by statute. I would also say that, and its purpose and content, the members are such that we do not drift into a point in the future, but just for example, it gets filled up with appointees from the existing financial services sector. That is what I mean by that. That is fine, thanks. I think that it should be in the bill for the reasons that have already been outlined. I am relaxed about it being in the bill or not, frankly. That is a wide range of views. Jackie Baillie, do you have a follow-up question? Yes, but I am assuming that my questions are next anyway, so I was just going to seek into them if that helps you, convener. Well, we will let you do that. Okay, fantastic. I should pick up Robin McAlpine first. I have, of course, been here 20 years, so four or five years is not in my timeframe. Can I pick up on something of substance that was raised with you by Andy Wightman? You and I will remember, I think, about 10 or 11 announcements that the bank was coming, and the reason it is able to be here is because largely of financial transaction money, the strings attached to that money means that it can only be lent to the private sector. They have started off saying that the bank will not fund public projects. Clearly, your ambitions for housing and all the rest of it actually fall to the wayside unless they open that up. Is that fair? I understand that the team is already talking to housing projects. This is public sector money, which is coming in. You need to clarify that with the team, as I understand it. While they are saying that they are not going into local authority large-scale public infrastructure lending, they are not yet lending for the purposes of building schools, hospitals or roads. I understand that they are, but, straightforwardly, that is where an awful lot of the initial first demand is coming from is coming from housing. Since they are going to be demand-led, I certainly know that some people have been fairly close to this, whose biggest worry was that this has the potential of turning into a housing bank, which would not be a good thing. I think that housing is in there. It is wider public infrastructure, I do not think, is yet. Okay, we will clarify that because, like you, I think that that would be an ambition that I think that the bank should have. I come on to the mission approach because some of the evidence that we have had to the committee suggests that that kind of mission-based finance approach will be complex to introduce, will be difficult to operate and difficult to evaluate. Do you share that view? I am happy to take it. We think that it should be mission-led, but that it should start with one mission, because the suggested missions in the consultative document are very big areas and they are very important areas, and they deserve to be done properly. Trying to set up a bank from scratch, or very nearly from scratch, to fulfil all those ambitions is going to set it up to fail. We would prefer it to start with a single simple mission to get on top of that mission first before it expands into doing other things. It is almost certainly legally necessary that it has a mission because we did the original proposals in this. One of the most significant barriers that you have got to go over is the European Union competition laws. One of the three ways that the bank will get around the European Union competition laws is to be mission-driven rather than profit-driven. If it is not mission-driven, it will appear profit-driven and that will be more problematic in Europe. Explicitly saying that it must be mission-driven is part of the structural set-up that enables this to take a unique place in the marketplace, so I think that that is essential and necessary. My key thing is that, as long as we do not mistake mission for and have you made Scotland carbon neutral yet, what you are saying is things that move towards the mission, not things that necessarily achieve the mission. I do absolutely take the, let us not load it with mission, let us not expect to do everything, but if you said that we want to invest in green energy and we want to invest in women-led enterprises and we would like to see, for example, one of the things that I think is a mission is exactly what we mentioned earlier, what we call anchoring businesses in Scotland.  One of the missions I think should be to anchor medium-sized growing enterprises into Scotland. You can have these multiple missions. As long as nobody is pretending that the bank is supposed to achieve all of those missions in completion at any given deadline, it is okay. I think that the bank should be capable of following more than one mission at a time in its lending decisions, but this is not the Scottish Government. This is not meant to change everything all by itself. I am quite relaxed and I think that the bank should be quite relaxed in its interpretation of mission and I really do hope that politicians give it leeway and do not attack every lending decision when it starts to make that, because not everyone will make every person happy. We are supportive of the mission approach. However, we are slightly concerned that the approach has not yet been sufficiently articulated. It is not very clear what a mission would look like, how long it would be, the technicality of it, what happens if you have multiple missions and they overlap or contradict one another and the lifespan of these missions. Even the process for recalling them is not set out in the bill or even in the policy memorandum. I think that some work needs to be done so that we all know what one another is talking about. As part of that, I think that the success of missions for women specifically really depends on how gender can be mainstreamed into that process. That is another reason that that process needs to be better articulated. We recommended that there be an equality and non-discrimination element to the bill and that the mission process should refer back to the core objectives to make sure that everything is singing from the same hymn sheet. Otherwise, you might end up with a position where you are responding to a mission and the objectives fall to the wayside or they become concentrated on the SME lending elements of the bank's decision making rather than on the kind of large-scale challenges. I am curious to know whether you think that some of the missions should be on the face of the bill or whether you think that it should be in the strategic framework to give ministers and the bank flexibility, because capturing and retaining some of the big strategic core objectives can get lost if it is not fed right the way through. Maybe missions are one level removed from that? I do not know, so we are grappling with what should be on the bill and what should be on the bill. We would be more comfortable if they were in the strategic framework rather than in the face of the bill. If missions are supposed to be medium to long-term challenges but not permanent aspects of the bank's development work, they probably should be within the strategic framework, but I think that the process needs to be articulated. Again, this is going to be here in 100 years. I hope to goodness that we are not still sitting here saying, let's try and get women in equal place in the workplace. I assume that these missions will change. I do not think that you want to be going through primary legislation to alter a bill to do that. A very broad public good mentioned in the face of the bill, what that means is that, for any given generation, I think that it will change. Okay, I do think that you and I will be here in 100 years. Time is safe to say. One final question, convener, just to wrap this up. You talked about public good and I do not know whether you saw me exploring with our previous panel of witnesses how they would actually assess that, because assessing social costs and benefits is, for me, at the heart of economic appraisal. I was not convinced by the answers, I have to say, that there is no kind of discussion of substance about the Green Book approach that the Treasury takes. How are we actually going to measure some of this stuff to decide where to invest? Have you provided any information to the Government? In our original work, the way that we conceived of this was, once again, this is a bank, which is looking in many regards like a commercial bank. People were coming forward with requests for equity investment or loans. Each of those that we were suggesting should be assessed against broad statements that are in the mission statements about what the public good is. If providing more affordable, high-quality public rental housing is in the public goods, something that moves towards that would be meeting that goal. The way that we suggested that they should do it is to be reasonably subtle about it and say, those things give additional waiting. I absolutely agree that these will conflict. I know that it would be really nice if everything was endlessly neat and tidy, but it is not. There will be occasions in which a really encouraging Scottish developing business will be sourcing some product from some place, which we would like to see being a little more ethical. I do not think that the bank should say that it is a great Scottish business that is creating really genuinely high-quality jobs, which is growing. The thing that you are doing is broadly public good, but there is one part of your business. Until you do X or Y, we are not going to lend to you. I think that that would be a mistake. That is why I say that we need to have a little bit of leeway. There should also be conversations with people who are lending, which should say, right, okay, we are going to give you this. Could you have a look at your procurement of those elements? We think that that will be seen as being a strong negative against your enterprise, but I do not think that it should be conditionally until you go and source all the ethical cotton for whatever you are doing. We are definitely not lending to you, so that is my view. People need a degree of leeway, but we certainly thought that the best option for doing this would be to say that we will give additional waiting to enterprises which meet certain types of those goals. For example, a woman-led enterprise may simply say, if it was, and this is really theoretic, but it was an absolute head-to-head that might give you a little waiting against an alternative bid, which looked almost identical in every other way. That is the sort of rather being really dogmatic about it. We are saying that we incline more to lend to your enterprise the more we judge it to be hitting missions, rather than, here is a tick box, and you have crossed the threshold that you now qualify. The short answer to your question is no. We have not given much thought to that at the moment. Do you be aware that the Scottish Enterprise has a methodology and the Scottish Investment Bank has a methodology for gauging impact? Social Investment Scotland, which you set up when you were a community minister 20 years ago, has a different methodology, but it is a good and thorough methodology. It is important that the bank consults widely on the methodology that it is going to use and collects and monitors the figures to give an indication of the impact of the investments that it is making. Part of the success of the bank will be the extent to which it can mainstream gender into all its activities, not just the recipients of the finance, but the wider impact that treating care as an infrastructure investment could give us. That is not just good practice, that is a legal requirement that the bank will face, and data will be a key part of that. We know that the current actors are not great at collecting, publishing and disaggregating their data, so that will be something that the bank will have to work on very quickly as part of its monitoring criteria. The Scottish Government is working on a gender index as part of its alignment with the European gender equality index from the European gender equality. It would be good if that piece of work could align with those metrics in some way and more generally the NPF as well. Thank you very much. You have a very brief follow-up from Andy Wightman and then Angela Constance. It is just very brief. On the question of the mission in section 11, it is not intended that the mission setting process or the mission itself should be subject to a resolution of Parliament. Do you think that Parliament having a role in agreeing that would add or hinder? In other words, do you think that we should look at parliamentary scrutiny of the mission or leave it as it is to ministers? The RSE has not actually made a statement on that, but personally, I would think that it would enhance the credibility of the mission if it had a resolution of Parliament behind it. I tend to agree with that. Those missions are not going to be changing on an annual basis. I would have thought that you were looking at five-year timeframes. I cannot see that it adds an awful lot to the process of getting those missions approved. If it is once every five years to take it through Parliament, it will have to align to Government objectives. Inevitably, Governments will change, strategic objectives will change. I am a fan of democracy, so if the Parliament comes behind those missions as a whole, I think that would be a good thing. I have a brief question on equalities, if there is time. I think that we will move on to Angela Constance and see if we have time to come back to that. Okay. Thank you, convener. I have a few questions for Ms Dixon, if that is all right. I bear in mind that tapping into all the talents is not just the right thing to do. It is a smart thing to do for businesses and our economy. However, I wanted to pick up on some aspects of your written submission. The impression that I got—you can correct me if I am wrong—is that you felt that the equality impact assessment was a bit of an afterthought. We have pretty major concerns about the equality impact assessment for this bill, not least that it does not format itself like an equality impact assessment. It is a process for gender mainstream, as I was discussing before. It is not just a bureaucratic take-box exercise. The idea is that the policy is articulated, research is done and changes are seen as a result of applying the information that is garnered. We had two consultation process and implementation plan, several announcements before the equality impact assessment was even published and that was alongside a bill that is already drafted. There is very little evidence that that process has informed any aspects of the bill. We do not see any reference to equality or securing of equality intentions within the bill as it is currently drafted. I should also say that the equality impact assessment published does not cover all the protected characteristics. It only covers two and even then particularly niche strands of the bank's activities, not the wider economic impact that I have already discussed a little bit. We are pretty convinced that, in order to meet even the requirements that are in the guidance from the HRC, that that will have to be redeveloped and not just those additional missing sections added on but redoing that whole process of analysis. Obviously, that is something that this committee has a role to raise with the Government as we see it appropriate. Are you having any on-going involvement to try and get the equality impact assessment into shape? We are speaking with officials about that. You also spoke about anchoring in the bill in terms of core purpose and principles, a meaningful commitment to equality and that being referenced back into the strategic framework and approach that is taken with the missions. I wondered if you could speak in a little bit more detail about where you think there has been a lack of consideration in terms of the work done to design the bank but also in terms of the bill that could be improved to address matters. Yes. We responded to both the Government's consultations on the bill and the initial consultation back in 2017, which was before I started working at Engender, but that was done across the women's sector in response to that one. The implementation plan, as consulted upon, had a much broader intention and that seemed to find its way into the consultation around the social role of the bank. That is not specifically speaking about gender, but there was a notion that the bank's vision should be about untapped potential, responding to climate change, and some of the other big social issues that are facing Scotland at this time. That does not necessarily seem to be what has come through in the bill. If you look at the objectives that I already mentioned, they are very narrowly focused on the economic aspects of the bank's work, which is, to some extent, understandable. However, what we have lost is that wider vision and the way that all the different policy areas interact and should be interacting when the bank is in operation. I think that the bill would be strengthened by having that purpose or that vision. We have made some recommendations about how that could be further strengthened, but the principle of why we are doing this and why we need something radically different and why we are not just returning to the same actors and making tweaks around the edges. I have also made recommendations relating to the objectives specifically. We have seen that where equality and non-discrimination are not included on the face of the bill, that is not translated into meaningful action. The EQIA is a pretty good example of the way in which the public sector quality duty has only worked so much. I close the gaps and some excellent work about compliance with the public sector quality duty. Having a legal duty within the bank keeps it straight at the top of everyone's mind and allows for an underpinning of the later development work that will have to straddle all the different banks' activities going forward. You touched upon earlier issues around methodology and sometimes it is about how assessments are done and how you measure things and your understanding of what merit actually is. I wonder if you could speak a bit more in a practical sense about how diversity and merit are two sides of the same coin. They are not necessarily pulling