Good morning and welcome to the third meeting of the European and External Relations Committee in session 5. Can I remind members and members of the public in the gallery to turn off their mobile phones and other electronic devices or put them to silent as they can interfere with the sound systems? Today we have received apologies from our members Tavish Scott, Richard Lochhead and Jackson Carlaw. However, I would like to welcome Mr Mike Rumbles to the meeting. Mr Rumbles is welcome to take part in the meeting if he chooses after the committee members have asked their questions of witnesses. The first decision that we are making is whether to take items 4, 5 and 6 in private. Item 4 is a review of the evidence heard. Item 5 is consideration of the posts of adviser to the committee, and item 6 is consideration of the committee's call for written evidence. Are we agreed to take these items in private? Thank you. Item 2 on the agenda is the implications to Scotland of Brexit, in particular the economic implications. I welcome to the meeting Dr Graham Roy, director-designate of the Fraser of Allander Institute, Colin Borland, senior head of external affairs at the Federation of Small Business in Scotland, Kerry Richmond, senior director of Scottish Enterprise and Stephen Boyd, assistant secretary to the STUC. Members will have seen that Dr Roy has kindly provided some additional materials to the committee. Although we do not have a lot of time for introductory remarks, I would like to give Dr Roy the opportunity to outline some of his findings before we enter into our general discussion. I thought that it would just be quite helpful to run through quite quickly from an economics perspective the kind of key issues that Brexit throws up for the Scottish economy, without saying in a positive or negative way, but just the types of issues that need to be resolved over the next week while and what will be driving the impacts that people like us are saying are likely on the economy. I have grouped those into long-term and short-term effects. In the long term, there are probably five key issues that the committee would potentially want to think about. The first thing is the trading relationships that are thrown up by the decision to leave the European Union. Within the European Union as a single market, moving away from that means that a new trading relationship will have to be designed. With just over 40 per cent of Scottish exports going into the European Union, that is an important fact and an important result that needs to be taken care of. Within there are lots of different models that you could design for having those new trading relationships. You have heard of being a member of the European Economic Area, the Norway-type model, and the Swiss-type model, which is more on bilateral arrangements. There are more alternative versions around free trade areas and moving completely into the world trade organisation point where you are just operating as a country with normal tariff barriers. That is the first set of issues. The second set of issues concerns the implications for investment. Scotland has been quite a successful area in the UK for attracting international investment. A large part of that has been because of the skills and wider infrastructure of the Scottish economy. However, we know that one of the reasons why international investors come to the UK and come to Scotland is access to the single markets. There are a set of issues there. The third set of issues concerns the population and the labour market. Scotland, over the past few years, has had net migration coming in from different parts of the European Union. The European Union has also been quite strong in putting forward regulations both in the labour market and in the product market. By moving out of the side of the European Union, those issues now need to be resolved and thought about. The fourth issue is the fiscal contributions. There is quite a lot of debate in the referendum about what the net contribution was of the United Kingdom to the European Union and the difference between gross and net contributions. The gross contributions are the total amount that is paid into the EU, but once you take off things like the rebate and the other revenues that come into the UK and Scotland through the research funding, CAP and all those various other elements, there are a set of issues there that need to be considered about what the potential fiscal implications of leaving the EU would be. The final issue is probably the ones that the economists are a bit more interested in and a bit more concerned about, or what are the dynamic effects? We know that companies export and inward investment tends to have a positive impact on things such as productivity and skills. If our exports and investment were to change over time, that could have implications for things such as productivity and overall growth rate and competition. There is a set of issues in there that might be quite significant over the long term. On balance, most independent economists would view that leaving the EU in the long run would tend to have a negative impact on output and jobs holding all else remaining equal, so there are obviously policy choices that could also flow from that that might change all of that. The thing that is probably more uncertain and a bit more complex is what might happen in the short run. We have some forecasts out this morning that try to estimate what we think will happen to the Scottish economy over the next three years. That comes down to two key issues that I would see. One is the impact of uncertainty on the economy. We know that in an uncertain world, investors and businesses tend to put off decisions. In the short run, that can be largely temporary, so that when the clarity comes in, you start investing again, so the impact is largely short term and you get a bounce back. However, the longer that uncertainty goes on for, the more likely that decisions to postpone investment turn into cancellation and changes in plan. There is also policy uncertainty in there. We do not yet know what the end result will be from the negotiations. We do not know whether we will have access to the single market or whether we will be outside the single market. That injects another element of uncertainty into the mix, which has implications for how businesses will respond. We also know that financial markets have been volatile and will likely continue to be volatile as the negotiations go forward. That, in itself, can have an impact on business decisions. It is more likely that risk premium will be added to borrowing costs as people factor in potential volatility and uncertainty. The final thing is that, linking back to the long-term adjustments, over time, people will start to make decisions about what their relationship will be with their trading partners in the EU. We would expect that businesses will start to gradually change their decisions and change their investments. On balance, we think that, in the short term, that will have a negative impact on Scottish growth over the next three years. This morning, we have revised down our forecasts for each of the next three years. I would caution that by saying that we also believe that it is quite different from the financial crisis, so we are not predicting immediate long recession. All we are really predicting is a period of relatively slow flat growth while we are just to the new relationships. Thank you very much for that. Your material this morning certainly makes quite grim reading for Scotland. A number of the members of the committee recently returned from Brussels, and the message there was very much that access to the single market is very different from a free trade arrangement, which is why most businesses and inward investors want access to the single market. Do you think that there is a lack of understanding that access to the single market is not the same thing as a free trade arrangement? There are really quite significant and important differences between the single market and a free trade area. Essentially, a free trade area removes tariffs between the two trading partners, particularly in goods. What it does not give you is access largely through services. Even in Switzerland, for example, while there is a special bilateral relationship between Switzerland and the EU, that does not exist in services. Swiss financial services companies have to incorporate separate bodies within the European Union in order to trade as entities within the EU. All the free trade areas really does is remove tariffs. What it does not do is remove the tariffs largely in services. It also does not remove non-tariff barriers. One of the things that a single market does that is really important is that somebody producing a good in the UK or in Scotland provided that they satisfy the regulations that are common across the European Union, then they can just sell that market easily into the rest of the EU. A free trade area does not guarantee that because you have to then comply with all the various regulations that go on in there. The third point that is also quite important, even the difference between a single market and the European Economic Area, is that the European Economic Area requires you to have proof of origin rules to ensure that a good that is produced in the European Economic Area is actually produced in that area. It is not a good that has essentially come from another country bypassed into someone like Norway and then traded into the European Union. That means that all goods that are outside the single market essentially have to go through a process of proving that they have been produced in that country in order to be traded into there. That adds a small cost of one to two per cent on to trading. When you are looking at tight margins, adding in things like proof of origin, non-tariff costs and other compliance issues, before you even get to tariffs, there is quite a significant difference between something like a free trade area and a single market. Of course, it is not possible to have the single market without having free movement of labour, and that was what came across very loud and clear during our visit to Brussels. Do you think that there is any evidence in terms of your forecast for the Scottish economy? Is there any suggestion that perhaps Scotland could be more sharply hit? We have received evidence showing that, for example, European-owned businesses make up a larger proportion of the Scottish economy. We already know that foreign direct investment is higher in Scotland, and you have outlined how there is a big threat to foreign direct investment. Do you think that there are particular aspects of the Scottish economy that make us more vulnerable? Is it interesting to hear other panellists' views on that? At this stage, we would say that it is too early to say whether Scotland would be relatively more impacted than the rest of the UK. Within the different sexual make-up of the Scottish economy, it could mean that you will have different results. There is also a big issue for the UK about the city of London and the importance of passporting rights, which have a disproportionate effect there. One of the things that Scotland has always struggled with relative to other parts of the UK has been its gap in productivity performance. That has narrowed in recent years, but Scottish productivity has tended to lag the rest of the UK even despite closing recently. However, we know that there is strong evidence between exports, inward investment and productivity. If our inward investment and exports were to shrink further as a result of leaving the European Union, that would make the ability to improve our productivity much more difficult. From a macro perspective, that is probably one of the biggest risks that comes to this. What is the long-term impact on Scotland's productivity? We know that that is a reason why our performance has differed from the UK in the past. We know that that is also why the UK's economic performance has lagged many other countries in the European Union because of a lack of productivity. That is probably a key concern and a key issue for us to consider. Does anyone else want to comment on that? We have spoken to a lot of companies, a lot of our customers over the past stack, a few weeks. Encouragingly, very few are stating that they are putting investment plans in hold or R&D plans in hold. I think that that reflects our phrase of Alan, there is business survey as well, which was suggesting that at the moment very few companies are stopping doing things, which I think is encouraging. Also, I guess in terms of R&D investment, Scotland does very well in the UK, and that is because of our assets, such as our people, our skills and our research base. We have lots of assets to continue to build on in terms of R&D investment. Can I bring in Lewis MacDonald now? Thanks very much. I am going back to some of Graham Roy's evidence, but more widely for other members of the panel as well. The differences between members of the European economic area or access to the single market on the one hand and free trade agreements on the other hand, I think that you have explained very succinctly. Clearly, the other big question in front of us and in front of government is what is the difference between membership of the European Union and membership of the single market. Given this Parliament's intent to retain the benefits of the relationships that we have with the European Union, including access to the single market, I wonder if members of the panel would comment on how far those benefits would be protected in the event that Scotland or the UK remained fully engaged with the single market, even without membership of the European Union. From any economic perspective, the membership of the single market that we have said in our report today is key. The issue that strays less into my territory is how you can retain access to the single market without being a member of the EU. That is one of the big things that needs to be resolved and dealt with. As I said, the European economic area trains and retains quite a lot of access to the single market, but one of the big things in there is that by not being a member of the EU, you do not get an opportunity to shape the rules and regulations that govern the single market. Norway does not have an opportunity to input into the single market process for all the rules and regulations that go on in that. That is probably quite an important policy difference between being a member of the EU and having access to the single market. In terms of the benefits for business, and particularly, I am thinking of labour rights and human rights, many of which are delivered within EU countries such as Norway as part of the single market arrangements. How far do those rights require membership of the EU as opposed to membership of the single market in order to be protected? I wonder if Stephen Boydon and Colin Barlin might have views on those. I agree absolutely with Graham's analysis up until now. There are clearly a couple of major unknowns in the timing of article 50 on what the UK Government's preferred approach is going to be, and I think that in that context it is very difficult. It is important that we are looking at least bad scenarios here. Whatever the likelihood to end up with is likely to be significantly worse than what we had before as full membership of the EU. The extent to which labour rights would be protected by EEA status, I guess, depends on that particular deal negotiated, but it is very unlikely to be strengthened by that process. Given who is likely to be doing the negotiating on behalf of the UK, there is a risk that it could be diminished in some way. Clearly, as I said, looking at least bad scenarios in EEA status would offer a degree of protection that is not going to be there under other scenarios, but it is important to emphasise that whatever we end up with is likely to be worse than what we have under full membership. In terms of what we have said is immediate priorities. Simple access to the European single market has been the top one. Allied to that is that we need to retain the ability of businesses to hire the right people for the job. We have a £9.7 billion annual tourism industry in Scotland that relies on seasonal migrant labour. We also had, as the convener said, a substantial non-UK EU citizen entrepreneur community in Scotland, which we would be very concerned about them leaving. As all other panellists have said, it will depend entirely on what sort of deal is struck where we end up, but those are the two things that we are very clear have to be prioritised in those negotiations. I will turn on to your point specifically about rights and regulations. I think that, again, clarity in the regulatory framework has to be a priority. While, of course, nothing will change on day one because a lot of this law, particularly around employment, is incorporated into UK law and enemy, but when that law begins to, you know, can be changed by a UK Government or indeed will be interpreted by the UK Supreme Court as opposed to the ECJ, then there is, of course, the scope for divergence. Now, again, it depends on what sort of deal is done whether or not those businesses who will be trade within the UK or indeed within Scotland have to be subject to the same rules or it is just those who are selling into that single market. Again, remains to be seen, but there is certainly the potential there for some quite interesting practical issues to be thrown up if we begin to diverge. I will come back to Graham Roy and the differences in focusing specifically on the issues of trade. You mentioned the long-term challenges around trade and foreign direct investment. In those two areas particularly, does membership of the single market deliver the level of benefits that we have at the moment or something close to them, or is what is lost more significant in those two particular areas? I think that it is probably to think about it on a sliding scale. The closer you are to being able to retain and remain in the single market then, the less the impact will be on trade and investment because by having no tariff barriers, no non-tariff barriers, by meeting all the various regulations, the difference between that sort of arrangement if it can be secured and the current arrangement is relatively small. The question is whether that can be delivered. However, as you start to move away into membership of the EEA, for example, that is when you have to have proof of origin rights. That means that you have customs duties, not customs duties, but customs checks between EEA members and the European Union. When you then move into the Swiss model, that does not give you access to the services of the single market. When you then move into the model with Turkey, you do not have any access to services at all. You then move into something like free trade, which does not give you no tariff barriers, but it does not give you full access to the single market. If you come out completely into a WTO-type model, you have tariff barriers. It is worth thinking about it at that time of scale. If you are a Japanese or North American or Chinese investor and you are making an investment decision, what signal from the UK Government about its negotiating position would be most likely to encourage you to consider investing in the UK? For me, it is access to the single market. That is by far the biggest, most important factor. Thank you very much. Bruce Crawford is a supplementary on that point. On that single market issue, if that is the most preferential position for Scotland to be in, how do we best achieve that? Otherwise, we are back to the least bad. How can we best achieve that? From my point of view, it is about where you can position yourself on that scale. That will come down to the negotiations that take place between the UK and the EU, but the Scottish Government and the Scottish Parliament's input into that process. However, how that then happens is ultimately up to policy makers and the politicians behind it. The central thing that has to be in that is pressing for as close as possible access to the single market, whether that be along that scale or where that ultimately ends up. The closer you can get that to the single market, the better. We are now filling the realm of politics rather than economics. It is important to remind ourselves about what seems to work for the leave campaign during the referendum campaign itself. The two things that have consistently come back to the world were the UK's financial contribution to the EU and the free movement of people. It is very difficult, at this moment in time, to envisage any circumstances by which the EU would give the UK full access to the single market without retaining both free movement and a very significant financial contribution to the EU. If you look at some of the analysis that was published last week by the Brugel think tank, it shows that countries in the EU area currently both pay a higher proportion in terms of GDP as a financial contribution and also take a higher level of migrant workers as a proportion of the whole workforce than the UK currently does. It is difficult to see how those conditions can be satisfied in a politically acceptable way in the post-Brexit world. The reason I asked that question was to get to the least bad position. If we are in the least bad position, I would wonder how realistic it is that we will be able to access some sort of EEA agreement and how widely known and how widely understood is it within the industry and the economy in Scotland that every single member of the European Union would need to sign up to that European economic agreement. It would also include probably Norway and Iceland having to sign up to that too. How widely known is that in business circles? That is actually the mechanism that would be required to be gone through. How realistic is it that that would be achievable? I cannot comment on how realistic it is in terms of the level of understanding that there is roundabout some of the mechanics of this. I think that it is fair to say that it is sketchy. It is a matter of regret that we did not get the opportunity to tease out some of these issues and talk about them in a bit more detail during the campaign. Indeed, I was casting my mind back. I think that I spent more time talking about the practical implications of membership of the EU or not during the 2014 independence referendum and that is where we are going back to look stuff up. I think that it is a matter of regret that we are only now getting down to that very practical brass-tax discussion and that it did not take place before the vote. Unfortunately, we are where we are and we have got to deal with it. Colin Borland, the EFTA-EA agreement that has been touched on does not give access to the customs union. In terms of the debate, such as it was that we had during the referendum where the Brexit side was talking about the bureaucracy of the EU, it seems to me that the EFTA-EA agreement or any alternative will bring more bureaucracy and complication for small and medium-sized businesses than the EU currently does. That is certainly a risk. I meant again in a different context in the debate that is academic now, but when we were talking about TTIP and when we were discussing some of the issues with the US negotiators there about how, for example, if you are a whisky exporter, how you get into the US market and the number of hurdles and extra things you have to get through, and also people are very simply getting stock and products through customs. Whenever you add in something extra, there is a potential for that to add an extra bureaucratic burden. Indeed, the other thing is that we are talking about free movement of people. Of course, it is possible to hire people from outside of the EU, but, again, there is a fairly lengthy, complex process to go through to do that. Hiding people from the EU is fairly straightforward, so we would need to get something in place in the UK that would allow that sort of movement of goods and of labour with the absolute minimum of extra bureaucracy if that is where we end up, depending on the deal obviously and whatever we end up finally signing up to. The only bespoke arrangement that currently really exists is for Switzerland, and they have about 120 different bilateral deals with the EU. That sounds pretty bureaucratic, doesn't it? Graham made the point about that that does not include the service sector, and I think that the learning colleagues will correct me before they correct me. I think that is something that is 80 per cent of the Scottish economy, so that is significant, whether we like it or not, when a service-based economy. I think that that is something else that we need to take into account. Would other members like to come in at this point? Not everybody managed to reflect on the question that I asked, dear Joan. Is someone else one? Your point about what is the understanding in all of this. I guess that one kind of anecdotal thing that we found quite surprising from our business survey was when we asked, had your firm done any preparation for the UK exiting the EU, and we found that 85 per cent had done very little or no preparation whatsoever. That starts to fit into your question about what is the level of understanding going in this. It is now businesses are beginning to react and think about things like the different models. If your point is correct about being in after the EU, you are not part of the customs union. That concept of proof of origin is really important. To be clear about what that means, that means that everybody who is exporting from within the EU or after to the European Union has to prove that the good has been produced in that country and has not been produced or supported by a third country, so imports from China or something like that. That costs money. It means that every small business, every medium-sized business, has to go through a process of proving that the good is locally produced. That costs money, and you do not have that when you are in the single market. There are a few things that I would like to come back to, but back to the point about the level of understanding. Within the trade union movement, it is certainly deeper than it was six months ago, but I think that it is probably not great. That brings us on to a much wider point about the huge glaring lack of capacity that is at all levels to deal with complex issues of trade across the UK. We have seen much written about the yawning chasm that there is in Westminster at the moment, and I think that is inevitable, given that there has been no responsibility over those issues for about 40 years. However, I think that it goes much deeper than that across all institutions in the UK that have an interest in economic matters. Trade has been under discussed for an awful long time, and I think that it is only now that people are really beginning to think about the deeper issues involved here. Up until now, we have been discussing what our relationship with the EU is going to be like when we think about how we have relied on the EU to negotiate free trade agreements with over 50 other countries in our capacity for doing it. The UK's capacity for negotiating is Scotland's capacity to monitor those in our interests. That is a real problem and one that we have to recognise. If I just quickly come back to the bureaucracy point, it is really important. During the Brexit campaign, we all paid the price for the actions of a number of organisations over a prolonged period of time that are exaggerating and distorting the issue of EU red tape, which has always been massively exaggerated. I have sat in the Scottish Government's regulatory review group for over 10 years now. Rarely have we ever seen a genuine problem of EU regulations that have not been easily dealt with at Scottish level. Very often, when you get down to the detail of these things, there is no problem at all. The convener is absolutely right to raise the point that if the UK is now to access the single market in any kind of effective way, the bureaucracy is going to increase significantly. I think that Grail mentioned the rules of origin. I think that he has outlined that problem very well. I was reading some stuff last night. It suggests that it is really not just a problem for small and medium-sized businesses, given the length and complexity of global supply chains. Even large organisations in Scotland will struggle to meet the rules of origin requirements that are likely to be introduced if we do access a single market in the future. I think that that is a factor for a number of companies. The feedback that we have been asking companies is how we can help or what assistance we can provide. One of the most common responses has been that we have been able to provide the information on what is happening and what the implications are going forward. We are looking at that as part of our services, to have that bank of information for companies that are looking forward. I think that we have a question from Ashton Denham. Good morning. A number of you have mentioned the idea of uncertainty being quite a problem for businesses and also for the economy going forward. I wonder if any of you have seen the Institute of Directors did a survey on businesses and asked them what their optimal arrangement would be going forward. The majority of them said that they preferred bilateral free trade agreements, so that would be like the one that has recently been agreed with Canada. I wonder how compatible the idea of ending uncertainty and the idea that those bilateral agreements can take such a long time to negotiate. I think that the Canadian one has been about seven years in the making. Do businesses think about that? Are those two ideas compatible that it could take such a long time in order to resolve that? I have to go first. I mean, I think that just talking about our survey that we did, most companies came back to say that access to a single market was a highly important thing for them, so that is a slightly different result, but it is the kind of key result that being access to trade is the most important thing. The point that Stephen made was quite right around that, that those bilateral arrangements are not easy to do. There are a large number of countries that you need to do. The EU already has 50 trade arrangements with countries at the moment, plus there are 27 countries in the EU, so you have to think about adding all of those up becomes very complex and very difficult, and the average length of time to negotiate those things are years. It is not something that tends to get done overnight, because it is not just about what is the impact on trade, but it is also issues about what is the distributional impact on that, what is the impact on sectors that you need to think carefully through. I know that some people who, in the argument for Brexit, some of the economic models that were used to argue in favour of leaving the EU were also coming at the idea of essentially just doing away with tariff barriers entirely. The implications that I am sure you will hear for later about that on things such as the agricultural sector, of having no tariff barriers and what it would mean for manufacturing etc, are actually quite massive. You need to think carefully through what not just the macroeconomic impacts are of your different trade policies, but what are the distributional impacts. There has also been quite a lot of controversy around things such as T-Tip and what that might mean for public services and so on. Negotiating all those trade deals takes a long time, and I guess that is the point that we are making about the uncertainty effect kicks in and back to the point about if you are a Japanese or an American investor looking in to invest somewhere in the European Union, comparing the UK with that uncertainty continuing for a while, or going into somewhere like Ireland or going somewhere into the rest of Europe. It is something that puts us at a disadvantage. Just very quickly on the point about business, I do not think that we are quite there yet in a position where we are very clear that the priority is access to European markets and others. We are not in a position yet to say how we best think that that should be achieved. We are going to be commissioning some work over the back end of the summer beginning of the autumn to look at the different options that are available and see if one does stand out, then we can back it. We are not quite early days just over a month in, so I would not want to make any definitive pronouncement on that just yet. I do not think that the nature of free trade agreements is well understood at all in business or beyond business. There is assumption that free trade means free trade. Those are massively complex agreements about how we manage that trade and our interest is the key issue. For example, what will be one of the most important free trade agreements would be the one that the UK negotiates with the US. You need to understand what is motivating the US here and what it has their eyes on. The last time that was before the committee was to discuss our concerns around the T-Tip, but when US trade agreements are negotiated at the behest of very well-organised, well-funded US industrial lobbies, they will have their eyes on things like NHS procurement, which has been a very long-held aspiration for US pharmaceutical companies, for agriculture, etc. When you have an extremely experienced, well-organised, well-funded US office for trade negotiating against an extremely experienced, naive UK lobby, which will probably be motivated by an economic theory that does not really bear much relation to the reality of the world that we are living in, it is very difficult to see how we do not get squeezed in that scenario. I will just think about uncertainty across as a whole. I must remember that most companies in Scotland do not export overseas—only about 10 per cent do—so a lot of other companies are kind of thinking uncertainty in terms of the wider consumer confidence, etc. We have to think about it in that terms, too. That is a need to bring in Rachel Hamilton, I believe. It is very much on what Kenny Richmond just said. Obviously, businesses are going through a very uncertain period at the moment. They are almost like as if they are in a holding pen. The situations that we are talking about are very hypothetical and there are no answers clearly at the moment. We know what we would like, we would like access to the single market and how that progresses is obviously a matter of time. There has been some positive news this morning about investment from pharmaceutical companies that McDonalds are employing and there has been a slight uplift in growth. However, how are we going to prepare businesses to look for opportunities? You mentioned in your report that there could be opportunities, particularly through innovation and creativity. How are we going to prepare businesses and what do we need to do to prepare them to move forward even in this holding pen situation? There are lots of enterprise businesses in Scotland. The evidence suggests that those businesses are looking at opportunities, investing in innovation and looking at markets outside Scotland. The rest of the UKs are potentially huge markets for businesses in Scotland. It is a role for public sector business organisations to think about how we can raise the ambition of Scotland's businesses and how we can look at those businesses that are doing well and use them as good practice examples. Some businesses have said to us with the change in exchange rate that their exports are becoming more competitive. That is an opportunity to perhaps increase exports. There is a lot that we can do to help businesses to look at their growth characteristics and support them with that. It is important to put it in context that we need to remember that we are not starting off from a great place. Even before 23 June, the numbers are particularly among the smallest businesses that were looking good. Confidence was falling, hiring intentions were weak, investment intentions were falling back, turnover was down, profits were squeezed, overheads were going up. It was a difficult situation. What we do not yet have is enough data for this quarter to know exactly where we have been. I would preface the rest of the remaps of the fact that we are not starting off from a position of strength particularly. Generally speaking, Kenny is right that businesses are entrepreneurial and they will be out there and they will be identifying the markets. I was speaking to somebody who is in a high-end network. A lot of customers in the US, the value of the pound, has been really good for sales. Other people are thinking about how other people can maybe price jobs in US dollars, for example, are saying, well, I am not going to go out of business, but that is my profit margin gone for this month. People are spotting the opportunities and adapting it already, I think. That is certainly the anecdotal evidence. One thing that we have suggested that I think could help, and I was really pleased that the Scottish Government has agreed to take it forward as having some sort of central advice function provided by the Scottish Government, because there is a lot of competing advice and a lot of competing forecasts out there somewhere to go to say, I have this particular issue, can you tell me what I should do? If the answer is do nothing, because nothing is going to change for five years smashing, but if I need to be thinking about it, I want that sort of advice now. I think that would be really helpful. What that would also do would be an early warning station, almost like a weather station that would be testing the temperature, so it could feedback up if there were particular problems in particular industries and sectors or types of business that policy makers at the centre should be aware of or should be feeding back into the negotiating teams, then that would be a good sort of early warning system. I think that that is a good practical step that the Scottish Government can take and indeed is taking. Alongside that, the prescription for this, I suppose, or to make the best of the situation, is exactly as I was saying if it had been a yes vote, we need to think about how we tax businesses and do that fairly. We need to think about how we spend our money, spend it wisely, try to spend as much with smaller Scottish companies as we can, and we regulate sensibly. I guess just widening that point a bit, I think. It's always difficult when you have economic forecasters coming out with slightly gloomy news, but I think that we do also have to policy makers to have an important role in restoring confidence and boosting that as much as possible. I think that there's a danger that you get into a cycle of everything that's gloomy, as Kenny mentioned, not everybody exports, so they are more concerned about consumer confidence within the domestic economy. There's a role for government there to put out strong messages about Scotland and the UK being open for business, about working to grow the economy. Within that, we also argue that there is probably a case now for some form of stimulus to the economy on the fiscal side of things. We know that the Bank of England is looking quite hard at what they might do over the next month or so around interest rates or quantitative easing, but we also see that, given where we are, the balance would be that there is an opportunity for some form of either infrastructure investment programme from the UK level or simple things like your point about looking at new opportunities and new markets. How does policy encourage that? What policy could you do to support exporters accessing new markets? What about access to finance for the exporters to get involved in that? I think that that part of it is quite important. Although there are opportunities for business, there is also a wider question for policies a whole in that we know that issues around productivity, regional imbalances and structural imbalances have been there in the UK and Scottish economy before the decision to leave the European Union. There is potentially an important role to think about what is the future of economic policy more broadly in the new world. How do you go around boosting productivity in an economy that is now outside the European Union? What do we need to do around infrastructure? What do we need to do about skills? That is where the debate needs to go into, around restoring confidence and the opportunities that will come in the future, which will undoubtedly be there. I wanted to come in to that point. A couple of points, if you do not mind. I just think that we need to tread carefully that any bit of good economic use we hear at the moment is seen as a sign that the impact has somehow been benign. The consensus among economists during the campaign was really quite unprecedented, but what was motivating was the long-term impact here that I think really described very effectively at the start of the meeting. Yes, when the short-term impact is much more uncertain, I think that if the phrase will forecast the day whole true, then it is still significant, but we certainly should not get hung up on whether or not we meet the conditions for technical recession over the next year. It is a long-term issue that is really important here. I think that on the point about support for business, it is difficult to see any outcome here that is not going to require greater investment in the enterprise networks, I would think, and again I will go back to the example of rules for origin. RSI, who I believe currently do a very good job, are the currently properly resourced to be advising companies on things like rules for origin. I am not entirely convinced that they are. Why would it be if they have never had to do it up until now, but that is potentially an area for additional investment. I just want to make the point about the lower value of the pound here, making the exports more competitive. Now, this has been very widely said, but I think that we should not get complacent about this. I think that recent experience, certainly during 2008-2009, showed that we get very little boost from an even bigger devaluation at that point in time. I do not think that Scottish exports are particularly sensitive to pricing, perhaps where they used to be in the past. Again, some exports are again the end product of quite lengthy and complex global supply chains, so the input component of that is going up in price even as the final product is going down. I was just to finish off by saying that Graham's made a very good point about looking again at long-standing issues here. It is an SNP-manifestial commitment to implement a national drive to improve productivity. I was discussing this with Graham when he was at the Scottish Government. I have been discussing this with Kenny recently as well, but I think that what has happened over the past few weeks should give a whole new impetus to that bit of work. On that particular point, the previous committee looked for clarity in terms of how, if we did leave, some of the structural funds and other support networks would come back to Scotland through the block grant, but we certainly did not get any clarity on that at that point from the UK Government. I take it that if we are going to invest in the extra and enterprise network and things like that, we need absolute clarity on where the loss of those European funds and how it is going to be made up. One of the issues that is a side issue that is involved in all of this is what are the fiscal implications for the potential transfer of new powers to the Scottish Parliament. The new fiscal framework is quite clear. You either have Barnett or you have the tax-raising element. There is no other mechanism through which other funds could come at the moment. If you take something like cat payments, we have about 8 per cent of the population, but it is something like 18 per cent of cat payments in the UK come to Scotland. How would that come into the Scottish Parliament budget? It will not come through the tax revenue bit. If it comes through Barnett, you would get 8 per cent of the equivalent spending on England and Wales. You would not, and that is certainly not 18 per cent. What is the mechanism that those additional revenues would flow into the Scottish budget? In that, there is uncertainty. That is something that is quite important and something that was not really thought too much before the referendum. That is a significant thing that needs to be resolved relatively quickly about the funding implications of the potential transfer of powers to the Scottish Parliament and what obligations would come in the back of that. We have invited UK ministers before the committee, so I am sure that members will be pressing them on that when they appear. I believe that Ross Greer wanted to ask a question next. The Fraser Valander paper mentions the immediate need for fiscal stimulus from the UK Government. If we end up in a situation on the other side of the negotiations, we have a less than perfect solution, so something short of single market access, free trade agreement etc. Would you expect in the immediate post-negotiation period for there to be a renewed need for fiscal stimulus at a UK level? I would be concerned about the political willingness for that. There are two things coming back to the point between the short term and the longer term. We would see that the negotiation period taking the next three years of our forecast horizon. When we have talked about fiscal stimulus in that context, we really mean in the short term almost to make up the potential aggregate demand that will be lost through further uncertainty etc. Then what happens at the end of that negotiation period? Three years hence, what are the potential long-term implications for the economy and whether you need a further fiscal stimulus or whether you need other measures? There is a point where you cannot keep having fiscal stimulus all the time. It is just a fact. What we are talking about is a fiscal stimulus in the short term to get you through this period of uncertainty. In the longer term, the economy will return to growth. The question is whether it is going to be in the same level of growth as it was in the past post-EU. The longer term, you are moving less away from having a continued stimulus to action more is what policies are in place to help to promote growth across the economy in a world where you are no longer a part of the European Union. Did you have another question, Ross? Rather than the longer term, it is more about the specific year, two years, three years and the immediate post-agreement, if we end up with an agreement that is not ideal, so absolutely recognising that we cannot have continued stimulus but the potential need for an urgent stimulus if we end up with an agreement that falls far short of what was actually required. You are talking about the three years after the three years that we are talking about. I guess that it really depends on how the negotiations go and it depends on what is the end point there. The economy will do well and it will, in the sense of adjusting, and the question is whether the ultimate negotiation is a shock or a surprise. What you are more likely to get as we talk about in the report is just a gradual transition as businesses gradually adjust. If it looks unlikely that you will have access to the single market, then businesses will adjust or change their investment plans. With the end of the stimulus at that particular point, I guess that we will need to see closer to the point in time. If we are talking about that post-deal period, the other side of the argument is that, by that point, neither the Scottish Government nor the UK Government were bound by EU procurement rules. Therefore, if they wanted to do a fiscal stimulus, they could make sure that all of that money went to Scottish businesses—indeed, Scottish small businesses—to do it so that it might actually have a greater impact. Therefore, you might want to wait until we have left so that we can capitalise. Mike Rumbles, sorry to Stephen. Careful round about that. I mean, that assumes breaking all ties, I think, with the EU. I mean, I think, under any EU type scenario, there is still going to be very significant constraints. If it is EU such and poor way, under most sectors, I think all will have in mind that EU procurement rules will still apply. Mike Rumbles. I am puzzled by some of the information that has come forward in Graham Roy's briefing paper to us. If I could just talk about outlook and appraisal, my question is about economic growth. It says here, growth over the past 12 months in Scotland was 0.6 per cent compared to 2 per cent across the UK as a whole. Over the past year, Scotland's economic recovery has remained fragile and last week's 0.0 per cent growth figures for the first quarter of 2016. If we have completely flatlanded, there would be no growth in Scotland and the quarter preceding the European vote, I am a bit puzzled. We are not putting too much emphasis on our forecasts about the impact of the European vote, considering that the statistics that you just brought before us show that we were in trouble for a whole year before the European vote and deep trouble with no growth at all this year. I mean, I think that what we make quite clear in the report is actually that the Scottish economy has been fragile for the last 18 months, particularly since the decline in the North Sea. You will see some of the charts about some of the particular sectors that are tied to the supply chain within the North Sea, some of the manufacturing sectors. Manufacturing is down 5 per cent over the year. That is well before the European referendum. We had 0 per cent growth in the first quarter. We also think that there will be challenges in quarter two. Longannock power station comes out of the economic figures in Q2. Even if we were to match UK growth in the second quarter of 2016 of 0.6 per cent, we think that just the one factor that is taking Longannock out could take anything up to 0.4 per cent out of the Scottish figures. You are likely to have pretty close to zero growth in the first six months of 2016. My point is that this is all before you add in the impacts of the European referendum. We are saying that the economy has been fragile, and it is entirely correct that the economy has been fragile. Will the EU referendum have a positive or negative impact on that? I think that our clear view is that, once you add in the additional effects and the impact will be negative. I think that it is important to point out that over the past 18 months, the Scottish economy has been fragile, and the main explanatory factor has been the following oil price and the impact in the offshore and onshore parts of that industry. That was the result of global trends over which neither the Scottish or the UK Government can frankly apply much pressure at all. On top of an already weak economy, we are now potentially self-inflicted, major and very long-lasting economic damage. I think that there is a contrast between something that we can do very little to influence frankly at the Scottish level or UK level through the calling of the referendum and the vote on the danger of inflicting really serious long-lasting damage. I have one narrow point. Graham Roy will be aware that, in the economic commentary that Fraser Valander published this morning at page 12, a reference to one of the reasons for revising downwards the expectations of growth in the Scottish economy over the next two years was an expectation that the Brexit decision would reduce sales from Scottish companies to other parts of the UK. That quite surprised me. Kenny Richmond, in his verbal evidence a few moments ago, talked about the potential for growing the UK market for Scottish products. Given that our focus has tended to be on relationships with the rest of Europe, those are interesting aspects, and I would just be interested in either you want to comment a little bit further on those points. I guess that we are making around on the exports to the rest of the UK, is that by far our largest export market is the rest of the UK. It is £45 billion worth of exports between Scotland and the rest of the UK, so this is a shock not just to Scotland, but a shock to the UK as well. That is why you see in our forecasts that you have a positive shock in the immediate term to the rest of the world exports because of the depreciation and sterling having a boost there, but because we also believe that the UK economy will slow over the next three years through the forecast horizon, that will reduce demand within the rest of the UK for Scottish products, so that has a negative impact on our forecasts. You have that balance between, on the one hand, the depreciation helping the rest of the world exports, but also the decision to leave the EU having a negative impact on the UK, which in turn feeds through to Scottish exports to the UK. To help companies to look for customers in other economies anyway and to look at ways that Scottish businesses can be more efficient and offer better quality services so that they are increasing their competitiveness. Graham is right that we may see a slowdown in the rest of the UK economy as well, but there are still opportunities for Scottish companies to look beyond Scotland for customers. The other point was a wider one, and I guess around where we are now and where we're going to be over the next two and a half years, because I think that everything that we've heard this morning confirms that the next stage, the stage of negotiation is going to be absolutely critical. The UK Government and the Scottish Government, as a partner with the UK Government in drawing up UK negotiating positions, what their priorities should be. On the issue of freedom of movement, it is clearly closely tied into the access to the single market. I was struck when we were in Brussels by one or two of the people we met, whose emphasis was not on the movement of people but on the movement of labour. First of all, is that a significant distinction? Secondly, does it offer opportunities for creative negotiation over the next two and a half years? The basic point is that the single market has the four fundamental freedoms of which freedom of movement is key. That is integral to the single market holding, because it is linked to freedom of movement of labour and freedom of establishment. That is something that is not really picked up usually when we are talking about freedom of movement of people, but it is the freedom of establishment. It is the freedom for someone to go and set up a business in another part of the European Union. On services, that is the thing that is key. It is the ability for somebody in Germany to come to the UK, set up a service or vice versa. Freedom of movement is integral to the successful operation of the single market. Could you take that element out and still have the single market in operation? I guess that is one of the key questions. I am quite sceptical of that, because of the point about freedom of establishment and freedom of labour. It becomes quite difficult, but whether that can be negotiated and whether that can be agreed is ultimately for part of the process of negotiations with the EU and the Scottish Government and the Scottish Parliament's input to that. From our point of view, it is the end point that is important. It is the ability to be able to hire the right people when you need them with the right skills, with the minimum of bureaucracy and bearing in mind the particular issues that we have in the Scottish economy around seasonal labour, particularly in the tourism industry. If you call it something else, we have arrived at some sort of other mechanics of doing it, fairly relaxed about that, if it is possible. I accept it, but I know means are given. However, the bottom line for us has to be that we cannot be going through the sort of hassle that people who, for example, run a Bangladeshi or Indian restaurant at the moment have to go through to get chefs in. We cannot have to start seeing that for things like fruit picking or housekeeping staff in hotels and all that sort of thing, because simply the system wouldn't work. On the subject of negotiations, in the SPICE paper that was produced for the committee, there is a rather counterintuitive issue there. It talks about international trade and says, another reason for declining reliance on the EU market may be the increase in bilateral free trade agreements being negotiated by the European Union effectively, because the European Union has been so effective at building new trade arrangements that our reliance on the European Union has been reduced. I thought that I was counterintuitive, but that brought me back to what Stephen Boyd said earlier, particularly given that we now have, I think that there are 50 trade agreements and we are negotiating now the European Union is with United States of America, Japan, India and China, the real big players in the world. He said something about we have a level of naivety in terms of how we are going to be able to negotiate in the future. Can you expand on that? Does that mean that, because we have been so integrated into the European Union, that all of the experts from the UK, for instance, who have been in that area, are now operating in that European arena? We have nobody here really with that expertise for the future to be able to negotiate separate agreements on behalf of the United Kingdom. Is that where you were coming from? What is it like to expand it, please? That is precisely what I was saying. I think that much has been written and it has been confirmed by our member unions. I have to say with members in the civil service that there is no capacity and I would stress no capacity at Westminster for dealing with these complex issues of trade. The issue goes a wee bit wider. I think that there is just a lack of understanding, as I think I said earlier, about the nature of free trade agreements, the complexity of what they mean and the range of issues that they cover. I think that there is probably a lack of understanding also about the importance of the EU's scale in negotiating these and its ability to introduce issues of global importance, certainly for my constituency, such as climate change, antitrust. The EU has actually been very active on it and has been poorly recognised. Tax avoidance and such things can be introduced into bilateral discussions in a way that the UK simply would not be able to, because it would just be outgunned by partners that are simply more economically powerful but with much more experience than negotiating such complex agreements. Is that what the rest of the issue is about? I mean, just broadening out that point as well. The other thing that I would say is that, aside from the expertise issue, this is now a unique situation that we are now in. There has never been a situation where someone of this scale, the size of the UK, has come out of the single market. Even with the best experts in the world, how you do all of that process and what the potential implications would be from that is highly significant. People talking about immediately joining the EEA as though it is an easy thing to do. One of the reasons why the EEA has worked is because it is a very small number of countries who have happened to be very small. You throw in the UK into that mix and it fundamentally changes the make-up of the European economic area, whether it would want that to happen, whether the EU would want someone like the UK coming into the EEA and still having access to the single market goodness knows. Within all of that, apart from the point that Stephen Macon makes, which is quite right about the expertise, even if the best expertise in the world, the complex problem that we now have to resolve is so significant that it is difficult to see that that could be done very, very quickly and not have some quite big issues to resolve. Just on that point that you made, Dr Roy, about the UK being such a big player entering into the EEA arrangements, you are suggesting in that circumstance that smaller players like Iceland and Norway might be thinking that if the UK is that big a player, them coming into the EEA might disturb the relationship that we have and might be resistant? It is a general point that I am making about that. I do not know how they would react, but they could react in that way. The general principle is that it fundamentally changes the balance within the EEA by having a very large member in the United Kingdom versus small other members at Lichtenstein and in places like that. It fundamentally alters the balance now. I do not know how the EEA countries would react to that, but it is a fundamental change to the way that they operate. I am sure that they would want to think long and carefully about whether that type of model would be the one that they would be willing to go for. Thank you very much, and this has been absolutely fascinating evidence session. We have another panel coming, so unfortunately we are going to have to wind up. Before we do, we heard yesterday that the European Commission had appointed Mark Burnie as the chief negotiator. Do you care to reflect on that in terms of how likely it is with Mr Burnie in place that the UK will get its desire to have access to the single market and free movement of people? I think that it is too early to say, but something that I would not be able to comment on. I think that it simply reflects the fact that the EU is likely to play hardball here, but I think that everybody who has looked at the issue closely knew that it was going to be the case. Mr Dr Roy? Yes, I think that it is. I went like his job. It sets a scene for how difficult negotiations are going to be over the next week while. It is one of a great many things that you will have to reflect on if you are trying to run a business in Scotland during this uncertain period. Thank you to all our witnesses this morning. We will now take a short mission. Thank you very much. We now move on to the second part of our evidence session, where we will consider business and sexual interests. I would like to welcome a new panel of witnesses, Claire Slipper, parliamentary officer for the NFU Scotland, Bertie Armstrong, the chief executive of the Scottish Fishman's Federation, David Frost, the chief executive of the Scottish Whiskey Association, Alistair Sim, director of the University of Scotland, Gordon Dewar, chief executive of Edinburgh Airports Ltd, Hugh Chater, director of banking at Virgin Money, and James Withers, chief executive of Scotland Food and Drink. You are all very welcome. This is a larger panel than we would normally have, but given the wide range of sectoral issues affected by the decision, we felt that it was important to hear from as many people as possible. I would urge members of the panel and witnesses to keep their questions and answers as succinct as possible. I would perhaps like to open with a general question. What has come across very strongly is the continuing uncertainty for business as a result of the lack of direction or clear direction from the UK Government since the vote. I wonder if anybody would care to comment on that and whether they can see an end to this uncertainty any time soon. The important thing is—I will come on to talk about universities in more detail, but the important thing is that we really get this right. It is vastly important that whatever future relationship we craft with the European Union is one that maintains the movement of talent and the movement of ideas across boundaries. There is a process that needs to be entrained to set out what our negotiating objectives are that will maintain that as best as possible. For a moment, we rely on the continuing benefits of our continuing membership of the European Union, which is incredibly important for European students and for European researchers, but we need to be moving into a phase in which we can start to understand whether the UK Government is setting priorities for a future relationship with the EU that will support our success. We are obviously touching on awful lot of businesses in the sense that aviation is the route to markets or indeed inbound routes for tourism in particular. I think that this uncertainty is a huge barrier. The airlines, by the very nature, are about as transporters of what they get. They can put their aircraft wherever they think they will get the best return. At the moment, we are seeing remarks from Ryanair, one of the largest, saying that they are going to move their future investment away from the UK, at least until it becomes clearer what is going to happen. We have a UK airline in the easy jet talking about having to set up a business and a new licensing arrangement within the EU to preserve the benefits of open skies. We have airlines such as Delta, who have cancelled 10 weeks of the winter schedule because of the currency implication where the winter in particular is an outbound and therefore sterling the nominated business for them. They do not think that that is going to work very well in the depths of winter. All of that is recoverable if we give a clarity about where it is going, because fundamentally the economy is strong here. The market is very strong for aviation, but we need things such as continued access to open skies Europe, continued support and an environment that encourages airlines to invest in Scotland and the UK where they have many other choices. We were involved in meetings with the UK Government in London on Tuesday, and to answer your questions succinctly, I do not see an end to uncertainty in the very near future. I think that there are two things that would be hugely valuable from a food and drink industry perspective—one broad and one very specific. The challenge with some of the discussion that was in London on Tuesday is that we are still talking about very broad principles. The benefit of being in the European Economic Area versus a free trade agreement versus being hostage to WTO rules, some sense of what plan A is or option one would be helpful to help narrow down the discussions on the detail. I appreciate that as a negotiation there will be a limit to how much UK Government will want to show their hand, but at least some sense of what an ideal option would be in terms of future relations would be helpful. From our industry perspective, then, to start dealing with more of the detail. The one specific area that is of real concern is about the existing workforce. Around about 30 per cent of the workforce in the food and drink industry is from Eastern Europe, and there really is quite an urgent need to get reassurance that those workers who are currently in Scotland working in the food and drink industry and across other sectors will have their rights maintained, because that is causing some real uncertainty at the moment, both for the individual workers but also for businesses. In your discussions with the UK Government, you were not able to get those assurances about workers? No, those assurances have not been forthcoming, but we made the request that having a clear idea of what those options would be in terms of future relations would be helpful to, but we did not come away with that. They were very much in the mode of telling us what the negotiating priorities are, so we were able to share that, and they took that away. I know that, certainly, if you speak to most of the food and drink companies, they would not say that they have that assurance on their existing working workforce. I support what James has just said. Obviously, it is early days, and at the moment we are very much in business as usual mode, so you cannot turn farming on and off. The longer term priorities are really, really key, and that is exactly what we are trying to voice at the moment. It is important that lines of communication are kept open amongst the Parliament that we have here, as well as Westminster and within the wider European agenda, but what we are looking for now is a confident platform in which to go forward, and that is in terms of the support. Obviously, one of the first negotiations that we will have is what to do with existing support funds, such as the CEP, and we are calling for an immediate commitment for that money to be devoted to the next four years. The Scottish fishing industry has a really very different take on that. Regarding that, to use the phrase once in a lifetime, opportunity, there is a systemic change on Brexit, which is the restoration of our exclusive economic zone with regard to fisheries. It is half the northern continental shelf. It is a really, really big patch of prime maritime real estate, and our challenge is in—and I make this quite clear—in political backbone for Governments north and south to enact that and not trade it away again. What happened 40 years ago—the best way you can describe it is those who perpetrated it probably did not really know what was coming next. There were a small number of nations involved in equal access to our seas, turning them over to common grazing. What happened in the interim is that 27 countries joined, going on 27, and we now have an unacceptable situation where more than half of the stuff from our EEZ, which we should be the managing partner of, is removed by someone else. The other thing—and there was much talk about bureaucracy in the previous panel—there's a difference between difficult and complicated bureaucracy and a completely unfit-for-purpose scheme. The common fisheries policy is—after 40 years and vector, you can just google that—a completely unfit method of managing fisheries, particularly in our EEZ, where there are 27 nations, half of whom do not fish, participate in the council of ministers, in the co-decision with 751 MEPs in the European Parliament, 22 of which are on the fisheries committee, and overlay on that the commission's sole right of initiative for legislation and exclusive competence, and you have a completely unfit-for-purpose scheme. Now we have the opportunity, if there is political backbone, not to trade it away again, of becoming the managing partner in the best piece of the Northeast Atlantic for harvesting seafield, and we could, again, like Norway, who didn't join with us 40 years ago on a thin majority in a referendum, who didn't join, we could join them or surpass them as one of the world leaders in harvesting seafield. There is a gigantic price for Scotland's coastal communities, Scottish jobs, Scottish economic activity, which, in our view, must not be traded away. Lots of detail, lots of challenges, but that's the big message and the exhortation to this committee and to Scottish Government and to UK Government to not sell us down the river again, as happened in 1973. Thank you very much. I'm sure that people will want to come back in on specific points in specific sectors, but I want to give all the panel the chance to just answer that general opening question about their sector. Mr Frost. Thank you, convener. We export into nearly 200 markets globally. We do so over a very long time horizon, a decade or more, so we're used to managing uncertainty already in that context. To be honest, when we look at the situation now, we see a mix of certainty and uncertainty. I don't think it's quite as unclear as everybody necessarily thinks. For us, we can already see that quite a lot of things are going to remain unchanged. We know we're going to have a zero tariff into the European Union for our exports. We know there's a lot of external tariffs in third countries are going to remain what they are now, either zero if it's the US, Canada, Mexico or higher in some of the emerging markets. We're confident that we can continue to protect the GI, Scotch whiskey and so on. I think there are two areas of uncertainty and concern. One is around where there are EU free trade agreements that do give us tariff preference, so-called, perhaps 10 or 15 per cent of our exports, countries like South Africa, Colombia, Korea and so on. Is there going to be any continuity? Can they be grandfathered? Can we continue to benefit from that or not after Brexit? I don't know about that. The other area is the one that you touched on in the first session, which is, are we going to have an EEA type arrangement or an FTA type arrangement? Are we going to be part of the single market or are we going to be talking about access to it? That hugely affects the level of whether EU rules in the single market continue to apply in the UK after leaving or whether we've got to redo all that. For us, that's one big level of uncertainty because all that is largely done at European level at the moment. There are shapes through the mist, but there is still mist out there. In terms of uncertainty, the first comment to make is that virgin money, like probably the majority of UK banks, are much better prepared and set up to deal with a period of economic uncertainty than perhaps in 2007-2008. Having said that, I think that there are three key areas which will determine how the financial sector in particular manages through whatever period of economic downturn we're heading into. The three areas particularly pertinent to our business are the future of the housing market, both in terms of new build and existing stock. That's clearly driven by consumer confidence as much as any hard economic facts and indicators. The second area is what happens to the Bank of England base rate. It's clear that, although many banks and we're one of them have got various levers of our business that we can move in response to a change in bank base rate, it will put pressure on the economic performance of banks and other financial institutions. Clearly, the third area is employment or more specifically, unemployment. Those three areas are emotionally driven as much as driven by hard economic indicators because at the heart of that is how the individual consumer reacts to and anticipates what's going to happen in the wider economy. To that end, there are certain things that central governments can do to encourage consumers to continue to be confident. Potentially, the sooner we start to see some of those levers and policy measures being invoked, the better. Thank you very much. Before I hand over to Lewis MacDonaldon, your specific area, Mr Tater, in financial services has got specific issues affecting it. Like all services, we've heard how services would not be covered by any kind of free trade agreement. Also, access to the single market is particularly important. We've already heard about financial services organisations locating in countries that have access to the single market. Is that something that you're concerned about or picking up on? I share the concern about EU employees that we have and their future. I think that that's a key issue. I think that whether or not the passporting issue, which has been talked about quite a lot for financial institutions in particular, will turn out to be such a key issue as it has a lot of publicity and kind of column inches, so to speak, immediately following the vote. Whether, in reality, if that passporting was not available, whether financial institutions would choose to relocate to Europe or to North America is in question. Where I think there may be an opportunity, and this is obviously a kind of political area, so I tread with care, is clearly within Scotland and in Edinburgh in particular. We have a thriving financial services sector that employs, I think, close to 100,000 people. Depending on where Scotland's relationships with the EU land, there may well be an opportunity to offer that as a relocation safe harbour for some institutions that are worried about the removal of passporting from maybe the rest of the UK, but that's probably an area that I won't say any more about without term. What you're saying is that if Scotland was able to maintain its access to the single market, then that would give us an advantage. I do think that that's a very credible view. Thank you very much. There are a couple of things that are very interesting, initial contributions, a couple of things that I would perhaps want to come back to. The contrast, I think, between David Frost, who said, well, we're confident that these things will apply, we will continue to have zero tariff with the European Union, we're confident that we'll have similar certainty with some of our major export markets like the United States, but we're uncertain about some of the EU negotiated free trade agreements. On the other hand, Bertie Armstrong essentially saying, I think, that although there's a great opportunity here, there's also a great uncertainty about how fisheries will fare in the negotiations that are going to ensue following the Brexit road. I wonder if perhaps you could both say a little more. I'm thinking about the evidence that we heard in the last session, towards the close of the last evidence session, which was around the lack of experience and expertise within the United Kingdom in trade negotiations. Clearly, both Scotch, whisky and fisheries are involved in negotiations on a multilateral and bilateral basis, on a daily basis, from a commercial point of view. I wonder if you would reflect on that from your sector point of view, but also how you see it for the process of negotiation that both the UK Government and the Scottish Government will be involved in in the period ahead? On the capacity question, I'm answering with my personal hat on, really, because before I did this job, I was a diplomat. In the last job I did, I was director for trade policy in the Department for Business, and I had 140 people working for me. It was news to me that the UK Government doesn't have capacity in this area. What it doesn't have are people who have spent a long time sitting in trade negotiations, as opposed to supervising them, and it lacks some technical expertise, I would say, in things like WTO law, translating deals into texts and so on. It's definitely going to have to go up a bit. It's definitely going to have to buy some of that in. The idea that there's no capacity to do or think about trade negotiations is, I think, simply wrong. It exists, and it can be kicked off straight away. Thank you very much. On the point of capacity, yes, we are involved in the coastal states negotiations with not only as part of the EU delegation but as part of the delegation with other countries. One of the benefits that will exist is that, at last, we can stop focusing on a bizarrely bureaucratic process and start focusing on an outcome, which, in our case, would be fishing opportunity. That would be no small change and would be a great deal of help in getting rid of that. I just wanted to re-emphasise the point that the one big thing for us is that there is a systemic change here, which most other industries will not come up against. In our case, we would get unleashed. Our fear is that, because we are less than half per cent of GDP, that would be an easy bargaining chip. The Belgian fleet, the Netherlands fleet, the Danish fleet has got very used to catching almost all of their fish in our EEZ over a period of 40 years. They will, therefore, use that in negotiation, of course, as a matter of observation. The bit that slightly frightens us is that we have got used to this unusual, pressed, deprived position that we are now in, which we should not be in if we had the managing partner status in our EEZ and that people will accept that as a continuation of least worst rather than do the best. I emphasise again that this is Scottish jobs and increased economic activity in areas that really need it and a potential for world leadership. I do not think that that is an overemphasis. It is a whacking great opportunity for Scots fishing here. We would not become the bully of the north-east continental shelf. We could not do that. We would have to negotiate not with a clean sheet of paper but from where we stand. However, the difference in managing partner in a beautiful piece of maritime real estate is a very different position than being one of 28, only 14 of which fish and many of which negotiations have got other things to do. Richard Locker, I am sad that he is not here because he was a veteran of this and would often claim, why is Austria and Luxembourg and the Czech Republic got a vote in this when they do not even have a coastline exactly? I know from the north-east many fishermen voted to leave in the hope that just the scenario that you have described would come about. However, what you are saying is that you recognise that whether that scenario comes about or not will depend on the nature, the remit and the success of the negotiations that go forward from this point. That is exactly the case. Can I come back to David Frost on the question of whisky? I think that you obviously have enormous experience personally, but the Scottish Whisky Association has enormous experience institutionally in negotiating on a global stage. What is your sense of the challenges and opportunities that lie ahead for the wider Scottish economy as well as for your own sector? Bertie Armstrong talks about a systemic change for his sector, but for your sector presumably it is much more business as usual, but what is your sense of the priorities and perspectives going forward? It is a big question. We are unusual as an industry. We export well over 90% of what we produce, so it is what happens in global markets that makes the big difference to us. We also do not have a complex upstream supply chain. Basically we take barley and water and yeast and turn it into money is how the system works. We do not have to worry about intermediate goods and complex movements across Europe and so on. In that sense, we are simple. We can focus on export markets. We can focus on doing stuff well in Scotland. What makes a difference to us globally is getting Scotch whisky on to the market. It is the market access barriers, it is tariffs, it is all the regulation that makes a difference. It certainly makes a difference to us to have a third of our exports go to the EU. It certainly makes things simple to have one system for the EU to be part of that as part of the single market. Keeping access to that is really important, but it does not change the fact that two thirds go elsewhere and keeping up the capacity to knock over market access barriers and get Scotch into those markets is going to be just as important after Brexit as it is now. Will it be harder? It will be different because we will not be able to call in to play the European commission as we do now quite often in specific market access barriers. We will have to do more of it ourselves. The UK Government will have to gear up for that. On the other hand, the UK Government's range of interest is going to be narrower, it is not going to be balancing lots of interests across the whole of Europe, so that might improve greater focus. It will probably be a bit challenging in the short run, but looking up to medium and longer term, I can see how it could be done. I will come in on a supplementary on that particular point with regard to whisky. When Oliver Letwin was in front of the foreign affairs select committee a couple of weeks ago, he was quite specific about admitting that the trade negotiators had moved to the EU and that they did not have capacity. I do not know if you heard his evidence in the select committee. Yes, I did see what he said. I think that maybe we were talking about slightly different things. I think that, as I said, it is true that we do not have people who have sat in negotiations on free trade agreements. The way it works is that the UK supervises those people through the EU bureaucracy. In that sense, no, that is down at the commission. Do we have people who understand the issues, certainly? Do we have lots of people who have done negotiations, yes, certainly in the UK? The intersection of those two things means that we have lost capacity. Yesterday, Liam Fox was told in the United States that they were not willing to negotiate a trade agreement in advance of the negotiations with the EU. That would not be a cause for concern for you. You suggested that you were confident about being able to negotiate something with North America. I assume that the UK Government is going to have to get on to negotiating something with the US in due course. It is certainly true that you cannot sign any free trade agreements while you are a member of the EU. That is for certain. Can you pick up the process, begin to establish the channels, begin to establish the issues? Strictly speaking, no. In practice, the commission will have to give some margin for manoeuvre for that, to avoid a break afterwards, so that it can be done. I think that just one other thing on this, one thing that is really important to us, is what happens now. It is not just the big free trade agreements. If you have a barrier in MarketX now, who talks to that Government to get rid of it? At the moment that we have turned to the commission and the UK Government, I think that it is realistic to think that the commission might at some point show less enthusiasm on the UK's behalf in that than it does at the moment. Therefore, the UK Government is going to have to step up quite soon on that. That is probably the more immediate problem. Supplementary for Mr Armstrong, because he has a slightly different approach and gigantic prize. One is in a lifetime opportunity. It is obviously something that Mr Armstrong has thought a lot about in the industry in his perspective. It is different and I am glad that we are hearing it today. What preference would your organisation have for the type of training arrangement that the UK would have in the future? For us, the most important part would be what status is adopted by the UK. Of course, under the Scotland Act, there is an opportunity for leadership by Scotland here, having the bulk of the fishing, as a coastal state, acting on behalf as the manager of exploitation in its own EEZ. I think that that will take care of it. Was there a specific, separate direction? From the evidence that you presented to us, it looked as though you were pointing that an arrangement like Norway would have in part of the EEZ might be the best arrangement in the future. Was that actually what you were suggesting? I think that we stand with the rest in that no choice of that. The EEZ, that is either at the end of the spectrum or some are hybrid in the middle, remains uncertain. On the point of view of looking at output rather than… What would your organisation's preference be, that is what I was asking? We continued access to the market, of course, but I note this. The card in your fishing chips is likely to be caught in northern Norway, and the prawns in your prawn cocktail are likely to be from the mud of the Mekong Delta. The point being that our European market already takes our imports from elsewhere. There is no reason for us to believe that we would not have access of some sort. Which model it is, whether it is a free movement of people and, therefore, complete access to the free market, is yet to be decided? What is your preference? Like everybody else in the panel, we are waiting for an analysis of what the best one would be or, rather, more specifically, what is likely to emerge as plan A. We heard earlier from others who thought that the least bad option, after coming out of Europe in a different perspective when you accept that, might be the EEA option. Has your organisation looked at what the costs might be for the Scottish fishing fleet of having to bear cost of origin custom rules as part of the EEA, for instance? That is work that, as you might reasonably expect, is undergoing now. We were as surprised as anybody else, to be absolutely honest, about the outcome of the referendum. That work is ongoing now. There will be changes, but we cling to that thought. A market is an exchange of goods bought by people who want to buy them. I was told by a fisherman the other day that the Spanish buy my prawns not because the single market exists, but because they want my prawns. If there is an extra cost in the prawns, which might or may not be offset by a difference in currency exchange, then that market is highly likely to continue to exist. We shouldn't regard that as an unjumpable hurdle, in my view. To be able to get that free movement to people, which I recognise from your submissions, is quite an important issue for the fishing industry, particularly the processing side. That would probably require some sort of EEA arrangement like Norway. In those circumstances, given the fishing interests of the Dutch, the Spanish and Norwegian regions, why would they, in those circumstances, be prepared to welcome with open arms the United Kingdom into that sort of arrangement? The boot, if you like, would be on the other foot. As the managing partner in the sea space that the resource exists, we, if there is a political backbone to do it, would be able to apply pressure to the rest of the market, rather than find ourselves impossibly pressed by immovable forces. What I am saying is that the point that I am trying to make is why would the Dutch, the Spanish and the Norwegians sign up to any fishing interests, sign up to any deal that the United Kingdom would be in the EEA if it was against their interests to do so? Therefore, you wouldn't have that free access to people. You are second guessing the outcome. If indeed there was a crashing blow dealt to the fishing industry in that way, it would be just that, a crashing blow. I really don't see that coming. Free movement of people should not overemphasise free movement of people. I didn't hear anybody in the run-up referendum debate saying, we're going to ban everybody from everything. If it is in the country's best interests to import labour for soft fruit picking or for us, I have absolutely no doubt that an arrangement could be reached where that could be achieved. We are continually fighting the Governments of the UK, asking for more concessions to bring in labour from elsewhere, because it's not immigration, it's used at sea and getting nowhere. There are many aspects to this, but I don't think any of it is overwhelming. It's no surprise that four calls for evidence today out of seven come from the food and drink industry. From 2007, a turnover of £10 billion predicted to be £16 billion in 2017, it's a very important part of the Scottish industry. I was wondering if you were working collaboratively in terms of the country of origin and labelling and all the requirements that food needs to move forward, rather than exclusively on your own, whether it was something that you were looking to work towards to go forward with continued exports? I'm happy to answer that one, Rachael. There's been a lot of work going on really since 2007 in pioneering what is a world-leading level of collaboration amongst food and drink organisations. We've developed a national identity around a product that's land of food and drink imagery and branding that is now used. If you're at any international show, whether it's Tokyo, Hong Kong, you'll see a very consistent set of branding from our seafood, salmon, our spirits through beef, lamb, soft fruit, vegetables. There is a very high level of collaboration going on, both operationally amongst organisations. We have a strategic board. David Frost sits on that. Claire's chief executive sits on that. The chief executive sits of many of the trade associations around that table, developing a single strategy and a single branding approach. Interestingly, one of the restrictions around every part of the single market is your ability to promote regional foods. To promote Scottish, you can't do that within state aid rules because it's seen as skewing one particular part of the single market. What you can do is promote GIs. There are about 70 products across the UK that have protected geographical indicator status—the same thing that affects Champagne and Parmaham. We have 13 products in Scotland that have that. Whiskey has almost a fairly unique level of GI protection through UK legislation, and that provides a greater certainty for their protection than, for example, Scottish Salmon, which is Scotland's biggest export—it's UK's number two export—and understanding what the future protection of that status is with Europe and in the UK and with other countries will be critical. In terms of your initial question, a base level of collaboration, we will be ahead of some of the rest of the UK and many countries around the world in working collaboratively to develop that brand, so that gives us a good platform to negotiate the next few years. I'm interested in hearing a little bit about the horizon 2020, which is the EU funding programme for research, just to put that into context. By March this year, Scotland had secured over 200 million euros in funding from this programme, with Edinburgh University being particularly successful in benefiting from that. Some early analysis has shown that UK researchers are not being included in planned bids already. I wonder if you could speak a little bit about whether there is any evidence that Scotland is already being affected, what the future implications of that might be. As a wider question, research also affects businesses, it affects the economy, it has implications for productivity and innovation, so if anyone else would like to come in on that, that would be useful. Well, thanks so much. I'd like to talk about the horizon 2020. If it's all right, I'd also like to touch on some of the student and staff issues that we're facing as a result of the vote, because I think that it all adds up to one picture of how do we sustain a vibrant and internationally open university ecosystem. I don't like to look at these things apart. Just to illustrate the scale of the European-ness among other factors of that ecosystem, I mean 16 per cent of our economic staff are from the EU. In the last year of World Show of Figures, £75 million of research project funding came from EU sources principally horizon 2020. We've got 24,000 EU students in Scotland spending about £156 million off campus contributing to the economy, and we've got about 1,700 students going out each year on Erasmus to European partners, so it's an ecosystem that vitally crosses boundaries. I think that's just intrinsic to the nature of universities. Thinking about horizon 2020 and related issues, obviously if you're going to sustain that research ecosystem, one of the crucial things is being able to say to EU staff that you continue to be welcome and that the movement of talent will continue to be possible. I think at least we can see the first of those confidently, and I think the second of those really has to be an absolutely prime negotiating objective for the university sector. As far as horizon 2020 issues are concerned, I think at the moment while we remain a member of the European Union that there are problems of international partners' perception more than problems of actual reality, but the perception is a problem in itself if European partners are feeling more uncertain than they potentially need to be. I think it's important that there's been a range of statements from the commission and others that while we remain in the EU, businesses as usual pertain to get in there. Do you research applications jointly with European partners still be confident in horizon 2020? We've got messages from that from Commissioner Modus. We've got messages from the League of European Research Universities, European Universities Association, directors of 24 European countries saying, yes, we still want you as a research partner because British and Scottish research is excellent, it's a necessary part of a European ecosystem. Very, very helpfully last week we put out a joint statement with Scottish Government emphasizing this open for business message to try and restore that sort of confidence that's been shaken a bit in the light of the Brexit vote. Longer term, I think as we look towards negotiating priorities, sustaining that European and international ecosystem as well as a vital ecosystem across the internal boundaries of the UK is going to be a really vital negotiating objective in putting ourselves in a strong opposition as we can be, for instance, as Norway is, as a strong participant in European research networks and a voice in horizon 2020 and its successors. I think there's other issues that we do need to really address quite urgently. It was very helpful that the Scottish Government urgently moved to say that European students currently in a system are joining in 2016 would continue to benefit from Scottish funding council places. We need that assurance quickly now in relation to 2017 students because the prospectus is already out, they were published pre-Brexit vote, they say you can come here and benefit from Scottish funding council funding. We want to maintain that for 2017 entrants, there's a contractual element that's that offer already being made and those applications will be coming in in the next few weeks. So there's an urgency there in just getting a further assurance out, but in a longer term really there are a lot of issues about what should the status of EU students be in the long term, how do we maintain open to cross-border movement, how do we keep ourselves in European research networks, what happens to regulation, for instance regulation of intellectual property and basically the whole package of how, if we're not formally part of the European Union, we maintain a close relationship that sustains a student staff and research ecosystem. Obviously for our sector research and innovation is absolutely key, it's really important to secure the future on-going vibrance of our industry and developing new techniques there within our farming systems. We already have a fantastic capacity in terms of agricultural research in Scotland and obviously now there's concerns about future funding for that, but looking in a longer term depends on the policy direction that the Scottish Government takes. If we are in a situation where we're developing a new agricultural support system and there's a real prize that we can get there in terms of putting more into really supporting things that are practical research, meaningful knowledge transfer, advisory services and this sort of thing and have that built in to the support system that we have, and that could be a really tangible goal for the future. Thank you very much. A very good question and something that will be very important to us, we have a number of schemes which are indirectly funded by the European Maritime Fisheries Fund. We're still getting reasonably good news, we received yesterday the continuation of the Government industry technical advisory group to develop selective gears, so the money is still coming at this point in time, we've not seen that turned away, but we also run seven observers who contribute to the science, and with the oil industry, via the Fisheries Legacy Trust company, we run a scheme whereby fishermen are told of where the bottom equipment of the oil industry is, which is no small task. All of this will require alternative funding, so there is a big challenge coming in a number of areas with the loss of indirect funding. Mike Rumbles. I'd like to ask particularly Claire Slipper of the NFU this issue. I think it's a really huge issue of farm subsidies with implications for the future. Hundreds of millions of pounds are involved here and I know the NFU want no change for four years, but does this not give us a huge opportunity, varying from when New Zealand abolished farm subsidies and made farms more efficient, to designing a system where we can actually subsidise sectors of farming that are not subsidised at the moment, like the big industry as an example. At the moment, we've got a situation where the funding for farm subsidies is reserved to the UK, but that money, when we abolish the common, when we leave the EU and we abolish the common agricultural policy, that money will come to the Scottish Government in the block grant. Now, it's entirely up to the Scottish Government what it does with that money, so are we not facing a situation where, if the NFU aren't off the ball quickly here, the Scottish Government can be doing all sorts of things with that money? Would it not be a good idea to press the Scottish Government to come up with a homegrown solution for these hundreds of millions of pounds in farm subsidies, rather than just wait and see what happens? No, you're absolutely right. It's a huge discussion that needs to be had, but also within our membership, and we'll be going out. It's still early days. It's only five weeks since we heard the result of the referendum, and, of course, it's not the result that we expected, but we'll be going out to our members in the latter half of the year to have a wide discussion about where they want to see the future system go because it's not a time for immediate reactions. As I said previously, there could be a real prize here, as in we could have a system that is much more suited to our needs, that genuinely supports sectors of the industry, that need it and helps them to grow and to be profitable for the future. One thing that really is key is that this provides us with a great opportunity to look again at activity and genuinely reward farmers who are farming. Obviously, it's something that we try to address in round after round of cap negotiations in the past. We've never quite got a robust enough arrangement. Now we can possibly have that opportunity. We do have a dialogue open with the Scottish Government, and we're making them aware of where our thinking currently is, but it needs to be a much more robust discussion without membership. It is a tremendous opportunity, and bear in mind, on the Scottish budget, with all the issues of the health service and everything else, there's going to be a huge amount of pressure on that money and it's going to be entirely up to the Scottish Government how they spend it. Is this an opportunity that shouldn't be missed? That's the concern. Obviously, we don't know if there will be a nuance of some agricultural funding coming to the block grant and whether or not that money will be ring fenced, whether or not it will be topped up by the Scottish Government. It's all to play for, but it's hard to say at the moment exactly where we want things to lie. There, because this touches on an important point that Dr Roy made this morning, and I believe that you see it as well, is that the way that the money comes back under the new arrangements for Scotland's fiscal settlement, money can only be allocated to Scotland through income tax or the block grant through the Barnett formula, which will remain in place. That's a vow. The point that was made this morning is that some of the European payments are greater than we would get through the Barnett formula because Scotland gets well above our population share. Now there has been no discussion at all in terms of how the UK Government is going to transfer that money back to Scotland if at all. If it does transfer the money back, if it's going to transfer it according to the way that it's distributed in Europe, given Scotland a higher percentage than our population, have you had any assurances from the UK Government about how that money is going to come back? Not as yet. Nothing set in concrete, but that's exactly what we're pushing for. As I said in my opening statement, we're looking for them to commit the money that's already been dedicated for the next four years. Obviously, there's a longer-term situation that we need to address here, so it's absolutely what we're pushing with ministers and discussions, but we've not had anything set in stone. Just from your own sector, for example, Scotland has 85 per cent of the less favoured areas for a start. That's obviously something that would need to be reflected in any new settlement. Absolutely. What we'll see when the time comes for us to have divergent support policies across the UK may look wildly different between Scotland, England and the rest of the developed nations. The point is that the policy direction will be with the Scottish Government. The massive question mark is over. Sorry to question that, but we're going way ahead in terms of the policy direction of the Scottish Government. You can't have a policy direction if you're not giving the money in the first place. Certainly, the committee pressed UK Government ministers in the past, before the Brexit vote, on how the block grant was going to be readjusted to make up for these monies. We weren't able to get any reassurances. Have you been given any reassurances that we're going to get this money? That's nothing that's been sensed on just yet, but it's absolutely something that we're pushing with the new secretary of state. I'm sure that we'll push that with the new secretary of state when we see him. In the same topic, Mr Wothers might be particularly concerned about the Scottish Rural Development programme, for example, and the pillar 2 funding. A lot of that funds your sector. I mean, just looking at the figures that we've been given from Odds of Scotland, for example, is that food processing, marketing and co-operation in Scotland gets £70 million in this particular round. You must be very concerned that that money won't transfer back. Yeah, it is a concern, but I would also say that what happens in terms of agricultural support is absolutely interlinked with the wider food and drink piece. So that £3 billion Scottish agricultural industry is the bedrock of much of the £11 billion in manufacturing that happens. I mean, David talked about his raw materials for his industry. You know, a huge amount of their molten bar requirements are coming from Scotland, so getting that agricultural piece right is absolutely central to Scotland's wider food and drink success, and sometimes we fall into the trap of treating agriculture over here and food and drink wide as it's important that we don't do that. Just to pick up on a point that Mr Rumbles made in relation to New Zealand, we've got a really good window of opportunity to look at other models here. So New Zealand dramatically changed their support system. I'm not sure they're investing any less in the food and drink industry, but they moved a bit of where that funding went from direct on to farm into their processing and their export position as well. So I think there's a lot of models that can be learned there on how we do that. The advantage, potentially, of leaving a common agricultural policy, which is not without its flaws, is this real opportunity to create something innovative and new, and that really is a once-in-a-lifetime opportunity. But we need to do some of that work just now, and there are lessons out there. New Zealand is a very good comparator. Paraphrasing David Frost said that the UK being out of the European negotiating block might allow us to be a little bit more fleet of foot and prioritise where we go. The first country on earth to negotiate a free trade agreement with China was New Zealand, a population small in Scotland. So there's some real lessons for us to learn around all of that and some research work, which we've started a little bit of just now on what those other models might be in this current window is going to be really valuable and would be a sound investment. I suppose that the money has to come to the sector in the first place. The promise on the bus was that it would all go to the NHS, isn't it, Col? Sorry, I think that if you've had your time, I have to speak to get the members in, and I believe that both of you are rightly picked up on the issue that I was going to ask you. Is there another issue of the aviation industry at this stage? Would you want to come back to that? I'd like to bring in Lewis MacDonald. I think that he is a supplementary on this. It certainly builds on it, but I think that the issue that's been highlighted in relation to agricultural subsidy also applies to the higher education sector in the sense that I think that Scottish universities punch above the weight in terms of access to European research funding. I wonder again if that's something that's already on the table in terms of discussions between the University of Scotland and equivalent bodies elsewhere in the UK and with the UK and Scottish Governments. The same mechanical issues about what would the mechanics be for sustaining that in the event that we're no longer accessing those European funds directly will apply there too. I think that as we communicate our priorities and as our partner UK-wide universities, the UK communicates its priorities, it's very clear that because we are universities that are part of vital cross-border ecosystems that one of the priorities that we are putting into the mix in discussions of the UK's overall negotiating priorities is that we should have as close a relationship as possible with Europe as members of the European research area, and I think that there are models. Certainly the after countries are closing on that. I'm interested in hearing a little more about that. The European research area allows higher education institutions outwith the European Union member states to have access to that common market. That's right. There are various degrees of association. There's associated country status where countries are really closely involved in the whole horizon 2020 programme and its successors and Norway, Iceland, for instance, are really closely involved in that and really have access to it. It's not that different from that of European Union members. Switzerland because it stepped away from single market standards of freedom of movement of people ended up with a status that was one stage removed from that, but as I understand, it's still quite close in. It does give them the capacity to bid into European Research Council funding on the basis of excellent research and the Marie Curie mobility schemes for researchers. So there are models there that we would certainly be encouraging the negotiators to look at about how you can build a relationship with the EU as part of the European research area that leverage the maximum possible benefit out of continuing to have a cross-border ecosystem. So in a sense, those options you've outlined are parallel to the options that apply for trade. In other words, there's a degree of closeness and engagement on the case of, as you mentioned, Norway and Iceland, which are countries which have full access to the single market through the European economic area, essentially have full access to the European research area on the same basis and Switzerland again is one step further away from both. Rachel Hamilton, was that on the same point? It's just a small point. We've talked a lot about the impact of rules, regulations and the impact of us leaving Europe. Hugh, you spoke about the three points that very much depend on domestic policy. You talked about new-build, existing stock of houses, you talked about the exchange rate and the other point was unemployment and awe employment. I just wondered if you could slightly expand on how that will affect growth as we go forward. Yes, certainly. I think we take maybe the housing market first. Clearly, very much driven by supply and demand, but you do have these two factors of new-build and potentially government-led new-build schemes supporting a very wide and large employer in the construction industry. That is not entirely but largely able to be influenced by public monetary stimulus, if necessary. Clearly, a lot of jobs are associated with that, which, as members will recall, in the last recession 2007-2008, when it started, the construction industry was very badly hit. A lot of those skilled jobs were lost in inverted commas forever. I think that we will find that a lot of a similar thing will happen in the event that the UK Government decides, for instance, to pull away from its target of 300,000 new homes to be built. That is one part of the sector that is important. Clearly, a percentage of those will be earmarked in inverted commas for Scotland. I think that there is also a very human dimension associated with the housing market. We are still a country that the UK is still a country where the ambition to own your own home is a very pervasive ambition. It is an aspiration that a huge number of people living in Scotland or the rest of the UK have. A lot of the government schemes that have been introduced recently, and I know have had particular Scottish flavours to them that are associated with help to buy and also help to save for your home, need to be protected and potentially considered to be expanded so that the people who live and work in Scotland and the rest of the UK can feel as if they can continue to have that aspiration and that houses are provided as part of the construction of new build, which are suitable for starter homes and for people to get themselves on the housing ladder. Clearly, all of that depends on employment and continued employment. The point that I was simply trying to make is that a degree of employment can, of course, be driven by fiscal policy and monetary policy. Good old Kenzian economics can potentially have a role to play in here. We have seen a good degree of QE happening in the recent past. Maybe, potentially within Scotland, we need some more direct investment in major infrastructure projects. Clearly, we have a number on the go at the moment, the second crossing, etc. In the rest of the UK, there is a lot of talk about high-speed 2, the rail link, which clearly does not directly impact north of the border. We have to be very aware of the fact that, at the heart of the economy, we need consumers to be confident in their ability to have sustainable employment and sustainable income, to support the local demand for the kind of products and services that we were talking about over here. Of course, the export and the opportunity to re-enter markets that we might be part of now or to enter other markets that we might be part of within our membership of the EU is critical, but, at the end of the day, we also need to pay a lot of attention to, as I have just said, local employment, local consumer confidence and local demand. The point about bank base rates and why that is important is that there are two potential implications here without going into, hopefully, too much detail. Essentially, what can happen when interest rates reduce is that the margin that financial institutions make between what they lend out and what they pay interest on their savings can get compressed. That can reduce their appetite for lending. As we have seen in previous recessions, in the event that that were to happen, the economy grinds to halt to use a kind of emotional phrase very, very quickly because whether we are talking about corporate small businesses or retail banking in the kind of banking that Virgin Money does, credit is the lubricant that keeps the system flowing. I think that paying particular attention to that and to ensure that the messages that we have heard from the Bank of England and from the chancellor generally about ensuring that that does not happen, making sure that the Scottish Government presses that home and ensures that the lessons of previous recessions, albeit caused by different circumstances to this one, which I think is very much an economic set of circumstances caused by a political issue. Nevertheless, that fundamental principle of the need to ensure that there is a ready supply of lending within the system for businesses and consumers is fundamentally vital and is something that needs to be considered and addressed both within Scotland and more generally within the UK. I would like to turn now to aviation, so this is a question for Mr Dure. Changes to aviation and how it operates can clearly have quite a big impact on Scotland. Obviously, it can affect tourism, it can affect the economy. We know that transport and air routes are quite important for foreign direct investment and so on. The international air transport association has put forward what it sees as three options available for aviation corporations. The first one was continued access to the single aviation market, the second one was a type of bilateral agreement and the third one would be that there would be no formal agreement. Would you be able to give your view on which of those options you favour and why? I think that it is absolutely critical that we preserve our access to the open skies policy. It is deeply ironic that we lost it given that the UK was actually with the founding concept of that and has been pushing that for many years. Of course, we are an island nation in the northwest periphery of Europe, so that air access is more important to us than any other European country simply because we do not have the land-based options. So I think that it is absolutely crucial that we do that and the implications of not achieving that are really very severe. We have already seen easyJet thinking about having to re-licen ourselves in Europe to preserve that. It is one of the largest, if not the largest, second largest story in Europe in terms of thinking about really cating outside of the UK and inevitably losing some focus on the UK market would be very severe. Aviation is a really good barometer. Aviation touches everything, whether it is access to markets, whether it is our biggest employer being in bound tourism, all of these things. We have got a real opportunity to be there and it is one of the most visible as well because it touches individuals' lives as well as Government's lives. The good news is that things that we do in aviation also tend to have a very fast return. We are talking an awful lot this morning about waiting to see, negotiating over months or even years to see what an outcome is. We can actually do one thing that is really quick and very demonstrably internationalist, which is just follow the existing Government policy and half APD. It is a very low-cost impact, but in terms of reversing what we are already seeing from the airlines talking about moving their investment away from the UK, it would fundamentally reverse that and would see very significant growth almost overnight, which could be benefiting the economy and jobs in 17, never mind 20s and 40s that we are talking about going forward. If we wanted to stand out as being internationalist, open for business, still welcoming, if it is a tourism business or indeed looking at education or any other sector, is to want to preserve and grow these links. Remember that we are that very north-west periphery and aviation is so crucial. Following through quickly announcing something on having the APD and delivering that in early 18 would have a very profound effect both in terms of the economic benefit directly, but the signal it gives not just to airlines but to every other business in Europe. Can I follow up on the question of open skies you mentioned? The current setup again is slightly parallel to the European research area. There is a European common aviation area that extends beyond the member states. How does that operate for countries that are out with the European Union at the moment? How easy would it be for to enter it or to remain in it as a non-ENU member? I do not know the honest answer. It is inevitably going to be part of the political bargaining that goes on. We hear concerns about fisheries and I do not think that any industry is immune from being part of that political bargain that is going on. However, we have to put the priorities out there and say what is important. If you look around the patch, within Europe it is highly unlikely that it would lose significant access, although there may be issues around where you hold your licence in terms of an airport operation. I am not massively concerned about that, but you do not need to look too far where, for example, Norwegian Air, which has got full access into the European market, is not getting full access to the American open skies agreement that the EU has with America. It is conceivable that you see those little wrinkles around the edges or, indeed, lack of progress with future connectivity. China being an obvious area where there is huge growth in connectivity at the moment that the UK is doing very well out of that connectivity. However, if for whatever reason China decided that it would be more sensible to focus its bilateral with the remaining EU and not the UK, even in terms of timing, if not intent, that would have very significant issues. That is parallel in a way to trade in a sense, because presumably what then happens is that Norway has to negotiate directly with the United States in terms of future arrangements, so it is possible to be in the European common aviation area, but still to have to engage in these additional issues that we are on. On the same point, we heard this morning that countries within the EFTA-EA area are not part of the customs union, and I note from your briefing that you talk about without a formal agreement of potential of much more customs operations at airports. That is going to have a big impact. If that happened, it would have a big impact on your business. I would have thought on things like tourism as well. I think that that is inevitable. If we are talking about having different tariff structures and different allowances and so on, it is certainly going to have nothing else complicated things. It is not necessarily all bad news. There are opportunities in there as well in terms of going back to duty-free trading and so on, which we currently have with non-EU countries. There are ups and downs within that, but it is about the uncertainty, it is about being really clear that we hope to have the widest possible access and continued growth in that.  Again, one of the opportunities with tourism in particular is that we must make it easy and understandable for people to come here. They have choices if you are a German tourist as to where you are going to fly. It is very easy to go left instead of right. We need them to be looking to Scotland as somewhere they want to come, both emotionally and practically, in terms of making it possible. Ross Greer, I think that you had a supplementary on this topic. It is not on this topic. All right, it is a new one. Before, did anyone else want to ask about aviation? I am trying to understand some of this. I recognise the challenge of this, Mr Greer, around the open skies agreement and the real danger that if the UK is no longer in the EU, we may have to separately do another negotiation with the USA. The European common aviation area, though, we would not automatically be part of that either, and I assume in the circumstances that we are about to enter into. Does each country in that European common aviation area require to agree that other countries are being part of it? It is negotiated at the European level, so you would have one negotiation, but inevitably all of the other countries would be influencing the decision and the outcome. Yes, but if Iceland, Norway and Switzerland are part of that, we must have agreement from them as well to be part of that. It is not just a straight matter, I do not think, of having an agreement with the European Union. We would also have the agreement from Iceland, Norway and Switzerland. We will do right in saying that. You are going beyond my own competency in terms of how they are going to decide that, but inevitably there will be one negotiation. Who has influence in terms of what the outcome is, says that obviously anybody within that on the other side of the negotiation will have a say in some shape or form. Ross Greer. The Massachusetts Treaty conferred and ensuing European citizenship conferred benefits for those who are not economically active in terms of freedom of movement. Looking at the UK's negotiations with the EU in terms of access to single market and the implications in terms of freedom of movement, do your sectors have any particular opinions on the distinction between freedom of movement for all persons and freedom of labour? Are you economically active? It would be important that the dependents of EU staff are able to come here as well as the EU staff. One comment. I certainly share from our point of view the concerns about labour from other EU countries. It is not as big an issue for us, probably as some others around the table, but it is definitely there as part of it. To the extent that our membership are large multinational companies, they also have a concern about the ability to move, I suppose, relatively highly paid staff around Europe easily as part of how you run companies like that that I guess would potentially come into question as part of this. I think the only other remark that makes maybe a bit of a wider one is that sometimes these things are interpreted in two purest ways. Yes, it is true that there is full free movement of persons across the EU, but you still have to be qualified to do the job. You cannot move to some other European countries and expect work, for example, as a plumber or an electrician, let alone a lawyer or whatever. The principle is one thing. In practice, it is much more complicated than that. When we get into this discussion, as UK and EU, that reality, as well as the principle, is going to have to be about the discussion. Thanks very much. We are coming to the end of the same topic. It is a broader topic and perhaps something that would be helpful to the witnesses to consider. One of the things that is clear going forward is that the UK Government has invited the Scottish Government to be a participant in drawing up the terms of negotiation in approaching the exit negotiations. It would be useful to the committee to understand if there are conversations going on from the different sectors around the table with the UK Government, the Scottish Government and, specifically, if there are clear slipper on one or two other people who have referred to being asked what the priorities are in negotiations going forward. Are there issues at this early stage that would be useful for the committee to be aware of in relation to the negotiating priorities that different sectors have and that both Governments are consulting you on? Are both Governments consulting you? I suppose that is the other important question. From our point of view, we have been really quite quick off the mark, I think, in getting in and talking to both Governments quite quickly and feeding into priorities. To be honest, I think that we have probably