Select Committee on Scottish Affairs Minutes of Evidence


Examination of Witnesses (Questions 60 - 79)

MONDAY 3 DECEMBER 2001

MR NIALL MCGILP, MR MIKE O'CONNOR CBE, MR LAURIE RUSSELL AND MR GORDON MCLAREN

Mr Carmichael

  60. Following on from Mr Sarwar's question, how will we know who is right? We heard from the councils about their evaluation strategy. We have heard from British Waterways about their revaluation strategy, do you have anything of that sort? To pick up John Robertson's point earlier about displacement, do you see a role for any of your perspective bodies in taking an over-arching view of the project? To come back to the question of European funding that I raised with the local authorities at the end, are you in a position to enlighten us, first of all, with regard to what the shortfall was in total and how someone appears to have overestimated the amount of money that could have been forthcoming from Europe?
  (Mr McGilp) Can I deal with some of these questions. In relation to the evaluation strategy Scottish Enterprise nationally has five Local Enterprise Companies who are directly focussed on this project and are part and parcel of the same group that has been producing single consistent evaluation frame work for the whole project, that is completely joined up. In terms of your question on the over-arching view, perhaps I can say one or two things about that. I think the governance of the project moving forward is an issue that has been alluded to already. I have not heard any evidence so far this afternoon in reference to one or two of the national level groups that are actually in place. There is an overall Steering Group that I represent Scottish Enterprise on, there is an Advisory Group, where some of our officials from the various agencies are also represented on that group. There is that level of an over-arching view at the present time. I think there is also from Scottish Enterprise Network's point of view, we have a single group encompassing Local Enterprise Companies and ourselves who meet together to make sure we are all singing from the same hymn sheet and our thinking is appropriately joined up. I think moving forward, as we move into delivery of some of the economic benefits I think we will also see some specific cross-cutting initiatives on the consistency of business support on a common approach to marketing, and these type of things, coming forward. Certainly Scottish Enterprise from a national perspective is very keen that we play our part in terms of the overall strategic overview. Clearly the balance needs to be struck between that level and making sure that some of the local talent, enthusiasm and opportunity which is evident already in this project is not stifled in any way. On the question of the European funding shortfall, Scottish Enterprise Network filled part of the so called shortfall to the tune of £2.2 million.

  61. That would be a total shortfall of £4 million.
  (Mr McGilp) The total was £7.8 million.
  (Mr Russell) You used the term "so-called shortfall". I do not think there was a shortfall in European funds. What happened was that British Waterways did, as would be appropriate in any large project, think at the beginning what might be the funding proportions that they could receive from different sources. They did that before going through a process of applying for European funds and the application process for European funds looks at the economic impact of a project. As Gordon McLaren has stated, in the east principally tourism jobs would be created and in the west it would principally be the regeneration of derelict sites along the canal. The canal construction itself would not be eligible for European funds, it was the indirect job benefits that come from the canal. Secondly, a project of this scale, over 25 million euros, which at the time, was about £18 million, requires approval by the European Commission. To get that approval an applicant has to carry out a cost benefit analysis to the specifications set out by the European Commission. Many of the job figures come from a report from Hall Aitken Consultants that was part of that cost benefit analysis. In the subsequent discussions with the European Commission about an appropriate grant for the project I genuinely think that the project received the maximum European Regional Development Fund that it with eligible for. Unfortunately, that was lower than the original figure that British Waterways had in mind, but that was simply a planning figure and there was no shortfall of European funds. With my hand on the my heart I would say they got slightly more than I would have guessed at the time, given the nature of European Funding and the need to demononstrate job creation.

  Chairman: It was really just loading the expectation.

Mr Carmichael

  62. Can I be quite clear I understand the procedure then, this is not a case of you going back, after getting the initial commitment from the local authorities, the need for this additional funding from local authorities and from others was built into the original plan, was it?
  (Mr Russell) The initial assessment from British Waterways about where they assumed they would be able to attract resources had a figure for European Funds that was higher than the eventual offer. That was because the initial assessment was made before we went through the process of assessing the economic benefits which would arise from the project and before we went through the process of a detailed cost benefit analysis that the European Commission requires because of the scale of the project. It was a miscalculation of the likely proportion of funding from different sources.

Mr Lyons

  63. Can I turn to the question of Scottish Enterprise nationally, how do you keep up to date with the development of the project on a day-to-day basis? How is that link made by yourselves?
  (Mr McGilp) It is made simply in three or four different ways, firstly within the Network itself we have a team comprising of a representative from a national team, plus a local enterprise company who meet on an on-going basis to review progress with the project. We also have representation both on the Steering Group, through myself, and the Advisory Group, through one of my colleagues, where all of the partners meet. These groups have firmly at the heart of their role this longer term delivery of economic and social benefits of the project rather than delivery of the physical project itself. In addition as an organisation I reported to our Board earlier this year on the progress on the project. There was a fairly open discussion at Scottish Enterprise National Board on the stage that had been reached of the infrastructure project and the challenges and issues that lie ahead in terms of playing our part in the delivery of the benefit.

  64. You are doing that with Scottish Enterprise, do you have a link with the project itself?
  (Mr McGilp) Scottish Enterprise Network is a fairly seamless organisation, we are obviously not the central part of it, we have 12 local enterprise companies. One of my colleagues in Scottish Enterprise Forth Valley plays a wider national role in terms of project monitoring, he wears a national hat and a local hat.

  65. Is the Falkirk person responsible for monitoring that?
  (Mr McGilp) I am not checking the monitoring, he is responsible for providing the Link.

  66. Is that financed by Forth Valley or do you finance that nationally?
  (Mr McGilp) There are all sorts of these cross boundary initiatives, no money changes hands. They pay the chap's salary, yes.

Mr Robertson

  67. I was not sure whether you answered the question about the difference in the jobs numbers, certainly not to my satisfaction anyway, did you look at displacement at all or did you just look at jobs that were going to be created in the project itself? £7.8 million of a difference may not seem a lot of money to you but it seems a lot of money to me, and that somebody should get it so wrong. Would it be fair that you were not talking to each other at the beginning of the project? Are you now working better as a result, or did the 7.8 million deficit cause problems?
  (Mr Russell) With any large project a project sponsor sits down almost with a blank sheet of paper and thinks, where can I raise resources and where can I get funding from? He would make assumptions about the percentage of the project and the eligibility of the source of funding. The total in Western Scotland is about 21 per cent of the works are funded by the European Regional Development Fund. For an infrastructure project that is about right, for that kind of project, because the project itself is not creating jobs, so it is different from a project that would directly create jobs. I do not think that was a miscalculation. I think it was about when British Waterways thought about the whole project they had to make an assumption about what percentage the Millennium Commission might contribute and they over estimated what they thought Europe could contribute. Can I also comment on the jobs figures? The calculation made for the cost benefit analysis for the European Commission is net jobs and will take account of displacement. It will take account of displacement by type of job. So, for example, if it is a tourism job it will apply a percentage displacement based on its experience with tourism jobs elsewhere. For tourism jobs the displacement is quite high, for other jobs it would be a lower percentage. We would always calculate the gross jobs and the net jobs so that you can see the difference between the two.
  (Mr McGilp) Perhaps I can also comment on the job numbers, to make it clear, in case I did not make it clear last time. The numbers contained in the Scottish Enterprise diligence on this project assumed, for indirect jobs on the various business sites, regeneration sites, 50 per cent displacement, that was the assumption which was made.

Mr Joyce

  68. Can I clarify something in your submission, there is a table where it says on the second half that the total for 1999 to 2001, above it uses the term "forecast",[5] are those figures something that happened in the last two years or is that your forecast for the future?

  (Mr McLaren) That is the forecast for the future. Again, in the nature of the project it was evident in terms of a lot of the benefits that would flow through the tourism industry, through tourism activity and would flow after the physical completion of the project. To be fair, you know, given the scale of the project and the physical completion of the project having been on time, it literally just made it, and no more. It is only reasonable to start seeing those kind of benefits flowing probably in the latter part of this year, even then it is probably going to kick in in 2002. In terms of the investment that we had from these programmes, specifically under tourism, we see those benefits coming in fairly soon after the physical completion. We still have confidence that that will happen, again, simply because of the nature of the project and the particularly because of the site.

  69. The detailed question I am about to ask may express my ignorance and it may be in the rest of the documentation, if the methodology is explained somewhere, how do you arrive at a figure of 75,640 increase in the amount of visitors coming and staying in the area? How do you determine the number of net additional jobs is to be 332?
  (Mr McLaren) There is a methodology. There is a methodology that we used at the time. To a certain extent it was based on previous work done by both consultants and also based on Scottish Enterprise for a net investment. So for a net investment of so many million we would expect to see a certain number of gross jobs created and safeguarded. That can then translate in terms of factoring in net additionally, displacement, non-additionally and then you can convert that into net additional jobs. At the end of the day you go from 720 down to 12. Again, a lot of this is based on proxy evidence from other established studies and evaluations that have taken place over time.

  70. From my own point of view it has a small sense of precision about it. Given that the largest number of visitors, I guess, would be going to the Falkirk Wheel itself I assume that a fair number of that 75,640 would be staying overnight in the area, where do you imagine they would be staying, this increased volume of people?
  (Mr McLaren) Fundamentally some of these figures assume, if you look at visitor spend they assume that overnight stays will generate that level of visitor spend. We do not see the benefits solely accruing to the Falkirk Wheel site. We think that all of the other developments will take place contingent along the canal corridor but clearly the focus will be on the Wheel and that will be the big attraction in terms of visitors. A colleague from the local authorities in Falkirk had said earlier on that they will look to maximise the potential of visitors going to the Wheel site and to try and keep them in the area to generate that level of spend.

  71. My final comment is that I have not seen evidence as yet of an expansion in the capacity of hotels in the Falkirk area to take account of that kind of additional number, I was wondering whether they were going to be staying in tents or what?
  (Mr McLaren) I cannot comment on that. We fund the development in relation to the canal and the associated developments, particularly in terms of visitor facilities as well as the Wheel itself. It is really for, as everyone has been saying, longer term investment. We look to the other partners to take this forward in a way in which you get other contingent developments. If I can say, in addition to the award under the 1997-99 programme, in the new programme, which is 2002-06, we have since funded the visitor facilities, the Wheel site and more recently we have made a contribution of just under half a million to the visitor management facilities in terms of Park and Ride coaches, and the like. It is perfectly possible for British Waterways to come back in the new programme or other partners to come in, as Falkirk did in the context of the management facilities, with projects that will help to secure this investment and make sure it is delivered and achieved, providing additional support and benefit. The general argument is that there is a lot of development that needs to take place contingent on canal development itself. British Watersways have delivered the canal with the navigation from east to west. It is for the broad partnership to secure that investment in terms of a wider contingent investment for property development, tourism development, community or economic developments.

Mr Carmichael

  72. To what extent did the Millennium Commission support the project that lead to the involvement of the other contributing partners?
  (Mr O'Connor) Across the capital project portfolio as a whole we made grants of £1,300 million, that represents total project costs of £3,000 million. We are commonly, however, despite being less than a 50 per cent funder, the largest single funder, as we were in this case. We have carried out an economic impact assessment of that whole programme and clearly Millennium Commission money levers in a great deal of other money and, therefore, I think it has been a cornerstone for many projects which would not have happened otherwise. Our money is also, in a way, quite creative in that we are not tied to particular economic outputs or formula, as European money is. We can take greater risks with our money. Our money is not tied to particular periods. One of the great problems with public funding, as you will know, is annuality, money has to be spent in a particular period, our money does not have to be spent over that period. The sheer quantum of money which the Lottery has been able to deliver to the major regeneration projects across the country has been very important. We are also often the first person to offer the money, which encourages others. It is flexible in that it is not tied to particular economic outputs and it is available over time, which makes it very useful for the applicant.

  73. I was going to commend you for your use of plain English and then you said "annuality" and you blew it. Do the Scottish Enterprise Network have a view on this?
  (Mr McGilp) This is typical of a very big partnership project. I have absolutely no doubt that we would not have been able to fund our piece of the project in the absence of the other contributions that were on the table, it is one of these negotiated packages which is increasingly common in the world that we live in.

Chairman

  74. Mr McGilp, perhaps, you could tell why in late 1996 there was a reduction in the level of support from Scottish Enterprise which caused changes to be made in the route of the canal?
  (Mr McGilp) I am baffled, it is not something that I am familiar with. Our support only went in one direction in the project progress and that was up the way.

  75. This was the Millennium Commission's Report. It was noted that the route of the canal was amended in 1996 because of the reduction in the level of support from Scottish Enterprise.
  (Mr O'Connor) I am not actually that familiar with the detail of that but I will offer to write to the Committee to explain how that happened.[6]

  Chairman: That would be very helpful. Thank you very much.

Mr Lyons

  76. Coming to the question of training and employment, is it your view that opportunities associated with the canal have been maximised?
  (Mr Russell) Maybe I could start and endorse what Gordon McLaren and others said earlier, I do not think they could have been maximised until the canal was developed. What we can now do is look for projects coming forward from the kind of action plans that I heard Glasgow City Council describing and I know Scottish Enterprise are involved in. We have had initial discussions with British Waterways and I know they have community liaison people coming up with project ideas now. I think we would be looking to see further projects, seeking European funds over the next few years, that would maximise the training and employment opportunities. The canal itself is the stimulus to that, the catalyst to that. The canal itself was not going to create huge numbers of jobs itself as an infrastructure project, it is the after effects that will do that. Perhaps just one final point that follows up the question about hotels. There is a limit to what the public sector can do and we are clear between the local authorities, Scottish Enterprise and European funds that public sector resources are targeted on certain kind of projects and we would hope that the private sector takes the view that there are opportunities to develop, for example, hotels as a result of visitor attractions. I think ultimately what we are trying to do is achieve leverage, through the public sector resources, from the private sector to invest in the kind of projects they can do best, like hotels.

Mr Joyce

  77. On that very point, the sense I have had today so far, and chatting to some private sector developers, I asked the question about the inertia process of the local authorities and they thought I was referring to people living in their areas, actually the private sector organisations tend to refer to the councils as being the inertia. If you need and have very specific plans then that constrains private sector organisations and constrains some potential opportunities, how do you feel about the fact that there are seven different planning authorities who appear to have very specific ideas about how those areas ought to be developed, which might inhibit some private sector investors?
  (Mr Russell) It might also encourage different types of private sector investment along the canal. I am not sure whether there are private sector developers inhibited by the project but throughout the length of the canal it is quite clear that it crosses through a whole range of different areas that would need different kinds of local solutions to the economic problems in those areas. Bowling is very different from the Falkirk, which is very different as you go further east. One of the common threads throughout that is the need for jobs and training, maybe the variety of the areas that the canal goes through opens up wider areas of opportunities for the private sector.
  (Mr McLaren) As Laurie Russell was saying, it may not necessarily be a case of providing hotels as such in Falkirk, there is a limited provision and you would have to recognise that. I guess, again, it will depend on how this takes off and again if the private sector can be encouraged to look at this as near possible development as an opportunity. There are probably other solutions, if you think in terms of the leisure opportunities and leisure leading on to possible tourism benefits, if the tow paths are opened up, cycle ways, walking, just as if you look at the West Highland Way, hostel accommodation, there are various types of accommodation that could be provided that would meet a range of uses what will equally generate spend in the area. It may not be same level of spend as people staying overnight in hotels but we can try to look at maximising the many opportunities the canal can potentially offer. We have a limit, we have no opportunity to engage with the private sector directly, we have to look to the other funding partners to make that happen, but I think we will see some interesting innovative responses to the opportunities as they arise.

Mr Lazarowicz

  78. Following up that point, I take the point that schemes like this are not to be judged over two or three years but over a much longer period and the initial ideas will change or develop as time goes on. I am interested in knowing how far at this stage some of the projections and proposals on employment are being effected in reality. I was looking at Appendix 1 of the very useful submission by Scottish Enterprise[7] on the scheme and I see that the projected "benefits tourism are something like this: five significant visitor attractions" with 200,000 plus visitors per annum; 15 smaller attractions; two million visits per annum; 50 tourism SMEs and 20 community businesses employing 100 FTEs. I appreciate that all this is not going to appear in 2001 just like that, but I would be interested to know what were the five significant visitor attractions identified at that stage? How far down the road are these projections now proceeding upon the way towards becoming a reality?
  (Mr McGilp) I think those numbers are quoted from the study that Scottish Enterprise commissioned using a firm of independent consultants, I guess they looked at the full range of opportunities that they thought the Millennium Link might have in terms of business attractions and visitors sites, and such like. The numbers are built up from a review of a large number of individual projects, some of which will happen and some will not.

  79. There must be at least five significant attractions identified.
  (Mr McGilp) There is a very long list. Picking a couple at random, the Bowling Basin is one and the Falkirk Wheel itself is another one. The balance between large and not so large is something which will evolve over time. I do believe this kind of project will work if we get the balance right between local flexibility and opportunism against some overall plan.


5   See Ev. pp 39 and 40. Back

6   Not received in time to be published. Back

7   See Ev. p 44. Back


 
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