Examination of Witnesses (Questions 60
MONDAY 3 DECEMBER 2001
O'CONNOR CBE, MR
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
(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.
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
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
65. Is the Falkirk person responsible for monitoring
(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,
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.
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",
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
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
(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.
72. To what extent did the Millennium Commission
support the project that lead to the involvement of the other
(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
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
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
(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.
Chairman: That would be very helpful. Thank
you very much.
76. Coming to the question of training and employment,
is it your view that opportunities associated with the canal have
(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.
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.
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
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
79. There must be at least five significant
(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
Not received in time to be published. Back
See Ev. p 44. Back