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The committee has heard a number of concerns about the current procurement regime, including claims that it is very focused on price, does not properly measure the environmental benefit of using local products, and the use of local firms is largely ignored in any scoring process. There is concern that the procurement process is about encouraging local firms rather than making it a requirement in contracts to use those firms, and that the process does not encourage the use of alternative products or materials that could encourage the growth of a Scottish supply chain.

Does the minister recognise those concerns from businesses, and has any consideration being given to fully reforming the procurement process to better prioritise local companies?

I was not asking a leading question; I was outlining the concerns that the committee has heard.

A clear view came across in evidence that the extent to which supply chains are covered by the process of determining a contract does not go far enough. In fact, recent changes to the process have driven many of the problems. If a local council is building a new school, for instance, that is now a very centralised process. When I was a councillor, we awarded a contract directly as a council. In Dumfries and Galloway now, that goes through the hub south-west process. Notwithstanding all the accountability issues that that causes when something goes wrong, it means that there is a real emphasis on economies of scale and large contracts. The use of local supply chains often relies on the big contractor to subcontract the work at their discretion. Surely the process that we have been driving in recent years has caused an increase in large contracts—driven, I suppose, by the fact that budgets to councils have been cut. Surely big contracts driven by price are still a big part of the process.

I am unclear how in effect freezing the revenue budget when inflation is over 5 per cent is somehow protecting the budgets of the enterprise agencies. The Scottish Fiscal Commission recently warned that the Scottish economy is lagging behind that of the rest of the UK. Compared to pre-pandemic levels, gross domestic product and employment earnings are all recovering more slowly than in the rest of the UK. The Confederation of British Industry Scotland has said that Scotland is lagging behind other parts of the UK on nine of the 13 productivity indicators. Surely we should not have a real-terms revenue reduction now for the enterprise agencies. Why are we not increasing the budget in real terms in the year ahead? Does the budget not impact at all on the fact that the Scottish economy is lagging behind the rest of the UK on the key indicators, as your Fiscal Commission highlights?

Why is Scotland’s economy, on all the key indicators that the Fiscal Commission has flagged up, lagging behind the rest of the UK, if it is not to do with funding for the enterprise agencies?

Good morning, cabinet secretary. I return to the issue of support for enterprise agencies. You said that you are protecting funding for the enterprise agencies, but real-terms cuts are not really protecting. The revenue budget for Scottish Enterprise is pretty much flatlining in real terms compared to last year and, as you admit, as inflation rises that becomes a cut. The Highlands and Islands Enterprise overall budget is being reduced in real terms, and that includes day-to-day revenue spending, not just capital spending. The budget for Skills Development Scotland has been cut by £5 million in real terms alone, and we do not see any stimulus for our struggling high streets.

Given the scale of the economic challenges that we face, surely this would have been a year not just to tread water when it comes to economic support but to boost the budgets for our enterprise agencies and SDS.

On the issue of levelling up, we took evidence from Professor Fothergill last week. He highlighted that very point and questioned how you could have a levelling-up strategy without an assisted-areas map. That is not specified in the bill. Does the Scottish Government share the view that provision for an assisted-areas map be specified in the bill? COSLA has suggested a new clause 7 in the bill to define an assisted area. As you said, that concept existed in EU state aid.

During the bill’s passage in the UK Parliament, particularly at committee stage, Labour has highlighted the key issue of the lack of a preferential system for support to disadvantaged regions. How should targeting areas of economic deprivation be reflected in the bill?

That is very helpful. I have not seen an indication that any other member of the panel wants to comment on that, so I will move on to my second question.

In its written evidence to the committee, Highlands and Islands Enterprise expresses concerns about how far and at what scale internal market displacement assessments will be needed, because there could be a detrimental impact on smaller community-based projects. South of Scotland Enterprise highlights that the current regime makes it easy to confirm an award as being non-aid but says that the proposals in the bill, and especially principle 7, make a non-subsidy conclusion less likely unless the project is clearly not commercial. The vast majority of projects will be commercial.

What impact could the new regime have on funding for smaller-scale innovative community-based projects? I ask Councillor Heddle to comment, given his experience in the Highlands. If any other member of the panel wants to comment, I ask them to indicate that in the chat function.

Good morning. I want to return to the sixth principle in schedule 1 to the bill, which is about competition and investment in the UK, and ask you about clause 18, which prohibits relocation being a condition of a subsidy.

I represent South Scotland. My region contains many businesses that are close to the Scotland and England border, and it is also the gateway to Northern Ireland, so it is not uncommon for businesses to relocate premises on the other side of the border, just a few miles away. As I said, clause 18 prohibits relocation being a condition of a subsidy. What are your views on the extent to which that clause and the sixth principle could have a specific impact on businesses and support agencies that are close to the border?

I put the question to Mr Peretz, as he touches on the matter in his written evidence. If any other member of the panel wishes to comment, I ask them to indicate that in the chat function.