Following recommendations from an independent implementation group, the Bill is under consideration by the Scottish Parliament’s Economy, Energy and Fair Work Committee, which has issued a call for views.
The Royal Society of Edinburgh (RSE), Scotland’s National Academy, has been fully engaged in discussions around creation of the Bank. We welcome the proposals and consider that increasing investment – and enhancing productivity – must be critical priorities for our economy.
We see this new institution as potentially able to play a key role. However, while the Bank could, and indeed should, help to achieve an increase in the right types of investment in areas crucial to Scotland’s prospects, this will not be straightforward. Furthermore, the Bank will be responsible for substantial amounts of scarce public sector funds and will need to ensure these are used to best effect.
The supply of capital within the Scottish economy has increased over recent years with several organisations and agencies operating in this space. Careful consideration will need to be given to development of this Bank.
What should its specific roles be and how can it add significant value in close liaison with and stimulating further activity by the private sector? If the Bank is seen as addressing areas of market failure, then it needs to be clear as to why such failures exist and how they can best be addressed.
The Bank is entering an increasingly crowded field and it must not inappropriately compete with or duplicate the work of other Scottish or UK Government organisations – for example, the still relatively new British Business Bank – or the private sector.
In our responses to earlier consultations, we have suggested that the areas of intervention identified by the Scottish Government are excessively broad, certainly as an initial remit for a new organisation going through a rapid learning process and with a limited skilled workforce and capital resources. We have questioned whether the initial remit should be more focused, with the potential to add more objectives and more types of activities as it and key staff develop.
The Strategic Framework of the Bank, which will ultimately determine its operational focus, needs to be clear and succinct and set the context for the process of measuring its success in meeting objectives through key performance indicators and returns on investment that can be reinvested and enable the Bank to achieve stability and sustainability.
If, as proposed by the highly influential Professor Mariana Mazzucato from the Council of Economic Advisors, the Bank is to become involved in financing ‘mission-orientated’ investments, then it must be clear how success is to be measured and how to marry a focus on a broad range of objectives (albeit critical in their own right) with meeting agreed financial targets. The trade-off between financial returns and achieving wider objectives has to be clearly articulated and capable of evaluation.
The Bank’s success, and indeed its operational independence, will be highly dependent on its governance. The roles of chairman and CEO will be vital, and the selection process must be seen to be suitable and transparent. The Bank’s board will require clear guidance at the outset and should be subject to regular in-depth monitoring and evaluation, but with as close to zero Government interference in decision-making as possible. If an external advisory group is created to advise Ministers on the direction of the Bank, then this must not diminish the authority of the board.
There may well be further changes to the Bill through the process of parliamentary scrutiny. Even after the Bill receives Royal Assent it would be advisable for the Scottish Government to remain engaged with key stakeholders from across Scotland as a chair and CEO are appointed and the Strategic Framework developed. This will enable the Bank to draw on a wide range of experience and expertise and fully realise its potential.
Both responses by the RSE on the proposals can be found at www.rse.org.uk/policy/advice-papers/
Professor Jeremy Peat is a Fellow of the Royal Society of Edinburgh, acting chair of the RSE Economy and Enterprise Committee and a Visiting Professor at the University of Strathclyde.