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We continue to press the UK Government to change the rules, but, obviously, it is a reserved area. We can do what we have done with regard to PPE and other things, which I mentioned earlier. We continue to do a lot of work through our supply chain development programmes and other activities, to look for opportunities to manufacture more products in Scotland in order to create economic opportunities here and build resilience. That is the primary lever that we have to tackle the issue.

Of course, clearly, there are many things that we cannot manufacture here competitively. We can manufacture many things in Scotland, but not everything. Increasing manufacturing here is part of the answer, but it is not the whole answer.

The whole construction sector works like that, so I do not think that there is anything specifically different about public sector procurement in that regard. Clearly, we must understand what the market price is when spending public money. That must be done as efficiently as possible. However, there are some very practical things that we can do and that we do do to break up large contracts into smaller buckets, and we should look for opportunities to do that. I am very supportive of allowing smaller businesses to bid for and win smaller pieces of work, rather than facing into bigger contracts that make it difficult for them.

There are other things that we can do and that we are very supportive of, including smaller businesses working together to bid for some of the larger contracts that cannot be broken up into smaller chunks.

I think that we agree on where we want to get to; it is a question of working through the details. It is not that we are saying price, price, price—far from it. As I have said, we are moving away from that, and I am keen to work with businesses to look for opportunities to move further in that direction.

That is a leading question. We are on a journey and significant progress has been made in a number of areas, which I will talk through. However, I recognise that there is more that we can do. I am relentless in my engagement with procurement officials in the Scottish Government and more widely across the public sector, and I am looking for every opportunity to move forward in all those areas.

The sustainable procurement requirements in legislation are important. They focus on making sure that there are community benefits and local aspects to procurement requirements. The situation is far from being that we will only go on price; a whole range of factors are considered. In fact, choosing a provider based only on price is not an option. In public sector procurement, you need to look at a wider range of factors including local issues, sustainability, small and medium-sized enterprises and other factors as part of the decision-making process. We have moved a long way from choosing only on price, but there is more to do.

You also need to remember that we do not have free rein in that area, for good reasons. We are part of the World Trade Organization’s agreement on Government procurement. When Scottish businesses try to export, they expect the deck not to be stacked against them in international markets and there are requirements for that. Likewise, we have to have an open, fair and transparent process for competition in procurement in Scotland. What we can do is set the criteria as best we can within the international rules that are available to support that.

Looking at the results, the percentage of public sector business that is won by SMEs in Scotland is far higher than that in the rest of the UK, and it is way in excess of the targets that are set by the European Union. SMEs in Scotland win a higher percentage of public sector contracts than their share of turnover in the whole economy. That is positive and we have managed to deliver on that in recent years. We keep a focus on that because we recognise how important it is.

The other aspect concerns the innovation side. We have done a lot of good work there, although we have a bit more to do. That involves ensuring that Scottish businesses that come forward with innovative products, they can present them, and they can get a market for them in the public sector in Scotland, with £13 billion of procurement spend being leveraged in to the health sector, digital solutions and elsewhere.

The work of CivTech has been phenomenal, and we have significantly upscaled its capacity. CivTech is an international exemplar of how to do things and is leading a lot of international work and showing people how to do this stuff. It has done that primarily in the areas of digital and tech, but it is expanding its capability much more broadly.

SHIP, the Scottish health and industry partnership group, is exploring innovative solutions from Scottish businesses, normally SMEs, for how we give market opportunities in the NHS that are more flexible in their purchasing requirements and specifications, so that something that is innovative and does not exactly fit our purchasing requirements still has a route to market.

The supply chain development programmes are focused on where we have significant public sector spend, where we can build strong indigenous supply chains and how we put both of those together and make things happen. It is not a matter of flicking a switch and stuff just happening; there is a huge amount of detailed work involving different sectors, businesses and opportunities, navigating the rules and ensuring that we are focused on delivering what we can.

We are making progress, but there is, absolutely, more to do, and I am always delighted to talk to businesses that have innovative products and services to understand how, in working with them, we can give them a foothold in Scottish public sector procurement.

What we can do is what we are doing. As I said, it is not the whole answer. What we can do is marginal in the sense that it will allow us to tackle some of the issues, but not the key barriers to international trade, which is hugely unhelpful. As I said, the work that we are doing to support more manufacturing in Scotland is part of the solution, but—as you rightly said—Brexit restrictions make supply chains difficult for businesses, consumers and the Scottish economy.

The situation will vary sector by sector and opportunity by opportunity. However, in advanced engineering, life sciences and other sectors in which we have opportunities to manufacture more in Scotland, the shortage of specific skills that would normally have come from the international talent pool is a key issue. A significant similar brake has been put on businesses in other parts of the economy, including agriculture, food processing, hospitality and tourism, which rely on significant numbers of migrant workers. Those sectors are suffering as a result of Brexit and the restriction on labour migration.

You are right to say that there is labour market inactivity: 22 per cent of Scotland’s working age population—those aged between 16 and 64—are not economically active. That is about 750,000 people. That proportion is broadly similar in the rest of the UK. If we delve into that, we find that there are a number of reasons for it. Some are valid reasons. People may be in education, have childcare responsibilities or be in poor health, and there are other reasons.

We have undertaken a programme that we will talk more about in our national strategy and that will help us to understand and address the issue. Our access to international labour has been challenged by Brexit. It is becoming increasingly clear that we must focus far more on how we tackle labour market inactivity.

Some of that will come down to the expansion of childcare that we are undertaking. That will enable parents to return to work sooner if they choose to do so. Some of it will come from transport links. Our strategic transport projects review, which was published recently, addresses some of those issues so that people can get to economic opportunities. There will be work to increase skills and to make some of the people who are furthest from the labour market more aware of the opportunities that can smooth their transition back into work if they have been out of work for a long time.

We are focusing on a plethora of different aspects. We must address the issue, not only because it is the right thing to do for individuals but because we can support businesses by giving them access to the pool of labour that is available in Scotland.

Do you want me to address any specific aspect of the Audit Scotland report?

We have some levers. However, clearly, there are many levers that we do not have. I will talk briefly about the ones that we do not have, and then about the ones that we have.

We do not have control over immigration powers internationally. We constantly ask the UK Government to be more flexible about those, both in relation to the ridiculous restrictions that it has put on labour coming from abroad and in relation to devolving immigration powers. Countries including Australia and Canada use a degree of devolution of immigration powers—it is a model that works perfectly well, so there is no reason not to do it. Clearly, we want to be back in the European single market and it is our ambition to deliver that, which would resolve many of the issues.

On the levers that we can pull, there are things that we can do about labour market inactivity and bringing more people into the labour market. There are also things that we can do to focus on immigration from the rest of the UK into Scotland. At the moment, there is a net inward immigration from the rest of the UK. About 30,000 people leave Scotland every year on average, and about 40,000 to 41,000 come into Scotland from the rest of the UK. That is a net positive; we are increasingly focused on maximising that to tackle specific skills challenges.

I have a programme under way with businesses and others to understand how we can target the message more effectively and get it out there, and to consider how we can work to increase net inward immigration from the rest of the UK into Scotland. I think that there will be increasing focus on that programme because it is one of the few levers that the Scottish Government can pull in this area, given that we do not have control over international immigration powers.

The impact of Brexit has been significant. There is an issue around unpicking that impact from the Covid situation, which is difficult. When a person leaves Scotland to return home, we do not know whether it is for personal or other reasons that they want to be back in their country of origin. The current situation makes it much harder for them to move back and forth if they have family commitments in Poland or wherever; Covid has made that much more difficult. People might choose, as a consequence, to stay in their country of origin once they have gone back there.

However, I say without a doubt that Brexit has made a huge difference. Covid restrictions are subsiding and international travel is opening up again; we would, in normal times, expect the labour market to open up. However, Brexit has stopped that.

The UK Government’s hostile approach to immigration and immigrants makes things very difficult. We saw that in relation to the message that the UK Government was sending out to heavy goods vehicle drivers, which was just ridiculous. It was counterproductive and really unhelpful. Its message was that although we expect those people to drop everything and change their lives to come and help us when we need it, we will only allow them to come here for a short time. Of course that was not going to work.

Brexit has had a huge impact. As we move beyond Covid, it will become increasingly obvious that it is acting as a huge brake on Scotland’s economic potential.

Maggie Chapman is right. We need to dig a bit deeper and understand what is going on.

For example, energy is not a scenario where you have fossil-fuel production on one side and renewables on the other and where the two are completely different things that are completely divorced from one another. They are not. The businesses that are involved in one side are almost always involved in both. The newer businesses in renewables that are specifically focused on new technologies are not, but the legacy businesses that are in fossil fuels are transitioning. Pretty much every business in that sector is on that journey and is reskilling its workforce as it makes that move. A lot of the skills are transferable, and that can be done quickly. For example, a lot of the offshore and deep-water skills are transferable from oil and gas platforms to floating offshore wind. A lot of that will happen on the opportunities side as we move the production over to renewable energy.

There are other areas where there is a bigger gap in relation to the skills that you need to acquire to transfer. It is fair to say that this has got a huge profile. You turn the television or radio on and we are talking about those issues, particularly off the back of the 26th United Nations climate change conference of the parties—COP 26. People are aware of that when they are making decisions on where they want to have their career.

Ironically, one of the comments that you get from oil and gas production is that younger people in particular do not want to go and work for them anymore, which is perfectly understandable. They are focused on net zero, understand the climate emergency and want to be in the sectors of the future. There is that pull from the technology as things move over and that push from people at all stages in their careers who want to be in the sectors of the future.

Our job is to provide the bridge that allows them to have those training opportunities. However, it is not only us—the private sector businesses are also hugely invested in that. We work closely with them and they are doing a lot of the heavy lifting. Obviously, it is in their interests; however, from our point of view, it is also the right thing for them to do. Have we got everything absolutely perfect? Of course not. However, an awful lot is happening that is moving us increasingly in the right direction.

Those are good questions. The first point that I would reflect on is the suggestion in your question that we know where the gaps are. It is one thing to say that the construction industry needs 22,000 people, but the question, then, is what skills are needed. Clearly, a wide range of skills is required on any construction site.

We also need to look at the trends in the sector. At the moment, we are doing a lot of work on developing capacity, capability and innovation in off-site manufacturing, which moves a lot of construction work in modular form into factory settings and therefore will require a different skill set. There has also been a shift in the materials that are being used as a consequence not only of shortages but of the transition to net zero, with more timber structures—or, indeed, different types of timber structure—coming into play, and the types of skills that are required to support all that work are different, too. The situation is evolving over time, and it is important that we stay close to it.

Likewise, we talk about digital skills, but the fact is that coding languages evolve every year or two. I am not an expert in the area, but when you look at the requirements involved, you can see how someone who was trained in coding 10—or even five—years ago might find that their skills are largely out of date. It is therefore important that they understand what the new coding requirements are and can upgrade accordingly. Of course, that is different from the broad-based digital skills that are required by people who are not necessarily involved in digital work all the time but who might need to know how to work a spreadsheet, for example, or how to deal with certain digital connectivity issues. We should understand that, even within such broad buckets, there is a whole range of different issues to take into account.

As for the question of how we get people to take advantage of these things, you are right to suggest that there will be a whole range of things involved in that. Some people will be very hungry to take part and will see it as an advancement and an opportunity to up their income and to put themselves in a more advantageous position, while there will be others whom you will need to make aware of the opportunities. That sort of thing will extend through the whole piece, so there needs to be closer engagement between business and schools to ensure that the young people who are coming through understand what the opportunities are, are able to set their sights on achieving them and can see how their choice of subjects or decision about whether to go into further or higher education reflects the types of careers and opportunities that exist and how they can take advantage of them.

Similarly, people in mid-career might decide to reskill, and there are some great initiatives in, say, coding training out there. We will look to develop that aspect. There are also, unfortunately, people who are facing redundancy and the partnership action for continuing employment—or PACE—initiative is there to support them. Again, a huge priority is to make people aware of the different retraining opportunities that exist.

I have also mentioned labour market inactivity. How do we ensure that people who are out of work for health reasons but who might be able to work, say, part-time or in certain employment can focus on getting the essential skills that they need? Moreover, people who are returning to the labour market after having a family need to be aware of what is available. We are talking about hundreds of thousands of people, but the training programmes are there and the Scottish Government is putting in a significant amount of funding. That said, you are absolutely right; we need to join all of this up and ensure that provision reflects what businesses need now and in future and that people are aware of what is available. It is something that we are constantly focused on.