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Supporting Business Growth
Regional Selective Assistance Annual Report 2003-2004

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Contents

Minister's Foreword
The Role of RSA
The Future of RSA
Aid for Job Creation
New Deal Premium
Green Projects
Turnaround Times
Analysis of Results
SIDAB
Looking Ahead

This second annual report on RSA in Scotland covers the year ended 31 March 2004.

For more information on the scheme in Scotland, including eligibility, case studies and application forms, visit our website at www.rsascotland.gov.uk

Minister's Foreword

I am delighted to present the second annual report on Regional Selective Assistance (RSA) in Scotland.

This year's report deals with the first full year in which we can assess the changes made to the RSA scheme following the RSA Review. The year also saw us strengthen the role RSA plays in delivering long-term sustainable projects. We have now introduced a wider linkage between RSA and the resource efficiency agenda, with firms required to engage with the Scottish Energy Efficiency Office for offers over 2 million. In addition, when the grant exceeds 250,000, Local Enterprise Company advisers will work with firms to plan their long-term workforce development.

This report also highlights how RSA grants are supporting a number of green projects. We also emphasise the grant premium offered to firms recruiting and retaining New Dealers, and our support for projects that are low on capital expenditure but still create jobs.

Overall it has been a challenging year but one in which we have surpassed our targets. Against a target of creating or safeguarding at least 6,000 jobs through RSA, the 157 accepted offers of RSA aim to create or safeguard some 7,100 jobs. It was also encouraging to see a rise in the proportion of Scottish-owned firms accepting offers of RSA.

I am certain that the next couple of years will be just as challenging. The current European framework for regional aid comes to an end in December 2006. While negotiations are underway on the Commission's proposals for regional aid post-2006, we will continue to work with businesses to support investment and employment in the areas of Scotland where that support can make the biggest difference.

Lewis Macdonald
Deputy Minister for Enterprise and Lifelong Learning

The Role of RSA

The new Framework for Economic Development in Scotland was launched in September 2004 and sets out the Scottish Executive's vision:

"To raise the quality of life of the Scottish people through increasing economic opportunity for all on a socially and environmentally sustainable basis."

Regional Selective Assistance (RSA) is the main national grant scheme of financial assistance to industry, helping create and safeguard jobs and encourage investment in the Assisted Areas (AAs) of Scotland. Consistent with our Smart Successful Scotland strategy and a key component of our domestic regional policy, it is well equipped to support growing businesses in Scotland. It contributes to the Scottish Executive's vision by:

• targeting those areas of greatest need;
• helping create and safeguard jobs; and
• supporting business investment.

The Future of RSA

The European Commission has issued its proposals for regional aid post 2006. The proposed new guidelines aim to tackle market failures; promote entrepreneurship; and ensure less and better targeted state aid.

We support the Commission's overall aim but do not think the proposals will deliver better targeting of regional aid. They do not allow coverage in many of the less prosperous areas, across the European Union, notably in Scotland and other parts of the UK. During the remainder of 2004, we will be working closely with Whitehall colleagues to encourage the Commission to develop a better approach to targeting regional aid in the future.

Aid for Job Creation

2003/2004 is the first full year where we have been able to offer assistance under Aid for Job Creation towards projects with relatively low levels of capital expenditure but which still create jobs. This new scope allows us to offer improved support to businesses involved in activities such as software development, R&D and call centres, where the key investment is in people rather than equipment. Almost 1 in 5 accepted offers last year were Aid for Job Creation.

Case Study

BCW SOLUTIONS LTD, a customer services outsourcing company accepted an RSA offer of 1.6 million (including 300,000 in New Deal premium) for a project to diversify its operation by establishing a next generation contact centre in Rutherglen. The new centre will offer global customers services solutions such as dispute management, billing queries and solutions, debt prevention and helpline enquiries, all with multilingual capabilities. With planned capital expenditure of 705,000 the RSA offer would not have been possible without our scope for aiding job creation. The project aims to create over 300 jobs by the end of 2006, including 60 New Deal posts.

New Deal Premium

In order to give an extra incentive to firms to broaden their recruitment base, we introduced a grant premium offering firms up to 5,000 extra for each New Dealer taken on and retained. Again, 2003/2004 is the first full year in which this has been running and the uptake has been encouraging: over 25% of accepted offers include New Deal Premium. However, we want more firms to take up this uniquely Scottish initiative.

Case Study

BROWN BROTHERS MANUFACTURING LTD is a wholesaler of meat and meat products, based in Kirkconnel, Dumfriesshire. An RSA offer of 600,000, plus up to 25,000 New Deal premium, was accepted by the company in January this year. This will assist with a major expansion project which is expected to create 63 new jobs. The possible creation of 5 New Deal posts is particularly welcome.

Green Projects

The Scottish Executive has recently issued a consultation paper entitled Towards a Green Jobs Strategy. The aim is to position Scotland and its businesses to take advantage of the market for sustainable development.

RSA grants are already supporting a number of green sector projects. These projects have ranged from tyre and plastics recycling to the production of biodiesel from animal waste and used cooking oil. But sustainable development issues impact on all industry sectors and efficient use of resources yields long-term payback in increased productivity. The Scottish Energy Efficiency Office (SEEO) estimates that unproductive use of resources costs the manufacturing sector in Scotland around 0.3 billion every year, money which could be better used in investment and jobs.

To encourage the firms we support to play a full part in creating a sustainable future for Scotland, we have strengthened the linkage between RSA and the sustainable agenda. From 1 April 2004, all offers of 2 million and over will involve companies in constructive engagement with the SEEO to discuss the resource management aspect of their grant assisted project. In addition, the SEEO will also be offering energy audits to all applicants for RSA grants of over 250,000.

Case Study

ANAXIOM (SCOTLAND) LTD is a newly-established company that has set up a tyre-recycling facility in East Kilbride, the first of its kind in Scotland. An RSA grant offer of 230,000 was accepted by the company to support its project which is expected to create 29 new jobs over a 2-year period.

Case Study

ARGENT ENERGY LTD, a subsidiary of Argent Group Europe, has accepted an RSA offer of 1.2 million. The grant will assist with the building of a highly specialised plant to produce biodiesel from a variety of raw materials including used cooking oil and animal fats; material previously considered to be waste. Construction on the Motherwell site has begun and the facility is expected to be operational by early 2005. The project is forecast to create 16 new jobs and safeguard a further 67.

Turnaround Times

We know that businesses need a quick decision on funding issues to allow them to proceed quickly with their projects. In 2002/2003 we introduced new targets to speed up decisions particularly in cases up to 250,000. Changes such as this, implemented as a result of the RSA review, are also contributing to the Scottish Executive's corporate change agenda for an efficient delivery of public services.

With RSA applicants now benefiting from the streamlined application process, 2003/2004 has seen us continue to improve our turnaround times.

*Average working days for the financial year to end March 2004.
**Average working days for the 5 months to end March 2003.

Case Study

PROPHARMA LTD is a Glasgow-based company involved in drug formulation development. It also manufactures clinical batches as a service to pharmaceutical and biotech companies. The company, which was originally a spin-out from the University of Strathclyde, accepted a grant offer of 600,000 for a planned expansion project creating 31 new jobs and safeguarding a further 29.

Analysis of Results

Our main objectives in 2003/2004 were to make RSA offers linked to the creation or safeguarding of at least 6,000 jobs and to build on the changes made to the scheme following the RSA review by:

• promoting RSA to ensure eligible firms, particularly Scottish ones, were aware of the scheme and what it could do for their business, and
• continuing to improve on our turnaround targets for applications, in particular, for cases under 250,000 (see page 10).

In the year, 157 offers of RSA were accepted totalling 46.5 million. These offers relate to projects with planned capital expenditure of 210 million, aimed at the planned creation and safeguarding of over 7,100 jobs.

In 2003/2004 Scottish firms accounted for 51% (27% last year) of the grant accepted and 47% (29%) of the associated planned jobs.

Offers Accepted (Number)

This graph shows the number of RSA Offers accepted in each of the last 2 financial years. Although down on the previous year, this is not a continuing trend as this year's figure of 157 accepted offers is comparable to the 160 in 2001/2002.

Offers Accepted (Grant Amount)

This illustrates the total value of RSA grant offers accepted. The figures for this year show the continuing trend towards locally-owned firms accepting more of the grant offered. Previously, although a smaller percentage of applications were from foreign-owned firms, due to their sheer size, they would account for the bulk of RSA offered.

Planned Capital Expenditure

This graph shows the amount of capital expenditure associated with the accepted RSA offers. Many firms have continued to plan substantial investment and over 200 million in planned capital expenditure is linked to projects accepted in 2003/2004. Alongside this, the reduced figures reflect increasing numbers of RSA offers made for projects with limited capital expenditure.

Planned Jobs (Created and Safeguarded)

Shown here are the planned jobs associated with accepted RSA offers. The total is broadly comparable to last year with over 7,000 jobs linked to the accepted offers. It is encouraging to see the increase in the number of planned jobs within Scottish-owned firms.

RSA Spend

Grants are typically paid out over a period of 3 or more years, in line with firms' achievements of capital expenditure and job targets. These payments, and the RSA recoveries shown below, are therefore mainly in respect of offers accepted in earlier years.

RSA Recoveries

RSA grant can be recovered if firms do not meet the employment or investment conditions of the grant offer.

The figures given here reflect the total RSA recoveries for 2003/2004 accrued at 31 March. This year's figures show a considerable reduction in recoveries compared to the previous year which, as stated in last year's report, included several substantial individual recoveries.

Scottish Industrial Development Advisory Board (SIDAB)

SIDAB provides independent advice on offers of RSA over 250,000. The Board is drawn from the worlds of industry and finance, and brings an external perspective to the consideration of these larger cases. A list of current SIDAB Members can be found on
our website.

In 2003/2004 an independent review of SIDAB was undertaken. The review's recommendations are due to be published later in 2004.

Vikram Lall
Chair of SIDAB

Looking Ahead

2004/2005 will see us continue to build on the foundations laid in the RSA review of 2002/2003:

• We will aim to make RSA offers linked to the planned creation or safeguarding of at least 6,000 jobs within the Assisted Areas (AAs) of Scotland.
• With the current regional aid map expiring in December 2006, we will continue to promote further awareness of the RSA scheme to support new investment and employment in the AAs.
• We will also be underscoring our commitment to supporting long-term sustainable projects through two further changes to the RSA scheme. First, we have introduced the wider linkage between RSA and sustainability discussed earlier in the report. But we will also be requiring companies seeking grant over 250,000 to discuss their workforce development plans with the business's Local Enterprise Company advisor, to ensure that these plans are best able to support the long-term development of both the assisted company and its employees.

We welcome feedback.

What information would you like to see in future annual reports?

email us at rsafeedback@scotland.gsi.gov.uk

The photographs in this report are for illustration purposes only.