CHAPTER SEVEN CONCLUSIONS
7.1 In order to address aims and objectives of the RSA Scheme evaluation the research team developed a broad methodology which encompassed a variety of approaches ranging from econometric modelling, based on a telephone survey of assisted and non-assisted firms, to in-depth face-to-face interviews with businesses assisted under the RSA Scheme.
7.2 However, the core of the evaluation methodology is the application of econometric modelling techniques which seek to ascertain the net effects of RSA assistance after controlling for the effects of 'selection bias' by incorporating a non-assisted group of firms and plants to embed a counterfactual in the analysis. The econometric analysis is based on a bespoke survey of 314 assisted and non-assisted businesses. It is this econometric approach which allows us to generate estimates of the contribution of the RSA Scheme to value-added in Scotland and the UK and arrive at an estimate of value for money.
7.3 These econometric evaluation techniques are applied to the evaluation of the RSA Scheme for the first time and represent considerable methodological improvement upon previous evaluations of the RSA Scheme in GB and the broadly similar SFA Scheme in Northern Ireland which have relied solely upon a self-assessment method of ascertaining project additionality.
How effective is the RSA scheme in Scotland?
Profile of Assisted Businesses ( Chapter 2)
7.4. The telephone survey enabled us to compare the characteristics and performance of RSA beneficiaries and non-beneficiaries and the key points are:
- RSA beneficiaries grew faster than non-beneficiaries both before and after receiving assistance.
- RSA beneficiaries in Scotland are more likely to be part of multi-site groups than non-beneficiaries and tend to be larger than non-beneficiaries.
- RSA beneficiaries are broadly similar to non-beneficiaries in terms of their export focus as well as their assessment of the impact of a fall in their or a main competitor's prices on the demand for their products and services (i.e. own and cross price elasticities). That is to say, they are no more likely than non-recipients to be responsive to such price changes. For both groups, the degree of responsiveness to such price changes is relatively small and from this we conclude that both groups do not compete primarily on the basis of price. As a result, for the assisted group of firms, we can infer that the displacement effects may be low.
- RSA beneficiaries are less likely to be selling to the public sector and individual consumers than firms in the general population.
- RSA beneficiaries are more likely to be undertaking R&D and product and process innovation than non-beneficiaries.
- Finally, RSA beneficiaries have faster GVA growth than non-beneficiaries although there is no robust difference between growth rates of GVA per employee.
Econometric Results and Value for Money (Chapters 3 and 4)
7.5 The findings of the econometric investigation are broadly supportive of a positive RSA intervention (2000-04) on employment growth in the 2004-06 period.
7.6 There are clearly two separate groups of firms within these data. While there is little evidence that the beneficiaries of RSA are those that will generate the highest employment growth, it does stimulate employment in domestic (i.e. primarily Scottish) firms, and is largely associated with firms with an international and national, rather than local focus. R&D activity, however, seems largely unrelated to RSA. RSA financial assistance paid to multi-plant firms, however, seems largely associated with encouraging firms to stay rather than grow, and grant size is more important than the existence of RSA in generating employment.
7.7 The analysis suggests that RSA in Scotland is having a positive effect on the growth of supported firms and that it is cost effective. Our point estimates of the cost-per-net-job (derived from the econometric models presented in Table 4.1) for Scotland are between £16,591 and £43,024 on Grant Offered and between £13,273 and £34,419 on Grant Paid. At an economy wide level, our estimates suggest that RSA assistance provided between 2000 and 2004 - a total of £126.6m - generated between 2,944 and 7,615 net additional jobs by 2006. We estimate these jobs are increasing total Scottish and UK value added by between £59.3m pa and £153.5m pa compared to a broadly based employment counterfactual.
7.8 A key question, however, is whether the net present value of the RSA scheme is positive overall. This depends crucially on the anticipated lifetime of the jobs created as well as the discount factor used. The cash value of the investment in RSA between 2000 and 2004 was £126.6m, equivalent to around £133.5m in 2006 prices and £150.7m in 2006 when discounted at the standard Green Book rate of 3.5 per cent. The cost of the RSA intervention falls to £120.6m when we allow for the fact that on average 80 per cent of the original offer of financial assistance is actually paid to the assisted firms. This value has then to be compared to the discounted future income stream - i.e. the discounted value of £59.3m pa to complete the net present value calculation. This suggests that an average job lifetime of between 6 months and just over 2 years is necessary for the RSA Scheme in Scotland to have had a positive net value at 2006 prices.
Effects on Business Behaviour ( Chapter 5)
7.9 Generally, the majority of respondents (more than two-thirds in most areas of impact) from the sample of RSA-assisted firms reported benefits for their businesses. The most common effects were on productivity and sales growth, improved efficiency of machinery and the introduction of new or significantly improved products and processes. Developments in management practice and innovation management were some of the least often cited impacts. It should be stated that, overall, the percentage of respondents reporting these 'softer' effects are high and support the interpretation that the RSA Scheme has the potential to continue to enhance the competitiveness of the assisted firms in future years.
7.10 With respect to ownership, foreign-owned firms and plants are generally less likely to report effects associated with RSA assistance compared to Scottish-owned businesses. There were exceptions - for example, foreign-owned firms were more likely to report the following effects on business behaviour/outcomes - 'improved management of innovation processes', 'reduced costs' and 'increased productivity'.
Self-Reported Additionality ( Chapter 5)
7.11 Levels of deadweight (i.e. wholly non-additional) from RSA-assisted businesses and plants are low (1.9%), low with the majority of firms citing some form of partial additionality in terms of either achieving business outcomes more quickly or to a greater extent. Full additionality occurred in around 29 per cent of cases which is high when compared to previous evaluations of RSA in GB and with England in the same period.
7.12 Disaggregating the RSA beneficiaries by ownership reveals no statistically significant differences in the degree of additionality reported between UK-owned and foreign-owned beneficiaries of the scheme. In terms of the amount of financial assistance received there is evidence to support the interpretation that smaller amounts of RSA assistance (i.e. <£100k) were associated with higher levels of additionality than larger amounts of financial support under the RSA Scheme.
RSA Case Studies ( Chapter 6)
7.13 The general conclusion from the 10 case studies is that the RSA Scheme in Scotland has achieved outcomes that are clearly additional to the Scottish economy and these were positively connected to business performance in recent years. The comments from the senior managers or owners of these businesses demonstrate that the Scheme has made important contributions to changing the capacity and competitiveness of Scottish manufacturing businesses as well as enabling foreign-owned businesses, and in particular financial services, to continue to view Scotland as a viable business location in an increasingly competitive global economy.
Summary - Overall Assessment of the RSA Scheme
7.14 Reviewing the range of evidence from this evaluation study, it is our view that the operation of the RSA Scheme in Scotland over the period 2000-04 has met its objectives by supporting investment projects in firms and plants located in Scotland that might otherwise have not taken place at all, or proceeded on the scale or timescale originally anticipated. In other words, there would appear to be a significant degree of additionality associated with RSA grant support to both Scottish and inward investors. Further, it has achieved these results in a cost effective way and with significant positive short-terms returns to both the Scottish and UK economies.