Chapter 1: The Review ­ Background and Process

1. This is the report of the Prior Options Review of the Scottish Tourist Board (STB). The Prior Options Review forms the first stage of a Policy and Financial Management Review of the Board. This first stage is expected to examine rigorously whether STB's functions are required at all and, if so, whether there is scope for privatising, contracting out, or transferring to another body some or all of its functions.

2. The Review was carried out by the Scottish Office Education and Industry Department under the guidance of a Steering Group comprising representatives from The Scottish Office and STB together with an external member. In accordance with normal practice, the views of the public and interested parties were sought.

Chapter 2: STB's Statutory and Policy Framework

3. STB is a Non-Departmental Public Body (NDPB) established by the Development of Tourism Act 1969. Its principal functions are to encourage people to visit Scotland and people living in Scotland to take their holidays there, and to encourage the provision and improvement of tourist facilities in Scotland. The Secretary of State for Scotland sets the Board's policy priorities and annual budget and appoints its chairman and board who have collective responsibility for its overall control and management. The Board's principal operational activities currently cover UK and international marketing; visitor services; quality assurance; research, planning and development; and press and PR.

4. The Board has not previously been the subject of a Prior Options Review. A number of previous enquiries have, however, considered the issue of Government support for tourism in either the Scottish or British context. The most recent and significant of these was the review commissioned by the then Secretary of State for Scotland in 1992 into the Scottish public sector's support for tourism. Implementation of the recommendations arising from this review led to a major rationalisation of the support structure. The Review concludes that the arrangements introduced by the 1992-93 review have proved effective and remain relevant.

5. The opportunity was taken to consider National Tourist Organisation (NTO) arrangements in the UK and elsewhere. The Review concludes that there are no grounds for believing that the arrangements for national support to the Scottish tourist industry are generally inferior or likely to be less effective than the practice elsewhere.

Chapter 3: STB's Performance

6. Any assessment of the Board's performance must start with an examination of the Scottish tourist industry's own performance. The measurement of tourism, however, presents considerable problems. The evidence available suggests that tourism is clearly important to Scotland: for instance, tourism receipts in Scotland in 1995 amounted to £421 per head of population whereas in England the equivalent figure was £235. While the industry's performance in attracting overseas visitors in recent years has been good, its long-term performance in the UK market remains relatively weak. Research also suggests that, while the seasonal distribution of visitors has improved significantly, there remains scope for improvement. Dispersal of visitors throughout Scotland also remains unsatisfactory.

7. Assessing the performance of economic development agencies like STB in terms of their contribution to the wealth of the people of Scotland and the creation and maintenance of employment opportunities is inherently difficult. This difficulty is compounded by the nature of tourism and the many factors that influence holiday decisions which are outwith the control of NTOs like STB. In the absence of wholly reliable final outputs, STB has developed a range of largely intermediate or indirect outputs. It also undertakes post hoc evaluations of its various activities. Taken together, they suggest a satisfactory performance. The Steering Group also noted more subjective material (including the results of the consultation exercise). The overall conclusion is that STB's performance is generally effective and that its activities are of positive benefit to the Scottish tourist industry.

Chapter 4: The Prior Options

8. A number of prescribed options have to be specifically considered as part of the Review. These are:

­ abolition of the NDPB;

­ its privatisation;

­ its abolition and the transfer of its functions to another provider;

­ the contracting out of its functions en bloc;

­ its adoption as a Government Agency; and

­ the market testing of individual NDPB functions.

Chapter 5: The Need for State Intervention in Scottish Tourism

9. The existence of market failure is crucial to the need for STB. The Steering Group therefore sought a rationale for the Board in terms of an economic case for intervening in the tourism market (although it was also accepted that intervention on social grounds could also be justified).

10. At the outset, a number of principal characteristics of the tourist industry were identified. These were: its diffuse nature; domination by small businesses; and lack of vertical integration. STB's intervention to alleviate market failure was then considered under 5 main activity headings: general marketing efforts; efforts to minimise seasonality; efforts to increase the spatial spread of tourism expenditure; efforts to improve quality; and efforts to disseminate research and provide guidance. The Steering Group concluded that, in each instance, there is a case for intervention. It further concluded that, in overall terms, Scottish tourism is characterised by mismatches between the information sought by tourists and the incentives to tourist businesses to provide that information. While this problem can in theory be overcome through the establishment of trade associations, collaboration between the many small businesses comprising the Scottish tourist industry is difficult to achieve in practice. Tourist industry activity can therefore only be optimised through public intervention. The Steering Group's general conclusion is that there remains a requirement for all the main activities currently undertaken by STB to continue. The prior options of complete or partial abolition and privatisation were therefore rejected.

Chapter 6: Delivery of STB Functions

11. Consideration was then given to the remaining prior options with a view to determining whether there is scope to contract out or transfer some or all of the Board's functions.

12. The option of abolishing STB and transferring its functions to another public sector provider was rejected on the grounds that the outcome of the 1992-93 review of tourism support arrangements remains relevant. Such action as is necessary to improve the delivery of STB functions should be undertaken within the context of the revised responsibilities and relationships introduced by that earlier review. The option of contractorisation was identified as, in principle, a feasible alternative. Practical difficulties were noted. More significantly, however, STB's performance is regarded as effective and detailed scrutiny of the Board's functions revealed relatively little scope for improving its cost effectiveness. Accordingly, the Steering Group concluded that there is unlikely to be any obvious advantage in adopting this approach and rejected this option. It was also agreed that adoption of agency status was unlikely to bring any benefits and would run counter to the Government's stated policy on the continuation of NDPBs which continue to serve a valid purpose. This option was also rejected.

13. Having discarded the preceding options, the Steering Group concluded that STB should continue to function as a NDPB. The Group therefore considered the market testing of individual Board functions. Thirty-seven discrete activities were examined. In most cases, there is no further scope for action. Relevant action recently completed, underway or required was noted in a number of instances. The activities concerned were: the Scottish Convention Bureau; Exhibitions and Events; Visitor Services ­ Information Services; Visitor Services ­ Quality Assurance; Planning and Development ­ Industry Monitoring; Press and PR ­ Press Trips; Press and PR ­ Corporate Events; and Finance and Administration ­ Financial Control and Management. Recommendations concerning these activities are made as appropriate.

Chapter 7: The Future of STB

14. Having concluded that STB should continue as a NDPB, the Steering Group went on to agree that there is scope for refining and refocusing both the type of support provided by STB and the way in which such support is delivered. A series of recommendations are therefore made which draw on the preceding analyses; the results of the consultation exercise; the Government's policy requirements; the Board's current role and the operational framework within which it operates; NTO arrangements elsewhere; and value for money. These recommendations are grouped by reference to a series of guiding principles which are as follows:

­ STB should continue to undertake marketing, visitor servicing and development functions;

­ STB should be open and accountable;

­ STB should have corporate cohesion;

­ STB should help give the industry strategic direction; and

­ STB's partnerships with the industry and other public sector bodies should be meaningful and, in terms of practical results, effective and efficient.

15. Flowing from these principles and the changes recommended, the Steering Group agreed a revised principal aim and objectives for STB and noted proposals for a restructuring of the Board put forward by its Chief Executive.

Chapter 8: Summary of Conclusions and Recommendations

16. Proposals for implementing the Review's recommendations are set out in the form of a tabular action plan.