Scotland's two enterprise agencies won't merge but are set to come under one national board which will be created by Holyrood legislation, according to a government report.

A new service has also been proposed for the south Scotland in a series of recommendations for the reform of the enterprise and skills bodies.

Alarm bells had been ringing in the north over speculation that Highlands and Islands Enterprise was to be merged with Scottish Enterprise (SE) in an attempt to save public money.

In the current year HIE has a budget of £79.5m and a staff of 300. SE’s budget is over £300m and employs 1270. Jobs have already been shed, but it is understood ministers believe there are still areas where the agencies duplicate work.

The report of the first phase of the review of enterprise and skills services has now recommended closer working, but still separate operations.

However amongst the proposed reforms is "Creating a new Scotland-wide statutory board to co-ordinate the activities of Scottish Enterprise and Highlands and Islands Enterprise, including Scottish Development International, Skills Development Scotland and the Scottish Funding Council."

It also specifically highlights the need to protect HIE's role while creating a new service for the south of Scotland.

HIE was established in 1991 as the successor body to the Highlands and Islands Development board which was created by Harold Wilson’s government in 1965, largely to address the Highland problem of chronic depopulation.

Economy Secretary Keith Brown said today.

“We are proud of our enterprise and skills agencies, and in recent years their efforts have contributed to real improvements in our economic performance.

“But we know that further improvement is required - our ambition is for Scotland to rank among the top performing OECD nations for productivity, equality, sustainability and wellbeing.

“Since the review was announced, the EU Referendum result has made the economic context more challenging. It requires that we renew our focus and prioritise our efforts

“This review has focused on how we can build on existing strengths and successes to further improve the enterprise and skills support system in Scotland. This will ensure a system in which all of our agencies work both hand in glove with each other and collaboratively with our business, academic and civic partners to optimise economic impact across the whole of Scotland.”

Scottish Green Party MSP for the Highlands and Islands, John Finnie MSP said:

“The south of Scotland and the Highlands and Islands are unique regions and deserve dedicated development agencies to address their challenges and make the most of their opportunities. I'm pleased to see a continuing commitment from government to protect the North's agency and the creation of a new service for the South will be a welcome boost for a region too often overlooked by government."

Andy Willox, Federation of Small Businesses' Scottish policy convenor, said:

“Most firms in the Scottish borders and south west will welcome the news that a new body is to be established to give them a hand. We accept the principle that there are similar issues for rural communities in the south as there are in the north.

“The next, more substantial, stage of this review must ensure that every tool at the disposal of government in Scotland is being used to help smaller firms succeed.”