Aberdeen Asset Management Annual Investment Conference
22 November 2016
Thank you, Campbell (Fleming, Global Head of Distribution AAM).
It is a pleasure to speak here today. Over the last three decades Aberdeen Asset Management has made a major contribution to the worldwide reputation of Scotland’s financial services sector. The sheer range of companies attending today’s event is a testament to its continuing success. It is a pleasure to speak to all of you.
I know you’ve just heard from George Osborne about his views on Brexit. As you would expect, I’ll discuss the Scottish Government’s approach to that issue during this speech. But I want to start by making a basic point about our approach to the economy.
The Scottish Government wants Scotland to be the best place anywhere in the UK to do business. And so we work closely with business on an ongoing basis to seek to achieve that aim.
One of the first actions we took when we were first elected in 2007 was to create the small business bonus scheme. As a result, almost 100,000 business premises in Scotland now pay zero or reduced rates. In fact, the policy has been such a success that it is being emulated by the UK government next year.
We also recently obtained powers over Air Passenger Duty and have made it clear that we intend to halve the overall level of that duty during this parliamentary session, to support growth and improve our connections with countries across the globe.
I’m stressing those measures - as just two examples of our overall approach to the economy - because they demonstrate that where the Scottish Government has powers over taxation, we have used them to promote jobs and encourage growth.
Of course, tax is just one of the ways in which we support our economy.
In 2011, we retained our enterprise agencies at a time when regional development agencies in England were being abolished.
We also actively support key economic sectors such as food and drink, energy, financial services and creative industries. And we are investing heavily in education, skills, transport links and broadband.
Indeed, we have consistently advocated capital investment as a means of supporting jobs and growth - and backed that through our spending plans during the recession.
Indeed, as a direct response to Brexit, we have made the conscious decision to increase capital spending in this financial year, with an additional £100m of projects brought forward from future years.
And, while we face challenges - like all parts of the U.K - we also see real signs of success.
For example, we are world leaders in some of the key industries of the future. Just last week, our electricity grid received power for the first time from what will become the largest tidal power array anywhere in the world. It’s a striking example of the progress we’re making towards being a true world leader in renewable energy.
We saw another example two weeks ago, when Edinburgh was named by European Business Magazine as the best city anywhere in Europe to establish a fintech business.
That reflects – among other things - the quality of life we can offer, the skills of our workforce, and the extraordinary reputation of our universities. Scotland has more world class universities per head of population, than any other country in the world except Luxembourg.
And so it’s not surprising that we consistently outperform every part of the UK except London when it comes to attracting inward investment.
The number of registered businesses in Scotland is also at record levels. And, while there is much more to do, our productivity has grown since 2007, while the UK’s has stagnated.
In short, we work every day with business to create an economy based on high skills, innovation and productivity.
In all of this, we have consistently placed a strong emphasis on inclusive growth – growth which everyone has a fair chance to contribute to, and from which everyone can receive fair benefits.
We believe – in line with the World Bank and many other international experts - that growth will be stronger and more sustainable if it is broadly based.
We therefore see many of our social policies – for example tackling poverty, improving childcare and boosting educational attainment – as having a strong economic justification.
And we work with businesses to promote fair work - to enshrine the idea that sustainable growth has a social dimension; that fairness supports and underpins long-term prosperity.
To give just one example of that - less than two years ago, there were fewer than 50 living wage accredited employers in Scotland. Now there are more than 600. A higher proportion of workers are paid the living wage in Scotland than in any other country in the UK.
We have also developed something we call the Scottish Business Pledge. It accredits and celebrates companies that agree to innovate, internationalise and adopt progressive work practices - those businesses that, for example, pay the living wage, promote gender balance and pay suppliers promptly.
Around 300 organisations have signed up to the Scottish Business Pledge. Aberdeen Asset Management was one of the first. It recognises that progressive employment practices are to be celebrated – not simply because they’re good in themselves, though they are, but also because they contribute to long-term business success.
A final point I want to make on this subject is that as part of our approach to building a fairer and wealthier country, the Scottish Government welcomes immigration.
Scotland, as is well known, is rich in resources: oil and gas, extraordinary renewable energy potential, beautiful landscapes that help make our tourism sector world beating, and food and drink produce that is enjoyed across the globe, to name just a few.
But we are rich in something even more important: human talent.
More than anything else our long-term success will depend on nurturing that talent.
That means nurturing the talent of those already in Scotland and of those who believe ours is the kind of welcoming country that allows ambition to flourish.
That’s why I am so personally committed to reducing the attainment gap in Scotland’s schools.
We know that education and skills will always be at the heart of how individuals fulfill their potential.
In Scotland, the value and tradition of education runs deep.
But there have been other, less happy, traditions too.
Far too many young people, down the generations, have felt they’ve had to leave Scotland to realise their potential.
That means the population debate in Scotland is very different to that in some other parts of the UK.
The Scottish Government believes that freedom of movement helps to enhance and enrich our country. It creates opportunity both for those born here and for those who move here.
And it is good for our economy.
So it is a principle we want uphold.
The position of the UK Government and some others is very different.
From the refusal to guarantee the status of fellow EU nationals living in Scotland and the UK, to the threat to draw up lists of foreign workers, the UK Government seems intent on sending out a “not welcome here” message.
I am determined that we send out a different message: one that says to all those living, working and studying in Scotland that they are most definitely welcome.
Of course, all of this is directly relevant to the key challenge facing Scotland and the UK at present – how we deal with the outcome of the EU referendum.
There are many causes of the vote to leave the EU. They will be studied and analysed for many years to come.
For many people, they will have included entirely reasonable doubts and reservations about the EU. It is, after all, an imperfect organisation.
But – as has been widely observed in recent months - Brexit was partly a product of inequality, disillusionment, a sense of alienation. If people don’t believe they are benefiting from the status quo, it’s not surprising if they don’t vote for it.
Scotland, of course, voted very strongly to remain in the European Union – by 62% to 38%.
Every local authority area in Scotland voted to retain EU membership.
But even in Scotland, a million people voted to leave.
And so the referendum result, for us, has reinforced the importance of inclusive growth – of building a fairer society and a more more prosperous economy.
The Scottish Government also, of course, has to deal more directly with the outcome of the referendum. In doing that, we have been guided by the wishes of people in Scotland.
It is my job, and the job of the whole Scottish Government, to protect our vital national interests.
We are currently exploring all options that will enable us to do that.
That means, first and foremost, trying to positively influence the overall U.K. position
But it also means exploring possible distinctive solutions for Scotland should our efforts to help steer the U.K in a sensible direction don't succeed.
Now, it’s fair to say that so far we have found our discussions with the UK Government – and I’m trying to be nice here – less enlightening than we would have liked.
UK ministers insist that they need to keep their cards close to their chest to avoid showing their hand in advance of negotiations with the EU.
The reality, of course, is that this is more of a fig leaf than a genuine explanation. It is an attempt to mask the fact the UK doesn't yet know what cards it wants to play.
So, in the absence of clarity from Westminster, we have set out the Scottish Government’s clear view that the UK as a whole should seek to retain full membership of the single market – meaning, among other things, that we can continue to trade with our EU partners without tariff and non-tariff barriers.
And we are seeking to make common cause with others across the U.K who share that view.
We believe that there is a strong democratic, as well as economic, justification for that position. After all, 48% of the electorate voted to remain in the EU. So did two of the four nations of the UK.
I completely accept that there was a narrow majority in Wales and England for leaving the European Union. However I don't believe it can be concluded that there was a majority anywhere for leaving the single market. In fact, voters were often told that leaving the EU did not necessarily require leaving the single market.
So there is no meaningful democratic mandate for what is generally known as a hard Brexit. I do not believe that there is a parliamentary majority for hard Brexit either. In those circumstances – surely - single market membership is the obvious consensus position.
It is certainly the option that makes most ec mimic sense.
The Institute of Fiscal Studies tried in August to quantify the consequences of leaving the single market. It estimated that it could cost the UK approximately 4% of GDP. That’s almost two years of average economic growth.
I mentioned the quality of our universities sector earlier. Three weeks ago, the Principal of Edinburgh University told a House of Commons Select Committee that the impact of Brexit on Higher Education - and I quote - “ranges from bad, to awful, to catastrophic”. A hard Brexit would clearly be at the more damaging end of that spectrum. That’s partly because 1/6 of our academic staff and postgraduate students are EU citizens from outside the UK.
So for all of these reasons, the Scottish Government will argue that when the UK Government negotiates to leave the EU, retaining single market membership should be a priority.
But of course we have no guarantees at all that the UK Government will seek a soft Brexit. And so the second strand of our approach is to identify specific Scottish solutions to protect our place in the single market - not as an alternative to free trade across the U.K, but in addition to it.
I have established a Standing Council on Europe to provide expert advice on our options. In particular, we are looking to see if there are ways in which - for example – the benefits of single market membership could be retained by Scotland even if they are discarded by the rest of the UK. We will publish our suggestions before the end of the year.
Now, I don’t pretend that finding distinct solutions for Scotland will be straightforward. But nothing about Brexit is straightforward. And nothing that happens in the next two years and beyond will have any direct precedent. No country has opted to leave the EU before.
There is a blank sheet of paper before us - and while that presents real challenges, it also gives us the opportunity to come up with imaginative solutions.
Indeed, we have already heard discussions about the options for a “flexible Brexit” - with the possibility of different deals for sectors such as car manufacturing and financial services, and for areas such as Gibraltar. There’s clearly a very strong need to look at special arrangements in Northern Ireland, to protect the peace process and avoid a border between north and south.
We all need to think creatively and negotiate constructively. In these circumstances, no option can or should be off the table for Scotland.
I said at the start of my speech that Scotland wants to the best location for doing business anywhere in the UK. We believe that staying in the single market is an important part of that.
We want to trade as freely as possible with our EU partners; we want to continue to welcome people from across the EU and around the world; and we want to maintain ties that have enhanced our prosperity and enriched our society.
Above all, we want to ensure that Scotland remains an open, internationalist country. Our relationship with Europe has become part of Scotland’s sense of itself. So we will argue for an approach to Brexit which retains as much of that relationship as possible.
And we believe that by doing so, we will be benefiting individuals, communities and businesses – not just in Scotland - but in all the nations of these islands.