Association of British Insurers annual conference
First Minister Nicola Sturgeon
Association of British Insurers, London
Tuesday 27 February 2018
It’s a real pleasure to be at this ABI conference. There is no doubt whatsoever that the businesses represented in this room make an enormous contribution to companies, and indeed communities, across Scotland. You provide literally millions of people with practical help or peace of mind; you enable and encourage our businesses to grow; and of course you directly employ thousands of people throughout the country.
I see evidence of that contribution virtually every week as First Minister and in my capacity as a constituency MSP. My home city, Glasgow, is a base for more than 20 insurance companies. Together, they employ more than 7,000 people.
Edinburgh, where the Scottish Parliament is based, is the biggest centre for life insurance and pensions anywhere in the UK. Stirling is the seventh biggest centre - Aviva has a major base there. In total, insurance firms in Scotland support more than 20,000 jobs.
And so the main message I want to convey this afternoon this afternoon is that the health, the success, the prosperity of the insurance sector, right across these islands, is something that matters hugely to me and the Scottish Government. And it follows directly from that, that we want to work with you on an ongoing basis to ensure that you continue to grow and continue to flourish.
Now, in the second half of my remarks I’ll deal with the small matter of Brexit – it is, after all, a topic that is crucial to your businesses, it’s crucial to the wider economy.
But before I do that, I want to set out in more general terms some of the ways in which the Scottish Government is working to seek to make Scotland the best place in the UK to do business. We’re determined to create an environment where both new and established companies – including of course insurance companies – can thrive.
That was a guiding aim behind the budget that the Scottish Parliament passed last week for the year ahead. Among other things, that increased support for business research and development, provided the most competitive package of rates relief anywhere in the UK, and supported very significant investment in infrastructure, including the delivery of superfast broadband to every single residential and business premise across the country.
The budget continues efforts we’ve made over the last decade to further increase Scotland’s attractiveness as a place to do business. It’s notable in recent years we’ve had significant success as a location for inward investment.
Just last week fDi magazine published the results of its annual survey of “regions of the future”. The fDi survey assessed the best places in Europe to do business. Scotland came third in the large regions category – behind North Rhine Westphalia and Catalonia. All of our four largest cities were in the top 10 in their different categories.
That survey confirmed what statistical evidence already tells us. In the last five years, Scotland has consistently outperformed every part of the UK with the exception of London when it comes to attracting inward investment.
That reflects – first and foremost – the skills and capabilities of our people. By some measures, Scotland has the most highly qualified workforce anywhere in Europe. We have more world-class universities than any country proportionally in the world except Luxembourg.
You can see the benefits of that, very specifically, in the financial services sector. In total, universities in Scotland offer more than 50 courses in banking, finance and risk management. Thousands of students study these courses every single year and that provides a really important and valuable skills base for the industry.
In addition, those high skill levels are combined with a relatively low cost base - office rates are less than a third of London prices.
We also, as many of you will know, offer a pretty good quality of life in Scotland, and we work very hard trying to capitalise on our relative smallness as a country to ensure that the public sector is responsive to private sector needs and we all work together in a collaborative way.
If you look at the insurance sector specifically, that engagement is hugely helped – as you would expect – by the work of ABI. We have a very regular, and I like to think, productive dialogue with ABI on a range of issues which are of mutual concern.
For example we’ve been in touch on issues such as our Damages Bill – which we plan to introduce to Parliament by June of this year. As many of you will know, that Bill will adjust the discount rate in Scotland, so I know it is of considerable interest to many of you here today.
We’ve also had discussions with ABI on issues such as pensions relief on Scottish income tax, and the potential consequences of our civil litigation legislation. So a very diverse range of issues that we pride ourselves in having a very good relationship in discussing.
And given the press release the ABI put out yesterday, we also –as you would expect – entirely endorse the call of ABI for more female leaders in the financial services industry. The Scottish Government sees diversity as being good – not just for society as a whole, though it most certainly is, but for individual businesses. So I welcome the fact that the ABI shares that stance and is leading by example in its own recruitment policies. I certainly hope it can encourage further change across the sector.
More generally, however, the Scottish Government and the financial services industry work together to ensure that Scotland cab build on our position as a leading financial sector. I co-chair the Financial Services Advisory Board, which brings the public sector and industry together. As part of the deliberations of that board, we consider issues such as future skills and the impact of new technology on the industry.
And in doing that, we’re looking to ensure – not just that we capitalise on our historic strengths or our historic reputation, but that we take advantage of new opportunities.
Good examples of that are fintech and insuretech. In addition to our strengths in financial services, we also have a growing reputation in fields such as data analysis and infomatics.
So it’s not surprising that we are rapidly becoming an important base for fintech and insuretech start-ups.
In fact, the ABI is currently working with one Edinburgh- based company, Origo, which is developing a pensions dashboard. The basic idea is that individuals, who have accumulated a variety of different pensions benefits from several different jobs, are able to see all of those different benefits in one place.
The dashboard is good example of how new technology can provide significant benefits to customers. And Origo’s role is one example of the expertise and talent that we have in our insuretech sector.
So we want to build on that expertise. In the last year, the financial services advisory board has been really instrumental in establishing a new industry body, Fintech Scotland. It is receiving financial support from the Scottish Government, but it is a real partnership effort – it is benefiting hugely from the expertise and support of both academia and industry. It has set high ambitions aiming to make Scotland one of the five most important centres in the world for fintech by 2020.
So that, I hope, is a good example of the fact that the financial sector in Scotland doesn’t just have a long and proud history – we are determined to make sure it has a very strong and exciting future as well.
Now of course, if we’re going to build on the strengths we have at present – and seize the opportunities of the future – it is essential and I don’t think this pint can be overstated, it is essential that we do all that we can to mitigate the potential impact of Brexit. That, as I indicated at the outset, is the major theme of the second half of my remarks this afternoon.
We are now half way through a series of UK Government speeches which have been called “the road to Brexit”. These were meant to give clarity to the public, to businesses and to our European partners.
And on one level, they might have succeeded. I am sure that all of us were deeply reassured, even if not all of us were convinced, by the promise that we will not be “plunged into a Mad Max style world borrowed from dystopian fiction”!
But by most other measures, these speeches, so far, have been less enlightening than we might have hoped them to be.
I won’t dwell this point, but it beggar belief in my view that last week, almost two years on from the referendum the UK Cabinet really met for the first time to try to work out what future relationship it wanted to seek with the EU.
One of the real problems has been, and continues to be, that we are still not seeing an openness or frankness about the trade-offs that we face in negotiating a new relationship with the EU. The Government is still trying to argue that it’s possible to enjoy everything, as Boris Johnston styles it, to have our cake and eat it so we are still treated to the fallacy that we can have significant regulatory freedom, while also enjoying all the benefits of the single market and the customs union, we can gain the ability to make new trade deals while also retaining an open border with Ireland. I don’t think those positions bear scrutiny of reality. Nothing we have heard from the European Commission suggests the UK Government’s approach right now is a feasible one.
The Scottish Government’s stance is, I hope, very clear. We have an overwhelming preference that would be to remain in the European Union. That is, after all, how Scotland voted in the referendum.
We also believe that during the transitional period which will start in March next year and I think it is progress that everyone now agrees that there should be a transitional period. During that period our relationship with the EU should be on the same basis as our existing relationship.
Otherwise, businesses will have to make one set of adjustments next March, and then a further set of changes later on, when the transitional period ends. And that, in my view, would make no sense for any business in any part of the county.
In the longer term, if it is the case that the UK is determined to leave the EU, and that appears to be the case, we believe that we should seek the least damaging future option and in my view that means retaining our membership of both the single market and the customs union.
That seems to me to be an obvious democratic compromise, in a country where 48% of voters chose to remain. That form of Brexit would also be the least damaging approach for businesses and for
The Scottish Government published an analysis in January of the different options for leaving the EU. Broadly, they are the single market option or a free trade agreement or falling back on WTO terms. That analysis showed very clearly that although all forms of future relationship are likely to harm the economy in some way – by reducing exports to our largest and closest market – the harder the Brexit the greater the damage that will be sustained and of course that analysis has subsequently been supported by the leaked assessments done by the UK Government itself.
The insurance industry provides a good illustration of why remaining in the Single Market makes most sense. Remaining in the European Economic Area would, for example, enable financial passporting to continue. That is by far the easiest way of ensuring that UK companies can continue to sell insurance across the EU without having to consider setting up operations new in other parts of Europe.
The financial services sector also benefits hugely from the skills and hard work of EU migrants. According to our latest figure, 9,000 EU nationals work in the finance and business services sector in Scotland. That figure will be much greater when we consider the UK as a whole. Retaining their skills – by protecting the rights of existing migrants, and encouraging new workers into the country – should be a priority for us all.
Now, I know that many of you might perhaps agree with the notion that we should remain in the single market but consider that it is unrealistic. After all, the UK Government keeps on saying that we will leave both the Single Market and the Customs Union.
But in my opinion, at the present time, making the case for a common sense Brexit is more important than ever.
We have a UK Cabinet still trying to close the gap between its wildly divergent views on the future relationship, it’s expected negotiating stance is unlikely to be sustainable. As we saw from Jeremy Corbyn yesterday some signs of movement on the part of the Labour Party. We have already seen in the last year many positions that were originally cast as red lines become impossible to sustain.
So I believe as the UK Government goes further into this next phase of negotiations reality is going to bite as never before. And further change in the course that it has set will become inevitable. So i think it is possible that a softer, common sense Brexit can command majority support - both in the House of Commons, and indeed across the country as a whole. That form of Brexit would avoid many of the difficulties that we may otherwise spend many years wrestling with, when we should instead be focussed on the economy. So, I think, now is the time to intensify rather than abandon the case for a softer, more common sense Brexit. That stance, in my view, is economically desirable but it is also democratically justifiable and I believe it is politically achievable.
It’s maybe worth adding for the benefit of this audience here today that in all possible negotiating scenarios, the Scottish Government will continue to make the case for sensible resolutions for specific issues in specifics sectors and in particular relevance to this audience in relation, for example, to the pensions industry.
I know one of the key concerns you have relates to the continuation of contracts in other parts of the EU. There’s a fear that if financial passporting ends, it could become illegal for a UK insurer to make payments to claimant based in, say, Germany.
Single Market membership, in my view, would take away that issue. If that is not where we end up, the Scottish Government – where we have influence – will continue to argue for a sensible resolution. If necessary, we will make strong cases to European agencies such as the European Institute of Occupational Pension Authorities, as well as to the UK Government. It is in everyone’s interests, across the entire continent, for insurance contracts to retain their legitimacy after Brexit.
The final point I want to make is that by advocating the least damaging approach to Brexit, the Scottish Government won’t just be reflecting the wishes of the majority of people in Scotland, although I believe we will be doing that, I think it is also reflecting the needs and priorities of businesses across the UK.
And so it stands to reason that we will work with anyone and everyone – across party boundaries, and right across the UK – in order to make that case and achieve those goals. I believe a common sense approach to Brexit can command consensus support in Parliament and across these islands more generally. For that reason it is worth trying to achieve.
I very much see the case for Scotland’s place in europe – and more generally, the need to reinforce our reputation as an internationalist, outward-looking nation. As an important part of the wider mission I spoke about at the start of my remarks, we want Scotland to be a good place to do business. The success of the private sector is essential to the wellbeing and prosperity of everyone and every community in our country.
And it’s why we will continue to work closely with the financial services sector in general and the insurance sector in poarticular – to build on Scotland’s historic strengths, and to seize new opportunities as they come our way. We want the insurance sector to thrive, because we understand your wider importance to helping the country more generally to thrive.
For all of those reasons, I’m delighted to be here today, I look forward to your questions, and I look forward even more to working with you in the months and years ahead.