First Minister speech: International Festival for Business
The Financial Times Live
St Georges Hall, Liverpool
17 July 2014
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Thank you, Lionel, It’s a pleasure to speak at this International Festival of Business. And it’s a particular pleasure to return to Liverpool, and to St George’s Hall.
The floor of the great hall here is inlaid with emblems of Scotland, Wales and Ireland, as well as England.
It’s a reminder, in the very fabric of this building, that Liverpool exemplifies – perhaps better than anywhere else in England - the ties which connect all of the nations of these islands.
That makes Liverpool an appropriate location for today’s speech, since one point I want to stress is that those ties will continue after independence; in fact, they will flourish.
But I want to talk about change, as well as continuity – I want to explain why independence would transform Scotland for the better, enabling us to pursue a fairer and more sustainable model of economic growth; and I want to show that that would bring wider benefits across these islands.
I want to begin by stressing a crucial point - Scotland is a nation of great wealth and extraordinary potential. Per head of population, we have the 14th highest GDP in the Organisation for Economic co-operation and Development. We have contributed more in tax revenues, per head of population, than the rest of the UK in every one of the last 33 years. We have oil and gas reserves that will last for decades and renewable energy reserves that will last forever. We have more universities in the world’s top 200, relative to our size, than any other country on the planet.
That’s why just about everybody involved in this debate accepts that we can be independent. The question we’re deciding in September, is whether we should be independent.
I want to start by looking at the record of the Scottish Parliament. The House of Commons Communities and Local Government Committee published a report last week. The report recommends greater devolution in England; and it makes the point that “Besides London and the south East, Scotland…was the only (part of the UK) that grew relative to the UK national average between 2001 and 2011.”
It’s worth remembering that there are 12 economic areas counted in those statistics. So outside of London and the south east, Scotland was the only area out of 10, which grew at a rate higher than the national average. And even our growth rates are below what we believe they could be –the figures show the vast disparity between London and the rest of the UK, as well as the success of Scotland’s Parliament.
Nevertheless, it’s interesting to compare the reality of the Parliament with the rhetoric that preceded it. The week before the referendum in 1997, a Conservative leader called William Hague – I wonder what happened to him? - came to Glasgow to predict that “devolution would make no difference to schools, to hospitals, to jobs or to business. The tartan tax would lead to foreign investors saying no to Scotland.”
It’s difficult to be more wrong. Last month, Ernst and Young published its annual business attractiveness survey. It showed that once again, Scotland is the top performing part of the UK for attracting inward investment projects, outside London.
There’s two things about that. First, I said it was difficult to be more wrong than William Hague. Difficult, but not impossible! The current Chancellor of the Exchequer told the BBC in November 2011 that "I think that uncertainty is damaging investment in Scotland – and there are major businesses around the world who have asked me as chancellor in the last year 'tell us what is going on in Scotland - we're worried about making an investment in that country'. It’s now more than 2 ½ years on. We don’t need a crystal ball to see that he was wrong; we can all read the book. And if someone can be so comprehensively wrong about past scaremongering, then why should we believe his scaremongering about the future?
But secondly, there’s no mystery to Scotland’s relative success. It is worth reflecting why the opponents of devolution were so wrong in 1997. They were wrong because they believed that the people of Scotland would make choices which were harmful to Scotland.
The record of the Scottish Parliament has proven the opposite. It has shown that the best people to take decisions on Scotland’s future are the people who live and work in Scotland- they are and always will be the people who care most about the future of Scotland.
And over the last 15 years, the Scottish Parliament has worked to create a fairer society and a more competitive economy. We have created the most business-friendly local taxation system in the UK. We’ve supported our enterprise agencies at a time when the UK government scrapped its regional development authorities. We have done all we can to protect capital expenditure during the recession. As a result, we’ve seen the situation where Scottish employment is higher and economic inactivity is lower than in the rest of the UK. And just yesterday we had confirmation that Scotland’s economy has now passed its pre-recession peak, with growth of 1% in the first quarter of this year.
That is an important point. Technically, we have been out of recession for some time - but you can’t really declare a recession over until output has recovered beyond the previous level, and now it has.
However Scotland is still affected by decisions on welfare, employment, taxation and business regulation - made by UK governments which, more often than not, we didn’t vote for. There remains a profound democratic deficit in Scotland.
I’m 59 years old. For more than half of my life, Scotland has been ruled by parties with no majority. At the last four UK elections, starting in 1997, the Conservatives in Scotland have won 0, 1, 1, and 1 seat respectively. Mind you, I notice that that’s still one more seat than on Liverpool City Council!
Over a period of decades, we have seen inequality grow significantly in the UK. The UK now has the highest levels of regional inequality in the European Union. Even before the current government came into office, Professor Danny Dorling calculated that the UK was the 4th most unequal country in the developed world – it hardly seems likely that the position has improved!
Professor Joseph Stiglitz is one of two Nobel laureates who sits on the Scottish Government’s council of Economic Advisers. He recently wrote a book about the price of inequality to modern societies – how if people are deprived of opportunities, the end result is to stifle competition and growth. So instead of using economic growth to pay some of the social costs of inequality – we need to recognise that inequality undermines the long term sustainability of that growth.
And so the Scottish Government wants to pursue a more sustainable model of growth than the UK has done in recent decades. Solidarity and cohesion are key elements of our economic strategy. We want to invest responsibly to promote prosperity, rather than cutting to entrench austerity.
We have calculated the consequences of increasing current spending by 3% a year between 2017 and 2019, rather than 1%, as the UK Government prefers. The UK Government plans for two more years of real terms cuts – we intend a small real terms rise. Under our plans, the Scottish Government’s budget deficit would still decline - to 2.2% of GDP – and public sector debt would be on a downward trajectory as a share of our GDP. But we would free up additional spending resources of £2.4 billion in 2018-19.
We also recognise that nobody lives through their business alone – all of us belong to and rely on a wider society. In Scotland, the National Health Service is under pressure because of austerity. In England, the National Health Service is under threat because of austerity and privatisation. We believe that protecting a truly national health service is one of the things which will make Scotland a more attractive place to live, work and invest.
And we know that the key to boosting prosperity is unleashing the talents of our people. We’ve already reinstated free university and college tuition. We are working to improve vocational education at school and in our colleges – giving individuals the best possible opportunities, and businesses the best possible talent pool. With independence, we intend to invest in transforming childcare and education – encouraging more women into the workplace and giving all children the best possible start in life.
And we could address some of Scotland’s most significant economic challenges.
For example in 2012, Scotland’s onshore productivity was around the UK average, but was 13% lower than Sweden, 20% lower than Germany and 22% lower than Denmark.
Our employment rates are better than the rest of the UK, but they are 4.4 percentage points below the top 5 performing countries in the OECD.
And our population growth is stubbornly low. Over the 20th century, Scotland’s population has grown by 10% while England’s has grown by 60%. That has changed for the better since devolution, but is now at risk from UK policy.
Of course all nations face challenges – but unlike most nations, Scotland lacks the means to address them by ourselves.
What we want to do is take co-ordinated national action - including investment in skills; a new Scottish Innovation Agency; a commitment to gender equality; improved access to finance; encouraging – not preventing - overseas students to stay in Scotland to work; and a partnership approach to industrial relations.
We have estimated that moderate, achievable improvements to our productivity, employment and population rates would boost our tax receipts by an additional £5 billion a year by 2030. That assessment is based on what similar countries have been able to achieve. For example, although our productivity is 13% lower than Denmark’s, we only assume improvement in Scotland’s productivity growth by 0.3 percentage points a year.
But it is only with independence that we can take these steps. And it is only with independence that we can retain all of the revenues that investment in growth will produce. That’s what enables us to create a virtuous cycle of investment and growth.
There’s an important point here about the nature of the case for independence.
We know that tackling these issues isn’t straightforward - building a better country isn’t be the work of a day. Nothing is going to be handed to us on a plate. Independence isn’t about waking up one day with three taps labelled whisky, oil and water.
It’s about working hard, and taking the right decisions, so that over time we can build a fairer and more prosperous country.
Achieving that will make Scotland a better place for investment and create a wealthier, more successful trading partner. That in itself, will benefit businesses across these islands.
But independence will do more – it will create an economic counterweight to London and the south-east, changing the economic centre of gravity of these islands. And it will provide a powerful example for those elsewhere in the UK, who are looking at how to change the current system; who want to see a model of growth which is fairer, more sustainable and more resilient than the one being pursued at Westminster.
When I first sat in the House of Commons, the redoubtable Eric Heffer, MP for Liverpool Walton, used to sit on the backbenches just behind me. Eric hadn’t always favoured devolution, but the experience of Mrs Thatcher’s government had changed his mind. And whenever I made speeches, I used to hear Eric’s growl behind me “Remember Alex – Liverpool’s coming with you!”
Eric of course was unique, a one-off – but the view that the Westminster Parliament no longer serves large parts of the country, has become widely shared.
David Cameron, when he gave the opening speech at this Business Festival last month, emphasised the need to make sure that economic recovery worked “for every part of the United Kingdom.”
The building we’re in today is one of the great monuments of civic pride anywhere on these islands. It was built at the start of Queen Victoria’s reign, at a time when Liverpool was aspiring to city status – something it was granted in 1880. In the late nineteenth and early twentieth centuries, Liverpool, together with cities such as Manchester, Birmingham, Leeds and Newcastle had real political power to as well as economic power.
But in the 20th century, regional political powers in the UK collapsed. That has contributed to the state of affairs I mentioned earlier, where the difference in output between the poorest and richest parts of the UK, is now wider than the gap in any other country in the European Union. Since 2007, London’s economy has grown approximately twice as fast as the rest of the United Kingdom’s. Nothing the UK Government is belatedly proposing even comes close to addressing the scale of this problem.
After all, what the Prime Minister didn’t acknowledge in his speech in Liverpool was that many of his Government’s policies have contributed to existing imbalances.
I mentioned the scrapping of regional development agencies earlier. The savings were meant to support the Regional Growth Fund, but it’s only now, after four years of tough economic times, that there are signs of that happening – for example through last week’s growth Deal with Liverpool. The National Audit Office found in February that less than a fifth of the money allocated in the first four bidding rounds had reached the projects it was meant to support.
Last year the Institute of Public Policy for the Regions published a report – “Still on the Wrong Track”. It found that planned public spending on major transport Infrastructure amounted to £2,600 per head in London– and £99 per head here in the in the north west of England. That’s less than a twentieth of London levels, but it’s still better than the North East – spending there was £5 per head.
The RSA City Growth Commission just yesterday, cited evidence that as a result of "chronic" underinvestment outside London, the UK’s GDP has been on average five percent lower each year between 2000 and 2010.
George Osborne gave a speech in Manchester last month where he floated the possibility of a third High Speed railway line between Manchester and Leeds. But if you look at the current plans for high speed two – it may not reach Manchester and Leeds until 2032. So I am puzzled to see the excitement generated!
The Scottish Government is using the powers we currently have to take the initiative. We’ve already started detailed planning for a high speed line between Edinburgh and Glasgow, which could link to lines from England.
With independence, we could do more – instead of paying our share of borrowing costs for High Speed Rail, as we wait decades for it to spread from the south, we can use that money to build from Scotland to England instead. So we are establishing a feasibility study to explore in detail the options for doing just that.
And we know that high speed rail isn’t the be-all and the end-all. For example, Scottish Government officials are working closely with Merseyrail. We are trying to persuade the Department for Transport to ensure that when the Transpennine Express services are refranchised in 2016, they include direct rail travel between Liverpool and Scotland.
I’d like to draw a comparison with air travel. There are representatives from the Isle of Man government here. Almost exactly a year ago, the Scottish Government and the Isle of Man government agreed that it was ridiculous that there were no air links between the Isle of Man and Scotland – so we decided to reinstate the link by the time of the Glasgow Commonwealth Games next week, where the Isle of Man will of course be competing. In actual fact, the first services flew in April of this year.
Obviously, the logistics and the costs are nothing like as complex as for railways – but it’s an example of how having autonomy allows you to create new connections. You can choose to engage: to build links and to strengthen partnerships.
For northern England, for this city, Scottish independence offers a catalyst to secure real political power, to allow determination of the future, not the long wait for belated scraps from the Westminster table.
Scotland is keen to establish closer links right across these islands. The Scottish Government has a national economic forum which meets twice a year. It brings together government, businesses, the third sector, the wider public sector and the trade unions. We have promised that the first forum to be held after the referendum in September, will focus on rebalancing the economy, including co-operation with the north of England. We are inviting representatives from local authorities and business organisations in the north of England to participate.
It builds on initiatives at local authority level – where councils in Carlisle, Cumbria and Northumberland are working with Scottish local authorities to take forward shared opportunities in enterprise, tourism and transport.
It is a practical demonstration of co-operation and partnership – a partnership which will be strengthened further by an outward looking, prosperous and independent Scotland.
And once the current campaign rhetoric is over with, we would quickly see a good working relationship between the Scottish Government and the UK Government. It’s what people and businesses on both sides will demand. And it is what is required by section 30 of the Edinburgh Agreement which says that both Governments will “work together constructively in the light of the outcome, whatever it is, in the best interests of the people of Scotland and of the rest of the United Kingdom.”
So Scotland and the rest of the UK will still share a common travel area – there will be no border posts on the M74, any more than there are between Northern Ireland and Ireland.
And we will continue to share the pound- as a senior UK Government Minister revealed to the Guardian back in March, “of course there will be a currency union”. Because that would be in the best interests of the rest of the UK, as well as Scotland.
It follows that there will be minimal disruption to businesses with employees and markets on both sides of the border.
And there’s a final, important issue. The appointment this week of Philip Hammond means that the UK Government now has a Foreign Secretary who is on the record as saying he would vote to leave the EU unless substantial powers are returned. It brings home the fact that there is only one imminent referendum which poses a threat to businesses throughout the UK – and that’s the in-out European Union referendum of 2017, not Scotland’s opportunity this September.
Ladies and gentlemen, independence will allow the people of Scotland to work together, to transform Scotland for the better. It means that we will always get the governments we vote for. We will gain the powers we need to promote productivity, jobs and investment. We will be able to build a more prosperous country and a fairer society.
And we will also embrace the fundamental truth that all nations are interdependent, as well as independent. The ties that bind these countries – the ties so evident here in Liverpool - have never depended on 650 MPs at Westminster; they are based instead on culture and history; trade and commerce; family and friendship. They rely on facts of geography, not Acts of Parliament. And so they will continue, and flourish, with independence – when a progressive and prosperous Scotland will be a willing and welcome partner, to the other nations of these islands.