SCDI Annual Forum
First Minister Nicola Sturgeon
17 March, 2016
SCDI has a special place in Scottish public life. For decades it has brought the business community together with public sector agencies, local authorities, trade unions, charities and colleges and universities. It’s a pleasure to attend this annual forum.
When I spoke at this event last March, SCDI was just starting work on its blueprint for economic growth.
That blueprint was published in December and it does something that I think all of should do far more often. It looks very much to the future and thinks about the kind of Scotland we want to see in 2025. Ross summarises it well when he says that is a country where work is always highly productive, and where a culture of opportunity and improvement prevails. And it thinks about how we can create that Scotland.
In doing that, it puts productivity right up there as one of, if not the key challenge. In fact, the blueprint’s introduction includes a famous quote from Paul Krugman, the Nobel-Prize-winning economist– “productivity isn’t everything, but in the long run, it is almost everything.”
There’s a coincidence there. That was also the first quote to be used in the first major economic publication produced by this Government – our economic skills strategy in 2007.
Since we published that document, productivity has been a regular feature of the discussions we have with our Council of Economic Advisers.
And it’s worth looking at the results. In 2007, Scotland’s productivity level was almost 8 percentage points lower than that of the UK. That gap has now reduced to just over 2 percentage points. Output per hour increased by 1.3% in Scotland in 2014, but by only 0.1% across the UK as a whole.
So on the face of it, we have achieved some limited success and we should celebrate that success but we know that we need to do much more. The reality is that while we are closing the gap with the UK, Scotland still lags far behind many European competitors – for example our output per hour is roughly one quarter below countries such as Denmark, Germany and Ireland.
So SCDI’s focus on productivity as a key challenge is timely and very welcome, and very aligned with the thinking of the Scottish Government.
There’s a similar focus in the Economic Strategy which the Scottish Government published last year. It emphasized four “I”s which we believe will deliver a more productive economy – innovation, internationalization, inclusive growth and investment in skills and infrastructure.
Three of those are also themes in SCDI’s blueprint. SCDI doesn’t specifically mention inclusive growth. But many principles of inclusive growth are relevant to the blueprint – for example its recommendations on fair work, gender equality and better childcare provision. I’m a great believer that we must see better childcare provision not just as a social imperative, although it is that, but increasingly as a key economic imperative as well.
I won’t focus on all four of the economic strategy’s themes this evening. Instead I’ll focus on three different events which have happened this week – on Wednesday, Tuesday and Monday. I’ll use the second and third of those to illustrate some of the ways in which the Scottish Government is promoting productivity, and to talk in particular about the importance of investment and internationalisation.
But I’m sure you’ll understand that the first thing I want to talk about is yesterday’s budget delivered by the Chancellor. I should say that there are aspects of the budget that present opportunities for Scotland and that we welcome. I would single out the focus on City Deals which have been and will continue to be important for Scotland, and secondly the support for the oil and gas sector which the Scottish Government was calling for and it was good to see that delivered.
Equally, as well as opportunities, the budget presented real challenges for us in Scotland as it did for the rest of the UK. The budget confirmed yesterday that Scotland’s block grant will be reduced by around a billion pounds in real terms over the next four years. And of course many people - particularly disabled people receiving personal independence payments – now face the prospect of significant cuts to their income, which of course has a social and economic impact.
The Scottish Government has consistently argued that while we need to reduce debt and deficit, that should be done at a different pace without compromising strategic investment in infrastructure, skills and education to further boost the economy and improve productivity.
Poor productivity undermines tax revenues, public services and our overall quality of life. Therefore it is vital to encourage and strengthen productivity and we see that as the best way to creating a thriving economy, a sustainable tax base, and a fairer, more prosperous society.
The second event I want to talk about – which relates directly to investment in infrastructure - is from Tuesday.
Derek Mackay, the Minister for Transport and the Islands announced a transformation of rail services from 2018 onwards. There will be 200 new services a day and 20,000 more seats and that is the latest stage in an on-going improvement of our railways; the Borders
link, for example, was the longest new domestic railway in more than a century. Our £5 billion rail investment programme will improve connections between Inverness, Aberdeen and the towns and cities of the central lowlands. Absolutely essential to the economic growth we need to see.
And it’s maybe worth saying as well, since David is here, that rail links are an area where we want to work constructively with the UK Government. In fact, next week, Keith Brown - the Cabinet Secretary for Infrastructure, Investment and Cities - will make a joint announcement on high speed rail together with UK ministers.
Scotland’s inclusion in a high speed network is obviously beneficial for Scotland, and we also believe it will be good for the rest of Britain. So we want to work with the UK government to achieve it.
That investment in rail is part of a much broader programme of transport investment. The new Queensferry Crossing will be completed by the end of the year; work on dualling the A9 has started; the Aberdeen Bypass is well underway.
Transport infrastructure is important but so too is digital infrastructure, and we’re making major progress towards better broadband provision – again, we’ve worked well with the UK Government on that.
Now, SCDI rightly emphasised digital technology in their blueprint. So it’s maybe worth taking Fife as an example - just over two years ago, 69% of households here had access to superfast broadband. Without public investment, we expect that would still be the case. But broadband availability in Fife is now at 87%. By the end of 2017, it will be 98%. And we are determined to get high-speed broadband to 100% of households over the next few years.
Of course, we need to then make sure we use that digital technology which is why encouraging our high tech businesses is so important, and also making sure we have the skills that those companies need is hugely important in terms of the future of our economy.
These things are all very important to us as we make the right strategic investment in our economy.
That links to one of the other themes of the economic strategy – internationalisation – and that’s relevant to the final event I want to talk about, from Monday.
The Scottish Government launched our consultation on air passenger duty.
We’ve already made the commitment that we will reduce the overall burden of air passenger duty by 50% over the course of the next parliament. We want views on how exactly we should do that.
The reason for the Scottish Government’s initial commitment is very simple. Air Passenger Duty in the UK is the most expensive tax of its kind in Europe.
For Scotland – as a country which is at the periphery of Europe – that has an especially big impact on business competitiveness.
So reducing it is another way of improving connectivity and reducing business costs.
There are two things about that which are worth noting. The first is that it’s a demonstration of how, as the Scottish Government and Parliament assumes new powers, we will use these new powers sensibly to help grow our economy.
The second is that it links directly to this government’s wider emphasis on internationalisation. We have seen our exports in recent years grow substantially but we want to build on that success. Too few of our companies still today are active in international markets – we need to increase that substantially.
SCDI is of course working with the Scottish Government on the establishment of three new innovation and investment hubs. The Dublin hub opened last month – the Brussels and London ones will start work later this year.
The final point I’ll make about internationalisation relates to the referendum on European Union membership.
I don’t think the EU is perfect, I don’t know that anybody does, but I think it’s overwhelmingly in the best interests of Scotland and the UK to remain within the EU for the trade links, the economic opportunities as well as the significant social and employment opportunities that it delivers. I think it would run counter to our ambitions in terms of internationalisation for a different outcome to be delivered.
Internationalisation, innovation, investment and inclusive growth really encapsulates our entire economic strategy. These run through all of the initiatives we take as a government.
I’ll make my final point that while David and I in many respects politically are opponents, when it comes to making sure Scotland is performing as well economically as we can, we’ve also got to be prepared to work together. On behalf of the Scottish Government, let me say that we’re certainly keen to do that.