The Secretary of State for Scotland spoke to the Scottish Council for Development and Industry at SCDI Forum 2016: The Emerging Economy
Thank you for that kind introduction.
I am delighted to be here this evening with SCDI, Scotland’s leading economic development organisation.
You have a proud history and a long track record of success.
The two bodies which united in 1946 to form SCDI as we know it today, were both born in difficult times.
The Scottish Development Council was founded during the difficult years of the Depression and the Scottish Council on Industry, founded by one of my predecessors as Secretary of State for Scotland, Tom Johnston, in the dark days of the Second World War.
Even in those challenging circumstances, when the problems to be faced seemed almost insurmountable, that inspirational generation knew that by putting aside our differences to unite in common purpose, we can overcome whatever holds us back.
It is a pleasure join you tonight to talk about the challenges and opportunities which the Scottish economy faces today.
I am particularly delighted to be sharing a platform with the First Minister.
A photograph came to light recently which was taken in 1999, when Nicola and I were fresh-faced members of the brand new Scottish Parliament.
It felt a bit like looking back at an old school photograph.
In the seventeen years since we have both enjoyed active political lives and lived through historic political times.
Now there is no getting away from the fact that Nicola and I, and indeed the Scottish and UK Governments, differ on what we want Scotland’s constitutional future to be.
But I don’t think either of us, or either of our two Governments, want that difference of opinion to impede us from doing business with each other.
We both want Scotland to do well and we both agree that a thriving economy is essential for that.
The fact is that Scotland has two governments, and we get the best outcomes when we work together.
Yes, there can sometimes be creative tension. But what’s the alternative to creative tension? Unproductive indifference? We wouldn’t want that and I don’t think there’s much risk of it.
The Scotland Bill, which the First Minister and her colleagues in the Scottish Parliament voted for unanimously yesterday, will make major changes to the devolution settlement in Scotland.
The Scottish Parliament will take on a range of new powers to complement their extensive existing ones.
Once those changes go through, Scotland will have a stronger Scottish Parliament within a strong United Kingdom. That will be the context we’ll be operating in.
The Scottish Government which will be elected in May, and the UK Government which was elected last May, will each have an important role to play in creating the optimum conditions for Scottish businesses to thrive and for our economic productivity to be improved.
And improving our productivity – solving the productivity puzzle – is one of the essential tasks which business and government face.
Yesterday the UK’s Office for Budget Responsibility underscored the scale of the challenge we face – both in Scotland and across the UK.
Productivity growth across the Western world is too low and potential UK productivity growth has been revised down.
The OBR had thought that the “drag from the financial crisis” on the the productivity of our country would have eased.
Unfortunately, the latest data shows that this is not the case.
This revision is, in their own words, a “highly uncertain” judgement call.
But it goes to show the challenges we face.
The excellent SCDI productivity blueprint recognises there are few more important issues than addressing the challenge of productivity.
As the Chancellor has rightly said “improving productivity is the route to raising living standards for everyone in this country” .
This challenge does not lend itself to simple or single solutions.
It needs an approach that encompasses several areas, and SCDI are right to highlight innovation, internationalisation and infrastructure.
I’d like to say a little about each of those important issues.
New knowledge and expertise expands and improves the range of products and services which can be produced and boosts productivity growth.
Scotland’s proud heritage in innovation should inspire us all.
And our strong science base produces the highest-quality research.
The UK Government has protected our science and research budget, and Scotland benefits directly from that, with our world-class universities receiving a higher share of UK research funding than Scotland’s population share.
This spring, the UK Government will launch a new Innovation Plan for all levels of business – from SMEs to our biggest innovators – in all parts of the UK.
There are opportunities for all who want to increase productivity and growth, not just sectors that have already experienced great success and support.
Take the Catapult Centres, which have been established through Innovate UK, to commercialise new and emerging technologies.
Last year it was announced that Scotland would host one of the UK locations for the Precision Medicine Catapult Centres of Expertise, now in development and based at Glasgow University, to join those already operating here.
Real examples of innovation in action.
Second, internationalisation. Another a key part of the plan for growth.
A personal focus for me is to get more Scottish companies exporting.
I recently visited the UK’s biggest bus manufacturer, Falkirk-based Alexander Dennis.
They secured a deal worth almost £2 billion with the Chinese firm BYD when the President of China paid a state visit to the UK.
Our aim over the next five years is to increase by 100,000 the number SMEs across the UK which are exporting.
My aim is for Scotland to punch above its weight on that measure too. And government has a vital role to play in boosting exports: Turning UK Trade and Investment into the best export and investment promotion agency in the world and supporting companies through the UK’s unrivalled network of Embassies and High Commissions.
I saw first-hand the benefits of this network and the expertise of the Foreign and Commonwealth office in my recent visit to Mozambique.
I was hosted in Maputo by our excellent High Commissioner, Joanna Kuenssberg – a proud Scot representing the United Kingdom in that important role.
I was able to take forward an Memorandum of Understanding between Aberdeen and the city of Pemba on Oil & Gas exploration, which I hope will pay dividends.
A couple of weeks ago I was delighted to join Nicola’s deputy, and another member of the Class of ’99, John Swinney at Hampden, to launch the ‘Exporting is GREAT’ road show, aimed at giving businesses support to take the step into exporting.
I am grateful to SDI for the part they played in making the event a success. It is the sort of joint working that we have not done enough of in the past, and I am determined to do more of it in the future.
And thirdly infrastructure.
High quality infrastructure is essential for supporting productivity growth.
Through our National Infrastructure Plan, the UK Government has set out detailed delivery plans in key economic infrastructure sectors.
Last year we established the National Infrastructure Commission, headed by Lord Adonis, the former Labour Transport Secretary, to determine national infrastructure priorities and to hold the government to account.
The fact that a majority Conservative Government appointed a former Labour cabinet minister to that post shows that we consider this a matter above party politics.
The Commission will work collaboratively with the devolved administrations and it will be for the Scottish government to decide whether or not they would like the commission to review infrastructure that is responsibility of Transport Scotland.
Either way, Scottish business relies on good quality infrastructure in England and Wales to get their goods to market and much else besides, so this new approach is good news for Scotland.
Now, many of the specific recommendations which the SCDI report makes are in areas where policy responsibility is devolved to the Scottish Government.
That’s not surprising, when the Scottish Government has full control of areas like schools, skills, economic development and of course the wider Scottish public sector.
And we have heard from the First Minister about the approach which her Government proposes to take.
But there are a two ways in which I think the UK Government can play an important role in this process.
First, the UK Government retains an important economic role on a UK-wide level.
It has responsibility for fiscal, economic and monetary policy, as well as for important Scottish sectors like financial services, banking and insurance.
The UK Government published an ambitious Productivity Plan last year, recognising that solving this puzzle needs to be at the heart of our plans for rebalancing the economy.
That’s why we have taken concerted action over the last nearly six years to tackle the deficit and deliver economic growth right across the UK.
Since 2010, the UK’s deficit has been cut by almost two thirds as a share of GDP.
Scotland’s economy has grown continuously for three years and is forecast to grow by 1.9% in 2016.
We have reduced corporation tax to the lowest rate in the G20.
Transforming Britain from one of the least competitive business tax regimes in the world, to the most competitive.
There are now over 60,000 more businesses operating in Scotland than in 2010.
We have a near record number of people in employment.
The UK government’s Work Programme has helped 43,000 people in Scotland secure employment.
And the introduction of the National Living Wage will benefit directly those people moving into work.
But it won’t just do that.
The National Living Wage speaks directly to the issue of productivity.
In a low wage economy, productivity is generally lower and the skills of staff members are not regarded by employers as the best investment.
We know that staff who do not feel valued or incentivised are held back from reaching their potential.
The National Living Wage will change that.
By incentivising companies to see the potential in their workforce, we will see better trained, better motivated and more productive staff leading to better outcomes for their businesses.
The state will no longer be subsidising low pay, but instead reaping the rewards of increased economic activity.
This was a bold policy choice from the UK Government and it went further than anyone expected us to go but it was the right call.
Of course there is much more to do, and the SCDI blueprint for growth and prosperity identifies a number of the key challenges.
That brings me to the second important role which I think the UK Government can play in the Scottish context, and which the Scottish Government can play in the UK-wide context.
Devolution means giving different administrations in different parts of the UK the freedom to do things differently but it should not mean that we don’t take account of what other governments are doing and the successes and achievements they have.
I will just mention one area, which SCDI highlights in their report: the use of digital in the public service. This is an area where the UK Government can share some useful experience.
Martha Lane Fox, the co-founder of Lastminute.com, was appointed the UK Government’s Digital Inclusion Champion by the last Labour government in 2009. She was kept in place by the incoming Coalition Government - again showing that Party politics shouldn’t stop good people making their contribution.
She produced a report for then Cabinet Office Minister Francis Maude entitled: ‘Directgov 2010 and beyond: revolution not evolution’. The key message was ‘to build the service around user’s needs’.
Baroness Lane Fox’s work led to the publication of the UK Government’s Digital Strategy and the creation in 2011 of the UK Government Digital Service.
We now have a Chief Digital Officer in Whitehall, driving a digital culture right at the heart of government.
SCDI have called for the creation of the first Scottish Chief Digital Officer to drive forward digital development, from infrastructure to economic growth and public service improvement.
I think that is a call which we should heed.
The UK Government’s experience has been that this approach can be transformational. It has led to the creation of the award winning Gov.uk - a single digital portal to all UK Government services and information - and this has gone has in hand with a data revolution, with hundreds of new public service datasets made available online.
The UK Government has blazed a trail on digital in the public service.
It would be well worth sharing experiences between Scotland’s two Governments on this issue – both what has gone well and what has not.
I am sure there will be examples of Scottish Government initiatives which we could learn from too. And the Welsh Assembly Government and the Northern Ireland Executive will have their contributions to make.
After the Scottish Parliament elections, I believe we have a golden opportunity to build a new relationship between Scotland’s two governments, Scottish business and civil society, putting respect and collaboration at the heart.
To build a truly ‘productive’ relationship - that’s my pledge and my purpose, my commitment to you all and my offer to the First Minister.
Let’s agree to differ where we differ, but work together for Scotland when we can.