Thank you Iain [McMillan] for your kind introduction.
Thanks for welcome and introduction and may I pay tribute to your tireless efforts on behalf of the Confederation of British Industry (CBI) and business generally. I also acknowledge the huge importance of the CBI in every part of the country.
Whatever your perspective, my background and business experience gives me a take on this role in government which differs from many others: a fundamental belief in the need for wealth creation and a vibrant private sector, necessary now more than ever.
In addressing you tonight I want to share some thoughts about the economy, the public finances and the next steps for devolution.
I come from the opposite end of Scotland but I know that the North East is at the forefront of Scotland’s economy and makes a disproportionately large contribution to creating the country’s wealth.
You are the leaders in an economy which is vitally important and in which value added per head is the third highest in the UK, behind Inner London and the combined efforts of Berkshire, Buckinghamshire and Oxfordshire, not bad company to keep.
I appreciate that the North East economy is now more diverse than ever, with a mix of new and established sectors. The major economic driver of oil and gas still contributes £47 billion annually to the UK economy while financial services and retail add significantly to the region’s value add.
People elsewhere in the UK can easily grasp the importance of Total Upstream UK and John Wood Group but firms like Walkers, Baxters and Mackies contributed to the 30% rise in Scottish food and drink exports to the rest of the UK over the past three years.
Other indicators are favourable too. Aberdeen’s economic growth to 2014 is projected to be above the Scottish average. In achieving that, I understand the importance attached to improved transport and digital infrastructure in maintaining and expanding Aberdeen’s buoyant diverse economy.
There is, of course, the small matter of the state of the wider UK economy. The North East’s prosperity if we do not get a firm grasp of public finances, would be in danger. The International Monetary Fund drove that point home in their report yesterday, when they said, ‘The government’s strong and credible multi-year fiscal deficit reduction plan is essential to ensure debt sustainability.’
Dealing with the deficit
The coalition inherited a record peacetime deficit in May. A 155 thousand million pound black hole.
Last year, one pound in every four spent by government was borrowed.
Unless we tackle debt and reduce spending, we run a real risk of higher interest rates and the end of the recovery.
The deficit is too costly and too dangerous to ignore. It’s irresponsible to pass the debt and the spiralling interest costs to our children and their children. What a lousy legacy for future generations. Not that great for us, either.
If anyone seriously doubts it, the crises in some Eurozone states shows the dangers of delay. Just as the coalition was being formed economies were melting in the Mediterranean and UK net borrowing as a percentage of GDP this year is higher than Greece.
So long as the threat of a debt crisis hangs over our economy, Scottish business cannot prosper.
We are moving forward with our fiscal programme. Through the in-year spending review, the budget and the spending review. Moody’s, the international credit rating agency, has given our measures to stabilise the economy a vote of confidence. Last week they confirmed that because of them the UK had retained its ‘Triple A’ rating.
And as the IMF also said in yesterday’s report, the coalition’s programme ‘greatly reduces the risk of a costly loss of confidence in public finances and supports a balanced recovery’.
We will make tough choices and we will see them through. Not because we want to. Not because we enjoy it. But because we must.
The budget provides the firm fiscal foundations to eliminate the structural deficit and get the net debt falling by the end of this Parliament.
The private sector has been taking tough choices for the past two years and cutting costs accordingly. Government must now do the same. Public spending must be brought back under control. Government must learn again to live within its means.
Our challenge is to do this fairly. We will. That is our commitment to the Scottish people and to people across the rest of the UK too.
This summer’s emergency budget dealt with the deficit fairly. Yes there were cuts. But that budget also lifted 90,000 low paid Scots out of income tax, altogether.
We know we must tackle the factors which have caused welfare spending to rocket by 45% since 2000. Helping people back into work is essential. And we must not penalise them when they do. That has to be part of the deal.
Rewarding work is central to our plans. From next year the new Work Programme will replace the various complex back to work schemes currently in place. We will make work pay.
Over the next few weeks, the main focus will be on the Spending Review. That is understandable. Building on the budget’s foundations, it will prioritise areas which support private sector-led recovery.
It will make us think differently about our public services and how we deliver them. It is a once in a generation opportunity to reform the way government serves us: at every level. And the private sector will be central to many of the solutions which emerge.
Devolution does not mean Scotland is exempt from belt tightening. A decade of devolution has seen the Scottish Parliament’s budget double to £30 billion.
Now for the first time it will be cut. This presents challenges and we must rise to those with new ideas and solutions for Scotland.
And you know, people get that. The 100,000-plus suggestions submitted through the online Spending Challenge help us see where people think savings can be made. Some ideas will be relevant to devolved policy areas and I hope that the Scottish government will be open to them. Certainly, at Westminster, we are committed to taking the top rated ideas forward as part of the Spending Review process.
Alongside this process, the Strategic Defence and Security Review marks a major re-assessment of our defence priorities. It is founded on the defence needs of the United Kingdom and focused on the military and industrial capabilities we need to serve our national security interests.
Defence is an important issue for Scotland, and particularly for the North East, as I have seen at RAF Kinloss and Lossiemouth today. As Secretary of State for Scotland, I am taking every opportunity to make Scotland’s case. That’s what I did today at Kinloss when I participated in a video-conference with the Defence Secretary and Ministers representing Scotland, Wales and Northern Ireland.Of course, this is not about defence capability alone. Many businesses in the region make a critical contribution to the defence industrial supply chain, too.
The coalition is not just about dealing with the deficit and implementing cuts. Our ambition is to be a business-friendly government, creating the right environment for firms to flourish.
As I said at the outset, only private sector prosperity can drive the growth needed for sustainable economic recovery in Scotland.
Our goal is to create the most favourable conditions for investors and business. We are striving to make it easier to establish, run and expand a business.
The budget signalled our clear intention for a private sector led economy, setting out our plans to cut red tape and simplify the tax system. We recognise the need for a flexible and competitive tax regime, particularly for global sectors like oil and gas.
But everyone should benefit as the rate of Corporation Tax is reduced to 24p in the pound by 2015, Employer National Insurance contributions thresholds are increased, and 59,000 new businesses in Scotland are exempted from part of their contributions.
I know this is not the whole story. As I travel across Scotland I am told that viable firms are still finding it difficult to obtain finance from the banks.
The supply of finance has to support recovery, not restrict it.
Working with business and the financial community, government is looking urgently at options designed to help firms access the finance they need to grow. We are focused on practical measures such as the extension and expansion of the Enterprise Finance Guarantee scheme.
I know country’s most senior bankers are starting to get the message. When I speak to them I see a recognition that expectations, and the regulatory environment, are changing and we are demanding more of them. We will keep up the tempo.
Things are tough, but there are positive signs too.
Recently we have attracted inward investment to Scotland from Hewlett Packard, Barclays and Virgin Money. We must build on this success.
This region has attracted significant inward investment and has been hugely successful in export markets. Companies like Ace Winches, the Banff-based deck machinery specialists, have reported significant export-led growth. They are not alone.
But a worrying imbalance still exists across the country. North of the border, Scotland has 8% of the UK’s VAT-registered businesses, but only 5% of its exporters. So I will work hard to assist aspiring Scottish firms to internationalise.
We can learn much from the oil and gas sectors here in the North East. Not just about exporting, but about the innovation that lies behind that, too.
It is not just about oil and gas, of course: from Aberdeen’s two world class universities we see companies spun out which are geared to competitive, high growth low carbon markets. The University of Aberdeen and Robert Gordons, Scotland’s University of the Year, are great ambassadors for Scotland’s knowledge economy.
That insight and leadership will be vital as energy efficiency and renewables offer the North East, with its North Sea expertise, tremendous diversification opportunities.
We’re committed to being the greenest government ever. Through the Green Deal, together we can cut emissions, cut bills and generate thousands of jobs insulating homes and businesses nationwide.
Meanwhile Scottish Renewables recently suggested that by 2020 offshore wind alone could create nearly 50,000 jobs.
We have the raw renewables. But to realise this potential Scotland’s two governments must work alongside business to press home our advantages.
That’s just one reason why we are fostering a new climate between Westminster and Holyrood. It is our declared intention to work together constructively for Scotland’s benefit. In these economic circumstances, you are entitled to expect nothing less.
Finally, let me turn, briefly, to the next chapter in Scotland’s constitutional future.
Our position is clear. We are on course to deliver the pledge contained in the coalition programme and in the Queen’s Speech to bring forward a Scotland Bill to strengthen the devolution settlement.
Managing this Bill through Parliament will be the Scotland Office’s big legislative task.
The Scotland Bill will make the Scottish Parliament more financially accountable. And I know business likes politicians to be financially accountable.
Decisions to increase spending at Holyrood will go hand in hand with corresponding changes to taxation levels in Scotland. The Scottish government will have to make choices between different levels of taxation and spending. The ‘London imposed cuts’ rhetoric is all a bit too easy. The Scotland Bill shifts that responsibility.
You probably have worries about the operation of the new tax system. I’d like to re-assure you. There will be some charges and some costs.
But while we will devolve control over 10p in the basic rate of income tax, we will not meddle with tax bands or allowances to create differences in Scotland. And we will ensure that the implementation is done in good time for 2015.
Crucially, the Scotland Bill is based on retaining the broader, unified UK tax system. Which means no separate tax system for Scotland. So avoiding the compliance difficulties this would lead to for businesses operating on either side of the border and the incentives this would create for avoidance.
We appreciate that the rest of the UK is the destination for 70% of Scotland’s exports and will ensure the continuation of the UK’s unimpeded single market.
The Scotland Bill offers Scotland a win-win scenario - financial accountability at Holyrood while retaining the benefits of being an integral part of the world’s sixth largest economy.
The CBI has played a key role in developing our thinking and is at the table working through the details with us. That will continue.
The coalition’s founding principles of freedom, fairness and responsibility underpin our vision of Scotland’s future.
It’s a new political era. The coalition was forged by cross-party agreement to tackle the deficit and other challenges we face. We’ll work across governments and parliaments too to achieve these goals.
To rebalance our economy towards sustainable, greener growth.
To strengthen devolution and reform our political system on the twin pillars of accountability and transparency.
I look forward to working with you to build a stronger Scotland.