This was published under the 2010 to 2015 Conservative and Liberal Democrat coalition government
Vince Cable sets out the business case for Scotland’s continued membership of the UK in a speech to businesses in Glasgow.
I relish any chance to return to Glasgow - the place where I got to teach economics, raise a family and where I first became seriously involved in politics.
When I was last here, in March, I spoke at my old employer, Glasgow University, about how the Scottish and UK economies have actually been converging rather than diverging since I moved south in the 1970s. As a result, I argued, a victory for the Yes campaign would bring significant uncertainty and, more importantly, undermine the shared benefits which derive from a single currency, from the pooling of risk – addressing our declining oil stocks, for example - and from open, fully integrated trade within the UK. As a coda, I also offered my most deeply-held view that, these days, individuals are perfectly comfortable adopting multiple identities: Partick fan, Muslim, Glaswegian, Scot, Brit, European even. The era of exclusive identity is well and truly over; people living here can be proud and prosperous within their own community and country without an independent Scottish state.
Today, I want to develop my case for integration by discussing 2 further issues: first, the benefits we all gain from having a shared approach to long-term economic planning and investment; and second, the benefits which accrue to British workers from being part of a single, flexible market with a framework of labour rights.
Industrial strategy and Scotland
It was while I was living in Glasgow that a previous version of industrial policy was being tested as this part of the UK faced the contraction of its traditional industries: shipbuilding, its engineering supply chain, steel and coal.
From my position on the city council, I had a front-row view of how that played out in Glasgow - particularly when the Heath government decided in 1971 that Upper Clyde Shipbuilders was a ‘lame duck’ and refused it further state backing. I worked alongside union leaders in support of the ‘work in’ at the shipyards - and took part in the popular demonstrations that followed, as Glaswegians lent their support to the workers; Heath relented the following year and the yards survived following restructuring. However, the idea of propping up traditional industries became discredited in the 1970s, much money was wasted and the Thatcher era produced a strong swing in the opposite direction.
More significant for the evolution of my own ideas was my role in economic regeneration in Scotland. I worked with a group of MPs, including Bruce Millan and George Robertson, to lay the foundations for the Scottish Development Agency that launched in 1975. We took our cue from the success of the Highlands and Islands Development Board, as well as similar organisations in other countries. The Scottish Development Agency was a success – and it evolved subsequently into Scottish Enterprise, the only such body in the UK besides Northern Ireland.
Today, the pendulum has swung back again towards intervention – but a different, business-friendly kind from the past. The global crisis of 2008 demonstrated conclusively – if not for the first time – that financial markets are no strangers to irrationality and inefficiency. Politicians and business leaders in Britain have reached a consensus that they need to work together – as their counterparts in Germany have long done – to address the challenges posed by skills shortages, inadequate commercial finance, technological competitiveness and exports.
I have argued for some time – now, thankfully, with support from Cabinet colleagues and from all the major business groups – that our government must plan for the long term through an industrial strategy. Our major sectors – including aerospace, energy, life sciences – work to timetables which far exceed a single parliament. We all agree that, where clear market failures exist – as with skills or innovation capability – proper partnership between government and business can generate huge spill-over benefits. That partnership has found its most concrete form in 11 UK-wide sector-based strategies, issued in 2013 for those industries where the UK has the strongest prospects for growth and international success, and where a collaborative approach can be most fruitful.
Another result of the crash was to focus attention on the sectoral and regional imbalances within the UK economy, where there is a bias towards London and the South East. What we are doing is helping to rebalance the country in a way which is more helpful. Our industrial strategy is all about remedying those imbalances – and proof of that is readily apparent in this city and in other areas of Scotland.
Take life sciences, for example. The Edinburgh BioQuarter was already a leading UK cluster prior to the industrial strategy agenda – with support from both the UK and Scottish governments. In January, I was proud to open the Centre for Innovative Manufacturing in Continuous Manufacturing and Crystallisation at the University of Strathclyde. CMAC’s purpose is to develop manufacturing techniques which allow medicines tailored to individual patients’ needs to be produced in small quantities on demand. The centre involves researchers at Glasgow, Heriot-Watt and Edinburgh – as well as colleagues at Cambridge, Loughborough and Bath universities.
Strathclyde University is also home, I should add to the Advanced Forming Research Centre. Part of the High Value Manufacturing Catapult, it is a venture involving such firms as Rolls-Royce and Boeing, and focused on forming and forging technologies used primarily in the aerospace industry. Centres such as this will be involved in reserch and development projects delivered under the Aerospace Technology Institute. The £2 billion of joint government-industry funding for the ATI is, of course, open to aerospace suppliers based in Scotland.
Collaboration across the UK is surely the key here – as is the case with another recent initiative, a 4 year £23 million programme to improve the UK’s pharmaceutical supply chain, which has GSK, Astra Zeneca, Cambridge University and again Strathclyde among its partners. The UK research base and life sciences sector in tandem possess the critical mass to continue growing on a sustainable basis. That is also why, incidentally, we in government could not just be passive observers of the attempted Pfizer takeover of AstraZeneca, and insisted on a long-term commitment to research and development in the UK.
The same can be said of the UK energy sector and its supply chains. In the case of oil and gas – which supports some 450,000 jobs, nearly half of them in Scotland, and some of them within the Weir Group – the energy industrial council has both Whitehall and Holyrood ministers sitting on it. It is precisely this joint commitment which has encouraged investment by the likes of BP, who last year awarded over £1 billion in contracts to UK-based companies to provide services and equipment for the major re-development of its Schiehallion and Loyal oil fields west of Shetland. The critical long-term work for oil and gas is supply chain related; that’s where some 200,000 of the jobs are. The industrial council has just completed a mapping exercise to identify weaknesses – and will soon begin work to address them, especially the challenge of recruiting highly skilled staff.
But our future, as you all know, requires solutions beyond fossil fuels. The Offshore Renewable Energy Catapult – one of a network of centres built to bridge the gap between university research and full commercialisation – is headquartered at Strathclyde, with its operational centre at the National Renewable Energy Centre in the North East of England. It has funding of £45 million over 5 years to develop deep technical expertise and advance technologies for offshore wind, wave and tidal power. Like all the Catapults, it has a UK- wide remit, and strong links with other centres like the marine energy park in the South West of England. Scotland-based researchers tell us that they like being part of the new collaborative ventures associated with the Catapults; the rest of the UK, meanwhile, benefits from Scottish-based expertise.
What’s important about this industrial strategy is that embraces both sector-specific and more general investment in the economy: £24 million for a Smart Cities demonstrator in Glasgow, for instance – which is exploring methods for tackling fuel poverty and improving travel infrastructure, among other projects – and also new institutions to boost business lending more broadly. In particular, the British Business Bank, established to facilitate lending to small business, is making a substantial contribution to backing the recovery in Scotland. In the 12 months to the end of quater 1 2014, the Bank enabled £35 million of loans and investments to be made to Scottish firms – £20 million more than during the previous year.
More recently, in February, we launched start-up loans in Scotland, completing roll out of this UK-wide scheme. In its first 10 weeks, the scheme deployed nearly £600,000 to more than 140 businesses, with a further £100,000 approved and awaiting draw down to support a further twenty entrepreneurs. Already, Scotland has the largest percentage of loans made to people who were previously unemployed (93% compared to a programme average of 40%). And some Scottish firms, meanwhile, have received money from the Edinburgh-based UK Green Investment Bank, including Tomatin Distillery, near Inverness, and last month, Aberfeldy distillery in Perthshire to build biomass boilers. This investment will help them to create jobs, support the local supply chain in this important Scottish industry and reduce greenhouse gas emissions by around 80%.
It’s not just about government handing out money, though. Industrial strategy is characterised by commitments from business as well – from sitting down with us to making financial commitments of their own, whether to skills programmes, say, or investing in supply chain development.
Let me return now to the issue of jobs. The most recent figures show Scotland boasting its highest employment levels since records began in 1973. You have the lowest unemployment rate of the 4 UK nations. Since May 2010, when the Coalition came to power, unemployment has dropped by 40,000 – 54,000 lower than the peak in 2012 – and an extra 148,000 people are now in work.
This hasn’t happened by accident. The Coalition has taken various steps to make the job market fairer – to improve opportunities and minimise exploitation. Our efforts apply to Scotland as they do to Wales, Northern Ireland and England.
Job creation is among the Coalition’s key achievements. We’ve seen 1 and 3-quarter million private sector jobs created since 2010. Working-age employment now exceeds its pre-recession peak and is at its highest level ever. And where employment growth during the recession and in the early part of the recovery was largely driven by people pragmatically accepting part-time work or deciding to become self-employed, most of the increase over the past 2 years has come from the creation of full-time positions; that is a clear indication that demand in the economy is picking up.
The UK is beginning to hit historic highs in employment rates and people are working harder than ever before – with total working hours are at their highest ever level. This is remarkable, given the challenging economic circumstances of recent years and the UK’s ageing society. Among the most notable beneficiaries have been the most disadvantaged: single parents, disabled people and older workers. There are also a near record number of women now working in Scotland – 38,000 more over the past year.
This is not to say that there aren’t issues. Although UK take-home pay is the highest in G7 countries, and among the highest in the world, I’ve was concerned about falls in real wages, while inflation stood above its target level. Despite recent improvements – especially with youth unemployment, down 90,000 on the year – there are structural problems facing the under-25s, including those who do have qualifications. And we are currently formulating the government’s approach to certain abuses – particularly those zero-hours contracts which prevent people from taking work with other employers even when no work is available from the employer they’ve signed with.
And it’s not to say that there aren’t serious issues that persist on Clydeside. It’s almost 40 years since I contributed an essay on deprivation in Glasgow to The Red Paper on Scotland, a book edited Gordon Brown. There’s still a huge gulf between east and west in this city, in terms of income, educational attainment, even life expectancy. The unemployment rate in Glasgow is 10% – higher than the Scotland and UK average. All the more reason for voters here to consider the £1,400 annual dividend, highlighted by Danny Alexander last week, which Scottish people will hold on to by staying within the UK – allowing us all to better pool our resources and share risks.
Our goal continues to be decent jobs which cater to modern lifestyles and hold some promise of career progression. It is best expressed, perhaps, in our extension to the right to request flexible working and our introduction of shared parental leave: measures we have introduced in the UK Parliament in the past year. We will also not allow employers to take advantage of a weak labour market to impose poor, insecure conditions with minimal commitment to their staff.
Backing up that commitment has been the signal Liberal Democrat policy of raising tax thresholds, which has cushioned the impact of falling real wages; the personal tax allowance will increase again next year, taking another 25,000 low earners in Scotland out of income tax altogether, and leaving another 2.2 million Scots better off. By the end of the process, personal allowance increases will mean 263,000 Scots no longer pay income tax.
There has also been progress, on our watch, regarding the National Minimum Wage. Thanks to the minimum wage, earnings of the lowest paid have increased relative to average earnings – in stark contrast to the recessions of the 1980s and 1980s, when they fell – causing substantial damage socially. I have just accepted the independent Low Pay Commission’s above-inflation recommendation for the biggest cash increase since 2008.
Crucially, perhaps, the last few years have proven that a rising minimum wage can go hand in hand with rising employment levels. At my prompt for greater forward guidance, the LPC has expressed its confidence that we are entering a period of faster, real increases in the minimum wage, providing the recovery continues.
One last thing. Because people inevitably think about earnings in relative as well as absolute terms, pay at the top end of the market is also part of the story. I have put considerable effort into reforming executive pay processes, which are now starting to have an impact, as remuneration packages face more critical scrutiny and shareholder challenge at company AGMs.
It isn’t hard to see how these themes mesh: economic recovery, industrial strategy, jobs. To continue job creation – to raise living standards – across the UK, we need balanced economic growth, to maintain business confidence and to encourage investment. I don’t believe an independent Scotland can sustain these conditions as effectively and efficiently as the UK – nor can it represent our interests as forcefully in Europe.
Scottish businesses are better off with a UK-wide approach to industrial strategy that complements Scotland’s existing, wide ranging powers to promote economic development; UK-wide approach to public investment in science and infrastructure; with a flexible labour market operating under common rules that present no barriers to movement. This is precisely what business wants and needs, whether in Galashiels or Gillingham, Gateshead or Glasgow. It’s what will attract international investors to these shores. It offers the best prospects for long-term, well-paid, high-skilled jobs.
Let’s complete the task of economic rebalancing and recovery together. At which point, I want to thank the Weir Group for acting as hosts today. Your business has been a major force in Scotland for almost 150 years now – and is a great example to the world of UK engineering prowess. It understands the importance of being able to access expertise across the UK research base: from the University of Strathclyde, of course, but other institutions as well. Like others determined to preserve the UK, I welcome the clarity of your position on the value of maintaining the union.