Building prosperity through social solidarity and economic dynamism: First Minister's speech - 12 March 2024

Thank you Professor McCoy, for such a kind introduction. It’s a real pleasure to be hosted by LSE’s European Institute, which I gather is the largest centre for the study of Europe anywhere in the world – and, talking to you when I came in, you told me that you were from St Andrews - or just outside St Andrews - so I’m sure you will indulge me when I say that although the LSE is a world-class institution ranked fourth in the Guardian’s Best UK Universities 2024, the university that is ranked top is in Scotland - your home town, of course, of St Andrews.

Professor Begg, of course, a Scot as well – from the Kingdom of Fife, from what I gather, as well – so it just reminds me of that famous saying of course that there are two types of people in the word – Scots, and those who want to be Scottish.

There is the third of course - those who lack any ambition whatsoever – but we shall look over those individuals.

It is a real pleasure to be here. It is the UK’s relations with Europe and Brexit of course which in many respects will form the backdrop of my remarks today.

But I will start off with another “B word”, if I may – not that one, but the word Budget.

It is the Scottish Government’s view that the UK Government’s budget is one that sacrifices public services such as the NHS to the expense and favour of unsustainable tax cuts. The NHS, unarguably, our most precious institution; the NHS, which political leaders stood on their doorsteps and applauded, and which political leaders in the UK Government promised to give their support to during that institution’s hour of need.

But instead of investing in a public services, what we have seen from both the Autumn Statement and the most recent Spring Statement is tax cuts worth around £1,500 if you take both statements together - tax cuts of around £1,500 for those on an MP’s salary, at the expense of investing in public services.

That, to me, is a demonstration of the wrong priorities.

In its coverage, the Financial Times warned of a “brutal fiscal reckoning” for whoever forms the next UK Government.

The current UK Government has now held two so-called major “fiscal events” in the space of just a few months.

To have two such events so close together does not – to put it mildly – seem like a sensible way of running an economy, or providing stability for business or indeed for industry.

Businesses, individuals – indeed, devolved governments - shouldn’t be subject to such a volatile environment.

But these events are damaging in a more fundamental way.

The speculation, and then reaction, around changes to tax in particular, mask a deep-rooted  - or indeed, to mix my metaphors – a hard-wired problem with the UK economic model.

Ed Balls, the former Labour Cabinet minister and adviser to Gordon Brown, who is now joining an ever-increasing list of podcast hosts. As an aside, if only we could grow the economy at the same pace as the ever-increasing list of middle-aged men that are hosting podcasts, we’d be on to a real winner – but let’s put that to the side for a second.

Ed Balls – he summed up the key issue recently when he wrote and asked the question: “why doesn’t the British economy grow anymore?” That’s the exam question – “why does the UK economy not grow anymore?”

When he was still in front-line politics Ed Balls delivered what was quite an erudite, celebrated speech warning about the austerity path his opposite number and, now of course, his podcast partner, George Osborne, had set the UK on.

The policy direction, he said, was wrong. He described it as reckless, and he described it as dangerous.

And he was, of course, correct.

And we are still living with the disastrous consequences of those cuts today.

That speech was delivered in front of an audience at Bloomberg.

A few years afterwards, Bloomberg then hosted another senior politician for a major speech.

That politician was the then-Prime Minister, and now Foreign Secretary, David Cameron, when he promised a referendum on the UK’s membership of the European Union (EU).

The words wrong, reckless and dangerous come back to mind.

Brexit and austerity seem like pretty good candidates in terms of the answer to Ed Balls’s question on why the UK economy doesn’t grow anymore.

But it is my contention that the problems with the UK economy go much further – much deeper – than the recent poor, catastrophically poor, decisions such as leaving the EU.

So today I will outline the characteristics of what for far too many people is a failed and failing UK economy.

I’ll set out why, regardless of the result of the next UK election, the failure is likely to continue because of this really damaging, Westminster consensus that refuses to take a different path, despite all of the evidence that is in front of us.

And before that sounds too gloomy – nobody wants a gloomy Scot by any stretch - I will also try to make the case for what I think is a better, more optimistic future – for Scotland, yes, but also the positive impact that could have on the rest of the UK.

That, after all, is surely what political leadership should be about: it should be about building the better future for the people we serve.

It’s why I believe in what will not certainly be headline-grabbing, or a surprise to anybody, why independence is so important.

Why independence is so important for Scotland.

Why it is the path that will deliver a better future, not just for the people of Scotland, but also I believe will have impacts for the rest of the UK.

So let me turn now to the first point I would like to cover: the failure of that UK economic model, which, as I described earlier, is hard-wired..

As I say, the UK economy is characterised by low growth, we know that.

It fell into recession last year.

Real wages have been stagnant.

Inequality is far too high.

Productivity growth – the key driver of living standards – has been poor.

Business investment is low.

Public capital investment has also been both low and, indeed, volatile.

And, as so many have highlighted, the UK displays a remarkable persistent level of geographical inequality, with an unhealthy and unstable reliance on this wonderful city, but on the city of London.

This all supports the conclusion of analysis that has been published in the Financial Times, which described the UK as a “poor society within pockets of rich people.

It’s even been argued that UK economic performance has been so poor it has now completely decoupled from the economic development path of other wealthy comparator countries.

Indeed the Shadow Chancellor has said she will inherit the worst economic conditions of any incoming UK Government since the Second World War.

As an aside I have to say that is a far cry from the future that was promised to Scotland by those who opposed independence in 2014.

Back then it was the alleged strength of the UK economy that was trumpeted at the time.

Ten years on – a decade later - and that talk instead from those very same people is of complete UK economic catastrophe and carnage.

So the problem is this: a UK economy that has failed the very people that it is meant to support.

So what then about the solution?

And that’s where my view – and it’s a view that is shared now by many others – is that Westminster-based parties’ response to the problem falls woefully short.

So if we accept the analysis that this is the worst economic situation and conditions since the Second World War we might expect a serious, transformative, radical, bold policy proposition in response.

But despite some fierce political rhetoric what we have now, even in the face of such dire economic diagnosis, is in effect a “no change” consensus.

And consensus and consistency are usually good for business.

In theory they provide stability.

But not if that consensus is taking the country in the completely wrong direction.

Keeping on a steady course to hit the iceberg isn’t exactly the way to provide stability.

There is also, I believe, a consensus north of the border.

But it is a very different one to that which we see in Westminster.

That means that we have two fundamentally different futures on offer to the people in Scotland.

And that in turn begs the question - who should decide that future?

Should it be decided by people in Scotland, or by the UK Government at Westminster?

So let me compare the propositions, with the change agenda that I believe that most people in Scotland will favour.

Amongst Westminster-based parties there is a consensus that the UK should stay both out of the EU and the huge European Single Market – whatever the cost.

The National Institute for Economic and Social Research suggests that compared to EU membership, the UK economy was 2.5 per cent smaller in 2023, and it expects that figure to rise to 5.7 per cent in a little more than 10 years’ time.

That means £69 billion could have been wiped from national income in 2023 – that equates to around about £28 billion in tax revenue.

Our population share for Scotland of £2.3 billion.

Around 60% per cent of spending in Scotland is on devolved services.

So if you take the same level of borrowing and the same level of taxation, that means without Brexit devolved spending power for vital public services such as the NHS could have been £1.6 billion higher in Scotland than it is today.

So, in other words we have suffered – our institutions have suffered, our public services have suffered, and – ultimately – our people have suffered to the tune of £1.6 billion that could have been invested in Scottish public services because of a Brexit that, remember, Scotland overwhelmingly rejected.

So looking to the future, The Office for Budget Responsibility says that the UK’s potential GDP is expected to fall by 4 per cent in the long run because of Brexit.

As Professor Anton Muscatelli, who is an economist and also the principal of the University of Glasgow has said that, such a GDP reduction has “a massive impact on either funding public services or cutting taxes, depending on your political inclination”.

So in Scotland, in contrast with the view at Westminster, I believe that there is broad agreement that Brexit has damaged the economy, damaged public services, and that it should be reversed.

But the differences between Westminster and the Scottish consensus goes much further than Brexit.

At Westminster there appears to be agreement that public investment will have to fall as a percentage of national income over the next Parliament.

The Scottish Government wants to increase our public investment.

Of course, increasing public investment can also help to stimulate the economy.

Whether that is in capital infrastructure, which of course creates jobs, or investing in free childcare which helps parents – especially women - to get back into work.

At Westminster it feels there is no appetite, no urgency, no great desire, to tackle inequality which is so entrenched within our society.

There is agreement for example that the two-child cap should continue.

In Scotland we want it scrapped. If it was scrapped, this one measure alone is estimated to lift 250,000 children out of poverty.

250,000 children lifted out of poverty across the UK virtually overnight, if once policy change was made.

At Westminster there is an agreement that tax rates on high earners should not be raised to help pay for public services.

In Scotland we’ve put in place a more progressive tax system, which unashamedly asks those who earn more to pay more – to invest in public services.

And in a highly symbolic but instructive move there now seems to be agreement that the cap on bankers’ bonuses should be lifted.

So no lifting of the two-child cap – but the lifting of the cap on bankers’ bonuses.

Because of this, the UK is destined to remain a low-growth, low-productivity, low-living standards, high-inequality economy with an over-concentration of its wealth in this fine city that I’m speaking to you in today.   

So now, you’ll be pleased to know, for the optimistic bit  - and I did promise you it was coming - what we can do in Scotland and what that can mean for the rest of the UK.

And there is indeed grounds for optimism – in fact, grounds for real hope.

The first thing to say is this: given the state of the UK economy and the impact on living standards the economic argument in favour for independence in my lifetime I have to say has never been stronger.

It is my duty, of course, as First Minister, to lead a government that’s dedicated to improving the lives of people in Scotland, to set out what is a better future.

Because if we don’t win this argument people in Scotland will be locked – trapped - more tightly into that failed Brexit-based economic model.

So winning the argument for independence and achieving independence, for me, is more essential, more urgent, than ever before.

And at the heart of this argument is the very idea that in Scotland, decisions about Scotland should be made by those who live in Scotland.

At present it is UK Government that controls the macroeconomic policy, it controls migration, it controls employment policy, it controls competition policy, it controls most business taxation and a number of social security powers, trade policy, borrowing powers, our formal relationship with the EU - and a range of other policy interventions that drive economic outcomes.

So it is therefore absolutely inevitable that with so much of the Scottish economy under control of the UK Government that growth in Scotland will tend to follow growth in the UK as a whole.

But that doesn’t mean that we shouldn’t – or can’t – do nothing – we do act.

In fact it means we have to work that bit harder, that bit smarter, with the limited powers that we do have.

And we have made a difference.

Since 2007, GDP per person has grown by 10.8% in Scotland, that’s compared to 5.6% in the UK. Productivity, while still not growing at the rate we’d like, has grown at an annual average rate of 1 per cent a year, compared with the UK Government’s 0.5 per cent a year.

Just yesterday a key survey showed that private sector employment growth in Scotland last month was faster than any other region or nation in the UK.

And as a country we have got many advantages: extraordinary energy resources, world-class universities, a thriving food and drink industry, a great tourism offer, and we are leaders in areas such as small satellite building – industries of the future.

I could spend all afternoon – hours in fact - talking up where Scotland has economic advantages that are unique perhaps to Scotland, certainly in a UK context.

But there is one area that I was very keen to concentrate on in particular – a success story that I am very keen is heard here in London, right across Europe, the US and elsewhere.

And that success, that we’re driving forward with, is new, high-growth tech firms.

Companies such as Blackford Analysis, which uses the power of artificial intelligence to improve patient outcomes.

Intelligent Growth Solutions, a company whose approach to precision farming is at the very forefront of the push to deliver global food security.

Through our Techscaler network of start-up incubators, we are well on our way to delivering one of the finest state-funded systems in Europe dedicated to entrepreneurialism and dedicated to the creation of high-growth businesses.

The programme is a game changer for our start-up community and it has rapidly accumulated over 500 member companies.

We have just opened our first Techscaler hub in Silicon Valley to help promising start-ups from Scotland build contacts with international investors and customers.

And there is a key point here that I want to stress.

The exceptional entrepreneurial activity taking place in Scotland – backed by Scottish Government funding -  is happening alongside, hand-in-glove I would suggest, with our commitment to building a fairer society.

To me they are two sides of the same coin.

So just as we put money into encouraging high-growth tech firms we are also investing substantially in interventions like the Scottish Child Payment: £25 per week, per child for eligible families to help them out of poverty, and that’s going to be increasing in just a few weeks’ time.

 

And as well ensuring children in Scotland have opportunity, the child payment is also a hard economic policy - boosting spending power in local communities.

So our approach is about encouraging economic dynamism alongside social solidarity.

But none of this should obscure the reality of our position as part of that Westminster consensus on the economy.

This can clearly be seen by the stark gap between the performance of the UK economy, which as I said Scotland tends to mirror, and the performance of independent European nations that are comparable to Scotland.

If Scotland became even a little bit more normal in terms of living standards, again in comparison to other countries of our size, then the gains could be substantial.

One of the strangest aspects of the political and economic debate in Scotland is that opponents of independence seem completely uninterested in how we might reach that kind of normal economic performance.

We are told, all the time, that it is just mere fantasy.

But it is never adequately explained why.

Why is it a fantasy for an independent Scotland to achieve the levels of living standard that countries like ours simply take for granted?

The economist David Skilling has written extensively about the reasons for the remarkable success of small advanced economies.

Among them are strong political institutions supported by high levels of trust in decision-making.

They are flexible.

They demonstrate high levels of international competitiveness.

They tend to invest heavily in the future – from infrastructure to research and development.

So there are general lessons, many of which we are trying to follow.

In the case of one of those countries - Ireland - there is a particular lesson for Scotland.

The Irish economic historian, Professor Kevin O’Rourke, cites various factors for Ireland’s dramatically improved economic performance from around the 1990s.

“Underpinning everything”, he says, “was two crucial factors: our political independence, which allowed us to adopt a policy mix well suited to our own circumstances;” but also, crucially, “our membership of the European single market, without which none of this would have worked.”

So on this analysis the policy flexibility of independence and of EU membership were key to Ireland’s take-off.

And the more Ireland diversified its trade, opened up to capital inflows, the wealthier it has become.

So for those who argue that decisions about Scotland’s economy are best made by the UK, the evidence just doesn’t stack up.

The Scottish Government is therefore currently setting out our economic plan for an independent Scotland in a series of speeches and papers we are calling the Building a New Scotland series.

We are keen to engage the widest possible debate.

And we’ve set out our proposals for example to re-join the EU.

We’ve demonstrated how EU policy and aspirations would benefit from Scotland’s renewable power and energy and our carbon capture potential.

An independent Scotland will have access to oil revenues, full borrowing powers, and we’d use those to set up a special fund – a building a new Scotland fund - to boost infrastructure, to boost renewable energy projects, housing and other infrastructure projects that are vital to economic growth.

Imagine we had the powers of migration - we could set up a system that is tailored to Scotland’s distinctive needs. The migration system of the UK is one of the most self-harming policies that I have seen over the years.

So, in short, we want to attract more skilled migration to Scotland to help fill the vacancies in both the public and the private sector.

So, for example, as part of a new, comprehensive welcoming system, we would introduce a new five-year Scottish Connections visa for graduating international students.

We would remove the minimum income requirement for family migration.

And as part of the EU we would of course once again benefit from that freedom of movement right across the EU.  

We could use employment powers to help to reduce the inequality which the OECD and others argue can drag down growth.

And we would also be able to abolish anti-trade union legislation and develop a national action plan for bargaining right across the country.

Soon we will be able to set out further proposals on encouraging more entrepreneurs to do business in Scotland as well.

A crucial aspect to all of this is an idea that isn’t particularly headline-grabbing, that is building stable, long-lasting institutions and government departments that can drive that new Scottish economy.   

Ultimately whether we succeed as an independent country or not will be determined by the decisions we take and the hard work and the talent of our people -  just like any other country.

For the UK too, there will be positive benefits from a Scottish vote on independence.

We will always be the closest of friends and the strongest of allies – well have that social union, that cultural union, that we will also enjoy and that will always be familiar to each of our peoples.

But we’ll also enjoy a better political relationship; one that’s based on a partnership, but a partnership of equals.

In the context of the economy, I have described the damaging consensus which is taking both Scotland and the UK in the wrong direction.

To end, people are crying out for a hope – they need political leadership. Political leadership that offers an alternative to the absolute, abject misery that they have endured – not because of anything that they have done, but because of decades of economic mismanagement, 14 years of austerity, Brexit and a cost of living crisis that they didn't contribute to.

They need political leadership that offers that alternative. I can offer that change - with a bold policy platform that says economic dynamism and social solidarity absolutely go hand-in-hand. If we do that, then we can create that growing, fairer, greener economy that will ensure greater prosperity for all of our people. Thank you very much.