Investment Association Conference: Deputy First Minister speech

It is a pleasure to be here, and to see so many of you here today. It speaks to the good work of the Investment Association, and also to the importance of the investment management sector to Scotland.

We know that investment management is a strategically vital sector, employing 125,000 people and managing over £9 trillion.

And we’re proud that Scotland more than punches above its weight. Edinburgh is the UK’s second largest centre for asset management, managing some £490 billion, and the Scottish industry employs over 13,000 people.

And what I love to see is that footprint continues to grow. For example, I am pleased that Blackrock will soon be moving to larger premises in Edinburgh and significantly increasing headcount.  I was that trend to continue.   

But my interest in the sector is not only as a provider of highly skilled and well-paid jobs - important though as that is.  My interest, is to secure more investment, including the investment that your organisations manage, into Scotland.   

Increasing the level of private investment into our economy is not just something I think would be nice to achieve, it is essential to our objective of growing the economy, for our shift to net zero, for eradicating  poverty, and, vitally, for improving our public services. Without more investment and the growth it can catalyse, we can achieve none of those goals. 

The UK as a whole – and Scotland is no exception - needs to far more, and needs to do far better, on attracting investment. For many years, low levels of investment have held back growth. 

At the same time, fiscal constraints and austerity have limited the ability to stimulate private investment through public expenditure. This is particularly true in Scotland, where the economic levers at our disposal are more limited. 

So it was very heartened to hear the incoming UK Government saying that increasing investment is a key priority,

The emphasis on investment in the Chancellor’s recent Mansion House speech was very welcome, and in particular her announcement of reforms to pension funds to deliver new investment potential.       

But I want to talk today about what we need to do, and what we are doing here in Scotland, to address the challenge of low investment.  Because, while we have a strong record in attracting foreign direct investment, as the most attractive UK location outside London for almost a decade, I am very clear that we need to do more to attract private capital at scale. 

Before I do, though, let me emphasise one vitally important point.   I understand, and the Scottish Government understands, that, if we want to see increased levels of private investment, this will require a return on that investment commensurate with risk. Our job is to provide clarity and the consistency that you need to reduce that risk.      

The backdrop to the new approach I want to outline today was the report of an expert panel convened and co-chaired by Angus Macpherson, to look at how Scotland can best attract capital to support the transition to net zero.   

That report, published almost a year ago, pulled no punches. It said that if Scotland was to be an effective, investor-friendly nation, we needed to be:

• clearer in its strategic direction;
• better at engaging with investors; and
• swifter and more sure-footed in supporting delivery.

We got the message.  We accepted all of the recommendations of the Investor Panel. And we got to work.    

To provide more clarity, this summer we published our Green Industrial Strategy, which sets out how we can grasp the opportunities of the global race to create the products and services which will power the net zero economy. It is focused on five key areas where Scotland has the strengths and sources of comparative advantage to compete internationally. They included the wind economy; carbon capture; hydrogen; green financial services; and clean energy-intensive industries.

Alongside that we continue to roll  out our Offshore Wind Investment Programme - £500 million over five years to stimulate private investment in port infrastructure and other opportunities to anchor our supply chain in Scotland.

That programme draws on the priorities of developers and investors and is being delivered jointly by the Scottish National Investment Bank, Scottish Enterprise and Highlands and Islands Enterprise.  

I expect to see the first investments under the programme to be announced in the coming weeks as the programme gathers pace. 

I want to underline just what a crucial role the Scottish National Investment Bank is playing right now as Scotland’s “impact investor” - not only on offshore wind, but right across our economy – to date, the Bank’s investments of £650 million have “crowded in” some £1.4 billion from others. During challenging public settlements, we have prioritised this funding, for these reasons.

Meanwhile, on housing, we recognise the scale of the challenge that we face, right across the country. And we are very clear that private investment will be a critical part of the solution. So this spring, we set up a focused task force, chaired by the Housing Minister, bringing together the interests of investors – some of them represented here today - and investees, to identify practical actions to unlock existing and new development.  You’ll already have seen a range of measures to accelerate planning for housing and remove some of the barriers to progress.

And in the  Programme for Government, we committed to deliver a co-ordinated programme to attract capital investment at scale in three priority areas – net zero, housing, and public economic infrastructure – and to align the whole of government and its agencies in support of that aim. 

Our programme has three key strands.

The first is establishing an integrated national pipeline of strategic investment opportunities, drawing on the detailed, on-the-ground information and expertise held by our delivery bodies. 

That informs a targeted approach to engagement with key investors; and will help us to identify and tackle potential blockers to investment that you are identifying.

The second strand is a new approach to investor relations. Work is in hand to streamline and professionalise the public sector approach to engaging with key investors and project sponsors.  

This includes reviewing the roles, responsibilities and capabilities of the different players. We have improved our internal wiring.  

Our goal is to deliver  a more agile and seamless response from “government” as a whole to investors or developers who wish to discuss specific opportunities.  To  understand investors’ needs and priorities better. And to build far stronger relationships. 

In that context, we have established a dedicated  “gateway” for investment enquiries – investment.finance@gov.scot. So if you want to speak to us about a new investment proposition, and are not already in touch with the relevant officials, please use that new gateway.  

Over the coming months, we will establish a new “investor portal” as a single “shop window” for current opportunities. 

The third strand of our programme is to look at how we use  financing models and instruments in the most effective way to de-risk and attract new private investment. For example, we are working with the  Scottish National Investment Bank and others to consider how public sector guarantees could best be used.  We are identifying projects that could be suitable for revenue financing or public-private partnerships. And we will continue to progress at pace  our work on a Scottish Bond, for which I believe the case is extremely strong. 

In all of these areas, we will engage widely with the investment community, including those represented here today.

Quite clearly, success requires more than a high-performing Team Scotland; It will also require collaboration with the UK Government - particularly on regulatory issues, where many of the levers lie with Westminster – and strong partnerships with  institutions like the new National Wealth Fund and the Office for Investment. 

The early signs from the new UK Government of its willingness  to collaborate have been encouraging and I can assure you I have recipricated.  And there are some good existing examples of co-operation to point to –  including partnership of the Bank and UKIB in support of the £400 million project to redevelop Ardersier.  But we need to build on those successes, and quickly.

And, in the light of the Chancellor’s planned pension reforms, we also need to consider whether there is anything we could or should do in Scotland to encourage more public and private sector pension investment into Scottish projects and Scottish businesses through private capital funds.   

The programme I have sketched out spans many areas within the Scottish Government; and it calls for a collective effort – always easier said than done.  But it also requires focus. So the First Minister has asked me to take on a cross-government leadership role as the Scottish Government’s “investment champion”. 

In that role, I will be engaging personally with investors to discuss key opportunities.  I have spent recent months doing just that – including a number offshore wind developers, to showcase our potential, and demonstrate our commitment to create the conditions to stimulate the large-scale investment we will require to realise it. 

And building on these and other discussions over the coming weeks and months, next spring the First Minister and I, together with colleagues, will host a global offshore wind investment forum here in Edinburgh. 

Within government, I see my job as tackling barriers and blockers to ensure that the system as a whole works cohesively, effectively and quickly, to support investors and to deal with issues as and when they arise. 

To support this work, we are establishing a new Cabinet committee to co-ordinate activity; and setting up a focused Investment Unit, working to me, to identify and tackle problems; challenge where needed; and work across boundaries to ensure that the system delivers more than the sum of the parts.

One important feature of an investor-friendly government is being alive to the implications that policy may have for the investment environment. One such issue is rent controls.  That is why, in response to some of the concerns being raised,  we have changed our position in the draft legislation before Parliament; and why, we will be consulting on how the new system will be implemented, to ensure that it strikes the right balance between vital protection for tenants and the need to attract investment into the private rented sector, and to ensure certainty.

We have also heard calls from investors and others for the introduction of Land and Buildings Transaction Tax reliefs to help unlock greater investment in Scottish property by certain types of collective investment vehicles. 

Decisions on tax are of course for the Budget next week, and you won’t be hearing exclusives today! But I do want to be clear that we are listening carefully to the points which investors have been making, we welcome the evidence that has been provided have provided to support their arguments, and we are determined to ensure that Scotland remains a competitive environment.

In that same vein of remaining competitive, I am also concerned by the UK Government’s recent changes to employer National Insurance contributions.

Businesses across the country are planning their year ahead, and making decisions about whether they can afford to take on extra staff – or in some cases, whether they can continue to keep the staff they have. 

The UK Government’s decision could seriously harm economic growth here in Scotland – forcing businesses to rethink their plans to expand, denying opportunities to workers, and in some cases forcing small businesses to close altogether.

 So, clearly, there is a lot to be done.  In outlining the job of work in front of us, we must not lose sight of successes – like  Sumitomo’s £350 million cable manufacturing at Nigg, or Ardersier, or Copenhagen Infrastructure Partners’ plans for a  battery storage project at Coalburn, or Borders to Coast’s recent £48 million investment in onshore wind. We celebrate all of those successes.

We need to secure more of this scale, on a regular basis, if we are to realise our potential.        

So, we know what the challenge is. We need to do more, better, smarter, quicker. But we have a plan.  

Scotland has the talent, skills and resources in abundance to be a major player in the energy transition, and to secure a prosperous and sustainable future. And, as the Investor Panel put it, we have the “intimacy and devolved powers to make Scotland a globally competitive investment destination”.

Above all, we have a government determined to create an investor-friendly environment to seize our chances.

I am competitive. I want to win. And with your partnership, I believe that we can.

So - with the help of Scotland’s businesses, and the support of the investment community you represent - I am optimistic that we can rise to the challenge.