National Economic Forum - November 2018: First Minister's speech

 

And I want to start my remarks, as you might expect, by focussing on three current crucial issues. The first is Michelin, a matter of enormous concern to people in Dundee; the second is Brexit; and the third is the Dundee and Tay Cities Regional Deal. However, I’ll use the last of those – the regional deal – to form the basis of a discussion about the huge potential for growth that Dundee and Scotland as a whole undoubtedly have.

 

And I’ll talk in particular about how recent policy developments – for example the enterprise and skills review – can help the public sector to work with businesses to fully achieve that potential.

 

But I’ll begin with a brief update about the situation in relation to Michelin.

 

Obviously the announcement a couple of weeks ago was a devastating blow to first and foremost, the workers in Michelin who have given so much to the company over a long period of time but also a blow to the city at an otherwise good and positive time for the city of Dundee. The Scottish Government, notwithstanding the disappointment of that news, continues to be absolutely committed to doing everything we can, working with the unions, the company and local council to secure a positive way forward.

 

Derek Mackay chaired the first meeting of the Michelin Dundee Action Group last Monday. It convenes again this afternoon.

 

The action group includes representatives from Michelin, the tradeuUnions, Dundee City Council, UK Government and manufacturing and business experts.  They are exploring all possible options, firstly to retain the plant in Dundee, and secondly for repurposing the plant, as a matter of urgency.

 

I’ve just come from a meeting with trade unions this morning to discuss the latest situation. We noted, finding a successful way forward for the plant will not be easy. But we agreed it is important we try and explore every option.

 

The government has already demonstrated in other situations that when it is necessary, we are prepared to take an active approach to help save jobs and preserve manufacturing bases. So, in the case of Michelin, none of us can guarantee success, but we can promise that we will do everything we possibly can.

 

The second topical issue that I want to mention is the issue of Brexit. The first think I want to say about the current situation is I understand and share the desire that I know all businesses across the country have of just wanting to see certainty and move out of this current phase of nobody knowing what lies down the track. And I strongly understand and share that view. I think over the next couple of weeks that we don’t allow ourselves, and by that I mean the House of Commons where these decisions will largely be taken, to be trapped in this false choice of accepting a bad deal for fear of ending up with no deal. I don’t think either of those choices are inevitable. Instead we should continue to work together to decide what is the best way forward for the UK as a whole.

 

And the key point I would make is this: the deal that the UK Government has agreed with the European Union is – very obviously – worse than our current position within the EU.

 

It provides for the UK and Scotland within it to leave the single market. That  is something which will do considerable damage to Scotland’s jobs and living standards.

 

By accepting within that agreement, the potential for a differentiated solution for Northern Ireland – which I should say we fully support because preserving peace and the Good Friday agreement in Northern Ireland is of paramount importance – while not considering the Scottish Government’s proposals for similar arrangements for Scotland, do run the risk of placing Scotland at a considerable competitive disadvantage in the future.

 

As First Minister I spend a lot of time talking to companies thinking about investing in Scotland or expanding their current operations in Scotland. Scotland does very well attracting inward investment but it is a competitive field and we be concerned about being in a situation in the future where companies can choose Belfast which would secure unfettered access to the European single market which they wouldn’t get in Dundee, Glasgow or Edinburgh. That would be a real competitive disadvantage for Scotland and something which is uppermost in the Scottish Government’s mind.
 
But perhaps the most worrying thing about the proposals which will be put before the House of Commons as things stand right now, is that it leaves everybody completely uncertain about the shape of our long-term relationship with the EU.
 
Most of the 500 pages that have been published are about the withdrawal agreement. There are only seven pages about the future relationship and most of the difficult issues that have dogged the discussions to date, are simply being kicked further down the line.
 
That means there will be many more years of negotiations before we know with any certainty what a future trade deal will look like, what immigration policy there will be or the shape of long-term customs arrangements.
 
It means, as things stand, that long-term uncertainty is hard-wired into the current withdrawal deal. That’s not something the Scottish Government believes we should accept.

 

But, it’s not enough at this stage to know what you don’t like about an agreement. There is a duty on those of us who think the current deal is a bad deal to come forward and coalesce around something better. I’ll be in London later this week trying to do exactly that.

 

The Scottish Government’s view is that we should continue to press for the UK to stay in the single market and customs union. That would be a solution which would respect the outcome of the referendum, largely resolves the Irish Border issue and mitigates the worst economic consequences of Brexit. So that is the position the Scottish Government has consistently argued for the last two and a half years and will continue to argue and will seek to build a coalition around in these coming days and weeks.

 

Now, if Brexit goes ahead – in any form – it will not be good for the economy. So that makes it all the more important that we do everything we possibly can to otherwise support the economy – to support business and boost growth.

 

And that leads me on to the third issue I want to talk about. The Scottish Government confirmed last month that we are prepared to invest up to £200 million in a Tay Cities Region deal. The UK Government has said that it will invest up to £150 million.

 

At the moment, we are trying to press the UK Government to increase their contribution to the deal to match the Scottish Government’s commitment. And following the Michelin announcement we are – of course – looking at all our proposed investments to make sure that they include the best possible options.

 

However, the deal will include significant proposals to improve skills and encourage innovation. It will also respect the importance of manufacturing by establishing strong regional links with the new National Manufacturing Institute for Scotland.

 

We expect to sign the heads of terms later this week, and we believe that when we do so, it will be really good news for this city. I hope the impetus created by the city deal can be further strengthened by the Tay cities regional economic partnership which is being formed – I know that the regional partnerships are the subject of one of today’s workshop sessions.

Dundee and the wider region have undoubtedly huge potential for growth. That’s the positive me must all focus on. The city deal will help us to realise that potential.

 

And that brings me on to the main topic I want to talk about this morning – the opportunities we have here in Dundee and right across Scotland. 

 

That’s something which is perhaps most obvious here at the Dundee waterfront.

 

The wonderful new V&A museum is the most obvious sign of the fantastic regeneration which Mike Galloway has done so much to spearhead – it’s the reason why this city was named by the Wall Street Journal as one of its ten “hot destinations” in the world for this year. To put that into context, Dundee was 5th – two places above Shanghai, and four places above Madagascar. That really is something for the city to be incredibly proud of.

 

But the V&A isn’t the only sign of transformation. Dundee Harbour more than a century ago was at the centre of the jute trade – goods were exported here all around the world. Now, the harbour is being used for assembling offshore wind turbines, and for oil and gas decommissioning work. A location which was part of Scotland’s industrial heritage, is now helping our transition to a low carbon economy.

 

And here at City Quay, studios such as 4J are a sign of Dundee’s international reputation for technology and for video games.

 

So when you look at some of the activity taking place within walking distance of this hotel – let alone the capabilities of businesses across the region – you can see that there shouldn’t really be any limits to our ambitions for Dundee or Scotland’s economy. We have immense natural resources, an international reputation in key economic sectors, we have world class universities and one of the most highly qualified workforces anywhere in Europe.

 

A key purpose of government, and of forums like this, is to find the best ways in which the public sector can work with businesses to realise all of that potential.

 

Many of our key policies are set out in our Economic Action Plan, which we published last month.

 

If we start with business taxation, Scotland currently has the most competitive set of business rate reliefs anywhere in the UK. We have given a commitment that we will maintain a stable and competitive business tax system going forward.

 

We also know that infrastructure investment – spending on road and rail links, broadband access, new buildings for universities, schools and hospitals – is crucial to business success. So we will steadily increase our investment on that.

 

By the end of the next parliament, investment in infrastructure will be £1.5 billion a year higher than it is now, taking Scotland much closer to the levels of investment in other G7 countries.

 

We are also supporting innovation. Last year, we increased our funding for business research and development by 70%. 

 

We are also establishing a national manufacturing institute for Scotland – which, as I mentioned, will feature in the forthcoming Tay cities deal.
 
And we have invested in a subsea manufacturing centre at Montrose – enhancing the capabilities of our oil and gas supply chain, and the marine renewables sector.

 

We have also found new ways to support innovative and ambitious companies. The Scottish Growth Scheme has now provided more than £100 million of equity funding to more than 60 different companies. Here in Dundee, those companies include Earthbound Games and 71 Brewing which is the first brewery in Dundee for more than 50 years. The next phase of the growth scheme will be opened up to companies before the end of the year.

 

And of course we are in the early stages of establishing a publicly owned Scottish National Investment Bank. Legislation will be introduced to the Scottish Parliament shortly. It will lend to projects which are in line with core missions set by Government – such as the transition to a low carbon society.  It will be supported with £2 billion of capital over the next decade – enabling it to provide patient finance to ambitious companies and important infrastructure projects. I absolutely believe that it will become a cornerstone of the economy we want to create in Scotland but really does have the potential to be transformational for our economy in the medium to long term. 

 

And there are two points worth making about this. We often talk about our economic vision for Scotland. We want Scotland in the future, as we have so often been in the past, the country that is inventing, designing, developing and manufacturing the key products and technologies that will drive the world in the decades to come – not just a country that is using those innovations developed elsewhere. Our investment in innovation will be crucial to achieving that ambition.

 

The second point is that the investment bank and the manufacturing institute both demonstrate our commitment to ensure that public sector support for businesses is as effective as possible.

 

Scotland already invests more than £2 billion a year on skills and business support. For enterprise and economic development specifically, we spend £100 a head more than the UK as a whole. That has already led to significant results. It’s one reason why we outperform all parts of the UK, outside of London, in attracting inward investment.

 

The scale of that investment makes it hugely important that we continue to get the best possible results from that expenditure.

 

That’s why we started the Enterprise and Skills review two years ago. As a result of its findings, we are planning to establish a South of Scotland Enterprise Agency – there was widespread agreement that businesses in that area required more specialised support.

 

And we also established a Strategic Board to ensure better co-ordination of the enterprise and skills agencies.

 

The board published its first strategic plan last month. It is based around four interconnected missions – skills, exports, business creation and business innovation. It contains 14 initial actions and 18 recommendations for ministers to implement. 

 

For example the plan contains proposals to improve our business start-up rate. That’s something which has been a focus of the Government for some time.

 

Through our Can-do framework, we support entrepreneurship in schools, we fund schemes such as Scottish Edge, and we work closely with businesses, with start-up incubators and with organisations such as Entrepreneurial Scotland.

 

One of the things which is most important about the strategic plan, is the emphasis it places – not just on helping start-ups, but also on encouraging companies to scale-up. So it looks at making it easier for businesses in every part of the country to receive the support they need. It also examines very specific steps – for example how we can help growing companies which want to buy overseas businesses. Taken together, it’s a set of actions which can help businesses to raise their ambitions and increase their scale.

 

The plan also looks closely at support for skills. This is hugely important for young people, which is why we implemented the recommendations of the Commission for Developing Scotland’s Young Workforce. But we also need to do more to retrain people of all ages.

 

The plan points out that automation will end some jobs, but create others. Retraining people is an absolutely crucial part of ensuring that nobody is left behind by technological change.

 

The Scottish Government is establishing a national retraining partnership.  It’s something which both the STUC and the CBI asked us to do. It allows businesses, colleges, trade unions and local authorities to work together to ensure that people can learn new skills, or improve their existing skills, at any stage in their working lives. It’s good for the individuals who retrain, and it’s good for the economy as a whole.

 

And the strategic plan also looks at internationalisation. Encouraging companies to look to overseas markets is more important now than ever before, given the issues raised by Brexit. That’s why we’re investing £20 million to promote exports – for example by supporting mentorships where businesses learn from companies that already have experience in exporting.

 

And the strategic plan sets out other proposals – such as a national exporting service for the enterprise agencies. It also looks at addressing some of the barriers which currently hinder businesses - for example, by helping them to get the sales skills they need to succeed in overseas markets.

 

The overriding aim of the strategic plan is to improve productivity. All of these initiatives are geared towards that. In recent years Scotland has had some success – we have largely closed the productivity gap between Scotland and the rest of the UK. Our aim now is to match the success of some of our other European competitors.

 

So we’re looking at how to support a larger number of businesses to adopt productivity measures which we already know work.

 

One project the Scottish Government is developing at the moment with SCDI is the establishment of productivity clubs – the aim is that businesses will learn from each other to improve managerial capability and to increase the take up of new technology and new processes.

 

All of this is really important – that we engage in all of this to ensure workplace innovation alongside fair work, which is such an important part of our whole economic approach.

 

So, in short, there’s lots to be optimistic about and there’s a lot of work being done to ensure we can realise the huge potential our economy has. This is going to take hard work and focused effort over the next number of years. But that work will be more successful if it is informed by the views of all of you which is why it is so important we have these forums to allow that contribution to be made.

 

So I look forward to hearing some of your questions and observations as we focus together on how we make sure the Scottish economy reaches its full potential.

 

Thank you.