National Economic Forum 2016: First Minister's speech

Thank you to all of you for being here today. A very warm welcome to Edinburgh.

It is always a great pleasure to address the National Economic Forum. I really do hope that the presence of what I think is seven Scottish Government Ministers here today gives a clear indication of how highly we value these discussions and also a clear indication of the central importance that, as a government, we attach to economic growth.

Despite some of the key and significant challenges that we have faced in recent years, and the challenges we continue to face today, I think all of us can look to some evidence of achievement and progress over the past few years.

Just as an example, the number of registered businesses in Scotland is at a record level. Our unemployment rate is now again below the UK level. And our productivity has grown significantly since 2007, at a time when the UK's has largely stagnated. So there's much to be positive about.

But there is also a real need, particularly in the circumstances we now face, to ensure that we remain focused on the steps that are required to be taken to ensure that our economy is strong and growing.

And as we focus on the economy, it's worth underlining something that we've discussed in the National Economic Forum before – the importance we attach to inclusive economic growth. We believe – and it's not just a matter of belief, it is backed up by a wealth of evidence – that it is vital that everybody in our society has the chance to contribute to the expansion of our economy but also has the opportunity to benefit from the expansion in our economy.

And that commitment to inclusion that runs through our economic strategy is also the key characteristic of the approach we seek to take to government itself. Indeed, that's one of the reasons that this Forum was established. We want to involve and work closely with everybody who plays such a vital role in creating wealth and creating jobs across Scotland.

So I am grateful to all of you for participating but particularly grateful to the Scottish Council for Development and Industry (SCDI), who have worked closely with us to plan this event today.

Our commitment to working with business and others across the country is demonstrated of course in other areas as well. It is the approach we have adopted in taking forward our review of enterprise and skills – something that will be of interest to everybody in this room.

The review's initial report was published yesterday. Amongst the recommendations it sets out is the establishment of a single statutory board to help drive forward the economic strategy but also to help streamline and better coordinate enterprise and skills support. So as we take forward the recommendations in that initial report, we will continue to work closely with business to make sure we get the outcome of this right.

Aftermath of the EU Referendum

Now, this is the first National Economic Forum we've had since the EU Referendum on 23 June. And because of that it is appropriate that we're making that the key focus of today's discussion.

In the four months since the referendum, I think we've seen plenty of evidence of the implications and likely consequences of Brexit. The IMF has slashed its original forecast for UK growth in 2017 by almost half. We've seen the pound suffer a severe and very sustained drop. And we saw as recently as yesterday the continued volatility of the pound and its sensitivity to every political utterance made anywhere in the country. At one point of course we saw the pound reach its lowest level in 168 years. Partly as a result of that, we've also seen inflation rise to a two year high.

All of this, of course, is before the formal process of Brexit through the triggering of Article 50 has even started.

So those implications, and some of the other consequences of Brexit, provide the reasons why the Scottish Government has been determined, ever since the referendum, to protect Scotland's interests but also to take steps where we can to mitigate economic uncertainty and to support business.

In recent months, we have announced a number of steps and we'll continue to talk to business and other stakeholders to consider what more we can do in the months ahead.

In recent months we have announced steps to invest an additional £100 million in capital projects in this financial year to help stimulate growth and support jobs.

We have also confirmed the approval of European Structural Funds projects that will result in around £650 million of investment in communities and businesses between now and 2018.

And to support in particular small and medium enterprises (SMEs), we are in the process of establishing a new £500 million Scottish Growth Scheme. The purpose of the Scottish Growth Scheme is to offer guarantees or loans of up to £5 million to SMEs with significant growth or export potential. In doing that, it's all about trying to remove some of the uncertainty – and share some of the risk – that businesses face when they are making investment or export decisions.

So we are very focussed on trying to mitigate the uncertainty that currently exists and we are keen to hear from all of you today, and on an on-going basis, of the further steps you consider would be appropriate for the Scottish Government to take.

Hard Brexit

Today though, I want to talk briefly about our wider efforts to try to protect our economic interests, and to retain as far as we possibly can the wider benefits of EU membership.

There are two specific strands to our efforts. The first one is simple to say – perhaps the signs at the moment suggest it will be more difficult to achieve – but the first is to try to influence the UK Government away from a hard Brexit, to try to influence the UK Government to pursue a softer Brexit. What does that mean? That means one which would maintain the UK's place in and membership of the single market. That's one of the issues that was under discussion when I, together with the leaders of the other devolved nations, met with the Prime Minister in Downing Street on Monday.

I think it's fair to say that Monday's meeting – and I'm trying hard to be diplomatic and tactful here – wasn't quite as enlightening as I would have liked it to be. But notwithstanding the frustrations – and I'll be frank with you, there are many frustrations right now around the UK Government's approach to all of this – notwithstanding that, I want to assure all of you today that the Scottish Government is determined to continue to try to work in good faith through these processes to work with others to try to influence as best we can the UK Government's overall negotiating position.

I've said previously and I think it's a point worth repeating today, that while I accept the Prime Minister's mandate in England and Wales to leave the European Union, I don't believe there is a mandate to take any part of the UK out of the single market. I also don't believe there is a majority for that in the House of Commons. So there is an opportunity to try to build a coalition that is about retaining not just Scotland's place in the single market, but the UK's place in the single market.

And the importance of that to Scotland is known to everybody in this room and beyond. The single market accounts for almost half of Scotland's international exports.

One of the reasons no doubt that the Fraser of Allander Institute has estimated that leaving the single market, accepting WTO tariffs instead, could result in our economy declining by as much as 5% – or around £8 billion – after a decade. The same analysis also indicates that the Scottish economy could lose up to 80,000 jobs and real wages could fall by £2,000 a year, after 10 years. Those are stark statistics.

But of course in addition to that we would also lose our ability to attract and retain those who come from Europe to contribute to our country, and whose hard work, skills and expertise are so vital to so many parts of our economy. Indeed, just this week, the Principal of Edinburgh University told a Commons Select Committee that the impact of Brexit just on higher education, and I quote, 'ranges from bad, to awful, to catastrophic'. Now I think that kind of reflection should make us all pause for thought.

Of course Brexit would also have implications for public finances across the UK. The Treasury estimates that UK tax receipts could be lower by up to £66 billion per year after 15 years.

For all these reasons and no doubt many more, it's clear in my view that Brexit will be bad for our economy, but a hard Brexit will be particularly damaging for our economy, not just in Scotland but across the UK as a whole.

And that's why I believe a coalition can be built to keep the UK as a whole in the single market.

That outcome is in the best interests of everyone across these islands. So we will seek to work with other organisations and other political parties, not just in Scotland but across the UK, and try to avert that hard Brexit cliff-edge.

As that makes clear, my preference is for the whole of the UK to retain membership of the single market. But we've also got to be realistic, and given so much of what we've heard from the Prime Minister in the last few months, we need to be prepared for the possibility that the UK Government will opt for a hard Brexit. That the logical conclusion of much of the limited amount that they're saying about their approach takes us to a position which takes the UK out of the single market altogether.

That takes us to the second strand of our work and underlines the importance of exploring ways to protect, as best we can, Scotland's place in Europe and the vital interests that depend on that.

Immediately after the referendum, as you will be aware, I convened a Standing Council of experts. It is currently looking at options to secure the benefits of EU membership. I'm sure Professor Muscatelli and Grahame Smith will have more to say about its work later on.

We are also undertaking an extensive programme of engagement with EU institutions and member states.

And in a few weeks' time, as a result of all that work, we will be in a position to set out options for how Scotland could retain single market membership, in the event of the rest of the UK opting for a hard Brexit and leaving the single market altogether.

Now, you will not have to look too far to find voices that say, 'that's impossible; that can never, ever work.' Well the first thing I would say to that is that I don't underestimate the challenges of it and when we set out our proposals we will be open and frank about those challenges.

But I would say two other things as well.

Firstly, the UK and the European Union is entering unprecedented territory. These are times that have never been planned for. There are no rules for what happens now beyond the few lines of text in Article 50 which are being pored over, and interpreted and over-interpreted. We are working with a blank sheet of paper – and there are many downsides to working with a blank sheet of paper – but one of the upsides is that it gives you the opportunity to write what you want on that sheet of paper. So with creativity, innovation and a political will, things that would have perhaps before this vote have appeared unpractical or unthinkable, I think we should be prepared to look at with an open mind.

The second thing I want to say flows from that. We are already hearing discussion emerging about not just 'hard' and 'soft' Brexit but about the potential for what is fast becoming described as 'flexible Brexit' – the notion that there may be no one-size-fits-all approach to this. So we're already hearing discussion and debate about the possibility of special arrangements for different parts of the UK. The necessity, in my view, for special arrangements for Northern Ireland to protect the peace process and avoid a hard border between North and South. We're hearing similar discussions about Gibraltar as well as similar discussions about particular economic sectors, like car manufacturing and financial services.

So there is already a discussion about flexibility and I think it is important that Scotland is part of that discussion. It would be wrong, and not credible, for the UK Government to consider flexible solutions for other areas or sectors but close their mind for that in Scotland.

So, as we develop these proposals and publish them over the next few weeks we will be very much in the business of coalition-building here in Scotland as well as our attempts to be part of a wider coalition across the UK.

And it is important that, regardless of the positions people take on the constitutional future of Scotland, on this central issue of single market membership, I think there is widespread agreement.

In fact, rarely has there been such unity on an issue.

So I think there is a real opportunity to present to the UK Government a unified Scottish position: an all-Scotland coalition of support for the single market.

An all-Scotland coalition – of politicians, business, universities and a whole range of others – to resist a hard Brexit.

So I am very keen to encourage all of you, and your colleagues around Scotland, to work with us to ensure that our commitment to the single market is heard and understood, both here in the UK and across Europe.

Internationalisation

Now, more than ever, Scotland must be – and must be seen to be – a country that is confident, outward-looking, and open for business, and protecting our place in the single market is crucial to that. But, of course, there is more to that we need to prioritise as well.

Our Economic Strategy recognises that strengthening our links with the global economy is key to our future economic success, and this is something that we've discussed at the National Economic Forum in the past.

Scotland already has a fantastic reputation around the world. Figures from EY consistently show that Scotland is the top location for inward investment in the UK, outside of London.

That reflects the fundamental strengths of our economy. We have huge renewable energy resources, the most highly educated workforce in Europe, great universities and a fantastic quality of life.

But there is no doubt the situation we're in as a result of the referendum result makes it even more important that we do everything we can to promote Scotland internationally and even more effectively around the world.

That's why, building on the Trade and Investment Strategy we published earlier this year, I have announced a four-point plan to boost exports and take Scotland's message of open for business to the very heart of Europe.

Firstly, we are going to establish a new innovation hub for promoting trade in Berlin. That will add to our Innovation and Investment hub we will set up in Dublin, and are in the process of establishing in London and Brussels.

Germany is consistently one of our top five export destinations, it is a critical market for our tourism industry and, after the US and France, it is our third largest inward investor.

But Germany is also the political heart of Europe. At a time when Scotland needs to build on existing relationships with our European partners, and increase trade and investment, it is essential that we enhance our current presence in Germany and the hub we will establish in Berlin will enable us to do that.

Secondly, we will double Scottish Development International's (SDI) presence across Europe.

These additional resources will work to identify, nurture and develop new opportunities for Scottish companies in priority sectors and markets. And we want to work with business to ensure they deliver maximum benefit for Scotland.

Thirdly, we will appoint dedicated Trade Envoys for particular markets or sectors. This will build on our Global Scot Network.

They will help to make companies in Scotland more aware of export opportunities, and they will champion Scottish business in key markets.

Finally, we are taking forward our plan to establish a new Board of Trade within the Scottish Government.

The Board will promote the internationalisation of our businesses and provide advice directly to Keith Brown, the Economy Secretary, on practical ways to boost our export performance.

Its work will sit alongside that of our post-referendum business network, which will help shape future policy and support for businesses in light of the Brexit vote.

Conclusion

The Board of Trade by necessity will have very strong representation from business. And this again, if I can end where I started, demonstrates that in everything we do, we want to harness the strength, efforts and expertise of our partners across the third sector, the public sector, and of course the business community.

So that's why these discussions are so important to us and I hope you feel they are important to you as well.

We live in challenging times – that was true before the vote on 23 June and it is even more true now. But in challenging times it becomes even more important to work together effectively and constructively.

It's why we want to hear your perspective on how we should be responding to the EU referendum result. And it's why Keith and I are looking forward to answering any questions you might have.

I'm sure this will be a very productive event. But I'll end just on this key point – it is more important to us now than ever before that we have your expertise, your views, and your contribution. So please make the most of today's discussions. I hope you enjoy it and we certainly look forward to taking forward your suggestions.