National Economic Forum: minister's speech

We're gathered here at a really important time. Last Friday of course saw some progress in the Brexit negotiations – something I'll say more about in a moment.

Two days ago, I announced the location of the new National Manufacturing Institute for Scotland.

Today sees the first meeting of the new Strategic Board of the enterprise and skills agencies.

And of course tomorrow sees the publication of the Scottish Government's draft budget for the coming year.

That budget will set out our tax and spending decisions for the year ahead. I can't talk about it in detail this morning, but I can give you a flavour of the basic approach the government is taking.

Essentially, we are aiming to strike a balance in very difficult times.

We know we need to keep our income and business taxation rates competitive. So we will implement most of the recommendations of the Barclay review on business rates – something which has been widely welcomed by businesses across the country.

However at present, our block grant for day to day expenditure is decreasing in real terms, at the same time the need for investment is growing – whether that is investment in first class public services, a 21st century NHS at a time when the population is aging, a strong education system, vibrant universities; and of course in skills, city deals, housing, infrastructure, low carbon innovation, and research and development. All of the areas of investment that businesses need to thrive. So we have to consider whether it is necessary, and indeed potentially beneficial, for us to increase the revenue we are able to raise and invest in building the kind of economy and society we want to see.

After all, those services I've mentioned are part of Scotland's overall offer to business – they are part of how we create both a good society and a competitive economy. Now, I don't expect that anybody in this room, or indeed anyone across the country, will agree with every single proposal unveiled in the budget tomorrow. But I hope when you see the detail of the budget you will agree that it seeks to strike the right balance – that it is aimed at making Scotland an even better place in which to live, study, work and invest.

In particular it will have a very firm focus on innovation and economic growth. I've said before that I want Scotland to lead technological change in the years ahead, not trail in its wake. We must aspire as a country to be the inventor and maker of the innovations of the future, not just a consumer of them.

And so today I want to set out some of the ways in which we are working with business to achieve that. I'll talk in particular – as you would expect, given the title of this conference - about how we are seeking to build a high technology, low carbon, inclusive economy.

But I will start – briefly, but almost inevitably, given the times we live in – with Brexit.

I welcome the progress that appears to have been made last Friday. For example the agreement to recognise the rights of EU citizens living here – although hugely overdue – is very welcome and will bring reassurance to those who suffered great anxiety over recent months.

However, reaching an agreement on the principles, not the details of exit – however tortuous that process may have appeared – will when looked back on in years to come will turn out to be the easy part of the process. The negotiations that will get underway over the course of next year about the future relationship between the UK and the European Union will of course be more challenging – considerably more challenging – than just agreeing the terms of the UK's exit.

Now, in my view and the view of the Scottish Government, many of those challenges that will be faced as those negotiations get underway, could be removed or at the very least mitigated if the UK government was to do what I think is overwhelmingly the sensible thing, which is to seek to stay within the single market and the customs union.

There are copies here today of the Scottish Government's recent publication "Brexit: What's at stake for businesses". That publication summarises the potential impact of Brexit on trade, staff recruitment and regulatory certainty.

And it illustrates again that – although all forms of Brexit are likely to be detrimental to business and the economy – a hard Brexit, which would see us not just outside the European Union but outside the customs union and the single market, is likely to be especially damaging.

So my hope as we go into the next phase of these talks is that the UK Government will voluntarily, or because it is forced into this position by votes in the House of Commons, end up in the position which should always have been their starting point which is seeking to stay in the single market and the customs union. Because that is, if not the best option, it is the least damaging option particularly for the economy.

It certainly is an option that would help to resolve difficulties in Ireland in terms of avoiding borders.

It also significantly reduces the economic harms of Brexit. And it perhaps provides some possibility of uniting different strands of opinion. It is after all the most obvious democratic compromise for a state where 48% of those who voted wanted to remain, and where two of the four countries that make up the UK voted to remain.

So staying in the single market and the customs union even as the UK leaves the EU, is in my view the best option that we could pursue. And that is the case that the Scottish Government has pursued and argued for over a year now will continue to do so.

But the other point I want to make – and I hope the rest of my remarks will demonstrate this – is that Brexit doesn't, and must not, distract from the other actions we take to support the economy. In fact if anything, Brexit heightens and underlines the importance of those other actions.

Our efforts to promote trade are a good example of that. We must work really hard to ensure that Scotland remains an open, outward-looking, internationalist country.

It's an area where we have had some successes in recent years. Scotland's exports have increased by two fifths in the last seven years. Some sectors- food and drink is a good example – have seen quite spectacular growth. That's good news to be celebrated but we must be frank with ourselves.

We still face some significant challenges. Brexit, of course is one. In addition, we know our export base is still far too narrow. I quite often cite the statistic that more than half of Scotland's exports right now are accounted for by just 70 companies across our country. What a massive opportunity this is to grow our export base. If we can get more businesses – particularly small and medium sized businesses – to start to look to overseas markets, with a relatively small increase in that number we could deliver significant benefits to our eceonomy.

Last week I spoke at the annual dinner for the Scottish Chambers of Commerce – with support from the Scottish Government, they are doing some fantastic work on this very issue. In the last year they've helped to forge links with chambers in more than 20 different countries around the world.

These are important efforts and complement the work of our enterprise agencies. Since 2012, Scottish Development International has doubled the number of companies it helps to internationalise, and has increased its presence around the world.

In the last year, we have opened investment hubs in Dublin and London - giving us a stronger presence among our closest neighbours. We are now establishing hubs in Berlin and Paris. And the number of people who work across Europe for Scottish Development International will double. Regardless of the outcome of Brexit, we will intensify our efforts to promote Scottish businesses in Europe and around the world and help Scottish businesses to export and get that number I cited earlier to change markedly.

And of course that focus on internationalisation, is important in its own right but it has another benefit as well and it links to another of our key objectives. Companies that are active in the international field, companies that export are also companies that are more likely to innovate. They learn new ideas, adopt new technologies and grow in confidence and ambition. So internationalisation and innovation are absolutely closely linked.

Innovation will be a key theme of tomorrow's budget. It is vital to raising our productivity. And we know higher productivity is crucial to raising living standards for all.

The budget tomorrow will confirm increased investment on business research and development by 70% - from £22 million a year to £37 million next year. We expect that funding from government, to in turn, enable a further £90 million of research spending from businesses.

We have announced our intention to set up a Scottish National Investment Bank. Benny Higgins is currently advising us on the best approach to establishing the bank. The Council of Economic Advisers has already highlighted the fact that investment banks are central to how many of our European neighbours support economic growth. This is an area which Derek McKay will talk more about tomorrow.

We're also paying particular attention to sectors of the economy where Scotland has specific strengths and opportunities.

We have funded innovation centres over the last three years – helping to bring universities and businesses together in areas like biotechnology, data science and digital health.

We are committing almost £90 million to the oil and gas technology centre. That centre, incidentally, is a good example of an area where we are working very well with the UK Government – that's an example of good joint working and we hope to do more of that in the context of the industrial strategy.

And on Monday, I announced that the Scottish Government would invest an additional £48 million to establish the new National Manufacturing Institute at Inchinnan, near Paisley. It's an area where Scotland has historic strengths, and massive opportunities in the future. Manufacturing is already hugely important in our economy and accounts for more than half of our exports, and more than half of our research and development. But there is massive opportunity for further growth. Often there is a perception now that manufacturing is a sector in decline. Nothing can be further from the truth. The opportunities in advanced manufacturing are massive and this new centre of excellence we will create will help us make sure that Scotland is at the leading edge and firmly on the map when it comes to what will be an increasingly important part of our economy.

And of course, in addition to the sectors I've already mentioned, there are a host of others. Life sciences employs nearly 40,000 people across the country. Sensor systems employ 16,000. We have significant opportunities in financial technology. Established sectors such as food and drink and tourism are flourishing right now, and have potential for even greater growth.

And one of our biggest opportunities – which is why it is a theme of today's forum – is the low carbon sector. We already have a well deserved global reputation for renewable technology. We are home to the world's first floating offshore windfarm, and the world's largest tidal array. We're developing an international reputation in sectors such as the circular economy, battery storage and smart grids.

The low carbon sector in Scotland already supports almost 60,000 jobs. That's one reason why we see economic, as well as environmental, benefits in our climate change targets, our forthcoming energy strategy and our commitment to make Scotland an early adopter of electric and ultra-low emission vehicles.

By setting clear ambitions, we believe we can encourage investment and innovation in technologies where we already have real strengths, and where we know there will be a global demand in the years to come.

There are two other points I want to make about innovation. The first is the importance of encouraging entrepreneurship. Something Scotland has been known for down the generations and we should be determined we will be known for in the future. That is also the subject of the Scotland CAN-DO workshop session later this morning.

Some of the most inspiring events I've been to, in the last couple of months, have been gatherings for entrepreneurs. The atmosphere at the start-up summit in Edinburgh last month was incredible – mainly because of the support that was on show, not solely or even primarily from government, but from mentors, investors and other businesses.

So we're determined to do more to help that entrepreneurial movement. To take just one example, tomorrow's budget will confirm investment in our Unlocking Ambition challenge. It will support up to 40 people from Scotland and around the world to come to Scotland to develop their world-changing ideas. It exemplifies – and publicises around the world – our determination to make Scotland the best place in the world to start a new company.

The second point I want to emphasise is that innovation isn't simply about new companies, new sectors or cutting-edge products.

All of us know that there are ambitious and successful companies in every sector of our economy and every part of the country. And of course there are also companies which might be doing fairly well at the moment, but which could still benefit from raising their sights that bit higher.

So we want to ensure that businesses are encouraged and enabled to adopt new technologies, techniques and processes. That's something which will potentially have a massive impact on our productivity.

There's a parallel with the point I was making earlier about internationalisation, and the need to widen our export base – our approach can't just be about helping a relatively small number of companies, it must be about encouraging and enabling small and medium sized businesses right across the country.

Now, without wanting to put too much pressure on Nora for her remarks, the role of the new strategic board for enterprise and skills is hugely important in all of this.

I talked about our budget choices earlier. In Scotland we already spend more than £2 billion a year on enterprise and skills. We actually spend around £100 per head more on enterprise and economic development than the rest of the UK.

That support is worthwhile. It helps us deliver successes in a whole range of areas.

But that level of spending means that every penny of our support has to count. That's why I am delighted that we've been able to appoint people with such a breadth of expertise to the strategic board. We need to make sure our public spending is having the biggest possible impact on jobs, innovation and productivity.

The final point I want to make is that as we build this high technology, low carbon economy, we have to make sure that it is an inclusive economy.

That is important in and of itself – it's right that economic growth should contribute to the health, happiness and wellbeing of everybody in the country.

But it is also important economically. It stands to reason that we are all better off, if everybody has a fair chance to contribute their skills, talents and energy to our society. And economic growth anywhere will be stronger and more sustainable if it is broadly based.

That's why some of our most important economic investments are our support for childcare, for closing the attainment gap in schools and for skills. These are often seen as social investments and in many ways they are. But good childcare is as much an investment in our economy as it is in our society.

That's also why we place such an emphasis on fair work. Businesses are more productive when employees are engaged and fairly rewarded.

And it's why we ensure that infrastructure investment is distributed across the country. The last few months have seen important developments here in central Scotland – such as the opening of the Queensferry Crossing and the improvements to the motorway network. The first electric trains started running on the Glasgow to Edinburgh line on Sunday.

But these investments are matched by others around the country – the dualling of the A9 and the Aberdeen Western Peripheral Route. Just last week, ground investigations began for the Maybole bypass – a really important improvement to the A77 down to Stranraer.

Our investment in broadband is perhaps an even better example. By the end of this year, 95% of properties across Scotland will have access to fibre broadband. And we are currently the only part of the United Kingdom which has a clear commitment to deliver superfast broadband to 100% of premises by the end of this session of parliament. In the budget tomorrow the Finance Secretary will set out the next steps in that process and also the scale of investment that will be made by the government to support it.

That's because broadband in this day and age is critical to every community including our remote and rural communities. And it also reflects that broader philosophy. All people, should have a fair chance to contribute to our economic growth.

That ability to help people to contribute to the economy is central to the thinking behind the budget tomorrow. We know that we need to ensuring that taxes are fair and competitive. But we also need to invest in the infrastructure, the research and development, and the capacity for innovation that we know the economy needs to thrive in the future.

That's the balance we are looking to strike – not just tomorrow but well into the future. I said earlier that nobody will agree with everything in the budget – that's not how tough budgets work. But I do hope you will be able to see that the interests of businesses, and the importance of growing our economy, have been absolutely central in every stage of our thinking.

They will continue to be central as we implement the budget. That's one reason why forums like this are so important. It enables us to hear directly from you what we need to be doing to pursue and meet those objectives I've set out.

Thank you for being here today and participating in these discussions.