Scotland after Brexit: speech

Thank you, Jane-Francis (Kelly). It's a pleasure to be here again.

The meet the leaders session has become a new year tradition – it's almost becoming part of the winter festival programme. This series of events is a really good and powerful demonstration of the institute's role in leading and informing public debate in Scotland. I greatly value – as I am sure all the party leaders do – this opportunity highly because it is an opportunity to discuss with you some of the key issues facing Scotland now and in the future.

All of the leaders this year have been asked to speak about Brexit specifically. In doing that, the second half of my speech I will focus on an issue I was talking about yesterday and that is the issue of migration – an issue which is of considerable importance to Scotland, and one where Brexit presents us with very distinct challenges which, to my mind, require some distinct solutions.

Before I turn to that, I thought it would be useful to give a brief overview of where I think the Brexit process is now – and give you my views and what the Scottish Government's priorities for seeking to influence that process as best we can in the year ahead.

Next week marks five years since David Cameron delivered the speech in which he committed to having a referendum on EU membership. Perhaps one of the most significant and fateful political speeches in the UK's recent history. He made that speech at the Bloomberg offices in London and announced that if the Conservative party won the 2015 general election, he intended to hold a referendum on EU membership.

In that speech he set out his belief that "Britain's national interest is best served in a flexible, adaptable and open European Union, and that such a European Union is best with Britain in it". Of course the eventual consequences of that speech, as we now know, turned out to be the exact opposite of what he intended.

Today we stand just 14 months away from the date when the UK is set to leave the EU. Let me be clear, I still don't want Scotland, or the UK, to leave the EU – my preference is, and will continue to be, for Brexit not to happen. My preference is for Scotland to be an independent member state of the EU. I think that would serve our interests best.

However, as First Minister of Scotland, I have a duty to do all I can to protect Scotland's interests in all circumstances. Tonight I want to concentrate on how we are seeking to influence the situation now and how we will do that in the crucial week and months that lie ahead in order to help shape the best possible outcome for not just Scotland, but the UK as a whole.

I've got to be frank with you in saying how disturbing I think it is that just 14 months away from the planned exit from the European Union, the UK government's plans still seem to be – and I am putting this as mildly as I can – in a state of chaos.

That's partly, I think, because there still seems to be a wilful denial of the complexities that are associated with Brexit. The leader of the House of Commons said last week that: "it will be easy for the EU and the UK to agree to continue to do things with [...] zero non-tariff barriers". That's not a statement which has any roots in reality. Avoiding non-tariff barriers, which I'm sure everyon wants to do – requires agreement on harmonised regulations and a whole range of other matters – it is not something which will be easy to agree. In fact the trade deal between the EU and Canada took almost a decade to negotiate.

The Prime Minister, meanwhile, continues to suggest that no deal is a viable option for the UK – without acknowledging that no deal is, almost by definition, a terrible deal for the UK. My very simple view is that no Brexit has to be preferrable to no deal.

And the UK Government, perhaps most fundamentally of all, is still delaying setting out a clear proposition on the big issue it faces or what the end relationship is that it is seeking to negotiate. Everybody knows that, as in any negotiation, there will require to be trade offs – for example, between abiding by European regulations in order to gain access to the single market on the one hand, and on the other hand having the freedom and flexibility to negotiate separate trade deals outside of the EU.

In fact, the UK Cabinet has scarcely even begun to discuss some of these issues, let alone agree or articulate a clear position on them. Instead, we are still told that the UK can have everything it wants – regulatory flexibility, the freedom to strike trade deals with other countries and the full benefits of the single market – despite all of the evidence to the contrary.

So I think 2018 – a crucial year in so many different respects – is going to be inevitably the year that rhetoric finally meets reality. And when we look back over the last six months of last year, what we saw was that on every issue of substance where agreement in the first phase of negotiations had to be reached – for example the timetable for talks, on much of the situation around EU citizens or on settling the UK's budget obligations – the UK Government started with a completely unrealistic position, and then on all of these issues was forced to capitulate and finally agree position that had been the starting point of the EU all along.

That is almost certain to happen all over again if the plan is to stick to unrealistic positions. Far better, surely, to stop wasting time and to stop squandering goodwill and instead embark on this next phase of negotiations with a sensible and credible position at the outset.

In my view and the view of the Scottish Government, the only sensible post Brexit position for the UK is continued membership of the Single Market and Customs Union.

Let me be clear, I don't think that is a perfect position – it is not as good as membership of the EU. The EU is not a perfect institution – it has many flaws but I think our interests are best served being in rather than out. Being in something short of that is not the perfect position but being in the Single Market is far preferable to any of the quite limited number of alternative future relationships.

In my view – and of course you won't be surprised to hear me say this – every month that has passed since the referendum has borne out the logic of that position. If the UK leaves the EU, the least damaging way of doing so is to retain membership of the Single Market and Customs Union.

The economic importance of that was highlighted in the paper the Scottish Government published yesterday. Yesterday we published the most extensive economic modeling of the potential future relationships that has been done by anybody so far, which perhaps speaks volumes in itself about the approach the UK government has taken. They have yet to publish modeling and impact assessment of that nature of their own.

The modeling that we published yesterday shows very clearly that, although all forms of Brexit are likely to harm our economy in some way – for example reducing our exports to the UK's largest market but also by extension reduce our productivity and over the longer term restrict our ability to attract talent to our country. So all of our future options will do some damage to our economy. There is no doubt that harder brexit will cause significantly greater damage. Our modelling looks at what are, probably the only three realistic options when the UK leaves the EU for the future relationship. They are the so called no deal option where the UK reverts to World Trade Organisation terms. Secondly, there's the option which the UK government says is its favoured option – the negotiation of a free trade agreement, perhaps similar to the one with Canada with bits added on to it. Or thirdly, Single Market and Customs Union membership.

What the evidence we publised yesterday shows is that the no deal outcome will cost our economy by 2030 around £2,300 per head of population, compared to what our economy would do if we stayed in the EU. With a free trade agreement the loss in GDP will be around £1,600 per head. And if we stay in the single market, that loss will be around £700 per head.

So, there is no cost free option to leaving the EU – but staying in the single market minimises the damage and that surely must be a priority for all of us.

There is also, in addition to the economic argument, to my mind, a fundamental democratic point here. The EU referendum gave no clear mandate for leaving the single market – in fact, during the campaign leave campaigners were often very confused among themselves about this issue of the Single Market.

So the idea that leaving the EU requires us to leave the Single Market is simply an assertion. It is an interpretation of the referendum result, I don't think it is more than that.

And actually, given the closeness of the EU referendum result across the UK – and indeed the fact that two of the four nations in the UK actually voted to stay in the EU – surely a soft Brexit, rather than a hard Brexit, should be the default position?

Single market membership isn't just the best way of minimising the economic harm of Brexit; it is the obvious democratic compromise in a UK where opinion on this issue is deeply divided.

So my priority for the year ahead in terms of trying to influence the UK's approach to this is to make the case for Single Market and Customs Union membership.

I believe that is a position which can and should command majority support both across the country and in the UK parliament. As First Minister and as leader of my party, I will try to work with anyone and everyone – across the political spectrum and across the UK generally – to contribute towards what I think is not the best option for the UK but the least worst option if the UK is intent on leaving the EU.

The duty to proceed in a way that respects the views of all parts of the UK is also relevant to the current debate over the EU Withdrawal Bill. That Bill is back in the House of Commons this evening before it goes next to the House of Lords.

That Bill is important – it is a highly technical piece of legislation but it is an important one. It is currently the subject of discussions between the devolved governments and the UK Government. Both the Welsh and the Scottish Governments have indicated that in its current form we couldn't recommend to our respective parliaments that they approve that Bill. It is subject to the legislative consent process.

Now I should be clear that we as the Scottish Government, although we oppose Brexit, we accept the basic intention behind the Bill. If the UK is to leave the EU, no matter how regrettable that is, there has to be a legal mechanism which allows EU law to be carried over into English and Scottish law at the point of Brexit.

However, the way in which the UK Government has chosen to enact the bill runs completely counter to the basic principles of devolution. In particular, clause 11 of the Bill prevents the Scottish Parliament, post-Brexit, from making any changes to devolved areas, such as justice or agriculture, if those changes would not have previously been allowed under EU law. However, it allows the UK Government to make changes in these areas. So effectively, the Bill as it stands, gives the UK Government complete freedom to legislate in areas currently devolved to the Scottish Parliament without first getting the consent of the Scottish Parliament.

These provisions are hugely problematic. On a practical level, they massively increase the complexity of the devolution settlement. For example as the EU's own rules evolve and change, it will create an ongoing uncertainty about what the Scottish Parliament is and isn't allowed to do in devolved areas.

But more fundamentally than that, they undermine a basic principle of devolution – the whole principle underpinning the Scotland Act that is the the foundation legislation of the Scottish Parliament is that all policy matters are devolved to Scotland unless they are specifically reserved under the Scotland Act. Effectively it is saying that in these matters that are repatriated, everything is reserved unless the UK Government in future decides to devolve them. That is why Professor Nicola McEwen, of the Centre on Constitutional Change, said a few months ago: "Clause 11 cuts across the existing devolution settlements. UK Government ministers [...] do not seem to get this."

Just last week the Scottish Parliament's Finance and Legislation Committee unanimously recommended that consent should not be granted to the EU Withdrawal bill in its current form. It's worth repeating that point – all parties agreed that consent should not be granted. It's fair to say that Scottish political parties don't often come together and unite on constitutional questions – so that gives some idea of the scale of the UK Government's achievement here!

It was actually in my speech to the David Hume Institute this time last year that I first raised this prospect, this concern that the Scottish Government had. This process of Brexit was going to result in a power grab – I remember making that speech and lots of the commentary from other political parties and media was that was nonsense and I was scaremongering. Here we are a year on and there is unanimous opinion in the Scottish Parliament that that is in fact what that bill represents.

So we have work to do if we are to protect the principles of devolution to change that bill before it passes. We were promised UK Government's amendments would have been lodged by this stage. I think all parties have been unanimous in their disappointment that has not happened. In fact there won't be amendments lodged before the House of Commons – the amendments will have to be lodged in the House of Lords which actually raises its own democratic issues. On a matter of such fundamental importance to devolution and the principles underpinning it, it will be the House of Lords that has to decide on these amendments.

I hope we can reach a settlement and an agreement on this and we are still working hard to do that. But I think it is fair to say that while there is still the prospect of reaching agreement, and we will continue to do what we can to deliver that, the prospects are reducing rather than increasing.

As a result, the Scottish Government – with some regret – has been required to prepare our own EU Continuity Bill. It means that even if we cannot reach an agreement on the UK's withdrawal Bill, Scottish legislation will be able to protect Scotland's laws from disruption caused by Brexit. That is not our preferred way forward. There is an argument that this legislation should be done UK wide but we cannot allow it to be done in such a way that it fundamentally undermines the very principles our parliament is built. So I hope we will reach agreement but we are prepared for the eventuality in which we don't.

The challenges posed by Brexit – and they are many and varied – are at least in part best met by a further devolution of powers thoughout the UK, not a further centralisation of powers. The Scottish Parliament would benefit in particular from further powers over immigration, welfare, trade, employment and employability. But in particular, given some of the challenges we face, the Scottish Parliament would benefit hugely and Scotland would benefit hugely with greater powers and greater flexibility over migration.

Migration is the issue I want to focus on for the rest of my speech this evening – since it was so central to the EU referendum debate, but more importantly, it's an area where Scotland's needs and requirements are actually very different from the rest of the UK that the case for a different approach here is, to my mind, overwhelming. Not uncontroversial, but overwhelming in face of the evidence. I say not uncontroversial because I am aware – and John Curtice produced very interesting research on this last week – that there isn't yet a clear public consensus behind having a distinct migration policy in Scotland.

Add to that, the fact immigration is not an easy issue for politicians to be talking about.

But, given some of the stark projections that I am about to talk about, I believe really strongly there is a duty on us – on politicians across the UK, and particulary here in Scotland – both to spell out the importance of being able to attract skills and talent from other countries and also to provide evidence and reassurance where it is needed about the benefits that migration brings to our economy and our wider society.

I think there is a pressing need for all of us to try and change the narrative around immigration and free movement. When the impact of ending free movement within the EU is discussed, a lot of the focus tends to be on the immediate consequences for specific sectors of our economy. That's very understandable. For many core public services, and key sectors for our economy, EU migration is absolutely crucial.

More than half of the people who work in food processing industry are EU citizens; so are more than a quarter of our higher education researchers, and almost a tenth of the workers in our tourism sector.

The potential consequences of reduced migration to those sectors are very important. And they are certainly one reason – among many – why I have been so determined, ever since the referendum, to ensure the rights of EU citizens are given priority and protected, and that EU citizens know that Scotland welcomes the contribution they make here and we want them to stay and to keep making that contribution.

I want to focus today on an issue which transcends the immediate consequences of Brexit on specific sectors and talk instead about the consequences of any restriction in our ability to attract skills and talent here for our overall population level and economic prospects well into the future.

The figures here are stark. They should make all of us sit up and take notice. If you look at population projections for the UK as a whole, over the next 25 years, three fifths of the predicted population increase for the UK is projected to come from immigration, and two fifths is projected to come from natural change - births will outnumber deaths.

In Scotland though that is not the picture. All of our projected population growth is estimated to come from inward migration. Births are not expected to outnumber deaths in any of the next 25 years.

So without inward migration, our population will start to fall rather than rise. So we need to think seriously about this in terms of our prospects for the future. If our population, particularly our working age population, declines at a time we know people are living longer so our pensioner population is growing, then we will see that affect our overall economic growth. We will see it have an impact on our living standards. We will see the number of people in the workforce decline – that will make it more difficult to fund our public services. Actually the Scottish Fiscal Commission pointed to this as a real concern in their economic and fiscal forecasts last month. They've predicted reduced income tax receipts as a direct consequence of less immigration and a lower working age population is something that we need to think about.

Now, there is evidence that support for parents can increase the birth rate. So the package of policies which we're adopting with the aim of making this the best country in the world to grow up in are important – all of that in time could lead to a higher birth rate. But that isn't certain, and of course it takes around two decades before an increased rate of childbirth leads to an increased size of workforce. So in the short and medium term, and probably in the long term, we have a significantly greater need for migration in Scotland than the rest of the UK.

This isn't a new issue. This was an issue faced at the outset of the Scottish Parliament and it was an issue that was recognised very expressly in those early days. That's why the previous Labour - Liberal Democrat administration – with cross-party support at the time – worked to introduce the Fresh Talent initiative in Scotland. It allowed people to stay and work in Scotland for up to two years after they had finished studying even when they weren't allowed to do that in the rest of the UK.

However the Fresh Talent initiative – perhaps because of its success - was then included within the wider UK immigration system. And when the UK Government decided to restrict immigration in 2012, they ended the post-study work visa – because it was by then a UK policy and that meant it ended in Scotland as well.

I think that Fresh Talent is worth mentioning because it is a good example of how sensible, practical, proportionate immigration policies have been enabled in order to allow us to address a particular problem.

And Fresh Talent is important for another reason because it demonstrates that it is possible – that a distinctive immigration policy, which is often thought to be something that is completely unworkable in Scotland has actually, on a relatively small scale, has been demonstrated to be possible and to work in the past.

We also know differentiated migration policies work in other countries. If you take Australia as an example, different states have discretion to set different immigration standards and requirements. South Australia has its own immigration office. The same is true in Canada. And in Switzerland, cantons have the autonomy to run their own immigration systems.

So it's not surprising that three years ago, the Smith Commission – whose recommendations were signed off by all parties – recommended the reintroduction of the post-study work visa.

That has not been implemented yet, and there are no plans on the part of the UK Government at this stage to do it. But I think these things have to be looked at again if we are to address these real challenges that we face.

That's why the Scottish Government will soon publish proposals for powers over immigration to be devolved. The reintroduction of the post-work study visa is one of those proposals.

We also argue that students in Scotland should not count within the UK's targets and will argue for a more distinctive approach on family migration. We believe that it is counterproductive to restrict the ability of British citizens to bring family members home. So these are concrete proposals we'll put forward in the near future and I hope they meet with a constructive attitude.

The last point I want to make here, is this argument for a distinctive immigration policy, which, although it is meant to address a distinctive challenge we face, also I suppose is a recognition that the debate about Scotland's place in Europe isn't simply about trade rules and regulations – important though they are. It's fundamentally a debate about who we are, about what sort of country we are and what kind of country we aspire to be in the future. It is so important for us in these crucial months that lie ahead to do everything we can to ensure that we remain an inclusive, welcoming, outward-looking country – a country which is determined to continue to contribute to the world in which we live, but one which is also open to new people and new ideas. We want to attact to our shores the best talent from anywhere in the world.

I began this speech by mentioning David Cameron's Bloomberg speech five years ago. 2018 also, of course, sees the 20th anniversary of the Scotland Act's passage through the UK parliament.

And so twenty years ago last week, that bill was being debated on the floor of the House of Commons. Donald Dewar, introducing that debate, made several remarks which turned out to be prescient. He described the Scottish Parliament as offering 'a new dimension' to Scotland's representation in Europe.

We must be determined throughout this year, throughout the twists and turns the year will take, to do everything we can to maintain and strengthen that voice and that role in Europe and the wider world. That's why arguing at least for us to remain in the Single Market and Customs Union is important for economic and for wider reasons. But it is also why it is so important that we don't allow the devolution settlement to be undermined; and it is why it is also important that we seek the new powers for immigration or in other areas that allow us in Scotland to retain and to build and to enhance that place in Europe and the world.

2018 provides a lot of challenges but it also provides a lot of opportunity – as the realities of Brexit finally have to be confronted – to build support for these measures, not simply in Scotland, but across the UK. Because if we do build that support and that consensus we'll minimise the economic harms of Brexit but we'll also be able to safeguard Scotland's place as a good global citizen. And in doing that, I think we'll bring benefits, not just to Scotland, but to people right across the UK. That is what I hope we can achieve in the year ahead to make sure the future for our country remains a bright, open and welcoming one.