Scotland's economy: First Minister's speech to Spirit AeroSystems

Thank you, Scott [McLarty, vice president and general manager of Spirit UK and Malaysia], and thank you to everybody at Spirit for welcoming me here today.

It's wonderful to be here at Spirit – not just because it brings me back to Ayrshire where I was born and brought up, but more importantly because it brings me to a company whose reputation is based on innovation and excellence. Spirit is one of the largest employers in Ayrshire, and has consistently supported and developed its workforce – I've spoken this morning to some of the apprentices who work here. I also know the company does a lot of work in the local community, for example by promoting science, technology, engineering and maths to local schools, and we're very grateful to you for that.

In other words, in so many ways Spirit is exactly the kind of business we want to see flourishing and growing in the years ahead. So this is an ideal venue for a speech in which I want to reflect on Scotland's economic future.

This is also a highly appropriate time to look ahead to the future we want for our economy.

The Scottish Parliament is about to enter a new session. Our Programme for Government will be published next week. In the next year, we will set up the interim body for the new South of Scotland enterprise agency, and establish a new strategic board to co-ordinate and align the work of our enterprise and skills agencies.

It's also 10 years now since this Government came into office. One of the very early decisions we made back in 2007 – as part of our wide-ranging plans to modernise the infrastructure of our country, many of them now realised – was to move ahead with building a new bridge over the Forth.

I'm delighted to say that the new Queensferry Crossing opened to traffic yesterday – providing not just an essential transport link but also, alongside its sister bridges, a stunning new tourist attraction.

The consequences of other economic decisions have maybe been less visible, but they have still been significant. In 2007 we launched a new economic strategy – among other things, that strategy set out key sectors of the economy where Scotland has particular opportunities and strengths.

Many of those sectors – tourism, food and drink and renewable energy – have gone from strength to strength since then. Another step we took back then was to establish the small business bonus scheme. It now benefits more than 100,000 business premises every year.

So I will spend some time today taking stock – but I want to focus more on the future. I want to set out some of the steps we will take now to benefit our economy – in the decade between now and 2027, and hopefully also in the years beyond.

And the first thing I want to note is that – partly because of the decisions we took 10 years ago, and notwithstanding the challenges we face – we face the future from a position of some strength.

Despite the scale of some of the challenges we have faced in the last decade – for example, the global financial crisis and the downturn in the oil and gas sector – unemployment in Scotland today is close to its lowest ever recorded rate. It is also below the UK level.

Very encouragingly, our youth unemployment rate is now half the level it was at a decade ago – indeed it is now one of the lowest anywhere in the EU. And almost 90,000 more people are in jobs today than a decade ago – with two-thirds of that growth being in highly skilled employment.

In addition, our GDP per head is higher than the UK average outside London, and we have virtually closed what used to be a very significant productivity gap with the rest of the UK. In recent years we have also consistently outperformed all parts of the UK, with the exception of London and the south-east, in attracting inward investment into our country.

So these figures confirm what most of us already know: Scotland has immense economic potential. Data from just last year suggested that we have the most highly qualified working-age population anywhere in Europe. We have more world-class universities per head of population than any other country in the world apart from Luxembourg. We also have a global and growing reputation in key industries from tourism, food and drink and engineering to informatics, renewable energy and life sciences.

So we can and we must be ambitious, even more ambitious, as we look to the future. Scotland has the natural resources, the skills and the research base to be one of the most prosperous parts of Europe.

But, we also need to accept that we still face some significant challenges. Our productivity levels do now match the rest of the UK's, but remain significantly behind those of many of our partners in the EU.

And the relatively slow economic growth we have seen in the last couple of years – largely caused by the downturn in the oil and gas sector – demonstrates the need to do even more to promote sustainable growth, and to ensure that that growth is spread more evenly across economic sectors and across all parts of our country.

And of course, more broadly, Scotland faces many of the same opportunities and challenges as other developed economies across the world: competing in a globalised marketplace; adapting to an ageing population; moving rapidly to a low-carbon economy; addressing low wage growth and insecure working patterns; and ensuring that society as a whole benefits from developments such as automation and the use of big data.

So today I want to set out some of the Government's thinking on these wider issues. I won't pretend that we've got all of the answers – nobody in the world does. But I do want to demonstrate that we are asking at least some of the right questions, and that we are determined to work with all of you – with businesses and wider society – as we respond to those challenges.

And the overwhelming point I want to make is that Scotland wants not just to embrace but to lead the key technological and social changes of the future. This is a fundamental point. I want Scotland to be the inventor and the producer of the innovations that will shape the future, not just a consumer of those innovations.

That's partly a matter of necessity. No country can close itself off from the future. But more fundamentally, it's because most of the changes we are seeing now either are or have the potential to be hugely positive for society as a whole. New technology is key to the productivity improvements which can then raise living standards for all. A more global economy expands opportunities for our exporters. A low-carbon economy won't simply contribute to combating climate change – it will also make our businesses more efficient and the air that we breathe cleaner.

However we also need to manage the consequences of these changes – to be alert to the insecurities they can create and some of the individual and local impacts they can have. In everything we do, we need to recognise that economic policy is a means rather than an end – it is a means by which we help all of our people to lead happy, healthy and fulfilling lives.

So today I'm going to talk about how we move more quickly to build an economy for the future. In doing that, I want to focus on two things in particular. I'll talk about innovation – how Scottish businesses can develop and adopt new technologies, products and processes – and I'll also talk about inclusion, about what all of this means for individuals – how we ensure that everyone is able to benefit from, and contribute to, economic growth.

And as I said earlier, Spirit is a perfect location to talk about all of this. I've just toured the premises here and it really is quite an extraordinary place. The site here includes the Palace of Engineering from the Glasgow Exhibition of 1938. There has been aircraft manufacturing and repair here for around 80 years now – during World War II, the workshops here repaired Spitfires.

So it's a site which in many respects harks back to a proud tradition of Scottish engineering excellence and innovation. But much more importantly, it's a site with an exceptionally bright future ahead of it.

As Scott indicated, Spirit's Prestwick facility has secured a major order from Airbus to make spoilers. For the non-technical among you, those are the wing components you see being raised during descents and landings. That order will lead to investment of more than £20 million in this plant and create over 100 jobs. It also marks a first, not just for this facility, but for the aerospace sector throughout the UK, since it involves the industrialisation of the manufacture of composite materials – those are materials which are lighter, and therefore more cost- and energy-efficient, than the ones used in most current planes.

Now, first and foremost, this success is due to the dedication and expertise of all of the employees here at Spirit. It is a great example of the engineering excellence we have here in Scotland.

But the public sector has also had a part to play. So it's also a demonstration of that partnership we want between government and the public sector and business. The composite technology being used in this new order has been developed and then industrialised with the help of grants from the Aerospace Technology Institute and Scottish Enterprise.

I also remember very clearly four years ago, as Cabinet Secretary for Infrastructure, having to take the decision that the Scottish Government should buy Prestwick Airport to save it from imminent closure. We did that because we believed then – and we believe now – that the airport can have a commercial future – but we were also very aware, at the time, of the airport's strategic value at the heart of Ayrshire's aerospace cluster.

Much more recently, in June of this year, I announced the establishment of a lightweight manufacturing centre at Inchinnan in Renfrewshire. The Scottish Government is helping to fund that centre because we know that there are major economic opportunities for Scotland in manufacturing lightweight materials such as titanium and carbon fibre. And indeed, that centre will support Spirit in developing the composite materials for its wing spoilers.

The lightweight manufacturing centre will benefit many other companies and sectors as well. It's potentially an asset for vehicle manufacturers, renewable energy firms, the oil and gas supply chain and even medicine and life sciences companies.

Now, at present, there are a host of opportunities for Scotland across the advanced manufacturing sector. And so the Lightweight Manufacturing Centre has always been seen as the initial step in establishing a National Manufacturing Institute for Scotland. I'm able to confirm today that the Scottish Government will move forward to establish such an institute.

Indeed, I can announce today that we will confirm both the location and the key partners for that institute before the end of this year. It's a clear demonstration of our conviction that advanced manufacturing will be central to our modern economy in the future. And it's a good, tangible example of our commitment to promoting and supporting sectors where Scottish business has a clear opportunity to grow.

Advanced manufacturing is one of those sectors. But there are many others.

Next week's Programme for Government will see us commit additional support for the financial technology industry.

We will also continue to support the energy sector. We have already committed up to £90 million – matched by the UK Government – in an Oil and Gas Technology Centre. Next week, we will announce new support for work on carbon capture and storage technology – vital to the future.

We also know there are big opportunities in life sciences. That sector already employs 37,000 people across the country.

Last week I visited Aquila Biomedical. It's a startup which is based over in Edinburgh's Bioquarter. It's doing amazing work to develop treatments which use the body's immune system to target cancer.

The Scottish Government is trying to support companies like that across the country. So we're encouraging more co-operation between the life sciences sector and the National Health Service.

And we have established a stratified medicine innovation centre. It aims to personalise medical care more effectively by examining data on how patients with different genetic makeups respond to different treatments. It brings together Scotland's key strengths in life sciences and data analysis – a sector where, again, Scotland has formidable and leading-edge capabilities. Edinburgh University's Informatics School is widely regarded, and rightly regarded, as one of the best of its kind anywhere – not just in the UK or Europe, but anywhere in the world.

And of course there are also huge opportunities in the low-carbon sector. That sector already supports almost 60,000 jobs across the country.

The International Finance Corporation has predicted that the new business opportunities created in that sector, between now and 2030, could be worth £23 trillion globally. Now to put that in context, that's more than 150 times the size of Scotland's current annual economic output. So the opportunities are massive.

Scotland has already gained a global reputation for renewable energy. Right now as I speak, we are currently home to the world's largest tidal array, and the world's largest floating windfarm.

But we have strengths in other important areas, such as battery storage and smart grids. They're actually quite an interesting example. They will become increasingly important right around the world as renewable energy generation increases, and as demand for electric cars rises. So to go back to what I said earlier on – the opportunity globally is for Scotland to be an inventor and a producer of these technologies, not just the consumer of technologies developed elsewhere.

And that's one reason why we do see, and put so much stress, on the economic as well as environmental benefits of making Scotland an early adopter of electric and ultra low-emission vehicles.

That's something we will say much more about in next week's Programme for Government. We will set clear and bold ambitions, not just in the interests of the environment – important though that is – but also in the interests of our economy. We aim to encourage investment and innovation in technologies where we already have strengths, but also where there will be a global and growing demand in the future.

Now of course, we also know that in the years to come, some economic opportunities will emerge that, right now, nobody is currently predicting. Technology moves very fast and we also know that all sectors in Scotland include companies which are ambitious and which have good ideas for growth. So I'm not setting parameters here; I'm not constraining our future options. We will need to be flexible in responding to opportunities and in supporting companies across all sectors.

But I suppose the key point I'm making today is this one: right across Scotland, jobs are already being created in key sectors of the future. And our promise to businesses – whether you're based in Scotland or elsewhere in the world – is that if you invest here, we will provide a stable, supportive, business-friendly environment. We want to be the best place in the word to establish an innovative business.

We also want to encourage businesses to internationalise and export. We know from evidence that companies which do that are more likely to innovate and improve their productivity. Now, our exports have already increased by two-fifths since 2007 – we have fantastic companies which are already succeeding internationally.

But our exporting base is still narrower than we would like. For example, this is a statistic which shocked me when I first heard it – right now half our exports come from just 70 companies across Scotland. That is both a challenge, but more importantly that is an enormous opportunity for growth and expansion. So we're determined to encourage more businesses to internationalise. That's why, for example, we are doing more at a local level through the Chambers of Commerce network to encourage small and medium sized businesses to export.

We are also seeking to create a culture which is supportive of entrepreneurship. Partners such as Entrepreneurial Spark have already helped to encourage a whole new generation of entrepreneurs and business startups.

However, we want to do even more – and so next week we'll be announcing plans to further support graduate entrepreneurs.

And we are working to unlock and encourage investment which helps businesses to grow. That's why we launched the first stage of the Scottish Growth Scheme in June. In that first stage, Scottish Enterprise and the European Union will each provide £50 million for investment in Scottish companies which are looking to expand or raise finance. We expect that investment to be matched by private investors. So it should result in a total of £200 million of investment into Scottish businesses.

We are also looking very carefully at what further steps we can take – in addition to the Scottish Growth Scheme – which will support companies in need of finance. We want to use all the powers at our disposal to help businesses not just to start up but to expand. We'll set out more about that in the Programme for Government next week.

And finally, we want to encourage businesses' own expenditure on research and development. That has grown fairly strongly in the last decade – but from a very low base. It's a measure where we still lag significantly behind many of our European partners.

That really matters because research and development helps to drive innovation, and therefore makes a difference to productivity and economic growth. Again, Spirit is the perfect example of that. So I can announce today that in each of the next three years, we will increase Scottish Enterprise support for this by almost 70% – from £22 million a year to £37 million.

We expect that £45 million of increased investment from the public sector over the next three years to result in almost £300 million of further research and development expenditure. It's a further sign of our determination to work with businesses to address an issue that, left unaddressed, is harmful to growth.

Now, as I've hopefully made clear, where it makes sense to do so, the Scottish Government will invest additional funding to support innovation and help ambitious companies. The other thing we're determined to do is make the most of the money we already spend. We already invest 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.

I mentioned earlier that the new Strategic Board for the Enterprise and Skills Agencies will come into being later this year. One reason for establishing that board is to ensure better co-ordination of those agencies, and to get the maximum possible impact from our spending.

The quality of the leadership of that board will be absolutely crucial, which is why I am delighted today to be able to announce that the board's first chair will be Nora Senior. Nora, who is here today, will be well known to many of you. She has had a hugely distinguished career in business and is currently Chair of UK regions at Weber Shandwick; and Nora was, until recently, the Chair of the Scottish Chambers of Commerce and President of the British Chambers of Commerce. So I think she is the ideal person to lead the new strategic board as it works with business to achieve our shared ambitions for growth.

Now, everything I've said so far has been – unapologetically – enthusiastic about embracing and leading technological change, about Scotland positioning itself to be the leader of the future global economy. But I'm also acutely aware that as we do that, we must ensure that we are alert to the possible social consequences.

I was quite struck recently when reading a story told by Anand Menon, who is a professor of European Politics at King's College in London. He was speaking at an event in Newcastle before the EU referendum. He was trying to explain what he considered the economic damage that would be caused if the UK left the European Union. In doing so, he said that Brexit would harm the UK's GDP. And he got interrupted by an audience member who said, 'That's your GDP. Not ours!'

The feeling revealed by that heckle – the sense among too many people in our country that economic growth doesn't benefit them, and that they don't have a stake in their country's economic success – should, I think, make almost every politician in the UK and indeed across the developed world sit up and take notice. It highlights a major weakness in UK Government economic policy in recent years. Too many people and too many areas have been left behind. We need to ensure that growth benefits all parts of the country and all sections of society.

There are of course overwhelming moral arguments for that. And there are also very compelling economic ones. In fact, the Organisation for Economic Co-operation and Development (OECD) has estimated that, between 1990 and 2010, rising income inequality in the UK reduced our economic growth per person by 9%.

So ensuring that growth is inclusive – that everyone benefits from it, and that everyone has a fair chance to contribute to it – remains absolutely central to our economic policy and will be so while I'm First Minister. That's why the living wage, the Fair Work convention and the Scottish Business Pledge will continue to be vital parts of our approach to economic growth.

It's why we see trade unions as partners rather than opponents, and why we are encouraging greater employee ownership of businesses.

It's why we are determined to use our new powers over social security and employability, to build a system which encourages people into work, but which respects people's dignity while doing so.

It's also one reason why we are investing so much in affordable housing – indeed we are building more housing, proportionately, than any other part of the UK.

Being able to afford a decent place to live makes a huge difference to people's health, wellbeing and income levels.

And the issue of skills becomes hugely and increasingly important. We already have a good record here – perhaps particularly in relation to young people.

We're implementing the recommendations of Sir Ian Wood's report into our young workforce, and we're expanding the number of modern apprenticeships we make available. I mentioned earlier that our youth unemployment rate is now one of the lowest in Europe. The partnerships we're creating between government, schools, colleges and employers should help us to improve it even further.

But we need to focus on gaps in provision. We know from surveys that businesses themselves are worried about digital skills and also management and leadership skills. So these have been, and continue to be, priorities for additional funding – not solely for young people, but for people at all stages in their working life.

More generally, we need to ensure that people of all ages are equipped to learn new skills or update their knowledge and expertise. That's an issue which many countries face – it's especially important in cases where, for example, technological change leads to redundancies in some sectors. There are already good examples of good work here in Scotland – for example, projects which helped people made redundant from the oil industry to find work in renewable energy. But we need to do more. And so it's an issue I want the Strategic Board to consider at an early stage.

And of course, just as no person should feel that they have been left behind by economic change, we also need to ensure that no area of Scotland is left behind.

During the next year, we will establish the interim body for the South of Scotland enterprise agency. We want to ensure that the specific needs of that region are properly taken into account.

We have invested heavily to support city deals, and we are also encouraging regional growth deals. I know that the three Ayrshire Councils have put together a joint bid and are working closely with the Scottish Government on its details. Just yesterday, the Scottish Government announced a £5 million investment into one of the projects which has been proposed as part of the growth deal – at the site of the old Diageo plant in Kilmarnock.

At a very local level, we want to promote wealth-building within local communities – trying to help locally owned shops and businesses by encouraging them to work with and supply larger companies and organisations in the same area. Indeed, one of the issues I've spoken to Spirit about as we've gone round here this morning is developing the supply chain for companies like this.

And of course, we'll continue to invest in skills and infrastructure in all parts of the country. This summer has seen the completion of two massive infrastructure projects in central Scotland – the new M8 was officially opened earlier this month, and, as I mentioned earlier, the new Queensferry Crossing opened to traffic yesterday.

We are making important investments right across the country – the Aberdeen Western Peripheral Route will open this winter; the dualling of the A9 is the largest road-building project in Scotland in a generation. We are also investing in rail improvements and new train services for communities right across Scotland.

And perhaps our most important investment in connectivity is our commitment to making broadband accessible in 100% of residential and business properties by the end of this parliament – the next stage of which we will procure later this year. That's something which will be vital to the sustainability of rural and remote economies; it will be hugely beneficial to businesses, whether they're bed and breakfasts or creative design companies. And it's one of the ways in which the Government can fulfil our part of the social contract – we can ensure that Scotland's Government truly benefits all parts of the country.

There's one final issue which I want to address before I conclude my remarks today.

By now, you'll have noticed that I have hardly spoken about Brexit so far. That's partly because all of you already know the Scottish Government's position on this – we oppose Brexit, but if the UK Government is intent on leaving the EU, our view is that the UK should seek to remain a full member of the single market and customs union.

But the other reason I haven't mentioned Brexit heavily today is because all of the policies I'm talking about today will be implemented regardless of Brexit.

We know that leaving the EU is very likely to make business conditions more difficult – and we will take account of that, and we will do everything we can to mitigate that – but if anything, that fact increases rather than reduces the importance of our focus on innovation and inclusion.

However, one area where Brexit could make action impossible, rather than just very difficult, is in relation to Scotland's demographic challenge.

In recent decades, of the 35 countries in the OECD, Scotland has had the fourth lowest rate of population growth. We've done a bit better in recent years and actually much of that is due to EU migration. However, the UK as a whole has had significantly higher population growth than we've had and that really matters. Over time that will directly affect our living standards. It will mean that fewer working-age people can support the pensions and the healthcare of a larger retired population as our population ages.

That will have inevitable consequences for our productivity and for our public services.

So for politicians, debates about immigration are often not the easiest debates to have. But making sure we can continue to attract the best skills and talent from across Europe and the world is absolutely vital to our economic success now and in the future. So it's really important that we address this debate and don't allow our economic interests to be damaged.

That's why the UK Government's approach to Brexit is so infuriating. It is abandoning something that Scotland's economy benefits hugely from – our membership of the single market – in order to restrict something else which Scotland's economy really needs: freedom of movement for EU workers.

The UK Government already accepts in practice the idea that different parts of the UK can adopt different immigration procedures. It allows seven cities in the north of England to use special procedures for people wanting to work in technology industries. We believe that it is appropriate, essential in fact, for Scotland to have special flexibility too. We will table detailed proposals on both the case for that and setting out the practicalities of how it would work later this year.

In doing so, we will seek to work constructively with other political parties. After all, there is a strong cross-party consensus in the Scottish Parliament about the benefits of migration. If that consensus counts for anything with the UK Government, it must surely mean that we can come to an agreement that meets Scotland's needs and priorities.

And throughout all of this, we will continue to send an important and consistent message. We welcome people from all around the world. We will encourage and enable you to build successful and happy lives here. Scotland is, and will remain, an innovative, inclusive and open country.

Near the beginning of my speech, I mentioned that this site has been used for aircraft maintenance and manufacture for around 80 years. When the original owners of the site chose a motto after World War II, they took it – very appropriately – from Robert Burns. It said, simply, 'The World O'er'.

It's a motto that continues to speak to this day to our internationalism and our ambition.

Scotland should aim to welcome people the world o'er to visit, work, study or invest; to compete the world o'er in new markets and technologies; and to be renowned the world o'er for the quality of our products and for the social benefits created by our innovations.

I believe passionately that we are well placed to do that. My hope is that when we look back in 2027, we will see that decisions taken now helped to place us at the forefront of embracing change and addressing challenges, and that innovations developed here in Prestwick and other parts of our country helped to address the major social, environmental and technological issues that are faced by societies around the world.

By doing that, we can, as a relatively small country, contribute hugely to the wider wellbeing of the world. And we can create the strong economy which enables all of us to live happy, healthy and fulfilling lives.