SCDI Highlands and Islands Annual Dinner and Business Excellence Awards
David Mundell, Parliamentary Under Secretary of State for Scotland, talks about opportunities for Scottish businesses and Scotland's constitutional future.
Many thanks Joe [Moore, Chair, SCDI Highland Committee] for your kind introduction.
I am delighted to be in Inverness and to address this prestigious Scottish Council for Development and Industry (SCDI) event.
Tonight we salute business success and recognise the benefits prosperous enterprises bring to the local economy and communities.
The economic base of the Highlands and Islands is more robust and diverse than ever before. This diversity marks a real strength.
From premium food and drink to pioneering renewable energy projects and from tourism excellence to cutting edge life sciences. And at the centre, the thriving hub of Inverness. A city for the past decade [since 2000], with the prospect of a new university campus on the horizon.
But I also want to balance this with requisite realism.
I know that your local MP and my former Scotland Office ministerial colleague Danny Alexander addressed the Chamber of Commerce here three weeks ago.
Danny wasn’t a colleague for very long - indeed he was Scottish Secretary for a mere 16 days - even Premier League managers still get longer than that these days!
In his new job as Chief Secretary to the Treasury - surely a case of jumping from the fat into the fire - Danny has outlined some of the tough decisions the coalition government must take to achieve our twin goals of controlling public spending and rebuilding economic confidence. I would like to go a bit further by outlining some of measures we will take to create a business-friendly environment in which to establish, run and grow private enterprises.
Dealing with the deficit
The coalition inherited the largest-ever peacetime deficit.
The figures are eye watering.
An annual deficit of £155 billion means we are losing £3 billion every week. That’s the equivalent of everyone in Britain taking on an extra £50 of debt weekly.
So it is not right to retreat into deficit denial mode or claim it is fine to wait a few more years before we start to live within our means again. The world won’t wait.
Inaction is a recipe for even higher debt charges, higher domestic interest rates and an end to recovery.
Business in Scotland cannot prosper while the risk of a debt crisis hangs over the economy. I know you also believe deficit reduction is essential.
So in a sense, the first and most important policy for economic growth announced by the coalition is our tough fiscal position.
We have been well warned. The crisis in some Eurozone states underlined the urgency to act now.
That’s why the tough decisions we have taken since May, and the many more we will make before this year is out, are geared to getting a grip of the debt, rebalancing the economy and creating the right conditions for sustainable economic growth. We are in this for the long haul.
The coalition response
The emergency budget in June set us on firmer fiscal foundations.
It is a five year plan to restore the economy by eliminating the structural deficit and getting overall debt falling by 2015/2016. Some decisions will be difficult but even more painful would have been the cuts forced upon us if we did not get spending under control.
The burden of deficit reduction is shared and we will continue to support the most vulnerable Scots. All sectors in society will contribute but the richest will pay more than the poorest.
The budget illustrated our commitment to fairness. Around 90,000 low paid Scots were lifted out of income tax. We hope to continue raising thresholds so more will benefit in subsequent years.
At opposite ends of the age spectrum the child element of child tax credits was increased and the earnings link to the basic state pension was re-established after 30 years.
The Spending Review is the next key step. The Treasury is fully consulting the Scottish government during this process and will announce its conclusions on 20 October.
It is not solely about cutting public spending. It marks a complete re-evaluation in our approach to public services provision.
It’s about empowerment - giving more power to people, local communities and front-line public servants.
It’s about the divergence in policy we have experienced since devolution. With the potential this creates for earmarking best practice and for bringing about yardstick competition to incentive efficiencies in the delivery of public services. Here in Scotland, the Scottish government will respond to this challenge.
It’s about the Spending Challenge online public consultation. And tapping into the expertise of public service providers and users to produce proposals for fair savings across spending areas.
Some suggestions will apply to matters devolved to the Scottish Parliament but we are committed to the best ideas being taken forward as part of the Spending Review process.
Similarly, I fully understand that defence is a significant area for Scotland, and particularly for this region. The Strategic Defence and Security Review is underway. I assure you that the Secretary of State and I will continue to make Scotland’s case strongly.
Building recovery
But the coalition is about a lot more than sorting out the deficit and imposing cuts.
We understand the importance of private enterprise in generating the growth necessary to secure sustainable economic recovery in Scotland. This government backs business.
The budget outlined our blueprint for sustained growth - private-sector led, balanced across the country and across sectors. And it is private sector enterprise and profits which powers our public services too.
The budget acted as a springboard for private sector recovery.
Incorporating a range of measures tailored to support business and restore competitiveness. Such as simplifying the tax system and reducing red tape. One-third of a million Scottish SMEs will benefit from budget measures to tackle red tape.
We want to make it as easy as possible to start, run and expand a business. Returning Scotland to an enterprise culture and restoring the spirit of entrepreneurialism to the economy.
In the Outer Hebrides that spirit has transformed the social and economic landscape. Over three-fifths of the population now live in collectively owned communities. Local people have taken responsibility for land and the future sustainability of their communities. They understand they cannot be dependent on public grants and have established businesses to try to secure their futures.
More widely, we want to build a recovery with increased investment and net exports at its heart. We’re committed to creating the right conditions for investors and businesses.
Like the investment attracted to Scotland from Hewlett Packard, Barclays and Virgin Money in recent weeks.
The phased reduction in Corporation Tax will see it fall to 24p in the pound by 2015 - in line with the government’s aim to create the most competitive corporate tax regime in the G20.
The threshold for employer National Insurance contributions will be increased. And a special National Insurance contributions holiday for the first 10 staff will help 59,000 new Scottish enterprises.
And rather than highlighting China, India and other emerging mass economies as potent competitors, it is their role as potential customers which offers the greatest potential benefits for Scotland. Growing exports are the means of benefiting in the growing global economy.
And looking forward we must model an economy which is greener, more enterprising and more technologically advanced than ever before.
Scotland already has numerous cutting edge firms. And the Highlands and Islands is a major contributor to key, expanding areas of the Scottish economy.
Life Sciences are growing worldwide and already support 1,800 jobs in this region alone, the majority at Lifescan Scotland, which I visited this afternoon. I welcome the efforts of Highlands and Islands Enterprise to build on this.
Likewise, renewable energy offers Scotland, and especially this region and off its coasts, great opportunities in wind and wave.
Green electricity is the future. We are seeing this confirmed in new generation capacity in Europe and the United States.
We are determined to make very best use of the government’s huge influence on the business environment.
We’ll do this by keeping markets free and fair, empowering consumers, keeping a lid on damaging regulation, managing risk and ensuring a stable tax regime.
And we are committed to working alongside business people like you to pinpoint the drivers of growth. It might be improved broadband access, an upgraded transport infrastructure or the development of the low carbon economy.
But I know that companies across Scotland are still finding it difficult to access finance from the banks.
Banks have a vital role to play in providing affordable credit to boost the business-led recovery.
The supply of finance must support not constrain the recovery.
Government is looking at a range of options to ensure that firms can access the finance they need to grow.
Agenda of mutual respect
While the economy has been the coalition’s overriding concern, we are committed to an agenda of mutual respect with the devolved administrations. Scotland benefits when its two governments work together.
David Cameron visited the Scottish Parliament three days after assuming office. And Danny Alexander and Michael Moore have both formally appeared before MSPs at Holyrood.
The agenda is being realised in other ways too. The Chancellor agreed the Scottish government can delay efficiency savings to 2011-12 and commitments have been made to bring forward a rural fuel tax pilot and to review the Fossil Fuel Levy as part of the Spending Review.
Scotland Bill
The government is also fulfilling its commitment contained in the coalition Agreement and Queen’s Speech to introduce a Scotland Bill to strengthen the devolution settlement.
The management of this Bill through Parliament is the Scotland Office’s big task for the year ahead.
It’s a process which is driving forward. A Scotland Bill team has been established and the High Level Implementation Team has met. Scotland’s three Unionist parties are participating in the cross-party, cross-Parliament Steering Group, which met again last week.
Business often demands that politicians are made more financially accountable. The Scotland Bill will make this happen for the Scottish Parliament. Increasing spending decisions at Holyrood will go hand in hand with corresponding changes to taxation levels in Scotland. Choices will be made between different levels of taxation and spending.
Inevitably, there will be scare stories about the operation of the new tax system.
The Scotland Bill is predicated on retaining the wider, unified UK tax system. This means no separate tax system for Scotland, so avoiding the compliance issues this would create for firms operating on either side of the border and the incentives this would generate for avoidance. We understand that the rest of the UK is the destination for over two-thirds of Scotland’s exports. The Scotland Bill is an elegant solution not a ‘messy fudge’ as some Scottish Ministers have claimed.
We are ensuring the continuation of the UK’s unimpeded single market - this would not be guaranteed with the wider devolution of taxes to the Scottish Parliament.
Greater fiscal autonomy would only lead to much greater Scottish budget volatility. Indeed, there is no example in the world of a sub-national government with full fiscal autonomy.
The Scotland Bill gives us the best of both worlds - the benefits of financially accountable governance at Scottish Level and the benefits of being a fundamental part of the world’s 6th largest economy.
Conclusion
In short, Scotland still faces real economic challenges. We are not out of the woods yet and the recovery will be choppy. That’s why it is essential for Scotland’s two governments work together, and with business, to restore economic confidence and help generate new private sector employment.
The coalition government will take the fair and responsible decisions necessary to allow Scotland to grow.