Invest to grow: First Minister's speech - 21 October 2024
- Published
- 21 October 2024
- From
- First Minister
- Topic
- Economy
- Delivered by
- First Minister John Swinney
- Location
- Edinburgh Futures Institute
First Minister John Swinney's speech at the Edinburgh Futures Institute on Monday 21 October 2024.
I am grateful to you all for joining me today at such a pivotal moment for decision-making about the public finances and the economy.
The Budget next week – and the Spending Review in the Spring – will determine how the United Kingdom faces up to what I would characterise as a make-or-break moment.
Having served in government for many years, with the deepest of involvement in the fiscal and economic challenges that we have faced – and now with the privilege of leading Scotland as First Minister – I cannot understate the significance of the moment we find ourselves in.
I have never before faced such a grave challenge in our public finances, which has a direct bearing on the prospects for our economy.
As the Chancellor prepares to publish her budget next week, the choice before the United Kingdom could not be more stark.
Either continue with the current failed model of public spending cuts that undermine growth;
Or chart a new course – and invest to grow.
As I will argue today, it is time that we chose that new course. And we invest to grow.
The wealth of these islands resides in our ability to create prosperity across four remarkable and distinct nations.
Four nations rich in history, language, art and culture.
Nations grown from their industry, science and technological abilities.
So, to consider each nation’s value as the sum of its economic productivity alone, is to limit our aspirations.
To quote David Hume’s essay, ‘Of Commerce’,
“Every person, if possible, ought to enjoy the fruits of his labour, in full possession of […] many of the conveniences of life.”
That is to say, our work and productivity should lead to a certain quality of life, no matter our background.
But that has been harder for working people to achieve since the financial crisis of 2007 to 2008.
Successive economic shocks and policy choices – like austerity – have undermined the fabric of our public services, and they have directly impacted the wellbeing of people across the UK.
The past 7 years in particular – with Brexit, Covid, war in Europe, the resulting energy crisis and inflation shock – have been incredibly difficult for everyone. They have felt like a long, dark economic winter.
So now, the question we must answer is, how do we prepare the ground for spring?
Were they alive today, I have no doubt David Hume, and his contemporary Adam Smith, would have enjoyed sharing their ideas with all of us gathered here at the Edinburgh Futures Institute. I am deeply grateful to Sir Peter Mathieson and the University of Edinburgh for hosting today.
Sharing ideas, or “coffee-house conversation” as Hume knew it, is much of what stimulated the Scottish Enlightenment.
And, every aspect of history that has played out since, leads me to the conclusion that a nation’s success must be measured – yes – by its productivity, but equally by the health and happiness of its population.
Regarding happiness, we must acknowledge that this has been a commodity in short supply since the financial crash.
Just think of the millions upon millions of individual decisions to delay a milestone, to give up a dream, or to go without.
The constant worry and exhaustion that comes from financial anxiety.
Or that some parents today, feel they may not be able to provide what their own parents did for them a generation ago.
According to the David Hume Institute’s ‘Economy Tracker’ published in August, 1 in 3 Scottish households with children are not confident they could meet an emergency expense of £100 without borrowing.
What this tells me is that policies to ease economic hardship, like the Scottish Child Payment, are important, but not enough.
One economic pressure after the other continues to limit the prospects of many people.
What is needed now – among all four nations of the United Kingdom – is a collective commitment to public investment for economic renewal.
Investment that will allow us to move into an economic spring, with new growth, new opportunities, and new hope.
In this century, defined by global crises, we must invest boldly to improve living standards, increase equality, and protect the planet.
We cannot simply sit back and wait for economic conditions to improve after nearly two decades of volatility.
Instead, all four nations must be able to become investing governments: investing to improve our economic prospects ourselves.
So, I am here to speak with you today – before the full details of the UK Budget are announced – to set out the absolute necessity, in my view, of a Budget for Investment, and to share my hopes for real and meaningful partnership among all four nations on these matters.
This budget must be one that rejects austerity and sets us firmly on a path towards much needed increases in targeted public investment.
Let me set out the three components of the approach I believe is necessary.
First, notwithstanding our differences on the constitution, I welcome the new UK Government's approach to constructive dialogue with Scotland.
The other nations of the United Kingdom will always be Scotland’s closest friends and most important partners, and my Government will do all it can to nurture and strengthen those relationships.
It is vital that we all have the ability to share in a meaningful approach to investment and to shape that according to our priorities and circumstances.
Second, I want to ensure everyone here can play their part in shaping the combined investment journey ahead for Scotland.
Governments have a pivotal role to play, but we will only make the most of Scotland’s opportunities – and have the greatest chance of addressing Scotland’s complex challenges – if everyone in Scotland plays their part, if we all put our shoulders to the wheel.
I want to bring together a consensus in Scotland around the need for investment and use that goodwill to fuel the next stage in our economic journey.
And third, I believe all four nations have everything to gain, by building robust, resilient wellbeing economies.
A UK economy committed to reducing inequality, to the common good, the common weal, is one that will serve us all better.
One thing is clear, we have reached a turning point: a pivotal moment for UK decision-making in a world of sustained turmoil.
That is why I believe the United Kingdom faces a make-or-break moment in this next Budget – and that moment must be seized.
The first change in UK government in nearly 15 years presents an opportunity to reimagine economic progress across all four nations.
And for me, and for many others who have made similar calls, the need to turn our backs on austerity and secure our collective future through greater, targeted public investment is absolutely imperative.
It is time for the UK to take a new course.
Speaking with Ministers at Bute House last month, Professor Marianna Mazzucato challenged us to rethink the role of the state in our need to raise productivity, to decarbonise the economy and to tackle inequalities.
She advocates an approach to industrial strategy, through which:
- public policy shapes markets rather than fixes them,
- co-creation is built into stakeholder relationships through empathy in dialogue and by design,
- procurement is used to share risks and rewards, creating a new social contract between the state and business through shared purpose,
- And all of government works to deliver across ministries and public institutions.
That approach, of working to create a social contract between the state and business is an approach that has been at the heart of my approach to policy making throughout my Ministerial life. I sign up to it with enthusiasm and with commitment. But I recognise the scale of the endeavour that is involved.
The challenge put by Professor Mazzucato is not unique to Scotland.
It is faced by all four nations.
And ahead of the Budget, the deficits, pressures and tough decisions the Chancellor must make are evident.
Let me share a sobering fact.
In the advanced economies of the OECD, the average amount of public sector investment is nearly 4% of GDP a year. These economies are spending nearly 50% more than the UK government spends on investment.
And the consequences are very real for our economy, for our public services, and for UK citizens.
Underinvestment means that the UK’s hospitals have fewer beds per capita than all but 1 of the OECD advanced economies, and fewer MRI machines than all but 4.
Underinvestment means that our country builds fewer homes, and more and more people have to live in rented accommodation. Rents go up, living standards go down, and the dream of homeownership remains just that, a dream.
The decision not to invest has very real consequences for our economy, and for our standard of living.
We see that in the statistics. Labour productivity grew by just 0.4% a year in the UK in the 12 years following the financial crisis, half the rate of the 25 richest OECD countries.
And it means – as the Resolution Foundation have found – almost a decade and a half of lost earnings. It was only in 2023 that real wages were back to where they were before the financial crisis. 15 years of lost wage growth has cost the average worker £10,700 a year.
It doesn’t have to be this way. The Principal and Vice-Chancellor of the University of Glasgow, Sir Anton Muscatelli, a distinguished economist, points out that,
“over the long-term public investment can improve the UK’s potential economic output and productivity, and therefore help contribute to fiscal sustainability.”
We know what the solutions are. More houses, green jobs, targeted investment in knowledge, infrastructure and nature.
I want to see the UK Budget change the fiscal rules around borrowing to allow for greater investment in public infrastructure.
Specifically I am calling on the UK Government to no longer consider public sector net debt in its fiscal rules – but to consider public sector net worth instead.
The UK should take account of the value of our assets, rather than just our liabilities.
I am also calling on the UK Government to set out detailed three year spending plans, so that the devolved governments have clarity over their funding positions and can plan accordingly.
But changing the rules is only the first step.
Within these rules, the UK should target a sustained level of public investment of at least 3% of GDP each year, and aim to bring the UK’s public sector investment in line with the OECD average.
The UK should commit to a serious, sustained, and predictable programme of investment in its public services to support renewal
It would mean that governments in all four nations could plan on the basis of stable, predictable, funding arrangements to build the infrastructure we all need and which I want to deliver for Scotland.
It would mean that we could support the incredible, talented staff of the NHS, by investing in the beds and scanners that they need.
It would mean that we could transition to net zero by investing in the upgrades to the national grid, and to transport infrastructure, that are necessary to make decarbonisation a reality in all four nations.
And – because eradicating child poverty is a priority of my Government – it could galvanise greater momentum in building affordable homes for the families of children living below the poverty line.
I want to be very clear. I have every sympathy with the difficult fiscal position that the UK Government finds itself in.
But if it wishes to make a difference, it is vital that the UK Government charts a new course from the one that they inherited.
And like the UK Government must do, I have been prepared to take tough decisions. The Scottish Government has increased taxation for higher earners where a justified case for greater public investment is required. I hope the UK Government is prepared to embrace similar measures.
These measures are – in my view – required to ensure the path to investment can be achieved through sustainable public finances. It is vital that we are not imprisoned by fiscal rules that undermine our ability to secure the path to investment.
The Chancellor’s decisions also should not disadvantage devolved governments, like the devolved government in Scotland.
If the UK Government chooses to raise Employer National Insurance Contributions, which has been widely rumoured, then there will be a cost for both the Scottish Government, and businesses operating in Scotland.
If the UK Government does not fully fund this in public expenditure, it will be public services in Scotland that bear the cost. So, my ask of the Chancellor is clear: do not make Scotland’s public services pay for this increase in taxation.
It is now time for greatly ambitious investment – a UK-wide re-wiring and rebuilding, that will set us up for success in the decades to come.
We only have to look at Scotland’s wealth of academic institutions, like the University of Edinburgh where we are gathered today, to understand that the pursuit of research, science and innovation is among our greatest assets as a nation.
We only have to look to Ireland, to see what can be achieved when a country has its hands on the full range of economic levers – delivering a budget surplus this year of £4 billion and a 10% increase in investment in infrastructure.
It is vital that the Chancellor reverses the forecast cut to capital funding, enabling the Scottish Government to invest more in hospitals, schools and transport.
And as part of that, I urge the Chancellor to provide greater certainty on green industry funding programmes.
That is necessary to create the certainty that will enable government and industry to work together to secure those significant investments, which will bring a range of benefits to Scottish communities.
If Scotland is to thrive in the years ahead, getting the green energy transition right is a fundamental requirement and we will continue to work closely with the UK Government to that end.
This should also be a UK Budget for growth, for equality, and for hope.
For hope to prevail, a truly successful economy is one where the wealth is shared fairly throughout society.
In a country as rich as Scotland, no elderly person should have to worry about putting on their heating in winter, and no child should be living in poverty.
So, we must take further effective action to tackle child poverty. To do so, I would urge the Chancellor to abolish the two-child limit, a measure introduced by the previous UK Government, which is pushing thousands of families across these islands into poverty and hardship.
This should be a UK Budget that supports our public services and eases financial pressures on hard-pressed families.
Throughout the engagement with the new United Kingdom Government – all of which I welcome – I have made the case that this moment is the moment for investment.
This was central to my discussions with the Prime Minister in recent weeks in bilateral meetings, at the first Council of Nations and Regions, and the UK International Investment Summit.
I welcome these events as symbolic of the Prime Minister’s statement of intent – to hold constructive discussions and to renew confidence in the UK Government as a trusted partner.
But these events have to lead to decisions that will deliver the substance of investment to enable us to build the capacity and the attractiveness of our countries to attract further investment.
To be blunt, if our infrastructure is not strong enough and attractive enough for investors, because it has not had sufficient investment due to years of austerity, is it any wonder that investment goes elsewhere?
That has to be fixed in the forthcoming Budget.
I understand that to some, redesigning our economies, so that they serve the public and the planet, might sound unattainable.
In Scotland, we’ve faced the most challenging decisions in the history of this Government to ensure we will deliver a balanced budget this year, as we have done for 17 years.
But I refuse to let that fact limit Scotland’s ambitions.
The Scottish Government's budget is approximately £50 billion.
I am determined that we spend and invest every penny we have available, in a way that best serves the people of Scotland.
As announced in my Programme for Government, the Scottish Government will focus on four priorities:
- eradicating child poverty,
- raising living standards by growing the economy,
- protecting the planet,
- and improving our public services.
These priorities are entirely complimentary and connected.
With each day I am privileged to spend in office, I become ever more aware of the extent to which delivering success in one helps create a positive feedback loop amongst the others.
Underpinning all of them is, of course, the need for investment.
It is time to make these islands a magnet for high-tech, high-value investment, by offering a model for our economy and society that is based on not on the needs of the few, but the hopes and aspirations of the many.
It is time to give young people every chance of succeeding, regardless of their background. Home ownership should not be decided by parental wealth – it should be open to every young saver.
It is time to ensure that those who have worked their whole lives have pensions invested in the growing clean industries of the future. And it’s time we removed unnecessary barriers to international students who want to study in the United Kingdom.
Recently I was able to spend some time speaking with people who have lived experience of poverty in Scotland. It’s a conversation that’s been in my thoughts ever since.
Speaking to them and hearing their stories, I recognise all too well from my many years of experience as a public servant, that it is our moral obligation to ensure every person living in Scotland can fulfil their potential – no matter their background.
I’m immensely proud that Scotland is becoming more diverse as a country. That people choose to make Scotland their home. I am proud of the welcome of Scotland to those in need that we extend as a country. And I am immensely proud of where we are succeeding as an entrepreneurial nation.
Through our inward investment plan, our National Strategy for Economic Transformation, our Techscaler programmes, our Green Industrial Strategy, our National Performance Framework and much more – we’ll continue to ensure that Scotland is known for championing fair work, for succeeding in new industries, from space to life sciences, for hydrogen power and above all for progress in a whole range of innovative sectors.
The Scotland I know is creative, industrious and compassionate. Each of us in this room, those outside of this room, have the agency to influence how all four nations advance after this UK Budget, and the budgets that will come after.
So I welcome the engagement of so many sectors and individuals in the run up to this UK Budget. It’s a sign that our economies have every chance of returning to health.
At the end of the covid crisis, we all committed to ‘building back better’. Delivery on that promise is now well overdue. So our task is to work together to achieve nothing less than economic renewal driven by our green industries, by our research, by science and innovation, by our entrepreneurship and by art and culture. Why? To raise productivity, yes – but just as importantly, to ensure every person living in Scotland enjoys quality of life. To protect nature and biodiversity and to take full advantage of the new markets that will improve our public services in the future. From artificial intelligence to supercomputing in this university.
It takes political willpower to adapt our economies, to evolve our economies, and to grow thriving societies in all four nations.
It starts with a Budget that does not repeat the mistakes of the past – that does not prolong the gloom. It starts with creating new ways to invest more in all four of the United Kingdom nations.
It starts with recognising investment is the path to growth. And we cannot delay that investment a moment longer.
My government will engage constructively with the UK Government to try to make that happen. We will draw Scotland together in that common endeavour. It starts with all of us here.
Thank you very much.
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