First Minister Humza Yousaf’s speech to the LSE on building prosperity

Thank you Professor McCoy, it’s a pleasure to be hosted today by the LSE’s European Institute, which I gather is the largest centre for the study of Europe anywhere in the world.

I believe you were born in St Andrews so I’m sure you will indulge me when I say that although the LSE is a world-class institution ranked fourth in the Guardian’s Best UK Universities 2024, the university ranked top is in Scotland – your home town university, St Andrews.

It is the UK’s relations with Europe and Brexit of course which in many respects form the backdrop to my remarks today.

But I will start off with another “B word” – last week’s Budget

It is the Scottish Government’s view that the UK Government’s budget is one that sacrifices public services such as the NHS in favour of unsustainable tax cuts, a tax cut worth £1500 to MPs, if taken alongside the NIC cut announced in the Autumn.

In its coverage, the Financial Times warned of a “brutal fiscal reckoning” for whoever forms the next UK Government.

The current UK Government has now held two so-called major “fiscal events” in less than four months.

To have such events so close together does not – to put it mildly – seem a sensible way of running an economy or providing stability for business and industry.

Businesses, individuals and indeed devolved governments shouldn’t be subject to such a volatile environment.

But these events are damaging in a more fundamental way.

The speculation, and then reaction, around changes to tax in particular, mask the deep-rooted – or to mix my metaphors –hard-wired problems with the UK economic model.

Ed Balls, the former Labour Cabinet minister and adviser to Gordon Brown, who is now joining at increasing list of podcast hosts.

As an aside, if only we could grow the economy at the same speed as the ever-growing list of middle aged men hosting podcasts we would be on to a real winner.

Ed summed up the key issue recently when he wrote: “why doesn’t the British economy grow anymore?”

When he was still in front-line politics he delivered an erudite, celebrated speech warning about the austerity path his then opposite number and now podcast partner,George Osborne, had set the UK on.

The policy direction he said, was wrong, reckless and dangerous.

And he was, of course, correct.

We are still living with the disastrous consequences of those cuts today.

That speech was delivered to an audience at Bloomberg.

A few years afterwards, Bloomberg hosted another senior politician for a major speech.

That time it was the then Prime Minister, and now Foreign Secretary, David Cameron, when he promised a referendum on the UK’s membership of the EU.

The words wrong, reckless and dangerous also come to mind.

Brexit and austerity seem good candidates to answer Ed Balls’s question on why the UK economy doesn’t grow anymore.

But it is my contention that the problems with the UK economy go much further, and deeper, than recent poor, even catastrophically poor, decisions such as leaving the EU.

So today I will outline the characteristics of what for far too many people is a failed UK economy.

I will set out why, regardless of the result of the next UK election, that failure is likely to continue because of a damaging Westminster consensus that refuses to take a different path, despite all of the evidence in front of us.

And before this all sounds too gloomy I will also make the case for a better future – for Scotland, yes, but also the positive impact that a better future for Scotland could have on the wider UK.

That, after all, is surely what political leadership is all about: building a better future for the people we serve.

It’s why I believe passionately in independence for Scotland: so that the people of Scotland, through their elected government and Parliament, have the powers to build that better country and rekindle a much greater sense of possibility and hope.

Sadly, when I look at the two main Westminster parties that basic goal of improving people’s lives and of a better future appears missing.

Instead, the Tories seem intent on fighting the next UK election as a divisive culture war. A scorched earth policy from a party that knows it is on its way out of power.

Labour, meanwhile, is purposefully dialling down expectations of what can be achieved: their offer amounts to no more than managing decline – just in a more competent way than the Tories.

It is a real tragedy that Labour, who are by every opinion poll’s measure, miles ahead of the Conservatives, lack any vision. If ever there was a time to be bold and radical it is now. So let me turn now to the first point I would like to cover: the failure of the UK economic model.

As I have already said the UK economy is characterised by low growth.

It fell into recession last year.

Real wages have been stagnant.

Inequality is high.

Productivity growth – the key driver of living standards – has been poor.

Business investment is low.

Public capital investment has also been both low and volatile.

And, as so many have highlighted, the UK displays a remarkable and persistent level of geographic inequality, with an unhealthy and unstable reliance on this great city of London.

This all supports the conclusion of analysis published in the Financial Times, which described the UK as a poor society with pockets of rich people.

It has even been argued that UK economic performance has been so poor it has decoupled from the economic development path of other wealthy countries.

Indeed, the Shadow Chancellor has said she will inherit the worst economic situation of any incoming UK government since the Second World War.

As an aside I have to say this is a far cry from the future that was promised to Scotland by those who opposed independence in 2014.

Back then it was the alleged strength of the UK economy that was trumpeted.

Ten years on and the talk instead from those same people is of UK economic carnage.

So the problem is this: a UK economy that has failed the people it is meant to support.

What then about the solution?

This is where the Westminster response to the problem falls woefully short.

If we accept the analysis that this is the worst economic situation since 1945we might expect a serious, transformative policy programme in response.

But despite some fierce political rhetoric what we have now, even in the face of such a dire economic diagnosis, is in effect a Westminster “no change” consensus.

Consensus and consistency should be good things for business.

In theory they provide stability.

But not if the consensus is taking the country in the wrong direction.

Keeping on a steady course to hit the iceberg isn’t exactly the way to provide stability.

There is also, I believe, a consensus north of the border.

But it is a very different one to that which we see at Westminster.

That means two fundamentally different futures are on offer to people in Scotland.

And that in turn begs the question of who gets to decide that future.

Should it be decided by people in Scotland or by the UK Government at Westminster?

So let me compare the Westminster no change consensus, with the change agenda I believe most people in Scotland favour.

Amongst Westminster based parties, there is a consensus that the UK should stay out of both the EU and the huge European Single Market – whatever the cost.

The National Institute for Economic and Social Research suggests that compared to EU membership, the UK economy was 2.5 per cent smaller in 2023, and it expects that figure to rise to 5.7 per cent in little more than 10 years’ time.

That means £69 billion could have been wiped from national income in 2023, which equates to £28 billion of tax revenue.

A population share for Scotland is £2.3 billion.

At present around 60% per cent of spending in Scotland is on devolved services.

So with the same level of borrowing and taxation, that means without Brexit devolved spending power for vital public services such as the NHS could have been £1.6 billion higher than today.

In other words, we have suffered an estimated cut of £1.6 billion that could have been available to invest in Scottish public services because of a Brexit people in Scotland overwhelmingly rejected.

Looking to the future, The Office for Budget Responsibility say they expect the UK’s potential GDP to fall by 4 per cent in the long run because of Brexit.

As Professor Anton Muscatelli, the economist and principal of the University of Glasgow said, such a GDP reduction has “a massive impact on either funding public services or cutting taxes, depending on your political inclination”.

So in Scotland, in contrast with the view at Westminster, I believe there is broad agreement that Brexit has damaged the economy and public services and that it should be reversed.

But the differences between the Westminster and Scottish consensus goes further than Brexit.

At Westminster there appears to be agreement that public investment will have to fall as a percentage of national income over the next Parliament.

The Scottish Government wants to increase public investment.

Of course, increasing public spending can also stimulate the economy.

Whether that is in capital infrastructure which creates jobs, or investing in free childcare which helps parents, mainly women, get back into work.

At Westminster there is little to no appetite to tackle inequality.

There is agreement that the two-child benefit cap should continue.

In Scotland we want it scrapped.

If it was scrapped this one measure alone is estimated to lift 250,000 children out of poverty overnight across the UK – according to the Child Poverty Action Group.

At Westminster there is agreement that tax rates on high earners should not be raised to help pay for public services.

In Scotland we have put in place a more progressive tax system, which unashamedly asks those who earn more to pay more in order to invest in public services.

And in a highly symbolic but instructive move there is now agreement between Tories and Labour that the cap on bankers’ bonuses should be lifted.

Because of this no change cosy Westminster consensus, the UK is going to remain a low growth, low productivity, low living standards, high inequality economy with an over-concentration of wealth in this fine city I’m speaking to you in today.

So now, you’ll be pleased to know, for the optimistic bit – what we can do in Scotland and what that can mean for the rest of the UK.

And there are indeed grounds for optimism and real hope.

The first thing to say is this:

Given the state of the UK economy and the impact on living standards the economic argument in favour of independence has never been stronger.

It is my duty, as First Minister, to lead a government dedicated to improving the lives of the people of Scotland, to set out a better future.

Because if we don’t win this argument people in Scotland will be locked ever more tightly into that failed Brexit based economic model.

So winning the argument for independence and achieving independence is more urgent and more essential than ever.

At the heart of that argument is the idea that decisions about Scotland should be made in Scotland.

At present it is Westminster that controls macroeconomic policy, migration, employment and competition policy, most business taxation and social security powers, trade policy, borrowing powers, our formal relationship with the EU and a range of other policies that drive economic outcomes.

It is therefore inevitable that with so much of the Scottish economy under the control of the UK Government that growth in Scotland will tend to follow growth in the UK as a whole.

That doesn’t mean we can or should do nothing.

In fact it means we have to work even harder and smarter with the limited powers that we do have.

And we have made a difference.

Since 2007 GDP per person has grown by 10.8% in Scotland, compared to 5.6% in the UK, and productivity has grown at an annual average rate of 1 per cent a year, compared with the UK’s 0.5 per cent.

Just yesterday a key survey showed that private sector employment growth in Scotland last month was faster than any other UK nation or region.

As a country we have many advantages: extraordinary energy resources, brilliant universities, a thriving food and drink industry, a great tourism offering, and we are leaders in areas such as small satellite building and industries of the future.

I could spend all afternoon talking up Scotland and what we can offer investors.

But there is one area I want to concentrate on in particular –a  success story that I am keen is heard here in London, across Europe, the US and elsewhere.

That success is new, high growth tech firms.

Companies such as Blackford Analysis, which uses the power of artificial intelligence to improve patient outcomes.

Intelligent Growth Solutions, whose approach to precision farming is at the forefront of the push to deliver global food security.

Through our Techscaler network of start-up incubators, we are well on our way to delivering one of the finest state-funded systems in Europe dedicated to the creation of high growth businesses.

The programme is a game changer for our start-up community and has rapidly accumulated over 500 member companies.

And we have just opened the first Techscaler hub in Silicon Valley to help promising startups from Scotland build contacts with international investors and customers.

There is a key point here I want to stress.

This exceptional entrepreneurial activity – backed by Scottish Government funding –  is happening alongside our commitment to building a fairer society.

Indeed they are two sides of the same coin.

So just as we put money into encouraging high growth tech firms we are also investing substantially in the game-changing Scottish Child Payment: a benefit worth £25 per child per week for eligible families, and increasing in a few weeks’ time.

And as well as ensuring children in Scotland have opportunity, the child payment is also a hard economic policy: boosting spending power in local communities.

Our approach then is about encouraging economic dynamism and social solidarity.

But none of this should obscure the reality of our position as part of the Westminster consensus economy.

This can be seen clearly by the stark gap between the performance of the UK economy, which as I said we in Scotland tend to mirror, and the performance of independent European nations that are comparable to Scotland.

If Scotland became even a little more normal in terms of living standards the gains would be substantial.

One of the stranger aspects of the political and economic debate in Scotland is that the opponents of independence seem completely uninterested in how we might reach that kind of normal economic performance.

Instead, we are told it would be a fantasy.

But it is never adequately explained why.

Why is it a fantasy for an independent Scotland to achieve the level of living standards that countries like ours take for granted?

The economist David Skilling has written extensively about the reasons for the remarkable success of small, advanced economies.

Among them are strong political institutions supported by high levels of trust in decision-making.

They are flexible.

They demonstrate high levels of levels of international competitiveness.

They tend to invest heavily in the future – from infrastructure to research and development.

So there are general lessons, many of which we are trying to follow.

In the case of one of those countries – Ireland – there is a particular lesson for Scotland.

The Irish economic historian, Professor Kevin O’Rourke, cites various factors for Ireland’s dramatically improved economic performance from around 1990.

“Underpinning everything”, he says, “was two crucial factors: our political independence, which allowed us to adopt a policy mix well suited to our own circumstances; and our membership of the European single market, without which none of this would have worked.”

Soon this analysis the policy flexibility of independence and EU membership were key to Ireland’s economic take-off.

And the more Ireland diversified its trade and opened up to global capital inflows the wealthier it has become.

So for those who argue that decisions about Scotland’s economy are best made by the UK, the evidence just doesn’t stack up.

The Scottish Government is therefore currently setting out our economic plan for an independent Scotland in a series of speeches and papers we are calling the Building a New Scotland series.

We are keen to encourage the widest debate possible.

We’ve set out our proposals to re-join the EU.

We’ve demonstrated how EU policy and aspirations would benefit from Scotland’s renewable energy and our carbon capture potential.

An independent Scotland will have access to oil revenues and full borrowing powers.

We would use those to set up a special fund to boost infrastructure, renewable energy projects and housing: important measures to encourage economic growth.

With powers over migration we would set up a system tailored to Scotland’s distinctive needs.

In short, while the Westminster consensus is seeking to ensure the UK is a hostile environment, we want to attract more skilled migration to Scotland to help fill vacancies in both the private and public sector.

So, for example, as part of a new, comprehensive welcoming system, we would introduce a five year Scottish Connections visa for graduating international students.

We would remove the minimum income requirement for family migration.

And as part of the European Union we would of course benefit once again from freedom of movement across the EU.

We would use employment powers to help reduce inequality which the OECD and others argue can drag down growth.

So, we would abolish anti-trade union legislation and develop a national action plan to extend collective bargaining coverage.

Soon we will set out further proposals on encouraging more entrepreneurs to do business in Scotland.

A crucial aspect to all of this is the idea, which isn’t necessarily headline grabbing, isbuilding stable long lastinginstitutions and government departments that can drive the new Scottish economy.

Ultimately whether we succeed as an independent country or not will be determined by the decisions we take and the hard work and talent of our people – just like any other country.

For the UK too, there will be positive benefits from a vote in Scotland for independence.

We will always be the closest of friends with a strong social and cultural union but we will also enjoy a better political relationship based on partnership.

In the context of the economy, I have described the damaging consensus which is taking both Scotland and the UK in the wrong direction.

If Scotland were to become independent that would be precisely the kind of jolt needed for a serious re-examination of that prevailing Brexit-based, damaging consensus that is being pursued by Westminster at such a cost.

By voting for positive change, we in Scotland will have voted for something which leads to a fairer, more productive economy for the rest of the UK.

People are crying out for hope.

They need political leadership that offers an alternative to the misery they have endured for far too long.

I believe my party can offer that change.

With a bold policy platform that says economic dynamism and social solidarity go hand in hand.

If we do that, then we can create that growing, fairer, greener economy that will ensure greater prosperity for all.

Thank you.