Speech to Institute of Directors

It is a pleasure to speak here today. The Institute of Directors has demonstrated, over many years, an unswerving commitment to improving the quality of business leadership in Scotland and across the UK.

Three hundred people a year in Scotland currently use your director development courses. You work closely with the Scottish Government to increase the number of women on public and private sector boards. And you will be an important member of Scotland’s Post-Referendum Business Network. That’s the new forum which we are establishing, so that the Scottish and UK Governments can understand – and act on – the concerns and priorities of business following the EU referendum.


Now, as you might expect, I’m going to focus this morning on the implications of the EU referendum for Scotland. I’m going to make the case that – notwithstanding the outcome of the referendum – remaining a member of the single market, as well as being democratically defensible, will be crucial to businesses and communities in Scotland and across the UK.


But I want to begin by putting that argument in context. Over the last 9 years, the Government that I now lead has consistently strived to make Scotland the best place in the UK to do business.


One of the first actions we took in 2007– in response to concerns from business – was to create the small business bonus scheme. As a result, almost 100,000 small business premises in Scotland now pay zero or reduced rates. In fact, the policy has been such a success that it is being emulated by the UK government next year.


In 2011, we retained our enterprise agencies at a time when regional development agencies in England were being abolished. We’ve supported key economic sectors such as food and drink, energy, financial services and creative industries. And we have invested in education, skills, transport links and broadband.


We’re also working with businesses to create a change in our culture – we want Scotland to become an entrepreneurial nation. That involves everything from promoting entrepreneurship in schools, to directly encouraging start-ups, to producing the European Union’s only framework for women in enterprise.


We still have much more to do – and of course our growth has been hit by difficulties in the oil and gas sector in the last two years. But we have also achieved significant successes. The number of registered businesses in Scotland is at record levels.  Unemployment in Scotland is again lower than in the rest of the UK. We consistently outperform every part of the UK except London when it comes to attracting inward investment.  Scotland’s productivity has grown since 2007, while the UK’s has stagnated.


We work every day with business to build an economy based on exports, innovation, high skills, and increased productivity.  And so the trade benefits – and the social protections – of single market membership are an integral part of our vision for Scotland’s economy.


There’s one other aspect of our economic approach which I think is worth highlighting. In everything we do, we put a strong emphasis on inclusive growth.  We believe – in line with the World Bank and many other international experts – that growth will be stronger and more sustainable if it is broadly based.


We therefore see many of our social policies – for example tackling poverty, improving childcare and boosting educational attainment – as having a strong economic justification.


And we also see business as a partner in delivering social progress.


I know that Simon sometimes talks about the Royal Charter of the Institute of Directors. It was granted in 1906 but remains relevant today. It pledges “to promote, for the public benefit, high levels of skill, knowledge, competence and integrity on the part of directors.”  The reference to the public benefit is crucial – it acknowledges that businesses are part of wider society; your fortunes are tied to the wellbeing of your communities, customers and employees.


We are fortunate in Scotland that so many of our leading companies – as well as being innovative, dynamic, ambitious and successful – already recognise this.


There are now almost 600 accredited living wage employers in Scotland. That’s up from 70 just two years ago. Next week, we publish a strategy for a fairer Scotland which includes pledges from a number of major employers. We are working with business to create a society where the benefits of economic growth are shared more equally, so that future economic growth is stronger and more sustainable.


I’m emphasising this point, because the EU referendum shows that it is more important than ever.


I’m very proud of the fact that Scotland voted so strongly to remain in the European Union. But I can’t ignore the fact that even in Scotland, a million people voted to leave. They did not think that that the European Union benefited them – they did not see advantages from free trade and free movement.


That feeling was even more prevalent in other parts of the UK. There are many, many causes of the vote to leave the EU. For many people, they will have included entirely reasonable doubts and reservations about the EU. It is, after all, an imperfect organisation.


But in part, Brexit was a product of a sense of disenfranchisement and disillusionment. It was borne of inequality, of feelings of powerlessness – of austerity budgets which hurt the public services and social safety nets that so many people depend on.


And so one consequence of the referendum must be a new effort – which needs to be given real substance in the UK Government’s autumn statement – to ensure that the benefits of growth, of globalisation, are more fairly distributed. The UK Government has suffered one of its most significant policy reversals in generations – it can no longer ignore the social and economic cost of inequality or the impact of its austerity economics.


Now, as all of you know, the outcome of the EU referendum was not one which I sought, and it is not one for which people in Scotland voted.


We believe that EU membership makes it easier to export goods and services, to attract talented migrants and to benefit from inward investment.


And in many ways, EU membership is now part of Scotland’s sense of itself. We see ourselves as an open, internationalist country. We value the contribution made by EU citizens across Scotland. We like the fundamental principle behind the European Union – of independent nations co-operating for a common good.


So Scotland is in a situation which is not of our making. But it is a situation which we will seek to deal with as constructively and as positively as possible.


In doing that, my guiding priority is to reflect and protect the interests of the people of Scotland.


As part of this, I have made it clear that a referendum on Scottish independence remains an option. If the approach taken by the Westminster government proves to be seriously damaging to our economy, our competitiveness and our place in the world and if independence is the only way of protecting our interests, then it stands to reason that it is an option we must have the ability to consider.


But as I said the morning after the referendum, independence is not my starting point in this process. My starting point is to do everything I can to retain the benefits of EU membership, and to preserve as best I can, Scotland’s relationship with the EU. That’s what people in Scotland voted for in June. It is what I aim to achieve.


I have established a Standing Committee on Europe. It is investigating distinctive solutions for Scotland, which preserve the benefits of EU membership. We are looking to see if there are ways in which – for example – the benefits of single market membership could be retained by Scotland even if they are discarded by the rest of the UK.


That won’t be straightforward. But nothing about Brexit is straightforward. The UK Government has already implied that it is prepared to think carefully – as it should – about Northern Ireland’s position, to avoid restoring a hard border with Ireland. We all need to think creatively and negotiate constructively. In these circumstances, no option can be off the table for Scotland.


And of course, the other key objective of the Scottish Government, is to exert as much influence as possible on the UK Government’s eventual negotiating position.


In doing that – and I’m trying to be tactful here – it would be helpful to know more about the UK Government’s current thinking. As a first step, I think we would all benefit from some clarity.


However one of the few things we do know is that the Prime Minister will not invoke Article 50 until a “UK approach” to negotiations has been agreed. She has also promised significant engagement with all of the devolved administrations on what that UK approach should be.


The Scottish Government has a very clear view of the UK approach we would like to see. We believe that the UK should seek to retain full membership of the single market.


We know that some parts of that – such as retaining freedom of movement – would not satisfy everyone. Although immigration brings significant economic benefits, those benefits aren’t felt by everyone. So it will become even more important to ensure that the economy works more effectively for people who are currently unemployed, or on low wages.


But we believe that there is a strong democratic justification for retaining our single market membership. After all, 48% of the electorate voted to remain in the EU. So did two of the four nations of the UK. And people who voted to leave were repeatedly told that leaving the EU did not necessarily require leaving the single market. There is no meaningful mandate for what is generally known as a hard brexit. Single market membership seems to us to be the obvious consensus position.


And single market membership would also – surely – be the least damaging outcome for individuals, communities and businesses across the whole of the UK. That’s why the Scottish Government’s position is, I believe, one which is shared by the majority of businesses.


Many people in the UK look at the political debate in America now – where one candidate is talking about imposing significant tariffs on imported goods – and we criticise that debate. So it seems almost unbelievable that we’re now in a position where barriers and tariffs with our nearest neighbours could become part of our daily business life.


You only have to read the 15 page memorandum from the Government of Japan – a more clear-sighted analysis than anything we’ve seen so far from the UK Government – to see what the third largest economy in the world believes could happen if we leave the single market: a loss of company headquarters, a hit to exports, turmoil in labour markets, damage to financial services and cuts to research and development investment.


The Institute of Fiscal Studies tried to quantify the consequences last month. It estimated that losing our membership of the single market could cost the UK approximately 4% of GDP. That’s almost two years of average economic growth.


There would be other effects, too. To give just one example, last week the Times Educational Supplement’s annual report showed that Scotland has more top class universities per head of population, than any country in the world except for Luxembourg. But a hard Brexit would cause our universities significant difficulties. Being outside the single market could hinder their collaboration with international partners, and harm their attempts to recruit staff and students from overseas. It’s an example of how single market membership brings benefits across the whole of our economy and our society.


I began this speech by setting out how much the Scottish Government values its partnership with the IoD and with business more generally. For nine years now, we have worked with you to encourage sustainable growth and to boost prosperity in all parts of Scotland. And throughout that time, EU membership has been part – not just of our economic strategy, but of our wider vision of Scottish society.


So we deeply regret the outcome of the EU referendum. And we don’t want the UK Government to compound the mistakes it made over the referendum, during Brexit negotiations.


We believe that leaving the single market would cause lasting, unnecessary and self-imposed damage to businesses and communities across the UK. So we intend to argue wholeheartedly for single market membership – including the economic benefits that freedom of movement brings. We see that approach as being democratically justified, socially progressive, and economically beneficial.


And in making that case, we want to make common cause with trade unions, business organisations and other political parties throughout the UK. We believe that in doing so, we will be serving the interests of individuals, businesses and communities – not simply in Scotland, but across all the nations of these islands.