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Positioning Scotland for Economic Recovery and Growth Speech by The Chancellor


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Issued 12 February 2010

Today in the UK we have one of the best environments in the world for starting and growing a business. I have no time for people who are intent on talking down Britain.

Because we have good reason to be confident. Unlike the fall-out from earlier recessions, our key industrial strengths remain intact, in spite of the greatest global financial crisis of modern times.

Today, the big competitive challenge is how to promote long-term sustainable growth.

How we generate the change we need to secure a stable and more prosperous future.

It is a challenge as relevant here in Scotland as it is in Seattle or in Singapore, as China and the emerging economies exert their influence on the world economy.

In the next few months we shall make decisions that will shape our country’s future for the next 20 years.

Risks remain, but the global economy is in much better shape now than 12 months ago.

That is no accident. We, like every government across the world, stepped in to support the economy.

In the 1980s and 1990s we saw the impact of policies which left individuals and communities to fend for themselves.

For us, leaving people to fend for themselves is never an option.

To be effective, we needed to work closely with other countries. And we did:

We stabilised the banks to stop the complete collapse of the economy;

We helped people get back into work if they lost their jobs;

And we helped people in difficulty stay in their homes.

From the Shetlands to Lands End our approach is working.

And while there is still much to do, I am confident we will lock-in economic recovery.

Our future prosperity depends, of course, on securing sustainable growth here in Britain and across the globe.

Growth will be the engine of progress and development. Growth will generate jobs and opportunity.

Provided we do what is right, that we remain constant in our approach, we will secure that much-needed growth.

And, as I will argue today, the role of government is pivotal. What government does can make a real difference to our future prospects.

The world has changed in the last two years. It demands a new response – the decisions we make in the next few months will be critical, as we emerge from recession and build for the future.

For there is a choice. We can resign ourselves to a lost decade. A decade of under-investment, low growth and low employment.

Or we can be ambitious for our future, go for growth and the many jobs it will bring.

What the Government does to support this is critical. I believe Government can make a difference. Some don’t. I disagree fundamentally.

While the private sector slowly recovers, it is only governments that can do what needs to be done now – supporting the economy, helping businesses, keeping people in work and in their homes.

We gave businesses more time to pay their taxes, £5bn worth of agreements now in place, over 17,000 in Scotland alone. And their repayment rate is over 90 per cent.

The scrappage scheme has been a huge boost to the motor industry. The VAT cut put £12bn into the economy.

Standing back to do nothing was not an option for us then. It must never be an option again in the future.

We are now out of recession, but there are still risks ahead of us, as the economy gradually recovers.

And as we strengthen the nation’s finances and invest in our industrial strength we will create jobs and business opportunities.

Just as we took action to prevent the collapse of the economy, we must now take action to make the most of the global recovery.

In the Budget next month, my main focus will be growth.

I will take steps to provide the country with a strong platform to generate opportunity and jobs in the future.

It will always be Britain’s businesses – from the multinationals to the start-ups – who will generate our wealth in an ever more competitive global economy. That is why I have taken steps to help them and will continue to do so.

Functioning markets, private endeavour, individual ingenuity – they are all necessary to facilitate growth, but often they need the helping hand of Government.

But there is a very important role Government can, and must, play.

Some simply don’t accept that. I think it’s fundamental.

Government cannot act as a disinterested spectator.

You know, as well as I do, that every business and every person depends, some way or another, on well-managed public investment. Through our spending on education, skills, and training we are equipping people with the knowledge to become more productive.

Today, almost a third of people are highly-skilled, compared to less than a quarter in 1997.

By almost doubling funding for science since 1997, we have provided a solid basis for innovation.

I am struck by how much research is coming out of UK universities, but with 18 universities in the world’s top 100, we should be seeing even more spin-off companies.

So we’ve asked Hermann Hauser, a world class entrepreneur, to look at how we can further improve innovation networks in the UK, to generate more commercial ideas and develop early-stage businesses – so that I can extend this further at the Budget.

No less important is the need for Government to invest in the country’s infrastructure.

A modern communications network and reliable power supply, for example, are both critical to competitiveness.

We need to ensure we have secure energy supplies – including in renewable and nuclear energy.

So I have set up a new body, Infrastructure UK, to report to me by the Budget with a strategy for the country’s infrastructure and the associated financing.

Also essential is investing in transport, to get our people and our businesses moving.

I know many of you have made the case for better rail links between Scotland and London.

We have spent money improving the East and West Coast main lines, and will continue to invest in the rail network.

We now need to examine the case for further high-speed train services in the UK.

In all these areas – transport, skills, innovation – our goal, as a Government, has to be to dismantle the barriers to growth holding back our key sectors.

All part of a Budget that will harness the know-how of our businesses, and the strengths of our economy, to create a wealthier and fairer society.

Growth not only brings many of its own benefits – it is also a crucial part of our plan to reduce the deficit.

Because, as any family knows, when your income grows, it is much easier to reduce borrowing and cut debt.

Now, I understand very well why people worry about personal debt – and why they are concerned when they see the present scale of Government borrowing here and in most countries.

But if governments act in the same way as families they can compound the problem.

When times are difficult, families will rightly tighten their belts. Governments must behave differently.

At a time of low private sector activity, continued Government spending provides vital demand.

Pull away that support too soon, or too rapidly, and you hurt growth, reduce the tax take, push up benefit spending, and eventually make borrowing worse.

That is the key lesson from the 1930s and what Keynes called the paradox of thrift.

Yet there are still some who have not learnt that lesson.

They say that Government should pull back, step away, regardless of the consequences. That we should cut now before recovery is established. I do not agree with them.

Of course fiscal consolidation is vital.

That is why I have always been clear that support for the economy now must go hand-in-hand with action to bring down borrowing once the private sector is able to drive the recovery.

We have a credible plan to cut the deficit at a sensible pace – to halve the deficit over four years, and see debt, as a share of the economy, falling by the end of the next Parliament.

It is the most ambitious deficit reduction plan of any G7 country.

It is based on fair tax rises, with the biggest burden falling on those who can most afford it.

The case for maintaining public spending until recovery is established is overwhelming.

Most countries are taking the same approach, because to cut now would be extremely risky and dangerous.

But once the economy is back on track, we are setting a much tighter public spending environment.

That is the approach we’ve taken for some time. And that consistency of approach, being clear about our direction of travel, is absolutely essential.

Strong future growth also means a British economy open to trade.

As each country competes to make the most of the global recovery, there is a temptation for governments to think that they should first look after their own, at the expense of others.

That’s a short-sighted approach. It’s not right or wise. We must avoid protectionism at all costs.

To put up trade barriers now would harm all countries, rich and poor alike. And it will cost jobs.

Gordon Brown re-stated the UK’s commitment to free trade at the European Council in Brussels yesterday.

He also made the case for growth across Europe.

The European Union is our biggest market.

When they grow, this brings new jobs and new opportunities for us.

Growth must be the new Commission’s over-arching priority.

At the same time, our businesses must remain global in their reach and ambitious in their approach.

That is not a message I need to dwell on here in Edinburgh. Entrepreneurs have been travelling the world from here for over 400 years.

And can I tell you that the tradition continues.

Last weekend when I stepped off the plane on Baffin Island – between the Hudson Bay and Greenland – the first Canadian official I met at the airport was a man from Prestonpans.

From the industrial revolution to the I.T. age, Britain has been a world centre for international trade.

The UK spawned the first multinational corporation.

Today, we are the world’s second largest exporter of services and one of the top exporters of goods.

And this is thanks, in great part, to the work of the Government trade promotion agency, which operates in 160 locations across 98 countries, helping over 20,000 firms to export.

So much so that here in Scotland, even in the global downturn, we exported over £20bn of goods and services last year.

But impressive as that is, the scale of Scotland’s trade with the rest of the world is dwarfed by its trade with the rest of the UK.

Putting any sort of barrier between Scotland and the rest of the UK is plain daft.

Especially in these uncertain times, we need to maximise the many opportunities available to us across the world to secure growth and jobs.

It would be nothing short of economic madness to do otherwise.

A strong economy needs strong banks. To secure growth we need a safe and reliable flow of credit to businesses and families.

Over the past decade, the global financial system became extremely complex and deeply interconnected.

Across the world, many bankers did not understand what was going on, and many regulators could not see where the risks lay.

To prevent a repeat of these problems we, together with other G20 countries, are putting in place reforms to strengthen the regulatory system.

We are all making our banks safer, by making them hold more and better-quality capital.

To reduce the impact and likelihood of bank failure, we’re making the banks develop plans in advance, setting out how they will restore themselves from stress or eventually their own orderly wind-down.

There are longer-term issues too – like how to ensure banks across the world make a contribution to the costs they impose.

But the key is to implement the reforms we’ve agreed – and to do so as quickly as possible.

After all, financial services have been a crucial part of the British economy for centuries.

There are over one million people employed in the UK’s financial sector, 70 per cent outside London and around 100,000 in Scotland.

Jobs not just in banks, but in pensions, insurance, law and accountancy – all part of the critical mass of expertise that makes us a world financial centre.

You can see that here in Edinburgh.

As in many other aspects of life, it is the sum of our parts that gives the UK its clout in the financial sector.

In 2008, when the global banking system came close to collapse, it was the strength of the UK that made it possible to stabilise the banks.

And as the global recovery takes hold, and financial globalisation deepens, the UK’s strong reputation abroad will stand all parts of the country in good stead.

That’s why there is a premium on getting regulation and supervision absolutely right. The FSA has a critical role here.

By 2030, the World Bank estimate that the middle class in emerging and developing countries is likely to almost treble to 1.2bn people.

This will generate huge demand for financial services – for savings products, pension funds and loans.

Think of what that means for Edinburgh or Glasgow.

The opportunities are immense. We should not throw away our expertise.

I am determined that London and Edinburgh remain world class financial centres.

Properly regulated and supervised, the financial services sector will remain important, north and south of the border, as part of a strong and diversified economy.

Financial services, of course, are only one of our key industries.

As an economy, we have many strengths – we need to exploit these advantages and trumpet our success stories across the world.

North Sea oil and gas have been a huge asset for this country, and will remain so for some time.

The fields West of Shetland could contain one-fifth of remaining reserves, but conditions are tough and lack infrastructure.

So that is why – only last month – I announced new incentives to encourage the development of remote deep water gas fields there.

But if we want to continue to be world leaders in the energy sector, we must base our advantage on our geography as well as our geology.

We have tremendous potential – miles of coastline, plenty of wind and waves.

We are making it easier to invest in renewable energy projects and in England we have streamlined the planning system to accelerate development.

We have introduced a subsidy to support renewable energy. In all, this has released billions of pounds for green energy infrastructure projects.

As a result, the UK already has the world’s largest off-shore wind energy capacity. Not only do we want a cleaner environment, we know this will create jobs.

We must now build on our energy supply chain and our know-how to become world-leaders in all forms of low-carbon energy.

It is estimated that by 2050 the global value of this sector could be as high as £3tr per year – bigger than the whole French economy – and employ over 25m people.

As we move to a low-carbon world, we must seize the opportunities available to us – that is why the Government is helping British business get the contracts and carry out the work.

Equally important to the country is our high-technology sector.

There are over 100,000 jobs in electronics and high-tech in Scotland alone.

Hardly a week goes past these days without some story in the press about the latest Apple invention.

What is not so widely known is that the main chip in the iPod was developed by a company right here in Edinburgh.

Or that the microprocessors – the brains – of most Apple products, from the iPod to the iPhone, are created in the UK.

In fact there are roughly 10 times more such processors sold across the world every year than personal computer processors from Intel – the world’s largest semiconductor company.

And our companies are also at the cutting edge of software development, in particular computer games.

Dundee has become a global centre of expertise for game technology, and major companies like Rockstar North and Realtime Worlds are based in Scotland.

And just as we have succeeded in this major knowledge-intensive industry, we have made great leaps in biotechnology, advanced manufacturing, science and engineering.

Thanks, in no small part, to the £40bn of research and development supported through the Government R&D tax credit scheme.

No less important is the contribution of Scotland’s academic life.

The reputation of Scotland’s universities travels far and wide.

They alone attract 35,000 students from around the world – contributing over £400m to Scotland’s economy – each year.

We have achieved a lot in the last few years, across many industries.

We must build on that – and do more.

In the next few months we’ll make a choice that will shape this country for the next 20 years.

A choice between growth and prosperity, or resigning ourselves to a decade of austerity, low growth and low employment.

The world has changed profoundly in the last two years.

The role of Government has changed. We won’t get the change we need unless Government plays its full part.

We need to be constant in our approach – consistent in sticking to the course we’ve set.

Standing back, hoping for the best, won’t do. We’re at a critical stage.

We made the right decisions to get us out of recession.

We must now make the right decisions to make the most of the recovery.

A credible plan for growth.

A sensible plan to cut borrowing.

A commitment to a fair and just society.

This is as true, and as necessary, in Scotland as it is in every country around the world.

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Article Published/Sorted/Amended on Scopulus 2010-02-15 15:21:25 in Economic Articles

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