First Minister Alex Salmond
The state of Glasgow's Economy
Tuesday, November 18, 2008
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Before I start, let me commend the Glasgow Economic Forum, Glasgow City Council and Scottish Enterprise for assembling an excellent programme today.
This is the 11th annual conference on the state of the Glasgow economy. And in truth, this year - in the face of major global turbulence - we may be facing the most difficult economic outlook since the series began.
On the way here this morning I reflected that, in addition to his other talents, Steven Purcell had an uncanny knack for economic forecasting.
Last year, with economic growth still strong, rising employment and a booming housing market, he invited Des Browne, the then Scottish Secretary to take the credit and give the keynote address.
This year, amid a financial crisis, rising inflation and global economic doom, as the Rev I.M. Jolly would describe it, the invitation was kindly addressed to me as First Minister.
Perhaps I should not be surprised. Steven Purcell is after all a party politician! And it's been my pleasure to work closely and constructively with him on the Commonwealth Games bid - and now delivering the Games themselves. So I know it's nothing personal.
Wider economic outlook
The economic picture we survey today is challenging. Of that there is no question. Rising commodity prices and the credit crunch have weakened advanced economies across the world, and Scotland has not been immune.
However, it appears that we are finally passing the peak of the inflationary surge. Indeed, last week the Governor of the Bank of England predicted that on at least one measure, inflation may turn negative in the coming year.
The Scottish Government had been calling for a substantial cut in interest rates, so we welcomed the recent 1.5 per cent in the bank rate.
But we know that further rate cuts may well be necessary - and we expect to see these passed through fully to businesses and consumers.
There is no doubt that the credit crunch is causing real pain for the real economy at home and abroad.
The most recent GDP figures for the UK showed a sharp contraction in the third quarter of this year, and the prospect of a UK recession is now regarded as a formality.
Meanwhile the latest output figures for Scotland, published with a lag of three months, showed our economy not in contraction but generating very modest positive growth.
Although the performance of our labour market remains strong - particularly compared to the UK and many advanced economies - unemployment in Scotland has risen in recent months.
Supporting the Scottish economy
In these difficult economic circumstances, government has a duty to act to uphold confidence and protect jobs.
That is why, in August this year, the Scottish Government set out a package of new measures - in addition to the Small Business Bonus Scheme, the Council Tax freeze and reductions in prescription charges that were introduced in April.
Chief amongst these measures were plans - together with local authorities - to bring forward £100 million of capital spending to invest in affordable housing.
And that programme was of course complemented by measures to tackle fuel poverty and improve energy efficiency. To streamline planning and regulation. To provide greater advice to businesses and households, especially better financial advice to vulnerable individuals.
And supporting confidence in key sectors - particularly by maximising the opportunities arising from the Year of Homecoming in 2009.
In short, this government is working hard for Scotland, using all the levers at our disposal. And, within the constraint of a fixed budget envelope, we will continue to do all that we can to support the economy and protect jobs in Scotland.
The Glasgow economy
This Government is certainly not resigned to a negative view of Scotland's economic prospects. Confidence itself - the 'animal spirits' of which Keynes spoke - is also an important factor in determining our economic future.
And my central contention today is that together there is much that we can do - in Scotland and here in Glasgow - to mitigate the downturn. And, further, to build the platform for a strong, sustained recovery.
In recent years Glasgow's economy has enjoyed substantial success. In the last ten years the city centre has created around 50,000 new jobs, taking the total in employment to approximately 400,000 people.
Today Glasgow generates one-sixth of Scotland's GDP. And output per head of workers in the city centre, measured by gross value added, is more than one third above the Scottish and UK average.
Glasgow's economy is based on enduring strengths - in engineering, financial services, the life sciences, energy, tourism and the creative and media sectors.
And of course, Glasgow draws much of its strength from a conurbation of 1.7 million people - with the many thousands of businesses and commuters to the north, south, east and west who serve the city each day.
Alongside these substantial strengths, we know that this city faces important economic and social challenges.
Economic challenges for Glasgow
One is improving physical infrastructure, an aspect which I will return to later. Another is expanding the size and skills base of the labour force, where we are seeing positive results and indeed a rising population.
And another concerns social deprivation, where together we are building strong partnerships to help unlock the potential of some of Glasgow's communities.
That is a basic balance sheet of the Glasgow economy. But it shows to us all the image of a city with tremendous economic potential, and with a healthy and growing appetite for success.
Glasgow's economic strategy
That appetite for success, that ambition, is clear from your strategy, 'A step change for Glasgow'. That document is now celebrating its second birthday and is standing the test of time well.
The Glasgow Economic Forum's analysis is clear-sighted and robust. And vitally, it is allied to a firm and positive vision for the future of Glasgow, embodied in clear ambitious targets on productivity, the labour force and quality of life.
And I believe there is a natural fit between this and the Government's economic strategy for Scotland.
Promoting broad-based sustainable growth
We know that perhaps the greatest risk to achieving our shared economic ambitions is of a prolonged, painful downturn.
That is why the Scottish Government has, for months now, been calling on the UK Government to provide a major fiscal stimulus. And it appears that the message has got through to Downing Street.
A substantial package of tax cuts - and, I hope, spending increases - is expected, and is urgently required. There is an unanswerable case for a Keynesian response to the threatened deep recession. Those who argue that it is unaffordable entirely miss the point.
Reflation only becomes problematic if it increases the structural deficit. Given the current risks of deflation, it is not a question of whether we can afford to support demand and jobs. It is a question of not being able to afford not to take the necessary action.
A top priority is providing immediate relief against rising energy costs this winter. We must bring forward assistance to hard-pressed households and businesses struggling with high energy bills, since we have the assurance that bills will fall substantially next year.
Obviously, any action by the UK Government to boost the economy should ensure that Scotland receives its fair share of Barnett consequentials that may arise.
And London's largesse must also enable us to respond to economic conditions in Scotland. Not least by releasing the £1 billion of funding that is currently being withheld from the Scottish Government, which could provide an immediate economic boost.
So next week's Pre-Budget Report should outline immediate steps to underpin growth and protect jobs in the Scottish and indeed the UK economy.
But at the same time, these actions alone would barely begin to address more fundamental economic challenges.
The most obvious is restoring credibility and sustainability to the public finances over the medium-term.
I welcome the fact that the Government has abandoned its fiscal rules - the so-called 'golden rules', which have rusted from exposure to bad economic weather.
But the prospects for future borrowing depend to some extent on the credibility of the medium-term borrowing plans. So it is not unreasonable to hope that a sound guiding framework for the public finances will be forthcoming in the Pre-Budget Report.
And there must also be a rebalancing of the economy, and indeed economic policy, towards broad-based growth.
Recent experience in the UK, in the United States, and even in some of our small European neighbours has brought home the risks of relying on growth in the property market and financial services to sustain the economy.
For too long, UK economic policy has relied heavily on these sectors as the main engines of economic growth.
That has been coupled with an assumption by the Treasury that continued fast growth in these sectors presented only modest, manageable risks to stability.
And indeed, culminated in the delusion that the strength of UK Government policies ensured boom and bust was a thing of the past.
Over the past year, the weaknesses in the UK's economic strategy have been systematically exposed. We have been reminded of the necessity of generating broad-based growth, in manufacturing and in services.
And we have seen just how important it is that the business environment, government policy - and crucially, the flow of skills and human capital - help to promote growth across all the key knowledge sectors.
The Scottish Government's economic strategy describes this as enhancing our competitive advantage in key sectors. Glasgow City's economic strategy describes this as moving up the value chain. The ideas are one and the same. And they are right.
Strengthening Glasgow's key industrial sectors
We know, and we will hear further today, that Glasgow has tremendous opportunities to strengthen its key industrial sectors.
Take renewable energy. This summer saw the announcement of the new Clyde windfarm - Europe's largest single windfarm development.
Many of us here know of the large established players in Glasgow, such as Scottish Power, which has its headquarters here.
But how many people have heard of Sgurr Energy, which in six short years has moved from a small business in an attic to a global company - servicing operations in 25 countries from its new offices in Bath Street. Including a 4000 MW wind energy development spanning China and Inner Mongolia.
Sgurr's sophisticated radar systems can tell you how fast the wind is blowing in such exotic locations as Hampden Park - information which could prove invaluable for tomorrow's friendly with Argentina!
Just last week Scotland's renewables sector gained fresh impetus when the European Commission declared a North Sea super-grid for renewables among Europe's top energy priorities.
And with Glasgow's established strengths and skills base in engineering, the city should be well placed to profit from the coming green energy revolution.
In broadcasting and in the digital media, we have seen Pacific Quay emerging as a powerful hub for technology and talent in Scotland.
And the prospects for the industry, and the wider creative sector, have been significantly enhanced by the work of the Scottish Broadcasting Commission.
The formation of the Commission has already helped to secure a commitment from the BBC to guarantee Scotland at least its fair share, 8.6 per cent, of UK network production. We are looking to Channel 4 to follow suit.
And the proposal for a new Scottish digital public service network, which we strongly support, would bring around an additional £75 million into the industry - much of it here in Glasgow.
Let us not give up on financial services. Glasgow has already built a strong centre in the International Financial Services District, attracting major global companies including JP Morgan, Barclays Wealth, AXA and Morgan Stanley.
Globally the sector is facing major challenges and massive restructuring. And we can have confidence that, once that restructuring is done, Glasgow's enduring cost and quality advantage will continue to create new opportunities for offshore business.
Turning to the life sciences, there is a rapidly growing base in Glasgow and the West of Scotland - comprising 180 life science companies together employing an estimated 80,000 people.
This position is founded on a strong academic and scientific base - a base which will be significantly enhanced by the new centres for research and treatment at the Beatson Cancer Centre - which Nicola Sturgeon opened earlier this year.
And the new Southern General Hospital, at £842 million, Scotland's largest hospital building project, which will be entirely publicly funded. Because it is not just in the private sector that off-balance sheet finance is creating problems.
From April next year, under global accounting rules, the capital costs of PFI and PPP will move onto the public balance sheet. And, as you would expect, we are pressing the Treasury for vital assurances on capital cover.
Of course 2009 will have other highlights that may even surpass the introduction of new accounting rules.
Because in the Year of Homecoming Glasgow will play its full part with an outstanding programme of events.
The programme begins with Celtic Connections, a truly global celebration of the best of Scotland's traditional and contemporary music. And where better than Glasgow - newly crowned as Unesco City of Music - to celebrate.
Five of Scotland's most talented young composers are creating the Homecoming Suite, which will be performed by the Royal Scottish National Opera and their special guests.
And there will be more high notes in August next year with the World Pipe Band Championships. 8000 pipes and drums and 200 bands from across the globe will descend on Glasgow to challenge for the world title.
In July, on the eve of the historic Gathering of the clans, the University of Strathclyde will host a conference on genealogy, and Scotland's first international genealogy festival.
So the Year of Homecoming promises to turn what might have been a slump into a tourist boom. And for Glasgow in particular it marks an important step in meeting your ambition to grow tourism by 60% in the next eight years.
Let us take a moment to step back and study the big picture. Because what we see, notwithstanding a global slowdown, are enormous economic opportunities for Glasgow, in the immediate future and over the long term.
And let me assure you that the Scottish Government is committed to working in partnership with each of you - with businesses, local government, community groups, trade unions and others - to help Glasgow achieve its full economic potential.
Creating a strong business environment
As I noted earlier in my remarks, and it is a point made forcefully in Glasgow's economic strategy, a strong business environment is vital to securing that potential.
One essential element is a dynamic and flexible workforce. Which is why we are investing for the future - to ensure that Glasgow makes the greatest possible contribution to Scotland's economic success.
Earlier this year this government decided to increase the number of Modern Apprentices in engineering and construction by 1,000.
With the new aircraft carrier being built on the Clyde and new facilities created for the Commonwealth Games, these are skills that Glasgow must have in depth.
Skills Development Scotland is giving its full support to Glasgow City Council's pledge that, next year, every school leaver in Glasgow who applies for a Modern Apprenticeship will be offered one. Indeed I understand that discussions are already underway to ensure this proposal is successful.
In higher education, the Joint University Taskforce yesterday confirmed the welcome intention to recognise Scotland's universities as a priority economic sector.
And also yesterday, new research from the Scottish Funding Council showed that the share of students from the less privileged areas of Scotland has risen steadily since 2000.
Taken together, these advances in skills, in apprenticeships and in our higher education sector will help to develop the workforce that Glasgow needs to compete and win in the key knowledge sectors.
Planning is also critical to increasing sustainable economic growth - in our cities and across the country.
The Scottish Government is committed to reforming Scotland's planning system. Last month we unveiled a new planning policy that brings together twenty existing sets of guidelines into a single, coherent framework.
And I am delighted to say that our new framework has the strong backing of the Scottish business community.
The Scottish Government is also making record investments in the transport system. In May this year I was delighted to attend the groundbreaking ceremony for the completion of the M74 motorway, which is due to be opened in 2011.
At that event I met Neil McDougall, who worked on the initial section of the motorway at Larkhall in 1963. Neil was working in Ireland this year when he received the call to come home.
Neil was due to retire in July 2008. But by taking part in the M74 completion scheme, he secures his place in history: as the only person to have worked on the first and last M74 construction projects.
Glasgow will also benefit from the new £300 million Airdrie to Bathgate railway. The project is well underway, and on track to deliver four new, electric train services per hour between Glasgow and Edinburgh from December 2010.
And our planned improvements to the Glasgow-Edinburgh rail link are of strategic, nationwide importance.
We are investing to deliver more, faster rail services between these two cities - and the aim of reducing journey times to as low as 35 minutes.
Further substantial improvements will be achieved by upgrading the existing rail infrastructure and electrification of key routes - delivering a faster, greener and more efficient rail network in Central Scotland.
Transport Scotland is taking this programme forward working with the industry, with Network Rail and with First ScotRail.
This partnership is progressing well, which is why I am able to announce that feasibility studies for the upgrade have been completed on time - and that we expect key contracts to be signed later this year to take this overall £1 billion project through the next stage of design.
These three aspects - skills, planning and transport - are vital for Glasgow's economic success. The city is already making real progress on in each area. And there is also an ace in the hole - the Commonwealth Games.
The 2014 Glasgow Games will bring a massive boost to the physical infrastructure of this city.
They will bring a public investment of £298 million, contributing to an overall budget of £373 million.
And in addition to the direct investment by the Games organisers, a further £1 billion will flow into major infrastructure projects as part of the run up to 2014 - delivering key projects such as the East End Regeneration Route, the SECC Arena and the Games Village. Projects which will help to transform a substantial part of the fabric of the Glasgow economy.
The next few years will see tremendous opportunities for Scottish firms to contribute to the success of the Games. And it is estimated that the Games could create 1,200 new jobs in Scotland, with 1,000 of these in Glasgow.
There is a further element that is vital to the strength of the business environment, in Glasgow and across Scotland - the incentives for firms to invest and to grow.
We are all aware that, currently, the Scottish Parliament and Government have fairly limited economic levers. As is in keeping with our core Purpose, we seek to use these levers to achieve the maximum benefit for Scotland.
Later this morning, John Swinney will announce a grant of £800,000 to BiP Solutions, a company which provides business services related to public procurement.
This new investment will support the development of the company's new operations at Pacific Quay's Digital Media Quarter. And this will be a welcome boost for Glasgow, helping to support the creation of 100 new jobs and safeguard a further 100 jobs.
At a time when Scottish industry needs urgent support - and with conditions of credit hardly meeting the promise of keeping lending levels and lending rates at 2007 terms - this government's Small Business Bonus Scheme will reduce or abolish rates for tens of thousands of small firms across Scotland. That support will benefit many thousands of firms in and around Glasgow - and no doubt several at this conference today.
Nonetheless, vital instruments including corporation tax, capital gains and environmental taxation remain reserved to Westminster. Many of us will wish it were otherwise.
In life, as in politics, timing is vital. Now, more than ever, we can see how Scotland would benefit from greater financial freedom. The power to harness our natural resource base to provide Scotland with a financial cushion against times of hardship.
And, instead of the straitjacket of fixed budget, the power to actually reflate the economy during a downturn. Not just asking others for this action, but taking it for our ourselves, and for Scotland's economic interests.
Conclusion
Today we are considering the long-term future of the Glasgow economy - the right strategy for success.
There is no question that today we face global conditions as challenging as we have seen in decades. And, like all advanced nations, we face considerable uncertainty about the immediate prospects for jobs and for the economy.
But today we also see - and must keep firmly in focus - the overwhelming strengths of this city and its people.
- A skilled, creative and dynamic workforce
- Real strength and real depth in the key knowledge industries of the future
- And major investment and major reforms to build a world-class business environment
These are the reasons why Glasgow has succeeded. These are the reasons why you have set an even higher ambition. And these are the reasons why, together, now and in the coming years, we will help to raise Glasgow - and Scotland - to even greater success.