Remarks to Scottish Economy Seminar

Below, the text of my remarks to today’s Scottish Economy Seminar, hosted by the Secretary of State for Scotland in Edinburgh.

Introduction

• I’m very glad to be have some time with you in Scotland today

• And I’m especially grateful to Jim Murphy for organising today’s excellent event, and for inviting me to speak to you.

• With me today is Dave Ramsden, the Treasury’s chief economist, who will be able to talk through the details of the macroeconomic position

• But before he does, I want to say a few words about how I see the economic situation, and what the UK needs to do next.

CONTEXT

• If 2009 is remembered for recession, then 2010 must be marked by recovery

• And, in the UK, we have good reason to be confident

• We’ve taken unprecedented action to support the banks – including here in Scotland

• Our fiscal stimulus has protected jobs and kept people in their homes through the global downturn – ensuring fewer bankruptcies and repossessions than in previous recessions

• And, while risks remain to the world’s economy, its in much better shape now than 12 months ago

• The new questions of modern political economy are now becoming clearer:

o Who will give us economic growth that is fastest and best rebalanced towards investment and exports?

o Who will give us the right balance of public spending to deliver that plan, and not put the recovery at risk?

o And who will deliver a fair share of the prizes we know our country can win in the years ahead? Who will do most for the many?

GROWTH

• Let me start with growth, becuase here we confront our first choice

• We can resign ourselves to a lost decade of under-investment and low employment

• Or we can be ambitious and go for growth.

• Though some disagree, the Government cannot sit this one out – the decisions we make are critical to our country’s prosperity

• We’ve acted in the last couple of years in a way only Government can:

o We stepped in to support the financial system

o We cut VAT to put £12bn into the economy

o We gave confidence a jump-start with measures like the scrappage scheme. Over 23,000 cars have been ordered in Scotland alone

• Our takeaway from this action is that action was right. And that is why we’ll act again to support growth – putting growth at the heart of the forthcoming Budget

• That means creating conditions for you to trade and invest

• It means looking at areas such as transport, skills and innovation, to see how we can further dismantle the barriers to growth and enterprise

• It means building on Scotland’s strengthes.

• Even in the global downturn, Scotland exported over £20bn of goods and services last year

• Edinburgh is a world-class financial sector. And, like London, it needs to remain so

• The reforms we’re making to strengthen the banking system will help achieve this

• And look at high-tech. There are over 100,000 jobs in electronic and high-tech in Scotland – supported by R&D tax credits and our investment in skills

• Or look at the energy sector. Never more important

• Only last month, the Chancellor announced new incentives to promote investment in remote gas fields in the West of Shetland.

• With Government support and investment, we have the capacity to be world leaders in this area.

• You will have other views – and this morning I’d like to hear your priorities for the budget

PUBLIC SPENDING

• So growth is essential to our economy. It will create jobs and new opportunities for all parts of the UK

• But growth will be faster if we put in place the right plan to reduce the deficit

• Unlike some, we firmly believe its right to maintain spending until the recovery is secured

• As the IMF has said, to cut now would be too risky

• But we’ll need to take action to bring down borrowing once our economy is again growing at full clip

• We’ve published our plan to halve the deficit over the next four years. In fact we’ve made it a legal commitment;

• We’ll take out £82bn by 2013-14.

o £19bn will come from the tax measures we’ve already announced. No Government likes to raise taxes, but when we do, we must do it fairly. 60% of extra revenue will be raised from the top 5%.

o £38bn will come from scaling back spending

o And £25bn from growth and other factors

• This is the most ambitious and detailed deficit reduction plan of any G7 country

CALMAN ANNOUNCEMENT

• I want to finish with a few words on a fair share of the prizes of the years ahead.

• I am an optimist about the decade to come. Economic growth is set to outstrip population growth meaning rising wealth per head around the world.

A giant new middle-class is being created in China and India. And we are still only at the beginning of our relationship with those great markets. We trade more with Ireland than Brazil, Russia, India and China put together.

And growth won’t come just from exports. It will come from others investing in us. We are already home to $1 trillion of FDI. We are the favourite place in Europe for Chinese HQ. Thousands of foreign students every year start their careers with a spell of study on our shores.

We can do well in the era that’s coming. And devolution has and will help make sure every part of the UK shares in that change. .

• Now, some argue for full fiscal autonomy for Scotland – but they can’t answer some fundamental questions, like how to deal with Scotland’s fiscal deficit

• And full fiscal autonomy could impose yet more cost on businesses – such as the financial service firms so important here

• So the Government does not agree with the call for full fiscal autonomy. But the Calman commission recognised the merits of greater fiscal responsibility to strengthen the devolved Government

• So, back in November, Jim announced a whole package of measures that together represent the most significant change to Scottish finance in a generation

• Allowing the Scottish Parliament to set its own rate of income tax; devolving some smaller taxes; introducing a new Scottish borrowing power for capital investment

• These are radical changes and we’ll introduce legislation in the next Parliament as a matter of priority

• We’ll need to ensure we learn from the experience and knowledge of businesses and third party groups in Scotland as we make these changes

• So, today I can announce that HMRC will establish a new group to advise on the technical and practical implementations of Calman

• The group will include professional and tax advisers, and business representatives with a number of open events.

• Ensuring a stronger Scotland plays its full role in a stronger Union.

• A Union where we’re making the right calls

o Seizing the opportunities for growth

o Not playing games and risking the recovery

• Thank you