Fiscal framework exposes the Scottish Government to some risks which it can’t influence

Graeme Roy, Director, Fraser of Allander Institute

Professor Graeme Roy spoke about the biggest reform to the financial powers of the Scottish Parliament since 1999 including changes that will not only be fundamental for how public services are funded in Scotland but also for our future economic prospects.

Presentation to DHI seminar: May 11 2017

Much of recent debate has understandably concentrated on big political questions such as Brexit, IndyRef2 and the UK General Election, so it’s easy to forget that we’re going through the biggest reform to the financial powers of the Scottish Parliament since 1999. Changes that will not only be fundamental for how public services are funded in Scotland but also for our future economic prospects.
So tonight is a great opportunity to give a quick recap of the new fiscal framework for Scotland and to discuss some of the features that make it such a unique framework, not only in the UK, but also internationally.
I’d also like to set out what we at the Fraser of Allander see as some of the key issues that we think will be important to watch over the coming years. And then I’ll hand over to Caroline who will give us all the solutions!
So just to recap, and as you know, the Scottish Parliament is currently going through a process of substantial financial devolution.

Powers that will give greater opportunities to do things differently in Scotland. But powers that will also substantially increase the risks and uncertainties underpinning future Scottish Budgets.
Of course, there is a debate about whether or not these powers are enough or if we could further, but you’ll forgive me from staying clear of that debate this evening!
Soon the Scottish Government and Local Government will oversee a budget of over £40 billion.
In other words, over 60% of public spending for the benefit of the people of Scotland will be controlled directly – or indirectly – by Holyrood.
The big reform has been to expand the proportion of the Scottish Budget from ‘own-source’ revenues.
The fact that the Scottish Budget was determined almost entirely by a block grant from Westminster that had very little to do with Scottish economic performance or provided few opportunities for Scottish administrations to alter the overall spending envelope that they faced, was seen as a key weakness of the original devolution settlement.
A ‘house-keeping’ budget was how Jim Mather the former Enterprise Minister described it.
Now around 40% of ‘devolved expenditures’ will be funded by revenues raised in Scotland – a figure that will rise to 50% once approximately half of VAT revenues are assigned to the Scottish budget.
As a result, Scotland’s budget will now depend crucially on three key elements –
What remains of the Westminster block grant – as determined by the Barnett Formula;
Future tax policy choices of the Scottish Government; and,
The relative performance of Scottish devolved tax revenues.
If I can park in your mind this final point – the ‘relative’ performance of Scottish devolved tax revenues – as this is absolutely crucial for how the framework operates in practice.

So here are the revenues being devolved, starting with Land and Buildings Transaction Tax a couple of years ago and moving through to VAT in 2019/20.
I should say that to provide some consistency across the numbers these are the GERS estimates of the revenues for 2015/16.
If you’ve been following the GERS debate on social media in recent weeks then I apologise if the use of some numbers based on estimation here and throughout my talk upsets you!!
By far the two biggest transfers in terms of revenues are income tax, which came into effect this year and VAT.
It is important to also note what is not being devolved. For example–
On income tax, the personal allowance and ‘definitions’ of income are reserved along with dividend and saving income tax receipts.
On VAT, there is no authority to vary rates or exemptions. It is essentially a transfer of revenues rather than any real policy power.
Other taxes with close links to income tax – e.g. national insurance, capital gains and corporation tax are also fully reserved. This is important as it opens up the prospect for devolved tax policy decisions to rub against UK-wide reserved taxes. An early example of this has been the interaction between the new lower threshold in Scotland for higher rate income tax and the (now higher) threshold for UK-wide National Insurance contributions which means that a small number of taxpayers in Scotland face a 52% marginal tax rate on earned income.
Finally, the overall fiscal stance is also reserved. If the Scottish Government wants to spend more money on public services than currently funded by Barnett on a long-term basis, it will have to raise the revenues to pay for them.

Alongside these new tax powers, the Scottish Government will be taking responsibility for substantial welfare powers – worth around £3 billion by the time they come fully on stream.
These powers can essentially be grouped into 3 areas.
Firstly, flexibility in how certain elements of Universal Credit are paid.
Secondly, the full devolution of a number of benefits themselves including:
Benefits tied to ill-health and disability – e.g. DLA and PIP; and,
Elements of the Regulated Social Fund – e.g. Sure Start, Winter Fuel Payments etc.
Thirdly, the ability to ‘top-up’ existing UK benefits and/or introduce new benefits, subject to meeting the costs of doing so – including any additional administrative costs.
Alongside these welfare powers come important responsibilities around the delivery of employability programmes.
These new powers represent a major opportunity for the Scottish Government and the Scottish Parliament, both to re-design elements of the benefits system to better reflect their vision for social justice in Scotland, and to take advantage of synergies with existing devolved responsibilities such as in health, education and skills.
They also pose a challenge. Experience has shown us – both in the UK and internationally – that delivering new welfare programmes isn’t easy.
Given that many of these benefits – particularly the Disability Living Allowance and so forth – are vital for many of the most vulnerable people and families in our society, it is absolutely crucial that we ensure delivery and continuity of payments from day 1.
At the same time, it’s important to acknowledge that many of these benefits are expensive. Entirely legitimate and well-intentioned ambitions to increase the value of payments and/or to broaden eligibility may carry expensive price tags which will need to be paid for.
These are the new powers.

So how will the actual Scottish Budget be determined from now on?
Recall that in the past, the Scottish Budget was largely determined by a block grant. This grant was, in turn, calculated by the Barnett formula – the mechanism which allocates Scotland a population share of comparable spending in England.
Rather than design a new system for the block grant, the Smith Commission decided instead that the existing block grant should be adjusted to account for the new devolved and assigned revenues.
In year 1, that’s pretty straightforward. You take away how much was raised in that year in devolved revenues and then add back in these same revenues raised from the devolved taxes in Scotland.
There is zero impact on the Budget simply from the transfer of power, and the principle of ‘no-detriment’ is met.
But what happens after year 1?
If you keep on taking away from the block grant how much tax revenue is raised each year, then there’s effectively no change to the Budget process – the block grant is cut by exactly the same amount as is then added back in!
So what was agreed was an indexation mechanism to grow this block grant adjustment – or BGA – year on year at a counterfactual rate.
The purpose of this indexation mechanism was to create a BGA that represents a counterfactual estimate of the tax revenues that the UK would be forgoing post-devolution.
You’ll recall from last year that there was difficulty in getting both governments to agree on the most appropriate indexation mechanism.
The mechanism that was finally agreed – at least up to 2021 – was for the BGA to increase in line with the growth in the equivalent tax revenues per head in the rest of the UK (rUK).
In the case of income tax, this means that if non-savings non-dividends income tax revenues per head grow by 2% in rUK, the BGA will grow by 2%.
And this gives the key feature which underpins this framework: that is, how the BGA interacts with devolved revenues.
If Scottish tax revenues per head can grow faster than the growth per head in the equivalent taxes in rUK, then the Scottish Budget is better off compared to what it would have been under the Barnett Formula.
This is because Scottish tax revenues will be larger than block grant adjustment.
But equally, if Scottish tax revenues per head grow more slowly than in rUK, then the Scottish Budget is worse off.
An equivalent mechanism works for welfare payments. So that’s the broad outline of the framework.
What I want to do now is to run through some key issues that will be crucial to how the budget process will work in practice over the next few years.
Firstly, it is clear that we are dealing with an exceptionally complex framework.
If you thought Barnett and the existing Scottish Budget process was complex, you ain’t seen nothing yet!
We now have a mix of block grant, devolved taxes, local taxes, shared taxes and assigned taxes. All supported by a complex framework for borrowing – for four different purposes no less, forecast error, cash flow, emergency economic shocks and capital investment – use of reserves and various mechanisms to reconcile forecasts with the revenues that end up actually being collected at the end of the day.
How scrutiny occurs in a landscape like that is clearly going to be a challenge. And the Budget Review Group are trying to find ways to deal with this new and complex world.
It’s also going to be an important test for intergovernmental relations between Whitehall and Holyrood. In the past, HM Treasury has always been the dominant player in fiscal relations with the Scottish Government, but the new system is designed to be a partnership of equals.
Ultimately, it’ll come down to how well the two governments work with one another……particularly during times of disagreement.
Alongside all of this, there will be important practical challenges to overcome both in terms of the costs and administration around starting-up and running these new powers not to mention keeping track of the complex arrangements for different types of capital, resource, DEL, and AME spending.
Throw in to that mix things like the non-domestic rates pool and a new Scotland Reserve to mop-up underspends, and you have an interesting cocktail!
And remember, the key element of this – the BGA – is temporary and scheduled to be reviewed in 2021.

The 2nd issue concerns the economic uncertainties, challenges and opportunities that underpin this new framework.
As I’ve mentioned, one of the key objectives of Smith was to bring greater risk and reward into the budget process.
By being responsible for more devolved and assigned taxes, how the economy performs will, from now on, have a much greater bearing on future Scottish budgets.
But as I mentioned, there’s a subtlety in that the way this framework has been designed. What is actually most important is not how the Scottish economy itself is performing per se, but how the Scottish economy is fairing relative to the rest of the UK.
Recall that key calculation – “the Scottish Budget will be better off under this new framework compared to Barnett if Scottish tax revenues per head grow more quickly than rUK tax revenues per head (which in turn determine the block grant adjustment).”
And here the current state of the Scottish economy presents a challenging backdrop.
The Scottish economy has been sluggish for the best part of two years now.
Output fell in the final quarter of 2016.
The Fiscal Framework prepared for ‘emergency’ situations with additional borrowing available under certain circumstances:
“A Scotland-specific economic shock is triggered when onshore Scottish GDP is below 1% in absolute terms on a rolling 4 quarter basis, and 1 percentage point below UK GDP growth over the same period.”
It’s interesting – and a reflection of the fragility of the economy in recent months – that with growth of just 0.4%, compared to 1.8% for the UK as a whole, Scotland’s current economic performance satisfies this criteria.
If this continues, the Scottish Government has the opportunity to borrow an additional £600m per annum.
Whether or not they chose to do that remains to be seen. What will be important is whether or not the Scottish Government believes that this year’s weak economic data will continue into 2017/18 and how much this divergence in overall economic performance will spill over into actual income tax revenues.
Setting aside any current challenges, what is interesting – and not that well appreciated – is just how significant the effects of different economic performance will be for public spending in Scotland under this new framework.
We’re now dealing with very large revenues, particularly around income tax and VAT.
A small variation in the growth rate of income tax revenues for example – given that they amount to over £11bn – could very easily work out at hundreds of millions of pounds over a very short period of time.

To provide some context, we can illustrate what happens if just one of the economic determinants of tax growth is changed.
Wages in Scotland and the UK tend to be correlated.
Over the last three to five years for example, median wages have grown by a difference of – on average – around 0.3% points per annum.
Let’s take that number and see how a variation of that sort could impact on future Scottish income tax revenues and therefore the Scottish Budget.
As the chart highlights, a variation of this magnitude – equivalent to Scottish median wages growing 2.5% vs. 2.2% in the UK or vice versa etc. – is worth around £50m in year 1.
If the gap was 1 percentage point the difference would be closer to £150m.
And of course, if this gap was to stay for longer than 1 year, the potential revenue shortfall or gain gets that much larger over time.
And this is just on one factor. If employment growth for example was faster or slower in Scotland than the rest of the UK, then the impact will be magnified.
So sustained economic performance is absolutely crucial.
With many factors out-with the Scottish Government’s control including the ongoing challenges in the oil and gas industry, an ageing population vis-à-vis the rest of the UK and uncertainties around Brexit etc. many believe that Scotland will do well to match UK economic performance over the next few years.

But of course, the Scottish Government now has a range of new powers over tax and spend to support public services and/or help to grow the economy.
I think it’s fair to say that we’ve yet to have a fully informed debate in Scotland about how best to use these powers, plus the choices and trade-offs involved.
What’s the optimal level of public spending we want to support and how do we raise enough revenues to pay for these ambitions?
Do we want people in Scotland to pay more tax than in the rest of the UK if it supports greater investment in public services and what might be the long-term economic consequences of doing so?
In thinking about the policy choices open to the Scottish Government, the unique nature of this framework throws up a number of important – but subtle – issues.
Firstly, when you change a policy it’s often designed to alter economic behaviours to obtain a desired outcome. For example, the government believe that by cutting air passenger duty – through the creation of a new air departure tax – this will stimulate the economy by boosting tourism and connectivity.
But outcomes are uncertain and on many occasions when deciding whether or not to ‘pull’ a policy lever the evidence in favour or against its use is often unclear.
There are also concerns that need to be borne in mind around ‘unintended consequences’ arising from changes to behaviour. The Scottish Government has for example, expressed an openness to consider – in principle – the introduction of a 50p tax rate on those earning over £150,000 in Scotland. However, they are concerned about the unintended consequences on the Scottish Budget if some of the relatively small number of taxpayers that this will impact upon choose to change their behaviour – for example, by moving to somewhere else in the UK.
Secondly, it’s not just economic behaviours that policymakers need to be mindful of. Changing one tax could lead to unintended consequences in terms of other taxes.
For example, an increase in income tax rates targeted at earned income, may encourage people to switch their income into dividends or to move from self-employment to incorporation all to gain a tax advantage. Taxpayers in Scotland would still be paying tax but they would be switching between tax revenues that flow to the Scottish Government (NS-ND income tax) and tax revenues that flow instead to the UK Government (e.g. dividend income, capital gains tax, corporation tax etc).
The net effect of such action would be a cut to the Scottish Budget but a boost to the UK Budget.
This isn’t to say that one policy is better than the other, but simply that policymakers need to be mindful of how their decisions will actually play out in practice. In the Scottish context, given that we don’t control all the tax levers they have to be even more careful.
Finally, and perhaps less well known, is that because of the different structures of income between Scotland and the rest of the UK, common UK-wide policies on income tax (remember this remains a shared rather than a fully devolved tax) can throw up some odd implications for the Scottish Budget.

This chart shows non-savings non-dividends income tax liabilities across the income distribution in Scotland and the rest of the UK.
Two things are worth noting –
• Firstly, Scotland collects a greater proportion of its income tax revenues from the lower end of the income distribution than rUK.
• Secondly, in the rest of the UK – in part driven by the London effect – very high earning individuals make up a much larger share of income tax liabilities than in Scotland.
What this means is that the same income tax policy in Scotland and the rUK could have different revenue impacts.
For example, consider the introduction of a 50p tax rate not just in Scotland but across the UK as a whole.
Let’s set aside behaviour impacts and focus simply on the mechanics of the framework.
A UK-wide 50p tax rate for Additional Rate taxpayers will increase the tax paid by the highest earners in Scotland. But because there are more additional rate taxpayers in England – and they are on average richer than in Scotland – rUK tax revenues will increase by more than in Scotland.
The end result is that the Block Grant Adjustment will be larger than the increase in Scottish revenues, leading to a reduction in the Scottish Budget. All this, despite Scotland increasing its tax rates!
Now should the UK Government choose to spend the revenues that it raises from a 50p tax rate on public spending that brings with it Barnett consequentials – e.g. in health or education – then Scotland’s Budget may still rise (albeit because of a transfer from rUK taxpayers to Scotland).
But even then because of this interaction between the Block Grant Adjustment and Scottish tax revenues, the increase will still be less than would have been the case prior to 2017. And of course, should the UK Government decide to spend these revenues on things such as reserved welfare powers, defence or reduce net borrowing, Scotland would not receive any consequentials.
A similar issue arises with the personal allowance. Because a higher proportion of Scottish income tax revenues come from people close to the personal allowance threshold, any increase in that threshold will have a disproportionate impact on Scottish revenues vis-à-vis the UK as a whole, leading to a relatively larger cut to the Scottish Budget than in England.

The final issue is around forecasting and the uncertainty that this involves.
The Scottish budget cycle will now be heavily dependent upon forecasts made by the Scottish Fiscal Commission and OBR – for taxes, welfare spending and all the individual block grant adjustments.
Forecasting isn’t easy – even in normal times!
With Brexit and many other uncertainties, robust forecasts are even more challenging.
In a Scottish context, they are some further challenges over and above all of this.
Firstly, the depth, coverage and timeliness of the economic data we have to make forecasts is not as good as in the UK as a whole. That means the forecasts of the Scottish Fiscal Commission will always – through no fault of their own – be subject to a greater margin of error.
Secondly, building the analytical capacity to model, forecast and evaluate the likely impacts of different policies or changes in economic changes, will take time and we can’t expect the Fiscal Commission to work miracles overnight.

Finally, the process for reconciling these forecasts with actual data is itself complicated and will require careful management.
The framework requires forecasts to be made in advance of an upcoming budget for how much revenue is expected to be raised in the forthcoming year. For income tax, and ultimately VAT, the amount of money forecast will then be transferred to the Scottish Budget by the UK Government. But the actual data will not be known with certainty until further down the line.
Once known, an adjustment will have to be made to reconcile the amount of money allocated in the first instance – which was based on that initial forecast – with what has actually been collected. This is because, in effect, HMRC will collect income tax revenues in Scotland but the UK Government has effectively written a cheque to the value of the Scottish Fiscal Commission’s forecast.
This process will take time to work through. And it creates the prospect, as this diagram shows, of forecast errors made in one year, still having an impact on the budget some 8 or 9 years down the line!

The new fiscal powers provide the Scottish Government with significant new powers and the opportunity to capture the benefits of economic success.
But depending upon how you view VAT assignation, between 50% to 60% of the Scottish Budget will still be determined by the spending and tax policy choices of the UK Government.
The fiscal framework attempts to bring coherence to the arrangements for taxation, borrowing, budget management and public spending.
But it’s complex and whilst it opens up new opportunities, it also exposes the Scottish Government to risks, some of which it has little or no scope to influence.
Whether the potential benefits outweigh the risks remain to be seen. But whatever happens, it is clearly going to be an interesting few years!

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Nicola Sturgeon: Brexit could mean a loss of powers for Scotland

Nicola Sturgeon discussed some of the key issues facing Scotland for the future. This speech was made on 28 February 2017.

Podcast extract of Nicola Sturgeon’s speech to the David Hume Institute on 28 February 2017:

I value – as I am sure all the party leaders do – the opportunity to discuss with you some of the key issues facing Scotland for the future.

When I first spoke here as SNP leader in 2015, it was in the aftermath of the independence referendum. Last year, it was during the run-up to the Scottish parliamentary elections and the EU referendum. And so I hoped – as I suspect many of you did – that 2017 might be a slightly quieter year in Scottish politics.

However, as you have probably noticed, things haven’t quite turned out that way. Within a month, we expect the UK Government to formally trigger Article 50 – setting the United Kingdom on course towards leaving the European Union.

And so this evening – perhaps not surprisingly – I want to talk about that. I’m not planning to concentrate on the likely impact that leaving the EU and the single market would have on Scotland – although as you know, I believe Brexit’s effects would be profound, long-lasting and damaging to our economy and our society.

Instead, I wish to concentrate more specifically on what Brexit means for democracy in Scotland – how it has exposed the democratic deficit which still exists at the heart of our governance, and what options we have for addressing that.

But I want to begin by looking back. This year marks the 20th anniversary of another referendum – the one which led to the establishment of the Scottish Parliament. That referendum confirmed overwhelming support for devolution – it was supported by almost ¾ of those who voted.

And it’s maybe worth thinking back to why the decision was so resounding. The campaign for a Scottish Parliament was based – above all –on the idea that we faced a democratic deficit. Decisions were being taken for Scotland – so often by governments we didn’t vote for – rather than by Scotland.

The late Canon Kenyon Wright made the argument well in 1989, on the first day of the Scottish Constitutional Convention. He was speaking two days before the poll tax came into force in Scotland. And he said this about the UK Parliament

“Again and again…it has debated measures which have affected quite fundamentally Scotland’s national institutions and the quality of life of our people. Again and again the elected representatives of the Scottish people have voted….against these damaging policies. Again and again and again parliament has imposed these on Scotland.”

The poll tax wasn’t the only example of this democratic deficit. Many social and economic policies of the 1970s and 1980s – such as the way in which deindustrialisation was handled across many parts of the country – would also stand as examples.

But the poll tax – perhaps more than anything else – came to exemplify Scotland’s democratic deficit. It was implemented in Scotland despite overwhelming public opposition. And perhaps the overriding reason that so many people in 1997 endorsed the idea of a Scottish Parliament, was to prevent that – or anything like it – ever happening again.

In many respects, of course, the Scottish Parliament has been a very significant success.  It is now firmly established as the centre of Scottish public life – the institution which people expect, and most trust, to reflect their priorities, values and dreams.

Devolution has enabled us to pursue a different approach to politics. Now, I don’t want to overstate this case. Scottish politics – and I’m being polite here – is never knowingly non-tribal!

But at the very least, the modern working practices of Holyrood are far removed from some of the more arcane rituals of Westminster.  And the fact that we have proportional representation means that a search for consensus – a degree of give and take and negotiation – is part and parcel of the Scottish parliamentary system.

But of course the contrast between the Scottish and UK Parliaments isn’t just one of approach; there have also been significant differences in policy.

Early Scottish Parliaments saw measures such as world leading homelessness legislation and a ban on smoking in public places. The Government I now lead reintroduced free university tuition and set the most ambitious climate change targets in the world. It has legislated for a minimum price for alcohol – although that’s a measure still held up in the courts. It has mitigated the impact of UK Government welfare cuts such as the bedroom tax, and expanded early years education and care.

All of these are significant achievements of devolution.

And let me stress, they belong to more than one government and more than one party.

One of the areas where that contrast with the UK Government has been most obvious in recent years, has been our approach to universal benefits. The Scottish Parliament has chosen to provide, defend and extend certain core universal services, rights and benefits.

That decision helps households across the country. It helps, for example –

• Students who benefit from higher education without incurring £9000 a year of debt for tuition costs;

• Older people who are entitled to concessionary bus travel and who are eligible, if they need it, for free personal care.

• Commuters who no longer pay bridge tolls for their journey into work.

• Families who benefit from a health service which is free at the point of delivery. Before 2007, more than half a million people who earned as little as than £16,000 a year had to pay for prescriptions.

Now, as you know, the Scottish Parliament decided last week that higher rate taxpayers in Scotland should have a different tax threshold from taxpayers in the rest of the UK.

Instead of following the UK Government with a hefty increase in the higher rate threshold – one of the policies that the Resolution Foundation has said will take the UK back to levels of inequality not seen since the days of Margaret Thatcher – we decided to freeze it.  As a result, we are asking people who earn more than £43,000 a year, not to pay more than they do now, but to forego a tax cut of approximately £7.70 a week: less than the price of a single prescription in England.

There has been a lot of misleading analysis of that decision. It has been reported that it makes Scotland the most highly taxed part of the UK. But that argument simply isn’t true.

It completely ignores the fact that the Scottish Government protected households across Scotland from council tax increases for 9 years. That didn’t happen in the rest of the UK.

Average council tax charges in Scotland are significantly lower than in the UK as a whole – to the tune of around £300-400 a year. Even now, the level of council tax increases in Scotland – a maximum of 3% – is lower than the 5% increases permitted in England.

And of course the argument about tax shouldn’t simply be about what you pay in; it’s about what you get back. For many households – if they have children at university, or parents who need personal care, or if they themselves need prescriptions – the benefits of living in a country with strong universal public services far outweigh the benefits of a £7.70 a week tax cut.

I’ve stressed that principle of universality – partly because it has become a key point of distinction between Scottish and UK Governments, but also because it reflects a bigger principle. Universal services are part of a social contract between the government and the people.

We invest in public services to help provide a secure, stable and inclusive society for everyone who lives here. We believe that by doing so we can encourage people’s talent, enterprise and ambition. We can help to ensure that Scotland will be a place where people want to visit, invest, work and live.

And as part of that, we don’t try to divide society between one mass of people who contribute taxes, and another group who receive benefits. That doesn’t actually reflect reality. We help and support everyone to contribute to society; and we enable everyone to receive some common services or benefits.

In my view – though again, I don’t want to overstate this – one possible reason why the result of the EU referendum was different in Scotland than elsewhere in the UK, is that we have been able to demonstrate a more progressive, inclusive approach to social and economic policy.

That doesn’t mean that everything here is perfect – of course it doesn’t. And it certainly doesn’t disregard the fact that a very substantial minority of people in Scotland – 1 million in total – voted to leave the EU. But it may mean that the sense of being left behind or ignored – which is often perceived as a factor in the wider UK’s Brexit vote – played less of a part here.

In addition, the institutions established by devolution command – certainly in relative terms – widespread confidence.  According to the most recent figures, 73% of people in Scotland trust the Scottish Government to act in Scotland’s long-term interests. That is more than three times higher than trust in the UK Government. It’s maybe worth being clear about that – it’s not three percentage points higher, it is actually three times higher than trust in the UK Government.

So in my view, the distinctive approach to politics which has been pursued by successive Scottish Parliaments may well be – at least in part – responsible for the different EU referendum results in Scotland and the rest of the UK.

However it is that distinctive approach that is also now challenged by the outcome of the EU referendum.

Having our own national parliament and a government located here in Scotland has unquestionably made the governance of Scotland more democratic, more representative and more responsive to the people.

But after 20 years of progress, devolution in Scotland is now facing a grave threat from the Conservatives at Westminster.

The democratic deficit which fuelled the demand for a Scottish Parliament in the 1980s and 1990s has opened up again.

The Brexit process has emboldened a now powerful Westminster faction, which perhaps never fully embraced devolution, and which now sees an opportunity to rein in the Scottish Parliament.

In place of a multinational United Kingdom democracy, they see Brexit as the way to claw back ground.

This direction of travel is clear for all to see when we examine what happened before, during and after the Brexit vote.

In the 2014 independence referendum, a key plank of the Better Together campaign was the assertion that a Yes vote would put our EU membership at risk and a No vote would secure it.

However, in no time at all after Scotland voted to stay in UK, we faced an EU referendum – even though the Tories whose policy it was returned just one MP in Scotland at the General Election.

The Scottish Government argued that 16 and 17 year-olds should have the vote – but Westminster said No.

We also argued EU citizens should be allowed to vote – but Westminster said No.

And we also took seriously the UK Government’s argument – one which was made repeatedly during the independence referendum campaign – that the United Kingdom is a partnership of equals. We proposed, on that basis, that the United Kingdom should only leave the EU, if all four countries within it voted to leave.

After all, if the UK truly is a partnership of equals, that should be reflected in the reality of legislation, as well as the rhetoric of campaigning. But Westminster ruled that out too.

A clear pattern of Westminster closing the door on any compromise with Scotland and closing their ears to the democratic voice of Scotland was already emerging.

That pattern has continued.

When the vote itself came, Scotland voted by a decisive 24-point margin to remain in the EU.

Every single one of the nation’s 32 local authority areas voted to remain.

The Scottish Parliament then voted by 92 votes to zero to mandate the Scottish Government to explore options for protecting Scotland’s relationship with the EU, and our place in the single market

Now, the party I lead was very clear in its manifesto for last year’s Scottish elections. We said that the Scottish Parliament should have the right to hold a referendum “if there is a significant and material change in the circumstances that prevailed in 2014, such as Scotland being taken out of the EU against our will.”

However, a referendum on independence has not been our starting point. I didn’t decide on 24 June last year to immediately exercise that mandate. Instead, since June, the Scottish Government has consistently sought to find common ground, or areas of compromise, with the UK Government.

During the autumn, we argued that the UK Government, notwithstanding its exit from the EU, should remain inside the single market. We still support that solution. In my view it remains, overwhelmingly, the obvious compromise solution for the UK as whole.  It would reduce the worst economic and social consequences of Brexit.

And it would also be the most democratically justifiable option. After all, 48% of those who voted chose to remain. So did 2 of the 4 nations of the UK. Even in Wales, which voted to leave, the Welsh Government and Plaid Cymru are now jointly arguing for continued single market participation, which they say could include remaining part of the European Economic Area.

But again, the UK Government said No. The Prime Minister’s speech last month confirmed the policy of a hard Brexit, outside the single market. I think it is important to note that even though she said shortly after becoming PM that she would seek to agree with the devolved administrations a UK wide approach to triggering Article 50, something I was very heartened by at the time, her speech – ruling out continued UK membership of the single market – was made without any prior consultation whatsoever with the Scottish Government or the other devolved administrations.

Now, as things stand, there remains one further opportunity for compromise. The Scottish Government has proposed that as part of its negotiations the UK Government would seek an outcome that would allow Scotland to retain single market membership, even after the rest of the UK has left. That would mean that we would continue to benefit from free trade and free movement of people

Single market membership under these terms is not an ideal scenario for Scotland. For example, it seems almost certain that we would be inside the single market, but outside the European Customs Union. Our proposals address the technical issues which arise from that.

But although elements of our proposals are complex, and less than ideal – that is inevitable. As we all know, everything about Brexit will be complex, and less than ideal.

We have already seen that the UK Government – rightly – is considering special measures to ensure an open border is maintained in Ireland. Gibraltar’s circumstances will also require particular attention. And there has been talk about specific deals for specific sectors of the economy.

These times require open mindedness, fresh thinking and flexibility. The Scottish Government has tried to bring those qualities to our discussions with the UK Government.

But so far the UK Government has refused to commit to putting our proposal forward as part of its Article 50 aims.

Again, despite its promise to listen and to seek agreement, whenever Scotland’s voice is asserted, the reaction of Westminster is to say No.

I mentioned earlier, that we were told repeatedly during the independence referendum that Scotland was an equal partner in a family of nations. But the EU referendum last June was the most important UK-wide decision of my lifetime. When the Scottish Government made proposals on how the referendum should be run, we were ignored. When people in Scotland voted to remain, we were outnumbered. Now – when the Scottish Government is doing everything we can to seek a compromise – it looks as though we are being disregarded.

There are those who argue that, as the vote was a UK-wide one, the result in Scotland is essentially an irrelevance, of mere academic interest.

However, to do so is to deny a long-established constitutional and political tradition in Scotland, one that goes well beyond the confines of my own political party.

Namely, that Scotland – as a nation – should always have the right to determine its own destiny, and that the people of this nation should be able to determine the form of government best suited to their needs.

The UK Government and Parliament, to their great credit, accepted that principle back in 2012 in the Edinburgh Agreement and the legislation that followed. After the independence referendum, it informed the work of the Smith Commission, and appeared in its final report.

But the actions of the Conservative Government in relation to Brexit and the devolved administrations seem to disregard it. And they go further than just a lack of partnership in forming a common position with regard to Article 50 – they actually threaten the existing basis of devolution.

Because, far from the promises of the Leave campaign that a Brexit vote would automatically see swathes of new powers repatriated from Brussels to Holyrood, there is not yet any real guarantee from the Tories that the Scottish Parliament and the other devolved administrations won’t be stripped of some of their powers.

In my view, the post Brexit landscape would demand a fundamental rebalancing of powers across the UK. It would be time to consider whether, for example, employment law should be devolved instead of left at the mercy of a UK Government that has already threatened a race to the bottom if it doesn’t get its way in the EU talks. And surely, it is time now for a real debate about where power over immigration should lie and whether a one size fits all policy is any longer fit for purpose.

But far from being open to these discussions, it seems that the UK Government wants to go in the opposite direction. It is clear from their statements that even elements of farming and fishing policy – which have been wholly devolved competences from day one – now risk being taken back to Westminster.

That would be utterly unacceptable.

It would betray the claims and promises made during the EU referendum campaign.

And more profoundly it would fundamentally undermine the basis of the existing devolution settlement.

The Scotland Act 2016 supposedly enshrined in law the principle that the Westminster Parliament should not normally legislate in devolved matters without the consent of the Scottish Parliament.

But in the recent Supreme Court case the UK Government went out its way to argue that its own legislation was in fact worthless and that the Westminster Parliament could legislate at any time on any matter whether devolved or not.

So what we have is in effect an attack on the very foundations of the devolved parliament we voted for 20 years ago.

It is being made by a UK Government which speaks the language of partnership but which in reality is paying scant if any heed right now to Scotland’s democratic voice. The question we face, is how to respond to it.

I began this speech by talking about the 1997 referendum.  That referendum, of course, gave rise to the 1998 Scotland Act, which in turn led to the establishment of the Scottish Parliament.

After it had been passed by the Westminster Parliament, Tony Blair gave Donald Dewar a signed copy of the Scotland Act. It’s now kept in the Parliament building at Holyrood. The Act was inscribed to Donald with the words “It was a struggle, it may always be hard; but it was worth it. Scotland and England together on equal terms!”

The Scotland Act was a significant achievement – a lasting testament to Donald Dewar’s career in public service. And Tony Blair’s sentiment was undoubtedly a generous one. But it wasn’t quite accurate. Scotland is not on equal terms in the United Kingdom. The EU referendum has demonstrated that more clearly than ever.

The entire process, so far, has echoed those words of Canon Wright from 28 years ago: “Again and again the elected representatives of the Scottish people have voted… against these damaging policies. Again and again (the UK) parliament has imposed these on Scotland.”

There are no easy answers to the situation Scotland finds itself in – it is one which is not of our making or choosing.

But the basic question we face is actually quite simple – what sort of country do we want Scotland to be and who gets to decide?

The policies of Scotland’s elected parliament, since devolution, provide some sort of an answer.  They suggest that the people of this country overwhelmingly believe in a Scotland that is progressive, internationalist, outward looking, connected and compassionate.

Those values and priorities are threatened by the type of Brexit which the UK Government appears to be pursuing – one which is inward looking, regressive and which ignores Scotland’s views time and time again.

The UK Government still has an opportunity to change course before it triggers the Article 50 process.   I very much hope it does.

However if it doesn’t, it will show that the democratic deficit which people voted to end in 1997 doesn’t just endure – it continues to cause harm to Scotland’s interests, to our international relationships, to our very sense of our own identity.

And so if those circumstances arise, proposing a further decision on independence wouldn’t simply be legitimate, it would arguably be a necessary way of giving the people of Scotland a say in our own future direction.

It would offer Scotland a proper choice on whether or not to be part of a post Brexit UK – a UK that is undoubtedly on a fundamentally different path today than that envisaged in 2014.

And in the absence of compromise from the UK Government, it may offer the only way in which our voice can be heard, our interests protected, and our values upheld.

As a result of the Brexit vote, we – Scotland and the UK – stand just now at a crossroads. Decisions taken in the months to come will reshape our economy, our society and our place in the world – in short, they will shape the kind of country we are going to be. The question is should we decide for ourselves which path to take or are we willing to have that decided for us?

We may all offer different answers to that question. But surely the choice should be ours.

Video clip courtesy of ITV Border here

Willie Rennie: second independence referendum not the way to keep Scotland in the EU.

Willie Rennie, Scottish Liberal Democrat leader at the David Hume Institute for the Politicians and Professionals Series 2017.

Podcast extract of Willie Rennie’s speech:

The Politicians & Professionals have been an amazing series of presentations that bring onto your stage, one by one, the leaders of Scotland’s political parties.

It does, perhaps, tell us something about the times we live in that the series was originally conceived as being a very important single occasion in view of the turbulent constitutional time that existed in 2014: yet it has been held every year since.

And it doesn’t look as if turbulence will drop off.  So put it in your diary – same place, same time, next year.

And that is in the nature of things. You won’t ever hear an economist or an academic suggest, “that’s it. We know enough. We can stop thinking.”

I have had a look back across my remarks from the previous years.

Last year I set out the case for a diverse economy that nurtures and enables the talents of everyone. I argued for more investment in education and mental health to make the most of the people who live in Scotland. I would argue that the economic and education indicators since then make those directions of travel more important this year than even last. I will say more on that later.

In 2015 I set out the case for using the economic stability and employment growth that had come from the UK Coalition Government to build a fairer future where opportunity is available for everyone no matter their background. I have more to add on that later as well and show how important that is for the economy.

It was with some horror that I looked back to 2014. My presentation was entitled “In Britain. In Europe. In work.”  I argued that “each relationship has been placed fundamentally at stake”.

The horror is that it’s really happened.

Tonight I will combine the themes of previous years.  I will argue that the economy needs a liberal, internationalist, open and enlightened approach that recognises the value of partnership with our neighbours, and the need for investment to nurture the talents of our people, so that everyone participates in the success of that economy.

I will argue that, because of the change in their international posture, the economic philosophy and credibility of my political opponents has been shattered.

However, I will also argue there is hope.  Hope that the cause of a liberal, internationalist, open and enlightened approach can win again as we seek to challenge those who wish to establish a new orthodoxy.

The EU

The Conservative Party gambled.

Its confidence was high after claiming victory in the AV referendum, the independence referendum and the 2015 general election.

Yet the EU referendum gamble – hastily proposed, recklessly run and arrogantly assumed – was a roll of the dice too far.

The defeat was David Cameron’s downfall but the impact on the country has been far greater and more important.

The Conservative Party is now gambling again – risking the fragile economy, built back after the recession, now plunging into a pit of economic risk.

Britain is a great country.  It has achieved so much in the world but it has done so by building global organisations together with others.  Churchill laid the foundations for the EU after the war. Britain was a leading country in the formation of the League of Nations, now the United Nations.  We are a major contributor to NATO.  And more recently we have led the world on international aid – building the structures and the credibility of that effort.

I know that from my visits as a member of the House of Commons Defence Select Committee to countries across the world that our nation matters.  We can be a force for good.  We have a role in the world that is positive.

It has been an internationalist posture that has assisted in the generation of a positive view of our country globally.  That internationalist posture means we are, and are seen as, a powerful trading nation with a compassionate heart.

But now the isolationist fringe of the Conservative Party has taken over our government.

With attempts to cut the aid budget.

With a charm offensive on Donald Trump, who is no fan of NATO or the United Nations.

And the decision to leave our partners in Europe.

This is probably the biggest change of our international posture in a generation: from partnership through global organisations into a futile attempt to build our own power base in the world.  For want of a name you could call it the British empire.

But it is the Labour response that depresses me more.

Of course we must respect the referendum result.  But political leaders have got a responsibility to lead.  And leadership is what this country is missing at one of the most significant periods in modern political times.

Labour through the referendum and since has shown an astonishing level of indifference to the fate of our country.  No challenge, no questions, just compliance.

They have turned the fine tradition of Her Majesty’s Loyal Opposition to Her Majesty’s Compliant Opposition.

It would only be right for the British people to have the final say on whatever deal is agreed by the Conservative Government with the EU.

A Brexit deal referendum would be the right and democratic thing to do.

When they look back at this time our grandchildren will be perplexed that we did not take our time and ask ourselves the question if we really wanted this.

If the Brexit deal is damaging to jobs, the economy, our environment and the country’s security why would we not ask the British people a new question?

Liberal Democrats will provide the focus for that democratic mandate.

The public have only witnessed the Brexit shadow-boxing so far. When we see the real consequences of Brexit the punches will be felt.

Carolyn Fairbairn, the head of the CBI, was left reeling from the Prime Minister’s hard Brexit speech. She worried about how it was possible to trigger a big-ticket house-building programme at the same time as shrinking the UK labour market by 9 per cent if you cut out EU-27 nationals.

In 2014 I said our relationship with the EU was “at risk”. I said how “we are part of a European market with 500 million customers” worth trillions. I warned that the border effect between the United States and Canada had reduced trade by 44 per cent.

Now a whole series of reports has put the price of leaving at more than £5bn of GDP by 2030 and the cost of leaving the single market as high as £200bn over 15 years.

That’s a high price that surely is worth a simple question for the British people.

I look back 14 years and see the opinion polls on the invasion of Iraq. In April 2003 people wholeheartedly supported Tony Blair’s government. People would howl in the street at Charles Kennedy. But opinions changed.

Political leadership is sometimes about persuading people, not just repeating what the last focus group told you. That is followership.

That is why I will continue to argue for a public vote on the outcome and to lobby the EU to make sure they are open and ready for a public change of heart.

And if people say, “The Brexit Bill doesn’t contain provision for a public vote”, that doesn’t mean it won’t happen.

If you think about the fuel duty protests in the year 2000. There was a UK Government with a majority of 179 in the House of Commons. It didn’t have to have an election for two years. But it still changed its policy in response to an evident change of public mood.

So when the jobs are lost, the mortgages rise, the prices in our shops increase, the foreign investment declines.  When that happens I suspect the mood, the view, the opinion of the merit of Brexit may go into reverse.

SNP could leave us outside the EU

Whilst The Conservatives have abandoned the internationalist posture this country has built, and the Labour party timidly accept that approach, the SNP wish to compound the break-up of Europe with the break-up of the UK.

The response to the horror etched on the faces of people on the 23rd June should not impose greater sorrow in the hearts of Scots who value the relationship with our friends in Cornwall, Newcastle, Southampton, Swansea and Ballymena.

They didn’t all vote to leave.  In the rest of the UK ten times as many people voted to remain as in Scotland. Why do Nationalists seek to diminish the 15 million remain voters in the rest of the UK?  Surely they are worth standing with as we seek to persuade the rest.

Independence is not the economic or the emotional answer to Brexit.

That is why I will stand for Scotland in the UK as much as the UK in the EU.  I will not compromise on deep rooted principles of internationalism, openness and liberalism.

But it is noteworthy that Scottish National Party’s commitment to the EU has been compromised.

Recently I asked Mike Russell whether it was true that the SNP would fail to propose that an independent Scotland would be a full member of the European Union. He refused to answer.

When Alex Salmond was asked the same he issued a non-denial denial. It is unusual for Alex Salmond to be so careful with his reaction.

We, perhaps, should not be surprised as one third of their supporters favoured Brexit.

I meet them every week on the doorsteps.  Brexit supporters who backed independence in 2014 but are opposed now because of the independence in Europe policy.

Desperate to keep them on board for an independence referendum the SNP are prepared to sell out Europe to get their dream of independence.

But in doing so they are compromising with an isolationist agenda – just like the Labour Party.

The SNP would sell their granny on Amazon if it would win a few more votes for independence.

Some liberal-minded people have thought about whether, perhaps, Scottish independence is the best way to stay in the EU. They are prepared to put aside the innate rejection of nationalism that is inherent in the liberal approach.

But they are going to be disappointed.

You haven’t heard any senior nationalist say “the only way to keep Scotland in the EU is to have independence”.

They used to say that all the time. Now they don’t.

They now say that their dissatisfaction with the UK Government “transcends the issue of Europe”.

So the risk of their proposal is that it leaves Scotland outside the UK and outside the EU.

What a disaster that would be.

So that makes a full set. This isolationist bent, this international posture, now being adopted by the three parties to various degrees will damage our economy.

Putting up barriers – whether regulatory or tariff, through independence or Brexit – will be bad for business.

It will signal the start to a race to the bottom on tax, a race to the bottom on wages, and a low skill economy.

It will force us to be more dependent on President Trump or on Chinese investment. It will mean we are a pawn rather than a world leader and it will be bad for business.

And it will happen if we leave the single market of 500 million customers with the common, decent standards for employment that are part-and-parcel of the whole way it works.

Because, for all the complaints from Nationalists about Philip Hammond’s suggestion of a race-to-the-bottom on tax post-Brexit, they would have no choice but to follow suit.

I looked back to 2014 and this is exactly what I was warning about right here at this lectern.

There was a placard on display in a recent demonstration in Washington DC.  You may have seen it. It read, “I can’t believe I still have to protest this stuff”.  That is the sanitised version of the poster.

It’s how I feel sometimes.

In 2014 the SNP said they would undercut George Osborne on corporation tax, however low he went, to try to boost growth.

Now, post-Brexit, Philip Hammond says he will cut corporation tax to boost growth.

And it is clear that an independent Scotland would have to follow suit or else.

Three years ago the Conservatives said the Nationalists were nuts on a race to the bottom.

Now Nationalists say the Conservatives are cruel on their race to the bottom.

And I stand here and say, for yet another year, that a race to the bottom is wrong.

And, as I said back then, a strong economy needs “businesses that grow by being the best at what they do, making sure everyone knows it and everyone buys it in Britain, in Europe and across the World. Strength in the long run is by being the best, not by being – temporarily – the cheapest place on one tax”.

I will end my remarks in a moment by describing more widely a positive economic future for our country.

But I want to add one more thing to the observations I have about isolationism.

People sometimes cheer the idea of not being shackled to the EU or UK and able to make our own way in the world with all the other countries with whom we can strike up relationships.

And you then have to go and literally hold hands with Donald Trump to try to get a deal.

And that means we will have to take his bleached chickens or his hormoned beef or whatever, because he won’t sign a deal that’s not best for America.

Or you have to grab at any passing Chinese player like Sinofortone who have led a merry dance for people, first in Port Talbot and Anglesey, then Scotland, then Kent, then Liverpool.

The risks of trying to build a business in China are felt keenly by those businesses who have struggled to protect their intellectual property rights in China.

Positive about the Scottish economy

So, after three years, and into my fourth David Hume Institute winter series, I am still saying “In Britain, In Europe, In work”.

The experience my party had in the UK Government was important:

Tackling the deficit; bring it down so our international standing on money was sound.

Stabilising the economy – to an extent that it is hard to remember the anxious calls from British business made over the first weekend in May 2010 when the country looked like it might have political gridlock;

GDP growth back on track; leading the G8 group of countries.

Employment up to record-breaking levels, up 1.7 million jobs;

Doubled production of renewable energy, in the face of Conservative cabinet ministers who were real-life climate change deniers. Some £37billion invested, supporting 460,000 jobs, reducing our carbon emissions and improving Britain’s energy security.

Making work pay by cutting tax for those on low and middle incomes through the rise in the tax threshold.

That was the real, positive progress towards a strong economy with the Liberal Democrats.

Scottish productivity – participation

I want to describe to you a better vision for the long term future of Scotland.

I want to focus on productivity.

There was an SCDI report in 2015 – From Fragile To Agile – about the Scottish economy. It identified three elements: productivity, internationalisation and innovation.

I will take the first in some detail and speak about two elements within productivity.

The first is education and skills.

That won’t surprise you. I argued here last year that investment in Scottish education had to be the top priority for the Scottish Government. Everything that has happened since has made me even more convinced.

Brexit casts doubt on our economic future. The international education rankings published in December showed Scotland slipping to just average again. Action is urgent.

The report last week from the Sutton Trust shows a gap equivalent to more than two years in schooling for science, reading and maths between pupils from less well-off backgrounds in the top 10% of achievers nationally, compared to their equally clever but better-off peers.

That’s a lot of wasted talent. That is a loss of participation and productivity and innovation that is being missed.

It’s why I have been badgering the Scottish Government for three years to put a Pupil Premium into every school in Scotland. It would give the extra help – the one-to-one tuition and extra equipment -that children from less well-off backgrounds need to succeed.

I have partly won that argument.

The Scottish Government has now changed its policy and has a Pupil Equity Fund similar to the Pupil Premium.

I am only partly satisfied. The amount is much lower than the Pupil Premium in England which had proven success.

And the SNP has spent the last three years complaining about the Pupil Premium, and so I will need to work hard to make sure they bring it in to maximum advantage in Scotland.

On our costed list of budget proposals, we also sought an investment in college education for part time courses that would benefit thousands, including women and mature students.  It would be a return to the lifelong learning philosophy of the late 1990s that helped grow our economy by creating a well-trained, better educated and agile workforce at all ages.

It would repair the damage to that tranche of the education sector inflicted in the last few years with the reduction of over 150,000 college places.  It would assist employers to get the skilled workforce they need. And it would give hope to people over the age of 24 that they had a contribution to make to the success of our society.

We need educational ambition. Every child should be able to see how far and how high they can go.

Scotland needs the skills and talents of everyone to be a long term, productive and successful place.

It is about investing in people.

That’s why I have also put a priority on investment in mental health: we can’t afford for anyone to be left out.

Through my detailed Budget talks with the Finance Secretary Derek Mackay it became clear that the SNP are much further behind than we feared on mental health.

The Scottish Government’s last mental health strategy expired in 2015 and they don’t have a replacement. They haven’t started to recruit the big numbers of extra staff needed for the transformation of the service.

This all has an economic impact as well as the impact on individuals and their families.

More than 643,000 working days will be lost to Scottish businesses through depression alone this year. That’s a cost of £54million just for that aspect of mental ill health.

Conclusion

So that is my story on the economy.

I have set out a unique position of being pro-UK, pro-EU, and investing in people, and how that is good for business.

I have shown how the SNP threaten the UK single market and are now going cold on Europe.

They have taken Scottish education from the best to just average and failed to invest in mental health services.

The Conservatives want a hard Brexit and a race to the bottom on tax, low skill and low wages, unable to afford quality training and abandoning support for mental health.

Labour simply do not know what they are doing and have little interest in the economy while they circle amongst themselves.

I have argued that it is my intention to be part of a liberal fightback that turns back from the isolationist or nationalist positions being taken up across the world.

It is an international, optimistic, open and tolerant approach that is attracting growing support.

Ruth Davidson: A Scottish Government with the powers to act – so act

Ruth Davidson, leader of the Scottish Conservatives, at David Hume Institute, Politicians & Professionals 2017, on Brexit, the Scottish budget, tax and the outlook for growth.

Text of her speech:

Ruth Davidson, leader of the Scottish Conservative Party, at Politicians & Professionals 2017, on January 31.

The political sound-bites of early 2017 sum up where public life is right now: ‘post-truth’; ‘alternative facts’; ‘fake news’.

We are at an unsettling moment, where it appears that choosing to believe things – or at least having enough social media shares – makes them so…

It means that the mission of organisations such as the David Hume Institute – to seek out the actual evidence and the actual facts – has rarely seemed more necessary and more urgent.

So I’d like to thank you for your work, and I would urge this organisation to step up its determination to remain faithful to the facts.And for my part, I promise this evening to refrain from claiming that there are far more people in tonight’s audience than there were for Patrick Harvie last week. Bigly.
Even if there are.

So – my speech is entitled “A Government with the powers to act” It’s about a government here in Scotland, that needs to take control. Control is another of the words we’ve heard a lot about these last 12 months. Specifically, about taking it back. Frankly, I feel like it’s a word that’s dogged politics this last year. It’s certainly dogged me.

It was a slogan which, of course, helped my opposite numbers in the Leave campaign win the EU referendum last year. But, this evening, I want to reflect on how we in Scotland must now take control ourselves of this moment; and turn away from the politics of uncertainty and division that we have seen afflict us for far, far too long.

Inconvenient facts labelled as Project Fear

Before I develop that point, however, let me begin by saying a few words on where I think we stand in Scotland right now. Quite obviously, it’s right to say first of all that we are in a very different place to the rest of the United Kingdom. It was something that came home to me very clearly last year when I was campaigning in the European referendum.

Not just because Scotland voted with Northern Ireland and differently to England and Wales. More fundamentally, it was clear that Scotland and the rest of the UK were operating on two different time lines. The rest of the UK was taking part in a play that it thought was brand new.

Here in Scotland, however, we were already familiar with all the lines. The labelling of inconvenient facts as Project Fear – yes, we remembered that one. Tub-thumping calls to seize our Independence Day – yes, that too. And the whole agonizing business of watching political debate retreat into a tribal contest over identity.

It was deja vu all over again.

For people in England and Wales, I know this all felt exciting – for many, it felt exhilarating. For many of us in Scotland, I suspect it was an unwelcome re-visiting of something we’d been trying to get past. Unlike the rest of Britain, we have now had nearly ten years when constitutional issues have dominated our political debate.

Ten years where the existential questions of who we are, and what country we want to be, have pre-dominated. And my hunch is simply that many people in Scotland had had enough. That partly explains why the campaign itself was far more muted up here than elsewhere. Why it felt like someone else’s war.

We’d HAD our referendum.

More fundamentally, it also explains the reaction in Scotland to the Brexit result in June of last year – a reaction that wasn’t expected. The SNP anticipated a massive surge of support for independence if, as happened, Scotland voted to remain, while the UK as a whole opted to leave.

Nicola Sturgeon predicted in April of last year that such would be the backlash, support for another independence referendum would rocket. Certainly, for a few weeks in the aftermath of the Brexit vote, it looked like she might be right. But now– seven months on – even the First Minister would have to admit that has not happened – at least I hope she would do so.

Try to make Brexit work

Now, I don’t think for a minute that this is because people in Scotland, on June 24th, suddenly decided they were all huge fans of Brexit after all: I doubt that very much. I think it is largely because – after ten years of constitutional division – people look at the prospect of yet more uncertainty over our future and think: no thanks.c

I repeat – I am categorically not saying that Scotland has converted to becoming cheerleaders for the prospect of our leaving the European Union. I simply make the point that most people do not want our departure from the European Union, and all the division that brings, to trigger another referendum on our own Union of nations, with all the division that brings too.

They include Unionists who believe that the question on our future was answered for good in 2014, and should not be returned to. But they also include many independence supporters who simply believe now is not the right time to be opening up another wound.

The message I am getting from people in Scotland is pretty clear. Try to make Brexit work. And, please, do not add to the uncertainty that we are already facing. This desire to put this division behind us is something I understand.

As you all know, I fought hard last year to keep the UK in the European Union. The result was – and remains – a tough one for those of us who believed it was in our national interest – and in Europe’s too – to remain within a reformed EU.

If the Brexit vote was tomorrow instead of last June – I would still vote Remain. But I do believe that, the decision having been taken, we all have to put in a positive shift to make this work – for all of us.

Either we respect the votes in referenda or we do not. Either we respect democracy or we do not. And either we seek to deny reality or seek to prepare for that the new reality as best we can – by ensuring that Scotland and the UK remain engaged with the heart of Europe, even if we are no longer to be seated at the EU table in Brussels.

And most of all, I believe we should avoid further instability and uncertainty. People do not want Brexit to be used to start yet another fratricidal conflict.

I do not want Scotland to join post-Trump America and pre-election France as this year’s focal point for global instability. I want to contribute to the best deal for Britain, outside the EU. I want to ensure our negotiation proceeds well and is done speedily

And, most of all, I want Scotland to move away from the rabbit hole of constitutional division we have dwelt in these last ten years, and ensure that we are focussed on achieving stability.

Last week, Liz Cameron at the Scottish Chambers of Commerce summed it up rather nicely. “If,” she said, “we allow ourselves to be drawn into tunnel vision on Europe, we run the risk of missing the chance to transform Scotland’s attractiveness as a place to do business.” That is absolutely correct.

We are in danger of falling prey to the idea that Brexit is such an important issue, all else might as well be forgotten about. It is an all-too familiar story in Scotland where constitutional conflict has often stopped us thinking about more immediate, pressing concerns.

Change is an opportunity too

I say: we cannot allow the grass to grow under our feetBecause such an attitude will only mean that, when Brexit comes, Scotland will be unprepared for the challenges it will inevitably bring. What I believe we need– in London and in Edinburgh – is a Government that decides to take control of the situation we find ourselves in.

Any entrepreneur will tell you that a moment of change is an opportunity too. And what we need right now is a government that has the spirit of the entrepreneur.. A government that recognises the landscape in which it operates – is mindful of the possible pitfalls and seeks out the opportunities that exist.

This is the better path for the SNP to choose. And I am only sorry they do not appear ready to take it.

Ever since the result of the referendum on June 24th, the SNP’s stance has been set by whatever it thinks will increase support for independence and for another independence referendum. The public has, as I say, proven stubbornly resistant to this plea. And I am only sorry that, in recent weeks, the party appears to have decided in response to double-down on their attempt to push for that second referendum.

Now it is not just about Brexit. Now, Mike Russell takes to the airwaves to declare that we need a referendum to escape what he describes as an “insular” “inward-looking” Britain. Indeed, if reports this week are to be believed, for the SNP hierarchy it is no longer about staying within the EU at all.

Instead, SNP sources are now proposing that an independent Scotland should exist in a no-man’s land, half-way between the UK and the EU, but part of neither – a position concocted purely to try and win back the many thousands of SNP supporters who voted to leave the European Union. And now – with support for a referendum falling off a cliff, the SNP is no longer saying the people should have the right to decide. Now, Nicola Sturgeon says a referendum is something we all “must confront”.

In other words, having failed to persuade people of the necessity of another referendum, the SNP is now hoping to soften us up by telling us we’ll just have to accept it. It is the language of the bully pulpit. The attacks on the UK are grave distortions. It doesn’t speak of a party confident of its case. It smacks of desperation – and I urge the SNP to take a different path.

Or, to put it another way: when you’re in a hole, stop digging. We are not helpless to act in the face of Brexit. And, what’s more, there are – frankly – so many more interesting things for us to talk about.

Just imagine for a moment that Brexit had gone the other way last June. What would be the dominant political narrative in Scotland right now? It would, I suggest, be about the huge new powers that are coming to the Scottish Parliament in April and the questions they throw up for us all.

Scottish budget – this year it is different

Something that will finally emerge into the public gaze later this week when Parliament will vote for the first time on the Scottish budget. It is what I consider to the first authentic budget since devolution. Until now, the budgets have been more accurately simple spending plans. This year, it is different – and the SNP will have to weigh up both sides of the balance sheet.

Of course, most attention has focussed on the levels of income tax that the Finance Secretary has chosen to set. But arguably of far greater importance is the fact that finally the Scottish Government will have a real stake in the performance of our economy.

From now on, the Scottish budget will now depend on two factors. Around a half will come from the block grant as determined by the Barnett Formula. The other half will come from the new devolved taxes, most notably income tax.

The Fraser of Allander Institute has set out what this means: that Scotland’s economic performance – or more accurately our relative performance – will have a greater bearing on the spending plans of Holyrood than ever before.

In short, if Scotland can achieve higher growth than the rest of the UK, we will reap the rewards. This is something I know I need not explain to the audience here. But it is a fact that, I fear, is still not cutting through at Holyrood itself. Indeed, given the lack of debate, it is as if the new powers are not coming at all.

My left-wing colleagues continue to rage against the inadequacy of the cheque from Westminster, as they see it. A cynic might suggest that the Tory bogeyman is a convenient scapegoat. Answers as to how we ourselves, here in Scotland, can boost public spending, or return money to taxpayers, by boosting economic performance have so far been thin on the ground.

My goal this year is to at the very least start that new debate – so that this country finally accepts we have control, and that we have the power to make defining choices for this country’s future. And my contribution to that debate is to focus relentlessly on ways to increase Scottish growth.

This is urgent. That we are falling behind the rest of the UK is now not in dispute. Figures two weeks ago showed that the Scottish economy grew by only 0.2% in the third quarter of 2006. That reflected a longer term trend: in the year to September last year, our growth rate was only 0.7% – compared to the UK rate of 2.2%.

How do we close the gap?

In the past, this level of growth could simply have been written off as a blot on our reputation for enterprise. Now, under the new powers coming our way, it could end up actively reducing the amount of money coming our way. So, as the Fraser of Allander Institute puts it: “With new tax payers coming on-stream, it is vital that the gap with the UK is closed.”

So – how do we do that?

I would like to focus my remarks this evening on two key issues: one long-term and one short-term. The short-term measures refer directly to the tax proposals in this week’s budget. There are three key tax measures being proposed.

The rate for the fledgling Land and Buildings Transaction Tax will be set – with buyers of larger homes paying higher sums than they would south of the border. The Large Business Supplement has been doubled overnight – meaning firms with high rateable values are paying more than they would south of the border.

And the SNP will not increase the threshold for higher-rate tax payers, and will instead use fiscal drag to net ever more earners into the 40p tax bracket. This too will mean they pay higher taxes than they would elsewhere.
There is, I would suggest, a theme developing here. In short, aspire to buy a decent sized home, build a modest company, or earn a decent wage – and Scotland will penalize you accordingly.

My question is: how exactly is this going to help us close that economic growth gap with the rest of the United Kingdom? To be fair, on income tax, the gap between people in Scotland and the rest of the UK will not, initially, be that large. By 2020, however, it will have grown to £800 a year.

It is this which has prompted some firms here in Edinburgh to suggest that, in order to attract people to come and work here, they will have to pay the Scottish supplement in order to convince them to do so.

This worries me. What message does it send? Come to Scotland to work – but first pony up nearly a grand more than you would in Manchester or London or Bristol. This is where – again – I have to challenge the SNP.

Regularly in recent weeks, it has sought to declare that Scotland is offering to be an open, welcoming country, in marked difference to the rest of the UK. I simply suggest that asking workers or their employers to pay extra each year for the privilege of living here is not much of a welcome mat. Indeed, I fear it will send out the exact opposite message, and will deter people from coming here.

With the consequence that we will end up reducing the free movement of people from around the UK into Scotland, not increasing it. For all these reasons, we will have no choice but to oppose this week’s Budget unless the SNP agrees to examine its tax proposals once again.

We will do so because we believe that taxes here should not be higher than in the rest of the UK– and, where affordable, should be lower. Because we believe this is what will boost growth and add to the Scottish Government’s coffers. Our own analysis has found that simply increasing the proportion of higher and additional rate taxpayers in Scotland to the UK average would increase tax revenues by £600m a year.

Of course it’s not going to happen with a flick of a switch. But that just gives you an idea of the extra money that could be flowing into the Scottish exchequer – to be spent on public services, or returned to taxpayers – if we were to put a rocket under our economic performance.

As Andrew Wilson, the head of Nicola Sturgeon’s Growth Commission has suggested, how do we increase tax revenue in Scotland? How about doubling the number of additional rate taxpayers? This is possible. And there is no reason why we should not find consensus in doing so.

On some things we agree

Whisper it, but there are areas where we and the SNP agree. On Air Passenger Duty, for example, both of us are supporting a tax cut for the same reasons: we both believe that lower taxes here will increase traffic, adding value to the Scottish economy. Specifically, we would target measures on APD at long haul flights because we think that would create new direct routes from Scotland to North America, the Asian economies and other high-growth markets.

I am sure we and the SNP can reach an agreement here to ensure this welcome tax cut happens. What I find odd about the SNP’s position is the lack of consistency. Because what’s right for APD is also surely right for income tax and business tax too.

I know many SNP figures concur with this point. Indeed they used to make the exact same arguments as I am making here when they supported a cut in Corporation tax in Scotland.

Sometimes it seems that the SNP only wants to cut taxes that are currently in Westminster’s hands – all the better to complain when they aren’t. This isn’t good enough any more. Scottish politics is now getting real.

There will be those – and Patrick Harvie is one – who take an honest approach to this on the other side of the argument. I don’t agree with him one bit, but at least he has acknowledged the scope of the changes that are possible.

What I fear we will end up with, with the current regime, is a government that is stuck somewhere in the middle of the highway. And we know what happens there. You get run over. So unless the SNP makes substantial changes in the next couple of days and show they are prepared to consider our proposals, we will be voting against the Budget on Thursday.

There has been speculation that this might prompt another election, given the parliamentary maths. We shall see. But if it does occur, and the government is unable to get its budget through, then it will have no one to blame but itself.

We need a Government with the boldness to set a course, to take control of these new powers. That does not seem to be apparent right now. So if tax is the short-term immediate changes we would like to see, what about longer-term reform?

I’d like to raise just one issue tonight and that is the question of our education system and skills.
And let me start with a visit I made yesterday which shows how to get things right – to the Newlands Junior College in Glasgow. The brain-child of entrepreneur Jim McColl, it was set up three years ago with a specific remit to help 14 to 16 year olds in Glasgow who are on the verge of dropping out of the education system.

Instead, the College provides them with intensive, vocational and personal training to give them the skills they need to get on in life. There are, says Jim, around 20% of our young people who fit this category– who will leave full time education with nothing to their name.

After two years at his college, these young people are guaranteed an apprenticeship or a place at college. I met a number of them yesterday, and it was a complete inspiration to see how young lives are being turned around by a great idea, brilliantly implemented. The problem is that, currently, Newlands Junior College is a one-off. Jim McColl is hoping to expand across Scotland and he has plenty of support to do so.

But in Scotland, rather than roll out the red carpet to innovation like this, instead the system is set up to frustrate and block it. As Mr McColl said recently, there was, “a typically Scottish socialist response from some quarters. When you get down to actually doing anything there are some people who believe any private-sector involvement in education is wrong.”

More accurately, it is a bureaucratic response. A response that says the interests of the producer, and its institutional survival, are more important than what works. I take several lessons from Mr McColl’s experience.

In education, one size does not fit all

Firstly, we need to end the one-size-fits-all shibbolteth that has dominated our approach for so many years in Scotland, and free ourselves up to new ideas and fresh thinking. The current approach is simply not working. If we needed proof of that, it came in the PISA statistics last year which showed – once again – that Scotland is falling in the international league tables.

And it has been followed up in the evidence given to the Scottish Parliament in recent months which has exposed the byzantine level of interference and top-down inadequacy which is afflicting our education system. In short, teachers are succeeding – and most of them still do – in spite of the system they are operating in, not because of it.

So, as the Scottish Government prepares to unveil its governance review, we are calling for far more autonomy and more freedom for schools and colleges to help drive better standards. To encourage initiatives like Newlands Junior College, not stifle them.

The international evidence is there: these reforms will free teachers up to do their job. It will lead to an education system that takes responsibility for rising standards – and doesn’t seek to pass the buck.

Secondly, investment does matter. Mr McColl’s College does not come cheap – in fact, it is just as well he has a few spare million to keep it going. So we, as a country, need to commit to investment in skills.

That is why the Scottish Conservatives have called for extra investment in FE colleges to reverse the cuts overseen by the SNP – in part supported by our call for a graduate endowment. It is also why we have called for every penny of the new Apprenticeship Levy to go exactly where it is intended: to fund skills and apprenticeships.

And thirdly, we should not give up. Even at the age of 16, there is a chance to steer a young person away from the dole queue or the criminal court – and back into the workplace.

That is why we’ve also proposed a new network of Skills Academies – similar to the Junior College model – to ensure that more young people get world-beating training in everything from IT to engineering to construction. This really matters.

Most firms in Scotland expect to have more jobs available for higher-level skills over the coming years. At the same time, two thirds of those same firms are not confident about filling those high-skilled vacancies in the future. And if we really are going to be “Brexit-ready” by the time we leave the European Union, we must turn this around. It can be achieved. But we do need to take action – not sit back, declare we’re doomed, and await the worst.

To conclude, this is a time when it is easy to give into the belief that we are all running out of control. The ruptures we have experienced in the last twelve months – from Brexit to President Trump’s latest plan – have smashed aside old certainties. And the question left hanging is: well, if that’s possible, what else is coming round the corner?

For Conservatives, our response to this must be to place a greater importance than ever on protecting institutions, and on reinforcing the stability on which our prosperity and security depends.

Our belief is founded on the need for those strong institutions. They have never felt quite so necessary as now. And I believe this preference for stability and certainty over yet more flux and insecurity is also what most people of Scotland want too.

I know opinion polls should be taken with a pinch of salt these days, but this weekend’s polling revealed this fully. On the independence question, opinion in Scotland remains where it did in 2014. There is churn within the numbers, but Scotland stands pretty much where it did.

The big change is the drop in the number of people who want that issue put to the test – barely a quarter say they want another early referendum, down from over 40% in the summer of last year.

All politicians – Unionist and Nationalist – are now getting a firm instruction from the Scottish people. Yes, we have our views. Yes, we differ. But no, this is not the right time to rip things up again.

Whether it is in demanding yet another referendum on one side, or in proposing a UK wide constitutional convention on the other, I see little appetite for more of the last five years. …no appetite for adding to the uncertainty that we already face.

I believe we now must focus on the challenges that we have, not on adding to them. That means facing up to the challenge on Brexit – the biggest public policy question this country has faced in a generation. But it also means action rather than paralysis – real or artificial.

Scotland is not helpless in the face of the challenges; it has more political power to act now than it ever has. To set a course for economic growth. To deliver the world class education system the next generation deserves. To equip our young people with the skills we need in order for Scotland to prosper.

We can take responsibility for this – or we give in to the easy luxury of grievance and inaction.

For my part, I hope very much over the next vital year that we set the former course.

Patrick Harvie, co-leader Scottish Green Party, on Brexit, Climate Change and the Constitution

Patrick Harvie, co-leader of the Scottish Green Party, in the Politicians & Professionals 2017 series at the David Hume Institute, 23 January 2017.

A world turned upside down: Kezia Dugdale on Brexit, a second independence referendum and the next ten years

Speech by Kezia Dugdale, Leader of the Scottish Labour Party
Politicians & Professionals 2017, David Hume Institute, Edinburgh
16 January 2017

A year ago, we appeared to be entering an election where the Scottish constitutional question was off the table and a focus on the new powers of the Parliament was just around the corner. Today, we look on at a world turned upside down.

All of us in Scotland are now well used to tumultuous times, but even the events of the last few years left us unprepared for what has happened over the past 12 months.
Those 12 months have delivered a difficult set of election results for my own party, a loss for Remain, and for majority Scottish opinion, in the EU referendum, the election of a demagogic populist as President of the United States, and the question of a second Scottish independence referendum dominating our political debate.
But despite all the political turmoil, in the world beyond wood panelled rooms like this, and the surroundings of Holyrood, the picture is much the same as a year ago.
Unresolved questions about the future of our public services.
Continuing austerity policies from both the SNP and Tory Governments.
And a whole slew of powers being delivered to the Scottish Parliament which, unquestionably, makes it one of the most powerful devolved Parliaments in the world.
The world has been turned upside down, but as I have said before, the Scottish experience in 2014 was the canary down the mine for the wave of populism that we have seen since.
Here in Scotland, the victory of populism – in the form of SNP dominance – has been resounding, and is largely complete.
It leaves us with the question I want to address this evening – where now?
This is a question that applies to my own party as we prepare for the coming local government elections and carry on with the hard work of rebuilding to the next Westminster and Holyrood elections.
But, more importantly, it is a challenge to all of us who care about Scotland and the future of our country. Those of us who believe in using Government not as a bully pulpit, but as a platform to make real and meaningful change.
Because whether it is the First Minister’s push for a second referendum, Theresa May’s “red, white and blue Brexit” or Donald Trump’s call to “Make America Great Again”, there is a need to get beyond sloganeering and posturing.
We must provide people with a political debate that meets the scale of the challenges we face.
In “An Enquiry Concerning Human Understanding”, David Hume said:
“A wise man…proportions his belief to the evidence.” All of us in public life – wise women as well as wise men – could do well to listen to that advice.
With that in mind, this evening I want to address three things in an attempt to answer that question – ‘Where now?’

Where now?
First, the events of the past 12 months and what the response of political parties here in Scotland tells us about what might happen in the coming months.
Second, how I believe we should respond to Brexit and the SNP’s demand for a second independence referendum.
And, finally, what we need to do to address some of the fundamental questions facing the Scottish economy in 2017, and the risks we face if we do not.
Before Christmas, Radio 4 presented a series of historians who gave their views about which year in history 2016 most closely resembled. Some said 1913 and the relatively stable years that came before the outbreak of the First World War. Others pointed to the 1930s and the toxic mix of extreme politics, financial crisis and the growing threat of instability.
And others suggested it was more akin to 1979 and the beginning of the paradigm shift that led to neo-liberal economics, the ‘big bang’ and the erosion of the institutions that had provided security and safety since the war.
Regardless of the year they picked, every one of them agreed that 2016 was significant, a period of time which some people have referred to as a “hinge year”.
One where significant disruption leads to great change and sets the direction for the generation ahead.
In the past eight years we have seen people’s faith in every major institution damaged.
Parliament, the banks, the church, the BBC, the police service – even our national game.
These are some of the institutions of our country which have provided stability for decades, and whether down to corruption, carelessness or downright evil, every one of them has lost credibility and standing.
At the same time, falling living standards and increasing instability in work and in our own communities has left people poorer, angrier and more convinced that the people in charge just can’t be trusted.
Instead of responding to this with real thought and then action, the public perception – and much of the reality – was that after the financial crisis and the pain caused by it, those same people went back to business as usual.
• The UK Government continued to push ahead with an austerity agenda that punished those who were left poor and angry.
• Banks soon returned to paying large bonuses to the very people the public believed were responsible for the crisis.
• And, in many circles, complacency set in that the worst was behind us and our politics, and the way we run our economy, should – and would – return to normal.
It was that arrogance – largely demonstrated by a Conservative UK Government that was deeply out of touch with how people really felt – that led to the toxic conditions that created 2016.
The reaction we saw last year wasn’t created overnight, but it was long overdue.
People voted for Brexit for a variety of reasons, but binding most of them together was a desire to bring about radical change in the way we do things.

A failure of politics
The Brexit vote represents a failure of politics. It demonstrates clearly the extent to which people are willing to go to have their voices heard and to express their desire for real change.
The same was true in Scotland in 2014 – 45% of people voted in the knowledge that they were taking a significant risk, but that was, in their view, the price to pay for change.
For politics to succeed, not just in the coming years, but in the coming decades, there needs to be an honest conversation about what politics can achieve and how we might make change happen.
This is where I believe that the other two major parties in the Scottish Parliament are going wrong.
Both the SNP and the Scottish Conservatives appear, since the Brexit vote, to be casting about for an expedient political position rather than working in the national interest.
Our politics has become even more polarised and more attempts are being made to re-open the divisions of the past few years than there are to heal them and attempt to take our country forward.
Both the SNP and the Tories talk of unity, but unity cannot be achieved by a politics that sees one half of the country constantly facing off against the other.
It is a recipe for a cold war in Scottish politics with both sides camped out around their positions, and our public services, our economy and our whole country suffering as a result.
Ruth Davidson is so keen to present herself as the guarantor of the union, but the Conservatives have done more damage to the case for the UK than anyone.
The tone deaf response of David Cameron to the Scottish independence referendum was to launch English Votes for English Laws, putting partisan advantage ahead of the best interests of the country.
And the decision to go ahead with an EU referendum, against a background of deep public anger towards the establishment, and a cry for real change, was reckless and irresponsible.
At no point did Ruth Davidson attempt to make any arguments against these approaches.
Today, with the Tory Government in Westminster without a plan and Britain facing a hard Brexit, Ruth Davidson sticks with defending them, rather than offering an alternative for how Scotland can best deal with leaving the European Union.
The Scottish Conservative Party is claiming to protect a union it is in fact putting at risk, after allowing the UK to fall out of another union that provided jobs and opportunities that enhanced our economy.
That is part of the reason I believe that the biggest risk Scotland faces – along with independence – is a Tory hard Brexit and a Scottish Conservative Party that is doing nothing to overcome the divisions of the referendum and everything to exploit them.
In July, when I first laid out Scottish Labour’s response to Brexit, I made absolutely clear that we would support the work that the First Minister was undertaking to try to protect Scotland’s place in Europe.
I did that because I believe protecting our relationship with Europe is essential for the future prosperity of our country.
We need to be able to take advantage of the opportunities on our own doorstep.
It was also because our relationship with Europe isn’t just a transactional one. It’s about identity. My own and that of so many Scots.
My belief in the European project – from working closely with our friends and neighbours, to the benefits of free movement – has been core to my politics.
That’s why I have worked in good faith with the First Minister since June on these issues, and we have had weekly debates in the Scottish Parliament.
The Scottish Government’s proposals before Christmas contain a number of ideas which need to be explored with the UK Government, and I hope they are on the table for the Joint Ministerial Meeting this Thursday.
Regardless of Scotland’s final relationship with Europe, the First Minister has now accepted something that she did not on the day after the EU referendum – that Scotland will find itself outside of the European Union, even if a deal is struck to maintain our relationship with the single market.
The focus of the Scottish Government now should be on getting the best possible deal for Scotland out of these negotiations, not on continuing to make the case for a second independence referendum.
The First Minister has changed her position on this several times over recent months. First she said in her manifesto that Brexit would be a possible trigger for another referendum, and then most recently she ruled it out for the next 12 months.
Having ruled it out in 2017, this now means that a second independence referendum would need to take place between January 2018 and March 2019 when the Article 50 negotiations conclude.
A referendum after that date would mean potentially leaving Scotland outside of the EU and outside of the UK. A set of circumstances that would see us lose the economic relationship with both our largest trading partners.
If the First Minister is serious about getting the best deal for Scotland there is only one thing that she should do – take the threat of a second independence referendum off the table entirely.

A ‘People’s Constitutional Convention’
This would be in the national interest, and would put the opinion of a majority of Scots ahead of her own supporters.
Because here are the facts.
Nicola Sturgeon knows that a second independence referendum in the next few years would fail.
She also knows that a quarter of people who voted for her in 2015 would vote no.
That Brexit has made more people less willing to take a leap in the dark.
And – crucially – the majority of the Scottish public do not want another referendum any time soon.
As a nation, we are already divided enough. We do not want to be divided again.
If the UK is set to suffer from the uncertainty created by Brexit, as businesses question making investments in the UK, we cannot afford for Scotland to appear to be an even more unstable prospect.
If the First Minister wants to have a referendum while Scotland is still inside the EU that means the country would face another divisive independence referendum while the UK negotiates with Europe.
It would mean people across Scotland voting to leave our biggest trading partner, with no knowledge of what the UK deal with the EU might look like.
It would be as reckless as David Cameron’s original gamble of an EU referendum.
And it would be a proposal that Labour in the Scottish Parliament would vote against.
Leaving the EU – whether we retain single market access or not – means that the whole structure of political decision making in the UK is going to change.
Whether we like it or not, questions about how we run our affairs are going to be central in the coming years.
Since Britain joined the Common Market, and then the European Union, more and more powers have transferred to Brussels to enable us to work co-operatively with other members of the Union.
Leaving the EU means many areas of law and policy will return to the UK.
This will probably be the single biggest change to the UK’s governance since devolution.
Currently, the Prime Minister and the UK Government have no plan to deal with it apart from a “Great Repeal Act” which appears to be nothing more than an initiative to grab a headline.For progressives who believe that this country needs radical change, and for the public who have been demanding it, this is an opportunity.
I am against independence, and I am pro-union.That doesn’t mean I’m pro status quo.
Any politician who believes the solution to our problems lies in no change hasn’t been listening hard enough.
The return of powers from Brussels gives us the opportunity to think afresh about how our country is run.For me, that means convening a People’s Constitutional Convention.
The experience of the Scottish Constitutional Convention in the 1980s and early 1990s showed that it doesn’t take Government to create a popular movement for change.
It takes people working together around a common vision and a common idea.
Yes, the power of Government ultimately makes the vision a reality, but if it wasn’t for the will and determination of civic Scotland, church leaders and opposition politicians in the 1980s, devolution may have vanished after the failed referendum in 1979.
Last month, I presented my proposal for a People’s Constitutional Convention and wrote to Theresa May encouraging her to do just that. Instead of the future of our country being determined behind closed doors in Westminster, it should be determined by the people of this country. The Government’s response to my letter was to reject it out of hand.
I believe it now falls to the Labour Party across the UK to convene a constitutional convention to determine how government across the UK will work after Brexit.
And I was pleased to see Jeremy Corbyn back the idea again yesterday.
It is for us in Scotland to determine how best we manage our affairs and our future here, but we need to play a full part in any process to reform the United Kingdom.
This is not constitutional change for the sake of it. We are faced with the prospect of one of the biggest upheavals in our governance arrangements that we have ever seen. We cannot, and would not want to, escape this debate. This is an opportunity to respond to the circumstances that led to Brexit and to put Labour’s values into practice.
It is now widely accepted that the inequality that exists between different parts of our country is not just unpalatable, it is holding our whole country back.
Having a productive and growing economy relies on every part of the UK firing on all cylinders, not just one corner.
Our contribution to this debate has to be rooted in building our economy for the future and ensuring opportunities are spread across all parts of the UK, and all parts of Scotland.
As a starting point, there are three areas where I believe it is important that Scotland starts to look at taking responsibility.
The first is in the basic protections and guarantees around employment. The European Union has provided a backstop for protections, but when the social chapter ceases to apply here, we have to ask where that power best sits.
I would argue that the UK should continue to set a basic standard for the whole of the UK, but different parts of the United Kingdom should be able to build on those across the country. So, the Scottish Parliament would be able to build on a common UK standard, should it wish to.
The same principle would also apply to the minimum wage. A national floor should be set above which the devolved institutions across the UK would be able to increase the minimum wage.
The second area is in fisheries and agriculture. In this, as in a number of other policy areas, we should not undermine the devolution settlement by seeing the UK Government take responsibility for areas of policy which are clearly devolved. If an area of policy is not contained in Schedule 5 of the Scotland Act, then it should return not to London, but to Edinburgh.
Fisheries and agriculture may still require co-ordination across the UK, but this should be done in a negotiation between the Governments of the UK, as equals.
Finally, we need to seriously consider the case for decisions about immigration being taken at a more local level, along the lines of the model that is in place in Canada. This would allow different parts of the United Kingdom to have immigration policy that meets their particular needs.
The Fresh Talent initiative – which was developed by the last Labour-led Scottish Executive – set the precedent that there can be different immigration arrangements for Scotland. It is disappointing that there hasn’t been the political will to make anything similar happen recently.
This proposal is attractive and one that Scottish Labour will look at in more detail in the coming months, including with colleagues from Canada and Quebec, and we will also look in detail at the recommendations of the APPG on Social Integration.
New governance arrangements across the UK, that give a greater role to devolved institutions, would create a new phase of devolution for our country.
I believe this has to sit alongside a restatement of the partnership between Scotland and the UK in a new Act of Union, to modernise our Union for a new age.
Too many of our discussions about further devolution in Scotland have been reduced to an auction of powers. What we need instead is a discussion that meets the desires of a majority of people across Scotland – a strong Scotland with more power to determine our future, while maintaining and strengthening our relationship with the rest of the UK.
This is what a new Act of Union would enable us to do – to spell out in detail the renewed relationship between Scotland and the nations of the United Kingdom. It would make clear that our country is a partnership of equals where the four nations of our country pool sovereignty in order to maximise opportunities. And where being part of the UK continues to guarantee certain rights and privileges on which we can build.
I believe this is an ambitious agenda for change which is in line with what the majority of people across Scotland want.

Pro Union, but not pro status quo
Equipping Scotland with what it will need to prosper in a post-Brexit environment.
But we also need to be ambitious for the powers we have now.
After years of debate and discussion, our Parliament is now more powerful than it ever has been.
And as we face the prospect of Brexit we should not just be thinking about what it means for our institutions, but what the Scottish Government could be doing now in order to put us in the best position for the future.
Even before Brexit, the challenges we faced as a nation were immense. And, in many respects, Brexit does not change that.
We still face challenges to grow our economy, increase the productivity of our labour force and open up new opportunities for the Scottish economy.
According to the independent experts in the Scottish Parliament Information Centre, the Scottish Government has missed its targets on growth, productivity and labour market participation.
With more and more of the Scottish economy being owned by foreign based companies, we need to look at how sustainable this makes our economy in the future, and whether new models of ownership – such as co-operatives and mutuals – could bring ownership closer to home.
If I were in the Scottish Government, this is what would be keeping me awake at night.
Over the coming months, I will have more to say about how Scottish Labour believes we can build a more productive economy. But before I conclude this evening, I want to lay out three changes I believe the Scottish Government needs to make to give our country the best chance to succeed in the future.
The first is the action that they can take during the budget process in the coming weeks.
After the elections in May, I appointed myself as Scottish Labour’s spokesperson for finance because of the importance I place on the choices that the Scottish Parliament now faces in this budget.
This is the first budget where MSPs will be able to make full decisions on income tax – therefore placing with the Scottish Government the power to increase tax revenues if it wishes.
The current budget proposal from the Government would see hundreds of millions of pounds of cuts which would have a devastating effect on our communities. This comes after years of cuts have placed more and more strain on our public services.
My priority in this budget is for the Government to use the powers they have to reverse these cuts.
If we want resilient communities that can face the challenges of the future, we need to pay for it. Scottish Labour has made the choice to be honest with people and we have explained why we are asking everyone to pay a little more and those at the top to pay the most.
The SNP Government cannot continue to complain about the consequences of austerity if it is not willing to take action to stop it.
The proposed budget also means continued cuts to Scotland’s schools, as local authorities are forced to try to make ends meet.
Cutting the budgets of Scotland’s schools when our economy faces significant challenges is totally irresponsible. It doesn’t just limit the opportunities of the current generation, it will harm our economy in the future.
Every employer I meet tells me of the need to improve the Scottish education system and, in some of the fastest growing industries, I meet employers who have to look outside of Scotland to find the skills they need. This can’t go on.
Since 2007, the SNP has presided over an education system that has seen over 4,000 teachers lost along with fewer support staff in our schools. And in our colleges, there are 152,000 fewer places now than when the SNP came to Government nearly ten years ago.
So while funding to tackle the attainment gap is welcome, it can’t make up for the cuts of the past decade.
I always talk about the money we want to raise to stop the cuts to our schools as an investment. Because we are investing in the skills of the next generation of workers which is the key building block of a stronger economy in the future.
If people are the first ingredient of a successful economy, place is the second.
In Scotland we are blessed with a number of dynamic and innovative cities, from Inverness and Aberdeen in the north, to Glasgow and Edinburgh further south.
The geographic distribution of our cities means that there is a potential engine for economic growth in every corner of our country. We need to be in the best position to take advantage of that.
The City Deals which have been awarded across Scotland so far have and will inject millions of pounds into local economies, and in the future will go some way to unlock even more potential.
But we have to be even more ambitious.
The UK Government’s commitment to provide a City Deal to every Scottish City cannot be a wasted opportunity. The Labour-led local authorities in Glasgow, Edinburgh, Aberdeen and Stirling are to be commended for leading the work to secure city deals.
I want to see the same level of ambition from the Scottish Government.
This Scottish Government needs to ditch the timid managerialism which seems to have become its hallmark and start taking more lessons from pioneers such as Tom Johnson, who left us the legacy of hydroelectricity.
Government should be thinking radically about how we make the most of our cities and thinking big.
So, let’s not just trumpet a ten minute reduction in the time it takes to get a train from Glasgow to Edinburgh. Let’s start thinking aloud about how we could create an intercity network to connect our cities together in even less time.
We have an engineering hub in Aberdeen where it is easier and often quicker to travel to London by air than it is to Edinburgh by rail.
Why aren’t we talking about changing that?
In Glasgow, campaigners have called for a Crossrail service for years and properly integrated transport across the whole city region. The Government should be looking at how we can make this a reality.
And, in Edinburgh, we have a successful tech sector and a well-established finance sector working alongside each other. What more can we do in order to get them working properly together, so we can take advantage of the burgeoning opportunities and expertise in Fintech?
Absolutely none of this will happen by accident. It takes political will and a proper strategy owned by an individual in Government.
That is why it is so disappointing – when the evidence that cities drive growth is so persuasive – that the Scottish Government has no dedicated cities minister.
In fact, the word cities – which long appeared in the title of at least one cabinet member – has been dropped entirely.
Appointing a dedicated Cities Minister would be a strong signal that driving growth through our cities is a priority for this Government.
Finally, we need to stop opportunities passing us by.
The Government has been very successful at saving industries at risk, but when it comes to identifying growing industries and helping them to succeed, the picture is less positive.
For example, in the North East, we risk losing jobs in decommissioning to the North of England, as there is simply not enough political will to make that vision a reality. There is potentially nearly £18 billion of work in this industry between now and 2025 and if we do not turn our attention to it, other parts of the UK will be first to reap the benefits.
Similarly, the rise of automation in “middle class” professions poses a risk to jobs that we never thought were at risk of being replaced by machines. Many processes in finance have already disappeared and been replaced by computer algorithms and in the law, software already exists to replace costly humans when it comes to document reviews.
The same is true of other industries which we always thought were off limits to machines. How will we respond to this? The first wave of automation destroyed industries Scotland relied on. The latest wave cannot be allowed to do the same.
So if innovative tech is set to replace these skilled jobs, we need to be at the leading edge in that sector.
And we’re in a great position to do it. Scotland already has a leading tech sector and the UK’s largest tech incubator – Codebase – is here in Edinburgh, with nearly 80 startups based there. But what support is being offered to these businesses to stay if they continue to grow? And how are we expanding that out to the rest of the country, ensuring locally based support and not more centralisation as we are witnessing with the proposed changes to Highlands and Islands Enterprise.
As the very nature of business changes, has the government means of supporting those businesses kept up? How will we reap the benefits of this being right here on our doorstep?
Our Government has no published strategy on how we take advantage of these new opportunities, despite being in a perfect position to be able to do so. This isn’t a consequence of a lack of power – it’s a consequence of a lack of political will.
In the 1980s, the answer to the decline in manufacturing was ‘silicon glen’, and at its peak Scotland produced 30% of Europe’s PCs, 80% of its workstations and 65% of its ATMs.
Competition on the grounds of cost mean many of these industries have moved away, but the tech jobs of the future won’t be won on the basis of lower cost labour. The jobs we need to win are high quality and high skill, which rely on having a long term strategy from Government and a highly educated workforce ready to take these opportunities on.
Scotland can – and should – be the centre of tech innovation in the future.

• The next ten years
  As we approach a decade of SNP control at Holyrood, my thoughts are turning to the next ten years.
  And these questions about the future of our young people, and how we build a growing and successful economy after Brexit are the ones that will preoccupy me.
  We live in a time of binary politics, where we are identified by our choices at referenda – remain or leave, yes or no – and where too often our politicians cleave to those divides for political advantage.
  My argument tonight has been that this is not only short-sighted, it is dangerous and destructive.
  Labour has never succeeded when it looks at the world as it is and argues for no change, or is satisfied with the political debate as we find it.
  Throughout our history we have always been the party of bold and radical change, achieved in a progressive and pragmatic way.
  We have always been the people who look for the political road less travelled and achieve real progress.
  And the evidence is that we have been pretty good at it, when given then chance.
  The NHS.
  The Welfare State.
  The Scottish Parliament.
  All proud achievements of my party.
  Achieved through rational debate and pragmatic thinking.
  Our challenge now is to show that progressive politics – where we work together to find solutions to our common problems – can win against populism – whether that’s in the form of right wing parties or nationalist parties.
  I will leave you with this thought.
  Four days from now, Donald Trump will stand on the steps of the US Capitol and be sworn in as the 45th President of the United States.
  He is one of the least qualified people ever to take this office, but from Friday he will be at the head of the most powerful Government in the world.
  Four years from now, I want to look back on this as the high water mark of the populist wave which has swept through western democracies.
  But progressives won’t win by sitting still.
  Whether you’re a member of the Labour Party, the Democrats, the French Socialists or the Social Democratic Party in Germany, the challenges we face are the same.
  I believe the left can win through, not just by showing our ideas can triumph, but also by demonstrating that our vision – of working together towards a common goal – is fundamental to how most people on this planet want to live their lives.
  As David Hume wrote:
  “It’s when we start working together that the real healing takes place.”
  Thank you.

Brexit, Trump and the ‘deaths of despair’ – Sir Angus Deaton’s David Hume Lecture

By Jane-Frances Kelly
How do we explain the high levels of support for Brexit in the UK and Donald Trump in the US? Economics Nobel Laureate Professor Sir Angus Deaton, offered a possible explanation in his David Hume lecture Prosperity and inequality: from the Enlightenment to BREXIT and Donald Trump.
At the event, hosted by the David Hume Institute and the Royal Society of Edinburgh Sir Angus was accompanied by his wife Anne Case, the Alexander Stewart 1886 Professor of Economics and Public Policy also at Princeton. Their ground-breaking collaborative research on the high mortality rates among middle-aged white Americans underpinned many of the lecture’s arguments.
Although he has lived much of his adult life in the US, Sir Angus was born and brought up in Edinburgh, ‘a wonderful city in which to read, and to dream, and to explore’. At the age of ten his family moved to the Borders, where he spent some time at Hawick High School.
There, along with another former pupil, the theoretical physicist Sir David Wallace (who was in the audience), he was one of the ‘two brightest boys in the class’ – but not the smartest pupil; that was a girl ‘with whom we were locked in competition’. She became a doctor.
Turning to his subject, Sir Angus described today’s world as a difficult and uncertain place, characterised by continued faltering growth and breakdowns in familiar political arrangements. It is true that, since the Enlightenment, human progress has moved many of us from destitution, ill-health and premature death to long life and high material living standards. But as in the film The Great Escape (from which Sir Angus borrowed the title of his recent book), progress only some have escaped, leaving others behind. Progress itself has been an engine of inequality.
Looking at the role of inequality today, Sir Angus commented that in the US (as in the UK), inequality is increasing alongside low economic growth. This low growth means that fewer people prosper and flourish, and more get left behind with scant prospect for advancement.
Progress is not just about money, of course: health is just as important, if not more so, and the rich live longer than the poor in all countries, including ours. Sir Angus provided an analysis of the causes of mortality for different age and ethnic groups in the US since 1990, published last year in a paper co-authored by Anne Case.
A forensic drilling down into the data drew audible gasps as it revealed that, contrary to the trends for Hispanics and African Americans, mortality has been sharply increasing among whites in the US.
The increase in deaths, particularly pronounced in those with a high school education or less, has primarily been caused by suicide, drug and alcohol poisoning (particularly from opiate overdose), and alcoholic liver disease.
Speaking of the many people who are dead who would otherwise be alive today, Sir Angus called these ‘deaths of despair’. Following the publication of their paper, the Washington Post compared the location of the deaths with voting patterns in the US primaries, and showed that they are geographically correlated with votes for Donald Trump.
How do these findings compare to our experience in Britain? Sir Angus cautioned against over-facile comparisons between the US and the UK and that racial and ethnic issues in particular are very different. In the UK there has been an increase in drug and alcohol poisoning since just after 2000, but the effect is much smaller than that in the US. Similar political dissatisfaction was expressed in the recent Brexit referendum, however.
During question time, one member of the audience wondered whether the recent increase in political engagement in Scotland might be a protective factor, pointing out that Scotland voted to remain in the EU. On the other hand, the Scottish independence referendum provided an opportunity to vote against the status quo, one to which voters in the rest of the UK did not have access. Further research is clearly required, and the Scottish context was suggested as fertile ground for inquiry.
A final striking thought: Sir Angus wondered whether unfairness, rather than inequality per se, makes people most dissatisfied, and whether the widespread rent-seeking that characterises our economies is one of the major – and legitimate – causes of the kind of the kind of discontent that results in voting for Brexit or Donald Trump.

Hear Sir Angus’s lecture here: 

Prosperity and inequality: from the Enlightenment to BREXIT and Donald Trump

Prosperity and inequality: from the Enlightenment to BREXIT and Donald Trump

Sir Angus Deaton, winner of the Nobel Prize for Economics 2015

David Hume Lecture 2016 and presentation of RSE Fellowship and Medal