Good morning and thank you John for inviting me once again to speak at your annual conference.

I’m pleased to be here to talk about our shared ambition to tackling poverty and about the serious adverse impact that Welfare Reform will have on our collective efforts to do so.

Let me be clear at the outset – as a government, we are determined to address the root causes of poverty. We believe that child poverty is unacceptable – socially, economically and morally. But we must also be quite clear that these are difficult times and that we face the biggest changes to the welfare system – and cuts to welfare spending – that most of us will have seen in our lifetimes.

That will undoubtedly make our task much harder – particularly if we remain at the mercy of political decisions taken in Westminster.

CHILD POVERTY STATISTICS AND CONTEXT

Yesterday we published our annual poverty and income inequality statistics showing 15% of children in Scotland are living in relative poverty. Falls in the levels of relative poverty and of material deprivation over the past two years are of course welcome. Our approach to early intervention and prevention is having a range of very positive impacts. But let us be under no illusion. these figures are no cause for celebration – on the contrary, levels of child poverty in Scotland are a cause for shame. Indeed, the figures show that the decline in relative poverty is more to do with the fall in average incomes than with any material improvement in the circumstances of the poorest.

We should also recognise that these figures relate to 2011-12 – in other words, they pre-date much of the impact of the UK Government’s welfare reforms, which I fear will only reverse any progress that has been made. It is worth stating once again that we will continue to do everything we can to mitigate the damaging effects the reforms are having in Scotland.

We want to eradicate child poverty first and foremost because we believe in unlocking the potential of individuals, through which more socially cohesive societies will deliver safer and stronger communities. What these latest figures clearly illustrate is what we already know – that there will be no easy solutions.

There are tools already at the Scottish Government’s disposal, and it is through actions on health, housing, early years and regeneration to name only a few, that we have shown our commitment across Government to improve lives for children and families in Scotland.

WELFARE REFORM

But there is no getting away from the fact that the most important levers remain at Westminster, where the UK Government are cutting costs through a package of benefit changes. In total we estimate these will see cumulative reductions in Scotland of up to £4.5 billion by 2015 – of which around £1 billion will impact directly on children.

Whilst we are under no illusion that we will be able to mitigate the impact of all the changes that we face, we must continue to act when we can where we can to reduce the impacts.

The continuing hard work and willingness of welfare rights and frontline advice workers to engage with us in trying to better understand and to mitigate the impact of the UK Government’s plans around welfare reform is invaluable.

That is why I am delighted that we have been able to invest an additional £7.9 million to give organisations the much needed resources they require to manage the significant increase in demand for their services as a direct result of the changes. This includes the grant funding programme made available through the Scottish Legal Aid Board, which remains open for applications.

One of the important benefits of independence is that Scotland would gain control of welfare policy. That means, in the short term, being able to reverse some of the more damaging aspects of the UK government’s welfare changes. For example, the current Scottish Government has made it clear that we would abolish the bedroom tax and make some immediate changes to Universal Credit. It also means that, in the medium to longer term, we can design a welfare system that suits our needs and circumstances – a system that is fair and sustainable, protects the vulnerable and helps people into work.

The Expert Group report helpfully presents a number of options for immediate changes to the welfare system that are very much in line with the thinking of the Scottish Government. I have now asked the group – under the convenership of Martyn Evans – to look at the medium to longer term options for reform.

The main thrust of today’s report is on costs of the welfare system at the point of independence and the options for delivery in the short term, i.e. the administration of the system.

It reaches two key conclusions. First, that the Scottish Government’s assumptions about the costs of the system we will inherit are reasonable. We also know from Scotland’s Balance Sheet that welfare is currently more affordable in Scotland than in the rest of the UK. Today’s report also includes figures showing that welfare expenditure in Scotland has been declining as a proportion of total GB spend.

The second conclusion reached by the group is that the infrastructure of the welfare system already substantially exists in Scotland – almost all benefits, including all pensions, paid to people in Scotland are processed from locations in Scotland. In addition, payments for millions of claimants elsewhere in the UK are processed in Scotland. This leads the group to recommend that – while all delivery options are possible – there should be a transitional period, post independence, of shared administration.

The Scottish Government tends to agree that this would make sense – not least because of the reliance of the overall UK system on Scottish infrastructure. However, it would be a transitional arrangement and relate to administration, not policy.

All in all, I welcome the Group’s report. It is a substantial contribution to our planning for an independent Scotland and allows us to ensure the Scottish people of the continued delivery of pensions and benefits from day one of independence.

The first report of the Expert Working Group on Welfare was published this morning.

Watch my speech to The University of Edinburgh Academy of Government in full on the Scottish Government YouTube Channel.

We currently have a system where general elections more often than not result in Westminster governments that Scotland did not vote for that then takes decisions that Scottish MPs do not support.

This affects the jobs, wellbeing and life chances of everyone in Scotland.

The implementation of the bedroom tax, cuts to the incomes of the low paid, cuts to child benefit, increases in VAT,  cuts to capital budgets in a recession,  the preparation of the Royal Mail for privatisation, the rejection of a tax on bank bonuses to support jobs, the continued development of new nuclear weapons, the war in Iraq, and the decision earlier this week to avoid key green energy targets that would tackle climate change, are just some of the decisions taken by Westminster governments that affect families, businesses and public services in Scotland and do not have democratic support in Scotland.

We know that Scottish MPs at Westminster have voted against many key aspects of UK policy. A majority of Scottish MPs voted against Trident renewal and the invasion of Iraq. This year, the welfare benefits cap and the bedroom tax were both opposed by 91% of Scottish MPs. And just this week Scotland’s MPs backed challenging green energy targets, whilst Westminster as a whole voted against.

Does anyone think that a Scottish Parliament would have implemented the bedroom tax?

It is legislation which could never have been designed by a Parliament with Scotland’s problems and priorities at its heart.

Scotland now faces a choice of two futures. We can continue to make up less than a tenth of the MPs in Parliament whose decisions on welfare, defence and the economy routinely disregard our wishes. Or we can become a truly equal partner through independence.

Independence would enable us to create a healthier relationship with the other nations of these islands.

After all, with independence, the rest of the UK could no longer express concern that Scotland was in some way being subsidised – although one of the benefits of this referendum campaign is that that myth is heard less and less frequently anyway.

Scotland and the rest of the UK would both stand on our own two feet – taking our own decisions, and working together on issues of common interest. Our relationship would be what it should always have been. A partnership of equals.

We don’t have to look too far away to see successful examples of co-operation between neighbours.

For these islands, even under devolution, we can see the outlines of how a renewed partnership of the isles might work. The British Irish Council was set up in 1998. Its secretariat is based here in Edinburgh. The Council has representatives from two independent states, three devolved administrations and three Crown Dependencies. It’s easy to see how it could be adapted to include three independent nations rather than two.

In addition to formal mechanisms for discussion, there would be day to day co-operation.  At the height of the riots in England in 2011, Scottish police sent officers to help the police forces in England. During the water crisis in Northern Ireland in the same year, Scotland sent hundreds of thousands of litres to Northern Ireland. And, as Health Secretary during the swine flu crisis, I worked closely and constructively with colleagues in the other UK administrations to ensure a joined up approach. That level of mutual support would continue. It’s what good neighbours do.

Independence has never been about walking away. It’s about taking responsibility, and working together.

Working together with other nations in the UN, in Nato, in the European Union, in the British Irish Council and in many other organisations.

But crucially – it’s about working together as an equal partner, rather than as a member of a union where one nation’s interests, by nature of its size, are always likely to prevail.

Our report considered four currency options in detail and recommend the adoption of a formal sterling area which would provide a strong overarching framework for Scotland post-independence.  The working group believes that a shared currency is in the overwhelming economic interests of both Scotland and the rest of the UK (rUK).

We invited both Governments to engage with the framework proposed and begin discussions on the recommendations and principles at the earliest opportunity.  Such engagement would  provide greater clarity and  allow the people of Scotland to make an informed choice in the referendum.

The UK Government  published its own report on currency and monetary policy in April.  It has yet to respond to the proposals or consider any of the work and proposition put forward by the Working Group.

Of particular disappointment is that where the UK Government paper poses questions around governance, sustainability and financial regulation, it ignores issues which we have already addressed as part of our proposal.

As we set out in our first report, we understand that political considerations will play a role prior to the referendum.  We share the view of the House of Lords Economic Affairs Committee that technical discussions should take place in advance and that this would be in the interests of both Scotland and the rest of the UK.

We are keen that all interested parties take forward constructive engagement on our core proposition.  We believe that an agreement to retain Sterling as part of a monetary union can be reached and that there is flexibility regarding the specific institutional arrangements.

In considering the report of the UK Government we make the following comments:

• The UK paper does not recognise that with independence Scotland would have much greater fiscal and economic freedom to set taxes and wider economic policy.
• The economic and technical analysis underpinning the case for retaining Sterling is consistent with what we have presented both in our main report and technical annex – however this is possible within a formal monetary union, not just the existing constitutional arrangements. There are clear benefits to the rest of the UK from our proposed approach if Scotland votes for independence.
• Evidence presented in the UK paper provides further support that the UK’s trade and financial links with Scotland are significant and that a shared currency is in the best interests of both economies.  The UK paper draws comparison with the Euro Area.  The Working Group  considered the experience of the Euro Area and used this to inform proposals for fiscal sustainability and  governance of monetary policy.
• The UK papers do not account for the cross linkages between different aspects of the macroeconomic framework that are important.  A systemic view, like that provided in the Fiscal Commission Working Group’s report, is needed.
• We have also set out clear and detailed proposals for financial stability which are consistent with international trends, reflect the current integrated nature of the industry not just in the UK but also increasingly Europe, and fulfil Scotland’s obligation as an EU Member State.

The Fiscal Commission Working Group met yesterday to discuss our continuing programme of work. This includes the principles of a tax system for Scotland, institutional arrangement for monetary and financial stability and the establishment of a permanent Fiscal Commission which could both fulfil an advisory role in relation to the additional financial powers due to come into force in 2015 and 2016 and provide independent budgetary advice to a fully independent Scotland.

We will be setting out our recommendations later in the year.

Our proposals are based on our individual experiences of UK and international economics, our work with governments, international organisations, engagement with a number of financial institutions and our academic research.

We repeat our call for technical negotiations and discussions to take place in advance of the referendum and believe that based on our proposals there is an opportunity to offer clarity ahead of the referendum.

This document contains the main arguments for taking economic decisions affecting Scotland out of Westminster and up to Scotland, giving these important powers to the people it will affect.

Below are a number of graphics with some key points from the paper including tax revenue generated by Scotland, the structure of Scotland’s economy by industry, how our economy is structured by employment, GDP, and the value of Scottish exports around the world.

Scotland’s Economy: the case for independence.

Read Scotland’s Economy: the case for independence on the Scottish Government website.

Follow on twitter @scotreferendum, #indyref.

In Scotland we are being held back by a lack of decision making powers – that’s why I believe that the best people for the job of running our economy are the people who live in Scotland.

The First Minister and I will launch a paper tomorrow outlining the economic strengths of an independent Scotland and making the argument that our potential for growth will be much greater if economic decision making powers lie in Scotland, not at Westminster.

We will be broadcasting the announcement live from my blog tomorrow, Tuesday 21 May from 10:40am.

Tune in live to hear us take this next step towards the independence referendum on September 18, 2014.