27 February 2002
Speech by the Chief Secretary to the Treasury, Andrew Smith MP, at the CBI London Annual Lunch, Guildhall
London is an exciting city and this is an exciting time for London: a vast and sophisticated metropolis:
- Representing 16% of the nation's GDP
- Consistently voted Europe's top business city
- A hub for financial services, creative industries, and international headquarters
- A gateway to the rest of the world.
Of course, none of this should be taken for granted. London faces some very real challenges. Years of under investment are a threat to the city's competitive position, and demand side pressures threaten to outstrip the city's supply of infrastructure, skills, and communication.
This is a challenge for us all: for central Government, for the Greater London Authority, and for the business community. Only by working together can we achieve our shared objectives.
In Government, our most important contribution is the creation and the maintenance of a stable macro-economic environment:
- Inflation is low and stable.
- Long term interest rates are around their lowest levels since the 1960s.
- Public finances are sound.
- Unemployment over the last year has been at its lowest level since the 1970s and more people are in employment than ever before.
- Nearly all commentators expect continued growth with low inflation in the UK economy
- The IMF has said that our ?track record of sound policy design and implementation in recent years bodes well for continued success in a more uncertain world economy.?
This Government will take no risks with economic policy - we will never take stability for granted. We will maintain our discipline in managing the public finances, and will consistently meet our tough fiscal rules.
Because it is only by maintaining our discipline now - preventing the public finances getting out of control as they did in the past - and by taking the tough choices that are necessary, that we will be able to afford the expansion of spending on our priorities - health, education, transport and fighting - in this period and in the next spending review. And in every case, as it must be, investment will be matched with reform.
Macro-economic stability means certainty for businesses - the right environment to plan and invest. That certainty is important. That is why this Government has set out clearly our policy on the euro; a policy we have followed consistently since 1997.
In principle, the Government recognises the benefits UK membership of the eurozone could bring. In practice, the economic conditions must be right. The determining factor underpinning any Government decision on membership of the single currency is the national economic interest and whether the economic case for joining is clear and unambiguous.
What is also clear, whether in or out of the euro, is that the prospects for prosperity and for business and for making the most out of the single market depend on continuing reform of European product, capital and labour markets. So tomorrow, looking ahead to the Barcelona Summit, we will be publishing a White Paper on European Economic Reform, setting out our proposals on precisely those issues.
You can be certain that we will not make any decision on the euro that is bad for business or bad for employment. In fact, we are determined to offer your companies every support, which is why we have introduced and supported micro-economic reforms to improve the business environment for all firms - across the capital and across the country.
These reforms are aimed at the five key drivers of performance:
- Enterprise
- Investment
- Innovation
- Competition
- Skills
We need to strengthen our performance on all of these fronts. Government has a role at both the macro and micro levels, but so too do businesses and the trade unions.
For this reason we welcome the work of the CBI-TUC productivity groups.
In the ethos of these groups, I see an end to the divisive "them and us" mentality that for too long characterised industrial relations in the UK. That spirit of co-operation in the groups has informed the recommendations of the group on innovation, on investment, on best practice and on skills. The recommendations have informed the policy process as we take forward our programme for the five drivers of productivity.
Enterprise is crucial to economic success. That is why we have:
- reformed Capital Gains Tax to improve the incentives for growth and the supply of finance and skills to your companies. From April 2002 we will have a more favourable CGT regime for enterprise in this country than the US. That has to be good news for London's 665,000 businesses. We all have a job to do in making sure investors around the world know it.
- cut Corporation Tax: reforms over the last five Budgets have cut the rates by 3%. They are at the lowest levels in the history of the UK and are lower than in any other major industrialised country. The 10% starting rate for smaller companies provides an entrepreneurial incentive - ushering new firms into the marketplace.
- introduced and expanded the Enterprise Management Incentives to help smaller, high-risk companies attract high calibre staff. At the beginning of this year we doubled the gross asset limit - so that even more firms can benefit.
- instigated the Myners review of institutional investment to help correct the market failure in finance for small businesses - helping enterprising initiatives access the capital which they need to grow.
We are backing this with the launch last month of the Regional Venture Capital Funds. Together with private sector funding and money from the EU, the funds are expected to provide up to £270 million of extra finance for growth companies, with a fund in every region. That means up to £50m more to help small businesses in the London area.
In disadvantaged areas small business can play an even more important role. The Community Investment Tax Credit will help firms in these areas - bringing opportunity to communities exhausted by urban decay.
Encouraging investment is all about creating the conditions in which businesses can plan for the future with certainty. The CBI and TUC working group on investment, and the CBI's ?Business Manifesto? for London, identified land use planning as a key priority.
London needs a flexible and efficient planning system - allowing swift and decisive action to enable the city to adapt to the changing requirements of business and of local communities. That means strategic vision - taking account of the public benefits as well as the private costs of decisions.
I have to say that the current planning system, now 50 years old, no longer delivers - if it ever did - the speed, flexibility or certainty that businesses need to make successful investment decisions in the modern economy.
That is why I am delighted that this Government has published a Green Paper on reform of the system - aiming to promote a faster, more accessible planning procedure - capable of accommodating and responding to the progressive demands of London and of Londoners.
Innovation is the engine of economic growth. Innovation in products and processes can result in a step change in productivity. That is why we have major proposals for Research and Development Tax Credits for large companies. R&D credits for SMEs were introduced in Budget 2000. Credits for larger companies will be introduced in the Budget later this year.
Wide ranging consultation has helped us decide on a volume-based credit - creating certainty for industry and minimising the cost of administration. We are now entering the final stages - working on the fine detail of the scheme.
To enable innovative ideas to develop, powering the companies that drive increasing productivity, we also need an effective competition regime: punishing anti-competitive practices and enabling innovative new companies to enter the marketplace freely.
Following on from our decision to make monetary decisions independent of political influence within a long-term framework, we are now doing the same for competition policy. This will ensure our competition regime matches the best in the world and that there is a competitive environment throughout the economy - so that the companies that are the most innovative and dynamic can flourish the most.
A competitive, knowledge based economy is key to our future economic success. There are very important implications here for the skills agenda.
To succeed in flexible labour markets modern workers need the ability to adapt. To succeed in dynamic competitive markets companies need workers with the right skills. To rise to the productivity challenge - London needs both. Working together is the key to unlocking the potential of the London workforce and the growth potential of the UK.
The Government is playing its part: building an education system which responds to the challenges of a changing world - producing students who are able to adapt to the shifting demands of the workplace, properly retraining and learning new skills for their entire lives.
Estelle Morris has set out proposals for an education system that meets these demands: education suited to the needs of individual children; education to raise standards and - most importantly - to raise the status of vocational qualifications; education to produce citizens suited to success in the modern marketplace.
Life long learning is an important part of the productivity and skills agenda. Compared to the US and some EU countries the UK work force is low skilled. Over 8m working people or one third of the workforce have low skills.
The Government is taking action to encourage training but employers and unions must also assume responsibility. So we applaud the joint working by the CBI and TUC in taking forward the skills agenda.
Our long-term ambition is to help all adults achieve at least level 2 qualifications (5 GCSEs A-C or their vocational equivalent). We still have a long way to go and all of us - government, business, workers and trade unions - will have take responsibility if we are to achieve our shared objectives.
The foundation of London's prosperity - our nation's prosperity - must be increased investment in reformed public services. The infrastructure provided by the state is vital to the success of your companies.
That is why we have embarked on a radical programme of investment and reform of the public services. Delivering high quality public services is not just socially beneficial; it is a economically necessary.
And over the current spending review period, public sector net investment will rise by an average of 40% each year in real terms.
We are determined to maintain the focus on investment in our national infrastructure.
That is why the Government and the Greater London Authority have a common approach to the transport issues facing London: better public transport with more capacity and efficiency, reduced road congestion, better accessibility for all, accident reduction and environmental improvements.
The 10 Year Transport Plan includes an allocation of £25 billion for London over the period to 2010. The Mayor and the London boroughs will have particular responsibility for determining specific outputs, but this allocation, and the powers provided for the Mayor and Transport for London, should enable significant improvements to be delivered across the capital.
On the Tube, London Underground's evaluation demonstrates that the Public-Private Partnership contracts are likely to deliver good value for money over their 30-year term. That includes a saving of £2 billion over the first 15 years of the contracts, compared to carrying out the same work under traditional procurement arrangements.
The London Transport Board has therefore announced that they are ?minded to? proceed with contracts for Tube modernisation. The final plans mean the promise of £16 billion of investment over the next 15 years: an unprecedented modernisation of the Tube infrastructure and a genuine partnership for delivery between the public and private sector.
With our proposals, London Underground will run the trains, work the signals and operate the stations, and will have responsibility for all aspects of safety. Private sector companies - world leaders in the delivery of major engineering projects - will provide the best project management expertise. They will bring the discipline, skills and innovation that will ensure investment is carried out in the most effective way.
Now is the time to move beyond arguments about the public versus the private sector and to get on with the job. That is how we will get London moving, and keep it moving - with confidence - into the future.
London is the best city for business in Europe, but there is no room for complacency. The narrow margin between a place in the future and a place in the history books reminds us of the contribution each of us must make.