21 January 2004
Speech by the Chief Secretary to the Treasury, Paul Boateng MP, at the EEF Committee Dinner
Opening words
1. Thank you for asking me to be here this evening – I am very grateful for the opportunity to say a few words to you, and to thank you for the way you continue to work with us in areas of common interest.
2. We particularly appreciate the work EEF has done on productivity. I know that John Healy spoke to you in December – and that you will be presenting your latest productivity research findings to him next week. I look forward to hearing the results of this work from John.
3. EEF is a valuable partner for other reasons too. The businesses you represent are critical to our economy: a dynamic business & industry sector generates productivity improvements throughout the UK’s economy.
4. As you know, manufacturing has not had an easy time in the last few years – largely as a result of the downturn in the world economy. However, the picture is not as bleak as it is often painted either…Manufacturing output has increased over the past year and the latest data shows that it has now registered three consecutive quarters of positive growth.
5. It is also expected to pickup further this year. Indeed, recent evidence suggests that the UK manufacturing sector appears to be recovering from the global downturn. The CIPS surveys are showing a pickup in demand both at home and abroad. The CBI is also forecasting a recovery, registering its first positive output balance since October 2002. And surveys in the US and the Euro area show a similarly optimistic picture.
6. There are also some signs that manufacturers may be more confident of a sustained increase in demand: the CIPS employment index is at its highest level since 1997; and firms are building up input inventories at their fastest rate since 1994.
7. This is all good news. And of course it is our job to support you, which means the government must also do its bit. We need to strive to maintain the right economic conditions for business and industry to grow and flourish.
ECONOMIC POLICY: PRODUCTIVITY AND ENTERPRISE
8. This Government has long understood the importance of creating the macroeconomic stability that allows steady growth, and enables individuals and businesses to increase their prosperity and invest for the future.
9. We have taken some tough policy decisions to create this stability – including independence for the Bank of England, new fiscal rules, a 2 year freeze on spending and heavy repayment of debt. These policy decisions have enabled us to maintain high and stable growth, and to weather global uncertainty and downturn.
10. While America, Germany, France, Japan and much of Asia have suffered recessions, the British economy has grown uninterrupted since 1997. Inflation is at its lowest for thirty years, interest rates are at their lowest since 1955, and more people are in work than ever before.
11. So now we are in a position to lock in this economic stability, and to look ahead to the opportunities that will come out of continuing global recovery.
12. If stability is a precondition for economic growth, then productivity and enterprise are the driving forces behind it.
13. Since 1997, Britain has 100,000 more businesses and 170,000 more self-employed. However Britain still lags behind American rates of business creation and success.
14. That is why this government has worked so hard to implement the microeconomic reforms necessary to increase our productivity levels and the prosperity of the nation as a whole.
15. And why we have been committed to developing a stronger enterprise culture in the UK – a culture that ensures that anyone with the talent, potential and drive to succeed can do so.
16. This commitment has been strengthened by last year’s Pre-Budget report. A key theme of the report centres on the need to foster the enterprise and flexibility that will enable Britain to compete in the evolving global marketplace.
SUPPORTING BUSINESS
17. For businesses, this means that we are committed to reducing red tape, to improving access to finance and to fostering innovation, investment and greater skills levels.
18. The Pre-Budget report has announced many of the practical measures we will be using to do this. And they involve, I would argue, some of the most business-friendly steps we have ever taken.
Red tape and regulatory reform
19. We know that effective and well-focused regulation can play a vital role in correcting market failures, promoting fairness and driving up standards. However, it is also clear that unnecessary or poorly focused regulation is an obstacle to growth and a deterrent to innovation.
20. The Pre-Budget report has announced steps to reduce the burdens on business and cut red tape – including raising the statutory audit threshold to £5.6 and absolving firms that apply international accounting standards from submitting a second set of accounts to the Inland Revenue.
21. We have also announced improvements to the VAT flat-rate scheme – including new lower rates and easier administration – which should make the scheme more attractive to eligible businesses.
22. We are committed to supporting business interests in Europe – particularly in the area of regulation. Indeed, the coming Irish, Dutch, British and Luxembourg presidencies have agreed a joint initiative to drive forward the deregulation needed to create greater flexibility in labour, capital and product markets throughout Europe.
23. And, of course, Alan Wood’s Review of European public procurement, announced in the Pre-Budget Report, will look at UK business experience in accessing public contracts in Europe. I would like to thank, Alan Wood for agreeing to undertake this review, and the EEF for their support.
Innovation, Investment and skills
24. We also need to focus on encouraging innovation – particularly at the commercial level. Innovation is essential if businesses – and indeed the wider economy – are to compete in the global marketplace: new ideas drive enterprise, create new products and markets and improve efficiency. As such it delivers benefits to firms, to customers and to society as a whole.
25. And there room for improvement. While the UK’s research base is second only to the US in terms of the volume and influence of its scientific publications, it is less effective at turning this knowledge into business innovation and commercial success.
26. An immediate problem is that the UK invests proportionally less in R&D than other comparable countries. That is why the government introduced R&D tax credits for SMEs in 2000, and then extended this to all companies in 2002. This provides around £500m per year to support businesses in R&D activity.
27. The Government will continue to consult business on the R&D tax credit – and in the 2004 Budget we will announce measures to refine the tax treatment of Scientific Research Organisations in order to foster the wider economic benefits that these organisations can provide to UK business.
28. However we also need to encourage the ties between universities and businesses. In the Lambert report, published last month, attention was drawn to two major challenges facing us today. The first is ensuring that the UK builds and retains world-class research facilities. And the second is that the products of those research facilities are brought to market at home, producing new jobs and growth in the economy.
29. We will also be putting a greater and greater focus on skills development – and particularly on helping people to move from low skilled work to higher skilled work. In his Pre-Budget statement, Gordon Brown announced that the windfall tax reserve – previously earmarked for job creations – will be reallocated to skills training. And we have also introduced a New Deal for Skills – to provide support for training up to Level Two.
30. We particularly want to encourage workplace-learning routes such as apprenticeships and employer-supported training. Employer Training Pilots are already operating in a quarter of the country, and they have proved very successful – with employers expressing high levels of satisfaction. Therefore we have pledged a further £190 million pounds to go towards extending these Pilots for a third year.
31. I am aware that dinner awaits us all, but before I stop I would like to just briefly discuss how this fits into the European reform agenda.
32. The Government is determined to push many aspects of this economic reform at a European level – after all science, innovation and skills remain central to fulfilling the goals set in Lisbon in 2000…to transform the EU into “the world's most competitive and dynamic knowledge-based economy by 2010.”
33. While the Lisbon agenda was an important step forward, the requirements of a new knowledge-driven economy continue to present the European Union with significant challenges. This is why it is so essential for the Union to set clear strategic goals and to agree to a challenging programme for building knowledge infrastructures and enhancing innovation, as well as pressing ahead with structural economic reform more generally.
34. And we are currently working with member states to establish a foundation of multi-lateral agreements – in order to help prepare an Innovation Action Plan and to influence the work feeding into the Spring Council in March.
CLOSING WORDS
35. All the areas I have touched on tonight require us to have a close working relationship with business and industry.
36. Government places a very high value on this relationship. We aim to listen to business, and to maintain an open dialogue – which I feel was reflected in last year’s Pre-Budget report.
37. And as I have already said, the EEF has proved itself to be a highly valued partner over the years…Where we can work together, your expertise and readiness to share your knowledge has proved to be invaluable. And even when our interests diverge – as they sometimes will – you are a partner that we respect and value.
38. So thank you for asking me to attend this dinner it has been a great pleasure to be here.
39. Thank you.
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