26 February 2003
Speech by the Chief Secretary to the Treasury, Paul Boateng MP, at the CBI annual London lunch
It is good to be here with you today sharing in lunch and the august surroundings of the Guildhall. It is good to renew friendships and the contacts we have with the CBI both nationally and regionally. But we are here today to reflect on this great city of London;
Representing 16% of the nation’s GDP
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A hub for financial services, creative industries, and international headquarters. Many guests here today are representatives of that international reach.
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A gateway to the rest of the world.
There is no doubt that the reason for London’s success is due in no small measure to the efforts that you and your companies make. The businesses of London over the centuries have reflected that - they are open, innovative, and responsive to change; putting London at the forefront of trading. It is the financial services industry - based here in London - that marshals the flows of capital around the world. It is the professional services firms – based here in London – that set the pace of reform. And it is the enthusiasm, commitment, and expertise of your companies that establish the reputation of the capital of the UK as a world city.
We live in challenging times so none of this should be taken for granted. We should not lose sight of the very real challenges on transport, planning, and skills that London faces.
These are challenges for us all to deal with in partnership: for central Government, for the Greater London Authority, the Development Agency, and for the business community. Not one of those organisations on its own can achieve the results we seek.
There is a lot being done to make London and the rest of the UK an even better place to do business. Our overall tax burden is much lower than the EU average. We are investing substantially in our public services. We have announced the biggest ever sustained growth in the history of the NHS with real terms growth in the UK at 7.4 per cent a year over the next five years. A 35 per cent real increase in education is projected over the 5 years covered by SR 2000 and SR 2002, and SR 2002 announced that spending on UK transport would grow by 8.4 per cent a year after inflation, with an extra £4.4bn in 2005/06. For the first time ever the CBI is working closely with us to monitor new investment to ensure that it delivers.
First, macro-economic stability – the basis on which we must build our nation’s wealth and prosperity. We need to reflect where we are on that.
Twenty of the world’s biggest economies have been or are in recession. These economies account for 60% of the world’s output. I know the effect on business investment when, continent by continent, we have faced the first simultaneous slowdown for almost 30 years.
Problems in the IT industry, the concerns about corporate governance that followed on from the accounting scandals in the US, unfolding events in Iraq, the impact of oil prices, and current account imbalances, have led to falls in investment, in the last two years, around the world.
In the past, Britain has always suffered badly when the world economy was in trouble. Too often our economy has been the first into painful recession and the last to come out.
The number one priority for the Chancellor, and for the Government, since 1997, has been and will continue to be stability and steady growth. This is our promise to you.
In our first term we took difficult decisions to bring much needed stability to the economy. We were right to do so. I know that many of your companies are feeling the global pinch. But I am also sure that you will agree that Britain is weathering these global storms much better than many of our competitors.
Since 1997 – employment has increased by almost 1.5 million.
Inflation is low and stable and interest rates are lower than for a generation.
We are better placed than in previous world economic downturns, and better placed than many of our competitor countries.
Growth is expected to pick up throughout the year and is once again expected to be the highest in the G7, along side Canada and the USA.
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 euro zone 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, the assessment of the five economic tests, 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. If Europe is to become the world’s most dynamic and innovative economy, then the challenge we face is, as the Chancellor said: ‘immense’. We understand the exasperation that London firms must feel, and that is why we are pressing for new legislation to be thoroughly examined to ensure it improves the climate for business and reflects the views of European firms. We have to do better in this respect and continue to push the pace of reform.
As we highlighted in our recent progress report on European economic reform, there is a responsibility on all Member States - including the UK and now, also, the new Members of an enlarged EU - to step up the pace of reform, working to create the flexible, dynamic markets promised at Lisbon.
In the UK we are working together to drive improvements in the productivity of British business. This has been a theme I have consistently shared with your members on my visits around the UK.
International comparative studies consistently show that the UK is one of the best places in the world to start up a business. That is encouraging. But there is always room for improvement and there is never room for complacency, and we are determined to do more to improve the competitiveness and the productivity of the UK economy.
A stable macro-economy and low rates of taxation are a good start. Extending that approach, in the last year as we have with further tax cuts for small business, and from this April, extension of the VAT flat rate scheme. All of that is moving in the right direction but I recognise that it is also important to watch for warning signs.
But London, and the UK as a whole, still faces a significant enterprise challenge. We need to embed a culture of entrepreneurship as we see it embedded in the US. Here in London the rate of business creation in Camden is more than three times what it is in Barking and Dagenham. Why is that? We need to bottom this out.
This government’s aim is to build an enterprise society, in which all who have the initiative, skills and drive have the opportunity to start up a business. There are real lessons to be learnt from the US in this regard. The work that Ronnie Cohen and others are doing is crucial to help us learn what we need to do to unlock people’s wider potential. Your own role as role models is vital and an important example of what can be achieved.
In the PBR 2002, building on previous reforms, we carried forward our proposals on encouraging enterprise, investment and wealth creation in all regions of the UK.
That means the launch of Enterprise Areas – focal points for our efforts to encourage the development of an entrepreneurial culture in our most deprived areas.
In the Enterprise Areas a range of government policies will come together to meet the needs of businesses – giving them the support and the freedom they need to bring jobs, and opportunity, and wealth creating activity back into areas that have been abandoned and ignored for too long.
Enterprise for all must be the beginning of our efforts, the end must be successful companies, moving up the value chain, attracting inward investment, innovating, competing successfully in increasingly open world markets. We need to open up world markets along the lines suggested at Doha, and to reduce EU tariffs on trade.
The proper role of government is to create the conditions in which business can achieve these objectives. We need to understand our responsibilities and limitations and know when to look to others for guidance. That is why in the last year this has meant setting up:
a. Independent competition authorities – free from political influence – domestic competition not national champions the best route to worldwide success;
b. The Research and Development Tax Credit – extended to all companies – investing in London’s capacity for innovation – business played an important part in the development of this with us;
c. The launch of the Regional Venture Capital Funds – here in London £50m million available for investment in growth companies; and,
d. A massive investment in workforce training –bridging the skills gap.
In each of these areas it is not central government alone, but government working with partners in the regions, in the local authorities, and in the business community that will make the real difference.
The London Development Agency has established itself as an essential part of the drive to deliver growth, and rising prosperity.
Earlier this month, the LDA launched a new £8 million programme of support for locally delivered business, job and training schemes. The fund will help support small-scale local schemes - improvements in business advice to small firms and basic skills training for individuals. Partnership working at the local level to deliver to your needs is the cornerstone of ensuring the LDA achieves its aims by addressing real local problems. I would just like to say a few words about competition and winning which brings me briefly onto the issue of the Olympics.
Of course, the Government would love to see the Olympics staged in London in 2012, but no one should underestimate the significant time and resources that hosting an event like this requires. It is a huge undertaking with a very significant cost commitment. So we have to get it right.
There are a number of major priorities for public investment - health, education, other areas of transport. The Olympics case is an interesting one, and we are genuinely examining all factors. Any delay is purely about making sure we get the decision right.
Encouraging investment is all about creating the conditions in which businesses can plan for the future with certainty. The CBI has consistently identified land use planning as a key priority.
There is no doubt in our mind that London needs a flexible and efficient planning system. We recognised that the framework that had served the UK the last 50 years of the 20th Century was not necessarily suited to the first fifty of the 21st. We recognised the need for a planning system that delivered the speed, flexibility or certainty that businesses need to make successful investment decisions in the modern economy.
That is why we pressed ahead with reforms to the planning system. Certainty, simplicity, and speed are the basis on which we will build.
Of course, it is no use having offices in the right location, if the right location is rendered inaccessible by London’s creaking transport system. As business has moved forward into the 21st Century, the pace of transport in London has moved back into the 19th.
The congestion scheme is now up and running. I know that the CBI is supportive, in principle, of congestion charging, and we will all await with eager anticipation the results of the London scheme. The results are going to be important not just for London but for other cities too who are watching eagerly.
I want to say just a few words about the underground, the public private partnership will bring £16 billion pounds of investment and maintenance over the next fifteen years. Tube Lines has now started work (on the Jubilee, Northern and Piccadilly line) on the delivery of a better Tube network for London. We expect the Metronet competitions to close shortly. That has to be good news for you - London's businesses, marking the start of the biggest improvement programme the Tube has ever seen.
The simple truth is that Public Private Partnerships are delivering the goods for the people and the businesses of London. Our message to those who oppose us is that the Private Finance Initiative in education, health, roads, rail and infrastructure is here to stay; that the partnership between public and private sectors is vital to investment in our future; and that the focus will be on quality and long-term value for money. That is why we have worked for an agreement to tackle the problem of a two tier workforce and I am delighted that we now have an agreed package that will:
a. Stop companies who opt for high quality employment practices being undercut by those that do not; while
b. Retaining the flexibility necessary for contractors to design appropriate employment packages and manage staff effectively. That was the objective and I think that is what our package delivers.
Now is the time to move beyond arguments about the public versus the private sector and to get on with the job. And so, as the Chancellor said earlier in the month, there should be no principled objection against PFI expanding into new areas - the provision of employment and training services, the renovation of schools and colleges, and major projects of urban regeneration and social housing. Those are all challenges for us as citizens and businesses. We all have a stake in this and its success.
Working together, we can get London moving, and keep it moving – with confidence – into the future.
So these are challenging times. Uncertainty is frightening especially with the increased threat of terror we all now have to face. We will be tested as a nation and as a people in the times ahead. But I do believe in the inherent capacity for those who live and do business in this city to live up to the challenge and continue to innovate and grow.