48/05

18 May 2005

Speech by the Rt Hon Gordon Brown MP, Chancellor of the Exchequer at the CBI Annual dinner

Let me first of all congratulate you and your companies on your resilience, your innovative flair, your courage to change and your patriotic commitment to Britain - qualities you have shown as you have taken British industry through a severe world downturn and now qualities you are again having to show in this bewilderingly fast period of change.

And the question I want to discuss with you this evening is how - as we equip ourselves for a future in which nations will rise and fall at speed - we can forge here in Britain a unity of economic purpose throughout our country to make us world leaders in science, education, enterprise and commerce so that alongside America, China and India we are the great global success stories of the new century.

Nothing I do in the next years is more important than working with you to help prepare and equip our nation for these challenges ahead.

So tonight I want to suggest how out of a national debate and dialogue, together we might forge that shared agenda in the national interest.

Now ladies and gentlemen, I am sure all of us last week found ourselves reflecting on how the British people shared a unity of purpose in the 1940s - an unflinching resolution to lead the world in liberating Europe sixty years ago.

And the question for us to today is whether in a world of great global change Britain can summon up the same unity of purpose to meet today's peacetime challenges.

I believe we must. I believe we can.

Let me suggest to you what we have achieved and what we have yet to achieve.

The first task we had in government was not just to create mechanisms for greater economic stability but to build, for the first time in our post war history, a national consensus - moving from a culture of short-termism that led to repeated waves of price inflation and then, as damaging, bursts of wage inflation - what we called "stop go" and sometimes "the British disease".

It was said jokingly that in the 1950s we managed decline, in the 1960s we mismanaged decline and in the 1970s we declined to manage. And so our stop-go history became legendary.

It is because I wanted to build the strongest possible foundations for economic growth - to give businesses the chance to plan long-term and to give homeowners a greater certainty about family finances - that in 1997 our first act as a Government was to remove the power of any politician to control interest rates for short-term political advantage. And also - and perhaps more important - to put in place a wholly new monetary and fiscal framework which, with its unique features, came to be known as the “British model”.

And I believe that the significance of the last eight years is not just that we have each year achieved inflation close to our target but perhaps more important that we have built a national consensus across all sections of society and across the political parties in favour of this British way.

So we have seen not just a change in structures but a change in attitudes - a culture change, an acceptance not just that the old inflationary cycle must always be resisted, but that low inflation is in the interests of growth and employment. And an understanding that because the inflation target will be met unrealistic wage expectations are no longer to be tolerated.

Now some say the stability we have achieved is because the last eight years have been a benign period for the global economy, that it is simply because of stable times that we have achieved stability. But in fact in the past eight years the world economy has been subject to constant challenges and to risks of instability.

The Asian crisis, when Korea went bankrupt
Then the Russian crisis
Then the IT crisis
Then the stock exchange crisis
Then the US downturn that spread across Europe and Japan with world trade growth stalling for the first time for decades at zero.

Years characterised by the volatility of oil prices which have moved between $10 and $55 and are now higher than at any time since the 1970s. And now characterised by widening imbalances between America, Europe and Japan not least because of the US deficit and a European and Japanese growth rate half that of America.

So our strength has not come from the absence of economic problems, it has come from our capacity to cope better with problems when they arise - because we have put stability first.

Just as management is not usually about navigating calm waters but finding a way through what are invariably stormy waters so too it is with Government. Managing the economy is about finding solutions not for the last challenge but for the next challenge.

And the latest test of our new framework has come in the last year when the world has faced a doubling of oil prices and major increases in the price of basic materials from steel to cement - pressures which would, in any other recent decade, have led to a severe inflation shock.

And as we look ahead to the rest of 2005, the latest risk is low economic growth in Europe - 1 per cent below what was expected a year ago - particularly low in Germany, our largest export market in the euro area.

And in the past in an election year the easiest thing in the world - as we all know - was to postpone difficult decisions to the long term detriment of the economy. But in the last year not only have there have been four interest rate rises to ensure continued stability and growth, but I decided that in my pre-election Budget there would be a fiscal tightening. Nor have we relaxed our commitment to do more to secure efficiency and over the last year have begun to implement a gross reduction of 84,000 civil service, showing the strength we will continue to show to take the difficult long term decisions for Britain.

Stability will always be a challenge not a final resting point and I can assure you that we have not come this far to relax our monetary and fiscal discipline now. Indeed I am determined to ensure that we can lock in greater stability not just for a year, or for an economic cycle, but in this generation. A prize of greater stability that has eluded successive governments of all parties in the post war era; a prize that - with resolve and prudence - is now within our grasp.

So - as people can see in the Bank of England's vigilance and today’s inflation figures - we will take no risks with inflation.

And we will impose a tough fiscal discipline with lower rates of spending growth in the coming period. And we will meet our fiscal rules.

In this way in the challenging times of high oil prices, current account imbalances and a slower growth rate in the euro area, we will steer the economy on a stable course.

Wage discipline will at all times be demanded in the public sector.

There will be no relaxation in public sector reform - we will now replace input and process targets by far more local, on-the-ground accountability.

Throughout stability is our watchword - stability first and foremost; stability yesterday, today and tomorrow.

But just as we have achieved a unity of purpose around long term stability it is now time to seek a new unity of purpose around achieving a greater long term goal: sustainable prosperity for Britain in the global economy.

We know the challenges ahead.

Not least:

in manufacturing, developing countries now account for 25 per cent and soon 50 per cent of manufactured exports.
in trade China - once accounting for one per cent of world trade, now 7 per cent. Asia soon to be a larger exporter than the euro area.

And we know the issue is not China and India just as low-cost, mass producers, but also competing in high-skilled, value added services too.

So no country, not even the most successful, can take their future prosperity for granted.

But tonight I am not simply saying that we must meet and master the challenges ahead, but that we can.

For I believe that Great Britain contains within itself the potential to win whatever the odds.

We have done it before.

We should remind ourselves why this island became such a powerful influence, shaping the course of human events:

why from our shores so much of the New World was discovered, explored and settled;
how it was British enterprise and innovation that drove the industrial revolution and pioneered free trade;
how it was that it was British ideas that were exported to, and became the foundation stone for, what became that great success – the United States of America;
why we were internationalist even before the word was first heard.

And if we ask as citizens of Britain what is the common thread, what are the values that unite us in our historic successes. It is the long standing British commitment to liberty, to intellectual freedom, our scientific creativity, our openness to new ideas, our outward looking internationalism - British qualities that made us the first industrial nation, with, even today, a greater global reach than any other.

Enduring values which rediscovered from the richness of our history bring out the qualities - our scientific and creative culture, our adaptability, our belief in the work ethic and education, our internationalism - that make us uniquely well placed today to be a world leader in science, enterprise, education and trade.

So it is not a slogan to say globalisation is made for Britain. But we must have the strength of will and unity of national purpose to make the most of our historic advantages and - by forging a shared agenda for change and progress - seize not squander the opportunity to become an innovative, dynamic and flexible enterprise economy.

Government focusing only on what is essential.

And doing so in partnership with all in industry.

As a nation of creativity, enterprise and adaptability we are well placed to do what every modern economy must do - encourage the enterprising and release the potential of our citizens.

As a free trade nation and the world's leading opponent of protectionism Britain is uniquely well placed to do well in the more open, more global economy.

And as a nation of scientific genius and innovation that has succeeded because we have been enquiring, creative and committed to discovery, we are well placed to lead in a world where science matters and the greatest added value comes from innovation.

So let us build upon our creative culture and a history of British inventiveness that has led the way in science - which means that even today with just 1 per cent of the world’s population Britain has 12 per cent of cited papers.

To make the most of British scientific and technological genius I propose we agree a shared agenda for long term investment in science and technology and new incentives for its application to industry:

first, that business and Government agree, that the long term framework for the advancement of British science - announced last year as a public-private partnership and which has already led to £2.5 billion more science investment - will be continuously updated;
second, that Britain lead the world in meeting rather than ducking controversial issues that surround the application of science – genetic research, animal experimentation and GM foods - so we can value the joy and excitement of scientific discovery. And so we become a clear world leader in research for genetic and stem cell research, for pharmaceuticals, biotech and the life-sciences;
third, that we together agree to support universities and business leaders who, just as the Victorians built great entrepreneurial cities, are today developing plans for science cities.

And I believe we can also agree a unity of purpose to bring to life for a new age the celebration of enterprise that was at the heart of our industrial revolution success.

So in the spirit of this history - rewarding risk takers, valuing entrepreneurial talent and celebrating successful wealth creators as role models - I want to propose this evening a major initiative to break down barriers holding enterprise back and to stand with you in our determination to free up the spirit of enterprise throughout our country.

I think you will agree with me that the modern enterprise challenge is to enhance the flexibility needed for a successful economy and tackle the regulatory concerns we know all industrial economies face. And I agree with your message that we do this not by reducing necessary standards but by reducing unnecessary administration.

In the old model - and for more than one hundred years - the implicit regulatory principle from health and safety to taxation has been 100 per cent inspection of premises, procedures and practices irrespective of known risks or past results; to inspect everyone continuously, demand information on a blanket basis, require forms to be filled in at all times, the only barrier a lack of resources.

The new model must be quite different.

The breakthrough is moving to a risk based approach - no inspection without justification, no form filling without justification and no information requirements without justification. And thus instead of an implicit threat of 100 per cent inspection, limited only by resources, inspection where there is risk: not just a light touch but a limited touch.

Because there have been so many false starts in tackling regulation, I want to emphasise the different principle underlying our approach so that business leaders here will come to accept the liberalising nature of what I am suggesting --- a new relationship with business which recognises your role as wealth creators in your communities.

And so I propose not simply a new approach to regulation but to build a new trust between business and government founded on the responsible company, the educated consumer and government more humble because it is well aware of its limitations - now concentrating its energies on dealing not with every trader but dealing with the rogue trader, the bad trader who should not be allowed to undercut the good.

Shortly I will set out the detail of our changes based on Philip Hampton’s review. The Government will legislate as announced in today’s Queen’s Speech. And we will start with 1 million less inspections, 29 enforcement and inspection bodies abolished or merged, and at least a 25 per cent reduction in form filling. With enforcement based on early warning before prosecution to allow companies to correct problems and allow government to reduce costs.

And to make sure this agenda happens - an agenda that let’s be honest with ourselves does require a culture change in government - our programme of reform will be led by recruiting from the private sector.

This reduction of regulation is one way of removing the barriers to enterprise.

I promise we will also speed up planning decisions.

The Eddington review will look long term at business infrastructure and transport needs.

And I can assure that in this Parliament we will continue to look with you at the business tax regime so that we provide incentives for investment in wealth creation and rewards for success.

Yes, since 1997 we have listened to your representations and we have cut corporation tax from 33 pence to 30 pence, cut small business corporation tax from 23 pence to 19 pence, cut capital gains tax for long term business assets from 40 pence down to 10 pence.

So I share with you the objective that facing global competition Britain has a competitive tax regime and we encourage investment and reward success.

For at the heart of the enterprise agenda is my desire to enhance our flexibility: true to the British qualities of enterprise and adaptability, the capacity to move quickly, intelligently and in an agile way to meet new challenges.

We will champion not just work experience for our school pupils but enterprise lessons; encourage schools to link up with local businesses; celebrate local business leaders as role models and demonstrate that the solution to poverty and unemployment is more enterprise.

But it is not simply a mechanistic change in structures needed, it is a transformation of our culture to make Britain more enterprising.

It falls to us, government and business, together to energise for the new generation enterprise and wealth creation in this country.

An enterprise economy must also be a skilled economy. So we must avoid the mistakes of the past when we failed to invest long term in education.

And in doing this I believe that unity of purpose can come alive in a new national partnership between employers and government to tackle our economy's 'Achilles heel' - our low level of skills:

a shared determination to reform our colleges and business training;
a shared determination to make apprenticeships work;
and a shared determination to make the new National Employer Programme work - employers recognising their responsibilities to offer time off; employees recognising their responsibilities to seize their opportunities for personal development; and Government recognising our responsibility to fund the training.

And we need a unity of purpose to seize the opportunity of what could be in 5 years a 50 per cent growth in world trade offers us.

Because today only 1 per cent of our exports go to China and only 1 per cent to India - now two of the largest economies in the world - we want through our new Asia Taskforce and India and China UK Financial Dialogues to work with you to export more.

And it is precisely because we are outward looking and internationalist in our attitudes that we understand the importance of pressing for a successful conclusion to the world trade talks and the importance to business both of membership of the European Union and radical economic reform in Europe.

Because 50 per cent of our trade is with Europe and because through increased trade an extra 1 per cent of growth in the eurozone can give an extra fifth of a per cent of growth in Britain, reform matters not just for all of Europe but for Britain too.

The businesses I talk to do not want to look inwards but outwards and want to stand together to put the case for economic reform in Europe. Surely this is in the British national interest: not for us to walk away from the challenge but to meet the challenge; not to stand aloof but to engage.

Our aim is a Europe that instead of being a trade block looking inwards on itself, looks outwards, engages with the rest of the world and reforms to meet the global challenge.

So in our coming Presidency of the European Union we will seek to bring all political parties together to work in unison for economic reform in Europe.

Our proposed agenda will be: labour market reform, so we will resist the opt out being removed to the 48 hour week; regulatory reform; product and capital market reform, so you have access to European markets; and liberalisation of the single market, the greatest single market in the world.

And it is around pro-economic reform, pro-Global Europe policies that perhaps the first truly national consensus on Europe can develop.

To help build that consensus I will ask the European committee chaired by Barry Sheerman MP - which we have set up as an all party advisory committee - to discuss and report to me on whether a consensus across parties can be agreed on European economic reform issues.

Because transatlantic economic relations are worth over $2.5 trillion each year, we will also use our EU Presidency to push forward a stronger transatlantic trade and investment partnership to remove regulatory and other barriers between the European Union and the USA.

So I invite you to join me in discussing over the next few months the agenda i have set out tonight.

Business and government working together to entrench stability, to invest long term in science and skills, to deepen and widen our enterprise culture, to maximise our global role, to build a Britain true to our enduring values as a nation, a Britain equipped for all challenges of the future.

Thank you.