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08 September 2009

Speech by the Chancellor of the Exchequer, the Rt Hon Alistair Darling MP, at the Callaghan Lecture, Cardiff

Check against delivery

It is a privilege to be in Cardiff today to give this year’s James Callaghan Lecture.

Jim Callaghan was, of course, not Welsh by birth.

But his long association with Cardiff, his affection for the people here, their respect for him and the belief they shared in community as a force for good meant he was very much an adopted son.

Jim Callaghan was also very much a practical and common sense politician – as Tony Blair said in the first of these lectures.

This emphasis on commonsense is another quality he shared with this city – and with this country.

He lived to see the transformation of Cardiff into the vibrant, modern city it is today.

A transformation that many of you here have played a major role in bringing about – with the Welsh business community working alongside the Welsh Assembly Government.

Few cities in the UK have managed better to modernise and expand opportunities while maintaining their traditional strengths.

And this change is symbolised by this magnificent new stadium – and the early success in this first season here of Cardiff City.

It is a club which has seen some tough times but now has a bright future within its grasp.

The same, of course, is rightly said about Cardiff and Wales.

Over the last decade, thanks to investment and vision, there is a new sense of confidence here.

It is a confidence, which has been tested, but not diminished by the impact of the global recession.

These are difficult times, but there is a new resilience about the economy here.

Every job lost is a blow to that family. But unemployment in Wales, although too high, fell in the last quarter, and is below the national average.

This was not always the case in the past, as Jim Callaghan knew all too well.

Indeed, the values and priorities that guided him throughout his long political career were forged by his determination to fight against the misery and waste of mass unemployment and poverty, which blighted Wales for many decades.

Jim Callaghan belonged to that generation of labour politicians who saw first hand the deprivation of the inter-war years and the impact this had on millions of people.
He wasn’t just a compassionate observer of these problems.

His own father died when he was just nine.

He saw first hand the strain of poverty on his mother and witnessed how it limits opportunity.

And it was the painful experience of those times, and the determination not to repeat the errors of the Great Depression, that shaped Callaghan’s political outlook and social conscience.

It explains his deep attachment to the Beveridge Report, which laid the foundations for the modern welfare state and the public services we know today.

In his memoirs, he tells us how he carried a copy of the report with him wherever he went – even while serving in the Navy during the Second World War.

And he judged people by their reaction to this pioneering but practical work of social justice.

There is, he wrote, “no better test of the character of a man than where he stands on the issues raised in the Beveridge Report”.

But actually, what is clear from Jim Callaghan’s politics is that he saw this “test of character” – not just as a test for politicians – but for society as a whole.

He saw our efforts to address the barriers to progress – and the need for an active State - as the true test of society.

Times, of course, have changed. The barriers to progress in 1945 have mostly been broken down, thanks in no small part to the tireless efforts of Jim Callaghan and his generation.

But in their place new barriers and new challenges – every bit as important – have emerged.

Sustaining growth and jobs in a globalised economy, tackling climate change, providing for an ageing population are just some of the challenges our generation faces.
How we respond to them will be our test of character.

So the theme of my lecture today is how we can rise to the challenges of this global age.

And in particular, I want to emphasise the continued role of government in helping us build the future we want for our families and for our country.

There are some who use today’s global crisis to justify widespread cuts in public expenditure, without spelling out their economic and social impact.

As I will argue, for the economy to recover, targeted public investment is essential for the creation of the new jobs of the future.

We are ready to make the tough choices necessary, while continuing to build a fair society and a strong sustainable economy.

And for this, the role of Government is as important now as it was in the past.

Attlee’s Government, with its revolutionary creation of the welfare state, understood the essential role of an active State in addressing the big challenges of its day. 

It sought to pass the test of its times – by tackling Beveridge’s five giants: want, disease, ignorance, squalor and idleness.

The National Health Service, designed by another Welsh hero, sought to combat disease and the fear of illness, which cast a shadow over the lives of millions.

Education for all was their answer to ignorance; social housing to slums and squalor.

The Attlee Government mobilised the power of the community, and the power of the state, to build a fairer and stronger country.

They were in no doubt about the role of government as a force for good.

That Government deserves its reputation as the great reforming administration.

Its legacy remains the bedrock of the strength of our society to this day.

Some of the challenges this Government faced when we came to power in 1997 were different to those faced by Attlee fifty years earlier.

Times change. People have new ambitions and concerns.

Indeed, one of the tasks we faced was to reform many of Attlee’s public services so that they were more effective and more responsive to the needs of the 21st Century.

But some of the challenges we faced were similar to those which confronted Attlee.

They were the result of previous governments walking away and failing to take responsibility.

Child poverty had been allowed to more than double between 1979 and 1997 – not out of deliberate callousness but lack of decisive action to stop it rising.

There had been chronic under-investment in health and education, because the wrong priorities were chosen.

We could see the damaging impact all around us.

Hospitals with too few nurses and doctors to meet the needs of patients.

Schools with too few teachers, textbooks and computers.

There was a failure, as well, to invest in transport and vital national infrastructure. All damaging to our economy and prosperity.

We have worked hard to turn this round.

We have shown that strong, active government works – better and faster service from the NHS, expanding educational opportunity, improved childcare, tackling child and pensioner poverty.

I don’t pretend that everything is perfect. But I am absolutely certain there has been substantial improvement over the last 12 years.

We created the NHS, we rescued it, and we will not squander the improvements in the care provided to millions of people.

In Wales, compared to 1997 the NHS now has almost 2,000 more GPs and 1,200 more dentists.

Across the UK, health is improving. Deaths from cancer are down 18 percent for the under-75s, deaths from heart disease down 44 per cent.

We have reduced class sizes. Pupils’ results are getting better – this year in science and maths too.

Not because exams are getting easier but because – as those of you who have children going through this stage know – they work harder and teaching is better.

And we have been determined to ensure all children, whatever their background, get the best possible start in life.

So we have built over 3,000 Sure Start Centres, supporting nearly two and a half million children and their families.

Tax credits – designed to get people off benefits by making work pay – so far helping us lift over half a million children out of poverty.

Also helping half a million families, across the UK, get help with the costs of childcare.

There was one other legacy and challenge we inherited.

A legacy particularly relevant to Jim Callaghan, to Wales and to today – the legacy of long-term unemployment.

In the 1980s and early 1990s, we saw Government abandon hundreds of thousands who lost their jobs.

The result was that – in far too many cases – short-term job loss became long-term unemployment. A whole generation was lost to work.

You could see the devastating impact of this failure of government in communities across Wales and the rest of the UK.

An enormous loss of potential and talent – and a huge welfare bill.

Families trapped in a cycle of poverty and dependency.

Everything, indeed, which Jim Callaghan and his generation fought against.

The result of Government walking away and stepping back from its responsibilities to society and to our future.

So a key priority for us was to build a comprehensive programme to help people off welfare and into work.

Offering opportunities, training and active support for the long-term unemployed.

The success could be seen in historically low unemployment and record employment in Wales and across the UK in the last decade.

Unemployment is now rising, of course, here and across the world as the impact of the global recession hits home.

But thanks to the support already in place, more than half of people still come off Job-Seekers Allowance within three months, and almost three-quarters within six months.

Even when recovery comes, here and in other countries, unemployment is likely to continue increasing for some months.

It is not within the power of any Government to protect every job.

But it is within our power – and I believe our responsibility – to support people and help them find new employment.

We are determined to learn from the lessons of the past.

We have invested some £5bn in providing high quality assistance and advice to those who have lost their jobs.

Helping them find new work quickly, giving them the training they need to find employment in the growth areas of the future.

In Wales this has meant over 50,000 people moving off the unemployment register in the three months to July.

And we’ve made particular efforts to support young people. Our measures include a guarantee of work or training for 18 to 24 year-olds. 

And this month, we are guaranteeing every school leaver a college place or apprenticeship.

Making sure their first step into the labour market is not onto the unemployment register, giving them hope and opportunity. 

That’s just one example of how active Government can and should make a real difference to people’s lives.


Indeed, the global recession and the global response to tackle it have demonstrated the difference that strong, active government can make.

No business, no matter how successful or well-run, could on its own weather this global economic storm.

Indeed, no country, no matter how wealthy or powerful, can insulate itself from this unprecedented downturn.

We are going through the most severe global economic crisis since the Great Depression, which had such an effect on Jim Callaghan and a whole generation.

In the first quarter of this year, economies all over the world saw the sharpest downturn in decades.

Here, output fell by 5 per cent in the year to March – the largest fall in some 60 years.

In Germany and Japan, the equivalent contractions were 7 and 8 per cent.

But while the Governments of the 1930s failed to act together, with terrible consequences, the G20 governments of today have acted decisively nationally and internationally.

We moved quickly to stop banks failing.

We stepped in – not for the sake of the banks – but because the alternative would have cost millions more jobs throughout our economy.

It was an essential step on the road to recovery, and it was followed around the world.

We moved as well to support businesses and people through unprecedented fiscal stimulus – a policy again which was replicated in every continent:

And under Gordon Brown’s leadership, the world came together to co-ordinate their actions with a historic agreement at the London Summit.

We agreed to support our economies so we could all come through the global recession sooner and stronger.

There is increasing evidence that this decisive action, nationally and internationally, has prevented the global recession sliding into outright depression.

It is still early days and we are not yet out of this global downturn.

The biggest risk remains complacency – a belief that we are through the hard times and can relax.

The economy still needs the extra support – here and abroad – as Finance Ministers agreed at the weekend in London.

So if we continue with the policies we have put in place, I believe that the UK economy will begin to grow again by the turn of the year.

And I want to praise the efforts of the Welsh Assembly Government led by Rhodri Morgan, where we have also seen real steps taken to deal with this recession and to help people and businesses.

Acting quickly, through their economic summits, or their ReAct programme for example, they are helping business and people prepare for the recovery.

Many of these measures were controversial at the time.

Perhaps with hindsight, the measures now look like Callaghan common sense.

I know people might point to what he said back in 1976, that “you can’t spend your way out of recession”.

He was talking then about a home-grown crisis, with inflation out of control – not a global downturn.

But he had also seen, in the late 1920s and 1930s what happens when governments fail to intervene, at home and internationally.

Today, in a world of low interest rates and low inflation – I believe he would have strongly supported the actions we, and governments across the world, have taken to prevent a repeat of the Great Depression.

These were not easy decisions.

They are the result of the governments having the courage and the vision to act.

To have walked away would have been wholly irresponsible.

I believe the public rightly expected that, given the scale of this crisis, the people they elected to serve them had to intervene.

And this brings me back to James Callaghan’s test of the character of society – and the role of government.

For none of this has been cost-free. The unprecedented nature of the global economic crisis, and the action that was needed, has led to Government borrowing rising sharply across the world.

The cost of supporting the financial system, as well as helping people and businesses, has come on top of a fall in tax receipts because of the slowdown in economic activity.

But I believe that the cost of stepping back and letting the recession take its course would have been far higher.

There are some who claim, for their own ends, that the growth in borrowing and debt is somehow a peculiarly British phenomenon.

This is a view which can be dismissed by looking around the world.

That is why, at the G20 meeting last weekend, countries agreed that once recovery is firmly established, we must all rebuild our fiscal strength.

Cutting support now, as some are demanding, would run the real risk of choking off the recovery even before it started, and prolonging the global downturn.

But in the medium-term we need to live within our means, not to do so would be equally irresponsible and damage our country’s future.

The Prime Minister and I will never risk the fiscal sustainability of our economy.

It is why in the Pre-Budget Report, and then in this year’s Budget, I set out plans to half the deficit over four years once the recession is over – and we will not shy away from these plans.

That includes tax rises with the biggest burden falling on those who can most afford it.

It's not just about public spending, some are against our difficult decisions on tax. I cannot accept that cutting inheritance tax for the few is a greater priority than getting people into work or investing in public services.

It is also necessary to see slower growth in public spending in the coming years. Every country faces similar pressures.

Setting priorities inevitably means tough choices.

It will require us to examine what Government can and should do, while recognising that there will always be a vital role for the state.

For functioning markets, private endeavour, individual ingenuity are absolutely key components of a healthy economy and a good society.

They are not, however, enough on their own.

People rightly talk of the invisible hand of the market, but it goes alongside the enabling hand of government.

Some times the state has to provide services because the market cannot – such as defence.

Our armed forces are performing magnificently, with courage and commitment.

And I will ensure that they always have the equipment they need - that's essential.

And there are many areas, too, where the state can provide services more effectively, helping families achieve their aspirations and ambitions.

We need to constantly test the limits of what Government can do best – and where to step back – so that public investment and private endeavour can work hand-in-hand.

But every business and every person depends on well-managed and targeted public investment.

You know this as well as I do.

Many of you rightly made the case for continued investment in a world-class education system in Wales and across the UK.

Others have praised the doubling of the science budget, as well as the tax breaks for commercial research and development, but want us to go further.

The private sector couldn’t do that alone – it needs to go alongside public investment.

You have pressed the case, many times, for better railway links between South Wales and London.

And that is now going ahead with the electrification of the Great Western line to Swansea.

Public services and investment are essential – but it requires that we, as a society, make decisions on what is fair and right.

For us, for example, this means the goal of tackling poverty – at home and abroad.

That’s why we are committed here to eradicating child poverty, and internationally to increasing overseas development aid.

A belief that everyone should have the opportunity to realise their potential regardless of their parents’ background.

A belief too that we cannot afford to write-off a generation of school and university leavers, just because they happened to enter the working world this year.

There are some whose answer to every problem is to claim that we need to “get government off their backs” – who believe that doing less will leave room for others to do more and more successfully.

What do they mean by getting Government off their backs? What do they want to cut?

For them, the government’s role is intrusive, eroding personal freedoms.

Look no further than the current debate about healthcare in the United States to understand this view.

There is a common argument that there is some kind of inevitable trade-off between the freedom of the individual and the role of the state.

I believe we need to confront this directly.

There is nothing liberating about having to sleep rough.

There is nothing liberating about a society that only educates the richest as Callaghan knew.

The lack of family income meant that he was unable to take up a place at university which his intelligence and hard work could had won him.

It was Callaghan himself who proclaimed that government action is not a denial of freedom – it is in fact a way of increasing our freedom.

The criticisms in America of the NHS – echoed by some at home – remind us that, even in areas where we think we’ve reached a consensus, the case for public services always needs to be made.

So just as I believe that inaction in the face of this recession would have been a dereliction of duty, so too do I believe public investment is vital to build a better country.

But it would also be irresponsible if we did not ensure that public spending is sustainable. And that it delivers and provides value for money.

Public spending is not a goal in itself.

What matters is the results, what you get with your money – and how they help people meet their aspirations and ease their concerns.

The first priority has to be to look for areas where we can achieve greater efficiency.

Some seem in a hurry to cut services. We are focussing on cutting costs.

Since 2004 we have already made £26.5bn of savings – yet over the past year we’ve stepped up those efforts.

Looking, for example, at whether we can rationalise properties used by the public sector, or whether different parts of the public sector can share back-office functions.

We have already identified that such a move would save £120m over nine years across the prison service.

Or how, by renegotiating NHS drugs contracts we're saving a further £550m a year, releasing resource for key priorities.

And in the Budget, I said we would look at how all public services are delivered at the local level – mapping out the different elements and identifying potential partnerships – to give better services to the community at better value for money.

Second, on top of doing more for less money, we have to step up our efforts to do things better, driving forward public sector reform.

For example, around one third of people in the UK have a long-term health condition, and 70 per cent of NHS spending is devoted to tackling these.

What we need to do spend money more effectively on preventing illness – so that we need to spend less on the cure.

We are also going to accelerate the movement of power away from Whitehall to those on the front-line.

This means greater decision-making and budget allocation at the local level.

As part of this, I want to further revisit the use of targets.

Central targets were a key way of driving improvements in public services after 1997, particularly in the early years.

Now we need to lock-in those higher standards by setting out clear entitlements of what people can expect from their public services.

Entitlements shape a stronger relationship between citizen and public service provider, giving the front line the flexibility to continue improving standards.

I want to enable them to decide how best to improve services and value for money, while ensuring that they remain accountable to the people using them.

And Government also needs to be responsive, shifting resources to where they are needed most.

That’s why over this past year we have brought forward spending to ensure we do all we can to support the economy now, when it needs it most.

In the autumn, we asked departments to accelerate their capital spending, so that projects could go forward now, when jobs are needed.

This year, it includes £300m spent improving the major roads network. Also more money for the Building Schools for the Future programme.

In June, we reallocated funds so that we could build 20,000 new homes this year and next.

In Wales, up to £140m of capital spending can be brought forward.

And this has been a great example of the public sector thinking and acting together, to ensure that we get the maximum possible impact on the economy of every pound of taxpayers’ money spent.

And we must use this same approach going forward – prioritising areas where we get the most bang for our buck.

Start with investment. We need to look at what non-essential public sector assets we can sell, so that we can free up capital for key projects.

We will look at every corner of public sector spending, and allocate money to those areas where it will make the most positive difference to people’s lives.

We will need to make tough choices.

Choices driven by our values but which also reflect that times and challenges have changed.

In 1945, the Attlee Government had to repair the fabric of this country following the Great Depression and the devastation of World War.

In 2010, we will be recovering from a different global crisis, and we will need to show the same determination and equal effort.

For as the recovery takes hold, we have to secure new jobs, respond to an ageing society, and tackle climate change.

New challenges – a new test of character – which will require innovative ways of working and co-operation, both within the UK and internationally.

Challenges such as promoting the global growth industries that will deliver the highly-paid, high-skilled jobs of the future.

Helping provide the investment in key sectors like advanced manufacturing, digital communications, biotechnology and the creative industries.

Encouraging exports, supporting inward investment, promoting research and development – all ways of harnessing the expertise and know-how of our businesses.

We have as well to work out how to pay for the rising bill of social care for an ageing population and ensure people have the income to enjoy retirement and the increased opportunities it brings.

When the Attlee Government established the welfare state, newly-born boys, for example, were expected on average to live to the age of 66, that’s one year past retirement age.

A boy born today can expect to live to almost 80.

The increase in longevity is one of the great achievements of the last half century.

But each extra year of life expectancy brings new pressures – here and in all advanced economies.

A more elderly population increases the number who need social care and places new demands on our pensions.

The way society looks after the increasing number of older people reflects our values – so how we meet these challenges will also define our character.

That is why we are now looking at how to we reform the provision of care, to establish a National Care Service.

We see care as being fairer, simpler and more affordable for everyone – moving towards a system of clearer national entitlements but also personalised to individual needs.

To fund this, we need a partnership between the state and individuals, bringing together public and private resources, to ensure everyone can get the care and support they need.

And there are challenges – just as we have seen with economic crisis – that  need global action.

Just as with the global recession, no country on its own can hope to combat climate change or protect its citizens against its impact.

Climate change is the greatest long-term threat our world faces.

Britain is setting the lead – we’ve exceeded the Kyoto targets and investing in clean energy. But we need to do more.

We have also set the world’s first carbon budgets – which give industry the certainty needed to develop and use low carbon technology – cutting emissions, creating new businesses and jobs.

They are a landmark step, which point the way to the vital decisions which must be made at Copenhagen later this year.

And again, that is a challenge that governments alone cannot meet. We will require the effort, ingenuity and ambition of the business community, and society as whole, to protect the sustainability of our planet.


Over the last 18 months, the Government has taken the action needed to lessen the impact of the recession and stop the global economy sliding into depression.

We must show the same resolve and vision to tackle the challenges of the future.

This will mean, as Gordon Brown and I have already made clear, hard choices on public spending.

We won’t flinch from these difficult decisions.

But we will always be guided by our core values of fairness and responsibility.

That will be our test of character.

At the weekend, G20 finance ministers agreed that we must continue to support our economies until recovery is established.

To cut spending now would kill off the recovery. But, when the recovery has been established, all countries must rebuild their fiscal strength.

Today I’ve made the case for active Government – and that means setting priorities and making choices.

 The global economic background means that spending will be tighter everywhere – all the more reason for ensuring that the frontline comes first.

Properly targeted public investment can and must make a difference.

But this means making choices and setting priorities – shifting resources to the front line.

It means more efficiency, continuing to reform, cutting costs, public and private sectors working together.

Essential steps if we are to secure jobs and increase prosperity for the future.

These are the big questions of tomorrow and we need to work on them together today.

The next few years will be difficult.

The decisions we as a country make now will have an impact for decades to come – just as the creation of the welfare state did.

Years from now, perhaps another politician will be standing here, delivering the James Callaghan Lecture.

And I hope that he or she will be able to say that our generation rose to that test of character.


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