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Below is the text of the speech made by the Chief Secretary to the Treasury, Danny Alexander, to the Grampian Chamber of Commerce on 1st March 2013.

 

Good morning.

I was especially pleased to be invited to speak in Aberdeen this morning, because for a Treasury Minister – in fact for any Government Minister – the biggest priority for the country has to be sustainable economic growth. And this city is a key hub for providing growth in the UK.

I want to talk about the steps this Government is taking to help support growth now. Most importantly though, I want to talk to you about why I believe this region – and Scotland as a whole – will have a far more economically prosperous future as part of the United Kingdom.

Aberdeen is – quite simply – one of the UK’s most continuously resourceful and inventive cities. It was Robert Louis Stevenson who said that ‘everyone lives by selling something’, and this is a city that has thrived on mining its rich local resources and selling them to the world. Some of these have been natural resources – granite, or fish, or oil – some of these have been human resources – like the graduates of the two excellent universities here – but this city has always thrived by trading. And it has always been a real asset for the UK in doing so.

We need to continue to provide the right conditions for the economy here to continue growing. Of course, many of the ‘growth’ levers that the UK Government deploys – areas like education, skills and infrastructure investment – are rightly devolved to the Scottish Government. And the UK Government is continually supporting the Scottish Government with additional funding to take their reforms forward.

But crucially, the UK Government also delivers for Scotland through reserved policy – meaning the people of Scotland benefit from the best of both worlds with two governments acting in their interests.

The action we are taking to tackle the deficit, support low interest rates and create a stable environment for the private sector is crucial in helping us to rebalance our economy and support sustainable growth throughout the UK. And specifically, I know a number of the businesses represented here will benefit from the changes the UK Government are introducing.

Like the steps we’re taking – particularly on corporation tax – to create the most competitive tax system in the G20. Or the support we’re providing to thousands of companies as we work to improve access to finance for SMEs, so badly damaged by the financial crisis. And I hope business here can also benefit from the support we’re providing to companies with overseas export opportunities.

I know businesses will benefit from reduced energy costs, and my colleague Ed Davey is just down the road today to announce that the Government intends to maintain the ‘Hydro benefit’ relief – worth £50 million on energy bills across the North of Scotland.

Reforming our financial services industry will also be a key step towards growth, and I’m pleased to see a number of people from the finance sector here today.

Our economy has yet to fully recover from the effects of the financial crisis, with the flow of credit in particular remaining impaired; So we’ve learned the hard way that financial stability is another pre-requisite for growth and investment in all sectors of the economy.

The reforms that the Government is taking forward in the Banking Reform Bill will produce a more stable banking system that is focussed on serving the needs of its real economy customers, and thus better able to support growth and investment in the UK.

And of course, it wouldn’t be a trip to Aberdeen without mentioning oil and gas, and I see we have a number of representatives from the sector here this morning. As a highlander I know how important this industry is to the area, and you can rest assured that as a member of the UK Government, I will continue to do whatever is necessary to ensure the oil industry remains the beating heart of the North of Scotland. A prosperous economic future for this area is reliant on fully exploiting the reserves here. That’s why the UK Government is implementing significant new tax reliefs and, for the first time, giving the industry long-term certainty (through Decommissioning Relief Deeds) that they will be supported to decommission when the time comes.

This is something the sector has needed for a long time, and our measures have been a real game changer for the North Sea, with new investments announced on what seems like a weekly basis. Just last month EnQuest announced a £169 million GBP programme of investment for Thistle to deliver threefold increase in production; and

Oil and Gas UK reported earlier this week that we now have the highest level of investment in 30 years.

In the last six months alone we have seen around £8 billion of investment, creating over 5000 jobs, and I’m sure there will more to come soon.

We also took steps last year to allow two new field allowances for large shallow-water gas fields and brown fields. Allowances that will support billions of pounds of investment in the North Sea, which will benefit growth and jobs across the sector in Scotland. We are taking these steps to encourage the levels of investment in the North Sea that are needed to extend the success of the industry and make the most of our reserves;

The UK Government is taking the long term decisions to secure the best future for this vital Scottish industry.

Now, for any Scottish business looking at its long term future, there is one rather big question on the horizon. And that question is whether your companies will be operating in the UK, or a separate Scotland. I’ve always been vocal about my support for a strong Scotland within the UK.

As you’ll well know, the Scottish Government likes to claim that taxpayers in an independent Scotland will be better off financially. These calculations are dependent on revenues that flow from the natural resources in this region. And let’s be categorical that these figures are based on a Scottish economy that benefits from being integrated and insulated within the larger UK economy. The Government Expenditure and Revenue Scotland – or GERS – figures do not reveal the fiscal position of an independent Scottish economy, which is what the Scottish Government would have you believe.

The figures show that with a geographic share of the North Sea, Scotland – as part of the UK – has contributed broadly the same proportion of the UK’s revenues since devolution as it has received in public spending. This geographic share averages almost £6bn a year since devolution [from 1999-00 to 2010-11].

But crucially, the geographic share of North Sea oil and gas revenues has fluctuated from just over £2bn to almost £12bn, depending what year you look at. Of course, with where the oil price and production levels have been the last couple of years, the GERS figures that will be published next week may well look favourable. But the volatility of price and production cannot be wished away, nor can you ignore the fact that these figures represent Scotland within the UK.

The UK as a whole can absorb such volatility by pooling tax revenues from a broad and diverse tax base. Within the UK economy North Sea revenues represent around 1-2% of total tax receipts. But for the figures produced for Scotland, this geographic share of the North Sea would represent around 10-20% of their revenues – a huge dependence on a volatile source of revenue.

Far more important than these past figures though, is what will happen in the future.

How the revenues, and liabilities, of the North Sea would be split in the event of a vote for independence would clearly be a matter for negotiation. But the independent Office of Budget Responsibility have forecast that oil revenues will be on a downward trajectory over the medium and long term. What this means is that by 2016-17 – which is the Scottish Government’s preferred year to begin independence – it is forecast that revenues will be around half the average of recent years. While this can be managed by the broader and more diverse UK-wide economy, a halving of North Sea revenues would equate to a significant reduction in Scotland’s total revenues – somewhere in the region of £4bn.

As I said, I expect that this week’s GERS report will show us that last year’s oil and gas receipts were strong. That’s great news for the sector, for Scotland and for the UK as a whole.

The oil and gas industry will surely play a strong role in the years and decades ahead, but its revenues will remain volatile while on a downward slope. And that is no basis on which to make an argument for independence.

Now to those who will say, predictably, that this is a negative argument, I say that in fact it is a simple truth. And we must not be afraid to speak the truth and inform this most crucial, constitutional debate. People must be allowed to decide how they will vote on the basis of how things are; not on how the Nationalists assert that they will be.

The truth is a positive thing.

Due to this decline in receipts, and due to acute demographic challenges – which will see a smaller working-age population in Scotland and therefore a smaller tax base – the independent Institute for Fiscal Studies has said that “over the longer run… an independent Scotland would face a bigger fiscal adjustment than the rest of the UK”.

Put simply, if there ever were an independent Scotland, it would be under fiscal pressures from Day One. Under fiscal pressures at the exact time that it would be required to enter financial markets and prove its fiscal credibility for the first time. And under fiscal pressures at the same time as the Scottish Government is promising to cut taxes and raise spending.

This is a false prospectus that does not add up. Just as when it comes to the stability of this sector, it is the same when it comes to the macroeconomic and fiscal stability of the United Kingdom. We are stronger, and we will be more prosperous together than we would be apart.

So where does this Government see the region continuing to support growth?

It is essential that we continue to look towards new and renewable energy sources, and I’m very pleased that someone from the Aberdeen Renewable Energy Group is here today.

Last summer the Government set the level of support for renewables under the Renewables Obligation out to 2017. We also introduced the Energy Bill which will reform the electricity market to allow renewables to have certainty on the price they will receive for the electricity they sell, and we will be consulting on the levels of support for renewables coming forward under electricity market reform in the summer. This is a step that will give investors the clarity they need to bring forward new renewables projects out to 2019; and

In November last year, the Government announced that the Levy Control Framework in 2020 would be £7.6bn. This is a commitment to tripling the resources available to support low carbon growth, backed by over 60 million UK consumers.

Yet again, a reminder that we are better together.

As well as meeting our energy needs for the future, we also need to create an infrastructure fit for our future, so that our businesses can compete in the 21st century. Much of our spending in this area is being invested in our road and rail networks, but of equal importance is the investment being made in our digital networks.

We remain committed to supporting UK-wide roll-out of superfast broadband, and £100m has been allocated to the Scottish Government in this area – nearly one fifth of the total superfast broadband commitment. In addition, Aberdeen is one of the 22 cities to successfully compete for a proportion of the £150m fund to support ultrafast broadband in a network of UK cities.

Aberdeen’s very impressive plans will enable cutting edge connectivity to be delivered throughout this city, and commercial roll-out of 4G mobile services will further enhance its digital connectivity.

I’m wary that we’ve got a Q&A session coming, so I’d like to leave you with these thoughts.

This Government wants to see balanced, sustainable and strong economic growth for the UK, and we will do our utmost to support those cities and regions which make growth happen.

Aberdeen is such a city – Aberdeenshire is such a region – and we are confident that the actions this Government has taken will continue to support you to achieve that growth.

I strongly believe though, that the region is more likely to remain prosperous, more likely to achieve growth if it continues to be part of a United Kingdom.

Thank you for listening.

Below is the text of the speech made by the Chief Secretary to the Treasury, Danny Alexander, on 24th October 2012 in Cardiff, Wales.

 

Introduction

I’m delighted to be here today making a statement that brings more good news in the form of new commitments on the future of Welsh funding.

Today the UK and Welsh Governments are announcing that we will regularly review relative levels of Welsh funding.  Take from me that this is a very clear signal that the UK Government recognises that this is a major concern in Wales.  I have also agreed that capital borrowing powers should be devolved in Wales, as long as there is an independent revenue stream in place to support them.

In July, in a joint article, the Chancellor and I outlined the Government’s commitments to restoring competitiveness and infrastructure across the UK.

We put our money where our mouth is when we announced one of the biggest overhauls of our railways since Victorian times, including the electrification of the lines from Cardiff to Swansea and the Welsh Valleys.

And today, UK and Welsh Government support is enabling a partnership of leading universities and multinationals led by Swansea University to launch a new Knowledge and Innovation Centre with the aim of creating a range of renewable energy products that could revolutionise the construction industry.”

The joint statement on funding that we are announcing today is another major step forward for Wales

I’d like to pay tribute to Jane Hutt.  Jane it has been a pleasure to reach this agreement with you and be a part of talks that have been so genuinely collaborative.  The fact that our governments can work together in this way is another shining example of the benefits of one United Kingdom.

Funding

Historically, Welsh funding per person has been higher than in England but has been converging towards English levels.

Our joint forecasts show that convergence is not currently occurring. In fact over the next few years Welsh funding will diverge away from England.

However by planning for the long term best interests of Wales, we recognise that this is an issue of deep concern here. It is with this in mind that for the first time the UK Government will jointly assess forecasts of relative funding levels at every spending review. If convergence is forecast to resume we will look at the options to address it; and we are committed to only implementing changes that both governments can accept as being fair and affordable.

The Silk Commission

Today’s agreement establishes a solid platform to consider the Silk Commission’s report, to be published this Autumn. Having seen the hard work of Calman come to fruition I am very proud to have been part of a negotiation that delivered this for Wales and I believe their recommendations could represent an historic step for Welsh devolution.

Fiscal devolution is a necessary next step for the Welsh Government and opens up new opportunities to boost financial accountability and greater spending power.

For the first time the UK Government agrees that the Welsh Government should be given capital borrowing powers, on the condition that this is supported by an independent revenue stream – like devolved taxes, currently under consideration by the Silk Commission. Let me be clear: if Silk recommends devolving revenue raising powers, and Wales implements them, then we put in place commensurate new borrowing powers for Wales.

Devolved capital borrowing powers could be used to supplement long-term infrastructure investment, building on the measures the UK Government has already supported in Wales such as the unlocked funding to electrify the valley lines, and the funding to establish Cardiff as one of the first ten ‘Super-connected cities’ in the UK.

I am delighted that the UK and Welsh Governments have worked so closely and effectively together to deliver on this outcome today.

I am hopeful that we will be able to build on what we have achieved by making real progress on the Silk agenda over the next few months.  We need to move quickly towards lasting reform based on consensus.

This agreement opens the prospect of a new financial settlement for Wales: greater accountability, greater responsibility, more revenue raised and spent here, and more ability to shape growth, safe in knowledge that the rug will not be pulled from under their feet by some future UK Government.

We have demonstrated once again that all parts of the United Kingdom benefit from working together.  We are better together.

Below is the text of a speech made by Danny Alexander, the Chief Secretary to the Treasury, on 10th September 2012 at The Stock Exchange Forum in London.

 

Rarely has there been a time when the issue of growth and economic balance has been so prominent in public discussion, nor has there been a time in recent memory in which the circumstances for growth have been so challenging.

So it has never been more important for Government to be focussed on meeting those challenges and delivering long term growth that is strong and sustainable, and an economy that is balanced across geographic regions and economic sectors.

The role of infrastructure in delivering that goal cannot be underestimated, and so it gives me great pleasure to address you on financing and delivering through both the public and the private sector, working in partnership – to deliver on public priorities efficiently at a time when finance is in short supply.

Our priority is to return the UK to sustainable prosperity and rebalance the economy. Central to achieving that is our focus on fiscal consolidation to return sustainability to the public finances and ensure the UK retains the confidence of international markets.

But fiscal consolidation, though essential, is only part of the story. Delivering sustainable and balanced growth means supply side reform – to ensure that Britain is more than ever an excellent place to do business, and to raise our growth potential by creating an environment in which all sectors can thrive.

There have been long standing weaknesses in the quality of our infrastructure. The quality of our roads, railways, energy and telecommunications infrastructure is an effective driver of our fiscal economic growth package, as well as a key driver of the ability to give our cities the right chance to realise their potential.  This is why infrastructure is at the centre of our strategy to kick-start our economy.

The Government’s National Infrastructure Plan, and the steps we are taking to implement it, are a clear recognition of the importance of infrastructure in achieving our goal. That Plan takes a comprehensive look at the UK’s infrastructure requirements across both the public and the private sector, and sets out how those requirements will be met.

It outlines major spending commitments to improve our transport and broadband networks, and to attract substantial private sector investment into priority projects.

It sets out concrete measures to improve the efficiency and effectiveness of infrastructure delivery – responding to and addressing concerns from businesses and investors. And it sets out the path to a stronger, more sustainable, more balanced economy.

A newly established Cabinet Committee, which I chair, is ensuring that plan is delivered in full, and that all parts of Government play their part in tackling barriers to delivery and addressing commercial and public concerns.

Of course, while the scale of construction and operational challenges are significant, it is the challenge of attracting the substantial necessary investment that is perhaps the most remarkable – over £200 billion of infrastructure investment over the next five years alone.

Given the pressures on the public finances, and the disruption to long-term lending caused by the ongoing instability of financial markets and the Eurozone, that is no easy task, and not one that will resolve itself. Stock Exchanges like this one play a very important role providing an efficient market for that finance in such difficult circumstances, and Government has a major role to play too.

I want to talk to you today about how key private sector organisations like this can work together with Government to meet the impressive challenge that we face to deliver for the UK in this challenging climate, and how we are using the best of the public sector and the private sector to promote a strong and balanced recovery.

First, we are making tough choices to prioritise capital spending on infrastructure within a shrinking government budget. At the Spending Review, we took a conscious decision to protect the most productive public sector investment, and actually increased the capital spending envelope despite pressures elsewhere.

In particular, we prioritised economic infrastructure that supports growth, such as investment in transport and communications – where we are investing even more tax payer’s money than at the height of the spending boom.

The Spending Review supported the delivery of £18 billion of rail investment over the course of the parliament, including work that is underway on major capacity upgrades into London via Crossrail and Thameslink, a major upgrade of the Great Western Main Line, and a new electric route between Liverpool Manchester, Leeds and Newcastle, with significantly faster journey times as a result.

That is alongside £4 billion to maintain and enhance the national road network, and £6 billion for major local transport projects and enhancements.

At last year’s Autumn Statement, we announced a further £1billion for road schemes, and increased the £1.5 billion committed to major local transport projects at the Spending Review by a further £170 million.

At Budget this year, we announced ten cities that will now enjoy ultra-fast broadband and high speed wireless connectivity as a result of Government investment, with funding set aside for a further ten. And a £150 million Mobile Infrastructure Project to deliver coverage to 60,000 rural households and at least ten key roads by 2015.

In July, we announced a further £9.4 billion of infrastructure enhancement, including further targeted rail electrification, increased rail capacity on key commuter lines, and a new corridor linking the core population and economic centres in the East and West Midlands and Yorkshire with the South of England.

And we plan to continue that commitment to investment beyond the current spending review period – delivering a big uplift in capacity and connectivity between our key cities through High Speed 2, and continuing a long term electrification strategy to deliver a high capacity, sustainable railway. On present plans, we will support almost £22 billion of rail investment between 2015 and 2019.

Better rail and broadband infrastructure across the UK will allow businesses to flourish more easily without locating in the South East corner of the country.

It will allow for a growth in rail freight and improve links between our major ports, airports and corporate centres. It will allow firms to recruit from a wider pool of workers, and workers who may otherwise be unemployed or underemployed to access a wider variety of jobs.

At the same time, our investment in rail is supporting development of skills more directly – Network Rail is taking on a substantial number of apprentices and funding a programme to give placements to unemployed graduates across the industry. This is alongside our broader programme of Government funding to equip young people to deliver for the UK – funding which means that this Government will deliver at least 250,000 more apprenticeships over this Parliament then planned by the previous government.

Of course, though we prioritised capital investment at the Spending Review, it is neither possible nor desirable for taxpayer money to do everything. The vast majority of the investment the UK will require will come from the Private sector. And we want to ensure that finance is as easy and cost effective to raise as possible.

So second, we are doing more to help private sector investors access finance for priority projects. We are making sure that money goes further by reducing costs due to unnecessary complexity in areas like planning and regulation. And we are working with investors at home and abroad to see what we can do to help British business.

While prioritising capital spending has provided the necessary public finance, our fiscal strategy also helps to improve conditions for private sector finance, against the headwinds caused by the global financial troubles.

Our focus on fiscal consolidation has achieved credibility with the markets that has driven interest on government borrowing to record lows of around 1.5 per cent. That keeps interest rates low for households and businesses, as well as the taxpayer – and a 30-year yield of 3 per cent is particularly helpful for long-term investment, with benefits for infrastructure expansion and its costs to consumers.

Fiscal consolidation also gives the space for the Bank of England to keep interest rates at an all time low of 0.5 per cent, and to pursue further monetary policies to support investment, such as quantitative easing and the new Funding for Lending scheme, which came into operation last month. Both policies are helping to ease credit and balance sheet conditions for financial organisations, freeing up more money to lend; and the new Funding for Lending Scheme in particular will provide strong incentives for lending, by offering more finance on more favourable terms to Banks that lend more.

Our hard won fiscal credibility has also allowed us to support investment directly, for example through the ‘UK Guarantees’ scheme, also announced last month. By allowing high priority projects to benefit from the UK Government’s balance sheet credibility, we will be able to accelerate and bring forward up to £40 billion of major projects that are struggling to access private finance.

Although it is still early days, interest from industry has been strong. In the six weeks since launch, Treasury has had discussions with over 30 companies and project sponsors responsible for projects worth over £5bn in priority investment areas such as energy, transport, water, waste and telecommunications. Detailed discussions are already taking place with the Mersey Bridge Gateway project, considered one of the world’s top 100 infrastructure projects, and the Green Deal project I announced a few weeks ago will also be considered to ensure it goes ahead on time.

While the measures we are taking will greatly improve companies’ access to debt finance, we should recognise that the days of cheap and readily available bank originated debt finance are over. As a result, new sources of capital are increasingly important. Equity markets, for example, serve as a significant source of long term non-bank finance – during the height of the crisis, between 2008 and 2010, the amount raised in equity for publicly listed companies was similar in level to the amount pumped into the economy through Quantitative Easing.

The growing retail bond market also presents potential for improving access to finance by offering issuers the opportunity to reach out directly to retail investors. National Grid raised a record £260 million through this medium in October last year.

Following Tim Breedon’s report, that we commissioned to examine the structural and behavioural barriers to alternative debt markets in the UK, we are committed to ensuring a proportionate regulatory regime to support these important lending channels.

More broadly, we are working with private sector investors to understand what more we can do to ensure that the deepest possible sources of capital are available to the widest possible range of projects, and to promote inward investment from abroad.

For example, the new Pension Infrastructure Platform, which we have committed to establish with the National Association of Pension Funds and the Pension Protection Fund, will allow UK pension Funds to invest directly in UK infrastructure assets and projects in a new and more efficient way.

We have now obtained written confirmation from seven UK pension schemes to fund start up costs, and soft commitments for initial capital allocations. We expect the Platform to raise its target £2 billion by January to start investing in key projects.

Another productive area of collaboration has been the Insurers Infrastructure Investment Forum we set up with the Association of British Insurers. Through this, we have looked at how projects can be better structured to meet the investment propositions of annuity funds and liability-driven investments, and found ways to maximise opportunities for insurance fund managers to invest in infrastructure debt instruments – engaging with credit rating agencies, improving performance data reporting to creditors, and developing a private market for unrated or lower rated debt.

Meanwhile, UKTI continue to do excellent work promoting UK infrastructure for inward investment from sovereign wealth funds and other institutional investors overseas.

And we have seen a number of high profile successes this year, including from China, Japan, Qatar and Kuwait.

While we have achieved much both through targeted government spending and through freeing up private finance, there is still scope to improve how the private sector and public sector can work together in more innovative and productive ways. While past PPP arrangements have on occasions been less than perfect, I firmly believe that with the right approach and focus, the right partnerships can use the skills and innovation of the private sector to deliver on public and social priorities more effectively than ever before.

So to finish off, I want to talk about what we are doing to improve our work with the private sector to deliver real value for money for taxpayers.

The UK Guarantees Scheme, which I mentioned earlier, could also allow up to £6 billion pounds of public-private partnership projects to proceed without delay.

And we are looking at how more innovative modes of working with the private sector can allow us to meet the UK’s infrastructure demands.

At Budget, we announced options to improve A14 capacity that could be part financed through tolling, and more broadly, we are looking at ways to increase the role of private investment in the strategic road network. For example, looking at how a Regulatory Asset Base could be used to expand private investment in roads infrastructure, while improving efficiency. We will be announcing the results of that study later this year.

With sovereign bonds and other long term assets either seen as riskier, or with yields at all time lows, investors are queuing up for utility assets to invest in with guaranteed returns over long periods, and we hope to be able to unlock some of that investment to good effect.

That rise in investment could bring England’s roads up to the best in Europe – reducing congestion and travel time on key routes through expanding hard shoulder running schemes, dualing existing A roads, and adding lanes to existing motorways. In the longer term it could be used for new routes.

Another area where private money can help to deliver our public goals is in Energy.  By 2020 we plan to generate 15 per cent of our energy from renewable sources, and Ofgem estimates that £200 billion in energy investment will be required between now and then.

That is a challenge that cannot be met with the often haphazard and wasteful approach to Government subsidy taken in the past. The private sector will need to take the lead, supported by a Government committed to removing the barriers and uncertainty that have for too long prevented the necessary investment.

At the end of July we launched the Banding Review for the Renewables Obligation. We also recently published our draft legislation on Electricity Market Reform, which will reform the Energy Sector to ensure that it can access the finance required to meet our Carbon reduction and energy security needs.

That will be achieved through a number of instruments:

• contracts for Difference, to provide stable and predictable incentives to invest;
• a Capacity Market, if needed, to provide security of electricity supply by ensuring sufficient reliable capacity is available; and
• transitional arrangement to ensure that the existing Renewables Obligation can operate stably once it is closed to new generation in 2017.

In addition, we have granted development consent to 24 energy generation projects all over the country since 2011, supporting over 4000 construction jobs and producing enough electricity to power over eight million homes.

Finally, we are reforming PFI to ensure that it secures long-term value for money for the taxpayer, while also making sure we retain the benefits that successful PFI can deliver – getting projects built to time and to budget, and creating the correct disciplines and incentives to manage risk effectively.

We’ve seen high levels of engagement, with over 150 written responses to our call for evidence, and around 100 stakeholder discussions to support this process.

We are now considering the wide spectrum of views expressed on how best to achieve more effective use of private sector innovation, skills and investment, to reduce costs, improve flexibility and increase transparency, and we will be setting out our conclusions this Autumn.

By being proactive and innovative about helping the private sector deliver for the UK, we can promote a recovery that will allow Britain to rise from the economic turbulence as a stronger and more balanced economy.

We are already starting to see returns to our approach – 840,000 private sector jobs created since early 2010, and the UK rising to 8 in the World Economic Forum Global Competitiveness Rankings this year – up from 10th last year, and ranked 6th in the world for infrastructure.

Of course, there is still much to do, and I hope I have shown you today that we are getting the most out of Government’s strong fiscal position and the private sector’s creativity and expertise. We will continue to look at what more we can do to make it easier for investors and firms to help us deliver on the UK’s priorities, and I look forward to hearing from you today about the challenges faced and how we can continue to help to address them.

Thank you.

Below is the text of the speech made by the Chief Secretary of the Treasury, Danny Alexander, to the IFS on 23rd April 2012.

 

Good morning, it’s a pleasure to be here at the IFS.

When this coalition government came into office, Britain faced some of the most substantial fiscal challenges anywhere in the world.

We had the largest forecast budget deficit in the G20 – bigger than many of those European countries whose fiscal challenges are regularly in the news.

The gap between what we raised and what we spent was the greatest in our post-war history.

It’s because of this Government’s leadership that we have sheltered the UK economy from the worst of the storm that continues to affect our Eurozone neighbours.

Britain is contributing to the global rescue package, not seeking support from it.

It’s worth remembering that it’s almost two years since the first Greek bailout, the trigger for a crisis that rumbles on today.

In contrast, only two weeks ago, Standard & Poors reaffirmed the UK’s triple A rating with a stable outlook.

In S&P words “We believe that the UK Government maintains a strong commitment to implementing its fiscal mandate, and has the ability and willingness to respond rapidly to economic challenges.”

Fiscal discipline is not ideological.

It is core to good Government. And it necessary to deliver fairness too.

Be in no doubt, it is the poorest and most disadvantaged, not the wealthy, who are hit hardest when a country loses control of its public finances.

It is fair that we tackle our debts today so that we don’t burden our children tomorrow.

Ensuring that we can continue to provide high quality public services and support to those who need it the most.

And even as we take the tough decisions to tackle that debt, we are making sure that it’s not the poor and vulnerable who are forced to carry the burden, and that those who have the most contribute the most.

Secondly, fiscal discipline is the vital precondition of growth.

Our commitment to fiscal discipline and economic stability has helped secure record low market interest rates.

Rates that support households paying mortgages, and businesses securing loans, right across the UK.

It is that credibility that is the essential precondition for private sector investment, growth and job creation…

226,000 new private sector jobs in the last year

634,000 since we came into Government

Private sector growth built on a foundation of economic stability.

Our Budget went even further in that ambition.

Sticking to our plans on fiscal consolidation to safeguard our economic stability.

Driving through reforms to support the private sector enterprise and innovation that is critical to our recovery.

Reforms that include an extra one percent cut in corporation tax…reducing it to 22 per cent by 2014.

The lowest rate in the G7, the fourth lowest in the G20.

Cutting the ineffective top rate of tax…a rate that was higher than the likes of America, Germany, Italy and France – and replacing it with new measures that ask the wealthy to pay 5 times more than the cost of lowering the top rate.

Increasing the personal allowance – within a hairs breadth now of our £10,000 tax free goal – through the largest tax cut for a generation for the working people of this country.

Investing to provide ultra-fast broadband in ten super-connected cities, with plans to fund a second wave of cities.

And continuing to support the establishment of a new Pension Infrastructure Platform owned by pension funds to bring as much as £2bn of investment by early 2013.

Investment that is critical to renewing our nation’s infrastructure, and catalysing growth in key and established industries right across the UK.

Of course, the damaging legacy of the financial crisis, and the headwinds in the global economy, means the road to recovery is a long one.

The latest assessment of the scale of the damage done to our economy by the financial crisis shows that the damage is greater than was thought at the time.

According to the Office for Budget Responsibility, the part of our deficit that is structural was greater than previously thought.

The structural element of the deficit is the part that will not disappear as a consequence of economic growth – it requires policy choices, tax rises or spending cuts, to deal with it.

Put simply, our economy is now forecast to be 11% smaller than it would have been had the crisis not taken place.

For every £9 we thought we would have, we will only have £8. We simply can’t afford to go on spending and borrowing as a country as if we will still have the £9.

There were basically three options about how we could have reacted.

We could have done nothing- and put at risk our country’s economic credibility, seemingly as the official opposition continue to urge us to do.

Or we could cut more now.

But when you have set out detailed spending plans as we have done, credibility comes from implementing those plans, not tearing them up.

The credibility which we have secured means that we have not been forced by the markets to tear up our plans because of rising interest rates and economic instability – as some in Europe have been forced to do.

Instead, we set out plans for further spending reductions into the next parliament.

We have made clear that the total amount of public spending in this country will fall at the same annual pace as in this Parliament, for a further two years.

The OBR forecasts that at that point we will have successfully eliminated the structural current budget deficit as promised, and of course different political parties will quite properly have different ideas for the appropriate path thereafter.

But even as we galvanise our efforts to tackle the deficit, we are also concentrating our minds on the much longer term prospects for public spending.

As last year’s OBR Fiscal Sustainability Report said “There is considerable uncertainty surrounding the scale of the fiscal challenge that confronts future Governments, but the fact there is such a challenge is not in doubt”

In particular it says that “future Governments [are likely to have to undertake some additional fiscal tightening beyond the current parliament in order to] (have to) address the fiscal costs of an ageing population.”

Quite simply, the world is a different place to than it was two, ten or twenty years ago. These are pressures that have been building for many years.

The simple truth is that the choices we faced in the last Spending Review and the choices that will have to be made in the next Spending Review are inescapable.

If we want to continue to act fairly, improve social mobility, provide good public services,  provide capital investment that continues to grow, and educate a workforce that is able to drive this economy forward, we will need to work out where and how we save to make those things possible.

And we will need to respond so some of the huge challenges that governments in the past have mistakenly believed they could afford to duck.

That debate is a vital one for the country in the coming years.

But today I want to dwell in more detail on the progress we are making on the plan we have set out, and announce some further measures that reinforce our commitment to delivering on it.

In an environment of economic uncertainty, with ongoing instability in the Eurozone, the UK’s large deficit remains a crucial economic vulnerability.

It remains a clear and present danger to stability.

Carrying on as we were means accepting that we spend even more on debt interest as a share of public spending.

Leaving things as they are for longer would mean higher debt, higher interest payments, and that means even bigger cuts in the long run.

Instead, we argue that we have to cut our cloth today to reflect our means, and show that we can be trusted to restore our public finances to health.

Building that trust has two elements: figures that people believe, and a plan that is being delivered.

The significance of the creation of the Office for Budget Responsibility is often underestimated in the UK debate.

Historically in the UK, politicians had been tempted to adjust their economic forecasts to suit their policies.

So when last autumn the OBR chose to substantially change its assessment of the damage done by the crisis, and so of the spare capacity in our economy, the government could not sweep this uncomfortable judgement under the carpet.

Instead, as I explained earlier, policy had to respond.

This is a structural shift that will shape Government for decades to come.

Never again will politicians be able to fiddle their forecasts in the face of the uncomfortable truth…

And never again will Government’s be able to spend the financial mirages these forecasts create.

It is also an example of the UK leading the way.

The existence of a strong, effective institutional framework is a significant strength for the UK compared to other countries, and the creation of the OBR has further enhanced that strength.

Many other countries are now seeking to emulate this change as they seek to rebuild their fiscal credibility

For instance, the European Commission has now proposed that Euro area Member States put in place an independent fiscal council to monitor the implementation of national fiscal rules.

At home, we set out in the 2010 Emergency Budget, the standard by which we would measure our success: the fiscal mandate.

Achieving a cyclically adjusted current balance by the end of the rolling five year forecast period.

And for debt to be falling as a share of GDP by the end of this Parliament.

As well as some tax increases, we set out a fixed envelope for public spending for the remaining four years of this Parliament. And in the spending review in 2010, we set out budget reductions by department.

In particular we focused on reducing welfare costs and wasteful spending, for instance…

Saving £18bn by 2014-15 through welfare and public sector pension reforms

£6bn through efficiency savings in 2010-11, and another £6bn by 2014-15 by cutting Whitehall by a third

£3.3bn through a two year freeze in public sector pay

And £1.5bn a year by 2014-15 by abolishing the Regional Development Agencies.

In all, Departmental budgets other than health and overseas aid were cut by 19 per cent.

These were tough decisions to make, but within these overall reductions, we were able to make some important positive choices for the country to promote growth, fairness and social mobility:

Protecting health and schools spending in real terms

Investing more in the life chances of disadvantaged children, and shifting education spending towards the early years

Investing more in transport infrastructure than our predecessors had managed in the previous 4 years

Reforming the welfare system

Getting defence spending under control

And we are already making good progress.

According to the OBR, in 2011-12, departments exceeded budget reductions, forecasting around £6bn of lower spending than planned.

By the end of 2011-12, almost 30 per cent of the spending reductions planned for the 2010 Spending Review period will have been achieved.

And the deficit in the cyclically adjusted primary balance, a key measure of fiscal sustainability, has been halved from its peak in the last two years, going from 7 per cent to 3½ per cent, and is forecast to approach zero by 2014-15.

The cyclically adjusted primary balance is a strong measure of the structural consolidation we need to deliver debt sustainability.

It excludes debt interest payments and the economic cycle on the deficit, and is widely used by international organisations to illustrate the underlying fiscal position.

It shows that we are on the right path.

But with 3 years to go, very difficult decisions remain to be implemented.

And while many departments have made significant changes, we need to do more to change the Whitehall spending culture for good.

We need to ensure that old habits that led to waste and unnecessary spending cannot re-emerge, and that new focus on getting better for less is permanently ingrained.

So today, I am setting some new and tougher rules around spending that the Treasury will be enforcing from this year on.

These are rules have been drawn up with finance directors from across Whitehall, and are designed to fundamentally change and improve financial management across all organisations spending public money.

Rules that demonstrate the collective determination of government to ensure that never again will our nation’s finances be allowed to get into such a mess.

From arms-length bodies, to Whitehall departments, to devolved administrations…we must all work together to play our part in improving financial performance.

There are three core elements to this more rigorous approach:

Improving our monitoring of spending…

Improving our management of spending…

And improving our oversight and scrutiny of spending.

Let me take monitoring first.

Delegated responsibility for spending cannot be an excuse to hide information, close the books, or weaken financial management.

For too long financial management in Government has been stifled by poor information sharing and poor incentives.

On the one hand, this Government has made huge strides to make more information available to the public as part of our drive for transparency.

But that same ambition has not been matched within our own walls.

That has to change.

From now on, all departments must monitor and share spending information with the Treasury on a monthly basis.

And that data must be consistent, allowing us to build a shared understanding of where the risks lie and how they are managed, as and when they arise.

Not months or years down the line.

Not when we’re trapped in the wrong track.

But in real time.

And improved monitoring will help change incentives on financial management.

The old system of financial management implicitly rewarded those who didn’t manage their finances.

In the end, when departments faced policy problems or where difficulties have emerged, they felt they could simply turn to the contingency reserve to bail them out.

We have to change those incentives.

That’s why in the spending review, we deliberately kept the reserve small in order to get the most money out to departments.

It means that departments have to be able to deal with problems that arise from within their own budgets.

Many departments already operate a small ‘unallocated provision’ in their annual budgets, to meet smaller pressures that arise.

And, under the new rules I have asked all departments to identify around 5% of their resource budget that could be re-prioritised if new pressures emerge or new policies have to be funded, so there is a shared understanding of how it could be paid for.

To be clear, no departmental budget is being changed as a result of this exercise. It is simply about good financial management, of the sort practised by families and businesses across this country.

And in future I will take performance in financial management into account when deciding whether to grant claims on the reserve.

That means punishing poor management, but it also means rewarding those with a record of good financial management with greater freedom over their budgets.

But that freedom comes with higher scrutiny. Where the Treasury has concerns that Accounting Officers may be falling short of fulfilling their responsibilities for managing public money, I will write to the Secretaries of State and the Head of the Civil Service to set our those concerns.

These new controls are not just a tweak to the Whitehall machine.

They are another signal of our unwavering determination to deliver the fiscal consolidation we promised.

It is this focus on delivery that is the cornerstone of our country’s credibility. Credibility, let us not forget, which is delivering the record low interest rates that are benefitting millions of families across the UK.

We have taken some very difficult decisions to restore this country’s financial credibility and economic prosperity.

The delivery of those commitments will be enhanced by the measures I have announced here today. And it will require further difficult decisions to be taken as this Parliament progresses.

Because we literally cannot afford not to change the way we do things.

Thank you.

Below is the text of the speech made by the Chief Secretary to the Treasury, Danny Alexander, at the Centre Forum in Guildhall on 10th May 2011.

 

Today, what I want to focus on is the role the financial sector has to play in our economy.

Now, as a topic, this is not something new.

Much of the economic and political debate of recent years has revolved around this issue.

But instead of discussing the importance of tighter regulation or banking reform, what I want to concentrate on is the industry’s role in restoring trust in the financial system and how your actions can help with the rebalancing of our economy, and its success in the future.

And there are a number of reasons to look to the future with confidence.

Of course the recovery is, and will be, choppy.

But, the manufacturing sector has experienced incredibly strong growth in the last year.

Our exports are gathering pace.

Employment is increasing.

Investment is picking up.

But the fact that we can now look ahead with some confidence is only because of difficult decisions we’ve already had to take.

Decisions that have brought about economic stability.

Secured our international credit rating.

And set in place a credible plan to deal with our record borrowing… a plan that has seen us avoid the sovereign debt issues that have engulfed other countries.

These are tough decisions. It was the need to deliver these decisions that brought the Coalition together. Our commitment to that shared plan is totally unwavering. It is our core task – and we will see it through.

At the Budget, we set out our long-term strategy for growth, with four key ambitions at its heart:

– to create the most competitive tax system in the G20;

– make the UK one of the best places in Europe to start, finance and grow a business;

– encourage investment and exports as a route to a more balanced economy; and

– create a more educated workforce that is the most flexible in Europe.

We also took the first steps towards making these ambitions a reality.

With cuts to corporation tax – to encourage greater enterprise.

Support for SME finance – to increase business investment.

Steps to ease burdens on business to create additional jobs.

And measures to rebalance our economy – and drive higher exports.

But as a Government, we can only do so much.

It’s the private sector who will inevitably lead the recovery.

And having a strong and stable financial sector is an important part of this story.

We need a financial sector that supports consumers and businesses up and down the country.

And is a source of wealth and prosperity in its own right – not just in the Square Mile, or in Canary Wharf, but in every town and city in the country.

And I feel there are three things that we have to consider if we’re to realise this ambition.

Reconnect with the rest of the economy

The first of these is about reconnecting the financial sector with the rest of the economy.

To strengthen the ties that exist between financial institutions, investors, and their customers.

And to demonstrate your commitment to the wider business world by providing:

– the lending that viable businesses need to expand and invest;

– the advice and expertise that firms need to succeed; and

– the capital that will help stimulate enterprise across the UK.

This is vital.

Because if our financial sector doesn’t meet these tests, then we’ll have an economy that struggles to respond to today’s challenges; a country that doesn’t fulfil its potential; and a recovery that fails to gather momentum.

If we take access to finance, for instance.

This remains a key concern for many businesses in the UK.

Yet I also know that the problem isn’t quite as straightforward as some commentators like to think.

But we also have to look at the reality of the situation, and why lending conditions have deteriorated since the crisis.

That the past few years have certainly thrown up some particularly large challenges for the finance industry.

Institutions up and down the country have, quite understandably, had to retrench; weather the financial storm; and look to rebuild their balance sheets.

And this has not been a pain free process.

On the one hand, you’ve had people saying that we should never return to the days when cheap credit was freely available… and irresponsible lending conditions undermined overall economic stability – this is absolutely right.

But on the other, businesses need affordable credit to help support growth, employment, and additional investment.

So there’s a very difficult balance to strike.

As a Government, we’ve been working with the financial sector to get credit flowing again.

Merlin

The Merlin Agreement being the most obvious example.

Among other things, this agreement reached with the UK’s largest banks should see lending of £190 billion to creditworthy businesses for this year… of which £76 billion has been earmarked specifically for small businesses.

This would mean an overall increase of almost 15 per cent on last year’s lending figures to SMEs.

But having made this commitment, it’s vital that they see it through.

This month we will get the first update on progress in meeting this target.

My message to the banks is simple – this money needs to reach good businesses, no ifs, no buts, no excuses.

As the Chancellor said in February, if it doesn’t, we reserve the right to take further action.

Not just for the sake of the wider economy, but also for the banking sector itself.

People want to see progress.

To demonstrate the value that financial services have to add.

To show everyone that the sector takes its responsibilities seriously.

And improve the links between our banks and our businesses

They expect it.

And we expect it.

Which brings me to my second point for this morning – the need for the financial sector to improve the relationships it has with its customers.

Relationship with customers

Because if we’re to improve sustainability and resilience across the economy, we need to safeguard the interests of savers and borrowers and taxpayers.

Now despite the work of the FSA, I don’t believe that customers always get a fair deal from financial services.

Personal banking in many ways has become, well, less personal.

We’re committed to changing this.

That’s why we’re setting up the new Financial Conduct Authority – or FCA for short.

The FCA will look at the conduct of all authorised firms – whether they’re prudentially regulated or not. It will be, in effect, a champion for the consumer, with the the primary objective of “ensuring confidence in financial services”.

And this will be to the benefit of everyone.

Consumers will obviously benefit from the added protection that this will bring.

But also financial institutions themselves will reap the rewards.

Because if customers have effective and appropriate protection, they’ll also have more trust in the financial sector as a whole – and take advantage of more of the services you provide.

But the FCA alone is not enough.

With the industry’s support we’re also increasing consumer confidence by making financial markets more transparent.

So that people can shop around for better rates on their ISAs and have access to financial advice through the Annual Financial Health-Check.

This will give your customers the confidence to invest in a wider range of products, and this will feed through to the rest of the economy.

Because a customer who buys a corporate bond is also providing the finance needed to support innovation.

Money in a cash ISA supports lending to businesses and families.

While money in an equity ISA or pension can help support private investment.

Working in the interests of customers is working in the interests of the wider economy.

The two are mutually reinforcing.

And we are making other regulatory changes too, to learn the lessons of the financial crisis.

The Independent Commission on Banking’s work is crucial to protecting taxpayers. Its interim report set the right direction: we look forward to the final report and to action on it.

Economic rebalancing

Which brings me to the final point of today – how the financial sector can help support the much needed rebalancing of our economy.

As a Government, we want to see growth and prosperity spread across all regions of the UK.

We want to help the economy develop new areas of expertise.

But we also need to preserve our existing strengths – including in financial services.

Rebalancing is not about trading the success of one sector for another.

It is about extending our country’s portfolio.

Spreading our success more evenly.

And supporting the world class industries we already have, as well as the new ones that we’re developing.

If we go back to the roots of the City, for example, it flourished because it supported commerce through insurance and trade finance… it found capital to invest in new enterprise and it developed new and innovative ideas that provided security and certainty for businesses.

It was this that proved the foundation of your success.

And it is through insurance, investment and lending that you’ll help support our transition to a more diverse economy.

One that’s built on growing businesses, not growing deficits.

Increased exports, not increased debts.

And green energy, green infrastructure and green technologies.

This is a huge opportunity for the financial sector.

To help support our move towards a better balanced economy.

Where growth is more sustainable.

More broad-based.

And more evenly spread across the many places of the UK.

Let me conclude by saying,

As a Government, we’ve provided the security and stability that the private sector so badly needed.

With a credible plan to deal with our country’s debts.

And an ambitious plan for growth.

But as a Government, we can’t do this alone.

We need a strong and stable financial sector to support the recovery.

One that provides the lending essential for investment.

Restores trust and confidence in British business.

And helps rebalance our economy in favour more industries, more exports, and more evenly distributed success.

That is our ambition.

And we will work with you to make it a reality.

Thank you.