Below is the text of the speech made by Gordon Brown, the then Chancellor of the Exchequer, to the CBI National Conference in Manchester on 25 November 2002.
Let me first thank you for your invitation; pay tribute to the contribution you as Britain’s business leaders make to our economy; and say it is a privilege to work with you, both individually and through the CBI, as together we build, for our country, a stronger foundation of economic stability, we increase employment, champion enterprise and enhance Britain’s competitive and trading position round the world.
There is no better time for the CBI to come to Manchester in the aftermath of the city’s success in hosting the Commonwealth Games – on which I congratulate Manchester; and at a time when the North West with its science and innovation strategy is moving to the forefront of the new enterprise economy with, in five years alone, nearly 30,000 businesses created and over 100,000 more people in jobs.
And I am especially pleased to bring with me to Manchester Paul O’Neill, the United States Treasury Secretary, one of America’s most successful businessmen, a great philanthropist, and a most effective finance minister. And it is a pleasure to show Paul at first hand the dynamism of this city and this region, as we cement the strong links between America and the UK.
Paul, I know that your father was born in the north of England, left from Glasgow to go the United States in 1926…so we welcome you home.
Indeed, for centuries, your country and the islands of Britain have been linked not only by history but by ideals that Britain and America hold in common and represent to all the world: a passion for liberty and opportunity; a belief in the work ethic and in enterprise for all; a commitment to being open not isolationist – a commitment which, in our day and generation, increasingly depends, as we shared your grief after September 11th, upon our shared resolve to fight terrorism and totalitarianism; and our shared conviction that economic expansion through free trade and free markets is the key to growth and prosperity.
In this new century our shared values can become our common destiny. And Mr Secretary I stand for a Britain as you stand for an America… outward looking, ambitious to succeed, determined to advance an enterprise culture fully equipped to lead in the new global economy.
Winston Churchill said that those who build the present only in the image of the past will miss out entirely on the challenges of the future.
And I want to suggest now that all of us – businesses and governments working together – should face the great challenges of today’s and tomorrow’s economy not by taking risks with stability but by holding firm to stability; not by resisting change but by empowering people to cope with it; not by protectionism but by promoting open, competitive markets and international cooperation; and not by ever relaxing our guard but acting as one against the terrorist threat.
Since September 11th last year, America and Britain, with Paul O’Neill leading the way, have together taken action to root out terrorism and to root out the sources of terrorist finance. And as I said only last week we stand ready, working with the United States and our allies, to do all that is necessary to intercept and bring to justice those who finance terrorism.
And we have also worked together to move forward the world economy.
Not just because of the tragedy of September 11th, but with events unfolding in Iraq, high oil prices, the problems with the IT sector, continuing concerns on corporate standards, the danger of contagion from further financial instability in emerging markets, and still major current account imbalances among the major economies, the uncertainties facing the world economy are unprecedented in number and more widespread than at any time in recent economic history.
I know the difficulties you as manufacturers and service companies trading in a world economy face when, in addition to exchange rate pressures, twenty of the world’s biggest economies have been in recession this year or last year.
I know the effect on business investment when, continent-by-continent, we have faced the first simultaneous world slowdown for almost thirty years.
I understand how major international companies are hit hard by what has been the sharpest slowdown in G7 growth since the recession of the early eighties — and indeed the sharpest contraction in world economic growth since 1974.
Exporters understand all too well that world trade which grew by 12 per cent two years ago was at a standstill last year and is hardly growing this year. And estimates of growth are being downgraded all over the world.
So we must all be both vigilant to the uncertainties deterring business investment and, because American, German, French, Japanese and other businessmen and women are working under similar pressures from problems that start not in Britain but in the global economy, I know Paul O’Neill agrees with me that in this global downturn all of us, each continent, must play our part, do our duty, and face up to our responsibilities in sustaining and strengthening economic recovery around the world: Japan taking decisive action on financial sector reform; America showing corporate reform working; Europe matching efforts to promote economic reform with efforts to encourage domestic demand; All of us insisting on a new round of trade liberalisation.
Like America, Britain with low levels of inflation and low levels of debt enters this period of uncertainty better prepared than most and better positioned than in the past.
Ten years ago in a world downturn that was less severe for world trade, growth and equity markets, our country was unable to maintain growth because, with high inflation, interest rates had to be kept above 10 per cent for four years and rose to 15 per cent for one whole year.
Then business, Government and the British people all agreed that it was necessary to build a new foundation for stability. And under the new monetary and fiscal system based on the independence of the Bank of England: we imposed an inflation target that is symmetrical, designed to combat both deflation and inflation; then froze public spending for two years; introduced new fiscal rules to put the public finances on a sustainable position; and systematically reduced the burden of debt.
And because this regime has established credibility through consistently meeting our inflation target and maintaining growth and employment, the Bank of England – with seven interest rate cuts in a year – has, supported by fiscal policy, been able to sustain British growth while America, Japan and Germany, and many others, have been in recession — making us this year, as well as last year, among the faster growing of the major economies — and we will remain vigilant both about global risks and domestic risks in the housing market and in pay, public and private.
Both you and I agree on the continued importance of keeping inflation low; we agree on the need for monetary and fiscal stability; and we agree therefore on the need for proper discipline in the public finances. And I can say today that, having made the Bank of England independent, we are determined that we will continue to support the Bank in the difficult decisions necessary to ensure low inflation and the conditions for growth. We will maintain our envied position as a country with low debt; our fiscal rules will be upheld and rigorously honoured; we will hold firm to our policies for stability; and as a country we must move forward together: there is no future for Britain in going back to the bad old inflationary days of both the mid 1970s and late 1980s — inflationary and unaffordable pay settlements, whether in the private sector or in the public sector, and bailed out from the reserve, which so damaged economic stability.
Just as households need stability with low inflation and low interest rates to plan for their future, so too 95 per cent of businesses in the CBI’s new survey rightly say that our hard won and newly won macroeconomic stability is the biggest factor in making investment decisions – and I assure you that we will not take any risks with it.
It is because, as the Deputy Prime Minister John Prescott rightly said yesterday, we are resolved to ensure stability throughout the economy, to keep interest rates low and stable, and to secure reform in our public services, that public sector pay rises must be set at a sustainable rate and justified by productivity — and I urge the local authorities and firefighters to return to talks linking pay to productivity.
Getting the right balance between monetary and fiscal policy has meant that our economy has had continuous growth for all of the last five years. And in a period of world downturn it is not only possible, because of our low inflation and low debt, but desirable to allow the automatic stabilisers to play their full role at each stage of the economic cycle.
Some have suggested that the right approach in the face of slower growth is that, instead of holding firm to our long term course, we should cut spending and borrowing irrespective of the stages of the economic cycle and the need for public investment in transport and our infrastructure – even when inflation is low and the underlying fiscal position is sound. In my view the consequences of such a short termist and deflationary approach would be higher unemployment, depressed demand, and lower growth with, as in the past, capital spending on infrastructure the first casualty of cuts.
When inflation is low and debt is low, such a narrow and short termist interpretation of stability would be damaging and counterproductive to growth, and there is no credible and prudent option other than setting fiscal policy in a sound and long term framework adjusting for the economic cycle. So just as we will resist short term pressures and hold firm in our demand for discipline in pay in the private and public sector, so too we will resist pressure for the old short term quick fixes in fiscal policy and we will hold firm to our tough fiscal rules which have helped deliver stability and sustain growth.
With continued stability the foundation of economic success, enterprise is its driving force.
I think we all agree that Britain, indeed every advanced industrial country, is today being challenged not just by the short term cyclical changes in the global economy but by what we also see all around us – an ongoing, long-term restructuring of global industry and services.
In this next wave of globalisation already upon us, the downside is that low value added production is shifting from the highly industrialised countries to the industrialising countries.
But the upside, to the potential benefit of British manufacturing and services, is that competitive advantage increasingly comes from high value added, niche, precision and technology driven products and services.
And this is our business opportunity as well as our economic challenge.
It is you, as businessmen and women, who generate the wealth, apply the new insights, set up the new companies and create the new products.
And business and government have a role to play together not only in ensuring stability but also in securing investment in education and skills, science and our transport and infrastructure – and by, together, encouraging the widest and deepest entrepreneurial culture.
And it will be the strength of Britain’s science base, the level of business investment in British research and development, the scale and dynamism of knowledge transfer from our universities to our businesses, and, overall, the flexibility of our product, capital and labour markets, that will drive future productivity growth and thus long term prosperity. And having attended the CBI President’s Committee earlier this autumn to discuss how together we can remove barriers to productivity from planning delays to widening work permits from overseas, I am pleased that CBI leaders and Cabinet Ministers responsible for transport, planning and science and technology will now systematically tackle barriers to productivity in our country — and already I applaud your President John Egan’s proposals for removing barriers to higher productivity in the construction industry.
Patricia Hewitt spoke earlier today, and Charles Clarke will speak tomorrow, about investments in science and in education, because to equip ourselves to be at the cutting edge of an economy where innovation is continuous, indeed permanent, demands the continuous upgrading of skills in the workplace and the continuous development of new products and services not just in business but in our universities and research institutes.
To encourage the growth of the knowledge–based company and the business-friendly university, the modern fusion of education and innovation that is at the heart of industrial restructuring, we have already:
– introduced for large and small businesses new Research and Development tax credits;
– announced an extra £1.25 billion investment in science;
– increased capital investment in higher education research to £500 million a year by 2005;
– encouraged with the University Challenge Fund the translation of research into business innovation;
– sought to improve the attractiveness of science and engineering careers;
– and, because we are ready to do more, the Secretary of State for Trade and Industry and I will consult on further incentives enabling business to benefit from a more modern science and skills base, including the expansion of apprenticeships – working with the CBI to test new approaches to workplace training – and the University for Industry, which has provided courses to over half a million adults so far with the aim of reaching one million by 2005.
To remove barriers to productivity growth we must tackle the complexities, delays and anomalies in our physical planning system. And so, with our proposal for new business planning districts where detailed permissions are relaxed, John Prescott is now legislating to make the system quicker, more flexible and more responsive.
Alistair Darling will be investing an additional £4 billion a year in transport by 2006. We will be trying to increase the flexibility of the work permit system and will also be examining one grievance raised with me – the rising costs of employers’ liability insurance.
It is to encourage investment and to reward enterprise that we have cut corporation tax from 33 pence to 30 pence, cut capital gains tax to 10 per cent for most business transactions, cut small business tax from 23 pence to 19 pence and reduced the 10 pence rate to zero, and are abolishing stamp duty for business property transactions in deprived areas.
And when you rightly have raised the question of the national insurance tax rise to pay for healthcare, let me say that in nearly every industrial country rising costs of new medical technology and health care have, as a matter of fact, meant that whether it is in France and Germany through employers social insurance or America through employers private insurance, employers are contributing more – and in America, France and Germany’s case much more – to health care.
In the US, employers can pay health insurance of up to $100 a week for employees and these costs have been rising not by one or two per cent but by over ten per cent every year. In France employers pay around £60 per week for an employee on average earnings and in Germany it is around £30 a week.
In the UK after the national insurance rise averaging around £4.50 a week employers will pay far less than any of these foreign counterparts and I can tell you that in Britain’s case the changes have been costed to fund health care improvements not just for this year and next but to 2008, with the extra money – £40 billion a year extra for health by 2008 – dependent on reform to ensure greater results.
And when nearly 200 million work days a year – at a cost to business of over £10 billion – are lost due to employee sickness and ill health; and when a fitter, healthier workforce will both promote fairness and opportunity for all and raise productivity to the benefit of business and Britain, I hope the business community will join the Secretary of State for Health, Alan Milburn, in ensuring best value for money – not least by supporting the use of private finance – so that every penny we invest in health ensures value for money.
And I am not saying anything to you that I have not said to my party conference: I will continue to tell those who oppose us that the Private Finance Initiative in education, health, roads, rail and infrastructure is here to stay; that the partnership between public and private sectors is vital to investment in our future; and that in every area of our national life we must do more to encourage enterprise.
I will be announcing on Wednesday two thousand new Enterprise Areas where we will deregulate in planning and in tax, and give special help for new businesses to start up, and to invest, employ and grow. And I do so because I believe the answer to creating jobs in high unemployment areas is a wider and deeper entrepreneurial culture and a sense among people in every community that the opportunities for enterprise are open to, and of benefit to, all.
Because we know that to create the wider, deeper enterprise culture we need we must start in our schools and colleges, by 2006 every school pupil will have the opportunity of five days worth of enterprise education. And I want to see our business leaders as role models for our young, our teachers able to teach the value of enterprise, and a recognition in high as well as low unemployment communities that enterprise that is open to all holds the key to their regeneration.
So I want a Britain where you can work your way up from unemployment to employment to self-employment, from micro business to growing business.
And I want people with ideas and dynamism to know that government is on their side when they start or grow a firm and make a profit.
Indeed my aim is to build a new consensus in our country where, from the poorest to the richest community, there is a strong belief in an enterprise culture — in an enterprise economy which is open to all.
For fifty years there was, in our country, a sterile and self-defeating battle for territory between supporters of enterprise pitted against supporters of fairness.
And a view that policies for enterprise and fairness were at odds with each other; in other words that an enterprising Britain was bound to be a more unfair Britain; or that a fair Britain was bound to be less than enterprising.
This ideological argument went to the heart of partisan divisions, defining the very perceptions of the main political parties.
On one side were those who traditionally thought fairness and strong public services could only be bought at the cost of enterprise; on the other side those who claimed that enterprise came only at the cost of fairness.
And one of my missions as Chancellor is that our country break away from these old self defeating stereotypes and I want to make sure that we are all what we always should have been: passionate for enterprise.
Some people said to us when corporate standards became an issue that as a government we should broaden the argument about corporate excess into a general attack on corporate responsibility. I said no. I said to them that while it is important to be vigilant and make reforms where necessary on auditing and accounting, the priority in Britain now is not to undermine support for enterprise but to strengthen it, not to weaken our enterprise culture but to deepen it. And indeed together I believe we can build that shared understanding in Britain from left to right in the political spectrum, as from the poorest to the richest community, so that the belief in an enterprise culture open to all runs wide and deep. A Britain where there is common cause that – because enterprise and fairness are both founded upon opportunity – enterprise and fairness are not mutually irreconcilable opposites but depend upon each other.
I said at the outset that a commitment to world class levels of skills, innovation, investment and enterprise and investment must be matched in the global economy by a commitment to promoting open competitive markets internationally.
Looking inward is not an option in a world where business thinks globally.
That is why we support fundamental economic reform in Europe, including greater financial market integration and a tougher pro-competition regime on products and takeovers. And why we support the principle of British membership of the single currency – and are currently undertaking preliminary and technical work so we can make an assessment of the five economic tests by June next year.
Our commitment to an open global economy is why we are looking for an early settlement of a new world trade round and I assure you that we will support countries who wish to curb costly inefficient and regressive agricultural protectionism.
And it is why we favour breaking down barriers to trade with the United States.
When transatlantic trade amounts to $2 billion each and every day and when the removal of trade barriers would add 1 per cent to Europe’s GDP it is right to see beyond individual disputes, seek to remove the remaining trade barriers in industrial goods and services, create the conditions for a new era of enhanced engagement between America and Europe – a new transatlantic alliance for prosperity. And I am pleased that the Transatlantic Business Dialogue has called for an expert study that will show the benefits in jobs, trade and income of full capital market liberalisation between the EU and the US.
Paul O’Neill has played a great part – in business and in government – in strengthening the ties between Britain and America – and it is my pleasure to introduce him to you.
From Paul’s time in the administration of President Kennedy, later in the Office of Management and Budget from 1967 to 1977 under successive Presidents, in business as President of the International Paper Company and then as the most successful head of Alcoa.
And now as a distinguished finance minister, Paul O’Neill has been committed to bringing business and commercial expertise to the running of government.
And dedicated to reform and progress in the international economy. It is my pleasure and privilege to introduce Paul O’Neill and ask him to address this conference.