Michael Heseltine – 2012 Speech on Economic Growth

Below is the text of a speech made by Lord (Michael) Heseltine on economic growth. The speech was made at Birmingham City Hall on 31st October 2012.

Times of great crisis evoke memories of a time when this nation stood alone. “Don’t you know there is a war on?” prodded inactivity into life. Women flocked to the factories. Land girls heavy lifted on the farms. A generation of volunteers that had never worked before reinforced the social services. Certainly we were all in it together. I remember it well. They say old men forget. None of us who lived through that time will ever forget. The sacrifice and suffering; the carnage. Ultimately, the victory.

That is why I hesitate to compare the crisis of then with where we stand today. There is another essential difference. Then the enemy was at the gate – a clear and immediate threat. A world of black and white. A focus sharper than crystal; a future ice cold.

Today’s crisis is very different. The long term competitiveness on which our wealth depends is slipping away. To secure it we need a national commitment, discipline, every individual straining every sinew. Not for a day, a week or a year, but on and on as ever more nations enhance their skills, marshal their strengths, motivate their people to grasp a larger share of the world’s wealth.

Failure has none of the trauma of occupation, of foreign tyranny, of freedom lost. Failure is measured in drift, in mediocrity, in under-performing public services and under-invested businesses. In infrastructure out of date, a nation with its head hung down, in the shadow of world events. A nation reconciled to genteel discomfort, envious of what once was, hopeless of what might have been. If we accept such a posture, the enemy would not only be at the gate, the enemy would already be within. The enemy named complacency, indifference, underused resource, waste of misapplied energy. No-one will advocate that. No electorate will vote for it.

But the question that matters is the degree to which all of us, Government, companies, institutions, people themselves, will work differently to avoid it. If we are all in this together we all need to behave and perform as though we recognise it and intend to do something about it.

It is easy in modern Britain to point to examples of excellence:

We have world beating companies in manufacturing and the services

We have academic excellence led by four of the world’s six best universities

We have a civil service free of corruption

We have a language, a history, an environment, spoken, respected and envied in every corner of the globe

So, we should take great pride. But a harsh world will judge us by wider standards. By the standards of our average. By the slowest ships in the convoy. By whether everything we do is good enough. The examples of excellence give grounds to show what we can do, what we can achieve. They are not, however, typical of national performance. They need to be seen as standards to achieve, not grounds for complacency.

I chose to make this speech in Birmingham. And no building could be more appropriate. It stands as a monument to the wealth and political power generated by the city’s entrepreneurial leaders in the eighteenth and nineteenth centuries. In those days, it was frequently filled with local people who gathered to debate the great political issues of their time. Their voices resonated across the country. The leaders they produced – of whom Joseph Chamberlain is the best known – became leaders of the nation.

But those days are a now a distant memory. The great entrepreneurs who built Britain’s great cities and who drove our country to the forefront of the industrial revolution were powerful and ruthless men. The cities they built were in time overwhelmed by the exponential growth of the industrial workforce they attracted, and by the terrible urban living conditions that resulted. Those conditions were intolerable, and the democratic process rightly demanded change. The cities themselves could not fund this, so the national government intervened.

Central funding ceded power to London. Local government focused increasingly on social provision. Councillors drawn increasingly from the public sector. The power of Whitehall grew. Ministers and civil servants concentrated on specific and individual functions – housing, transport, education, environment. Slowly but remorselessly the entrepreneurs that created the cities on the basis of local strengths were replaced by the functional monopolies of Whitehall.

However, desirable the change it reduced the emphasis on growth. Whitehall increasingly ceased to trust local leadership – and so more and more powers were drawn into Whitehall or its national quangos. National initiatives were rolled out across the country irrespective of local conditions.

I can only ever remember a Cabinet discussion that focused on place once – and that was after the Liverpool riots of 1981. My experience in Liverpool after the riots – working with the local community and their leaders to address the root causes of their problems – showed me that there is a better way.

When local partners work together, that local initiative is more powerful than anything London can produce. Sir Terry Leahy and I helped to devise a vision for the future growth a year or so ago of that great community. The response was immediate. The local people knew what needed to be done.

So, we need to reinvigorate that local leadership across our country, including greater devolution in London itself. And Whitehall’s ambition should be to do less but do it better.

Of course we don’t need to change. We could carry on as we are. I believe that would be unacceptable. I do not detect an appetite in this country for so unambitious a future. And certainly the government itself is not prepared to stand by whilst other nations overtake us. That is why we need to compete in a rapidly changing world where the competition is intensifying year by year.

We cannot hope to do that unless every part of this country is able to contribute fully to our national effort. We need to make the most of every opportunity for wealth-creation and growth. Let’s be frank – to say that is the easy bit. The government has had to tackle the worst economic crisis of modern times. The government has a radical agenda to reform education. It has an ambitious programme to get people off benefits.

There is no greater sign of the government’s confidence and strength than its willingness to encourage me to produce a report which the opportunists will use as a basis of criticism. I am no critic of this government. I am so enthused by what they have achieved to be secure in my confidence of what more they can do.

My report urges the government to build on what it is already doing, to speed up the process and to leave no stone unturned in pursuit of growth.

How then can we get there? There is no new money and no quick fix. We need a new partnership between the private and public sectors, between local communities and central government, the better use of public money and consequently the levering of private investment.

Such a statement may not sound new. It would, I think, have evoked widespread support over many years and under different governments. There have been initiatives and experiments. But what there has not been is a comprehensive long term implementation strategy to turn the thought into practice. That is why I so strongly welcome both what the government has done and, even more importantly, what it says it intends to do.

So, what has it done?

City Deals – Greg Clark, the Minister for Cities, has demonstrated what localism can look like and how it can work

Business Rates Retention – Eric Pickles’s proposals will allow councils, for the first time, to keep a proportion of business rates in their area, giving them greater control of their own funding

Nick Clegg’s Regional Growth Fund is unleashing local creativity and bringing private sector jobs to parts of the country that need it most

Patrick McLoughlin is giving local areas a greater say in the major transport schemes that their communities depend on.

In addition, it has created a framework of Local Enterprise Partnerships to reflect the strengths of both the public and private sector in a context that reflects the local economy, local identity and local pride. There are now 39 LEPs covering England. So, this country has a framework that replicates the strengths of the city states in all our competing economies. It is no longer a case of waiting for London. The army; it now has its fighting divisions. The immediate challenge is to bring them up to strength and to give them the tools to do the job.

This is already government policy. 20 of the 39 LEPs are now involved or will be involved in City Deals. As the Deputy Prime Minister’s speech on Monday of this week clearly indicates this has the potential of a dynamic national policy. I agree with him. There is no case that these new ideas apply to only a part of the framework the government itself has created. There is no case to argue that part of the country should be helped to surge forward whilst the other half is held back.

So much for my analysis. Let me turn to some of my proposals and expand on them.

Making it happen

I think we need a National Growth Council, chaired by the Prime Minister, should be established, comprised of secretaries of state and outside experts in the model of the National Security Council.

The government should set out a comprehensive national growth strategy, defining its view of its own role and the limits of that role, together with those of others in local authorities, public bodies and the private sector in the pursuit of wealth.

As well as a clear strategy, the government needs the means by which it can deliver it. Far too often Ministers pull the levers, only to find they are connected with elastic. And so initiatives come and go. And a collective cynicism gathers as to the limits of what a government can actually achieve. It breaks inertia.

But this government is making positive moves.

It has recruited Paul Deighton fresh from his brilliant achievements in delivering the olympics to manage its infrastructure agenda

It has pulled the cities work into the Treasury, under the continued leadership of Greg Clark

The Treasury has sponsorship of the financial services industry.

The vehicle for implementation thus already exists. The new National Growth Council, would have oversight of the Growth Strategy, and would be responsible for approving the plans of individual departments. Underneath that a shadow Growth Council, under the leadership of the Commercial Secretary to the Treasury, which would bring together Permanent Secretaries of the Whitehall departments.

Departments

Each department would be expected to set out its contribution to the growth strategy, including how it will work with the wealth creating sectors it sponsors.

Many departments do not see that they have a role to play in the growth agenda. A central vision for wealth creation can only be properly achieved when all departments single-mindedly pursue it. Growth can not be led out of the Treasury or the Business Department alone. It requires Whitehall as a whole to sign up.

It is easy to see how this applies to some departments:

The improvements in our railways and our airports self-evidently Transport

The investment in thousands of new homes, DCLG

The procurement of billions of pounds worth of military equipment at Defence.

But the link to growth is less obvious elsewhere.

It’s welfare policies that get people back to work

The education of our young people, ensuring they have the basic skills to survive in the workplace

The challenges of keeping an ageing population healthy and independent.

Non-executive Directors

Just as local places need private sector input into decisions, to ensure they are consistent with growth, so too does central Government.

The Non-Executive director network, led by Lord Browne is a strength to be built upon. My plans formalise their role in many ways:

Non-executive directors should be given an enhanced role within departments

In addition there should be a NED presence on the National Growth Council

They should have a strengthened role in the development of departmental business plans, ensuring growth commitments within them go far enough

They should be able to advise Secretaries of State in the appointment of permanent secretaries

Crucial to the ability of NEDs to fulfil this expanded role will be two key changes:

First, and most simply, they need a secretariat to support them in their duties

Second, they need access to a proper Management Information System.

Such a system would not only be of use to NEDs as they scrutinise the business of departments, but would be critical to secretaries of state and their permanent secretaries in the running of their departments. All major companies collect and use management and finance data. That ought to be obvious. How can one know what is happening without such a wealth of information at one’s fingertips? A comprehensive management information system will allow departments to see what they do well, what they could do better with more resource, and what they could stop doing.

Sectoral activity

All sectors should be offered a formal relationship with government through the most appropriate department. The automobile and aerospace relationships that exist in BIS are good examples. This together with the sponsorship role of UKTI should be extended across departments.

Our major companies can play a key role in raising the performance of business across Britain. Many of them already do so – nurturing and investing in their supply chains, providing advice, skills and even finance. We need to ask that more of them follow the example of the best.

The business community is like a rain forest – many smaller companies depend on the canopy that big firms provide. Rolls Royce supports almost 3,000 UK-based suppliers. Jaguar Land Rover; nearly 2,000. Take away the canopy and the infrastructure is exposed to unsustainable threat. It would be a mistake to expect government to focus solely on the start-ups and small firms, even though they provide much of the dynamism and innovation of our economy.

Government should continue to work with our large and medium-sized companies as well if it is to strengthen our wealth-creating capacity effectively. This requires a deep understanding of business and the capability for a professional dialogue and partnership with business. The civil service culture needs to embrace an experience of the private sector. In this way we can ensure that we have a world-beating public sector which can play its full part in realising our national potential.

Our cities

Local Enterprise Partnerships should be given the resource to develop local economic plans. I propose £250,000 for each of them for two years. They should then be invited to use these plans to bid competitively for part of a national single pot of public money, available to them from 2015. The single pot should consist of those parts of current departmental allocations that could support growth. The pot could amount to over £49bn over four years, plus other sources such as European funds. Government needs to set a framework for this competition, a framework in which it sets out its principles and priorities.

A new government might have different priorities. That is the expression of democratic choice. But change has a price. Investment is long-term. Investors are increasingly internationally mobile. To the extent that a message of consistency and continuity is possible, the more certain is the investment climate.

We should be able to agree on the need for growth. To seek growth without the enthusiastic partnership of the private sector is a mirage. Different governments may have different priorities for the new wealth, but we must first work together to create it.

Central government needs to bring together the funding it applies to individual initiatives supporting growth – spending on skills, on local transport infrastructure, on housing and regeneration – and turn them into a single fund which can be put to work with local contributions to support the growth strategies of local communities.

But government can not simply hand out the money and walk away. Democratic accountability would not allow it. We are talking about a new concept of partnership. As part of that, I believe local government will increasingly need to create simpler structures which are more efficient and easier to deal with. Scotland and Wales moved to a structure of unitary counties decades ago. Many English counties have adopted a unitary structure. Nothing should prevent others from following. In the great cities I welcome the development of conurbation authorities and would welcome the prospect that they should elect a mayor to lead them.

Local wealth creators

The Government and the private sector should work together to create a strong, locally based business support infrastructure. Central to this would be a determination to help chambers of commerce attract larger local membership.

What can government do to help? There are many things government can do which underpin the national economy – setting taxation policy, regulating markets, investing in infrastructure, skills and the research base. It needs to do each of those things excellently and professionally.

But government cannot advise business on how to grow. For that we need a world class business support infrastructure that is private-sector led, that is accessible in every community, and has deep reach into the business community.

That is what all our competitors have. I have set out the comparisons in detail in my report:

The Paris chamber of commerce has 400,000 members. The London chambers have 9,500

When a German company goes to India, it finds a chamber with 110 staff and 6,000 members

When a British company goes to India, there is no chamber.

If we are going to compete in the world’s markets, we need to fill that void. Our chambers of commerce can do it, but we should all help them rise to the game. That means – central government, local government, and – above all – local business. I realise that my proposals to enhance the status and capability of our chambers are controversial. If we intend to galvanise our cities and their communities I see no better way.

As an annex to my report I publish our findings of the support other competing economies have in place to support their companies.

I accept the vital role local authorities can play in wealth creation but I believe that they are stronger with private sector partners. The private sector is divided between competing organisations and, added together all of them represent only a fraction of the million or so companies that might benefit from the enhanced services other countries provide and upon whom our export targets depend.

Government has set up quangos to undertake activities and provide services that could more effectively be private sector and locally led. Let us be frank. Some will say the chambers are not strong enough. My reply is that we should help them – not force them – to acquire that strength not undermine their localism with an ever widening quango world.

Trade associations

They can play an important role. But there are over 3,000 of them. There is a need to up their standards. That means rationalisation.

Deregulation

Regulation should be carried out in such as way as to have growth at its heart. This means a restructuring of the regulatory regime in this country in order that the economic consequences of regulation are properly thought through. The report includes a number of other proposals.

Planning

Our planning system should be injected with the needed urgency to speed up the decision making process. This could include a new power for the planning inspectorate to call in applications after six months. I do not seek to change the nature of those decisions. Rather I seek to inject a degree of urgency into the process.

Procurement

There is one particular opportunity which government should grasp to help our companies to compete effectively across the world. Government procurement can be improved by bringing in specialists, and paying them at a rate that is compatible with the private sector.

Government places £238 billion of contracts with external bodies every year. In 2010, two thirds of those contracts were running over time or over budget or both. That is a national scandal. Not just because of the waste of our hard-earned national wealth. Much worse is the way that culture saps the competitiveness of British business. No company which relies on surviving in that sloppy environment will find it easy to win contracts abroad.

The Government has started work to drive professionalism into its procurement functions.

Conclusion

My report makes 89 recommendations. Some will see them as criticisms and exploit them as such. That is exactly the wrong approach. To invite criticism is a sign of strength. To accept it is a demonstration of confidence.

We are all too close to the economic crisis. There is opportunity on a grand scale. Is this glass of water before me half full or half empty? It is an attitude of mind. To me it is half full:

Huge infrastructure demands and hungry institutional funds – link them

Excellence in industry, commerce and academia – extend it

England’s cities pulsing with energy – unleash it.

Every one of us needs to rise to the challenge. There is no more insistent or compelling motive for human kind than the instinct to provide for and protect our children. To feed them, house them, educate them, and give them a start in life with the hope that they will be able to do better than we have done ourselves.

So let our reaction to this report be judged by the legacy we bequeath to our children and grandchildren. We should earn their appreciation for the legacy they will inherit by the commitment we made.