Tag: Ed Balls

Below is the text of the speech made by Ed Balls, the Shadow Chancellor, on 30th June 2014.

Thank you Andrew, and to the London Business School for hosting this speech this morning.

And thank you to all of you for coming. Not least because the advertised title for my speech today, ‘the UK economy’, didn’t really give you much to go on.

This morning I do not intend to talk about the short-term challenges that economic policymakers face here in Britain – the new normal for interest rates, how to boost housing supply, the right pace for deficit reduction – vitally important though they all are.

Instead, I want to stand back and ask what the economic trends we have seen over the last twenty years can teach us about how we should shape our economic policy for the next twenty.

And I want to make my contribution to a debate which economic policymakers have been grappling with, and on which Ed Miliband has been leading the way…

…in the face of seismic global and technological changes, rising inequality and a decade of stagnating median incomes so pay packets are buying less and less, how can we earn our way out of this cost of living crisis and deliver a rising prosperity that can be shared by all citizens and not just a few?

THE THIRD WAY OF THE 1990s

I have chosen this twenty year comparison deliberately.

Not because these trends and pressures started precisely twenty years ago.

But because it is twenty years ago this year that I left my job as a young economist and leader writer at the Financial Times to work for Labour in opposition.

It seems like yesterday – but also a very long time ago…

…and while we now face some very different challenges, there are some striking similarities too.

Back then, our country was recovering from a deep recession, following the ERM crisis. The fiscal deficit was very large, and household incomes were being squeezed by tax rises and cuts to public spending.

And the political debate was focussed on the big global economic changes taking place – the rapid growth of international trade; new competition in manufacturing from emerging economies in Eastern Europe and Asia; and technology replacing jobs and undermining wages amongst low skilled, manual workers.

Of course, this debate took place not just in Britain, but across the developed world.

In America, as debate raged about the North American Free Trade Area and newspaper columnists agonised over what they called ”the downsizing of corporate America”, the first term President Bill Clinton called a G7 jobs summit in Detroit.

That was the summit at which his Labour Secretary, Robert Reich, famously said: “when I hear the word flexibility, I say watch out for your wallet.”

Here in Britain, as we debated the case for Bank of England independence and new fiscal rules to prevent another ERM-style crisis, Tony Blair and Gordon Brown led the public debate about how Britain should respond to these economic changes by calling for a ‘skills revolution’.

Meanwhile, Europe’s response was a single currency to deliver stability, a single market to deliver rising prosperity and a social chapter to deliver fairness. All much to the anguish of Tory Eurosceptics.

And on the world stage, Tony Blair and Bill Clinton led the progressive governance movement in calling for a ‘third way’ in response to the challenge of globalisation.

Not passive, free-market laissez-faire on the one hand; or a rejection of open, global markets and a lurch to protectionism on the other; but an attempt to show that a dynamic market economy and a fair society can go hand in hand.

TWENTY YEARS ON

If a new insecurity was taking hold in the 1990s, today those concerns are deep, entrenched and undermining public trust that politics can offer a solution.

As Ed Miliband said after the local and European elections provided all political parties with a serious warning shot across the bow, there is:

“a depth and a scale of disenchantment which we ignore at our peril… that goes beyond one party, beyond one government.”

All politicians have heard time and again on the doorstep the worries and fears of people up and down our country: economic recovery is not working for them and their family, and their living standards are continuing to fall.

And we in Britain are not alone. Far right or populist parties are flourishing across Europe.

Indeed, the pattern we have seen here in the UK – growth returning, but feelings of insecurity and discontent being expressed at the ballot box – was repeated in countries like Denmark and Austria which have also seen growth return and unemployment fall in recent months.

So, twenty years on, the best we can say is that the struggle to prove that a dynamic market economy and a fair society can go hand in hand remains to be won.

Some would say that the Blair-Clinton attempt to forge a third way did not succeed.

That steps were taken to improve the prospects of lower paid workers, including higher national minimum wages and more generous tax credits to make work pay.

But not enough was done to improve the prospects of the non-university educated workforce. While the failure of financial regulation led to a global financial crisis and the global recession which followed hit middle and lower incomes families particularly hard.

I have some sympathy with this argument.

We did not do enough on skills.

And the failure of all parties, in the UK and all countries in the developed world, to see the coming crisis was a huge error.

But I do not believe that the progressives were wrong in their central belief that a path could be taken between free-market economics and protectionism and isolationism.

My argument is that the ‘third way’ did not deliver because the world was changing in a more profound way than any of us anticipated.

And new times now demand a new approach.

Not only do we face new challenges from technological change and globalisation, we must also deliver at a time when there is less money around.

So charting a new way forward for the even more challenging century we now live in is now the challenge for this generation – politicians, businesses, trade unions – all of us.

It is the task of the Inclusive Prosperity Commission, which I am chairing with former US Treasury Secretary Larry Summers and which will report in the autumn.

And it is the subject of the conference that my fellow commissioner, Lord David Sainsbury, and I are organising this Thursday at which Ed Miliband will give the keynote address.

THE 21st CENTURY ECONOMIC CHALLENGE 

To understand how to respond to this change, we first have to understand the nature of the change itself.

And this is my starting point: over the last twenty years, the global economy has fundamentally changed – and changed for the better.

As communism collapsed and countries have liberalised their economies, there have been significant reductions in poverty and increases in living standards across Asia, South America, Eastern Europe and now Africa.

Meanwhile, developments in information and communications technology have transformed the way we live our lives and brought the world ever closer together.

And as these trends have accelerated, the global economic map has been redrawn as new opportunities have opened up not just for us, but for emerging markets like China and Brazil.

Back in the 1990s, we recognised that globalisation was creating new challenges.

Trade and technology were combining to place a premium on higher level skills and qualifications, and to reduce low-skilled jobs which could be done more cheaply by robots or workers in poorer countries.

Changes to the structure of labour markets – often caused by the strain of global competition and including the fall in trade union membership – also had a knock-on effect on wages.

And having more working mums has helped to increase living standards – but also made providing affordable childcare and family-friendly employment rights more important too.

While we attempted to address all of these challenges, we failed to foresee three other changes which were going to fundamentally reshape our world.

First, global economic integration led to much greater instability in our financial and tax systems than any of us anticipated.

As we now know, the global financial sector was taking risks that both bankers and regulators did not fully comprehend.

As leverage increased and balance sheets grew, bulging corporate tax receipts gave the impression that everything was rosy.

And here in Britain, the Labour government ended self-regulation by introducing the Financial Service and Markets Act.

But while voices in the City and across the right, including George Osborne, argued that we were being too tough on the financial sector, we should have been much tougher still.

Because when the global crash came, the result was the near-collapse of the financial system and unprecedented state intervention in our banking sector.

Alongside this, globalisation also created much greater complexity in our tax system.

We have all read about large multinational companies that have chosen to avoid paying their fair share of taxes.

Offshore tax havens, transfer pricing arrangements and well-paid accountants have all helped some international firms stay one step ahead of the taxman.

And technology companies, which don’t need a shop front which physically anchors them in a particular country and are free to go where corporation taxes are lowest, have benefited in particular.

Second, labour mobility has also been much greater than anyone expected.

Just as hundreds of thousands of Eastern Europeans have come to live and work in the UK and other developed countries across Europe, so too have millions of Mexicans and Latin Americans moved to the United States, and Indians and Chinese to the relative riches of the Middle East – a new global and mobile middle class.

Additional competition for low-skilled jobs, and increasingly intermediate-skilled jobs, has put great pressure on communities.

And as the countries they left have continued to develop themselves, their use of natural resources like energy, water, precious metals and other commodities has risen, which has pushed up prices and contributed to our cost-of-living crisis.

But third, we have seen profound technological change which is not just substituting for unskilled labour, but replacing traditional middle-income jobs too.

Two decades ago, we were right to worry that low-skilled jobs in sectors like manufacturing would go overseas.

Now the advances in robotics and artificial intelligence means that intermediate skilled jobs will be lost too, in what economists call a ‘hollowing out’ of the labour market.

Sophisticated machine tools and software are already reducing the need for routine jobs on production lines and in offices. And with 3D printers, not to mention Google’s driverless cars or Amazon’s drones, this trend is set to continue.

Meanwhile at the top, the returns from ideas, capital and top-class qualifications are getting greater and greater.

And the result has been, for most developed countries, rising income inequality on a scale not seen since before the First World War,.

THE UK ECONOMIC CHALLENGE

No developed country has escaped the impact of these global trends, but the UK has been particularly hit hard:

–       while all developed counties were hit by the global financial crisis, our financial sector – larger and more exposed to international shocks than our competitors – has experienced bigger hits to growth and to our fiscal position;

–       the UK’s openness and ‘safe haven’ reputation, alongside the  decision – wrong in my view – not to put in place transitional controls on EU accession states in 2004, has meant that immigration – particularly low skilled immigration – has put additional pressure on our labour market;

–   and while many countries have tried to increase labour market flexibility in the face of ‘hollowing out’, the UK has seen a particular shift to low-wage, part-time and often insecure employment.

So, we now face the twin challenge of dealing with the aftermath of the financial crisis, while also trying to adapt to the relentless forces of globalisation, immigration, and technological change.

Like many economists, I argued strongly four years ago that, with our economy still vulnerable, George Osborne’s decision to accelerate tax rises and spending cuts would: hit confidence; choke off our economic recovery; and make it harder to get the balanced investment and export-led recovery we need and to get the deficit down.

And so it has proved.

We have had the slowest recovery for 100 years, and, even as growth has resumed, GDP per head is not expected to return to its pre-crisis peak until 2017 – a lost decade of no real income growth.

As a result, government borrowing is now forecast to be £75 billion next year.

This is why I have made a binding fiscal commitment that a Labour government will balance the books and deliver a surplus on the current budget and falling national debt as soon as possible in the next Parliament.

It will require tough decisions to cut public spending and social security spending, as well as a fairer tax system.

And we need immediate action to boost housing supply to stop the recovery becoming more unbalanced and get long-term unemployed young people back to work.

But alongside the immediate short-term challenges that economic policymakers face here in Britain, we have deep structural issues to resolve.

Because as the IMF annual report revealed, this UK recovery has been characterised by particularly low productivity growth.

I mentioned earlier that the UK has seen a marked increase in low-paid work.

Over the last few years, the number of people working part-time who want to work full-time has gone up 300,000 to 1.4 million, with growing numbers also employed on contracts with no holiday pay, sickness pay or even a guarantee of hours.

At the same time, too many university graduates are struggling to find work to match their endeavours. Britain now has more overqualified workers than any country other than Japan.

And inequalities are becoming more deeply entrenched.

Today, only one in eight children from a low-income home goes on to achieve a high income as an adult.

As Alan Milburn’s Commission on social mobility reported recently:

“Without action, there is a real danger that social mobility – having risen in the middle of the last century then flat-lined towards the end – could go into reverse in the first part of this century.”

This is not the only cause for concern.

Business investment is slowly starting to recover…

… but it is still £6.1 billion a year below its pre-crisis peak and is the fourth lowest in the EU as a share of national income– only above Cyprus, Greece and Ireland.

…  our export growth since 2010 is 6th in the G7, 16th in the G20, and 22nd in the EU.

… business expenditure on R&D is the lowest in the G7 as a percentage of GDP.

… while infrastructure investment is down 12.2% compared to 2010 and public investment is set to contract again next year.

… and still just 8% of all employers – including less than a third of the biggest firms – offer apprenticeships to give young people a route into work.

A NEW INCLUSIVE PROSPERITY FOR THE 21st CENTURY

So how do we respond?

Some say that if rapid globalisation and technological change have undermined the pay and prospects of working people, then the simplest thing to do is to turn our back on those economic forces.

By putting up trade barriers.

Stopping migration into Britain.

And leaving the European Union.

In my view, Britain has always succeeded, and can only succeed in the future, as an open and internationalist and outward-facing trading nation, with enterprise, risk and innovation valued and rewarded.

Backing entrepreneurs and wealth creation, generating the profits to finance investment and winning the confidence of investors from around the world.

Turning our face as a nation against the rest of the world and the opportunities of globalisation is the road to national impoverishment.

But at a time when, in the face of these powerful global changes, many people in our country are seeing their living standards falling year on year, we cannot take public support for this open, global vision of a dynamic market economy for granted.

I know, as an MP with, until recently, the largest BNP membership of any constituency in the country, how some on the extremes of left and right see the solution to be isolationism, turning inwards.

But they are wrong.

Open markets and business investment are part of the solution, not the problem – as is Britain properly engaged in a reformed Europe.

But as we were told loudly and clearly at the local and European elections, we cannot just bury our heads in the sand and ignore the legitimate and mainstream concerns of people across our country that our economy is not currently working for them and their families.

That is why when I hear people denying there is a cost of living crisis, or suggesting that that the return to growth in the economy will solve the problem, I fear they just don’t get it.

A return to business as usual won’t work.

It won’t work economically. There is no future for the UK in trying to compete on cost with emerging countries round the world.

It won’t work politically either. Cutting workers’ rights, undermining public services and reducing taxes only at the top in the hope that wealth will trickle down will not persuade a sceptical and hard-pressed electorate.

New times demand a new approach.

And I want to set out three ways that I believe that a new inclusive prosperity for the 21st century must be different from the approach taken in the 1990s:

–   first, we need tougher global co-operation;

–   second, we need good jobs and skills, especially for those being left behind;

–   and third, we need a new industrial policy.

Let me take them in turn.

HARD-HEADED INTERNATIONALISM 

First, to deliver an inclusive prosperity, we need a much tougher international response to these global trends.

We have to show that we understand and can respond to people’s concerns about financial instability, immigration and tax avoidance.

But we must do this while staying open to the world and continuing our commitment to a dynamic market economy.

I call this a hard-headed internationalism.

And it must start with Europe.

We know that we need reform of the EU to deliver value for money for taxpayers and to make Europe work in our national interest.

But it is not in our national interest to walk away from the huge single market on our doorstep. To do so would be anti-investment, anti-jobs and anti-business.

And nor is it in our national interest to have a Prime Minister who, playing to a domestic and Eurosceptic gallery, flounces out of vital summits and thinks that splendid isolation is a sign of strength, when everyone else can see it is really just a sign of weakness.

Instead of marginalising ourselves with fringe parties, isolating ourselves from key allies and failing to deliver the right Commission President for Britain, we should be at the centre of the debates that provide the modern rationale for our cooperation with Europe.

And we need that cooperation to make progress in vital areas, including on security, trade and climate change.

On financial regulation, we need new impetus to global efforts to reform our financial system which are grinding to a halt.

This means making progress on the agreements reached at the G20 summit in 2009, which included tough new principles on pay and compensation where very little progress has been made.

On immigration, too, we need greater international cooperation so that we can keep the benefits of skilled migration, while controlling and managing it fairly.

This means new laws to stop agencies and employers exploiting cheap migrant labour; while also making sure people who come to this country learn English and contribute to Britain.

While in Europe, we need longer transitional controls, stronger employment protection and restrictions on benefits.

Because when we face such an acute challenge to make work pay for unskilled people, we should not be subsidising unskilled migration from the rest of the EU.

And on business taxation, we also need greater international cooperation to strike a fairer deal for the future.

Today, after extensive consultation, Shadow Exchequer Secretary Shabana Mahmood and I are publishing Labour’s approach to business taxation.

We believe our business tax system must be competitive, promote long-term investment and innovation, and be simpler, predictable and fair.

The last Labour Government left Britain with the most competitive rate of corporation tax in the G7 and we are committed to maintaining that position.

But unlike George Osborne, we also recognise that companies are just as concerned about other elements of the business tax regime, such as capital allowances and business rates.

That is why, having started and supported successive cuts in corporation tax over the last 15 years, we do not think the right priority is a further cut next year.

We will, instead, cut and then freeze business rates for more than 1.5 million business properties.

When resources are tight this is a tough choice to allow us to support more businesses and keep our overall business tax regime competitive.

The purpose of a competitive tax system must be that companies view Britain as a great place to do business, not simply a cheap place to shift their profits.

So Labour’s approach will be to develop a business tax system that promotes long-term investment, supports enterprise and innovation, provides a stable and predictable policy framework for business and which is founded on fairness. With this approach Britain can compete in a race to the top, with a highly skilled, productive workforce directly benefiting from sustainable economic growth.

Our tax system must tackle the short-termism that has become an entrenched feature of the UK business environment and instead promote the long-term investment we need to create more good jobs for the future.

So we are examining the case for introducing an Allowance for Corporate Equity, along the lines suggested in the Mirrlees Review, to redress the systemic bias in favour of debt finance.

Such a scheme would offer a strong incentive for long-term investment, building more robust businesses that would be better able to plan for the future. We will consult with business and other stakeholders on the case for introducing this reform, and how it might be implemented.

We will also examine the possibility of structural changes to the tax system to incentivise long-term investment.

In his report on short-termism in British business, Sir George Cox recommended a series of reforms including a lower rate of capital gains tax for long-term investors.

This could complement an Allowance for Corporate Equity, by making long-term investment attractive to the investor as well as to the recipient of funding.

Labour is consulting with industry on the potential impact of these and other recommendations of the Cox Review and how they could be delivered in a revenue-neutral way.

At a time when working people are facing a cost-of-living crisis and the deficit is high, it’s vital that everyone pays their fair share and we restore public trust in the tax system.

High profile cases of tax avoidance have undermined both public trust in company taxation and also hit businesses who play by the rules and pay their fair share.

George Osborne is failing to tackle tax avoidance. The most recent figures from HMRC show that the amount of uncollected tax in our economy – the ‘tax gap’ – went up last year.

This isn’t good enough, so Labour will make reversing this trend and narrowing the tax gap a priority for HMRC.

So the next Labour government will act to tackle tax avoidance including through international leadership in the G20 and the OECD and by closing loopholes, increasing transparency and ensuring we have tougher independent scrutiny of the tax system.

WORK AND SKILLS

The second task for our inclusive prosperity agenda is to provide good jobs and skills for everyone and especially for those who feel they have been left behind.

To equip people without skills for the world of work and to meet the challenge of ever faster technological change, we have to raise skills and productivity in every sector and ensure that work pays.

Demand for high skilled jobs in advanced manufacturing, financial and business services, and across the creative industries will continue to increase.

So we must maintain our global excellence in Higher Education.

But so too must we ensure that the highest skills can be achieved through our vocational system. We cannot just meet the shortage in trained technicians that businesses repeatedly highlight by importing labour.

Those with intermediate skills are most at risk of the ‘hollowing out’ phenomenon. We must help equip them to take up new opportunities as baby boomers retire and ensure the skills they have developed are recognised by prospective employers.

In lower skilled sectors, we must ensure that the minimum wage continues to increase, is properly enforced and that employers have clear incentives to pay a living wage – with tax credits an added reward for hard work rather than a subsidy for low pay, and training available to all to support career progression.

And we must ensure that young people entering the world of work have the ambition, skills, knowledge and qualifications they will need to succeed.

We must improve careers advice in every school.

We need a major expansion of university technical colleges to ensure Britain is producing enough trained technicians in STEM subjects and other subjects where there is clear demand.

We need to get young people into training rather than unemployment, as Rachel Reeves has championed, and improve the quality of apprenticeships, so that they are focused primarily on taking young people to level three and beyond.

We need a greater role for employers in designing vocational qualifications.

And employers must also have a key role in commissioning and planning skills provision in their area.

A NEW INDUSTRIAL POLICY

And third, to deliver inclusive prosperity, we need to match policies for open markets and skills with a new industrial policy which puts innovation, long-termism and growth centre stage.

After the debacle of British Leyland in the 1970s, ‘industrial policy’ have been dirty words in Britain.

Some remain cautious about the politics of ‘picking winners’ – but that misses the lesson of the 1970s. Back then, it was the industrial losers who did the picking and good money was poured after bad.

Although she kept quiet about it, Mrs Thatcher had an industrial policy in the 1980s as she unveiled the Big Bang for financial services, brought Japanese car manufacturers to Britain and invested heavily in Airbus and its supply chain, including Rolls-Royce.

Twenty years ago, as we responded to globalisation, Labour also steered clear of talking openly about industrial policy.

Instead, with our economy returning to full employment, we focussed on providing macroeconomic stability and reforms to increase competition, encourage enterprise, support science and improve skills.

But since the global financial crisis and following the pioneering work of Peter Mandelson as Business Secretary, a consensus has now emerged that focusing on specific sectors is not only essential; it is inevitable.

Chuka Umunna and I commissioned the Executive Director of Jaguar Land-Rover, Mike Wright, to build on this by telling us what we need.

His report last week on manufacturing and the supply chain made clear there is a clear role for government to give strategic direction, bring sectors together to foster long-term planning and tackle issues like the cost base and skills.

Vince Cable might have belatedly bought into his predecessor’s approach to industrial policy, but there are still glaring gaps.

Although the government is focused quite rightly on aerospace, automotive and some low carbon technologies as part of their eleven industrial strategies, there are glaring gaps.

Why is there no place for the creative industries? No sector aside from real estate has grown faster in recent years. From Americans watching Downton Abbey, to Asians listening to Adele, to Africans tuning into the Premier League, British content is global content.

It’s for this reason that Harriet Harman and Chuka Umunna commissioned John Woodward, former Director of the UK Film Council, to carry out a creative industries and digital review, which will report in the next few months, with a strategic review of industrial policy every five years.

And while the government focuses on life sciences – which are a major British asset – why is there so little focus on health and social care?

Both sectors employ many more people, mostly in low paid jobs, and the ageing population is creating significant additional demand.

And then what is the government doing to support regional growth?

From Silicon Valley to the City of London, the world’s best industries tend to be clustered. In the UK, our automotive sector is concentrated in the Midlands and North East; the offshore wind sector brings jobs to many coastal regions; aerospace is predominantly based in the North West; and our creative industries are centred major cities like London, Manchester, Bristol and Leeds.

The government cannot create clusters – but it can do a lot to support those that already exist, especially at the local level.

Tomorrow Lord Adonis will join Ed Miliband to set out the results of his work.

He will set out how we should nurture help small business thrive, ensure innovation flourishes and empower independent and properly funded Local Enterprise Partnerships alongside Combined Authorities.

We will examine all of his proposals but will transfer £30bn of funding to city and county regions over the course of a parliament to achieve his vision.

And Andrew and I are working closely on how taxation can be used as a tool to drive growth and investment in city and county regions.

At a national level, we also need clear long-term direction.

We need action, as Sir George Cox’s report said last year, on boardroom pay, and corporate governance.

We need more competition in banking and a British Investment Bank to support small and growing companies.

We need an independent infrastructure commission, as Sir John Armitt has proposed, to put aside the dither and squabbling that has dogged our approach to infrastructure for decades.

And we need a new long-term framework for science and innovation.

Mike Wright and Lord Andrew Adonis’s reports have both looked carefully at Government support for innovation and science. They both come to similar conclusions, in particular that the ten year framework for science funding, set up by Lord Sainsbury as science minister , and which ends this year, has provided the stability and long-termism that our research base and companies need.

Liam Byrne launched a consultation on how we can build on this last week.

I believe that a similar long-term funding framework for innovation policy, covering initiatives like the Technology Strategy Board and catapult centres, will be equally important to delivering an inclusive prosperity.

And I am determined to ensure that long-term funding frameworks for science and innovation will emerge as key conclusions from Labour’s Zero-Based Review of spending priorities.

CONCLUSION

I started by saying  that, in the face of seismic global and technological changes, stagnating median incomes and rising inequality, our challenge is to earn our way out of this deep-seated cost of living crisis.

We must deliver rising prosperity for all, not just a few.

That means creating more good jobs, boosting skills and encouraging long-term investment as we restore the broken link between the wealth of the nation and family finances.

As Ed Miliband has said, Labour’s approach is about big reforms, not big spending.

A new plan for Britain and business to succeed together.

Pro-business, but not business as usual.

Not laissez faire complacency…

… or protectionism and anti-Europeanism.

But together building a long-term consensus to embrace open markets…

…and to work together to secure the skills, long-term investment and market reforms we need to deliver rising prosperity for all.

Because if we are to maintain public support for an open market economy, we need to address public concerns, promote competition and long-term investment and make sure markets like energy and banking work better for consumers and businesses alike.

That is the One Nation approach that Ed Miliband, my Shadow Cabinet colleagues and I will set out in the days, weeks and months to come.

…hard-headed internationalism…

…more good jobs and skills for everyone…

…and a new industrial policy….

A new inclusive prosperity for the 21st century.

I do believe the future of our country depends upon it.

Below is the text of the speech made by Ed Balls to the National House-Building Council lunch in 2013.

Thank you Isabel and to the National House-Building Council for inviting me to speak to your prestigious and superbly attended annual lunch, now in its 77th year.

Over that time, this Council’s mission to ensure quality and high standards in house-building has been copied around the world.

Founded to ensure that high standards were sustained during the house building surge of the 1930s, you repeated that task as government and the house building industry came together to build homes for returning heroes after the second world war.

And my message today is that the work of this Council and a strong partnership between government and this industry will be essential over the next decade as we move into what I believe must a new era of house-building.

It will be difficult, but I believe we can forge a consensus across parties and across our country that Britain simply won’t be able to tackle the cost-of-living crisis that we currently face – or build the strong economy that we need to take us to a more prosperous future – unless we build more homes.

So as Shadow Chancellor, and with our new Shadow Housing Minister, Emma Reynolds, I am delighted to be here today to discuss with you why we believe housing must be at the centre of Britain’s economic policy.

Recovery

We meet here today with economic recovery finally getting going again after a long and damaging period of stagnation, and that return to growth is something to celebrate and nurture.

But with business investment still on hold, bank lending to SMEs still contracting, youth unemployment still very high, house completions still historically very low and living standards still falling for millions – meaning that for most people there is so far no recovery at all – this is no time for complacency.

Because there is no quick fix. We have to earn our way to rising prosperity. But we will not succeed unless we use the talents of all and ensure that everyone can benefit from economic recovery and not just a few.

That is why we believe it is so vital that government works closely with all businesses – large and small: to promote open markets, competition and long-term wealth creation; and to reform our economy so that, by using and investing in the talents of all, we can deliver rising living standards not just for a few but for everyone in every part of the country.

And building more homes will be central to that vision.

Of course, you might say that Labour did not move early enough to put house building at the centre of our economic policy when we were in power.

You’d be right to say so.

When we came into office in 1997, our priority was to tackle the huge backlog in housing repairs.

Improving the housing stock we had was important, but the housing studies that you contributed to, which were hugely influential when we made the decision rightly not to join the euro, also highlighted the vital importance of boosting housing supply.

Kate Barker’s subsequent review of housing supply, which we commissioned when I was at the Treasury in 2003, is rightly seen as a landmark document for the industry.

And when we did put in place the investment, planning reforms and leadership, we together accelerated the rate of house-building to its highest level since 1989.

Successive governments could – and should – have done more to build homes. The last Labour Government didn’t do enough at the beginning, but we did champion house-building – not just before the financial crisis but once it had begun too – because we recognised the importance of the long-term investment and jobs that it brings.

And as a result of the work we did together to launch the ‘zero carbon homes’ strategy, this industry has shown a commitment to innovation and design to cut carbon emissions that has surpassed many other sectors – despite the current Government’s less than enthusiastic commitment.

In recent years, your sector has been one of those worst hit by the recession, with 18,000 jobs lost in construction since the General Election. But after a long and protracted period of stagnation, in which in this industry capacity and skills have gone to waste and permanent damage has been done, the economic recovery does appear to be getting going.

And there are early signs that house-building is starting to see a modest recovery.

Today’s increase in home starts is welcome but the number of homes built over the past year is down eight per cent compared with the year before and the supply of affordable homes is at a near 10-year low.

And at a time when rising life expectancy means increasingly families now have four generations and not three, new homes are currently being built at less than half the level that our country needs and it is the youngest generation that is set to lose out.

Under this Government house building is at its lowest peacetime level since the 1920s. And by 2020, we are on course to have a shortfall of over 2 million homes.

In my community, the weakening of the ‘brownfield first’ presumption is undermining sustainable development in an area where viable brownfield sites are widely available.

And across the country, the combination of lower government financial support and planning changes have contributed to a falling share for affordable homes within overall housing starts, with affordable housing starts down over a quarter in the last year.

So there is also still a huge amount of ground to be made up, and damage to be undone, before we get close to returning to pre-downturn levels.

I believe that there are two central challenges for economic policy in the Autumn Statement and the coming months: how do we secure a strong balanced recovery which can deliver rising living standards for all and not just a few; and how do we ensure it is built to last and supports long-term investment.

Both of these challenges require us to put house-building centre stage.

That is what the Government must do.

It is what we will do.

Let me take each one in turn.

Who is benefiting from this recovery?

First, falling living standards mean that, on average, working people are now over £1,600 a year worse off than they were at the last General Election.

And there is a very important housing market dimension to the cost of living crisis.

Many people today can’t access mortgages because of the difficulty of saving up for a deposit.

In 1997, it took an average family just three years to save for a deposit on a home. Today, it takes an average of 22 years.

But the cost-of-living challenge is about much more than mortgage availability – it’s about mortgage affordability too.

Soaring house prices mean it’s simply too expensive for many people to get onto the housing ladder.

You just have to look at house prices relative to earnings. Today, the average house costs ten times the average wage, compared to 5 times the average wage twenty years ago. And the fact is that this house price-earnings gap is continuing to widen.

Much of the debate recently has been around Help to Buy. I will return to this in a moment.

But Shelter estimate that high house prices mean first-time buyers on average earnings can afford to use the scheme in just 16 per cent of the country.

Unless we build more affordable homes, house prices relative to earnings will remain high, houses will remain unaffordable, and many people will never realize their dream of owning their own home.

And high house prices and the shortage of affordable housing directly impacts on rent affordability too.

With more people now renting in the private sector than the social sector for the first time in decades, the cost of renting in the private rented sector has increased by twice as much as the rate of wages since the General Election.

And the high cost of the private rented sector is not only bad news for families; it also hits the public finances hard too.

As our previous Shadow Housing Minister, Jack Dromey, reminded me regularly, thirty years ago, around 80 per cent of public spending on housing was spent on building houses for people. Today, 95 per cent of total housing spending goes on housing benefit to subsidise high and unaffordable rents.

Any sensible and sustainable attempt to cap structural social security spending and get the housing benefit bill down simply has to involve expanding the supply of more housing.

Is this recovery built to last?

Building more homes is essential to tackling the cost-of-living crisis. But house-building must also be at the centre of an economic plan to build a strong and sustained and balanced recovery.

So far this year, the recovery has not been based on creating a significantly greater supply of new homes; instead, it has been built on generating greater demand when we already face a critical shortage.

We have and continue to support ‘Help to Buy’ as one element in a balanced housing plan to secure economic recovery. It is vital that we give those with some savings who want to buy a home access to the housing market.

The first phase, targeted at first time buyers in new build properties, was slow to get going but, alongside Funding for Lending, it has helped to unlock finance from a dysfunctional lending market.

But the Government’s second phase of Help to Buy, with taxpayer-guaranteed 95% mortgages available to purchased existing properties, has been widely criticized, including by the former Governor of the Bank of England, the Institute of Directors and the IMF who warned:

“in the absence of an adequate supply response, the result would ultimately be mostly house price increases that would work against the aim of boosting access to housing”.

Commentators are right to question why the Chancellor has decided that a policy, which should be about helping first time buyers, is available for homes worth all the way up £600,000 and why this policy will allow existing mortgage holders to re-mortgage their current property with a taxpayer-backed mortgages.

The Chancellor has said he will ask the Bank of England to review the details of the scheme in a year’s time.

We believe a year is too long to wait.

So I propose the details of the scheme should be reviewed now and then every six months thereafter, to make sure that is contributing to a balanced recovery that is built to last.

But the fundamental flaw in the Chancellor’s current plan is to rely on securing lasting recovery by boosting housing demand, while failing to take any action to boost housing supply.

If Help to Buy merely boosts demand for housing without being matched by action to increase housing supply, then house prices will rise and rise.

The danger with this kind of unbalanced approach is that home ownership will be pushed even further out of reach for the aspiring first time buyers that Help to Buy should be helping.

And at the same time, boosting demand without building more homes risks delivering an unbalanced recovery that will only make the economy more vulnerable in the future.

When what this industry and our country needs is long-term certainty about rising housing supply so that you can plan ahead with confidence.

Building more homes

That is why I believe the challenge for the Autumn Statement, and the next Labour Government, is to match support for first time buyers with action now to boost housing supply.

We have to be more ambitious.

That is why, a year ago, Shadow Communities Secretary Hilary Benn, Jack Dromey and I urged the Chancellor to use the revenues from the sale of the 4G mobile spectrum to build 100,000 new affordable homes over the next two years.

It is why we continue to support the IMF in urging the Government to bring forward £10 billion of infrastructure investment this year and next year.

And it is why at our conference in September, Ed Miliband set out our commitment to build at least 200,000 new homes a year by 2020 – through a roadmap to support the private sector in building more homes, including more affordable homes, and a planning system that helps, not hinders, house-building.

In setting out our ambition, we have asked Sir Michael Lyons to lead a new housing commission to advise us on what needs to be done to achieve our goal.

The Independent Lyons commission will look at:

– How we can get much more residential land to market;

– What flexibilities could be granted to local authorities to they can build more affordable homes;

– How we can ensure that communities that want to expand but do not have the land on which to grant planning permission can do so;

– Whether the current planning gain system is fit for purpose;

– And whether land made available for development is being land-banked in a damaging way and how this can be prevented.

We will certainly want to hear your views on all of these issues.

Because history shows us that developers, communities, local councils and national government all need to work together effectively to create homes people want to live in and towns that can become economically independent, are well connected to the regional economy, and generate local jobs.

What we need to achieve requires a scale of ambition not seen for many decades.

And I am not blind to the scale of the challenge and the difficulties that lie ahead.

Nor do I expect you to overlook the fact that I am not the first politician to come to an event like this and promise change.

But I have a very clear message.

A Labour Treasury will make house-building a priority and play its full part in delivering the scale of change we need.

And because of the scale of the deficit we can now expect to inherit in 2015, we will need to find innovative ways of supporting private sector investment to deliver that priority.

If we are to meet that target of at least 200,000 new homes a year by the end of the next parliament, while protecting communities, preserving valuable green belt land, avoiding haphazard urban sprawl and encouraging quality housing in sustainable communities , then every community will need to play its part and plan for the next generation.

But we are also clear that we cannot deliver this ambition unless we build new towns.

Our priority will be to create ways in which a local authority or groups of authorities are incentivised to come forward to identify locations capable of sustaining large scale sites for New Towns and Garden Cities.

With the Lyons Commission we will examine whether and how to give new town development corporations the right to:

– keep increased revenue from business rates as a revenue stream to finance investment – and to use the increased value of land to generate further capital for investment;

– acquire and assemble land;

– and plan and develop the infrastructure needed, bringing together the agencies and utilities who will need to participate in that process to deliver it.

We should draw on the lessons from the past of how the New Towns were developed after the Second World War by Development Corporations, which had the powers to acquire, own, manage and dispose of land and property; undertake building operation; provide public utilities; and do anything else necessary to develop the New Town.

But as we concluded when considering this issue in Government, these powers alone are not enough.

These Corporations generated revenue by selling land and housing, receiving rental income and receiving commercial income.

However, they needed up front funding to build the infrastructure and housing which could later be sold at a profit.

George Osborne has shown himself willing to use the Government’s balance sheet to guarantee some house building – but in particular demand through guaranteeing household mortgages.

And yet we read that the New Towns which you heard about a year ago have stalled.

The Government is providing guarantees of up to £12 billion for Help to Buy. He should now step up to the plate to back the supply of new houses in New Towns.

Providing guarantees to Development Corporations could be essential to provide backing for a large-scale growth programme to provide confidence, reduce risk and give credibility to the development.

We cannot afford to dither any longer – and I cannot see a stronger case for the full throated backing of the Chancellor than a step change in housing supply.

To do that we will need the full backing of the Labour Government, including the Treasury, for new towns – willing to devolve the powers, determined to provide the resources, and showing the leadership and vision that is sadly lacking in Government at the moment.

Infrastructure

And to make this work, working with communities, we also need to make sure we deliver the infrastructure that allows towns to become thriving communities.

For decades, successive governments have too often ducked and delayed the vital decisions we need to make on Britain’s long-term infrastructure.

We are determined to change that. And that was why we asked Sir John Armitt, Chair of the Olympic Delivery Authority, to look at how we can better identify, plan and deliver infrastructure for future generations.

We cannot simply wait until the next general election to implement his proposals in statute.

So I have today written to Sir John asking him to:

– Produce a draft white paper based on his report, which sets out in detail the policy, administrative and legislative steps necessary to establish and operate a National Infrastructure Commission;

– Explore the advisory input needed in order to deliver a successful Infrastructure Commission;

– And prepare draft legislation to establish the National Infrastructure Commission.

This landmark reform is vital. And we are determined to work with you – on infrastructure, as well as on skills, planning and housing finance – to build a recovery that is built to last and ensure that more people can own their home and share in rising prosperity.

Conclusion

Let me end by saying this.

We know that house-building can transform our country’s future prospects.

Because we have seen it before.

The next General Election will mark the seventieth anniversary of the end of the Second World War.

Back then, our country faced huge economic and fiscal challenges.

But the Government of the day, in partnership with this industry, succeed in achieving lasting change.

And at the heart of it was a bold and radical plan to build more homes.

As a result, London was reborn as the vibrant, thriving capital city that we know today.

And a series of successful, economically independent new towns emerged around it.

We need the same kind of ambition today to solve our housing crisis.

The only way to achieve the lasting change we need is by working with you to create greater supply of new houses.

So the next Labour government is committed to:

– building at least 200,000 new homes a year by 2020;

– maintaining high standards across the sector;

– reforming the planning system;

– and investing in the infrastructure and skills we will need.

This is the best way to help secure a strong, balanced recovery that everyone can benefit from and that is built to last.

And I look forward to continuing to work with you in the months and years to come.

Below is the text of the speech made by Ed Balls, the Shadow Chancellor, to Thomson Reuters on 3rd June 2013.

INTRODUCTION

Three years into this coalition government, and three weeks before the Chancellor completes his much-trailed Spending Review for 2015/16, it makes sense now to set out Labour’s approach.

In my speech today, I want to make three central arguments.

First, that this Spending Review is a sign not of strength but of weakness. It is happening because the Chancellor’s economic policies have failed catastrophically – on living standards, economic growth and on deficit reduction too. It is this economic failure that is the background to this month’s Spending Review.

Second, the Prime Minister and the Chancellor are making a terrible mistake in ploughing on with their failing plan: increasing the price the British people will pay now and in the future for this failure. Action for growth this year, next year and the years after should instead be the purpose of any spending review this summer.

And third, the next Labour government must start planning now for what will be a very difficult inheritance. We can now expect to inherit an economy with families under real financial pressure, businesses that have lost vital opportunities to invest, and public finances in poor shape, despite deep cuts to vital public services. This bleak inheritance is now more likely because of the missed opportunity of this Spending Review.

My message to David Cameron, George Osborne and the Tory-led coalition is this:

Our country should not be forced to put up with two more years of your failing plan.

Your experiment with austerity economics has failed on living standards, jobs and growth and on deficit reduction too – and the British people are paying the price for this failure.

Your doctrine of so-called ‘expansionary fiscal contraction’ – that the faster you cut public spending, the greater the boost to private investment and growth – has been exposed as intellectually bankrupt. Even the IMF now says your plans are ‘a drag on growth’.

And your fixation on unbalanced, old-style ‘trickle-down economics’ – the belief that cutting taxes only for the highest earners will lead to more investment and growth, with wage rises trickling down for everyone else – has been equally discredited.

Because while the highest earners have got their tax cut, everyone else is seeing prices rising faster than wages – which are falling in real terms.

Where the Conservatives have failed, our task is to strike the right balance for the British economy:

– between living standards, growth and deficit reduction;

– about where the burden falls between the wealthy and everyone else;

– and between short-term priorities and the vital long-term investments we must make now to safeguard future generations.

But I have an equally tough message for my Labour colleagues.

The situation we will inherit will require a very different kind of Labour government to those which have gone before.

We can expect to inherit plans for further deep cuts to departmental budgets at a time when the deficit will still be very large and the national debt rising.

At the time of the 2010 Spending Review, the Office for Budget Responsibility forecast that the deficit would fall to £18bn in 2015-16.

It is now forecast to be £96bn – that’s £78bn higher, even with the further deep cuts in public spending which the Chancellor has programmed in for 2015-16.

And this means that, because this Government’s austerity economics has failed, we will have to govern in a very different way and in circumstances very different to what we have known for many years. We will inherit a substantial deficit. We will have to govern with much less money around. We will need to show an iron discipline.

Delivering our Labour goals – supporting families and communities, tackling disadvantage, spreading educational opportunity, safeguarding our NHS, investing for the future – will be more difficult than at any time in our living memory, certainly since the post-war Labour government of 1945. But it can be done.

And it will make our economic task – to raise living standards, increase growth and wealth creation by building a reformed One Nation economy where we use, and invest in, the talents and industry of all and not just some – even more vital.

Today is the right time to start the discussion about how we should prepare for the difficult decisions we will face in 2015 – our different priorities for Britain, the plans we must make, the strength of our resolve and the trust we must win.

A FAILED ECONOMIC PLAN 

First, this summer’s Spending Review is happening now because the Chancellor’s economic plan has failed.

Following the global financial crisis, any Government would have been cutting spending and raising taxes in this Parliament. Family budgets would be under pressure, and protecting jobs would have had to come before pay rises in the public sector.

The challenge was to strike the right balance between economic growth and deficit reduction, and to do so in a fair way so that middle and lower income families did not bear the whole burden and those on higher incomes pulled their weight.

But instead the Conservative-led coalition gambled on getting the pain over quickly – early tax rises, including the VAT rise they ruled out pre-election, alongside faster and deeper spending cuts – on a political timetable to create room for pre-election giveaways.

A further round of deep spending cuts after 2015 was certainly not part of the plan.

At the last Spending Review, George Osborne attacked those who urged a more balanced plan and a greater focus on supporting economic growth, saying this alternative course:

“envisaged the Chancellor of the Exchequer standing here in 2014 and presenting a spending review that still had years of cutting public spending ahead of it.”

Which is exactly what he is now preparing to do.

In Budget 2011, he said:

“We have had to undertake difficult measures. But we have already asked the British people for what is needed, and.. we do not need to ask for more.”

Now the Chancellor says he has no choice but to come back for more – more cuts in 2015/16.

And the reason is simple – the 2010 Budget and Spending Review, which were supposed to make things better, have in fact made things much worse – choking off the recovery, crushing living standards and flatlining the economy.

At a time when confidence was fragile, living standards falling, interest rates already at record lows, banks weak and inward-looking and when our main trading partner was in crisis…

… trying, at that very time, to have the fastest fiscal tightening in our post-war history – too far, too fast – was a reckless gamble.

And George Osborne’s austerity plan has not worked.

A fortnight ago the International Monetary Fund, which once backed the Chancellor’s plan, called for a change of course – proposing “near-term support for the economy” – an immediate £10 billion boost to infrastructure investment to support growth.

They changed their mind because they concluded that the impact of tax rises and spending cuts on economic growth – the fabled ‘fiscal multipliers’ – has turned out to be a much bigger drag on growth than they, the Government or the OBR originally thought.

At the time of the 2010 Spending Review, the Government forecast that it would have grown by a healthy 6 per cent by now.

Since 2010, we have seen growth of just 1.1 per cent in Britain – the slowest UK economic recovery for 100 years – compared to 2.9 per cent in Germany and 4.9 per cent in America.

The Government tries to blame global forces – Euro zone weakness, and the impact of higher oil and food prices worldwide. But higher world prices cannot explain why over the last three years the UK has had a higher inflation rate than every other G7 country. Or why we have had the slowest growth of any G20 country other than Italy and Japan and actually lost export market share.

As the Bank of England has pointed out, higher VAT, higher tuition fees and the sharp fall in the value of sterling since 2010 have driven up inflation and reduced the living standards of British families.

It was the decision to try to accelerate fiscal tightening in 2010 that has proved, in the words of Financial Times commentator Martin Wolf, to be ‘a spectacular own goal.’

An own goal because falling living standards, low growth and higher inflation – at a very high personal cost to communities and people – has also been toxic for the public finances and thrown deficit reduction wildly off course.

The Government is now planning to borrow £245bn more than it planned up to 2015.

And this has not happened because they have failed to cut departmental spending.

This rise in borrowing has been almost entirely caused by a drastic fall in tax receipts compared to the Government’s 2010 plans, even after all the tax rises introduced in their first Budget.

The impact of the failure to get growth could not be clearer.

Tax receipts over this parliament are now set to be £274 billion lower than forecast in 2010. And while a small portion of this fall reflects discretionary policy decisions, such as cuts in corporation tax rates, the vast bulk – 95% – are non-discretionary forecast revisions.

Which in the real world reflects squeezed families and companies that are earning less, making lower profits and paying less tax as a result of flatlining growth.

The Government likes to boast that it has reduced the deficit by a third.

But that reduction happened before their economic policies choked off the recovery.

Since then, the collapse in tax revenues means that deficit reduction in this Parliament has now stalled.

As the head of the OBR said in March:

“We expect the underlying deficit to be stable at around £120 billion last year, this year and next year…”

Which means that both of the Chancellor’s fiscal rules, as set in 2010, have been broken.

In 2010 he said his first fiscal rule required the structural deficit, adjusted for the economic cycle, and excluding investment spending, to be in balance by 2015-16.

The structural deficit is now forecast to be not a surplus of 0.9 per cent of GDP but a deficit of 1.2 per cent of GDP in 2015-16 – breaking that objective by a wide margin, even with the extra spending cuts that have now been programmed in for that year.

And the second fiscal rule – to get the national debt falling by 2015 – has also been broken.

The national debt is now set to be not 67.2 per cent in 2015-16 but 85.1 per cent of GDP, and it is now expected to rise until 2016-17 when it is forecast to peak at 85.6 per cent – a full £309 billion more debt than planned in 2010.

This is the real background to this summer’s Spending Review – living standards falling, growth flatlining, a deficit reduction plan wildly off track and a coalition forced to extend cuts to public services into the next parliament.

THE ECONOMIC IMPERATIVE 

Of course, what matters now is not the bad choices that the Government has made, but what their policies promise for the future.

Which is why the most worrying finding in the IMF report is that they believe the UK economy today is still ‘a long way from a strong and sustainable recovery’ and that ‘the risks are on the downside’.

We know that the coalition is determined to stick with George Osborne’s austerity economics. We now know what the consequences are likely to be – squeezed living standards, sluggish growth and, despite all the pain, the deficit still high.

But politics aside, there is no operational need for the Chancellor to set budgets now for 2015-16.

It makes no economic sense for this Spending Review to ignore what is happening now in our economy, and focus only on departmental spending in 2015-16 – the first ‘one year only’ spending review since the mid-1990s.

If he followed the pattern of 2010, he could wait until the autumn of 2014 before he sets them.

Which takes me to my second central argument: this summer’s review of spending and the economy should be about action now to boost living standards, growth and long-term investment – this year and for future years.

We need to shift now to a balanced plan – focusing on rising living standards and growth, maintaining a commitment to reduce deficits and spending, and making sure the burden is fairly shared.

Given the Government’s failure so far, there are going to be big and painful choices on spending in 2015-16 and beyond.

But those choices in the next Parliament will be hugely shaped by what happens in this.

After nearly three years of flatlining, the Chancellor says any growth is better than no growth at all.

Of course that’s true. But slow growth is nowhere near good enough.

It won’t make up the ground we have lost over the last few years as other countries have raced ahead.

Nor will it get long-term unemployment down, boost living standards, recoup lost business investment or generate the tax revenues we need to get the deficit down.

Our analysis shows that to get the economy back to where it was forecast to be in 2015-16, the government now needs growth of 5.3 per cent a year, 1.3 per cent a quarter, over the next two years.

But over that period the OBR currently expects average growth of just 1.7 per cent a year – 0.4 per cent a quarter – which means lower living standards, less tax, less investment and many billions less deficit reduction too.

I fear, too, that if the world economy were to take another turn for the worst over the next few years – a second demand shock following the global financial crisis – this time the UK will be in a very much weakened position to deal with the consequences because of the stagnation of the last three years.

The IMF said last month that the UK economy continuing to bump along the bottom “could permanently damage medium-term growth prospects” – compounding mistakes, not correcting them.

Because the longer it takes to get the recovery moving, investment flowing and long-term unemployment down, the greater the damage to the underlying strength of the economy.

If the fiscal multipliers are indeed higher, as the IMF now believes, then a balanced plan can do now to boost growth and job creation this year, next year and the year after will have a significantly larger impact on the public finances than the OBR estimates.

But unless something is done in this spending review to get our economy growing sustainably faster this year and next, and so deliver higher tax revenues and lower spending on unemployment, then the prospects for departmental spending and public services in the next parliament will be much tougher than necessary.

WHAT THE SPENDING REVIEW SHOULD DO NOW 

That is why any spending review this summer should take immediate action to get the economy growing, invest in our long-term future and reform social security.

Over the past two years, when the economy was totally stagnant, and when our economy has needed a quick and fast-acting shot in the arm, we have advocated a temporary VAT cut – alongside infrastructure spending, action on youth unemployment and targeted tax measures for business as part of our five point plan for growth.

Today, with growth prospects still very uncertain and interest rates too low to be of use, a temporary VAT cut now is still the right prescription before extra capital spending can come on stream – although any immediate tax cut which helps middle and lower income families is better than nothing.

But over the coming year if, as we all hope, some kind of recovery does take hold, then the balance of advantage will shift from temporary tax cuts to long-term capital investment.

So we support the IMF’s call, consistent with medium-term fiscal consolidation, for the Government to act to boost capital spending over the next two years – financed by a temporary rise in borrowing as Labour has also urged – to build our way to a stronger recovery.

With thousands of construction workers out of work and interest rates at record lows, there is a growing consensus that investing now in improving our infrastructure, particularly housing, would give an immediate boost to the economy, encourage more private sector investment, and give us a long-term return as we strengthen our economy for the future.

If the entire infrastructure boost recommended by the IMF was spent on housing over the next two years, we calculate that it would allow the building of around 400,000 affordable homes across the country, and support over 600,000 new jobs in construction, including 10,000 apprenticeships…

… supporting small businesses, helping people aspiring to buy their own home, reducing waiting lists, and easing upward pressure on rents and housing benefit bills.

So to the Treasury and the Chief Secretary I say this: there is no point in vague promises about more capital spending in 2017 or 2020. We need action now. To secure the recovery and get tax revenues coming in, we need that capital spending boost brought forward – and invested this year and next year.

The spending review also needs to end the current dither and delay on industrial policy and put in place long-term reforms to build a One Nation economy for the future.

On long-term infrastructure, not only has the government invested billions less than the plans they inherited, but major projects are beset by dithering and delay.

This is why we have called for the Davies Commission on aviation to report before the General Election; and why Ed Miliband and I have asked the chair of the Olympic Delivery Authority, Sir John Armitt, to examine how our country can have a process to take long term infrastructure decisions in a better way – across Parliaments and across the Parliamentary divide. Ministers should act on Armitt’s recommendations when he reports later this year.

On energy, chronic policy uncertainty and the absence of any agreed plan across government means, as Caroline Flint has highlighted, vital investments and the opportunity to create green jobs are being lost. The government should be legislating now in the Energy Bill for a decarbonisation target for 2030 in order to give a framework for those seeking to invest in renewable, nuclear, and clean gas and coal technology.

Labour, business and environmental groups are united on the urgency of acting now. But Ministers have shown an abdication of leadership by choosing to wait until 2016 before even making a decision. We will vote on Tuesday to make this happen – and, while the Conservative leadership has now set its face against action, I call on every Liberal Democrat who supports a low carbon future to join us and vote with us to make this change happen.

On banking reform, the same pattern of fudge and delay is now characterising the government’s approach where the Chancellor is rejecting the recommendations of the Parliamentary Commission he set up. We need a back-stop power to break up the big banks if we don’t see real reform and cultural change.

And, as Shadow Business Secretary Chuka Umunna has argued, a modern industrial policy also requires a proper British Investment Bank, support for vocational education and action on Sir George Cox’s recommendations on over-coming short-termism within British business.

A Spending Review this summer also needs to make a start on long-term social security reform which rewards work.

The fact is, for all the tough and divisive rhetoric, the benefits bill it is still rising, as Liam Byrne has exposed – revised up by over £20 billion since the 2010 spending review – the direct consequence of George Osborne’s austerity economics.

The Conservative approach to welfare has simply been to slash tax credits and benefits across the board – regardless of who they hit. Millions of working people, redundant nurses desperately looking for work, disabled people in homes that Ministers have decided contain a ‘spare room’ – all hit just at the time when prices are rising faster than wages and unemployment is rising.

Labour proposes serious policy action to tackle the underlying drivers of rising working-age benefits, with:

– A compulsory jobs guarantee – a paid job for every young person out of work for 12 months or more and over 25 unemployed for over two years – which they will be obliged to take or face losing benefits;

– A fair cap on household benefits – not one that costs more than it saves, and which takes account of housing costs in different parts of the country – with an independent body, like the Low Pay Commission, advising on whether the cap should be higher in high-cost housing areas like London, but potentially lower in other parts of the country;

– And housing benefit reform which tackles high rents and addresses the shortage of affordable housing.

These are issues which Ed Miliband will return to later this week.

LABOUR’S FISCAL RULES 

These are the actions a responsible spending review should take this summer.

Because action now on growth is the best way to mitigate the scale of the cuts the Government says it has to make to public services in 2015-16 and beyond.

But, as the Chancellor’s response to the IMF report shows, we cannot rely on the coalition government to see sense and act responsibly.

Which brings me to my third argument today.

Where this government’s failure on growth and jobs has led to their failure on the deficit, the next Labour government will rise to the challenge: action to strengthen the recovery and our economy for the long-term; alongside a tough deficit reduction plan.

But with the Chancellor refusing to change course, Labour must start planning now for what will be a very tough inheritance in 2015. It will require us to govern in a very different way with much less money around. We will need an iron discipline and a relentless focus on our priorities.

We cannot write our first Budget today – two years ahead when we do not know the state of the economy and public finances that we will inherit.

Instead, Labour will set out, in our general election manifesto, tough fiscal rules that the next Labour government will have to stick to – to get our country’s current budget back to balance and national debt on a downward path.

Tough rules, which will be independently monitored by the Office for Budget Responsibility.

A clear and balanced plan to support growth, alongside a clear timetable to get the deficit and the debt down – finishing the job where this Government has failed.

That is why we have said every penny of windfall from the sale of the government’s stakes in the banks must be used to repay the national debt – not for a politically timed pre-election giveaway at the expense of taxpayers and the economy.

But given how catastrophically off track the government’s plans have gone in the last three years, it would be irresponsible to set out those fiscal rules two years in advance, banking on things turning out in line with government forecasts. We will not make promises we cannot keep.

So today I am going to have to disappoint my opponents and my colleagues.

I am going to disappoint the Tories – we will not set out our plans for 2015-16 this year, however much you want us to, in order to divert political attention from your own abject economic failure.

We all know why the Chancellor is focussing now on spending cuts in 2015-16, when he does not know the economic circumstances he will face in two years time. Once again, he is trying to turn his economic failure into some kind of short-term political advantage.

No-one should be surprised. After all, this is the Chancellor who claimed for three years that he had to stick to his plan or the UK would be downgraded by the credit rating agencies; and then when he lost the UK’s AAA rating, said this meant he had no choice but to stick to his plan.

The same Chancellor who still tries to claim that a global financial and banking crisis, which began in the USA and echoed round the world, was somehow caused by or made worse by levels of public spending here in Britain – when as Shadow Chancellor, before the crash, he had pledged to match Labour’s spending plans.

And you can see the new political game – to set out deep cuts to policing, defence, local government, social care or early years funding or in support for children and the disabled – all for after the General Election – and challenge Labour to make a decision now to reject his plans two years ahead.

We will not play that game – when we do not know the economic circumstances two months ahead, let alone two years.

But that also means I am going to disappoint my Labour colleagues too.

Because for the same reason, we cannot plan now on the basis that our inheritance in 2015 will be better than currently forecast.

We cannot decide now to spend money that we do not know, and do not expect, will be there.

Even if the Government were to implement Labour’s growth plan now, given the failure of the last three years it would not avoid the need for cuts in departmental spending in the next Parliament.

It will take years to sort out George Osborne’s fiscal mess

And the longer the government carries on with these failing policies, the bigger the challenge will be for the next Labour government.

Jobs and growth are vital to getting the deficit down – but they cannot magic the whole deficit away at a stroke.

Nor can we rely on tackling tax avoidance to avoid difficult decisions.

We are determined to crack down on irresponsible tax practices. Our recent multinational tax reform document sets out the way ahead. We need international action, and Britain must take the lead and act if others will not. So we will continue to say more in this area.

But this is not some easy pot of gold. Tax avoidance has to be tackled billion by billion. Given the global complexity of this problem, the suggestion that any individual government can easily find billions more in unpaid tax simply through one Budget speech or a Finance Bill clause is not realistic.

So this is the hard reality.

The last Labour government was able to plan its 1997 manifesto on the basis of rising departmental spending in the first years after the election.

The next Labour government will have to plan on the basis of falling departmental spending.

Ed Miliband and I know that, and my shadow cabinet colleagues know that too.

So my message to the country is this:

My job is to make sure that we have a plan to grow the economy and get the deficit down.

With tough decisions and by investing in the future we can do this.

And set the country in a different direction from this government.

– not giving the banks a tax cut, but putting a tax on bankers bonuses to get young people back to work;

– not attacking those who cannot find work, but making sure the long-term jobless are given a guaranteed job which they will have to take up or face losing benefits;

– not giving tax cuts to the richest, but keeping the 50p tax rate now and supporting working families by not going ahead this year with real terms cut to tax credits;

– and not wasting money fragmenting the NHS, and other services, or on vanity schools projects, but focusing on the real needs in adult social care and primary school places – and bringing public services together to save money and improve services.

But my message to my shadow cabinet colleagues is this.

To serve the country and win its trust:

We must work together to find efficiency savings and switch resources to Labour’s priorities; but you cannot prepare now on any basis other than that you will inherit very tough spending plans from this year’s Spending review. They will be our starting point.

We know these plans for current spending in 2015-16 are likely to place a very significant burden on public services.

But because of the overall financial situation we inherit, and the need to look ruthlessly at every pound we spend, the relentless focus of my Shadow Cabinet colleagues must be on how to re-prioritise money within and between budgets for current spending, rather than coming to me with proposals for any additional spending.

Any changes to spending plans for 2015/16 must be fully funded, agreed with Ed Miliband and myself, and set out in advance in our manifesto.

As far as capital spending is concerned, it certainly does make economic sense now, as the IMF has urged, to bring forward capital spending to support growth and invest in our long-term infrastructure – creating jobs now, bringing long-term returns and taking advantage of very low interest rates.

And for the future, we need to invest in the homes, transport and infrastructure Britain needs and ensure a recovery made by the many. Of course, here too we will only set our plans for investing in Britain’s future in the light of the economic circumstances at the time, and the needs of economic growth, informed by the findings of the Armitt review into Britain’s long-term infrastructure needs.

So we will match an iron discipline on spending control with a fairer approach to deficit reduction.

Which will mean asking important questions for our manifesto:

– With primary school places in short supply in many parts of the country, and parents struggling to get their children into a local school, can it really be a priority to open more free schools in 2015 and 2016 in areas with excess secondary school places?

– When we are losing thousands of police officers and police staff, how have we ended up spending more on police commissioners than the old police authorities, with more elections currently timetabled for 2016?

– With family budgets under such pressure and living standards falling, surely it makes sense to introduce a mansion tax on properties worth over £2m to pay for a lower 10p starting rate of tax?

– And when our NHS and social care system is under such pressure, can it really remain a priority to pay the Winter Fuel Allowance – a vital support for middle and low income pensioners – to the richest 5% of pensioners, those with incomes high enough to pay the higher or top rates of tax?

We believe the winter fuel allowance provides vital support for pensioners on middle and low incomes to combat fuel poverty. That’s why we introduced it in the first place. At that time, and when the pattern of pensioner incomes was different to today, we paid pay it to all pensioners.

But in tough economic times we have to make difficult choices about priorities for public spending and what the right balance is between universal and targeted support. So at a time when the public services that pensioners and others rely on are under strain, it can no longer be a priority to continue paying the winter fuel allowance to the wealthiest pensioners.

THE ZERO-BASED SPENDING REVIEW 

These are issues which we will address now as we prepare for the zero-based spending review – a root and branch review of every pound the government spends from the bottom up – which Labour will complete in our first year in office.

We in the Labour Party value the huge contribution that public services – and public service – make to the strength of our economy and the fairness and stability of our society.

We celebrate the excellence of our teachers and school support staff, the service of our police officers and non-police staff; and the quality of care that our doctors, nurses and health workers deliver – and the efficiency that our publicly funded NHS delivers compared to private health care around the world.

But it is the duty of government to make difficult choices about priorities and to get maximum value for every pound of taxpayer money it spends.

As I have said before, the last Labour government did not spend every pound of public money well. No government, including this one, can honestly say that.

That is why Rachel Reeves, the Shadow Chief Secretary to the Treasury, has already set up a public sector efficiency advisory board, with Shadow Cabinet Office Minister Jon Trickett, to ensure we are ready for the challenges we will face in 2015, covering:

– making best use of information and communication technology;

– effective public sector procurement;

– collaboration and joined-up government, including shared services; use of consultants and temporary staff;

– and how we improve organisational incentives in the civil service.

All of this work will feed into our zero-based review.

Our preparations for this review will proceed in three phases:

First, over the next year, each Labour spending team will prepare a report on Public Service Reform and Re-Design setting out how we deliver better public services with less money, involving employees, charities, and the voluntary sector in our deliberations, as well as business and public providers. We will publish a summary of these reports next spring.

On that basis, the Labour Treasury team will work with spending teams to identify savings and switches for 2015-16 to reflect Labour’s priorities and report before our manifesto.

And these detailed departmental reports will then inform our full zero-based examination of every pound we spend – in every department, including in any department whose spending we choose to ring-fence in our manifesto, and in annually managed expenditure too – which will be completed within the first year of the Labour government.

The review will be guided by the following principles:

– how can we use public money more efficiently;

– how can we use departmental budgets to support growth and job creation;

– how can we ensure fairness and consumer choice in service delivery;

– and how can we ensure preventative spending – early years spending, support for troubled families, public and mental health services, scientific research into new cures and treatments – areas where spending now saves billions in the future – is given a high priority.

The great advantage of this zero-based review is that it can ask basic questions about all aspects of government and spending, big or small.

– Does it really make sense to have separate costly management and bureaucracy for so many separate government departments, agencies, fire services and police forces – the same number as when this Government came into office – all with separate leadership structures and separate specialist teams?

– Should industries pay a greater share of the costs of their regulators?

– Do we really need four separate government agencies delivering services to motorists?

– Should we be spending millions on a separate company to deliver High Speed 2 when we already have Network Rail, which after all is responsible for rail infrastructure?

– Has the Ministry of Justice properly made the case for a major new “Titan” prison, at a time when the prison population is falling?

– Do we need more admirals than ships and more officers in our forces than our international counterparts at a time when frontline armed forces are under pressure?

– Can we improve care and save money, as Andy Burnham has proposed, by thinking of health and social care as a single service, looking after the whole person, with a single budget and joint management?

– And on infrastructure, how should we set priorities within rail spending, and between rail investment, trunk roads, expanding airport capacity, delivering super-fast broadband across the whole country, modernising our energy infrastructure and improving our flood defences?

These are some of the questions our zero-based spending review will ask.

CONCLUSION 

In conclusion, let me say this.

These are challenging times.

How Labour responds will shape not just the politics of the general election but our economic future and the cohesion of our country over the next decade.

Because in opposition or in government, the tax and spending priorities a political party chooses to set out reveal much about its values, its resolve and steel, its understanding of how the economy works.

The British people know that George Osborne’s austerity economics has failed. They are worse off, growth has stalled, investment has fallen and the deficit is not coming down.

But the last thing they want to hear from any politician is ‘we told you so’.

What they want to know from Labour is that there is a better way.

That we will put in place the polices now and for the future that can produce the investment and growth that bring sustained increases in living standards.

And that Labour will take a tough and fair approach to deficit reduction.

This is what we mean by striking the right balance for the British economy:

– Action now to raise living standards, growth and long-term investment;

– Bringing down the deficit steadily, with an iron discipline on spending control;

– Making sure ordinary people do not carry the burden of meeting fiscal targets and ensuring those with the broadest shoulders bear their fair share.

Where this government’s failure on growth and jobs has led to their failure on living standards and on the deficit, the next Labour government will get things back on track to finish the job.

Below is the text of the speech made by Ed Balls, the Shadow Chancellor of the Exchequer, to the TUC Conference on 11th September 2012.

Congress, it’s a great honour to speak to you today.

Thank you Paul for that introduction and for your leadership and support over recent years: fighting the BNP, campaigning for free school meals, standing up for jobs and a fair deal for working people across our country.

And in the days after the fabulous and frankly nation-changing Paralympic Games – a week in which the whole country saw first-hand not what disabled people cannot do, but the excellence they can achieve – contrast that to the thousands of disabled working people who have proved that with the right help they can work, but have now be en thrown on the scrapheap with no guarantee of a new job to go to.

So let me commend, too, the work the GMB has led to campaign against the betrayal of Remploy workers.

But Congress, what do you expect.

From a Government and a Prime Minister who think you:

– restore consumer confidence and tackle insecurity at work by allowing employers to hire and fire at will;

– end recession and kick-start the housing market simply by making it easier to get planning permission for a conservatory;

– and tackle gender discrimination by telling a 54 year old woman Cabinet minister she is too old to do the job, and then appointing a 56 year old man instead.

What a contrast to this Trade Union Congress – proudly set to anoint your first female General Secretary in 100 years.

Let us take this opportunity to congratulate your General-Secretary-Elect, Frances O’Grady.

Congress, I can think of no better person than Frances t o teach David Cameron that you don’t have to be ‘butch’ to be a strong and tough and principled leader.

And let me start by adding my congratulations and thanks to all the deserved winners of the gold awards that we have presented this morning.

Congress, we rightly celebrate the fabulous volunteers who made the Olympics such a success.

Let us also celebrate all the trade unions lay members who – day in, day out – voluntarily give their time and energy and commitment standing up for the rights of their members.

And on a personal note, I want to say – there is no one who has fought harder to defend members in tough times and make the case for a fairer, long-term future than the GMB’s President, our friend and colleague, Mary Turner.

Paul, no-one here needs me to tell them that these are tough times.

Britain is just one of two G20 countries in recession – the longest double-dip recession since the Second World War.

Living standards face the biggest squeeze since the 1920s with prices rising faster than wages.

Unemployment is high, with long-term youth unemployment rising month by month.

And the costs of this economic failure are rising with borrowing up by a quarter so far this year.

But Congress, it does not have to be this way.

There is an alternative.

And the Conservatives cannot say they were not warned.

Remember what your General Secretary, Brendan Barber, said to this conference here in Brighton two years ago.

Brendan highlighted the reckless gamble the Coalition Government was taking with our economy.

He warned that the Cameron-Osborne plan risked choking off recovery and making a difficult situation worse.

Brendan, you called it right. You and this Congress stood out against the consensus, not just on behalf of your members but on behalf of working people across the country.

And Brendan, may I say, once a gain you showed the courage and calm judgement and commitment to jobs and social justice which have characterised your tenure as TUC General Secretary over the past decade.

And I am proud to say that with Ed Miliband and my Shadow Cabinet colleagues we have stood side by side with you and argued and campaigned and marched to make the case for the economic alternative.

Just remember what the Tories promised two years ago:

That their faster tax rises and spending cuts plan would secure the recovery and make Britain a safe haven.

That their economic plan would deal with the national debt.

And that ‘we are all in this together.’

The recovery secured?

We’re in a double-dip recession and our economy has contracted by 0.6% since the Spending Review.

Deal with our debts?

Conference, the latest figures show that so far this financial year borrowing is £9bn higher than last year.

Not borrowing falling… but borrowing rising – up by a quarter.

Rising borrowing not to invest in the jobs of the future but simply to pay for the mounting costs of economic failure.

And as for ‘we’re all in this together’, we don’t hear that line anymore.

Not from a Chancellor whose Budget decisions have so far hit middle and lower income families harder than those on the highest incomes, women hit harder than men and families with children hit hardest of all.

Not from a Chancellor who tried to raise taxes on pasties, caravans, churches, charities and pensioners, while cutting the top rate of tax only for the rich – a £3 billion tax cut giving £40,000 a year to a millionaire. Millions paying more in tax to pay for a tax cut for millionaires.

No wonder trade union members up and down the country are saying – it’s the same old Tories, hitting the many to help out a privileged few.

And as Brendan said at the weekend, we now risk a lost decade of slow g rowth and high unemployment which will do long-term damage.

Over 33,000 companies already gone bust since the General Election.

Investment plans cancelled – or diverted overseas.

New ideas and new ventures being promoted in other countries.

Our economy weaker, capacity lost, and I very much fear that the result will be an economy more prone to inflationary pressures when the recovery finally comes.

And above all, long-term youth unemployment becoming entrenched – damaging young lives, and racking up costs which we will all have to pay.

Not short-term pain for long-term gain, but short-term pain causing long-term damage and a long-term price for this government’s economic failure.

And yes, at the same time, this coalition government is also using the cover of deficit reduction to mount a full-scale assault on our public services and those who work in them:

– A reckless NHS reorganisation which will waste billions and risks putting profit before patient care;

– Market-based school reforms, with Michael Gove now talking openly of profit-making schools;

– And deep cuts to policing which are already hitting front-line services.

All of which are rightly being challenged by Unison, the NUT, NASUWT, ATL, the Police Federation and many others.

So let me say to Frances and to all the General Secretaries in this hall today.

We understand that you need action now – a change of course and a plan for jobs and growth.

The fact is you and your members cannot just sit back and wait for a Labour government .

Because despite the valiant efforts of Labour councils up and down the country, the damage is being done now.

That is why we have set out five immediate steps the government can and should take right now, steps the Labour would take now if we were in power:

– repeat the bank bonus tax again this year – and use the money to build 25,000 affordable homes and guarantee a job for 100,000 young people;

– genuinely bring forward long-term investment projects – schools, roads and transport;

– reverse the damaging VAT rise now for a temporary period;

– an immediate one year cut in VAT to 5 per cent on home improvements, repairs and maintenance to help home-owners and boost construction;

– and a one year national insurance tax break for every small firm taking on extra workers to help small businesses grow and create jobs.

Families and businesses – and every one of your members – are crying out for a change of course and some hope for the future.

So Ed Miliband and I understand and share your frustration and worry and concern.

You say that strikes must always be a last resort.

And I am sure that the last thing the vast majority of trade union members want, at a time of such uncertainty, is strikes over the coming months.

It is not what we want.

It is not what the public wants either.

But when coalition ministers warn that they will have to act and legislate if we see a return to the un-rest of the 1980s, what we are really seeing is Tories itching to provoke a row about strikes so they can blame the stalling recovery on trade union members and working people.

When it should be David Cameron and George Osborne and Nick Clegg who must now admit their plan has failed and change course.

So let us say loud and clear:

We don’t want to see a return to the 1980s.

We don’t want a return to the hatred, division and confrontation of the 1980s.

We don’t want a return to the strikes and lost working days of the 1980s – seven times more days lost than under the last Labour government.

We don’t want a return to the rising child poverty, decaying school buildings and long NHS waiting lists of the 1980s.

And above all we don’t want to return – ever again – to the mass youth unemployment of the 1980s – when young people left school or college and went straight into long-term unemployment – opportunity denied, a terrible waste of talent, which scarred our country for years to come.

Congress, we know now that it will fall to the next Labour government to clear up George Osborne’s economic mess.

And it’s going to be hard.

As Ed Miliband and I have said for many months, this Government’s failure – no growth, rising borrowing, our economy permanently weakened – means the next Labour government is now set to inherit a substantial deficit that we will have to deal with.

Which is why – however difficult this is for me, for some of my colleagues and for our wider supporters – when we don’t know what we will inherit, we cannot make any commitments now that the next Labour government will be able to reverse particular tax rises or spending cuts.

Unlike Nick Clegg, we will not make promises we cannot keep.

Credibility is based on trust and trust is based on honesty.

And we must be honest with the British people that under Labour, there would have been cuts, and that – on spending, pay and pensions – there will be disappointments and difficult decisions from which we will not flinch.

Because the question the public will ask is: who can I trust?

Who will have the discipline and the strength to take tough decisions which will be needed?

George Osborne has shown there is no credibility in piling austerity on austerity, tax rise on tax rise, cut upon cut in the eventual hope that it will work when all the evidence is pointing the other way.

But a radical plan to kick start our recovery, put jobs first and transform our economy will only be possible if we can win the trust of the British people that our plan is credible.

We can stand up for jobs, social justice, equality and fairness – but if we re out of government , we just can’t deliver.

Last Friday I met with a Morley constituent of mine, David, a construction worker and UCATT member for over 20 years with UCATT’s Yorkshire regional officer, Mark Martin.

David told me that work is hard to come by at the moment, with the housing market still flat on its back and the cancellation of Building Schools for the Future.

But he also described how employment in the construction sector has changed over his working life.

Dave currently has an agency contract, which he knows will be restarted before he hits 12 weeks, so he gets limited employment rights. He is paid above the minimum wage, but only because his £7 an hour job includes compensation for holiday pay foregone. He has no sickness pay. No pension.

And he told me he was still better off on the books of his agency than those of his work colleagues who have been forced into bogus self-employment. And much better off than if he was unemployed.

What my constituents, like David, want to know is that we have a credible plan that will work:

– action now to kick-start the recovery ;

– and reforms so that we can change the way our economy works and make his life better for the future. And that is why, in tough fiscal times, as Ed Miliband and I said last week, we must begin to set out long-term reforms we need to unlock long-term investment, tackle insecurity and invest in skills which is the only route to long-term prosperity.

– a modern industrial policy to support long-term wealth creation, with strategic support for our manufacturing and service industries.

– stronger corporate governance to make sure decisions are taken in the long-term interests of wealth creation and jobs.

It’s why we are examining the case for a proper British Investment Bank and why we want to see an international financial transactions tax too.

And let’s make sure that government procurement is not done in a way that disadvantages UK-based manufacturing production.

And that is why, too, on the issue of bogus self-employment, in the construction sector and more widely, I am determined that we look at this issue again.

There is a careful balance to be struck. I do not want in any way to undermine genuine self-employment.

But nor should contractual arrangements be distorted and misrepresented to avoid tax and undermine terms and conditions.

It’s not fair to taxpayers.

And it’s not fair to your members either.

So I have asked the Shadow Chief Secretary, Rachel Reeves, to look again at the Treasury’s 2009 proposals for reform – abandoned by this government – and to consult employers, UCATT and the wider TUC to see if there is a better and fairer way forward.

Construction is one of our most important industries.

Let’s work together to make it stronger, safer and fairer for the future.

And yes, we do need radical reform in our banking system, reform which this Government is now watering down.

We were right to reject the absurd Tory claim that the global financial crisis was caused by too much public spending in Britain.

We can’t say this often enough: it wasn’t too many teachers, and nurses and police officers here in Britain which made Lehman Brothers investment bank in New York go bankrupt.

But nor was the global financial crisis caused by the hundreds of thousands of working people, earning ordinary salaries, who work hard every day behind the counter on every high street.

People employed in financial services – in Leeds, Edinburgh, Manchester, Birmingham and Bristol as well as London – who were as shocked and dismayed as everyone else at the gross irresponsibility of a few millionaire bankers at the top who caused such damage and gave their industry a bad name.

People who want tough regulation, w ho want banks to work for the long-term interests of our economy – and who do not deserve to be pilloried for their hard work and service.

So let us work together to make our economy stronger for the long-term and improve the working conditions for trade union members and working people.

I stand here proud to have served in the last Labour Government.

Where we got things right – even where at times we disagreed – I won’t be shy in saying it.

But when TUC members made calls which we did not hear – and which in hindsight we should have – I hold up my hands.

It was TUC members who were telling us to address the housing shortage – and we were too slow to unlock the door to councils investing in new housing.

And it was TUC members who first told us to implement the Temporary and Agency Workers Directive and strengthen enforcement of the minimum wage.

But over those thirteen years, working together, based on common values, we did make real progress for working people.

From tax credits and a national minimum wage to guaranteed holidays and our campaigning to promote the living wage.

From the right to join a trade union and be represented to new rights for parents and carers in the workplace.

From the windfall tax and the New Deal, to the action we took, supported by the Fair Tax campaign, to tackle tax avoidance.

And we must keep working together on these vital issues for the future.

In my time at education, our work together on school standards, discipline, anti-bullying and free school meals showed how Labour, working with unions, can get things right.

And because fair pay and progression is just as important to teaching assistants, caretakers, cleaners, cooks and lunchtime supervisors as for teachers, nurses, doctors and the police, I was proud to work with colleagues in Unison, GMB and Unite to establish the school support staff negotiating body.

Michael Gove has now abolished that body.

And just as this is a profound mistake, so the Government is mistaken to undermine the independent pay reviews and pursue an agenda for wholesale regional and local pay bargaining – which will set hospital against hospital, school against school and be both unfair and cost us more.

Frances, Brendan, we are not always going to agree on every issue.

But I sincerely hope that, whatever disagreements we may have along the way, that you and your members will never stop giving me and the rest of the Shadow Cabinet plenty of tough and straight advice.

Because we in the Labour Party value the commitment to a strong economy and a fair society that is this Congress at its best.

Congress, we know the Government has failed.

But this is no time for complacency for Labour.

Yes, we are ahead in the polls.

And yes, David Cameron does look increasingly trapped:

– with an economic plan which isn’t working;

– a Conservative Party deeply divided;

– and a Chancellor he cannot sack, even though he knows George Osborne is the problem and not the solution.

But Labour cannot just sit back and wait for Tory failure to hand us victory.

That is the complacent road to failure.

We have to make the case – a credible case – for how a Labour government will kick-start recovery and transform our economy if we are to win the support of working people in the ballot box when the General Election finally comes.

Because we know, as you know better than anyone:

– when living standards are squeezed, we know who pays the price;

– when public services are scaled back, we know which communities lose out;

– when unemployment becomes entrenched, we know which areas suffer most;

– when only some children succeed, we know which children will be left behind;

So rest assured, Ed Miliband and I and the whole of the shadow cabinet are determined to take the fight to the coalition and show – for the sake of millions of workers across our country – that there is a better way.

Congress, there is an alternative.

Let us win the argument together.

Below is the text of the speech made by Ed Balls to the Fabian Society in 2012.

Thank you Suresh and Andrew – and to all of you for coming along today and giving up your Saturday.

And let me start by saying – after over 20 years of attending the Fabian annual January conference – what a great honour it is to be invited to give the opening speech.

I first spoke at this conference in January 1993 – when I was a junior leader writer at the Financial Times.

It was a very different conference then – not the huge event it has become – with perhaps 100 or so people gathered at Ruskin College, Oxford, including among them the leader of the Labour Party, John Smith.

That conference was held the January after Labour’s election defeat in 1992 – an election in which the Labour opposition had failed to pass either of the two necessary political economy tests for electoral success:

– neither having a real alternative to the straitjacket of the Exchange Rate Mechanism, which could meet the aspirations of anxious voters on growth and jobs;

– nor a credible approach to tax and spending which could win public trust.

Ten months on from that defeat, as we met in Oxford, sterling had recently crashed out of a troubled ERM, the idea of the single currency as the solution for Europe was gaining momentum in Brussels, and here in Britain Labour’s ‘modernisers’ were trying to persuade John Smith that ‘safety first’ would not be enough.

And my contribution at that Conference?

To speak about my Fabian pamphlet, published a week or so before, which argued:

–     that Labour could only win the argument for a radical alternative on growth and jobs if we had economic credibility;

–     that neither the ERM nor the single currency could provide that credibility;

–    and that the right approach for Labour and Britain was to make the Bank of England independent – a pretty controversial idea at the time.

I remember showing the pamphlet draft to my FT colleagues Martin Wolf and John Plender, who both said: right approach, very brave – but the Labour Party will never forgive you.

THE GLOBAL ECONOMIC SHADOW

That 1993 Fabian Conference was held in the shadow of seminal events:

– German unification in Europe;

– Black Wednesday in Britain;

– a fourth election defeat for Labour.

And today’s conference – again to debate The Economic Alternative – is, without doubt, being held in the shadow of much greater and more defining events:

–      political deadlock and an abject failure of economic leadership in the Euro area, Britain and the US Congress;

–      following on from the biggest global financial crisis of the last century.

A toxic combination of grossly irresponsible bank lending, poor governance and weak regulation round the world which in its aftermath poses – as I have argued consistently over the last eighteen months – a threat to the world economy as grave as that which we faced in the depression of the 1930s.

So this is my starting point for today’s Conference.

If Britain and the world are to avoid repeating the mistakes of that 1930s ‘lost decade’ and the 2008 global crisis, then we badly needs political leadership in Britain, Europe and the world to meet two great challenges:

The Growth Challenge – to stop the aftermath of the financial crisis turning into years of slow growth, high unemployment and rising debts – leaving a permanent dent in our prosperity;

and,

The Reform Challenge – long-term reform to make sure such a financial crisis on this scale can never happen again and to build a stronger and fairer economic model for the future – what Ed Miliband has called a more responsible capitalism – which can, even in tougher times, meet our aspirations for social justice and strong public services.

LABOUR’S POLITICAL SHADOW

But of course, there is another shadow which casts itself across this Conference today – a political shadow which presents a particular challenge to Labour.

I believe we are right to resist the ideological and a historical Tory analysis which tries to pin the blame for a global financial crisis on Labour’s approach to public spending – when it is clear that the global financial crisis bankrupted banks and pushed up deficits in high spending and low spending countries alike.

But it is a fact that this financial crisis did happen on Labour’s watch – and that Labour lost the subsequent General Election.

We have never denied that a plan is needed to get the deficit down, and that it would mean tough decisions on tax and public spending.

Before the election, I set out £1 billion of cuts to education.

But as a party and a leadership, I said then and I still believe now that Labour should have been clearer before the election that if we had been re-elected there would have been spending cuts as well as tax rises.

And I have no illusions that there is a big task to turn round Labour’s economic credibility and show – even as George Osborne’s plans deliver unemployment rising, growth stagnating and long-term reform stalling – that Labour can be trusted again.

It is not enough simply to be right in our diagnosis of the Coalition’s failures and unfairness.

And it is not enough to set out a clear alternative – on growth, as we have with our five point plan for jobs; or on long-term reform of our economy, as Ed Miliband did this week and Chuka, Rachel and John Denham have too.

The challenge we face is both to set out a radical and credible alternative; and to win public trust for that alternative vision.

‘KEYNESIAN OTHODOXY’

I referred to that January 1993 Fabian Conference.

Eighteen months later, in September 1994, just a few weeks after Tony Blair was elected Labour leader, and against the backdrop of stubbornly high youth unemployment, rising inflation and squeezed living standards, the Labour Party held a conference at the National Film Theatre on the new economy and Labour’s alternative.

As it happens, that conference was the occasion of the infamous ‘post neo-classical endogenous growth theory’ moment – which, for those who don’t know what it means, says that the rules of the game that the government sets on taxes, spending and regulation are not irrelevant to growth but can have a profound impact – for good or bad – on how the economy works.

Of course, those were very different times, and the policy debates of that time emphatically do not offer a blueprint based on the past when today we face such different economic and political challenges.

But the unspoken purpose of that 1994 conference – and its emphasis on Bank of England reform and fiscal discipline – was to address Labour’s economic credibility deficit, and dispel the idea that the party was addicted to the short-term, quick fix, vested-interest-appeasing solution to every problem.

I went back this week to look at the reporting of that conference – and in particular a preview piece in the Independent on Sunday with an anonymous briefing from ‘a senior party insider’.

The article started by saying Tony Blair and Gordon Brown will “ceremoniously ditch Labour’s traditional ‘tax, spend and borrow’ image this week, in a fundamental re-positioning of his party’s economic strategy.”

All under the headline… Labour Ditches Keynes.

As someone who had only recently studied ‘New Keynesian’ economics at Harvard, with Democrat Keynesians like Larry Summers and Republican Keynesians like Greg Mankiw, I must admit I was pretty appalled to see the greatest economist of the twentieth century traduced like that.

But the fact was that in the Monetarists versus Keynesians economic debates of the 1970s and 80s, the label ‘Keynesian’ had become – certainly in Conservative circles – a dirty word: profligate, irresponsible, statist, inflation-loving, not to be trusted.

A caricature that clearly could not be allowed to be a Labour caricature if we were to go on and win the 1997 election.

And what has been so striking to me over the past year listening to right-of-centre politicians and commentators – in Britain, America and Europe too – is how much the austerity debate has been used to try to reprise those old ideological divides.

Warn about the risks of deflationary fiscal policy – and that makes you a ‘deficit denier’.

Worry about the dangers of all countries trying to cut their deficits at once – and you are a ‘deluded Keynesian’.

Counsel that the world needs a plan for growth as well as deficit reduction – and you are ‘an irresponsible deluded Keynesian deficit denier’.

Keynes himself must be turning in his grave.

For, as has been fully documented in Lord Skidelsky’s biography, the real Keynes was no profligate tax-and-spender. He would have had no time for some of his disciples.

His seminal 1930 Treatise on Money was as hawkish on inflation as Milton Friedman decades later.

His attitude to irresponsible wage bargaining in the 1920s was as unforgiving as Margaret Thatcher in the 1980s.

Central bank independence? I think Keynes would have backed it – though not if his contemporary Montagu Norman was the Governor.

And as for the irresponsible and inflationary profligacy of the 1970s

Tory Barber boom? He would have abhorred it.

KEYNES AND THE GROWTH CHALLENGE

But – and this was his great insight – Keynes also knew that economies could occasionally get stuck in a deflationary rut.

Although he called his famous book in 1936 ‘The General Theory’, it actually was not a general theory at all.

It was a description of what can happen in the unusual and special circumstances after a big financial crash – for him 1929, for us 2008 –  when the ‘animal spirits’ of companies and consumers are so depressed that private spending stagnates.

When interest rates are so low that they can’t be cut any further.

When governments crudely cutting spending risks making deficits worse.

Of course, there will be naïve ‘Keynesians’ who will think it is always a special case – time to let rip and just ‘tax, spend and borrow’ in the hope that will deliver full employment – people who think we are always in 1930s-style depression and more borrowing is always the solution to unemployment. And that is what gave Keynesianism a bad name in the 1970s.

It is why Labour leader Jim Callaghan was right to tell the Labour Party Conference in 1976 that that you can’t just spend your way to full employment.

But, as I argued well over a year ago now in my Bloomberg speech, the reason why the real Keynes is so relevant today is that the global economy has been sliding into that rare and dangerous ‘special case’ that Keynes identified in the 1930s and Japan suffered in the 1990s.

You either learn the lessons of history or repeat the mistakes of history.

With growth stagnating around the world, every country pressing ahead with deep cuts risks being a catastrophic mistake.

Which is why Ed Miliband and I have argued for a global plan for growth, with clear medium-term plans to get deficits down, but stimulus now to avoid a global slump too.

Rejecting the complacent isolationism of the 1930s and instead following Keynes’ lead by setting out a global solution to global problems – an economic alternative based on growth, job creation and balanced deficit reduction, which is the only sane way forward for Britain – and the only way back to credibility in the Euro area too.

Let us be honest: the Eurozone crisis is a catastrophe building week by week. And the pre-Christmas summit was a disaster for Europe and the Euro and for Britain too.

Europe’s leaders failed to back decisive action by the European Central Bank; they did not address the issue of the current fiscal straitjacket; and they still have no plan for jobs and growth – hence the downgrades of the past 24 hours.

And did our Prime Minister bang the table and demand action?

No, he walked out and undermined our national interests as he did so.

Given the huge risks that the Eurozone crisis poses for Britain, we desperately need a Prime Minister and Chancellor who can lead in Europe.

But they can’t – and not just because their party won’t let them.

Because to do so means also admitting that they have got things wrong here in Britain too.

George Osborne and David Cameron took it as read that deep and immediate spending cuts and tax rises would at least serve the goal of deficit reduction – no matter how much Labour warned that going too far, too fast would be bad for borrowing as well as for jobs and growth.

The Chancellor claimed that public retrenchment would boost private sector confidence, investment and job creation. He called it ‘expansionary fiscal contraction’.

But this has turned out to be a false prospectus – a repeat of the discredited ‘Treasury View’ of the 1920s. Fragile consumer and business confidence has been crushed by the inflationary hike in VAT, the threatened withdrawal of public sector demand, the reality of falling incomes and the fear of rising unemployment.

And now the Government claim growth is stagnating because of the chilling effect of the Eurozone crisis – when our exports have actually been over performing compared with expectations, and it is weak domestic demand that has driven growth in the UK down, borrowing up and depressed long-term interest rates on government bonds.

Conservative ministers scoff at our five point plan for jobs and growth, saying ‘Labour’s proposal is to borrow even more’. But it is Chancellor George Osborne who is being forced to borrow billions more – £158 billion more than he planned.

Not borrowing to support the economy through difficult times and help get people back to work, but wasteful extra borrowing to pay for failure – the price of slow growth, rising unemployment and a bigger benefits bill.

Because every time George Osborne revises down his growth forecast, he has to revise down tax revenues and increase the benefits bill too.

Even the IMF has said that if our economy undershoots expectations and risks a period of stagnation, then the UK should slow down the pace of spending cuts and tax rises to get the economy growing again.

Just think: last autumn, many 16 year olds who would otherwise have stayed on at school have lost their Education Maintenance Allowances, and – following the abandonment of the Future Jobs Fund – many have gone straight onto the dole, adding to the more than 1 million young people now unemployed in our country.

On the surface of things, cutting EMAs and the Future Jobs Fund saved money and reduced borrowing.

But at what cost? How much more will it cost our society and our economy to leave those young people long-term unemployed and unproductive; they and their children receiving benefits rather than paying taxes and contributing to the national wealth?

If we do not invest now in jobs and growth, if we let a year of economic flat-lining become a decade of stagnation, what price will our country pay in the long-term?

That is why to meet the Growth Challenge and get the deficit down we are right, as we have set out in the five point plan for jobs, to call for temporary tax cuts and investment in jobs and growth – to stop a decade of slow growth and higher debts becoming a self-fulfilling prophecy.

Action now for growth, jobs and reform which does not conflict with the need for a credible medium term plan on the deficit, but which reinforces it.

KEYNES AND THE REFORM CHALLENGE

But changing times also demand new and long-term reforms to re-shape our economy for the future.

As Ed Miliband argued earlier this week, we will need long-term reforms of our economy to boost growth and deliver social justice in straitened times.

And here again, the words of Keynes writing in The General Theory in 1936 are instructive:

“Speculators may do no harm as bubbles on a steady stream of enterprise” he wrote. “But the position is serious when enterprise becomes the bubble on a whirl-pool of speculation. When the capital development of a country becomes a by-product of the activities of a casino, the job is likely to be ill-done.”

Keynes was right then and now – we cannot simply let markets, in which speculators spend their time chasing one another’s tails, dictate important investment decisions and set the benchmark for what is fair and unfair.

Unregulated capitalism is not only unstable; it is inherently short-termist too.

So just as the current coalition are wrong to reject the insight of Keynes based on his experience of the 1930s, we must, as Ed Miliband has said, learn the lessons of the past three decades and meet the Reform Challenge:

–    tougher financial regulation and new capital standards with financial stability at the heart of economic policymaking and banking reform to make sure that the needs of small businesses are addressed, including examining the case for a National Investment Bank;

–    stronger corporate governance to make sure decisions are taken in the long-term interests of wealth creation and jobs, not the short-term interests of traders, speculators and their chums;

–    government action to back business and ensure markets work for the long-term, including tougher competition rules, tax incentives for long-term investment, research and development and skills;

–    and a youth jobs guarantee with tough rights and responsibilities – and an expectation that every young person would take up work or training.

GROWTH, REFORM AND DEFICIT REDUCTION

This is the Economic Alternative:

– to meet the Growth Challenge: short term action now to support jobs, growth and get deficits down;

– to meet the Reform Challenge: long-term reform to tackle short-termism and instability and support long-term investment, growth and fairness.

But to make that alternative work and be credible, it must be underpinned by a clear commitment to balanced but tough spending and budget discipline now and into the medium-term.

The question for Labour has never been about ‘whether’ to get the deficit down but ‘how’ and ‘when’, who carries the greatest burden, and what kind of country we leave behind for our children.

And while we would not have started from here – a fairer and more balanced approach to deficit reduction would not have choked off recovery and thrown borrowing plans off track – we are where we are.

As Ed Miliband and I have said for months this government’s failure means the next Labour government will inherit a substantial deficit that we will have to deal with.

After just 18 months, the government’s autumn statement admitted that it will not balance the books by 2015 – the promise that was the cornerstone of the coalition.

And George Osborne has had to admit that he will now have to borrow more than the plan Alistair Darling set out before the election – because of the slow growth and higher unemployment his reckless plan has delivered.

This represents a big challenge for Labour, as Ed Miliband made clear earlier this week. As I said at Labour’s annual conference, we will set out before the next election tough fiscal rules that the next Labour government will have to stick to – to get our country’s current budget back to balance and national debt on a downward path.

In our manifesto we will commit to do the responsible thing and use any windfall gain from the sale of the government’s stakes in RBS and Lloyds to repay the national debt – not for a giveaway.

And, however difficult this is for me, for some of my colleagues and for our wider supporters, we cannot make any commitments now that the next Labour government will reverse tax rises or spending cuts. And we will not.

Because we don’t know how bad things will be on jobs, growth and the deficit. But we do know that the next Labour government will have to sort out the deficit where this government failed and deliver social justice in tougher times.

And as we make the argument that cutting spending and raising taxes too far and too fast risks making the economy and the deficit worse not better, it is right that we set out where we do support cuts and where we would be making the tough but necessary decisions.

In education, as I have said, £1 billion of cuts – but not the biggest cuts to schools since the 1950s. In policing, 12 per cent cuts to budgets – but not 20 per cent cuts which will hit the frontline hard and see 16,000 officers lost. In defence, £5 billion of cuts – but not a strategic defence review that raises more questions than answers.

And because as progressives we believe in the role of the state and public services to do good, it is vital that we are even tougher on waste than our political opponents – whether that is the £2 billion being wasted on a reckless reorganisation of the NHS, billions being lost in tax avoidance or the waste of mass unemployment.

Times will be tough – we will have no choice but to make difficult choices.

Let me give you one example.

Pay restraint in the public sector in this parliament would have been necessary whoever was in government.

But George Osborne’s economic mistakes mean more difficult decisions on tax, spending and pay. It is now inevitable that public sector pay restraint will have to continue for longer in this parliament.

Labour cannot duck that reality. And we won’t. Jobs must be our priority before higher pay.

That said, there are important issues on incomes, pay and pensions that George Osborne must get right.

We will continue to press for fair pay and fair pensions reform while defending the vital role the national pay review bodies play in delivering discipline, reform and fairness.

We believe the 3p in the pound rise in pension contributions should never have been imposed without negotiation.

And it is wrong and unfair to penalize those on low and middle incomes by cutting tax credits, hitting women harder than men and families with children hardest of all.

But pay discipline in the public and private sector needs to be accompanied by fairness.

That is why the government should also ask the pay review bodies to deliver the 1 per cent average settlement cap in a fair way – being tougher to those at the top in order to offer more protection to those at the bottom.

Pay also needs to be fair in the private sector, where there have also been tough decisions – with real pay in the private sector falling around 3% in the last year. But for those at the top boardroom salaries in FTSE 100 companies have increased by 50% in the past 12 months.

That is why Ed Miliband has rightly called for reforms to ensure that rewards at the top better reflect the success people achieve and the contribution they have make to our economy. David Cameron has now started to talk the talk on this issue, but he now needs to take the action we have been calling for.

THE POLITICAL CHALLENGE FOR LABOUR

Let me finish by returning to the politics.

Because it would be naïve for anybody to think that the government’s deepening economic failure will automatically translate over the coming months into success for Labour.

And the question the public will of course ask is: who can we trust?

Credibility is based on trust and trust is based on honesty.

And let’s be clear: the Tories won’t own up either to the scale of the challenge or the failure of their plans.

They claim Britain is a safe haven… when our low long-term interest rates are not a sign of enhanced credibility but a reflection of stagnant growth in our economy, as it was in Japan in the 1990s.

And they claim we’re all in it together… when middle and lower income families, women and young people are hardest hit, and the pain is only now beginning.

So with determination and vigour – loud and direct – we must expose day by day the huge gulf between what Coalition ministers say and the truth.

But we must be honest with the British people that under Labour there will have to be cuts, and that – on spending, pay and pensions – there will be disappointments and difficult decisions from which we will not flinch.

But honesty does not mean going along with a failed Conservative plan because it is easier in the short-term. We tried that when Labour supported the disastrous decision to join the ERM and stuck with a failing policy right up until September 1992.

I have heard much advice over the past year from people who admit that combining stimulus now to get the economy moving with a tough but balanced medium-term deficit plan may be good economics – but who argue that it is bad politics because it is ‘out of tune’ with the public mood.

But that is not honest politics either.

Now is not the time to stand aside, bite our collective lip while this government and Euro area governments make historic and terrible mistakes.

I do believe that we have both a duty to make the right argument on growth and jobs – even if this has put us outside the consensus for a time.

And I do believe this is an argument we can win.

Now is the time to hold our nerve.

To make the case for The Economic Alternative.

To speak up for the people we seek to represent and the values that we stand for.

And to do so in a typically Fabian way – steady, step by step, determined, credible and radical in our vision for a better and fairer future for Britain.

Thank you.

Below is the text of the speech made by Ed Balls, the Shadow Chancellor, to the 2012 British Chambers of Commerce annual conference on 15th March 2012.

John, thank you for inviting me here today to Westminster Central Hall to address your annual conference this afternoon.

And Iet me start by sympathising with you all – as I am now the third politician you have heard from today – and with two more to come, I am sure you are all flagging a little.

But I know, from my own direct experience, the passion of your members and their commitment to their businesses and their communities.

Over the last decade and more I have had the opportunity to work closely with the BCC and my local chambers in Wakefield and Leeds on many important issues from regional funding and apprenticeships through to enterprise education in schools.

In fact, I was speaking only last Friday night in Wigan at a local gala dinner organised with the excellent local Chamber.

And we talked about many issues which I am sure have come up today already

From the local – delays in planning decisions, problems at the Valuation Office in assessing business rate valuation appeals when business rates are rising by over 5%, worries that the LEPs don’t have the resources and powers to do the job; through to national and global issues – rising youth unemployment, the Eurozone and why the Brazilian economy is now bigger than the UK.

And what that dinner again drove home to me is this: while the CBI, FSB and IoD also play a very important role on the national and regional stage, if you want to know the views of local small and medium sized businesses up and down the country then it is local Chambers of Commerce that you turn.

John – you truly represent the authentic voice of UK business and it is good to be here today.

And let me say on behalf of Ed Miliband, the Labour Party under his leadership will always be a good but honest friend to business – challenging when we must be – but determined to work with you to build an economy for the future that works not just for financial institutions, but for businesses large and small and the people who work for them – in an economy that is both dynamic and fair to all who work hard and play their part.

But let us be honest – these have been a difficult few months for business in Britain.

I refer, of course, to the way that the depressed consumer and business confidence here in Britain has had a direct effect on to your profits and performance alongside the Euro zone crisis.

But also the way in which issues of bonuses and executive pay have hit the headlines.

And I know how frustrating politics can be when it looks as though politicians are continually moving the goal posts.

I don’t think anyone can be in any doubt that after the financial crisis, reform is needed in financial regulation and corporate governance more widely.

But I know too that the most important things businesses need are stability and predictability – government decisions made and then stuck to so that you can plan ahead:

That it is the clear view of business that, where possible, we politicians should seek consensus where we can in the national interest;

I want to come back in a moment to where I believe we can all agree on the big strategic objectives facing our country.

But I have to say I have been dismayed over the past year by the way in which government policy and its attitude towards business has at times seemed driven more by newspaper headlines, and change for change’s sake, than what makes for good business policy.

What signal did the Government send to international investors in renewable energy when it abruptly, arbitrarily and without consultation slashed the support for feed-in tariffs and undermined the solar industry at stroke?

What signal did it send to the Chinese investors in the new Longbridge MG line that the very organisation which brokered the deal – the RDA Advantage West Midlands – has now been abolished?

What signal was sent to multinational companies about the abrupt change in North Sea oil taxation in last year’s Budget?

Or to globally mobile construction companies with the out-of-the blue and immediate cancellation of Building Schools for the Future, cancelling nearly 800 schools where millions of pounds of private sector investment had already been made and contracts drawn up and negotiated?

And the way business decisions are announced matters too.

Whatever the case for minimum alcohol pricing – and we will study the evidence carefully – is it really sensible for the Prime Minister to announce his intention to proceed the day after Boxing Day without any proper consultation with the beer, cider or pub industries, which will be heavily affected by policy in this area?

And what signal did it send that the Prime Minister – having rejected our calls for greater transparency in City bonuses and a repeat of the bank bonus tax to fund a youth jobs programme – ended up telephoning individual chief executives from Brussels to order them to give up their bonuses?

And whatever you think of the culpability or otherwise of Fred Goodwin – and I don’t think there are many who would defend his behaviour over his pension payments after he resigned, or some of his decisions which took RBS to the brink –what signal did it send to businesses round the world that the decision to remove his knighthood was first announced by the Prime Minister to the Daily Mail, with the decision of the supposedly independent committee then announced just in time for the 6 o’clock news?

The right decision – but handled, in my view, in a dreadful manner.

For a country like Britain, the signals we send around the world about Britain as a place to do business really do matter.

And starting with next week’s Budget, this Government needs to do a better job of it.

I know you will be expecting me to highlight my differences today with Coalition politicians. And I will.

But, in the spirit of consensus, I also want to set out where, on each of the three big questions of our time..

– deficit reduction;

– the long-term prospects for jobs and growth in the UK

– banking and regulatory reform

– the Chancellor George Osborne and I agree on the strategic goals even if we disagree on how to get there.

The first thing that George Osborne and I agree on is that, after the global financial crisis, we do need a credible plan for deficit reduction.

For a country like the UK, open to trade and commerce, dependent on the support of international investors, a credible deficit reduction plan is now vital – just as a credible independent monetary policy was one of the most important reforms I was involved in delivering in the last Labour government, alongside keeping Britain out of the Euro.

But we need a plan which will work, and which pulls all the levers required to deliver deficit reduction.

Of course, we need spending cuts and tax rises as part of that package.

But we also need jobs and growth to get the deficit down.

In office, our plan was based on restoring strong, sustainable growth, getting people back into work, and then beginning the difficult task of cutting spending and raising taxes where necessary.

But nearly two years ago, when the Coalition was formed, they took a radically different path.

First, they decided that the speed of deficit reduction had to be substantially increased.

Second, the emphasis of their plan took a sharp turn from increasing jobs and growth to immediate and steep spending cuts and the VAT rise.

But since the Chancellor’s spending review we have grown by just 0.2%, while America has now more than recovered all the output lost in the global recession.

Our recovery was choked off in the autumn of 2010, well before the recent euro zone crisis.

Unemployment continues to rise and over the last year the number of jobs created in the private sector has been outweighed by the huge loss of jobs in the public sector.

And the result is that the Government is having to borrow £158 billion more than they planned, to pay for the cost of this economic failure.

If the economy isn’t growing and so fewer people are in work paying taxes – and more people claim benefits instead – it makes it harder to get the deficit down, and harder to maintain confidence – of businesses and the markets too.

Don’t forget it was the impact of slow growth on deficit reduction here in the UK which prompted the Moody’s credit rating agency to put the UK on ‘negative outlook’ last month, followed yesterday by Fitch. As another agency, Standard and Poor’s said this year, ‘austerity alone risks becoming self-defeating’.

Many of you will remember the 1980s. Of course, action was needed then to get inflation down from its 13 per cent peak. But who now doubts that the depth of the resulting recession did permanent damage?

Manufacturing jobs and companies lost – never to return. Small businesses bankrupted – losing skills, ideas and potential. Infrastructure plans first postponed, eventually dropped and never resurrected. Adults and young people out of work for years, leaving a permanent scarring effect on their skills, their health, and their ability ever to work again.

That is why, alongside tough decisions on tax, spending and pay, I believe we do need urgent action in next week’s Budget to kick-start the recovery.

A Budget for jobs and growth including a temporary cut in VAT and genuinely bringing forward infrastructure investment to strengthen our economy for the long term.

And let’s use the almost £1 billion of unspent money in the Treasury’s failed national insurance holiday for new firms and extend it to give a tax break to all small firms taking on extra workers.

Because without action now to support growth and jobs, I fear we are in for a lost decade of slow growth and high unemployment which will leave a permanent dent in our nation’s prosperity.

But reducing the deficit is not by itself a guarantor of economic success.

So the second thing George Osborne and I agree on is that a credible deficit reduction plan is a necessary condition but it is not by itself a credible plan for jobs and growth.

The question is what form that plan for growth and jobs should take.

And whether it is backtracking on planning for large- scale infrastructure projects, the abolition of the RDAs or the scrapping of skills programmes, I fear that the current Treasury view that the only thing government needs to do for business is just to get out of the way risks undermining your efforts, not backing them.

As the Business Secretary himself wrote a few weeks ago in his famous leaked letter, the Government lacks “a compelling vision of where the country is heading beyond sorting out the fiscal mess”

He is right – and – on transport, planning, skills, strategic industrial support – government has a vital role to play and cannot just walk away.

With China currently producing more graduates a year than the whole population of Scotland; and adults in Brazil already twice as likely to be running their own business as Britons – I believe here in Britain we do need a long-term plan for growth to support and back your leadership and innovation and risk-taking.

That is why Ed Miliband, Chuka and I are clear that a modern industrial and business policy needs:

– government action to back business and ensure markets work for the long-term, including tougher competition rules, tax incentives for long-term investment, research and development and skills;

– stronger corporate governance and transparency in executive pay to make sure decisions are taken in the long-term interests of wealth creation and jobs;

– and tougher financial regulation and banking reform to make sure that the needs of small businesses are addressed, including examining the case for a British Investment Bank.

Which takes me to the third thing that George Osborne and I agree on – – the need for banking reform.

The global financial crisis started with the reckless lending practices of American financial institutions, but it exposed risky behaviour by banks and inadequate regulation in every major country of the world, including in Britain.

This must never happen again.

And while it was the irresponsible actions of banks which caused the crisis, it was also the fault of governments and central banks – including Britain’s – who did not see the financial crisis coming and should have been tougher in regulating the banks.

Every government in the world got that wrong. We did here in Britain. And while it is not good enough simply to be wise after the event, life is also about admitting when you get things wrong and learning from your mistakes and that is what we must all do.

For the longer-term, I do believe that the report from the Vickers Commission on banking reforms is the right way forward – though the devil will be in the implementation detail.

But I know too from my own constituents the huge frustrations that many small and medium sized businesses currently feel about the ways the banks are now behaving.

Since the widely criticised Project Merlin deal between the Government and the banks, net lending to businesses has fallen by £10 billion over the last year.

And despite all the promises that credit easing would be a short term solution to this problem, in the six months since it was announced not a single businesses has yet been helped, indeed the details of the National Loan Guarantee scheme have yet to be announced.

Vickers is right to argue that to protect customers and taxpayers we need much tougher accountability and transparency and clear, workable and robust firewalls – as well as stronger competition, especially in business lending, where the Government is taking much too long to make progress.

But on regulation, we must take a careful and balanced approach

Too soft: and we risk again leaving taxpayers and businesses exposed.

Too heavy-handed: and we risk throwing the baby out with the bath water and ignoring the needs of businesses small and large.

The easiest way to avoid any financial risks at all would be to have no transactions at all. But a lurch to regulatory risk aversion would be disastrous for the UK economy.

That is why in Parliament we are arguing that the proposed permanent Financial Policy Committee of the Bank of England should have a clear objective, alongside financial stability and consumer protection, to promote economic growth – a proposal which has been supported by many business organisations.

In my view, we need to have in our minds the US response to the WorldCom and Enron accounting scandals a decade ago.

The US Congress reacted with a heavy-handed piece of rules-based legislation – Sarbanes-Oxley. But it didn’t work.

It did not stop the financial crisis which started in the US.

And its complexity drove jobs and tax revenues out of the US year by year.

This audience doesn’t need telling that rigid rules-based regulation is often not the answer, and that small and medium-sized businesses desperate for much needed risk capital and fair terms are likely to be the losers if regulation is too heavy-handed.

Let me be clear – I know many of your members worry about the burden of regulation.

It is always important to keep Government under pressure on that issue as on spending too where wasteful public investment can never be justified.

As my colleague the Shadow Business Secretary Chuka Umunna said in his speech earlier this week, a good industrial policy:

“is as much about knowing when not to intervene, to let business and competition thrive in healthy markets, as it is about knowing when to intervene to address market failure where needed. Active, intelligent government understands its limits.”

But that does not mean the only thing government needs to do is cut regulation and spending and then leave business alone to get on with it.

I am not going to claim to you that Labour got everything right in government – let alone that you all agreed with what we did.

But many of our most successful economic policies:

– record investment in rail and roads,

– an expansion of higher education and science,

– a renaissance in apprenticeships,

– CGT for entrepreneurs cut to 10%

– faster business planning decisions,

– the car scrappage scheme,

were successful because we had moved beyond the old-style British debate – public bad, private good? private bad, public good? – and recognised that partnership between business and Government is vital if we are to rise to the competitive challenge.

Peter Mandelson was right when he said:

“ministers and markets can and should mix.”

And at a time like this, when we need to rebuild our economy for the future, that partnership is needed more than ever.

I said at the beginning of my speech it is the clear view of business that you need stability and predictability and, where possible, we politicians should seek consensus where we can in the national interest.

In all sectors, but especially in manufacturing, aviation or energy, that is the only way to ensure businesses can invest.

Consensus is not always a good thing. But nor is headline-grabbing change for the sake of it.

That is why – issue by issue – whether we agree or disagree – I am committed to working with you and listening to you on all issues which affect your businesses and our economic future.

It is the only way forward for Britain.