George Osborne – 2012 Speech at Speaker’s House


Below is the text of a speech made by the Chancellor of the Exchequer, George Osborne, at Speaker’s House on 22nd October 2012.

Thank you Mr Speaker for that kind introduction and for inviting me to give this evening’s lecture.

Many of your previous speakers have talked about their experiences in Government and the changes they have seen over their long careers.

I certainly hope that it’s a little too early in my career for a retrospective, and since this series features those who have occupied great Offices of State, I’d like to talk about the long history of the Office I occupy and add a few of my own observations of its modern role.

Of all the Great Offices of State and all the Departments, few evoke such strong feelings as Chancellor of the Exchequer and the Treasury.

The late Sir Alistair Morton, whose role as Chief Executive of the Channel Tunnel put him at loggerheads with the holder of his purse strings, accused the Treasury of doing “more damage to the British economy than the Luftwaffe…”

Even that former Treasury official, John Maynard Keynes said the department is “an essential bulwark against overwhelming wickedness”.

A central Treasury has been a part of our national life since at least the time of the Norman Conquest.

The Domesday book can be seen as our first national tax register.

A brisk tour through Treasury’s highs and lows takes in the full sweep of Britain’s social, economic and political history – few institutions could claim their interests and decisions are more deeply ingrained in our national life.

Of course, not only is the Treasury a part of our history; it continues to play a central role on our nation’s behalf.

Or should I say “roles”, because the Treasury performs a number of different functions.

Tonight, I’d like to say something about the origins of those functions and about how they are performed today.

Let me start in a rather unexpected place: in Llantrisant in South Wales.

There is the home of the Royal Mint – a small part of the Treasury family that is more ancient than the Treasury itself.

It was established in the second half of the ninth century, and has been minting coins on behalf of the Crown ever since.

Its job has always been to provide confidence in the nation’s money – a job these days more than shared with the rest of the Treasury and the Bank of England, who print our banknotes.

The Master of the Mint is the Chancellor of the Exchequer, and has been since Victorian times.

Every year in the City, the Trial of the Pyx takes place.

It is our country’s most ancient judicial ceremony.

First held in 1248, it is the annual occasion when the Master of the Mint is held to account for the quality of the coinage.

So I can say, hopefully without eliciting headlines that I have been put on trial twice.

In former ages, it was an essential occasion.

Unscrupulous medieval governments would debase the money supply by diluting the quality of the precious metal.

In the last century, the Treasury found more sophisticated ways to achieve the same thing.

When coins were made of silver or gold, they were constantly subject to counterfeiting or clipping by unscrupulous citizens.

Successive Masters of the Mint tried to tackle the problem – the most successful Master at doing so was Sir Isaac Newton.

He rebased the entire medieval coinage, because it had become so debased.

And he would personally inspect the coins in the taverns of Westminster to police the quality of the coinage.

These days, the Treasury officials are known to undertake similar field work in the Westminster Arms and the Red Lion.

When I first came to office I made the foolish error of thinking that since I was Master of the Mint, I could have some say over coin design.

After all, I regularly write to Her Majesty to ask her permission for new coin designs.

But when it comes to those designs, I have discovered I have little influence.

The true power lies with the Royal Mint Advisory committee.

Indeed, when early on I tried to reject one coin design I didn’t much like, I was told in a roundabout way that I couldn’t – and then discovered that Alistair Darling has also tried and failed to reject exactly the same coin design.

One of my first decisions as Chancellor that did stick was to reject plans to privatise the Mint.

When something has been part of your State for eleven centuries, you should think twice before getting rid of it.

And indeed, these days the Royal Mint leads the world in modern designs and technology – replacing our 5p and 10p coins with nickel-plated steel versions, producing new commemorative coins with colour in them – including a red poppy for Remembrance Day, minting this summer’s Olympic and Paralympic medals and making coins for over 60 countries.

I am happy to say that because of its overseas sales, it makes a handsome profit for the British taxpayer, and that money flows into the Exchequer.

Which is appropriate as after the Mint, the oldest part of the Treasury is the exchequer, which collected and issued money on behalf of the Crown.

The name “exchequer” comes from the chequered table – a sort of medieval excel spreadsheet – used from the beginning of the 1100s for calculating expenditure and receipts.

The Exchequer was overseen by a Lord High Treasurer and a Lord Chancellor.

The Lord High Treasurer was responsible for superintending all spending, while the Lord Chancellor acted as a check upon the accounts of the Treasurer.

By the 13th Century, the Treasurer and the Lord Chancellor had delegated most of their duties to an Under Treasurer and the Chancellor’s clerk – so in the reign of Henry III, the Clerk became an officer of the Court as the “Chancellor of the Exchequer”.

Exchequers were held twice a year when the Chief Justice, the Lord Chancellor, and the Treasurer sat round the chequered table, auditing the accounts of each local Sheriff who collected and spent money on behalf of the Crown.

A historical remnant of that event is that today, the Chancellor still has a role in the appointment of Sheriffs.

The money received by the Treasury in medieval taxes was recorded using tallies – eight inch long sticks, with notches to indicate the amount of money involved.

The stick would be cut in two, and one half given to the Sheriff as a receipt for the money.

These tallies were stored in vast quantities until 1834 when they caught fire and destroyed the Palace of Westminster – an early example of the sometimes incendiary relationship between the Treasury and Parliament.

Until the 17th century, a succession of Lord Treasurers had used their role in the Exchequer to consolidate their family’s personal power and wealth.

This reached its zenith when Sir Robert Cecil used his position as Queen Elizabeth I’s Treasurer to control not only the public purse but even to pay a network of spies to smooth the succession of his favoured candidate, King James I.

That’s why exactly 400 years ago this year, on Robert Cecil’s death in 1612, King James replaced the Lord Treasurer with the Treasury Board, to ensure that no one person could hold that level of power and influence over the Monarch.

That Treasury Board still exists today – and it is from the seat on this Board that the modern role of the Chancellor of the Exchequer began.

The most senior Board Member is, of course, the First Lord of the Treasury and by the 18th century was seen as the natural head of the Government – or the “Prime Minister”.

The door of 10 Downing Street still to this day bears the plaque “First Lord of the Treasury”.

And from 1827, the Second Lord of the Treasury was always the job of the Chancellor of the Exchequer.

At around this time, it also became tradition for the Chancellor to live at No.11 Downing Street, a tradition only overturned by Tony Blair when he realised the living quarters in No.11 were bigger and kicked the Chancellor next door.

As well as the First and Second Lords of the Treasury Board, there were three other Lord Commissioners, who have evolved into the modern Government Whips.

They still play a key role today, signing around 200 documents a year on behalf of Treasury, at any time of day or night.

To celebrate its 400th anniversary, we convened a very brief meeting of the Treasury Board this summer, for the first time in twenty nine years, and only the second time in a hundred years.

The First and Second Lords attended, along with the remaining Lords Commissioners, the Financial Secretary and the Permanent Secretary.

We held the meeting in the Treasury Boardroom, a magnificent eighteenth century room in the Cabinet Office.

A throne is still there in case Her Majesty wishes to attend a meeting, although a monarch has not done so for over 200 years.

And by what romantic name is this historic Treasury boardroom at the heart of Government now called?

Conference Room A.

Not that the Treasury can complain.

Winston Churchill’s war time bedroom on the ground floor of the Treasury building is named “Ground floor 18”.

When we held our Treasury Board meeting earlier this year, the agenda reflected both the enduring and new functions of the Treasury.

First, the enduring: the Board approved a Warrant under the Duchy of Cornwall Management Act, permitting the Duchy to borrow £900,000 for an extension to a Chocolate Factory at Poundbury.

Oversight of royal expenditure is still a modern function of the Treasury and the Chancellor is a Trustee of the Royal Household.

The second item on our agenda reflected the new functions of the Treasury: the Board signed a number of Asset-Freezing regulations against individuals hostile to the interests of the UK– a reminder of the vital but little known role the modern Treasury plays in helping to keep our country safe and upholding international law – implementing financial sanctions against the Taliban and Al Qaeda, and regimes such as Iran and North Korea.

That evening, we celebrated with a dinner at the Guildhall– attended by over 150 present and former Treasury Board members and Treasury Ministers – including those who had served in the Wilson and Heath administrations, and one who earned his invitation four times over – as a Lord Commissioner, as Chief Secretary, and as Second Lord and First Lord of the Treasury – Sir John Major.

But before you raise an eyebrow at such a lavish affair in these austere times – please be assured that when the Treasury throws a party, we get someone else to pay for it – on this occasion; the Corporation of London generously paid the Bill.

So what does the Exchequer part of the Treasury look like today?

Since Pitt the Younger’s day, there really is a single government bank account – it’s called the “Consolidated Fund”.

It was – and remains – a fundamental part of expenditure control

As William Pitt put it: “one fund into which shall flow every stream of public revenue, and from which shall come the supply for every service”.

Tax revenues, fines, penalties and other receipts come in.

And most payments to government departments flow out.

Last year, £514 billion pounds flowed through the Fund.

These days, it’s the job of the 19 civil servants in the Exchequer Funds team in the Treasury to make sure things run smoothly.

If you were looking for the irreducible core of the Treasury, this would be it: the cash register of the Government.

Every banking day, they essentially “write the cheques” so that millions of welfare payments, pensions and interest on government debt are paid out, and our schools and hospitals and other public services have money in the bank when they need it to pay salaries or buy supplies.

There is careful contingency planning to ensure this can always happen, whatever the circumstances.

To make the best use of taxpayers’ money, every day Treasury officials estimate how much cash the Government has, how much it needs and how much it has to borrow overnight from the markets.

It’s known as the Swing.

Most days, it’s easier to forecast what’s going to happen.

Some days it is more difficult.

This summer, the Treasury civil servant operating the Swing on Black Wednesday retired.

In fact, he wasn’t supposed to be on the Swing at all – the normal operator was off having had a heart bypass operation.

It is probably the largest number of transactions ever in a single day of Government operations, and things that had never been an issue before – like the fact that the Bank of England’s system could only cope with transactions of less than £100 million – suddenly caused problems.

Of course, if you pay out then you have to collect in – and tax collection has been a function of government since the birth of the English State.

Even before 1066, the Anglo-Saxon Treasury collected taxes – such as the “danegeld”, which was first levied as a tribute to the Vikings to persuade them – sometimes unsuccessfully – to stay away.

These days there is a whole international division of the Treasury tasked with dealing with our troublesome neighbours.

The foundations of Parliament itself in 1254 owes itself to King Henry III’s need to seek consent from the nobles of England for taxes he wished to impose.

The nobles advised the king to summon knights from each shire to help and advise and consent to the new tax.

In the 1260s, men from the towns were included with the knights, forming the beginnings of the House of Commons.

In those days, tax collection was done by a few local sheriffs – who were usually local judges or crown officials – who had to submit their accounts to the Exchequer.

These days, under Permanent Secretary Lin Homer’s leadership, 66,000 people at Her Majesty’s Revenue and Customs collect around half a trillion pounds from 33 million people.

Just under 10 years ago, the historic departments of the Inland Revenue and Customs and Excise were merged into this single non-ministerial department operating at arm’s length from government and focussed on collecting taxes and administering benefits, but very much part of the Treasury family.

At the same time, responsibility for strategic tax policymaking was transferred to the Treasury itself.

That brought the risk that those who knew how to actually collect taxes were no longer involved in designing the taxes.

I have sought to improve the relationship between the Revenue and the Treasury.

This year, we appointed as second permanent secretary at HMRC the most senior official on tax at the Treasury, and asked him to remain on the Treasury’s Board.

I would like to develop the relationship still further over the next few years, with the Treasury leading on the strategy, but informed by HMRC’s deep knowledge of the operational challenges.

This brings me onto the Treasury’s role in devising tax policy.

Every time you walk past a beautiful Georgian house and see a wall where a window used to be, you’re witnessing a visible sign of the Treasury’s well thought through tax policies in action.

When the Window tax was introduced in 1696, it was designed to make sure the wealthy paid more in tax.

These fine motives were soon undermined by as a new form of avoidance emerged.

Simply brick up the window.

Luckily we don’t have to deal with these sorts of issues today.

The window tax was hugely unpopular because it was seen as a tax on light and air – and nothing can be more essential than that.

Except as I discovered this year, the British people’s attachment to hot takeaway snacks.

In 1799, when William Pitt the Younger needed to fund the Napoleonic wars, he introduced a simple temporary tax to pay for it – called the “income tax”.

212 years later it is still temporary – and requires the annual Finance Bill to renew it.

The Napoleonic Wars meant the share of the nation’s wealth taken in tax almost doubled, from 12 per cent to 23 per cent of national income – and at the same time, the national debt ballooned from five per cent of national income in 1688 to twice the national income in 1815.

War has always been a consistent driver of the Treasury’s rising power, since the Treasury’s success at financing wars was inextricably linked with British victories.

William Pitt created the income tax and the consolidated fund, but it was William Gladstone who created the modern job of the Chancellor.

That is the reason his painting hangs in the Chancellor’s study in No.11 Downing Street.

It was Gladstone’s force of character, and his compelling vision of free trade, simple taxation and sound public finances which established not only his own place as one of the towering political figures of the 19th century – but also the annual Budget’s place in the UK’s political economy.

It was Gladstone who initiated the Northcote-Trevelyan report which ushered in recruitment of civil servants by open competition and promotion on merit in the Treasury and other departments of government.

It was Gladstone who created the Public Accounts Committee, increasing Parliament’s role in scrutinising waste and corruption in the use of public money.

And of course, almost every Chancellor is reminded of Gladstone’s instrumental role in the Treasury when they hold up his red box on Budget day.

When I took office, I was told the red box was too fragile to use.

But I insisted on using it one last time for my first Budget, before consigning the original to a display cabinet in the House of Commons and reluctantly commissioning a replica.

To an outsider, the theatre of Budget day can seem like just another strange English tradition.

But I believe it is more than that.

It is an annual reminder of what Gladstone instilled in us like no other – that sound public finances are the bedrock of stability on which our country is built, and that what government spends has to be paid for.

These days around 750 Treasury civil servants – almost three quarters of the department – are involved in ensuring all the various policies come together on the day.

Although for all the innovations and endless tax rates announced in modern Budgets – it’s worth remembering this fact: of the £470 odd billion pounds of revenue collected last year, £350 billion came from just three taxes: income tax, national insurance and VAT – taxes that have been in place since 1799, 1911, and 1973.

Of course, tax isn’t the only way of raising money – at least in the short term.

The other method is debt – and managing the public debt is another vital function of the Treasury.

Medieval kings had always borrowed money to fight wars.

But the first UK government debt dates from 1694, money borrowed to rebuild the navy after a crushing defeat by the French at the Battle of Beachy Head.

A 1.2 million pound loan, at 8% interest with no fixed repayment dates was arranged with a collection of financiers.

This, incidentally, was the origin of the Bank of England – since the subscribers were incorporated by the name of the Governor and Company of the Bank of England – in exchange for giving the bank exclusive possession of the government’s balances, and was the only limited-liability corporation allowed to issue bank-notes.

The costs of borrowing grew as the Government’s fiscal credibility deteriorated, and in 1711, the Chancellor at the time, Robert Harley, unveiled an ingenious scheme to reduce the cost of the national debt.

He offered people the option to buy stock in the South Sea Company.

The expectation of vast wealth from trade with the South Sea was used to encourage the public to buy shares at hugely inflated prices, while the founders of the scheme engaged in insider trading to amass a vast personal fortune.

Thankfully, nothing like that happens these days…..

When the South Sea Bubble finally burst in 1720, thousands of investors lost their money, and the whole country suffered.

It’s a reminder that dealing with the consequences of financial speculation and banking failure can do enormous damage to the real economy.

The Chancellor of the time was sent to the Tower – a reminder to modern Treasury officials that there was a fate worse than the P.A.C.

These days, as we pick up the pieces of perhaps the greatest banking collapse in our history, the Treasury has over a hundred officials devoted to financial services policy.

Since becoming Chancellor, I’ve had to make the difficult decision to allow one bank to fail.

The 250 depositors received protection under the Financial Services Compensation Scheme up to the insured limit of £85,000, but not beyond this level.

And do you know the name of the bank I allowed to fail?

The South Sea Mortgages and Investment Company.

Thankfully, no government debt was invested with this particular South Sea Company.

Since 1998, a part of the Treasury called the Debt Management Office is responsible for raising money on the Government’s behalf.

You could argue that the 100 strong team at the DMO do the single most important job in the British civil service.

Without their gilt auctions and overnight money operations, the Government would literally run out of money.

As the scale of the UK’s debts has risen, so too has the scale of the challenge for the DMO.

In the entire period between 1694 and 1998, the Bank of England sold some £355 billion of government debt.

Last year, just thirteen years into its existence, the Debt Management Office sold its trillionth pound of debt.

Of course, one of the present Government’s overriding objectives is to ensure those debt sales are reduced sharply as we bring the public finances back under control.

And because of the market’s confidence in the credibility of government policies, I have established a new record – 1.9% today.

I am currently borrowing money at a lower rate than anyone who has done my job in its 800 year history.

It’s more than a record.

It saves Britain billions of pounds a year – and it’s a reminder that when the Treasury loses the confidence of investors, debt interest can quickly squeeze out all other spending in government.

This brings me to spending control – a function of the Treasury that employs a huge amount of time and effort.

It was naval humiliation which laid the foundation of modern public expenditure control.

Naval spending dwarfed everything else in those days, but King Charles II was so poor that the English Navy was seriously underfunded, culminating in the humiliating seizure of the navy’s flagship by the Dutch in 1667.

So in that same year, with George Downing as Secretary, the Treasury Board obtained the powers over public spending it holds today.

The Treasury Board ordered that individual Treasurers – the forerunners of departments “do forebear making any payments without directions from the Commissioners of his Majesty’s Treasury”.

So the Chancellor of the Exchequer owes George Downing not only his or her home, but also their ability to control expenditure.

That principle – that all public money must have specific Treasury’s approval, even if it has already been voted for by Parliament – still largely holds – today.

In 1961, the job of Chief Secretary was created to give the Treasury a Cabinet Minister focussed exclusively on spending control.

That brings the total number of Treasury Ministers in the Cabinet to four – if you include the Prime Minister and the Chief Whip.

The military remained the biggest item of spending until the early twentieth century – when what you can describe as the modern welfare state was founded.

In 1900 the British state consumed around 15 per cent of national income.

Today, it consumes 46 per cent – a number I regard as far too high.

If one Chancellor could claim more responsibility for this trend than any other, it would of course be David Lloyd George – the third Chancellor whose portrait hangs in No.11 Downing Street, alongside Gladstone and his rival Disraeli.

Lloyd George’s famous People’s Budget of 1909 introduced social insurance for the first time, funded by taxes on cars, on petrol, and a new tax on land and property.

Though those tempted by a modern version of a property tax should note Lloyd George’s land tax was eventually abandoned when it cost more money to collect than it raised.

The 1909 Budget and the row that followed increased the power of the Treasury – it could not fail to do so as more of national income came under Government control while the power of the House of Lords to scrutinise bills was removed.

But it was about more than just money.

For the first time, Lloyd George expressed the intent to redistribute wealth among the British public – using tax and spending to deliver the Government’s social objectives in a way that we now take for granted.

He said of himself: “I am the only Chancellor who ever began by saying and meaning to spend money”.

Quantity of spending matters a lot to the Treasury.

So should quality.

In today’s Treasury, spending teams shadow each of the main Whitehall departments – so there is a Treasury health team, an education team, a defence team and so on, providing scrutiny and challenge to departments, and advice to the Chief Secretary and I on decisions requiring Treasury approval.

And as we’ve both discovered, we are constantly bombarded with requests for more money – with everyone arguing that their area should have a bigger slice of the pie – and everyone devising ingenious schemes that you’re told pay for themselves if only the Treasury would pay a little money upfront.

There is a never ending stream of vested interests, trade unions, pressure groups and politicians all defending every line item of government spending and asking for more.

But for every lobby group or trade union that appears on the Today programme, there are millions of normal hard working people who never appear on the radio, but have to pay for the demands of those who do.

So I am proud that the only vested interest that my Treasury defends is the taxpayer.

As Sir Thomas Heath, permanent secretary to the Treasury during World War One put it, someone must “stand between the country and national bankruptcy”.

You cannot talk these days about the modern Treasury and the public finances without a mention of the Office for Budget Responsibility.

I believe its creation can already be seen as a major milestone in the long evolution of the Treasury.

As Chancellor, I have renounced the power over the economic and public finance forecasts that all my predecessors held in one form or another over the centuries.

That power was ultimately illusory – Treasury forecasts and the temptation to fiddle them, doesn’t alter the economic reality the Chancellor has to confront.

Indeed, I would argue that because the OBR strengthens the credibility of the macro-economic framework – it in turn strengthens the credibility of the Treasury.

We may have lost the role of making forecasts – but the Treasury is very much in the business of improving the performance of the economy that stands behind them.

The final role I’d like to touch on is the Treasury’s role not just as a finance ministry, but as an economics ministry too.

The Second World War changed everything in this respect.

Coordination of the economy had been vital to Britain’s military success, and the devastation of Britain’s economy meant there could be no return to business as usual once the war ended – direct control of imports, control of consumption and savings all remained in force for years to come.

It was by no means a foregone conclusion that this economics ministry job would fall to HMT.

During the war, the Cabinet Office had held the reins on central economic planning.

It was only when Sir Stafford Cripps’, who had been Minister for Economic Affairs under Atlee, became Chancellor in 1947 and brought his portfolio with him that the Treasury gained this job.

Harold Wilson attempted to split the roles again in 1964, giving responsibility for economic planning and growth to a newly formed Department for Economic Affairs.

His rationale was primarily political – he had a George Brown problem– and was delighted with the opportunity to give his rival a post appropriate to his status, without actually giving him control of the nation’s finances.

But it also partly reflected Wilson’s view that a commitment to controlling public spending was somehow antithetical to the promotion of economic growth.

Five years later, the new Department of Economic Affairs was abolished and I remember as a new backbench MP many a happy conversation with the last junior Minister in the department and then Father of the House, Alan Williams, about how it lost its fight for survival against the mighty Treasury of Jim Callaghan and Roy Jenkins.

But the debate about whether to split economics and finances did not die with the Department of Economic Affairs.

But my experiences at the Treasury have made me even more convinced that Wilson was wrong to think that finance ministry objectives and economic growth are natural enemies.

The Treasury must be more than just a finance ministry – it must be the driver of economic reform across the government.

And that is my priority today.

I think the Chancellor before me who best understood that was Nigel Lawson.

He combined a finance ministry with a strong economics ministry, reforming taxation, reducing marginal tax rates and abolishing ineffective taxes not simply for reasons of revenue but to promote enterprise and economic performance.

Nigel made his Treasury the powerhouse of ideas in Margaret Thatcher’s government championing privatisation and economic deregulation.

Today, the Treasury is focussed on both the public finances and economic performance.

When I look back at the decisions I have taken, I ask myself.

Would a finance ministry faced with a huge budget deficit have reduced corporation tax to boost growth?

Would a finance ministry looking for Whitehall budgets to cut have protected science spending, even though it’s one of the easiest taps to turn off?

I believe it would have been more, not less difficult to make these tradeoffs if there was an institutional split – and it’s right that the Chancellor of the Exchequer is accountable for getting that balance right.

In the Treasury today, we seek to integrate all the functions: whether on European policy and tax, or the supply side and spending, or banking and growth.

And when my excellent Permanent Secretary, Sir Nick Macpherson and I have found barriers between different parts of the Treasury, we have broken them down.

We have reflected this in the organisation of the Treasury, abolishing baronial directorates of 200 or so staff and replacing them with more flexible groups of 70 or so officials, supported by a flexible team which can move resources to where they are most needed.

We have brought HMRC officials more closely into the policy making process – if tax policy is to be effective, it must be deliverable.

The Treasury of the future needs to be sufficiently flexible to deal with the great issues of the day – the recovery from a banking crash, the global race in competition, the problems with the euro, the renewal of our nation’s infrastructure, even Scotland’s role in that nation.

I want the Treasury to be the challenge to conventional wisdom in Whitehall and the source of new ideas.

And I want it to retain sufficient hard-headed expertise to fulfil its enduring role as the nation’s economics and finance ministry.

In the long history of the Treasury, there have seldom been more challenging times – as we recover from the greatest banking crisis, deal with the largest deficit in our peace time history and the continuing economic crisis across the globe.

I am proud to serve as Chancellor of the Exchequer, and of what the Treasury has achieved over the last two and a half years and I’ve been fortunate enough to hold this Great Office of State.

But I’m just as proud to work alongside the brilliant Treasury officials who perform a vital role on behalf of our country – as they have done for a thousand years – and it is to them we all really owe a huge debt of gratitude.

George Osborne – 2012 Speech to the Scottish CBI


The below speech was made by the Chancellor of the Exchequer, George Osborne, on the 6th September 2012.

Thank you Nosheena, for your introduction and may I say it’s a real pleasure to be here.

I would like to begin by congratulating the CBI and the Scottish business community.

Over the last few years you have achieved amazing things in difficult economic times.

Of the 900,000 new private sector jobs created in the UK over the last 2 years, 85,000 have been here in Scotland.

Of the 15,000 net new manufacturing jobs created in the UK over the last year, 4,000 – almost one third – have been here in Scotland.

That is the fastest increase in the number of Scottish manufacturing jobs since records began.

Politicians often claim that their Government has “created” thousands of jobs.

But I know that’s not true.

Governments don’t create jobs – you do.

The people in this room and beyond, who take risks, have the ambition and drive to build businesses.

And our job is to create the conditions to help you do it.

That’s why the message of all the changes we have made this week is simple: this Government means business.

In my own department I’m particularly delighted that Paul Deighton, the man who delivered the best Olympic Games ever, has agreed to join the Government as the Minister responsible for delivering the economic infrastructure that the whole United Kingdom needs if we are to remain competitive.

The economic outlook remains uncertain but there are some positive signs.

Our economy is healing – jobs are being created, manufacturing and exports have grown as a share of our economy, our trade with the emerging world is soaring, inflation is down, much of the necessary deleveraging in our banking system has been achieved, and the world is once again investing in Britain.

But the scale of the challenge is so great that there are no quick fixes or easy routes to recovery.

The debts built up in our economy over the last decade will take time to unwind.

Added to that was a steady decline in competitiveness, the full extent of which was masked by the tide of the borrowing boom but which has been exposed once that tide receded.

None of this has been made easier by the eurozone crisis, which first flared up the weekend before this Coalition Government was formed and has cast a long shadow of uncertainty over our economy ever since.

Our strategy remains the same one set out at the beginning of this Government.

Fiscal responsibility to show the world that we will deal with our debts and keep interest rates low.

Monetary activism to support demand and spread the benefits of those low interest rates through the economy.

And a far-reaching programme of supply side reform to restore our lost competitiveness and deliver real prosperity for the future instead of the illusion of prosperity built on debt.

Despite strong headwinds that strategy is already delivering results.

The deficit is down by a quarter in just two years, and the safe haven status that our credibility has earned is delivering record low interest rates.

That is a direct benefit to the taxpayer, our private sector and our indebted banking sector – and without it our economic future would be bleak.

Imagine what a sharp rise in interest rates would do now to Scottish businesses and Scottish families.

Monetary policy has supported demand and steered a steady path through a series of external price shocks so that inflation is coming back towards target.

But monetary activism means much more than this.

Last month the Treasury and Bank of England launched the multi-billion pound Funding for Lending Scheme.

It is already having an impact through reducing the price of mortgages and business lending and it is a perfect example of the firepower that the UK as a whole is able to deploy.

And this week we are introducing a new Bill in the Westminster Parliament that will allow us to use our hard-won fiscal credibility to provide guarantees for new infrastructure projects right across the UK.

The full benefits of our programme of supply side reform will only come in the medium term but it is already having an impact.

Yesterday the World Economic Forum confirmed that the UK has improved its global competitiveness ranking for the second year in a row, from 11th to 10th and now to 8th in the world.

As they put it, “The United Kingdom continues to make up lost ground in the rankings this year, rising by two more places and now settling firmly back in the top 10.”

We have already embarked on radical reforms right across government, not least in welfare where we are tackling deeply entrenched problems to ensure that work always pays.

We have already made our corporate tax system one of the most competitive in the world with a commitment to get to a 22p headline rate – the lowest of any major western economy – and a clear ambition to go further.

So much so that global companies like WPP, who left the UK only a few years ago, are now returning to our shores.

And the changes this year to the taxation regime in the North Sea, with new certainty on decommissioning costs and a new gas field allowance, are forecast by the industry to generate billions of pounds of new investment.

I will be making new announcements about the North Sea tax regime tomorrow that should bring more investment and more jobs here in Scotland.

We are already reducing regulatory burdens and reforming employment law, with an extension of the qualifying period for unfair dismissal from one year to two years and the introduction of fees for employment tribunals.
But now, in all these areas and more, I am determined that we will go further, deliver more and make our competitive edge even sharper.

That is precisely what the Scottish economy needs in order to deliver prosperity for the Scottish people.

Now I know there are those on both sides who call for a change of course.

Some say cut more; others say “no”, spend more.

We are pushing for more economic reform and faster delivery..

But nobody is offering a credible or convincing alternative economic strategy.

There is no easy path to recovery and prosperity.

We in Britain have to confront our problems head on, be honest about the scale of the challenge, and be consistent in our determination to succeed.

Of course the challenges we face are not simply economic and financial.

Last year the Scottish Government won a mandate to hold an independence referendum.

As a result Scotland is facing its biggest decision for three centuries.

My sense is that people want the referendum process settled quickly so we can move on to the real debate about Scotland’s future.

Scots rightly want to know where they stand on a whole host of issues – business prospects, jobs, pensions, public services…

That’s why the UK Government is committed to facilitating the process and ending the uncertainty that is disruptive for UK and Scottish business alike.

There’s a deal to be done.

We’re ready to do it.

And we can do it – if the Scottish Government is serious about honouring its election promise to let the Scottish people have their say.

Respect for the right of the Scottish Government to hold an independence referendum should not be misinterpreted as indifference about the outcome.

This Government passionately believes that Scotland is stronger as part of the UK and the UK is stronger with Scotland in it.

As the Prime Minister has already said, our argument is not that Scotland can’t go it alone as a separate country should Scots choose to do so.

It’s why would you want to?

Why would you want to, when as a United Kingdom we’ve already achieved so much?

And when – by pooling our talents and resources across the UK – we can achieve so much more.

I spoke earlier about the unprecedented economic challenges we face.

I’ve spent many, many hours discussing with my fellow Finance Ministers within the European Union how best to respond to the continuing hangover from the financial crisis and the decade of debt.

As the members of the Eurozone strive to come closer together, the world would be rightly puzzled if Britain’s response was to break apart one of the most successful political and economic unions there has ever been.

The British union – and its success – is as much a Scottish creation as it is the creation of any other part of the UK.

Scots were among the first – and most successful – in taking advantage of the new trading opportunities opened up by union.

Glance at any atlas and you’ll find Scottish place names on every continent.

The influence of Scots has been felt in economic development across the globe.

David Dunbar Buick – born in Arbroath – who founded the famous Detroit car company.

Thomas Glover – an important figure in Mitsubishi’s history – who made an immense contribution to the modernisation and industrialisation of Japan.

And William McKinnon whose businesses – forerunners of Inchcape – spanned the shores of the Indian Ocean, from the coast of East Africa to the new lands of Australia.

Today the advocates of independence argue that Britain’s value to Scotland is spent.

That union is no longer in Scotland’s economic interests.

And that those who continue to believe in Britain are wallowing in nostalgia.

I want to take this argument head-on.

I make no apology for sharing all of the instinctive emotional attachment to Scotland’s place within the UK.

Our shared history and culture.

Distinct yet intertwined identities.

A whole greater than the sum of its individual parts.

And I reject the idea that while Britain has a glorious history, it has little relevance in tackling the challenges and grasping the opportunities of the modern world.

300 years of working together means that today the hard-headed economic interests of Scotland and the rest of the UK are inextricably bound up together.

Our economic integration and interdependence runs wide and deep.

Working people, investment, goods and services all move freely across the UK.

There are more than 800,000 Scots who live and work in other parts of the UK and half a million people from other parts of the UK who live and work in Scotland.

Each year around 50,000 people move to Scotland from the rest of the UK, and nearly as many people move the other way.

High levels of investment come from the rest of the UK into Scotland, with UK firms employing one in five Scottish workers and contributing around a quarter of Scottish turnover in 2010.

Just as there are Scottish firms, like Scottish and Southern Energy, First Group and RBS who are significant employers in other parts of the UK.

This deep integration means, for example, that Scottish manufacturers can produce goods in factories financed through capital in the City of London and built by Scottish engineers.

Goods that combine raw materials from Wales and components built in England, powered by electricity from Scotland’s offshore wind industry.

And goods which are sold to the rest of the UK and across the world through the UK’s road, rail and port infrastructure.

Each year Scotland exports around £45bn worth of goods and services to the rest of the UK – equivalent to 40 per cent of Scotland’s total output.

This is more than twice as much as Scotland exports to the rest of the world put together.

And what better illustration of our shared economic interests and mutual dependence could there be than two of Scotland’s most important sectors – renewable energy and financial services.

The energy that Scotland generates helps us to meet demand across the whole of the UK.

It is the larger UK consumer base that ensures the significant investment costs required for this infrastructure are widely spread and do not fall on Scots alone.

And then there is Scotland’s 90,000 strong financial services industry with its distinct contribution to the overall strength of the UK’s world-leading financial services sector.

Scotland is renowned for the expertise of its investment managers and life companies – the Alliance Trust, Baillie Gifford and Standard Life to name but a few.

Those working in the industry would be the first to acknowledge the benefits they derive from the close ties with the rest of the UK industry and, in particular the City of London.

Just as those in the City will recognise the historic role and expertise within the financial centres of Edinburgh, Glasgow, Aberdeen and Dundee.

It’s little wonder that the economic fundamentals of the Scottish economy are so aligned with the rest of the UK, and that its structure and movements are similar.

Productivity in Scotland is 99 per cent of the UK average, the closest of any nation or region within the UK to the overall UK average.

The employment rate in Scotland is 101 per cent of the UK average, again the closest of any nation or region.

And earnings are now 97 per cent of the UK average, rising in recent years.

These facts reflect the hard work – including by many of you in this room – who have strengthened the Scottish economy and fostered enterprise.

So I am clear: full political and economic union across the UK – a source of many of our past successes – continues to underpin the UK’s and Scotland’s strength and credibility today and into the future.

At the heart of the UK’s strength are the institutions and frameworks we share.

It’s these institutions that support our fully integrated domestic market – more deeply integrated than any single market between separate states could ever be – and help to drive our prosperity.

Now I know that the proponents of independence – applying the most reassuring bed-side manner – say that an independent Scotland would retain everything from the pound and the Bank of England to UK financial services regulation.

However, I simply don’t think it’s credible to suggest simultaneously that in an independent Scotland everything will change and nothing will change.

For one thing, although Scotland has always shared the benefit of the UK’s interest rates, which are now at record lows, it’s very unlikely that the government of an independent Scotland could borrow as cheaply.

And it’s the interest rate on government bonds that is one of the key determinants underpinning the cost of all credit in the economy.

So there would be higher interest rates: a sobering thought for all Scottish households with mortgages and all Scottish businesses.

And let’s be clear:  independence would change the UK’s current institutional arrangements for ever.

Scotland and the rest of the UK would become separate, foreign countries.

What’s the point otherwise?

Let me take one of our oldest institutions, our single UK currency, the pound Sterling.

A single currency that has supported more than three centuries of economic and social integration.

How can we foresee what effect abandoning this 300 year-old commitment – or even talk of abandoning it – could have on confidence and prosperity?

After flirting with the Euro and floating other possible arrangements, the Scottish Government’s  latest position is that an independent Scotland would seek to enter a formal monetary union within a sterling zone.

But the conundrum of the Eurozone crisis is how difficult it is to combine currency union with full fiscal and political independence.

The members of the Eurozone are now faced with what I’ve described as the “remorseless logic” – the very lesson of the Eurozone crisis – that you can’t have monetary union without greater fiscal and political integration.

Greater fiscal integration – because membership of a monetary union means greater interdependence, not greater independence.

That’s why the eurozone are developing plans to control the fiscal positions of individual member states so that they can avoid the risks of contagion for all members of the union.

Greater political integration – because sharing a currency – and perhaps a central bank – means policies that are consistent not divergent.

Members must be prepared to forgo individual interests and circumstances for the interests of the union as a whole.

So it’s difficult to argue for establishing a monetary union while pursuing fiscal and political separation.

In a world in which a separate, independent Scotland wished to pursue divergent economic policies, what mechanism could there be for the Bank of England to set monetary policy, as it does now, to suit conditions in both Scotland and the rest of the UK?

As Chancellor of the Exchequer, I have seen no such credible mechanisms proposed by those advocating independence.

I am not clear they exist.

If the Scottish Government cannot provide answers to these basic questions about Scotland’s currency then the Scottish people are entitled to ask this basic question in return: what path is the Scottish Government leading them down?

We’re better together.

And what about regulation of key sectors of the economy such as financial services or energy?

Do the separatists propose to dismantle established regulatory regimes for markets that are highly integrated on a UK-wide basis?

Or are they saying that the point of achieving independence is to surrender regulatory authority over key sectors in the Scottish economy to what would become a foreign sovereign authority?

These are choices independence forces upon you, with consequences that are unknown – and unknowable – at the time you make them.

Again, if the Scottish Government cannot provide answers to these questions, then the Scottish people are entitled to question what path the Scottish Government is leading them down.

By contrast devolution within the UK provides Scotland with the best of both worlds.

Substantial control over its own national affairs combined with the strength that flows from being an important part of a much larger entity.

In a globalised economy the UK’s scale matters.

Far from holding Scotland back, the UK provides Scotland with a strong, stable and secure platform.

The UK has broad shoulders.

When Alistair Darling was doing my job, UK taxpayers spent £45bn recapitalising RBS – and the bank also received £275bn of state support in the form of guarantees and funding.

This support is equivalent to around two years of Scotland’s total output on any measure.

A disorderly collapse of Scotland’s banks would have been devastating for depositors, jobs and growth in Scotland.

That’s why I argue that the whole of the UK benefits from having a Government with the necessary fiscal firepower, backed by a credible central bank, which can deliver an effective co-ordinated response to a major bank failure.

The UK has a large and diversified economy supported by a broad tax base of 30 million individual taxpayers and nearly 2 million registered businesses.

We’re better together.

And together our voice is heard abroad.

However broad our shoulders, future prosperity depends – as it has always done – on our success as a trading nation.

I particularly want to thank the CBI for all the work they are doing to push Scottish exports.

Scots have never been parochial in their view of the world.

You have always lifted your gaze beyond the horizon.

At a time when the global community is striving to remove barriers to trade, I don’t believe it’s in anyone’s interests here at home to erect new borders and barriers to Scotland’s ability to compete in the world market.

Being part of the UK opens doors for Scotland and Scottish business.

There are enormous advantages to being part of one of the biggest and best Embassy, Consular and trade networks anywhere in the world.

14,000 people in nearly 270 diplomatic offices, backed by a further 10,000 locals in the 170 countries in which we operate.

This is just one example of a broader and fundamental point.

Britain’s influence – and Scotland’s reach – is truly global.

Scotland walks taller and shouts louder as part of the United Kingdom.

So here in Glasgow tonight – a City that has played and continues to play such an important part in the story of Scotland and Britain.

Let’s remember the great contributions of the past.

Celebrate the great work being done today by businesses the length and breadth of this country.

And look forward to what we can achieve together in the days, months and years to come.

For our vision for Britain is of an economy, open to trade …

…a Britain that extends choice and opportunities for all the people of the UK…

…a Britain that cherishes the rich diversity of these islands…

…a Britain that taps into the talents to be found in every part of our country to build a more prosperous future for us all.

Scotland has played and continues to play a central role in making Britain the country it is today.

A country attractive to inward investment.

A country exporting around the globe.

One of the best places in the world to do business.

And I hope that when the Scottish people come to deliver their verdict, Scotland will continue to play that central role within the United Kingdom in shaping our country’s future.

We are better together.

George Osborne – 2011 Speech on New World, New Capitalism


This is the text of George Osborne’s speech made at the 2011 New World, New Capitalism seminar in Paris on 6th January 2011.

Let me start by saying thank you to Minister Besson for inviting me to speak here today.

This is my second visit to Paris since becoming Chancellor and builds on the Anglo-French Summit in London last year.

It is a great privilege to be given the opportunity to address such a prestigious audience.

In my remarks today I would like to briefly touch on what I see as some of the key economic challenges in 2011.

What are the three key questions facing the international community this year?

The first challenge facing economic policy-makers relates to the future of the international financial institutions.

How can institutions created in the 20th Century be relevant in the economy of the 21st Century?

Or to put it another way – how can the IMF, the WTO or the FSB remain relevant during the economic recovery?

In an economic crisis, different countries face a common problem, so it is easier to find a common solution.

Now we need to create a system that can manage the new pressures.

There has been considerable progress already – on financial regulation, with Basel 3, and on reform of the IMF governance, for example.

Two years ago few people would have said that these deals were possible.

I think this year there is a great opportunity for the French Presidency of the G20, and I welcome their ambitious vision.

I am aware that the issue of how to manage the huge flows of capital circulating around the world economy, and the issues around the international monetary system, will be a major challenge.

But the starting point must be strong, legitimate and well-resourced global economic and financial institutions.

We need an IMF that is more focused on identifying the major risks, especially from the systemic economies and the interaction between them.

That’s why the G20 Finance Ministers need to deliver on what we promised in Seoul, to help us identify any build up of large global imbalances.

We need a World Trade Organisation that can drive forward liberalisation of trade in goods and services.

We now have a critical window of opportunity to conclude the Doha trade round, and as the G20 agreed conclude it we must.

The Financial Stability Board has proved to be a flexible and useful platform for reform, as we have seen in the agreement of Basel 3.

All members of the G20 must now make sure that Basel 3 is implemented.

We also need to give the FSB more muscle, by making sure it is better resourced and more accountable.

There is a huge G20 agenda ahead of us, and I want to say very clearly that the British Government wants to work with the French Presidency so that we can make good progress in 2011.

There are very good signs that the French G20 agenda is going to be ambitious and significant.

But there is also a great responsibility to make it successful.

I wish you all the best in this endeavour.

The second key question facing us in 2011 relates to the problems in Europe.

And I want to be clear – I include the UK in my definition of Europe.

Last year I was the first ever British Chancellor to attend a meeting of the Eurogroup – so that alone must tell you that something wasn’t quite right.

Over the past year we have been seen instability and uncertain across the Eurozone.

We really do not want to be back here, a year from now, in January 2012, still discussing the future of the euro.

We need a comprehensive package early this year to address this.

The Eurozone must follow the logic of the single currency and stand behind the euro in a more convincing way.

Britain, of course, is not a member of the euro.

But Britain wants the euro to be a complete success and we will support you in achieving that.

Ultimately that cannot happen, however, without a credible plan to reform and strengthen Europe’s banks.

That is the next challenge facing European governments.

The inability of many European banks to absorb losses on their balance sheets was at the heart of the crisis and underpins much of the current market uncertainty.

Dealing with this issue will first require an understanding of the depth of the problem.

It is rather revealing that the stress tests conducted last July identified a capital shortfall, across the whole of Europe, of just €3.5billion.

A few months later the Irish banks alone required ten times that amount – €35billion.

That is why the UK has already gone much further with tougher stress tests and now has banks that are well capitalised.

As well as tackling today’s problems, we need to strengthen Europe’s banks so that they, and not taxpayers, pick up the bill for future crises.

Basel 3 does this by increasing bank capital, introducing new liquidity requirements, moving to a binding leverage ratio, and ending the double-counting for certain financial instruments.

Don’t forget – this was a package put together by Europeans.

These proposals were developed under the leadership of three of the Eurozone’s most distinguished central bankers: Mario Draghi, Jean-Claude Trichet, and Nout Wellink.

Their work has ensured that Europe’s concerns are reflected.

Having agreed this balanced package, it is vital that we do not now weaken the measures as they are translated into European law.

This is an urgent task for ECOFIN this year.

Any talk of “European specificities” not already accounted for, and any delay to the agreed timetable will simply reaffirm markets’ suspicion that we are failing to address the difficult issues.

Similarly, let me say the following about the competitiveness the financial services sector in Europe.

Badly thought-through regulations will needlessly undermine European competitiveness in financial services.

Talk of competition between London, Paris and Frankfurt misses the point.

It is the relative competitiveness of Europe and rival centres in Asia and America that is the real issue.

And alongside a more competitive financial sector, we also need a structural reform programme to make our whole economies more competitive.

Opening up product markets, liberalising labour markets, promoting enterprise and reforming welfare states – those must be our priorities.

We need an ambitious structural reform plan to kick-start growth and boost employment, including in new growth sectors such as green goods and the digital economy.

But of course the biggest challenge this year is perhaps a domestic one.

We need to get our own houses in order.

The rest of the world does not owe Europe a living.

If we are to calm the fears around the solvency of sovereigns across our continent, action at a European level needs to be matched by difficult domestic decisions.

The sense of crisis may have eased since the start of last year, but wide spreads and high market interest rates still stalk several European economies.

Countries need plans to reduce deficits, tailored for their circumstances, based on credible institutions that can underpin market confidence, especially in countries with large financial sectors.

Here the British experience offers a useful insight.

When we came into Government in the UK, we were predicted to have the largest budget deficit in the G20.

Until Ireland overtook us, we were going to have the largest budget deficit in the European Union.

The affirmation of the UK’s triple-A credit rating and the fall last year in our market interest rates, at a time when other countries’ are going up, demonstrates that it is possible to earn credibility with a convincing deficit reduction plan.

This week saw the plan start to take effect with the tough but necessary step of increasing Value Added Tax to 20%.

And deficit reduction can also go hand-in-hand with greater structural reform across our economies.

We are investing in our priorities – early years education, transport infrastructure and, almost alone in the world, putting resources into meeting our 0.7% target for international aid.

I would like to finish on an optimistic note.

Because despite these challenges, I remain profoundly optimistic about the future.

The opportunities offered by the modern world economy are immense.

Because every day around the world, in places like China, India, Brazil, Indonesia and Vietnam, millions of people leave the grinding poverty that has trapped their families for generations and become connected to the global economy.

They leave behind subsistence farming and go to work in factories.

And so nations of manufacturers are taking their first step in their journey to prosperity.

And as they become richer, they will become nations of consumers, hundreds of millions of people who will want to buy the things that British and French companies can sell them.

Our pharmaceutical firms will provide them with modern medicines and branded goods.

British and French companies will sell them insurance, banking, accountancy.

Over time they will become consumers of tourism and visit Paris and London.

And they will hopefully fly here on Airbus planes with Rolls Royce engines.

The whole world can be our market place.

And that is why we should be optimistic about this world we have helped create.

Thank you.

George Osborne – 2011 Mansion House Speech


Below is the text of the speech made by the Chancellor of the Exchequer, George Osborne, at the Mansion House in London on 15th June 2011.

Lord Mayor, a year ago, standing here just five weeks after the Government had come to office, I spoke about the financial crisis and I quoted what Winston Churchill had said in this very room in the middle of the war.

“Now this is not the end. It is not even the beginning of the end. But it is, perhaps, the end of the beginning.”

I believe that sentiment of cautious optimism has been borne out by events in the twelve months since then.

The British economy is recovering.

Output is growing.

The necessary rebalancing of the economy, away from debt-fuelled consumption towards investment and exports has gained momentum.

Half a million new private sector jobs have been created, the second highest rate of net job creation in the whole G7.

Today’s unemployment figures showed a fall of 88,000 – the fastest pace for more than a decade.

Our budget deficit is now falling from its record highs.

Stability has returned.

Britain is on the mend.

But it is taking time.

External shocks have made that recovery more difficult.

The dramatic and debilitating rise in the world’s oil price – up almost 60% since last June.

The terrible Japanese earthquake and the impact on the supply chain.

The on-going crisis in the Eurozone, our largest market for British goods and services.

The softness in the US economy.

Across the world, choppy economic waters have become choppier still.

But the truth is this.

Even without these substantial headwinds, the journey the British economy has to travel would be a hard one.

As I said at the time of the Autumn Forecast last November: “recovery was always going to be more challenging than after previous recessions”.

For we are seeing the unwinding of debts built up over an entire decade.

Of all the major economies in the world, Britain’s was the most over-borrowed.

Our families were more in debt than any other in the G7.

Our house price bubble was bigger than America’s.

Our government deficit higher than that of Greece.

And the balance sheets of our banks went from around 300% of GDP in 1998 to a staggering 550% just a decade later.

Now those bank balance sheets are shrinking.

Not just because of new rules from regulators.

But because the markets themselves demand it.

So money and credit growth remain weak.

And that acts as a powerful drag anchor on recovery.

Here is a striking fact about the British economy over the last six quarters since the recession ended – a fact little understood but crucial to understanding our challenge.

For five out of those six quarters, the financial sector has continued to contract.

While our economy as a whole has grown by 2.5%, the financial sector has shrunk by 4%.

Take the financial sector out of the equation, and economic growth in the rest of the economy during the recovery has actually been above its average rate of the last two decades.

Put the financial sector into the equation, and economic growth has been below trend.

Our banking system fuelled the boom.

Now it is slowing the recovery from the bust.

That might surprise you. Look around the City today, and activity is growing.

The investment banks are hiring again – and they’re hiring here in London.

There are some 25,000 more jobs in the Square Mile than a year ago.

I’ve seen it – I’ve been at the openings of new headquarters and new buildings.

Funds are out there investing.

Law firms, accountants and insurance are busy.

And this year, for all the doomsayers who warn of decline, London has topped the global league table of financial centres.

We’re officially the number one place to do business – so instead of talking ourselves down, let’s agree to go around the world and say so.

Of course, we’ve got to stay in pole position.

That’s why, even in these straightened times, we’ve committed to the multi-billion pound Crossrail link – the greatest urban infrastructure investment in the western world today.

We’ve changed our taxation of overseas earnings, so that multinationals are moving back to Britain instead of leaving it.

I’ve made it clear that the 50 per cent tax rate I inherited must only be temporary – not permanent, as some politicians now propose.

And this week we’re publishing plans that end the uncertainty over tax residence rules and the treatment of non-domiciles, and set out new plans to encourage their investments.

All the activity and wealth creation you see in the City today is very welcome.

But sadly it does not compensate for the many billions of pounds being shed from the balance sheets of our banks.

Economists like Ken Rogoff and Carmen Reinhart warned us that this would be the case – that recoveries from recessions with a financial crisis are always slower than recoveries from other less severe recessions.

How can Government respond?

For a start, we have to avoid that now well-trodden path from banking crisis to sovereign debt crisis.

Unsustainable borrowing in our banks must not lead to unsustainable borrowing by the government.

I promised you a year ago that we would take conscious and determined action.

And we have.

The benefits are there to see.

In a world where so many countries are seeing their credit ratings put on negative outlook or downgraded, our country’s triple-A rating has come off negative outlook and been affirmed.

We have a deficit larger than Portugal, but virtually the same interest rates as Germany.

That is the huge stimulus our plan delivers to our economy.

And abandoning our deficit reduction plan would take that stimulus away.

That was the IMF’s verdict last week.

In the recovery from a banking crisis, stability and low market rates are precious, hard-won achievements.

And we will do nothing to undermine them.

Instead, we should try to manage the nature and pace of the deleveraging.

A large part of the rapid build up of borrowing within our banking sector consisted of lending from one part of the financial system to another.

That can be reduced without directly impacting the real economy, even if it reduces the measured contribution of banking to GDP.

What is crucial is that this inevitable process of deleveraging does not strangle the supply of credit to businesses and families who need it.

We are taking action to ensure this doesn’t happen.

We are resolving regulatory uncertainty and encouraging new capital investment in our banking system, so that deleveraging is not only achieved through smaller balance sheets.

In the G20 and the Basel Committee, Britain has successfully argued for higher capital and liquidity standards, but crucially for standards that are phased in over long time periods.

And the new Financial Policy Committee has been mandated to take an overview of our financial system, and watch that our own regulators do not act in a pro-cyclical way.

We have struck the Merlin deal with the banks to prevent small and medium sized businesses becoming the innocent victims of shrinking balance sheets.

I very much welcome the commitments from the BBA’s taskforce and the new Business Growth Fund that is now investing in Britain’s businesses.

But the banks should also be in no doubt that I will use every tool available to me to hold them to the published lending commitments they made.

Lord Mayor, the Government can also actively help to rebalance our economy by being unequivocally pro-business and pro-enterprise.

Our Plan for Growth set out a new wave of supply side reforms to restore Britain’s competitiveness.

We’re investing in apprenticeships, cutting employment tribunal costs, reforming pensions and anti-growth planning rules, reducing regulation, creating a Green Investment Bank, reforming the welfare system and taking low paid people out of tax.

And we’re actively pursuing the lowest business tax rates of any major western economy – a 5% reduction in the rate of corporation tax in the space of just four years.

From Shanghai to Seattle, investors can see that Britain is open for business.

So while the gradual unwinding of the debts built up in the boom creates powerful headwinds, all of this demonstrates that we are not powerless to respond.

But the legacy of the financial crisis does confront us with a very simple dilemma – what you might call ‘the British Dilemma’.

As a global financial centre that generates hundreds of thousands of jobs, a successful banking and financial services industry is clearly in our national economic interests.

But we cannot afford to let it pose a risk to the stability and prosperity of the nation’s entire economy.

We should strive for global success in financial services, but that success should not come at an unacceptably high price.

We should be clear that we want Britain to be the home of some of the world’s leading banks, but those banks cannot be underwritten by the British taxpayer.

I said here last year that the uncertainty hanging over your industry was causing real damage; that it couldn’t be resolved overnight, but that I owed you a process that would lead to a conclusion.

And one year on, I believe we are much closer to a consensus on how we can achieve both successful, competitive financial services and a healthy, balanced economy.

That consensus is about:

What is the right culture of regulation;

How the international rules apply;

And where successful banks fit in.

First, the culture of regulation.

The failure of the tripartite system was not a series of unfortunate accidents – it was hard-wired into its design.

The decision to divide the responsibility for assessing systemic financial risks from the responsibility for applying that assessment to particular financial institutions created a world in which no one was in charge.

Yet at the same time the system required endless box ticking and costly processes.

We had the worst of both worlds

This new Government proposes, therefore, a completely new culture of regulation.

Tomorrow we publish our White Paper and the detailed draft legislation.

A permanent Financial Policy Committee will be established inside the Bank of England.

Its remit will be set by Parliament and refined by the Chancellor on an annual basis.

And its job will be to monitor overall risks in the financial system, identify bubbles as they develop, spot dangerous inter-connections and deploy new tools to deal with excessive levels of leverage before it is too late.

This has never been done before.

The Committee will work alongside a new Prudential Regulation Authority that will also sit in the Bank of England.

This will assess the safety and soundness of individual firms.

I’ve heard your argument that insurance companies face different risks, so I can announce that we will set a specific statutory objective for them.

The operation of markets, and the protection of consumers, will be the responsibility of a new Financial Conduct Authority.

I am delighted that Martin Wheatley, who brings valuable experience as Hong Kong’s market regulator, will be the new CEO.

Here too we’ve listened to representations, and I confirm tonight that as well as protecting consumer interests, the Financial Conduct Authority will have a new primary duty to promote competition.

If the result of all these changes is simply that some brass plates on some doors have changed, then we will have failed.

We don’t undertake the institutional change for the sake of it. We do it to change the culture.

We want to move away from the tick-box mentality of the current system, where there’s no shortage of costly regulation but too little room for invaluable judgement.

In its place we will have clear lines of accountability and the space for regulators to exercise judgment.

You will have the freedom to innovate, grow your businesses, and compete in the world.

You will be constrained if you put taxpayers or consumers at undue risk.

A new culture of regulation is the first step towards solving the British Dilemma.

But getting supervision right in one country is not enough.

As the world’s leading financial centre, we are particularly exposed to financial instability elsewhere in the world.

And you are all exposed to fierce overseas competition.

For both these reasons, global standards are strongly in our national interest.

So we want to see the full implementation of the new Basel standards, right around the world, including here in European Union.

It’s vital that those European rules give national regulators the discretion to add to the Basel requirements when national circumstances require it.

This is what the de Larosière committee themselves recommended. It would help the FPC do their job.

We need European coordination, to enforce common rules in a single market, and it’s good news that the headquarters of the new European Banking Authority is here in London.

We support their efforts to make this year’s stress tests mode credible than last year’s.

But we will always fight hard against badly thought-through European regulation that undermines Europe as a location for wholesale finance, or London’s role as this continent’s pre-eminent global centre for it.

That’s a fight we won on the regulation of hedge funds, and we’re still fighting on EMIR, the new derivatives regulation.

Pay in the financial services sector should also be regulated internationally, to avoid a race to excess.

Britain now has world-beating standards of transparency.

The Financial Stability Board have come up with good principles and must now focus on their consistent implementation.

So, Lord Mayor, these are the first two steps towards solving the British Dilemma:

A new culture of regulation that judges unacceptable risks, while creating the space for innovation and commercial success.

And an agreed set of international rules that makes the global financial system safer and protects us from competitive arbitrage by other financial centres.

But history teaches us that that risk can never be reduced to zero.

We cannot hope to abolish boom and bust.

So the British Dilemma will remain as long as taxpayers are first on the hook if things do go wrong.

When this Government came to office there was no agreement in Britain about how this ‘too-big-to-fail’ problem should be addressed.

Indeed, I’ve sat as a guest at this very dinner in years past listening as one speech from this lectern was completely contradicted by the speech that followed.

That’s why when I first spoke here, I announced the names of five highly respected individuals whose job it would be to listen to all sides of the argument, propose a solution and help bring an end to the uncertainty.

The Independent Commission on Banking has now published its Interim Report and I would like to pay tribute to Sir John Vickers and his fellow Commissioners for the excellent job they have done.

It has commanded respect at home and huge interest abroad.

The Independent Commission on Banking has put forward two particularly important proposals.

Bail-in instead of bail-out – so that private investors, not taxpayers, bear the losses if things go wrong.

And a ring fence around better capitalised high street banks to make them safer, and to protect their vital services to the economy if things go wrong.

Today I have told the Commission that the Government endorses both these proposals in principle.

Of course, the Commissioners are still consulting and preparing their final report – and I won’t pre-empt their conclusions.

We will judge their final proposals in practice against the following conditions:

All banks should be allowed to fail safely without affecting vital banking services;

Without imposing costs on the taxpayer;

In a manner applicable across our diverse sector;

And consistent with EU and international law.

In line with the interim report, we agree with the need for further capital requirements on systemically important banks, but I agree with the Commission that outside the ring-fence this is best done internationally.

I also strongly welcome the Commission’s proposal on increasing competition in retail banking.

For healthy competition is a powerful defender of consumers’ interests.

Lord Mayor, we will make these changes to banking to protect taxpayers in the future.

But we still have to clear up the mess of the past.

Taxpayers today own a large part of the banking system, and underwrite guarantees to parts of the rest.

It’s time we started to plan our exit.

So I’ve opened the Credit Guarantee Scheme to early redemption.

I’m pleased that banks are taking up the opportunity and they are ahead of schedule in repaying the Bank of England’s special liquidity support.

This is a sign of confidence in our banking system.

And I remind everyone with deposits that we have increased the level of deposit insurance to 100% for sums up to £85,000 and we have made clear that there is no implicit taxpayer guarantee for sums above that level.

Once all these other forms of subsidy are removed, our direct shareholdings in banks still remain.

It will take some time – possibly several years – before we can sell them all.

But we can start that process.

I can announce tonight that on behalf of you the British taxpayer, I have decided to put Northern Rock up for sale.

Images of the queues outside Northern Rock branches were a symbol of all that went wrong, and its chaotic collapse did great damage to Britain’s international reputation.

Its return now to the private sector would help to rebuild that reputation.

It would be a sign of confidence and could increase competition in high street banking.

We could start to get at least some of our money back.

The sale process will be open and transparent and in line with state aid rules.

Any interested parties can bid for it, including mutuals, which this Government is actively committed to promoting.

We will continue to own Northern Rock Asset Management, the separate “bad bank”, whose assets are being run down over time.

This does not mean that other options to return Northern Rock to the private sector have been ruled out.

But the independent advice I have received is that a sale process is likely to generate substantially the best value for the taxpayer and should be explored as a first option.

And it would be a very important first step in getting the British taxpayer out of the business of owning banks – and a sign of confidence in the industry.

Lord Mayor, last year I came here with debates raging about all these questions of regulation and the future of banking.

I was not the cause of them – but I told you that it was my job to resolve them.

And I said that our goal should be a new settlement between our financial system and the British people.

A new settlement where the City is able to be the leading financial centre in the world, without putting at risk the entire economy.

I believe we are now within touching distance of that new settlement.

If we achieve it, then we will have answered the British Dilemma – and put our country on the path to prosperity.

I want the City of London to be a thriving centre of enterprise, more interested in serving its customers than in what Government might do to it next.

Resolving the British Dilemma is the way to do that.

Thank you.

George Osborne – 2011 Institute of Directors Annual Convention Speech


Below is the text of a speech made by the Chancellor of the Exchequer, George Osborne, at the 2011 Institute of Directors annual convention on 11th May 2011.

Good afternoon.

Thank you Miles for the very kind words of introduction.

Thank you for your hard work at the helm of the Institute of Directors over the past 7 years.

You have done a great job – and been a powerful voice for business. We all wish you well for the future.

My message today is straightforward – this coalition Government is unequivocally pro-business.

Our approach is based on the simple truth that when you succeed, we will succeed, and the country will succeed.

By promoting enterprise and rewarding aspiration we will enable you, the wealth creators of Britain, to generate the jobs and growth our country needs.

The truth is – we have to be realistic about where we’re coming from and optimistic about where we’re going to.

First the realism.

We are recovering from the biggest banking crisis our country has ever seen.

We are coming out of the deepest recession in living memory.

And we are dealing with the largest budget deficit in our peacetime history.

And that is why, as I warned last year, the recovery will be choppy.

High commodity prices, the earthquakes in Japan and uncertainty in the Eurozone are all weighing down on growth across the world.

Yet while we must remain realistic about the challenges, I think we can also be optimistic about the future.

For despite these headwinds, progress has been made in the last twelve months .

400,000 private sector jobs have been created.

89,000 people have come off unemployment rolls.

Manufacturing up almost 5%.

Business investment is up 11%.

Export volumes are up 16%.

I am glad that the Bank of England is forecasting a steady recovery. As the Governor said this morning, they “expect that the recent softness in activity will prove temporary”.

This is all part of essential rebalancing of our economy:

From imports to exports;

From debt to investment;

From public to private;

And it lays the foundation of a competitive, business-led growth we need to see.

This would simply not be possible without the crucial steps we’ve taken to instil confidence in Britain’s ability to pay its way in the world.

Let’s not forget where we were exactly one year ago to the day. May 11th 2010.

A country with the highest budget deficit of any in the G20 – and whose credit rating was on negative outlook.

This at a time when the sovereign debt crisis was raging in Europe.

It was a moment of real economic danger. But we overcame it.

We made a firm commitment to tackle the nation’s debts.

Within 50 days we had put in place a credible deficit reduction policy.

A year on, much of it has been legislated for, and its first measures have taken effect.

Our credit rating has come off negative outlook – when other countries are facing downgrades.

We have brought much-needed stability at home and attracted near universal confidence abroad.

To anyone still wondering whether we needed to take these difficult decisions, I say – just look at what has happened to other countries over the past year.

First Greece, then Ireland, then Portugal, and now Greece again.

Three countries which failed to convince the world that they could pay their way.

Now they are all being bailed out at huge cost.

In the US, now itself with a credit rating on negative watch, President Obama has unveiled a deficit reduction proposal that actually goes faster than our own.

I want to thank the Institute of Directors for your steadfast support on this issue.

It has proved vital.

Miles, you were right to say this morning that you remain “absolutely supportive of the speed and extent of [public spending] cuts” while “not enough recognition has been made of the upside … of reducing public debt”.

The real practical impact of what we have achieved together is there to be seen in the interest rates you – the businesses and families of Britain – face today.

The market interest rates in Britain are now at 3.4%. In Italy they are 4.6%, 5.3% in Spain, 9.7% in Portugal, 10.6% in Ireland and over 15% in Greece.

And over the past year, the gap between Britain’s market interest rates and those in Germany has narrowed – to just about a quarter of a percentage point – while for France, Italy and Spain the gap with Germany has widened.

In other words, we have the interest rates of Germany, despite having a bigger budget deficit than Greece and Portugal.

That is our achievement. And let me make this clear one year on.

This Government, is as united today in our mission to reduce Britain’s deficit as we have ever been.

We are unwavering in our commitment to economic stability and recovery. Last year, this year and for the four years to come.

Every business in this country depends on a strong Government and a credible economic policy – and we will deliver just that for the next four years.

But we know that stability on its own is not enough.

You and others rightly made the point that alongside a plan for the deficit, we also needed a plan for growth.

In this year’s Budget we answered those calls.

Let’s face it – over the past decade, Britain’s economy lost ground compared to our competitors.

Our tax system became uncompetitive, our businesses were constrained by red tape, and we fell behind the rest of the world in the skills of our workforce.

We simply could not go on like that.

So we have set four economic ambitions for Britain.

First, we want Britain to have the most competitive tax system in the G20 bar none – and I know on this that Miles has been a tireless advocate.

For a good reason – a decade ago we had the third lowest corporate tax rate in Europe. By last year, we had the seventh highest.

That had to change – and last month the main rate of corporation tax came down from 28% to 26%.

It will keep coming down each of the next three years to reach 23% in 2014 – the lowest rate ever and the lowest in the G7.

Instead of going ahead with the last Government’s planned increase in the small companies rate to 22%, we’ve cut it to 20%.

That’s not all.

We have also made the taxation of international profits far more competitive.

Britain has become a place for international business to move to – not to leave.

We are introducing a patent box – an ultra competitive 10% rate that will attract knowledge industries from around the world.

We have started the enormous task of simplifying the tax system, by abolishing over 40 complex tax reliefs in the Budget.

We’ve also begun the work of merging the systems for income tax and national insurance – a huge reduction in payroll red tape for businesses, and we need your help to make it happen.

And, as I said at the Budget, high personal taxes can be as damaging to growth as high corporate taxes, so I am clear that the 50 pence tax rate would do lasting damage to our economy if it were to become permanent, as some suggest.

It should be a temporary measure.

Our second economic ambition is that Britain should be the best place in Europe to start, finance and grow a business.

Over the last decade, the UK fell behind in the Global Competitiveness Index, going from 4th in 1998 to 12th in 2010.

So how are we going to regain this lost ground?

On regulation, in this Budget we stopped £350m of costly business regulations.

Vince Cable and I have now imposed a moratorium on new domestic regulations on small businesses.

On planning, one of the great obstacles to growth that no government has had the courage to tackle, we are now shifting the balance from delay and objection towards development and expansion.

On research and development, we have just increased the support available to SMEs through R&D tax credits from 175% to 200%. Next year it will go up again to 225%.

On finance for start-ups, I have made it easier to attract enterprise investment capital, including with an increase in income tax relief from 20% to 30%, which has already come into effect.

We have also delivered on the promise – that I made here to your conference last year – to scrap the most damaging part of the planned increase in employer’s National Insurance.

Since last month, it is cheaper for businesses to employ anyone earning under £21,000 a year.

And when the day comes when you want to sell your business, we have doubled and then doubled again the level of entrepreneurs’ relief.

Cuts in business taxes. Increases in entrepreneurs’ relief. More tax breaks for investment. None of these things are easy to do when you have a high budget deficit.

But they are this Government’s priority. And we want you to make the most of them.

Our third ambition is for Britain to become a more balanced economy, by encouraging exports and investment.

Consider this shocking statistic – during the boom years before the bust, private sector employment actually fell in a region as important as the West Midlands.

We want private sector jobs and growth that is spread across the country.

That is why we are establishing 21 new Enterprise Zones to give an extra boost to areas with real potential – and I hope your members get involved in them.

That is why we have continued to invest in our science and transport networks – over the next four years we will invest some £30billion in transport projects, more than during the past four years.

And next week, we will launch the new £2.5billion Business Growth Fund, paid for by the banks as part of the Merlin deal, which will provide equity finance for growing businesses.

But a more balanced economy also means more exports and investment across every sector of our economy.

That’s why we’ve got Stephen Green, one of Britain’s global business leaders, to become our Trade Minister.

This week he set out his plans to boost exports to new markets, supported by a newly focused Foreign Office, whose presence is felt in countries like China and India.

Our fourth ambition is to have a more educated and better skilled workforce – something I know the IoD has campaigned on this year.

Between 2000 and 2009, Britain fell from 4th to 16th place in the world league tables of science, 8th to 28th place in mathematics.

In this global economy – where we must compete on skills and innovation – that is a recipe for long-term decline.

So this Government has embarked on radical reforms to education.

More academies have been created in the last 12 months than in the last 13 years.

We have taken the difficult, but absolutely essential decision, to reform student finance to ensure that our universities continue to be well funded.

Many would have ducked that challenge. We did not.

And we are addressing the long-standing issue of poor vocational training, with 100,000 work experience places for young people, 250,000 more apprenticeships, and at least 24 University Technical Colleges.

So more competitive taxes. More support for businesses. More balanced growth. And a better educated workforce.

That is our Plan for Growth

There is one more thing that I will say.

Delivering this will not be easy.

The forces of stagnation will try to stand in the way of the forces of enterprise.

For every line item of public spending, there will be a union defending it.

For every regulation on business, a pressure group to defend it.

Your voice, the voice of business, needs to go on being heard in the battle.

Let me give just one example of an issue which businesses have raised with me many times over the years – the costly impact of our employment laws and regulations.

For many years, no Minister was willing to tackle this issue and make the argument that yes, employees have rights and they should be respected, but what about the right to get a job?

What about the right to start a business and not be sued out of existence or drowned by paperwork?

Well, this Government has had the courage to answer those questions.

Not only did Vince Cable announce earlier this year that there will be fees and reforms to deter vexatious claims at employment tribunals.

I can tell you today that the Government will publish a detailed timetable for the wholesale review of employment law in this country.

It includes plans to:

Review the unlimited penalties currently applied in discrimination Employment Tribunals;

Simplify the administration of the national minimum wage;

Review the TUPE regulations;

And reform the consultation period for collective redundancies;

Some of these may be controversial. Unions and interest groups may oppose them.

So I say to the business community – to all of you in this room – don’t be passive observers.

Don’t stay on the sidelines. Get stuck into the argument and support us in making the case for growth.

An enterprising Britain cannot be built by government alone.

An enterprising Britain can only be built on the endeavour, aspiration and ambition of the people in this room.

So let us get on and build that enterprising Britain together.

Thank you.

George Osborne – 2011 Speech to Festival of Business Conference


Below is the text of the speech made by George Osborne, the Chancellor of the Exchequer, to the Festival of Business Conference on 16th September 2011.

Good morning and thank you Damian for those kind words of introduction.

Let me congratulate the Telegraph for organising this Festival of Business.

The people in this room come from all parts of our country – from Aberdeen to Devon, from here in the North West to the South East.

You run businesses that offer totally different services and goods – from components engineering to video production, to retailing to accounting.

But you have one thing in common.

You epitomise the spirit of enterprise.

You – together – are the engine room of the British economy.

Most of the businesses represented here today are not the largest in our country, nor are they the smallest.

You are somewhere in between.

The medium of small and medium businesses.

You have market caps of millions not thousands or hundreds of millions.

You are not sole traders or one-man bands.

You employ dozens or hundreds of people but not thousands.

And often – because you are neither the biggest nor the smallest – you get overlooked by governments and policy-makers.

I know your type of company very well.

I grew up with one.

Over 40 years ago my father set up his own business, manufacturing and selling home furnishings.

Over the years it’s grown to employ a couple of hundred people.

Growing up, the rhythms of the business’s life and the rhythms of my family life were one and the same.

I remember the ups and downs.

The new orders won. The new collections launched. The excitement when the first sales were made in America.

And I know the kind of pressure that you are under.

To compete, to stay ahead and to make a profit.

But from that pressure great things can emerge – new ideas, new products, new jobs.

That is why your businesses are the real engine of growth.

You are working flat out for our economy.

And let me tell you – this Government is working flat out to help your businesses not only survive but thrive.

You know as well as I do that these are very challenging economic times.

In recent months we have seen the succession of bad economic news across the world.

The oil price has soared.

And our biggest export markets, in Europe and America, have all but stopped growing.

There is a lack of belief in the ability of political systems in the Eurozone and North America to respond.

All these factors are weighing down on global confidence and having an impact at home in the UK.

But these are just some of the symptoms.

They all have the same root cause – excessive levels of debt across the world.

What started as a debt crisis in the banking sector in 2008 has now turned into a wider crisis of sovereign, banking and private sector debt.

And Britain cannot blame the rest of the world for these debts – for we were one of the biggest contributors to them.

We need a much better international response.

The agenda for coordinated global action should be clear – deal with the debts, sort out the banks, become more productive and free up trade.

Immediately after this event I will be flying to Poland for a meeting of European finance ministers.

At this meeting, crucial discussions about the crisis in the Eurozone are due to take place.

Britain is, of course, not in the euro – and I fought hard with others to keep us out.

Let us take no relish at all from their problems – let’s have no schadenfreude.

A successful euro is massively in our interest.

So at today’s meeting I will be looking for my Eurozone colleagues to send a clear signal that they truly recognise the gravity of the situation and are dealing with it.

Time is short. The Eurozone must now:

– implement as quickly as possible their 21st July agreement;

– resolve the uncertainty with respect to Greece;

– specify how they intend to fulfil the commitment made at last week’s G7 meeting to “take all necessary actions to ensure the resilience of banking systems and financial markets”.

Crucially, my European colleagues need to accept the remorseless logic of monetary union that leads from a single currency to greater fiscal integration.

Here at home we are not immune to what is going on at our doorstep.

America and the Eurozone are our two biggest export markets.

But I am confident that we can weather this storm.

We had an Emergency Budget last summer on our own terms, not this summer on the market’s terms.

That decisive action put us ahead of the curve.

It has delivered record low interest rates. Protected our credit rating. Given us stability when many countries had none.

Our plan was designed for both good times and tough times.

Flexible enough to let the automatic stabilisers work.

Strong enough to command the confidence of world markets.

If we abandoned it now there would be a collapse in that confidence and a surge in interest rates.

Look at our neighbours.

In Greece markets interest rates are almost 23%.

In Italy 5½%.

Our market interest rates this week were the lowest they have ever been in our history.

Below 2½%.

Every business in this country depends on a strong Government and a credible economic policy – and this coalition will always deliver just that.

But that stability on its own is not enough.

We also need growth.

You – the wealth creators and innovators of Britain – can deliver that.

But only when we in Government create an environment in which your business endeavour is supported not stifled.

At this year’s Budget in March I published our Plan for Growth.

It was based on four economic ambitions for Britain.

First, we want Britain to have the most competitive business tax system of any of our major competitors.

So I have already cut corporation tax – from 28% to 26%.

It will come down again next year, and again in 2013 and again in 2014 to reach just 23%.

That’s the lowest ever rate in the UK and the lowest in the G7.

I have also cut the small companies rate to 20%.

I am making the taxation of international profits a lot more competitive.

Cutting tax on profits arising from patents developed in this country.

That should help keep multinationals and knowledge industries in this country.

When the day comes when you want to sell your business, we have doubled and then doubled again the level of entrepreneurs’ relief.

We have also delivered on our promise to scrap the most damaging part of Labour’s planned jobs tax.

Cutting business taxes is not politically popular. It doesn’t win me any votes.

But it is essential to the competitive future of our country and a sign of our commitment to your companies.

Our second economic ambition is that Britain should be the best place in Europe to start, finance and grow a business.

Over the last decade the UK fell behind in the Global Competitiveness Index, going from 4th in 1998 to 12th in 2010.

But here’s some good news at last – last week we re-entered the top ten.

Britain is becoming once again a competitive place to do business.


Because we’re tackling the suffocating burden of red tape.

In the first half of this year, we scrapped over £3 billion worth of unnecessary regulation.

We’ve imposed a moratorium on new regulations on small businesses.

And we are battling with Europe – the origin of so much new red tape – to make them stop and realise that if they carry on then they will price our entire continent out of the world economy.

We are also making it easier for start-ups to attract finance and investment capital, including with an increase in income tax relief from 20% to 30%, which has already come into effect.

Another area where action is needed is planning.

Planning delays also cost the economy around £3 billion a year.

Over half of small firms who applied for planning permission in the last two years found the process too complex.

Almost every serious independent study of the British economy has said the planning system is holding back growth.

So we are changing it.

Replacing over 1,000 pages of planning guidance with around 50.

Putting in a presumption in favour of sustainable development.

Helping you to grow and create jobs.

Helping young families get their own home.

These changes have been opposed by some – including the newspaper hosting this conference.

That’s fine. That’s their democratic right. But let’s have a reasonable debate based on facts not myths.

We are not destroying England’s beautiful countryside.

The Green Belt, Areas of Outstanding Natural Beauty, National Parks are all protected.

We are not taking decisions away from local communities – we are giving them the power to create their own local plan.

What we are doing is making sure our economy can grow and our people can be housed.

Don’t underestimate our determination to win this argument.

That is part of our Plan for Growth and let us hear the loud and clear support of the business community for it.

Our third ambition is for Britain to become a more balanced economy, by encouraging more exports, investment and private sector employment.

We are doing this by introducing new Enterprise zones – including one right here at Manchester Airport.

By investing in our science base – like the fantastic technology park near here in Daresbury.

We are putting money into transport.

Let’s take Manchester.

Here alone we are investing in the A556, increasing capacity on the M60 and the M62.

And we are also funding an extension to Manchester Metrolink and creating a link between Manchester’s two main railway stations, enhancing the Manchester Rail Hub.

And, of course, our High Speed Rail proposals will almost halve the journey time between London and Manchester.

We are investing in the country’s infrastructure – and we are doing so without delay.

As Nick Clegg announced on Wednesday, we will identify up to 40 top priority growth enhancing infrastructure projects across the transport, broadband and energy sectors.

We will then focus on unblocking any barriers to delivery.

A more balanced economy also means more exports.

That’s why we’ve got Stephen Green, one of Britain’s global business leaders, to become our Trade Minister.

He is the man who will help companies of your size enter new markets, with new export products like trade finance services and specialised trade advice designed to support you.

If you want help on how to start exporting abroad, speak to UK Trade and Investment – there is a stall here today.

Our fourth ambition is to have a more educated and better skilled workforce.

In today’s global economy you can only compete on skills, innovation and know-how.

That is why this Government has embarked on radical reforms to education, including:

– 700 Academies opened since April;

– 24 Free Schools opened in the past month;

– the largest ever investment in apprenticeships – 100,000 more than last year;

– and we have taken the difficult but essential decision to reform student finance to ensure our universities continue to be well funded.

Many would have ducked these challenges. We did not.

So there it is.

More competitive taxes. Better business support. More balanced growth. And a better skilled workforce.

That is our plan for growth.

And I will be announcing further measures alongside the Autumn Forecast at the end of November, including a package of support for mid-sized companies.

Because when you look at the British economy, there is an obvious gap in the way Government supports business.

It’s a gap that exists between our successful SME sector and our world-class large corporations.

In that gap there are many mid-sized companies that are often at the heart of local communities.

Between them they employ millions of people, and turn over billions of pounds.

But they don’t always get the same focus as the smallest or the largest.

As a result, they find it hard to grow and meet their full potential.

This has been a well-known problem for Britain.

The issue might be growing your exports – we know mid-sized businesses often find this harder than large firms.

It might be finding the right source of finance.

Or it might be finding the right staff or skills.

So I think the time has come to fill that gap – starting today.

We should all learn the lessons from the successful Mittelstand model which has operated in Germany for many decades – the medium sized companies that are such a source of strength for that country.

In the UK, mid-sized businesses like yours are often at the centre of our supply chains.

Your prospects depend on the decisions of larger firms at the top of the chain.

And the success of those larger firms in turn depends on having reliable and efficient suppliers.

So today I can tell you that some of Britain’s biggest businesses have agreed to share their global success with their supply chain.

It is a simple idea.

Today’s successful firms helping you grow into the big companies of tomorrow.

It’s in your interest, it’s in their interest, and it’s in the interest of the UK economy.

I can tell you today that Tesco, Centrica, Virgin, GSK, Network Rail, GE, Carillion and BAE Systems have already signed up to work with us – and we hope that other big British firms will join this endeavour.

We would like to set a shared aspiration to secure support, advice and practical help from each of these companies.

The Government and the CBI will work with these firms to develop that offer of support.

We hope it will include:

– opening up new export opportunities, helping British businesses access new markets around the world where the big name is already established;

– sharing expertise, with opportunities to work shadow top executives, access training courses, and build apprenticeship opportunities;

– creating new intellectual property by sharing R&D facilities and collaborating on new technology;

– building more sustainable models of financing and payment arrangements that help access to working capital;

– and many other exciting opportunities, which we will set out in full later this autumn.

I hope many of you in this room will benefit from this initiative.

Government helping business to help business.

That is our agenda.

It’s an agenda for jobs. For business. For growth.

Making Britain more competitive is not easy.

Many obstacles stand in our path.

For every wasted pound of government spending, there will be a pressure group that pops up on the radio to defend it.

For every totally unnecessary piece of regulation, a trade union that will fight to keep it.

We need your support to overcome the forces of stagnation that hold our country back.

Help us.

Work with us.

You are the forces of enterprise and together we will get this economy moving and put Britain on the path to prosperity.

Thank you.

George Osborne – 2011 Zeitgeist Speech


Below is the text of the speech made by the Chancellor of the Exchequer, George Osborne, at Google Zeitgeist on 16th May 2011.

It’s great to be at Google Zeitgeist today.

When I was last here, in 2009, I was asked to speak about the economy.

Today, I’d like to use the Q&A session to answer questions on the economy, and use this speech to talk about a subject that’s hopefully much more exciting:


The impact that you are having – as internet entrepreneurs, innovators, technologists – on the world of government and politics.

Recent events in the Middle East and North Africa demonstrate just how powerful the internet can be as a tool in the fight against oppression.

In fact, look at almost any big social change of the past 200 years and you will see that it has been driven by a paradigm shift in communication technology.

Newspapers. Radio. Telephony. Television.

And now – most dramatically of all – the internet.

For politicians of my generation, the incredible disruptive impact of the internet is not a threat – it’s an opportunity.

An opportunity to build societies that are more open, more innovative and more prosperous.

As we all know, virtually every walk of life is being affected in some way by the internet and new technology.

That’s why, over the course of this conference, you are going to be hearing from experts talking about how the internet is changing the economy, affecting our culture and transforming society.

In my view, the impact that the internet is having on government is equally profound.

That’s what I’d like to focus on today.

I’d like to look at three of the most dramatic ways that the internet age is changing government.

The way it is:

Changing accountability.

Changing policy making.

And changing public services.

Let me take each in turn.

First, changing accountability.

You don’t need me to tell you how the internet has eroded traditional information asymmetries.

We’re all so used to talking about “the democratisation of information” that perhaps sometimes it’s easy to forget what a fundamental change it has brought about.

For centuries, access to the world’s information – and the ability to communicate it – was controlled by an elite few: the powerful, the wealthy and the well educated.

Today, billions of people can access more information than entire governments could just a generation ago.

And of course, the globalisation of these information flows, thanks in large part to mobile internet access in sub-Saharan Africa and the developing world, is increasing every day.

This is rapidly eroding traditional power and informational imbalances.

And it is irrevocably increasing the accountability of politicians and governments to the people they are supposed to serve.

There was a brilliant example of this during the Prime Minister’s trip to India last year.

As part of the trip, we thought we would organise a hack day at the Google offices in Bangalore.

So we flew over some British coders, and stuck them in a room with Indian developers and social entrepreneurs, to see what they could build together over the course of a few hours.

They decided to create a new tool that would help make the Indian police more accountable.

Here’s how.

In India, giving someone a quick “missed call” is a bit like “poking” on Facebook.

You call someone, let it ring for a second, then hang up, and it’s a cost-free way of saying “hi” or “I’m thinking about you”.

What our team of programmers did was start building an app that lets people in India give a missed call to a special number saved in their phone whenever they have a dissatisfactory encounter with the police.

This missed call gets plugged into a heat map showing the rough location of people’s complaints – so highlighting for the first time the parts of India where people are most unhappy with their local police.

This heat map can then be used by civil society or by government to put pressure on underperforming forces to change their ways.

It’s a brilliant initiative, and just one of thousands of examples of how new technology is improving accountability across the world.

For a long time, the British government was much too slow to accept this.

It tells you something about the culture of secrecy in Whitehall over the past decade that Tony Blair says in his autobiography that the Freedom of Information Act was his “biggest regret” in government.

I’m sure we could all think of a few things he really ought to regret more.

From day one of the coalition Government, we have chosen to take a different path, and to embrace the accountability revolution enabled by the internet age.

And already it seems incredible that this time last year, the British public couldn’t access even some of the most basic information needed to hold the government to account.

Spending data broken down on an item by item basis.

The contracts signed by central and local government.

Government procurement tender documents.

The salaries of senior government officials.

Incidents of crime in your neighbourhood, broken down on a street by street basis.

Thanks to our efforts, these government datasets – and over 6,000 others – are now freely available to be analysed, interrogated and mashed up.

But this is only the beginning.

Over the next 12 months, we’re going to unlock some of the most valuable datasets still locked away in government servers.

This is the raw data that will enable you, for the first time, to analyse the performance of public services, and of competing providers within those public services.

So a year from now, websites and services will use this data to help the public find the answers to important questions like:

Which is the right GP for my family?

How well are the different departments in my nearest hospital performing?

What is the quality of teaching like in my local school, broken down by subject area?

Was the person who broke into a car on my street ever apprehended by the police, and if so, what happened next?

Our ambition is to become the world leader in open data, and accelerate the accountability revolution that the internet age has unleashed.

Because let’s be clear, the benefits are immense.

Not just in terms of spotting waste and driving down costs, although that consequence of spending transparency is already being felt across the public sector.

No, if anything, the social and economic benefits of open data are even greater.

Take medicine, for example.

A few years ago Sergey Brin, the co-founder of Google, took a DNA test that revealed that he may have up to a 75 percent chance of developing Parkinson’s over the course of his life.

His response?

To use the power of open data to search for a cure.

He has funded the collection of a huge amount of health data, drawn from over 10,000 people, which is now being analysed to yield new insights into the linkages between drugs, patient behaviour and disease.

This approach – using large datasets to search for possible correlations and causations – shows the massive potential for open data to transform scientific research.

The economic impact of this open data revolution will be similarly profound.

The annual global market for financial services data analytics is estimated to be worth over $20 billion.

According to a new McKinsey report, the market for health analytics could be even larger – as much as $300 billion a year in the United States alone.

And as we all know, with internet enabled sensors increasingly embedded in cars, in smart meters and in our electrical appliances, the amount of data being produced is increasing rapidly.

This so-called “internet of things” opens up the possibility of new services and tools, from the self-drive cars being developed by Google to powerful dynamic energy efficiency applications.

I want the UK to be at the forefront of this new wave of innovation.

That is why we will have a specific focus on open data over the coming months, to ensure that we maximise the business opportunities at hand.

And that’s also why it’s great to be able to announce today that two of our leading universities, Imperial College London and University College London are developing plans for an unprecedented partnership to create a new Research Centre focused on the massive amounts of data – energy data, transport data, social data – being generated in the world’s metropolises.

This “smart cities” Research Centre will develop new technologies, in partnership with leading companies, to harness and exploit these huge new datasets, and support the businesses and technologies of the future.

And as part of the Tech City initiative, the Research Centre will be based in Shoreditch, and will be a fantastic boost to the East London technology cluster.

If the first impact of the internet age on government has been to change accountability, the second has been to change the nature of policy making itself.

Just as the old asymmetries of information have been eroded, so too have the perceived asymmetries of wisdom.

I genuinely believe that in almost all areas of government, we do a better job when we open up policy making and open ourselves up to the ideas of the crowd.

We’ve done it in tax policy, where wherever possible we publish detailed tax changes months before the Budget so that experts can crawl over the drafting and spot errors and implementation problems.

We’re doing it with legislation more generally, through our Public Reading Stage, which will give people the opportunity to highlight drafting and technical errors during the Parliamentary process.

But we’ve also done it to generate new ideas and policy proposals.

In the run up to last year’s Spending Review, we didn’t leave it to Treasury officials alone to look for efficiency savings and ways to save money.

We opened up the entire process in an unprecedented way.

First we launched a website enabling public sector workers to feed in their ideas about how to save money and redesign processes, based on their own experiences.

The response was incredible: over 10,000 proposals submitted in the first 24 hours alone.

We had a team poring over these suggestions, and the best ones were fed straight into the Spending Review process.

I met public sector workers who had taken part, and they were thrilled to know that their ideas were finally being listened to.

Once this process had been completed, we opened it out to the entire public.

By the end, hundreds of thousands of people had taken part.

To those that say that people are disengaged from the work of government, and want their representatives to take care of everything, this is a powerful riposte.

We’re applying this commitment to openness to government procurement too.

At the launch of Tech City in East London last November, one young entrepreneur called Glenn Shoosmith told the Prime Minister about a problem he’d encountered.

He’s invented a low-cost technology that allows people to book slots online at their sports centre or swimming pool.

When he pitched it to the Olympics team he was told to find the relevant tender document and fill it in.

But the system didn’t know about the product, so there was no tender – and no way for Glenn to sell his innovative product to government.

This problem happens time and again – so we’re using open processes to try to fix it.

Last month, we launched an open procurement competition – the Innovation Launch Pad – encouraging small companies to pitch to government their innovative new technologies and services.

In other words, instead of having to wait for the right public sector tender document to come along – because it often never does – you can send your prototype directly to government.

Leading technology experts such as Mike Lynch, the founder of Autonomy, and angel investor Sherry Coutu are helping us judge the entries and work with the companies to help them compete for and win deals with Government.

We’ve applied a similar logic to the challenge of reducing regulation.

Instead of simply relying on government hierarchies to decide which regulations should be reformed or abolished, we’ve opened up the process to the wisdom of the crowd.

We call it the Red Tape Challenge, and here’s how it works:

We’re publishing, sector by sector, almost every piece of regulation on the books so that business and the public can feed in comments.

What works, what doesn’t, what should be scrapped, how things could be simplified or done with less regulation.

Every single suggestion is looked at – and if any sensible proposals are rejected, Ministers will have to explain why.

In other words, we’ve turned the default on its head.

Instead of government deciding whether or not to listen to the public, we’re forcing it to listen.

We want to remain at the cutting edge of open source policy making.

So I’m pleased to be able to tell you that we have just recruited Beth Noveck, who used to work at the White House running President Obama’s Open Government Initiative, to help us take this agenda forward.

I can’t think of a better person to help us with this.

After all, Beth literally wrote the book – ‘Wiki-Government’ – on how policy making needs to change in the internet age.

She’s a genuinely world class recruit, and she’ll be working alongside the likes of Martha Lane Fox, Tim Kelsey and Tom Steinberg to harness new technologies to make government more innovative and accountable.

So if the second impact of the internet age on government has been to change the way we make policy, the third impact I’d like to talk about is the way it’s changing the way we design and run public services.

This is in part thanks to the massive potential for cost savings.

It used to cost government over £10 to process a driving license application or a self-assessment tax form.

Online, the cost is less than £2.

Efficiencies like that are too powerful to be ignored.

So if we make the most of this opportunity, there is no doubt that we can significantly reduce the cost of government

Martha Lane Fox, the Government’s Digital Champion, argues that shifting just 30% of public service contacts to digital channels has the potential to deliver annual savings of more than £1.3 billion.

If we think about how internet banking has gone from a standing start to the mainstream in just over a decade, there’s no reason why public services can’t be the same.

Obviously, it won’t happen of its own volition.

That’s why we have made the bold commitment that all our public service reforms will be ‘digital by default’.

In other words, in all our reforms we assume that public service delivery can be shifted online – and officials and ministers have to justify why any aspect needs to be delivered through traditional offline channels.

This is a huge culture shift for government.

And it’s beginning to have an impact across the public sector.

We’re designing the universal credit system with online delivery in mind right from the start – not as an expensive afterthought.

My department – the Treasury – has already moved to online only corporation tax returns, significantly reducing administrative costs.

In the Budget I announced that over the next couple of years we will be doing the same for all the main business taxes.

And we’re creating a single government website – you can find the prototype at – that will enable us to redesign government services from the bottom up and put the user in charge.

Because we all know, new technology doesn’t just enable us to reduce costs, it can help us drive up standards too.

For over a century, the dominant assumption in policy making was that in every walk of life, we needed people at the centre micromanaging public services.

Why? Because the public was considered to lack the information and tools to take more control themselves.

The internet age has shattered that cosy consensus.

And it’s opening up new possibilities to open up public services, empower citizens and unleash massive innovation.

To give you just three examples:

Personal budgets will be able to be managed by individuals online, choosing the tailored public services they need.

Patients will be able to access and share their personal health records, and take greater control over their treatment.

And communities will be able to use online platforms to engage with the local planning system, and come together to decide on issues like zoning and use of space in their neighbourhood.

Of course, this age of digitised public services creates challenges alongside opportunities.

The challenge of ensuring the security of personal data and financial information, for example.

The hacking into Sony’s online PlayStation network, and the theft of millions of users’ credit card details, is a high profile example of the need for robust online security.

This applies equally to government as to the private sector.

In any given month there are over 20,000 malicious emails sent to government networks.

Here is a salient story from my time as Chancellor.

During 2010, hostile intelligence agencies made hundreds of serious and pre-planned attempts to break into the Treasury’s computer system.

In fact, it averaged out as more than one attempt per day.

This makes the Treasury one of the most targeted departments across Whitehall.

At some point last year, a perfectly legitimate G20-related email was sent to HM Treasury and some other international partners.

Within minutes it appeared that the email had been re-sent to the same distribution list.

In fact, in the second email the legitimate attachment had been swapped for a file containing malicious code.

To the recipient it would have simply looked like the attachment had been sent twice.

Fortunately, our systems identified this attack and stopped it.

We are not taking this challenge lying down.

At the Spending Review last year I announced that we would invest £650m in a new National Cyber Security Programme to enhance our online security.

We are determined to get the security question right, so that we can maximise the opportunities that the internet age presents.

Another challenge that we need to address is to ensure inclusive access as public services are increasingly migrated to the internet.

After all, there are still nine million adults in the UK who have never been online.

We can, and will, address this challenge, and get as close as we can to a 100 per cent connected Britain.

Over the past few months, we have been working with some of the world’s leading technology companies to ensure that the next generation is equipped with the digital skills they need to flourish in the digital age.

Thanks to this engagement:

Hutchison Whampoa has agreed to support a pilot of the successful Digital Maths programme developed by Stanford Research Institute, which will provide digital tools to support maths teaching in UK schools.

Blackberry has agreed to launch an apps challenge for UK schools, teaching kids how to design new online tools.

Intel will run a range of schemes to support young people to set up their own online businesses.

And YouGov is sponsoring a Start-up Summer programme to provide mentoring, research, funding and cash prizes to encourage university students to set up internet companies.

Taken together, these schemes will benefit thousands of young people in the years ahead.

And they show how the government is working with leading businesses to turn the challenge of change to our advantage.

The same is true across all areas of government.

As we’ve seen, the internet is forcing us to rethink government from the bottom up.

It’s changing accountability.

Changing policy making.

And changing public services.

These changes are opening up incredible new opportunities for progress.

The opportunity to embrace new technology to improve public services and tackle old social problems in new ways.

The opportunity to make our societies more open, more fair and more prosperous.

And the opportunity to spread freedom and open markets to new corners of the world.

Together, we can make the most of these new possibilities.

And use the power of new technology to redesign government and build a brighter tomorrow.

Thank you.

George Osborne – 2010 Speech on the OBR


Below is the text of the speech made by the Chancellor of the Exchequer, George Osborne, on 17th May 2010.

Good morning everyone, and on behalf of myself, David and Alan I want to welcome you all to the Treasury.

And can I take this opportunity to say how glad I am that I have someone of David’s intelligence and calibre to assist me in the work that we have to do.

We are here to talk about the very first item on the first page of the coalition agreement.

As it says, “Deficit reduction and continuing to ensure economic recovery is the most urgent issue facing Britain.”

We understand that.

And we need to get moving.

So today, less than a week after taking office, I want to explain some of the early arrangements for dealing with the fiscal crisis left by the last Government.

First, let me just tell you some of the stark facts.

Last year our budget deficit was the largest it has ever been in our peacetime history.

This year it is set to be among the largest the world.

According to the IMF and the European Commission, it will be the largest in the G7 and the largest in the European Union.

This is the legacy of thirteen years of fiscal irresponsibility.

And it poses a very real threat to the recovery.

That it is why this new coalition is founded on an agreement to significantly accelerate the reduction in the deficit, starting this year.

This is not about party interests, it is about the national interest.

The advice that we have received from the Treasury and the Bank of England make that clear.

Those who argue that action can be safely delayed for another eleven months would put our economy at risk for the sake of short term political advantage.

The last few weeks have shown quite how urgent the necessary action has become.

Greece is a reminder of what happens when governments lack the willingness to act decisively and quickly, and when problems are swept under the carpet.

The result is sharp increases in interest rates, worsening recession, growing unemployment.

At one point, interest rates in Greece increased by a full 10 percentage points.

The dangers were clear when I spoke to finance ministers from around the world on Friday.

The European package that was agreed last weekend has solved the immediate liquidity crisis, but it has not solved the underlying solvency crisis.

The threat has not gone away.

And I know people everywhere are worried about what this means for them.

They are asking themselves – will I be affected?

What does this mean for my job, my family, my children’s future?

To them I say – if we fail to tackle the deficit we inherited from the previous government, the consequences could be disastrous.

If we don’t get on top of our debt, every family in Britain will be poorer and the dreams of millions of young people will be dashed.

Mortgages will be higher, businesses will go bust and debt interest will become one of the largest items of government spending.

We urgently need to restore confidence in our economy.

And we need the determination to act quickly in the short-term in order to establish credibility for the longer term.

So what will we do?

The first part of our approach is to boost credibility and confidence in the UK’s fiscal framework.

In short, we urgently need a full, independent assessment of how bad the problem really is.

As the IMF has said “strong fiscal institutions can enhance the credibility of consolidation plans”.

I could not agree more.

Over the last 13 years the public and the markets have completely lost confidence in government economic forecasts.

The last government’s forecasts for growth in the economy, over the past ten years, have on average been out by £13bn.

Their forecasts of the budget deficit three years ahead have on average been out by £40bn.

Unsurprisingly, these forecasting errors have almost always been in the wrong direction.

The conclusion is clear.

We need long-lasting change in the way we put together budgets in this country.

The final decision on the forecast has always been made by the Chancellor, not independent officials.

And that is precisely the problem.

Again and again, the temptation to fiddle the figures, to nudge up a growth forecast here or reduce a borrowing number there to make the numbers add up has proved too great.

And that is a significant part of the reason for our current problems.

I believe the public should be able to trust official forecasts for the economy.

I want independent forecasts to become the norm.

And this will inevitably mean giving away some of my powers as Chancellor.

Of course, the elected government will still set the overall fiscal goals of the government, and the extent to which fiscal policy expands or contracts at each budget.

And of course, it will also retain control over tax and spending decisions.

These are properly decisions for elected politicians, accountable to Parliament and to voters.

But I am the first Chancellor to remove the temptation to fiddle the figures by giving up control over the economic and fiscal forecast.

I recognise that this will create a rod for my back down the line, and for the backs of future chancellors.

That is the whole point.

We need to fix the budget to fit the figures, not fix the figures to fit the budget.

To do this, I am today establishing a new independent Office for Budget Responsibility.

For the first time we will have a truly independent assessment of the state of the nation’s finances.

So they can get to work immediately, the OBR will initially operate on a non-statutory basis, just as the Monetary Policy Committee operated before it was enshrined in legislation.

It will be headed by Sir Alan Budd, one of the most respected fiscal and macroeconomic experts in our country.

He is a man of immense integrity and indisputable independence, having worked for governments of both right and left, and he was appointed as an inaugural member of the Monetary Policy Committee by Gordon Brown.

I am very glad that he is here with us today.

He will be joined by two other independent experts, Geoffrey Dicks and Graham Parker, and together they will form the Budget Responsibility Committee.

With help from a secretariat of civil servants, they will be in charge of making independent forecasts for the economy and the public finances.

They will have direct control over that forecast.

They will make all the key judgements.

And they will produce the fiscal numbers that underpin government policy in the Budget Red Book.

But I don’t think we can afford to wait until the Budget for an independent assessment of the true state of the public finances.

So the first of the OBR’s forecasts will be produced ahead of the emergency Budget.

Everyone will be able to see the scale of the problem to which that Budget must provide the solution.

I have asked the Treasury to give Alan and the Committee full access to all the data, assumptions, and economic models.

Because they will also have a role, over the coming months, in exposing all the hidden liabilities and long-term pressures facing us as a country.

Looking at the cost of our ageing society, public service pensions, or the cost of outstanding PFI contracts, for example.

For the first time we will have an independently audited and transparent national balance sheet.

In due course, the OBR will be put on a statutory footing, with legislation in the Queen’s Speech next week.

And at the Budget I will announce the overall path we intend to pursue for the public finances, and against which the OBR will judge the government’s fiscal policy.

For each Budget and Pre-Budget Report they will confirm whether the Government’s policy is consistent with a better than 50 per cent chance of achieving that objective.

That means there will be nowhere to hide the debts, no way to fiddle the figures, and no way of avoiding the difficult choices that have been put off for too long.

With all these changes, fiscal policy in this country will be at the cutting edge of international best practice.

Making us one of the few advanced economies with an independent fiscal agency that produces official fiscal and economic forecasts.

Given that many countries face similar fiscal challenges – though few on a similar scale – I hope that the world will look with interest at our policy innovations.

So the first part of our approach is a truly independent audit of the public finances.

But it is not enough just to know the scale of the problem.

We need to show that we have the determination to fix it, and that means making a start this year.

The coalition has agreed that £6bn of savings to non-front line public services should be made this financial year.

The departments for health, defence and international development will also make savings but they will be reinvested in their front lines.

The coalition has also agreed that, given the state of the public finances, the great majority of the £6bn of savings from other departments will be used to reduce the deficit.

Some proportion will be used to support jobs in a targeted and effective way, as set out in the coalition agreement, for example through the cancelling of some backdated demands for business rates.

It is the clear view of the Treasury and the Governor of the Bank of England that these are the necessary actions to ensure economic stability and secure the recovery.

The Treasury’s assessment is that there is a strong economic case for an immediate spending reduction of £6bn.

The Governor, when presenting his inflation report last week, said it was right for a new government “to put into place a serious plan to tackle the fiscal deficit… and to make clear it was serious about it by doing some measures this year.”

He added that he did not “think £6bn of cuts will dramatically change the outlook for growth this year, and it does reduce some of the downside risks”.

So we are in no doubt that this action is advisable.

And the work that David Laws and I have already done in the Treasury has convinced us that it is also achievable without affecting the quality of key public services.

By tackling wasteful spending now, rather than later, we can demonstrate our commitment to tackle the deficit.

We can help the independent central bank keep interest rates lower for longer.

And we can begin to turn the tide of debt that is threatening our economy.

David will, in a moment, take you through this in more detail.

But let me briefly explain how the process will work.

The specific allocations of in-year savings will be announced a week today.

These will include significant reductions to the cost of quangos.

This is unprecedented speed for a spending round, but we need to get moving, and every day comes at the cost of more wasteful spending.

The emergency Budget will then set out the fiscal path and the spending totals needed to achieve it over the coming years, underpinned by the OBR’s independent forecasts.

The Budget will also contain measures to boost enterprise, create a fairer tax system, and demonstrate to the world that Britain is open for business.

I will be saying more about this when I speak to the CBI Annual Dinner on Wednesday.

The Spending Review will then report in the Autumn, informed by the Strategic Defence Review.

So, in the space of less than a week this new coalition government has already:

– changed the way that Budgets are made, forever;

– created a new independent office that will restore confidence in the numbers that underpin the budget;

– set in train the creation of the first independently audited national balance sheet;

– confirmed immediate action to identify £6 billion of wasteful spending this year, while protecting the most vulnerable in our society and the quality of front line services on which people depend;

– and set out the steps towards an emergency Budget that will show that Britain can live within its means and will provide the solid foundation for a private sector recovery

That is the route to a stable, balanced economy that works for everyone.

Finally, the coalition agreement states that the emergency Budget will be within 50 days of the signing of the agreement.

Some have said that is a tight timescale.

But I believe that we need to act even sooner to restore confidence in our economy.

So the Budget date will be Tuesday 22nd of June.

Exactly six weeks, or 42 days, from the signing of the coalition agreement.

Thank you.

George Osborne – 2010 Speech in Mumbai


Below is the text of the speech made by George Osborne, the Chancellor of the Exchequer, in Mumbai on 28th July 2010.

Welcome everyone.

I want to thank the Indian Banks’ Association, as well as UK Trade and Investment, for hosting this speech.

It is a real pleasure to be back in Mumbai today.

I was last here in 2006, when David Cameron and I came to meet with and talk to the leading figures of Indian business and politics.

On the way back from that trip we resolved that if ever we formed a Government we would return with a large delegation to enhance this relationship.

This visit makes good on that promise.

Put simply, this is the strongest and most high-profile British delegation to visit India in modern times.

It includes six senior ministers – alongside the Prime Minister David Cameron and myself, we are joined by:

– The Business Secretary Vince Cable;

– The Foreign Secretary William Hague;

– The Minister for the Environment and Climate Change Greg Barker;

– And the Culture Secretary Jeremy Hunt.

While it took one of my predecessors as Chancellor ten years to visit India, I have made it a priority to come here in my first ten weeks.

Our delegation also includes leading figures from British business, sports and academia.

Top chief executives of some of the world’s best-known businesses, like Vodafone, BAe, and Rolls Royce, and leading financial sector firms, including Barclays, Standard Chartered, Deutsche, Clifford Chance, Aviva, Standard Life, and the London Stock Exchange.

Senior academics from Cambridge, Imperial College and our other universities.

Cultural leaders like the directors of the British Museum, the Victoria and Albert Museum, and the British Library.

And sporting figures, such as Olympic medal winners Sebastian Coe, Kelly Holmes and Stephen Redgrave to see the new facilities for the Commonwealth Games. Next time I will bring some cricketers.

And the scale of our visit is a demonstration of how serious we are about India.

Britain’s new coalition Government is here to renew and strengthen the partnership between our two countries.

Based on our shared interests, shared values, shared sense of threats and ever-burgeoning personal and business ties.

India’s economic success within the framework of a secular and plural democracy is of strategic importance to all open societies and all open economies.

The UK has a vital stake in India’s rise to global power and prosperity and we are here to listen and to learn, to find out how our strong relationship can grow stronger still.

So I want to talk today about those three core ingredients which I believe are needed in this new enhanced economic partnership.

They are, first, greater efforts to improve trade and investment flows between our countries – a partnership in trade and investment.

Second, a deeper understanding of the links between our financial services sectors – a partnership in finance.

And third, a better recognition of our shared goals on the international economic policy arena – a partnership for the world economy.

Let me say a few words about each in turn.

Starting with our trade and investment.

Our two countries have much to gain from expanding our trade relationship.

In the past, this has been a disappointing aspect of our bilateral ties.

The UK and India have slipped down the rankings of each other’s trading partners – we could and should be doing much more with each other.

In 2008, India was only the 19th most important source of foreign goods for the UK market and the 12thmost important source of services.

A decade ago, the UK was India’s fourth most important source of imported goods. By 2009, we had fallen to being the 18th largest.

In other words, the UK has been losing its share of India’s booming trade with the outside world.

Now, it is all too easy to set eye-catching targets that disappear without trace after they have served a short-term need to grab headlines.

In January 2007, when the then British Chancellor of the Exchequer visited India, he promised great things for the bilateral trade relationship.

Gordon Brown announced that he aimed to double exports to India by 2010 – that is to say this year – and to quadruple exports by 2020.

A noble ambition, but easier said than done.

The value of UK exports of goods stood at £2.7bn at the time of that announcement; by 2009, it had reached just £2.9bn.

It will be a stretch for us to reach the target of doubling exports in what remains of this year.

That is why we want to make progress on free trade talks.

We must make every effort to complete the Doha trade round. And we should ask trade experts to report to G20 leaders on steps to achieve this before the Seoul G20 Summit.

We should strengthen significantly EU-India trade links. Indeed, an ambitious Free Trade Agreement between the European Union and India will generate jobs and growth by tackling the unnecessary barriers to trade and investment between our regions.

By 2020, it could deliver benefits worth a combined €4.5bn per annum shared between India and the EU.

Negotiations are now entering their fourth year. We need to provide the leadership to complete the free trade agreement by early next year.

We must reduce the costs of trade – particularly the frictions and delays at borders –which are often a far larger barrier to market access than tariffs.

The World Bank estimates that a 2 percent reduction in the costs of doing trade is equivalent to an ambitious Doha deal on tariffs.

So we need to do more, and do better, on trade between our two countries.

We need to build on what has already been achieved. There is a strong investment base:

– 700 out of 1,200 Indian firms in the European Union operate from within the UK;

– The largest single manufacturing employer in the UK is the Indian conglomerate Tata, which owns Jaguar, Land Rover and in the constituency I represent Brunner Mond;

– And the UK receives over 10 per cent of India’s outward investment flow.

So when it comes to investment, ours is not a one-way relationship.

But while the UK stock of inward investment is the fourth largest in India, the UK’s share of foreign direct investment has been declining. I want to change that.

Yesterday I launched Vodafone’s solar powered mobile phone, and exchanged greetings with a villager in Jharkhand.

Communicating from a mobile phone shop in Mumbai directly to a village a thousand miles away – this is the scale of the change in which British companies can participate.

The Government of India have set out ambitious plans for $500bn infrastructure investment.

This is a massive opportunity for British engineers, architects, designers and construction firms to strengthen cooperation further.

I welcome that the Government of India is taking forward proposals for foreign insurers and pension funds to play a role in delivering this finance.

We should bring together CEOs from the UK and India to identify how we can further improve collaboration in this area.

So we need an enhanced trade and investment partnership. We also need to strengthen our partnership in financial services.

So this is the second crucial element of an enhanced economic relationship – the increasing importance of the financial links between our two economies.

Lack of access to finance is a major barrier to poverty reduction all over the world.

British banks are fully committed to the Government of India’s financial inclusion agenda and to the challenge of serving the needs of poorer communities in rural areas and smaller towns and cities.

We are here for the long haul. Indeed some UK banks have been in India for over 150 years.

Standard Chartered, HSBC and RBS are three of the top four foreign retail banks in India.

Offer them licences in the medium-sized towns and smaller cities and they will jump at the opportunity to be part of the huge effort to bring modern banking services to millions more Indians.

Just look at what they are already doing – Standard Chartered and HSBC have extensive networks of more than 100 branches between them covering 31 cities.

I also want to see British banks doing more to help India increase its financial capacity so that access to capital is not a brake on India’s economic growth.

A Confederation of Indian Industry report published this month noted that foreign banks held only 8.5 per cent of the banking sector’s assets and that this limited the country’s ability to secure higher investment growth.

But let’s also be clear about something else.

It is essential that we learn the lessons of the crisis and create financial systems that support growth rather than put it at risk.

India’s attention to macro-prudential risks enabled it to weather the storm better than the UK and other economies.

In the UK I have announced a new approach to financial regulation, including a stronger focus on macro-prudential risks to the financial system as a whole, stronger regulation of individual firms by the Bank of England, and enhanced consumer protection.

I know from my conversation this morning with Reserve Bank of India Governor Subbarao, how much both our countries have to gain from sharing our experiences in macro-prudential regulation.

I look forward to strengthening our cooperation as we both develop our global financial centres.

As the Governor said in his speech to the Indian Merchant’s Chamber, the Indian banking system will become increasingly international, with Indian banks increasing their presence abroad and foreign banks taking a larger presence in India.

India has seen tremendous benefits from the liberalisation of the financial sector, as I saw this morning at the Bombay Stock Exchange.

The dynamism of India’s capital and equity markets demonstrate the potential for other parts of the financial sector: for example in banking, through the implementation of the reforms set out in the RBI’s 2005 Roadmap.

And in insurance, by following through on India’s welcome commitment to raise the cap on foreign investment from 26% to 49%

I have another key message for financial regulators and financial institutions here in this great financial centre of the future.

And it is this – I believe in reciprocity.

I would like to see Indian banks establishing themselves even more prominently as big players in the City of London and throughout the UK.

Indian financial services firms are also increasingly active in the UK.

There are currently 9 Indian banks in the UK and all of them are growing and have plans to open more branches in the UK.

The UK is now home to more Indian banks than any other country in the world.

I very much welcome the fact that the India Infrastructure Finance Company based itself in London – a move symbolic of the depth of the financial services relationship between our two countries.

And I’m pleased to announce today that Exim Bank, India’s premier development bank for trade and investment, has been given a license from the FSA to set up their bank in the UK – bringing that number to 10 Indian banks and with more to follow I hope.

I can also announce that the State Bank of India, the oldest commercial bank in this country, will be making London their European Headquarters this year and will be adding to their network of branches across the UK.

This is precisely the kind of reciprocity our banking sectors need.

And I would welcome the arrival of more Indian banks in the UK as well as the expansion of the existing players already serving customers the length and breadth of the country.

So we will develop a partnership in finance to complement the new partnership in trade and investment.

And these will together help us form a new partnership for the global economy.

India’s policies of trade and investment liberalisation are reintegrating India into the world economy, allowing it to regain an influence it had three centuries ago.

Prime Minister Manmohan Singh once famously quoted Victor Hugo saying that ‘no power on Earth can stop an idea whose time has come’.

The emergence of India as a major economic power in the world is certainly one such idea.

That is why it is time to acknowledge that the post-1945 system of international financial institutions – particularly the IMF and the World Bank – needs to change.

It was built for a world of closed economies and just 50 states.

In a world in which relative economic power is shifting eastwards, we urgently need modernisation and reform.

We need a new global financial architecture that reflects the re-emergence of India and a number of other countries as linchpin powers in the world economy.

We need institutions that have the resources, the tools and the legitimacy to ensure countries can withstand economic shocks and prevent crises from spreading:

– Enhancing IMF resources – and I am pleased that this week the UK Parliament ratified our commitment to provide extra resources;

– Improving the IMF’s crisis prevention tools;

– And completing the reform to IMF quotas to give greater weight to under-represented and dynamic economies. I am determined the UK will take a lead this autumn in making sure India is fairly represented.

We need institutions that reflect the huge changes that have been taking place in the world economy, not ones that mask them.

India now has a strategic stake in multilateralism that it did not have for much of the post-war period.

The UK supports the G20’s emergence as the pre-eminent global grouping, in which the world’s largest economies work together to create a global order that is supportive of our mutual aspirations and ambitions:

– coordinating macroeconomic policies and agreeing actions in each G20 country to ensure sustainability and foster global growth;

– implementing reforms to strengthen the global financial system, in particular improving the quality and quantity of capital;

– and resisting protectionism and promoting open markets.

It is essential that India can play the significant role in these debates to which it is entitled because of the size and dynamism of its economy.

It is not just about multilateral relations. I also want our bilateral relationship to be strong.

Let’s not make this visit and these conversations a one-off, but rather ensure that:

– we meet annually;

– follow through on summit agreements;

– expand the dialogue to include other government ministries and regulators;

– and strengthen the involvement from the private sector.

Ladies and gentlemen.

Let me conclude by saying that India’s success is of strategic importance not just to the UK, but to all open societies and open economies and the UK is determined to do all it can to be a partner in that process.

We can be strong partners in trade.

We can be strong partners in finance.

And through this, we will be strong partners in the world.

Thank you.

George Osborne – 2010 Speech at the CBI Annual Dinner


Below is the text of the speech made by the Chancellor of the Exchequer, George Osborne, on 19th May 2010 at the CBI Annual Dinner at the Grosvenor House Hotel in London.

Thank you Helen.

I am very grateful for the opportunity to speak at your annual dinner.

This is my first major speech as Chancellor, and Richard, you were the first person I called after I got the job.

That is a reflection of the importance I attach to Britain’s business community, and it is testament to the effectiveness of the CBI as the leading voice of that community.

I’d like to begin by thanking so many of the businesses here, who normally stay out of the political frame and are independent of any political party, for coming together in their hundreds in a newspaper letter-writing campaign to make the case for enterprise during the election campaign.

With your help we fought and won an argument about the best way to build a sustainable private sector recovery.

Instead of more wasteful spending and more taxes on job creation, we said we would start identifying savings immediately so that we could stop the jobs tax.

And that is exactly what we have done.

I can confirm that we will deliver on our promise to stop most of the increase in employer National Insurance Contributions in the Budget in order to save jobs and support the recovery.

As a result, we will make employing someone less expensive than it would have been, regardless of income.

And it will help protect people, especially those on low incomes.

This will do more than anything else to protect those on low and middle incomes from rising unemployment.

This argument – that government needs to do everything it can to support a private sector recovery – will be my guiding principle as Chancellor.

Because I believe that when you succeed, Britain succeeds.

Back in the late 1990s this seemed a rather obvious argument to make.

All politicians paid lip service to enterprise.

But the events of the last 13 years have shown that we can never assume that the argument is won.

Today, public spending has risen to almost 50 per cent of the economy.

Over 5 million people are out of work and on benefits.

Record numbers are economically inactive.

Even now, there are still those who argue seriously that yet more increases in public spending are the answers to our problems.

No wonder too many people around the world thought that Britain had put up a sign that said ‘closed for business’.

Today we take that sign down.

And we need to start making the case for enterprise all over again.

This is something every generation needs to do in its own way.

Let me tell you about my generation.

We were shaped by the collapse of communism and the fall of the Berlin wall.

This Government is comprised of people whose views are forged by that experience.

For us it was a vindication of our economic arguments, but perhaps we were too slow to understand that the free market and smaller government needs to go hand in hand with a Big Society.

We understand that now.

And it brought to the fore a new breed of liberals – such as my excellent Chief Secretary David Laws – who understood that a fair society needs free markets to sustain it.

Just as we have looked to the future and reached back to our One Nation tradition, so they have looked to the future by reaching back to the inspiration of Gladstonian Liberalism.

So together we will use the opportunity provided by this new coalition Government to send a new signal that Britain is, once again, open for business.

I want people around the country and all over the world to know that if you want to come here, invest here, and create jobs here, then we will be on your side.

We will back enterprise, not just as an end in itself, but as the way to build a stronger and fairer society.

I believe that is what this coalition is all about.

And on the subject of coalitions, let me be absolutely frank.

As a member of the negotiating team, we did consider whether we could try to bluff our way into a minority government.

But it was David Cameron’s bold vision and Nick Clegg’s great foresight which saw, before anyone else, that that option would be the greatest compromise of all.

A weak, unstable government, risking defeat night after night in Parliament.

Struggling to take the tough decisions that have been put off for too long.

How much better to try and form a stable government with a majority of about 80, able to govern in the national interest?

And at the heart of the agreement that we reached is a firm commitment to tackle Britain’s debts and create the space for a private sector recovery.

The very first item on the very first page of the coalition agreement – “deficit reduction and continuing to ensure economic recovery is the most urgent issue facing Britain.”

Of course, the question I get asked all the time is “where is the growth going to come from?”

I was asked this question in my very first press conference as Chancellor.

Certainly we can no longer rely on ever increasing public spending, or debt-fuelled consumption, to drive growth.

Over the past decade, over half of all jobs created were associated in some way with public spending.

Over the past decade, business investment grew at around 1 per cent each year, only a quarter of what it was in the 1990s.

Of course we were not the only country affected by the financial crisis.

But our consumers became the most indebted, our banks became more leveraged, and our Government borrowed more than any other major economy.

So Britain does need a whole new model of economic growth, where we save and invest for the future, instead of building our economy on debt.

An economy where we sell our goods and services to China and the rest of Asia, instead of simply borrowing from them in order to buy the things they make for us.

But let’s be clear – when you ask the Chancellor of the Exchequer the question ‘where is the growth going to come from?’ – there is not some lever in my office I can pull to get the answer.

Because actually the answer is that the growth will come from you, the businesses of Britain.

So this evening I want to explain briefly how this Government will make the case for enterprise, and how we will help you to succeed.

And I want to explain how we will do that while building a fairer society and an economy that works for everyone.

I believe that enterprise needs three things above all.

First, the sunlight of confidence and stability, instead of living in the shadow of debt and uncertainty.

You need to know that the Government is controlling spending, dealing with its debts, so that you are not hit by ever higher interest rates and never-ending tax increases.

Second, the freedom to compete.

You might have the best product in the world, but how can you win the order when the taxes you  pay and the regulation you face price you out of the market?

And third, the raw materials to succeed.

I don’t just mean the iron ore, copper and oil – important as our heavy industry is.

I mean the raw materials of new industries, like an educated workforce, a welfare system that rewards work, modern energy, digital and transport networks.

Tackling the deep underlying problems in our economy and our society that have been holding Britain back for too long.

Let me take you through each in turn.

First, controlling public spending and delivering economic stability.

The situation we inherit is the worse any modern government has bequeathed its successor.

The British state is borrowing one pound for every four that it spends.

Sitting at my first Ecofin council meeting yesterday, I was very conscious I represented the country with the biggest budget deficit of any of the 27 around the table.

That is a heavy responsibility, but it is a challenge that I am determined to meet.

And having mentioned it, let me tell you my approach in Europe – engage, understand, seek agreement, don’t be afraid to disagree, and never forget that I am there to do what is right for our country.

We should pay heed to what is happening in the Eurozone, not just because they are our largest trading partner, but because it is a vivid demonstration of the threat our public finances pose to the recovery.

This is the reason that we must tackle our record deficit – because otherwise there will be no recovery at all.

It will be undermined by rising interest rates, falling confidence and the fear of higher taxes.

We simply have to do this.

And let me be blunt – don’t rely on me to make this argument alone.

We need to do it together so that we can take the whole country with us.

We need to explain why what seems like the easier option in the short term will actually lead to rising unemployment and decline.

The case for early and accelerated action is already supported by the main governing party, their coalition partners, the Governor of the Bank of England and the analysis of the Treasury.

I want the business community to join us in actively making that case – not for my benefit, but for the national interest.

You can explain how a higher budget deficit will mean higher interest rates and rising business insolvencies.

You can explain how out of control debt will mean ever higher taxes.

Let’s make the argument together against all the vested interests that exist to defend every single line item of government spending.

We have already started to take action.

Let me tell you what we have done already, in the space of a week.

We have launched a programme to identify £6 billion of in-year savings, while protecting the vulnerable and the quality of key front line services.

We will do what you have all done over the last two years – renegotiate contracts, cut out discretionary spending, control recruitment and reduce overheads.

£6 billion represents less than one in every hundred pounds the government spends – show me the business that has not cut its costs by more than that in the last two years.

In addition we have started a review of all spending decisions taken since the beginning of the year.

It is increasingly clear that the last Government embarked on a reckless and irresponsible spending spree in the run up to the election.

Their attitude was summed up in the letter that the former Labour Chief Secretary Liam Byrne left on the desk for his successor.

“Dear Chief Secretary, I’m afraid there is no money”.

Let that letter stand as the handwritten testament to their period in office.

I have also announced a complete change to the way budgets are made, by giving away the power to make forecasts to an independent Office for Budget Responsibility.

We need to fix the budget to fit the figures, not fix the figures to fit the budget.

And I have set an ambitious timetable for an emergency Budget on Tuesday 22nd June – because we need to get on with it.

That Budget will set the fiscal path for the coming years, and the mandate for the public finances against which the independent OBR will judge us.

Over the summer we will conduct a far-reaching spending review to allocate spending to the different departments within the overall envelope set out in the Budget.

Britain will then have what it has been lacking – a comprehensive and credible plan to deal with our debts and live within our means.

By turning the tide of debt threatening our economy, we will help businesses up and down the country.

Creating the space for the independent Bank of England to keep interest rates lower for longer while maintaining low and stable inflation.

Safeguarding Britain’s credit rating.

Boosting confidence, promoting stability and attracting foreign investment into our country.

That is our first and most urgent task.

The second thing that enterprise needs to succeed is the ability to compete.

This presents us with a huge agenda.

Reducing the burden of inappropriate regulation and red tape.

Ensuring that businesses have a sufficient supply of affordable credit – something that Vince Cable and myself will be making a priority.

We will also be working together to reform our banking system – a subject I will return to in my Mansion House speech next month.

But in particular I believe we have an opportunity to boost our economy and improve our society with radical tax reform.

I believe that we can make our tax system both more competitive and more fair.

The tax system has become hugely complex over the last thirteen years.

Since 1997, the tax legislation handbook has more than doubled in length.

It is now over 11,000 pages long.

This spider-web of tax rules is holding back people who want to set up businesses.

And our corporate tax rates are increasingly uncompetitive.

A World Economic Forum report ranks the UK 84th out of 133 countries in terms of the competitiveness of the tax system.

So we need wholesale reform.

I particularly want to focus on corporate taxes.

I want corporate tax reform to be a priority for this government, and I can confirm that the final coalition agreement that we will publish tomorrow will commit us to lower and simpler corporate tax rates.

Let me give you advance notice of what it will say.

“We will reform the corporate tax system by simplifying reliefs and allowances, and tackling avoidance, in order to reduce headline rates”.

“Our aim is to create the most competitive corporate tax regime in the G20, while protecting manufacturing industries”.

At the Budget I want to set out a 5 year road map for a big reform of corporation tax.

As well as lower rates and a simpler system, I want to reform the complex Controlled Foreign Companies rules that have driven businesses overseas.

I want multinationals coming to the UK, not leaving.

I am under no illusions.

Achieving all this will be hard and it won’t happen overnight.

But let us work together for the long term, because ultimately all of Britain’s businesses will be winners if we succeed.

Of course reforming corporation tax is not the only goal.

I want Britain to be the easiest place in the world to start a business.

I want to do everything we can to support small companies.

And I want to help new businesses by abolishing employers national insurance contributions on the first ten jobs they create.

But as well as a making the tax system more competitive, we need to make it fairer.

When times are difficult, we want to give people more of a stake in the economy.

I believe it is right that people on low and middle incomes should be helped through the tax system.

This is why at the Budget I will be announcing a substantial increase in the personal income tax allowance.

And our longer term goal is to raise the allowance to £10,000, with real terms steps in that direction every year.

This will ensure millions of people pay less tax.

It will send a message that if you put the effort in, you get a job and earn yourself an income, you will keep more of your money.

I also believe that the same principle must apply to those who invest in new businesses and create jobs.

So while we will increase the rates of capital gains tax for non-business assets, there will be generous relief for entrepreneurial investment in businesses, as made clear in the coalition agreement.

Third and finally, this coalition government understands that enterprise needs much more than just the freedom to compete.

We have a radical programme to tackle the underlying structural problems that have been holding Britain back for far too long.

We want to be far more than just deficit cutters – we want to lay the foundations of a more prosperous society, and a fairer economy that works for everyone.

So we will launch a programme of radical education reform under Michael Gove.

David Willets and Vince Cable will ensure our universities are among the best in the world for decades to come.

Iain Duncan Smith and David Freud will reform our welfare system so that we reward work and support those who need help.

And Chris Huhne, Jeremy Hunt and Philip Hammond will ensure that we attract the right mix of public and private investment in Britain’s creaking energy, broadband and transport infrastructure.

Next week, in the Queen’s Speech, you will see a truly ambitious agenda, the scale of which I do not believe that most people yet appreciate.

And at its heart is the understanding that it is not government ministers who create the jobs we need.

You will create those jobs.

Let me finish by saying that – despite the challenges we face – I am profoundly optimistic about our future.

As a country we have spectacular opportunities ahead of us – we have reasons to be cheerful.

There is a prize that is there for the taking.

Every day around the world, in places like China, India, Brazil, Indonesia and Vietnam, people leave the grinding poverty that has trapped their families for centuries and become connected to today’s global economy.

They go to work for low wages in factories – and I know the massive challenge that presents to our businesses here.

But from Asia to America, from Eastern Europe to Southern Africa – nations of manufacturers are taking their first step in their journey to prosperity.

And as they become richer, they will become nations of consumers, just as we did after our Industrial Revolution.

According to the World Bank, the middle class in emerging and developing countries is expected to treble by 2030.

That’s 1,200 million people who will want to buy the things that we can sell them.

Modern medicines and branded goods.

Aircraft engines, high-tech machinery, green vehicles and renewable energy.

Computer software, television programmes, oil and gas expertise.

Pensions, insurance, advertising, accountancy and legal services.

British goods and services, made in Britain, exported around the world.

The whole world must be our marketplace.

Our whole future depends on it.

So let us tell the world.

Loud and clear.

That Britain is once again open for business.