Category: Economy

The speech made by Gordon Brown, the then Chancellor of the Exchequer, on 24 April 1998.

I am delighted to be with Donald Dewar at the launch of Scotland’s new business forum.

The creation of  the new Scottish Business Forum brings in the biggest change in  the government’s approach to business consultation since the introduction of the Scottish Economic Council in 1971 and it reflects the new challenges for Scotland of a changing global economy.

In the 1960s when the old Scottish economic planning council, later known as the Scottish Economic Council, was formed, Scotland led the way in a new generation of regional policy, whose central objective was to raise the level of incentives for capital investment.

Today I believe Scotland can lead the way again, to a new understanding of how there can be better relations between public and private sectors and to a new generation of regional policy.

In fact for far too long political arguments about our economy have focussed on how here in Scotland we divide the cake, about how we spend money, about the relative shares between public and private sectors rather than what we have to do to increase our wealth and our productive capacity as a country, and how public and private sectors can work far more effectively together.

And so I want a new partnership for prosperity.  Not a return of the old corporatism which ended up in weak compromises in smoke filled rooms far from the factory floor but the whole country engaged in the shared challenge of improving productivity.

And in doing so we will have to look at every weakness, every handicap that has held us back,  every barrier to growth.

Modern Budgets are not so much about dividing up the national cake as about implementing measures that can help us compete more effectively in the global economy.    So I want the period from now until the next Budget to be used constructively by all of us to examine what more we can do.

It is a relentless and uncompromising agenda of modernisation in education, the welfare state and our approaches to business that we now need.

Our first concern is stability.

Of course it is businesses not governments that make profits and create jobs, but business needs governments to shape the environment in which profitable companies can grow.

It is the government’s job to make sure it has done everything to ensure stability and I can promise that we will not take risks with inflation, we will not engage in the false trade-offs between inflation and unemployment. And  we will not compromise our hard-won reputation for prudence in economic management by short-term gestures.

We will avoid short termism in all these areas by the clarity of setting down  clear long term  objectives against which we can be judged.

•     An inflation target of 2.5 per cent
•     An independent bank
•     A golden rule for discipline in  public spending
•     A five year deficit reduction plan

Scotland needs this stable foundation because it has been the victim of stop-go policies – and whatever the temporary difficulties for exporters with the pound, the greater concern is avoiding a  return to the  boom-bust approaches that have deprived us  of the long-term investment funds we need.

First investment

Cutting the main rate of corporate tax from 33p to 30p, 40 percent investment incentives, a 10p long term rate of capital gains tax are all measures designed, alongside  monetary and fiscal stability, to create the best environment for new investment in our future.

But we are prepared to look at further changes and I want the business forum to comment on whether our investment incentives should be placed on a permanent basis, whether the targeting to small and medium sized firms is effective, whether more needs to be done to help the tax position of start-up and small companies and what more we can do to build the successful enterprises of tomorrow.

Second innovation

Scotland has now a reputation for inventiveness that extends well beyond the traditional inventions for which we are famed.  Biotechnology, computer software and electronics all provide examples of the latest wave of Scottish innovations of global significance.

So we want to let the creative talents of Scotland flourish to turn new ideas into successful businesses created in Scotland. I want us to examine whether there is more we can and should do.

So i would like the forum to comment on the practical advantages for business of more investment in science and technology in our universities, our new university challenge fund, the next phase of the UK foresight programme and the possibility of an r&d tax credit to build on developments such as the arrival of cadence and encouragement for the expansion of the venture capital industry.  This is a huge step forward and on these new developments we will build.

A consultation paper was published in March, giving the business community in Scotland an opportunity to influence how this major initiative will be taken forward.  It provides us with a means of recognising Scotland’s needs and shaping the programme accordingly.  Foresight is about preparing for the future – in a very broad sense.  It is about future technologies, future markets, and their influence on the prosperous, modern and inclusive society that we want Scotland to become.  It is a UK guide to the future for today’s decision-makers – in business, in research, in government.

That said, it takes relatively little foresight to come to the view that the Scottish venture capital industry needs to expand to American levels.  We need more high tech ventures and more risk capital.  We should consider what we can do together.

Third small businesses

The Scottish Enterprise business birthrate strategy now encompasses a range of initiatives to encourage individuals to set up businesses.  For example, there are 40 business shops offering assistance to new and small businesses.  And we want to build on these.

We should ask whether we could do more to help men and women  start their own businesses and encourage small businesses to expand by using the jobs subsidy to take new people on.

I want more young entrepreneurs, more Scots starting small businesses and the best motivators are those who themselves have worked their way up and know the pitfalls as well as the opportunities.

And I am pleased that a number of business leaders have this week given a personal commitment to visit schools and colleges around Scotland, not just to talk to teenagers but to inspire them.  From this generation of business leaders will come the next.  And these school visits will help motivate young people to turn their ambition here in Scotland into achievement.  I am delighted that Richard Emanuel, Tom Farmer, David Murray, Belinda Robertson and Brian Souter have agreed to start this process off.

Fourth getting people into work

I want to  remove the barriers that deprive thousands of men and women of employment opportunities in Scotland today.  And so I want to discuss any barriers – tax, legal, regulatory and competitive  – that are unnecessary and that by their removal can help jobs be created.

And I want employers to work with us on getting the New Deal right in Scotland not just for the young people who will benefit but for the companies to whom they will contribute.  Initiatives like the new futures programme  which is aimed at ensuring all young people have the social and life skills to make them job ready when they join a new employer.

I want New Deal to become more than ambulance relief for young people in difficulty but the smart solution for companies looking for motivated young people they can train with new skills.

Fifth, education

Modern employers will succeed when we get the best out of all our people, and  the countries which succeed in mastering the waves of technological change and fiercer competitive pressures will be the ones that invest in their key national resource:  the people.

One priority is improved standards in our schools and Donald Dewar and Brian Wilson have already acted  to ensure that for the first time individual targets are set for each school in Scotland.

But equally because 80 per cent of those in employment today will be in the workforce in ten years time, education cannot stop at the school gates.  There must be lifelong learning if we are to achieve the productivity gains we want in the years to come.

We must have a stronger relationship between education and business in charting the way forward.

Scotland’s university for industry will enable people from their homes all over urban and remote  and rural areas  to benefit from education from home, on a range of areas beyond the university level courses catered for by the Open University.

I believe we should consider the extra skills which Scotland’s university for industry should concentrate on expanding – whether it be for the expansion of call centres – or for computer software engineers – or for electronics as a whole, including starting your own business.

So our aims – aims I believe we share in common – are of an open, dynamic Scottish economy  with  economic stability for investment rather than instability; a Scotland which is business-friendly, working with business rather than in isolation from it; a working Scotland with the vision to be a world leader in education the centre point of both our economic and social ambitions  for the long term.

This modernisation for the future, is the way forward.  Setting the old conflicts behind us. Understanding the objectives we share in common.  Recognising the challenge must involve all of us, all of our workforces, working together.

And the prize is a modern Scottish economy more fit for the challenges ahead, ready to ensure employment opportunity and greater prosperity for all our people in the years ahead.

The speech made by Gordon Brown, the then Chancellor of the Exchequer, on 22 April 1998.

I am grateful for the opportunity to address this CBI Dinner tonight, to be able to thank you as business Leaders of Britain for the contribution you and your Companies make to the success of Britain at home and Abroad.

When I spoke to your conference in Harrogate in the final months before the general election of the need to modernise government’s relations with business we agreed that we needed as our building blocks:

• First, stability with low inflation;
• Second, sustainable public finances;
• Third, not just open markets but a constructive engagement with Europe;
• Fourth, a modern employment policy;
• And finally higher levels of skills and productivity.

And the Government has already made a start:

• to achieve monetary stability – independence for the Bank of England;
• to achieve fiscal stability – a five year deficit reduction plan to which we have adhered;
• to boost investment – a cut in corporation tax and new incentives for investment in small and medium sized business;
• and to boost skills and productivity – our education reforms and welfare to work programme.

And it is the need to raise our game in productivity that I want to address many of my remarks this evening, and to make some suggestions on which I think we can agree.

Stability with low inflation

First stability

When we have met representatives of the CBI we have been  agreed on the need for a credible framework for monetary stability for the long term.

And I believe people now understand that the way to stability for national Governments in a modern global marketplace is to base monetary and fiscal policy on clear long term objectives by which you will be judged – in our case our inflation target and five year deficit reduction plan;

• to have orderly procedural rules which guarantee certainty and therefore credibility in decision-making – making the Bank independent and legislating for a code for Fiscal stability;
• and to have an open and transparent decision-making process which allows proper scrutiny and offers a confidence that a long term view is being pursued free of short term party political considerations.

All to meet our aim, businesses aim:  In place of stop-go cycles, long term stability.

Whatever one’s views of the month to month decisions of the monetary policy committee, the new system has, in my view, already freed interest rate decisions from short term political pressures and given greater credibility to monetary policy making.  And because people are now coming to believe that the inflation target will be met, long term interest rates have come down to below 6 per cent, the lowest for 33 years.

At this point in every cycle in the past the British economy has been prone to inflation instability.  So when we came into power we faced inflationary pressures and had to act.  Because of the action we took inflation which when we came to power was heading well above our target is expected to be at 2« percent next year.

And let me add just one thing –

It would be the worst of short-termism now to pay ourselves more today at the cost of higher interest rates, fewer jobs and slower growth tomorrow.  All of us must therefore show greater responsibility.

Whilst the public sector has understood the need for moderation, today’s wages figures suggest that private sector employers have some way to go sustainable public finances

When I spoke to your annual dinner last year we were also agreed that responsible public finances are the cornerstone of stability.  We had already demonstrated a commitment to prudence with our two year ceiling on public spending.  We have now made it clear that this is not a one-off measure, but is part of a five year deficit reduction plan that has not only brought public borrowing down from an unacceptable 23 billion pounds in 1996-97 to 3 billion pounds last year but has allowed us to lock in a long term commitment to sustainable public finances while meeting our priorities.

In July we will complete our comprehensive spending review and we will lock in our commitment to fiscal stability not just by the legislation for a code for fiscal stability but also by the conclusions of the Spending Review.  It is only if we manage to achieve spending discipline across the board, through the elimination of waste and rigorous focus on our priorities, that we will be able to ensure investment in and modernisation of our key public services, particularly education and health – consistent with both our golden rule of at least balancing the current budget over the economic cycle and our commitment to keep debt at a stable and prudent level.

To achieve our aim, your aim: sustainable public finances and modernised public services.

Trading relationships

So stability and long term prudence are key building blocks for prosperity but there is another building block that for too many years we have undervalued – strong and lasting trading relationships with Europe.   We are not only one of the most open economies in the world – trading 25 per cent of our GDP.  But, in addition, nearly 60 per cent of our exports are to mainland Europe and astonishingly high levels of us and Japanese investment into Europe – 40 per cent of it – comes to the UK.

The new Government has made four principled decisions on Europe which have decisively and unambiguously put this country on a new road.

First, for the first time we are committed, in principle, to European monetary union.  second, we see no constitutional barrier that prevents us joining.  Third,  we are committed to making an economic rather than political assessment the decisive test as to whether and when we will enter and finally we have committed our country to full  preparations that will allow us to make a decision, subject to a referendum, early in the next Parliament.  Our strategy, to prepare and then decide, is being pursued.

So this is a government that having declared for the principle will help to make sure that the preparations are made.

Our slogan is Britain is ready for the Euro and we will be.

All necessary steps are being made to ensure business will be able to use the Euro here from 1999 for a wide range of business activities, from filing company accounts, to paying certain taxes and issuing shares.

And low corporate tax as well as our financial expertise  and our commitment to free trade and open markets will further underpin Britain’s position as the most profitable place in Europe from which to exploit new business opportunities after 1999.

And I believe that a new national consensus on Europe – the very consensus that has eluded us for years – is now within our grasp.

Modern employment policy

The fourth building block is a modern employment policy that does not offer welfare irrespective of work, but is built on a system of matching rights with responsibilities, an active welfare state which provides new opportunities for work, and a tax and benefit system that makes work pay.  And I am grateful to many of the companies represented here today for signing up to the new deal, to help tackle our problems of youth and long term unemployment.

And to create the right incentives to work and to cut the costs of hiring, we have already announced radical changes to the current tax and benefit  system;  changes in employers and employees national insurance for which I am grateful for the CBI’s support; and a new working families tax credit which, underpinned by a national minimum wage, is the means to ensure that work pays more than benefits.

Higher productivity

But our aim is high levels of employment and high levels of growth to secure prosperity for all.  And that brings me to my fifth building block – how, in Britain, we modernise to achieve the higher productivity on which lasting growth depends.

Since I arrived at the Treasury I have been seeking to understand the extent of and the reasons for our productivity gap  with other major economies.

The latest figures show a productivity gap with France and Germany of around 20-30% and a gap of 40% with the United States.

There are great British success stories – world class firms that are beating competition all around the Globe, many represented here tonight, in whose achievements we all have pride.  But in manufacturing as a whole UK productivity is lower than in other major economies.  In the United States, productivity is twice that in the UK in the food and  beverages industry and in the machinery industry.  Even in the service sector we fail to lead the others in any major industry.

I believe these disappointing figures can no longer be ignored.  And together we have to consider how to close the productivity gap.

Today I want to set down a challenge to ourselves in Government, to you the country’s business leaders and to every shareholder, every employee, every citizen of this country.  The challenge is to work together to bridge the gap in productivity, the gap between what Britain is today and what we can become in the future.

For decades governments of all parties have wrestled with these problems.

Some say that first we managed decline. Then we mismanaged decline.

Then we declined to manage.

But I think we can all agree that fifty years of our economic history from 1945 was marred by a succession of sterile and self defeating conflicts between state and market, managements and workforce, public and private sectors.

I believe that we should not only set aside for good these old battles but think of a Britain where public and private sectors are not just in some temporary truce but where public and private sector are constructively  working together to meet nationally Important and defined objectives.

In other words it is time to develop a sense of national economic purpose, to agree a new long term direction for Britain.

A new national purpose born out of the recognition that we need to work together;  focussed on removing the barriers to higher productivity whether they are regulatory, fiscal or cultural;  with the clear long term objective – to bridge the productivity gap with our competitors; and founded on the innate British strengths – our creativity, adaptability and internationalism.

The British genius is our belief in hard work and enterprise,  and these are the strengths on which we can build: our creativity, our willingness to adapt, our belief in fair play and opportunity for all, our outward looking approach to the world.  The same strengths which built manufacturing in the 19th, are the platform on which to build our strength for the future, not just in fashion in London but in every manufacturing and service industry in every part of the UK.

But we must turn ideas made in Britain into products made in Britain, make our strengths count with our team work and innovation in individual business and companies, and we must be sufficiently confident about our virtues to make  committed long term investments in our future.

Margaret Beckett and I will look systematically and rigorously at every barrier to higher productivity that is identified.

So let me say to exporters.

I do understand your worries over the current strength of sterling, but what would be an even greater worry would be any risk of a return to the boom-bust we saw in the late 1980s and early 90s, when 1 million manufacturing jobs were lost, over 150,000 businesses went under and thousands who faced mortgage misery and negative equity are even now not yet recovered from it.

It is for this reason we must all of us take a long term view, Government, Industry and the Financial  Community:

• Government – by ensuring lasting stability;
• Industry – by investing for the long term and
• The Financial Community by refusing to resort to
• The short-termism and stop-go attitudes which
• Have bedevilled us since the war.

I repeat our policy is a stable and competitive pound in the medium term.

The countries that have succeeded over the long run are not those that have made a policy of continuously devaluing  their way to success, but those  who have travelled the long and hard road to high productivity.

Now I know that it is businesses not Governments that make profits and create jobs, but I also know that business needs Governments to shape the environment in which profitable companies can grow.

So today I make the promise that Government will do everything it can to create the conditions in which you can succeed.  To help set in place the basic building blocks for long-term economic success: stability and low inflation, responsible public finances, good trading relationships, a modern employment policy and improved skills and productivity.

We have made a start in the last year.

We have since we came to office reallocated money to education and training  allowing an additional 2.5 billion pounds to improve standards and facilities in our schools and to improve skills – 100 million pounds was made available in the budget to help reduce the skills gap in I.T. And high technology.

And we have made tax changes to create the right environment for investment.  I was delighted that last July’s 2 per cent cut in corporation tax, to its lowest level ever, the reduction to 21 per cent of small business corporation tax, and the new investment incentives for small and medium sized companies, could be followed last month by the announcement of a further reduction to 30p for the main rate of corporation tax and 20p for small business corporation tax.

But just as in business the competition for economic success requires constant modernisation, business developing new approaches to achieve success in new circumstances, so too  rapid  change forces government to reconsider continuously its
responsibilities and role.

I believe that we must now combine a strategy for achieving stability by being prepared to consider major structural reforms of our product, capital and labour markets to equip us for the future.

And I say tonight that where it is necessary modernisation,  wholesale modernisation and nothing but modernisation will be my policy.

Just as there will be no room in the New Britain for penal taxation, wasteful public spending or for taking risks with inflation, there will be no room in the new Britain for complacency, old confrontational attitudes, short-termism, the undervaluing of education and investment or  restrictive practices from whatever quarter they come.

We do not want a return of the old corporatism which ended up in weak compromises in smoke filled rooms far from the factory floor but a joint strategy to achieve a new dynamism which engages everyone in the workplace.

On product markets the way forward is not stifling competition by over-regulation, or pursuing a free-for-all devoid of anti-trust, anti-monopolies legislation.  It is to vigorously pursue a pro-competition agenda, that involves opening up competition in financial services, telecommunications, energy – removing barriers that still thwart open trade.

Any examination of price levels shows the need for more competition.  Let me give you some examples. According to the OECD, household appliances like washing machines and dishwashers are about 30% more expensive here than in the United States, prices in restaurants and hotels are more than 50% higher and furniture is nearly 60% more expensive.

The challenge in a modern economy is to balance the minimum standards that are needed to make markets work effectively and fairly with rooting out excessive regulation and red tape.

The competition bill will help achieve more competitive markets and I know it is welcomed by business.

We also need to consider modernising our capital markets.

In the first half of the 90s NASDAQ in the United States raised seven times more capital than all the European equivalents together.  Its listed companies employed nine million people and created 16 per cent of all new jobs.

The challenge for Britain is to create a stronger venture capital industry and to orient venture capital to hi-risk, early stage and start-up companies.

In the UK, only 5 per cent of venture capital funds go to start ups and early stage companies.  In the USA, nearly 25-30 per cent goes to these companies.  The amount of hi-tech in venture capital is 50 per cent in the USA, but only around 20 per cent in the UK.

We need a new approach in Britain to risk taking, we need to increase the number of entrepreneurs and to raise the survival rate of small businesses.  So we must destroy the barriers that exist – fiscal, regulatory, economic, cultural – as a matter of urgency.

We must also engage in far-reaching reform of our labour markets not just in employment policy but in welfare, education and taxation and social security policy.  The way forward is neither old style regulation or a crude form of deregulation, which leaves the unskilled without the training or education essential for employability.  But one that recognises that bringing out the best in people – by policies that ensure opportunities for – is the best route to prosperity in the modern world.

That is why we are committed to widening opportunities in education and training: higher standards in our schools and lifelong learning.

In fact about 80 per cent of people in employment today will still be in the workforce in 10 years time.  And yet only a fraction of today’s workforce ae upgrading their skills.  while their skills are all the time becoming obsolete.

Our proposals for individual learning accounts and a University for industry recognise the new reality that not only should people upgrade their skills throughout life but they should be encouraged to take responsibility for doing so.

I want the period from now until the next budget to be used constructively to examine what more we can do, focussing on modernisation in labour, product and capital markets and on the tax and spending reforms they imply, to meet the 40% productivity challenge.

We need to work together -that is all of us, business, workforces and government – to increase our productivity as a nation.

Margaret Beckett and the DTI have already undertaken a benchmarking study to identify some of the main constraints on UK productivity performance.  And subsequently set up a number of private sector led working groups to look at this in more detail.  In the Treasury we sponsored a business-led working group examining proposals to overcome barriers to finance in high-technology companies, and in the budget we launched a consultation exercise on ways of improving the UK’s record on R&D and innovation.

Now Margaret Beckett and I have agreed to hold a series of seminars with business leaders, over the coming 10 months to address the British productivity gap and how we can catch up.

The first seminar, to be held next month at number 11 Downing Street, will start by examining the global picture and Britain’s place in the productivity league. Mckinsey’s global institute are currently compiling an independent study of Britain’s performance in growth, employment and productivity, this is a follow-on to previous studies which have focussed on France and Germany.  Their report will analyse Britain’s record across a wide range of industries – and this will form the basis of discussion for the first seminar. Future seminars will focus on the sectors where our performance is weakest and the policy areas where government can play its role.

These then are the challenges ahead: to lock in stability, to invest for the long-term, to reward work, to encourage new enterprise and skills so we can bridge the productivity gap.  So we must set old conflicts behind us . Understand the objectives we share in common .  And recognise that the challenge must involve all of us, Government, workforces and business working together.  The challenge is enormous but the prize is a more up-to-date and dynamic economy more fit for the challenges ahead, ready to ensure employment opportunity and  greater prosperity for all in the years ahead.

The statement made by Gordon Brown, the then Chancellor of the Exchequer, in the House of Commons on 27 October 1997.

With permission, Madam Speaker, I want to make a statement on Economic and Monetary Union.

Since the end of the Second World War Britain has faced no question more important and more contentious than that of our relationship with Europe.

Divisions within governments of both parties, and hence indecision, have made British policy towards Europe, over many years, inconsistent and unclear.

The economic consequences of these weaknesses have been a loss of international initiative and influence, recurrent instability and continuing questioning of our long-term economic direction.

To break with this legacy, and to establish clear national purpose, which has eluded us for decades, economic leadership is essential, and Britain must now make the difficult decisions on Europe, however hard.

The decision on a single currency is probably the most important this country is likely to face in our generation. Yet until now, there has been no detailed examination by government of the practical economic issues of EMU. There has been no proper preparation for a decision, because no previous Government could agree on whether they supported it in principle, nor whether there was an overriding constitutional objection on grounds of sovereignty or not; nor whether, even if a single currency worked and worked well, the Government would wish to be part of it. Forms of words like ‘keeping the option open’ – while no preparations were ever made to render the option practicable – have similarly served as a pretext for postponing the hard choices

Now is the time to make these hard choices and set a long-term direction for our economic future in Europe.

So I will deal, in turn, with the question of principle, the constitutional implications of EMU, and the economic tests that have to be met. In each area, I will set down the Government’s policy.

When we came into Government I asked the Treasury to carry out an assessment of the economic tests that have to be met. Accompanying my statement is this comprehensive and detailed Treasury assessment which I am publishing today, copies of which are available in the Vote Office.

ISSUES OF PRINCIPLE

I start with the question of principle. The potential benefits for Britain of a successful single currency are obvious: in terms of trade, transparency of costs and currency stability. Of course, I stress it must be soundly based. It must succeed. But if it works economically, it is, in our view, worth doing.

So in principle, a successful single currency within a single European market would be of benefit to Europe and to Britain.

Secondly, it must be clearly recognised that to share a common monetary policy with other states does represent a major pooling of economic sovereignty.

There are those who argue that this should be a constitutional bar to British participation in a single currency, regardless of the economic benefits it could bring to the people of this country.

In other words, they would rule out a single currency in principle, even if it were in the best economic interests of the country.

That is an understandable objection and one argued from principle. But in our view it is wrong. If a single currency would be good for British jobs, business and future prosperity, it is right, in principle, to join.

The constitutional issue is a factor in the decision, but it is not an over-riding one. Rather it signifies that in order for monetary union to be right for Britain the economic benefit should be clear and unambiguous.

So I conclude on this question of principle: if, in the end, a single currency is successful, and the economic case is clear and unambiguous, then the Government believes Britain should be part of it.

There is a third issue of principle – the consent of the British people. Because of the magnitude of the decision, we believe – again, as a matter of principle – that whenever the decision to enter is taken by government, it should be put to a referendum of the British people. So whenever this issue arises, under this Government there will be a referendum. Government, Parliament and the people must all agree.

So we conclude that the determining factor as to whether Britain joins a single currency is the national economic interest and whether the economic case for doing so is clear and unambiguous.

THE FIVE ECONOMIC TESTS

I now turn to the Treasury’s detailed assessment of the five economic tests that define whether a clear and unambiguous case can be made.

These are:

Whether there can be sustainable convergence between Britain and the economies of a single currency.

Whether there is sufficient flexibility to cope with economic change.

The effect on investment.

The impact on our financial services industry.

Whether it is good for employment.

I. Economic Cycles

Of these, the first and most critical is convergence: can we be confident that the UK business cycle has converged with that of other European countries so that the British economy can have stability and prosperity with a common European monetary policy? That convergence must be capable of being sustained and likely to be sustained – in other words, we must demonstrate a settled period of convergence.

Currently Britain’s business cycle is out of line with our European partners. Interest rates here are 7 per cent. This is the level the Bank of England has set in order to achieve our inflation target. But in Germany and France interest rates are close to 3 per cent. Across the continent, because business cycles are more coincident, short-term interest rates have been converging for some time.

This divergence of economic cycles is, in part, a reflection of historic structural differences between the UK and other European economies, in particular the pattern of our trade and North Sea oil. These differences are becoming less distinct as trade with the rest of Europe grows and the single market deepens.

But divergence is also a legacy of Britain’s past susceptibility to boom and bust: the damaging boom of the late 1980s and the severe recession of the early 1990s.

Since coming into office, the Government has introduced long-term measures to ensure that we are capable of maintaining stability by giving operational responsibility for interest rates to the Bank of England and by implementing our deficit reduction plan for public borrowing.

We will need a period of stability with continuing toughness on inflation and public borrowing. The Treasury’s assessment is that, at present, the UK’s economic cycle is not convergent with our European partners and that this divergence could continue for some time. To demonstrate sustainable convergence will take a period of years.

II. Flexibility

To be successful in a monetary union, countries will need even more flexibility to adjust to change and to unexpected economic events once the ability of countries to vary their interest rates and exchange rates has gone and the Euro and a single European interest rate are in place. Flexibility may be particularly important for the UK if there is any risk that our business cycle has not fully converged with those of the other EMU members.

The Treasury assessment of the second test is that, in Britain, persistent long-term unemployment and lack of skills – and in some areas lack of competition – point to the need for more flexibility to adapt to change and to meet the new challenges of adjustment. The Government has begun to implement a programme for investing in education and training, helping people from welfare into work and improving the workings of our markets.

Of course, other European countries need to tackle unemployment and inflexibility to make sure Europe as a whole is able to withstand any shocks that arise. The government will continue to argue that employability, flexibility and stronger competition policies must be a top priority so that monetary union can be successful.

III. Investment

The third test is investment: whether joining EMU would create better conditions for businesses to make long-term decisions to invest in Britain. The Treasury assessment is that, above all, business needs long-term economic stability and a well-functioning European single market. It concludes that membership of a successful single currency would help us create the conditions for higher and more productive investment in Britain.

But the worst case for investment would be for Britain to enter EMU without proper preparations and without sufficient convergence and with all the uncertainty that would entail.

IV. Financial services

The fourth test asks what impact membership of the single currency would have on our financial services industry. EMU will affect that industry more profoundly and more immediately than any other sectors of the economy.

The Treasury’s assessment is that we can now be confident that the industry has the potential to thrive whether the UK is in or out of EMU, so long as it is properly prepared. But the benefits of new opportunities from a single currency could, however, be easier to tap from within the Euro zone. This could help the City of London strengthen its position as the leading financial centre in Europe.

V. Employment

For millions of people, the most practical question is whether membership of a successful single currency would be good for prosperity and jobs. The Treasury assessment is that our employment-creating measures, and welfare state reform, must accompany any move to a single currency. Ultimately, we conclude that whether a single currency is good for jobs in practice comes back to sustainable convergence. A successful single currency would provide far greater trade and business in the Europe.

The Treasury assessment is that in vital areas the economy is not yet ready for entry and that much remains to be done. The previous policy of keeping options open, without actively making preparations, has left parts of the economy un-prepared.

Our overall assessment is that Britain needs both a period for preparation and a settled period of sustainable convergence. Both require stability.

THE GOVERNMENT’S CONCLUSIONS ON EMU

Applying these five economic tests leads the Government to the following clear conclusions.

British membership of a single currency in 1999 could not meet the tests and therefore is not in the country’s economic interests. There is no proper convergence between the British and the other European economies now. To try to join now would be to accept a monetary policy which would suit other European economies but not our own. We will therefore be notifying our European partners, in accordance with the Maastricht Treaty, that we will not seek membership of the single currency on 1 January 1999.

The issue then arises as to the period after 1st January 1999. We could simply leave the options open, as before, but with no clear direction either way for the rest of the Parliament. That would be politically easy but wrong.

There would be instability, perpetual speculation about “in or out”, “sooner or later”, which would cause difficulties in the financial markets and for business and industry.

It would make it harder to prepare for the possibility of a single currency because every step in preparation, every time the issue was discussed, would feed fresh bouts of speculation.

It must be in the country’s interest to have a stable framework within which to plan.

And we are fortified in this because on the economic tests we have set out, the practical difficulties of joining a single currency in this Parliament all point to the same conclusion.

There is no need, legally, formally or politically, to renounce our option to join for the period between 1st January 1999 and the end of the Parliament, nor would it be sensible to do so. There is no requirement under the Treaty for this. What is more, no government can ever predict every set of economic circumstances that might arise.

What we can and should do is to state a clear view about the practicability of joining monetary union during this period. Applying our economic tests, two things are clear. There is no realistic prospect of our having demonstrated, before the end of this parliament, that we have achieved convergence which is sustainable and settled rather than transitory. And Government has only just begun to put in place the necessary preparations which would allow us to do so. Other countries have for some years been making detailed preparations for a single currency. For all the reasons given, we have not.

Therefore, barring some fundamental and unforeseen change in economic circumstances, making a decision, during this Parliament, to join is not realistic. It is also therefore sensible for business and the country to plan on the basis that, in this Parliament, we do not propose to enter a single currency.

There are those who urge us to seek consent, in principle, in a referendum now or soon, but with a view to entering sometime later. Any serious gap between the referendum and the actual entry date would undermine the conclusions of the referendum.

Because the essential decision is economic, it can be taken only at a time when government and then the people can judge that sustainable convergence has been established.

So in our view the interval between the decision to join and our joining must not be unduly protracted.

PREPARATIONS

I have said that if a single currency works and is successful Britain should join it. We should therefore begin now to prepare ourselves so that, should we meet the economic tests, we can make a decision to join a successful single currency early in the next Parliament. At present, with no preparation, it is not a practical option. We must put ourselves in the position for Britain to exercise genuine choice.

The questions of preparation are immense – practical questions for business, as well as for government. Euro notes and coins will, for example, be circulating across Europe from January 1st 2002. Some companies, like Marks and Spencer, have already decided to prepare to accept Euros in Britain. Others, will want advice on what is best for them.

Because both the Government and business must prepare intensively during the next years, we will:

commence work on the detailed transition arrangements for the possible introduction of the Euro in Britain, including the introduction of notes and coins, should we wish to enter;

step-up the work on what business should do now to prepare for the introduction of the Euro in 1999, whether we are in or out; work with business on what government must do to prepare for EMU, should we decide to join it in the next parliament.

To help with essential preparations, I have invited the Governor of the Bank of England and Sir Colin Marshall, the President of the CBI, to join me and the President of the Board of Trade in leading a standing committee on Preparations for EMU. I am pleased to say that they have agreed. I am also inviting the President of the Association of British Chambers of Commerce to join us. I can also announce that, from January a series of regional and sectoral conferences on preparations for monetary union will be held.

Also, the Prime Minister has today decided to extend Lord Simon’s Treasury responsibilities to include European Business Preparations in the government, covering the long-term planning of the new standing committee.

In addition to these practical preparations, there are reforms we can take which are both right in themselves, in the national economic interest, and which will help us to meet the five economic tests.

We will promote greater flexibility in the UK economy and in Europe through our “Getting Europe to Work” initiative;

We will be introducing new competition legislation, which draws on the best of European and wider international policy and practice as well as continuing to negotiate to secure the best interests of our financial sector and for the opening up the single market in financial services.

We will set as one of the key objectives of our EU Presidency completion of the European single market.

In my Mansion House speech I said that if we succeed in strengthening the ability of the British economy to sustain growth with low inflation, and if international conditions permit, I would hope to lower the inflation target. So we will monitor our inflation target and do so in the light of the European Central Bank;

And we will ensure that our fiscal rules, and our deficit reduction plan, continue to be consistent with the terms of the stability pact, thus underlining our commitment to avoid an excessive deficit under Article 104c of the Treaty, and supporting greater coordination in ECOFIN;

In Britain’s interests, we need to keep inflation low and public borrowing firmly under control.

The single currency will affect Britain, in or out of it. It is in the British national interest for it to work. Vital decisions will be made during our EU Presidency in the first half of next year. We will use our position constructively and supportively and we will play a full part in ensuring its launch is successful – something that is in Britain’s interests as well as Europe’s.

CONCLUSIONS

To sum up:

we believe that, in principle, British membership of a successful single currency would be beneficial to Britain and to Europe; the key factor is whether the economic benefits of joining for business and industry are clear and unambiguous. If they are, there is no constitutional bar to British membership of EMU;

applying the economic tests, it is not in this country’s interest to join in the first wave of EMU starting on Ist January 1999 and, barring some fundamental and unforeseen change in economic circumstances, making a decision, this parliament, to join is not realistic;

but in order to give ourselves a genuine choice in the future, it is essential that the Government and business prepare intensively during this Parliament, so that Britain will be in a position to join a single currency, should we wish to, early in the next Parliament.

On Europe, Madam Speaker, the time of indecision is over. The period for practical preparation has begun. Today we begin to build a new consensus – modern and outward looking – for a country that throughout its history has looked outward to the world.

We are the first British government to declare for the principle of monetary union. The first to state that there is no over-riding constitutional bar to membership. The first to make clear and unambiguous economic benefit to the country the decisive test. And the first to offer its strong and constructive support to our European partners to create more employment and more prosperity.

The policy I have outlined will bring stability to business, direction to our economy, and long term purpose to our country. It is the right policy for Britain in Europe. More important it is the right policy for the future of Britain and I commend it to the House.

The speech made by Gordon Brown, the Chancellor of the Exchequer, on 20 October 1997.

Today’s launch is the most significant development that London markets have experienced since “Big Bang” 11 years ago.

“Big Bang” brought electronic share price information which enabled telephones and computers to replace face-to-face trading. Today’s event is a further step, perhaps an even more significant step – a fully-automated way of trading shares, first for FTSE 100 companies, but destined to expand.

It demonstrates the Stock Exchange’s commitment to the continuing technological evolution that is essential to maintaining London’s position as one of the world’s top three equity markets.

Staying ahead in today’s financial markets means constantly harnessing and adapting the power of rapidly advancing technology.

And today’s launch of the Stock Exchange’s electronic order book is about applying new technology.

But it is about something much more than that – it is about City firms and institutions working together to remain competitive and to help ensure that the UK economy remains competitive.

The City and the UK financial services industry require three other crucial ingredients:

first, a skilled workforce at the forefront of technical know how, but also retaining the expertise amassed over many generations and for which this country has become renowned – in trading, investment management, banking, corporate finance, the law, and accountancy;

second, a robust transparent and accountable framework of regulation that recognises the global reach of the modern financial services industry;

third, a stable macro economic backdrop against which the UK financial services industry can plan and compete.

Every measure we have set in place since May is designed to enhance the long term stability of the British economy so we can have sustainable levels of growth.

First, our monetary framework which includes independent interest rate decision-making powers for the Bank of England.

Second, our new fiscal framework at the centre of which is a five year deficit reduction plan which allows us to meet the golden rule in public finances.

Third, our plan to modernise the welfare state to create flexible labour markets matched by investment in education and employment opportunity.

Fourth, our European policy with our commitment to apply to Monetary Union the five British tests – the impact on jobs, investment and the City, ensuring flexibility and the convergence of the business cycles – to ensure the long term interests of Britain.

The Review I set up into Monetary Union will report conclusively to Parliament on the five British economic tests and the following issues:

the formal communication to our European partners, under the Treaty, about 1999;
the Government’s approach to the working of the stability pact and the convergence criteria;
the Government’s position on the future of ECOFIN and economic co-ordination in Europe;
any action that the Government proposes on economic convergence;
the action the Government proposes on ensuring greater flexibility in Europe to avoid any risks of potential shocks if there is a Monetary Union and progress it proposes to make the European economy more flexible and employment-friendly;
the Government’s determination not only to have a successful Presidency and proper and orderly decisions about EMU under the Treaty – the way in which the Government’s business advisory task force will help business and the City to prepare in or out;
the need for a period of stability.

The Government is determined not to fall into the old trap of saying that we will join “When the time is right” and implying, in so doing, we could join the next day or the next month, allowing that possibility to dominate every waking hour and week of the Government and then eventually being forced to make the decision for short-term reasons – not, as it should be and should always be, the long-term national economic interest.

I have said consistently that it is unlikely we will join the first wave – we have to ask questions about our levels of preparation, our flexibility and the economic cycle which has been out of line with our European partners – and that there are formidable obstacles throughout.

If we do not join in 1999, then Britain will need a period of stability without continuing speculation while Britain endeavours to meet the five economic tests.

At the heart of our policy will always be our determination to pursue policies of low inflation and to control public borrowing.

In every decision therefore this Government rejects short-term pressures and will not be diverted from the long-term national economic interest.

So this is the very best environment for the City to succeed.

So, thank you again for inviting me to join you this morning.

My congratulations to the Stock Exchange for leading this exciting development for the London Market.

The whole country’s best wishes to the investment houses and trading firms as they acclimatise to a new method of trading, one which I am sure is going to bring huge benefits to the City, the financial services sector and investors.

We all look forward to being back here at some point in the future to mark the next stage of the City of London’s continuing development and success.

Thank you very much.

The speech made by Gordon Brown, the then Chancellor of the Exchequer, to the CBI Conference held in London on 10 November 1997.

I am grateful for the opportunity to address the CBI conference, to be able to thank you as business leaders of Britain for the contribution you and your companies make to the success of Britain at home and abroad, and to be able to agree with the CBI that to equip ourselves for the future, and to build the national economic purpose this country longs for, we need as our building blocks for prosperity:

• first, stability with low inflation;
• secondly, sustainable public finances;
• third, high levels of investment, fourth higher levels of skill and productivity; and
• fifth, not just open markets but a constructive engagement with Europe.

Now when I spoke to you last year we were agreed on the need for a credible framework for monetary stability for the long term.

Our decision on our first Tuesday of government to make the Bank of England independent, and to set in place a more open and accountable system of monetary decision-making, not only implemented one of the CBI’s own proposals, but it has in my view already given consistency confidence and credibility to monetary policy making.

I believe we are agreed it is right to take these decisions out of politics, and to free them from short term political pressures. Our aim, business’ aim: in place of stop go long- term stability.

When I spoke to you last year we were also agreed that responsible public finances are the cornerstone of stability. And our two year ceiling on public spending is not a one off measure but it is now part of a five year deficit reduction plan that will not only bring public borrowing down from an unacceptable 22 3/4 billion Pounds last year to 5 1/2 billion Pounds next year, but will also allow us to meet our priorities for education investment and health. Sustainable public finances: our aim, your aim, in place of taking risks with inflation, long-term fiscal stability.

When I spoke to you last year we were – all of us -agreed that rising levels of investment were the key to future prosperity. The 2 per cent cut in corporation tax to its lowest level ever, the reduction to 21 per cent of small business corporation tax, and the new investment incentives for small and medium sized companies not only reflect a Government that listened to the CBI’s proposals, but are the first stage in raising from too low levels, the quality and quantity of investment in the future of Britain. In place of short termism, a practical set of commitments to the long term and I pledged that in future Budgets we will do more.

At this point in every cycle in the past the British economy has been prone to inflation instability and to a return to stop go. My pre-Budget report later this month which will – I hope – be the start of a national debate about next year’s Budget will show that with disciplined action against inflation, with prudence and with responsible wage bargaining the British economy can be put back on track next year.

Last year when I spoke we were agreed too on the importance of that fourth building block for success; a highly skilled and adaptable workforce for the future. To encourage work incentives we have promised not to raise basic and top tax rates for the period of a Parliament, a policy I reaffirm today.

And this year we have begun the modernisation of the welfare state, rebuilding it around the work and learning ethics, and I am grateful to all the companies represented here today for signing up to what I have called a national crusade to solve, once and for all, our problems of youth and long-term unemployment. A fresh start for Britain.

Stability, investment, responsible public finances, skills and employment – four basic building blocks for long-term economic success. And when the battle is not British workers against British managers but both British managers and workers working together against aggressive competitors overseas nothing – neither out of date attitudes, nor backward looking dogma,

Neither vested interests nor restrictive practices – should stand in the way of Britain equipping ourselves for the challenges ahead.

There is a final building block- strong and lasting trading relationships with the world.

We are not only one of the most open economies in the world – trading 25 per cent of our GDP compared with America’s 10 per cent. But, in addition, nearly 60 percent of our exports are to mainland Europe and an astonishingly high level of international investment into Europe – 40 per cent of it – comes to the UK.

Let us be clear about the immediate challenges we face.

In less than fourteen months from now, a German business selling products to France or the Netherlands will be able to do so without exchange rate risk, with lower transaction costs and with more transparent prices, something that in itself will pose a big challenge to a British competitor hoping to supply the same order.

So EMU will lead to fiercer competition for trade and for future investment across Europe.

And the time to prepare is now long overdue.

Indeed Siemens and Daimler-Benz are among the first of what will be a long list of companies to use the euro for all their transactions with all suppliers, including those in the UK. Others can be expected to follow suit.

It is why two weeks ago Natwest corporate banking services announced they will train their staff to handle euro, and then last week announced a range of euro products and services will be available early next year.

That is why Marks & Spencer has decided to put in place the capability to accept euro in the UK.

The euro will radically transform the whole single market. So from now my message is: let’s get down together to the serious business of preparation.

For five years since Maastricht while other countries were making preparations our country refused to prepare.

But I believe it is now time in the national economic interest to set aside the divisions over Europe that have caused – over a long period of time – indecision, instability, a loss of influence abroad, and denied us a national economic consensus.

I do not dwell on the past to criticise but to show that Britain -and British companies- cannot make practical progress without clear and unequivocal answers on the critical European questions that face us and without preparation to meet the challenges ahead.

And these preparations on how we compete in a single currency Europe – of vital concern to each company in the country – are too important to leave to dogma or internal party politics, and too important to leave aside for years more of indecision and drift.

I am sure the British way is not to retreat into a shell or, in any way, to cut ourselves off, but to be true to our outward looking and internationalist traditions and take, as we have normally done, a pragmatic rather than a dogmatic view of our relationship with Europe.

That is why two weeks ago for the first time a British government made the position of Britain in Europe clear: that the vital test for a single currency was not one of dogma – but one of economics, Whether it is good for business, jobs and prosperity.

That is why we said that if a successful single currency can meet our economic tests, then Britain should join. In other words, that we were in principle in favour of joining a successful single currency.

And that is why we said , again for the first time for a British government, That while joining does involve a pooling of economic sovereignty – as in the single market – that if the economic benefits were proven then they should outweigh any constitutional bar.

If the Government recommended it, it would then be up to the people to decide in a referendum.

And for the first time again, a fortnight ago, the British Government also stated that it was committed to real preparations for the euro.

Britain, we said, needs a time of preparation before a time of decision, early in the next Parliament.

The strategy must be to prepare and then decide.

And I firmly believe that it is now possible to build a broad consensus – stretching across the country and in particular the world of business – a new consensus that sets the old arguments behind us.

To those who say that we need not answer the question of principle and that we can even postpone consideration without loss of influence for another 10 years, and who say that even if the economic arguments are compelling they would not necessarily want us to join and that we need not prepare, I reply:

– that it is practical common sense that the long period of indecision and loss of influence should be brought to an end;

– it is practical commonsense that, after almost 18 years of debate, we should be able to resolve the question of principle and agree that the economic benefits will mark the decisive test;

• it is practical common sense to say that if the economic case is compelling we should be prepared to join; and
• it is practical sense that when other countries have been preparing seriously for five years since 1992 we should begin real preparations now.

And these preparations should not only include creating the flexibility – the skills, the adaptability and the employability – necessary for a successful single currency, but also business preparations that enable us to be ready for every challenge ahead.

And I am determined that, even though making a decision this Parliament, to join EMU is not realistic, we will play our part in shaping it, so that, if we wish to, we can join a single currency early in the next Parliament:

• first by the practical and constructive role we will play at the centre of the creation of the euro in our UK presidency next year;
• second by preparing for membership of the European Central Bank as soon as we join the euro;
• and thirdly by leading the debate about the competitiveness of the European economy and especially, as we are doing in Luxembourg, about the flexibility needed to make the euro work. So I say to this conference today:
• as a matter of practical commonsense, let’s get down together to the serious business of preparation;
• let us together start building a national consensus stretching across the country about making this period of preparation work for Britain.

And let us agree that this period of preparation means that companies should first of all have the information to respond as others trade in euros.

Second companies need the information to trade and compete in euros themselves.

Third companies need to know what they have to do to compete when the single currency starts in 1999.

And fourth companies need to know what they will need to do if and when Britain decides to join the euro.

It is so as to be prepared that, before the summer break, the Government published a practical guide on EMU for business, and it is why we then we set up a Business Advisory Group comprising business, trade union, and consumers groups to look at the crucial practical questions.

The Group will report to me in December and I will publish their findings in the New Year.

But it is time to go further to ensure business has the necessary information on which to prepare and that government and business work well to iron out any possible problems.

I am delighted that Sir Colin Marshall will sit on the new standing committee which the Government is now setting up to oversee and to coordinate preparatory work across the economy, in public and private sectors.

And I am pleased that David Simon who has joined the Government from BP has agreed to be Minister responsible for the long-term planning work.

Together we will draw up an agenda for preparations, as we did for decimalisation, which sets out all the practical steps government and business will need to take before a final decision to join the single currency. And we will hold a series of conferences in the new year to ensure that all regions and sectors of the economy are aware of the need to prepare.

In providing information and guidance, and in removing obstacles to using the euro in the UK, we will draw on the experience and expertise of private sector firms at the vanguard of preparations and our partners in other European countries.

Let me just explain the scale of the task: from its introduction, businesses in the UK will be able to use the euro as they can the dollar today. From 1999 they will be able to:

• file company accounts in euro;
• issue shares in euro;
• have bank accounts in euro;
• pay taxes in euro;

But unlike the dollar or the dm today the British banking system will have the capability to process payments in euro domestically.

This should make it much easier and cheaper for banks to offer euro services to their UK customers.

And the Government will do as much as we can to facilitate the use of the euro in the UK from its introduction in 1999:

• the DTI will consult business on the possibility of amending the companies act to make it easier for British firms to issue shares in euro, and to convert existing shares into euro. And following the advisory groups advice – we will look at any other legislative steps the Government should take to make the euro easier for firms to use;
• we will work with banks to introduce an official “seal of approval” so that firms and individuals can identify which banks offer reliable information about the euro, and allow customers to bank in euro without paying high charges;
• we will work not only with the banks, but with accountancy firms, trade associations, and others to make sure their clients are getting the consistent and accurate information they need. We will make available to them treasury information and advice for inclusion in their company literature;
• and today, I have sent the top 1000 British firms an information pack “business preparations for the euro” containing the most up to date information we can offer. There are copies available for conference delegates here today.
• And in future we will publish six monthly reports for business on preparations.

And can I add also that during our Presidency we will apply for community funding for an information service, and we will produce packs for schools, just as we will make all our information available on-line through the links to libraries and information centres across the UK.

There is one further question we will address: how to put the euro bank notes and coins into circulation in Britain, if we wish to join a single currency – the timescale, the amount – the practical details.

So following the report of the Advisory Group we will also be publishing guidance for firms on changes they need to make to their computer systems.

The strategy I said was to prepare and then decide.

This is a Government that having declared for the principle will make sure that the preparations are made.

And I believe that with information, and preparation, the national consensus embracing people business and their government – the very consensus that has eluded us for years – is now possible as we plan for the future.

Just as business has a right to expect, we have moved from the ideological to the practical.

We have moved from talking about preparations to making them in practice.

We have set in motion preparations, by both government and business, that will allow the people to make a clear choice and a final decision.

We will work with you to promote the British national economic interest in Europe.

Work with you to ensure that British business is equipped for the challenges in the year ahead.

Work with you to be certain that Britain gets the best out of its position with Europe.

And to work with you to ensure that Britain, once again, can lead in Europe.

I believe that we have a unique opportunity – Government and business working together to make this happen.

So, from this conference, I make the promise that Government will do everything it can to create the conditions in which you can succeed.

And let me say by way of conclusion that our policies for stability, investment, education and employment -just like our policies for Europe- are designed to nurture those qualities that are best in Britain and British industry:

• our creativity and adaptability;
• our belief in hard work and in team work;
• our openness and outward looking traditions.

Qualities that made Britain great in the first industrial revolution, qualities we should call the British genius, qualities that we must encourage more resolutely today if we are to master the unprecedented challenges ahead.

Nothing should stand in the way of the practical task of equipping ourselves for the future, of making the next century a century of British prosperity, a Britain top of the league in Europe, and I believe here, from Birmingham, we can continue to work practically and constructively together so that this prosperity at home and in Europe is our achievement in the years ahead.