Category: Speeches

Below is the text of the speech made by Gordon Brown, the then Chancellor of the Exchequer, to UNISON Conference on 20 February 2002.

I am delighted to be here today at this discussion of the future of public services – not just because this meeting allows me to set out some of the considerations that led to the Government’s Budget decisions and some of the conditions including reform that will lead to our decisions in the Spending Review to come, but as important because this forum allows me to set out the beliefs which have shaped the Government’s decisions.

First, in Britain a well established ethos of public service – so important to the delivery of our public services – rightly runs deep in our history, determines the character of our country, defines Britain’s uniqueness to the world, and in our Budget decisions we aim to sustain and renew that ethos of public service.

Second, I will suggest that the case for a health care system free to all at the point of need is stronger today – when the costs of new technology in health are far greater than ever – than in 1948 when the National Health Service was first created, and we should aim to make the NHS the best insurance policy in the world.

Third, our approach to public services will always be built upon a foundation of delivering economic stability, a discipline from which we will not depart.

And, fourth we will not hesitate to press ahead with modernisation so that at all times resources are matched to reform to ensure the best delivery and results.

All of us can tell our own story about the importance to us and to Britain of the ethos and traditions of public service in our country.

We think of our own teachers and the extraordinary power of teachers to make a difference to our lives.

We know nurses, doctors and health service staff who everyday can make the difference between life and death.

Social workers and care staff, who can transform hopelessness into hope.

Home helps and care assistants who for the frailest and the weakest make public service the mark of civility.

Street orderlies and ancillaries who show by their commitment why public service is about improving the quality of life.

And if you’ve ever been involved in an emergency you remember the calm unflappable skill, the professionalism, and self-sacrifice of all our public services.

Each time good is done it sends out a message that duty, obligation and service are at the heart of our country’s sense of itself. And it is from these acts of selfless dedication inspired by higher ideals that the ethos of public service is continuously renewed and the very character of our country as a community with its shared needs and linked destinies is shaped.

And many will look back like me and recall that so many of the opportunities we have had – the best schooling, the best of health care when ill, for many of us the best chances at university – so many of the opportunities we have enjoyed – owe their origin to the decisions of past Governments to create a welfare state that takes the shame out of need, to fund a National Health Service free to all, to build decent public services worthy of a civilised society.

That is why through public investment built on a platform of stability we have new more ambitious objectives in our generation.

Not just to build the best modern transport, health, education and housing our country can afford, but through tackling child and pensioner poverty to ensure every child has the best start in life and every pensioner dignity in retirement.

And through raising standards in education to ensure that for the first time not a minority but a majority of young people can attend university and so education, once the preserve of the minority, can become the hope and aspiration of the majority of our citizens.

For me the National Health Service is a clear, enduring and practical expression of these shared values which shape our country: the NHS built upon the conviction that the health of each of us depended upon a contribution by all of us and that it was the mark of a modern caring society, compassion in action, that we moved from the patchwork of uneven voluntary, charitable, private and municipal pre-war provision, and ensure universal access to health care, regardless of ability to pay: health care as a fundamental human right, not a consumer commodity.

And the question for Britain is whether the consensus that endured on a tax funded health care system for the last fifty years should be renewed for the next fifty. And it was right for us to examine other systems. The Government has examined the case for funding healthcare by private insurance where, in the case of the US, family premiums average around £100 a week and are set to rise next year on average by £13 a week, and because of its costs insures only some of the people for some of their care.

We have examined the case for funding by social insurance whose narrower base for contributions means – in France for example – the typical employer paying £60 a week per employee and where the direct relationship between insurer and insuree usually means less investment in public health preventive health and community health services.

And the Government has examined the case for charging for clinical services which also means patients paying rising bills for individual operations and treatments – costs ranging from £6,000 for a hip replacement to £10,000 for a heart by-pass on the BUPA price list – basing our healthcare system on medical charges would mean, in effect, the sick pay more for being sick.

There is another consideration as we look to the long-term.

In 1948 when the NHS was founded, much of what could be offered was a standard, and in practice rather modest, service. At that time, the scientific and technological limitations of medicine were such that high cost interventions were rare or very rare.

There was no chemotherapy for cancer, cardiac surgery was in its infancy, intensive care barely existed, hip and knee replacement was almost unknown.

Now, the standard of technology and treatment is such that unlike 1948 some illnesses or injuries could cost £20,000, £50,000 or even £100,000 to treat and cure.

Because the costs of treatment and drugs are higher than ever, the risks to family finances are greater than ever, and therefore the need for comprehensive insurance cover of health care stronger than ever.

Insurance policies that, by definition, rely for their viability on ifs, buts and small print can cover only some of the people some of the time.

Because none of us ever know in advance whether it is you or your family that will need that expensive care – for acute or chronic illness – the most comprehensive insurance cover is the best policy to cope with unpredictability.

And this is true for the most comfortably off members of our society as it is for the poorest.

Why? Because charges for any one of these treatments could impoverish individuals, households, and families far up the income scale, it is now not just in the interests of a lower income family but those on middle or higher incomes to be insured in the NHS’ comprehensive way.

Some present the current NHS system of funding as an ideological hand-me-down from the immediate post war era to be supported only out of sentiment rather than hard headed calculation.

Others dismiss the NHS funding system as an impossible dream – “fine in principle, a failed experiment in practice”.

But far from being a hangover from a distant age or an unrealisable vision, the NHS system of funding – comprehensive and inclusive insurance with treatment free at the point of need – is demonstrably the modern rational choice. Not just for poor or low-income families in Britain, but for the vast majority of families in Britain. Not just for today but for tomorrow too.

And far from it being valid for the needs of the 1940s but not for now, a tax funded system offering the most comprehensive insurance is Britain’s better way forward for coping with the three challenges facing health care: the rising costs of new technology, the increase of 3 million by 2020 in the elderly population, and the ever rising expectations for higher standards of personal care.

So it is our view that the NHS system of funding with comprehensive cover available for all is not just the most equitable but that a reformed NHS, by offering the most comprehensive insurance policy to meet the rising costs from medical advances – the best insurance policy in the world – can give the British people the greater security they need.

Yet the Budget debates have revealed an astonishing and dramatic break with a fifty year long all party consensus on the NHS system of funding – that the NHS would be free to all at the point of need.

Where health care is universal it would not, for them, be free and where it was free it would not be universal – with severe consequences for all: a huge growth in means testing of low income families on American Medicaid lines; the bills literally sent to middle Britain which would have to pay charges or insurance premia for its health care; and because forcing people to pay would be the biggest assault on the family finances of middle England, those advocating this must now explain what would be the cost of a hospital stay, a GP visit, or an operation under their policies.

This Government rejects those visions of some privatised future where the healthcare you’re guaranteed for your children and your family is the healthcare you insure privately or pay for and where poverty bars the entrance to the best hospital, and we reject the dogma of those whose dislike of public services is such that they would prefer a private sector working inefficiently to a public service working well.

It is because we recognise the unpredictability of health needs, the rising costs of health technology, and the equity and efficiency of the NHS tax funded system that, for us, the NHS will remain a National Health Service – a public service free at the point of use with decisions on care always made by doctors and nurses on the basis of clinical need.

The foundation for improved public services is an economic stability that can sustain increases in public investment in health, and let me say something about the background to our public spending decisions.

When I became Chancellor in 1997 I said that without stability first, without stability as the precondition of growth – and without, therefore, the first tough two years – we could not build the foundation for sustainable rises in public investment.

So since 1997, we have taken tough decisions to deliver economic stability, starting with Bank of England independence and cutting borrowing to bring the public finances under control.

Having in six budgets since 1997 entrenched economic stability and fiscal discipline; cut unemployment and debt, releasing new resources to invest in the NHS and vital public services; and, insisted that strings are attached to match new resources to better results, we have managed to set in place a modern and more long-term framework for better public services.

When we reformed public spending in 1997 we moved on from the Plowden principles that had dominated public spending decisions since the 1960s.

The Plowden approach was annual, input driven, ad hoc and incremental, departmentalist, consumption dominated and remote from the private sector.

In its place our approach to public spending is long term, with a three year not one year cycle.

It is results driven with targets for outputs.

Spending decisions are based on in depth policy review, not simply on last year’s figures.

Spending decisions are based not on the old departmentalism but on interdepartmental reviews as to whether across Government there is sufficient co-ordination so that overall objectives are being achieved.

Investment has been restored to its proper place so that we can tackle major long-term infrastructure problems, and a backlog of under-investment.

And we have ended the sterile war for territory between public and private sectors and see public and private now working together for public interest objectives.

So we have a new spending regime which has now allowed us the largest sustained rises in public investment the country has seen.

Just as we have taken tough decisions to reform our monetary and fiscal regime to secure stability for the economy, we must now take equally tough decisions to ensure investment in public services delivers results.

For just as schools exist for school children, and the NHS exists for patients; public services exist not for the public servant but for the public who are served.

And our aim must be that every classroom has the best teacher, every school the best staff, every operating theatre the best doctors and staff, every police station the best police men and women – that every public service has the best public servants.

And those of us who believe passionately in public services have a special responsibility to ensure their effectiveness, understand that there can be no blank cheques, that the days of something for nothing are over in our public services. And know also that we can only deliver world class public services if strings are attached and we change, update and modernise, to ensure that public services can best serve the public.

Just as we cannot serve the public if investment is low, staffing poor and conditions unacceptable, we cannot serve them either if service is poor, if performance is faulty, if there is resistance to necessary change.

And behind the modernisation of delivery are a set of principles that will dominate decisions not just on NHS spending but in our public Spending Review.

First, an emphasis on national standards with proper audit and accountability to ensure standards are met;

Second, “front line first”, with local devolution and delivery;

Third, greater flexibility to achieve greater results; and

Fourth, extended choice.

First, we are setting national standards with proper accountability – working with hospitals, schools, police forces and local government to agree tough targets, and to see performance independently monitored so people can see how their local services compare.

The Spending Reviews and the Public Service Agreements that we have introduced reflect a much needed culture change in focusing Government on results. In the coming Spending Review, there will be even more of a focus on standards based on evidence of customer satisfaction – delivering through a system of clear accountability the improvements that make the most difference to citizens’ actual experience of their services.

Performance targets have an important role to play in measuring how far these standards are being met. School and NHS trust performance tables, local authority and police performance indicators, all offer the public the chance to see how well their local school, hospital, council or police force compares with others in the country.

There were, for example, no national standards of treatment of coronary heart disease in 1997 even though it is the biggest cause of premature death in the UK.

To tackle this problem, we published the National Service Framework for Coronary Heart Disease in March 2000 to ensure national standards in prevention, treatment and care. Heart operations are now up by around a quarter and the use of cholesterol-lowering drugs is up by over a third.

The National Service Framework for Coronary Heart Disease has been followed up with similar frameworks for tackling cancer, providing services for the elderly, and delivering mental health services.

So we can meet our objective of genuine opportunity for all, a national strategy to assist secondary schools in driving up standards of achievement for 11–14 year olds is being rolled out, to complement the literacy and numeracy targets succeeding in primary schools.

So a majority of young people can enjoy university education, challenging targets have also been set to increase higher education student numbers, and the newly-established adult learning inspectorate is helping raise standards of teaching and learning.

A new Police Standards Unit has been established, to measure performance, enable clear and fair comparisons to be made and, in partnership with Her Majesty’s Inspectorate of Constabulary, help every police force aspire to the standards of the best.

And so that our local government service can rival the best, the Local Government White Paper sets out how the “Best Value” framework is being streamlined and strengthened, to enable councils to use it as an opportunity for radical challenge, and to engage citizens and staff in improving services.

And for the first time for modern public services we have insisted on a separation of responsibility for standards and of the responsibility for audit, inspection, scrutiny of users’ complaints and reporting to the public.

So the public will now have the right to know what is happening, how money is being spent, whether standards are being achieved, how targets are being met, what people’s complaints are and the link between the money they invest and the results achieved.

The second modernisation is the policy of front-line first: local devolution so the money gets down to the local level. Moving far beyond the old days of ‘the man in Whitehall knows best’. Central Government has had to learn to let go and give successful front-line professionals the freedom to deliver.

Learning from the success of devolution to date, in the context of well-defined accountability, the Government is determined to devolve and delegate further. Local government will be released from unnecessary restrictions and controls and in the police service, basic command units should have the freedoms they need wherever possible to meet the demands of the public on the ground.

Demanding standards and devolution need to go together. The best way in which a national standard can be met is by recognising local and often individual differences, and giving service providers the flexibility to shape services around the needs and aspirations of customers and communities.

Our best NHS hospitals have asked the Government to explore new models of service delivery which would see them fully part of the public sector NHS with new freedoms and flexibilities the idea of ‘foundation hospitals’ is to move from a top down management system to a system based on a few key rules within which organisations have much greater flexibility over managing their resources and designing services. This innovation is part of our move to devolve responsibility to the frontline and improve accountability to patients and the public.

And so that our local services can be the best, the Local Government White Paper proposes that high-performing councils should be given a wide range of freedoms and flexibilities, including the right to trade and raise forms of income.

The third modernisation is flexibility to achieve results – removing the artificial barriers that prevent staff delivering service improvements.

A key part of devolving power and responsibility will be the removal of needless rules that are a hangover from the era of centralisation. And if local managers are to be freer to innovate, they need greater freedom of movement.

There must be responsibility in pay agreements. Just as sustained economic growth demands responsibility in setting private sector pay, so a sustained commitment to better public services demands responsibility in setting public sector pay. Discipline will be our watchword.

Central to better results is an end to the sterile dispute between public and private sectors. We want to see public and private working together for the public interest. In transport, for example, we will maintain our £180 billion ten-year plan to modernise our transport infrastructure – a doubling of transport investment. And we will continue our programme of public private partnerships.

Let me give the example of the Underground.

Prior to 1997, the average public investment in London Underground was just £395 million a year. In the next 15 years the public investment in trains, track and stations will total £16 billion – investing at three times the old rate – the biggest single investment in the Underground in its history. More investment by the public sector in the next 15 years than we saw in the last hundred years.

And when billions of your money are being invested you would want us to ensure not only best value for money but the best possible public service.

So to construct the new infrastructure that will increase the Underground’s capacity by 20 per cent to 1.3 billion travellers each year, the construction and engineering companies will simply continue to do the work as they always have in digging the tunnels, building the infrastructure and replacing the track. But now for the first time they will have to take responsibility for what they deliver. So they will have to pay for the overruns, the delays, the faults in the construction and the mistakes that lead to extra maintenance.

So that we do not have another Jubilee Line fiasco – two years late, massive overruns – which if repeated in the new Underground investment programme would cost us two billion pounds.

And while the private sector directs its skills and expertise in risk and project management towards maintaining and improving the infrastructure, the public sector in the Underground – and public sector staff – will operate the track, run and provide signalling, run trains and stations on every line, set service levels, set the standards and ensure safety, and be in charge of an integrated tube network from 5.00am to 1.00am.

At all times safety paramount with the London Underground and the safety inspector the final decision-maker on what needs to be done for a safe transport system.

And we will work with the approval of the Health and Safety Executive on the highest of safety standards.

Our choice is clear. Not a return to the old ways, not the short-termism of the past, but an approach that makes sure that the billions we invest provide the best service for the public.

The fourth modernisation is extending choice. In designing services around citizens, it is important to be clear about their requirements. In some cases, we all want pretty much the same service – the bin to be emptied regularly, the street to be swept clear of litter. But in others, citizens increasingly want to be able to choose the service which best fits their requirements. They might want to choose the GP surgery that is most convenient for them to get to. They might want to be able to choose the hospital with the shortest waiting times or the most experienced specialists.

It is the Government’s task to ensure that everyone can make appropriate choices, regardless of income. This means that customers need better quality information on their public services and, in particular, how these services match up against the standards that matter most to them. And where standards are not being met, citizens should be able to seek effective redress.

A key area where these reforms are being put into practice is the NHS. And let me tell you what has been happening with the budget.

I said at the time of last November’s Pre-Budget Report that the precondition of new resources was reform, and the Secretary of State for Health, Alan Milburn, has announced vital new reforms to ensure extra money secures results:

– new financial incentives for hospital performance;

– greater freedoms for high performing hospitals and trusts;

– powers and resources devolved to front-line staff in Primary Care Trusts;

– reform of social services care for the elderly; and

– a series of measures increasing choice for patients.

In order to make sure that money invested yields the best results, for the first time in the history of the NHS, we will enshrine in statute, independent audit, independent inspection, and independent scrutiny of patient complaints – with a duty to account and report to the public on money spent and standards achieved.

It is right however to show where money is spent and the results achieved and in future an annual report to Parliament prepared by the new independent auditor, will account for the money allocated to the NHS, where it has been spent and what the results of the expenditure have been. This will be accompanied by local reports stating, for each local community, the link between money spent and results achieved.

New incentives for individual members of staff will be matched with a new system of financial incentives on NHS organisations. The hospitals that can treat more patients will earn more money. Traditional incentives work in the opposite direction. Indeed it is often the poorest performers who get the most financial help.

We will therefore introduce a new system for money to flow around the health service, ending perverse incentives, paying hospitals by results. The incentive will be to treat more NHS patients more quickly to higher standards.

And patient choice will drive this system. Starting with those with the most serious clinical conditions, patients will have a greater choice over when they are treated and where they are treated.

From this summer patients who have been waiting six months for a heart operation will be able to choose a hospital – whether it is public or private – which has capacity to offer quicker treatment.

Reductions in waiting times to get into hospital must be matched by cuts in waiting times to get out. Older people are the generation who built the NHS and who have supported it all their lives. This generation owes to that generation a guarantee of dignity and security in old age. Bed blocking denies both.

In recent months the extra resources we have made available has reduced the numbers of elderly patients whose discharge from hospital has been delayed. But the long-term solution is not just investment. It must be matched by reform.

So in order to bridge the gap between health and social care we intend, as they have done in Sweden and elsewhere, to legislate to give local councils responsibility from their 6 per cent extra real terms resources for the costs of beds needlessly blocked in hospitals.

Councils will need to use these resources to ensure that older people are able to leave hospital when their treatment is completed.

If councils reduce the current level of bed-blocking so that older people are able to leave hospital safely when they well, they will have freedom to use these resources to invest in extra services. If bed blocking goes up councils will incur the costs of keeping older people in hospital unnecessarily. There will be similar incentives to prevent hospitals seeking to discharge patients prematurely. In this way we will provide local councils with the investment and the incentives to improve care for older people.

So on the basis of reform and modernisation I set aside money for public spending in last week’s Budget. I propose to raise current public spending from £390 billion this year to £420 billion next year, to £444 billion in 2004-5 and £471 billion in 2005-6.

And I propose to raise our historically low levels of net public investment that were at 0.6 per cent in 1997 to 2 per cent by 2005-6. Taken together, the largest sustained investment for better services in our history.

And in last week’s Budget, I announced plans to raise UK NHS spending on average by 7.4 per cent in real terms each year – an annual cash rise of 10 per cent – not just for three years but for five years.

With year on year rises, UK health spending will grow from this year £65.4 billion to £72.1 billion to £79.3 billion to £87.2 to £95.9 billion and then to £105.6 billion in 2007-8: even after inflation a 43 per cent rise over five years. Since 1997, a real terms doubling in health service investment.

UK health spending will rise from 6.7 per cent of national income in 1997 and 7.7 per cent of national income this year to 8.7 per cent by 2005-6 and to 9.4 per cent by 2007-8 – rises year on year well into the next Parliament.

Last year we invested £2,370 for the average household on the NHS.

By 2007-8 we will be investing £4,060 pounds per household: after inflation, a 48 per cent real terms increase.

And let me spell out exactly what this new investment will deliver:

35,000 more nurses

15,000 more doctors

40 new hospitals

500 primary care centres.

Upholding and improving the NHS not just because it is an institution that is part of our history and our shared values but because, reformed and renewed, it can be the most efficient and equitable guarantee of health care for millions, provide the better choices and service they need and become, for the British people, the best insurance policy in the world: the best for each of us and the best for all of us.

Let us be clear about the choice in this Parliament on our great public services.

This is a battle for nothing less than the future of the National Health Service, and our public services.

It is a battle to demonstrate that in the 21st century we can build strong public services, there when people need them.

I started by saying that at their best our public services represent the best ideals of Britain.

Indeed our public service ethos – the emphasis on service, duty, obligation and not profit at the heart of health care provision – marks Britain out from the rest of the world.

With the new investment in public services to tackle underlying long-term problems in our country, that public service ethos can bring out the best of Britain to root out the worst of Britain.

It is because we all benefit from reformed, modernised public services that let us join together in this crusade for renewing the National Health Service and our public services.

Below is the text of the speech made by Gordon Brown, the then Chancellor of the Exchequer, to the Commonwealth Parliamentary Association’s Conference at Lancaster House, in London, on 12 March 2002.

Your Majesty, Your Royal Highness, fellow parliamentarians, ladies and gentlemen.

This meeting – of parliamentarians from every part of the commonwealth – is a very special one:

It celebrates Your Majesty’s fifty years as Head of the Commonwealth;

And it launches – in honour of that – a new ‘Commonwealth Education Fund’.

From the Pacific Islands to the British Isles, from the Caribbean to Central Africa, the Commonwealth is a community which spans the reach of global geography and the entire breadth of the economic spectrum – a community united in its vast diversity by a common heritage and shared values of democracy and human rights.

Today we take an historic step to advance those values.

This Tuesday morning, when almost every child in Britain is in school, there are in the Commonwealth 75 million children who are not because they have no schools to go to.

Children who will never enjoy even the most basic primary education;

Children thus destined to fail almost before their life’s journey has begun.

With the new Commonwealth Education Fund – and other funds – we aim to ensure that, by 2015, no child is left out and that every child in the Commonwealth will receive primary education.

And, Your Majesty, we believe that it is an altogether fitting tribute to your fifty years of service to plant, across the Commonwealth, seeds that will still bear fruit in another half century.

I think of the five year olds who, as a result of this new Education Fund, will be given opportunities they would never otherwise have both in learning and in life – a chance that will transform their own lives immediately … and lift the life of their nations for the next half century and beyond.

Since 1997, the International Development Secretary has committed £650 million to support progressive governments determined to achieve, high-quality primary education, mainly in sub-Saharan Africa and South Asia. And she will significantly raise our commitment to overseas development over coming years and its share of national income.

The new Commonwealth Education Fund which will build on these British efforts will be a proud and permanent legacy of this Jubilee year.

The UK government will provide an initial £10 million.

And we will match pound for pound contributions from businesses and members of the public – in particular through this year’s Comic Relief campaign – “Sports Relief”.

Most of this money will be channeled through charities and NGOs to help the Commonwealth’s poorest countries open the doors of learning to all their children – most of all the most vulnerable and disadvantaged street children, child soldiers and aids orphans.

And I hope that this lasting legacy of the Jubilee Year will also be felt here in the UK.

At the moment around 870 schools from the Commonwealth are ‘twinned’ with British schools. I visited one of those schools this morning and saw myself how it is helping British children to gain a better understanding of other cultures.

The Commonwealth Education Fund will widen and deepen such ties, raise the awareness of international poverty and development in our schools and build new bridges between young people in Britain and across the Commonwealth.

In so doing, I hope that our children will grow up with a new consciousness of their responsibilities as global citizens – and a real sense that deprivation and despair anywhere diminish all of us everywhere.

There are threats we must face and defeat – from terrorism to exploitation to the easy temptations of indifference. But before us there is also an unprecedented possibility of progress.

We have in our hands the power and obligation, never given to any other generation at any other time in human history, to banish ignorance and poverty from the earth.

Every time we lift one child out of the slums and the destitution and squalor of living above open sewers…

Every time we cure one child afflicted by disease, and give her the chance of learning…

Every time we rescue one child soldier impressed into combat…

We are making a difference.

But if, through education, we can lift not just one child, but 75 million children out of poverty and hopelessness, we will have achieved a momentous victory for the values of the Commonwealth and the cause of our common humanity.

2002 is a momentous year for Your Majesty. And for your honour and ours, let it also be a momentous year for the Commonwealth

I can think of no tribute and no legacy that would better mark Your Majesty’s Jubilee Year than a promise, a commitment, that every child will at least have a decent start in life.

By opening the doors of learning to all of them, we can secure a stronger, fairer, more prosperous future, not just for them but for all our nations and peoples.

Below is the text of the speech made by Gordon Brown, the then Chancellor of the Exchequer, to the Social Market Foundation in London on 20 March 2002.

The challenge of next month’s Budget is not just to build a stronger more enterprising economy but to put the National Health Service on a solid foundation for the long term.

Our five Budgets since 1997 have pursued a consistent course: to entrench economic stability and fiscal discipline; to cut unemployment and debt, releasing new resources to invest in the NHS and vital public services; and, by insisting strings are attached that match new resources to better results, to set a proper framework for better public services.

The Secretary of State for Health has already shown – and will continue to show in the coming months – how, to put patients first, there will be new national standards and improved accountability, devolution to front-line services and greater choice and flexibility.

My role as Chancellor is to ensure not just that our public services are properly funded, but that funds are raised in a fair and efficient way which ensures value for money.

We have not come this far to put our hard-won economic stability and fiscal discipline at risk – and with low inflation and low unemployment again today – we will not compromise on our economic stability.

The something for nothing days are over in our public services and there can be no blank cheques.

Our ambition for the Budget and Spending Review is to put the NHS on a sound long-term financial footing. And this must be based on tough choices between and within Departments, matching resources with reform.

In the coming Budget and Spending Round, before committing the Treasury to additional expenditure, we will need to know of Health and all Departments whether extra spending is a priority, whether there is a clear strategy of reform to deliver value-for-money, and the track record of increased resources leading to improved results.

Today – in the run-up to the budget and spending review – I want to advance the debate on how we finance healthcare. It is a debate crucial to the wider debate on the future shape of our public services. Indeed it is a debate about what kind of country we are, because it is a debate not just about the technicalities of finance but about the national values we – the people of Britain – hold to be important.

It was because of our concern about the demographic, technological and other pressures on health care services in Britain that in 2000 the Treasury announced a major review on long term health finance needs and appointed Mr Derek Wanless to conduct it.

Having received his interim report at the time of the Pre-Budget Report, the Government urged that a national debate should take place.

In the same way there was a national consensus after 1948 on the funding of the NHS, a new national consensus should be sought for the future funding of health care, one that matches greater reform and modernisation of the NHS with greater resources.

I said at the time of the Wanless Review that for me the NHS is a clear, enduring and practical expression of our shared values as a country – that all our citizens should have decent health care and that an NHS with quality service for all, based on need irrespective of income, should represent the realisation of this ideal.

Indeed I was brought up to believe that the NHS reflected what Professor Richard Titmuss called the “gift relationship”, giving practical effect to people’s altruistic as well as self interested impulses – a unique British institution that has marked Britain out in the world.

My own experiences have confirmed that instinct and that belief: that the uniqueness, indeed the greatness, of the NHS as a British institution is that – with its dedicated and expert staff – it is designed to be there when you need it, open to all, no matter what your circumstances.

And there is evidence that this view of the NHS is shared by the majority of British people too.

But at a time when its values, its affordability and even its right to existence are being questioned, it is proper – indeed essential – for us to examine all our assumptions about the future of health care and its funding here in Britain.

At the time of the Pre-Budget Report, I asked those who advocate a different way to pay for health care in Britain to come forward with their specific proposals.

Today, having examined the main alternatives – user charges, private insurance and social insurance – I want to set out the Government’s own analysis.

And I want to set out our views not just by reference to the past and the present. For what we need is not just a funding system able to meet the health care needs of today but one that meets the challenges of the long term future – particularly the increasing cost of technology, demographic change and rising expectations.

Let me explain.

There was an assumption after 1948 that once healthcare was free at the point of delivery demand would fall as the backlog was cleared.

But for a whole range of reasons, that did not happen.

In 1948 the NHS offered 400,000 operations in NHS hospitals and one million outpatients were seen.

Today there are 6.5 million operations each year, with over 40 million outpatient appointments.

The first reason for this is the growth in availability of new treatments and drugs as a result of technological advance.

It has been suggested that this huge expansion in technology and in its costs calls into question the entire nature of the health service.

Over the last half-century technology has opened up vast new areas of diagnosis and treatment. We know more, we can do more, so we can deal with many more illnesses and save many more lives.

And as a result of the progress of the last fifty years, many illnesses and injuries that were not then survivable can now be treated with confidence and a new certainty of success.

So the medical miracles of a generation ago are commonplace occurrences today.

And of course the rate of accumulation of new knowledge – and new abilities to intervene – continues to increase. We are in the midst of a pharmaceutical and biomedical revolution with – looking to the future – new techniques from genetics to stem cell therapy and new drugs to prevent, alleviate or cure conditions like Alzheimer’s and HIV/Aids.

But costs are increasing too. For while a maturing technology often brings rising cost effectiveness, each emerging technology that is proved effective brings new demands for its use.

Many new technologies, like minimally invasive surgical procedures, are cheaper than the old technologies which they replaced – largely because they are less traumatic and hospital stay has fallen accordingly – but their convenience has substantially increased referral and uptake leading to greater costs too.

And as drug efficacy and acceptability improves, more patients will be treated over the longer-term to prevent harm and disease: for example with statins to lower cholesterol – where the numbers using them are expected to rise dramatically from one million to over six million by 2010 – or anti-hypertensives to reduce the likelihood of strokes.

Overall, the average annual increase in the cost of medicines, dressings and appliances dispensed in the community rose by nearly 10 per cent per year during the 1990s. Some drugs – such as those used to treat metabolic disorders – can now cost up to 8,000 pounds per prescription.

We should never lose sight of the overwhelming trend: the good – even great – news that many more lives can be saved, many more diseases cured, many more serious and complex injuries survived.

But what challenges us is that the same new treatments, surgical procedures and curative and preventive drugs carry costs from which – in other countries – individuals and families are not protected: costs that can overwhelm family budgets, bringing poverty and bankruptcy simply from paying for health care.

After more than fifty years of the NHS, it is easy for us in Britain to forget that for an individual or a family unprotected by a system such as ours the cost of catastrophic illness or an acute condition can be – and often is – literally catastrophic. And many would suggest that the last thing people who have the anxiety and fear of being sick need is the added anxiety and fear of whether they can pay for treatment.

The second challenge to healthcare systems is changing demography, and with long term care increasingly an issue of concern there is a case for looking at health and social services together.

The British population is not only larger than in 1948, rising from 50 million to nearly 60 million, but older. And these trends are set to continue.

The population is forecast to grow by one fifteenth to 64 million over the next 20 years with the number of the people over 65 increasing by nearly a third over the same period to 12.5 million.

We know that because much of ill-health is age-related, health care costs rise with age and that the average annual cost to the NHS of a person aged over 85 is approximately six times the cost for those aged between 16 and 44.

But because such systematic evidence as is available suggests that, as life expectancy rises, people will be less severely ill for longer at the end of their lives, Derek Wanless suggested in his interim report that, overall, demographic pressures will only add around 1 per cent a year to Britain’s total health care bill.

The third challenge is the increase in expectations about standards of care in hospitals and healthcare generally – and an increasing demand for patient choice.

We know of health gaps between Britain and our main European comparators in life expectancy, infant mortality, premature mortality and survival rates from cancer and heart disease.

And recent surveys show what we all know: that as well as safe, high-quality treatments, taxpayers rightly expect improvements in the quality of service the NHS offers. They want improved use of new technology, shorter waiting times, more time with their GP, a more joined up service, and better accommodation and facilities. In fact, to move towards meeting these needs, one third of beds in new hospitals will be in single rooms.

All this reflects the fact that people want greater choice with services designed around their individual needs – the end of a one size fits all approach.

Changing technology, demography and expectations provide the context within which we are considering the twenty year funding needs of the health service.

It is within this context that I want to test each possible system of healthcare funding – user charging, private insurance and social insurance – on their capacity not just to meet today’s needs but future needs.

And I will suggest that those who use rising expectations and new demographic and technological demands to make the case for user charges or private insurance are conveniently misusing new challenges to pursue ancient prejudices.

Of course, most countries rely on a mix of different funding streams for healthcare but most are based predominately on one financing system. And I will examine in detail the case of those who contend that a different system would be better for Britain.

There are those who argue that the NHS, while valid for the more basic needs of the 1940s, is out of date for the more sophisticated needs of today. But I will argue that the future impact of new technology makes the case for a revenue-funded National Health Service even more valid today than it was in 1948.

User Charging

The first alternative to examine is user charging – requiring patients to pay directly for all or part of the cost of a particular treatment or service.

In Britain we already have user charges for dentistry and prescriptions but in other countries this phenomenon is much more extensive.

At the heart of the theoretical case for widespread charging in health is the assumption that health care is a commodity to be purchased like any other – individuals paying the full price for what they consume, each household freely choosing their pattern of consumption, with the supply of health care permanently and rapidly adjusting to the pattern of preferences: a pure free market position.

But many influences impact upon demand in healthcare in a way that is different from an ordinary market.

Health consumption is, of course, unpredictable and can never be planned by the consumer in the way that – for example – weekly food consumption can. It does not reflect free choice in the way that consumer demand does for other commodities: we demand healthcare not principally because we want it but because we need it.

And, unlike a conventional market, the consumer will normally have less information and less expert knowledge to seek out the best product at the lowest price than in an ordinary buyer and sellers arrangement. Patients are not doctors and they generally have less knowledge than in other markets to make informed judgments about what care they need, where to obtain that care, or easily compare the price and quality of the services on offer.

At the most extreme, there could be an added danger where the professional whose expertise the patient relies on for medical judgment also has the power to set the price of their service.

Moreover, there is clearly a public interest question that means healthcare cannot be treated like a normal market.

“tackling contagious diseases cannot be left to the ordinary operation of supply and demand”, Anuerin Bevan said in 1948, “the maintenance of public health requires a collective commitment”.

And whether it is in preventing contagious diseases and other risks to public health or, more generally, in advancing the economic benefits of a healthy workforce, governments have an interest in ensuring that individuals receive treatment which may have a small personal benefit but a large social gain.

There is strong evidence that not only would charges discourage people from using preventive care – and divert demand to other areas of the health system where charges aren’t levied – but that they would discourage some people, particularly the least well off and the elderly, from seeking treatment altogether.

According to a recent survey in New Zealand – where there is a system of charges for GP visits – 20 per cent of respondents said they had a medical problem but did not visit a doctor due to cost, compared to 3 per cent in the UK. 14 per cent didn’t get a test, treatment or follow-up care due to cost, compared to 2 per cent in the UK.

About 80 per cent of patients in France – where GPs charge around £20 per visit and hospitals £6.50 a day – take out supplementary insurance to pay for the charges. Until 2000, the other 20 per cent who couldn’t afford private insurance were left to pay the charges themselves and one in four people surveyed said that they were put off seeking care for financial reasons. In response to this inequity, the French Government now provides free supplementary insurance for those on low incomes.

If people are discouraged from seeing the doctor, they may simply end up back in the system at a later time with more severe health problems that require more intensive and costly treatments – a result which is potentially more painful for the individual and less cost effective for national health care.

So exemptions would have to be introduced to ensure those with a clinical need are not discouraged or prevented from receiving treatment.

But these exemptions would inevitably make a charging system even more complicated and less efficient, with higher administration and collection costs.

In New Zealand hospital charges were introduced but eventually dropped because the large number of exemptions and high administration costs meant that the scheme raised less than 0.5 per cent of total health service costs in extra revenue.

In his interim report, Derek Wanless concluded that there could be cases where the use of charges did not result in such significant equity or efficiency problems but did give greater choice. He suggested that this might be the case with charges for non-clinical services, such as access to computer facilities or digital TV in hospital rooms.

But we in Britain reject user charges for GP and hospital care because of the effects they would have on the poorest and most vulnerable in our society. Put starkly, user charges would mean the sick pay for being sick.

So making health care reliant on charges is not a road we will take.

Let me turn now to the three other alternative funding systems – private insurance, social insurance and general taxation.

The fact is that none of us know when we will be in a position to need healthcare. We don’t know in advance what all our health care needs will be, or when we are going to be sick. It is to deal with precisely these risks that individuals, families, and entire societies seek to insure themselves against the eventuality of being ill. And why most systems of financing healthcare – either public or private – are based primarily around the insurance principle.

The essential idea of insurance is always the same – the pooling of risks – but the reach of the insurance and the method of finance determine whether health care is treated as a commodity or as a right.

Before discussing public insurance models, I want to examine the advantages and disadvantages of the second funding system – private insurance.

Private Insurance

To move to a British health care system reliant on private insurance would mark a dramatic shift for our country.

Like most of Europe, Britain has never had a strong tradition of private insurance in health. Even today only 3 per cent of adults buy their own insurance and with company schemes only 11 per cent have it.

And the advisability of making such a change would have to be tested against considerations of equity – the large number of citizens who, in other countries, cannot afford such schemes – and efficiency, including the higher administrative costs of private schemes.

As with charges, the paradox of healthcare systems based on private insurance is that the people who need healthcare the most are the least likely to be able to afford it.

We know that the poorer and older someone is, the more likely they are to fall ill. And in the United States – as with private insurance more generally – the less healthy pay the highest insurance premiums, with premium costs climbing sharply with age. According to the American Consumers’ Union, the sickest 10 per cent of the American population spends six to seven times what the average person does on healthcare.

As a result, over 26 per cent of families in the US report that they have foregone necessary medical treatment over the last year because of prohibitive medical costs and about 250,000 people each year give up insurance for cost reasons.

In total, 18 per cent of adults of working age and 12 per cent of children do not have any insurance in the US – over 40 million people in all. 80 per cent of these are in working families, many of them in small businesses or self-employed. The elderly and very poor are covered through public insurance schemes – Medicare and Medicaid.

So adopting private insurance as the UK health care system would clearly fail to help those with the greatest needs, but paradoxically it is also likely to fail to deliver for those on higher incomes.

Even comfortably off families in the United States can be faced with huge additional bills because insurance packages tend to exclude high cost chronic care altogether and have co-payments of 20 per cent or more. Someone with a private insurance policy covering 80 per cent of charges can face additional costs of nearly 2000 dollars for hospitalisation for childbirth and up to 5000 dollars for a heart bypass operation.

In Germany where people on higher incomes have a choice between the public insurance offered by sickness funds and private insurance, two thirds choose the public option because it is considered to be cheaper and less risky.

No private scheme covers every treatment an individual might need for life at a price they could afford. Private insurance policies currently on offer in the UK usually exclude primary care and emergency care – which currently accounts for over 90 per cent of patient contact – including GP visits, outpatient drugs and dressings, and hospitalisation for childbirth, as well as treatment for HIV/Aids or other pre-existing or chronic conditions. Indeed the UK website for Medi-Broker states:

“in general, private medical insurance plans do not cover chronic or critical illness which cannot be cured. For example, multiple sclerosis, asthma or diabetes.”

Rising knowledge of genetics also seems likely to further exacerbate the problems already present in private insurance systems.

People with a predisposition for a particular disease will be open to discrimination and may face excessive premiums, reductions in coverage or find it impossible to obtain private insurance altogether.

In fact, advances in genetics makes the case for the widest possible pooling of risk. The more accurately you can predict risks the greater the case for risk pooling.

But does private insurance meet the test of efficiency?

Because of poor cost control, fragmentation of service and high management and administration costs, private insurance systems in other countries are consistently more expensive for both consumers and taxpayers than publicly funded health systems.

In the United States, the cost of private insurance premiums are high and rising. In April 2001, it was estimated that annual premiums for employer-sponsored plans were over 2,500 dollars for single coverage and over 7,000 dollars for family coverage with employees paying between 50 and 70 per cent of these costs. During 2001, premiums rose in price by 11 per cent, compared with general inflation of only 3 per cent, and are forecast to rise by a further 13 per cent in 2002.

Administrative costs in the US are twice as high as in Canada – a system based predominately on general taxation – largely due to the cost of insurance companies selling and handling policies, processing claims and pre-approving procedures, in some cases overruling doctors and denying needed care.

Of course there are models of best practice in the private sector from which we can learn – such as Kaiser Permenante in California. But the evidence suggests that Kaiser offers a better service not because it is funded through private insurance but because of its innovative use of resources including IT, the wider range of treatment offered in primary care settings and the co-ordination of health and social care. These are lessons which can be applied in the public as well as the private sector.

And simply moving towards a private insurance system is not guaranteed to reduce the amount of money spent by the state on publicly funded healthcare. Despite a large private insurance sector, the public sector cost of healthcare in the US is still significant.

Medicare and Medicaid cost 400 billion dollars a year, and with tax relief for private insurance, US public expenditure on health is 500 billion dollars a year, about 7 per cent of national income.

The irony is that the United States spends nearly as high a share of national income covering some of the health needs of some of its people as the United Kingdom spends on covering all the health care needs of all its people.

At the end of the day, 90 per cent of private insurance policies in the united states are taken out by employers for their employees – costing employers nearly 100 billion dollars a year.

And there is evidence that workers themselves are reluctant to change jobs for fear of losing cover. This leads to a less flexible and less mobile workforce, with subsequent knock-ons to the economy as a whole. In different US surveys at least 10 per cent and up to 30 per cent reported that they or a family member remained in a job at some time because they did not want to lose health insurance coverage.

So private insurance fails the equity test. It does not pass the efficiency test, what of choice?

Although the United States probably has the most market driven system of healthcare – which in theory should give consumers greater choice – in practice the position is less clear cut.

To ensure that the cost to the employer is minimised, many companies enroll their employees in health maintenance organisations, or managed care plans. These narrow the choices patients have about the doctors and hospitals at which they can be treated.

So far from the issue being – as some imply – the statist NHS denying choice versus the pro choice private systems, the private insurance systems are essentially managed systems which restrict consumer choice.

Currently, private insurance does play a part in providing some supplementary cover for a small minority in Britain so even if there is not a case for a wholesale shift to compulsory private insurance, is there a case for extending tax relief for those who wish to take up private insurance – either generally or for elective surgery – on a voluntary basis?

A study was conducted by the Treasury and the first and significant cost is a deadweight cost – at least £500 million – of providing tax relief for those who would take out private insurance policies anyway.

Even when tax relief was available in the UK during the early 1990s it wasn’t particularly successful in encouraging people to subscribe to voluntary health insurance. It cost one billion pounds in subsidies but the number of people with private insurance rose by only 50,000 in seven years – an increase of 1.6 per cent.

As the then chancellor Nigel Lawson said at the time the tax relief was introduced, “if we simply boost demand…by tax concessions to the private sector without improving supply, the result would not be so much a growth in private healthcare but higher prices…. increasing demand in the private sector pushes up prices and therefore pay. That would inevitably spread across all staff costs in the NHS and we would end up getting less value for money”.

Social Insurance

The third alternative funding system is social insurance – the model in France, Germany and the Netherlands.

There, healthcare is predominately financed by compulsory contributions from employers and employees, calculated as a proportion of earned income, paid into and managed by independent, not for profit, sickness funds.

Fifty years ago, Bevan rejected a system funded in this way. He said that a contributory system which would have denied some a full range of benefits; endless anomalies, he said, resulted; and such restrictions or exclusions were out of place for a national scheme. He said it would create a two-tier NHS.

Some countries still have a two-tier social insurance system which restricts equity of access. In Belgium, 88 per cent of people are included in a scheme which provides comprehensive benefits and 12 per cent in the alternative scheme for the self-employed where the benefits package cover major risks only.

And in France reforms were introduced in 2000 as a response to fears that the previous structure was harming access to care amongst low income groups. The Universal Health Coverage Act entitles everyone legally resident in France to public health insurance, regardless of their contribution status. The Act also provides free supplementary insurance for those on low incomes.

So even insurance based systems, which nominally link benefits to contributions, have had to find ways – financed through general taxation – of tackling the two-tier system and including the uninsured.

Those in favour of social insurance argue that it encourages people to pay more for their healthcare because the sickness funds are independent from government, giving a greater sense of ownership and therefore greater support for the system as a whole.

But in fact, it is often employers who end up footing much of the bill. In France employers contribute 12.8 per cent of their earnings – on average, around 60 pounds per week per employee. And in Germany, they contribute around 7 per cent, with average weekly payments per employee of around 30 pounds.

Of course, it is right for employers to contribute on the grounds that ill health could have significant effects of the productivity of their business. But it should be noted that one advantage of the National Health Service is that employers are not expected to pay all or most of their own employees health care costs.

Furthermore, introducing local insurance funds could not easily be done in the UK where our national service represents a very different tradition of healthcare from Germany, the Netherlands and France whose insurance has been regionally and locally based. It was to move from a patchwork of local provision that in 1948 a unified national service was created.

Indeed while some theorists argue that Britain should move from a tax funded system towards social insurance, in practice countries such as France are moving from social insurance towards greater use of general taxation, in part because of concerns about people being excluded but also to widen the revenue base of the funds.

In these circumstances, it would be perverse to go through the administrative upheaval of totally reorganising along continental social insurance lines.

As the French funding system moves towards Britain, it would seem strange for the British funding system to move towards the French.

Finally, some argue that social insurance systems give people greater choice – first, because they can choose between social insurance or opt out and, second, because they can choose between funds within the social insurance system.

In fact, apart from in Germany, very few people have the choice of opting out of the state system – and in some cases, such as the Netherlands, higher income groups are simply compulsorily excluded.

And the choice provided between different funds within the social insurance system can, in practice, be constrained. In Germany, for example, there are over 400 different insurance funds but what they cover is strictly defined in law leaving little room for choice.

In addition to our findings on social insurance, we have so far found that charging fails both the equity and efficiency tests.

And we have discovered that because of the exemptions, restrictions and its partial coverage, private insurance fails the equity test without being either more administratively efficient or, in practice, as conducive as might appear in principle to choice.

So let me now turn to the NHS.

The National Health Service

The question is whether in a reformed NHS the system of NHS funding is, in principle, sound for today’s and tomorrow’s world.

In the original document sent to every citizen in 1948 the promise was unequivocal: the new health service will “provide you with all medical and nursing care” it said. “everyone – rich or poor, man, woman or child – can use it or any part of it. There are no charges, except for a few special items. There are no insurance qualifications. But it is not a “charity”. You are all paying for it, mainly as taxpayers, and it will relieve your money worries in time of illness”.

There could be no clearer statement of the principle of equity: the NHS was built around the cornerstone of universal access to health services, regardless of ability to pay. And at its core is the recognition of health care as a fundamental human right, not a consumer commodity.

But in the intervening years between 1948 and now Britain did not invest as other countries invested in health care. Indeed, Derek Wanless pointed out in his interim report that between 1972 and 1998 a cumulative £220 billion less was invested in UK healthcare compared to the European Union average.

But while the idea has been underfunded, is the NHS idea of funding universal access and universal provision itself still valid? Do we still support a health service free at the point of use, available to all, based on ability to pay not just out of sentiment but as the rational choice for Britain’s future?

While other models of insurance involve different levels of coverage for different individuals, the unique value of the NHS idea is that, no matter your circumstances or needs, risks are universally pooled and everyone is included.

There is no doubt that the NHS is a good deal over the life cycle. Healthcare costs are most expensive in the last years of an individual’s life – at precisely the time when people generally have less money than during their working lives. Unlike private insurance, where premiums rise with age, the way the NHS is financed means that elderly people actually contribute significantly less for healthcare than those of working age.

While private insurance – as we have seen – involves exclusions, access and provision by the NHS is designed to be more comprehensive than any other covering GP visits, GP house calls, nurses, health visitors, the whole primary care team, elective surgery, accident and emergency cover and the medical costs of catastrophic illness.

While private insurance covers some of the people some of the time, the evidence is that what people want is a health care system that covers all of the people all of the time.

So people want the NHS at its best to combine the universality of access with universality of provision – and thus offer the best insurance policy in the world, without the ifs and buts and small print of private insurance policies but with, as far as possible, everything and everyone covered.

And just as the principles of access to the NHS are fair and equitable, so is the system of funding it.

80 per cent of the NHS is funded from general taxation, which means the charge for the NHS is broadly-based not falling on one particular group.

Unlike systems of charging, it does not charge people for the misfortune of being sick.

Unlike systems of private insurance, the NHS does not impose higher costs on those who are predisposed to illness, or who fall sick.

And unlike social insurance systems, while the NHS does rightly ask employers to make an additional contribution in recognition of the benefit they receive from a healthy workforce, it does not demand that employers bear the majority burden of health costs.

In France, the amount contributed by employers to healthcare is around £60 a week for an employee on average earnings; in Germany it is around £30 a week.

The amount contributed by UK employers to healthcare through national insurance is around £5 a week for an employee on average earnings. Even taking into account the contribution made by employers through general taxation, this would be no more than £10 a week per employee.

So the NHS scores well on equity, what of efficiency?

Some people say that the cost of equity is inefficiency, indeed abuse. Because, for example, GP visits are free of charge, the system is abused.

Even with a free GP system, the number of GP visits per person tend to be lower in the UK than in America, France or Germany. With the GP system an essential gatekeeper for access to the rest of the NHS – doing so by coordinating a wide provision of primary care with its hospital based services – the NHS avoids much of the inefficiency of systems based much more on open access to hospital specialty care.

Moreover, while those who advocate charging argue that they would make financing healthcare more efficient because they would encourage the more responsible use of resources the truth is that, most of the costs of healthcare are initiated by the doctor, not the patient.

As we have also seen, the fragmented nature of other systems of funding, particularly private insurance, is a source of additional administrative costs.

Of course, the NHS can be more efficient and productive. As Derek Wanless has already pointed out in his interim report, NHS productivity could be far higher than it is. For example, with the right investment in IT and the reforms Alan Milburn is making, including improved triage schemes, better use of nurses and booked admissions, designed to make greater efficiency and productivity possible.

But the key point is that there is no reason to think that the funding system for the NHS itself makes for a less efficient service.

Finally, choice.

As we have seen, all systems in fact restrict choice – even private insurance systems.

I would argue that greater choice will increasingly become possible in the NHS as we improve its capacity, and that is what the Alan Milburn’s reforms are designed to achieve.

That is why we are committed to increasing not just the number of GPs but improving their premises and facilities as well.

Patients will not simply be empowered with greater information, but also be given more choice than in the past.

As we made clear in our election manifesto, by the end of 2005, every hospital appointment will be booked for the convenience of the patient, making it easier for patients and their GP to choose the hospital and consultant that best suits their needs.

And finally, there is already some degree of choice about non-clinical services – people can pay for a single room for maternity services, for example. So I believe the evidence suggests that the NHS can accommodate greater choice and expectations in the future.

But some say that the NHS will be overwhelmed in the future, in particular by the costs of new, high-tech treatments.

However, I believe that these rising costs actually make the NHS system of funding more valid today than at its creation.

In 1948 the argument for common funding and pooled risk centred on the unpredictability of health needs and the expense of health care.

At that time, much of what could be offered was a standard, and in practice, rather modest service.

At that time, the scientific and technological limitations of medicine were such that really high cost interventions were rare or very rare.

There was no chemotherapy for cancer. Cardiac surgery was in its infancy, intensive care barely existed. Hip and knee replacement was almost unknown. A whole range of diagnostic and treatment techniques that today we take for granted were simply not available.

Now – because the more effective treatments that can be offered today are far more expensive and because, of course, we still do not know when we or members of our family will need health care – the argument for common funding and pooled risk is in my view stronger than ever. And immeasurably stronger than it was in 1948.

Look at what is possible medically – and what, in the absence of the NHS, would too often be impossible financially for almost every family. Treatments ranging from serious heart abnormalities in a new born baby to the cost of care for longer-term problems, such as behavioural disorders, diabetes and HIV/Aids.

Many of these illnesses and injuries come unexpectedly.

No one budgets for them, and very few could.

The standard of technology and treatment is now such that unlike 1948 some illnesses or injuries could cost £20,000, £50,000 or even £100,000 pounds to cure.

Because the costs of treatment and drugs are higher than ever, the risks to family finances are greater than ever, and therefore the need for comprehensive insurance cover of health care needs stronger than ever.

Because none of us ever know in advance whether it is you or your family that will need that expensive care – for acute or chronic illness – the most comprehensive insurance cover is the best policy to cope with unpredictability.

Insurance policies that, by definition, rely for their viability on ifs, buts and small print can cover only some of the people some of the time.

In a world of expensive treatments and even more expensive drugs, charging is simply making the sick pay more for being sick.

So more than ever families need a system of funding that insures everyone as comprehensively as possible against the risks of huge medical bills.

And this is true for the most comfortably off members of our society as it is for the poorest.

Why? Because charges for any one of these treatments could impoverish individuals, households, and families far up the income scale, it is now not just in the interests of a lower income family but those on middle or higher incomes to be insured in the NHS’ comprehensive way.

Some present the current NHS system of funding as an ideological hand-me-down from the immediate post war era to be supported only out of sentiment rather than hard headed calculation.

Others dismiss the NHS funding system as an impossible dream – “fine in principle, a failed experiment in practice”

But far from being a hangover from a distant age or an unrealisable vision, the NHS system of funding is demonstrably the modern rational choice. Not just for poor or low income families in Britain, but for the vast majority of families in Britain. Not just for today but for tomorrow too.

And far from it being valid for the needs of the 1940s but not for now, a tax funded system is Britain’s better way forward for coping with the three challenges facing health care: the rising costs of new technology, the increase of 3 million by 2020 in the elderly population, and the ever rising expectations for higher standards of personal care.

If we can match reform and results to resources, our Budget and Spending Round offer an historic opportunity to put NHS funding on a sustainable footing – not just for a year or two but for the long term. Upholding and improving the NHS not just because it is an institution that is part of our history and our shared values but because, reformed and renewed, it can be the most efficient and equitable guarantee of health care for millions, provide the better choices and service they need and become, for the British people, the best insurance policy in the world: the best for each of us and the best for all of us.

This is the time for people to join the debate.

I believe that, following this debate, we can build a national consensus around making the NHS the best insurance policy in the world.

Below is the text of the speech made by Gordon Brown, the then Chancellor of the Exchequer, in New York, United States, on 19 April 2002.

I am delighted to be here in this great city – speaking to this great new transatlantic organisation – to inaugurate this lecture series in honour of a truly great man, Winston Churchill.

And let me start by paying tribute to you – the British American Business Inc – the work you do, the service you give, and the contribution you make – not just promoting British-American trade but strengthening the historic links between our two nations.

Being back here in New York and seeing its recovery at first hand moves me.

In the seven months since the tragic events of September 11th – like many people in Britain – I have been struck by the resilience and bravery in the face of tragedy that so many living here have shown.

New York is a city of such global reach – the meeting point of a hundred nationalities and more – that it is a human monument to our interdependence.

And this interdependence is clearly demonstrated by the alliance we have forged against terrorism since the events of September 11th. An alliance that confirms the profound and pervasive truth that in the new global economy we are, all of us – the richest countries and the poorest countries – inextricably bound to one another by common interests, shared needs and linked destinies.

Nowhere can this be more clearly seen than in the relationship between Britain and the United States. Travelling to New York from London reminds me of how both America and Britain are stronger because of the shared history that shapes our countries – and because of the shared values that bind us even more closely together.

Indeed for centuries, your land and the islands of Britain have been linked not only by history but by ideals: a passion for liberty and opportunity for all; a belief in the work ethic and in opening enterprise to all; and a commitment to being open not isolationist – a commitment which in our day and for our generation increasingly depends on the shared convictions that economic expansion through free trade and free markets is the key to growth and prosperity.

Last autumn, there was widespread pessimism about the global economy, with fears of a global slowdown or even a global recession.

There was a real danger that each of us would turn inwards and focus on our own country’s domestic concerns at the expense of global cooperation. And some said that globalisation was leading to instability and that we should reign back on our programmes of reform – that it was not the time for change.

But the last six months have demonstrated that these fears have not being realised.

Independent forecasters now expect the world economy to grow faster than they did a few months ago.

And we have seen globally a forward-looking, coordinated response to the events of September 11th, with interest rates brought down and cooperation in the fight against terrorist financing.

Because terrorists intended to bring the world’s financial system to a halt, to undermine the very prospect of global prosperity, we – Governments and business on both sides of the Atlantic and around the world – must continue to show that we will not succumb or surrender to their threats.

I believe that now is the time more than ever to push forward the agenda to improve the stability and confidence of the global economy.

And just as there is growing agreement that as we work together to fight terrorism and to strengthen the international economy, so there is increasing recognition that we must work together to address the causes of poverty – not just because to do so is central to long term national security but because to do so is right – a moral imperative, an economic necessity and a social duty.

In 1946, here in New York, Winston Churchill spoke about the changing relationship between the US and Europe:

“nothing can prevent our nations drawing ever closer to each other”, he said, “and nothing can obscure the fact that, in their harmonious companionship, lies the main hope of the world instrument for maintaining peace on earth and goodwill to all men.”

His words ring with relevance in our own times.

And later, in 1963 in Washington, he said:

“I contemplate with high satisfaction the constant factor of the interwoven and upward progress of our peoples. Our comradeship and our brotherhood in war were unexampled. We stood together and because of that fact the free world stands. Nor has our partnership an exclusive nature: the Atlantic community is a dream that can well be fulfilled to the detriment of none and to the enduring benefit and honour of the great democracies.”

So, as Winston Churchill made clear, it is more than commerce that binds us.

Increasingly, in this age of globalisation, our national goals are shared international goals, our responsibilities are shared responsibilities, and our opportunities are shared opportunities.

And we must not underestimate the good that can be done for the whole world, not least for developing countries, if the relationship between Europe and America is deepened.

So there are continuing challenges that I will focus on today:

How we entrench our new won and hard won stability: we must lead the process of labour, capital, and product market reform in Britain and in Europe and build a new, more open, market across the Atlantic; and

How, at the same time, we meet the challenges of globalisation: we must reform the architecture of global economy to secure prosperity and growth for all.

Stability and enterprise in Britain

The indispensable imperative is stability.

Every time in recent decades when the British economy has started to grow, Governments have taken short?term decisions which too often have created unsustainable consumer booms, and sacrificed monetary and fiscal prudence.

In 1997, Britain needed a wholly new monetary and fiscal framework based on clear policy rules, well established procedures, and an openness and transparency not seen in the past. Hence the independence of the Bank of England, the new fiscal rules, the open letter system, the symmetrical inflation target and our new code for fiscal stability.

And this new framework makes us far better placed than before to cope with the ups and downs of the economic cycle.

That is one reason why in the last five years while other countries have suffered recessions the British economy has maintained economic growth. Last year Britain was the fastest growing economy in the industrialized world, with the lowest unemployment since the 1970s and the lowest interest rates for nearly 40 years.

Having weathered the storm I am cautiously optimistic. And while risks remain and we will maintain our disciplined and forward looking approach, I am more optimistic now than when the IMF last met last autumn and believe that this is a time of real opportunity and challenge for not just the British but the global economy.

As I stated in my Budget earlier this week, we will continue to pursue a symmetrical inflation target of 2.5 per cent. And monetary policy will continue to be backed by a sound and long-term approach to fiscal policy. In order to meet our fiscal rules and fund sustained improvements in our health care over the next five years, I have raised National Insurance from next year, but the Government has insisted on a programme of radical reform in health and social services to ensure the public experiences and sees better care services.

But we all know a truth – a truth increasingly understood across the world – that our shared aims for long-term prosperity and social justice with strong public services depend upon rising productivity, growth and economic reform.

We need across the economy to accelerate the productivity improvements that will increase output, jobs and wealth.

So – far from deferring our enterprise agenda – this is exactly the time to press ahead with reforms to encourage new investment and higher productivity.

Building on our supply-side reforms to remove barriers to growth – a new competition policy, a new approach to physical planning policy, new rules for work permits, our education reforms – my focus in the Budget was on measures that encourage higher levels of innovation and investment; and to help small and growing businesses:

– a new research and development tax credit for large companies;
reform of substantial shareholdings and tax relief on intellectual property;

– historic cuts in Capital Gains Tax to 10 per cent for business assets held for 2 years;

– new cuts in Corporation Tax so that small companies with taxable profits of less than 10,000 pounds pay no corporation tax;

– simplification of the VAT system and help for small businesses to bring their payroll systems online;

– and new measures to promote skills.

Stability and enterprise in Europe

But it is not just in Britain but in Europe as a whole that both a modern route to economic stability and a more entrepreneurial economy is needed.

At the European council in Barcelona, Britain pressed for the reforms of product, labour and capital markets that we believe are essential:

– to complete the single market in financial services – boosting EU GDP by as much as 0.5 per cent per year – we set a rigorous timetable for reform;

– to open up the European energy market, all member states have agreed to liberalisation of their non-domestic gas and electricity markets by 2004;

– to adopt a more strategic approach to research and development, we will improve the use of intellectual property rights;

– and to boost enterprise – because the EU has much lower survival rates for new businesses than the US – we will reduce red tape for firms and improve consultation with business.

And over the coming months, we will continue to drive forward these reforms to ensure that we see concrete results, for both business and consumers.

As in Britain, the euro area has also been establishing a new framework for economic stability.

Our approach on Britain’s membership of the European single currency is – and will continue to be – considered and cautious: one of pro-euro realism.

Pro-euro because, as we said in 1997, we believe that – in principle – membership of the Euro can bring benefits to Britain.

Realist because to short-cut or fudge the assessment of the five tests we have set out, and to join in the wrong way or on the wrong basis without rigorously ensuring the tests are met, would not be in Britain’s national economic interest.

Around the future of the Euro there is, of course, an ongoing and wider debate on the future of Europe: a debate on economic reform amidst the challenge of globalisation; enlargement into the east; and the wider agenda for 2004, to make decision-making in Europe more open, accountable and relevant to the population as a whole.

At one time the case for Europe was simply peace – the opportunity to set aside old enmities and feuds, to contribute to a mission that has helped secure half a century of peace in western Europe, and is now helping to cement peace and democracy in central and eastern Europe as we have done in the west.

But today the case for Europe must be not only that, working together, we can maintain peace but that, working together, we can maximise prosperity.

Indeed the more Europe extends its single market, the better it is for the prosperity of Europe and the world.

The more Europe embraces economic and institutional reform, the better it is for all.

The more Europe looks outwards, the better it is for all.

And indeed the more Europe and America work closely together, the better it is for Europe, America and the world.

And we must not let slip the unique opportunity we have to build stronger relationships.

Let me explain.

The transatlantic relationship

In the post-1945 period the shaping of the European Common Market took place in the shadow of war, as our predecessors resolved to move forever beyond the recurring and devastating conflicts of the past.

Today, there is a second reshaping of Europe happening not just as a result of the internal forces making for enlargement, but in response to vast global changes.

Over the last 30 years, world trade has increased from around $300 billion to $6,000 billion: a twenty fold increase; the amount of international capital from around $250 billion to over $24 trillion: a ninety-six fold increase. And foreign investment has increased from around $10 billion to over $1,000 billion: a one hundred fold increase.

One particularly astonishing change has been the growing economic interdependence between Europe and the US. The annual two way flow of goods, services, and foreign direct investment between the United States and Europe is now nearly a trillion dollars. One fifth of total US merchandise exports, and one third of total US services exports go to the EU. And in one decade direct European investment in the USA has increased more than ten fold.

But are we making the most of these opportunities?

With the seismic shifts brought by the Cold War’s end – and the new challenges symbolised by the events of September 11th – all nations had to reconsider the geopolitical landscape, reassess their positions, and rethink their relationships in this very new world.

That is a smart, sensible and essential thing to do.

But it would be tragic indeed if the annals of the future record that the late 20th century, when history turned towards freedom, was succeeded in the early 21st century by a regressive period in which those who had carried the cause of freedom turned inwards.

So I want to answer those voices on both sides of the Atlantic who believe that detachment is preferable to partnership; that isolation is more secure than a wider and deeper alliance. In short, all those who wrongly believe that somehow in the post-Cold War world, Europe and America need one another less, not more.

I could not disagree more profoundly – not merely with such arguments as expressed but with their very premise.

Neither America nor Europe has fully grasped the moment for a new age of economic interdependence – the full realisation of Winston Churchill’s vision.

But I believe that the conditions now exist for the expansion of our economic partnership – not just incrementally, but comprehensively increasing the trade and commercial links between the EU and the USA.

So instead of the end of the Cold War and the advent of new challenges inviting a weakening of transatlantic ties, this is the time for a new era of enhanced engagement between America and Europe – a new transatlantic alliance for prosperity.

We in Britain and Europe plainly disagree with the new restrictions the United States have imposed, unjustifiably in our view, on steel imports. The EU is taking our case to the WTO.

But we must not let steel, however strongly we feel; banana exports, however strongly the United States has felt; or, to cite another example, the genetically modified product – become sad symbols of a frayed transatlantic trade relationship. Nor must we let one dispute over a merger, however large, or another dispute over a sector, however important, obscure the scale of two-way investment and trade across the Atlantic which amounts to over $2 billion each and every day.

It has been estimated that the annual income gain to the EU from a transatlantic marketplace would be of the order of 1.1 per cent of EU GDP – or $140 billion – and for the US 0.5 per cent of GDP, the equivalent of the estimated US gain from NAFTA.

And the gain together for the EU and the US if we also eliminate industrial tariffs on an MFN basis could be as high as $150 billion a year – a figure that means more prosperity and more jobs for both continents.

So there are potential gains in total of nearly $350 billion.

I believe that what we need now is a programme to turn this vision into reality.

Specifically, we must establish a framework for deeper integration. In 1988, when Europe was at the outset of the huge project to move towards deeper economic and trade integration via the creation of a genuine single market, we commissioned the so-called Cecchini Report that examined in depth, and quantified the economic potential that a single market entailed. The figures were so impressive that European policy-makers saw the necessity of moving forward, and could explain to their citizens what was at stake in terms of growth, jobs and prosperity from changes which, at the time, looked dauntingly difficult.

I believe what we need now is a Cecchini-style report that investigates the potential benefits for growth, prosperity and jobs on both sides of the Atlantic from a wide-ranging effort to tackle all the remaining barriers to a fully open trading and commercial relationship between Europe and America.

Preliminary studies show that removing bilateral tariff and non-tariff barriers in goods and services could raise employment by 1.3 million in the EU and cut EU prices by at least 2.5 per cent. And even by only removing tariff barriers on protected goods the US could gain up to 300,000 jobs.

With high level political commitment we can then make a wide-ranging effort to end the remaining industrial tariffs multilaterally, achieve deeper liberalisation of trade in services, remove unnecessary non-tariff barriers, increase competition and develop more effective ways of pre-empting damaging transatlantic trade disputes.

Because in some areas reform cannot wait, we must, without delay, implement a rolling programme of initiatives, endorsed by both sides. I have discussed this with EU trade Commissioner Lamy and I particularly welcome his and US Trade Secretary Zoellick’s efforts to draw up a list of priority issues. We must launch this process by agreeing our priorities at the EU-US summit in May.

Action in areas such as financial services, common accounting standards, e-customs, trademarks and public procurement should be pursued now.

To take one example – in the area of financial services we should establish a new EU/US structure for regular consultation on bilateral issues. This “financial services dialogue” should promote better understanding, seek to avoid future conflicts, address bilateral market access and regulatory issues, and examine possibilities for mutual recognition, such as in the electronic delivery of financial services.

And we must extend the transatlantic economic agenda to regulatory cooperation so that domestic regulations do not put up new barriers to trade. If we do not act now, regulatory disputes will become the greatest strain on our economic relationships.

The same is true also of direct investment. We must continue to look for opportunities to remove barriers to investment, cutting legal and administrative burdens for business; and we must also continue to guard against new legislation that erects new barriers.

So we need more cooperation between our Governments to assess the impact on trade and investment before legislation is introduced, and we need better early warning mechanisms to alert us to possible conflicts. When disputes do occur we must move away from damaging old style retaliation and move to a rational system of compensation in the form of tariff cuts as the first choice remedy. That is the best way to balance domestic regulation with transatlantic economic integration.

But deepening the transatlantic economic relationship should not be and must not be at the cost of an ambitious multilateral agenda.

Indeed the scale of our interdependence makes the case that Europe and America together not only create the stability and growth upon which the world economy depends, but that it is possible by common endeavour for that stability and growth to be enhanced to benefit not just our nations and regions, but all nations and all regions.

So our first great challenge is to move forward the economic reform agenda – both at home and abroad – and take advantage of the opportunities offered by a strengthened transatlantic relationship.

But our second challenge – what I want to discuss in the remainder of my speech today, in advance of the spring meetings of the IMF and World Bank in Washington this weekend – is to forge a new deal for the global economy: a new strategy for prosperity based on new obligations but also new opportunities for developed and developing countries, the international financial institutions and the private sector.

The ideals of Bretton Woods

In Churchill’s time, more than half a century ago, leaders who were still engaged in global war took the time to prepare for global peace and prosperity. In a breathtaking leap into a new era, the world created not just new international institutions – the IMF, the World Bank, as well as the UN – and a whole set of new rules for a new international economy, but gave expression to a new public purpose based on high ideals.

A generation of leaders who had known the greatest of depressions and the greatest of wars knew also that just as peace could not be preserved in isolation, prosperity could not be maximized in isolation.

Bretton Woods defined a new public purpose characterised by high ideals. The conference was about more than exchange rates, the mechanics of financial arrangements or even new institutions. As the American Secretary of the Treasury said at the very start of the opening session:

“prosperity has no fixed limits it is not a finite substance to be diminished by division. On the contrary the more of it that other nations enjoy the more each nation will have for itself.

“prosperity like peace is indivisible. We cannot afford to have it scattered here or there amongst the fortunate or enjoy it at the expense of others…”

So the post-war arrangements were founded on the belief that global action on a new and wider stage could advance a new and worldwide public purpose of high ideals rooted in social justice: to achieve prosperity for all by each co?operating with every other: new international rules of the game that involved a commitment to high levels of growth and employment. In short, the job of every economy was to create jobs for all.

The challenge for us today

What our predecessors did for the post-war world of distinct national economies we must now do for the global economy where economically no nation is an island and where the social and political dimension of economic crises can be far reaching.

Our aim must be an international financial system for the 21st century that recognises the new realities – open not sheltered economies, international not national capital markets, global not local competition. It must be one that captures the full benefits of global markets and capital flows, minimises the risk of disruption, maximises opportunity for all and lifts up the most vulnerable – in short, the restoration in the international economy of public purpose and high ideals.

Some critics say that the issue is whether we should have globalisation or not. But in fact the issue is whether we manage globalisation well or badly, fairly or unfairly. And we have a choice.

Managed badly, globalisation can – and will – leave millions of people in the developing world marginalised. But managed wisely, it can lift millions out of poverty and become the high road to a just and inclusive global economy.

Many benefits have already been secured from globalisation – since 1970, life expectancy in developing countries has increased by nearly ten years, child mortality has almost halved and the proportion of people who can’t read or write has reduced by a quarter.

But millions are still excluded – half the world’s people live on less than $2 a day, one in five children don’t go to school and preventable diseases like malaria and TB kill seven million children every year.

But whatever our concerns about the sheer scale of the challenge of globalisation, we must reject the false choice between retreating from globalisation to old protectionist ways or clinging to the discredited laissez faire of the 1980s. To succumb to either temptation would hurt both the powerless and the prosperous.

Instead, the way forward is not to cut cooperation across the world but to strengthen that cooperation, modernising our international rules and reforming the institutions of economic cooperation to meet the new challenges. And in doing so create a global economic system which recognises the rights and responsibilities of all the parties involved.

So we need to step up the reforms that will help create a new stability and purpose in the international financial system, focusing on challenges in three main areas.

First, a new framework for better economic decision-making and crisis prevention, based on greater openness, transparency and increased surveillance;

Second, effective, speedy and decisive procedures for crisis resolution; and

Third, helping the poorest countries compete and engage in the global economy by creating the right conditions for trade and investment, and putting in place mechanisms for a decisive transfer of additional resources from the richest to the poorest countries.

In short, we need a new deal for the global economy which seeks to build a virtuous circle of stability, growth and development.

First, a new framework for maintaining stability and preventing crises

In a world of ever more rapid financial flows, we know that capital is more likely to move to environments, which are stable and least likely to stay in environments which are, or become, unstable. And such flows today are swifter than ever they have been before. And we know that countries who need capital most are, at the same time, the most vulnerable to the judgements and instabilities of global financial markets.

So for every country, rich or poor, macroeconomic stability is not an option but an essential pre-condition of economic success. And I have become convinced that it is in the interests of stability – and of preventing crises in developing and emerging market countries – that we seek a new rules-based system: a reformed system of economic government under which each country, rich and poor, has a responsibility to adopt agreed codes and standards for fiscal and monetary policy for the financial sector and for corporate governance.

This adoption of clear transparent procedures – essentially new rules of the game – in monetary and fiscal decisions – for example, presenting a full factual picture of the national accounts, usable central bank reserves, foreign currency borrowings, and indicators of the health of the financial sectors – would improve macroeconomic stability, deter corruption, provide to markets a flow of specific country by country information that will engender greater investor confidence and reduce the problem of contagion.

The adoption of codes and standards is not, as some have argued, a modern version of imperialism – demands from the rich countries on the poor in the interests of the rich. For all countries – rich and poor – would be responsible for operating the codes and standards and they are a means to fairness for all – with markets working more effectively in a more secure and transparent environment, advancing the public interest, and securing growth and prosperity.

Codes can also support countries along the way to liberalisation of their capital markets, helping to avoid destabilising and speculative inflows. A dash to full capital liberalisation was once thought of as the best signal of a modernising economy. But we know that instability often followed. Our approach – the introduction and operation of transparent codes and standards with proper sequencing of capital liberalization – is a better guarantee of both an investment friendly environment and long-term stability.

Implementing these codes will mean radical changes in the way governments and financial markets operate. So just as I believe that – over time – the implementation of the codes by individual nations should be a condition for IMF and World Bank support, I also believe that the international community has a responsibility to offer direct assistance and transitional help for early implementation.

And where countries do operate transparent and effective systems, fully monitored by the international community, they have the right to expect the support of the international community if hit by financial contagion. These rights and responsibilities are now enshrined in the IMF’s contingent credit line: a commitment to countries implementing sound economic policies that the international community will stand by them if the markets turn against them.

The CCL should be seen as an attractive tool to help country’s prevent crises and the IMF should take a more pro-active approach to encourage countries to benefit from this facility:

– assessing, through the surveillance process, which countries are in a position to benefit from the CCL; and

– explaining the benefits of the CCL and encouraging countries to take the steps needed to advance to a position where they can benefit.

But I believe we need to go further. The IMF should review the design and operation of the CCL, and consider how it can be enhanced to encourage maximum take-up, to ensure it becomes, as intended, a cornerstone of the IMF’s crisis resolution capacity.

Codes and standards will only work if there is an effective surveillance mechanism to monitor implementation so that the public has confidence in the transparency on which stability depends.

In the past we have seen the IMF as firefighters. Now with the codes and standards and countries required to report all the relevant information, the IMF’s role and responsibility will be to identify potential difficulties before they become major problems.

The crises of the 1990s in Latin America and Asia – and now Latin America again – have demonstrated that surveillance and vigilance cannot be based on ad hoc arrangements.

The IMF Article IV surveillance process is already an invaluable international asset – indeed it has some of the characteristics of a global public good. And it has a crucial responsibility to identify the policy environments that are likely to prove unsustainable – poor financial regulation, an inappropriate exchange rate regime, a government budget or balance of payments deficit in danger of spiraling out of control – and identifying them early so preventative action can be taken.

Over recent years we have seen greater openness in publishing Article IV assessments and their press notices; set up the independent evaluation office; and established the Article IV process at the centre of the monitoring of codes and standards.

But there is a case for doing more.

Enhancing the IMF’s role in Article IV surveillance of the world economy – making it more transparent, more independent, more accountable and, therefore, more authoritative – would contribute to greater stability and ensure it is seen to be providing impartial advice independent of the inter-governmental decision-making process. Whilst governance of the IMF and decisions about financial support for countries are, of course, matters for its board, there is now a case for enhancing the IMF’s surveillance and monitoring functions so that surveillance is – and is seen to be – independent of decisions about crisis resolution.

I believe we must implement reforms to promote:

– greater independence: ensuring the fund applies objective, rigorous and consistent standards of surveillance to all member countries, and that there is a clear separation between surveillance and lending activities;

– greater transparency: introducing the presumption that all surveillance reports by IMF staff will be published when they are presented to the board; and that concluding statements will be published at the end of each surveillance mission; and
greater accountability: with the IMFC setting a surveillance remit;

– IMF management reporting each year on the Fund’s performance; and an annual assessment by the IMFC of the effectiveness of Fund surveillance.

This weekend we shall call on the Fund to prepare concrete proposals to strengthen surveillance and report back to this year’s annual meetings.

But in the modern world of global capital flows, surveillance needs to look beyond national boundaries.

To tackle national financial sector problems which have international repercussions, the Financial Stability Forum – which brings together the combined expertise of the IMF and key regulatory authorities – should evolve into an effective early warning system.

These new responsibilities for openness and transparency must also apply to the private sector. Building on the international standards of best practice for multinational companies drawn up by the OECD, on the global compact – introduced by Kofi Annan in 1999 – and on the global reporting initiatives – through which one hundred major companies already report their activities – multinational companies should assess and make public their economic and social impact in developing countries.

But crisis prevention depends not only on spotting problems early but on providing the right incentives for lenders to take responsible decisions and minimise the risks of self-fulfilling crises of confidence which can do untold damage. When trouble hits an economy, or one of its neighbouring economies, private sector investors must be prepared to do more than simply pull money out and accelerate the panic.

So with codes and standards the foundation, and more effective systems for surveillance built upon them, including new responsibilities – for governments to be open, for the IMF to scrutinise and for the private sector to engage – there is a real opportunity now to provide a guarantee of both an investment friendly environment and long-term stability.

Our second challenge is crisis resolution

Because however successful we aim to be at avoiding crises, we should recognise that, from time to time, crises will happen, so we need to ensure there are effective methods in place for crisis resolution, in a way that will ensure the burden of adjustments is not placed on the poorest and most vulnerable.

Each time the international community encounters a national financial crisis, it is faced with the dilemma of either standing aside or putting taxpayers money at risk bailing out lenders. There is a better way.

The IMF is now meeting the call from Governments, academics and debt campaigners, for a new system to deal with unsustainable private debt in vulnerable countries.

The way forward is both clear and urgent.

We need radical reform of the contractual arrangements for debt. Debt contracts which specify the arrangements for collective action to re-negotiate terms when it is clear that a restructuring is necessary can help countries reach a speedy resolution with their creditors, protecting against rogue creditors and vulture funds. The UK Government has already agreed to include collective action clauses in our own foreign currency denominated debt. I call on other countries to follow this lead, to agree new standards for international best practice in sovereign debt contracts and a strategy for encouraging their adoption worldwide.

Next – since there will be extreme circumstances in which countries will be unable to meet their obligations even over time, and a voluntary agreement with creditors is not possible, despite best efforts – the international community should be prepared, where other reasonable options have been exhausted, to support a country that must impose temporary capital controls, or a standstill on its debts, as part of an orderly process of crisis resolution.

We also need to be much clearer about the normal limits to IMF financing, and set more transparent and objective criteria for going above the limits. We cannot send a message that bad decision-making by lenders is encouraged by the expectation of an unlimited bail-out by taxpayers, or bad policies by debtor countries will be condoned by more financial support by the international community. We must provide more certainty about the respective roles of the private and official sectors in a crisis situation.

Finally – as the IMF’s First Deputy Managing Director has proposed – we need to continue work on a new, more comprehensive, legal framework – an international bankruptcy procedure. While much can, and must, be achieved in the absence of legal changes, we know from our experience of corporate bankruptcy arrangements that an independent process for adjudication is necessary for an orderly and comprehensive resolution to occur.

Under this new framework, it should be the duty of countries to inform, the duty of international financial institutions to monitor and make public and the duty of the private sector and the official community to engage.

In this way we can move from letting crises happen and then intervening to a new paradigm:

– systems that in themselves diminish the likelihood of crises;

– earlier awareness as difficulties arise; and

– more measured orderly responses when crises have to be resolved.

But stability is only the precondition.

Our third challenge is to ensure that the poorest countries have the capacity to compete and engage in the global economy so they can earn a fair share of the benefits of global prosperity

Open, transparent and accountable national policies, internationally monitored, are the foundation for macroeconomic stability. But to ensure growth and development, we must also take steps to promote investment and make progress on trade.

The least developed countries suffer a double handicap of low foreign investment – around $35 a head compared with $805 in higher income countries – and low domestically generated savings and investment.

To encourage greater investment – both domestic and foreign – developing countries must work to establish a more favourable business environment. Already the country-owned poverty reduction strategies – imaginatively led by Horst Köhler at the IMF and Jim Wolfensohn at the Work Bank – are focusing on creating the right domestic conditions for investment and have highlighted the importance of:

– investment in infrastructure;

– sound legal processes that deter corruption;

– and the creation of an educated and healthy workforce.

As good practice emerges, the lessons learned from country-by-country experiences can region-by-region be applied. I therefore propose investment forums, bringing public and private sectors together to share best practice, examine the current barriers to investment and seek to build consensus on how to secure higher levels of business investment and intra-regional trade.

In the last forty years, those developing countries that have managed to be open and trade have seen faster growth rates than closed economies. Indeed, it is a matter of record that in the last half century no country has managed to lift itself out of poverty without participating in the global economy.

Full trade liberalisation could lift at least three hundred million people out of poverty by 2015. Even diminishing protection by fifty per cent in agriculture and in industrial goods and services would increase the world’s yearly income by nearly $400 billion: a boost to growth of 1.4 per cent. All countries and regions stand to benefit, with developing countries gaining an estimated $150 billion a year and higher than average increases in GDP growth.

That is why we strongly welcome the WTO agreement in Doha to launch a new trade round focused on development. And in the next phase we must take forward the agreements to open up trade in agriculture, build the capacity of developing countries to participate more effectively in the negotiations and open up greater access to medicines.

Indeed all developed countries should offer access to all but military products from the least developed countries and by banning export credit guarantees for unproductive expenditure discourage and diminish the diversion to arms expenditure of resources needed for education and health.

Codes and standards, investment and trade all play a part, but there cannot be a solution to the problems developing countries face without a substantial increase in development aid to those nations most at need and willing to focus on the fight against poverty.

Huge progress was made at the UN Financing for Development conference in Monterrey last month. The European Union agreed to increase the proportion of its national income going to development assistance from an average of 0.32 per cent to 0.39 per cent, generating an extra $20 billion in total between now and 2006 and at least an extra $7 billion a year thereafter.

And we welcome President Bush’s announcement of $10 billion more in aid between 2004 and 2006, and an additional $5 billion a year thereafter – a fifty per cent increase in US aid levels.

Together, these pledges mean that, from 2006 onwards, the US and Europe will be contributing an additional $12 billion a year for education, health and anti-poverty programmes in our poorest countries.

But more must be done.

The Zedillo Report, whose authors included several prominent Americans, costed meeting the Millennium Development Goals – including halving world poverty, cutting child mortality by two thirds and guaranteeing every child primary education – at a total of $50 billion a year up to 2015, including $20 billion for anti-poverty programmes and nearly $10 billion for education.

We must agree a new development compact that will ensure that no developing country genuinely committed to poverty reduction, good governance, investment in human capital, economic reform and private sector development, should be denied the chance to progress because of lack of finance.

Key to this is for both developed and developing countries to increase aid effectiveness.

Developing countries have an obligation to show that the funds they receive are properly and effectively used. As a condition of aid, they must end corruption, meet their obligations to pursue stability and create the conditions for new investment, and ensure that resources go effectively and efficiently to fighting poverty.

And, by insisting on untying aid by developed countries from the award of contracts, more effective in-country use of aid and better collaboration among donors, current aid could be made fifty per cent more efficient, releasing substantial extra funds for anti-poverty programmes in the poorest countries.

At the same time, developed countries have a responsibility to move from providing short term aid just to compensate for poverty to a higher and more sustainable purpose, that of aid as long term investment to tackle the causes of poverty by promoting growth.

But this alone will not be enough. We need a new and creative way to reach the $50 billion target.

By channeling the extra resources promised at Monterrey internationally – possibly through an International Development Trust Fund, with national government offering a guarantee – either through callable reserves or appropriate collateral as security – additional aid contributions could be levered up to raise extra funds.

For every dollar contributed to the Trust Fund, it would be possible to lever in two or three dollars more. In this way each year $50 billion could be made available to the poorest countries for investing in economic development.

These proposals are challenging but they are achievable.

This weekend at the spring meetings of the International Monetary Fund and World Bank, I will be asking each country to accept their responsibilities and go further than they have been prepared to go in the past.

Conclusion

Not since Bretton Woods has a generation had so broad a challenge in the global economy – and such profound responsibilities.

We each have a part to play:

– as Governments keeping our economies in order and reaching out to the wider world;

– as businesses fully engaging in the global economy as reliable and consistent partners and adopting high corporate standards;

– and as an international community which now more than ever, must become a forum not just for debating issues but for reaching decisions and implementing them.

The challenge is immense. But in the Bretton Woods spirit, the answer is not to retreat from globalisation.

It is not for Britain to stand off from Europe, or for Europe and America to withdraw from each other, or for the advanced nations to neglect those left behind.

Instead we must build an integrated transatlantic market while advancing economic reform and social justice on a global scale to the benefit of all. And we must do so with more global cooperation not less, and with stronger not weaker international institutions.

We must realise Winston Churchill’s vision of interdependence – which once seemed a distant vision, but in truth saw so clearly into the future. And we must extend its possibilities not because it will benefit some but because it will benefit all.

Below is the text of the speech made by Gordon Brown, the then Chancellor of the Exchequer, at the Odyssey Centre in Belfast, Northern Ireland on 2 May 2002.

It is a great privilege to be back in Northern Ireland, to be in Belfast with the Prime Minister, and to congratulate all those who throughout the troubles, through dark days and dark years, have kept alive the dream of peace with prosperity: men and women of courage and foresight who have invested in Northern Ireland, who have built up businesses; men and women of courage and foresight who have worked together to tackle social tensions in some of the worst-hit unemployment areas of Northern Ireland and who through their actions have brought hope.

And it is a result of the hard work, the enterprise, and the commitment of thousands of men and women at work in Northern Ireland – mangers and employees – that since 1997 Northern Ireland has grown by 10 per cent, inward investment has continued to expand, and 22,000 new jobs have been created with employment today at record levels, and unemployment half what it was five years ago and at its lowest since the mid 70s, after the largest fall of any region in the UK.

I would like to thank the First Minister, David Trimble, and the Deputy First Minister, Mark Durkan, and the work of the Northern Ireland Executive together with the Secretary of State, John Reid, through their determination and hard work in partnership with the men and women of Northern Ireland for making – what may have seemed a distant dream 4 years ago – a reality.

And today I wish to reinforce your efforts for prosperity with an economic settlement for Northern Ireland that backs up the political agreements you have reached: a new economic settlement that in the spirit of devolution:

– releases new funds for economic developments that you wish to make;

– offers the Northern Ireland Executive new powers to lead in ensuring greater prosperity;

– sets up new economic institutions that can advance economic prosperity;

– and proposes a long term strategic way forward for Northern Ireland’s public services.

First, ex-army bases and prisons scar Northern Ireland’s landscape and symbolise the period of conflict.

We want these sites to symbolise peace and prosperity and become the engine of economic and social regeneration in local areas.

I can announce that the Maze Prison, Ebrington Barracks, Crumlin Road Gaol; and security bases at Magharafelt and Malone Road Belfast will be transferred to devolved control within Northern Ireland, free of charge to be redeveloped.

In place of the symbols of the old conflict and despair, there will be symbols of the new progress and hope — barracks and prisons of the past replaced by businesses and prosperity for the future.

Later this year I will announce the Government’s spending settlements for the three years up to 2006.

But in advance of this announcement and in addition to it, and as a special initiative to accelerate the development of the social and economic fabric of Northern Ireland now, we are today making available £200 million for reinvestment and reform in public infrastructure in the following way.

The Northern Ireland Executive will, for the first time, have new powers to borrow on its own account – raising spending power and offering greater economic freedom to make important decisions about new investment in infrastructure and public services.

And in the spirit of devolution, it will be for the Executive to decide how far and how fast to make use of this new flexibility.

But over the next two years they will be able to finance borrowing of up to £125 million from what is already raised from Northern Ireland ratepayers. A further £75 million will be made available from the Northern Ireland Executive in un-allocated resources for new investment in infrastructure.

And I hope that consistent with the peace process there will be particular emphasis on cross community projects. Not only communities working together and sharing in the prosperity of Northern Ireland, but shared facilities developed to foster, for example, partnership between Protestant and Catholic schools.

Third, setting plans for the long term.

Too often we have had to take short-term decisions for short term and immediate reasons.

It is now time to take a long-term view – breaking from the short-termism of the past to set economic plans for the long-term, for an era of peace and prosperity.

And it is time to put in place a mechanism that will not only prepare the ground for a Northern Ireland of greater prosperity but also send a signal round the world that the economic focus for Northern Ireland is one of building for the future together.

In the last few months we have been working with the First and Deputy First Ministers, on behalf of the Executive, to help develop plans that would bring together all the necessary skills, management and finance expertise to ensure not only best value from the additional investment being made available, but enabling Northern Ireland to make public funds go further: drawing on best value, allowing public and private sectors to work together for public interest objectives.

The First Minister will be setting out the Executive’s plans in more detail. But I can announce that with their agreement we will make provision for a Strategic Investment Body for Northern Ireland responsible for:

– clearing the backlog of urgent work necessary;

– offering a strategic and fully coordinated approach to infrastructure investment in public services;

– bringing together, within one centre of excellence, the best expertise available;

– working in partnership with the private sector matching new investment with modernisation and reform to achieve best value
helping to raise growth and competitiveness to the benefit of the people and business community of Northern Ireland.

But this new momentum for reinvestment must be matched with reform.

And just as in Britain we are demanding modernisation to match investment to achieve the best results in health care – so too here in Northern Ireland we know that reinvestment, including in our public services is to be matched with reform. Through more efficient use of resources and better managed services, delivering best value for money and high quality investment for the people of Northern Ireland.

This initiative represents a further example of devolution: the centre letting go in the interests of local power – local people making local decisions about local needs. Not just for health, social services and education but about the development of the Northern Ireland economy in the years to come.

The message is: if you want to develop in Northern Ireland, grow your business in Northern Ireland, invest in Northern Ireland we are on your side, ready and willing to help you, as we ourselves invest in the long term future of Northern Ireland.

The Good Friday Agreement offered peace for Northern Ireland – a way out of 30 years of violence. The economic settlement we are announcing today – a new economic settlement that in the spirit of devolution releases new funds; offers new powers to lead in ensuring greater prosperity; sets up a new economic institution; and proposes a long term strategic way forward – is a concrete demonstration of what can be achieved with devolution and offers faith in the future: the chance to build peace with prosperity, and to create an economy of opportunity for all.

So we can look forward with new hope to an era of opportunity, leading Northern Ireland to a new age of achievement.

Below is the text of the speech made by Gordon Brown, the then Chancellor of the Exchequer, to the AMICUS Conference in Blackpool on 10 June 2002.

Today I want to talk about the National Health Service, full employment, the future of our economy, and our international agenda.

National Health Service

I believe that the case for the NHS system of funding – free at the point of need – is not weaker but stronger now than it was even in 1948 when it was founded.

Look at what your members faced in 1948 and now.

In 1948, the scientific and technological limitations of medicine were such that high cost treatments and surgery were rare or very rare:

– no chemotherapy for cancer;

– cardiac surgery was in its infancy;

– intensive care barely existed; and

– hip and knee replacement almost unknown.

Now, the standard of technology and treatment is such that unlike 1948 some illnesses or injuries could cost £20,000, £50,000 or even £100,000 to treat and cure, and some drugs cost as much as £8000 per prescription.

Because these costs of treatment and of drugs are higher than ever, the risks to family finances – if there was in Britain a requirement to pay privately – are greater than ever, not just for poorer families but for comfortably off families up the income scale. And therefore the need for comprehensive insurance cover of health care stronger than ever.

So I would say that in 2002 it is because none of us ever know in advance whether it is you or your family that will need that expensive care for acute or chronic illness that the best policy is clearly an insurance policy that offers cover to all of the people, whatever their income, for all illnesses and diseases without the ifs, buts and small print of private insurance policies.

So while some present the current NHS system of funding as an ideological hand-me-down, to be supported only out of sentiment rather than hard headed calculation; and while others dismiss the NHS funding system as an impossible dream – “fine in principle, a failed experiment in practice”; we now need to campaign to show people that the NHS system of funding – comprehensive and inclusive insurance with treatment free at the point of need – is demonstrably the modern rational choice: the best insurance policy in the world not just for poor or low income families in Britain, but for the vast majority of families in Britain. Not just for today but for tomorrow too. And more so than in 1948.

The issue now is between those who want to invest in the NHS and public services and those who want to charge and introduce private insurance.

I believe we should now expose the costs and inequity of private insurance – under which typical family premiums in the United States are around £100 pounds a week, rising by 13 per cent a year, and 40 million Americans are left uninsured – and thus insure only some of the people for some of the time when we wish to insure all of the people all of the time.

And I believe we should together expose the costs and inequity of charging for clinical services – £8,000 for a hip replacement, £40,000 for a heart transplant, £10 for a visit to a GP or to stay for a day in hospital – the unfairness of the sick paying for being sick.

And so I want to ask you today to help us ensure that we continue to prevent the introduction of a private system under which poverty would bar the entrance to the best hospitals; under which the only health care you could be sure of is the health care you were able to pay for.

And so let us affirm that it is because we recognise the rising costs of health technology, the risks that any family in this country face to their health, and the equity and efficiency of the NHS tax funded system that, for us, a reformed and renewed NHS – with the largest sustained increased investment in any decade of its fifty year long history – must be and remain a public service free at the point of use with decisions on care always made by doctors and nurses on the basis of clinical need – the best insurance policy in the world.

Economic stability and employment

The foundation of our sustained increases in public investment in health is economic stability not boom and bust.

It is because we rejected short-termist free for alls, the take-what-you-can, irresponsibility – and it is because we put faith in our values of economic responsibility – building from solid foundations, looking to the long term – that with Bank of England independence, tough decisions on inflation, new fiscal rules, hard public spending controls, we today in our country have had economic stability not boom and bust, the lowest inflation in Europe, long term interest rates and mortgage rates for homeowners lower than for nearly 40 years.

It was not by lucky chance but by difficult choices that we now have a more stable economy. And we will continue to reject the soft options, the quick fixes and short-termism in favour of a foundation of economic stability that enables us to move towards our goal – the goal we share – of full employment.

Since the time I went to school and grew up beside a mining community – since the first factory closure I remember being announced in my home town – and for a whole generation – our lives have been dominated by unemployment: long-term unemployment, youth unemployment, the fear of unemployment, the poverty and insecurity caused by unemployment.

I remember when I first became an MP a young couple coming to see me, both in tears, who having lost their jobs, knew they would lose their homes too.

I remember too the tragedy of the miners in my constituency, steel workers, dockyard workers, transport workers, engineer workers – redundant in their forties who feared they would never work again.

20 years ago, 10 years ago, even 5 years ago young people tried as hard as now to find work – they were applying for jobs, they were training for jobs. Don’t tell me these generations of young people didn’t have talent or potential, couldn’t learn or hold down a job. What they needed was a government on their side.

So the day we came into government we acted – starting with a windfall tax to pay for our New Deal. And I say it was right that £5 billion be transferred from the richest utility companies in our land to create employment opportunities in the poorest and most deserving communities of our country.

If only one person had benefited from the New Deal that would have made it worthwhile. But in total 660,000 people, two thirds of a million of our fellow citizens have benefited.

Every time a young person denied a job under the previous government gets a job under this one we should be proud of the New Deal – that this is what can happen when we work together.

In the mid eighties 350,000 young people were unemployed for more than a year.

Today it is 5,000.

And I can report to you today that the full total of jobs Britain has together created since 1997 is 1 million 500 thousand jobs – more people in work today than at any time in the history of our country.

Unemployment among men the lowest since 1979.

Unemployment among women the lowest since 1976.

Youth unemployment now the lowest since 1975.

Long-term unemployment now the lowest since the early 1970s.

But as long as there is unemployment we will not be complacent.

So let us send the message from this conference: that the next stage is to do even more to help those people and those places still too often forgotten and left behind.

Because too many disabled people are denied the right to work, we have introduced the New Deal for the disabled and a guaranteed minimum in-work income for disabled men and women of £194 a week to give disabled people denied chances in the past – to develop their talents and potential to the full.

Because for too long too many lone parents have been denied the right to live their lives as they want, we have put in place a new programme of choices, underpinned by a national child care strategy to push up employment rates from just over 45 per cent when we came to power to 70 per cent by 2010.

Because for too long too many people have had doubts about whether it is worth their while working, we will make work pay: building on the Minimum Wage, from next year we will introduce a new Working Tax Credit to tackle poverty in work.

So, for the first time, there will be a minimum income for all those in work over 25 – creating a tax system where the rates range from 40 per cent at the top to minus 200 per cent as we create fairness and justice in the workplace.

And because child poverty is a scar on the soul of Britain, we are bringing together payments for children in a new Child Tax Credit from next April. Creating a new seamless system of support, built on universal Child Benefit, with one single payment through the tax system – improving work incentives and ensuring for the first time that all child payments are paid to the main carer:

– from the £11 a week mothers received for the their first child in 1997 to the £26.50 most will receive this time next year;

– from £28 a week for the poorest child in 1997 to £54.25 a week next year and £92 a week for a family of two.

Taking, as a result, thousands of children out of poverty.

And in the same way we are creating social justice for families, our aim is social justice for pensioners with our £1.5 billion rise in pensions next year: the basic state pension rising each year, pensioners with modest occupational pensions and savings gaining up to an extra £14 a week from the pension credit, with a minimum income guarantee rising in line with earnings that takes thousands of pensioners out of poverty. Our aim that in our generation we abolish pensioner poverty and ensure every pensioner has dignity and security in retirement.

And because securing the future of company pensions is important not just to those whose pensions are at risk but to the whole country, the government will not only be vigilant about what is happening to pensions but will publish a document on pensions later this year.

Productivity

Having been winning the employment battle just as we have been winning the stability battle, we must win the productivity war.

And in particular creating modern manufacturing strength. Let us be clear about the future: the countries that succeed most in the future will be internationalists not insular – in our case playing our proper role in Europe – and will not be those who compete on low wages but compete on high skills, high technology and high value added.

And because increasing productivity in our economy depends on increasing opportunity in our society – increasing the opportunities for jobs, to get education qualifications and skills, to make the most of your inventive talents, to start and expand a business – I can say today that our public Spending Review will continue to do what government can and should do to remove four barriers to British productivity growth and prosperity:

– first, removing the barriers to innovation and science so that Britain leads again in science, technology and engineering;

– second, removing barriers to enterprise so we have thousands more small and growing businesses;

– third, building a modern infrastructure in transport, planning and housing so we have regionally balanced growth; and

– fourth, and most of all, investing in skills and education – because we cannot be number one in the world as an economy if we are number two in education. And as we expand the numbers of men and women able to benefit from the new economy – through world class education, lifetime learning and portable benefits we need to replace what is too often a poverty of aspiration among too many people in Britain with a wealth of ambition.

Science and innovation

Two thirds of growth comes from innovation so take science, technology and engineering which as you as a union have told us we have as a country neglected for too long.

To create the virtuous circle of innovation we need from the university lab and the science park to the workplace of every company, we will – in addition to the new Research and Development tax credit, worth half a billions a year to company innovation and research, and £1.75 billion re-equipment of university science – take new steps in the Spending Review next month to:

– improve science education and the science and technology skills base;

– re-equip science and engineering laboratories in colleges and universities;

– fund science technology and engineering postgraduate researchers to tackle skill shortages in key disciplines;

– invest in increasing the quality and quantity of science, technology and engineering research;

– and continue in the regions the work of science enterprise centres to spin-off companies from research and provide the capital to finance inventions – to ensure we tackle our long-term failure to transform pure research into British products and ensure that more British inventions mean more British manufacturing and more British jobs.

So our Spending Review can and will do more to sustain and build UK science in the face of increasing global competition – including improving the recruitment, retention and training of skilled scientists and engineers.

With new investment in research, science and innovation let no one think that manufacturing is a sector of the past, to be praised for its historic role but somehow not relevant to the future.

Let us tell the critics that manufacturing accounts for 60 per cent of our exports, 80 per cent of our research and development and is vital to this and every region.

And with world beating firms from aerospace and pharmaceuticals to motor vehicles and general engineering meeting the difficulties of a low Euro, with a world lead in electronics design, photonics, mobile network broadcast technologies and knowledge intensive industries and services, the challenge we face and will meet is to build for our country modern manufacturing strength.

And as we do so for Britain, our policy for Europe remains consistent – to be at the centre of Europe, to pursue economic reform and to make our decision on the single currency on the basis of the five economic tests that we have set down.

Enterprise

We know that our small and growing businesses are the large businesses of the future and because for too long barriers have restricted small business creation and development and a Britain where you can work your way up, we will – by our small business and Capital Gains Tax cuts, by our competition policy and by our support for the Small Business Service and enterprise lessons in our schools – open up new opportunities for new businesses and build a stronger enterprise culture in Britain.

And I hope this union which played so big a role in demanding the creation of Regional Development Agencies will work with us to build up their strength – local people making local decisions about local economic needs, and in particular regenerating old industrial towns and cities from local high streets to urban estates.

Infrastructure

Because for too long there has been chronic under investment in our infrastructure, our Spending Review will update our £180 billion ten year plan to modernise our transport system – the biggest public investment programme in transport history – and we will do more to remove barriers to planning and housing, so that – instead of congestion, overheating and pressure on house prices in one part of the UK and emigration, depopulation and unemployment in other parts – we can ensure balanced economic growth in all parts of our country.

Education and skills

And having raised the share of education in our national income during the last Parliament, we are pledged to increase significantly the share of national income devoted to education over the course of this Parliament – not just because education is crucial for social justice but because it is key to improving the productivity of the British economy.

And our focus in our Spending Review will be not just on resources but on reforms to break down the educational barriers that at whatever point in the life cycle – from access to nursery education to new opportunities for workplace training – deny opportunity and hold people back.

The challenge, because we waste too much of the talent of Britain, is to open up opportunities for education to an extent never before seen in this country so that every child, young person and adult will have the best possible chances in life.

And it is time to ensure that not just a minority have access to higher education but for the first time a majority by opening up recruitment and widening access so that our colleges and universities can draw on the widest possible pool of talent.

So our pre-five year old Sure Start and nursery programme will provide opportunities for children to be better prepared to learn when they get to school, and we will improve standards in secondary as well as in primary schools, so that unlike the past when too many children were destined to fail even before their life’s journey has begun, we invest in developing not just some of the potential of some of our children, but we invest in the development of all of the potential of all of our children.

And our Spending Review will offer new opportunities to stay on at school, to study at college and university, to enjoy the benefit of lifelong learning into the third age, with new support with resources tied to reform for the colleges supporting 4 million students now in further education.

And in the work place in addition to increasing modern apprenticeships – many of these in the manufacturing sector with 15 per cent in engineering – we will, from September, pilot a new approach to in-work training combining direct financial support for business, especially small business, with time off for their employees for training so that once again productivity in our economy rises to the benefit of not just a few but to the benefit of everyone. And we have responded positively to the proposals put forward by the TUC-CBI skills group, with additional funding to help small organisations attain Investors In People status – creating a Britain where what matters is not where you start from but what you aspire to, not what your background is but what your ambition is.

And just as we improve productivity in the private sector so, by matching resources with reform, we must increase the productivity of the public sector.

Those of us who believe passionately in public services understand that just as we cannot serve the public if investment is low, we cannot serve the public well either if service is poor, if performance is faulty, or if there is resistance to necessary change.

And we know that in the new Spending Round – not just for health but for education, policing transport, housing and social services – there can be no blank cheques; that the days of something for nothing are over; and that resources must be tied to results.

And the requirements for reform that will dominate decisions not just on NHS spending but in our public Spending Review later this summer will be securing the highest national standards with proper audit and accountability to ensure standards are met; ensuring local devolution of decision-making – our policy being “front line first”; greater flexibility to achieve greater results; and – for the public – extended choice.

International agenda

But the challenges we have to address for Britain – unemployment, poverty, inequality, access to education and health – the challenges of economic and social development –we have to address for the world.

The global campaign for debt relief in which many of you through churches, NGOs and local organisations have been engaged is now lifting the burden of unpayable debt from 26 of the most highly indebted countries, cancelling $62 billion in debt. And as we have seen with Uganda pupil teacher ratios as a result of debt relief is falling from 100-to-1 to 50-to-1 and every child at school will have a roof above his or her head.

But what drives us forward are not the achievements we can point to – important as they are – but the gains still to be made:

– 113 million children – two-thirds of them girls – who are not going to school today because they have no schools to go to;

– 30,000 children facing death each day from diseases we could prevent;

– in total 600 million children in developing countries living in the most disfiguring, grinding poverty imaginable – condemned to failure even before their life’s journey has begun.

In my five years as Chancellor I have visited Asia and seen young children living above open sewers and yet their eyes still bright and full of hope – and I know we must help.

And I have been to Africa and I have seen young people living on the knife’s edge of bare existence asking why their new found political freedom cannot bring economic and social freedom from unemployment and poverty.

Yes, before us are threats we must face and defeat – from terrorism, to exploitation, to the easy temptations of indifference.

But before us there is also an unprecedented possibility of progress.

Unique to our time we have in our hands the opportunity to banish the worst of poverty from the earth.

And our commitment should be that:

– every child be in education;

– avoidable infant mortality is banished from this planet; and
we half world poverty on the road to its abolition.

Recognising that we are all – rich and poor, old and young – bound in one vast network of mutuality across all the lines that might otherwise divide citizens of different countries – members of the same global community, the same moral universe.

And what we need is a new deal for the global economy, that is a new deal for the world’s poor – that in return for developing countries pursuing corruption-free policies for stability and for creating a favourable environment for investment, developed countries should increase vitally needed funds to achieve the agreed millennium development goals, so that no country genuinely committed to good governance, poverty reduction and economic development should be denied the chance to cut infant mortality and poverty and achieve schooling for every one of its children.

This week I travel to Canada for a G7 meeting to prepare the way for the African plan that will be agreed by world leaders in three weeks time when they meet in Canada

And we must act.

Take hunger – today a fact of life for too many children. And in some countries – in southern as well as sub Saharan Africa – it is tragically getting worse not better. Even when there is adequate food available, poverty often prevents poor people from feeding their children.

So the British government proposes today to take not only short term immediate action – as Clare Short our International Development Secretary is doing – to help those countries currently affected by food shortages, including Malawi, Zimbabwe and Zambia, but that we finally recognise the importance of the trade round for long-term food security – opening up agriculture in all our countries to fair competition, and opening up trade in everything but arms.

Second, because we have been far too slow in advancing our education goals – because as things stand 88 countries will not achieve primary education for all by 2015 and indeed, because instead of raising educational aid as a share of national income the world has been, disgracefully, cutting it – the government’s proposal today is that the richest countries back the new World Bank initiative with the funds it now needs to fast track our commitment to meeting the goal of primary education for all by 2015 and to ensuring that in all countries education is not subject to fees but free for everyone.

Third, half child deaths are from four avoidable diseases – acute respiratory tract infection, diarrhoea, malaria and measles – a loss of millions of children’s lives unnecessarily each year. So building on this years new global health fund for drugs and treatments in HIV/Aids, malaria and TB, I propose that just as we fast track investments in education for countries who have a plan, so too for health we should fast track support for helping to build health care systems.

Fourth, because too often the world has set goals like the millennium development goals and failed to meet them; because too often, we have set targets, reset them, and recalibrated them again; because too offer our ambitions, in the end, only measure our lack of achievement, this time, it can be, and must be, different.

So to build a virtuous circle of debt relief, poverty reduction and sustainable development for the long term, I propose to do more than increase debt relief and agree that the cost of meeting the millennium development goals is $50 billion a year.

Our aims: every child the best possible chance, every young person the prospect of education, every adult the reality of a job, every pensioner dignity in retirement, every citizen the best public services, every country playing its part in a just and inclusive world. Not just some but everyone – whatever their birth, background or race – having the chance to achieve their potential.

National and international goals which show the sheer scale of our ambitions for Britain – goals that for economic as well as equity reasons we cannot postpone or defer, goals that taken together can advance a new progressive consensus for Britain.

Goals for our country worth fighting for, goals that show there is purpose in politics.

Good causes worth fighting for.

We can build a Britain worthy of our pioneers; we can build a Britain worthy of our ideals.

And we achieve our ideas best when we achieve them together.

Below is the text of the speech made by Gordon Brown, the then Chancellor of the Exchequer, at the Mansion House in London, on 26 June 2002.

Mr Lord Mayor, Mr Governor, my Lords, Aldermen, Mr Recorder, Sheriffs, Ladies and Gentlemen.

In thanking you for your invitation, let me at the outset pay tribute to the contribution you and your companies make to the prosperity of Britain.

You represent a financial services sector that generates fifty billions of wealth each year, provides work for over one million people and accounts for over five per cent of UK GDP. And, even in a most difficult year, thanks to you, London has maintained its position among the world’s top financial centres; and our foreign exchange market here in London – with its daily turnover of more than five hundred billion dollars – has secured its position as the largest and most important in the world.

And, as you, Lord Mayor, have indicated this evening, the importance that the city attaches to integrity and the highest standards in the provision of financial services is the enduring means by which London’s reputation as one of the world’s leading financial centres is secured, and indeed enhanced.

So let me first of all thank you and pay tribute.

To you Lord Mayor for the work you do – particularly your role in leading the City’s celebrations in her Majesty’s Jubilee year;

To the City of London;

And to Sir Edward George, who has been an outstanding leader and ambassador for this City and the United Kingdom and is held in such high esteem in all parts of the world.

Lord Mayor, the events of the last year have shown that while globalisation brings unprecedented opportunities it also brings with it understandable insecurities.

With ever more rapid changes in technology and ever more fierce global competition in almost every product and service – and far beyond the economy itself the threat from failed states and terrorist groups – people are, understandably, less certain of the future.

But globalisation also brings vastly increased opportunities for individuals, businesses and countries.

And it falls to us now to maximise the opportunities of globalisation and to minimise its risks.

It is part of the greatness of this City of London’s history that as the world economy has opened up, you have succeeded not by sheltering your share of a small protected national market but by striving for a greater and greater share of the growing global market.

In your recent history you have embraced technological innovation as an opportunity not a threat.

In pace with globalisation and the new technology, you have transformed the skills of your workforces.

Always outward looking — for centuries part of a trading empire — you have taken globalisation in your stride, its risks and opportunities, and have become ever more international in your reach.

What you, as the City of London, have achieved for financial services we, as a Government, now aspire to achieve for the whole economy.

And so, Mr Lord Mayor, as we make decisions in the forthcoming Spending Review with a view to Britain achieving higher productivity growth across public and private sectors, I believe there are important lessons to learn from your success and adaptability.

Indeed the nations that will succeed in the future will be those that develop a competitive environment and levels of skills, science, investment and enterprise that, like yours, are genuinely world class.

And I believe that this nation, small in size but large in vision and global reach, for three centuries past a towering presence in the world, can again, in this generation, fulfil its destiny as a powerhouse of skill, enterprise and economic success.

As you well know, economic stability is the foundation of all we do.

Over the past few months – in the face of the tragic events of September 11th, the larger instabilities in the global economy and the greater volatility of financial markets – we have remained vigilant.

A time of global uncertainty puts an even greater premium on national monetary and fiscal stability

While we should not be complacent, I remain cautiously optimistic about the prospects for growth in the UK and world economy this year and next.

In the UK, fiscal policy is supporting the decisive action taken by the Monetary Policy Committee last year.

Amidst the ups and downs, there are in the US and in the euro area generally signs of renewed growth, and we are now finally beginning to see improved prospects of an export-led recovery in Japan.

And with strengthening global recovery and domestic consumer demand already strong – against a background of historically low interest rates – the Bank of England will, of course, have tough choices to make in the coming months to ensure sustainable growth and the maintenance of stability.

It was by prompt and early action that in the past our monetary authority has avoided the risks of stop-go instability and we will, as we have always done since 1997, back the Bank of England in the difficult decisions they have to make.

Economic stability offers business a platform for sustained investment free of Britain’s long history of economic instability which so damaged the spirit of enterprise – most recently in the recession of the early 1990s.

But over the last 100 years, the worries about Britain falling behind have always focused on our low levels of investment and innovation.

For all the success of moving our economy from stop-go to stability, and raising the overall level of long term investment, we still have much to do.

So achieving sustained and balanced non-inflationary growth throughout all regions of Britain requires us to match the right monetary policy decisions with an even tougher approach than in the past to address the supply side weaknesses of our economy.

I believe there is general agreement that, in recent years, we in Britain have moved beyond the old stop-go economic instability of the past —- and beyond the sterile and self defeating adversarialism of management versus workforces, capital versus labour, state versus market, private versus public.

Right across the political spectrum and throughout all sections of industry and business there is a growing consensus that the preconditions for a successful economy are not just economic stability but also the highest educational standards and a reformed welfare system based on responsibilities and not just rights.

And I believe that the next step is to widen and deepen the spirit of enterprise in all parts of our country and, in doing so, realise a shared economic purpose to the benefit of all our companies, our communities and our country.

Government spending reviews have traditionally focused on dividing up the national wealth – apportioning public revenues, concentrating on who gets what.

But one central theme and purpose of this summer’s spending review will be on how we can expand that national wealth – how together as nation we can, and must, be more productive.

So the Spending Review will focus on supporting the drivers of productivity growth – improving competition, science, investment, enterprise and skills.

And working as a team under Tony Blair’s leadership every department from transport to home affairs, from education to industry, is now playing its part in meeting the productivity challenge.

First, competition.

Competition at home is the key to competitiveness at home and abroad and we will build this year on our decision last year to achieve for competition policy what we achieved for monetary policy — competition decisions and the competition authorities fully independent of political influence.

In the spending review we will reinforce this independence by ensuring our competition authorities have additional resources and new expertise so that the competitive environment is as open, fair and conducive to new entrants as it can be — and empowering them to look not only at barriers to productivity growth in the private sector but in the public sector too, including anti-competitive effects of current and new regulations.

Wider reforms in planning, transport, housing and immigration policy are needed too in the competitive environment to meet our goal of higher growth in every region and balanced growth across the country – raising the potential for indigenous growth in the northern parts of the UK as they benefit from the increased mobility of capital but not at the expense of the south east growing less fast – instead radical planning, housing and transport reforms will be designed to ensure London and the south east can continue to grow at a sustainable level and be competitive with other fast growing regions in the rest of Europe.

So to improve our competitive environment, the spending review will:

Provide additional funding for transport in line with delivery of our 10 year plan – and separately we will consult on the long term need to increase airport capacity;

Take seriously the case for further new housing development;

Radically revamp the rules and resources to speed up planning decisions – seeking to strike the right balance in a modern economy which puts an ever higher premium on speed, efficiency and flexibility;

And provide resources to expand work permits – already up from 50,000 to 140,000, with 175,000 applications expected next year – to encourage into Britain the key employees and entrepreneurs we need.

Strengthening the competitive environment means attaining the highest standards in the provision of financial services and it is because of the issues raised on auditing, accounting and the regulation of financial services that in February we announced a thorough review of the UK’s current regulatory arrangements for financial reporting and auditing which will make its initial report next month, and why – more generally – we have created a new Standing Committee on Financial Stability and the Financial Services Authority – and I applaud Sir Howard Davies on the work he has done.

Second, to create a favourable environment for investment, we have cut corporation tax for large companies and for small companies, and for most transactions in business assets cut capital gains tax to 10 pence.

And in reply to those who suggest that our National Insurance rises to pay for health care undermine our approach to investment, let me say that the CBI has estimated that ill health costs British industry 12 billion pounds a year; that in nearly every industrial country employers are contributing more – and in America, France and Germany’s case much more – to meet the rising costs of new medical technology; and that in Britain’s case the changes have been costed to fund health care improvements not just for this year and next but to 2008. And I urge business to join us and help in implementing our ambitious agenda for radical health service reform.

Because we have taken a long term view of our investment needs, we have made investment allowances a permanent feature of the tax system – with 40 per cent capital allowances for investment by small and medium sized businesses in plant and machinery, and 100 per cent capital allowances for companies investing in designated energy-saving technologies.

And to build a modern tax regime for British firms operating in a global economy, we have not only modernised the tax treatment of intellectual property and exempted from tax the gains from the sale of substantial shareholdings, but in consultation with business we will publish our proposals later this summer to take forward the modernisation of Britain’s corporate tax system to meet the needs of a global economy.

And for small businesses we have not only been prepared to simplify the vat system, to cut small business tax from 23p in 1997 to 19p now, with the 10p starting rate reduced to zero so that small companies with taxable profits less than 10,000 pounds pay no corporation tax, but also introduced special measures – stamp duty exemption, VAT relief, new capital allowances – for start ups and long term investment in high unemployment communities.

Just as there is no place in a world class British economy for short-termism in investment decisions, so too there is no place for poor educational standards and poor workplace skills, for managerial complacency or hostility to enterprise, for restrictive practices from whatever quarter they come.

The new Britain will be built on skills, science and enterprise – backing the scientist and inventor, rewarding the entrepreneur, challenging all of us to improve our skills: these are the best means to raising our national game and driving forward productivity and prosperity.

Let us face some uncomfortable truths: when so much of growth comes from innovation, too few of our young people with scientific, technological or engineering talent have had the chance to make the most of their potential through study, research training and the chance to turn ideas into products – so it is time to remove the barriers to British science, technology and engineering leading the world again.

Too few of our young people have had either the opportunities or the aspiration to get the necessary qualifications at school, in Modern Apprenticeships or at college and university; and too few British adults have had the chance to upgrade their workplace skills. And so it is time to remove the barriers that for too long have prevented too many from fulfilling their educational potential in their own interests and that of our country.

And too few men and women here in Britain – a third less than the proportion in the US – have started or grown a business or become self-employed and so it is time to remove the financial, cultural and other barriers to enterprise so that in Britain starting a business becomes the ambition not just of an elite few but of many.

To sum up: with too few scientists, too few skilled employees, too few men and women starting and growing businesses — the greatest constraint on the growth of Britain’s productivity and prosperity today is now our failure to realise the educational and entrepreneurial potential of our own people.

So to improve science education and the science technology skills base in Britain, the spending review will:

Take forward our manifesto commitment to set up a National Centre for Excellence in science teaching;

Complete the re-equipment of science laboratories;

Improve funding of science, technology and engineering postgraduate research;

And ensure that universities can finance not just teaching and academic research but also a third specialism – commercialisation of university inventions – with funding for the Higher Education Innovation Fund and for Science Enterprise Centres: our aim to ensure that more British inventions mean more British businesses and more British jobs.

I want Britain to be the best place to start a business and British entrepreneurship to flourish. That is why in the spending review I propose to back up our budget tax relief measures with local, regional and national reforms in the planning system, with help for training up skilled employees, and in cutting red tape and improving what the small business service can offer in information and advice businesses need.

Business start ups in high unemployment areas are one sixth of their level in the most prosperous areas. In high unemployment communities where traditionally paying out giro cheques or simply offering subsidies for bricks and mortar were the essence of local neighbourhood renewal strategies, the Deputy Prime Minister and I now want the encouragement of enterprise, of new business activity, firmly at their heart.

And because a strong enterprise culture must be built upwards from the classroom as well as outwards from the boardroom: our long term ambition that every young person experiences business enterprise in school, every teacher is able to communicate the virtues of business, every community comes to value good business leaders as role models.

Competition…investment…science…enterprise…the final and perhaps most important driver of modern productivity is skills.

We cannot be first rate in enterprise if we are second rate in education.

And the long term reforms Tony Blair and Estelle Morris are pioneering seek nothing less than a revolution in standards for our schools, colleges and universities.

To push a teenager into the world of work without any qualifications today is to put them at lifetime risk of poverty, failure and wasted potential. So in our spending decisions up to 2006, new resources will be made available not just for raising standards in our worst performing secondary schools but also for offering even greater opportunities in scientific and technical education for young people from 14 onwards and for developing workplace skills.

Having lifted young people out of welfare into work, the challenge now is to lift young people from jobs to careers. And we must have the same ambitions as we have for the 50 per cent of young people we wish to go to university for the other 50 per cent. So through Educational Maintenance Allowances and improvements in post-school training we should now expand work-relevant qualifications — with more young people staying on at school, more going into further education colleges as well as university, and more enjoying apprenticeships.

Apprenticeships, which a few years ago were dying, have risen in number to 227,000 today, increasing to over 300,000 by 2004. The aim: that over a quarter of young people aged between 16 and 22 will take part in the scheme by 2004 with even more by the end of the decade.

And because new resources must be matched with reform to deliver results, the modernisation of public service delivery is crucial. And I believe that there are lessons to be learnt from the widely acclaimed success – under Sir Edward George’s excellent leadership – of Bank of England independence, and in this case from the principles which have underlined its work:

The setting of clear objectives or output targets;

A clear separation of responsibility between those who set the standards and those who have to deliver the outcomes independently of the political process – with maximum devolution of responsibility;

And far greater transparency and accountability leading more generally in public sector reforms to a focus on independent audit, independent scrutiny and inspection, and an independent flow of information to the public.

In the forthcoming spending review we will set out new incentives and flexibilities to reward success – spreading the benefits of good leadership, management and performance in our best schools, hospitals and local authorities to raising the standards of the worst. So when people ask about the next stage of our work, public sector reform has only just begun.

As I said at the outset a commitment to world class levels of skill innovation, enterprise and investment must be matched in the global economy by the same commitment you have shown – a commitment to being outward looking and open to the world.

That is why we pursue a radical agenda for opening up trade in the WTO talks and resist protectionism. It is why we favour breaking down the remaining barriers to trade with the USA, and support fundamental economic reform including that of the common agricultural policy in Europe.

Britain’s future for a pro-European like me is at the centre of Europe not isolated on its fringes.

Our decision on the euro is of immense, historic importance to the long term future of our economy and our country as a whole.

It is perhaps the biggest peacetime economic decision we as a nation have to make.

It is because of its constitutional significance as a decision that we said in 1997 that the economic benefits should be clear and unambiguous.

In principle British membership of a successful single currency offers us obvious benefits – in terms of trade, transparency, costs and currency stability – and could help us create the conditions for higher and more productive investment and greater trade and business in Europe.

I therefore reject the view of those who would rule out membership of the single currency on principle. They would refuse to join even if it were in the national economic interest to do so. To rule out membership of the single currency on dogmatic grounds would in my view be damaging for investment, jobs and business generally.

Similarly I reject those who would urge us to join regardless of the assessment of the five tests. To join without a proper, full assessment of the five tests could, in my view, prejudice our stability, risk repeating past failures of exchange rate management, and could return us to the days of stop-go at the expense of our ambitions for high investment, full employment and high and sustained levels of growth.

So being serious about the economics of the euro means being serious about the five economic tests. Often the tests are described as the Treasury’s tests or the government’s tests, but neither description does justice to their critical role in assessing whether EMU membership is in the British national economic interest.

As Tony Blair said only last week they are not window dressing for political appearances. While the Maastricht criteria can judge convergence in the short term, the five tests go to the heart of what is required for the long term future of our economy: they are the means of judging the decision on EMU membership against the Government’s central objectives – full employment and high and sustainable rates of investment and growth. The tests are, in my view, important to everyone who cares about the economic future of Britain.

Today I want to set out in more detail why each of the five tests are important and the right framework for assessing the national economic interest; and, as I will later explain in more detail to the treasury select committee when I meet them during their examination of this in the autumn, the importance of the preliminary and technical work that is now underway prior to the assessment.

The five tests, which I set in 1997 are:

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

Whether there is sufficient flexibility to cope with economic change;
The effect on investment;

The impact on the financial services industry;

Whether it is good for employment.

And when the assessment is complete the detailed supporting studies will be published alongside, all to be subject to intensive public scrutiny and debate. Such openness and transparency will be in marked contrast to the past history of economic policy making.

The first test is the convergence test.

In October 1997 the Treasury stressed that “sustainable and durable convergence is the touchstone and without it we cannot reap the benefits of a successful EMU.”

The Treasury’s preliminary work in this area includes our study of the output gap, inflation, interest rates and the real effective exchange rate, as we analyse not just short term cyclical factors but also long term structural issues to assess whether convergence is sustainable and durable.

To that effect, there are a number of supporting analyses – part of the technical and preliminary work – of key features of the UK and euro area which will be published at the same time as the assessment, including:
Assessing the behaviour of the housing market, and its impact on consumption;

Reviewing and updating various empirical studies of national business cycles, and what drives them;

And analysing different approaches and estimates of the sustainable real exchange rate – as this is a key indicator of convergence and of obvious importance to this and all of the tests.

A high degree of convergence does not eliminate shocks and changes to the internal and external economic environment. So the work leading to the assessment of the second test – the flexibility test – is focussed on building up a foundation for evaluating how alternative adjustment mechanisms within EMU will help the economy adjust given a single European interest rate.

EMU membership would also place a greater premium on the success of domestic instruments of policy as an adjustment tool, in particular, fiscal policy and fiscal frameworks.

So the preliminary work for the flexibility test is investigating labour, capital and product market flexibilities and the supporting studies we will publish are looking at:
The role of labour markets – and how labour mobility might complement movement in wages and prices;

How the various adjustment mechanisms might operate for the UK including how the economy responds to different shocks.

Sustainable convergence – through cyclical convergence and a high degree of flexibility – must be accompanied by microeconomic benefits to ensure rising productivity and rising trend growth.

Economic theory and empirical evidence both show that investment in capital is a key driver of productivity, growth and overall economic performance.

So for the third test – the investment test – the preliminary work is, as in 1997:

Examining how EMU membership will affect public and private investment in general and foreign direct investment in particular;

Identifying the key drivers of private sector investment in the UK, and examining the impact of EMU;

And considering the potential impact of EMU on public sector investment.

Because of the importance of the EMU decision for business in the UK and its contribution to investment, productivity and growth, we will produce a study assessing the impact of EMU on business in different manufacturing and service sectors of the UK economy.

The fourth test is the financial services test.

It is a source of pride that the UK has a significant comparative advantage in wholesale financial services, and the City is by a large measure the pre-eminent financial centre in Europe.

The last five tests assessment in October 1997 concluded that “in summary, EMU offers benefits to the UK financial sector, whether the UK is in or out. But the benefits and the opportunities from the single currency will probably be easier to tap from within the euro zone.”

The dynamic nature of the sector means there is no room for complacency, so the preliminary work for the financial services test is monitoring the changes that have occurred in this sector in the UK and the euro area since the start of the single currency in 1999.

The preliminary work includes a supporting analysis that will consider the drivers of the location of activity in the financial services sector in the European union. We reaffirm that the decision on EMU must ensure that the UK remains an attractive location for financial services.

The fifth test, the employment test, assesses, as we stated in 1997, whether EMU will “promote higher growth, stability and a lasting increase in jobs.” So the preliminary and technical analysis is – as in 1997 – analysing the potential benefits of EMU for the longer-term performance of the economy.

In order to ensure that the assessment is comprehensive and rigorous, we are producing a number of supporting studies relating to the fifth test, but also with relevance to the other tests, which are looking in detail at:

The likely impact of EMU on trade;

What lessons can be learned from the experience of the US as a monetary union;

The robustness of the arrangements for macroeconomic stability – including the stability and growth pact – and their contribution to overall economic performance.

As I emphasised to this gathering last year our approach is, and will continue to be considered and cautious – one of pro-euro realism.

The case for the five economic tests is not just that we must avoid the economic policy mistakes of the past but, when the decision is not just momentous but irreversible, affecting every industry and all people, that the national economic interest – full employment, high and sustainable levels of investment and growth, long term prosperity – is, and should be seen to be, the decisive factor.

So the work underway will ensure that the assessment will be the most robust, rigorous and comprehensive work the Treasury has ever done and there will be no fudging or short-circuiting as we measure the effect of the euro on employment, growth, investment and stability.

More competitive prices for consumers and business, expanding trade, the lowest possible long term interest rates – and sustained high growth and employment – would indeed be a prize to be valued.

If the tests are met then I believe we should join. If the tests are not met, we should not. The tests are decisive. There is no hidden agenda: only a resolution to make the right long term decisions for Britain in the national economic interest.

Our commitment, Mr Lord Mayor, to economic stability is immovable and we will take no risks with it. Our determination that Britain be a world leader in the new global economy is absolute.

In the eighteenth century we created an industrial revolution which gave Britain the chance to lead in the world and in the nineteenth a global empire where again Britain led the world. In this new century, globalisation – with all its opportunities and despite its insecurities – can herald a new period of British success precisely because enduring British qualities – our internationalism, spirit of enterprise, fair play and creativity – can come to the fore. And it is my belief that around this mission we can not only forge but together deliver a new age of achievement for Britain that is of benefit to this great city, to all our industries and enterprises, to all our communities, to everyone who cares about our country.

Below is the text of the speech made by Gordon Brown, the then Chancellor of the Exchequer, on 16 September 2002.

Today, with the national advertising launch of the new tax credits, we are witnessing the biggest revolution in our tax and benefit system since the time of Beveridge.

The new tax credits – advertised on television from tonight and introduced next April – are central to this Government’s goals of not only tackling child poverty and making work pay but ensuring family prosperity for all.

Because we believe the tax system should recognise all the everyday pressures on middle as well as low income families, the new Child Tax Credit will be available right up the income scale for families with incomes of £58,000 or below and for the first year of a child’s life families earning up to £66,000 will receive some help.

9 out of 10 families with children will be eligible for support…
…with £13 billion pounds paid out to 6 million families
…and £325 million to help with childcare costs

As a result of the new tax credits and our other tax and benefit reforms, on average, families with children will be £1200 better off next year than in 1997 – and the poorest families £2400 better off.

In total we will be spending £8 billion a year more to support children next year than in 1997.

No government has spent as much on children and families.

And there is another major innovation that we are introducing next April.

Instead of a tax credit paid through the wage packet to the main earner, normally the father, we will pay the Child Tax Credit directly in cash or through a bank account to the carer, usually the mother.

In total £2 billion pounds will be transferred from fathers to mothers – providing them and their children with a secure and regular source of income.

Let me explain the philosophy behind our changes.

It is in the family that we build the next generation. And in today’s fast changing economy – with all its uncertainties – families, now more than ever, need to know they don’t have to go it alone. They need security and support.

So our starting point is that a family friendly tax and benefit system should be founded on the principles of the 1942 Beveridge report: that nothing should be done to remove from parents the responsibility of maintaining their children and it is in the national interest to help parents to discharge their responsibilities properly.

We know that mothers and fathers struggling to cope with bringing up their children, meeting the challenging demands of work and family life, anxious about doing their best for their children while making ends meet, want a tax-benefit system for families that is on their side.

So our approach applies the Beveridge principles to the realities and needs of modern family life. Today many families rely on two incomes and most women work. And some of the greatest pressures parents face were almost unknown in Beveridge’s time: the loss of income because one parent ceases employment and is at home or works part time after the birth of a child; or the costs of childcare when the mother goes out to work. The new tax credits are designed to help families cope with all these challenges.

We also know from our research that parents feel the need for better services as well as a modern system of financial support, and that both are needed to help them discharge their responsibilities best.

And so in this Parliament we are combining improved children’s benefits with our other reforms:

For the first time, higher direct support for all families at the time when they need it most in the first year after the birth of their child;

For the first time paternity benefits, alongside enhanced maternity provision;

A new integrated approach that delivers, on the ground, day care for children and after school care for working parents or parents in need of respite;

Special advice, training and financial support to help lone parents into work;

Support for parenting through enhanced, long-term financial provision for parenting education and special measures to deal with accommodation for lone parents under 18;

Measures to ensure every child has the best start in life – guaranteed nursery education for all 3 and 4 year olds, with three years old guaranteed nursery education under our spending review from next year …backed up by Sure Start in areas of most need in the country – a comprehensive approach to meet the needs of under fours;

And through the new Children’s Fund and other initiatives, enhanced encouragement for the voluntary community and charitable organisations that are the vital link between the needs families have and the help they receive.

Together these initiatives are radically reforming the system of support for families — tackling poverty and investing in the potential of every single child in our country.

And these reforms are grounded in new rights and new responsibilities as we tackle injustice, re-emphasise personal responsibility and renew the welfare state of 1945 for a new era.

This also includes reforms to work and making work pay. On the one hand there are new opportunities to work, to gain skills, to meet new commitments – and on the other hand, new obligations – in particular, the right to work if you can.

1.8 million men and women have benefited from the New Deal. Unemployment is now lower than in America or in Japan for the first time in fifty years. But there are thousands who have fallen through the net – able to work but unwilling to do so. In the Pre-Budget report the Secretary of State for Work and Pensions and I will be bringing forward measures to tighten up the New Deal so that the opportunities it offers are matched by the obligation to make the most of them. New rights matched by new responsibilities.

Now let me explain the detailed changes in financial provision for families.

There was for years – until this administration – no recognition in the tax system of the existence of children or of the sheer costs of bringing children up. Our tax and benefit system did not put the needs of families with children first – in fact, it neglected them with the result that thousands of children were left behind and lost out.

Between 1979 and 1997, total child support for a family on average earnings with two children actually fell by 6 per cent. As a result, the living standards of families with children fell behind the rest of the population. Indeed, in 1997, the average income for households with children was around 30 per cent lower than for those without children.

So in the first few years our first priority was to get thousands of families out of poverty – both by improved chances of work through the New Deal and improved child support for the lowest income families.

Payments for the first child, which in 1997 started at £11 and rose to £28, now start at £15.75, for 5 million families are nearly £26 and for the poorest children are £48.25 a week – a near doubling of cash support for the poorest families.

But we need to go further and in the budget earlier this year I announced details of our new measures – not just more investment in children’s services but two and a half billion pounds of extra support for families through the new Child and Working Tax Credits.

A tax and benefit system that puts families first in the modern world should not just recognise the family as the bedrock of society, and the rights and responsibilities of parents, but also the very real pressures parents face right up the income scale. It should materially help them balance the needs of work and family and be generous enough to ensure for each child a good start in life.

So our approach is universal and progressive. It starts with child benefit for every family and recognises the costs of raising children that middle income families face. But is designed to help families most when they need help most and when their children are youngest.

The new Child Credit will integrate payments for child support into one single payment, built on universal child benefit – creating a simpler and fairer system that will be more responsive to changes in circumstances, improve work incentives and ensure for the first time that all payments for children are paid to the main carer, usually the mother

As a result, £2 billion pounds will be transferred from the main earner – usually the father – to the main carer – usually the mother. Money that – as research shows – is then more likely to be spent on the child.

Our changes mean that, from next April, mothers who wish to leave work and be with their children at home but have found it financially difficult to do so will find it easier. For single earner families more help is now available and for those on incomes between £43,000 and £58,000 help is available for the first time.

We must do most for the children that need it most. And for two million of the poorest families in the country, child support – which was £28 a week in 1997 will now be £54.25 a week for the first child – a near doubling of support since 1997.

And to further reduce the numbers of children living in poverty and ease the transition to the new system, we will increase the child allowances in Income Support and Jobseeker’s Allowance by £3.50 a week from next month.

So in this new modernisation of welfare, we have rejected both crude means testing and old style redistribution in favour of progressive universalism where all get help, but those in greatest need get the greatest support.

And this is backed up by our other reforms:

To give families extra support after the birth of a child, maternity pay will rise to £100 a week from April next year with paid maternity leave extended to 26 weeks. And we will also introduce Britain’s first-ever paid paternity leave so working fathers can spend more time with their partner and new child. Together with the new tax credits, families will be provided with up to £2,200 extra to contribute to the costs of the first year of a child’s life.

To help parents combine being a parent with paid work, we are improving access to affordable, good quality childcare with an additional 250,000 places by 2006 and more flexible help with childcare costs through the new tax credits.

To help lone parents move into work we are extending work-focused interviews to all those on benefit – and Andrew will talk more about our welfare to work policies and making work pay in a moment.

Reform also means we should match the new opportunities we offer families with the responsibilities we expect of them. It is not for government to tell people how to live their lives but what we can do, for the sake of children, is to encourage good parenting. So in the spending review I announced an additional £25 million pounds over the next three years to deliver a network of parenting education across England.

There are circumstances where vulnerable parents need special treatment. Where there are lone parents under 18 who cannot live with their family or partner, the policy is that instead of independent tenancies, they will have supported housing that combines accommodation with counselling and help with childcare.

Giving every child the best start in life also requires good public services. By September 2003, we will guarantee a nursery place for every three and four year old who needs it. We are building on Sure Start – which will cover up to 400,000 children under four by 2004 – by setting up new Children’s Centres to provide a focal point for children’s services in deprived communities, as well as providing support for local and voluntary projects through the children’s fund.

The old days of Whitehall knows best are over.

We know that support for families cannot be provided by Government alone.

And we know that child poverty cannot be removed by Government alone.

Instead, with Government working together with parents, voluntary, charitable and community organisations, we can – and will – deliver a better future for our children.

So Sure Start and the Children’s Fund bring a principle into action which has lain dormant for many years: that services can not only involve voluntary and charitable organisations at a local level but can be run locally through and by them.

The children you passed on the way here this morning – laughing, shouting, playing? – will grow up to be the nurses and police officers, teachers and doctors, parents and taxpayers of tomorrow.

These children are the children of our country, the children on whom Britain’s future depends. And if we do not find it within ourselves to pay attention to them as young children today, they may force us to pay attention to them as troubled adults tomorrow.

So it must be the Government’s objective to ensure that no child will go without help, that every child is included, that every child will have the chance to make the best of their lives, that we will never allow another generation of children to be discarded.

Our new tax credits..

…supporting families

…tackling child poverty

…investing in the potential of every single child in our country…

…are both symbol and substance of this government’s ambition for Britain: to meet new needs, scale new heights, extend new opportunities, tackle deep-rooted injustices and work together for a better, fairer, more prosperous Britain.

Below is the text of the speech made by Gordon Brown, the then Chancellor of the Exchequer, in London on 25 September 2002.

Introduction

I am delighted to have the opportunity to open our session on the world economy and prospects — not just to say something about the challenges we face in the world economy where recovery is under way, but to show how the modern Commonwealth – united by history, strengthened by diversity and resolute in its high ideals – has a unique role to play in building the next stage of global prosperity and advancing us towards the globalisation we want – social justice on a global scale.

1.8 billion people –30% of the world’s population – live in the countries of the Commonwealth. Our economies account for 23% of world trade, 20% of world investment and 10% of world GDP. But because not everyone benefits from our global reach, today – across the Commonwealth – 665 million people are struggling to survive on less than a dollar a day, 75 million children are unable to go to school and 15 million women and children are suffering from the physical and emotional burden of HIV/AIDS.

Over the next year our aim as a Commonwealth must be to make real our commitment to the elimination of poverty, the promotion of development, the achievement of the Millennium Development Goals and the progressive removal of the wide disparities in living standards among our members by embracing what I call a new deal for the global economy —- a new development compact that will allow all countries – across the Commonwealth and across the world – to earn a fair share of the benefits of global prosperity by:

Developing countries systematically tackling corruption and instability, and creating the conditions for private investment; and
Developed countries opening up their trade and radically improving aid for poverty reduction, including education and health.
And because I believe that in the long run our prosperity is indivisible, and that to be sustained it must be shared, I hope that —- even in an insecure world —- we can make progress in Washington this weekend towards building a new international financial architecture and meeting the world’s agreed Millennium Development Goals – including that, by 2015, we halve global poverty, cut child mortality by two thirds and achieve primary education for all.

And this new deal is more not less necessary, more not less urgent, as we tackle the consequences of a worldwide slowdown, assess the risks and challenges ahead, and deal with the vulnerabilities of a more integrated but more volatile international financial system.

There are four building blocks of this new deal: action on economic stability, investment, trade and aid.

Economic stability

The first is more urgent than ever: international economic cooperation and a new framework for a more stable global economy based on clear codes and standards, enhanced transparency, and improved crisis prevention and resolution mechanisms.

We must all be vigilant to the risks that we face at this time and stand ready to act decisively with economic reform as we did with monetary activism a year ago.

And we must all, each continent and the international institutions, face up to our responsibilities in sustaining and strengthening the economic recovery round the world: Europe must make progress on economic reform, Japan take decisive action on financial sector reform, and America show that corporate reform is working.

More generally, it is in the interests of greater stability, confidence and growth in the world economy – and of preventing crises in developing and emerging market countries – that we adopt far wider reforms.

I now believe that, just as through central bank independence we set down a new rules based system for our nation with Bank of England independence and a new monetary and fiscal regime, we should, in pursuit of the objectives of stability, development and prosperity, consider also a new rules based system of international economic governance for the community of nations.

A new system founded also on:

Clear procedures – all countries, rich and poor, pursuing agreed codes and rules for fiscal and monetary transparency, and for corporate and social standards; and

On a new openness and transparency – with the IMF as independent from political influence in its surveillance of economies as an independent central bank is in the operation of monetary policy.

The adoption of clear and transparent procedures in economic decisions – for example, presenting a full factual picture of the country’s debt position and the health of the financial sectors – and a willingness to be monitored for them, improves stability and provides to markets a flow of specific country-by-country information that engenders greater investor confidence and reduces the problem of contagion. We should all adopt and monitor similar codes and standards for corporate governance including for accounting, working with standard setters to develop stronger regulatory frameworks.

And, leading by example, I can announce that the UK will participate in the Reports on the Observance of Standards and Codes (ROSC) modules covering accounting and auditing, corporate governance and insolvency and creditor rights. We will then have completed assessments against all codes and standards – the first, I hope, of many countries to achieve this.

And with technical assistance and transitional help for early implementation of codes and standards generally, I hope other countries will become part of a wider move towards greater transparency including the routine publication – by rich and poor countries alike, as well as the IMF – of all surveillance and programme reports, and IMF policy and administrative papers.

But there is a case for going even further. To ensure that the Article IV surveillance process fulfils the key objective of early identification of risks and vulnerabilities, all Article IV reports should include:

Strengthened debt sustainability analysis;

Greater focus on the structural sources of instability;

Early identification of unsustainable macroeconomic policy frameworks;

An assessment of adherence to codes and standards; and

Identification of countries which still need to take action to forgive debt under the HIPC initiative.

More fundamentally, I believe there is a strong case for enhancing the IMF’s surveillance and monitoring functions so that surveillance is – and is seen to be – independent of decisions about crisis resolution. We must implement reforms to promote:

Greater independence – ensuring the fund applies objective, rigorous and consistent standards of surveillance to all member countries and there is a clear separation between surveillance and lending activities; and

Greater accountability – with the IMFC setting a surveillance remit, IMF management reporting each year on the Fund’s performance and an annual assessment of the effectiveness of fund surveillance
…together, helping to reduce the risk of financial crises internationally and promoting a new era of global economic stability.

Under this new framework we can move from letting crises happen and then intervening to systems that in themselves diminish the likelihood of crises – and ensure earlier awareness as difficulties arise and more measured, orderly responses when crises have to be resolved.

So the new financial architecture, I suggest, is not just the adoption of codes and standards by all countries but a far more effective system for preventing and resolving crises, not least to ensure that the burden of adjustments is not as in the past placed on the poorest and most vulnerable.

We need to resolve the obstacles that stand in the way of effective debt rescheduling – including continuing to work on an international bankruptcy procedure and agreeing new standards for international best practice in sovereign debt contracts, with a strategy for encouraging their adoption worldwide. We also need to establish much clearer normal limits to IMF financing – with more transparent and objective criteria for going above the limits – and a clearer fund policy on standstills and lending into arrears.

Investment and corporate accountability

But stability is only the precondition. Over the last decade, Foreign Direct Investment flows across national boundaries, including to, and between, developing countries, have increased almost six-fold — an important driver for growth and development.

But the poorest and least developed countries suffer a double handicap. Not only is Foreign Direct Investment too low – with just three dollars per head going to low income countries compared to eleven hundred dollars per head to higher income countries – but also domestically generated savings and investment are low and often the savings that do exist leave the country in capital flight.

In seeking more favourable business environments in which private sector investment can be more productive, country-owned poverty reduction strategies have correctly focused on creating the right domestic conditions for business investment, including improved infrastructure, sound legal processes that deter corruption and the creation of an educated and healthy workforce. And we can list a number of countries recently – like Mozambique -which have taken tough decisions to restructure their banking sector, strengthen corporate governance, improve their transport infrastructure and develop their natural resources. In Mozambique this has resulted in a six-fold increase in Foreign Direct Investment over the last decade and GDP growth rates averaging nine per cent over the last five years.

And I welcome the work of the World Bank in surveying investment climates in developing countries such as India, Mozambique and Bangladesh. By investigating the regulatory, legal, human resource, financial and infrastructure constraints, we can inform future policy development and, as good practice emerges, it can be shared.

Last year I supported the creation of new investment forums – bringing public and private sectors together to examine the current barriers to investment and build a consensus, in the light of regional conditions, on how to secure higher levels of investment.

I am delighted that the World Bank and IMF have now established two such forums in Ghana and Tanzania – both members of the Commonwealth. These have been welcomed by both business and governments and are already identifying the priority reforms that will help increase investment flows – improvements to infrastructure, regulatory reform, the need for regional integration and the promotion of Africa as an investment destination for foreign firms.

Most importantly, investment forums are helping to break down the assumption that private sector development should either be led solely by business, or directed by the state – instead recognising that public and private sectors must work together in partnership to secure economic growth and reduce poverty.

Where multinationals are unaccountable across boundaries – and sometimes appear more powerful than the developing countries in which they operate – businesses and government must do more to restore the right balance, increase stakeholder awareness and achieve cross border accountability. Many businesses are already recognising the need to pursue socially and environmentally responsible business practice and I urge more companies to follow the principles of good corporate practice laid out in the OECD’s guidelines for multinational enterprises.

Business can also play a part in encouraging governments to be more accountable for the revenues they earn from their natural resources. The recent proposal from George Soros and Global Witness to increase transparency in extractive industries is an excellent example of how private sector companies can positively contribute to development and poverty reduction — and following the formation of a partnership to take this work forward at the recent world summit on sustainable development, more governments, businesses and NGOs must sign up to this initiative and make it work.

The challenges are formidable. The suspicions remain considerable. But I believe that by working with governments to remove barriers to investment, and through adopting sound principles of corporate practice, the private sector can play its part in the development of the world’s poorest countries.

Trade

Our third building block is widening and deepening trade.

In the last forty years those developing countries which have managed to be more open and trade more in the world economy have seen faster growth rates than those which have remained closed. From the early 1970s through to the 1990s, developing countries that were able to pursue growth through trade grew at least twice as fast on average as those who kept their tariffs high and their doors closed to imports and competition. We must ensure that all countries have the opportunity to reap these benefits.

Full trade liberalisation globally could lift at least three hundred million people out of poverty by 2015. Diminishing protection by fifty per cent in agriculture, industrial goods and services sectors would increase the world’s yearly income by an estimated four hundred billion dollars. All countries and regions stand to benefit, with developing countries gaining higher than average increases in GDP growth.

That is why the UK Government is committed to a trading system where developed countries do not dictate the terms of trade, but instead all countries participate on equal terms. We strongly support the new trade round launched at Doha where developing countries had a real and effective voice in the negotiations. And we are committed to Doha’s core development agenda – a package of measures to progress in areas that will lead to major gains for developing countries and the poorest people in these countries.

Now we must deliver on our commitments.

We must ensure that poor countries have access to the medicines they need to tackle the diseases crippling their societies – AIDS, tuberculosis, malaria – and protect public health.

We must continue to press for other developed countries to follow the European Union’s lead by offering duty and quota free access to all products except arms from the forty-nine least developed countries.

And since three quarters of the world’s poor live in rural areas, urgent action is needed to reduce agricultural protectionism and open up trade.

More than two thirds of workers in low income countries work in agriculture compared to only 5 per cent in high income countries. Yet developed country subsidies to agriculture amount to one billion dollars every day – greater than the national income of the whole of sub-Saharan Africa and seven times the total of overseas aid flows.

On average the 6.5 million farmers in the European Union receive subsidies of $2 a day for every cow they own. At the same time, 3 billion people in the world do not have $2 a day to live on.

The UK is working hard to secure substantial reforms in the mid-term review of the CAP now underway and I urge others to join us – all developed countries subsidising agriculture must show leadership.

But we must not rush developing countries to reduce their tariffs without recognising the effect it could have on both government revenues and on the livelihoods of people working on the land. We need a sequenced approach which ensures that appropriate measures are in place to protect vulnerable countries and vulnerable people from an overly rapid transition to a system of liberalised trade.

So we support the IMF and World Bank commitment to work with countries to undertake poverty and social impact analyses of trade reforms, and will continue to promote the integration of trade into developing countries’ poverty reduction strategies. And to enable developing countries to participate fully and effectively in the trading system, by 2004 the UK Government will have committed £45 million pounds to support trade-related capacity building.

Development compact

Radical trade reform could be worth $150 billion dollars a year to developing countries, but there cannot be a solution to the problems that developing countries face without a fourth reform: that in return for developing countries pursuing corruption-free policies for stability and for creating a favourable environment for trade and investment, developed countries should be prepared to increase vitally needed funds to achieve the agreed millennium development goals.

Too often the world has set goals like the Millennium Development Goals and failed to meet them.

Too often we have set targets, reset them, and recalibrated them again so that our ambitions in the end, only measure our lack of achievement.

This time it can – and must – be different. This time, we must together commit ourselves to a specific course of action, and then each of us as partners must be prepared to make the radical changes required.

Action is particularly needed on education and health.

In some Commonwealth countries great progress has been made on education. Enrolments in Malawi and Uganda doubled in five years with the abolition of school fees; enrolment rates of over 90% have been achieved in Botswana, Swaziland, South Africa and Zimbabwe. And in South and West Asia, primary enrolment is approaching 75%.

But according to a recent World Bank study, nineteen Commonwealth countries are in danger of missing the Millennium Development Goal of primary education for all

Developing countries themselves must play their part – drawing up their own education plans, channeling resources to education through their poverty reduction strategies, abolishing user fees and ensuring that children do not just start school but actually finish their education. But, in return, the international community must increase substantially its financial contribution for education in the poorest countries.

Since 1997 – under the leadership of Clare Short, Secretary of State for International Development – the UK has committed over £700 million to the development of sustainable, quality primary education systems in sub-Saharan Africa and South Asia —- and we will substantially increase our education spending again over the next few years to enable an extra 20 million children to enroll in primary school by 2006 – 80% of these in commonwealth countries.

I urge other developed countries to also provide additional finance for basic education – resources committed over the long-term so that countries can plan and utilise them effectively. And in the months ahead, the World Bank and their partners must continue to develop its fast-track initiative – rooting their support within existing country efforts, doing more to address the needs of children in countries with poor government performance where the challenge is greatest, and reporting back on progress at the spring meetings.

We must also move forward with as much speed and purpose on the issue of health.

As many as half of all malaria deaths could be prevented if people had access to diagnosis and drugs that cost no more than twelve cents.

A quarter of all child deaths could be prevented if children slept beneath four dollar bed?nets – in Africa, only one per cent of children do.

And improving and expanding immunisation could save a further two million lives each year.

Where these strategies have been implemented in commonwealth countries in the last twenty years, they have brought results. In Uganda the spread of HIV/AIDS has been halved in urban areas and reduced by a third nationally; in India tuberculosis deaths have been halved; and in Bangladesh child mortality has more than halved.

Inspired by these successes, developing countries across the Commonwealth should place action on health at the very core of their priorities, budgets and poverty reduction strategies. But recognising the limits imposed by the weaker economies of developing countries, the international community must also urgently increase its support.

In the last year much progress has been made. So far over 2.1 billion dollars has been pledged to the global health fund to support developing countries in their fight against AIDS, TB and malaria. And the UK is playing its part – contributing two hundred million dollars to the fund over five years and creating new tax incentives to accelerate the research into diseases like AIDS, TB and malaria.

But we must do more to increase the capacity of health systems in developing countries to enable them to provide good quality, appropriate and affordable services for their citizens. So just as the World Bank has set out an action plan for education, we call on them to work with the World Health Organisation to identify – on a country-by-country basis and through a systematic review of poverty reduction strategies and sector plans – the capacity gaps and financing efforts needed to build effective healthcare systems. An initial report should be presented at the spring meetings.

What is clear is that we will not succeed in achieving our goals of reducing poverty, and of improved education and better health, by acting alone. Instead all of us – developed and developing countries, international institutions and civil society – must work together.

The role of developing countries in tackling their own problems is key. They must show genuine commitment to education, health and poverty reduction – demonstrating that both public and donor funds are properly and effectively used.

As finance ministers we have a key role to play – a step change cannot be made without the highest political leadership. Here in the UK, we are driving forward the reform of public services, including education and health, through Public Service Agreements between spending departments and the Treasury to ensure that additional resources spent actually result in improved outcomes.

Anti-corruption strategies and international standards in public financial management are also crucial. All countries should meet high standards in public financial management and accountability, and all HIPC countries should agree ambitious timetables to do so within their poverty reduction strategies. As a first step, I am proposing that all HIPC countries currently receiving debt relief should achieve a core number of international benchmarks in budgeting, auditing and reporting within three years.

In return for developing countries adopting reforms, the international financial institutions must provide governments with much more coordinated support as they strive to meet these benchmarks – and undertake much broader consultation on the indicators, including with the Economic Commission for Africa.

The IMF and World Bank must also do more to ensure a more open policy dialogue when supporting the development of poverty reduction strategies in low income countries – including explicit discussion in fund programmes of alternative policy choices and trade-offs, supported by poverty and social impact analyses to ensure policies deliver real benefits for the poorest.

Where developing countries demonstrate a genuine commitment to poverty reduction and the Millennium Development Goals, this must be matched by an equal commitment on the part of the international community to ensure that no such country is denied the chance of achieving its goals through lack of resources.

This will require a significant increase in aid and further progress on debt relief.

Pledges from the United States and the European Union made at Monterrey in March will, from 2006, raise an extra 12 billion dollars each year for education, health and anti-poverty programmes, with possibly half or more of these funds going to Africa. This is an historic advance – a reversal of the twenty-year decline in aid levels.

For its part, the UK will increase its aid budget to nearly £4.9 billion pounds by 2005-06 – a ninety-three per cent real terms increase since 1997. This will take the UK’s ODA/GNP ratio to 0.4 per cent – the highest in twenty years and double the G7 average: continuing evidence of our commitment to the target of raising development assistance to 0.7 per cent.

At the same time, the HIPC debt relief process is lifting the burden of unpayable debt from twenty-six of the most high indebted countries, canceling sixty two billion dollars in debt from countries that have clearly demonstrated their commitment to poverty reduction.

But what drives us forward are not the achievements we can point to – important as they are – but the gains still to be made. If all countries eligible – including countries in conflict – became part of HIPC, one hundred billion dollars of debt could be cancelled.

The commitment by the G7 to contribute an extra 1 billion dollars to finance the shortfall in the enhanced HIPC initiative, together with the call foraction to tackle the issues of creditor participation and debt sustainability, is a great achievement. And the UK stands ready to pledge our contribution towards the financing gap at the annual meetings.

We must also do more to support HIPC and other low-income countries who face legal challenges from creditors – both commercial and official – who are unwilling to give debt relief and we look forward to receiving the forthcoming report on this from the Fund and Bank. We particularly condemn the perversity where vulture funds purchase debt at a reduced price and make a profit from suing the debtor country to recover the full amount owed – a morally outrageous outcome. The UK proposes that the IMF or World Bank should manage a trust account, funded by donors, to pay for technical assistance to help any HIPC country being sued by a creditor who refuses to deliver relief, including vulture funds.

Where countries have had to contend with external shocks – such as sharp falls in the price of key export commodities – we must form a broad consensus on the need for topping up at completion point to ensure a lasting exit from sustainable debt. And we must develop more realistic and generous rules for its provision – including agreement that the calculation of topping up should exclude voluntary bilateral provision of additional 100 per cent relief.

But debt relief and the aid already pledged will not be enough on their own. The report of the high-level panel on financing for development, chaired by former president of Mexico Ernesto Zedillo, estimated last year that if we are to achieve the Millennium Development Goals at least an extra fifty billion dollars of aid will be required every year. And this will be needed even with trade liberalisation, increased private sector investment and developing country reforms.

So as a matter of urgency we must consider the means by which the benefits of the new resources agreed earlier this year can be maximized – both through improved aid effectiveness and by leveraging in additional funds.

Reordering priorities, untying aid and pooling funds internationally could release additional funds for anti-poverty programmes in the poorest countries. The UK Government will increase the poverty focus of our own aid in order to raise the proportion spent in low-income countries from seventy-eight per cent currently to ninety per cent by 2006. And we will also work to improve the effectiveness of European Union aid.

But we must be honest with ourselves. Even with more debt relief and improved aid effectiveness the scale of the challenge is such that we need to consider other innovative forms of financing, building on the twelve billion dollars already pledged to reach our fifty billion dollar target.

One option is to pool additional resources in a new international development financing facility that could leverage funds from international capital markets to meet the demand for large-scale assistance now and enable a much earlier achievement of the Millennium Development Goals than might otherwise be possible.

This new financing facility requires donor countries to pool substantial additional resources – including, for example, those pledged at Monterrey – with some guarantee, perhaps backed by callable reserves or appropriate collateral as security, so these resources could be leveraged through borrowing from international capital markets to meet the demand for large-scale assistance now.

The extent to which such a financing facility might leverage funds from international capital markets would depend on a wide range of factors including the size of donor contributions, interest rates, the total amount disbursed and the proportions and terms of any grants and loans within that total. But reasonable assumptions suggest that such a fund might clear its debts in around thirty years. A broad package of measures that generated additional flows of fifteen to twenty billion dollars a year could be leveraged up by the private sector to provide an additional fifty billion dollars each year until 2015 – enough to meet the Millennium Development Goals.

What is essential is that, whatever option is taken forward, we build a coherent response from the entire international community that generates confidence and support from both developed and developing country governments and their citizens. And I believe that the commonwealth can play a key role in driving this forward.

Conclusion

The challenges of globalisation are immense. But before us there is an unprecedented possibility of progress.

Our vision of the way forward is that, in an increasingly interdependent world, all can benefit if each meets agreed obligations for change.

At this momentous time in history which has seen the best and the worst of humankind, it is up to all of us in every nation – the most powerful and the most powerless, the most prosperous and the poorest – to pledge together that in the face of so much pain and poverty, and with the possibility of so much progress, we will not pass to the other side.

We should not retreat from globalisation. Instead, we must work together – across the Commonwealth and across the world – recognising our common values, our mutual needs, our linked destinies and our shared goal: to advance social justice on a global scale.