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The speech made by Gordon Brown, the then Chancellor of the Exchequer, on 15 November 2001.

I am delighted to join you at your annual dinner this evening and to pay tribute not just to the work of British business but to commend you – as individual company directors, executives and managers – on the work you do, the service to our country you give, the difference you make to the economy, to employment and prosperity to all.

The Institute of Directors has always stood for an enterprise economy – a dynamic high productivity, high investment, economy built on a strong entrepreneurial culture. And this evening I want to devote my remarks to how to widen and deepen the enterprise culture in our country – strengthening the stability that is its foundation, the competitive environment that is its essential building block and opportunities for the talents of people- their ideas their skills and their initiatives – that are its driving force – to flourish.

Now I am grateful for the opportunity on the eve of my visit to the IMF, World Bank and G20 meetings in Ottawa to speak to you about the challenges we face in Britain and globally.

The tragedies of September 11th will never be forgotten and there are many here this evening whom I know lost friends and colleagues in the collapse of the twin towers.

I can tell you that in Ottawa Finance Ministers and Bank Governors will match the successful military action against terrorism with agreement on an international action plan to cut off the supply of finance to terrorism.

Those who finance terrorism are as guilty as those who practise it and having in Britain alone frozen and immobilised £70 million of suspect terrorist funds we will ask all 183 member countries to outlaw and seize suspicious transactions which may abet terrorism.

And I can tell you that from Britain we will offer to coordinate a central register for technical assistance to countries implementing anti-terrorist measures. And now that anti-terrorist finance units are being set up in all major financial centres we will offer London as an international clearing house for information exchange on asset tracking.

In times like these that challenge and test us, the essential economic function of government is to maintain the conditions for stability and growth and more than ever this must be done not just nationally but internationally.

And it is a tribute to international cooperation that this challenge to the global economy is being met by a global response – that not only have interest rates been brought down worldwide but the central banks of America, the Euro area and Japan as well as Britain have made clear their willingness to take any necessary further action.

All of us should be heartened by not just the spirit but the letter of the historic agreement reached at Doha, developed and developing countries working together to agree to enter a new round of world trade talks – the so called “Doha development agenda” that will engender among the economies of the world greater confidence in the months ahead.

Oil prices – which have previously risen in times of trouble — have fallen in the last month and we will continue to work with the oil producing countries to ensure steadiness of supply and prices. Where markets have failed, as on airline insurance, governments across Europe and America acted to fill the gap — with a new short-term insurance guarantee.

Because no country can insulate itself from the global economy, with world trade slowing, recession threatening in America as well as Japan, and no-one yet sure about the final impact of the events of September 11th, these are still times that are uncertain, times that test us here in Britain.

I understand people’s worries about the effects on their jobs and livelihoods of a global slowdown which will inevitably impact on Britain’s economic growth. And in the Pre-Budget Report we will do more to recognise the vital contribution of modern manufacturing to exports, innovation and our great regions.

But it is because of the tough decisions we took from 1997 to create monetary and fiscal stability that we are today in a better position to withstand the ups and downs of the economic cycle and the pressures of today.

Over the last four years the message you – and the whole of business – have consistently sent us is: maintain the conditions for long-term stability.

Since we introduced a new monetary and fiscal framework four years ago – with bank independence, a symmetrical inflation target, debt reduction and new fiscal rules – inflation has remained at or near the Government’s target of 2.5 per cent.

Indeed, before bank independence the financial market expectation of inflation 10 years ahead was 4.2 per cent– even when there was a 2.5 target – this year the long-term inflation expectations have been averaging 2.5 per cent – exactly on target.

And interest rates have come down to 4 per cent – the lowest for nearly 40 years – precisely because we have a low inflation economy. And we will continue to back the Bank of England in all the difficult decisions it makes.

Central to our fiscal stability is the tough decisions we took in the first Parliament to cut national debt to sustainable levels. Debt was 44 per cent of national income in 1997 when this Government inherited a £28 billion deficit and we immediately took the difficult decisions to freeze spending, introduce new fiscal rules, make the tax changes that were necessary and so cut the burden of unsustainable debt. And in future years, we will also have the strength to take any difficult decisions where they are necessary.

Today debt is falling towards 30 per cent, in contrast to 41 per cent in America, 49 per cent in France, 51 per cent in Germany and 102 per cent in Italy. Britain’s debt as a share of national income is now the lowest in the G7 and lower than our major European competitors.

These sustainable levels of debt allow us to meet our health, education, and transport commitments, deal with emergencies as they arise and at all times maintain and hold both our fiscal rules.

Both you and I want a culture that entrenches low inflation and fiscal discipline – not just for a year or two but also over the long term. So even when tested by events and pressures for spending here and there, the resolve you asked us to demonstrate in 1997 will be maintained. We will not bow to short-term pressures or the old quick fix solutions – we will not abandon the inflation target, relax our fiscal discipline or put our hard won stability at risk but will stay the course.

And we will not change our European policy either: in principle our support for the single currency, in practice the five economic tests that have to be met.

Stability is the foundation but productivity achieved from that platform of stability is – as you know – the key to our future prosperity. And the central economic theme of our Pre-Budget Report will be our support for enterprise – for building a stronger, more dynamic, enterprise economy.

In the past, politicians – indeed both my predecessors and I – have been accused of saying one thing to one audience and another thing to another. So I want to share with you today the agenda for modernisation that I have put to both the Labour Party and the TUC. I am not saying to you what I have not already said to them.

I told them that we must never again be seen as anti-success, anti-competition, anti-profit, and anti-markets.

I said that the new information age economy would need not less but more competition, and not less but more entrepreneurship and flexibility.

It is undeniable that for fifty years after 1945 the British economy and Britain suffered from backward looking and self-defeating conflicts between capital and labour, between state and market, and between public and private sectors – denying Britain a shared national economic purpose.

I believe Britain and the British people have moved beyond these outdated divisions.

As we have entered a new century we have been leaving behind the old disputes and I am optimistic that together – directors, managers and workforce, public and private sectors – we are defining for our times a shared national economic purpose for Britain.

And my reasons for optimism are these:

First, there is now public support from the board room to the shop floor for our framework for monetary and fiscal stability that together we have to build and sustain – even when it means making unpopular decisions;

Second, the work ethic – so important to success in the years of the first British industrial revolution – is being once more re-invigorated in high unemployment communities where it had in recent decades withered – thanks not least to the contribution your companies are making to the New Deal;

And third, perhaps of even more long term importance, we are rediscovering our essential strengths as a nation: our inventiveness and flexibility; our internationalism and openness to the world; our willingness to adapt to change; and our belief in self-improvement and the importance of education.

These historic strengths, which represent some of the proudest parts of our heritage, can contribute most to a successful future and are reflected in:

British initiatives in trade and development designed to advance our national goals of free trade and open markets;
a new emphasis on science and innovation to release the creativity and inventiveness of the British people, not least in knowledge based industries; and

putting education in our schools first to reassert the importance of learning, to raise standards at all levels and to allow young people to develop the talents necessary for high productivity growth.

So how can we build on this in the Pre-Budget Report and beyond?

Our aim for this decade should be to achieve the fastest rise in productivity of competitor countries. Indeed, in a period where the world is slowing down it is the high productivity performers that will gain the most. And beyond our responsibilities for stability, the modern, more focussed, role of government is to:

ensure there is a competitive environment throughout the economy so the companies that are the most innovative and dynamic can flourish; and maximise educational employment and economic opportunities so people can make the most of their talents, ideas and initiatives
Thus creating a wider and deeper enterprise culture that promotes investment and entrepreneurship and rewards success. And I can say tonight that our budget tax decisions will promote these goals and help build an economy that is not only enterprising but where enterprise is open to all.

Having already cut corporation tax for companies from 33 to 30 pence – the lowest rate in the history of British corporation tax and now the lowest rate of any major industrialised country anywhere, including Japan and the United States – and having also cut small business tax from 23 to 20 pence and introduced a new starting rate of tax for small companies of 10 pence in the pound we are considering further measures to extend the cuts in small company tax.

And of course businesses will also benefit from the reduction in long-term capital gains tax from 40 pence to 10 pence.

When we came into power we had many priorities: health, education, transport, pensions. Amidst all these priorities we decided that enterprise and long-term investment would be enhanced by reforms in capital gain tax including cutting rates – and we set aside hundreds of millions of pounds to do so.

Capital gains had been fixed at 40 per cent for almost ten years. So in 1998 we cut the long term rate of capital gains tax for business assets and next April we propose doing so again: from 40 per cent to 20 per cent for investments held for one year; and to 10 per cent for investment held for two years.

And because Britain’s challenge is to grow more successful dynamic businesses, I am introducing new measures that help dynamic managers build up these businesses and rewarded for doing so.

The new Enterprise Management Incentive scheme allows growing companies to give options of up to 3 million pounds of shares – free of income tax and national insurance – to recruit and retain the employees they need to be successful. Since it was introduced in July 2000, over 1500 companies have used EMI for more than 12,000 of their employees. In the Budget I am considering doubling the asset limit to £30 million – doubling the asset size of companies which can benefit from EMI.

We know that open not closed economies are the driving force in productivity growth. And we know that it is the global reach of business, not protectionism, that is the key to dynamism and growth.

Because competition is the spur to efficiency and innovation, and because greater competition at home will mean greater competitiveness abroad, we are creating the most open competition policy this country has ever seen.

In 1997, we made monetary decisions independent of political influence within a long-term framework where the policy objective is clear, the division if responsibility is clear, and there is maximum transparency and accountability. Now we must do the same for competition policy – sending an important message that the days of picking winners and uneconomic state subsidies and corporate fixes are over and cannot return and wherever there are barriers to competition we will tackle them.

And because we recognise the increased importance of innovation to economic growth we have already:

invested 1 billion pounds extra in science;
established a new University Challenge Fund to help commercialise British inventions; and
created eight new Institutes of Enterprise to bring management skills into engineering and science.

The new Research and Development Tax Credit gives even the newest and smallest business cash help to research and develop their innovations, even before they make their first profits. At a cost of £100 million this year, rising to £150 million next year, this targeted tax cut ensures that nearly a quarter of small business research and development costs will be underwritten by Government.

But we need to do more to turn scientific inventions in Britain into jobs for Britain by honouring the spirit of invention, facilitating the exploitation of invention and encouraging the commercialisation of invention.

So we are discussing with large companies a further tax cut for innovation and R&D that will give Britain one of the best incentives for innovation anywhere in the industrialised world.

Because we understand the importance of e-commerce we have set ourselves the task of making Britain the most favourable environment in which to conduct e-commerce – creating a new legal framework to give new incentives for businesses to use the internet, putting government services themselves on line, and gearing our education and training system to the IT revolution.

All our reforms are designed to create a more adaptable workforce for the modern dynamic labour market where people change jobs more often and skills are at a premium.

I am grateful to the 60,000 employers in Britain who have signed up to participate in the New Deal and are now working on the Ambition programme to link people without jobs to the skills we now need. To ensure proper supply of labour, we will continue to tighten the responsibilities expected of the unemployed, and with our tax and benefit changes we will ensure that for families work pays more than benefits.

I am grateful too for the IoD’s support in extending employee share ownership. Two years ago only a fraction of British employees, and an even smaller minority of those outside senior management, owned shares in the companies that they worked for. Today, 470 companies are set to enjoy the benefits of the share incentive plan – involving 700,000 employees – moving towards the first one million to benefit – representing a key milestone in removing the “them and us” culture.

Many of you have rightly complained about complexities, delays and anomalies in our physical planning system. We will reform and modernise our physical planning laws and Steven Byers will publish in the next few weeks a green paper promoting reform which will strike the right balance in a modern economy which puts an ever higher premium on speed, efficiency and flexibility – especially to reflect the widely differing needs of all our regions.

And the efficiency we seek in the private sector we demand on the public sector. Having doubled net public investment by 2003-04 to £18 billion per year, and agreed £180 billion of new public and private investment over ten tears for transport, government at every level – national, regional, and local – must raise its game.

And, early next year, we will take the enterprise agenda forward in Europe with proposals in a European Economic Reform White Paper to modernise capital and product markets, encourage innovation and an enterprise culture, and develop a modern skills base.

I want a Britain where just as employment is for all, enterprise is open to all – a Britain with a creative, innovative and enterprising economy in every area.

Indeed we must do far better than we have in the past. We must go beyond what was achieved in the eighties giving more people the chance to turn their ideas into profitable companies, to start firms, create jobs and win business for Britain.

And I want to send a message to every business and every would be businessman or woman: if you are starting up, hiring for the first time, growing and looking for capital, seeking to export or seeking to float as a company: we are on your side, whatever your trade whatever your region, whatever your ambitions.

So we are simplifying vat for half a million small firms and have published proposals for a new flat rate scheme – reducing business costs by up to £1,000 a year – a move widely supported by trade bodies.

And we introducing a further deregulatory measure – at present companies must compile separate accounts for Companies House and for the purpose of calculating their tax. We are now consulting with business on abolishing the requirement for separate accounts for tax, cutting both red tape and business costs.

I would like to ask directors and managers here and throughout the country to take in interest in helping renew and regenerate our high unemployment areas – often inner city estates and old established heavy industry communities where small business creation is, and remains, low.

As I told the Labour Party conference there is no solution to the problems of these high unemployment areas without the creation of more small businesses and more businesses generally. I see old established areas as new opportunities for business, new markets with untapped resources for economic development.

So to cut back the cost of investing in high unemployment areas, and regenerate out towns and cities, in August this year we introduced:

a cut in VAT on residential property conversions to 5 per cent;
100 per cent first year capital allowances for bringing empty flats over shops back into the residential market; and
an accelerated tax relief set at 150 per cent for cleaning up contaminated land and considering a further corporation tax relief, for firms investing in our new urban regeneration companies.

And to make the first stages of buying property and bringing land back into use tax free we are considering introducing a stamp duty exemption on property sales in our most disadvantaged areas.

To cut the cost of small business borrowing we have introduced a new Community Investment Tax Credit will create the first Community Development Venture Capital Fund – a partnership between government, financial institutions and the charitable sector for which the chairman of our review, sir Ronald Cohen, proposes a capitalisation of £40 million.

But we can do more. I want us to spread the message of enterprise throughout the country and to open up the opportunities of enterprise to all.

I care passionately about this. And I know George Cox your director general does too and I praise him for the work he has done in Enterprise Insight, taking the enterprise message to schools and colleges.

When I was at school the world of education was far too remote from the world of business.

I want every young person to hear about business and enterprise in school; every college student to be made aware of the opportunities in business, even to start a business; and every teacher to be able to communicate the virtues of business and enterprise.

I want businessmen and women going into school and into the enterprise classes; I want every student to have a quality experience of working in a local business before they leave school; I want every community to see business leaders as role models.

We have begun to improve the national network that brings schools and businesses together – increasing the scale of enterprise classes in our schools. But I want to see more businesses even more involved with their local schools – improving the quality of work experience for year 10 students and business placements for teachers.

Around Britain there are many successful examples of schools and businesses working together for the benefit of both. And I want all schools – especially those in disadvantaged areas – to benefit.

I applaud the new national enterprise campaign “Enterprise Insight” – promoting the work of partners including Businessdynamics and Young Enterprise, bringing schools and businesses closer together and providing more than 100,000 young people every year with hands-on experience of what it is like to be in business. Since its launch earlier this year 246 companies have already signed up to take part.

If we are to have a deeper and wider more entrepreneurial culture we need, we must start in our schools and colleges. The Secretary for Education and I have asked sir Howard Davies to examine how we can make progress.

And I urge all businesses throughout the country to adopt a school – whether it is by taking students on work experience and teachers on work placements, sending employees into schools to help run enterprise classes, or being business governors.

In this way, every business in the country will be helping to build the new enterprise culture that we all want to see.

Conclusion

We must not rest but be determined about Britain’s future, not relax our efforts but step them up and prepare for the next stage of our productivity drive by removing all the old barriers to employment and prosperity.

If we do so there is a great prize – not only the long-term stability you asked us to build but sustained rises in growth and prosperity for our communities and our companies, and from which the whole country can benefit.

The speech made by Gordon Brown, the then Chancellor of the Exchequer, on 5 November 2001.

I am delighted to be here this evening to pay tribute not just to the work of the CBI and to British business but to commend you – as individual company directors executives and managers – on the work you do, the service to our country you give, the difference you make to the economy, to employment and to the prosperity of Britain.

As we all know this conference is being held at no ordinary time, but in the wake of a terror so awful and so momentous that it has transformed our times and our task.

All of us here today will wish to express our sympathies to the families of those employees in the financial services and other industries and in the fire, police and other public services who lost their lives on September 11th. Many companies represented here today lost valued employees.

And 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 – must continue to show — as we have shown by our actions in maintaining the conditions for stability and growth — that we will not succumb or surrender to their threats.

And we have found that action, more than ever, must be coordinated not just nationally but internationally.

Britain will continue – as Tony Blair has said – to stand shoulder to shoulder with America. And it is a tribute to international cooperation that this challenge to the global economy is being met by a global response – that not only have interest rates been brought down worldwide but the central banks of America, the euro area and Japan as well as Britain have made clear their determination to take any necessary further action.

Oil prices – which have previously risen in times of trouble – have fallen in the last month and we will continue to work with the oil producing countries to ensure steadiness of supply and prices. And where markets have failed, as on airline insurance, governments across Europe and America acted to fill the gap — with a new short-term insurance guarantee.

Because no country can insulate itself from the global economy, with world trade slowing, growth slowing sharply in America, Japan and Germany and no-one yet sure about the final impact of events, these are times that are uncertain, times that test us here in Britain.

I understand people’s worries about the effects on their jobs and livelihoods of a global slowdown which will inevitably impact on Britain’s economic growth. And in the pre-budget report we will do more to recognise the vital contribution of modern manufacturing to exports, innovation and our great regions.

But it is because of the tough decisions we took from 1997 to create monetary and fiscal stability that we are today in a better position to withstand the ups and downs of the economic cycle.

Ten years ago when the US slowed at a time of international conflict, British inflation had risen above 10 percent and Government had to raise interest rates even when unemployment was rising above 2 million.

Today because we have made the Bank of England independent and have a credible monetary framework based on a symmetrical inflation target, inflation has been at or near our target of 2.5 per cent for four years. The longest period of low inflation since the 1960s.

A decade ago British interest rates peaked at 15 per cent and were above ten per cent for four years.

But because since 1997 we have combined monetary discipline with fiscal disciplines which people know we will keep, they have averaged 6 per cent. And today they are 4.5 percent, for homeowners and businesses the lowest long-term interest rates for nearly 40 years.

And while we will never be complacent, at this time of global slowdown – unlike 10 or 20 years ago – the fundamentals are sound: low inflation, stable public finances. So despite the difficulties and pressures we now face, with interest rates cut 6 times since the start of 2001 and fiscal policy supporting growth this year, I am cautiously optimistic.

We all know that as long as terrorism is allowed to threaten, our economy can never be fully secure, our society never fully at ease. So meeting the necessary cost of military action – and our international development responsibilities in Pakistan and Afghanistan – is a duty we must and will discharge, paying what it needs to root out terrorism and the supply of funds and equipment to terrorism. And it is a duty we are able to discharge because of the discipline and tough rules we have applied to public spending in the past.

But – as I have told my Cabinet colleagues and I now repeat publicly – in other areas of spending this is the time for more discipline not less. And I can say to you that, throughout, we will not relax our fiscal disciplines and we will work within the fiscal rules we set in 1997 and have upheld throughout.

Stability is the precondition but you all know as businessmen and women that it is not enough.

As the CBI and the TUC recognised when we met at Downing Street last week, at this time of global uncertainty it is even more important that we work together to enhance wealth creation and raise productivity. In the years to come we will need substantial productivity gains to continue to raise our trend rate of growth and thus our national prosperity.

While we have world class companies represented here tonight, and I applaud you for your contribution to Britain’s success, the conclusion of the CBI-TUC review submitted to the Government last week is that overall productivity in Britain is still far too low and that if we are to achieve our aim for this decade – the fastest rise in productivity of our competitors – we will, all of us, with labour market, capital market and product market reforms have to modernise, change and reform.

Tonight I want to assure you from the Government that not only will we continue our policy of moving the unemployed from welfare to work – indeed we will enhance both the New Deal’s opportunities and sanctions – and our measures to enhance labour market flexibility as a contribution to higher productivity, but we will also, in consultation with you, move forward the enterprise agenda:

First, to reward enterprise and entrepreneurship I can say tonight that the Budget will significantly extend our cuts in capital gains tax. I will propose that for business assets held for 2 years, capital gains tax which in 1997 was 40 per cent will be cut to 10 percent – designed to provide incentives for investment in wealth creation and greater rewards for success – indeed a more attractive capital gains tax regime overall than the United States.

Second, in the next Budget I will also propose extending our cuts in small company corporation tax where instead of 23p in the pound the rates are now 20p and in many cases only 10p, and there will be a simplification of the VAT system as we introduce further deregulatory measures to help small businesses.

Third, many of you have rightly complained about complexities, delays and anomalies in our physical planning system. We will reform and modernise our physical planning laws and Steven Byers will publish in the next few weeks a Green Paper promoting reform which will strike the right balance in a modern economy which puts an ever higher premium on speed, efficiency and flexibility – especially to reflect the widely differing needs of all our regions.

Fourth, we are introducing a new competition regime – with decisions taken out of the hands of politicians and truly independent of the political process – that will match the best in the world.

Fifth, your needs include the best skilled manpower and work ready staff, and we are ready to fulfill our responsibilities by putting additional resources into a reformed training system and ready to sanction an extension of the work permit system that has already raised entrants to the UK from 50,000 three years ago to 150,000 this year.

Sixth, the efficiency we seek in the private sector we demand in the public sector. Having doubled net public investment, Government at every level – national, regional and local – must raise its game. We will maintain our £180 billion ten year plan to modernise our transport infrastructure – and any one of you who have travelled across Britain know the importance to business and communities of this doubling of transport investment

And I leave you in no doubt that we will continue our programme of public private partnerships. Whether it be in the London Underground or in the air traffic control service, I am convinced that instead of the old sterile divide which pitted public against private, we do best when public and private sectors work together to enhance investment in our transport and infrastructure.

And if we as a nation are to have a deeper and wider entrepreneurial culture we must do more to extend knowledge of enterprise to every community. We all know that for too long the world of business and the world of education existed apart from each other. With your support I want every young person to hear about business and enterprise in school, every college student to know there are opportunities in business, every teacher able to communicate the virtues of enterprise, and I want young people growing up to see successful business leaders locally and nationally as role models, so encouraging a stronger pro-business, pro-enterprise, pro-wealth creating environment in our country.

It is not just in Britain but in Europe as a whole that a modern route to both economic stability and a more entrepreneurial economy based on economic reform is needed.

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

As I set out at the Lord Mayor’s Banquet earlier this year, our approach 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, and to join in the wrong way or on the wrong basis without rigorously ensuring the tests are met, would not be in the national economic interest.

A single European currency – with a fully developed single market – could in principle increase trade and competition through the elimination of exchange rate risk and through more transparent prices; reduce transaction costs, again increasing trade and investment, and benefiting everyone travelling in Europe; and lower long-term interest rates, again good for investment and so good for growth and jobs.

Because the Government is determined that we will make the right long-term decisions for Britain, we will not take risks with Britain’s hard won stability.

So the assessment as to whether it is in the British national economic interest or not will be comprehensive and rigorous. It is only on this basis – taking into account all relevant economic information – that the Cabinet will decide whether to recommend membership to Parliament and then to the British people.

While the assessment has not yet started, the necessary preliminary analysis – technical work that is necessary to allow us to undertake the assessment within two years as we promised – is underway.

The scope of the technical and preliminary work for the next assessment of the five tests is as set out in the original October 1997 assessment. Although there have been new developments since the 1997 assessment, the underlying issues to be analysed remain the same.

The 1997 statement detailed five economic tests:

– First, sustainable convergence between Britain and the economies of a single currency;

– Second, whether there is sufficient flexibility to cope with economic change;

– Third, the effect on investment;

– Fourth, the impact on our financial services industry; and

-Fifth, whether it is good for employment.

Now the preliminary and technical work is updating the analysis on:

The cyclical behaviour of the UK economy relative to the euro area and their relative responses to economic shocks;

The mechanisms by which product, labour and capital markets adjust and how well and how quickly they work;

The impact of the single currency on the cost and availability of capital, macroeconomic stability, the stability of the real effective exchange rate and the location, quality and quantity of investment;

The effect of the single currency on financial services, including the changes that have occurred in this sector in the UK and the euro area since 1997; and

The impact of the single currency on trade, competition, productivity and employment.

Our commitment is to complete a full assessment of the five tests within two years of the start of this Parliament.

And I can tell the dinner this evening that our commitment “to prepare and decide” is being maintained with the publication of the latest euro preparations study today.

We have always said that we must prepare together – not one or two businesses, but Government and business working together.

The Government’s Standing Committee on Euro Preparations – with membership drawn from the public and private sectors, including the president and Digby Jones – met again last Monday as a key part of our consultation.

And we are today publishing our latest Progress Report on Euro Preparations. In just a few weeks’ time, Euro cash will displace existing currencies in the euro area. This will have an impact on many UK businesses and also on citizens in their capacity as tourists. I an pleased that Government and the CBI are working together to give advice to businesses – indeed the next phase of our information campaign starts today, including the direct mailing of sample case studies and an information booklet to 1.5m SMEs.

And in addition to this help for business, together Peter Hain and Ruth Kelly will also be sending out an information leaflet for UK travellers to help them with the transition to notes and coins.

Planning for possible UK entry also continues under the national changeover plan. The Government has invested £13m since the publication of the last Report on Euro Preparations in November last year, bringing the total invested on changeover planning to £23.5million.

These are the preparations we are making together. Because we are resolved we will not leave Britain economically unprepared.

Around the future of the Euro there is of course an ongoing national debate.

But across Europe a wider debate on the future of Europe is also taking place and Britain must be at the centre of that debate too – a debate on economic reform amidst the challenge of globalisation, enlargement into the east and the wider Nice agenda to make decision making in Europe more accountable and relevant to the population as a whole.

Europe is where we are, where we trade, from where thousands of businesses and millions of jobs come. We are part of Europe by geography, by history, by economics and by choice. So the case is not only for a reformed Europe but for Britain leading reform in Europe.

Getting the economic future for Europe right matters for Britain because over three quarters of a million UK companies now trade with the rest of the European union. When we joined Europe in the 1970s, less than 8 billions of our trade was with the rest of Europe. Today it is £138 billions – more than half our total trade – with 3 million jobs affected.

But while the single market encompasses 375m people today – and potentially nearly 500m in the future – we still have a long way to go to secure for British business and British consumers the full benefits in commercial opportunities and consumer prices.

The 1988 Cecchini report examined in depth the potential economic gains of the single market, asserting that completing it would raise GDP by 4.5 percent and create 1.8 million new jobs.

Yet by 1996, the boost to GDP had been only 1.5 percent and almost 1 million new jobs had been created. And there is little to suggest that by 2001 we have realised even half of the potential gains. So we will publish a White Paper on Economic Reform setting out the next stage of our plans to liberalise capital labour and product markets

There are those who say that in the current climate Europe can justifying going slow on its programmes of economic reform, that now is not the time for pushing forward with change. I say to them that now is the time – when we can see the interdependence of our economies and the challenges of globalisation more clearly – now is the time to drive forward the reform agenda to improve the flexibility and productivity of the European economy.

Firms across the UK will benefit with new opportunities to trade in the 14 member states if:

– We complete liberalisation in telecoms by the end of 2001, capital markets by 2003, financial services by 2004;

– Continue to push energy liberalisation, promote tax competition not tax harmonisation, drive down old fashioned state subsidies which undermine the single market while ensuring the state aid regime tackles market failures and promotes efficient dynamic competitive markets;

British financial service firms are well positioned to benefit from the completion of the internal market in financial services.

But what we do not want are directives simply designed to increase regulation at the expense of liberalisation. I know that the prospectus directive is a particular concern for the CBI and its members in this respect and the Government will continue to focus on the outcomes for firms and consumers that we are trying to deliver.

And Europe must focus not just on internal reform but because I believe fortress Europe is an idea that has had its day we must focus on how Europe can be less inward looking and more outward looking and more open to trade and commerce with the rest of the world.

Here again the economic reform agenda is clear and challenging: and first and foremost it is crucial that we ensure the launch of a broad and balanced trade round in Doha. The EU and the US should work closely on pushing for greater market access for the developing worlds, have high ambitions to eliminate industrial tariffs, and make genuinely liberalising deals on agriculture, investment, competition and the environment. The gains can be in the order of 400 billion dollars a year, 150 billion for the developing countries. Moving forward trade liberalisation at Doha in the next few days will send out a powerful message of our confidence in the future of the world economy.

And we can do more. The annual two way flow of goods, services and direct foreign investment between the United States and Europe is now nearly a trillion dollars and we need only look at the impact of the American slowdown on European economic growth to understand this growing economic independence.

So strengthening our ability to push forward with the multilateral trade agenda, the conditions now exist for the expansion of the transatlantic economic partnership, mirroring our security alliance in NATO. And here what we need now is a Cecchini-style report that set outs in detail the benefits for growth, prosperity and jobs on both sides of the Atlantic from 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.

We in Britain do not have to choose – as some would suggest – between America and Europe, but are instead well positioned as a vital link between America and Europe.

So this is a time of great challenges and risks but also a time of great opportunities – in Britain, in Europe and across the world.

I believe that, learning from each other, all of us – businesses and Governments working together – can face the great challenges of today’s economy not by resisting change but by helping people cope with it; not by standing still but by radical economic reform; and not by protectionism but by promoting open, competitive markets and international cooperation.

It makes for a Britain that is true to its great historical qualities: outward looking and open to the world, committed to an enterprise culture and ambitious to succeed; fully equipped to lead in the 21st century economy.

The speech made by Gordon Brown, the then Chancellor of the Exchequer, in London on 19 December 2001.

I.   Introduction

I am delighted to be addressing the Local Government Association General Assembly.

You represent the democratic leadership of our cities, towns and communities across England and Wales, and I want to begin by acknowledging and indeed congratulating you for the work you undertake, the hours you give up, the service you offer, the good you do and the difference you make in building stronger communities – making the very idea of community work in practice.

And I am here today to celebrate the importance of our strengthening partnership, a modern partnership between central and local government without which neither of us will be able to deliver the stronger economy and better services the British people have demanded of us.

It is a partnership not of convenience but a partnership of principle because whenever we walk down the street, collect our kids from school, turn to the emergency services, or look for help for the weak and the frail we know we all depend upon locally provided services.

It is a partnership of principle because every day a millions of acts of service by dedicated public servants  – inspired not just by individual commitment but by a higher ideal of duty and obligation – shape the ethos of public service in our country.

And our partnership -local and central government working together – is strengthened by an equally important belief we share in common: whatever people said in the past we know that Whitehall does not know best, and we know that effective service delivery for families and communities cannot come from central command and control but requires local initiative and accountability.

For all the time I have been involved in politics I have believed in devolving power, so that those who are affected by the decisions are close to and can hold accountable those who make the decisions – and our aim must always be the maximum devolution of power possible: government encouraging not stifling local action, local people making local decisions about local needs.

And our strengthened partnership today in 2001 is built on something equally fundamental: on our commitment to advance shared goals, to ensure opportunity and prosperity not just for some in our country but for all.

First: to strive for full employment – from a foundation of economic stability strengthening the programme to move the unemployed from welfare to work, so that in every region there is employment opportunity for all;

Second: raising productivity to match our European competitors and thus raising our living standards – with a commitment for every region to high quality long-term investment in science and innovation, new technology and skills;

Third: eliminating child poverty – ensuring not just some but all children have the best start in life;

Fourth: tackling pensioner poverty and ensuring pensioners enjoy dignity in retirement;

Fifth: from transport and housing to health and education renewing our public services to rise to today’s needs – meeting people’s rising expectations by delivering high quality public services for all.

In the LGA’s six commitments portfolio – which I am delighted to launch today – you are also setting out your priorities and I see exactly the same focus on full employment, world class public services, no child left behind and for every pensioner the best of care.

And my message today is that the great challenges that face our country cannot be met if we stand apart from each other, can only be met if we work together. Indeed the key insight of these last four years is that the goals we share cannot be realised in practice without central government devolving power to local communities.

II.   A new central- local government partnership

Our first task in 1997, and the foundation of all we do, was to create a national framework for stability, for sound public finances and for employment growth

And the difficult decisions we took then – to make the Bank of England independent, to rein in spending, to cut debt, to put up interest rates – are the platform not just for low inflation and 1.2 million more in jobs but also for the largest sustained growth in investment in our public services for fifty years with:

– Growth in spending of 4 per cent on average this year, next year and the year after;

– public investment almost doubling year on year this year, and rising to three times its 1996-7 level by 2003-4;

– £10 billion a year saved from debt and low unemployment now invested in health, education and our public services.

And as we started putting in place this new national economic framework we also began putting in place the building blocks that allow us to devolve power and responsibility.

In the first parliament we created a devolved legislature in Scotland, Wales and Northern Ireland, restored city-wide local government to London, and created regional development agencies. And at the beginning of this year John Prescott and I set out our plans for a new generation of regional policies – strengthening, within the regions, the essential building blocks of self generating growth, the capacity to innovate, invest, build skills and match the unemployed to jobs available. Offering development agencies new freedoms and flexibilities and in return demanding strenuous targets be met in skills, innovation, business creation, new technology and employment. A new regional policy – locally sensitive and locally delivered, one through local management decisions.

And just as we made a start with regional policy in the last parliament we also made a start in devolving power to local government, moving away from the destructive centralism characteristic of the years marked by universal capping, Compulsory Competitive Tendering and the Poll Tax.

So in the past few years we have:

– Boosted financial support for councils, through real terms increases in revenue and in capital expenditure for four years in a row

– Replaced the bureaucracy of CCT with the duty of best value, enabling councils to develop their own methods of service delivery rather than being constrained by the requirement to cut costs at all cost

– Improved the transparency and efficiency of local leadership through provision for new constitutions for local government following local consultation;

– Expanded the capacities of local government by introducing statutory community strategies, and a new power to promote community well-being through coordination and partnership with other local actors, via local strategic partnerships and the neighbourhood renewal fund.

Showing our approach is a belief in local government not local administration.

In the first parliament, to support our national public service agreements we developed local public service agreements. And as I said to the Labour party conference in February this year, over the next two years the number of local PSAs matching resources to outcome targets signed with local authorities is rising from 20 earlier this year to 150 by 2003  – which we will match with further steps towards greater flexibility: flexibility and resources in return for reform.

III.    New partnership

These are only the first steps in expanding our partnership and we are now ready to do more to achieve our goals of full employment, higher quality of public services, and an end to child and pensioner poverty – combining more flexibility and more resources in return for more reform and better results.

And as set out in the White Paper launched by Stephen Byers last week, we are:

– Abolishing the council tax benefit subsidy limitation scheme and providing greater freedom for all councils to decide council tax discounts and exemptions

– Making councils themselves responsible for deciding how much they can prudently borrow; providing greater freedom for councils to invest;

– Removing unnecessary bureaucracy as well as targeting a reduction of 50 per cent in the numbers of plans and strategies that government requires councils to produce;

– Providing councils with wider powers to deliver services to others and to work in partnership;

– Restricting ring-fencing to cases which are genuine high priorities for government and where we cannot achieve our policy goal by specifying outcome targets.

And high performing councils will receive extra freedoms to lead the way to further service improvements including:

– The ending of reserve powers over capping, as a first step towards our long term goal of dispensing with the power to cap altogether

– Further reductions in ring fencing of revenue from central government, and of support for capital investment

– More freedom to use income collected locally from fines and charges

– Extra exemptions from the plan requirements of central government, and more discretion over best value programmes

– And a much lighter touch inspection regime

Reforms that will significantly expand the freedoms and flexibilities available to local government.

Our approach is to devolve power and responsibility so that these freedoms will be accompanied by greater accountability to local communities.  That is why alongside devolution of power we will introduce a new comprehensive performance framework – providing clear and concise information about councils? performance, enabling us to make our inspection regimes more proportionate, to target support where it is most needed, and to identify the small minority of failing councils in need of tough remedial action.

A democratic framework for devolving power to modern local authorities based on new rights and new responsibilities – the power you need to improve your performance – the responsibility expected of you to serve your communities.

And in this Parliament we are ready to go even further to enable local people to do more to make local decisions about meeting local needs. Already the option of congestion charging is now available and being implemented in London. I believe that we should be prepared to consider further radical options to ensure devolution of power and responsibility go hand in hand so that the public can get the best possible services.

And once we have carried out further analysis, we shall establish a high level working group involving ministers and senior figures from local government to look at all aspects of the balance of funding, reviewing the evidence and looking at reform options.

IV. Putting partnership into practice

So let me set out how – through local and national government working together, building on the new freedoms and flexibilities the white paper has put in place – we can rise to today’s challenges and meet our shared goals.

First, employment.

I could talk about the 1 million jobs we have created, but i am more anxious about the 1 million men and women still left out, still unemployed – and as local councillors I hope you will want to play a bigger role in the next steps to help the newly redundant get back into work quickly and expand the new deal to assist those hard to employ. This means following the innovative example of councils such as Brighton and Bristol, councils that have tailored supplementary employment programmes to complement the new deal.

Last month Alistair Darling announced 20 special projects to test whether guaranteed jobs for the long term unemployed could get more people permanently off the dole. It is a new opportunity – a guaranteed job – but there is also a new obligation to take it up. And as we learn from these successes, I hope we can work together to make long-term unemployment a thing of the past, and make possible full employment in every region and every community.

Second, the economy and enterprise.

Every one knows that the sources of growth in every local economy are local innovation, local skills, and local enterprise. More jobs of the future will come from small businesses growing in each of your areas than from large inward investment projects.
So together we must remove the barriers that prevent local firms starting up, growing bigger, getting investment in capital, finding export markets and training skilled staff.

That is why together in every local area we must bring about a revolution in education, skills and training.

As long as prosperity by-passes a single community or a single family our work is not yet done.

And it is why together we must concentrate on lifting up the high unemployment areas that for too long have been left behind and why we have introduced – and i hope you can encourage local economic activity to benefit from:

– A cut in VAT on residential property conversions to 5 per cent

– 100 per cent first year capital allowances for bringing empty flats over shops back into the residential market;

– Legislated for an accelerated tax relief set at 150 per cent for cleaning up contaminated land;

– The abolition of stamp duty for property transactions up to £150,000 so that in 2000 wards across the country the buying of property and bringing land back into use will be tax free; and

– Legislate in the budget for a new tax credit for local community investment.

We want to see a dynamic, enterprising public sector at all levels. And that is why we will give you new freedoms to innovate and to experiment, with wider powers to trade in public, private and voluntary sectors, as well as allowing councils to introduce business improvements districts. And just as we have released borrowing restrictions on local airports, I am prepared to consider how within the new prudential borrowing regime we can engender more freedoms for local government consistent with macro – stability and our fiscal rules.

Third, ensuring every child has the best possible start in life.

You have been responsible for pioneering the development of childcare in the most difficult of circumstances.  Since 1997 we have learned from your successes and it is thanks to you as councils that we can have nursery education with places for all four-year olds – and soon all three-year olds.

And thanks to your imagination and commitment we now have a national childcare strategy to ensure affordable, accessible and quality childcare in every neighbourhood, creating by next year new childcare places for 1.6 million children.

Child poverty is a scar on the soul of Britain, and we must work together – local and national government to make sure that we give each and every child the best possible start in life  – and that no child is left behind.

Our first task as a government was to boost the income of all families with children, with the greatest help for those in greatest need. And that is why since 1997 we have increased child benefit to £15.50 for the first child so that, combined with our other tax and benefit reforms, our poorest families are now better off by 1700 pounds a year on average – money to all children. And having already lifted more than 1 million children out of poverty, we will introduce the child tax credit as well as work towards taking the second million out of poverty – moving closer to eradicating poverty completely.

Our second task is to match higher incomes for these families with better services. I welcome the LGA’s commitment in this area. And I hope that we can work together to develop imaginative ways of delivering these services for the communities you represent building on the innovative examples set by councils such as Sunderland, whose local PSA is providing an active citizenship plan for its children and young adults, or Darlington, which has created a one-stop shop delivering an integrated service for all children in need – demonstrating to us all what pioneering local government is able to do.

In the new economy, which depends on knowledge, innovation, on mobilising the talents of all – getting the best out of everyone – it is essential to develop all the potential of our children. And it has been a tragedy of wasted potential for our country that there are thousands of young people with talent and ability still denied the chance to make the most themselves.

That is why in the four years up to 2003 the real terms growth in education spending will be more than 5 per cent a year and we will in the new spending round make education a priority.

And in the past five years we have worked with you to put in place the framework for addressing the needs of our nation’s children, with local government directly engaged in:

– Sure start for under fives;

– The children’s fund, now rolled out across 40 areas, for 5-13 year-olds;

– Connexions for 13-19 year olds;

– “quality protects” for all children in need;

– And professional learning mentors

Programmes with a new partnership between local government and voluntary organisations to support all our children and identify those who are showing signs of difficulties – providing them and their families with the support they need to overcome personal and social problems.

Fourth: pensioners

Pensioner poverty is a reproach to us all.

And just as we are working to eliminate child poverty – so too we must act now to ensure that pensioners are able to enjoy a higher standard of living.

So we are building on the Basic State Pension – cash increases which boost the incomes of all pensioners – with the Minimum Income guarantee – targeting extra financial support on the poorest pensioners. We have also set aside new funds to ensure that, from 2003, pensioners whose hard work has secured a small occupational pension or modest savings, will be rewarded through the new Pension Credit by extra money, not penalised – as in the past – by losing their benefits – ensuring that pensioners enjoy a share in the rising prosperity of our country.

But we must match higher incomes for pensioners with improved community services – both for pensioners in care and those living in housing which needs to be maintained to a higher standard. We have made a commitment to make decent all social housing by 2010 and have already invested £7.3 billion in local authority housing.

Our task is to match resources with reform in social services and housing. And to help local authorities to be more flexible and innovative, we are:

– Providing local authorities with increased freedoms in the way they deliver social services as their performance improves;

– Investing £460m in high performing local authorities to set up companies to manage their housing stock, leaving them free to think more creatively about the housing strategies they wish to pursue; and

– Extending the prudential borrowing freedoms to housing expenditure, allowing local authorities to choose the best way to invest in their housing.

And in the forthcoming spending review we will do more.

Finally, fifth: I turn to our shared commitment to public services as a whole.

For 20 years at least your job as local authorities had been to protect public services against those who wanted to dismantle them.

Our task together now is different.  It is to move from the old narrow agenda of the years of self protection – when many argued that saving the service had to come first – to the positive task of building, investing, reforming and modernising.

In the public services we are employing more – 140 thousand more in jobs, investing £8 billion more, and with private sector investment of £4.4 billion – making public investment go even further.

There is a new debate in this country – not just about the future financing of our public services, including our health service, but about more than finance – about the future of our public services.

And those of us who believe passionately in the public services must be the most determined to modernise and reform so that public services can best serve the public.

Just as schools exist for school children, 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.

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 the atmosphere is confrontational.

Those of us who believe in the public services must learn from both the public and the private sectors and revitalise our public services from the inside or others will seek to dismantle them from the outside.

We will maintain our 180 billion pound ten year plan to modernise our transport infrastructure – a doubling of transport investment.  And we will continue our programme of public private partnerships.  Whether it be in the London underground or in the building on new hospitals, I am convinced that instead of the old sterile divide which pitted public against private, we do best when public and private sectors work together to enhance investment in our transport and infrastructure.

And we should aim for higher productivity in our public services, backing management as well as employee training. And i can tell you that we are supporting the national college of school leadership and the leadership centre for the NHS, devoted to doing more to improving the quality of public service management.

In Britain we rightly pride ourselves in our ethos of public service – an ethos across all areas of the country and across all political persuasions – and a tradition of distinguished public service in Britain that run deep in our history- a tradition for which people from all over the world rightly look to Britain.

All of us can tell our own story about the importance of that ethos of the public service – not just about the past but about the present.

For me, every opportunity I have had – the best schooling, the best chance at university, the best health care when ill – every opportunity I have enjoyed owes its origin to the decisions the British people made to open up opportunity, and ensure there are decent public services.

Just as good teachers have an extraordinary power to make a difference to peoples lives – so too we know nurses and doctors who everyday can make the difference between life and death – social workers, 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 remember the calm unflappable skill, the professionalism, and offering self-sacrifice of all our public service.

It shows we are not simply self interested individuals isolated or sufficient unto ourselves but men and women who share the pain of others, a belief in something bigger than ourselves, and who – to paraphrase Robert Kennedy – see pain and seek to heal it see suffering and seek to triumph over it see injustice and seek to overcome it.

Each time a good is done it sends out a message that duty, obligation and service are at the heart of a country that believes there is such thing as a society.

And it is from these acts of selfless dedication inspired by a higher ideal of duty and obligation that not just the ethos of public service is shaped but the very character of our country.

And just as under this government a NHS will be modernised for the coming generation as a national health service free at the point of need – so too public services will be reformed for the coming generation as locally managed public services there to serve the public.

If by our actions you or I, each of us, could lift just one child out of poverty, give one young person a chance of training and a job, give one more person suffering from pain the chance of the help they deserve, give one more classroom the books and computers it needs, secure for one more pensioner a greater measure of dignity and decency in retirement, then we are doing something not just for ourselves but for our communities.

But if working together, national and local government, we can be at the service of whole communities, we can do far more- giving every child the best start in life, creating a Britain where there is employment opportunity for all, offering security for the elderly in retirement, building from the foundation of economic stability public services we can all be proud of. Working together in our partnership of principle.

This is our shared challenge and – working together in partnership – that can be our achievement.