Tag: Alistair Darling

The speech made by Alistair Darling, the then Chief Secretary to the Treasury, on 14 January 1998.

“OUR ECONOMIC APPROACH”

Introduction

UK Economy

The world has been transformed over the last few years.  We live in a global economy.  We are moving towards a single global economy in many respects.  Industries typically span geographical and political boundaries.  No country can go it alone, in economic terms.  Our objective is to ensure Britain is equipped to rise to the challenge of the world’s new and fast changing economies.

The key objective of our economic policy is to achieve high and stable levels of growth and employment, to allow everyone to share in higher living standards.

The need for stability

Over the past  forty years, our economy has had an unenviable history of boom and bust.  Stop-go has meant higher interest rates, less investment, fewer successful companies and lost jobs. It has been the inevitable result of a failure to take a long-term view, and to bow to short term pressures – political and economic.

The economy we inherited in May was in danger of over-heating, with unsustainable growth in demand and a threat of inflation rising well above its target.  And despite five years of upswing, public borrowing was too high for the point in the economic cycle.  The national debt doubled in the six years from 1990.  And at this stage of the cycle the we should not be adding to that problem.  This year alone the taxpayer will pay out 25 billion Pounds in interest payments on debt – more than we spend on our schools.

So we need to address the fundamental weaknesses in the economy. Instability, under-investment, the need to improve education and skills and the need for welfare reform – all of which have been neglected for too long.

In the eight months since we took office we have begun to put in place the building blocks we need:

• first, the need to achieve stability and to raise the  rate of sustainable growth;
• second, to increase productivity; and
• third the need to remove barriers to growth, invest in education and modernise the   welfare state, and tackle the need to expand markets.

In the short time since the election, we have begun to lay the foundations to secure Britain’s long-term economic future.

Openness and transparency

Stability will of course depend, to a large extent, on markets having confidence in the commitment of Government to prudent and sound management of the economy.  So economic policy must be open and transparent.  Openness builds confidence and credibility. It is essential in today’s global economy.

And in our fiscal and monetary policies, we have set out open and transparent frameworks that have clearly enhanced our credibility.

The Government will now publish a Pre-Budget consultation document each year setting out the economic issues we face.  Operational independence for the Bank of England.  The new code for fiscal stability.  All these measures add to openness and transparency, and will enhance credibility in our determination to look to the long term.

So the building blocks are there.  Firstly stability.

Stability

Long-term stability – in monetary and fiscal policies, low inflation and sound public finances – is an essential pre-condition for high levels of growth and employment.

Monetary policy

That is why one of our first acts in office was to establish a wholly new monetary policy framework for the UK.

This framework gives operational independence to the Bank of England for setting interest rates to meet the Government’s inflation target, while enhancing accountability and ensuring policy is conducted in an open way.  We now have one of the most open procedures for making monetary policies decisions in the world.  Since the new monetary framework was announced, long-term interest rates have fallen by more than a full percentage point, partly reflecting a fall in inflation expectations.  Clear evidence that anti-inflation credibility has been enhanced.

Fiscal policy

As with our approach to monetary policy, so in fiscal policy we have established clear rules, a new discipline, openness and accountability.

A key element of the new fiscal framework is the adoption of two strict fiscal rules:

• first, the golden rule, that on average over the economic cycle, the government will borrow only to finance its investment;
• and second that, as a proportion of national income, public debt will be held at a prudent and stable level on average over the cycle.

Our tough approach to public borrowing, embodied in a five-year deficit reduction plan, means, from public sector borrowing of 7 per cent of GDP four years ago, we are now set  to cut the deficit to 1 1/4 per cent in the current financial year and just 1/2 per cent next year.

And the new Code for Fiscal Stability will require the Government to produce estimates of the cyclically-adjusted fiscal position and long-term projections, so that past policy mistakes are not repeated.  We are determined not to repeat the mistakes of the late 1980s, where the signals were misread.  Over-optimistic assumptions led to an unsustainable boom, followed by one of the deepest recessions this country has ever seen.

We will maintain strict discipline in public spending, rooting out waste and inefficiency as part of the Comprehensive Spending Review.  This review will not only achieve discipline in the public finance but it will also set our spending priorities for the rest of this Parliament and beyond.

Together these tough fiscal rules, the deficit reduction plan and a root and branch review of public sector efficiency will ensure a break from the short-termism and expediency of the past.  And our fiscal policy will be more credible for being open and accountable and will ensure new long-term stability for the public finances.

Productivity

The second key challenge is to raise productivity.

Government and industry must work together to remove systematically all barriers to raising productivity:  in product markets through encouraging competition and innovation;  in capital markets through measures to enhance growth and investment, not least for innovative small businesses;  and in the workplace through encouraging the creativity and flexibility of inventors, managers and workforces.  We need to rediscover our capacity to invent and see that there is profitable production.

We are examining how, to improve productivity, we can help leading-edge businesses gain funds to develop new technologies; how we can improve Britain’s poor record of investment in research and development; and how we can make it easier for small businesses to draw on venture capital to create jobs and a more entrepreneurial culture.

We have taken measures to tackle long-term under-investment in both capacity and skills, including a cut in corporation tax to its lowest ever level.  We are determined to increase investment in education – the key to our future.

But we still need further structural reforms if we are to encourage a more dynamic economy through increased competition and through reforms in welfare and employment policy. We are committed to a wholesale modernisation of the welfare state.

Employment

And to achieve high and stable levels of growth and employment we must ensure that people are skilled and employable and making work pay.  Today sees further reports of skills shortages, which constrain our ability to expand.

We are addressing the obstacles that prevent people taking up and benefiting from work:

• the absence of marketable skills;
• the failure of the tax and benefits system to make work worthwhile;
• the poverty and unemployment traps that for far too many mean that work does not pay;
• the lack of employment opportunities;
• and the scarcity of affordable child care.

Reform to both the tax and benefit system is needed as part of the modernisation of the welfare state, that has remained largely unreformed since its foundation in the 1940s.

And the Government’s welfare to work initiative will get the young and long-term employed from welfare into work.

Since May we have made a start by announcing a New Deal worth almost 4 billion Pounds,  providing jobs for young unemployed, the long-term unemployed, and to lone parents [and the long-term sick and disabled].

Helping lone parents into work is one of the most effective long-term ways to tackle  family poverty.

We are also introducing a plan to extend out-of-school childcare clubs to every community in Britain.  Funds will be available to set-up as many as 30,000 new out-of-school clubs, which will provide places for nearly 1 million children.

Last week we launched the New Deal for the young and long-term unemployed. There will be 12 pathfinder projects to give those under the age of 25 and unemployed for more than 6 months the skills to get them back to work and give them the skills they need.

All these measures are focussed on getting the young and long-term unemployed from welfare to work.  And they are all part of our strategy to meet the challenge of increasing employment opportunities for all.

Europe

Key to our economic approach is our European strategy.  In October the Chancellor declared for the principle of the single currency.  There is no constitutional bar to entry.

But any decisions to join must be based on a hard headed assessment of the economic benefits of joining.  We must have satisfactory answers to these questions:

• would joining EMU create better conditions for firms making long-term decisions to invest in Britain?;
• how would our financial services be affected?;
• would there be sufficient convergence between economies so Britain could live comfortably with Euro interest  rates?;
• is our economy sufficiently flexible to deal with any emergent problems?;
• and will joining Europe promote higher growth, stability and a lasting increase in jobs?

On the basis of these fives tests, the Government has decided that it would not be in our economic interest to join in the first wave in 1999.  We need a settled period of convergence before we can make a decision on membership.

So we will join a single currency when and if it is in our economic interest.  But we believe there are potentially clear benefits for business and that is why we have begun making extensive preparations, helping and advising business with the euro.

Pay

The Government is taking the long term view. Our strategy is based around building a stable framework for fiscal and monetary policy, encouraging investment in our economic infrastructure, the education and skills of our workforce and rebuilding the welfare state around the work ethic.

The challenge is to steer a long-term course towards sustainable growth.  Where prosperity can increase year on year, where public finances can deliver the public services we want and need.

We have put the policies in place to bring this about.  But if we are to succeed we must maintain the strict discipline necessary to put the public finances on a sound footing and keep them there.

We are not going to repeat the mistakes of the past, where the economic signals were misunderstood and an unsustainable boom led to bust – with all the consequences that brought about.

Central to this aim is the need to ensure that pay increases are affordable right across the board, from boardroom to the shop floor, in both the public and private sectors.  People have to understand that to bring about long-term stable growth, pay increases must be fair and affordable.

For its part, the Government will be applying these principles to public sector pay.  We are determined to deliver long-term growth and prosperity.  It is essential, if we are to succeed in rebuilding this country and increasing prosperity for all the people in a sustainable way.

Conclusion

We are governing for the long term.  The building blocks are being put in place to bring the long term prosperity we all want to see.  This means we have to take tough decisions now.  But it is right that on pay, as with every other issue, we avoid measures that bring short term gain but long term pain.  This is the approach the British people expect of us.  It is what we promised at the election.  And we are delivering on our promises.

The speech made by Alistair Darling, the then Chief Secretary to the Treasury, on 6 February 1998.

Introduction

3.   Tonight I want to talk about three things.  First, our overall economic approach. Second, I want to say a brief word about Europe and EMU.  Finally, our reforms to financial services.  I also want to say a word about the future of the Stock Exchange.

Our Macroeconomic Approach

4.   So let me start by looking at the Government’s economic objectives.

5.   We won the election because we promised to look to the long term.  To end the short-termism that had characterised so much of the past.

6.   In the nine short months since we took office we have put in place the building  blocks we need to deliver the long term project.  Our objective is to raise the rate of sustainable growth to increase the prosperity of the country so that everyone can share in higher living standards.

7.   First, we have introduced the platforms for monetary stability and low inflation – the essential precondition for growth.  This is good for business, for savers and for those on low incomes.

8.   Within days of entering office, we announced that we would give operational independence to the Bank of England to set interest rates in order to achieve the  Government’s target of low inflation.  And the Bank of England Bill which delivers  this reform has now received its third reading.

9.   We now have a central bank with the most open and accountable set of procedures anywhere in the world.  And already long term interest rates, and  inflation expectations, have fallen.

10.  Second, fiscal stability.  The Chancellor in his Budget last July put in place a  deficit reduction plan to reduce the huge burden of debt left by the last  government.  The national debt doubled in the six years after 1990.  We spend  25 billion Pounds a year servicing public debt:  more than we spend on schools.  At this  stage in the cycle we should not be adding to the country’s debt.

11.  Third, stability in public spending.  The Comprehensive Spending Review of  public expenditure now under way is a root and branch examination of the 320 billion Pounds the Government spends.  Over 5000 Pounds for every man, woman and child.

It will ensure we have affordable and sustainable public finances and will set the  spending priorities for this Government for the rest of this Parliament and  beyond.  And we have already started to do that with new money for schools and  hospitals.  And of course we are committed to modernising the Welfare State.  Making work pay.  Improving skills.

12.  And stability depends on removing barriers to growth.  We are determined to expand our economic capacity and to create the right climate for high levels of  investment.  That is why we have reformed the corporation tax system, for  example, removing the distortions that hinder long term high quality investment.

EMU

13.  This Government is committed to open markets in Europe and elsewhere.  We are outward looking.  We have to be and that has driven our policy in Europe as elsewhere.

14.  Our relationship with Europe has changed.  We are now engaging. constructively  in Europe.  We are putting place the necessary preparations which will allow  Britain to decide to join EMU if economic conditions justify it.

15.  We’re one of the most open economies in the world – trading 25 per cent of our GDP compared with America’s 10 per cent.  And nearly 60 per cent of our  exports are to mainland Europe and an astonishingly high level of international investment into Europe – 30 per cent of it – comes to the UK.

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

17.  So EMU will lead to fiercer competition for trade and for future investment across  Europe.  And the time to prepare is now long overdue.

18.  I know that this will be a major challenge for the securities market.  And we are working with business to prepare for the introduction of the Euro in 1999.  The Euro will affect each and every one of us.

Our approach to the reform of the UK regulatory system

19.  And if we are to achieve stability we need a regulatory environment that  commands the support and respect of the industry and public alike.

20.  We promised reform at the election.  And three weeks after the election  we set  out how we would deliver the radical overhaul to the regulatory system we promised.

21.  And in October the new Financial Services Authority was launched.  It will take over the work of nine existing regulators.

22.  In the global economy where markets are changing every day, where innovation and diversity are an essential part, it is vital that we have a new regulator that  has both power and flexibility.

23.  The draft financial services Bill, updating and replacing the various pieces of legislation covering financial services, will be published this year for consultation.

24.  And lets not forget the role of management which sets the ethos and the ethics  of its business.  Management is an essential part of good business and good  practice.  That’s good for them and its good for business.  Good regulation must  be complimentary to the business process.

25.  The FSA will cover the whole of the industry – domestic and global;  wholesale  and retail.  So let me say a word about the future of the London Stock Exchange  and where its role as the Competent Authority for Listing in the UK should  properly lie.

26.  Discussion about financial regulation has often concentrated on the need of investors.  But we should not forget the needs of those seeking to raise capital.

27.  Firms, public bodies and governments all use the UK’s capital markets to provide  funds for enterprise growth and efficient financing of public services.  Investors  clearly need reliable and timely information about the capital markets.  This is  where the regulation of public offers and listing of securities has a vital part to  play.  There is a clear public interest here.

28.  However, we must recognise that the environment in which the Stock Exchange operates has changed radically, and will continue to do so.  This  gave us a  strong reason to look again at the regulatory structure in this area.

29.  Ten years ago, the Stock Exchange was the only practical option for UK companies seeking to raise equity capital.  Now, in the world of electronic  markets and cross-border trading, they have a wider choice.

30.  The other major change is regulation itself, and the creation of the Financial Services Authority as the central body with the legal clout and scope to cover the full range of financial services effectively.

31.  We have had to decide whether the London Stock Exchange should continue to be the UK competent authority for listing.  Or whether this function should be transferred to the FSA.

32.  The London Stock Exchange enjoys a substantial reputation throughout the world.  However, whilst listing is a distinct function, it is closely related to the regime for which the FSA is to become responsible for.

33.  As I announced today in Parliament.  Having considered the matter we have decided that the balance of the argument is for continuity in practice with the  Stock Exchange continuing with its current role.

34.  While we wish the Stock Exchange to carry on the good job they have been doing, we also recognise that circumstances may change and that we need to be prepared for it.

35.  We will therefore take a power in the bill reforming financial services regulation so that we could transfer all or parts of the competent authority function to another body, in practice most likely to be the FSA.

36.  Treasury Ministers will remain accountable to Parliament for this decision. Before such a significant change in the structure of UK financial regulation were made, we would need to be sure that it was fully justified on the balance of arguments and that arrangements for satisfactory transition were in place.

Conclusion

37.  We have been in Government for nine months.  In that time we have put in place the building blocks which will see us through not just this Parliament but beyond.

We said that we would modernise Britain and we are doing that.

38.  We are building the foundations for the future.  Low inflation.  Stability. Reforming and modernising the Welfare State.  We are building monetary and fiscal stability to provide a platform for the future.  We have started to rebuild the education and health services.  Building alliances in Europe where we can influence and shape our destination.  Building together long term prosperity for this country.

The speech made by Alistair Darling, the then Chief Secretary to the Treasury, to the FSA European Conference on 1 June 1998.

Introduction

1. The Financial Services industry is of immense importance, not just to the United Kingdom but throughout the world. It is a global industry with millions of people depending on it. It transcends political and geographical boundaries. It has brought immense benefits. And because of its nature, it brings new risks every day. That’s the nature of the industry. And that is why the way in which we regulate and supervise the Financial Services industry is so important. In a world where the markets are continually changing, we need a regulatory system that can develop with them.

The Financial Services Industry

2. Here in the UK, the industry accounts for 7% of our GDP. It employs over 1 million people. Many towns and cities depend on it for employment. Not just London, but throughout the country – Leeds and Manchester for example. And in terms of funds under management, Scotland ranks fourth in Europe. Edinburgh is the UK’s second financial centre. And of course millions of people rely on its services. The industry is an example of how the UK can compete on quality and excellence at home and throughout the world.

3. Of course, at the heart of the UK’s financial services industry is the City of London, one of the world’s three leading financial centres. The London Stock Exchange is the largest trade centre for foreign equities in the world. The Foreign Exchange market here is the largest and most important in the world, with an average daily turnover of $464 billion. Net overseas earnings of the UK financial services industry amounted to 23 billion Pounds (in 1996) – equivalent to 3.5% of national income.

4. The City has a critical mass of expertise. It is home to 520 foreign banks. It is a major insurance centre with Lloyd’s and the London Insurance Market. The Baltic Exchange is here, trading throughout the world.

5. Their presence has built up a formidable range of expertise, attracting investment from all over the world. There are brokers, loss adjusters, risk managers, accountants, actuaries and of course lawyers. All of them providing quality employment and generating significant earnings. And supporting considerable expertise and skills.

6. London’s success has been built on individual flair and innovation. No Government can do that – but it is for Government to complement that process. To create an environment where business can flourish. Where business can expand and where the public has confidence in the integrity of the system. That’s why getting the supervisory and regulatory regime right is so important. Not just in the UK – but in Europe and indeed throughout the world. Before I turn to our proposals here, I want to say a word about Europe, and its implications.

Europe

7. The introduction of the euro on 1 January next year will also have significant implications for the financial services industry.

8. In October last year we became the first British Government to declare that in principle, a successful single currency, like the Single European Market, would be of benefit both to Europe and to the United Kingdom. We don’t believe there is any constitutional bar to membership: the test for us is what is in Britain’s best economic interest. That’s an important point. We are the first Government to declare in principle for support for the single currency.

9. The fact is of course that it would not be in our economic interests to join next January as there is not the necessary convergence with the rest of Europe. To join now would be to accept a monetary policy which suited other European economies but not our own. Our official interest rate is 7.25% (base rate), while in Germany and France it is 3.3% (repo rate), reflecting the different stage of the economic cycle we are at compared with them.

10. We need a period of stability and settled convergence before we can join, and our policies are designed to achieve that. And in order to ensure a genuine choice in the future, we must also make the necessary practical preparations now. We are working closely with business to do just that.

11. The existence of the Euro will present a huge challenge to the Financial Markets. Not just in preparation but also because of increase competition for business.

12. The industry and the City of London must maintain its competitive advantage. We cannot be complacent. There is a lot of business in Europe. There are plenty of people and institutions that would love to get some of the business now conducted in London. We need to anticipate that competition. Business comes to London because of our competitive advantage. But no one – no institution – can rest on its laurels. The Government is determined to do everything it can to enhance London’s reputation as one of the world’s foremost financial institutions.

13. That is why we’re preparing Britain for the euro. Indeed, why we’re modernising the governance of London itself. Modernising the Underground system. And why we’re determined to put in place a regulatory environment fit for the 21st Century. London and the UK must be the market of choice for the global industry. All of us – Government and industry need to do what we can to achieve that goal.

The Single Market in Financial Services

14. I said that the Financial Services market was global. It needs to be. And the Government is committed to pursuing open markets in Europe and throughout the world. The European Single Market in financial services is not complete, but its evolution has been significant. Banks, investment firms and insurance companies now have a “passport” to sell across borders on the basis of their home state authorisation.

15. But local rules, differences in implementation, and gaps in legislation mean that further action is needed to consolidate what has been achieved.

16. Some new and amending legislation has been identified as necessary. For example, the Commission intends to update the UCITS directive and bring forward a new directive reducing the restrictions on investments by pension funds.

17. The Prospectus Directive has been identified as a candidate for updating to enable firms to raise capital more easily and cheaply. Something that is particularly important for small firms.

18. But legislation alone will not complete the single market. It has to be implemented in a consistent way across the Union if we are to benefit consumers and businesses that rely on financial markets to provide the dynamic which leads to higher growth and more employment.

19. One of the most significant changes we have seen in recent years is the recognition that regulators need to exchange information with each other all the time. The industry is global. So must be the regulators.

20. That cooperation will be key in completing the single market in financial services. We need to ask ourselves how we are facilitating the single market, breaking down barriers, and ensuring that the regulatory system complements this process, and that it doesn’t simply add another layer of bureaucracy.

21. Within the UK, bringing together existing regulators will mean that rules and practices will be re-examined. In many areas the rules will be similar, in others they will be very different, but the objectives will be the same. There may be a logic to some rules being different to reflect sectoral or cultural differences but in many areas best practice can be identified and a common approach agreed. National legislation, including implementation of European legislation, will be updated. That process is going on here now.

22. The same must apply in Europe. We have the bulk of the single market directives in place. The framework is in place but differences remain. We need to examine those differences, and ask ourselves how we can simplify the system and make it more effective.

23. The Commission is well placed to facilitate consensus without the need for new legislation, although in examining implementation in member states and developments in financial markets it may identify areas where legislation needs to be updated through amending directives.

24. The regulators will have to talk and exchange best practice, explain problems and accept change. Accepting change should be much easier when it is offered rather than imposed.

25. Following the informal ECOFIN at York we are examining our implementation of the Prospectus Directive. The directive includes options which permit member states to review and update their implementation to meet tomorrows challenges. But that may not be enough and a new directive introducing the concept of a passport may be necessary.

26. Over time we will need to examine other directives to ensure implementation keeps pace with developments in the markets and the demands of users of financial services. This is something all member states will need to do if their financial institutions are to prosper in the global marketplace.

27. Global competition is intense but within Europe we are moving into a period of consolidation in the single market. But we must face up to the need to change and adapt if Europe as a whole is to remain competitive. It is in all our interests that the European as well as the UK market is as efficient as possible.

The UK regulatory system – the case for reform

28. Let me now turn to our approach here. We have in the front of our minds not just the global changes to the nature of the market I talked about but also the problems and failures of the regulatory system at home. We wanted to build a new modern regulatory system. One that would be designed for both our domestic and international needs. And we were determined that any reform would be managed efficiently and effectively.

29. For some years now, a consensus has been developing for change. There is a recognition that change is necessary, both in terms of structure and, importantly, in terms of the nature of the regulatory system, at every level.

30. Both the industry and the public have recognised that the present system, underpinned as it is by the somewhat misleading concept of “self regulation” could not continue. The system was not self-regulating in the proper sense. And serving two masters – the trade interest and the public interest – proved to be too difficult in many cases. The system pleased neither the industry or the consumer and general public.

31. And reform is necessary not just because of the domestic needs of industry. As I have said, the need for international cooperation and a regulatory system that can deal with complex international dealings has become increasingly urgent.

32. So, in the UK, it was clear that we needed a new system. One that had sufficient clout, and stature to command respect both in the domestic and international markets. One that enhanced the credibility of our financial services industry.

33. There have been, of course, substantial changes in the structure of the industry here and elsewhere. The distinction between banks, insurance companies, building societies and other institutions is becoming so blurred that a regulatory system that is modelled on an old industrial structure that no longer exists is inappropriate.

34. We have nine financial regulators at the moment. It isn’t uncommon for large institutions to find that they are regulated by many or most of them usually requiring several different systems to cope with their demands. The distinction between regulators, especially for consumers has become especially confusing. And the costs escalated.

35. Many firms are currently subject to a range of statutory regimes, for insurance, investments and deposit taking. In many cases equivalent provisions relating to different kinds of business are subtly different – in some cases radically so. It is not in anyone’s interests for firms to have to consider in each case which regime they are operating under. Neither in theirs nor their customers.

36. Also, the current system is riddled with many anomalies. Firms supervised by different regulators receive different disciplinary sanctions for similar offences. And perversely, punishment depends not on the offence but on the regulator. These anomalies are unfair and blatantly damage the credibility of the financial regulation.

The case for a single regulator

37. The case for a single regulator is clear. A single regulator will be able to provide effective and consistent regulation across the traditional financial services sectors. It can get away from outdated and increasingly irrelevant distinctions between business sectors.

38. Firms will no longer be regulated by multiple bodies and have to deal with overlapping regulatory demands.

39. A single regulator will be more effective because there will be no duplication of effort and no doubt about which body is responsible. There can be no passing the buck.

40. Consumers will benefit because a single regulatory structure will be able to provide single points of access for the public for enquiries, complaints and compensation.

41. Providers will benefit because bringing different regulators together should make regulation more cost effective.

42. A single, efficient, transparent regulatory regime which commands the confidence of the industry and its customers will be of competitive advantage to the UK’s financial services industry in the global financial services market. The global market place is ever more sophisticated, changing ever more rapidly. Right regulatory structure will enhance prospects for growth in this global marketplace.

43. But the new system will succeed only if it works in partnership with the financial services industry. And the new system of regulation must reflect the diverse nature of the industry.

44. We promised reform at the election. And three weeks after the election we set out how we would deliver the radical overhaul to the regulatory system we promised.

45. And in October the new Financial Services Authority was launched. It will take over the work of nine existing regulators – assuming responsibility for the supervision of banking, insurance (including Lloyd’s), investments and securities firms, investment exchanges and clearing houses, building societies and friendly societies.

46. This is radical reform. The City of London and the UK market will be the only major financial centre in the world with a single supervisor.

47. It will put the UK at the cutting edge of financial supervision. It will offer huge competitive advantages for us.

48. I recognise that bringing together the supervision of banking, building and friendly societies, securities and insurance is a formidable challenge. The existing supervisors each have their own rules and culture.

49. But the creation of a single body is the only answer to the challenge of supervising the modern financial services industry.

The role of the regulator and the role of management

50. It’s important to remember that regulation must be seen as a complement to business. It isn’t a substitute for individual judgement or good management. Far from it. It’s management that sets the ethos of a business. It’s management that should know the risks to which it is exposed.

51. I have said many times before that it is not the Government’s job, nor it is the job of the regulators, to sit in the boardroom and try to run a business. Good regulation should be a complement to business and should create a climate where the industry and individuals can deal with each other with confidence and trust. That’s our objective.

52. It’s also important to remember that the industry itself benefits from a decent regulatory system. It’s in the interests of the industry that investors, both domestically and internationally have confidence in the financial system to bring in their money.

Flexibility

53. It is important for the regulator to be flexible. Markets are changing rapidly and the statutory framework that underpins the regulatory system has to allow for continuous development and changes in the future. Development of over the counter products and derivatives, for example, have transformed the market. Selling to consumers has changed, with more telephone sales and direct selling.

54. Regulation shouldn’t drive changes in the market. The market should provide what the consumer wants. And it is the job of the regulator to complement that and ensure that it doesn’t distort that process in harmful ways.

55. One of the key functions of the regulator is to reconcile the balance of the cost of the regulatory regime and the perceived benefit. The cost of the regulatory system is borne by the industry, but ultimately of course, by the consumer. And the cost therefore must be clearly related to the benefit of the regulatory system.

56. There is a balance between what is reasonable for the regulators to require and what becomes unreasonable because of the excessive cost compared to the gain.

Single Regulator – what we’ve done so far

57. For the first time ever, the regulator will have statutory objectives covering market confidence, consumer protection, consumer awareness and financial crime. The FSA will be required to pursue them in an efficient and economic way, which facilitates innovation and takes account of the international dimension.

58. The Government is committed to strong consumer protection. But caveat emptor is an essential part of any regulatory system. It is no part of the regulator’s job to stand in the shoes of the consumer. But the regulatory system can ensure that the customer has sufficient information to make an informed decision. Customers should be aware of the risks attached to different products. And they should know what their investment will cost. And it is in the interests of the economy, the industry and the public that people have the confidence to buy the products they need.

59. A vital part of the new single regulator’s job is to sustain confidence in the market, and assist in the detection and prevention of financial crime. We are determined to ensure that the financial markets remain open and clean places to do business.

60. That is why we have announced a number of measures, including civil fines for market abuse and new prosecution powers, which will help ensure that those who abuse the markets, including insider dealers, do not get away with it.

61. The powers of intervention and discipline given to the regulator will be tough and effective – and they will be exercised fairly. The Bill will create a new single Tribunal, which will be entirely independent of the FSA, to consider appeals against the exercise of its regulatory powers.

62. Having a strong and effective regulator will further enhance the UK’s reputation as one of the best regulated and attractive financial markets in the world. We are determined to maintain the UK’s position as one of the world’s foremost centres. We value our reputation as a clean market to do business.

Phase I – Bank of England

63. Reform is being implemented in a manageable way. The first stage of reform, is already complete. The reforms to the Bank of England come into force today. The Bank of England Act which gave the Bank operational independence in monetary policy as well as moving banking supervision from the Bank to the FSA comes into force today. And as you know, the FSA has already started work – publishing a number of consultation documents following its launch last October. The progress that it has made and the ready acceptance of its very existence is due to a large extent to the work of Howard Davies and his colleagues not just in the FSA but in the existing SROs who are all working hard to make the new system work.

Phase II – New Financial Services Legislation – moving on from here

64. The next stage is the new Financial Services legislation which we will publish in draft in the summer. We will publish draft legislation in the summer. There is now consensus over the broad framework for financial regulation, but it is important to get the detail right. We are committed to reform and have set out our approach. But we are also committed to consulting as widely as possible. We want a system that will endure, and time listening is time well spent.

65. Getting the detail right is as important as getting the overall framework right. The period of consultation on the Bill will allow us to get the detail right.

66. There remains much work to be done to ensure the single regulator works. The Government and the FSA are determined to put in place long overdue reform, and to get it right. The consultation period for the Bill is one way in which the industry can help us make it work.

Conclusion

67. I have covered a wide field. But that is inevitable. Regulation of the financial markets – and the pursuit of open markets are, by their very nature, objectives which are no longer domestic concerns.

68. The rationale for change is clear. The first stage in our reforms is already complete, and we will be publishing the new financial services legislation in the summer. It is important to get this right. We are creating a new regulator for the new millennium. A single regulator to replace the outdated divisions of responsibility in the past. A regulator capable of adapting to change – adapting to a single market and a single currency in Europe and a rapidly changing global industry beyond. A regulator that is outward looking and as international in outlook as the markets themselves. And a regulator which commands the respect of the industry and enhances public confidence.

69. There’s a lot of work to do in the meantime. But we’re making good progress. I am confident that the FSA will become a role model for the future.

The speech made by Alistair Darling, the then Chief Secretary to the Treasury, on 3 December 1997.

Introduction

1.   This is the fourth Proshare award ceremony that I have attended.

2.   I am under no illusions about my fate.  The day that I entered the Treasury my attention was drawn to the rogues gallery – the portraits of my predecessors dating back to the early 1960s, when the ancient office of Chief Secretary was established.

3.   An examination of the photographs revealed that my five immediate predecessors had all lost their seats at the election two days earlier.

4.   In its short five years existence, Proshare has been enormously successful.  I have always thought that the 1980s rhetoric of the “shareholding democracy” was misplaced.  It was a political slogan.  It wasn’t real.  Indeed it was counter productive rhetoric.

5.   The fact is that more and more people do shares directly or indirectly.  That’s all to the good.  People should know the relationship between the Stock Market and their shares. And individual shareholding has worked for many but it isn’t for everyone.  Lets be realistic about it.

6.   But the more people understand share holding the better.   We want to encourage people to save and to invest.  And Proshare has played a vital part in promoting that wider understanding.

7.   And of course, the best and most successful businesses are those where everyone in the enterprise from boardroom to the shop floor is fully engaged in its success.  Everyone should have a stake in the enterprise in which they are engaged.  It brings out the best in people.

8.   And encouraging employee share ownership is a important part of that – nearly 2 million employees now belong to one of  the approved schemes.  We want to see employee share ownership expand.  Shareholding should encourage participation and responsibility.

9.   And Proshare has been active promoting wider understanding of share holding and financial services  generally.  This award ceremony helps that process.

10.  Indeed Proshare is something of a pioneer in promoting the use of plain English – helping demistify the world of finance.

Share holding and saving

11.  We want to encourage saving which is why yesterday we launched the new Individual Savings Account.

12.  We believe that everyone should have the opportunity to provide for themselves – whether they are saving for their future, for their retirement or simply for a rainy day.

13.  ISAs are aimed at encouraging everyone to save.  They will be simple, flexible and accessible – something everyone wants and will get.

14.  Our objective is to develop a tax system for savings which benefits the many and not just the few. Half the population don’t save. So everyone should have the opportunity to save in a tax-favoured environment, however small the amounts they are able to put aside.

15.  As we promised in our manifesto, the ISA builds on the experience of PEPs and TESSAs. That is why investments in ISAs will be tax-free – up to 50,000 – and 100,000 Pounds for couples.

16.  We spend 1.3 billion Pounds on tax relief under the present system – rising to 1.7 billion Pounds in 2001-02.   Much of this goes to those who can already afford to save significant amounts and to tie their savings up for long periods of time.  That isn’t an efficient use of public money.  Our objective is to bring in new savers.

17.  Far better and fairer to use the existing provision to bring the benefits of ISAs to a much wider population of savers – possibly encouraging 6 million new savers.  That is right in principle and it is fair.

18.  Two weeks ago we published our consultation paper on stakeholder pensions.  The consultation document we published yesterday on ISAs builds upon this.  More and more people want to make provision for themselves and we want to encourage them
to do that.

Supervision and regulation

19.  And if we are to encourage saving we need a regulatory environment that commands the support and respect of the industry and public alike.

20.  We promised reform at the election.  Four days after the election we gave operational independence to the Bank of England.  And three weeks later we set out how we would deliver the radical overhaul to the regulatory system we promised.

21.  And, just over a month ago the new Financial Services Authority was launched.  It will take over the work of  nine existing regulators.

22.  In the global economy where markets are changing every day, where innovation and diversity are an essential part, the need for a new regulator that has power and flexibility is essential.

23.  For the first time the regulator will have statutory objectives clearly set out.  And the authority will to promote a greater understanding of the benefits and risks associated with financial products.  The draft financial services Bill, updating and replacing the various pieces of legislation covering financial services, will be published next year for
consultation.

24.  If we want to encourage people to save and invest we have to make sure they have the information they need.To have confidence in the regulatory system.  That’s good for them and its good for business.  Good regulation should be complimentary to the business process.

The savings culture

25.  We want to build the savings culture. That is good for individuals. It is good for businesses and is therefore good for the country as a whole.

26.  But of course the Government has also to foster  the right economic climate to enable businesses and individuals to plan for the long term.

The Government’s economic approach

27.  The world has been transformed over the last few years.  We live in a global economy.  Industries typically span geographical and political boundaries.  No country can go it alone.  Our objective is to ensure Britain is equipped to rise to the challenge of the world’s new and fast changing economies.

28.  We are determined that this country, the first industrial nation, should be ready and equipped to seize the opportunities and a new global economy where its skills creativity and adaptability will mark us out.  And there is a new confidence in Britain today.

29.  It’s not the job of the Government to pick winners or to second guess management.

30.  But Government must address the fundamental weaknesses  that have held us back for too long.  Economic instability. Boom and bust. Underinvestment.  Productivity up to 20% below that of our competitors. Unemployment and the waste of talent of too many people.

The Government’s economic objectives

31.  In the six months since we took office, we have begun to  put in place the building blocks we need.  To raise the rate of sustainable growth to increase the prosperity of the country, so that everyone can share in higher living standards and greater job opportunities.

32.  First, monetary stability and low inflation – the essential precondition for growth.  Good for business, for savers, for those on fixed incomes.

33.  We have given operational independence to the Bank of England to set interest rates to achieve the Government’s target for inflation.  We have put in place the most open and accountable set of procedures in the world.  And already long term interest rates have fallen.

34.  Second, fiscal stability.  The Chancellor in his Budget in July put in place a deficit reduction plan, cutting the huge burden of debt left by the last Government.  We spend 25 billion Pounds a year servicing public debt.  More than we spend on schools.  And at this stage in the cycle we should not be adding to the country’s debt.

35. Thirdly, the Comprehensive Spending Review which I announced earlier this year will conduct a root and branch examination of the 320 billion Pounds the Government spends:  5000 Pounds for every man, woman and child.  It will ensure affordable and sustainable public finances and which will set the spending priorities of this Government, for the rest of this Parliament and beyond.

36.  And fourthly, removing barriers to growth.  We must expand our economic capacity and create the right climate for high levels of investment.  That is why we have reformed the corporation tax system, removing the distortions that hinder long term, high quality investment.

37. In the last Budget we cut corporation tax to the lowest level ever.  And we intend to cut the main rate again when ACT is abolished in 1999.  This further enhances our position as the country with the lowest rate of corporation tax of any major industrialised country and one of the lowest tax burdens on business.

38. And modernising the welfare state, getting more people back into work.  Investing in skills and training.  Removing the inflationary pressures that have undermined growth in the past. We have taken the tough decisions.  Putting the funding of higher education on a sustainable footing for example.  All for the long term good of the country.

39.  So the building blocks are there.  Stability, sound public finances, removing barriers to growth and a commitment to open markets.

40.  This Government is outward looking.  We have to be and that has driven our policy in Europe as elsewhere.

41.  We are determined to open markets and engage constructively in Europe.  Both the Chancellor and the Prime Minister have made it clear that we are determined to put in place the necessary preparations which will allow Britain to decide to join EMU if economic conditions justify it.

42.    We’re one of the most open economies in the world – trading 25 per cent of our GDP compared with America’s 10 per cent.  And nearly 60 per cent of our exports are to mainland Europe and an astonishingly high level of international investment into Europe – 30 per cent of it – comes to the UK.

43.    In less than 14 months from now the German business selling products to France and the Netherlands will be able to do so without exchange rate risk, with lower transaction costs and with more transparent prices, something that in itself will be a big challenge to a British competitor hoping to supply the same order.

44.    So EMU will lead to fiercer competition for trade and for future investment across Europe.  And the time to prepare is now long overdue.

45.  We are working with business to prepare for the introduction of the Euro in 1999.  The Euro will affect each and every one of us.

Preparing for the future

46.    In Europe and at home are objectives to obtain long-term stability.  Stability in policy making.  Stability in the economy.

47.    Our pre-Budget report last week marks another innovation.   It sets out the major economic issues facing the UK in the run-up to the Budget in the Spring and beyond.

48.    In the modern economy, demand for more openness and transparency than in the past.  Openness builds confidence in the Government’s ability and determination to maintain economic stability.

49.    And we set out clear choices for the country.  There is the opportunity now for sustainable growth.  Growth that will create job opportunities and generate the wealth this country needs.

Conclusion

50.  Tonight sees awards for individuals and business on whose success we all depend. Government’s job is to compliment business effort.  To prepare the country for the future. To maintain economic stability.  To ensure a skilled and adaptable workforce.To open markets in Europe and elsewhere.

51.    But no Government can ever take the place of individual flair.  It is that innovation and enterprise that we celebrate tonight.

The statement made by Alistair Darling, the then Chief Secretary to the Treasury, in the House of Commons on 11 June 1997.

With permission, Madam Speaker, I should like to make a short statement about our approach to public spending in the medium term and to the comprehensive spending review promised in our manifesto.

We set out our spending plans for this year and next in our manifesto. We made it clear that tough decisions would be needed, but that such an approach was essential. We shall maintain that approach. This statement looks beyond the next two years to the medium term.

We will deliver prudent and sound management of the public finances to provide a stable platform for investment and growth; and we will ensure that public spending achieves the objectives that we have set ourselves—objectives which are based on our key principles of opportunity, fairness, employment and investment. To achieve that, we must put the public finances into proper shape.

Since 1990, public sector debt has almost doubled as a proportion of national output. In 1994, we were told there would be a Budget balance in 1998–99; in 1995, we were told it had slipped a year to 1999–2000; and last year, it slipped again to 2000–01. As a result, after five years of growth, we are still borrowing to cover our current spending: the current deficit was about £20 billion last year and the last Budget forecast that we would stay in deficit for the next two years, despite making some questionable assumptions. In order to rebuild public trust in the management of the public finances, my right hon. Friend the Chancellor has asked the National Audit Office to review the forecasting assumptions he set out in the House on 20 May.

The public have a right to know not only that total spending is affordable and prudent, but that their money is being spent on their priorities, that it is being spent efficiently and that the spending is effective. The Government spend more than £300 billion, equivalent to over £5,000 a year for every man, woman and child in the country. We will reorder that £300 billion to meet our objectives, which were endorsed by the people on 1 May.

Public spending needs to be clearly focused, and we will achieve that objective. There is no better time for a root-and-branch reappraisal of public spending priorities than at the start of a new Government.

We showed the way when we were in opposition. We said that we would provide nursery places for all four-year-olds, and we will find the money by scrapping nursery vouchers. We promised to cut waiting lists in the national health service, and we will release the funds by releasing savings from red tape and bureaucracy. We promised to reduce class sizes for five, six, and seven-year-olds, and we will find the money to pay for it by abolishing the assisted places scheme.

We have already made a start in delivering those promises, within weeks of the election. We will continue this approach in government, stripping out ill-targeted programmes that benefit only the few, and redirecting spending towards the priorities of the many.

The comprehensive spending review I am announcing today will carry on that process. It will set out clear objectives for all Departments. It will examine how we can achieve our objectives of improving standards in education, modernising the welfare state and getting people into work—in short, delivering our manifesto commitments as efficiently and effectively as we can.

Every Department will scrutinise its spending plans in detail from a zero base, and ask, how does each item of spending contribute to the Government’s objectives as set out in our manifesto? Why are we spending this money? Do we need to spend it? What is it achieving? How effective is it? How efficiently are we spending it?

Every objective will be costed and Departments’ effectiveness in achieving them will be scrutinised. We will make sure that we know how much we are spending on each objective, and that we can demonstrate to the public what we have achieved as a result.

We will consider how best to provide services. What should be provided by the public sector, the private sector, or a combination of both in public and private partnerships? As my right hon. Friend the Prime Minister has said, what counts is what works.

As well as looking at spending in each Department separately, we will look at issues that cross departmental boundaries. Those cross-departmental reviews will ensure that we are not hidebound by the existing structure of government. The review will be co-ordinated by the ministerial committee on public expenditure, which will look at spending across Departments.

We will look in particular at Departments’ efficiency in making the best use of their assets. We have asked Departments to draw up an inventory of their assets—something that no Government have ever achieved before. We need to know what the Government own, and whether they need those assets. If not, we shall reallocate the proceeds where they are needed most.

The review will be thorough and far reaching. All Departments and all Ministers will be involved. It will take 12 months to complete and its conclusions will inform a new set of public spending plans for the rest of this Parliament—a set that reflects our priorities and meets the country’s needs beyond that. It will take the long-term view.

The review process is already under way. Terms of reference for the departmental reviews will be published shortly. The Government have already shown their determination to achieve their objectives. The comprehensive spending review will provide us with a clear sense of direction and the long-term view that every Government need. We will ensure that the Government spend public money wisely and fairly, so that public spending matches the people’s priorities.