Tag: George Osborne

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

It’s great to be at Google Zeitgeist today.

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

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

You.

The impact that you are having – as internet entrepreneurs, innovators, technologists – on the world of government and politics.

Recent events in the Middle East and North Africa demonstrate just how powerful the internet can be as a tool in the fight against oppression.

In fact, look at almost any big social change of the past 200 years and you will see that it has been driven by a paradigm shift in communication technology.

Newspapers. Radio. Telephony. Television.

And now – most dramatically of all – the internet.

For politicians of my generation, the incredible disruptive impact of the internet is not a threat – it’s an opportunity.

An opportunity to build societies that are more open, more innovative and more prosperous.

As we all know, virtually every walk of life is being affected in some way by the internet and new technology.

That’s why, over the course of this conference, you are going to be hearing from experts talking about how the internet is changing the economy, affecting our culture and transforming society.

In my view, the impact that the internet is having on government is equally profound.

That’s what I’d like to focus on today.

I’d like to look at three of the most dramatic ways that the internet age is changing government.

The way it is:

Changing accountability.

Changing policy making.

And changing public services.

Let me take each in turn.

First, changing accountability.

You don’t need me to tell you how the internet has eroded traditional information asymmetries.

We’re all so used to talking about “the democratisation of information” that perhaps sometimes it’s easy to forget what a fundamental change it has brought about.

For centuries, access to the world’s information – and the ability to communicate it – was controlled by an elite few: the powerful, the wealthy and the well educated.

Today, billions of people can access more information than entire governments could just a generation ago.

And of course, the globalisation of these information flows, thanks in large part to mobile internet access in sub-Saharan Africa and the developing world, is increasing every day.

This is rapidly eroding traditional power and informational imbalances.

And it is irrevocably increasing the accountability of politicians and governments to the people they are supposed to serve.

There was a brilliant example of this during the Prime Minister’s trip to India last year.

As part of the trip, we thought we would organise a hack day at the Google offices in Bangalore.

So we flew over some British coders, and stuck them in a room with Indian developers and social entrepreneurs, to see what they could build together over the course of a few hours.

They decided to create a new tool that would help make the Indian police more accountable.

Here’s how.

In India, giving someone a quick “missed call” is a bit like “poking” on Facebook.

You call someone, let it ring for a second, then hang up, and it’s a cost-free way of saying “hi” or “I’m thinking about you”.

What our team of programmers did was start building an app that lets people in India give a missed call to a special number saved in their phone whenever they have a dissatisfactory encounter with the police.

This missed call gets plugged into a heat map showing the rough location of people’s complaints – so highlighting for the first time the parts of India where people are most unhappy with their local police.

This heat map can then be used by civil society or by government to put pressure on underperforming forces to change their ways.

It’s a brilliant initiative, and just one of thousands of examples of how new technology is improving accountability across the world.

For a long time, the British government was much too slow to accept this.

It tells you something about the culture of secrecy in Whitehall over the past decade that Tony Blair says in his autobiography that the Freedom of Information Act was his “biggest regret” in government.

I’m sure we could all think of a few things he really ought to regret more.

From day one of the coalition Government, we have chosen to take a different path, and to embrace the accountability revolution enabled by the internet age.

And already it seems incredible that this time last year, the British public couldn’t access even some of the most basic information needed to hold the government to account.

Spending data broken down on an item by item basis.

The contracts signed by central and local government.

Government procurement tender documents.

The salaries of senior government officials.

Incidents of crime in your neighbourhood, broken down on a street by street basis.

Thanks to our efforts, these government datasets – and over 6,000 others – are now freely available to be analysed, interrogated and mashed up.

But this is only the beginning.

Over the next 12 months, we’re going to unlock some of the most valuable datasets still locked away in government servers.

This is the raw data that will enable you, for the first time, to analyse the performance of public services, and of competing providers within those public services.

So a year from now, websites and services will use this data to help the public find the answers to important questions like:

Which is the right GP for my family?

How well are the different departments in my nearest hospital performing?

What is the quality of teaching like in my local school, broken down by subject area?

Was the person who broke into a car on my street ever apprehended by the police, and if so, what happened next?

Our ambition is to become the world leader in open data, and accelerate the accountability revolution that the internet age has unleashed.

Because let’s be clear, the benefits are immense.

Not just in terms of spotting waste and driving down costs, although that consequence of spending transparency is already being felt across the public sector.

No, if anything, the social and economic benefits of open data are even greater.

Take medicine, for example.

A few years ago Sergey Brin, the co-founder of Google, took a DNA test that revealed that he may have up to a 75 percent chance of developing Parkinson’s over the course of his life.

His response?

To use the power of open data to search for a cure.

He has funded the collection of a huge amount of health data, drawn from over 10,000 people, which is now being analysed to yield new insights into the linkages between drugs, patient behaviour and disease.

This approach – using large datasets to search for possible correlations and causations – shows the massive potential for open data to transform scientific research.

The economic impact of this open data revolution will be similarly profound.

The annual global market for financial services data analytics is estimated to be worth over $20 billion.

According to a new McKinsey report, the market for health analytics could be even larger – as much as $300 billion a year in the United States alone.

And as we all know, with internet enabled sensors increasingly embedded in cars, in smart meters and in our electrical appliances, the amount of data being produced is increasing rapidly.

This so-called “internet of things” opens up the possibility of new services and tools, from the self-drive cars being developed by Google to powerful dynamic energy efficiency applications.

I want the UK to be at the forefront of this new wave of innovation.

That is why we will have a specific focus on open data over the coming months, to ensure that we maximise the business opportunities at hand.

And that’s also why it’s great to be able to announce today that two of our leading universities, Imperial College London and University College London are developing plans for an unprecedented partnership to create a new Research Centre focused on the massive amounts of data – energy data, transport data, social data – being generated in the world’s metropolises.

This “smart cities” Research Centre will develop new technologies, in partnership with leading companies, to harness and exploit these huge new datasets, and support the businesses and technologies of the future.

And as part of the Tech City initiative, the Research Centre will be based in Shoreditch, and will be a fantastic boost to the East London technology cluster.

If the first impact of the internet age on government has been to change accountability, the second has been to change the nature of policy making itself.

Just as the old asymmetries of information have been eroded, so too have the perceived asymmetries of wisdom.

I genuinely believe that in almost all areas of government, we do a better job when we open up policy making and open ourselves up to the ideas of the crowd.

We’ve done it in tax policy, where wherever possible we publish detailed tax changes months before the Budget so that experts can crawl over the drafting and spot errors and implementation problems.

We’re doing it with legislation more generally, through our Public Reading Stage, which will give people the opportunity to highlight drafting and technical errors during the Parliamentary process.

But we’ve also done it to generate new ideas and policy proposals.

In the run up to last year’s Spending Review, we didn’t leave it to Treasury officials alone to look for efficiency savings and ways to save money.

We opened up the entire process in an unprecedented way.

First we launched a website enabling public sector workers to feed in their ideas about how to save money and redesign processes, based on their own experiences.

The response was incredible: over 10,000 proposals submitted in the first 24 hours alone.

We had a team poring over these suggestions, and the best ones were fed straight into the Spending Review process.

I met public sector workers who had taken part, and they were thrilled to know that their ideas were finally being listened to.

Once this process had been completed, we opened it out to the entire public.

By the end, hundreds of thousands of people had taken part.

To those that say that people are disengaged from the work of government, and want their representatives to take care of everything, this is a powerful riposte.

We’re applying this commitment to openness to government procurement too.

At the launch of Tech City in East London last November, one young entrepreneur called Glenn Shoosmith told the Prime Minister about a problem he’d encountered.

He’s invented a low-cost technology that allows people to book slots online at their sports centre or swimming pool.

When he pitched it to the Olympics team he was told to find the relevant tender document and fill it in.

But the system didn’t know about the product, so there was no tender – and no way for Glenn to sell his innovative product to government.

This problem happens time and again – so we’re using open processes to try to fix it.

Last month, we launched an open procurement competition – the Innovation Launch Pad – encouraging small companies to pitch to government their innovative new technologies and services.

In other words, instead of having to wait for the right public sector tender document to come along – because it often never does – you can send your prototype directly to government.

Leading technology experts such as Mike Lynch, the founder of Autonomy, and angel investor Sherry Coutu are helping us judge the entries and work with the companies to help them compete for and win deals with Government.

We’ve applied a similar logic to the challenge of reducing regulation.

Instead of simply relying on government hierarchies to decide which regulations should be reformed or abolished, we’ve opened up the process to the wisdom of the crowd.

We call it the Red Tape Challenge, and here’s how it works:

We’re publishing, sector by sector, almost every piece of regulation on the books so that business and the public can feed in comments.

What works, what doesn’t, what should be scrapped, how things could be simplified or done with less regulation.

Every single suggestion is looked at – and if any sensible proposals are rejected, Ministers will have to explain why.

In other words, we’ve turned the default on its head.

Instead of government deciding whether or not to listen to the public, we’re forcing it to listen.

We want to remain at the cutting edge of open source policy making.

So I’m pleased to be able to tell you that we have just recruited Beth Noveck, who used to work at the White House running President Obama’s Open Government Initiative, to help us take this agenda forward.

I can’t think of a better person to help us with this.

After all, Beth literally wrote the book – ‘Wiki-Government’ – on how policy making needs to change in the internet age.

She’s a genuinely world class recruit, and she’ll be working alongside the likes of Martha Lane Fox, Tim Kelsey and Tom Steinberg to harness new technologies to make government more innovative and accountable.

So if the second impact of the internet age on government has been to change the way we make policy, the third impact I’d like to talk about is the way it’s changing the way we design and run public services.

This is in part thanks to the massive potential for cost savings.

It used to cost government over £10 to process a driving license application or a self-assessment tax form.

Online, the cost is less than £2.

Efficiencies like that are too powerful to be ignored.

So if we make the most of this opportunity, there is no doubt that we can significantly reduce the cost of government

Martha Lane Fox, the Government’s Digital Champion, argues that shifting just 30% of public service contacts to digital channels has the potential to deliver annual savings of more than £1.3 billion.

If we think about how internet banking has gone from a standing start to the mainstream in just over a decade, there’s no reason why public services can’t be the same.

Obviously, it won’t happen of its own volition.

That’s why we have made the bold commitment that all our public service reforms will be ‘digital by default’.

In other words, in all our reforms we assume that public service delivery can be shifted online – and officials and ministers have to justify why any aspect needs to be delivered through traditional offline channels.

This is a huge culture shift for government.

And it’s beginning to have an impact across the public sector.

We’re designing the universal credit system with online delivery in mind right from the start – not as an expensive afterthought.

My department – the Treasury – has already moved to online only corporation tax returns, significantly reducing administrative costs.

In the Budget I announced that over the next couple of years we will be doing the same for all the main business taxes.

And we’re creating a single government website – you can find the prototype at www.alpha.gov.uk – that will enable us to redesign government services from the bottom up and put the user in charge.

Because we all know, new technology doesn’t just enable us to reduce costs, it can help us drive up standards too.

For over a century, the dominant assumption in policy making was that in every walk of life, we needed people at the centre micromanaging public services.

Why? Because the public was considered to lack the information and tools to take more control themselves.

The internet age has shattered that cosy consensus.

And it’s opening up new possibilities to open up public services, empower citizens and unleash massive innovation.

To give you just three examples:

Personal budgets will be able to be managed by individuals online, choosing the tailored public services they need.

Patients will be able to access and share their personal health records, and take greater control over their treatment.

And communities will be able to use online platforms to engage with the local planning system, and come together to decide on issues like zoning and use of space in their neighbourhood.

Of course, this age of digitised public services creates challenges alongside opportunities.

The challenge of ensuring the security of personal data and financial information, for example.

The hacking into Sony’s online PlayStation network, and the theft of millions of users’ credit card details, is a high profile example of the need for robust online security.

This applies equally to government as to the private sector.

In any given month there are over 20,000 malicious emails sent to government networks.

Here is a salient story from my time as Chancellor.

During 2010, hostile intelligence agencies made hundreds of serious and pre-planned attempts to break into the Treasury’s computer system.

In fact, it averaged out as more than one attempt per day.

This makes the Treasury one of the most targeted departments across Whitehall.

At some point last year, a perfectly legitimate G20-related email was sent to HM Treasury and some other international partners.

Within minutes it appeared that the email had been re-sent to the same distribution list.

In fact, in the second email the legitimate attachment had been swapped for a file containing malicious code.

To the recipient it would have simply looked like the attachment had been sent twice.

Fortunately, our systems identified this attack and stopped it.

We are not taking this challenge lying down.

At the Spending Review last year I announced that we would invest £650m in a new National Cyber Security Programme to enhance our online security.

We are determined to get the security question right, so that we can maximise the opportunities that the internet age presents.

Another challenge that we need to address is to ensure inclusive access as public services are increasingly migrated to the internet.

After all, there are still nine million adults in the UK who have never been online.

We can, and will, address this challenge, and get as close as we can to a 100 per cent connected Britain.

Over the past few months, we have been working with some of the world’s leading technology companies to ensure that the next generation is equipped with the digital skills they need to flourish in the digital age.

Thanks to this engagement:

Hutchison Whampoa has agreed to support a pilot of the successful Digital Maths programme developed by Stanford Research Institute, which will provide digital tools to support maths teaching in UK schools.

Blackberry has agreed to launch an apps challenge for UK schools, teaching kids how to design new online tools.

Intel will run a range of schemes to support young people to set up their own online businesses.

And YouGov is sponsoring a Start-up Summer programme to provide mentoring, research, funding and cash prizes to encourage university students to set up internet companies.

Taken together, these schemes will benefit thousands of young people in the years ahead.

And they show how the government is working with leading businesses to turn the challenge of change to our advantage.

The same is true across all areas of government.

As we’ve seen, the internet is forcing us to rethink government from the bottom up.

It’s changing accountability.

Changing policy making.

And changing public services.

These changes are opening up incredible new opportunities for progress.

The opportunity to embrace new technology to improve public services and tackle old social problems in new ways.

The opportunity to make our societies more open, more fair and more prosperous.

And the opportunity to spread freedom and open markets to new corners of the world.

Together, we can make the most of these new possibilities.

And use the power of new technology to redesign government and build a brighter tomorrow.

Thank you.

Below is the text of the speech made by the Chancellor of the Exchequer, George Osborne, on 17th May 2010.

Good morning everyone, and on behalf of myself, David and Alan I want to welcome you all to the Treasury.

And can I take this opportunity to say how glad I am that I have someone of David’s intelligence and calibre to assist me in the work that we have to do.

We are here to talk about the very first item on the first page of the coalition agreement.

As it says, “Deficit reduction and continuing to ensure economic recovery is the most urgent issue facing Britain.”

We understand that.

And we need to get moving.

So today, less than a week after taking office, I want to explain some of the early arrangements for dealing with the fiscal crisis left by the last Government.

First, let me just tell you some of the stark facts.

Last year our budget deficit was the largest it has ever been in our peacetime history.

This year it is set to be among the largest the world.

According to the IMF and the European Commission, it will be the largest in the G7 and the largest in the European Union.

This is the legacy of thirteen years of fiscal irresponsibility.

And it poses a very real threat to the recovery.

That it is why this new coalition is founded on an agreement to significantly accelerate the reduction in the deficit, starting this year.

This is not about party interests, it is about the national interest.

The advice that we have received from the Treasury and the Bank of England make that clear.

Those who argue that action can be safely delayed for another eleven months would put our economy at risk for the sake of short term political advantage.

The last few weeks have shown quite how urgent the necessary action has become.

Greece is a reminder of what happens when governments lack the willingness to act decisively and quickly, and when problems are swept under the carpet.

The result is sharp increases in interest rates, worsening recession, growing unemployment.

At one point, interest rates in Greece increased by a full 10 percentage points.

The dangers were clear when I spoke to finance ministers from around the world on Friday.

The European package that was agreed last weekend has solved the immediate liquidity crisis, but it has not solved the underlying solvency crisis.

The threat has not gone away.

And I know people everywhere are worried about what this means for them.

They are asking themselves – will I be affected?

What does this mean for my job, my family, my children’s future?

To them I say – if we fail to tackle the deficit we inherited from the previous government, the consequences could be disastrous.

If we don’t get on top of our debt, every family in Britain will be poorer and the dreams of millions of young people will be dashed.

Mortgages will be higher, businesses will go bust and debt interest will become one of the largest items of government spending.

We urgently need to restore confidence in our economy.

And we need the determination to act quickly in the short-term in order to establish credibility for the longer term.

So what will we do?

The first part of our approach is to boost credibility and confidence in the UK’s fiscal framework.

In short, we urgently need a full, independent assessment of how bad the problem really is.

As the IMF has said “strong fiscal institutions can enhance the credibility of consolidation plans”.

I could not agree more.

Over the last 13 years the public and the markets have completely lost confidence in government economic forecasts.

The last government’s forecasts for growth in the economy, over the past ten years, have on average been out by £13bn.

Their forecasts of the budget deficit three years ahead have on average been out by £40bn.

Unsurprisingly, these forecasting errors have almost always been in the wrong direction.

The conclusion is clear.

We need long-lasting change in the way we put together budgets in this country.

The final decision on the forecast has always been made by the Chancellor, not independent officials.

And that is precisely the problem.

Again and again, the temptation to fiddle the figures, to nudge up a growth forecast here or reduce a borrowing number there to make the numbers add up has proved too great.

And that is a significant part of the reason for our current problems.

I believe the public should be able to trust official forecasts for the economy.

I want independent forecasts to become the norm.

And this will inevitably mean giving away some of my powers as Chancellor.

Of course, the elected government will still set the overall fiscal goals of the government, and the extent to which fiscal policy expands or contracts at each budget.

And of course, it will also retain control over tax and spending decisions.

These are properly decisions for elected politicians, accountable to Parliament and to voters.

But I am the first Chancellor to remove the temptation to fiddle the figures by giving up control over the economic and fiscal forecast.

I recognise that this will create a rod for my back down the line, and for the backs of future chancellors.

That is the whole point.

We need to fix the budget to fit the figures, not fix the figures to fit the budget.

To do this, I am today establishing a new independent Office for Budget Responsibility.

For the first time we will have a truly independent assessment of the state of the nation’s finances.

So they can get to work immediately, the OBR will initially operate on a non-statutory basis, just as the Monetary Policy Committee operated before it was enshrined in legislation.

It will be headed by Sir Alan Budd, one of the most respected fiscal and macroeconomic experts in our country.

He is a man of immense integrity and indisputable independence, having worked for governments of both right and left, and he was appointed as an inaugural member of the Monetary Policy Committee by Gordon Brown.

I am very glad that he is here with us today.

He will be joined by two other independent experts, Geoffrey Dicks and Graham Parker, and together they will form the Budget Responsibility Committee.

With help from a secretariat of civil servants, they will be in charge of making independent forecasts for the economy and the public finances.

They will have direct control over that forecast.

They will make all the key judgements.

And they will produce the fiscal numbers that underpin government policy in the Budget Red Book.

But I don’t think we can afford to wait until the Budget for an independent assessment of the true state of the public finances.

So the first of the OBR’s forecasts will be produced ahead of the emergency Budget.

Everyone will be able to see the scale of the problem to which that Budget must provide the solution.

I have asked the Treasury to give Alan and the Committee full access to all the data, assumptions, and economic models.

Because they will also have a role, over the coming months, in exposing all the hidden liabilities and long-term pressures facing us as a country.

Looking at the cost of our ageing society, public service pensions, or the cost of outstanding PFI contracts, for example.

For the first time we will have an independently audited and transparent national balance sheet.

In due course, the OBR will be put on a statutory footing, with legislation in the Queen’s Speech next week.

And at the Budget I will announce the overall path we intend to pursue for the public finances, and against which the OBR will judge the government’s fiscal policy.

For each Budget and Pre-Budget Report they will confirm whether the Government’s policy is consistent with a better than 50 per cent chance of achieving that objective.

That means there will be nowhere to hide the debts, no way to fiddle the figures, and no way of avoiding the difficult choices that have been put off for too long.

With all these changes, fiscal policy in this country will be at the cutting edge of international best practice.

Making us one of the few advanced economies with an independent fiscal agency that produces official fiscal and economic forecasts.

Given that many countries face similar fiscal challenges – though few on a similar scale – I hope that the world will look with interest at our policy innovations.

So the first part of our approach is a truly independent audit of the public finances.

But it is not enough just to know the scale of the problem.

We need to show that we have the determination to fix it, and that means making a start this year.

The coalition has agreed that £6bn of savings to non-front line public services should be made this financial year.

The departments for health, defence and international development will also make savings but they will be reinvested in their front lines.

The coalition has also agreed that, given the state of the public finances, the great majority of the £6bn of savings from other departments will be used to reduce the deficit.

Some proportion will be used to support jobs in a targeted and effective way, as set out in the coalition agreement, for example through the cancelling of some backdated demands for business rates.

It is the clear view of the Treasury and the Governor of the Bank of England that these are the necessary actions to ensure economic stability and secure the recovery.

The Treasury’s assessment is that there is a strong economic case for an immediate spending reduction of £6bn.

The Governor, when presenting his inflation report last week, said it was right for a new government “to put into place a serious plan to tackle the fiscal deficit… and to make clear it was serious about it by doing some measures this year.”

He added that he did not “think £6bn of cuts will dramatically change the outlook for growth this year, and it does reduce some of the downside risks”.

So we are in no doubt that this action is advisable.

And the work that David Laws and I have already done in the Treasury has convinced us that it is also achievable without affecting the quality of key public services.

By tackling wasteful spending now, rather than later, we can demonstrate our commitment to tackle the deficit.

We can help the independent central bank keep interest rates lower for longer.

And we can begin to turn the tide of debt that is threatening our economy.

David will, in a moment, take you through this in more detail.

But let me briefly explain how the process will work.

The specific allocations of in-year savings will be announced a week today.

These will include significant reductions to the cost of quangos.

This is unprecedented speed for a spending round, but we need to get moving, and every day comes at the cost of more wasteful spending.

The emergency Budget will then set out the fiscal path and the spending totals needed to achieve it over the coming years, underpinned by the OBR’s independent forecasts.

The Budget will also contain measures to boost enterprise, create a fairer tax system, and demonstrate to the world that Britain is open for business.

I will be saying more about this when I speak to the CBI Annual Dinner on Wednesday.

The Spending Review will then report in the Autumn, informed by the Strategic Defence Review.

So, in the space of less than a week this new coalition government has already:

– changed the way that Budgets are made, forever;

– created a new independent office that will restore confidence in the numbers that underpin the budget;

– set in train the creation of the first independently audited national balance sheet;

– confirmed immediate action to identify £6 billion of wasteful spending this year, while protecting the most vulnerable in our society and the quality of front line services on which people depend;

– and set out the steps towards an emergency Budget that will show that Britain can live within its means and will provide the solid foundation for a private sector recovery

That is the route to a stable, balanced economy that works for everyone.

Finally, the coalition agreement states that the emergency Budget will be within 50 days of the signing of the agreement.

Some have said that is a tight timescale.

But I believe that we need to act even sooner to restore confidence in our economy.

So the Budget date will be Tuesday 22nd of June.

Exactly six weeks, or 42 days, from the signing of the coalition agreement.

Thank you.

Below is the text of the speech made by George Osborne, the Chancellor of the Exchequer, in Mumbai on 28th July 2010.

Welcome everyone.

I want to thank the Indian Banks’ Association, as well as UK Trade and Investment, for hosting this speech.

It is a real pleasure to be back in Mumbai today.

I was last here in 2006, when David Cameron and I came to meet with and talk to the leading figures of Indian business and politics.

On the way back from that trip we resolved that if ever we formed a Government we would return with a large delegation to enhance this relationship.

This visit makes good on that promise.

Put simply, this is the strongest and most high-profile British delegation to visit India in modern times.

It includes six senior ministers – alongside the Prime Minister David Cameron and myself, we are joined by:

– The Business Secretary Vince Cable;

– The Foreign Secretary William Hague;

– The Minister for the Environment and Climate Change Greg Barker;

– And the Culture Secretary Jeremy Hunt.

While it took one of my predecessors as Chancellor ten years to visit India, I have made it a priority to come here in my first ten weeks.

Our delegation also includes leading figures from British business, sports and academia.

Top chief executives of some of the world’s best-known businesses, like Vodafone, BAe, and Rolls Royce, and leading financial sector firms, including Barclays, Standard Chartered, Deutsche, Clifford Chance, Aviva, Standard Life, and the London Stock Exchange.

Senior academics from Cambridge, Imperial College and our other universities.

Cultural leaders like the directors of the British Museum, the Victoria and Albert Museum, and the British Library.

And sporting figures, such as Olympic medal winners Sebastian Coe, Kelly Holmes and Stephen Redgrave to see the new facilities for the Commonwealth Games. Next time I will bring some cricketers.

And the scale of our visit is a demonstration of how serious we are about India.

Britain’s new coalition Government is here to renew and strengthen the partnership between our two countries.

Based on our shared interests, shared values, shared sense of threats and ever-burgeoning personal and business ties.

India’s economic success within the framework of a secular and plural democracy is of strategic importance to all open societies and all open economies.

The UK has a vital stake in India’s rise to global power and prosperity and we are here to listen and to learn, to find out how our strong relationship can grow stronger still.

So I want to talk today about those three core ingredients which I believe are needed in this new enhanced economic partnership.

They are, first, greater efforts to improve trade and investment flows between our countries – a partnership in trade and investment.

Second, a deeper understanding of the links between our financial services sectors – a partnership in finance.

And third, a better recognition of our shared goals on the international economic policy arena – a partnership for the world economy.

Let me say a few words about each in turn.

Starting with our trade and investment.

Our two countries have much to gain from expanding our trade relationship.

In the past, this has been a disappointing aspect of our bilateral ties.

The UK and India have slipped down the rankings of each other’s trading partners – we could and should be doing much more with each other.

In 2008, India was only the 19th most important source of foreign goods for the UK market and the 12thmost important source of services.

A decade ago, the UK was India’s fourth most important source of imported goods. By 2009, we had fallen to being the 18th largest.

In other words, the UK has been losing its share of India’s booming trade with the outside world.

Now, it is all too easy to set eye-catching targets that disappear without trace after they have served a short-term need to grab headlines.

In January 2007, when the then British Chancellor of the Exchequer visited India, he promised great things for the bilateral trade relationship.

Gordon Brown announced that he aimed to double exports to India by 2010 – that is to say this year – and to quadruple exports by 2020.

A noble ambition, but easier said than done.

The value of UK exports of goods stood at £2.7bn at the time of that announcement; by 2009, it had reached just £2.9bn.

It will be a stretch for us to reach the target of doubling exports in what remains of this year.

That is why we want to make progress on free trade talks.

We must make every effort to complete the Doha trade round. And we should ask trade experts to report to G20 leaders on steps to achieve this before the Seoul G20 Summit.

We should strengthen significantly EU-India trade links. Indeed, an ambitious Free Trade Agreement between the European Union and India will generate jobs and growth by tackling the unnecessary barriers to trade and investment between our regions.

By 2020, it could deliver benefits worth a combined €4.5bn per annum shared between India and the EU.

Negotiations are now entering their fourth year. We need to provide the leadership to complete the free trade agreement by early next year.

We must reduce the costs of trade – particularly the frictions and delays at borders –which are often a far larger barrier to market access than tariffs.

The World Bank estimates that a 2 percent reduction in the costs of doing trade is equivalent to an ambitious Doha deal on tariffs.

So we need to do more, and do better, on trade between our two countries.

We need to build on what has already been achieved. There is a strong investment base:

– 700 out of 1,200 Indian firms in the European Union operate from within the UK;

– The largest single manufacturing employer in the UK is the Indian conglomerate Tata, which owns Jaguar, Land Rover and in the constituency I represent Brunner Mond;

– And the UK receives over 10 per cent of India’s outward investment flow.

So when it comes to investment, ours is not a one-way relationship.

But while the UK stock of inward investment is the fourth largest in India, the UK’s share of foreign direct investment has been declining. I want to change that.

Yesterday I launched Vodafone’s solar powered mobile phone, and exchanged greetings with a villager in Jharkhand.

Communicating from a mobile phone shop in Mumbai directly to a village a thousand miles away – this is the scale of the change in which British companies can participate.

The Government of India have set out ambitious plans for $500bn infrastructure investment.

This is a massive opportunity for British engineers, architects, designers and construction firms to strengthen cooperation further.

I welcome that the Government of India is taking forward proposals for foreign insurers and pension funds to play a role in delivering this finance.

We should bring together CEOs from the UK and India to identify how we can further improve collaboration in this area.

So we need an enhanced trade and investment partnership. We also need to strengthen our partnership in financial services.

So this is the second crucial element of an enhanced economic relationship – the increasing importance of the financial links between our two economies.

Lack of access to finance is a major barrier to poverty reduction all over the world.

British banks are fully committed to the Government of India’s financial inclusion agenda and to the challenge of serving the needs of poorer communities in rural areas and smaller towns and cities.

We are here for the long haul. Indeed some UK banks have been in India for over 150 years.

Standard Chartered, HSBC and RBS are three of the top four foreign retail banks in India.

Offer them licences in the medium-sized towns and smaller cities and they will jump at the opportunity to be part of the huge effort to bring modern banking services to millions more Indians.

Just look at what they are already doing – Standard Chartered and HSBC have extensive networks of more than 100 branches between them covering 31 cities.

I also want to see British banks doing more to help India increase its financial capacity so that access to capital is not a brake on India’s economic growth.

A Confederation of Indian Industry report published this month noted that foreign banks held only 8.5 per cent of the banking sector’s assets and that this limited the country’s ability to secure higher investment growth.

But let’s also be clear about something else.

It is essential that we learn the lessons of the crisis and create financial systems that support growth rather than put it at risk.

India’s attention to macro-prudential risks enabled it to weather the storm better than the UK and other economies.

In the UK I have announced a new approach to financial regulation, including a stronger focus on macro-prudential risks to the financial system as a whole, stronger regulation of individual firms by the Bank of England, and enhanced consumer protection.

I know from my conversation this morning with Reserve Bank of India Governor Subbarao, how much both our countries have to gain from sharing our experiences in macro-prudential regulation.

I look forward to strengthening our cooperation as we both develop our global financial centres.

As the Governor said in his speech to the Indian Merchant’s Chamber, the Indian banking system will become increasingly international, with Indian banks increasing their presence abroad and foreign banks taking a larger presence in India.

India has seen tremendous benefits from the liberalisation of the financial sector, as I saw this morning at the Bombay Stock Exchange.

The dynamism of India’s capital and equity markets demonstrate the potential for other parts of the financial sector: for example in banking, through the implementation of the reforms set out in the RBI’s 2005 Roadmap.

And in insurance, by following through on India’s welcome commitment to raise the cap on foreign investment from 26% to 49%

I have another key message for financial regulators and financial institutions here in this great financial centre of the future.

And it is this – I believe in reciprocity.

I would like to see Indian banks establishing themselves even more prominently as big players in the City of London and throughout the UK.

Indian financial services firms are also increasingly active in the UK.

There are currently 9 Indian banks in the UK and all of them are growing and have plans to open more branches in the UK.

The UK is now home to more Indian banks than any other country in the world.

I very much welcome the fact that the India Infrastructure Finance Company based itself in London – a move symbolic of the depth of the financial services relationship between our two countries.

And I’m pleased to announce today that Exim Bank, India’s premier development bank for trade and investment, has been given a license from the FSA to set up their bank in the UK – bringing that number to 10 Indian banks and with more to follow I hope.

I can also announce that the State Bank of India, the oldest commercial bank in this country, will be making London their European Headquarters this year and will be adding to their network of branches across the UK.

This is precisely the kind of reciprocity our banking sectors need.

And I would welcome the arrival of more Indian banks in the UK as well as the expansion of the existing players already serving customers the length and breadth of the country.

So we will develop a partnership in finance to complement the new partnership in trade and investment.

And these will together help us form a new partnership for the global economy.

India’s policies of trade and investment liberalisation are reintegrating India into the world economy, allowing it to regain an influence it had three centuries ago.

Prime Minister Manmohan Singh once famously quoted Victor Hugo saying that ‘no power on Earth can stop an idea whose time has come’.

The emergence of India as a major economic power in the world is certainly one such idea.

That is why it is time to acknowledge that the post-1945 system of international financial institutions – particularly the IMF and the World Bank – needs to change.

It was built for a world of closed economies and just 50 states.

In a world in which relative economic power is shifting eastwards, we urgently need modernisation and reform.

We need a new global financial architecture that reflects the re-emergence of India and a number of other countries as linchpin powers in the world economy.

We need institutions that have the resources, the tools and the legitimacy to ensure countries can withstand economic shocks and prevent crises from spreading:

– Enhancing IMF resources – and I am pleased that this week the UK Parliament ratified our commitment to provide extra resources;

– Improving the IMF’s crisis prevention tools;

– And completing the reform to IMF quotas to give greater weight to under-represented and dynamic economies. I am determined the UK will take a lead this autumn in making sure India is fairly represented.

We need institutions that reflect the huge changes that have been taking place in the world economy, not ones that mask them.

India now has a strategic stake in multilateralism that it did not have for much of the post-war period.

The UK supports the G20’s emergence as the pre-eminent global grouping, in which the world’s largest economies work together to create a global order that is supportive of our mutual aspirations and ambitions:

– coordinating macroeconomic policies and agreeing actions in each G20 country to ensure sustainability and foster global growth;

– implementing reforms to strengthen the global financial system, in particular improving the quality and quantity of capital;

– and resisting protectionism and promoting open markets.

It is essential that India can play the significant role in these debates to which it is entitled because of the size and dynamism of its economy.

It is not just about multilateral relations. I also want our bilateral relationship to be strong.

Let’s not make this visit and these conversations a one-off, but rather ensure that:

– we meet annually;

– follow through on summit agreements;

– expand the dialogue to include other government ministries and regulators;

– and strengthen the involvement from the private sector.

Ladies and gentlemen.

Let me conclude by saying that India’s success is of strategic importance not just to the UK, but to all open societies and open economies and the UK is determined to do all it can to be a partner in that process.

We can be strong partners in trade.

We can be strong partners in finance.

And through this, we will be strong partners in the world.

Thank you.

Below is the text of the speech made by the Chancellor of the Exchequer, George Osborne, on 19th May 2010 at the CBI Annual Dinner at the Grosvenor House Hotel in London.

Thank you Helen.

I am very grateful for the opportunity to speak at your annual dinner.

This is my first major speech as Chancellor, and Richard, you were the first person I called after I got the job.

That is a reflection of the importance I attach to Britain’s business community, and it is testament to the effectiveness of the CBI as the leading voice of that community.

I’d like to begin by thanking so many of the businesses here, who normally stay out of the political frame and are independent of any political party, for coming together in their hundreds in a newspaper letter-writing campaign to make the case for enterprise during the election campaign.

With your help we fought and won an argument about the best way to build a sustainable private sector recovery.

Instead of more wasteful spending and more taxes on job creation, we said we would start identifying savings immediately so that we could stop the jobs tax.

And that is exactly what we have done.

I can confirm that we will deliver on our promise to stop most of the increase in employer National Insurance Contributions in the Budget in order to save jobs and support the recovery.

As a result, we will make employing someone less expensive than it would have been, regardless of income.

And it will help protect people, especially those on low incomes.

This will do more than anything else to protect those on low and middle incomes from rising unemployment.

This argument – that government needs to do everything it can to support a private sector recovery – will be my guiding principle as Chancellor.

Because I believe that when you succeed, Britain succeeds.

Back in the late 1990s this seemed a rather obvious argument to make.

All politicians paid lip service to enterprise.

But the events of the last 13 years have shown that we can never assume that the argument is won.

Today, public spending has risen to almost 50 per cent of the economy.

Over 5 million people are out of work and on benefits.

Record numbers are economically inactive.

Even now, there are still those who argue seriously that yet more increases in public spending are the answers to our problems.

No wonder too many people around the world thought that Britain had put up a sign that said ‘closed for business’.

Today we take that sign down.

And we need to start making the case for enterprise all over again.

This is something every generation needs to do in its own way.

Let me tell you about my generation.

We were shaped by the collapse of communism and the fall of the Berlin wall.

This Government is comprised of people whose views are forged by that experience.

For us it was a vindication of our economic arguments, but perhaps we were too slow to understand that the free market and smaller government needs to go hand in hand with a Big Society.

We understand that now.

And it brought to the fore a new breed of liberals – such as my excellent Chief Secretary David Laws – who understood that a fair society needs free markets to sustain it.

Just as we have looked to the future and reached back to our One Nation tradition, so they have looked to the future by reaching back to the inspiration of Gladstonian Liberalism.

So together we will use the opportunity provided by this new coalition Government to send a new signal that Britain is, once again, open for business.

I want people around the country and all over the world to know that if you want to come here, invest here, and create jobs here, then we will be on your side.

We will back enterprise, not just as an end in itself, but as the way to build a stronger and fairer society.

I believe that is what this coalition is all about.

And on the subject of coalitions, let me be absolutely frank.

As a member of the negotiating team, we did consider whether we could try to bluff our way into a minority government.

But it was David Cameron’s bold vision and Nick Clegg’s great foresight which saw, before anyone else, that that option would be the greatest compromise of all.

A weak, unstable government, risking defeat night after night in Parliament.

Struggling to take the tough decisions that have been put off for too long.

How much better to try and form a stable government with a majority of about 80, able to govern in the national interest?

And at the heart of the agreement that we reached is a firm commitment to tackle Britain’s debts and create the space for a private sector recovery.

The very first item on the very first page of the coalition agreement – “deficit reduction and continuing to ensure economic recovery is the most urgent issue facing Britain.”

Of course, the question I get asked all the time is “where is the growth going to come from?”

I was asked this question in my very first press conference as Chancellor.

Certainly we can no longer rely on ever increasing public spending, or debt-fuelled consumption, to drive growth.

Over the past decade, over half of all jobs created were associated in some way with public spending.

Over the past decade, business investment grew at around 1 per cent each year, only a quarter of what it was in the 1990s.

Of course we were not the only country affected by the financial crisis.

But our consumers became the most indebted, our banks became more leveraged, and our Government borrowed more than any other major economy.

So Britain does need a whole new model of economic growth, where we save and invest for the future, instead of building our economy on debt.

An economy where we sell our goods and services to China and the rest of Asia, instead of simply borrowing from them in order to buy the things they make for us.

But let’s be clear – when you ask the Chancellor of the Exchequer the question ‘where is the growth going to come from?’ – there is not some lever in my office I can pull to get the answer.

Because actually the answer is that the growth will come from you, the businesses of Britain.

So this evening I want to explain briefly how this Government will make the case for enterprise, and how we will help you to succeed.

And I want to explain how we will do that while building a fairer society and an economy that works for everyone.

I believe that enterprise needs three things above all.

First, the sunlight of confidence and stability, instead of living in the shadow of debt and uncertainty.

You need to know that the Government is controlling spending, dealing with its debts, so that you are not hit by ever higher interest rates and never-ending tax increases.

Second, the freedom to compete.

You might have the best product in the world, but how can you win the order when the taxes you  pay and the regulation you face price you out of the market?

And third, the raw materials to succeed.

I don’t just mean the iron ore, copper and oil – important as our heavy industry is.

I mean the raw materials of new industries, like an educated workforce, a welfare system that rewards work, modern energy, digital and transport networks.

Tackling the deep underlying problems in our economy and our society that have been holding Britain back for too long.

Let me take you through each in turn.

First, controlling public spending and delivering economic stability.

The situation we inherit is the worse any modern government has bequeathed its successor.

The British state is borrowing one pound for every four that it spends.

Sitting at my first Ecofin council meeting yesterday, I was very conscious I represented the country with the biggest budget deficit of any of the 27 around the table.

That is a heavy responsibility, but it is a challenge that I am determined to meet.

And having mentioned it, let me tell you my approach in Europe – engage, understand, seek agreement, don’t be afraid to disagree, and never forget that I am there to do what is right for our country.

We should pay heed to what is happening in the Eurozone, not just because they are our largest trading partner, but because it is a vivid demonstration of the threat our public finances pose to the recovery.

This is the reason that we must tackle our record deficit – because otherwise there will be no recovery at all.

It will be undermined by rising interest rates, falling confidence and the fear of higher taxes.

We simply have to do this.

And let me be blunt – don’t rely on me to make this argument alone.

We need to do it together so that we can take the whole country with us.

We need to explain why what seems like the easier option in the short term will actually lead to rising unemployment and decline.

The case for early and accelerated action is already supported by the main governing party, their coalition partners, the Governor of the Bank of England and the analysis of the Treasury.

I want the business community to join us in actively making that case – not for my benefit, but for the national interest.

You can explain how a higher budget deficit will mean higher interest rates and rising business insolvencies.

You can explain how out of control debt will mean ever higher taxes.

Let’s make the argument together against all the vested interests that exist to defend every single line item of government spending.

We have already started to take action.

Let me tell you what we have done already, in the space of a week.

We have launched a programme to identify £6 billion of in-year savings, while protecting the vulnerable and the quality of key front line services.

We will do what you have all done over the last two years – renegotiate contracts, cut out discretionary spending, control recruitment and reduce overheads.

£6 billion represents less than one in every hundred pounds the government spends – show me the business that has not cut its costs by more than that in the last two years.

In addition we have started a review of all spending decisions taken since the beginning of the year.

It is increasingly clear that the last Government embarked on a reckless and irresponsible spending spree in the run up to the election.

Their attitude was summed up in the letter that the former Labour Chief Secretary Liam Byrne left on the desk for his successor.

“Dear Chief Secretary, I’m afraid there is no money”.

Let that letter stand as the handwritten testament to their period in office.

I have also announced a complete change to the way budgets are made, by giving away the power to make forecasts to an independent Office for Budget Responsibility.

We need to fix the budget to fit the figures, not fix the figures to fit the budget.

And I have set an ambitious timetable for an emergency Budget on Tuesday 22nd June – because we need to get on with it.

That Budget will set the fiscal path for the coming years, and the mandate for the public finances against which the independent OBR will judge us.

Over the summer we will conduct a far-reaching spending review to allocate spending to the different departments within the overall envelope set out in the Budget.

Britain will then have what it has been lacking – a comprehensive and credible plan to deal with our debts and live within our means.

By turning the tide of debt threatening our economy, we will help businesses up and down the country.

Creating the space for the independent Bank of England to keep interest rates lower for longer while maintaining low and stable inflation.

Safeguarding Britain’s credit rating.

Boosting confidence, promoting stability and attracting foreign investment into our country.

That is our first and most urgent task.

The second thing that enterprise needs to succeed is the ability to compete.

This presents us with a huge agenda.

Reducing the burden of inappropriate regulation and red tape.

Ensuring that businesses have a sufficient supply of affordable credit – something that Vince Cable and myself will be making a priority.

We will also be working together to reform our banking system – a subject I will return to in my Mansion House speech next month.

But in particular I believe we have an opportunity to boost our economy and improve our society with radical tax reform.

I believe that we can make our tax system both more competitive and more fair.

The tax system has become hugely complex over the last thirteen years.

Since 1997, the tax legislation handbook has more than doubled in length.

It is now over 11,000 pages long.

This spider-web of tax rules is holding back people who want to set up businesses.

And our corporate tax rates are increasingly uncompetitive.

A World Economic Forum report ranks the UK 84th out of 133 countries in terms of the competitiveness of the tax system.

So we need wholesale reform.

I particularly want to focus on corporate taxes.

I want corporate tax reform to be a priority for this government, and I can confirm that the final coalition agreement that we will publish tomorrow will commit us to lower and simpler corporate tax rates.

Let me give you advance notice of what it will say.

“We will reform the corporate tax system by simplifying reliefs and allowances, and tackling avoidance, in order to reduce headline rates”.

“Our aim is to create the most competitive corporate tax regime in the G20, while protecting manufacturing industries”.

At the Budget I want to set out a 5 year road map for a big reform of corporation tax.

As well as lower rates and a simpler system, I want to reform the complex Controlled Foreign Companies rules that have driven businesses overseas.

I want multinationals coming to the UK, not leaving.

I am under no illusions.

Achieving all this will be hard and it won’t happen overnight.

But let us work together for the long term, because ultimately all of Britain’s businesses will be winners if we succeed.

Of course reforming corporation tax is not the only goal.

I want Britain to be the easiest place in the world to start a business.

I want to do everything we can to support small companies.

And I want to help new businesses by abolishing employers national insurance contributions on the first ten jobs they create.

But as well as a making the tax system more competitive, we need to make it fairer.

When times are difficult, we want to give people more of a stake in the economy.

I believe it is right that people on low and middle incomes should be helped through the tax system.

This is why at the Budget I will be announcing a substantial increase in the personal income tax allowance.

And our longer term goal is to raise the allowance to £10,000, with real terms steps in that direction every year.

This will ensure millions of people pay less tax.

It will send a message that if you put the effort in, you get a job and earn yourself an income, you will keep more of your money.

I also believe that the same principle must apply to those who invest in new businesses and create jobs.

So while we will increase the rates of capital gains tax for non-business assets, there will be generous relief for entrepreneurial investment in businesses, as made clear in the coalition agreement.

Third and finally, this coalition government understands that enterprise needs much more than just the freedom to compete.

We have a radical programme to tackle the underlying structural problems that have been holding Britain back for far too long.

We want to be far more than just deficit cutters – we want to lay the foundations of a more prosperous society, and a fairer economy that works for everyone.

So we will launch a programme of radical education reform under Michael Gove.

David Willets and Vince Cable will ensure our universities are among the best in the world for decades to come.

Iain Duncan Smith and David Freud will reform our welfare system so that we reward work and support those who need help.

And Chris Huhne, Jeremy Hunt and Philip Hammond will ensure that we attract the right mix of public and private investment in Britain’s creaking energy, broadband and transport infrastructure.

Next week, in the Queen’s Speech, you will see a truly ambitious agenda, the scale of which I do not believe that most people yet appreciate.

And at its heart is the understanding that it is not government ministers who create the jobs we need.

You will create those jobs.

Let me finish by saying that – despite the challenges we face – I am profoundly optimistic about our future.

As a country we have spectacular opportunities ahead of us – we have reasons to be cheerful.

There is a prize that is there for the taking.

Every day around the world, in places like China, India, Brazil, Indonesia and Vietnam, people leave the grinding poverty that has trapped their families for centuries and become connected to today’s global economy.

They go to work for low wages in factories – and I know the massive challenge that presents to our businesses here.

But from Asia to America, from Eastern Europe to Southern Africa – nations of manufacturers are taking their first step in their journey to prosperity.

And as they become richer, they will become nations of consumers, just as we did after our Industrial Revolution.

According to the World Bank, the middle class in emerging and developing countries is expected to treble by 2030.

That’s 1,200 million people who will want to buy the things that we can sell them.

Modern medicines and branded goods.

Aircraft engines, high-tech machinery, green vehicles and renewable energy.

Computer software, television programmes, oil and gas expertise.

Pensions, insurance, advertising, accountancy and legal services.

British goods and services, made in Britain, exported around the world.

The whole world must be our marketplace.

Our whole future depends on it.

So let us tell the world.

Loud and clear.

That Britain is once again open for business.

Below is the text of the speech made by George Osborne, the Chancellor of the Exchequer, at Bloomberg in London on 17th August 2010.

Thank you.

I am very grateful to Bloomberg for inviting me to speak here today.

August used to be regarded as a quiet month for the economy. In the last three years, it has been anything but.

It was in August 2007 that the inter-bank credit markets froze up and heralded the start of the credit crunch.

By the following August we were on the cusp of a full scale banking crisis that led to taxpayer-funded bailouts of some of the largest banks in the world.

And last summer we saw the first signs that fears about the liquidity and solvency of banks would become fears about the creditworthiness of the governments that stand behind them.

Thankfully, this August is proving to be a little quieter – so far.

And here in Britain we can start to be cautiously optimistic about the economic situation.

GDP growth in the second quarter surpassed expectations at 1.1%, with all but 0.2% of that coming from the private sector.

Employment is growing at the fastest pace for over a decade, confounding predictions that the economy cannot generate private sector jobs.

Manufacturing is picking up and exports are recovering thanks to increasing global demand.

As the Bank of England confirmed last week, this is consistent with the kind of gradual recovery forecast by the Office for Budget Responsibility at the time of the Budget.

The much-needed rebalancing of our indebted economy – away from government and towards the private sector, away from consumption and towards business demand, away from imports and towards exports – is beginning.

But of course, we must remain cautious.

Inflation is proving more persistent than expected, as the Bank of England Governor explained in his letter to me this morning.

The availability of credit to support business expansion is limited and needs to improve.

Despite the strength of the German economy, data for Japan and the US has been less encouraging, undoubtedly contributing to lower global confidence.

And of course, the world remains concerned about sovereign debt issues at a time when our budget deficit remains the largest in the G20.

So I agree with Mervyn King when he said last week that we are likely to face a choppy recovery.

To expect a smoother ride after the biggest economic crisis of our lifetimes, and with the debt problems this Government has inherited, would be asking too much.

But I’m optimistic that if we:

– stick to the course we have set ourselves on;

– hold firm to our plans;

– deal with our debts;

– start to rebalance our economy;

– and provide the stability Britain has been so lacking in recent years;

– then we can navigate our way through to calmer waters.

The alternative – to change course, put off dealing with our problems, be in denial about the scale of the deficit – is the surest way to disaster.

It would wreck the British economy.

And that is my central argument today as we start to approach the spending review this autumn.

There are some political opponents who claim that in setting out our decisive plans to deal with the deficit we have a taken a gamble with Britain’s economy.

In fact the reverse is true.

The gamble would have been not to act, to put Britain’s reputation at risk, and to leave the stability of the economy to the vagaries of the bond market, assuming investors around the world would continue to tolerate the largest budget deficit in the G20.

The actions we took in the Budget have removed the biggest downside risk to the recovery – a loss of confidence and a sharp rise in market interest rates.

Britain now has a credible plan to deal with our record deficit. We must stick by it. To budge from that plan now would risk reigniting the markets’ suspicions that Britain does not have the will to pay her way in the world.

I will not take that risk.

So today I want to explain why the Spending Review this Autumn is a crucial stepping stone on the way to recovery, and I want to set out how the choices within that review will lay the foundations for future growth and for a fairer society.

First we need to understand how Britain got here.

The previous Government’s economic policy was based on two central assumptions:

– that they had abolished the economic cycle;

– and that they had achieved a permanently higher trend rate of economic growth.

These assumptions were used to justify increased spending, persistent deficits, cheaper credit, growing imbalances and ballooning personal debt.

Of course many of the same features existed elsewhere, notably the US, but they were more pronounced in Britain than anywhere else.

We were left with the biggest deficit, the most indebted households, and the most leveraged banks.

I don’t think it’s unreasonable to say that this was the greatest failure of British economic policy-making for more than 30 years, since the IMF crisis of 1976.

The fallacy of the first assumption – the end of boom and bust – is plain for all to see.

What was said to be sustainable growth turned out to be a debt-fuelled boom that was followed by the deepest and longest bust since the War.

Sadly for all of us, the second assumption – an increase in the trend growth rate – also turned out to be a fallacy.

Much was made of the impact of the previous Government’s policies on the economy’s long term potential to grow – after all that was what “post neo-classical endogenous growth theory” was meant to be all about.

Year after year, Budget documents used increasingly optimistic assumptions – authorised by the then Chancellor – about the trend growth rate to justify never-ending increases in public spending and the emerging deficit needed to fund them.

When disaster struck, the explanation was simply that a perfectly sustainable economy had been hit by a bolt from the blue that knocked 5% off the economy’s sustainable level of output.

In the June Budget, the independent Office for Budget Responsibility looked at the evidence and concluded that the economy’s trend rate of growth is in fact close to its long-term average of around 2¼ %, significantly lower than the previous Government’s assumptions.

Rather than a bolt from the blue, the recession now looks wearily familiar – the bust that follows a boom.

And this view is supported by what happened to the deficit – it turned out the country could not afford the extent of the extra spending after all.

Thanks to the hard work of Sir Alan Budd the interim OBR has taken the business of forecasting out of the hands of politicians.

In the week in which he steps down, I want to thank him for his public service. Those interested in replacing him have just one more day to apply for the job.

This autumn we will legislate to put the Office on a permanent footing so that no future Chancellor can invent their own forecasts to justify their fiscal follies.

We are learning from past mistakes, even as we deal with their consequences.

Those consequences are clear.

A record budget deficit of 11% of GDP.

Government spending that accounts for almost half of national income.

One million additional people out of work.

A large debt overhang for both government and households.

And serious imbalances in the structure of our economy that have gone unaddressed for too long.

But these considerable challenges can be overcome.

The UK is a very open trading economy.

It now has a stable and strong coalition Government, able to take the very decisions which my predecessor now admits were delayed for too long.

I make no apologies for setting a brisk pace since taking office.

In the space of 100 days we have:

– completed a review of in-year public spending and found over £6bn of savings;

– established the OBR to audit the state of the public finances and provide unbiased forecasts;

– set a fiscal mandate to eliminate the structural current deficit by the end of the parliament;

– delivered a Budget which proved to the world that Britain now has the will, the determination and the resolve to live within her means.

Now, across government, we are working on the crucial next step that is the Autumn’s Spending Review.

There are already some early signs that our determined approach is working.

The international community has welcomed the Budget.

The G20 has recognised that those with serious fiscal challenges need to accelerate the pace of consolidation.

The OECD said that our Budget was “an essential starting point” which signals the commitment to provide the necessary degree of fiscal consolidation over the coming years…while still supporting the recovery.

At the same time market interest rates – the rates actually paid by businesses and families – are down by over half a per cent since the election.

That is a significant monetary stimulus for the British economy.

In other European countries, like Spain, these rates have not fallen.

Yet despite this, it would be fatal to become complacent or think that the job is done.

Investors at home and worldwide – the very people we are relying on to buy our gilts, and invest in our economy, and create jobs – are today waiting to see if we will deliver on our promises.

So imagine what would happen if those promises were abandoned altogether.

Even in the face of all this evidence there are still those who would have us change course and put at risk the very stability of our economy.

There seem to be two types of opponent to the Budget.

There are those who deny that any action was necessary.

That we could wait years even before setting out plans to reduce the deficit.

This group of critics would put themselves at odds with an international consensus which understands that the sovereign debt crisis is every bit as dangerous as the financial crisis of 2008, if not more so.

Just because government bailouts helped to calm the markets for now does not mean that the risks have gone away – they have simply been transferred from banks to governments.

Economic stability now depends on a credible plan to restore the public finances to a sustainable path.

To fail to do that would mean higher market interest rates and higher debt interest payments – hardly a foundation for growth.

There is a second group of people who opposed the Budget.

It is those who accept in principle that we must reduce the deficit, but then in practice oppose every cut that is suggested to achieve it.

Let me remind everyone of the numbers.

Under current plans, we are set to tighten the public finances by a total of £113 billion by 2014-15.

Of this, around £30 billion will come from tax measures.

£11 billion will come from welfare reforms announced at the Budget, and another £10 billion from lower debt-interest costs.

And around £61 billion will come from cuts to departmental expenditure.

But that already included £44 billion of cuts inherited from the previous Government.

But what was the plan to deliver these cuts?

Well, I’ve searched for it and I can tell you – there was no plan.

Out of that £44 billion not a single penny had been allocated to any significant public spending programme.

To say we must deal with the deficit, but refuse to say how, is simply taking the British people for fools.

People are debating these issues up and down the country.

Anyone who is serious about tackling the nation’s debts needs to come forward with an alternative plan.

Both those who deny the need to cut the deficit and those who refuse to say how to do it are placing themselves outside of the domestic and international debate.

And in becoming deficit deniers they are saying that they would set the country on a road to economic ruin.

We won’t do that.

So as we stick to the course of the deficit reduction we have set, the next challenge is to deliver the Spending Review that will restore the public finances to stability.

Let me update you on where we have got to.

Right now we are running a wide and inclusive public engagement programme to inform the Spending Review.

Our two dedicated websites have received over 100,000 ideas from people keen to help us find ways to make savings and transform the public sector.

We will shortly be asking the public to choose some of the best of those ideas.

Meanwhile, David Cameron and Nick Clegg have been holding open meetings across the country.

I have hosted a series of seminars with leading professionals in many of the different areas of government activity.

At the same time my colleague Danny Alexander has been meeting with coalition Ministers from across Whitehall to discuss their departments’ savings.

The Public Expenditure Sub-Committee of the Cabinet will start regular weekly meetings at the end of this month – and I look forward to more of my colleagues joining that group as their departments agree their settlements.

This Spending Review is a genuinely collective effort – collective around the Cabinet table and collective with the British public.

Difficult choices will have to be made.

Not just to make the sums add up – but so that this Spending Review is about more than making those sums add up.

As we take decisions that will affect the budgets of government departments and public services for years to come, we have to make sure that:

– we are shaping the economy of the future by promoting a pro-growth agenda;

– that we are shaping the big society of the future by decentralising power and empowering people;

– that we are shaping the public services of the future by reforming the public sector so it delivers value for money;

– that we are shaping Britain’s future role in the world through our review of defence and security.

It is not about how much the Government spends but about what the Government actually does with the money.

We want to be laying the future foundations for economic growth and for a fairer society.

Fairness and growth. Two guiding principles we will apply to the decisions Britain has to take.

Let me say something about each of them.

First growth.

Obviously some things Government spends money on make a far greater contribution to our long term prosperity than others.

It’s time we prioritised the former over the latter.

People can already see that we are following a ruthless approach to waste, inefficiency and bureaucracy in Government.

And if that means bringing in external expertise to help, of course we will do that.

We are determined to tackle soaring welfare bills – and to create a simpler benefit system that supports work.

And we will re-focus public spending in those areas that will make a difference to our long-term economic success.

We are looking at what lies behind the UK’s relatively weak productivity and asking whether Government can help.

How can we remove barriers to people and capital in a way that maximises returns on investment, encourages greater human capital accumulation, and promotes labour participation?

We all know that the Government can’t pick winners or transform the economy overnight.

But we can work with the private sector to identify the impediments to growth.

We can do this by asking ourselves how to go about:

– providing macroeconomic stability;

– removing uncertainty from the tax system and making business taxes more competitive;

– ensuring the banking system works for the good of the whole economy;

– enabling product markets to work efficiently;

– improving the planning system and the housing market;

– and supporting the most economically productive investment.

We have learnt the mistakes of the past.

That’s why the Budget included no further cuts to capital budgets.

We want to maintain the assets we have in good repair, and we want to provide the new infrastructure our country needs for the future.

And we will scrutinise every line of government spending, to identify those that will do most to promote sustainable growth and future prosperity, and which should therefore be protected, and those other areas where spending is less productive, and where savings can safely be made.

Only that way will the spending review promote a more balanced and sustainable model of growth.

While at the same time creating a society that is fundamentally fairer.

Fairness is the second guiding principle.

Let me start with this observation, which is at the core of what I believe.

Fiscal responsibility is both fair and progressive.

Governments that lose control of their public finances are the most unfair and unprogressive.

In recent decades, this is a lesson which has been learnt across the world, by politicians of both the right and of the left.

In the US it was Bill Clinton and the New Democrats who made the case for balanced budgets and deficit control in the early 1990s.

And during an economic recovery they eliminated the budget deficit and pushed ahead with deeply controversial welfare reform.

In Canada, Jean Chretien and Paul Martin took the necessary steps to bring their exploding deficit under control.

Or there is Goran Persson, the Swedish Social Democrat Prime Minister, who turned a 9% budget deficit into a 4% budget surplus.

In our own country’s history, it was James Callaghan who argued that you could not “spend your way out of a recession and increase employment by cutting taxes and boosting government spending”.

It was Roy Jenkins who warned that governments could not keep pushing up public expenditure and “maintain the values of a plural society with adequate freedom of choice”.

And it was that former Treasury Minister in the last government, Paul Myners, who reminded us again this week how he believes that:

– there is nothing progressive about a Government who consistently spend more than they can raise in taxation, and certainly nothing progressive that endows generations to come with the liabilities incurred by the current generation.

I repeat these observations because I reject entirely the false choice that some in the present political debate seek to establish between being responsible, and being progressive or fair.

Successful centre-left parties root themselves in a progressive belief that governments must live within their means, or the poorest suffer.

Those that do not – and find themselves arguing for investment over cuts – lose their way.

Of course, the choices made within a fiscal consolidation should also seek to be fair ones.

I believe the choices in the Budget, choices that included an increase in capital gains tax for higher-rate taxpayers and a new bank levy, were fair choices.

I believe the choices on public spending that we have already made, and that shape the entire spending review, are also fair ones.

We are protecting the National Health Service – which so many millions of families depend on – from real cuts.

That is a conscious choice. Our opponents object to it. They would cut the NHS.

We are also honouring – almost alone in the world – our commitments to raise the international aid budget to 0.7% of our national income.

Helping the world’s poorest is a conscious choice, which some oppose.

Both, I believe, are fundamentally fair choices.

But so too is our drive to reform welfare and provide a pupil premium for the most disadvantaged children – for fairness is about equality of opportunity too.

And fairness extends across the generations, for what is fair about forcing the next generation to pay for the debts of our generation?

We are all in this together.

And the spending review we will produce in two months time will show that.

Below is the text of the speech made by the Chancellor of the Exchequer, George Osborne, at the Mansion House in London on 16th June 2010.

My Lord Mayor, ladies and gentlemen.

It is humbling to speak here tonight conscious of the long line of distinguished Chancellors who have preceded me.

I have been looking back at some of their speeches for inspiration, and was particularly struck by what Austen Chamberlain said here at the Mansion House:

“Lord Mayor, the lot of the Chancellor of the Exchequer is not altogether a happy one.

He has few friends, and the few he has are those of whom he should most beware, for their approach is the most insidious, and their indignation if he refused their claims is the most marked and the most violent.”

Then I realised that he was the Chancellor in the last Liberal Conservative coalition.

Of course some have made comparisons with another former Chancellor, Lord Randolph Churchill, who took office in 1886 when he was 37 years old.

But he offered his resignation to his Prime Minister just four months into the job.  To his shock and surprise it was accepted.

That’s not a mistake I’m planning to repeat.

So rather than quoting Randolph Churchill, I’d like to begin with the words of his rather more successful son Winston.

For it was here at the Mansion House that he delivered one of his most famous lines:

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

He was talking to a country weary from three long years of war.

But his words could be said of the current situation as we approach the third anniversary of the beginning of the financial crisis.

So difficult has the economic situation been, so sharp has been the fall in output, so large have been the bailouts, that the cry has gone out: this time is different.

If only it were as simple as that.

For there is a well trodden path that has led, in different times of history and different places in the world, from a banking crisis to a sovereign debt crisis.

I am determined that Britain does not follow that path.

That requires conscious, determined action.

For the rapid and unsustainable increase in private sector debt that precipitated our current problems has not, for the large part been eliminated.

Instead much of it has been shifted from private sector balance sheets to the public sector.

And that is why we see now with countries like Greece that what began as a crisis of liquidity and then solvency in banking systems, has been succeeded by market fears about the solvency of some of the governments that stand behind them.

I do not want that question ever to be asked of Britain.

Our country has the highest budget deficit of any country in Europe, with the exception of Ireland.

Dealing with this inheritance from its predecessor is the single greatest economic challenge the new Government faces.

For what business will invest with confidence if they fear ever higher deficits will lead to ever higher taxes?

What family will spend with confidence if they fear ever higher debts mean ever higher interest rates?

That is why we have moved at a brisk pace in the six weeks since the general election.

We have announced, conducted and completed a review of this year’s spending and identified over six billion pounds of savings.

We have announced, established and received the report of the independent Office for Budget Responsibility.

The power the Chancellor has enjoyed for decades to determine the growth and fiscal forecasts now resides with an independent body immune to the temptations of the political cycle.

Budget making in Britain has been changed forever.

No longer will we fix the figures to fit the Budget.

From now on we will fix the Budget to fit the figures.

We saw those figures earlier this week.

Lower growth than forecast.

A higher structural deficit.

Debt set to still rise even at the end of this five year Parliament.

Annual debt interest payments that will soon exceed what we spend on schools and are almost double what we spend on defence.

And today’s labour market figures remind us that unemployment is still rising.

My Budget next week, held within fifty days of our coming to office, will deal decisively with these problems.

It will set out a credible plan to accelerate the reduction in the structural deficit.

It will determine the overall envelope for spending which our review this autumn will then allocate between departments.

We will hold the most far-reaching and open-minded exercise in public engagement on spending priorities that this country has ever seen.

The Budget will also create a fairer tax system.

And next week I will lay the foundation for a sustainable private sector recovery with measures to boost enterprise and job creation.

And I am confident that it will resolve beyond doubt the question that Britain can live within her means.

But Britain’s budget deficit is not the only issue that needs resolving.

The future of our banking and financial services has to be settled too.

The legacy of the crisis is a cloud of uncertainty hanging over your industry.

I believe that uncertainty has to be dispelled if we are to achieve our broader goals for the economy.

Uncertainty about how you will be regulated, who will do the regulating and what the institutions that are the subject of these regulations will look like.

That uncertainty is contributing to the other major concern I have about the British economy – alongside the deficit and the situation in the Eurozone – and that is the contraction of credit.

For uncertainty is leading to a hoarding of excessive capital instead of more lending to business.

It is making it more difficult for companies to plan for the future.

And it is undermining your efforts to go out there and succeed in the world, financing the businesses that need finance, garnering higher returns for savings and – given that I am replying to the Lord Mayor’s toast – bringing prosperity to the public purse.

So how do we resolve these uncertainties?

Not by wishing them away.

When a system of regulation fails so spectacularly people are going to ask what replaces it.

When the failure of certain banks have cost the country so much, people are rightly going to ask how to stop it happening again.

These debates are real. They are not simply going to disappear.

They are happening in workplaces and in homes across the country.

They are aired on television, written about in newspapers, brought up in Parliament.

And these debates at their root involve complicated and profound trade-offs between safety and risk-taking, between protection for the taxpayer and returns for the economy.

But we have to end the uncertainty, decide where we are going, how we’re going to get there and let your industry be clearer about its future.

This is how I propose we do that.

First, the question of the content of regulation.

The collapse of some of the largest banks in the world, including British banks, revealed just how ill-prepared they were to withstand losses.

And whether it was queues in the streets or the freezing of the interbank market, we were reminded that people can all want their money back at the same time.

It is now accepted that the centrepiece of the new global standards for bank regulation will involve higher capital and liquidity requirements, and that bank capital requirements should respond to the cycle.

This is what the G20 agreed to last year, but the actual standards have not yet been agreed.

The markets are already anticipating what they might be, and the banks are building up larger reserves to prepare themselves.

I believe we need to get on and resolve the uncertainty.

The G20 Finance Ministers and Central Bank Governors committed ten days ago to providing the details of the new capital, liquidity and leverage requirements by the meeting in Seoul in November.

We should honour that commitment and to my mind demand rigorous standards, even if that means an appropriate transition to those standards.

We should also demand the highest levels of transparency from banks, and encourage published stress tests where they have not taken place, for we know that concealing the truth is merely delaying the necessary adjustment.

I would also like to pay tribute to the work that Adair Turner is doing on our behalf in the international debate.

We also face uncertainty about the new framework for financial supervision in Europe, that needs to be resolved in the next few weeks.

As Europe’s cross-border financial centre, the City has an interest in strong mechanisms to underpin the single market, including better procedures in a crisis, stronger arrangements for mediation between supervisors and strict enforcement of the law.

But we must have safeguards in place to ensure that supervisory decisions that have an impact on national budgets remain at the national level.

My team are already playing an active and constructive role in Europe on all of these issues.

Lord Mayor, that brings me on to the uncertainty that hangs over the future of our domestic regulators.

That now needs to be resolved too, so that people and the institutions they work for can plan for the future.

As many of you know, I have my profound doubts about the tripartite system.

This is not a commentary on the quality or dedication of the staff of the Financial Services Authority, the Bank of England or indeed the Treasury.

It is instead a reflection on what has gone wrong and what may continue to go wrong unless there is change.

I should also take this opportunity to pay tribute to my predecessor Alistair Darling, who is here tonight.

Alistair, you worked very hard in difficult circumstances and, although we didn’t agree on everything, on behalf of everyone here I commend the service you gave this country.

At the heart of the crisis was a rapid and unsustainable increase in debt that our macroeconomic and regulatory system utterly failed to identify let alone prevent.

Inflation targeting succeeded in anchoring inflation expectations, but the very design of the policy framework meant that responding to an explosion in balance sheets, asset prices and macro imbalances was impossible.

The Bank of England was mandated to focus on consumer price inflation to the exclusion of other things.

The Treasury saw its financial policy division drift into a backwater.

The FSA became a narrow regulator, almost entirely focussed on rules based regulation.

No-one was controlling levels of debt, and when the crunch came no one knew who was in charge.

Some lessons have been learnt and some changes made, and I commend those who have led this process.

But despite the changes that have been made, I am still not confident that the fundamental problems of culture and regulatory structure have been confronted.

How do we ensure less box-ticking and more exercise of judgement?

What are the tools of macroprudential regulation and who should exercise them?

Can the macroprudential regulator do their job if they don’t have an intimate knowledge of what is happening in individual firms?

Our thinking is informed by this insight: only independent central banks have the broad macroeconomic understanding, the authority and the knowledge required to make the kind of macro-prudential judgments that are required now and in the future.

And, because central banks are the lenders of last resort, the experience of the crisis has also shown that they need to be familiar with every aspect of the institutions that they may have to support.

So they must also be responsible for day-to-day micro-prudential regulation as well.

That case is particularly strong where the banking system is highly concentrated as it is in the UK, where the boundary between micro and macro-prudential regulation is not easy to define.

In the agreement that forms the basis of this coalition government, we stated our intention to give the Bank of England control of macro-prudential regulation and oversight of microprudential regulation.

We have now decided how we will give effect to that intention, and the Financial Secretary Mark Hoban will set out the details to Parliament tomorrow.

What we are proposing is a new system of regulation that learns the lessons of the greatest banking crisis in our lifetime.

I can confirm that the Government will abolish the tripartite regime, and the Financial Services Authority will cease to exist in its current form.

We will create a new prudential regulator, which will operate as a subsidiary of the Bank of England.

It will carry out the prudential regulation of financial firms, including banks, investment banks, building societies and insurance companies.

We will create an independent Financial Policy Committee at the Bank, which will have the tools and the responsibility to look across the economy at the macro issues that may threaten economic and financial stability and take effective action in response.

We will also establish a powerful new Consumer Protection and Markets Authority.

It will regulate the conduct of every authorised financial firm providing services to consumers.

It will also be responsible for ensuring the good conduct of business in the UK’s retail and wholesale financial services, in order to preserve our reputation for transparency and efficiency as well as our position as one of the world’s leading global financial centres.

I can also confirm that we will fulfil the commitment in the coalition agreement to create a single agency to take on the work of tackling serious economic crime that is currently dispersed across a number of Government departments and agencies.

We take white collar crime as seriously as other crime and we are determined to simplify the confusing and overlapping responsibilities in this area in order to improve detection and enforcement.

I have thought longer and harder and spoken to more people about all these issues than almost any other issue to have crossed my desk.

We do not undertake these reforms lightly, and we do so only because we believe they are absolutely necessary.

We will handle the transition carefully, consult widely and get this right.

The process will be completed in 2012.

And I have asked Hector Sants to remain at the FSA to oversee the transition and become the first new deputy governor and chief executive of the new prudential regulator.

I am delighted that he has agreed.

He will be supported by Andrew Bailey from the Bank of England as his deputy in the new regulator.

This is a strong team to ensure a smooth transition.

Let me turn now to a final area of uncertainty that hangs over the financial services industry, and that is the very structure of the banking industry and the question: how can Britain be home to the most successful and global banks in the world, without the British taxpayer being exposed to the most unacceptable of risks?

Should we restrict or split the activities of banks?

Has our banking industry become too concentrated and uncompetitive?

Now I know there are some who are frustrated that these questions are even asked.

But how can they not be when so many millions of people are paying the price for what went wrong?

There are real issues of fairness.

And that is why we will introduce a bank levy and demand further restraint on pay and bonuses.

But there are also fundamental issues of protection for an economy still reeling from a crisis that in Britain saw the biggest bank bail out in the world.

There are passionately held views on all sides of informed opinion.

Some of the most fervent believers in free markets are the most ardent proponents of structural separation, including the man who more than almost anyone created the modern City of London – Nigel Lawson.

I have sat at this dinner in past and listened to the then Chancellor express one view, the Governor express another, while everyone knew the Prime Minister held a third and the regulator held a fourth.

This cannot go on. We need to resolve these issues and end the uncertainty in way in which everyone feels that they have had a chance to make their case.

That is why the new Government is establishing an independent commission on the banking industry.

It will look at the structure of banking in the UK, the state of competition in the industry and how customers and taxpayers can be sure of the best deal.

The Commission will come to a view. And the Government will decide on the right course of action.

Sir John Vickers has agreed to chair the Commission.

As a former Chief Economist at the Bank of England, member of the MPC and Chair of the Office of Fair Trading, I believe he is someone of unquestioned ability, experience and integrity who approaches this issue with an open mind.

He will be supported by four other commissioners, Martin Taylor, Claire Spottiswoode, Martin Wolf and Bill Winters.

The Government looks forward to receiving their report next year.

Lord Mayor, I have arrived in office with debates raging about all of these questions on regulation and the future of banking.

My job is to help our country resolve them.

They cannot be resolved overnight, but resolve them we must in a reasonable period of time and in a reasonable way.

The plan I have set out tonight represents a new settlement between our banks and the rest of our society.

A fairer settlement in which the banks support the people, instead of the people bailing out the banks.

And it constitutes a solid foundation on which you can plan for the future.

I believe that is what you need most of all in order to succeed and play your role in supporting the recovery.

Because you have a vital role to play.

The experience of the last three years means that fundamental reform is an absolute requirement.

We simply cannot afford to continue as we did before.

But at its best the City of London embodies the entrepreneurial energy, constant quest for innovation and global outlook that our economy needs in the years ahead.

As an economy we need to invest more, innovate more and export more if we are to build a more balanced and sustainable recovery.

And whether it is in insurance, legal services, accountancy, banking or any of the hundreds of other industries that make up this extraordinary global financial centre, you are perfectly placed to do all of those things.

That is one reason why, for all the difficulties we face, I am profoundly optimistic about the future of our economy and our financial services industry.

My very first foreign visit as Chancellor was to China, within three weeks of taking office.

There and throughout the developing world, nations of manufacturers are becoming nations of consumers, just as we did after our industrial revolution.

And they will want to buy savings products, mortgages, insurance services, fund management, shipping finance, accountancy and legal expertise.

They will need broking services, investment banking, private equity, venture capital, trading platforms and all of the financial services that go to support an advanced economy.

I want to help you to market British financial services around the world so that we are the first place they turn to.

And by resolving the raging debates that hang over your industry, I want to free you up so that you can focus your energies on what you should be doing: building your businesses, winning new clients and helping to create the prosperity that our country deserves.

Thank you.

Below is the text of the speech made by George Osborne, the then Shadow Chancellor of the Exchequer, on 29th March 2010.

Good morning, and on behalf of myself, Ken and Philip, can I welcome you to the venue for our press conferences during the general election.

This will be the first of many such mornings we spend together here.

Today we’re going to talk about how a Conservative Government would get the British economy moving, by taking action on debt and boosting enterprise.

We’re going to draw a contrast with Labour’s debt, waste and taxes that risk pushing Britain into a new recession.

And, specifically, we are going to talk about our plans to avoid the most damaging part of Labour’s national insurance tax on working people and their jobs

And we’re also going to talk about our spending plans for the year about to start, 2010/11, and explain how they are connected.

We had to wait to see the Budget.

After all, it was always possible that Gordon Brown would recognise the damage that the full force of the national insurance tax rise would do to jobs and the recovery and the incomes of families – but he has not.

It was always possible that he would listen to the cries of business leaders, international observers and the rating agencies to make a start on dealing with the deficit in 2010, but he did not.

The Budget was empty.

There is no spending review for the years from 2011.

They have not even published the total departmental spending envelope for that year.

What we know is that Labour claim to have suddenly discovered that they have been wasting billions of pounds of public money in the government they have been running for the last 13 years.

£11 billion of waste, to be precise. As well as £5 billion of low priority programmes.

And we know that they don’t plan to do anything about this waste until next year.

So according to Gordon Brown’s logic, carrying on wasting money is crucial to securing the recovery.

We think this is wrong.

If we know the government’s wasting money, why don’t we stop it now?

Why don’t we reduce borrowing now, create confidence now, protect our country’s credit rating now?

Philip Hammond asked two of the members of our Public Sector Productivity Panel to advise us:

First, whether it was possible to undertake significant savings in government in 2010 without damaging frontline services.

Second, what were the steps that a new government could take urgently to find those significant savings.

I want to thank Sir Peter Gershon and Dr Martin Read for providing this advice.

Both of them bring not just impressive business experience, but also a very considerable knowledge of identifying waste in this government.

Sir Peter Gershon was, of course, commissioned by Gordon Brown to produce a major report on efficiency in 2004.

Dr Martin Read was until recently the head of the major IT supplier Logica, who was commissioned by Alistair Darling to produce a report on how to save on the government’s£35bn back office and IT budget.

It would be difficult to find two people more qualified to make the judgement about what savings can be made in 2010.

Peter Gershon and Martin Read have come back to us and told us that they believe that a sum of £12 billion pounds can be saved from the total of government department budgets in 2010.

Both say explicitly that this can be done without “reducing the quality of front line services”.

And they have set out the ways in which these savings can be achieved quickly, “with the right political will and managerial focus”.

Indeed, Martin Read believes that unless a government does this in 2010, it will not achieve larger savings in later years.

So the Chancellor’s own adviser says delay is not an option.

Philip Hammond will set out in more detail what both men recommend, and we are today publishing their advice to the Conservative Party in the interests of transparency.

Clearly, part of the £12 billion of savings will be found in the health service and in overseas aid.

We have made explicit commitments to protect these budgets, and so the money saved will be reinvested onto the frontline.

In the Ministry of Defence, we are conducting a strategic defence review this year and we don’t want to pre-empt that.  The existing plans for the defence budget will remain unaltered this year.

The other government departments together represent just over half of total departmental spending.

So we are expecting them to find, together, £6 billion of savings from the waste that even the government now admits exist – and which the government’s own efficiency advisers tell us can be found.

And let me be clear – not a single penny will come from the front line services that people depend on.

This £6 billion in savings – alongside the smaller savings we have identified by, for example, cutting child trust fund payments to the better off and stopping people with incomes over £50,000 receiving child tax credits – will be used to reduce the government’s borrowing requirement for the year 2010/11.

That £6 billion or so represents less than £1 in every £100 that the government spends.

Given the much larger savings that almost every business and ` many families have had to find from their own budgets in the last two years, it is not too much to ask.

No one can seriously argue that tackling waste is somehow going to damage the economy.

But from the conversations we have had with institutional investors and others, we believe it will make a start in reassuring those who fear Britain will lose its credit rating and restore confidence in our economy.

Identifying £6 billion of wasteful spending in 2010 is just that – a start.

We will hold this autumn the spending review which the Labour Government, with all their access to information, have so cynically refused to hold.

This will identify where larger savings and reforms can be made.

Some of the measures I announced at the Conservative Conference will take effect in 2011, such as the general pay freeze in the public sector that excludes the lowest paid million.

And we will have started by then to make real progress in reducing the size of Whitehall and the quangos by one third.

But identifying the £6 billion of savings in 2010 gives me the confidence that we can now say with certainty that we will be able to act more quickly on the deficit and at the same time avoid the most damaging part of Gordon Brown’s national insurance tax rise.

It also enables us to bring the share of dealing with our deficit accounted for by tax increases down from one third of the total towards one fifth.

As I said in January, this 80:20 split – 80% spending restraint, 20% tax increases – is what international evidence and the Treasury’s own internal analysis believes is the best balance for achieving sustained deficit reduction.

Labour’s National Insurance increase is a tax rise on working people who earn above £20,000 – roughly half of the working population.

It is a tax rise on almost all jobs.

It has been described by the CBI as a “serious mistake [that] will hold back job creation and growth”.

The Small Business Federation calls it “an attack on jobs” that “will cause deeper unemployment”, and cost 57,000 jobs in small and medium sized businesses alone.

Quite frankly, it is the economics of the madhouse.

Gordon Brown talks about securing the recovery.  He is taxing the recovery.

He talks about creating jobs.  Well, the businesses that create jobs say his policies will destroy tens of thousands of them.

He pledges to make families better off one day, and then hits them with a tax on their incomes the next.

And for what?  To pay for the very wasteful spending that the Labour Government themselves admit exists.

Gordon Brown may raise taxes on working people to pay for waste, but we will not.

We will take his national insurance tax plans and we will raise the primary threshold for employees by £24 a week and the upper earnings limit by £29 a week.

We will raise the secondary threshold at which employers start paying national insurance by £21 a week.

Compared to life under Gordon Brown, every national insurance payer earning between £7,100 and £45,400 will be up to £150 better off.

The tax on every single job with a salary of more than £5,700 will be reduced for employers by up to £150.

Under the Conservatives seven out of ten working people in Britain will be better off than under Labour – and nobody will be worse off.

People on lower incomes will receive a tax cut – indeed they will benefit the most as a proportion of their earnings.

People on middle incomes will avoid Labour’s tax rise.

Taxes on jobs will be lower.

The tax system will be fairer.

Jobs will be saved.

That is the way to secure a recovery.

And it shows, as this election approaches, the choice facing Britain.

The re-election of a Labour Government under Gordon Brown – with more debt, waste and taxes – will bring us a new recession.

Labour will kill the recovery with their tax on jobs.

We will cut Labour waste to stop it.

Seven out of ten working people will be better off with the Conservatives.

Because we believe we are all in this together – and we need new energy and fresh ideas to get Britain working for everyone.

Below is the text of the speech made by George Osborne, the then Shadow Chancellor, on 2nd February 2010.

I believe that in the end all elections are about a choice between the future and the past.

As we emerge from the economic wreckage of the past decade, the British people are now looking for a different kind of future.

So today the Conservative Party answers this central question: where is the growth going to come from?

This is the question that will determine the future of:

– everyone that has lost their job in this recession;

– every business that is struggling to survive;

– and every family trying to get by with less than they had before.

The answer is a new economic model for growth – set out in detail in this important economic policy document that we are publishing today

As the last major economy out of recession, and with the weakest recovery in the G20, we need change to get our country back on its feet again.

We cannot go on with the old economic model of the last decade.

A model that depended on:

– a public spending boom we couldn’t afford;

– an overblown banking sector;

– and unsustainable consumer borrowing off the back of a housing bubble.

These were the shaky foundations of the age of irresponsibility that left Britain so badly exposed to this economic crisis.

They cannot be the sources of sustainable growth for the future.

We need new sources of growth.

Our new economic model will be built on long term saving and investment.

We want to see a private sector recovery driven by exports and enterprise.

And we want government to support this new economic model with a competitive tax system, modern infrastructure like superfast broadband, investment in green technology and lasting education and welfare reform.

Real support for wealth creation – not burdening the future to pay for today.

From the ashes of the debt boom we will build a saving society.

Now we’ve heard promises from politicians before.

“No more boom and bust”.

“Prudence with a purpose”

“Leading the world out of recession”

Even to repeat Labour’s promises invites ridicule.

So we today offer a new approach.

For the first time ever we are asking to be judged against eight clear and transparent benchmarks – Benchmarks for Britain – against which the public can judge the success or failure of their Chancellor and their Government over the next Parliament.

Let me take you through the eight Benchmarks for Britain that we are publishing today, as well as the concrete measures we will take to achieve them.

First, we will ensure macroeconomic stability.

Largest budget deficit in the G20, the largest in our peacetime history. Credit rating under threat.

Today, for the first time in our history, Britain’s credit rating is under threat.

Indeed, some commentators think a downgrade is inevitable.

That would mean higher interest rates on our national debt and throughout our economy could tip us back into recession, with more jobs lost and more businesses going under.

That’s why our first Benchmark for Britain is to…

…Cut the deficit more quickly to safeguard Britain’s credit rating.

I know that we are taking a political gamble to set this up as a measure of success.

Protecting the credit rating will not be easy.  The largest bond investor in the world thinks there is an 80% chance of a downgrade.

But the economic risk of not setting ourselves this benchmark is not one that I am willing take.

So we will set out a plan in our first budget to eliminate a large part of the structural deficit in the first parliament.

We will make a start in 2010.

The pace of fiscal consolidation will be co-ordinated with monetary policy.

And we will protect Britain’s credit rating and international reputation.

Our second benchmark is to create a more balanced economy.

The economy Gordon Brown built is severely unbalanced.

Investment as a share of GDP is the lowest of any G7 country.

Global export market share is falling as Germany’s rises.

Growth is driven by public and private debt.

The next decade must look very different.

A sustainable recovery must be built on exports, business investment and saving.

So we set this tough benchmark.  We want to see:

Higher exports, higher business investment and higher saving as a share of GDP.

Under Gordon Brown, all of those things fell as a proportion of national income.

The document we are publishing today sets out how in detail we will achieve a change of direction, with more support for exports, lower corporation tax rates, an attack on excessive regulation and measure to restore our savings culture.

Our third benchmark is to get Britain working.

We have the highest youth unemployment ever.

There are more children living in workless households than any other European country.

Child poverty is rising.

Despite Gordon Brown’s pledge in 1997, youth unemployment has hit record highs under Labour.

And despite Labour’s pledge to make work pay, more children live in workless households than in any other European country.

We can’t go on like this.

So our benchmark is

Lower youth unemployment.

Fewer children living in workless households.

Our plans will help more people into work, support new businesses that create jobs and provide young people the skills they need to succeed.

But we know that ultimately it is businesses that create jobs.

That’s why our fourth benchmark is to make sure that Britain is open for business.

Britain struggling to compete.

The UK ranking on government regulation has fallen from 4th to 86th, and on the burden and effect of tax it has fallen from 4th to 84th.

Those rankings are truly shocking – and we will turn things around.

Our benchmark is to:

Improve Britain’s global rankings for tax competitiveness and business regulation

Our proposals to simplify taxation and combat excessive regulation will set businesses free to compete.

Because enterprise is the only source of sustainable growth.

Over the last decade, growth hasn’t been evenly shared around the country.

Growth in the rest of the UK has lagged behind the South East.

The private sector’s share of the economy has fallen in every region, but especially outside London and the South East.

We need to change that, so our fifth benchmark is to ensure that the whole country shares in rising prosperity.

We will raise the private sector’s share of the economy in all regions of the country.

With a high speed rail network, with super-fast broadband, and with really effective local support for businesses we can make this a reality.

But given the state of our public finances we also need the public sector to deliver more for less.

Over the last decade it’s been less for more in too many parts of our public sector.

We have seen public sector productivity falling since 1997.

So our sixth benchmark is to reform public services to deliver better value for money.

Our reforms will change that, by increasing diversity of provision, extending payment by results, giving more power to consumers and improving financial controls.

Our benchmark is:

Higher public sector productivity and better value for money.

The financial services sector is one of our global success stories, and we want it to stay that way.

But because of a massive failure of regulation it has put our whole economy at risk.

UK banks were more leveraged than American banks.

We saw the biggest bank bailout in the world.

And still small businesses are struggling to get credit.

We must learn the lessons of the crisis, instead of carrying on much as we did before.

That’s why our seventh benchmark is to create a safer banking system that serves the needs of the economy.

We lower leverage.

Less dependence on unstable wholesale funding.

More credit to small businesses.

So we will abolish the failed tripartite system of regulation and put the bank of England back in charge, and we will pursue international agreement on reforms to protect taxpayers.

Finally, we need a recovery that is sustainable environmentally, not just economically.

I believe that this can be a huge opportunity – greening our economy can be a win-win solution.

But over the last decade it’s been lose-lose.

We see higher emissions than 1997 – and Britain has just 5% of the global market for green goods and services.

So our eighth benchmark is to turn both of these things around.

We will see lower emissions and a rising global market share for low carbon technologies.

With the Green Investment Bank that we are announcing today and new incentives for energy efficiency investments, we can create high quality jobs and cut our emissions at the same time.

I am delighted that Lord Stern has agreed to advise us on the creation of this Green Investment Bank.

These are the Benchmarks for Britain.

Benchmarks that will guide the next Conservative Government as we build a new, more stable, more balanced economy.

They mean more jobs, more savings, more enterprise.

Borrowing from China so that we can buy the goods they make for us may be Gordon Brown’s idea of the future, but it is not ours.

We want Britain to be selling to China and the world.

Judge us by these benchmarks.  Hold us to account.

We will be accountable.

The whole country will see as we Conservatives rebuild our economic house on more solid foundations.

Now this cannot be achieved be government alone.

We need a whole national effort that brings together government, business and individuals.

Over the next few months we will be seeking support for our plans from British businesses.

The message is clear.

Britain cannot afford five more years of Gordon Brown.

Instead, business is backing Conservative plans to put Britain back on her feet.

As the election approaches, it’s clear that Gordon Brown will say anything and spend anything to cling on to power.

The man who failed to fix the roof while the sun was shining, and took Britain into the deepest and longest recession for generations, cannot be trusted to take us out of it.

Like every Labour Government, this one is ending by running out of money.

Britain cannot afford five more years of Gordon Brown.

So the choice at the election could not be clearer.

Five more years of Gordon Brown, or change to get Britain back on its feet.

Below is the text of the speech made by George Osborne, the then Shadow Chancellor of the Exchequer, on 8th April 2008.

Last Friday I was in New York City meeting some the heads of the major investment banks who are on the front line of the current financial turbulence.

Today I am honoured to be here at Harvard, where I want to learn from those who are at the cutting edge of current economic thinking.

And I’m particularly pleased to be here for the centennial of Harvard Business School.

But my journey between the two cities took me on a detour via a museum in upstate New York.

Hyde Park was the home on the Hudson River of Franklin Roosevelt and today it is the site of his presidential library.

Visiting that library this weekend I was reminded that the first and most immediate of the economic crises which the new President Roosevelt had to confront in 1933 was a banking crisis.

And the foundations of the current US regulatory structure which is trying to deal with today’s credit crunch was laid down as a response to the credit problems of the Depression era.

The creation of the FDIC to protect the savings of the American family.

The split between commercial and investment banking enshrined until recently in the Glass-Steagall Act of 1933.

And the powers granted to the Federal Reserve to preserve financial stability in the 1930s which were invoked over seventy years later to preserve stability again by the rescue of Bear Stearns.

The bankers, economists and politicians of the great Depression era had to confront problems that few had foreseen and shape a whole new set of answers.

Today’s generation of bankers, economists and politicians across the western world are also confronting problems that few had imagined possible even a year ago.

The fact that wholesale debt and credit markets would simply freeze.

The fact that everyday financial products from mortgages to student loans to auto finance would be withdrawn from thousands of families.

The fact that in Britain the Government would end up nationalising a $200 billion retail bank and that in the United States the Federal Reserve would intervene with taxpayer guarantees to save a major investment bank.

And the fear that this financial turbulence on Wall Street and the City of London heralds economic misery on Main Street and in the high streets in Britain.

It is incumbent on us to think through what the long term implications of these events might be, not just for our system of financial regulation, but for the way governments and central banks seek to manage the economy.

Not to rush to rash judgements or premature solutions. Not to assume that every problem needs a new law and a new piece of regulation. But to acknowledge that we have not reached the end of economic history.

Many people thought we had. Economic policy seemed to have reached a consensus on independent central banks, inflation targeting and floating exchange rates.

Some politicians went so far as to boast that they had ended ‘boom and bust’. They now look ridiculous.

Of course, there were those who pointed out that the build-up of debt could not continue, that the current account could not grow for ever, and that an economy built on such levels of debt was unsustainable.

Their worries have been largely ignored – indeed many of the most advanced macroeconomic models barely have a role for money or balance sheets.

Macroeconomic policy over the last fifteen years or so has been focused on the need to control inflation and the demand cycle.

This is particularly true in the UK, where we finally settled in 1992 on a policy of inflation targeting, cemented in 1997 by the independence of the Bank of England.

Bank independence was an idea whose time had come. I welcome it and in office we would strengthen it.

But it was designed to deal with the old challenges: of persistent inflation and excess demand.

The credit crisis demonstrates starkly that controlling retail inflation is not enough. Recent threats to stability have come not just from the demand cycle but from the credit cycle.

Over the past decade both the UK and the US have seen in rapid rises in the liabilities of households, companies, and banks. But under the terms of the former economic consensus, all looked well: retail price inflation was low, and growth was positive.

With the addition of the deflationary power of China and the rest of the developing world to the global economy, the debt and the deficits were ignored.

We could, we were told, survive with increasing leverage for ever. Yet we are discovering – as Milton Friedman might have predicted – that the link between money and inflation has not in fact been broken.

Inflation expectations have been held down by the knowledge that the central banks were mandated to keep inflation low. But we are now all discovering that the extra liquidity has flowed not into retail prices, but into asset prices and unsustainable increases in household balance sheets.

For a long time this has been good news for home-owners and investors, but it is at the core of the problems we now face.

An unsustainable rise in asset prices relative to retail prices can only unwind in one of two ways. Either asset prices fall. Or retail prices rise. Both are disruptive to the economy, and to millions of families in America and Britain. Both are happening now.

In the UK house prices are falling and consumers are witnessing a steep rise in the cost of living.

Harvard’s own Ken Rogoff, the former IMF Chief Economist, summed it up with a quote from Robert Frost: “Some say the world will end in fire, some say in ice.” I look forward to meeting him tomorrow to find out which it will be.

What would be quite wrong is simply to reflate the bubble, and imagine our problems would be solved. Instead, the short term priority is to manage the unwinding of asset prices rises and increased leverage, while keeping a firm grip on retail price inflation.

But the question of how we get ourselves out of this mess in the short term, is tied to the question of how we make sure it doesn’t happen again.

In the medium term, we need to recognise that the cycle of easy money and easy credit is a function of the financial markets and macroeconomic policy and it’s there we need reform.

And finally, this crisis reveals the weaknesses in our economies that we have to fix in the long term.

So let me set out my thinking on what the policy response should look like in the short, medium and long terms.

The priority in the short term must be to weather the current crisis and prevent the emergence of a vicious spiral of restricted credit, falling asset prices and falling demand.

But in doing so we mustn’t lose sight of controlling inflation and undoing twenty years of hard work.

The Fed’s dramatic action to prevent the collapse of Bear Sterns was necessary to stop counterparty risk becoming a generic issue across markets.

As we discovered, interconnected banks are not just normal companies, or indeed just providers of money in the financial system. Increasingly, banks have become part of the infrastructure on which the system relies.

But this implicit Government insurance brings with it problems. Bear Sterns’ creditors were paid for the risk they took lending to the bank. Now that risk has been shouldered by the taxpayer.

We had the same problem in the UK with Northern Rock, one of the largest mortgage lenders. The Government guaranteed not just retail deposits but wholesale deposits.

So there is now an implied Government guarantee on any bank that can’t fail. But even the Government’s balance sheet isn’t big enough to guarantee the whole banking sector. There must be a concern that risk will be mispriced once again.

There are some solutions to these difficult problems.

We need considered and proportionate reforms to the systems of financial regulation and oversight that failed.

I know that a vigorous debate has been started here in the US by Secretary Paulson’s proposals.

I have been impressed in New York by the leadership shown by the Federal Reserve and the authorities in managing the crisis. The attitude appears to be: we will do what it takes.

If that means selling an investment bank over a weekend then that is what will be done.

In the UK the system set up by Gordon Brown in 1997 to ensure financial stability failed its first real test with the run on Northern Rock.

There was five months of dithering before the British Government was forced to put through the nationalisation they had tried for so long to avoid.

In Britain, we argue that the Bank of England should be given new powers to step in quickly to rescue failing financial institutions.

We should also look carefully at the way new credit and debt products on both sides of the Atlantic have grown on the back of tenuous bilateral agreements rather than any system of central clearing.

The result is that counterparty risk can threaten the whole system, as we saw with Bear Stearns. We need to avoid that.

An idea raised with me last week both at the New York Stock Exchange and by George Soros is that we should create much more transparent and independent clearing houses for these new debt and credit products like CDOs. Others have suggested to me that we should look carefully at the prime broking role of hedge funds too.

Another immediate lesson of the credit crunch is that we need to remain open to other sources of capital, including from the sovereign wealth funds that operate on a commercial basis.

And, away from the financial markets, we need to make sure that our public finances are sufficiently robust to be able to help families and businesses who are on the sharp end of the current problems.

The lesson could not be clearer. We should use the good years to set aside something to help in the difficult years.

In the US the bi-partisan fiscal stimulus package means that millions of households around the country are about to receive cheques for hundreds of dollars to help them through difficult times.

In the UK, by contrast, our Government is raising taxes on the lowest paid, on small businesses and on capital gains. They are adding to the cost of living instead of easing it.

This is a function of the UK having the largest budget deficit in the developed world. We have been reminded again of the consequences of not fixing the roof when the sun was shining.

And finally, even without the crutch of fiscal support, it helps no-one to see a spiral of repossessions and fire-sales, so we have called on all mortgage lenders to follow best practice and support those borrowers in difficulty.

These are all part of the immediate responses to the immediate problems we face on both sides of the Atlantic.

But I believe there is also a broader lesson to be learned for the medium term. Because the truth is that we cannot and must not separate financial policy from the macro-economic framework within which it operates.

Imagine for a moment that the last five years had been characterised by better regulation and tighter controls aimed at producing fewer sub-prime loans that will never be repaid and less investment in the complex financial products that have played such a fundamental role in the current crisis.

One intended result would have been lower aggregate demand in the economy, probably accompanied by lower inflation.

But the monetary response on both sides of the Atlantic would almost certainly have been lower interest rates, and as a result the financial system would have found other ways of expanding credit.

Because the reality is that while we may have successfully controlled inflation, this has largely been accompanied by disregard for the current account, asset prices, the rate of growth of credit or household balance sheets.

Fundamentally, a macro-economic policy that overshoots the sustainable rate of growth by encouraging millions of households to borrow more than they can afford is not going to be made safe through financial regulation.

In the UK we have gone further than the US in using monetary policy to target a single narrow measure of inflation.

But the problem with all defined policy targets is that they only work so long as they maintain a consistent relationship with the longer term goal they are designed to achieve – in this case sustainable economic growth.

As has happened repeatedly before in economic policy, while the targeted variables behaved, the information they contained about the rest of the economy became less useful.

Goodhart’s law has been proven once again.

In particular, the UK system was not designed for a situation in which excess domestic demand was combined with downwards pressure on inflation from elsewhere.

And it has not proved easy to integrate concerns about other economic signals into the formation of monetary policy – the deterioration in the trade and current accounts, and in particular the unprecedented increase in household debt.

We have warned for several years that the boom in household indebtedness was unsustainable – as I said two years ago “an economy built on debt is living on borrowed time”

But the British government ignored this warning because their economic policy refused to see it as a problem.

The result is that household debt stands at 175 per cent of incomes, higher even than the 140 per cent in the US.

Of course debt is not a bad thing in itself – for millions of people it is the means to their dream of home ownership. But the debt has to be sustainable.

The new economic challenge of our time, then, is to tame the credit cycle without damaging the dynamic financial sector that is so vital to the success of both our economies. That is the way to ensure real economic stability.

I’m not going to propose a quick fix solution – the right answer will only emerge from a thoughtful and measured debate. But there are some ideas beginning to emerge that might point us in the right direction.

It is clear that better regulation and risk management alone will not solve the problem – important as they are.

And the traditional instruments of monetary policy – interest rates – are not well suited to controlling asset and credit bubbles.

The IMF recently added its voice to calls for central banks to pay greater attention to housing markets when setting interest rates, particularly in countries where sophisticated mortgage markets appear to create a powerful “financial accelerator”.

But as Ben Bernanke has argued convincingly, the danger is that by targeting asset prices as well as retail prices with just one policy instrument the real economy may become less stable not more.

An alternative is to use the other tools at the disposal of central banks to target the credit cycle while keeping the focus of interest rate policy on the demand cycle and inflation.

This idea has been suggested by Professor Charles Goodhart amongst others, and was raised recently by Paul Tucker, the Director of the Bank of England responsible for markets.

At the core of this approach is the insight that financial crises are born during the financial booms that precede them – the only way to prevent the bad times is to stop the good times getting out of control.

The proposed solution is to vary the capital requirements that control the amount an institution such as a bank can lend.

Currently these requirements vary across institutions to reflect the amount of risk they are exposed to.

There is an emerging view that one lesson of the credit crunch is that these capital requirements need to be higher, and the opportunities for avoiding them by going off balance sheet with special investment vehicles should be curtailed.

Last month David Cameron, the Conservative Leader, rightly argued that we need to look again at the Basel accords that govern capital rules at an international level.

But what if the capital requirements could be varied not just between institutions, but also over time in order to target the credit cycle?

Under such a system a bank’s capital adequacy ratio would comprise of an element set by the prudential supervisor, specific to that bank as now, combined with an element set by the monetary authorities across the whole financial system.

Counter-cyclical capital requirements could also help to dampen the unhelpful pro-cyclical tendencies built into the Basel accords – which tend to encourage risky lending during a boom and to discourage lending when times are difficult.

This idea is still at an early stage but I believe it deserves serious consideration.

The difficulties are considerable, and in a globalised world we need to look at a global solution. But the potential rewards are so great that we should carefully consider all of the options available to us.

So the medium term challenge is a macroeconomic framework that can deliver real economic stability and sustainable growth – both on the fiscal side so that we are never again so badly prepared for an economic slowdown, and on the monetary side so that we can reduce the severity of credit cycles.

But over the long term, for all the problems of the free market, let us not forget that the responsibility we are fulfilling is quite simply to improve the best instrument even invented for improving the condition of mankind.

The credit crunch will be used by some to make the case against capitalism itself, to regulate anything that is risky, and to cut each economy off from the rest of the world.

But far from undermining the case for capitalism, the credit crunch makes the case for improving the way our global free markets works.

In the United States, your flexible economy means that you have bounced back quickly from past recessions.

We in the UK need dynamic supply side reform, to reduce taxes sustainably, and to improve the skills and build the infrastructure business needs.

For as the tide of debt-fuelled growth recedes in the UK, we are now seeing rocks exposed: the rocks of an economy that will find it increasingly difficult to compete against the emerging giants of China, India, and Brazil.

We must resist the siren calls of protectionism, here in America and in Britain. For whatever the depth of the current problems, all the evidence shows that cutting yourselves off from the world is surely worse.

Every generation must make its case for free markets. Not just free markets at home, but free trade overseas.

For what else, could over a generation lift two billion people – a third of the world’s population – out of grinding poverty and connect them to the world economy?

What else could have brought so many opportunities to so many of our fellow citizens?

Yes, globalisation brings with it new challenges.

Yes we must work tirelessly to make globalisation work better.

But globalisation has been the greatest driver of prosperity the world has ever seen.

And as we work together, to improve our understanding of the world we live in, and to solve the great intellectual challenges of our age, we should never forget that powerful truth.

Below is the text of the speech made by George Osborne, the then Shadow Chancellor of the Exchequer, to the Policy Exchange on 14th April 2008.

I am grateful to Policy Exchange for once again providing me with this opportunity to speak to you.

Last week I visited Wall Street and Harvard. I went there to speak to the heads of the leading investment banks about the problems in the financial markets and to learn from the leading economic thinkers about what this means for our world and for Britain’s place in it.

This week the Prime Minister is in America. He has also added Wall Street and Boston to his trip. I wonder about the reception he’ll get.

For everywhere I went, people kept asking: “What’s happened to Gordon Brown? Why has it gone so wrong for him? What are you going to do differently?”

Today I want to try to answer those questions. For to understand the Conservative alternative, we must first understand why Gordon Brown has failed.

Of course, it is tempting to start with what Americans call the ‘character issue’.

That’s apparently what the new marketing men drafted into Downing Street to help seem to believe, judging by the private briefings we hear reported. Gordon needs to show a ‘bit more personality’ we are told. His speeches are ‘too stilted’ says another. Stephen Carter merely observes that working with the Prime Minister is like living in a ‘surreal cartoon’.

It is ironic that the politician who once said of his opponents that they ‘could do the PR, while he would concentrate on being PM’ should have the decline and fall of his premiership chronicled in the pages of the magazine PR Week.

And what started in the heart of Downing Street has now spread. Labour MPs are queuing up to attack the man they elected unopposed to lead them less than a year ago. Some of them think too that Gordon Brown’s problems are all about style. One ministerial aide told the Prime Minister at the now infamous meeting of the Parliamentary Labour Party that the problems would be solved if he appeared on the sofa on Friday Night with Jonathan Ross. I suspect that’s the last we’ll be hearing of that ministerial aide.

Now I am no fan of Gordon Brown’s character. I shadowed him in the Commons for over two years, saw the worst of it, and I know why his closest advisers worry about it. But they are missing the central point.

The striking thing about the divisions in the Labour Government is that they are not merely arguments of style but ones of substance. That makes them much more lethal and destabilising. For how can a Labour Party fighting itself be expected to fight for the country?

The Justice Secretary Jack Straw no less is lobbying against the Prime Minister’s criminal justice plans for detention without charge. When he is not fighting the Justice Secretary, the Schools Secretary Ed Balls is waging a war against the government’s own education reforms to further his own leadership ambitions.

Perhaps most damaging of all, over 70 Labour MPs have come out against the centre-piece of last year’s Budget – the 10p tax rise on the incomes of the lowest paid. They know this will hit the very families who thought Labour was supposed to be on their side. Sadly, I suspect many Labour MPs will lose the courage of their convictions by the time parliament votes on the tax rise next Monday.

In one respect, this great Tax Revolt in the Labour Party is a massive political failure by the Prime Minister. I am always amazed that Gordon Brown still carries a reputation in some circles as the great master strategist. Even a cursory look at the last three Budgets and Pre-Budgets would surely make people think twice. One was exposed within hours as a giant tax con when the 10p tax rise was revealed; the next lost Labour the support of the business community and ceded the intellectual agenda to the Conservatives; the third and most recent sent Labour to new lows of unpopularity as Mondeo Man saw his car and his pint and his small business all hit with new taxes.

But the root of the problem is not political strategy but economic strategy. Governments should be there to help people when they need it. They should set aside money in the good years so it can make life easier for families in the difficult years. So we shouldn’t be seeing taxes rise in a downturn. The lowest paid shouldn’t be targeted by the Exchequer when they already struggling with a rising cost of living. This speaks to a wider point.

Gordon Brown rested his reputation on a three-pillared economic strategy. He said he should be judged against its success. The three pillars were:

– Stability: that he had brought “an end to boom and bust”

– Prudence: that he would only borrow to invest

– Productivity: that he would improve the underlying performance of the economy

Stability, prudence, and productivity.

For a while, the remarkable period of low inflation and global growth driven by the emergence of China and India masked the cracks. Yet now, as global growth slows and inflationary pressures grow, we can see how each pillar of Gordon Brown’s economic framework is now broken.

Let us examine each pillar in turn.

First, what Gordon Brown called ‘stability’ but the rest of us know as monetary policy.

The decision to give the Bank of England independence built on the regime of inflation targeting introduced by the previous Conservative government.

Inflation targeting was straightforward but radical. Fiscal policy – tax and spend – would be set for the long term, while monetary policy – interest rates – would be used to stabilise the economy and hit an inflation target set by democratically accountable politicians.

This was a system designed to address the old problems of managing the demand cycle and the persistent inflation that had been the core weakness of the British economy.

Once inflation targeting was institutionalised by the Bank of England Act, everything else in the economy – the exchange rate, the current account, debt levels, and the structure of the economy itself – were all left to find their own balance.

Politically, the system focussed attention on the targeted variable: inflation. And that was how it remained for many years.

Because our inflation was low, thanks in large part to the import of deflation from an emerging Asia, anyone who raised concerns about imbalances in other areas – the current account, debt, or the odd fact that our growth was becoming more and more concentrated in a few limited areas of the economy – was told to stop worrying, that the world had moved on.

Since asset prices – houses, property, and shares – are not part of the inflation target, the massive inflation in asset prices was allowed to go unchecked.

David Cameron, myself, and many others warned that the growing level of consumer debt that went hand in hand with this inflation in assets was unstable. As I said two years ago, “an economy built on debt is living on borrowed time”.

Of course many of these problems also occurred elsewhere in the developed world, but what is striking when you look at the figures is just how great the scale of these problems has been in Britain.

Gordon Brown’s said “I will not let house prices get out of control”. But our housing market increased faster than any other developed economy, twice as fast as in the United States. Our personal debt is the highest in the G7, at 175% of income, compared for example to 140% in the United States.

The Prime Minister says the subprime issue is an American one. But the IMF declared last week that, judged by the size of our economy, our banking system is the most exposed to low quality sub-prime lending in the world.

So the problems were more acute in Britain and, of course, nowhere else did the Government so publicly announce that that the problems of monetary policy had been solved for ever – that we had reached the end of economic history.

I do not know of any other country in which the head of the finance ministry declared that the economic cycle had been tamed – and that boom and bust had been abolished. It now looks like the high water mark of hubris.

Now the debt bubble is bursting, and banks are cutting back on their loans. What is the result of this policy failure for millions of households?

The Council for Mortgage Lenders expect the supply of mortgage lending to fall short of demand by £30bn this year unless conditions improve. That means that 200,000 people risk being shut out of the mortgage market.

That’s almost exactly one hundred times the 2,000 people who will be helped by Gordon Brown’s latest package to help homebuyers. Let me tell you what the Chairman of the Council of Mortgage called that latest Downing Street initiative: “an inaccessible irrelevance to most first time buyers”.

The Government has no answers to the bursting of the debt bubble, either for homeowners immediately affected by higher mortgage costs or for a country that wants to know why we were so badly prepared for events.

The question of how badly prepared we are leads us directly to the second pillar of Gordon Brown’s economic reputation – what he calls ‘prudence’ but the rest of us know as fiscal policy.

The centrepieces of tax and spend policy were to be the fiscal rules – the golden rule and the sustainable investment rule. Set out when he was still Shadow Chancellor, and then enshrined in office, they were supposed to be the guarantee to the public that Labour would not repeat the mistakes of its past and create a mess of the public finances.

We can now see that the fiscal rules have failed on almost every level.

They lack independent credibility. In opposition, Gordon Brown wanted the rules to be independently verified. In government he refused and appointed himself judge and jury over his own rules, so that no one else could declare them broken, and by changing the date of the economic cycle he was could fiddle them repeatedly when they started to bite. The result is that no serious economic commentator now uses them as a measure of the health of the public finances.

And for good reason. Because far from stopping pre-election give-aways at the expense of economic stability, they have allowed Gordon Brown to spend and even cut taxes just before each election and then raise taxes massively afterwards. According to the independent Institute for Fiscal Studies, taxes have gone up by more than £7 billion since the last election alone.

Yet even with the highest tax burden in our peacetime history the pursuit of prudence somehow left us with the largest budget deficit in the developed world. Turn to the tables at the back of this week’s Economist magazine and you’ll see that the only countries with a bigger budget deficit are Egypt, Hungary, and Pakistan.

Gordon Brown failed to fix the roof when the sun was shining, and the consequence for millions of families up and down the country is that taxes are going up just when the family finances are getting tighter. At the same time spending growth has been halved.

The contrast with the United States is stark. There the Government is now literally posting tax rebates worth hundreds of dollars to American families to help them with the rising cost of living. American business is being boosted by tax reductions to help them through this year.

In Britain last week taxes rose on the low paid, on small businesses and on capital gains. Next spring they will rise on family cars.

Instead of using fiscal policy to help families, fiscal policy is now pro-cyclical not counter-cyclical – the very opposite of what was promised.

What this means in plain English is this Government isn’t on your side. It is on your back.

And that brings me to the third pillar of economic strategy.

Just as Gordon Brown failed to prepare the public finances, so he has failed to prepare the supply side for the unprecedented competitive challenge coming from Eastern Europe, India, and China.

Alongside an independent bank to guarantee monetary stability, and fiscal rules to guarantee fiscal prudence, the third pillar of Gordon Brown’s economic policy was the pledge in the 1990s to raise the sustainable growth rate of the economy by increasing productivity.

Indeed, Gordon Brown said that “productivity is the fundamental yardstick of economic performance”.

OK. So let’s examine his performance against his own chosen fundamental yardstick.

Using the Government’s own measure of productivity, the average annual growth rate of output per worker has been less than 1.8% during the eleven years since 1997, down from 2.0% during the previous eleven years. That’s a 10% fall in the average rate of productivity growth.

And on all the international comparisons, our competitiveness has declined.

The causes are obvious.

– Billions of pounds spent on public services without reform, with the result that productivity in the health service has actually fallen.

– Higher taxes and constant tinkering with the tax system that has given us the longest tax code in the world.

– And a total failure to tackle poor skills and the scourge of worklessness through radical reform of education and welfare.

Far from raising the sustainable growth rate of the economy, the evidence suggests that the last ten years have if anything reduced it.

The fastest growing areas of the economy over the last ten years have been financial services, housing, and the public sector. All three drivers of growth are now curtailed.

And again, we can see the consequence for millions of families.

Rising productivity is ultimately what underpins rising standards of living – that is why Gordon Brown was right to call it the fundamental yardstick of economic performance.

Yet once you strip out the rising cost of living, real take home pay has been falling for more than two years. That is the longest sustained fall since records began in the early 1990s.

Families across Britain are feeling the pinch and it is a direct consequence of our falling competitiveness.

So we can now see that the three pillars of GB’s economic reputation have collapsed in a heap of rubble.

Monetary policy to guarantee stability. Collapsed as the bubble in debt and asset prices went unchecked.

Fiscal policy to guarantee prudence. Collapsed as Brown spent more than we could afford, and borrowed in a boom to pay for it.

And supply-side policy to generate growth. Collapsed as our competitiveness and productivity growth has fallen.

So, to answer the question I was asked repeatedly in America, that’s what’s gone wrong with Gordon Brown. His economic reputation is in tatters.

Today’s FT survey confirms that. He is the least trusted of all the major Western leaders to steer the economy through difficult times.

So what is the alternative? That’s the second question people are asking.

Of course, given the disarray in the government, there is unlikely to be a general election any time soon – much to my regret. The responsible thing is to wait to see the economic conditions at the time of the election before we can set out our final economic plan for the country.

The country understands that. But it is already clear that there is a Conservative alternative.

First, on monetary policy and the banking crisis.

The immediate priority must be to ease the credit crunch and re-open the market in mortgage backed securities. I support the actions taken so far by the Bank of England but there is clearly scope to go further. A broader collateral swap programme supported by the Treasury could help. This would allow banks to swap their illiquid mortgage backed securities for liquid government bonds.

Of course, such a significant step would have to be accompanied by cast iron guarantees for the taxpayer, and that must be priced into the deal – not least to minimise moral hazard. And of course any intervention must not exacerbate inflationary pressures in the longer term.

This is something the Government could do now and should be discussed at tomorrow’s banking summit.

But we also need to think about longer term reforms. I support the independence of the Bank of England, and in office we would strengthen it by giving the Governor a single, longer non-renewable term.

It is not helpful to have the Prime Minister playing games with the reappointment of the head of the central bank in the middle of a financial crisis, as we saw earlier this year.

And we will give the power to rescue banks to the Bank of England, instead of the FSA as Alistair Darling wants to do. I am glad that we agree with the all-party Treasury Select Committee on this.

For most bank collapses follow regulatory failure, so the regulator cannot make the call on the rescue. Since taxpayers’ money is involved, the Government will set the conditions under which a bank will be rescued. Then the independent Bank of England can take the lead on executing individual decisions.

But we need to think about going further than these important reforms if we want to ensure stability.

We have seen how the build up of a bubble in asset prices and debt can damage millions of people. As house prices fall, and the threat of negative equity looms for hundreds of thousands of people, we must try to construct our monetary policy framework so that it will never again ignore an unsustainable build up of debt.

Because the only way to avoid the damage of a bursting bubble is to make sure it doesn’t get pumped up in the first place.

We need to look carefully at what tools we can use, internationally if necessary, to slow the explosion of debt during the good years.

David Cameron first raised the role of capital requirements for banks last month in a speech in the City. He argued that they would need to rise and that we had to stop liabilities being concealed off balance sheet.

Last week at Harvard Business School I took this idea a stage further by suggesting that we look at whether capital requirements could alter during the cycle to control credit in times of boom and expand it in times of contraction.

Under such a system a bank’s capital adequacy ratio would comprise of an element set by the prudential supervisor, specific to that bank as now, combined with an element set by the monetary authorities across the whole financial system.

We have heard absolutely nothing from either Gordon Brown or Alistair Darling about these ideas. They apparently have no answer to the challenge of controlling the credit cycle.

But this weekend the international Financial Stability Forum recommended to the G7 that it should look at raising capital requirements and tackling off balance sheet liabilities, while the Basel Committee on Banking Supervision is looking at the how they might be applied counter-cyclically.

It is another example of the Conservative Party engaging in new ideas while the Government is stuck in the failed thinking of the past.

It is further evidence of a clear alternative in British politics.

Let me turn to the second pillar: fiscal policy.

David Cameron and I are both fiscal conservatives, with a small ‘c’. We will govern by the principles of sound money.

We will reform the fiscal rules so that they are independently verified. The next Chancellor will not judge his own performance against his own rules.

Never again should the Government be able to borrow recklessly in a boom, and still claim it is guided by prudence.

And over a cycle, we will share the proceeds of growth, and so reduce the proportion of the economy taken by the state. Government will grow more slowly than the economy does.

For those who question how meaningful a commitment this really is let me remind you that it took eight years for Margaret Thatcher’s government to reduce the share of national income taken by the state below the level which she inherited.

For those who want a solution tomorrow to Britain’s bulging deficit let me warn you that there is no quick fix to the dismal state of our public finances. Sharing the proceeds of growth is the serious, sustainable way to restore them to health and build the foundation for lower taxes.

And finally we will we improve competitiveness through dynamic supply side reform.

Lower taxes are part of the answer, and, as I have just said, our pursuit of sound money will make that possible. But we will not disappoint people with undeliverable promises.

If David and I had given way to the siren voices of recent years calling for upfront commitments to unfunded tax reductions, we would rightly be under pressure now to explain how they could possibly be delivered with a rapidly rising budget requirement.

But we didn’t.

What we have demonstrated is that within the existing tax burden it is possible to make significant reform. I established the independent Tax Reform Commission to start the long term argument in Britain on tax reform.

A remarkable number of its recommendations have already found their way, in one shape or another, into our tax code.

Last October, everyone noticed our costed plan to raise the inheritance tax threshold to one million pounds.

But it is our commitment within that plan to abolish stamp duty for nine out of ten first time buyers that looks prescient now. The figures from the Halifax last week not only showed house prices falling; they also revealed that the number of first time buyers was at its lowest level since the 1970s.

Getting rid of stamp duty would help enormously as mortgage arrangement costs rise, and it would inject some support into the housing market at a difficult time.

We have also set out plans to boost the competitiveness of British business by cutting the corporation tax rate to 25p by reducing the complex allowances, and by reversing the increase in small business tax.

And in the longer term, with the advice of Geoffrey Howe, we will fundamentally reform the way we make tax policy, so that we can begin to undo the stifling complexity created by Gordon Brown.

But an economic strategy for the new global economy doesn’t just mean Government doing less. Laissez faire is not a serious answer to many of the challenges we face.

Government should be doing more where it’s needed, like improved transport infrastructure, better skills, and more active support for businesses. I want the attitude of the Government to be a service to business, not a burden.

Part of this is getting more from what we spend, so we will return the Treasury to its most important role – getting value for money for taxpayers.

We will reform education to create more good school places, allowing good schools to expand and new ones to be created.

We will build on the most successful international experiences to reform our welfare system and get hundreds of thousands of people back into work.

That is our alternative. The Conservative alternative.

On the three pillars of economic policy we will offer fresh thinking. We will learn the lessons of Gordon Brown’s failure.

And we will make sure that next time Britain is confronted with a difficult economic challenge we are well prepared.

We will fix the roof whether or not the sun is shining.