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  • Ruth Kelly – 2003 Speech at the National Association of Pension Funds Investment Conference

    Ruth Kelly – 2003 Speech at the National Association of Pension Funds Investment Conference

    The speech made by Ruth Kelly, the then Financial Secretary to the Treasury, in Edinburgh on 12 March 2003.

    I am very pleased to be here today.

    The National Association of Pension Funds is an important organisation, the principal UK body representing the interests of the occupational pensions movement.

    Taken together, your members – large and small companies, public sector and local government – provide pensions for over 7 million employees and 4 million people in retirement.

    11 million customers, more than £700bn of assets under management, and a membership of consultants, actuaries, lawyers, trustees, administrators, information technology technicians, and investment professionals. The NAPF will be a powerful partner, not just as we take forward our pensions policy, but also as we seek to improve the way markets work, for savers and investors, and ultimately for longer term health of our economy.

    We all recognise that these are tough times for the pension industry.

    Part of the context for the Pensions Green Paper is increasing concern about the level of pension saving and the ability of the current system to enable individuals to provide adequately for their old age. Some of these concerns are legitimate but some have been overstated. Most people are being paid the pension they were promised. Most are saving for their retirement, either in pensions or in other forms.

    Nevertheless there are areas of concern: longer life spans, a decline in pension provision by some employers, complexity of products, and too many people leaving employment too early.

    The Green Paper addresses these concerns. It sets out our proposals to renew the pensions partnership between the Government, individuals, employers and the financial services industry – long the mainstay of the UK pensions system.

    Within that partnership, occupational pensions – both defined benefit and defined contribution – have been and remain crucial to delivering secure retirements for our citizens.

    I want to take a moment to address recent incorrect press reports about the number of people likely to be affected by the Government’s proposals to radically simplify the taxation of pensions published at the end of last year.

    These proposals are a massive boost for people saving for a pension.

    The Government stands by its estimate that around 5,000 people could have a pension pot larger than the proposed £1.4m lifetime limit. This includes both people in occupational and personal pensions.

    It is simply wrong to assume, as these reports have, that everyone contributing to a pension is currently free to put as much as they like into their pensions.

    In fact, two-thirds of people with occupational pensions have until now been subject to absolute limits on their annual pension savings. The lifetime limit is equivalent to the maximum pension that these people could have built up under these existing limits.

    Of the other third, only a small minority will have managed to accumulate a pension pot worth more than £1.4 million. And while these people will be unable to make further tax-free contributions, their existing rights will be guaranteed.

    So far from losing out, the vast majority of people will be better off because they will have

    – more choice about when and how much they save,
    – more choice about when they retire
    – more choice about how they draw benefits from their pension
    – and in many cases a larger tax-free lump-sum.

    There is also of course concern about the broader financial market environment. The recent falls in global stock markets – with US markets (S&P500) now down 47 per cent since their peak, UK markets (FTSE-100) down 50 per cent, France (CAC-40) down 64 per cent and Germany (DAX) down 71 per cent – reflect ongoing international uncertainties and risks which have also triggered turbulence in oil prices and exchange rates. This has demonstrated once again that no country can insulate itself from the ups and downs of the world economy.

    We can’t predict the future of the stock market and how this might affect pension funds, but in the longer term, stock market performance is likely to reflect the underlying performance of the economy. And the fundamental drivers of a successful economy – high employment, low inflation and low interest rates – are in place, and are delivering a secure environment conducive to investment and long-term planning.

    The macro-economic fundamentals are sound. But savers and investors, as well as workers and pensioners, also require the micro-economic fundamentals to be sound; for companies to be well run; and capital markets to operate efficiently and transparently. Since today’s conference is about investment, these are the issues I want to focus on today.

    The Government has undertaken a number of important strategic reviews on a whole range of issues relevant to your conference today. The Pensions Green Paper itself. Cruickshank and Sandler on how to promote competition in banking and retail savings products respectively. Pickering on pensions legislation and Myners on the chain of relationships around pension fund investment. The discussions which followed Myners on transaction costs and shareholder activism. Higgs on non-executive directors, the Smith Review on Audit Committees, And the CGAA on accounting and auditing.

    In all this, our objectives for savings policy and efficiency in capital markets have gone very much hand-in-hand. Our capital markets have a vital role to play in efficiently allocating capital in the economy, thereby meeting the needs of millions of savers. They do so through a long chain – in the case of pensions for instance, from trustees, through investment consultants, to fund managers and in turn to companies and their boards – a relationship which itself is crucially dependent on reliable audit and effective non-executive directors. The more effectively this chain works, the better-served will be our economic objectives and the interests of savers. Yet as we have found, each link in the chain raises its own complex policy issues about competition, incentives and accountability. Our contention is that these issues matter.

    I certainly won’t attempt to go over all the ground today, though I do have one or two specific things to say in a moment about where we are on Higgs and the follow-up to Myners.

    What I’d like to do first is step back a little and take a quick look at some important points which we can easily get lost in the debates on the detail.

    First, I want to pick up some consistent approaches running through all these pieces of work. I would describe these as:

    – a strong presumption in favour of promoting and enabling greater competition;
    – a consistent emphasis on the importance of wealth creation and long-term value; and
    – a belief in strengthening the hand of the customer and the shareholder.

    All themes of course which tie very strongly with the Government’s broader economic objectives of promoting economic growth and productivity.

    But second, I would argue that we have been deliberately careful throughout about the scale and nature of Government intervention that is merited or makes sense, even in response to the most powerful of analysis. Throughout the work, there has been a consistent caution about the hazards of kneejerk legislation and regulation in this area. Contrast the approach of Higgs and the CGAA, for instance, with that of Sarbanes-Oxley.

    In fact, where possible, these reviews have actually opened the door to some significant deregulation – for instance, through Myners’ powerful critique of the weaknesses of the MFR and Sandler’s scruitiny of conduct of business regulation.

    Third, I want to suggest that as a result of all this work, there is now a vastly better understanding within Government of the commercial realities of your industries than there ever has been before. Whatever anyone thinks of the conclusions of any of these pieces of work, they have been exhaustive, strongly rooted in evidence and analysis, and open.

    Taken together, therefore, I suggest they give us, for the first time, a coherent approach towards policymaking as it affects the investment industry across the piece, rooted in a clear understanding of the chain of relationships in the investment industry and how all the decision-makers and incentives fit together.

    In my book, that’s progress.

    I know there are concerns in the industry about the potential for review fatigue. I can’t promise, as some have suggested I should, that we might never undertake any further review on any issues relating to investment. But I will say that I believe the challenge for us all now is much more about implementing and driving through work we have already done than about commissioning further pieces of new thinking.

    I also firmly believe all this work has been very good for the long-term future of the investment and savings industry in Britain and certainly for a better and more intelligent foundation for Government policy and the ways it affects you – and through you, the interests of millions of savers.

    As I see it, we now have a clear approach to this broad corporate governance and capital market agenda, which operates at three distinct levels.

    First, at the level of the individual company, we need to promote the interests of shareholders, in relation to the interests of management. As is well-recognised, there should be mechanisms in place designed to identify the conflicts of interests which managers inevitably face, and ensure that they are managed effectively. And companies themselves need to make timely and accurate financial reports.

    Second, we need a set of external stakeholders whose actions will promote and reinforce good governance. In particular we need shareholders to be accountable and active in making use of the ownership rights they exercise. And we also need independent auditors, comprehensive and robust accounting standards, and fair and timely market commentary from analysts and ratings agencies.

    Third, as an over-arching pressure, we need capital markets which can act as a discipline to poorly performing management. A vigorous market for corporate control through takeovers is a cornerstone, but promoting competition in capital markets, and market access across national boundaries will also be important. And of course we need to pursue vigorously the Myners agenda to improve the framework for investment decisions made by the institutions, and pension schemes in particular.

    Within all this three pieces of work deserve particular attention: the work on accounting and auditing, the action flowing from the Higgs review of corporate governance; and of course the ongoing work on Myners.

    On the first, we all recognise that there are issues about “who guards the guards” – the role of the auditor, the relationship between the accountancy profession and the regulatory bodies, and the enforcement of standards.

    Corporate failure, of course, will always occur; indeed, it must be able to occur if markets are to work effectively. Nevertheless, public confidence in the accountancy and audit profession has been shaken by a series of scandals. And we are putting in place a coherent and proportionate package of measures intended to reinforce the existing strengths of the corporate governance regime in the UK.

    But as the nature of the corporate world changes so too the structures we create to govern our companies must change with it; they must be reinvigorated and made relevant to the concerns of modern investors.

    Derek Higgs was appointed by Patricia Hewitt and Gordon Brown to review the role and effectiveness of non-executive directors in April 2002 and his report was published in January of this year. Inevitably, Derek’s report was seen in the context of Enron and its backwash – though I would argue that his work is just as much, perhaps more, about the positive challenge of promoting shareholder value as it is about trying to prevent wrongdoing.

    The report suggests a significant strengthening of the role of the non-executive director. Higgs also emphasises the importance of formalising the appointment processes and encouraging more candidates with a wider diversity of experience to take appointments in the boardroom. And it proposes stronger arrangements to ensure that shareholder views are heard in the boardroom – something many here stressed to us in the context of the debate on shareholder activism.

    We welcomed Higgs’ proposals in full when the report was published earlier this year, based on his thorough analysis and considered recommendations – not least because it provides a robust way forward which avoids a need for clumsy legislative intervention. That remains the Government’s view.

    Derek’s report is a careful and well-balanced package. But it has also prompted much debate. And there is some danger that this debate is starting to generate more heat than light. So I would like to take the opportunity of today’s conference to make some observations from the Government’s perspective and suggest some principles which it may be helpful to keep in mind.

    First, the Government has a clear objective, if at all possible, to avoid the UK corporate governance framework becoming a matter for regulation as it has elsewhere, for instance to some extent now in the United States through Sarbanes-Oxley.

    That is not because we believe corporate governance is unimportant or that there are not public policy interests at stake. It is because we believe a governance framework should ideally leave room for judgement – and these judgements are, in the end, best exercised by shareholders.

    This is the philosophy that runs throughout Derek’s report and, provided there is real willingness to make this approach work, it has the Government’s strong support.

    Our concern at present is that the present debate – at any rate in the media – is starting to lose a sense of proportion.

    – on the one hand, Derek’s report is plainly not the intrusive rulebook some critics have sought to claim.

    – but on the other, the debate has shown some signs of a disturbing complacency in places about the UK corporate governance framework.

    I do not believe any complacency is justified. We may not have seen an Enron in the UK. But we have not been immune from numerous home-grown cases of large-scale corporate value destruction, either.

    Some might say these cases were all unavoidable. Others might argue that stronger corporate governance could never have helped. I doubt both views, and I do not think either represents a fair consensus.

    Now Myners pointed to the potential for strengthening the role of shareholders in relation to this sort of case, and we have had a sensible and productive dialogue with you about how to promote that. But one message came through loud and clear from you, the investment community, in the course of the discussions we had.

    You repeatedly told us that you could not be effective as shareholders without stronger and more effective non-executive directors in companies, and without better communication flows so shareholder views were heard more clearly – and earlier – in the boardroom.

    Derek’s report proposes practical and workable arrangements for furthering these objectives within the framework of the unitary board.
    Many shareholders have already welcomed that, and it is vitally important that shareholder voices continue to be heard in the debate on Derek’s report.

    At the same time, Derek’s report deserves a more careful reading than some critics have allowed him. Odd myths seem to have sprung up. Derek has not, for instance, somehow invented the role of a senior independent non-executive director. On the contrary, this role is already incorporated in the existing Combined Code. It already works well in many large companies. And nowhere does Derek suggest the senior non-executive should or could be some sort of rival to the chairman – whose role remains rightly central, including in leading on relations with shareholders.

    Nor, to be clear, does Derek anywhere propose or envisage that the Combined Code should become a rulebook. The Code is and should remain a statement of best practice. How far companies comply with its provisions, and at what speed, is rightly a matter between them and their shareholders.

    The final myth is that Derek’s report is not being properly consulted on. It is. Derek consulted widely and sought comments on his proposals from the main representative bodies, including the CBI. The independent Financial Reporting Council, on which both business and investors are well represented, are now taking the proposals forward into a new Combined Code. The FRC have indicated clearly that they do not want to duplicate Derek’s review. They therefore start from the presumption that Derek’s proposals should, in the absence of a clear case to the contrary, be implemented. We strongly support them in that. But the FRC is hearing and listening carefully to all comments, not just on points of detail. It will then be for them to consider all the inputs and make the judgements they see fit before a new Code issues.

    Turning to Myners

    Myners identified the key role that pension fund trustees have in ensuring the effective management of savings, in being clear about what decisions are being made by whom and why, and in exerting intelligent pressure on intermediaries to ensure they are acting in the interest of the fund. This was the role of the Myners principles, which I’ll come back to in a moment. At the same time, we remain clear that it is right to legislate to require appropriate expertise from trustees taking investment decisions and we reaffirmed that commitment in the Pensions Green Paper. It seems to me hard to argue against this proposition. Those looking after large sums of other people’s retirement savings clearly need to have an adequate understanding of the issues. Even with the benefit of the excellent advice trustees receive from many in this room, they still need to be questioning and intelligent customers for that advice.

    Both Andrew Smith – who is leading on this work – and I are committed to working with you to ensure we get the most practical and workable solution and to establish what expertise trustees do need, and how those requirements should be set out, reviewed and enforced. I know DWP Ministers will be interested in your input – indeed, I understand that the NAPF, and others, recently had a substantial, and helpful, discussion on all this with officials as part of the Pensions Green Paper consultation process.

    As Myners emphasized, enhanced engagement from pension fund trustees is part of a wider process as we work to ensure that appropriate pressures are exerted – both on fund managers and on the companies in whom they invest. There is an emerging consensus around shareholder activism as an important part of this process. Shareholders are right to take a close interest in the companies in which they invest, and we are right to recognize that shareholder activism is a vital force in keeping management up to the mark. And they are right too to emphasise that strong and effective non-executive directors have a vital role to play in this context.

    So we welcome the work of the Institutional Shareholders’ Committee on its statement of principles on the responsibilities of institutional shareholders and agents. Active engagement will build stronger companies and better returns for the members and beneficiaries of pension funds. The revised principles are a very welcome initiative. However, as we said at the time of the statement, the key test will be the impact on industry behaviour.

    The challenges raised by Myners on transaction costs remain. The objectives must be to promote proper transparency of the trading costs for pension funds and to deal effectively with any unnecessary costs – maximizing the amount that goes into the pensions pot – and to promote the overall efficiency of the capital markets. It is important these objectives are met. In the first instance, the FSA will – in the very near future – be coming forward with proposals for consultation, following the completion of it’s review in the area of soft commission and bundling. We shall then consider, in the light of the FSA’s conclusions, how best to address this challenge for trustees and the wider investment industry in the review I am launching today of progress on the Myners principles.

    Myners’ recommendations have been implemented, in the first instance, through voluntary guidance. I know that the fund management industry has welcomed that flexible approach and, in government, we want to give you the chance to demonstrate that you can deliver. But that does not mean we are any less serious about improving the quality of investment decision making.

    So the review will set out a clear picture of progress toward the implementation of the Myners recommendations and enable us to develop a clear understanding of where the voluntary approach is working and where it is not. Our aim is to be objective, thorough and focussed on how the investment process has changed. On that basis, we will be able to decide how best to continue to drive Paul Myners’ agenda forward.

    So we welcome the work that has already started on implementing the Myners recommendations. And we welcome the NAPF survey – an important contribution to the debate. Now is the time to cast our net more widely, to develop a substantive and thoroughgoing understanding of the progress the industry has made.

    I can today announce that the Government has asked Consensus Research to conduct the review. I’m sure many of you will have come across them through the market research work they have done for in many areas of the financial services industry.

    Their work will fall into two parts – a qualitative survey concluding with a report this summer – and informing a major quantitative survey to conclude toward the end of the year. We want this to work, we want it to be balanced and we want it to be thorough. That means we want you to be involved, to be open about where progress has been made, and where more work still needs to be done.

    I am not going to pre-empt the conclusions of the report, or anticipate what action – if any – the government should take. We believe in the Myners principles – and establishing the conditions necessary for a dynamic and flexible industry to operate in the public interest. So we are serious about change.

    Accounting, auditing, corporate governance, Myners and the work flowing from that – we have covered a lot of ground in the last year. At times, it can seem that there is a bewildering array of reports, voluntary guidelines, principles, and committees. But I believe, and I am sure that as the experts in the industry you will recognise, that all of this work flows from the same essential understanding and drives toward the same shared ideal.

    We all want to see the partnership which sits at the heart of the pension industry reinvigorated. We all want to see people saving more for their retirement, more of that saving going into the pension pot and all of it channelled efficiently through the capital markets to drive growth across the wider economy. We all know that that means action from government to strip away outmoded and outmoded restrictions on the pension industry – the Green Paper points the way forward. We all know also that it means action from the industry: intermediaries operating within a competitive market and making investment decisions free from conflicts of interest; institutional shareholders engaging with the companies they invest and upholding high standards of corporate governance; accountants and auditors operating within a robust and transparent system – providing a flow of information the markets can trust.

    I started today by talking about partnership. Recognising responsibilities on both sides and acting on those responsibilities is what partnership is about. That is how, going forward, we can reinvigorate the pensions system that has served this country so well, and that is my message for you today.

    Thank you.

  • Ruth Kelly – 2002 Speech to ABI Biennial Dinner

    Ruth Kelly – 2002 Speech to ABI Biennial Dinner

    The speech made by Ruth Kelly, the then Economic Secretary to the Treasury, on 3 May 2002.

    The insurance industry is an engine of economic growth. As a channel for investment your companies drive growth across the real economy. As a safety mechanism your companies allow others to build for an uncertain future by pooling the risks associated with that uncertainty.

    So it is good to see the sector in such a secure position: the largest in Europe, employing over a third of a million people, and contributing around £8 billion to UK overseas earnings:

    In the year 2000 insurance companies long-term business received £136 billion in total worldwide net written premium and paid out £95 billion in benefits.

    The general business of the insurance industry is also important – receiving over £34 billion in total worldwide net written premium in 2000.
    The insurance industry is one of the UK’s biggest sources of investment. Taken together, in the year 2000, your companies held over £1,100 billion in company shares and other assets, accounting for over 20% of investment in the stock market. That is more than the pension funds and the banks put together.

    It is in all of our interests to see an effectively functioning insurance industry, enabling individuals to save sufficiently for their old age, allocating investment efficiently, and providing a structural solution to the problem of risk.

    As an economics Ministry the Treasury has a particular interest in each of these areas. These interests define what I see as out sponsorship role for the industry. Our approach is not “the industry is right or wrong”, for its own sake. That is not in anyone’s interest – consumers, the wider economy, and not even the industry. We are interested in the insurance industry – and all financial services – for what they offer the individual and what they contribute to the economy. If the industry performs this function well it too will benefit from the deeper markets and the better returns that will follow.

    There is, I believe, a virtuous circle to be drawn. This means that, as sponsor, we will argue your corner – in Whitehall, in Europe, and across other international platforms. It means we will clear away the obstacles that impede progress to an efficiently functioning market. But we are not here to protect special interests. The bottom line is this: our interest is in what you deliver to the economy and to individuals, and that should be your interest too.

    As an economics ministry we have to take a view of the industry in the round. We have to protect the interests of consumers and ensure a high level of confidence in the industry. We have to get the regulatory regime right – protecting consumers without inveigling against innovation or choking competition. And we have to understand the importance of insurance in the abstract – why the market exists at all – so that if we need to step into the breach we do so in the right way: insurance against the threat of terrorism is an obvious example.

    There is a lot going on at the moment. On the general side there is the prospect of regulation, and issues like terrorism and floods which touch on the basic principles underlying insurance and the relationship with Government; on the life side the ramifications of Equitable and the various reviews:

    The Modernising Annuities consultation;

    The Sandler review;

    The Pickering review

    An Inland Revenue review into the tax treatment of occupational pensions;

    The Penrose enquiry; and,

    The FSA’s review of polarisation.

    Annuities are going to play an ever more important role in delivering income in retirement. Yet at the moment many people do not get as good a deal as they might when they convert their pension pot. They don’t shop around, or they buy the wrong type of annuity – yet they are making an absolutely critical choice and one that will affect the rest of their lives. The minority who want more flexibility in the use of large funds has so far dominated the debate. Our consultation on annuities shifts the focus to the real issues: how to make the market work better for the increasing number of people who will retire with more modest pensions.

    The aim of Ron Sandler’s review is to identify the competitive forces that drive the long-term retail investment industry – including personal pensions – and examine the incentives created by the structure of the market.

    The intention is to ensure that the structure of the UK market, with its products and government and infrastructure, leads to efficient investment decision-making and to optimal outcomes for consumer interests more broadly. The report is due in the summer.

    Alan Pickering was commissioned to carry out a comprehensive review of the rules and regulations governing private pensions. He will be reporting to Alistair Darling in June with recommendations for simplifying the structure. The aim is to make sure as much money as possible goes into the pension pot and not on red tape, as well as making it easier for employers to offer good pensions to their workforce.

    In addition, the Inland Revenue is investigating ways to simplify the taxation of occupational pensions, to reduce further administrative burdens and make pensions easier to understand.

    The Penrose Inquiry is examining the situation that arose at Equitable Life and led it to close to new business. No date has been specified for the report’s delivery. But I am assured that it will be produced as quickly as is consistent with delivering a thorough and authoritative account

    The FSA are reviewing their position on the regulation of insurance, aiming to shift to a more risk based approach. And CP 121 reviews options for reform of polarisation in the provision of financial advice – we have a fourteen-year-old system and, in the review, an opportunity to move on.

    Sandler, Pickering, Penrose, Tyner, that is a lot of reviews. And I can understand why some complain of overload. But this is an opportunity as well as a chore. We are not bound by the past; we are in a position to create a market for financial services that is ready to meet the challenges of a new century and the needs of consumers who, increasingly, will rely on the private provision offered by your companies.

    At the other end of the spectrum we find general insurance products. Here, the issues are very different – simpler products, better understood by consumers, sold mainly on an annual basis. There is still a need for regulation, of course – both prudential regulation of companies and an appropriate level of protection for consumers.

    As you know the FSA will be given responsibility for regulating the sale of general insurance products over the next couple of years. The Treasury and the FSA have already begun the consultation process leading up to the regime. This will gather pace during the summer once we have the Insurance Mediation Directive in its final form and can consult formally on what the new regime will look like.

    I hope you will all participate in the consultation process. The aim is to enable us to design a regime which takes account of the varied nature of the general insurance market, offering proportionate protection to consumers, whilst helping you to take advantage of the passport into other European countries.

    Reforming the operation of annuities, advancing the advice agenda, prudential regulation – all of this assumes the existence of some kind of market. There are more fundamental questions to address. What happens when the market cannot operate? What happens when the mechanism fails?

    Under normal circumstances it is the function of government, properly understood, to ensure the markets operate efficiently. When the market disappears there is, on occasion, a demand for more substantive engagement – the light touch is replaced with a heavy hand.

    Post September 11th, commercial capacity for terrorism has been withdrawn across significant patches of the market, the insurance industry and insured communities have cried hazard and asked the government to step into the breach. We did this for the aviation industry through the Troika scheme: a measured response to the threat of all aircraft being grounded due to lack of insurance cover. A market failure such as this is a necessary but not a sufficient condition for Government to intervene. We also need to consider the consequences of that market failure, and the longer-term implications for the market itself of a government-backed scheme.

    The hurdle for government intervention is set intentionally high. By its very existence a Government-backed scheme will ?crowd-out? competition from the private sector. If the price is the same, most people will opt for the certainty associated with a Govt-backed insurance or reinsurance product rather than the commercial alternative.

    The dialogue between Government and the insurance industry on issues like terrorism is ongoing. We need to deepen that dialogue, building on the understanding that government intervention should not be assumed and that cases of market failure will be judged on their own de-merits. We also need to see evidence of the real impact of market changes rather than relying on rhetoric and anecdotes.

    Dialogue is the way forward. Across a whole range of issues the ABI has strengthened and deepened the relationship between the Government and the insurance industry. Work on codes of practice has improved the operation of the industry and reduced the requirement for regulatory intervention. Work on insurance with rent schemes has improved the public image of the industry and assisted us in our efforts to end financial exclusion. The Raising Standards scheme promises to provide a quality mark for long-term savings and pension brands – covering key aspects of customer service.

    Working together we can ensure a positive outcome for the industry in EU negotiations; we can police the boundary between market failure and government intervention; we can keep the UK regulatory regime under review and up to date; and we can build, for the future, a secure, productive insurance industry in a secure, productive Britain.

  • Ruth Kelly – 2006 Speech on Sports Colleges

    Below is the text of the speech made by the then Secretary of State for Education and Skills, Ruth Kelly, on Sports Colleges. The speech was made on 3rd February 2006 in Telford.

    Thank you for inviting me to address your conference.  I am really delighted to have been able to make it this year!

    Your conference – the Sports College movement – is nothing less than inspiring.  You are a community of schools: determined to move forward; determined to push the boundaries; and determined to strive for excellence.

    I want to acknowledge today, and pay tribute to, the contribution that Sports Colleges are making.  You are using physical education and sport to drive up whole school standards, improve attendance and behaviour and, of course, play a significant and valued role within our national school sport strategy.  A lot is asked of you.  And you continue to rise to that challenge.

    You have proved – time and again – that you are a dynamic movement, capable of changing as priorities alter, but your focus – your driving force – is a desire to bring out the potential of every child.  That is an ambition we share.

    Indeed, it is at the heart of your conference’s theme – ‘Every Child Matters’.  For me – and I know for you – it is about giving every child the best opportunities and ensuring the highest standards, irrespective of where they live and the nature of their backgrounds.

    And that ambition is also at the heart of our White Paper – Higher Standards, Better Schools for All. In it we set out our vision for the next phase of reform – a vision of strong, self-confident schools working collaboratively and in partnership with other organisations to raise standards and improve opportunities for children. As Sports Colleges you have a strong history of working with external partners and I want to explore with you, today, how we can take that even further.

    But first of all, I want to take a moment to look at the considerable achievements of the Sports College movement.  In particular, I want to offer my congratulations to the 14 schools whose successful designation for Sports College status was announced earlier this week.  I know that you are all represented here today.  The application process is tough and rightly so.  You can all feel justly proud of your success.  Very many congratulations – you have joined a winning team.

    In 2005 Sports Colleges achieved their best ever exam results.  That is a credit: to your movement; to those working in your schools; and to the young people you serve.  Overall, Sports Colleges out performed non-specialist schools by almost 3 percentage points.  And 2005 value added data suggests that Sports Colleges add considerable value between Key Stages 2 and 4 – you will know this already.  It shows that, on average, pupils in Sports Colleges achieved one grade more in a GCSE subject than pupils with similar prior attainments in all schools.

    Your successes are many, but there is, of course, more to be done.  I would like to see the gap between your results and the national average narrow even further.  I understand and accept the challenges many of your schools face.  Often your journey has been further, and the rate of improvement faster, than any other type of specialist school.

    Together, we must deepen the impact of the sports specialism and ensure an even greater focus on the basics of English and maths.  Excellence in sport should translate into excellence throughout the school, especially in these vital subjects.  Of course, there are already some outstanding achievements at GCSE among sports colleges:

    – Madeley Court School, here in Telford, achieved a huge 33 percentage points improvement on its GCSE results since last year;

    – And Brookfield Community School in Derbyshire achieved an excellent 19 percentage point’s improvement over the previous year when English and maths are included in the indicator.

    Of course your success isn’t just about sporting or educational excellence.  You’re also using your sport specialism to develop citizenship and leadership and prepare your young people for the many challenges of adult life.  Sport – through its rules and tactics – helps instil discipline and a sense of what is right and wrong.  That has a major impact on behaviour and I am sure there is much that other schools could learn from your approach.

    I also want to recognise the leading role that Sports Colleges are playing within the national school sport strategy.  A lot has been achieved in the three years since the strategy was launched.

    – Overall 69% of pupils in partnership schools – that’s 11% more than last year –  are spending at least 2 hours in a typical week on high quality PE and sport;

    – The biggest gains have been across the primary sector where take up has risen by 23% – in just one year – to 64%;

    – and while progress across the secondary sector has been more modest, it has reached the 75% target a whole year early.

    Participation in club sport, competitive school sport and sports volunteering and leadership are all increasing, year on year.  Our investment of £11.5 million over two years will ensure that all partnerships can employ high quality coaches to widen after-school activities even further.

    2006 will be a critical year for the national school sport strategy.  The first milestone within our Public Service Agreement target falls this year.  It is essential that we press on and ensure that at least 75% of school children spend a minimum of 2 hours each week on high quality physical education and sport.

    In the longer term, we should, and can, be even more ambitious.  That’s why we want to work with you to offer all children at least 4 hours of sport a week by 2010.  This will include the 2 hours of high quality provision at school.  But it will also include 2-3 hours outside of curriculum time, to be delivered by a range of school, community and club providers.

    So, with improving results, together with your contribution to the wider sports strategy, you are showing that you are ahead of the game, demonstrating what can be achieved, and just what Sports Colleges are capable of.

    And Sports Colleges are, I believe, showing too just what can be achieved when schools work in partnership with each other and with other organisations to raise standards. Of course, as Specialist Sports Colleges you all already have relationships with external partners or sponsors but many of you are taking these relationships a step further. I have been delighted to hear about the range of innovative partnerships you have been involved in with all sorts of partners – from Universities to businesses to leading sporting organisations – harnessing expertise and energy and turning it to the task of raising standards with considerable success.

    I wanted to share just a few of the interesting examples I have heard about:

    – Biddick School in Washington – the first school nationally to receive support from the Lawn Tennis Association in its bid to become a Sports College. Since 1997 the school has extended its relationship with the LTA to the benefit of students at the school and the wider community.

    And to quote an example of successful collaboration with business:

    – Holloway School in London has been working with the Microsoft Foundation and Arsenal. The school receives IT support, training and software from the Foundation.  Indeed, a number of Sports Colleges where IT was a key feature of their bid have been supported by the Microsoft Foundation in this way.

    There are also excellent examples of Sports Colleges working collaboratively with higher education institutions:

    – Hayesbrook Sports College – also a recently designated high performing & training school – has an innovative partnership with Brighton University.  They deliver modules for their teacher trainees (over 70 a year) at Hayesbrook School, with placements in all the West Kent Learning Federation schools. Recruitment of newly qualified teachers from Brighton to schools in the Federation has increased significantly.

    A number of schools have gone even further and have sponsors involved directly in the governing bodies of their schools – that brings invaluable business expertise and leadership directly into the running of these schools.

    – For example, HSBC Education Trust have part sponsored 16 Sports Colleges and a feature of the partnership between school and sponsor is that HSBC Education Trust provides a sponsor governor  – the  school benefits from business expertise and the sponsor inputs to the development of the school as a Sports College.

    Our White Paper will build on this excellent work and spread it wider into the education system.   Our task – and one which we all share – is to raise standards for every pupil, and particularly for disadvantaged groups.  That is the purpose of the White Paper.  At its heart is the premise that strong, self-confident schools with greater freedoms and the ability to harness the expertise and energy of external partners will provide the framework to create the next step change in standards.

    And I think we all agree that a step change is needed. We want all children to have the best opportunities and the highest standards. Standards in schools have risen enormously, and children and young people are achieving more. But we cannot be satisfied that 56% of children get 5 good GCSEs or the equivalent, especially when only 26% of children on free meals do so. And there is too much variation in schools – all children deserve good schools.

    I know there has been a lot of debate recently about the White Paper, particularly in relation to Trust schools, so I want to spend a few minutes clarifying some of what it is putting forward.

    Trust Schools are a key element of the White Paper proposals and one that I hope all schools will consider very seriously.  As we’ve just explored, through your specialist status and your leadership of school sport partnerships, you have a proven record of working with external partners and other schools to benefit young people.  Trust status will allow you to build on this further.

    Acquiring a Trust is a way for schools to raise standards, strengthen collaboration and draw on the expertise and energy of their partners – including universities, colleges, business foundations, other schools and the wider community. We know from your experience and that of other specialist schools that the external perspective has a real impact on pupils’ achievement.

    For the school I saw last week – Thorpe Bay in Southend – acquiring a Trust and working with external partners gives it the best chance it has had for years.  That’s a single school model.  But many schools might want partnerships with other schools in a Trust.  What is more important than the model is that there is a renewed energy, a shared ethos and support for the school leadership.

    Trusts build on the experience of the 75% of secondary schools that are now specialist, Voluntary Aided, Voluntary Controlled, or schools which have joined federations and experimented with new approaches to governance.  But they go further, because the Trust can appoint the majority of governors, if the school so agrees, and have even greater support from the school leadership team.

    And Trusts bring extra stability to relationships – putting existing partnerships on an even securer footing; broadening partnerships and spreading influence.

    There has been much ill informed comment about Trust schools though, and I want to take this opportunity to put to bed some of the myths:

    – No school will be forced to set up a Trust;

    – Trust schools will remain part of the maintained sector and part of the local family of schools;

    – They will operate under the same local fair funding system as other schools;

    – They will remain a full part of our capital spending programmes.

    – And Trust schools will work under exactly the same code of fair admission as other schools.  There will be no new selection by ability. They will also take part in the local admissions forum. I believe that admission forums have a key role to play in making sure that every child has the chance of a school place at a good school. And they will be an important influence in promoting admission arrangements that reduce social segregation and making sure that schools are discouraged from using any practices which could result in some parents being put off from applying for them – such as expensive uniforms or requesting a financial contribution.

    I would argue that Trusts are the natural extension of what so many sports colleges have been seeking to do. You already have a proven track record of successful delivery.  And you have always been prepared to tackle new challenges and explore new ways of working in your quest for improvement.

    The Trust School Prospectus – published earlier this year – sets out the potential of what they can achieve for pupils.  Copies of the prospectus are available at the national school sport strategy zone, here at the conference. Do, please, look closely at the Trust School Prospectus and consider how Trust school status can help you to improve things even further for all at your school.

    I’m almost out of time but before I finish I want to say quick word about the Olympics. Lord Coe will be taking the stage after me and I know we all share his vision of the Olympic Games providing inspiration to all our young people. We were all delighted by the success of London’s bid to stage the 2012 Olympic and Paralympic Games.  It was amazing how the country got behind the bid and rejoiced in London’s success.

    The Sports College movement has helped breath life back into competitive school sport.  Through the work you lead in the network of school sport partnerships we have seen the amount and quality of inter school competition rise year on year.

    All children have the chance to participate in competitive sport through the National Curriculum.  Not only traditional sports like football and hockey, but less common disciplines for this country like handball or volleyball which can help inspire more youngsters to take up competitive sport regularly.  I know partnerships schools in Nottinghamshire have set up five new leagues which have enabled thousands more youngsters to play competitively.  Through these leagues they are learning valuable life skills – teamwork, leadership – how to win with grace and lose with dignity.

    Our new competition managers will help to widen access to competitive sport even further.  I know Dame Kelly Holmes was with you last night.  I am delighted that she has agreed to be our first national school sport champion.  As one of our best ever women Olympians she will be a powerful role model to help inspire and motivate our young people to take up sport or do even more of it.

    Sports Colleges are well positioned to help us ensure a lasting legacy.  The link between the Games and sport is an obvious one.  But we want to use the Games to inspire young people in other ways as well.  So, together with LOCOG (London Organising Committee of the Olympic Games) and others, we will be:

    – encouraging young people to make healthy living choices more generally;

    – supporting learning both in and outside the classroom;

    – increasing the number of people learning languages; and

    – broadening young people’s personal development and cultural understanding.

    Last year also saw the announcement that every School Sport Partnership will be able to appoint two Youth Ambassadors to act as community champions for the games.  This will be a great opportunity for them.  And in the run-up to the games we are establishing a national school sport festival to showcase sporting competition and talent.

    These are exciting times.  Sports Colleges have demonstrated time and again the ability, desire and passion to innovate and drive up standards.  The national school sport strategy, specialist status and our White Paper proposals allow us to move to the next level.

    There are genuinely tough challenges to be faced. I know that last term was particularly difficult for many heads and teachers in terms of implementing new policy.  The issues were well articulated to me by a group of Sports College heads I lunched with just before Christmas.  But the reforms are essential if we are to transform the life chances of every child in every school.

    I know you will, again, rise to the challenge. Thank you.