Tag: Speeches

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

It is results driven with targets for outputs.

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

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

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

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

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

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

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

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

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

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

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

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

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

Third, greater flexibility to achieve greater results; and

Fourth, extended choice.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Let me give the example of the Underground.

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

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

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

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

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

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

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

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

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

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

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

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

– new financial incentives for hospital performance;

– greater freedoms for high performing hospitals and trusts;

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

– reform of social services care for the elderly; and

– a series of measures increasing choice for patients.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

35,000 more nurses

15,000 more doctors

40 new hospitals

500 primary care centres.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Today we take an historic step to advance those values.

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

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

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

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

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

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

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

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

The UK government will provide an initial £10 million.

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

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

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

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

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

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

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

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

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

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

Every time we rescue one child soldier impressed into combat…

We are making a difference.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Let me explain.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

User Charging

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Private Insurance

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

But does private insurance meet the test of efficiency?

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Social Insurance

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

So let me now turn to the NHS.

The National Health Service

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Finally, choice.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Many of these illnesses and injuries come unexpectedly.

No one budgets for them, and very few could.

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

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

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

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

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

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

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

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

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

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

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

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

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

This is the time for people to join the debate.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

His words ring with relevance in our own times.

And later, in 1963 in Washington, he said:

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

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

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

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

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

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

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

Stability and enterprise in Britain

The indispensable imperative is stability.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

– and new measures to promote skills.

Stability and enterprise in Europe

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Let me explain.

The transatlantic relationship

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

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

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

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

But are we making the most of these opportunities?

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

The ideals of Bretton Woods

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

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

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

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

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

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

The challenge for us today

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

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

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

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

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

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

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

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

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

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

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

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

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

First, a new framework for maintaining stability and preventing crises

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

But there is a case for doing more.

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

I believe we must implement reforms to promote:

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

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

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

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

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

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

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

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

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

Our second challenge is crisis resolution

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

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

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

The way forward is both clear and urgent.

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

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

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

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

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

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

– systems that in themselves diminish the likelihood of crises;

– earlier awareness as difficulties arise; and

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

But stability is only the precondition.

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

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

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

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

– investment in infrastructure;

– sound legal processes that deter corruption;

– and the creation of an educated and healthy workforce.

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

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

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

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

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

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

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

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

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

But more must be done.

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

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

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

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

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

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

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

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

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

These proposals are challenging but they are achievable.

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

Conclusion

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

We each have a part to play:

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Third, setting plans for the long term.

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

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

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

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

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

– clearing the backlog of urgent work necessary;

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

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

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

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

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

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

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

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

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