Tag: Speeches

Below is the text of the speech made by Gordon Brown, the then Chancellor of the Exchequer, at the Global Borrowers and Investors Forum held on 17 June 2003.

It is a pleasure to be here this morning not just to speak to leaders of the financial services industry from within the United Kingdom but to welcome to the UK and to London today so many leaders of the financial services sector from around the world.

Today London plays host to a greater number of foreign bank branches and subsidiaries than any other city in the world;
London has the largest derivatives exchange in Europe; with the London Stock Exchange, London has the largest trading centre for foreign equities in the world; and our Foreign Exchange Market is the largest and most important in the world.

And this is a London which – while proud of a financial history as a world leading player stretching back to the 17th Century – has its thoughts firmly fixed not on the past but on the future.

For it is an essential feature of the longevity of the City of London’s history that as the world economy has opened up, the city has succeeded not by sheltering its share of a small protected national market but always by striving for a greater and greater share of the growing global market.

The last three years have seen the first simultaneous world slowdown for 30 years, with 10 of the world’s major economies in recession in 2001 and a downturn stretching across every continent for the first time since the 1970s.

It has been a slowdown one of whose features in the UK and US has been, unlike all previous downturns, the maintenance of still high levels of demand in the two basic consumer sectors – homes and cars. It has been led instead by dramatic falls in the ICT sector where in the UK alone output fell by 30 per cent in one year and hardware investment fell by 30 per cent too…sparking the decline in stock market valuations by 40 per cent from their peak to their trough in the USA, 50 per cent in the UK, 63 per cent in France and nearly 70 per cent in Germany, and the very large falls in business investment that followed.

If the world downturn has been characterised by synchronised slowdowns in all the industrialised countries and the dramatic falls in ICT output leading to large falls in both stock markets and business investment, it has also been characterised by a third special feature: in 2001, the sharpest slowing in world trade growth for at least 20 years, trade growth falling almost 12 percentage points.

Even in the world recessions of the early 80s and 90s world trade continued to grow by around 5 per cent a year…for much of 2001 and 2002 world trade barely grew at all.

These recent events have demonstrated once again that no country can insulate itself from the ups and downs of the world economy.

And perhaps at no time for fifty years have there been, as there were in 2001 and 2002, so many risks and uncertainties – geopolitical risks as in Iraq; oil price uncertainties; corporate standards issues; emerging market crises; and, as in Japan, deflationary pressures as well as the fall out from the IT boom.

Even in the last few months Finance Ministries and Central Banks round the world have had to remain vigilant as a hesitant global recovery has stalled.

But I now believe the world economy is ready to move forward.

A number of the world’s major downside risks have receded.

This has been accompanied by signs of a recovery in business and consumer confidence – particularly in the United States – and improving financial conditions in a number of the world’s major economies.

And with geopolitical uncertainty now lessening, with the oil price coming down, with a recovery in global equity markets, and with action over corporate standards, and most of all with the fundamentals sound – in particular with, unlike the early 80s and 90s, low inflation – previous impediments to growth are being removed.

And as we look forward it is clear that each continent must play its part, and face up to its responsibilities for sustaining and strengthening economic recovery around the world:

– Japan taking decisive action to speed up the pace of disposal of non-performing loans and promote corporate restructuring;

– America taking measures to ensure a sound medium term fiscal position and showing corporate reform is working;

– and Europe – as I will discuss later – making further sustained progress on wide ranging economic reform to enhance its long-run growth potential and increase resilience to shocks.

But the world has been challenged not just by a global cyclical downturn but by very large and profound global structural changes…with the latest wave of globalisation now shifting many industries and services to the industrialising world and challenging us in the industrialised world to respond and adjust more quickly and more flexibly.

Twenty years ago, even ten years ago, it was just about possible – if costly and wrong – for industrialised countries to shelter their industries and sectors, protecting them from global competition.

But as a result of this new wave of globalisation there is hardly a good we produce here in Britain and many services that are not subject to intense global competition — competition not just from traditional competitors in the advanced industrial economies but competition from emerging market economies not least in Asia and the east of Europe — competition which is itself a spur to growth and prosperity.

So today there is no safe haven, no easy escape for any country from global competition without putting at risk long-term stability, growth and employment.

So I want to talk about how as we enter the next wave of globalisation we together – the financial community, investors, businesses and governments – can meet and master the new challenges of the future.

Indeed my theme today is that the lessons of the recent world downturn teach us:

– first, the importance of getting the fundamentals right, that stability in modern economies must be built from the foundation of proactive, forward looking monetary and fiscal policies

– second, for the global economy as a whole, it is now vital that we open up new markets by making international progress on world trade

– and third, for national economies, we cannot and should not any longer underestimate the importance of policies for capital labour and product markets that promote flexibility.

Stability

First, stability.

The test for any government at any time, but particularly at times of challenge, is whether instead of opting for the short-term quick fix it has the strength to take the tough monetary and fiscal decisions in the long-term interests of the country.

In the global economy investment will flow to countries that operate stable monetary and fiscal policies and ever more rapidly desert countries that abandon monetary and fiscal prudence.

And it is precisely because we have understood that monetary and fiscal regimes must work to create stability in challenging times as well as good times that when we came into government in 1997 we immediately took the long-term decision to create a wholly new monetary and fiscal framework based on the independence of the Bank of England but with far wider ramifications:

– we set first of all clear policy rules for monetary and fiscal policy: a symmetrical inflation target, designed to combat both deflation and inflation, and a golden rule for fiscal policy – balancing the current budget over the cycle as the first of our fiscal disciplines;

– we then set down clearly established procedures for monetary and fiscal policy: a new code for fiscal stability that required independent audit of key indicators and, most of all, monthly decision making on interest rates by an open vote of the bank;

– and we required an openness and transparency in both monetary and fiscal decision-making under which people could be assured that decisions were not only made in the national interest free of political interference but seen to be so.

In setting down clear policy rules, new procedures and a new form of transparency, we rejected both the over rigid monetary targeting of the 1980s that while rightly focused on anti-inflation discipline could not work in open, liberalised capital markets; and we rejected also a return to the old Keynesian fine-tuning that wrongly sought to trade-off inflation for growth.

Indeed our monetary and fiscal regime has moved a long way from the old rigidities and inflexibility that denied policy makers discretion in times when the world economy turned down and allows an independent bank, not least because of a symmetrical inflation target that sees deflation as a big as problem as inflation, discretion to pursue forward looking and pro-active monetary policies and the fiscal authorities to respond to difficulties as they arise.

In this pro-active, forward-looking approach we have learned from the USA where Chairman Greenspan cut interest rates eleven times since January 2001, aggressively cutting rates from six and a half per cent to one and a quarter per cent.

In Britain prompt and decisive action by the monetary policy committee – cutting interest rates eight times since the beginning of 2001…

…supported by a proactive fiscal policy – made possible by tough decisions on public spending and the systematic reduction in the burden of debt…

…has made it possible for Britain – with the longest period of sustained low inflation for 30 years and the lowest interest rates for over 40 years – to be better placed than we have been in the past to deal with economic challenges and ongoing risks.

Ten years ago in a world downturn that was less severe for world trade, growth and equity markets, our country was unable to maintain growth because, with high inflation, interest rates had to be kept above 10 per cent for four years and rose to 15 per cent for one whole year. The result was the most prolonged recession of the post war years

This time, most now agree that bank independence – the symmetrical inflation target we agreed and the supportive fiscal policy – have been right for the long-term national economic interest of the country.

Today, tested in adversity, our monetary and fiscal regime is demonstrating its credibility and resilience – providing a bulwark against the downturn and sustaining British growth.

And I believe that the prize that can be grasped in future in all continents is the adoption of monetary and fiscal regimes that are able to respond proactively and appropriately when world economic circumstances change.

And so, in the same way, we must make the right long term decisions on Europe.

Our decision on the euro is one of far reaching consequence, indeed one of the most momentous economic decisions our country has to take, and one that must contribute to the attainment of stability, growth and employment.

My statement to Parliament last week set out the potential gains to Britain of joining the single currency:

– perhaps over 30 years up to 50 per cent increase in trade;

– up to one quarter of a per cent increase in annual growth;

– £1 billion a year less in transaction costs for business and consumers;

– and if, on the basis of sustained and durable convergence, we could lock in stability for the long term, a cut in the cost of borrowing for business on a sustainable basis.

So I reject the view of those who would rule out membership of the single currency on principle. They would refuse to join even if it were in the national economic interest to do so. To rule out membership of the single currency on dogmatic grounds would in my view be damaging for investment, jobs and business generally.

Similarly, I reject those who would urge us to join regardless of the assessment of the five tests we have set. Such a course would risk repeating past failures, would prejudice our stability and would also be damaging for investment, jobs and business generally. So last week I set down both the benefits of a single currency and the policy challenges we must now meet to achieve convergence and flexibility. And I also set down our proposals for a review of progress in next year’s Budget.

The lessons in monetary and fiscal policy from our experience of the world downturn are lessons also critical to the future of emerging markets across the world.

I have the privilege of chairing the IMFC committee – the IMF’s Ministerial Steering Committee – and since the Asian crisis in 1998 we have sought to improve the workings of fiscal and monetary regimes around the world.

The IMF has emphasised the importance of clear rules, proper procedures and accountability and transparency in monetary and fiscal policy: in other words internationally agreed codes and standards for monetary, fiscal and corporate policy.

We have sought to strengthen financial sectors through improved surveillance and support for reform.

We have set up the Financial Stability Forum which is evolving into an early warning system for the world’s financial authorities.

We have put forward proposals to back up codes and standards by increasing the independence and accountability of the surveillance work of the IMF.

We have now in place new means of crisis prevention including the Contingent Credit Facility.

And we have encouraged new means of crisis resolution including the use of collective action clauses, the development of a code of good conduct, and a new approach to official debt restructuring.

And throughout the emphasis has been – and will be – on the fundamental importance of stability. We will not take risks with stability. And no country trading in the global economy can afford to do so either.

Trade

The second lesson of the world downturn is that we can no longer afford to be complacent about trade: indeed that we must do far more to create the conditions for trade growth.

In the 19th Century Britain pioneered free and open trade round the world.

Britain led the way as countries moved from policies that were mercantilist and protectionist.

Today we must be pioneers again to the benefit of the rest of the world as well as ourselves.

Over the last two decades, world trade volume growth growing at almost twice the rate of real world GDP growth.

Indeed globalisation is defined by the rapid opening up of world trade: the rapidly expanding daily global flows of capital and the expansion in the global sourcing of products.

But as I have indicated world trade growth has stalled in the years after 2001.

World trade grew by just 0.1 per cent in 2001, and while it recovered to 4 per cent growth in the first half of 2002 it slowed again to around 1 per cent only in the second half of the year.

And in a new global environment where all the arguments for the benefits of free and open trade are now more pressing than ever before, but where political resistance from countries forced to change is strong, we must stand firm against protectionism.

Indeed to secure the gains from the opening up of trade in the 21st Century we need to take on protectionist vested interests in exactly the way free trade advocates like Cobden and Bright did in the 19th Century.

This requires us to be at all times outward looking and in particular at this time to make the world trade talks – now stalled in four different areas, over agriculture, pharmaceuticals, services and the treatment of developing countries – work.

If we were to halve protectionism in agriculture and in industrial goods and services we would boost the world’s yearly income by nearly $400 billion: a boost to growth of 1.4 per cent. Developing countries would gain the most in terms of GDP growth – an estimated $150 billion a year – and all countries and regions stand to benefit.

So in the next few months running up to Cancun there is a common agenda for business and governments to push forward the trade agenda.

And we should not only lead in the World Trade Organisation but Europe and the USA – the world’s largest trading areas – should work together to complete the liberalisation of world trade.

And Europe and America should also lead by example.

Europe and America should patch up their trade differences, move beyond the day-to-day issues and make a greater effort to tackle the barriers to a fully open trading and investment relationship, strengthen joint arrangements to tackle competition issues and engage in dialogue about the approach to financial services regulation.

And I have no doubt that with Europe and America working together we could help developing countries move forward to the benefit of the whole world economy. It is for this reason that I am proposing that Europe and America join together to create a new International Financing Facility that would help developing countries reform, open up to trade and private investment, and meet their health, education and anti-poverty needs.

Flexibility

And just as the recent world downturn shows us the importance of making the right long term decisions on monetary and fiscal policy and on trade, so too we know that if we are to make the most of the potential of the new, more open global economy, we must keep up the pace of reform and liberalisation and the push for greater flexibility across our economy.

Changes in the marketplace include the impact of innovation and changing technology, changing consumer preferences and the changing need for particular skills. And failure to respond to these changes by companies and by individuals – and by governments – leads to the unproductive use and wasteful allocation of resources in the economy and thus huge costs in lost output, jobs and prosperity.

Without firms prepared to innovate and adjust, economies become sclerotic. Without the capacity to develop the new skills needed, countries will simply be left behind.

So in an open and far more rapidly changing global trading economy, flexibility – the ability to respond quickly – is not an option. It is a necessary precondition of success.

And since 1997 we have, in pursuit of this tried to create more flexible product markets, more flexible capital markets and more flexible labour markets.

To encourage more flexible product markets, we have

made our competition authorities independent and opened up product markets;

revamped the physical planning system;

and given the Office of Fair Trading powers over the public sector as well as to investigate anti competitive practises in the private sector.

To encourage more flexible capital markets, we have:

cut capital gains tax from 40p to – in most cases – 10p…now, with the USA, the most generous of all capital gains tax systems; cut corporation tax for large businesses from 33p to 30p and introduced new incentives for venture capital;  encouraged enterprise with lower tax rates for small businesses, reducing tax from 23p to 19p and exempting the first £10,000 pounds of profits; offered new incentives and resources to encourage greater investment – permanent capital allowances – and innovation – the R and D tax credit; and devoted time and energy to promoting economic liberalisation in Europe.

And to secure more flexible labour markets, we have: tightened up sanctions for the unemployed and cut long term unemployment by 80 per cent; compelled young people into training and work and cut youth unemployment by 75 per cent; started a major reform of housing benefit where there have been disincentives to mobility;
and in addition to the lowest unemployment of all the major industrialised countries we have – even more important for the future – invested heavily in school, college, university and workplace education and learning so that we can develop and attract the high skill, high value added industries and services of the future.

And we have more to do:

– to liberalise and reform individual product markets;

– to set tough time limits for our physical planning system to make it work more quickly and effectively;

– to remove the barriers to small business creation and build on our reforms of capital gains tax;

– to do more to encourage science and innovation through our tax credit system for research and development and our plans to link up universities and commerce;

– to offer tax incentives to invest in deprived areas and to encourage the development of venture capital in every region of the country;
to make our Private Finance Initiative work more effectively bringing together private and public sectors in partnership for infrastructure improvement;

– by further labour market reforms at a national and a local level to create even more flexible labour markets in each of the regions and nations of the United Kingdom; and proceeding resolutely with our public service reforms.

And as we seek to make Britain a more flexible, more entrepreneurial economy, flexibility in capital markets – and the efficient allocation of capital in the economy – is vital for high levels of growth. That is why the proposals in the Myners, Sandler and Higgs reviews are so important – and why I welcome the Institutional Shareholders’ Committee’s Code on Shareholder Activism – and we will press ahead with reforms designed to improve transparency, enhance disclosure and enable greater shareholder involvement.

And it is right to look for the same liberalisation in capital, product and labour markets throughout Europe to make the single market work.

In 1988 at the outset of the European single market Cecchini estimated that single market liberalisation would add 4.5 per cent to Europe’s GDP, cut prices by 6 per cent and increase employment by 1.75 million. Today many of the gains have yet to materialise. And if they did we would all be much better off.

Capital markets can and must help us manage risk more efficiently between sectors, over time and across national boundaries. While America has achieved a high degree of diversification across state borders, too much investment in Europe remains fragmented on national lines and there is a need to remove barriers to diversification of investments across borders, for example in pension and mutual funds.

So we will support the European Financial Services Action Plan as it improves mutual recognition of financial services providers in insurance, banking and capital markets.

And just as we must do more to make product and capital markets more flexible, so we must extend the same approach to the labour market.

It is inherent to globalisation – a world where change is rapid and change is potentially destabilising – that while there are opportunities there are also major insecurities.

Technologies arrive and quickly become out of date. Companies rise and fall. Jobs and occupations become redundant far more quickly than ever before. And it is right both to create flexible markets and to equip people to master change – through investment in skills and training, through the best transitional help for people moving between jobs, through the operation of a minimum wage and a tax credit system, and through investment in education and training at school, college, university and in the workplace.

So in this way – by learning lessons from the past and examining the challenges ahead – we open up a rich reform and modernisation agenda for our product, capital and labour markets.

And this is an agenda of economic reform not just for the future of Britain but for the future of Europe – a Europe that is changing not least because it is enlarging to 25 members.

And these British-led reforms – opening up trade, liberalising capital, product and labour markets – lead me to suggest that Europe is itself being forced to change in response to the transformation of the global economy.

My experience is that the new entrants to the European Union are keen to liberalise and make the economic reforms needed for future prosperity.

Indeed the debate about Europe’s future is no longer – as it was in the 1980s – about the future of an exclusive inward looking trade bloc, what some people called “Fortress Europe”, the world’s first modern trade bloc.

The issue in 2003 is no longer how a single trade bloc organises its internal markets and harmonises taxes, independent of the rest of the world, but how all of Europe, thinking globally, can meet the challenge of global competition.

And this requires Europe to move from organising itself as a trade bloc to becoming global Europe:

– outward looking – investing as it does in the USA and building more effective trading relationships;

– liberalising and reforming to meet the challenges of more intense competition;

– and modernising its social dimension.

And I believe that the British ideas and initiatives that I have been outlining – our commitment to stability, free trade, economic liberalisation – can play and are playing a pivotal leadership role in creating this changed Europe.

In particular:

– our view that we must continue to modernise monetary and fiscal policies to guarantee stability in a fast changing global environment

– our view that in a global economy all countries and continents must be open and outward looking and not protectionist;

– our view that we must step up the pace of economic reform to create flexible economies and that, in the modern world, enterprise and flexibility need not advance at the cost of fairness but both can advance together.

Those in Britain who have been ambivalent, apathetic or antagonistic towards the way the old trade bloc Europe worked and feared tax harmonisation on the road to a federated state can – I believe – be persuaded that an enlarged Europe can be shaped by British ideas in line with British values and that these changes are in the British national economic interest.

And around the economic liberalisation and free trade agenda I have outlined, it is possible in my view to bring to an end the old anti-European prejudices rooted in the inward looking trade bloc of the past.

It is possible to unite Britain around a modern, long-term and deep-seated pro-European consensus in support of a whole hearted engagement with an enlarged and reforming Europe – a positive engagement grounded in a self confidence about British values – and Britain’s future — and the important role we can play in the next stage of Europe’s development.

The lessons I learn from the recent world downturn are that as a world economy we can and must work together and do better.

The lessons I learn are that the nations that will succeed in the future will be those that are stable; that are most open to trade; and that are flexible, able to adapt continuously and quickly to change.

The lessons I learn are that with business, investors and government working together, we can drive forward a rich agenda of capital, labour and product market reform.

The lessons I learn are that we can together meet and master the challenge of this next wave of globalisation.

Below is the text of the speech made by Gordon Brown, the then Chancellor of the Exchequer, at the Mansion House in London on 18 June 2003.

Mr Lord Mayor, Mr Governor, My Lords, Aldermen, Mr Recorder, Sheriffs, Ladies and Gentlemen.

In thanking you for your invitation, let me at the outset pay tribute to the contribution you, your companies and the whole City of London make to the prosperity of Britain.

Let me also express our gratitude directly to you Lord Mayor for the work you, the Lady Mayor and your staff do not just here but round the world in promoting the City and Britain.

And let me on the occasion of his retirement thank, on all your behalfs, and on my behalf too, for outstanding service to our country, for his leadership of the financial community, for his steadfastness at all times, and for his unshakeable integrity — Sir Edward George.

Sir Edward has not only been an outstanding leader and ambassador for this city and for the United Kingdom but I can tell you from my international meetings that Eddie George is held in the highest esteem not just in one but in every continent of the world.

And for the care, dedication and quiet dignity with which she has carried out her duties at all times let me also thank Lady George.

Eddie George has served the Bank of England for 41 years.

He has been Deputy Chief Cashier and Assistant Director in charge of the Gilt-edged Division; he was seconded to the Bank for International Settlements and to the IMF; he then became Executive Director with responsibility for monetary policy, market operations and market supervision, and then Deputy Governor before becoming the first Governor of the independent Bank of England and the first Chairman of the Monetary Policy Committee. And his career is the kind of career – and he is the kind of man – whose dedication and integrity gives public service a good name.

From 1993 when Sir Edward became Governor we owe a particular debt of gratitude to him. And I can say from my own personal experience that Eddie not only enthusiastically promoted and welcomed the independence of the Bank of England after 1997, but he supervised the creation of the Monetary Policy Committee, chaired its proceedings with great distinction and, as a result of his steady hand, other countries see Britain – with inflation now the lowest for thirty years – enjoying a period of remarkable success in monetary policy.

Mr Lord Mayor, I am pleased to speak to you this evening, a week after our announcement on the euro, because a central part of the assessment on the euro was the importance of the City of London and of the financial services industry to the country.

We thought it right to make one of our five tests the health of the financial services sector and the work of the City of London.

And let me say that the assessment confirmed your vital importance – not only because of the jobs and income you generate but also because of your contribution to increased investment, productivity and growth right across the UK economy: that you represent a financial services sector that generates £50 billion of wealth each year, provides work for over one million people, and accounts for over five per cent of UK output. And with the London Stock Exchange, the largest trading centre for foreign equities in the world, and the Foreign Exchange Market the largest and most important in the world, you lead for Britain in the world

The assessment showed that outside the euro the City continued to do well – with no sign of financial services activity relocating from the UK to the euro area – and that with a significant proportion of euro business transacted in London, the UK’s influence remains strong.

The assessment also confirmed that if we joined the single currency we could strengthen London’s position as a leading wholesale financial services centre – improving our ability to compete for new business generated by EU enlargement, the continued development of euro financial markets, and the pensions and savings business across Europe that comes from an ageing population.

We found that with lower costs on euro area transactions, possibly a more optimal allocation of investment portfolios, and potential economies of scale for firms competing in euro area markets free of currency barriers, the euro could improve the competitive position of the retail financial services sector.

We found also that the future integration of financial markets inside the euro could promote the kind of diversity, flexibility and risk diversification seen in the capital markets of the USA, making it easier for a more flexible Britain to win business throughout the euro area.

Indeed the assessment emphasised both the importance of completing the single market in financial services and getting the European Financial Services Action Plan right.

Overall, the assessment concluded that, inside or outside the single currency, the competitive strength of the City of London is such that the UK financial services industry should continue to thrive.

And I can affirm to you that in all the decisions we make, the government will continue to do all in its power to ensure that London remains the pre-eminent financial centre in Europe.

So the outcome of the Treasury assessment of the five economic tests is that the financial services test is met.

Subject to the achievement of sustainable convergence and sufficient flexibility, the tests for investment and employment would be met.

The issue is that while there has been significant progress in achieving cyclical convergence – and while the assessment made clear the potential benefits in:

trade – perhaps over 30 years up to fifty per cent growth;
transaction costs – £1 billion in savings; and perhaps one quarter of a percent a year increased growth… we still have to meet the two tests, the tests upon which others depend: that of sustainable convergence and sufficient flexibility.

So last Monday I announced not only a stepping up of our preparatory work but also major reforms which will be implemented over the next year and will assist the process of achieving sustainable and durable convergence and flexibility: and these reforms – in our labour markets, in the housing market as well as in our inflation target and fiscal framework – are right in themselves for British stability, growth and employment, and necessary for the greater efficiency and productivity of Britain competing in the global economy:

A new target for domestic inflation in Britain from the time of the Pre Budget Report, set on the consumer prices definition;
the speeding up of our planning system and improvements in the supply of housing as we also examine the structure of mortgage finance including the case for, and how we can help the development of, the long-term fixed rate mortgage market in the UK;
and radical reforms at a national, regional and local level to bring greater flexibility in our labour, product and capital markets.
We will report on progress on these reforms in the Budget next year and we can then consider the extent of progress and determine whether on the basis of it we make a further Treasury assessment of the five tests which – if positive next year – would allow us at that time to put the issue before the British people in a referendum.

So as I said last week, we reject those who rule out joining the euro forever as a matter of dogma even if it were shown to be in the best economic interests of the country. If, on the basis of the five economic tests, membership of the euro is shown as good for sustaining British jobs, business and future prosperity then it is in the national economic interest and right to join.

But we similarly reject those who would urge us to join irrespective of the rigorous assessment of the five tests. If we entered with the tests not met at the wrong exchange rate, then – just as with the ERM – we could see unemployment rise, public service investment fall and growth stall.

The five tests – on convergence, flexibility, financial services, investment and employment – are our guarantee of economic stability. And I can say today that the same comprehensive and rigorous approach we followed on the decisions announced last week will continue at all times. It is because stability is so fundamental to British economic success that I can assure you that there will be no short-cuts and no fudge. Because to join in the wrong way or on the wrong basis without rigorously ensuring the tests are met, would not be in the national economic interest. And we will do nothing to put stability, growth or the funding of public services at risk

Now Mr Lord Mayor, the euro decisions – and all the economic reforms we are pursuing – are being made in a wholly new global context:

the first world slowdown for thirty years to affect every continent;
a downturn characterised by, in the UK’s case, a 30 per cent fall in one year in IT output;

a downturn that spread to equities which have seen a 50 per cent fall and to business investment and a downturn characterised by a stalling of world trade growth and not just a global cyclical slowdown but a global restructuring of industry and services that is moving low value added production to industrialising economies in eastern and central Europe and in parts of Asia.

One of Winston Churchill’s memorable sayings was that those who try to build the present in the image of the past will miss out entirely on the challenges of the future.

And it is these challenges that I want to say something about today.

I believe that the three lessons we learn – and should apply – from our experience of the recent world downturn and the global restructuring now underway are the importance of pursuing the right policies for stability; for trade; and for flexibility: that stability in modern economies must be built on the foundation of proactive and forward looking fiscal and monetary regimes that building open non protectionist trading relationships in a globalised economy are even more vital to economic growth; and that in modern economies the flexibility to adapt continuously and quickly to change is essential to sustained growth.

And it is right to apply the lessons not just with economic reform in Britain but with economic reform also in Europe.

For it is precisely because we are by history, geography and economics part of Europe, and because today 55 per cent of our trade is with Europe, that there is a British national interest in the economic reform agenda working not just for ourselves but for the rest of Europe with which we trade so much. In other words, there is a British national interest in a Europe that – like Britain – learns these lessons from the world downturn and does more to promote stability and growth, is more open to global trade and becomes more flexible.

Indeed the debate about Europe’s future is no longer – as it was in the 1980s – about the future of an exclusive inward looking trade bloc, what some people called “Fortress Europe”, the world’s first modern trade bloc.

The issue in 2003 is no longer how a single trade bloc organises its internal markets and harmonises taxes, independent of the rest of the world, but how all of Europe, thinking globally, can meet the challenge of global competition.

And this requires Europe to move from organising itself just as a trade bloc to becoming global Europe:

outward looking – investing as it does in the USA and building more effective trading relationships; liberalising and reforming to meet the challenges of more intense competition; and modernising its social dimension.

And this allows Britain to enter a new and more positive stage of its relationship with the rest of Europe.

At no point in our long history has Britain ever been prepared to relinquish our responsibility and interest in Europe’s future.

But what is new, I believe, is that we can show that the enlarged Europe is changing and will change in line with the values – economic stability, free trade, liberalisation – that Britain holds important; and that, in this way, Britain can be a leader in Europe as Europe equips itself for the challenges of globalisation.

Stability

First, stability — where the test for any Government at any time, but particularly at times of challenge, is whether they have the strength to take the tough decisions in the long-term interests of the country rather than opting for the short-term quick fix.

And it is because all of us here have understood that monetary and fiscal policy must secure stability in challenging times as well as good times that we created a new monetary and fiscal regime based on the independence of the Bank of England that had at is centre:

clear rules – the symmetrical inflation target, the golden fiscal rule;
proper procedures -the code for fiscal stability and the monetary policy committee; and transparency and accountability.

It is these rules and procedures – particularly the pro-growth symmetrical inflation target – that make the Bank as concerned about deflation as about inflation and means that just as the USA cut interest rates 11 times since January 2001, so too the Bank of England has cut interest rates 8 times.

And tested in adversity, our monetary and fiscal regime built around the Bank of England is demonstrating its credibility and resilience and made Britain better placed than in the past to cope with a world downturn.

It is because of a forward looking monetary policy, supported by fiscal policy, that, unlike other economies, we have continued to grow through the world downturn and with geopolitical uncertainty now lessening, with the oil price coming down, with a recovery in global equity markets, and with action over corporate standards, and most of all with the fundamentals sound – in particular with, unlike the early 80s and 90s, low inflation – previous impediments to higher global growth are now being removed.

The lesson we learn from the recent downturn, and the prize for the future, is that monetary and fiscal should respond proactively and in a forward-looking way when world economic circumstances change.

The euro area has also been establishing a modern framework for economic stability based on:

the same approach that the old fine-tuning cannot work; the same recognition that in liberalised markets rigid monetary targets cannot on their own deliver stability; and the same view that the discretion necessary for effective economic policy is possible only within a framework that commands public and market credibility.
And there is, I believe, also a growing understanding that this credibility depends upon clearly defined and publicly understood long-term policy objectives.

And overall the euro area has managed to maintain both low inflation and, generally, low fiscal deficits even in a period of world instability.

And because these regimes are being tested not just in good times but in challenging times, it is right to look at how they best evolve in the future.

And the European Central Bank has suggested it gives greater priority to targeting inflation and has suggested it aims to maintain inflation rates close to 2 per cent over the medium term

So just as we in Britain are examining how we learn lessons from the downturn, we are encouraged by the new debate on the future monetary policy of the ECB and we will continue to pursue our objective in Europe of a Stability and Growth Pact that takes into account the economic cycle, debt sustainability and public investment.

Trade

The world downturn also shows us that we must be far more vigorous in the pursuit of open trade and do far more to create the best conditions for trade growth.

Over the last two decades, world trade volume has grown at almost twice the rate of real world GDP growth.

But world trade stalled after 2000. It grew by just 0.1 per cent in 2001, and while it recovered to 4 per cent growth in the first half of 2002 it slowed again to just 1.7 per cent in the second half of the year

So with, in a global economy, the case for free and open trade more pressing than ever before, we must stand firm and resist political pressures for protectionism

In the 19th century Britain pioneered free and open trade round the world.

Today we stand ready to work in Europe to make the best of the new trading opportunities of the global economy: helping Europe look outwards not least to a new world trade deal at Cancun and better trading relationships with the USA.

If we were to halve protectionism in agriculture and in industrial goods and services we would increase the world’s yearly income by nearly $400 billion dollars: a boost to growth of 1.4 per cent. Developing countries would gain the most in terms of GDP growth – an estimated $150 billion a year – but all countries and regions stand to benefit.

So in the next few months running up to Cancun there is a common agenda to make the world trade talks – now stalled in four different areas, over agriculture, pharmaceuticals, services and the treatment of developing countries – work.

This requires us to tackle Europe’s most protected sector – agriculture.

The case for reform of the common agricultural policy is now stronger than ever.

It imposes enormous costs on the EU economy: at 45 billion euros a year it absorbs nearly half the EC budget; member states provide an additional 15 billion euros in support from national budgets; and European consumers bear a burden of 50 million euros through higher food prices.

On top of that, agricultural subsidies and protectionism costs developing countries $20 billion a year leaving millions in poverty.

So Britain is working hard to secure agreement to reforms at the agricultural council in Luxembourg this week.

And we should not only lead in the world trade organisation but Europe and the USA – the world’s largest trading areas – should work together to complete the liberalisation of world trade.

And Europe and America should also lead by example. The transatlantic economic relationship accounts for up to $2.5 trillion of commercial transactions each year, including $500 billions of foreign trade, and provides employment to over 12 million people.

Indeed increased European investment in the USA has been the most interesting force for change in the last decade.

Since 1945 America has invested heavily in Europe.

But in the last decade European investment in America has been even greater.

In the last ten years, European investment in America has increased 10 fold to over $200 billion a year and more European capital is now invested annually in America than US capital in Europe.

This means that Europe and America have a shared interest in each other’s prosperity.

And we should not allow trade disputes to continue interfering with such vital parts of our economies.

A new joint British-Dutch study that we submitted to the European Commission last month, shows that if we broke down the tariff barriers and the barriers to trade in services, Europe could increase employment by 1 million, raise growth by up to 2 per cent in Europe and up to 1 per cent in America.

So Europe and America should patch up their trade differences, move beyond the day-to-day issues and make a greater effort to tackle the barriers to a fully open trading and investment relationship, strengthen joint arrangements to tackle competition issues and engage in dialogue about the approach to financial services regulation.

The prize of being partners not rivals, rather than “Fortress Europe” versus “Fortress NAFTA”, is that each of us stand to gain much more from globalisation.

And Europe and America’s shared responsibility does not end there.

We also ought to be at the heart of the new relationship between developed and developing countries.

In the same way that under the Marshall Plan America helped the regeneration of Europe, Europe and America should work together for a new Marshall Plan that spurs the economic development of the poorest countries. And our proposals for an international finance facility should be coupled with reform of the European aid budget.

The Single Market

And just as the recent world downturn show us the importance of making the right long term decisions on monetary and fiscal policy and on trade, so too there is now a growing consensus – reflected in the joint statement by European Union Finance Ministers last week and the joint letter from French, German and UK Finance Ministers today – on the need to complete and extend the European single market and for flexibility and structural reform in Europe.

And Britain – the champion of the European single market from the 1980s onwards – stands ready to work with others to lead the next wave of reform.

Since 1992, the single market has produced a gain equivalent to £4000 for every household in Europe.

Goods now move freely across Europe, whereas before 1992 internal customs borders meant around 90 million forms were filled in each year, a massive burden on businesses and individuals.

In telecommunications, for example, the average price of calls has dropped since 1996 by around 30 per cent for businesses and 16 per cent for households.

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

In 1988 Cecchini estimated that single market liberalisation would add 4.5 per cent to Europe’s GDP, cut prices by 6 per cent and increase employment by 1.75 million.

But many of the gains have yet to materialise.

Capital market flexibility and risk diversification in the European Union is still much lower than in the USA.

So too is product market competition across state borders, with price differentials across Europe far in excess of America in many markets

And labour market flexibility – either the mobility of labour or the adaptability of labour – does not match that of the USA’s single market.

So to ensure well informed and open markets that ensure capital flows to productive uses and that labour and capital are used efficiently, we favour:

a more proactive EU competition regime with investigations into particular European markets and sectors to drive up competition and prevent firms across Europe from being excluded from European markets from energy to telecommunications; support for private finance initiatives in Europe; and faster progress towards the integration of European capital markets. So we will continue to support the European Financial Services Action Plan as it improves mutual recognition of financial services providers in insurance, banking and capital markets – and the Government is working closely with the financial services sector to drive forward these reforms.

This growing single market requires neither tax harmonisation nor centrally imposed one-size-fits-all regulations.

Instead, building on minimum agreed standards and learning from the USA single currency area, tax competition and the mutual recognition of each other’s standards is the best way forward for Europe.

The whole City will be pleased to know that the proposal to harmonise taxes on savings income with huge implications for the bond market in London has now been rejected in its entirety by the European Union

With your support, Britain has successfully argued that tax harmonisation within Europe would simply chase savings out of Europe and that exchange of information is a superior way to deal with cross border savings.

It is, indeed, this global flow of capital, and the global sourcing of goods, that is fatally undermining the old flawed assumptions that a European single market must be followed by European tax harmonisation and, ultimately, a federal state.

I am pleased to say that here federalist ambitions are giving way to inter-governmental realities and, throughout the convention discussions, Tony Blair and I have insisted that we rule out tax harmonisation and embrace tax competition.

And just as we must do more to make product and capital markets more flexible, so we must extend the same approach to labour markets to help get Europe’s 13 million unemployed back to work.

With nearly 50 per cent of Europe’s unemployed out of work for a year or more but only 5 per cent of America’s, it is right to do more both to create flexible labour markets and to equip people to master change – through investment in skills and training, through the best transitional help for people moving between jobs, and through the operation of a minimum wage and a tax credit system, tailored in each member state to national circumstances. And as we resist inflexible barriers being introduced into directives like the European Working Time Directive, we will support flexible interpretations of existing rules and remove unnecessary regulations and restrictions.

And in this way – by creating a more flexible economy – Europe will best maximise the benefits of the new challenges of globalisation

So in shaping the new Europe, the Europe moving from the trade bloc era to the era of global competition, British ideas can and will play a pivotal role: continuing to modernise monetary and fiscal policies; stepping up the pace of economic reform to create a more flexible Europe; opening up trade with the rest of the world; and evolving constitutional arrangements that are sensitive to these real economic challenges.

British values – in particular our long term commitment to stability enterprise, and being outward looking – making make a distinctive contribution to the development of the Europe of the global era.

I started by mentioning Winston Churchill’s injunction that we prepare for the future

He challenged us not to live in the past but to make our home in the future.

The lessons I learn from the recent downturn are that to succeed in the new global economy we must not simply pursue policies for monetary and fiscal stability but entrench that stability; that we must not be protectionist but pursue free trade; and that we must embrace reform to make our economies more flexible.

And this rich agenda of product, capital and labour market reform must apply not just in Britain but in Europe.

And around the changes in Europe I have outlined, I believe we can bring to an end the old anti-European prejudices that arose from the inward looking trade bloc of the past and as the great debate on Europe’s future begins, we can build a pro European consensus around a Britain leading reform in Europe and a reformed Europe playing its full part in the world.

A Britain and Europe more flexible, more outward looking, better equipped to meet the challenges of the global economy that lie ahead.

Below is the text of the speech made by Gordon Brown, the then Chancellor of the Exchequer, to the Local Government Association Conference held in Harrogate on 4 July 2003.

It is a pleasure for me to join John Prescott in addressing the leaders of our cities, towns and communities across England and Wales; to thank everyone here not just for the work you undertake, the service you give, the good you do and the difference you make, but for your central irreplaceable role in driving forward public service improvements and in bringing to life in our time and in our generation the ethos of public service that builds strong communities in our country.

I want to say today that this partnership between central and local government – which is not a partnership of convenience but, because of the beliefs we share in common, a partnership of principle; this partnership founded on the million acts of service by dedicated public servants; this partnership driven forward today by great challenges that face our country which we can only meet if we face them together.

This partnership that acknowledges not only that whenever we walk down the street, collect our kids from school, turn to the emergency services, or look for help for the weak and the frail we depend upon locally provided services but that service delivery for families and communities cannot come from central command and control but requires local initiative and accountability; this partnership is a partnership that I want to see strengthened in a new era of local and national cooperation not just in the social improvement of our country but in the economic development of our communities in the years to come.

So I want to talk today about how the partnership we are achieving in social reform – £57 billion more invested in public services, devolution and flexibility in delivery, the greatest possible focus on choice so that the focus is always on the pupil, the patient, the consumer, the citizen – can be complemented by a partnership for economic prosperity: that builds better infrastructure, that develops new skills, that rewards innovation  and moves each region and locality towards full employment in our country.

To build, in the last six years, a better long-term and strategic partnership between central and local government — moving away from the destructive centralism of the 1980s and early 1990s, years characterised by universal capping, strict limits on borrowing and the poll tax —- and to deliver improved public services, the Government – led by John Prescott – has already:

• Boosted financial support for councils, through real terms increases in revenue and in capital expenditure for four years in a row;
• Matched devolution with greater accountability and with new constitutions for local government following local consultation;
• Increased the freedoms and flexibilities that local authorities have to deliver – including a 75 per cent cut in the number of plans required; reduced ring-fencing; more targeted inspection; a fairer prudential regime for borrowing; and greater freedom to trade;
• And introduced local Public Service Agreements which link resources and greater flexibilities to stretching outcome targets for both national and local priorities – and next year we will launch a second round of local PSAs that will encourage partnership working and local innovation still further, as we take forward the current review on balance of funding.

To enable us to make inspection regimes more proportionate, target support where it is most needed, and identify the small minority of failing Councils in need of tough remedial action, clear and concise information about each Council’s performance across a range of local services is being provided for the first time through the new Comprehensive Performance Assessment.

And to encourage all councils to deliver the best public services, high performing Local Authorities will receive substantial extra freedoms and flexibilities including the removal of both revenue and capital ring fencing; sixty plans reduced to just two required  – the Best Value Performance Plan and a Community Plan; a three year holiday from inspection; and the withdrawal of reserve powers over capping, as a first step towards dispensing with the power to cap altogether.

Alongside these incentives, the new Innovation Forum – a genuine partnership between local and central government – is looking constructively at how Local Authorities can be empowered to provide more locally tailored and high quality services in health, for the elderly, in education and in community safety.  Utilising the expertise and experience of the best Local Authorities to help all Councils do better.

This is our vision of a modern partnership between central and local government to deliver both national ambitions and meet local needs – a new localism where there is flexibility and resources in return for reform and delivery. Local Authorities at the heart of public services, equipped with the freedom they need, and accountable to the communities whose needs they serve.

So let me now set out how – building on the new freedoms and flexibilities we have put in place, local and national government working together –– we can meet our goals of full employment and a prosperous, enterprising economy in every region of our country.

For just as we have learned in these last six years that the social goals – educational opportunity, health reform, public sector improvements, child poverty, helping pensioners – we share cannot be realised in practice without central government devolving power to local communities – and whatever challenges we face from time to time, we must remember that we must always work in partnership – so too our goals of full employment and prosperity for all will not be realised without cooperating together and backing local initiative, local solutions, local needs met by local people in local communities.

And let me just explain how it is because in an increasingly globalised economy a full employment Britain that offers prosperity to all depends on regions and localities able to adapt continuously and quickly to change that there is not just a social and political case but an economic case for each local authority’s involvement – each Councillor’s direct involvement – in the economic development and renewal of our communities and country.

Globalisation describes a world whose very mobility of capital and openness to competition is ushering in a restructuring of industry and services across continents.  And while others compete on low value added, low investment and low skilled work, a country like ours has to compete on ever higher levels of skill and technology.

And I tell you that in the new more open global economy levels of local skills and local innovation will matter as much as levels of national demand, otherwise we will have to compete on ever lower levels of poverty pay.

It is because production need no longer be based where the raw materials or ports are and producers can choose where they wish to locate that the local and regional economies that are the most successful will be the magnets for inward investment, will retain their skilled people, will attract more to join them.

What will separate off the successful high employment, high growth economies from the least successful is the ability to adapt on the ground, continuously and quickly to fast moving technological change, skills needs and demand changes.

Indeed the paradox of globalisation is that it puts more emphasis on the local.

The more we are interdependent, and thus the more our regions face intense global competition, the more successful will be the regions and localities that have the flexibility to adapt to change.

Meeting the challenges of globalisation depends on securing success in meeting the challenges of localisation.

And the whole of the UK suffers, and balanced economic growth becomes impossible, if we have unemployment, emigration and the under-utilisation of potential and resources in the poorer areas and yet congestion, overcrowding and inflationary pressures in the richer.

That is why we seek a British economy:

• Not just founded on monetary and fiscal stability – for in an open economy investment will flow to the stable economies and quickly away from the unstable ones
• But built on high levels of innovation skills and adaptability, one driven forward by rapid responses to change – with a new adaptability and flexibility
• where the local and the regional voice is not only respected but seen as critical to economic success.

The old idea in regional and local economic policy was of help directed from the centre.

The first generation of regional policy, before the war, was essentially ambulance work getting help to high unemployment areas – central government providing first aid.

The second generation in the 1960s and 1970s was based on large capital and tax incentives delivered by the then department of industry and then overseen by Brussels.

Both were inflexible and both were top-down. And both approaches did not do enough to close the gap between the areas of high unemployment and areas of low unemployment.

So the third and new generation of regional economic policy measures seek to strengthen the indigenous sources of growth – local enterprise, local innovation, local infrastructure, local skills and the local labour market – tackle disparities between regions and within them.

And the way forward for each region is local people making more decisions locally about meeting local economic needs.

So I want to put forward a set of proposals today that tackle these disparities and close these gaps so that we move forward together to full employment and higher levels of prosperity in each of our localities – and because the unemployment rate in some local authorities is five per cent higher than in others, we know that we have further to go.

The new drivers of prosperity in a modern economy are: enterprise, innovation, skills, investment and employment.

So in each area we ask ourselves: What more can we do? How we can learn from local government in areas where you are pioneering new approaches as we build a new partnership between central and local government?

Not the old relationship based on patronage or a blame culture. But a genuine partnership. We know the gaps to be filled. Let me give you examples:

Enterprise

First, enterprise. Small business creation rates are more than ten times lower in some Local authority areas than others.

And in Barrow-in-Furness and Wansbeck for example, there are six times fewer businesses per 10,000 population than in some London authorities like Camden and Islington.

But I believe that the gap between Local Authorities is such that we should see this not as a signal for despondency, but a challenge and indeed an opportunity for improvement.

The old idea was that you got full employment from a small number of large companies.

Today, as the paper we are publishing today on the role of Local Authorities in economic development shows, full employment needs a large number of small companies creating jobs.

For every three small businesses creating jobs in the best off areas, there is just one, creating far fewer jobs, in the poorest areas – and as every Councillor knows, fewer businesses means fewer jobs which means reduced income for services and yet more social problems that public services need to fund.

So one of the best pro-jobs, anti-poverty programmes is to help more people start more small businesses, and ensure that access to capital, advice, skills – once restricted only to an elite – is opened up to men and women in every part of Britain.

Some Local Authorities are already striving to achieve these aims.  Councils like Bexley, Eastleigh, Knowsley and Rotherham that have gained beacon status for fostering business growth have seen a real improvement in the numbers of businesses and jobs being created in their area.  Our challenge is to put in place the right environment to enable all localities to achieve these successes.

In the past, with the rigidity of the uniform business rate, Local Authorities gained no direct financial incentive from giving priority to business creation.  In fact Local Authorities could justifiably argue that they had to deal with the social and environmental cost of economic development – in transport congestion, environmental damage and pressure on services like housing and education – but that the financial gains through increased income tax and business rates were passed back to central government.

So to tackle this, the current Local Government Bill will allow Local Authorities to keep a share of the business rate receipts that result from new business creation — creating positive financial incentives for Local Authorities and the wider local community to maximise local economic activity while at the same time avoiding excessive bureaucracy and ensuring fairness between localities.

Today we are publishing the consultation paper on the details of the scheme.   This shows that if our preferred model had been introduced in 2000 then Harrogate District Council would by this year have received an additional £875,000 to spend on local priorities as dictated by local people, Sandwell an additional £5.7 million, Peterborough £7 million more and Stockport an extra £10.5 million.

Based on historical data we estimate that in total as a result of this measure, local authorities could gain up to £1 billion over the next three years — showing that the next stage of our employment and growth strategy for Britain can only succeed with greater initiative and engagement by local areas in improving business creation, job opportunities, skills and innovation.  Further reforms in the Pre Budget Report will reflect this.

So for the first time all of us in partnership can each secure financial benefits from creating new businesses.

And by introducing incentives for every local authority to encourage business creation, we not only put in place the right conditions for job creation but also release more resources for investment in public services.

This measure to give local authorities more resources goes hand in hand with our extra help for areas of greatest deprivation – the emphasis of our approach increasingly on policies to encourage and foster the indigenous skills, talents and potential of local people and communities.

I want people in disadvantaged communities to see that the enterprise culture too often restricted to the elite is open to them – not least in high unemployment communities where prosperity for too long has passed people by.

So we have designated the 2000 most disadvantaged areas in the UK as Enterprise Areas where – working in partnership with Local Authorities and RDAs – we encourage economic activity by cutting the cost of starting up, investing, employing, training and managing the payroll. Here we are bringing together industry, planning, employment and social security policies to tackle local property market, capital market and labour market failures — hence the new community investment tax relief, the power to relax planning regulations, the abolition of stamp duty, the engagement of the new deal – central and local government working together to bring investment, jobs and prosperity to areas that prosperity has still bypassed.

Today we are publishing a paper that shows why we see local authorities as strategic leaders of local economic development and sets out further details on the help available in enterprise areas.  I urge local authorities to use the opportunities presented by these measures to support and strengthen their own local economic and regeneration strategies, and boost the awareness and uptake of incentives by local businesses.

Renewing the local economic base is also one of the main aims behind not only neighbourhood renewal funding in 88 areas worth almost £1.9 billion pounds over this parliament and the new deal for communities in 39 areas worth £2 billion pounds over ten years; but the creation of local strategic partnerships which can do more to drive forward policies on enterprise and employment at the local level.

Innovation

Second, look at innovation. In some areas we spend one tenth – £50 per person – on research and development what we do in others – £500 per person.

While these figures are for regions, they show the gap to be filled. And we know that every successful region and locality must encourage its scientists, its inventors and its innovators – and improve links between its schools, colleges, universities and businesses.

Our regional and local approach means we are already moving from centrally administered r and d policies to the encouragement of local technology transfer between universities and companies and the development of regional clusters of specialisms – encouraging the growth of the knowledge-based company and the business friendly university.

But we can do more to develop new local science and industry partnerships like the north west science council and the Technium schemes in Wales — strengthening links between businesses, universities, regional development agencies and local authorities to support the development of hi-tech industry clusters.   And we have asked Richard Lambert, former editor of the Financial Times, to examine how business-university interaction at the local level can contribute to productivity growth.

Investment

Third, investment. To release new investment I know you want us to remove barriers in the planning system so that together we can better promote local economic development.

At the moment, there is an unacceptably wide variation in the performance of planning authorities.  Over 70 councils are already meeting our target of processing 60 per cent of major planning applications in 13 weeks, but a similar number cannot manage to process 30 per cent of such applications in time.

That is why the government has allocated an extra £170 million to reward faster responses to planning applications — and we will use best value intervention powers to bring change where improvements do not come fast enough.

At the same time we are simplifying the planning guidance we issue to local authorities and the new ‘Planning Policy Statement 4’ on planning for economic development will be issued for consultation later this year.

Alongside our investment of nearly 2.8 billion pounds more in real terms in housing by 2006 and 6.4 billion a year more in transport, we have also made it possible to ensure that what we spend and how we spend on infrastructure improvements is increasingly decided regionally and locally.

With the vast majority of the housing capital budget now devolved, we are moving towards pooling housing spend in regional “pots”, and have created new regional housing boards – bringing together RDAs, local authorities, housing corporations and other relevant bodies to draw up regional housing strategies and make recommendations on funding allocations.  Progressively a greater proportion of funding will be allocated by these boards on the basis of the case local authorities make for local needs rather than on arbitrary formulae handed down by Whitehall.  And the Deputy Prime Minister’s reforms will allow local authorities to mix and match financing and management mechanisms for turning round their housing stock rather than the one size fits all approach.

We are also enabling local people to make local decisions about local needs in transport —– matching local authority control over nearly a third of transport spending – and new powers to raise funds through congestion charging – with a responsibility on councils to produce comprehensive and costed five year transport plans.

So as we move from centrally run housing and transport policies to greater local coordination and flexibility, this major decentralisation is transforming relationships between the centre and localities.

Skills

I come now to skills. Look at the gap between the areas with the most skills and the areas with the least skills. In some local authorities, nearly 100 per cent of 16 year olds are participating in education or training. In others – Salford, Milton Keynes, Harrow – it is less than 70 per cent. Some local authority areas in our country have nearly 65 per cent of 16 year olds with 5 a*-c GCSEs others have less than 30 per cent. Overall across the economy 7 million adults lack basic qualifications. But when some do better we know that all can do better.

The challenge, because we waste too much of the talent of Britain, is to open up opportunities for education to an extent never before seen in this country so that every child, young person and adult will have the best possible chances in life.

And we know we have to look not just at schools but at post-school education. So we are extending the employer training pilots now operating in six areas to around a quarter of the country — offering incentives for firms to give their staff paid time off to train towards basic skills and NVQ level 2.  And a major shake-up in skills training will be announced next week. Building on the new frameworks for regional employment and skills action – in which local authorities are key partners alongside RDAs, the private sector and local learning and skills councils – we are piloting devolved pooled budgets for adult learning in four areas of the country — providing greater incentives to employers and individuals to develop their skills, reducing bureaucracy and strengthening the regional and local dimension in skills development.

And looking to the workforce of the future, we are expanding the modern apprenticeship scheme.

Already, apprenticeships, which a few years ago were dying, have risen in number to 220,000 today.  And our aim is that over a quarter of young people aged between 16 and 22 will take part in the scheme by 2004, with even more benefiting by the end of the decade.

Giving every young person who works hard and tries hard the chance of an apprenticeship or college or university.

Employment

Finally, employment. While some areas of Britain are now full employment areas – where in some council areas unemployment is below 1 per cent – some areas have 6 per cent claimant count unemployment and over 40 per cent of the working age population not in work.

In every area of this country, you as councillors will know at first hand young people who have never worked, long term unemployed men and women who have given up hope, school leavers with no qualifications – no jobs, no cash, no hope – many of whom are now enjoying opportunities for the first time in their lives because of the new deal.

This New Deal initiative has been taken forward by central and local government working together.

And thanks to the efforts of many of you here, 870,000 people have got work through the New Deal so far.

But as long as there is unemployment we will not be complacent – and as local councillors I would like you to play an ever bigger role in the next steps to help the newly redundant get back to work quickly and expand the New Deal to assist those hardest to employ.

We need to make the New Deal more effective and we want to work with you to overcome the barriers to local employment opportunity in your council area and in your region.

Today we find that there are almost 600,000 vacancies in the economy. That there are large numbers of vacancies in each region – almost as many as 2 years ago, and 1 year ago despite the world downturn jobs for people prepared to take them.  The North East which used to have few vacancies today has over 10,000.

And there are not just vacancies in the South East, but in every region

• In Wales nearly 15,000
• In the West Midlands 24,000
• In Scotland over 25,000
• In the North West nearly 30,000

And so the next stage of the New Deal is to do more to link jobs without workers to workers without jobs. So in addition to requiring the long term unemployed in 40 areas of the UK to take jobs on offer,

• Job centres will have local budgets to help with travel, training and equipment to ensure the unemployed can get back to work quickly
• There will be a new ethnic minorities fund and area-based initiatives to tackle the particular barriers facing those who too often miss out on jobs
• And we want to follow the innovative examples of councils like Bristol and Brighton who have tailored supplementary employment programmes to complement the New Deal

For too long too many single parents have been denied work. So in addition to the minimum wage and our new tax credits – raising the in-work income for a lone parent with two children who works full time to £276 a week even after tax – we will pilot an extra £20 a week for those lone parents who voluntarily undertake job search, rising to £40 extra a week for their first year in work.

And with new housing benefit help – delivered in partnership by local authorities – lone parents on a typical rent of £50 a week and working part time will receive at least £213 a week making them far better off working part time than not working at all.

For too long too many young people have fallen through the net.  Some of the hardest to help are young offenders ? 70 per cent of whom re-offend. So the government is now seeing how we can apply nationwide ? under the leadership of Sir John Parker of Transco ? the successful reading training for work programme ? offering young offenders training and work while in prison with, on good behaviour, a job when they are released: a programme with a 78 per cent success rate so far.

For too long too many disabled people have desperately wanted jobs but have lacked the support they needed to move into work.

As a first step for men and women on incapacity benefit who wish to work, there is now an extra £19 a week as the guaranteed minimum income for 35 hours work rises to £194.  We are looking at how improved rehabilitation, capability assessment and training support can help disabled people and those who have suffered ill health fulfil their potential in work. And in the local authority areas where our new pathways to work initiative is being piloted, we want local councils to play a full part – as both service providers and employers – in helping shift the focus on disability from what people cannot do to what they can.

For too long in too many deprived areas of the country there has been a destructive culture that “no-one around here works”.

So we will provide far more help than in the past in these areas, using the sanctions and opportunities available in the New Deal and where necessary taking job advisers onto estates — offering the unemployed training, advice and sometimes cash support to help them get into work, and linking them to jobs in the vicinity, but in return expecting the unemployed to take up the jobs that are available.

Tackling the worst concentrations of unemployment, street by street, estate by estate.

Conclusion

So one by one: enterprise, innovation, investment, skills, employment – we break down the barriers to prosperity with local and central government working closely together.

In other words, a new partnership – with government enabling and empowering rather than directing and controlling and with local authorities building capacity and focusing on improving the prosperity of their localities.

Instead of people looking to Whitehall for solutions in locality after locality, more and more people are themselves taking more control of the decisions that most affect them – a devolution of power that is now ready to spread across regions, local government and communities, large and small.

And as we look to the future, we will strengthen and deepen our dialogue with you to identify those areas where further reform will help you most.    And we will involve you too in our decision on the euro.   The deputy prime minister and I recently issued guidance to local authorities on euro preparations and you now have the opportunity to consult your local communities and develop your own changeover plans.

I agree with Sir Jeremy Beecham that this new localism – effective devolution based upon a genuine partnership between central and local government – moves us forward from an old Britain weakened by centuries of centralisation towards a new Britain strengthened by local centres of initiative, energy and dynamism.

And in this way, I believe that a new era – an age of active citizenship and an enabling state – is now within our grasp —- at its core, a renewal of civic society where the rights to decent services and the responsibilities of citizenship go hand in hand.

But I end where I began. We all know about what brings people into public services – the belief that we can make a difference.

And we know that if – building on the expertise and success that some of the best councils have demonstrated – we can empower local managers and local service deliverers, that ethos of public service – the importance public servants attach to duty, obligation, care and compassion – can, working within the right framework, ensure the best public services in the world.

And as we look now to the future, let us remember not just the challenges ahead but the inspiration that comes from the achievements of the pioneers of local government and civic pride — leaders whose hopes, whose vision, whose ideals inspired a whole generation to greater public service.  Men and women prepared to modernise, to reform, to change, to tear up old ideas and adopt new ones.

They developed a shared vision that remains our vision today: a vision of a just society in which everyone – and not just a few – had a chance to fulfil their potential, in which even in times of hardship people strove to help each other.  A shared vision of a society in which by the strong helping the weak, it made us all stronger.

Never let us lose that ambition for our country and for the communities which we serve. We must never lose the ambition that we can scale new heights, meet new needs, tackle deep-rooted injustices, and work together for a better, stronger society.

That shared ambition that social justice and economic progress can go hand in hand, and that in our Britain everyone has a part to play.

That is the vision I put before you today.

That is our aim.  That is now our task.  That, if we work together, will be our achievement.

Below is the text of the speech made by Gordon Brown, the then Chancellor of the Exchequer, at the City Growth Strategies Forum on 8 October 2013.

It is a pleasure to be here today to celebrate the progress so far of the City Growth Strategy Pilots.

And I want to start by thanking everyone here – regional development agencies, local authorities, public servants, companies, academics, the small business service, urban specialists in every field, and in particular Professor Porter – for the work you do developing strategies for growth which build on indigenous strengths and aim to give every community in Britain the opportunity to realise their economic potential – and congratulate you on what you have done in the last few months in pilot projects in Nottingham, City fringe, Heathrow, St Helen’s, Haringey, Plymouth and London South Central.

When I became Chancellor in 1997 my first act was to make the Bank of England independent.

We acted immediately on coming to office because, with new monetary and then fiscal rules, we wanted to entrench a new culture of economic stability not seen in Britain for decades.

And following the election in 2001, our first act of economic policy was to make the competition authorities fully independent of political interference.

We acted then — and it is time to go further now — because the priority for our second term and the years ahead is to build from the foundation of economic stability a new culture of enterprise which helps open up new markets, breaks from the old corporatism of the past and opens opportunities for enterprise to all.

A British enterprise culture is vital because for fifty years since the war there was no consensus on business and enterprise. The left has been seen as for fairness at the cost of enterprise, the right for enterprise at the cost of fairness.

Yet we know that a pro-competition policy and pro-enterprise regime that encourages entrepreneurship genuinely open to all is a million miles away from the corporatist and anti-competition approach associated with the old left in the post war period

But equally we must move beyond the eighties when, despite the rhetoric, not enough was done to build an enterprise culture. Too often the image of enterprise was of a closed circle with millions left out, and of a regime which talked about competition but left the competition regime largely unreformed, protecting vested interests and stifling economic dynamism.

Instead, what we now want to see is a dynamic business culture which makes people feel that enterprise is not for an elite but potentially for them too.

Indeed in time we can, in my view, forge a new British consensus not just around stability but around an enterprise culture that is open to all, fairness and enterprise advancing together.

So in the next few weeks in the run up to the Pre Budget Report and the Budget I will set out the agenda moving forward so that we can make the most of the new opportunities available.

Enterprise for All

The latest evidence shows that the climate for small business in Britain is still robust.  Small business creation rates are still strong.  Survival rates continue to improve – and even during a global downturn Britain has suffered less than many of our G8 competitors.

But the gap between Britain and the US remains high and we know that there are still too many areas in Britain where enterprise struggles to thrive.

We recognise that the barriers to enterprise are greater in poor communities and that many businesses in our least well off areas face special problems in obtaining access to support, advice and finance.

Our objective is that no-one is left out on the margins, no-one excluded from the mainstream of economic prosperity.

And this is the time – when economic growth is strengthening – to do more to bring prosperity to those places and people the economy has too often and for too long forgotten

In tackling the employment and enterprise problem in the high unemployment areas, we will not return to the old ways which have failed.

Neither an old style benefits approach which ignored the causes of poverty and unemployment – and did not invest in education, training, jobs and business development. Nor a bricks and mortar only approach which, with enterprise zones, targeted subsidies for property development at the expense of help for enterprising local people.

Our way is not the old way of simply backing zones of enterprise and forgetting about the people – it is about backing people of enterprise. For we know that in our inner cities and old industrial areas we need not more benefit offices but more businesses.

Through our national strategy for neighbourhood renewal and our regeneration programmes, high unemployment communities will have extra support to allow enterprise to flourish.

But we need to do more.

Inner cities and established industrial areas should be seen as new markets with competitive advantages – their strategic locations, their often untapped retail markets, and the potential of their workforce. And so we want to put in place the right incentive structure to stimulate business-led growth in our inner cities and estates and encourage much bigger flows of private investment.

Our aim is to make the market more likely to work in places where it wouldn’t otherwise work. To build a network of relationships between the high unemployment areas and the private sector.

That is why we have created Enterprise Areas in the 2000 most deprived wards in the country – where we will give special help with starting up, employing, training, payroll and investment:

• the abolition of stamp duty entirely with full stamp duty exemption for all business property purchases since April 2003;
• new powers for planning authorities that will cut red tape for growing businesses by removing the need for them to apply for planning permission;
• community investment tax relief – which offers for every £100 of private investment an extra £25 of public investment;
• the possibility of enhanced capital allowances for renovating business premises;
• increased funding for the Phoenix Fund – providing support to thousands of small businesses with special help for women and ethnic minorities who face additional barriers to enterprise;
• and financial incentives to help all businesses bring their tax and payroll systems on line.

And now that we have set up a community venture capital fund – the Bridges Fund – with a continuing remit to help fund a regular wave of new businesses, we are investigating the possibility of a second fund which could operate in deprived communities right across the UK.

And just as we are working with local authorities and regional development agencies to develop these enterprise areas – so too we need to make use of the creativity and flexibility that the private sector can bring.

That is why the work of City Growth Strategies is so important – learning from the Initiative for a Competitive Inner City in the United States – harnessing the power of the private sector to generate economic growth – and revitalising seven of the most deprived urban areas in England by identifying their competitive advantages:

• the links to major transport routes that gives St Helens an advantage in the logistics sector;
• the international trade opportunities for Heathrow City that come from its multicultural population and location;
• the opportunities to grow the creative clusters in the City fringe and Haringey;
• the under-supply of shopping facilities that brings opportunities for retail in south central London.

Public and private sector working together to make a real difference in these communities;

• increasing income, wealth and jobs for inner city residents;
• making the inner city a more competitive place for business;
• and creating a positive attitude towards the opportunities for enterprise that these areas have to offer.

Enterprise in Schools

But if we are to truly have the deeper and wider entrepreneurial culture we need, we must start in our schools and colleges.

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

Already six hundred thousand 14 to 16 year olds are benefiting from work experience and thirty thousand teachers are in work placements. And we are now working with business and the world of education to build on this, improving the quality of placements and experience.

But this new initiative is not just about work experience but about enterprise and entrepreneurship in the curriculum

At present less than a third – and in some areas less than 15 per cent – of young people have the chance to take part in enterprise activities while at school.  We have announced plans – and money – to give all young people at least 5 days of enterprise education in our schools by 2006.

Conclusion

So this is the time to say to every corporate leader in our country, help us strengthen the enterprise culture by becoming role models for our young.  And take a look at investing in our high unemployment areas. They offer business new choices, new recruits, and new markets. It is good for business and for growth.

In the new Britain we want more enterprise, more investment, better education and preparation for the future in every community.  I want Britain to be a world leader in enterprise – and the opportunities and benefits of enterprise to be shared by all regions and all people.

And with government, business leaders, and local communities working together, I believe we can achieve our goal.

Below is the text of the speech made by Gordon Brown, the then Chancellor of the Exchequer, at the CBI National Conference held in Birmingham on 18 November 2003.

I want to thank all of you here – the wealth creators of Britain – for the contribution you make to Britain’s continued economic growth; for the dynamism that you have shown in meeting and mastering the challenges of a more unstable global economy; and for your commitment to the prosperity of Britain.

And it is a particular pleasure for me that I am joined this morning by someone who has distinguished himself both in business – as the former Chairman and Chief Executive of CSX Corporation – and in government service. And I would ask you to welcome the Treasury Secretary of the United States John Snow.

And I want to say – I believe on behalf of all of us here – in welcoming President Bush’s visit later this week, what binds America and Britain together is not simply a shared history over the generations – and not just wonderfully good and cordial personal relationships – but shared values.

Indeed for centuries, America and Britain have been linked by the ideals that we share: a passion for liberty and opportunity; a belief in the work ethic and in enterprise for all; a commitment to being open not isolationist; and our shared conviction that economic expansion through free trade and free markets is the key to growth and prosperity.

And with shared values we must also meet a shared threat. As Tony Blair said yesterday, it has fallen to this generation –

the generation who were born or grew up at a time when Britain and America had together fought World War Two – what we believed was a war to end all wars; the generation who lived through the uneasy and fragile truce of the Cold War years; who dared to hope that when the Berlin Wall fell the threat of nuclear, chemical and biological weapon proliferation had been removed but now find the world at risk from a new threat; it has fallen to this generation to fight global terrorism and rogue states.

In this new century our shared values across the Atlantic can become our common destiny. And Mr Secretary, I – and all of us here – stand for a Britain – as you stand for an America – that is outward looking, ambitious to succeed, determined to advance an enterprise culture, fully equipped to lead in the new global economy.

And it is as a reflection of these shared values, and a special relationship we are not just celebrating but deepening, that today John and I are able to announce a joint US-UK enterprise agreement – that we believe will make for a stronger relations between America and the whole of Europe.

We know that damaging trade and regulatory disputes between Europe and the USA have hindered commerce and damaged transatlantic relations. It is time now for us all to make the effort to move beyond them. Just as in 1988, when Europe was at the outset of the great project to move towards a single market, the Cecchini report showed the benefits of breaking down barriers for commerce, growth and jobs, so too we have agreed today – alongside our efforts to revive the Doha trade talks – to proceed with a major transatlantic review — an independent study on how by liberalisation, the removal of tariff and non tariff barriers, and agreed approaches to competition and regulation we can reap the benefits – which could be as much as $100 billion and one million jobs – from greater trade and investment between our two continents.

And let me announce also as part of our agreement:

– incentives for our universities to become more entrepreneurial and link up in research and technology with US universities including a technology transfer fund to foster exchange of ideas across the Atlantic;

– enterprise scholarships for management studies not just in the UK but in the USA; sharing best practice on enterprise education in schools and universities, with young entrepreneurs in the US and UK able to learn from each other;

– and a joint forum next year to discuss common productivity challenges and share best practice.

John…thank you…

North America and Britain are the two areas of the industrialised world in which growth has been strengthening most – even amidst one of the G7’s longest and most protracted world downturns in growth and trade.

At various points in the last three years – America, Japan and Germany in 2001; half the euro area and much of Asia in 2003 – our main competitor countries have faced recession.

But, for the first time in fifty years, Britain has not only avoided recession but has continued to grow in quarter after quarter, year after year, in all six years of our government since 1997.

Remember the old days, what was called the British problem: stop go, boom bust, unstable cycles…Britain the country usually first in, worst hit and last out of any world downturn; invariably hit by an inflation problem that prevented interest rates falling when they needed to come down; and usually then by wage inflation that could not be afforded and prevented you making long term investment.

So I want to explain to you today the policy we – and the Bank of England – will continue to pursue to ensure the British economy entrenches our new won and hard won stability and continues to grow – ensuring we take no risks with inflation or stability generally, or with the fiscal position. And because we must never take stability for granted I want to set out some of the measures I propose to take in the Pre Budget Report to lock in that stability for the years to come.

The lessons all advanced economies have learned are that in a global economy, monetary and fiscal policy has now to adjust quickly to fast moving changes and to heightened risks of instability — and to do so it has to be proactive and forward looking. While there is a link between money supply and inflation, in open economies with liberalised capital markets rigid monetary targets just cannot work. But the experience of the 1970s and 80s also taught us that correct as Keynes was to point to the need for proactive and forward looking monetary and fiscal policy – ever more essential in fast moving capital markets – the old way of doing so – crude annual fine tuning – could not work either.

Instead the flexibility and proactive approach a modern economy needs demands a framework – whether monetary or fiscal – based not on short term targets but on clear long term objectives that are met and seen to be met; well understood operational rules of procedure that are painstakingly followed; and an openness and accountability that which helps build public trust and market credibility.

That is why my first acts as Chancellor in 1997 were not only to make the Bank of England independent but to introduce a new British model for monetary and fiscal stability with: instead of monetary targets, a symmetrical inflation target that is as concerned about deflation as it is about inflation instead of the old annual fiscal fine tuning, clearly established fiscal rules set over the cycle
and because it is important not just to build trust but to educate decision-makers about the costs and benefits of different courses of action, an openness and transparency.
And in Britain today our new framework – this British model – has, in most people’s views, made Britain better placed than before to cope with the ups and downs of the economic cycle. Indeed, the experience of other economies has shown that if monetary policy remains sluggish and inflexible – or fiscal policy is still based on the old style annual incrementalism, blind to the economic cycle – then growth has been lower.

So – to entrench stability for the long term – what are the lessons we learn for the future?

First, the importance not just of setting clear and precise objectives and rules of procedure but also a symmetrical inflation target that, with the bank seeking 2.5 per cent inflation, is pro growth as well as pro stability. The credibility that has come from bank independence and the symmetrical inflation target has enabled the Monetary Policy Committee in the difficult world conditions manufacturers and businesses faced to – as in the USA – respond proactively to the recent downturn by aggressively cutting rates —- in Britain’s case nine times since the start of 2001. With the result that, even when more exposed than any European economy to the IT shock, growth continued and unemployment continued to fall.

It is because we are committed to delivering the stability industry needs that the same proactive approach is being pursued as the economy strengthens.

Let us remember that in 1988 as the economy started to accelerate the then government cut interest rates, fuelling an inflation that eventually led to a deep recession. It was from these mistakes that in 1997 we learned: immediately after we came to power we raised interest rates and then even as inflation expectations started to fall the newly independent Bank of England raised interest rates again so that we could ensure a long period of low inflation and sustained growth.

And again in 2003 the Bank of England, determined to keep inflation low and stable in a strengthening economy, have raised interest rates to ensure that Britain continues to enjoy stable growth.

I believe that the MPC is right to take the forward-looking approach of pre-emptive action – taken as the economy strengthens – to lock in stability.

And we will not yield to any inflationary pressures, any unaffordable wage demands or any short term quick fixes or soft options that would risk or squander the huge economic opportunities that our hard won stability offers the British people.

Fiscal discipline matters too. It is where there is no credible long term commitment to fiscal stability over the cycle that economies can find themselves in the perverse position of cutting spending or raising taxes at the wrong time of the economic cycle, putting growth and stability at risk. And it is precisely at this point in the economic cycle that past British governments have made mistakes.

So breaking from the old familiar annual public spending rounds, the old annual promises and breaking of promises over surpluses and deficits, we set long term fiscal rules over the cycle – rather than rigid year to year targets – and these have supported monetary policy in helping us continue to grow.

It is because of this long-term commitment to fiscal stability that:
In 1997 and for two years we froze spending and turned the large deficit that we inherited into a large surplus; we then aggressively cut the national debt; we then paid off more debt in one year than in the whole of the period since the Second World War; and we then were able to reduce debt interest as a share of national income to its lowest in almost a century, since 1914.

Our stability first policy means that our fiscal decisions will ensure that while debt is rising substantially in other countries, levels of debt in Britain will remain low and sustainable. At all times we will meet our fiscal rules and, more than that, in the Pre-Budget Report we will publish our plans showing that after tough decisions made on pensions – state pension spending will rise to 15 per cent of GDP in Germany and France but remain at 5 per cent in Britain – our fiscal position is sustainable over not just a year or two but over the next decades.

So our policy will remain stability first – today, tomorrow and always. For stability is never a final achievement but always a permanent never ending challenge.

And it is upon this foundation of a shared national commitment to stability that we can move to my next ambition: that Britain agree a similar shared commitment to a wider and deeper entrepreneurial culture, a shared commitment across the whole country to enterprise:

– enthusing young people in every school and college with the spirit of enterprise;
– in all parts of our country and particularly in the high unemployment areas, demonstrating that enterprise is a solution to the unemployment and economic challenges we face;
– valuing business leaders as role models in our own communities;
moving beyond the old sterile political divisions so that there is, across the whole country and across the whole political spectrum, a shared purpose in ensuring that British enterprise, inventiveness and creativity can lead as we face our biggest challenge – competing successfully in the global economy – the theme of this Conference.

I know that for most of the companies here, there is hardly a good you produce that is not subject to intense competition from at home and abroad — competition not just from traditional competitors in the advanced industrial economies but competition from emerging market economies not least in Asia and the east of Europe.

I know that because you now operate in a global economy, the decisions you make every day about where you source your products are not just decisions about where to buy them within Britain but where to buy them across the world.

And that because the our labour market is now international, at every point you have to look not just where you source your labour and skills but where your competitor sources labour and skills.

All the ground rules – who you customers are, who your competitors are, where your labour comes from – are changing — and no one is going to turn the clock back.

And I think the whole country owes you – as our business leaders – a debt of gratitude for your response to these new realities —- in particular, your courage to change.

And just as you and your companies must respond and adapt on a continuous basis, so too must government. And for every government across the industrialised world – and we will be hearing from John Snow in a moment – the key question – beyond all the old, sterile political party point scoring – in this era of global competition is, and will be: what is the best contribution that government can make?

I am more than ever convinced that government should concentrate only on what it can do well:

– building a competitive environment;
– investment in skills, science and infrastructure;
– and beyond that getting government out of the way by removing the barriers to enterprise – whether from Europe or Whitehall – that hold you back.

So as we seek, as pro Europeans linked to Europe by history, geography and economics, to build a global Europe — flexible, outward-looking, reforming and open, far from an inward-looking trade bloc – and I am publishing our latest Progress Report on Euro Preparations today — I am proposing to my European Finance Minister colleagues that Europe designates 2004 a year in which we set a clear timetable to eliminate wasteful regulation.

I know that the best contribution pro-Europeans committed to Britain leading in Europe make to the cause of Europe is by ensuring that in Europe we face up to rather than duck the difficult decisions about economic reform. So I can tell you that just as we successfully resisted the savings directive that would have harmonised savings taxes, Britain will resist inflexible barriers being added into directives like the working time directive and agency workers directive, the investment services directive and the transparency directive, as well as tax harmonisation. And I invite you, as companies, to join us in putting European regulations to the ‘costs ‘test, then the ‘jobs’ test and then the “is it really necessary” test.

And at home we will support this by – as Patricia Hewitt has said – removing further audit requirements from more small firms and by making further cuts in the time and cost of VAT administration — and I invite you to nominate from your businesses men and women who will assist us in identifying and sweeping aside old regulations that have outlived their usefulness.

When we raised national insurance to finance a modern reformed health service you told us that we were right to insist on efficiency and value for money as the watchwords for the public services. I have announced the Gershon Review into cutting back central bureaucracy and making more effective use of our front line professionals; and the Lyons Review examining the relocation of 20,000 jobs out of Whitehall. It is by requiring reform as a condition of resources — by measures from more flexible labour markets, modernised NHS foundation hospitals where there is tough inspection and extra freedoms for high performers, and reformed systems of university funding to public sector pay linked to performance, a tough housing inspectorate, and freedom and flexibility for good performing local councils — that we will be able in the next spending round to ensure money is well spent and deliver new resources to our front line public services.

And we will legislate to tackle a long standing obstacle you have rightly raised with us that we make the planning system quicker, more flexible and more responsive to your needs.

I know the priorities of the CBI for investment: central to our economic future is excellence in British science and innovation. So not only will we create new centres of excellence in science teaching, we are investing an extra one and a quarter billion pounds a year to expand the science research infrastructure and training more skilled scientists and engineers, but you have asked us — and we have responded – for an R and D tax credit, on which we continue to consult, and more support for technology transfer.

And because we – Government and CBI – also agree with you that the key to success is getting the best people and the best out of your people, we are also responding to your wish that standards amongst school-leavers must be of a ever rising quality. And with

– the return of apprenticeships – once dying now taken up by one quarter of a million young people
– the new University for Industry – Learn Direct – which has already given nearly 1 million adults the chance to take courses from literacy to language to it
– and the Employer Training Pilots that offer paid time off to train towards relevant skills
– we are investing more today in education and workplace skills than at any time in our history and will continue to do so. And I hope that we can strengthen the skills partnership between business and government to achieve our shared aim: that Britain becomes the best educated, most skilled, most technically proficient workforce in Europe.

You have not only told us the importance you attach to the government investing in science and skills but of proper investment – in partnership with the private sector – in transport and infrastructure. And with the doubling of investment in our roads and railways – an extra £4 billion a year – we will proceed, no matter what the opposition, with our pioneering Public Private Partnerships and these will be extended from transport, schools and hospitals into prisons, urban regeneration, social housing and waste management.

An enterprise economy must be rooted in an enterprise culture starting in our schools and colleges, and extending across every community. And today John Snow and I have been meeting business leaders pioneering enterprise education in our schools and encouraging new start ups in high unemployment communities – as well as local young entrepreneurs from the Birmingham area putting their innovative ideas into practice – and I can assure you that having cut small business tax from 23 pence to 19 pence and exempted the first £10,000 of new company profits from tax, cut long term capital gains tax from 40 pence to 10 pence as well as mainstream corporation tax from 33 pence to 30 pence, we will continue to look with you at the business tax regime so that it can reward entrepreneurship and encourage new investment: an approach based on a broad base and low tax rates that is stable and transparent, reflecting our goal to make and keep the UK as the best place for international business.

So from a stop-go economy, Britain is now one of the world’s most stable and a growing economy – the best position from which to seize the opportunities of a highly competitive global marketplace.

But now its time for Britain – which has created a British model for stability – to build on that and come together to create a stronger enterprising economy.

I believe we can build a shared commitment to enterprise and wealth creation stretching across all communities of our country.

I believe we can create a stronger deeper enterprise culture that will help us take our rightful place in the global economy.

As John Snow can tell us, America has a model of enterprise which we can learn from.

John Snow himself has played a great part – in business and in government – in strengthening that enterprise culture —- and it is my pleasure to introduce him to you.

From John’s time in the US Department of Transport, in business leading CSX Corporation, as the Chair of the Business Roundtable – America’s foremost business policy group – and now as a distinguished Finance Minister, John Snow has been committed to bringing business and commercial expertise to the running of government — and dedicated to a strong pro Atlantic consensus

It is my pleasure and privilege to introduce John Snow and ask him to address this conference.

Ladies and gentlemen, Treasury Secretary of the United States of America, the Honourable John Snow.

Below is the text of the speech made by Gordon Brown, the then Chancellor of the Exchequer, at the Wall Street Journal Conference held at the Four Seasons Hotel in London on 24 November 2003.

Introduction

I am grateful to have the opportunity to address this Wall Street Journal conference.

To have the chance to thank the Wall Street Journal for its contribution to the debate about the future of Europe.

And to have a further opportunity beyond your columns to engage in the most critical debate about the future of Europe – what changes Europe must make to meet the competitive challenges of globalisation.

I want to demonstrate that to be fully equipped for the global economy Europe must become open, outward looking, flexible, competitive and reforming.

To detail the agenda of policy change – in monetary and fiscal policy, liberalisation, employment policy, taxation and trade – that is essential if this is to happen.

And then to show how around such a new, enlarged, reforming Europe a deeper consensus around Europe’s future and Britain’s destiny in Europe can be built – a new consensus that – as Tony Blair and I have both said, Tony Blair most recently at the CBI last Monday – sweeps aside both unacceptable federal assumptions rooted in the past and anti-European prejudices of the present.

Context

It was once said that Europe was divided into two – those in the West who had Europe and those in the East who believed in it. Today East and West are united in one Europe, thus ending centuries of division.  A European Union that started with a desire for a Europe at peace is, with enlargement, entrenching that commitment to peace and seeking to generate prosperity in all parts of Europe. Peace and prosperity remain the central reason why we must make the European Union work well and why I believe as a pro European that Britain – linked by geography, history and economics to Europe – must play a leading role in Europe and in that reform process

But even if enlargement has been the catalyst for the new constitutional debate, there is an economic transformation taking place that is of even greater long term significance than the fifteen becoming twenty five – and that is the impact of globalisation on all of Europe’s nations.

A moment’s reflection will convince that it is globalisation – global flows of capital and global sourcing of products, not least from Asia – that is putting all of Europe under intense and sustained competitive pressure, forcing Europe to change – and change quickly.

The Europe that progressed from coal and steel community to customs union to common market to single market and then to European Union was, in effect, the worlds first modern trade bloc – its advanced internal rules and preferential agreements separating Europe off from the rest of the world.

Understandably the discussion then was how this new trade bloc of Europe could manage its own internal affairs, what institutional arrangements were required, whether a social dimension was needed.  And an assumption became rooted in the very rhetoric of European integration that the single market would lead inevitably – through the single currency – to tax harmonisation, a federal fiscal policy and the completion of a federal state.

But because of the intense pressures that arise from globalisation, Europe is now entering the second stage of its history as a union and is finding that the agenda relevant to its first phase – the era of a trade bloc – is quite different for its second stage – the Europe facing global competition.

Let me give one example of how in the move from trade bloc Europe to global Europe old policies are not just out of date but counterproductive for the global era.

When I first attended European Finance Ministers meetings in 1997 I found that it was simply assumed that tax harmonisation within Europe would happen.

For years for example it had been assumed that to eliminate tax avoidance by for example German citizens failing to pay tax on their savings income in Luxembourg, there should be a harmonisation of taxes on non-domestic savings throughout the European Union. This was a proposition that from the moment we came into power we fought for two reasons: harmonisation of tax would reduce competitiveness and would be unacceptable to the peoples of Europe because decisions on what to tax, and how, reflect national choices and cultures.

In the years after 1997 a detailed proposal was drawn up under which similar tax rates would be levied on savings in Europe under the auspices of the Commission. But when such a plan was finally explored in detail, European leaders found that in an open global economy, where savings could move worldwide, Europe’s savers would respond to a harmonised tax not by bringing their savings back to their country of residence but sending their savings out of Europe altogether to lower taxed countries.  So instead of, for example, Germany receiving tax on its citizens savings in Luxembourg both Germany and Luxembourg would lose these investments to Switzerland and Liechtenstein or non European tax areas like the United States.

It is now obvious that – national cultural factors notwithstanding – it is the very openness of global capital markets that undermines the European Union’s proposals for tax harmonisation and would, if harmonisation was implemented, reduce European competitiveness.

But it is not only rigidities in tax policy that global economic change challenges.

Ministers are coming to recognise that in a global economy it is not only tax barriers but other rigid barriers and inflexibilities that shelter and protect countries and companies from global competition that have to be removed in the interests of competitiveness. Indeed, in every part of the world rigidities, inflexibilities and lack of competitiveness – that could once be sheltered in the era of trade blocs – are now fully exposed in the era of global competition.

The global flows of capital and the global sourcing of products mean that there is hardly a product that is manufactured in Europe does not now have an Asian or American competitor able to exploit their advantages in either low wages or higher productivity.  And even services – that once could be located only close to the customer – can now be run from thousands of miles away, outside Europe.

Indeed Europe’s low growth, its 14 million unemployed, and the productivity gap with the USA…all underline the same challenge: that globalisation forces the European Union to shift from an old often inward-looking trade bloc to a flexible, reforming, open and globally-oriented Europe – able to master the economic challenge from Asia and America.

So the driving force for radical change in Europe is not so much political enlargement as global economics; not so much the 15 becoming 25 but the whole of Europe facing up to global competition. And the agenda that flows from this demands a programme of liberalisation, tax reform, new employment policies, the opening up of trade and commerce and a modern monetary and fiscal regime.

And more than that: the same global pressures that force tax competition and economic reform onto the European agenda also force Europe to rethink the most basic of assumptions that have underlain 50 years of development.

The authors of European integration made two major assumptions: that the nation state would increasingly be too small for the big issues of, first, economic management and second, political identity. And they went on to assume that national economic, political and cultural integration would lead inevitably to European economic, political and cultural integration.

But those who in the 1980s thought that we would move from being economically integrated at a national level to being economically integrated at a European level have been only partially right.  Increasingly, the nation states of Europe have become economically integrated not just at a European but at a global level.  Indeed it is global not European flows of capital; the global, not European, company; and the global, not European, brand that dominate.

And under challenge too – not least because globalisation’s insecurities lead people to cling to old identities – is the second assumption of the old European model – that side by side with growing economic integration from nation states to a European stage would come growing cultural and political integration where national political and cultural identities would be superseded.

In an interdependent world which opens up new opportunities but not necessarily on an even handed basis – and which leaves people anxious and insecure – people are more likely to cling to their national cultural and political identities.  And right across Europe – side by side with new global economic realities – political and cultural identities have remained firmly rooted in the nation state.

It is interesting that just one in ten think of themselves primarily as European, even fewer amongst those due to join the EU over the next few years.  We are Europeans but we are British, French, Polish, German, Dutch, Italian first.

So the debate about Europe’s future and its role in the wider world has to be understood in this context: that the economic reality is no longer – as it was in the 80s – how this or that trade bloc develops on its own but how each continent is part of – and benefits from – globalisation as a whole; and that the political reality remains people’s attachment, for example on issues of what is taxed and by whom, to their national values, their national identities and thus to their nation state.

And with Europe’s intergovernmental conference now entering its final stages, it is important that Europe responds to these new challenges with clarity.  And we must do so without ambiguities that might, if unravelled, undermine even the best of intentions – to the detriment of jobs and economic dynamism.

Economic reform

First, the economic reform programme

Europe will only maximise the benefits of globalisation – and solve its problems of low growth and high unemployment – by becoming more efficient and increasing its productivity – pushing ahead with the necessary structural economic reforms to promote sustainable growth and increase the flexibility of our labour, capital and product markets. This is particularly important for successful economic integration as new entrants seek to catch up with higher rates of growth.

Global Europe must be more aggressive in making sure that in its operation the single market does not shelter inefficient industries but does what it should do: forces them to be more competitive; fosters investment in key areas like R&D and infrastructure; and by encouraging new enterprise – and rewarding it properly – generates the growth, productivity and employment we need.

So having created a single market in theory, we should make it work in reality so we achieve lower prices for the consumer.

Since 1992, the single market has produced a gain equivalent to £4000 pounds for every household in Europe.  Goods now move freely across Europe, whereas before 1992, internal customs borders meant that around 90 million forms were filled in each year, a massive burden on businesses and individuals.  And markets have been opened to the benefit of consumers.  In telecommunications, for example, the average price of calls has dropped since 1996 by around 30 per cent for businesses and 16 per cent for households.

But while the single market encompasses 375 million people today – and will rise to 450 million next year – we have still a long way to go to secure for business and consumers the full benefits in commercial opportunities and consumer prices.

While in 1988 Cecchini estimated that single market liberalisation would add 4.5 per cent to Europe’s GDP, cut prices by 6 per cent and increase employment by 1.75 million, many of the gains have yet to materialise. And the single market is often more honoured in rhetoric than in reality.

And to ensure well informed and open markets that ensure capital flows to productive uses and that labour and capital are used efficiently, we favour:

• Faster progress towards the integration of capital markets;
• Full liberalisation of energy markets by 2007;
• Full market opening of postal services by 2009;
• In aviation, rapid progress towards a fully liberalised EU-US open aviation area and the use of market mechanisms for allocating slots at airports;
• And making the single market a reality for services as well as goods where we must agree the principles of an approach in the next year.

Too often we have depended upon political fixes to make progress in our journey towards a single market.  Too often, the aims of liberalisation and opening markets have resulted instead in increased regulation.  So we need a new model for opening European markets and for removing barriers to competition.

In the UK, we decided that the way forward was that competition authorities, rather than politicians, should make the crucial decisions necessary for opening up markets.

In Europe, we should make the same move.  Rather than political initiatives based on harmonisation, Europe needs competition decisions which make a reality of the single market.  We need a more proactive EU competition regime – with investigations into particular European markets and sectors to drive up competition and prevent British firms from being excluded from markets from energy to telecommunications

A similar proactive approach must be taken to state aid reform.   We must tighten up the rules on the most distortive state aids in order to avoid inefficient subsidies which impose costs on taxpayers and consumers – and prevent full and fair competition.  And we fully support the commission’s efforts to ensure the rules on distortive aids are properly applied in all member states.

But we must also ensure the rules do not prevent measures which help make markets work better.  It took Britain more than a year to secure European permission to create regional venture capital funds for localities desperately in need of strong local capital markets that work for small businesses. And it took months more for permission to abolish stamp duty for business property purchases in areas urgently in need of local property markets that work and the new businesses and jobs that can ensue.

We are ready to work with the Commission and other Member States to develop state aid guidelines which would allow such measures to be approved more quickly in the future.  And we support proposals for a significant impact test to deal quickly and simply with aid which does not have a major effect on trade and competition – and urge the Commission to implement such a measure as soon as possible.

Alongside structural reforms, well-targeted public investment can also play a role in driving long-term growth.  Europe needs to do more to improve planning, management and better design and development of infrastructure projects – and support the development of a more effective partnership between public and private sectors using the efficiencies of private finance initiatives.  Indeed we believe that private finance can be extended from hospitals, schools and transport to prisons, urban regeneration, waste management and housing.

And at the same time, in an increasingly competitive world where investment in R&D is vital to promote both innovation and growth and the gap between our research and development performance and that of Japan and the US is still too wide, Europe must raise R&D investment to move closer to our aspiration of 3 per cent of EU GDP.

Capital markets can and should help us manage risk more efficiently between sectors, over time and across national boundaries. While America has achieved a high degree of diversification across state borders, investment in Europe remains fragmented on national lines and there is a need to remove barriers to diversification of investments across borders, for example in pension and mutual funds.   So we will support the European Financial Services Action Plan as it improves mutual recognition of financial services providers in insurance, banking and capital markets.

And just as greater integration – a common approach to research and development and capital markets – is to our benefit, so too greater subsidiarity in regional policy is the best way forward for Europe. Why? Because while Europe’s money can be best used to supply vital aid to the poorest countries of Europe richer countries need greater freedom to use their own resources to pursue modern, locally-led regional policies.  And we hope that the current review of regional aid will lead to a new regional aid framework before the end of 2004.

It is not enough to ensure that EU funds are spent better, the European Union must also make sure that its own finances are well protected against fraud.  Despite changes introduced since 1997 – including a complete re-write of the budgetary rulebook, a more independent internal audit service and, from 2005, a new, modernised accounting system – the latest report by the court of auditors and the recent allegations of financial wrong-doing at Eurostat suggest that EU funds are still too vulnerable to fraudsters and Europe must introduce further reforms to address these shortcomings.

Tax harmonisation

Second, the same globalisation that demands open, flexible liberalised markets demands more open, flexible and competitive tax systems.

Competition between tax systems exists in the United States of America even where they have not just a single currency but a federal state. So far from the single currency requiring tax harmonisation, it is becoming generally recognised that tax competition is an essential element of the economic reform agenda. It can encourage innovation and thus more efficient ways of raising revenues; can help cut through bureaucracy and reduce compliance costs; and while tax competition must be fair and above board – the UK is working with our international partners to root out unfair and discriminatory tax competition – tax competition allows governments to respond to national preferences on the role, structure and aims of taxation.

If we look round Europe today some countries wish to tax wine and champagne according to their national priorities; others beer and spirits differently; others energy differently; others tobacco. And tax competition recognises that Member States have different preferences that often reflect different long standing national values as well as preferences at any one time, and may also have different preferences for the level of social provision, the size of their public sector and accordingly the required tax take.

So it is right to resist schemes for the harmonisation of corporation tax or further harmonisation of VAT, just as it has been right to support exchange of information as the means to tackle avoidance of savings taxation.

Social dimension

Third, Europe’s founders recognised that markets are social structures and work best when there is an explicit social dimension.

And for its time and era the European social model which argued that enterprise had to be matched by fairness was an advance on responses to industrialisation in many other parts of the world.

But with competitive pressures now global and not just European, the social dimension of a global Europe cannot be one that stops the clock, freeze frames and protects people against change. The social dimension must be one that does not replicate an indefensible status quo but equips people to meet and master change.

Therefore it is right that Europe move from what are often called passive labour market policies to active labour market policies – policies which do not simply pay people to stay out of work but which encourage people to move from welfare to work and give them the skills they need.

So here, and in the treatment of employment legislation, Europe must embrace greater labour market flexibility as the only modern route to full employment and put new regulations to the flexibility test as well as devise new incentives that help the unemployed. And the prize of a modern agenda for a flexible, job creating Europe based on independent states working together is that we are able to answer peoples anxieties about the great insecurities that arise from globalisation.

Take long term unemployment

In France over 30 per cent of unemployed have been unemployed for more than a year, in Germany nearly 50 per cent, in Italy nearly 60 per cent.   On average across the euro area it is 43 per cent but only 8 per cent in the USA. In other words only one in twelve of the unemployed stay unemployed for more than a year in the USA but in Europe nearly half the unemployed are still out of work.

Today 14 million people across the EU are out of work – including more than 15 per cent of young people

So it is clear that the post-war objective set by all countries of high and stable levels of growth and employment cannot be achieved in the old ways: just by maintaining high levels of demand in, essentially, sheltered and protected economies.

Instead there are modern ways to make opportunity count and advance towards full employment that take us beyond the old idea that social cohesion had always to be bought at the cost of enterprise.

Instead of viewing flexibility as the enemy of full employment, we should recognise that the right kind of flexibility in European as well as British labour markets is essential for jobs.

So it is right that in the Wim Kok Employment Taskforce Report, Europe examines how, in the search for higher employment levels, we reform employment services, seek greater local flexibility, ensure social security benefits can encourage the return to employment, and sharpen tax incentives for work. And it is right both to create flexible markets and to equip people to meet and master change – through investment in skills and training, through the best transitional help for people moving between jobs, and through the operation of incentives to work like a minimum wage and a tax credit system, tailored in each member states to national circumstances.

Take the British working tax credit which combines the flexibility of a labour market working smoothly with minimum standards of fairness for every employee returning to work. An unemployed adult on a modest income moving from a higher paid job from which he has been made redundant to a lower paid job recoups through the tax system up to 70 per cent of the wage loss — with the generous British child tax credit making the same true for employees with children whose incomes extend up the income scale. So the tax credit makes possible labour market flexibility – and thus the creation of new jobs – while ensuring there is a minimum below which families cannot fall. Many in the rest of Europe are now examining tax credits.  And by providing a real and effective safety net for people moving jobs or moving into work, the tax credit system helps the flexible creation of jobs.

But regulation should only be used where necessary and the regulatory burden reduced wherever possible.  The impact, cost and benefit of new EU regulation should be considered rigorously before any proposal is adopted – especially regulation which threatens our commitment to more and better jobs.

Here again mutual recognition is a better way forward than harmonisation.

Research suggests that around half of all new regulations now emanate from Brussels.  In particular, Europe must reform existing rules to make it easier for entrepreneurs to start up and grow their businesses, instead of facing the same regulations as large businesses and suffering most from their impact on costs and time.

And as we move forward, we must strengthen our commitment to rigorously assess the impact of all new legislation on the competitiveness of the EU economy, and lessen the burden of existing legislation.

So we will:

• resist the quarterly accounting requirements imposed under the proposed transparency directive;
• call for changes in the Investment Services Directive to prevent the financial services sector facing over-burdensome regulation;
• make sure the Financial Services Action Plan is about reducing red tape and not increasing it;
• and resist inflexible barriers being introduced into the Working Time Directive and Agency Workers Directive.

I am proposing to Finance Minister colleagues that in the year 2004 a European wide push against wasteful regulation forms a central part of our economic reform agenda.

In this new initiative – where I believe there is a willingness of member states to cooperate – I believe the two European Councils – the Dutch Presidency summit of December 2004 and the British Summit of December 2005 – should be summits that sweep aside wasteful regulation

And in the next two years every proposed regulation should be put to the costs test, then the jobs test and then the “is it really necessary” test. Existing regulations should be put to the same tests.

Trade

Fourth, in the old trade bloc economy Europe could worry most about internal trade and least about trade with the rest of the world

It is now trade with the rest of the world that is growing fastest of all

Take investment flows. For fifty years from the 1940 America invested heavily in Europe

In the 1990s it is Europe that is investing heavily in the USA

Indeed for nearly ten years funds invested from Europe in America have exceeded funds invested in Europe by America

Globalisation means that trade is rising nearly twice as fast as output.

And it is obvious that while in the trade bloc era Europe could be protectionist and shelter its goods and services, globalisation forces Europe, like Britain, to be open and outward looking.

It is a long academic debate about the virtues and inefficiencies of trade blocs and the efficiency gains from a more open trading system. What is clear is that warring trade blocs will increasingly seen as not just inefficient but dangerous.

And in a new global environment where all the arguments for the benefits of free and open trade are now more pressing than ever before, but where political resistance is strong, we must stand firm.

So Europe needs to confirm its rejection of the protectionism and parochialism of the past and be open, outward looking and internationalist.

The breakdown of talks in Cancun – where the EU, US, Japan and many developing countries were unwilling to accept the necessary cuts in tariffs and trade-distorting support to reach agreement – is a bitter disappointment and a serious setback to the multilateral process.

There are now real risks that the response to globalisation is not to embrace change by opening up trade but to set our face against change, by becoming more protectionist.

And there is indeed pressure to create greater barriers, pursue bilateral deals, build regional blocs that are inward looking, economic fortresses that resist change.  Talking about free trade but not engaging with the benefits of it.

Any danger of European protectionism – or Japanese or American protectionism – should be resisted.

To present an inward looking “Fortress Europe” – rivals with America in a multi-polar or bipolar world – as the sequel to the nation state and the alternative to the embrace of globalisation would be to miss the major opportunities for prosperity: a failure to recognise the real gains that can come from embracing globalisation and open trade and an unwillingness to make the reforms necessary to equip Europe to benefit.

So to secure the gains from the opening up of trade in the twenty first century we need to take on vested interests in exactly the way Cobden and Bright did in the nineteenth century.

Europe must lead in the World Trade Organisation.

Along with America, the EU should not wait for the Doha development agenda to conclude.  We should start liberalising now and deliver the benefits that such reforms – properly sequenced – would have on growth, consumer prices and developing countries economies.

In particular Europe and America must, sooner or later, come together to tackle, at root, agricultural protectionism which is failing consumers, taxpayers, farmers and the environment, as well as seriously damaging the economies of the world’s poorest countries.

This summer Europe achieved an important step forward, breaking the link between production and subsidy for many products and reducing the trade-distortion impact of the common agricultural policy.

The CAP imposes enormous costs on the EU economy:  at 45 billion euros a year absorbs nearly half the EC budget; member states provide an additional 15 billion euros in support from national budgets; on top of that consumers bear a burden of 50 billion euros through higher food prices.  And agricultural subsidies and protectionism costs developing countries $30 billion a year leaving millions in poverty.

But at the same time as pursuing a multi-lateral agenda, Europe should also recognise that a strong transatlantic economic partnership is critical to long term prosperity

The transatlantic economic relationship now accounts for up to $2.5 trillions of commercial transactions each year, including $500 billions of foreign trade, and provides employment to over 12 million people.

This changes the relationship between Europe and America and it is in the interests of the whole of Europe that we have a strong high growth us economy just as it is in the interests of the USA to have a strong European economy.

So I believe that in the best and most forward looking responses to globalisation, Europe and America see ourselves as partners not rivals — not fortress Europe versus fortress NAFTA, but working together to be beneficiaries of global change and ensure that all continents benefit.

Last spring we submitted to the Commission the results of a new study showing that if we broke down the tariff barriers and the barriers to trade in services between Europe and America Europe could increase employment by 1 million, raise growth by up to 2 per cent in Europe and up to 1 per cent in America.

So Europe should recognise that a strong transatlantic economic partnership is critical to long term prosperity.  It is not just in Britain’s but in Europe’s interest that the EU and USA – with 60 per cent of the world’s output – seek common approaches to competition, liberalise services and capital markets, remove remaining tariffs, reinvigorate the transatlantic business dialogue, and together make multi-lateralism work for developing countries.

And last week the US Treasury Secretary John Snow and I agreed to take this work forward with our European partners – including proceeding with an independent study on how by liberalisation, the removal of tariff and non-tariff barriers, and agreed approaches to competition and regulation we can reap the benefits from greater trade and investment between our two continents.

The prize of being partners not rivals is that each of us – and our trade partners – stand to gain much more from globalisation.

And Europe’s role must not end there.  We also ought to be at the heart of the new relationship between developed and developing countries – especially the poorest African nations.

In the same way that under the Marshall Plan America helped the regeneration of Europe, Europe and America should work together for a new Marshall Plan – the economic development of the poorest countries.  Not just a moral and social imperative, but an economic priority.

Monetary and fiscal policy

Fifth, a Europe serious about meeting global competition should, as Britain has, move beyond the old short-termist approach to monetary and fiscal policy.

The lessons all advanced economies have learned are that in the new global economy, where investors will put a premium on maintaining monetary and fiscal stability, monetary and fiscal policy has now to adjust quickly to fast moving changes and to heightened risks of instability – and to do so it has to be proactive and forward looking

Fixed intermediate monetary targets assume a stable demand for money and therefore a predictable relationship between money and inflation.  But since the 1970s, global capital flows, financial deregulation and changing technology have brought such volatility in the demand for money that across the world money supply targets have proved unworkable.  So domestic policies which held to rigid monetarist targets are exposed by the liberalisation of capital markets.

At the same time, the old inward looking policies which manipulated supply and demand year to year at a national level – best characterised by short term domestic fine tuning – are as out of date as those which have held simply to rigid monetary targets.  The only reason politicians bound themselves to annual surplus or deficit targets was that no one believed that they had the discipline to meet long term fiscal objectives. But a fiscal policy that is not planned over the economic cycle is one that cannot respond to the ups and downs of a fast moving global economy.

Instead, the flexible and proactive approach a modern economy needs demands a framework – whether monetary or fiscal – based not on short term targets but on clear long term objectives that are met and seen to be met; well understood operational rules of procedure that are painstakingly followed; and an openness and transparency that helps build public trust and market credibility.

That is why my first acts as Chancellor in 1997 were not only to make the Bank of England independent but to introduce a new British model for monetary and fiscal stability with:

• Instead of monetary targets, a symmetrical inflation target that is as concerned about deflation as it is about inflation
• Instead of the old annual fiscal fine tuning, clearly established fiscal rules set over the cycle
• And because it is important not just to build trust but to educate decision-makers about the costs and benefits of different courses of action, an openness and transparency.

And it is precisely this kind of monetary and fiscal policy that is most attuned to the news of an open trading global economy.

First, the credibility that has come from independence for the Bank of England and the symmetric target has enabled the monetary policy committee to respond early and decisively  – raising interest rates in 1997, cutting them sharply in 1998 – and again with nine interest rate cuts since the latest global downturn began with the result that, even when more exposed than any European economy to the it shock, growth continued and unemployment continued to fall.

And I believe that the MPC is right to take the forward-looking approach of pre-emptive action – taken as the economy strengthens – to lock in stability.

Second, it is right that the system be open and accountable.

Most instability and high inflation in the past was caused by a breakdown of the consensus in our society on who gets what.  And Britain usually fell into recession after two inflationary bursts – an initial burst of inflation when demand got out of control and then a second burst of inflation when wage negotiators sought to catch up with higher inflation in their pay claims.

So in 1997 we knew that we had to fashion a model for stability that was seen as legitimate and fair and got the balance right between technical expertise and political legitimacy so wage negotiators would believe that the targets set will be met.

This required an open public debate about the target and the value of it being met.  The greater the degree of secrecy the greater the suspicion that the truth is being obscured and the books cooked.  But the greater the degree of transparency – the more information that is published on why decisions are made and the more the safeguards against the manipulation of information – the less likely is it that investors will be suspicious of the government’s intentions.

And that openness needs to be underpinned by accountability and responsibility.  Public trust can be built only on a foundation of credible institutions, clear objectives, and a proper institutional framework.

But, third, it is only within a framework of being long term and rules-based that markets will allow monetary policy to be proactive. This is what we mean when we talk about discretion being possible only when there is a long term discipline or constraint accepted by policy makers.

It is where there is no credible long term commitment to fiscal stability over the cycle that economies can find themselves in the position of cutting spending or raising taxes at the wrong time of the economic cycle, putting growth and stability at risk. And it is precisely at this point in the economic cycle that past British governments have made mistakes.

So in 1997, breaking from the old familiar annual public spending rounds, the old annual promises and breaking of promises over surpluses and deficits, we set long term fiscal rules over the cycle – rather than rigid year to year targets – and these have supported monetary policy in helping us continue to grow.

It is because of this long-term commitment to fiscal stability that:

• In 1997 and for two years we froze spending and turned the large deficit that we inherited into a large surplus;
• We then aggressively cut the national debt;
• We then paid off more debt in one year than in the whole of the period since the Second World War;
• And we then were able to reduce debt interest as a share of national income to its lowest in almost a century, since 1914.
• And our long term fiscal decisions will ensure that while debt is rising substantially in many other countries, levels of debt in Britain will remain low and sustainable.  At all times we will meet our fiscal rules and, more than that, we have examined the sustainability of the public finances over the next 50 years

In the Pre-Budget Report we will publish our plans showing that after tough decisions made on pensions – state pension spending will rise towards 15 per cent of GDP in Germany and France but remain at 5 per cent in Britain – our fiscal position is sustainable over not just a year or two but over the next decades – the necessary timeframe to assess the potential impact of an ageing population on public finances.

So with all the reforms we have already made in Britain, we have – I believe – a sound and credible British model for long term economic stability

Just like Britain, the euro area has been establishing a framework for economic stability.  In parallel with the creation of the independent Monetary Policy Committee of the Bank of England and our new fiscal regime we have seen the creation of the European Central Bank and the evolution of the Stability and Growth Pact.

Overall the euro area has managed to maintain both low inflation and relatively low fiscal deficits even in a period of world instability.  But there has been low growth. So just as we in Britain are examining how we advance, the ECB has been reviewing its monetary policy strategy and the EU has been looking at how the stability and growth pact can work most effectively.

And I believe that Britain, having had to learn from our experience of the 1980s and 90s of stop go policies – and having learnt from Europe and America – has today something distinctive to contribute.

Below is the text of the speech made by Gordon Brown, the then Chancellor of the Exchequer, at the Advancing Enterprise Conference held at the QEII Conference Centre in London on 26 January 2004.

I am very pleased to be able to welcome all of you, distinguished business leaders, to the QE2 centre this morning.  And let me begin by saying what I firmly believe: that the whole country owes you a debt of gratitude for the way, particularly throughout the world downturn of the last few years, you have been meeting the new challenges of the global economy – challenges that have required resilience, fresh thinking and the courage to change.

Today, leaders of business and government come together in one room to discuss the future.  And I am delighted that we are all here together to discuss how best we can advance enterprise and equip ourselves for the next challenges of the global economy.

It is the first time this Treasury has done anything like this.

So why, you might ask, have we done so today?

I wanted this get together because we all know that in the modern global economy Britain has to meet competitive challenges that are more fearsome than ever, but that the opportunities for the winners are greater than ever.

I believe that if this country is to achieve its full potential, government and business must work constructively and creatively together.

Through this exchange of ideas – with often different points of view – and through seeking the broadest harmony, our aim is to forge a shared and long term national economic purpose for Britain.

A shared purpose that recognises that wealth creation is, today, even more important to the society we want to build; and that if we have the strength to make the hard long term choices, Britain is uniquely well placed to become one of the strongest, most successful enterprise centres of the world.

So let me thank you for joining this discussion here today – friends from the business community, neighbouring governments, international guests – all of you distinguished in your own fields… all of you with powerful influence on the world economy.

So what are the facts this Monday morning that should both focus our attention and drive us forward?

We all know that the new global economy means speed in innovation – it took nearly forty years for the first 50 million people to own a radio, just 16 years for the first 50 million people to own a PC, but just 5 years for the first 50 million to be on the internet.

But it also means a shift in global production.  In 1980 less than a tenth of manufacturing exports came from developing countries.  Today it’s 25 per cent: in twenty years time 50 per cent.  That’s not just cars and computers but half of all the world’s manufacturing exports coming from developing countries.

By 2015 up to 5 million American and European jobs could have moved offshore – outsourced to countries like India and China as they strive to become the world’s second and third largest economies.  Indeed even today China’s significance to the global economy is that every year it, on its own, is adding as much output as the whole of the G7 put together.

And so for companies like yourselves, there is hardly a product or increasingly a service you produce that is not subject to global competition.  And at every point you have to look not just where round the world you source not just your materials but your labour and skills, but where your competitors source their labour and skills.

For Britain this means recognising there is no escape from uncompetitiveness by resorting to loss making subsidies, artificial barriers or protectionist shelters.  Indeed, the price of failure is not a long period of slow decline but sectors going under altogether.  And the opportunity for us is that as low cost, low value production comes under increasing pressure, the continuing challenge of finding and exploiting the high valued added, high tech, high skilled, science-driven products and services is the key to wealth creation in the future.

Here in the Treasury we have been thinking hard about all this.  And I believe that Britain ought to be well placed in this new world.

In this world of open, global competition, we – Britain – are the nation that not only pioneered free trade, the very idea of open competition, but have a greater global reach across all continents than any other.  With our long history of international engagement, our network of contacts – enhanced by the English language, the language of the internet and business everywhere – extends wider and deeper around the world than any other country.

And we have not just a long tradition of inventiveness and creativity – a tradition that gave us the steam engine, the telephone, penicillin and the television and made Britain the world’s leading industrial power – but since 1945 it is British inventors that have given us the internet, magnetic resonance imaging, the human genome project – all starting from Britain – affirming both our potential as a scientific nation for the future and the need to continue to invest in British science.

And we know we will only succeed if we can build on these inherent strengths and if politicians take the hard decisions making the tough long-term choices that are needed.

When it was clear that decades of stop go had held Britain back, that stability was the essential precondition for Britain to be the success it could be Tony Blair and I took the decision to forswear the power of politicians to manipulate interest rates for short term political advantage and make the Bank of England independent.

This was not an easy decision to persuade other fellow politicians to take.

But its importance is greater than ever in a world of ever more rapid financial flows where investors will gravitate to those countries where there is greater stability and away from those countries that do not deliver it.

And in Britain today, our new monetary and fiscal framework, this British model we have created – decisions we had to take to make the Bank of England independent, impose a symmetrical inflation target, cut debt and entrench tough fiscal rules – has made us better placed than before to cope with the ups and downs of the economic cycle.  So instead of being – as in previous downturns – first in, worst hit and last out of any world downturn, Britain has not only avoided recession but has continued to grow in quarter after quarter, year after year, in all six years of our Government since 1997. And we are not just one of the only major industrialised countries to have avoided recession but have been more stable than any of our neighbours over the last few years.

We will never take stability for granted and I can say categorically to investors everywhere that we will continue to steer a course of stability and support our monetary authorities in the difficult decisions they have to take.  And we will entrench not relax our fiscal discipline.

At this stage in the economic and political cycle governments have resorted to short termism in fiscal policy and gone on to raise the rate of spending.

But I am determined not to go down the short term road: I have announced that while meeting all our commitments and our fiscal rules the rate of spending growth in the next spending round will be lower than in this round – at all times I am determined that we will avoid the short termism and mistaken monetary and fiscal policies of the past.

And we will entrench this newly won and hard won stability and continue to demonstrate the same willingness to take the hard decisions so we can build on our strengths.

Now it is precisely these British qualities – our global reach, our scientific genius and now our stability – that are the vital assets for winning in a more harshly competitive global economy. And it upon this foundation that I believe we now have a unique opportunity to build the next crucial and decisive ingredient for future British success – a shared commitment to enterprise and wealth creation, and a determination to remove, one by one, all the barriers in its way.

We will take the tough long term decisions that are necessary to drive this through.

Just as with Bank of England independence we will take the long term view – take on political vested interests – and persuade the British people that everything they cherish about this country can only be built on the bedrock of a flourishing culture of enterprise and achievement.

And each session of this conference will focus on both specific barriers that can be removed and opportunities that can be seized so that we do better on flexibility and economic reform, on trade, on skills, on science, and have a stronger and deeper enterprise culture right across our country.

In the first session we want to learn what the imperatives and choices are for making a successful global company for the future.  The job of government is to do only what it needs to do, no more than what it needs to do – stability, a competitive environment, investment in science skills and infrastructure.

And at every stage – whether for companies starting up, investing, hiring, training, seeking equity, exporting – our aim is to be on businesses’ side.  And learning from US flexibilities, remove all the old barriers holding the enterprising back.

Let me give a few examples:

Planning: Britain must make our planning laws quicker, more flexible and more responsive – and we will.

Pay: Britain must and will do more to encourage local and regional pay flexibility.

Competition: we have just about the most open competition regime in the world.

Transport: we must work with you – private and public sectors together – to tackle the massive backlog in infrastructure investment.

Tax: Britain must do more to reward and encourage investment – and we will.  Just as we have already made our choice and cut long term capital gains tax from 40 pence to 10 pence, small business tax from 23 pence to 19 pence and corporation tax from 33 pence to 30 pence, I promise we will continue to look with you at the business tax regime so that we provide incentives for investment in wealth creation and greater rewards for success – and make and keep the UK as the best place for international business.

Most of all in the coming spending round a government focused on the global economic challenge must make hard choices – as we will do tomorrow on university finance – to make investment in science and skills a central priority because they are the investments where government can make a difference and are most vital to our future.

Every one of you here who runs a company knows that you must draw on the potential of everyone in your company to be successful; its no different for a country.

Through Learn Direct, Employer Training Pilots, Union Learning Funds and then the return of apprenticeships, over 1 million more adults are learning today than six years ago.  But I want us to be the best educated and best trained workforce and tomorrow’s much-needed reform of university finance – which I urge all Labour MPs to support – is another vital step towards that goal.

Our reforms will extend opportunity and equip young people with the skills to meet the demands of the 21st century and they deserve the support of all who share our goal of securing for Britain world class universities now and in the future.

And I also commit us to taking, in this spending round, the tough decisions necessary, demanding, in return for investment, the highest standards in our schools and further education colleges; reforming university finance to secure for Britain world class universities now and in the future; working with you to – both of us – invest in employee training… all the time encouraging and incentivising a work-your-way-up ethos of self improvement and self reliance among British employees.

And in science all the measures we are taking: £1.25 billion a year invested in renewing Britain’s science base; R&D tax credits; science learning centres; investing in science teaching in our schools; and what I can announce today – our commitment to make a long term plan for science funding over the next decade a central feature of our 2004 spending review… are for one purpose: to make Britain the best location for research and development and for innovation.

The flexibility we need is not just in Britain but in Europe too – and I am very pleased that we will be joined later this morning by some of my European Finance Minister colleagues.  The best contribution we pro-Europeans can make to the cause of Europe is by ensuring that in Europe we face up to rather than duck the difficult decisions about economic reform — resisting the kind of inflexibility being added into directives like the working time directive, the agency workers directive, the investment services directive and the transparency directive, as well as insisting on tax competition not tax harmonisation.

And I can tell you that the Irish, Dutch, British and Luxembourg Finance Ministers are today setting out our joint initiative to reduce the burden of existing regulation and to ensure that every new regulation is subject to strict and stringent tests for its impact on enterprise and on the competitiveness of the European economy.

To ensure that enterprise takes centre stage in the drive for economic reform in Europe, the British, French and German governments are also setting out today our proposals for more pro enterprise pro innovation policies in the European Union.

Better trading relationships with the US and the rest of the world help not hinder Europe.  So we welcome the restarting of the Transatlantic Business Dialogue.  We must do more to reopen the world trade talks by tackling agricultural protectionism.  And we propose a review to study – and then strive to secure – the removal of tariff and non-tariff barriers between Europe and America and to agree approaches to competition and regulation.

Finally – a government on the side of enterprise must build a deeper and wider entrepreneurial culture – where starting and growing a business is open to all with ideas and ambition.

Our proposals on enterprise for this year each add up to something bigger than their individual parts – initiatives that taken together can make a difference, and contribute to a change in culture and attitudes by valuing and celebrating the spirit of enterprise throughout Britain:

• We will hold the first ever national Enterprise Week – focused on inspiring the young to be enterprising – in November 2004;
• The Queen and other members of the Royal Family will be visiting the most outstanding examples of enterprise in each region on July 14th;
• In addition to the Queen’s Award for Enterprise, the Government is in discussions with the Palace about new ways of rewarding outstanding individual contributions to the development and promotion of enterprise in our country;
• Young entrepreneurs from Britain will meet and learn from young US entrepreneurs;
• All pupils before they leave school will have the opportunity to enjoy not just work experience but enterprise education too;
• We will launch a new National Council for Graduate Entrepreneurship;
• There will be an annual British competition for the British town or city of enterprise;
• And just as we compete for a European City of Culture we propose a competition for the European City of Enterprise too;
• A joint US-UK Forum on Enterprise – which I hope some of you will attend – this summer;
• In our high unemployment areas 2000 new enterprise areas as zones for new business opportunities with fast track planning, community investment tax relief, the abolition of stamp duty, and the prospect of enhanced capital allowances for renovating business premises.  And we have promised Local Authorities who create new businesses in their areas a share of the increase in national business rate as a reward for their enterprise.

But all of this tells us that building an enterprise culture doesn’t just depend on any one initiative or individual but on changes in attitude and outlook which will, in time, transform our culture.

In other words: advancing enterprise depends upon the efforts of all of us.

I’ve sketched out what I think are elements of our shared economic purpose for a global era:

A Britain that is open, outward looking, flexible, reforming, valuing science skills and enterprise;

Government effective where it has to be effective – in economic stability, science, skills, infrastructure;

Businesses able to be the wealth creators they are, and encouraged where it matters – with incentives and rewards to invest and grow;

And a long term shared economic purpose – by that I mean a long term commitment not ever to take the easy way out or the short term course but resolute to get things right for the long term: making Britain a better place to do business – and better still in five, ten, fifteen, twenty years time from now.