Tag: Speeches

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

My Lord Mayor, ladies and gentlemen.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

If only it were as simple as that.

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

I am determined that Britain does not follow that path.

That requires conscious, determined action.

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

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

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

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

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

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

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

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

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

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

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

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

Budget making in Britain has been changed forever.

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

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

We saw those figures earlier this week.

Lower growth than forecast.

A higher structural deficit.

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

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

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

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

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

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

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

The Budget will also create a fairer tax system.

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

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

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

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

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

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

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

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

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

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

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

So how do we resolve these uncertainties?

Not by wishing them away.

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

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

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

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

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

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

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

This is how I propose we do that.

First, the question of the content of regulation.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

The process will be completed in 2012.

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

I am delighted that he has agreed.

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

This is a strong team to ensure a smooth transition.

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

Should we restrict or split the activities of banks?

Has our banking industry become too concentrated and uncompetitive?

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

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

There are real issues of fairness.

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

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

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

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

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

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

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

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

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

Sir John Vickers has agreed to chair the Commission.

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

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

The Government looks forward to receiving their report next year.

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

My job is to help our country resolve them.

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

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

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

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

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

Because you have a vital role to play.

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

We simply cannot afford to continue as we did before.

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

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

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

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

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

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

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

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

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

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

Thank you.

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

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

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

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

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

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

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

We had to wait to see the Budget.

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

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

The Budget was empty.

There is no spending review for the years from 2011.

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

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

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

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

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

We think this is wrong.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Philip Hammond will set out in more detail what both men recommend, and we are today publishing their advice to the Conservative Party in the interests of transparency.

Clearly, part of the £12 billion of savings will be found in the health service and in overseas aid.

We have made explicit commitments to protect these budgets, and so the money saved will be reinvested onto the frontline.

In the Ministry of Defence, we are conducting a strategic defence review this year and we don’t want to pre-empt that.  The existing plans for the defence budget will remain unaltered this year.

The other government departments together represent just over half of total departmental spending.

So we are expecting them to find, together, £6 billion of savings from the waste that even the government now admits exist – and which the government’s own efficiency advisers tell us can be found.

And let me be clear – not a single penny will come from the front line services that people depend on.

This £6 billion in savings – alongside the smaller savings we have identified by, for example, cutting child trust fund payments to the better off and stopping people with incomes over £50,000 receiving child tax credits – will be used to reduce the government’s borrowing requirement for the year 2010/11.

That £6 billion or so represents less than £1 in every £100 that the government spends.

Given the much larger savings that almost every business and ` many families have had to find from their own budgets in the last two years, it is not too much to ask.

No one can seriously argue that tackling waste is somehow going to damage the economy.

But from the conversations we have had with institutional investors and others, we believe it will make a start in reassuring those who fear Britain will lose its credit rating and restore confidence in our economy.

Identifying £6 billion of wasteful spending in 2010 is just that – a start.

We will hold this autumn the spending review which the Labour Government, with all their access to information, have so cynically refused to hold.

This will identify where larger savings and reforms can be made.

Some of the measures I announced at the Conservative Conference will take effect in 2011, such as the general pay freeze in the public sector that excludes the lowest paid million.

And we will have started by then to make real progress in reducing the size of Whitehall and the quangos by one third.

But identifying the £6 billion of savings in 2010 gives me the confidence that we can now say with certainty that we will be able to act more quickly on the deficit and at the same time avoid the most damaging part of Gordon Brown’s national insurance tax rise.

It also enables us to bring the share of dealing with our deficit accounted for by tax increases down from one third of the total towards one fifth.

As I said in January, this 80:20 split – 80% spending restraint, 20% tax increases – is what international evidence and the Treasury’s own internal analysis believes is the best balance for achieving sustained deficit reduction.

Labour’s National Insurance increase is a tax rise on working people who earn above £20,000 – roughly half of the working population.

It is a tax rise on almost all jobs.

It has been described by the CBI as a “serious mistake [that] will hold back job creation and growth”.

The Small Business Federation calls it “an attack on jobs” that “will cause deeper unemployment”, and cost 57,000 jobs in small and medium sized businesses alone.

Quite frankly, it is the economics of the madhouse.

Gordon Brown talks about securing the recovery.  He is taxing the recovery.

He talks about creating jobs.  Well, the businesses that create jobs say his policies will destroy tens of thousands of them.

He pledges to make families better off one day, and then hits them with a tax on their incomes the next.

And for what?  To pay for the very wasteful spending that the Labour Government themselves admit exists.

Gordon Brown may raise taxes on working people to pay for waste, but we will not.

We will take his national insurance tax plans and we will raise the primary threshold for employees by £24 a week and the upper earnings limit by £29 a week.

We will raise the secondary threshold at which employers start paying national insurance by £21 a week.

Compared to life under Gordon Brown, every national insurance payer earning between £7,100 and £45,400 will be up to £150 better off.

The tax on every single job with a salary of more than £5,700 will be reduced for employers by up to £150.

Under the Conservatives seven out of ten working people in Britain will be better off than under Labour – and nobody will be worse off.

People on lower incomes will receive a tax cut – indeed they will benefit the most as a proportion of their earnings.

People on middle incomes will avoid Labour’s tax rise.

Taxes on jobs will be lower.

The tax system will be fairer.

Jobs will be saved.

That is the way to secure a recovery.

And it shows, as this election approaches, the choice facing Britain.

The re-election of a Labour Government under Gordon Brown – with more debt, waste and taxes – will bring us a new recession.

Labour will kill the recovery with their tax on jobs.

We will cut Labour waste to stop it.

Seven out of ten working people will be better off with the Conservatives.

Because we believe we are all in this together – and we need new energy and fresh ideas to get Britain working for everyone.

Below is the text of the speech made by George Osborne, the then Shadow Chancellor, on 2nd February 2010.

I believe that in the end all elections are about a choice between the future and the past.

As we emerge from the economic wreckage of the past decade, the British people are now looking for a different kind of future.

So today the Conservative Party answers this central question: where is the growth going to come from?

This is the question that will determine the future of:

– everyone that has lost their job in this recession;

– every business that is struggling to survive;

– and every family trying to get by with less than they had before.

The answer is a new economic model for growth – set out in detail in this important economic policy document that we are publishing today

As the last major economy out of recession, and with the weakest recovery in the G20, we need change to get our country back on its feet again.

We cannot go on with the old economic model of the last decade.

A model that depended on:

– a public spending boom we couldn’t afford;

– an overblown banking sector;

– and unsustainable consumer borrowing off the back of a housing bubble.

These were the shaky foundations of the age of irresponsibility that left Britain so badly exposed to this economic crisis.

They cannot be the sources of sustainable growth for the future.

We need new sources of growth.

Our new economic model will be built on long term saving and investment.

We want to see a private sector recovery driven by exports and enterprise.

And we want government to support this new economic model with a competitive tax system, modern infrastructure like superfast broadband, investment in green technology and lasting education and welfare reform.

Real support for wealth creation – not burdening the future to pay for today.

From the ashes of the debt boom we will build a saving society.

Now we’ve heard promises from politicians before.

“No more boom and bust”.

“Prudence with a purpose”

“Leading the world out of recession”

Even to repeat Labour’s promises invites ridicule.

So we today offer a new approach.

For the first time ever we are asking to be judged against eight clear and transparent benchmarks – Benchmarks for Britain – against which the public can judge the success or failure of their Chancellor and their Government over the next Parliament.

Let me take you through the eight Benchmarks for Britain that we are publishing today, as well as the concrete measures we will take to achieve them.

First, we will ensure macroeconomic stability.

Largest budget deficit in the G20, the largest in our peacetime history. Credit rating under threat.

Today, for the first time in our history, Britain’s credit rating is under threat.

Indeed, some commentators think a downgrade is inevitable.

That would mean higher interest rates on our national debt and throughout our economy could tip us back into recession, with more jobs lost and more businesses going under.

That’s why our first Benchmark for Britain is to…

…Cut the deficit more quickly to safeguard Britain’s credit rating.

I know that we are taking a political gamble to set this up as a measure of success.

Protecting the credit rating will not be easy.  The largest bond investor in the world thinks there is an 80% chance of a downgrade.

But the economic risk of not setting ourselves this benchmark is not one that I am willing take.

So we will set out a plan in our first budget to eliminate a large part of the structural deficit in the first parliament.

We will make a start in 2010.

The pace of fiscal consolidation will be co-ordinated with monetary policy.

And we will protect Britain’s credit rating and international reputation.

Our second benchmark is to create a more balanced economy.

The economy Gordon Brown built is severely unbalanced.

Investment as a share of GDP is the lowest of any G7 country.

Global export market share is falling as Germany’s rises.

Growth is driven by public and private debt.

The next decade must look very different.

A sustainable recovery must be built on exports, business investment and saving.

So we set this tough benchmark.  We want to see:

Higher exports, higher business investment and higher saving as a share of GDP.

Under Gordon Brown, all of those things fell as a proportion of national income.

The document we are publishing today sets out how in detail we will achieve a change of direction, with more support for exports, lower corporation tax rates, an attack on excessive regulation and measure to restore our savings culture.

Our third benchmark is to get Britain working.

We have the highest youth unemployment ever.

There are more children living in workless households than any other European country.

Child poverty is rising.

Despite Gordon Brown’s pledge in 1997, youth unemployment has hit record highs under Labour.

And despite Labour’s pledge to make work pay, more children live in workless households than in any other European country.

We can’t go on like this.

So our benchmark is

Lower youth unemployment.

Fewer children living in workless households.

Our plans will help more people into work, support new businesses that create jobs and provide young people the skills they need to succeed.

But we know that ultimately it is businesses that create jobs.

That’s why our fourth benchmark is to make sure that Britain is open for business.

Britain struggling to compete.

The UK ranking on government regulation has fallen from 4th to 86th, and on the burden and effect of tax it has fallen from 4th to 84th.

Those rankings are truly shocking – and we will turn things around.

Our benchmark is to:

Improve Britain’s global rankings for tax competitiveness and business regulation

Our proposals to simplify taxation and combat excessive regulation will set businesses free to compete.

Because enterprise is the only source of sustainable growth.

Over the last decade, growth hasn’t been evenly shared around the country.

Growth in the rest of the UK has lagged behind the South East.

The private sector’s share of the economy has fallen in every region, but especially outside London and the South East.

We need to change that, so our fifth benchmark is to ensure that the whole country shares in rising prosperity.

We will raise the private sector’s share of the economy in all regions of the country.

With a high speed rail network, with super-fast broadband, and with really effective local support for businesses we can make this a reality.

But given the state of our public finances we also need the public sector to deliver more for less.

Over the last decade it’s been less for more in too many parts of our public sector.

We have seen public sector productivity falling since 1997.

So our sixth benchmark is to reform public services to deliver better value for money.

Our reforms will change that, by increasing diversity of provision, extending payment by results, giving more power to consumers and improving financial controls.

Our benchmark is:

Higher public sector productivity and better value for money.

The financial services sector is one of our global success stories, and we want it to stay that way.

But because of a massive failure of regulation it has put our whole economy at risk.

UK banks were more leveraged than American banks.

We saw the biggest bank bailout in the world.

And still small businesses are struggling to get credit.

We must learn the lessons of the crisis, instead of carrying on much as we did before.

That’s why our seventh benchmark is to create a safer banking system that serves the needs of the economy.

We lower leverage.

Less dependence on unstable wholesale funding.

More credit to small businesses.

So we will abolish the failed tripartite system of regulation and put the bank of England back in charge, and we will pursue international agreement on reforms to protect taxpayers.

Finally, we need a recovery that is sustainable environmentally, not just economically.

I believe that this can be a huge opportunity – greening our economy can be a win-win solution.

But over the last decade it’s been lose-lose.

We see higher emissions than 1997 – and Britain has just 5% of the global market for green goods and services.

So our eighth benchmark is to turn both of these things around.

We will see lower emissions and a rising global market share for low carbon technologies.

With the Green Investment Bank that we are announcing today and new incentives for energy efficiency investments, we can create high quality jobs and cut our emissions at the same time.

I am delighted that Lord Stern has agreed to advise us on the creation of this Green Investment Bank.

These are the Benchmarks for Britain.

Benchmarks that will guide the next Conservative Government as we build a new, more stable, more balanced economy.

They mean more jobs, more savings, more enterprise.

Borrowing from China so that we can buy the goods they make for us may be Gordon Brown’s idea of the future, but it is not ours.

We want Britain to be selling to China and the world.

Judge us by these benchmarks.  Hold us to account.

We will be accountable.

The whole country will see as we Conservatives rebuild our economic house on more solid foundations.

Now this cannot be achieved be government alone.

We need a whole national effort that brings together government, business and individuals.

Over the next few months we will be seeking support for our plans from British businesses.

The message is clear.

Britain cannot afford five more years of Gordon Brown.

Instead, business is backing Conservative plans to put Britain back on her feet.

As the election approaches, it’s clear that Gordon Brown will say anything and spend anything to cling on to power.

The man who failed to fix the roof while the sun was shining, and took Britain into the deepest and longest recession for generations, cannot be trusted to take us out of it.

Like every Labour Government, this one is ending by running out of money.

Britain cannot afford five more years of Gordon Brown.

So the choice at the election could not be clearer.

Five more years of Gordon Brown, or change to get Britain back on its feet.

Below is the text of the speech made by George Osborne, the then Shadow Chancellor of the Exchequer, on 8th April 2008.

Last Friday I was in New York City meeting some the heads of the major investment banks who are on the front line of the current financial turbulence.

Today I am honoured to be here at Harvard, where I want to learn from those who are at the cutting edge of current economic thinking.

And I’m particularly pleased to be here for the centennial of Harvard Business School.

But my journey between the two cities took me on a detour via a museum in upstate New York.

Hyde Park was the home on the Hudson River of Franklin Roosevelt and today it is the site of his presidential library.

Visiting that library this weekend I was reminded that the first and most immediate of the economic crises which the new President Roosevelt had to confront in 1933 was a banking crisis.

And the foundations of the current US regulatory structure which is trying to deal with today’s credit crunch was laid down as a response to the credit problems of the Depression era.

The creation of the FDIC to protect the savings of the American family.

The split between commercial and investment banking enshrined until recently in the Glass-Steagall Act of 1933.

And the powers granted to the Federal Reserve to preserve financial stability in the 1930s which were invoked over seventy years later to preserve stability again by the rescue of Bear Stearns.

The bankers, economists and politicians of the great Depression era had to confront problems that few had foreseen and shape a whole new set of answers.

Today’s generation of bankers, economists and politicians across the western world are also confronting problems that few had imagined possible even a year ago.

The fact that wholesale debt and credit markets would simply freeze.

The fact that everyday financial products from mortgages to student loans to auto finance would be withdrawn from thousands of families.

The fact that in Britain the Government would end up nationalising a $200 billion retail bank and that in the United States the Federal Reserve would intervene with taxpayer guarantees to save a major investment bank.

And the fear that this financial turbulence on Wall Street and the City of London heralds economic misery on Main Street and in the high streets in Britain.

It is incumbent on us to think through what the long term implications of these events might be, not just for our system of financial regulation, but for the way governments and central banks seek to manage the economy.

Not to rush to rash judgements or premature solutions. Not to assume that every problem needs a new law and a new piece of regulation. But to acknowledge that we have not reached the end of economic history.

Many people thought we had. Economic policy seemed to have reached a consensus on independent central banks, inflation targeting and floating exchange rates.

Some politicians went so far as to boast that they had ended ‘boom and bust’. They now look ridiculous.

Of course, there were those who pointed out that the build-up of debt could not continue, that the current account could not grow for ever, and that an economy built on such levels of debt was unsustainable.

Their worries have been largely ignored – indeed many of the most advanced macroeconomic models barely have a role for money or balance sheets.

Macroeconomic policy over the last fifteen years or so has been focused on the need to control inflation and the demand cycle.

This is particularly true in the UK, where we finally settled in 1992 on a policy of inflation targeting, cemented in 1997 by the independence of the Bank of England.

Bank independence was an idea whose time had come. I welcome it and in office we would strengthen it.

But it was designed to deal with the old challenges: of persistent inflation and excess demand.

The credit crisis demonstrates starkly that controlling retail inflation is not enough. Recent threats to stability have come not just from the demand cycle but from the credit cycle.

Over the past decade both the UK and the US have seen in rapid rises in the liabilities of households, companies, and banks. But under the terms of the former economic consensus, all looked well: retail price inflation was low, and growth was positive.

With the addition of the deflationary power of China and the rest of the developing world to the global economy, the debt and the deficits were ignored.

We could, we were told, survive with increasing leverage for ever. Yet we are discovering – as Milton Friedman might have predicted – that the link between money and inflation has not in fact been broken.

Inflation expectations have been held down by the knowledge that the central banks were mandated to keep inflation low. But we are now all discovering that the extra liquidity has flowed not into retail prices, but into asset prices and unsustainable increases in household balance sheets.

For a long time this has been good news for home-owners and investors, but it is at the core of the problems we now face.

An unsustainable rise in asset prices relative to retail prices can only unwind in one of two ways. Either asset prices fall. Or retail prices rise. Both are disruptive to the economy, and to millions of families in America and Britain. Both are happening now.

In the UK house prices are falling and consumers are witnessing a steep rise in the cost of living.

Harvard’s own Ken Rogoff, the former IMF Chief Economist, summed it up with a quote from Robert Frost: “Some say the world will end in fire, some say in ice.” I look forward to meeting him tomorrow to find out which it will be.

What would be quite wrong is simply to reflate the bubble, and imagine our problems would be solved. Instead, the short term priority is to manage the unwinding of asset prices rises and increased leverage, while keeping a firm grip on retail price inflation.

But the question of how we get ourselves out of this mess in the short term, is tied to the question of how we make sure it doesn’t happen again.

In the medium term, we need to recognise that the cycle of easy money and easy credit is a function of the financial markets and macroeconomic policy and it’s there we need reform.

And finally, this crisis reveals the weaknesses in our economies that we have to fix in the long term.

So let me set out my thinking on what the policy response should look like in the short, medium and long terms.

The priority in the short term must be to weather the current crisis and prevent the emergence of a vicious spiral of restricted credit, falling asset prices and falling demand.

But in doing so we mustn’t lose sight of controlling inflation and undoing twenty years of hard work.

The Fed’s dramatic action to prevent the collapse of Bear Sterns was necessary to stop counterparty risk becoming a generic issue across markets.

As we discovered, interconnected banks are not just normal companies, or indeed just providers of money in the financial system. Increasingly, banks have become part of the infrastructure on which the system relies.

But this implicit Government insurance brings with it problems. Bear Sterns’ creditors were paid for the risk they took lending to the bank. Now that risk has been shouldered by the taxpayer.

We had the same problem in the UK with Northern Rock, one of the largest mortgage lenders. The Government guaranteed not just retail deposits but wholesale deposits.

So there is now an implied Government guarantee on any bank that can’t fail. But even the Government’s balance sheet isn’t big enough to guarantee the whole banking sector. There must be a concern that risk will be mispriced once again.

There are some solutions to these difficult problems.

We need considered and proportionate reforms to the systems of financial regulation and oversight that failed.

I know that a vigorous debate has been started here in the US by Secretary Paulson’s proposals.

I have been impressed in New York by the leadership shown by the Federal Reserve and the authorities in managing the crisis. The attitude appears to be: we will do what it takes.

If that means selling an investment bank over a weekend then that is what will be done.

In the UK the system set up by Gordon Brown in 1997 to ensure financial stability failed its first real test with the run on Northern Rock.

There was five months of dithering before the British Government was forced to put through the nationalisation they had tried for so long to avoid.

In Britain, we argue that the Bank of England should be given new powers to step in quickly to rescue failing financial institutions.

We should also look carefully at the way new credit and debt products on both sides of the Atlantic have grown on the back of tenuous bilateral agreements rather than any system of central clearing.

The result is that counterparty risk can threaten the whole system, as we saw with Bear Stearns. We need to avoid that.

An idea raised with me last week both at the New York Stock Exchange and by George Soros is that we should create much more transparent and independent clearing houses for these new debt and credit products like CDOs. Others have suggested to me that we should look carefully at the prime broking role of hedge funds too.

Another immediate lesson of the credit crunch is that we need to remain open to other sources of capital, including from the sovereign wealth funds that operate on a commercial basis.

And, away from the financial markets, we need to make sure that our public finances are sufficiently robust to be able to help families and businesses who are on the sharp end of the current problems.

The lesson could not be clearer. We should use the good years to set aside something to help in the difficult years.

In the US the bi-partisan fiscal stimulus package means that millions of households around the country are about to receive cheques for hundreds of dollars to help them through difficult times.

In the UK, by contrast, our Government is raising taxes on the lowest paid, on small businesses and on capital gains. They are adding to the cost of living instead of easing it.

This is a function of the UK having the largest budget deficit in the developed world. We have been reminded again of the consequences of not fixing the roof when the sun was shining.

And finally, even without the crutch of fiscal support, it helps no-one to see a spiral of repossessions and fire-sales, so we have called on all mortgage lenders to follow best practice and support those borrowers in difficulty.

These are all part of the immediate responses to the immediate problems we face on both sides of the Atlantic.

But I believe there is also a broader lesson to be learned for the medium term. Because the truth is that we cannot and must not separate financial policy from the macro-economic framework within which it operates.

Imagine for a moment that the last five years had been characterised by better regulation and tighter controls aimed at producing fewer sub-prime loans that will never be repaid and less investment in the complex financial products that have played such a fundamental role in the current crisis.

One intended result would have been lower aggregate demand in the economy, probably accompanied by lower inflation.

But the monetary response on both sides of the Atlantic would almost certainly have been lower interest rates, and as a result the financial system would have found other ways of expanding credit.

Because the reality is that while we may have successfully controlled inflation, this has largely been accompanied by disregard for the current account, asset prices, the rate of growth of credit or household balance sheets.

Fundamentally, a macro-economic policy that overshoots the sustainable rate of growth by encouraging millions of households to borrow more than they can afford is not going to be made safe through financial regulation.

In the UK we have gone further than the US in using monetary policy to target a single narrow measure of inflation.

But the problem with all defined policy targets is that they only work so long as they maintain a consistent relationship with the longer term goal they are designed to achieve – in this case sustainable economic growth.

As has happened repeatedly before in economic policy, while the targeted variables behaved, the information they contained about the rest of the economy became less useful.

Goodhart’s law has been proven once again.

In particular, the UK system was not designed for a situation in which excess domestic demand was combined with downwards pressure on inflation from elsewhere.

And it has not proved easy to integrate concerns about other economic signals into the formation of monetary policy – the deterioration in the trade and current accounts, and in particular the unprecedented increase in household debt.

We have warned for several years that the boom in household indebtedness was unsustainable – as I said two years ago “an economy built on debt is living on borrowed time”

But the British government ignored this warning because their economic policy refused to see it as a problem.

The result is that household debt stands at 175 per cent of incomes, higher even than the 140 per cent in the US.

Of course debt is not a bad thing in itself – for millions of people it is the means to their dream of home ownership. But the debt has to be sustainable.

The new economic challenge of our time, then, is to tame the credit cycle without damaging the dynamic financial sector that is so vital to the success of both our economies. That is the way to ensure real economic stability.

I’m not going to propose a quick fix solution – the right answer will only emerge from a thoughtful and measured debate. But there are some ideas beginning to emerge that might point us in the right direction.

It is clear that better regulation and risk management alone will not solve the problem – important as they are.

And the traditional instruments of monetary policy – interest rates – are not well suited to controlling asset and credit bubbles.

The IMF recently added its voice to calls for central banks to pay greater attention to housing markets when setting interest rates, particularly in countries where sophisticated mortgage markets appear to create a powerful “financial accelerator”.

But as Ben Bernanke has argued convincingly, the danger is that by targeting asset prices as well as retail prices with just one policy instrument the real economy may become less stable not more.

An alternative is to use the other tools at the disposal of central banks to target the credit cycle while keeping the focus of interest rate policy on the demand cycle and inflation.

This idea has been suggested by Professor Charles Goodhart amongst others, and was raised recently by Paul Tucker, the Director of the Bank of England responsible for markets.

At the core of this approach is the insight that financial crises are born during the financial booms that precede them – the only way to prevent the bad times is to stop the good times getting out of control.

The proposed solution is to vary the capital requirements that control the amount an institution such as a bank can lend.

Currently these requirements vary across institutions to reflect the amount of risk they are exposed to.

There is an emerging view that one lesson of the credit crunch is that these capital requirements need to be higher, and the opportunities for avoiding them by going off balance sheet with special investment vehicles should be curtailed.

Last month David Cameron, the Conservative Leader, rightly argued that we need to look again at the Basel accords that govern capital rules at an international level.

But what if the capital requirements could be varied not just between institutions, but also over time in order to target the credit cycle?

Under such a system a bank’s capital adequacy ratio would comprise of an element set by the prudential supervisor, specific to that bank as now, combined with an element set by the monetary authorities across the whole financial system.

Counter-cyclical capital requirements could also help to dampen the unhelpful pro-cyclical tendencies built into the Basel accords – which tend to encourage risky lending during a boom and to discourage lending when times are difficult.

This idea is still at an early stage but I believe it deserves serious consideration.

The difficulties are considerable, and in a globalised world we need to look at a global solution. But the potential rewards are so great that we should carefully consider all of the options available to us.

So the medium term challenge is a macroeconomic framework that can deliver real economic stability and sustainable growth – both on the fiscal side so that we are never again so badly prepared for an economic slowdown, and on the monetary side so that we can reduce the severity of credit cycles.

But over the long term, for all the problems of the free market, let us not forget that the responsibility we are fulfilling is quite simply to improve the best instrument even invented for improving the condition of mankind.

The credit crunch will be used by some to make the case against capitalism itself, to regulate anything that is risky, and to cut each economy off from the rest of the world.

But far from undermining the case for capitalism, the credit crunch makes the case for improving the way our global free markets works.

In the United States, your flexible economy means that you have bounced back quickly from past recessions.

We in the UK need dynamic supply side reform, to reduce taxes sustainably, and to improve the skills and build the infrastructure business needs.

For as the tide of debt-fuelled growth recedes in the UK, we are now seeing rocks exposed: the rocks of an economy that will find it increasingly difficult to compete against the emerging giants of China, India, and Brazil.

We must resist the siren calls of protectionism, here in America and in Britain. For whatever the depth of the current problems, all the evidence shows that cutting yourselves off from the world is surely worse.

Every generation must make its case for free markets. Not just free markets at home, but free trade overseas.

For what else, could over a generation lift two billion people – a third of the world’s population – out of grinding poverty and connect them to the world economy?

What else could have brought so many opportunities to so many of our fellow citizens?

Yes, globalisation brings with it new challenges.

Yes we must work tirelessly to make globalisation work better.

But globalisation has been the greatest driver of prosperity the world has ever seen.

And as we work together, to improve our understanding of the world we live in, and to solve the great intellectual challenges of our age, we should never forget that powerful truth.

Below is the text of the speech made by George Osborne, the then Shadow Chancellor of the Exchequer, to the Policy Exchange on 14th April 2008.

I am grateful to Policy Exchange for once again providing me with this opportunity to speak to you.

Last week I visited Wall Street and Harvard. I went there to speak to the heads of the leading investment banks about the problems in the financial markets and to learn from the leading economic thinkers about what this means for our world and for Britain’s place in it.

This week the Prime Minister is in America. He has also added Wall Street and Boston to his trip. I wonder about the reception he’ll get.

For everywhere I went, people kept asking: “What’s happened to Gordon Brown? Why has it gone so wrong for him? What are you going to do differently?”

Today I want to try to answer those questions. For to understand the Conservative alternative, we must first understand why Gordon Brown has failed.

Of course, it is tempting to start with what Americans call the ‘character issue’.

That’s apparently what the new marketing men drafted into Downing Street to help seem to believe, judging by the private briefings we hear reported. Gordon needs to show a ‘bit more personality’ we are told. His speeches are ‘too stilted’ says another. Stephen Carter merely observes that working with the Prime Minister is like living in a ‘surreal cartoon’.

It is ironic that the politician who once said of his opponents that they ‘could do the PR, while he would concentrate on being PM’ should have the decline and fall of his premiership chronicled in the pages of the magazine PR Week.

And what started in the heart of Downing Street has now spread. Labour MPs are queuing up to attack the man they elected unopposed to lead them less than a year ago. Some of them think too that Gordon Brown’s problems are all about style. One ministerial aide told the Prime Minister at the now infamous meeting of the Parliamentary Labour Party that the problems would be solved if he appeared on the sofa on Friday Night with Jonathan Ross. I suspect that’s the last we’ll be hearing of that ministerial aide.

Now I am no fan of Gordon Brown’s character. I shadowed him in the Commons for over two years, saw the worst of it, and I know why his closest advisers worry about it. But they are missing the central point.

The striking thing about the divisions in the Labour Government is that they are not merely arguments of style but ones of substance. That makes them much more lethal and destabilising. For how can a Labour Party fighting itself be expected to fight for the country?

The Justice Secretary Jack Straw no less is lobbying against the Prime Minister’s criminal justice plans for detention without charge. When he is not fighting the Justice Secretary, the Schools Secretary Ed Balls is waging a war against the government’s own education reforms to further his own leadership ambitions.

Perhaps most damaging of all, over 70 Labour MPs have come out against the centre-piece of last year’s Budget – the 10p tax rise on the incomes of the lowest paid. They know this will hit the very families who thought Labour was supposed to be on their side. Sadly, I suspect many Labour MPs will lose the courage of their convictions by the time parliament votes on the tax rise next Monday.

In one respect, this great Tax Revolt in the Labour Party is a massive political failure by the Prime Minister. I am always amazed that Gordon Brown still carries a reputation in some circles as the great master strategist. Even a cursory look at the last three Budgets and Pre-Budgets would surely make people think twice. One was exposed within hours as a giant tax con when the 10p tax rise was revealed; the next lost Labour the support of the business community and ceded the intellectual agenda to the Conservatives; the third and most recent sent Labour to new lows of unpopularity as Mondeo Man saw his car and his pint and his small business all hit with new taxes.

But the root of the problem is not political strategy but economic strategy. Governments should be there to help people when they need it. They should set aside money in the good years so it can make life easier for families in the difficult years. So we shouldn’t be seeing taxes rise in a downturn. The lowest paid shouldn’t be targeted by the Exchequer when they already struggling with a rising cost of living. This speaks to a wider point.

Gordon Brown rested his reputation on a three-pillared economic strategy. He said he should be judged against its success. The three pillars were:

– Stability: that he had brought “an end to boom and bust”

– Prudence: that he would only borrow to invest

– Productivity: that he would improve the underlying performance of the economy

Stability, prudence, and productivity.

For a while, the remarkable period of low inflation and global growth driven by the emergence of China and India masked the cracks. Yet now, as global growth slows and inflationary pressures grow, we can see how each pillar of Gordon Brown’s economic framework is now broken.

Let us examine each pillar in turn.

First, what Gordon Brown called ‘stability’ but the rest of us know as monetary policy.

The decision to give the Bank of England independence built on the regime of inflation targeting introduced by the previous Conservative government.

Inflation targeting was straightforward but radical. Fiscal policy – tax and spend – would be set for the long term, while monetary policy – interest rates – would be used to stabilise the economy and hit an inflation target set by democratically accountable politicians.

This was a system designed to address the old problems of managing the demand cycle and the persistent inflation that had been the core weakness of the British economy.

Once inflation targeting was institutionalised by the Bank of England Act, everything else in the economy – the exchange rate, the current account, debt levels, and the structure of the economy itself – were all left to find their own balance.

Politically, the system focussed attention on the targeted variable: inflation. And that was how it remained for many years.

Because our inflation was low, thanks in large part to the import of deflation from an emerging Asia, anyone who raised concerns about imbalances in other areas – the current account, debt, or the odd fact that our growth was becoming more and more concentrated in a few limited areas of the economy – was told to stop worrying, that the world had moved on.

Since asset prices – houses, property, and shares – are not part of the inflation target, the massive inflation in asset prices was allowed to go unchecked.

David Cameron, myself, and many others warned that the growing level of consumer debt that went hand in hand with this inflation in assets was unstable. As I said two years ago, “an economy built on debt is living on borrowed time”.

Of course many of these problems also occurred elsewhere in the developed world, but what is striking when you look at the figures is just how great the scale of these problems has been in Britain.

Gordon Brown’s said “I will not let house prices get out of control”. But our housing market increased faster than any other developed economy, twice as fast as in the United States. Our personal debt is the highest in the G7, at 175% of income, compared for example to 140% in the United States.

The Prime Minister says the subprime issue is an American one. But the IMF declared last week that, judged by the size of our economy, our banking system is the most exposed to low quality sub-prime lending in the world.

So the problems were more acute in Britain and, of course, nowhere else did the Government so publicly announce that that the problems of monetary policy had been solved for ever – that we had reached the end of economic history.

I do not know of any other country in which the head of the finance ministry declared that the economic cycle had been tamed – and that boom and bust had been abolished. It now looks like the high water mark of hubris.

Now the debt bubble is bursting, and banks are cutting back on their loans. What is the result of this policy failure for millions of households?

The Council for Mortgage Lenders expect the supply of mortgage lending to fall short of demand by £30bn this year unless conditions improve. That means that 200,000 people risk being shut out of the mortgage market.

That’s almost exactly one hundred times the 2,000 people who will be helped by Gordon Brown’s latest package to help homebuyers. Let me tell you what the Chairman of the Council of Mortgage called that latest Downing Street initiative: “an inaccessible irrelevance to most first time buyers”.

The Government has no answers to the bursting of the debt bubble, either for homeowners immediately affected by higher mortgage costs or for a country that wants to know why we were so badly prepared for events.

The question of how badly prepared we are leads us directly to the second pillar of Gordon Brown’s economic reputation – what he calls ‘prudence’ but the rest of us know as fiscal policy.

The centrepieces of tax and spend policy were to be the fiscal rules – the golden rule and the sustainable investment rule. Set out when he was still Shadow Chancellor, and then enshrined in office, they were supposed to be the guarantee to the public that Labour would not repeat the mistakes of its past and create a mess of the public finances.

We can now see that the fiscal rules have failed on almost every level.

They lack independent credibility. In opposition, Gordon Brown wanted the rules to be independently verified. In government he refused and appointed himself judge and jury over his own rules, so that no one else could declare them broken, and by changing the date of the economic cycle he was could fiddle them repeatedly when they started to bite. The result is that no serious economic commentator now uses them as a measure of the health of the public finances.

And for good reason. Because far from stopping pre-election give-aways at the expense of economic stability, they have allowed Gordon Brown to spend and even cut taxes just before each election and then raise taxes massively afterwards. According to the independent Institute for Fiscal Studies, taxes have gone up by more than £7 billion since the last election alone.

Yet even with the highest tax burden in our peacetime history the pursuit of prudence somehow left us with the largest budget deficit in the developed world. Turn to the tables at the back of this week’s Economist magazine and you’ll see that the only countries with a bigger budget deficit are Egypt, Hungary, and Pakistan.

Gordon Brown failed to fix the roof when the sun was shining, and the consequence for millions of families up and down the country is that taxes are going up just when the family finances are getting tighter. At the same time spending growth has been halved.

The contrast with the United States is stark. There the Government is now literally posting tax rebates worth hundreds of dollars to American families to help them with the rising cost of living. American business is being boosted by tax reductions to help them through this year.

In Britain last week taxes rose on the low paid, on small businesses and on capital gains. Next spring they will rise on family cars.

Instead of using fiscal policy to help families, fiscal policy is now pro-cyclical not counter-cyclical – the very opposite of what was promised.

What this means in plain English is this Government isn’t on your side. It is on your back.

And that brings me to the third pillar of economic strategy.

Just as Gordon Brown failed to prepare the public finances, so he has failed to prepare the supply side for the unprecedented competitive challenge coming from Eastern Europe, India, and China.

Alongside an independent bank to guarantee monetary stability, and fiscal rules to guarantee fiscal prudence, the third pillar of Gordon Brown’s economic policy was the pledge in the 1990s to raise the sustainable growth rate of the economy by increasing productivity.

Indeed, Gordon Brown said that “productivity is the fundamental yardstick of economic performance”.

OK. So let’s examine his performance against his own chosen fundamental yardstick.

Using the Government’s own measure of productivity, the average annual growth rate of output per worker has been less than 1.8% during the eleven years since 1997, down from 2.0% during the previous eleven years. That’s a 10% fall in the average rate of productivity growth.

And on all the international comparisons, our competitiveness has declined.

The causes are obvious.

– Billions of pounds spent on public services without reform, with the result that productivity in the health service has actually fallen.

– Higher taxes and constant tinkering with the tax system that has given us the longest tax code in the world.

– And a total failure to tackle poor skills and the scourge of worklessness through radical reform of education and welfare.

Far from raising the sustainable growth rate of the economy, the evidence suggests that the last ten years have if anything reduced it.

The fastest growing areas of the economy over the last ten years have been financial services, housing, and the public sector. All three drivers of growth are now curtailed.

And again, we can see the consequence for millions of families.

Rising productivity is ultimately what underpins rising standards of living – that is why Gordon Brown was right to call it the fundamental yardstick of economic performance.

Yet once you strip out the rising cost of living, real take home pay has been falling for more than two years. That is the longest sustained fall since records began in the early 1990s.

Families across Britain are feeling the pinch and it is a direct consequence of our falling competitiveness.

So we can now see that the three pillars of GB’s economic reputation have collapsed in a heap of rubble.

Monetary policy to guarantee stability. Collapsed as the bubble in debt and asset prices went unchecked.

Fiscal policy to guarantee prudence. Collapsed as Brown spent more than we could afford, and borrowed in a boom to pay for it.

And supply-side policy to generate growth. Collapsed as our competitiveness and productivity growth has fallen.

So, to answer the question I was asked repeatedly in America, that’s what’s gone wrong with Gordon Brown. His economic reputation is in tatters.

Today’s FT survey confirms that. He is the least trusted of all the major Western leaders to steer the economy through difficult times.

So what is the alternative? That’s the second question people are asking.

Of course, given the disarray in the government, there is unlikely to be a general election any time soon – much to my regret. The responsible thing is to wait to see the economic conditions at the time of the election before we can set out our final economic plan for the country.

The country understands that. But it is already clear that there is a Conservative alternative.

First, on monetary policy and the banking crisis.

The immediate priority must be to ease the credit crunch and re-open the market in mortgage backed securities. I support the actions taken so far by the Bank of England but there is clearly scope to go further. A broader collateral swap programme supported by the Treasury could help. This would allow banks to swap their illiquid mortgage backed securities for liquid government bonds.

Of course, such a significant step would have to be accompanied by cast iron guarantees for the taxpayer, and that must be priced into the deal – not least to minimise moral hazard. And of course any intervention must not exacerbate inflationary pressures in the longer term.

This is something the Government could do now and should be discussed at tomorrow’s banking summit.

But we also need to think about longer term reforms. I support the independence of the Bank of England, and in office we would strengthen it by giving the Governor a single, longer non-renewable term.

It is not helpful to have the Prime Minister playing games with the reappointment of the head of the central bank in the middle of a financial crisis, as we saw earlier this year.

And we will give the power to rescue banks to the Bank of England, instead of the FSA as Alistair Darling wants to do. I am glad that we agree with the all-party Treasury Select Committee on this.

For most bank collapses follow regulatory failure, so the regulator cannot make the call on the rescue. Since taxpayers’ money is involved, the Government will set the conditions under which a bank will be rescued. Then the independent Bank of England can take the lead on executing individual decisions.

But we need to think about going further than these important reforms if we want to ensure stability.

We have seen how the build up of a bubble in asset prices and debt can damage millions of people. As house prices fall, and the threat of negative equity looms for hundreds of thousands of people, we must try to construct our monetary policy framework so that it will never again ignore an unsustainable build up of debt.

Because the only way to avoid the damage of a bursting bubble is to make sure it doesn’t get pumped up in the first place.

We need to look carefully at what tools we can use, internationally if necessary, to slow the explosion of debt during the good years.

David Cameron first raised the role of capital requirements for banks last month in a speech in the City. He argued that they would need to rise and that we had to stop liabilities being concealed off balance sheet.

Last week at Harvard Business School I took this idea a stage further by suggesting that we look at whether capital requirements could alter during the cycle to control credit in times of boom and expand it in times of contraction.

Under such a system a bank’s capital adequacy ratio would comprise of an element set by the prudential supervisor, specific to that bank as now, combined with an element set by the monetary authorities across the whole financial system.

We have heard absolutely nothing from either Gordon Brown or Alistair Darling about these ideas. They apparently have no answer to the challenge of controlling the credit cycle.

But this weekend the international Financial Stability Forum recommended to the G7 that it should look at raising capital requirements and tackling off balance sheet liabilities, while the Basel Committee on Banking Supervision is looking at the how they might be applied counter-cyclically.

It is another example of the Conservative Party engaging in new ideas while the Government is stuck in the failed thinking of the past.

It is further evidence of a clear alternative in British politics.

Let me turn to the second pillar: fiscal policy.

David Cameron and I are both fiscal conservatives, with a small ‘c’. We will govern by the principles of sound money.

We will reform the fiscal rules so that they are independently verified. The next Chancellor will not judge his own performance against his own rules.

Never again should the Government be able to borrow recklessly in a boom, and still claim it is guided by prudence.

And over a cycle, we will share the proceeds of growth, and so reduce the proportion of the economy taken by the state. Government will grow more slowly than the economy does.

For those who question how meaningful a commitment this really is let me remind you that it took eight years for Margaret Thatcher’s government to reduce the share of national income taken by the state below the level which she inherited.

For those who want a solution tomorrow to Britain’s bulging deficit let me warn you that there is no quick fix to the dismal state of our public finances. Sharing the proceeds of growth is the serious, sustainable way to restore them to health and build the foundation for lower taxes.

And finally we will we improve competitiveness through dynamic supply side reform.

Lower taxes are part of the answer, and, as I have just said, our pursuit of sound money will make that possible. But we will not disappoint people with undeliverable promises.

If David and I had given way to the siren voices of recent years calling for upfront commitments to unfunded tax reductions, we would rightly be under pressure now to explain how they could possibly be delivered with a rapidly rising budget requirement.

But we didn’t.

What we have demonstrated is that within the existing tax burden it is possible to make significant reform. I established the independent Tax Reform Commission to start the long term argument in Britain on tax reform.

A remarkable number of its recommendations have already found their way, in one shape or another, into our tax code.

Last October, everyone noticed our costed plan to raise the inheritance tax threshold to one million pounds.

But it is our commitment within that plan to abolish stamp duty for nine out of ten first time buyers that looks prescient now. The figures from the Halifax last week not only showed house prices falling; they also revealed that the number of first time buyers was at its lowest level since the 1970s.

Getting rid of stamp duty would help enormously as mortgage arrangement costs rise, and it would inject some support into the housing market at a difficult time.

We have also set out plans to boost the competitiveness of British business by cutting the corporation tax rate to 25p by reducing the complex allowances, and by reversing the increase in small business tax.

And in the longer term, with the advice of Geoffrey Howe, we will fundamentally reform the way we make tax policy, so that we can begin to undo the stifling complexity created by Gordon Brown.

But an economic strategy for the new global economy doesn’t just mean Government doing less. Laissez faire is not a serious answer to many of the challenges we face.

Government should be doing more where it’s needed, like improved transport infrastructure, better skills, and more active support for businesses. I want the attitude of the Government to be a service to business, not a burden.

Part of this is getting more from what we spend, so we will return the Treasury to its most important role – getting value for money for taxpayers.

We will reform education to create more good school places, allowing good schools to expand and new ones to be created.

We will build on the most successful international experiences to reform our welfare system and get hundreds of thousands of people back into work.

That is our alternative. The Conservative alternative.

On the three pillars of economic policy we will offer fresh thinking. We will learn the lessons of Gordon Brown’s failure.

And we will make sure that next time Britain is confronted with a difficult economic challenge we are well prepared.

We will fix the roof whether or not the sun is shining.

I’d like to thank Jill Kirby and the Centre for Policy Studies for inviting me here today to give this Annual Lecture.

The CPS helped to lay the intellectual foundations for the arrival of a transforming Conservative Government in 1979.

I hope that you can do the same for us today.

After all, many of the immediate problems we face are eerily reminiscent of the late 1970s.

Rising inflation – which hit an eleven year high today – rising oil prices, and a deteriorating fiscal position, to take just three examples.

David Cameron this morning set out the Conservative Economic Recovery Plan that we have developed to address the immediate challenges of the economic slowdown and the credit crunch.

This evening I want to talk about our long term economic goals.

I want to argue that fixing our broken society is integral to building a strong economy.

Listen to our Prime Minister and you get the impression that social problems and economic problems are entirely separate.

One day the Government is talking about knife crime – the next it’s about the banking system.

One Minister delivers a speech about school discipline – another has an announcement about the housing market.

We need to bring these different threads together.

Labour came to power promising to deliver both social justice and economic efficiency.

After 11 years, the evidence shows that they have fundamentally failed to deliver on either.

We Conservatives understand that they are really two sides of the same coin.

Of course we know that you cannot improve social conditions without economic success.

But the crucial insight for modern Conservatives is that in the new global economy you cannot have economic success without social success.

The formula for economic success in this new global economy is no mystery.

Low tax rates and a simple tax system to attract and retain mobile capital and talent – an area where Britain used to be strong but is losing ground fast.

Light touch regulation to keep down costs and avoid stifling innovation.

A flexible labour market that allows employers to respond to fast changing market conditions.

Reliable and cost effective energy and transport infrastructure.

An efficient system of government support for investment in science and technology.

And, probably most important of all, a motivated and educated workforce that can adapt to new technologies and working practices.

But while other countries have used the last decade of global economic growth to improve their competitiveness, our Government failed to use the good times to prepare us for tougher times ahead.

Where they have cut their tax rates, improved their fiscal positions and reformed their public services, our corporate tax rate has fallen from 4th lowest in the EU to 19th lowest, our budget deficit is the largest of any major economy, and Gordon Brown has blocked the necessary reform of our public services.

So it will fall to the next Government to restore our competitiveness.

Some of the necessary reforms can be implemented immediately – and we are doing the hard work now on building a simpler tax system, reducing regulation, reforming our public services and improving our infrastructure in the broadest sense.

But some of the most important changes will require us to tackle the deep rooted social problems that are holding us back.

So we know that we have to improve the quality of Britain’s education.

Because educational failure doesn’t just hold back the potential of millions of our children, it also undermines our country’s ability to compete in the age of the knowledge economy.

We understand that it’s our job to bring about a revolution in our welfare system.

Because not only do persistent worklessness and the poverty it brings blight too many people and too many of our communities, they also deprive us of the motivated workforce that our companies need in order to compete. In a global economy that puts a premium on the highly skilled, Britain cannot afford to be held back by the drag anchor of millions of people who lack skills or aspirations.

And we recognise that we have to mend Britain’s broken society.

Not just because social breakdown causes misery for millions of families, but because we will never achieve the low tax economy that international competitiveness demands unless we reduce the long term demands on the state.

We have pledged to share the proceeds of growth, so that government grows more slowly than the trend rate of the economy over the cycle.

That means that government spending will fall as a proportion of GDP.

That’s the only way to restore our public finances to health and build the headroom for sustainably lower taxes.

Of course we can make Whitehall more efficient and streamlined, and we must.

But to get government to live within its means we have to tackle the real drivers of the growing state at source.

So those who say that the Conservatives spend too much time talking about society and not enough time talking about the economy don’t understand that this is a false choice.

Reducing educational failure, tackling worklessness and poverty, mending our broken society – these are all progressive social goals that we have rightly put at the very centre of our agenda.

And the failures of the last decade to achieve these goals give us the opportunity to demonstrate that they can only be achieved through Conservative means.

But they are also essential economic goals.

And so achieving these progressive goals through Conservative means will be at the heart of our long term economic strategy.

Let me explain how.

First, the progressive goal of reducing educational failure.

The last eleven years have been a huge missed opportunity in our schools.

Despite big increases in spending, this country has one of the highest levels of educational inequality in the Western world.

The attainment of our lowest achievers has not improved significantly since 1998.

And educational inequality is getting worse – the proportion of pupils in the most deprived areas gaining five good GCSEs fell from 28% in 2005 to 25% in 2007, while the proportion in the least deprived areas increased from 56% to 68%.

What’s progressive about that?

If we are really serious about ending child poverty and reducing inequality we have to end the educational poverty trap that is deeply embedded in some of our poorest areas.

But educational failure is also holding back our economy.

All the academic evidence tells us that skills are one of the most important drivers of economic growth in the global economy.

Of course that means more scientists, more engineers and more world class universities are crucial.

We are constantly told about the hundreds of thousands of scientists and engineers being trained each year in China and India, even if some of the qualifications they are getting are of questionable quality.

The numbers sound overwhelming, but as any economist will tell you, it’s not quantities on their own that matter, it’s prices. And in this case that means wages.

The really important implication of globalisation for our education system is that the returns to education and skills are rising, as is the penalty for educational failure.

It’s those with a good education and the right skills who are best placed to share in the rewards of the new global economy, while those with low skills face an increasingly uncertain future of falling relative wages and competition from the developing world.

Yet international comparisons show that where Britain lags furthest behind our competitors is in a long tail of educational underachievement and low skills.

The proportion of adults in the UK without the equivalent of a basic school-leaving qualification is double that of Germany and almost three times that of the United States.

Children leaving school without a good grasp of basic literacy and mathematics are increasingly ill-equipped to succeed in the new global economy.

Our school system is still producing too many of them.

For all their fine sounding rhetoric, Labour’s top-down approach has failed.

Increased spending has not produced results and too many parents are still denied a real choice of schools.

So how will we use conservative means to achieve the progressive goal of reducing educational failure?

By focusing on standards – with synthetic phonics to eradicate reading failure.

By getting a grip on school discipline and focusing more on what goes on inside the classroom.

And crucially, by breaking open the state’s monopoly on the provision of state education to create more good school places.

The Green Paper published by Michael Gove has set out detailed proposals to create over 220,000 good school places in new Academies run by educational charities, companies, philanthropists, teachers and parents.

These will be targeted at the poorest pupils, with more money made available for children from the poorest background through a ‘pupil premium’, which will make sure that extra funds follow those pupils to the school that educates them.

That means schools will be actively incentivised to seek out and accept pupils from more challenging backgrounds.

This completely turns the current situation on its head.

Under our system, schools will be competing for the most disadvantaged pupils, not trying to keep them out.

What’s more, any maintained schools that are deemed to be persistently failing will be taken out of local authority control and handed over to an independent, voluntary or co-operative provider.

As we’ve seen from Sweden, empowering parents in this way can have a huge impact when it comes to raising standards and tackling inequality.

This is the perfect example of how to achieve progressive goals by conservative means – not the dead hand of government control, but breaking open state monopolies and allowing innovation to flourish.

It’s what we mean by the post-bureaucratic age – not top-down but bottom-up.

The second progressive goal I want to discuss is reducing worklessness.

We should never forget that getting people off state benefits and into work is a fundamentally progressive goal.

The evidence is now overwhelming that worklessness and benefit dependency are at the very core of the cycle of poverty that blights so many of our communities.

No wonder idleness was one of the five evils that William Beveridge spelled out in his defining work on the case for a welfare state.

And Beveridge himself made it clear that he did not see state handouts as the answer.

As he put it: “Idleness is not the same as want, but a separate evil, which men do not escape by having an income.”

These words are just as relevant today as they were sixty years ago.

Yet Britain has a higher proportion of its children living in workless households than any other EU country.

One in five grow up in households dependent on out of work benefits

And as the OECD confirmed last week, youth unemployment is higher than in 1997.

Let’s just focus on this stunning fact – after all Gordon Brown’s boasts about the New Deal and his pledges on youth unemployment, the unemployment rate for 16 to 24 year olds in Britain is now above the OECD average, having been well below it in 1997.

Know that one fact and you know why Labour has failed.

The same is true for the proportion of the age group who are not in education, employment or training – the NEETs.

What’s more, as the independent Institute for Fiscal Studies has found, the indirect effect of Gordon Brown’s reliance on means-tested benefits to tackle poverty “might be to increase poverty through weakening incentives for parents to work.”

There’s nothing progressive about that.

But this social failure is also an economic failure.

Of course worklessness is a huge burden on the public finances.

David Freud’s excellent report on welfare reform calculated that every person who moves off benefits and into work saves the exchequer more than £5,000 a year, and that’s even before taking into account the taxes they will pay on their income.

But worklessness is also a huge waste of economic potential.

It robs individuals of their chance to participate in the global economy, and it robs employers of the motivated workforce that they need in order to compete.

It is, frankly, just not good enough that after fifteen years of global economic growth almost five million people are on out-of-work benefits – more than 15% of the labour force.

That’s why the radical plans for welfare reform that Chris Grayling has set out are both a social and an economic imperative.

We will mobilise the energies of civil society by paying competing private and voluntary providers according to the results they achieve.

Instead of relying on the old-fashioned mechanisms of bureaucratic top-down state intervention, we will back the modern mechanisms of civil society: the social entrepreneurs, the community organisations and the responsible businesses that will drive social progress in the post-bureaucratic age.

We have seen how this radical approach has proven so effective in countries like Australia and the United States.

Because providers will be paid not only for finding people work, but keeping them in jobs, they will be incentivised to offer proper training to claimants, giving them skills that will not only help them to get a job, but also to stay in that job and progress in the labour market.

And because we will not prescribe exactly what support the providers must provide, they will have the freedom to offer innovative and individualised services.

If you look at Australia and the United States, you find providers offering mock interviews, personalised advice and work experience schemes.

And of course, all this goes hand in hand with a focus on full-time activity for those potentially able to work and much tougher sanctions for those who are not willing to participate in the return to work process.

Introduced in Britain, these changes would constitute the biggest change to the modern welfare state since its creation.

They will provide ladders of opportunity to millions of people, and combined with our commitment to use the savings to end the couple penalty in the tax credit system we believe they will directly lift almost half a million children out of poverty.

At the same time they will start to reduce the burden of worklessness on the public finances and help to provide the workforce that businesses need to compete in the global economy.

Combined with the ideas on reforming our insolvency regime that David Cameron set out this morning, this system will also provide us with a strategy to deal with any increases in unemployment over the coming months and years.

The third goal I want to discuss is the most ambitious – mending our broken society.

There’s no doubt that this is a progressive goal.

Because the link between family breakdown and the risk of poverty is well established, yet Britain has one of the highest rates of family breakdown in Europe.

Because alcohol and drug abuse destroy lives and families, yet alcohol consumption by children has doubled in the last fifteen years, and we have the highest level of problem drug use in Europe.

And because families in poverty often suffer the most from Labour’s failure to tackle crime, especially violent crime.

But mending our broken society is also an economic imperative, because we will never achieve the low tax economy that international competitiveness demands unless we reduce the long term demands on the state.

Of course we can make Whitehall more efficient and streamlined, and we are developing the plans to do exactly that.

But that won’t be enough – the long term public finance projections published at the last Budget show that on the basis of current policies, government spending is forecast to grow by almost 5% of GDP over the next fifty years.

That’s £70 billion in current prices, or 14 pence on the basic rate of income tax – when what our economy needs in the face of fierce global competition is lower taxes not higher.

To get government to live within its means we have to tackle the real drivers of the growing state at source.

But make no mistake, reducing the long-term demands on the state will not happen overnight.

There are no shortcuts.

Our welfare and education reforms will obviously play an integral role.

By tackling worklessness and giving people the opportunities and skills they need to succeed, they will help us tackle the long-term causes of dependence and poverty.

Our rehabilitation revolution in prisons will use the same Conservative means to tackle the cycle of re-offending – not top-down control from the centre, but giving private companies and charities the freedom to innovate and paying them by the results they achieve.

But we won’t make a lasting difference unless we also make Britain more family friendly.

Iain Duncan Smith’s Social Justice Policy Group estimated that the cost of family breakdown is now well over £20 billion a year.

In fact, I genuinely don’t think we’ll ever get to the heart of the big problems we face, from crime and anti-social behaviour to welfare dependency and educational failure, from debt and drug addiction to entrenched poverty and stalled social mobility, if we don’t do everything we can to support Britain’s families.

Of course, every family is different, and every family has different needs and different pressures at different times.

So we need a sensible, practical range of family centric policies.

For a start, we need to sweep away Labour’s policies that actually make it pay for families to break up.

That is why we will end Labour’s couple penalty in the tax credits system, giving 1.8 million couples up to £1,800 more a year.

This will be delivered as savings are generated through our radical programme of welfare reform.

And we are committed to introducing a recognition of marriage into the tax system.

But of course, there’s more to families than money.

It’s a startling fact that parents are more likely to split up in the first year after their child’s birth than at any other time.

So we need to provide targeted support to help families cope with the unique stresses and strains of parenthood.

We’ve already set out our plans to offer all parents flexible working.

And we’ve announced that we will use savings from existing budgets to provide a universal health visiting service, with the health visitor acting as the trusted gateway to other services that a family might need – including relationship support.

Supporting families, then, is another Conservative approach that will help us achieve progressive goals where Labour has so clearly failed.

So this is our strategy for building a strong economy.

In the short term we must tackle the immediate problems that rising inflation and the credit crunch are causing families and businesses, as David Cameron set out this morning.

And in the long term we must restore our flagging competitiveness.

That means a simpler tax system, lower regulation and rebuilding our infrastructure.

But it also means tackling the deep social problems that are holding us back.

So, a schools revolution to reduce educational failure and equip our children with the skills they need in the knowledge economy.

A welfare revolution to reduce persistent worklessness and provide our businesses with the motivated workforce they need to compete.

And mending our broken society so that we can tackle the drivers of state spending at source.

In each case using Conservative means to achieve progressive ends.

And in each case by achieving these progressive ends we will help to create the strong economy on which we all depend.