Tag: Speeches

The speech made by Gordon Brown, the then Chancellor of the Exchequer, at the CBI Annual Dinner on 18 May 1999.

INTRODUCTION

I am delighted to be here this evening and to start by paying tribute to the work you do, the service you give, the contribution you, as business leaders, make to the economy, to employment and to prosperity for Britain. It is your belief in the potential of Britain and of the British people that makes us optimistic about the future of the British economy as we approach the millennium.

A little over two years ago I addressed this dinner, it was only a little over two weeks after we came into government.

I used that opportunity to set out our ambitions for Britain – our plans for building a platform of economic stability in Britain, our commitment to identify and remove the barriers to growth and productivity, our ambition to put work at the centre of the welfare state, our aim for constructive engagement with Europe. And I said then that we could only achieve these goals, restoring a sense of national purpose, if we worked together.

Now two years on I want to report back to you on what progress we have made together and what we have still to achieve together to realise our ambitions for Britain.

Stability

Let me start by talking about stability.

The economy of 1997 was set to repeat the same cycle of boom and bust that has been seen over the past 20 years. There were strong inflationary pressures in the system. Consumer spending was growing at an unsustainable rate and inflation was set to rise sharply above target; there was a large structural deficit on the public finances. Public sector net borrowing stood at £28 billion.

So, against a background of mounting uncertainty and instability in the global economy, we set about establishing a new economic framework to secure long-term economic stability and put an end to the damaging cycle of boom and bust.

One of our first steps after the election was to make the Bank of England independent, ensuring that interest rate decisions are taken in the best long-term interests of the economy, not for short-term political considerations.

We established a monetary policy committee with a target for inflation of 2½ per cent, and today I am writing to the Governor to confirm this remit for another year. Over the last 10 months inflation has remained within 0.2 percentage points of the Government’s target. Today’s figures show headline inflation down to 1.6 per cent and underlying inflation at 2.4 per cent – its lowest level for over 4 years, and it is expected to remain close to target.

Short-term interest rates peaked at half their early 1990s level and have fallen from 7½% in October to 5¼% now. Long-term interest rates are at their lowest for over 40 years and mortgage rates are their lowest for 33 years. The 10 year bond differential with Germany has fallen from 1.7 percentage points in April 1997 to around 0.7 percentage points now.

We have also put in place a new fiscal policy framework set out in the Code for Fiscal Stability requiring the Government to conduct fiscal policy in a transparent and responsible way. And we have set two strict fiscal rules: the golden rule requires that over the cycle we balance the current budget, and the sustainable investment rule requires that, as we borrow for investment, debt is set at a prudent and stable level.

Public borrowing has been reduced by £31 billion over the past two years – a cumulative fiscal tightening of 3¼ per cent of GDP, the largest fiscal tightening since 1981 – and the March Budget continues to lock in that fiscal tightening by keeping the public finances under control, while allowing fiscal policy to continue to support monetary policy in the next stage of the cycle. As a result of our cautious and prudent approach to managing the public finances, we remain on track to meet the fiscal rules while guaranteeing an extra £40 billion for schools and hospitals over the next three years and more than doubling public investment, including in transport and our infrastructure.

This has been a difficult time for the global economy – a quarter of the world is now in recession and world growth has halved. Exports to parts of Asia are down more than 50 per cent. The turbulence of last autumn has eased but it is too early to say that the period of global financial instability is over. But as a result of tough and decisive action to build a platform of stability I believe we can now say that the Government has been able to steer a course of stability – based on low inflation and sound public finances – and we are now laying the foundations for sustainable growth.

The platform of stability which we are putting in place is founded first on setting out clear long-term policy objectives, second on the certainty and predictability of well-understood procedural rules for monetary and fiscal policy, and third on an openness that keeps markets properly informed and ensures that objectives and institutions are seen to be credible.

So the experience of the last two years now allows us to draw some lessons:

First, the MPC has only one target – a symmetrical inflation target. I am determined to avoid economic instability caused by the ever-changing money targets of the early 1980s and the dual exchange rate and inflation targets of the late 1980s and early 1990s. The Bank of England was quite right to say, when publishing its inflation report last week, that the objective of monetary policy is clear and unambiguous with a symmetric inflation target so that inflation outcomes below target are viewed just as seriously as outcomes above target. The symmetrical target, combined with tight fiscal policy and the earlier tightening of monetary policy, has enabled the MPC to reduce interest rates quickly to keep inflation at or around the target. I do understand the worries of exporters over the current strength of sterling, but what would be an even greater worry would be any risk of a return to the boom-bust we saw in the 1980s and early 90s, when inflation was allowed to run out of control, over 150,000 businesses went under and thousands faced mortgage misery and negative equity.

Second, by publishing the minutes and the inflation report along with MPC members’ regular appearances before the select committees, we have enhanced the transparency and openness of monetary policy, and I think it has led to a greater public understanding of why decisions are made. This should help reduce inflation expectations among the public and the MPC has a role to play in this. All of us must show responsibility on pay, and not take the short-termist approach of paying ourselves more today at the cost of higher interest rates, fewer jobs and slower growth tomorrow.

Third, and contrary to the fears of some commentators two years ago, an equally clear framework for fiscal policy, including the presence of the Treasury representative at MPC meetings, has greatly improved the coordination of monetary and fiscal policy. Under the previous arrangements the Chancellor announced his fiscal policy in the Budget – and invariably cut interest rates claiming that his Budget decisions justified it. I am convinced there is much more educated discussion of the interaction of monetary and fiscal policy than ever occurred under the previous arrangements, and much better decision-making.

Finally, I believe all of us benefit from selecting MPC members on the basis of relevant skills and expertise rather than on the basis of regional, sectoral or other interest groups. The MPC have a duty to keep in touch with all regions and sectors of the economy through the bank’s regional offices and agents, and the Court of Directors has the duty to see that this happens. I want to thank both the Governor, the MPC and the Court for their hard work and in particular this evening I would like to congratulate Alan Budd who is retiring on 31 may for his valuable work on the MPC and welcome Sushil Wadwahni who joins as his successor.

With these reforms we have been building a platform of stability for the British economy.

Removing the barriers to growth

Stability is the necessary pre-condition not the sufficient condition for a successful economy.

Britain can tonight celebrate great British success stories. World class firms beating competition round the globe. Many now taking over or becoming the senior partner in mergers with transatlantic competitors, world class firms, many represented here this evening, in whose achievements we should all take pride.

And I want to suggest that economic success in the knowledge-based economy of the future depends upon us doing more to encourage innovation. Creating a culture that favours enterprise for all. Building the knowledge and skills base of the economy. Fostering the digital computer revolution and engaging constructively with Europe.

And in building for our future, we build from the great British strengths; the British genius – our belief in work, enterprise and fair play, our creativity and willingness to adapt and to take an outward looking approach to the world. The same strengths which built manufacturing in the 19th Century, are the platform on which to build our strengths for the 21st Century, in every manufacturing and service industry in every part of the UK.

Innovation

So first, let us do more to back the inventor and the innovator.

Britain is developing a reputation for inventiveness that extends well beyond the traditional inventions for which we are famed. And to let the creative talents of our country flourish, we should create a winner’s circle stretching from invention to commercial exploitation and manufacturing of the inventions here in Britain.

So I lay great importance on the new R&D tax credit to encourage small business investment in R&D, and the £1.4 billion being invested in basic scientific research.

Our university challenge fund is designed to help turn British inventions into businesses here, and the new British institutes of enterprise will provide management skills and advice on commercial expectation to ensure the innovations that are developed in the UK are turned into products manufactured in the UK, creating good paying jobs in the UK.

We have put in place measures to encourage investment in early stage, high technology companies, through new £20 million venture capital challenge run jointly with the private sector; and a commitment to introduce incentives to promote corporate venturing on which we would welcome your views.

Enterprise

I turn to the broader question of how in Britain we can broaden the enterprise culture.

Too often in the past we posed a false choice between those who supported fairness and those who supported enterprise. The nation was divided between those who said enterprise required us to ditch a fair society and those who said fairness could only be bought at the cost of enterprise.

I believe my own party failed in the 1980s to show that enterprise and fairness depend upon each other and how extending opportunity to work, to work your way up, to start a business promoted both enterprise and fairness. Now I believe we are all ready to leave behind the old divisions and to build a modern culture of enterprise, open to all and benefiting all.

And that enterprise starts in the school, not in the boardroom. I want all large firms to consider seconding managers to schools; and you will benefit from the new tax relief. And we are encouraging schools to link up with the world of work and to link up with established businesses.

Linking the world of work to the world of business will involve today’s entrepreneurs encouraging the next generation of entrepreneurs.

Today, much is changing. Recent studies of young people found that up to 20 per cent say they would like to start their own businesses.

In two Budgets we have moved decisively to encourage new businesses with a cut in the small business tax from 23p to 20p. To encourage start-ups we have introduced a new 10p rate of corporation tax and a new 10p rate of income tax which will help the self-employed. And to encourage growth we have provided 40 per cent investment incentives for small businesses and medium sized businesses; provided additional support for venture capital; and reformed the capital gains tax system to promote and reward long-term investment.

And next year we will introduce the new enterprise management incentive measure to provide help where it is most needed to smaller companies with potential for rapid growth which are seeking to recruit or retain key personnel by offering equity remuneration. So the share option plan will allow tax relief for incentives of up to £100,000.

At each point we want to be on businesses’ side removing the hurdles to growth that stand in their way access to bank finance in starting up, access to venture capital funds when expanding, access to export markets when going international.

Skills

Now, we need to teach our children and adults the skills they need to succeed in the new economy.

As we know the countries which invest in their one national resource: the people, will be the ones that master the new technology and the new competitive pressures. So we have made radical changes to encourage people to work, to work themselves up the employment ladder and to get the skills for work.

And I am grateful to many of the 47,000 companies represented here today who have helped a quarter of a million young people and 100,000 long term unemployed to join the New Deal and for your support in the tax and benefit changes we are making the cuts in national insurance, the changes in employer contributions, the working families tax credit, the 10p rate of income tax which people are starting to see the effect of this week and the cut in the basic rate of income tax to 22p, that are designed to create the best incentives to take a job, for employers – to cut the costs of hiring and for hard working employees to reward work and effort.

But we have a long way still to go.

Today, as you know, many high tech companies cannot find the highly skilled workers they need to continue growing.

And the quality of skills among young people available to employers as they leave the New Deal gateway has to be improved.

And while we will continue to make short-term improvements, the key is to implement a long term strategy to ensure our population is skilled for the next century with a rigorous approach to standards throughout our schools with demanding targets for literacy, numeracy, school leaving qualifications and attainment by the age of nineteen. Our aim is quite simply to raise all of Britain to the standards of the best of Britain. And we will not shirk from the modernisation that is essential in schools’ reform, teaching standards, discipline and investment that is essential, both in schools and in reform of further and higher education.

Information technology

Britain cannot afford to be left behind in the computer revolution.

These computer and information technology advances affect every company, however large, every service, however small.

In the Budget I allocated an additional half a billion pounds to launch a 1.7 billion pound “computers for all” initiative, a nationwide effort enlisting schools, colleges and companies, public and private sectors across the board to make Britain a leader in the information economy.

Within three years, we want one million small businesses able to benefit from a commerce.

I want British business to work with government to move ahead in the world of information and technology. We want a whole new network of computer learning with one purpose only, that the whole of Britain is equipped for the information age.

Constructive engagement with Europe

There is another building block that for too many years we have undervalued – a strong and lasting trading relationship with Europe.

For the first time we are committed in principle to economic and monetary union. We are working with our European partners to make sure emu is a success. Economic reform is crucial for the European economy to tackle unemployment and ensure the flexibility required to live with a single interest rate. Second, we see no constitutional barrier that prevents us joining.

Third, we are committed to making an economic rather than political assessment the decisive test as to whether and when we will enter and finally we have committed our country to full preparations that will allow us to make a decision early in the next Parliament, subject to a referendum. Our strategy, to prepare and then decide, is being pursued.

In February, we published an outline national changeover plan which set out the practical steps needed for the UK to join the euro.

I am conscious that the public sector must be prepared to take a lead in making preparations. And I can tell you that every Government department is playing its part.

I am very grateful to the CBI for their continuing help on preparing business for the euro. CBI was one of the organisations that helped us in putting together the outline national changeover plan. And I want to thank Lord Marshall, your previous president, and Sir Clive Thompson your current president for their valuable work on the standing committee for euro preparations, Kate Barker for her work on Lord Simon’s business advisory group and many others who represent the CBI on our detailed working groups and on the euro regional fora.

Conclusion

So, my vision is of a Britain where there is economic stability for investment rather than economic or political instability, which is business-friendly, working with business rather than in isolation from it; which tackles our biggest problem welfare dependency and unemployment, the key to unlocking funds for the reform of our other public services; a Britain that makes the vision of our country as a world leader in education the centre point of both our economic and social ambitions for the long term.

A Britain where public and private sectors instead of fighting each other work constructively together and a new sense of national economic purpose, fostering enterprise and cohesion, is shared right across the economy. The challenges are enormous and many, but if we work together the prize is a modern economy more fit for the challenges ahead, ready to ensure employment opportunity and greater prosperity for all our people in the years ahead.

The speech made by Gordon Brown, the Chancellor of the Exchequer, at the TUC Conference on 13 May 1999.

Introduction

In thanking you for the opportunity to address trades unionists on Europe, let me first of all pay tribute to the internationalism of British trades unionism over a century and more of its existence.

Even from its modest beginning in its first years, the trades unions movement was at the forefront of the British movement to end colonialism.

British trades unionists, including many of our leaders like Jack Jones, led in the fight against fascism in Spain in the 1930s; British trades unionists were at the head of the fight against apartheid from the 50s, recognising that an injustice anywhere was a threat to justice everywhere; and since the mid-eighties it is British working people and trades unions that have been principal leaders in putting the case for Europe.

It was the trades unions who led the fight for regional funds; for a social dimension for Europe; for the social chapter; more recently seeking to make Europe a people’s Europe.

And it is the internationalism of the TUC which has led it to help trade unionists in Eastern Europe prepare for the new realities that enlargement of the EU will bring.

It has been trade unionists, because of the recognition of the shared needs, mutual interests and linked destinies that bind working people together everywhere, that have demonstrated the wider vision of Britain in Europe.

A Britain not isolated but internationalist; a Britain not detached but engaged; a Britain not on the margins but right at the centre. A Britain cooperating, engaging and leading in Europe.

And now as we face the next challenge of Europe to build an economic policy that ensures a dynamic job creating economy and a fair society, I believe that Britain and British working people can lead again

The challenge is a European way in which social justice and economic efficiency can be reconciled.

The challenge is in fact to realise in the modern world the central economic and social objectives that have underpinned our history for the years since 1944 – the commitment to high and stable levels of growth and employment.

The United States has job creation without achieving the levels of social cohesion they want. Europe has social cohesion but for many years has failed in job creation. And 17 million are unemployed.

I start from the view that in the modern world, enterprise and fairness not only go together but depend upon each other, and that a solution to unemployment depends on applying policies for economic progress and social justice.

It is in this context – building a strong economy and a fair society for the new world – that the debate about Europe’s future should take place and it is in that context too that the arguments about monetary union should be examined.

And I will answer those who wrongly, in my view, believe Britain does best when we stand alone, free of long-term continental attachments, those who claim that joining Europe was one of the wrong turnings of our 20th century history, and those who wrongly assert that Britain’s traditional way of life and sovereignty are in danger of being submerged, and thus argue that Britain’s future lies outside Europe.

Those who say there is an insuperable constitutional objection to a single currency have failed to take on board that where a pooling of political and economic sovereignty has been in the British interest – as in NATO and indeed in the existing single market of the European union – we have been willing and sufficiently adaptable to embrace it is in the British interest.

I will argue that engaging constructively with Europe as the trades unions have done is our best way forward; that British values have much to contribute to the development of the new Europe; and that the new European way, to be successful and to mark out Europe in the world, must combine our commitments to economic progress with our dedication to social cohesion and social justice.

We start from our economic objectives – the objectives for 1944 – as pressing in the new conditions of modern world as they were to the 1940s – are high and stable levels of growth and employment.

And that to achieve these two objectives in the modern global marketplace we need to do two things together.

First, we must build a solid foundation of economic stability.

And secondly, we must develop a policy for job creation which requires economic reform.

Stability

First, stability.

Let us remember just how much the world has changed. The post 1945 economy was a world of closed financial markets.

Today we live in a global economy of rapid international financial flows.

And it is because investment funds will only come to those countries that show they can pursue policies that achieve economic stability that so much emphasis has to be placed on achieving monetary and fiscal stability.

Today growth and employment cannot come through the rigid application of monetary targets within one country.

Nor can growth and employment be guaranteed by the old fine-tuning that in its later days failed to recognise that there is no longer any trade off-between inflation and growth.

Instead, growth and employment and the stability on which they are founded comes first from setting out clear long-term policy objectives, second from the certainty and predictability of well-understood procedural rules for monetary and fiscal policy, and third from an openness that keeps markets properly informed and ensures that objectives and institutions are seen to be credible.

That is why when we came into power in May 1997 we created a new monetary policy, making the bank of England independent, setting out an inflation target, setting out rules under which interest rate decisions were made and communicated – and why also we set out a new fiscal policy – again clear rules, the golden rule and the sustainable investment rule, clear procedures, a three year long term spending settlement. And again openness, a proper system of audit and disclosure in the code for fiscal stability.

In mainland Europe, too, the same search for macro-economic stability is being pursued through monetary union, the same pressures come from the new global marketplace and the same lessons are being learnt:

To realise the commitment to monetary stability the creation of an independent European central bank;

To achieve fiscal sustainability the stability and growth pact of the European union;

Side by side with the new discussions on employment and growth to create a more dynamic job-creating economy.

The European road to stability through the single currency is intended to remove unnecessary currency speculation within Europe, to reduce transaction costs that are a barrier and expense to industry, and to keep long term interest rates low.

And behind all these declared objectives is the same growth and employment objectives as in 1944 – to make our economies work more dynamically and more successfully in the interests of jobs and prosperity, an environment in which new firms and new jobs can flourish.

So the single currency is born out of a changed economic environment; is built on a platform of fiscal stability; up and working in Europe over the last five months it is indeed reducing currency transaction costs, and within Europe curbing currency speculation.

We are the first British government to declare for the principle of monetary union. The first to state that there is no over-riding constitutional bar to membership.

The first to make clear and unambiguous economic benefit to the country the decisive test. And the first to offer its strong and constructive support to our European partners to create more employment and more prosperity.

Of course the single currency raises important constitutional questions about the sharing of economic sovereignty – questions this government have not run from – but, having declared for the principle, the question that we have been addressing since my statement to the commons in 1997 is whether the single currency is in our national economic interests, whether there are clear and unambiguous economic benefits.

So we have committed ourselves to make its economic advantages the decisive test as to whether we will enter. We have set out five clear economic tests:

First. Whether there can be sustainable convergence between Britain and the economies of a single currency.

We need to be confident that the UK economic cycle has converged with that of other European countries, and this convergence is likely to be sustained, so that the British economy can have stability and prosperity with a common European monetary policy.

Second. Whether there is sufficient flexibility to cope with economic change.

To be successful in a monetary union, Britain would need flexibility to adjust to change and to unexpected economic events. To deal with some of the challenges we face in Britain the government has begun to implement a programme for investing in education and training, helping people from welfare into work and improving the workings of our markets.

Third. The effect on investment.

We need to be confident that joining EMU would create better conditions for businesses to make long-term decisions to invest in Britain. Above all, business needs long-term economic stability and a well-functioning European single market.

Fourth. The impact on our financial services industry.

EMU will affect that industry more directly and more immediately than any other sectors of the economy. we are confident that the industry has the potential to thrive whether the UK is in or out of EMU, so long as it is properly prepared. But the benefits of new opportunities from a single currency could, however, be easier to tap from within the euro zone. This could help the city of London strengthen its position as the leading financial centre in Europe.

Fifth. Whether it is good for employment.

For this government and for millions of people this is the most practical question. Our employment-creating measures, and welfare reforms must accompany any move to a single currency. Ultimately, whether a single currency is good for jobs in practice comes back to sustainable convergence.

Preparations

So economic and monetary union presents British business and British people with many challenges. And our view is that we must make the preparations that will allow us to make a genuine decision, subject to a referendum.

Last year we found that only 30 per cent of firms thought they needed to prepare for the euro and only 5 per cent had done anything. So as a result of recommendations made by the business advisory group, we decided to tackle this directly – through direct mailing of 1.6 million firms and a series of television adverts.

Twice as many businesses are now making preparations.

We brought together firms, business advisers, trades unions, and government through 12 new euro forums in every region of the country.

We have put in place arrangements to enable firms to pay taxes, file accounts and issue and re-denominate shares, receive certain agricultural grants and grants under regional selective assistance in euros.

In February, we published an outline national changeover plan which set out the practical steps needed for the UK to join the euro.

We set out the stage-by-stage procedures that will need to be followed, spelling out the practical implications of changing to the euro and giving new advice to companies on the way to take forward their preparations.

We can also learn more from the experience of the eleven countries who joined in the first wave, and adopt their best practice.

Finally, I am conscious that the public sector must be prepared to take a lead in making preparations. And I can tell you that every government department is playing its part. Each department now has a minister responsible for euro preparations and each will now report regularly on preparations they are making.

We value the important contribution which the TUC is making to the preparations process. John Monks is on the standing committee on euro preparations and David Lea is on the business advisory group. I am grateful for their contribution and I hope the TUC will continue to be actively involved in ensuring Britain and British business is prepared.

Economic reform

So, ensuring a foundation of economic stability is central to meeting our economic objectives of high and stable levels of growth and employment. It is a necessary condition of success. But it is not a sufficient condition. In a successful economic policy we need to get both macro and micro policy right. It is not enough for economic policy to fly on one wing. We need both wings to fly, hence our stress on job creation and economic reform.

Europe has 17 million unemployed. 5 million young people are out of work. 5 million are long term unemployed.

And while 10 per cent of the unemployed in the United States have been unemployed for more than a year nearly 50 per cent of Europe’s unemployed are long term unemployed.

So we have a major challenge ahead if we are to create a dynamic job creating economy and if we are to solve the problem of long-term structural unemployment.

We know enough now to recognise that in a fast-moving world of constant innovation and technological change, the real issue is how government can equip people for the challenges of the future.

It is wrong to say nothing will ever change and its wrong to leave people wholly defenceless against global market forces. It is right to help equip people for the tasks ahead.

That is the basis of our welfare to work strategy in Britain, now being discussed in Europe. It is targeted at the groups that right across Europe suffer a lack of job opportunities: the young, lone parents, the long-term unemployed and the disabled, offering opportunities for the training and skills necessary for work with the obligation to seek work – rights and responsibilities hand in hand. And there are signs that this strategy is already working. Indeed both youth and long-term unemployment have fallen by half since this government came to office.

Central to that is a commitment to equip people for change by investment in education and training.

80 per cent of those who will be in the labour force in ten years time are already in the workforce today.

Even in the most training-conscious countries in Europe only a fraction of today’s workforce are upgrading their skills which are all the time becoming obsolete.

Across Europe we have to do more in lifelong learning. In Britain we have made a start with proposals for individual learning accounts and for a university for industry which will use modern interactive technologies to make it possible for people to learn from televisions and computers in their homes.

Creating new opportunities for work and creating educational opportunities must be complemented by another measure – to make work pay. to move people from poverty out of work to poverty in work is unacceptable. So we have begun to address this problem with a radical reform of our tax and benefit system that provides tax credits for those in work on low pay and a new 10p rate of income tax to help people keep more of what they earn.

So the way forward is not simply to return to the old systems which cannot cope with the world of technological and financial change but nor is it the equally outdated notion of leaving people ill-equipped and powerless in the face of the huge insecurities of change – responsibilities without rights. The new way forward is an active welfare state with an employment policy centred on new opportunities for work. And in Europe we are making progress.

As a central element of the UK presidency of the European union we pushed forward work on the reform of European employment practices. National action plans, initiated by us and agreed at the Luxembourg summit, have facilitated the exchange of best practice, learning from each other and better targeting of policies.

The first set of European employment guidelines have already been agreed and these are being updated for 1999. The national employment action plans show what concrete actions member states are taking and the plans help to share best practice. Each individual country now sets down how they will get young unemployed men and women into the labour force, often for the first time, and how they will get the long term unemployed back to work. And this is an ongoing process. The next set of action plans will be submitted by member states early next year.

But this is just the beginning of a new approach. A top priority should be to consider the lessons from the employment action plans. Under our presidency we initiated the process of review of the action plans so that we could start a real debate on the best employment policies. No one country has all the answers for tackling unemployment and raising employment. We want to share best practice with other countries. We want to know which policies work and which do not work. We welcome the European Commission’s evaluation of the action plans.

We will continue to learn from each other.

We welcome the initiative for a pact of EU countries to further our commitment to create the conditions for high and sustainable levels of employment and growth.

But we must do more. We need a European strategy on structural reform; reforming labour markets to create jobs; reforming product and capital markets to raise investment and build dynamic economies.

My EU colleagues agree with me about the importance of economic reform in Europe for job creation. That is why we have changed the title of the pact to reflect the role of economic reform to “The European employment pact – closer cooperation to boost employment and economic reforms in Europe.”

Employment policy needs backing up by a strong regional policy and social policy too. That is why in our first week in office we took action to deliver on our commitment to sign up to the social chapter and to make it UK law.

In March, at the Berlin European Council, the government achieved a very good deal for the UK on the European.

Structural funds to back up our employment policies. Over the next seven years, the UK will benefit from funding for economic development and regeneration in the regions.

West Wales & the Valleys, South Yorkshire and Cornwall as well as Merseyside will now be receiving the highest value category of funding, objective 1. Northern Ireland will have a unique package of support worth £900m. and we secured funding equivalent to objective 1 for the Highlands & Islands, some £200m in the next funding period.

After negotiations in Berlin more than double the number of people in Britain will be covered by regional structural funds, compared to the only 6.5m under the European commission’s original proposals.

And I would like to pay tribute to Neil Kinnock who as commissioner in charge of transport policy has made great progress in trans-European networks demonstrating his commitment to a dynamic and forward- looking europe.

Of course Europe needs to modernise as Britain is modernising. we want europe to be more open, more competitive, more flexible, to set its sights on moving beyond the sterile debate between regulation and deregulation with a new emphasis on skills, productivity and employment opportunity. Europe needs structural economic reforms alongside its enlargement. Employment measures must be backed up by reform in two areas – competition policy and industrial policy.

First, competition policy. Throughout Europe there is too much monopoly. We must reform our product markets to help Europe become competitive and dynamic and reform our capital markets to help Europe become more investment friendly.

We need policies that offer greater competition in product markets through an extension of competition to attack cartels, monopolies, and vested interests, to benefit the consumer and build a dynamic economy as an essential element of a new third way.

Second, our investment policy needs to complement our employment and economic policy.

The venture capital market has the potential to be a significant creator of high quality jobs and companies. But it is much smaller in Europe than that of the USA. I believe that there is a new interest throughout Europe in examining how to enlist capital and investment funds as a more effective route to job creation.

Let us recognise that today the equity market in Europe is much smaller than in the USA. More efficient equity markets have a potential to expand significantly to the benefit of investment and jobs.

So in a new investment policy for Europe the challenge for Europe is to create a strong venture capital industry and to orient venture capital to hi-tech risk, early stage and start-up companies.

Despite having the biggest single market in the world, European entrepreneurs are too dependent on bank loans and overdrafts and have problems obtaining equity finance.

So to create more jobs we need a new approach in Europe to risk-taking, we need to increase the number of entrepreneurs and to raise the survival rate of small businesses. so we must destroy the barriers that exist – fiscal, regulatory, economic, cultural – as a matter of urgency.

In this way we can build a new Europe with a tradition of social partnership. A Europe better equipped for the modern global economy for more investment, more employment, more competition and more flexibility. By committing ourselves in this new Europe to maximising opportunity for all, and to getting the best out of people and their potential, Europe can be both enterprising and socially cohesive.

Context

Finally, let me put our European policy in the context of our policy as a government.

To those who believe that Britain does best isolated and detached, let me say that the opposite is true.

While Britain’s relationship with Europe has neither been exclusive nor constant, any study of our history does show not just that we have always been a European power but that Britain has been European for good pragmatic reasons.

We should dismiss the notion that our history suggests being British is synonymous with being anti-European.

As the experience of the first half of this century showed – in two world wars – Britain did not and would not relinquish our role in Europe or abdicate responsibility for the progress of the continent.

Europe, by virtue of history as well as geography, is where we are. 50 per cent of our trade is with Europe. So our approach must be guided by, as always, a common sense engagement in pursuit of our national interest.

The idea that we could withdraw from Europe or be outside Europe’s mainstream and instead become a Hong Kong of Europe – a low wage competitor with the Far East – or a tax haven servicing major trading blocs – the idea of a greater Guernsey – only needs a minute’s consideration to be rejected. Britain, which has been a European first rank power for several centuries, often holding the balance of power within Europe, would become a spectator in Europe’s future development.

Rigid and inflexible ideology has never been the British way and under this government will never be.

It is through a close constructive relationship with our European partners that Britain will not only enjoy greater prosperity but continue to have influence and continue to make a positive contribution on the world stage. the more influence we have in Paris and Bonn, the more influence we have in Washington. Our Atlantic alliance is not in contradiction with our European commitments. British interests are best served by being strong in Europe.

So history suggests to me that there are no grounds for believing that to be pro-British it is necessary to be anti-European. indeed, history suggests that far from being isolationist Britain has always thrived when it is outward looking and internationalist.

And I believe that British values have much to offer Europe as it develops. Being in and leading in Europe means we contribute British ideas to the development of the European Union.

Our British qualities that will help Europe are openness to trade and our outward looking and internationalist instincts and connections which stretch across the world; our creativity as a nation and our adaptability; our insistence on the importance of public service and openness in the running of institutions; and other values we share with others which stress the importance of hard work, self improvement through education and fair play and opportunity for all.

These are all British qualities – qualities many of which we share with other countries, qualities that I want to bring to British engagement in Europe. These are the very qualities that can help the nations of Europe go forward together into a more prosperous 21st century.

So to those who say that the future means Britain submerged in Europe, I say the opposite: with an emphasis on these qualities Europe can learn from Britain, just as we in Britain can learn from the rest of Europe.

So the British way is not to retreat into a narrow insularity and defensive isolationism, but to be open, confidently outward-looking and to lead by example.

As we prepare for the future that is what we must now do.