HM Treasury News Release
180/98 2 November 1998
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CHANCELLOR SPEAKS TO CBI CONFERENCE
Attached is the text of the Chancellor, Gordon Brown's, speech to
the Confederation of British Industry Conference in Birmingham
today.
PLEASE CHECK AGAINST DELIVERY
SPEECH BY THE CHANCELLOR OF THE EXCHEQUER AT THE
CBI NATIONAL CONFERENCE IN BIRMINGHAM ON MONDAY 2
NOVEMBER 1998
Introduction
I am delighted to join you once again here in Birmingham on
the first full day of your Conference, grateful for the
opportunity to address business leaders, to pay tribute to
the contribution you and your companies make to the
prosperity of Britain.
One look at your agenda and the speakers you have invited
to address you - last night President Menem of Argentina,
today Prime Minister Aznar of Spain, tonight Chancellor
Gerhard Schroeder of Germany - I am grateful to have a look
in. But the fact that you have speakers from all over the
world tells us much about the global economy in which
business now operates and the international and European
nature of all our interests and concerns.
And so I am pleased to take this opportunity to talk to you
about the forces at work in the global economy, which we
must meet and master; to outline with you the steps we are
taking at home and through our work in the international and
European communities that will help Britain - and your
businesses - steer a course of stability in this uncertain
world, and discuss with you the reforms in labour markets,
capital markets and product markets that we need in Britain
and Europe if we are to be equal to any and every challenge
this uncertain global economy brings.
Globalisation
The global turmoil we are witnessing could not have happened
in the same way in the old sheltered economies of the past,
with their national barriers and their limited capital
markets. The challenges that we have to confront today
arise from us being part of a global marketplace - with its
ever more rapid waves of innovation and its fast-moving and
often destabilising capital markets.
When the world's second largest economy, Japan, is likely
to contract by 2.5 per cent in one year, when countries
hitherto the growth areas of the world economy now face
unprecedented declines and when world trade growth falls by
two thirds in one year then, it is everyone's business - not
only because we are dependent on each other's goods and
services but also because - as we have seen - a weak
financial system in one country can threaten another
country's financial system.
This afternoon I will make a Statement to the House of
Commons detailing a number of reforms which the G7 Ministers
and Central Bank Governors have now agreed to strengthen the
international financial system.
Our challenge is to create the best conditions for stability
and growth in the world economy. Firstly, by recognising
that the balance of risks in the global economy has changed
and therefore being vigilant in our monetary policies.
Secondly, by avoiding protectionist tendencies when trade
imbalances begin to appear. And finally ensuring that our
policies for transparency, supervision and financial
stability are as sophisticated as the markets they have to
deal with. Hence our proposals for a new mechanism for
crisis prevention, improvements in global financial
regulation and codes of conduct that require all countries
to pursue transparent procedures in their monetary,
financial and fiscal policies.
Stability in the domestic economy
Monetary and fiscal stability is a precondition of economic
success. And just as we must work with our international
and European partners to create the best conditions for
global stability and growth, so we must work together to
steer a course of stability for Britain.
In the 1970s British inflation averaged 12 1/2 per cent, and
went as high as 27 per cent. In the 1980s it averaged 7 per
cent. And having reached a high of 21 per cent. Even a few
years ago in the early 1990s it stood as high as 10 per
cent, revealing a still inflation-prone economy not capable
of sustaining non-inflationary growth without a resort to
boom and bust.
That is why on coming to government we took immediate action
to set in place a credible and long term monetary policy
framework, making the Bank of England independent. By
tackling inflation head on, inflation is now at our target
of 2.5 per cent and expected to stay close to there for the
period to come. And as a result long term interest rates
have fallen from over 7 to 5 per cent, the differential with
Germany narrowed by almost 1 per cent, the lowest long term
rates in Britain for 35 years, the lowest since the boom-
bust cycle in Britain became entrenched.
It is also because alongside our monetary framework we have
created a new framework for fiscal stability - with similar
rules, similar disciplines and a similar transparency - that
we are eliminating the current structural deficit while
maintaining our commitments to health, education and
infrastructure investment.
Having kept within rigorous spending ceilings in our first
two years, we reduced the deficit by 20 billion pounds,
tightening fiscal policy by 3 per cent.
We have consistently taken a prudent and cautious approach
to managing the public finances and we will continue to do
so. Our projections have been based on cautious assumptions
which have been audited by the independent national audit
office and our plans have built in margins to cover
uncertainties, including the risk of slower growth.
And it is because Britain now has an explicitly long term
fiscal as well as monetary framework and policy from which
we will not be diverted that, as world growth has weakened,
monetary and fiscal policy can now work together.
Let us not forget that in the last downturn the inflationary
problems of our economy were such that even after the
economy turned downward interest rates remained at 15 per
cent for a whole year and in double figures for 4 years.
In contrast, the Bank of England has now been able to reduce
interest rates, to respond to a changed international
environment - able to respond more quickly and in a more
forward looking way than in past British economic cycles.
I know your concerns about the pound and I have heard them.
Set against the deutschmark the pound is now 10 per cent
lower than at its peak, lower than May 1997, and I think
everyone here would agree that the greater danger for our
economy would have come if we had taken the wrong action and
returned to the double-digit interest rates of the past.
We are conscious, of course, that there is a balance of
risks: the risk on the one hand of a sharper slowdown in the
world economy, the risk on the other that inflationary
pressures might persist.
But because we have a long-term framework within which we
are eliminating the current structural deficit and because
we will continue to meet our inflation target Britain is now
better placed to steer a path of stability in these troubled
times for the global economy.
If the country's wage responsibility matches the
Government's inflation resolve - and this is as relevant to
the public sector as to the private sector - then Britain
can have a low inflation environment for many years to come
that will end the violence of stop-go economics in our
country.
It is my objective to start a virtuous circle of low
inflation, low long term interest rates and rising long term
investment that will become the platform for driving our
economy forward. And that in the face of the current
international difficulties is a prize for Britain, one that
has eluded us for too long.
Higher productivity
But in the global economy every country has to face ever
intensified competition. For all the changes that brought
liberalisation and flexibility in the 1980s, no one can
doubt that Britain in the 1990s had two great economic
challenges to resolve - the stop-go instability I have
referred to, and a productivity gap with our competitors,
which we must bridge if we are to rise to the challenge of
more intensified competition in the global economy.
So as you know over the past six months the Secretary of
State for Trade and Industry and I have been holding a
series of seminars with many of you, examining together some
of the barriers to high productivity in our country.
Because we believe it is businesses and companies not
governments that create prosperity and jobs, we have already
cut the main rate of corporation tax to its lowest level
ever, first to 31p and from April to 30p. And we have cut
the rate to 21p and from April to 20p for small businesses.
This is the lowest of any major industrialised. And to
encourage long term investment, we have also cut the long
term rate of capital gains tax from 40 pence to 10 pence.
But we can do more. Tomorrow I will present to Parliament
our Pre-Budget Report. It will set out for the coming year
the next steps that we must take to increase competition,
cut red tape, increase investment and to equip the British
economy for all the challenges ahead. And this will inform
the Competitiveness White Paper Peter Mandelson is
preparing.
The Pre Budget Report on raising productivity will be the
start of a process of discussion and debate leading up to
the Budget in which I hope every part of the business
community will be involved.
This is not a theoretical exercise it is entirely practical
because as I will say tomorrow, in preparing this Budget and
the next the Government is ready to consider all tax,
spending and regulatory changes that will help us bridge the
productivity gap with our competitors and equip us to
succeed in the future.
Part of the solution to bridging the productivity gap is
through a modern employment policy. And I want to say how
grateful I am to hundreds of you for joining more than
29,000 employers in supporting our Welfare to Work
Programme.
Europe
But there is a further area in which Government and business
must work together to equip ourselves for the future - that
is in moving forward our relationship with Europe, where we
do half our trade, and being ready for the euro in little
more than eight weeks time.
My view of Europe is of a continent that has to accelerate
change and modernise through pushing ahead with reforms in
labour markets, capital markets and product markets for more
competition, more flexibility, more investment and more
employment.
So we need a pro-business, pro-opportunity Europe that must
not turn its back on necessary reform.
The Single Market must not remain just an aspiration, in all
areas it must become a reality.
European-wide competition must not just be talked about.
Markets must be opened up not least in telecommunications,
energy, the utilities and public contracts.
Budget reform must reduce wasteful expenditure in favour of
a rigorous selection of priorities.
The adaptability and flexibility which modern economies
need, free of burdensome regulations, must become a reality
across the continent.
And this does not require the people of Europe to reject the
strong desire for social cohesion. For 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.
This Government has decisively and unambiguously put this
country on a new road of constructive engagement with
Europe.
Our position on the euro is as we set out last year, that
we have committed our country to active preparations that
will allow us to make a decision, subject to a Referendum,
early in the next Parliament and our strategy is to prepare
and then decide.
When I spoke to you last November, I set out the challenges
that economic and monetary union would mean to British
businesses. How EMU would lead to fiercer competition for
trade and for future investment across Europe and what we
in Government would do to help you take advantage of the new
opportunities.
I can now report back to you on the results of our work.
First, when 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, we decided to tackle this directly under Lord
Simon's leadership - through direct mailing of 1.6 million
firms and a series of television adverts.
Twice as many businesses are now making preparations.
Second, we have brought together firms, business advisers,
trades unions, and Government through 12 new Euro Forums in
every region of the country, led by local business people.
Over 500 personal advisers from business links, Chambers of
Commerce and local authorities have been on training courses
organised by the Treasury's Euro Preparations Unit.
Third, we have put in place arrangements to enable firms to
pay taxes, file accounts and issue shares in euros. The tax
authorities have issued guidance and the DTI will legislate
next year to make redenomination of company shares into
euros even easier.
By the end of this year, over 10,000 of Customs and Excise
staff will have been trained to deal with enquiries or
deliver services in euros to the business community.
The next stage is that in January, we will publish an
Outline National Changeover Plan which will set out the
practical steps which would be needed for the UK to join the
euro.
We will set out the stage-by-stage procedures that will need
to be followed, we will spell out the practical implications
of changing to the euro and we will give new advice to
companies on the way to take forward their preparations.
Finally, I am conscious that a test that business will apply
is whether the public sector is prepared to take a lead in
making preparations. And I can tell you today that every
Government Department is playing its part, that we are
investing in what is necessary to keep preparations on track
and that as a further step a cross-party group of Members
of Parliament on euro preparations will be set up to discuss
euro preparations.
Conclusion
My themes therefore: our economy founded on a platform of
monetary stability equipped to steer a course of stability
in an uncertain and unstable world. Sound finances through
prudence and investment in reform. A national drive for
higher productivity through economic reform, and a new
purpose in Europe. The great British qualities - our
commitment to the virtues of enterprise, creativity, of hard
work, fair play and being open and outward looking - put to
work for a new era of global competition.
A modern Britain, founded on lasting British values, the
values of the British people.
An economy that, because our commitment to opportunity for
all means getting the best out of people and their
potential, is both enterprising and fair.
And a Britain where there is a mature patriotism that is
outward looking and internationalist - giving us a renewed
sense of national purpose and a long term direction as a
country.
A Britain ready to fulfil its role in the new world, and to
realise the potential of all its people.
# = pounds sterling