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119/01 5th November 2001 SPEECH
BY THE CHANCELLOR OF THE EXCHEQUER GORDON BROWN TO THE CBI ANNUAL
CONFERENCE DINNER Click
here to download Adobe Acrobat I
am delighted to be here this evening to pay tribute not just to
the work of the CBI and to British business but to commend you -
as individual company directors executives and managers - on the
work you do, the service to our country you give, the difference
you make to the economy, to employment and to the prosperity of
Britain. All
of us here today will wish to express our sympathies to the families
of those employees in the financial services and other industries
and in the fire, police and other public services who lost their
lives on September 11th. Many companies represented
here today lost valued employees. And
because terrorists intended to bring the world’s financial system
to a halt, to undermine the very prospect of global prosperity,
we - Governments and business - must continue to show --- as we
have shown by our actions in maintaining the conditions for stability
and growth --- that we will not succumb or surrender to their threats.
Britain
will continue - as Tony Blair has said - to stand shoulder to shoulder
with AmericAnd
it is a tribute to international cooperation that this challenge
to the global economy is being met by a global response - that not
only have interest rates been brought down worldwide but the central
banks of America, the euro area and Japan as well as Britain have
made clear their determination to take any necessary further action.
Oil
prices – which have previously risen in times of trouble - have
fallen in the last month and we will continue to work with the oil
producing countries to ensure steadiness of supply and prices.
And where markets have failed, as on airline insurance, governments
across Europe and America acted to fill the gap -- with a new short-term
insurance guarantee. Because
no country can insulate itself from the global economy, with world
trade slowing, growth slowing sharply in America, Japan and Germany
and no-one yet sure about the final impact of events, these are
times that are uncertain, times that test us here in Britain. I
understand people’s worries about the effects on their jobs and
livelihoods of a global slowdown which will inevitably impact on
Britain’s economic growth. And in the pre-budget report we will
do more to recognise the vital contribution of modern manufacturing
to exports, innovation and our great regions. But
it is because of the tough decisions we took from 1997 to create
monetary and fiscal stability that we are today in a better position
to withstand the ups and downs of the economic cycle. Ten
years ago when the US slowed at a time of international conflict,
British inflation had risen above 10 percent and Government had
to raise interest rates even when unemployment was rising above
2 million. Today
because we have made the Bank of England independent and have a
credible monetary framework based on a symmetrical inflation target,
inflation has been at or near our target of 2.5 per cent for four
years. The longest period of low inflation since the 1960s. A
decade ago British interest rates peaked at 15 per cent and were
above ten per cent for four years. But
because since 1997 we have combined monetary discipline with fiscal
disciplines which people know we will keep, they have averaged 6 per
cent. And today they are 4.5 percent, for homeowners and businesses
the lowest long-term interest rates for nearly 40 years. And
while we will never be complacent, at this time of global slowdown
– unlike 10 or 20 years ago – the fundamentals are sound: low inflation,
stable public finances. So despite the difficulties and pressures
we now face, with interest rates cut 6 times since the start of
2001 and fiscal policy supporting growth this year, I am cautiously
optimistic. We
all know that as long as terrorism is allowed to threaten, our economy
can never be fully secure, our society never fully at ease. So
meeting the necessary cost of military action - and our international
development responsibilities in Pakistan and Afghanistan – is a
duty we must and will discharge, paying what it needs to root out
terrorism and the supply of funds and equipment to terrorism. And
it is a duty we are able to discharge because of the discipline
and tough rules we have applied to public spending in the past.
But
- as I have told my Cabinet colleagues and I now repeat publicly
- in other areas of spending this is the time for more discipline
not less. And I can say to you that, throughout, we will not relax
our fiscal disciplines and we will work within the fiscal rules
we set in 1997 and have upheld throughout. Stability
is the precondition but you all know as businessmen and women that
it is not enough. As
the CBI and the TUC recognised when we met at Downing Street last
week, at this time of global uncertainty it is even more important
that we work together to enhance wealth creation and raise productivity.
In the years to come we will need substantial productivity gains
to continue to raise our trend rate of growth and thus our national
prosperity. While
we have world class companies represented here tonight, and I applaud
you for your contribution to Britain’s success, the conclusion of
the CBI-TUC review submitted to the Government last week is that
overall productivity in Britain is still far too low and that if
we are to achieve our aim for this decade - the fastest rise in
productivity of our competitors - we will, all of us, with labour
market, capital market and product market reforms have to modernise,
change and reform. Tonight
I want to assure you from the Government that not only will we continue
our policy of moving the unemployed from welfare to work – indeed
we will enhance both the New Deal’s opportunities and sanctions
– and our measures to enhance labour market flexibility as a contribution
to higher productivity, but we will also, in consultation with you,
move forward the enterprise agenda: First,
to reward enterprise and entrepreneurship I can say tonight that
the Budget will significantly extend our cuts in capital gains tax.
I will propose that for business assets held for 2 years, capital
gains tax which in 1997 was 40 per cent will be cut to 10 percent
- designed to provide incentives for investment in wealth creation
and greater rewards for success - indeed a more attractive capital
gains tax regime overall than the United States. Second,
in the next Budget I will also propose extending our cuts in small
company corporation tax where instead of 23p in the pound the rates
are now 20p and in many cases only 10p, and there will be a simplification
of the VAT system as we introduce further deregulatory measures
to help small businesses. Third,
many of you have rightly complained about complexities, delays and
anomalies in our physical planning system. We will reform and modernise
our physical planning laws and Steven Byers will publish in the
next few weeks a Green Paper promoting reform which will strike
the right balance in a modern economy which puts an ever higher
premium on speed, efficiency and flexibility – especially to reflect
the widely differing needs of all our regions. Fourth,
we are introducing a new competition regime - with decisions taken
out of the hands of politicians and truly independent of the political
process - that will match the best in the world. Fifth,
your needs include the best skilled manpower and work ready staff,
and we are ready to fulfill our responsibilities by putting additional
resources into a reformed training system and ready to sanction
an extension of the work permit system that has already raised entrants
to the UK from 50,000 three years ago to 150,000 this year. Sixth,
the efficiency we seek in the private sector we demand in the public
sector. Having doubled net public investment, Government at every
level – national, regional and local – must raise its game. We will
maintain our £180 billion ten year plan to modernise our transport
infrastructure - and any one of you who have travelled across Britain
know the importance to business and communities of this doubling
of transport investment And
I leave you in no doubt that we will continue our programme of public
private partnerships. Whether it be in the London Underground or
in the air traffic control service, I am convinced that instead
of the old sterile divide which pitted public against private, we
do best when public and private sectors work together to enhance
investment in our transport and infrastructure. And
if we as a nation are to have a deeper and wider entrepreneurial
culture we must do more to extend knowledge of enterprise to every
community. We all know that for too long the world of business and
the world of education existed apart from each other. With your
support I want every young person to hear about business and enterprise
in school, every college student to know there are opportunities
in business, every teacher able to communicate the virtues of enterprise,
and I want young people growing up to see successful business leaders
locally and nationally as role models, so encouraging a stronger
pro-business, pro-enterprise, pro-wealth creating environment in
our country. It
is not just in Britain but in Europe as a whole that a modern route
to both economic stability and a more entrepreneurial economy based
on economic reform is needed. As
in Britain, the euro area has been establishing a new framework
for economic stability. As
I set out at the Lord Mayor’s Banquet earlier this year, our approach
is - and will continue to be - considered and cautious: one of
pro-euro realism. Pro-euro
because, as we said in 1997, we believe that - in principle - membership
of the Euro can bring benefits to Britain. Realist
because to short-cut or fudge the assessment, and to join in the
wrong way or on the wrong basis without rigorously ensuring the
tests are met, would not be in the national economic interest. A
single European currency – with a fully developed single market
– could in principle increase trade and competition through the
elimination of exchange rate risk and through more transparent prices;
reduce transaction costs, again increasing trade and investment,
and benefiting everyone travelling in Europe; and lower long-term
interest rates, again good for investment and so good for growth
and jobs. So
the assessment as to whether it is in the British national economic
interest or not will be comprehensive and rigorous. It is only
on this basis - taking into account all relevant economic information
- that the Cabinet will decide whether to recommend membership to
Parliament and then to the British people. While
the assessment has not yet started, the necessary preliminary analysis
- technical work that is necessary to allow us to undertake the
assessment within two years as we promised - is underway. The
scope of the technical and preliminary work for the next assessment
of the five tests is as set out in the original October 1997 assessment.
Although there have been new developments since the 1997 assessment,
the underlying issues to be analysed remain the same. The
1997 statement detailed five economic tests:
-
First, sustainable convergence between Britain and the economies
of a single currency; -
Second, whether there is sufficient flexibility to cope with economic
change;
- Fourth, the impact on our financial services industry; and
And
I can tell the dinner this evening that our commitment “to prepare
and decide” is being maintained with the publication of the latest
euro preparations study today. We
have always said that we must prepare together – not one or two
businesses, but Government and business working together. The
Government’s Standing Committee on Euro Preparations - with membership
drawn from the public and private sectors, including the president
and Digby Jones - met again last Monday as a key part of our consultation. And
we are today publishing our latest Progress Report on Euro Preparations.
In just a few weeks’ time, Euro cash will displace existing currencies
in the euro area. This will have an impact on many UK businesses
and also on citizens in their capacity as tourists. I an pleased
that Government and the CBI are working together to give advice
to businesses - indeed the next phase of our information campaign
starts today, including the direct mailing of sample case studies
and an information booklet to 1.5m SMEs. And
in addition to this help for business, together Peter Hain and Ruth
Kelly will also be sending out an information leaflet for UK travellers
to help them with the transition to notes and coins. These
are the preparations we are making together. Because we are resolved
we will not leave Britain economically unprepared.
But
across Europe a wider debate on the future of Europe is also taking
place and Britain must be at the centre of that debate too – a debate
on economic reform amidst the challenge of globalisation, enlargement
into the east and the wider Nice agenda to make decision making
in Europe more accountable and relevant to the population as a whole.
Europe
is where we are, where we trade, from where thousands of businesses
and millions of jobs come. We are part of Europe by geography,
by history, by economics and by choice. So the case is not only
for a reformed Europe but for Britain leading reform in Europe.
Getting
the economic future for Europe right matters for Britain because
over three quarters of a million UK companies now trade with the
rest of the European union. When we joined Europe in the 1970s,
less than 8 billions of our trade was with the rest of Europe.
Today it is £138 billions – more than half our total trade – with
3 million jobs affected. But
while the single market encompasses 375m people today – and potentially
nearly 500m in the future – we still have a long way to go to secure
for British business and British consumers the full benefits in
commercial opportunities and consumer prices. The
1988 Cecchini report examined in depth the potential economic gains
of the single market, asserting that completing it would raise GDP
by 4.5 percent and create 1.8 million new jobs. Yet
by 1996, the boost to GDP had been only 1.5 percent and almost 1
million new jobs had been created. And there is little to suggest
that by 2001 we have realised even half of the potential gains.
So we will publish a White Paper on Economic Reform setting out
the next stage of our plans to liberalise capital labour and product
markets There
are those who say that in the current climate Europe can justifying
going slow on its programmes of economic reform, that now is not
the time for pushing forward with change. I say to them that now
is the time – when we can see the interdependence of our economies
and the challenges of globalisation more clearly - now is the time
to drive forward the reform agenda to improve the flexibility and
productivity of the European economy.
- We complete liberalisation in telecoms by the end of 2001,
capital markets by 2003, financial services by 2004; -
Continue to push energy liberalisation, promote tax competition
not tax harmonisation, drive down old fashioned state subsidies
which undermine the single market while ensuring the state aid regime
tackles market failures and promotes efficient dynamic competitive
markets; British
financial service firms are well positioned to benefit from the
completion of the internal market in financial services. But
what we do not want are directives simply designed to increase regulation
at the expense of liberalisation. I know that the prospectus directive
is a particular concern for the CBI and its members in this respect
and the Government will continue to focus on the outcomes for firms
and consumers that we are trying to deliver. And
Europe must focus not just on internal reform but because I believe
fortress Europe is an idea that has had its day we must focus on
how Europe can be less inward looking and more outward looking and
more open to trade and commerce with the rest of the world. Here
again the economic reform agenda is clear and challenging: and
first and foremost it is crucial that we ensure the launch of a
broad and balanced trade round in Doha. The EU and the US should
work closely on pushing for greater market access for the developing
worlds, have high ambitions to eliminate industrial tariffs, and
make genuinely liberalising deals on agriculture, investment, competition
and the environment. The gains can be in the order of 400 billion
dollars a year, 150 billion for the developing countries. Moving
forward trade liberalisation at Doha in the next few days will send
out a powerful message of our confidence in the future of the world
economy.
So strengthening
our ability to push forward with the multilateral trade agenda,
the conditions now exist for the expansion of the transatlantic
economic partnership, mirroring our security alliance in NATO.
And here what we need now is a Cecchini-style report that set outs
in detail the benefits for growth, prosperity and jobs on both sides
of the Atlantic from a wide-ranging effort to end the remaining
industrial tariffs multilaterally, achieve deeper liberalisation
of trade in services, remove unnecessary non-tariff barriers, increase
competition and develop more effective ways of pre-empting damaging
transatlantic trade disputes. We
in Britain do not have to choose – as some would suggest – between
America and Europe, but are instead well positioned as a vital link
between America and Europe. So
this is a time of great challenges and risks but also a time of
great opportunities – in Britain, in Europe and across the world. I
believe that, learning from each other, all of us – businesses and
Governments working together – can face the great challenges of
today’s economy not by resisting change but by helping people cope
with it; not by standing still but by radical economic reform; and
not by protectionism but by promoting open, competitive markets
and international cooperation. It
makes for a Britain that is true to its great historical qualities:
outward looking and open to the world, committed to an enterprise
culture and ambitious to succeed; fully equipped to lead in the
21st century economy. |
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