15 November 2001
CHECK AGAINST DELIVERY
SPEECH BY THE CHANCELLOR OF THE EXCHEQUER TO THE INSTITUTE OF DIRECTORS
I am delighted to join you at your annual dinner this evening and to pay tribute not just to the work of 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 prosperity to all.
The Institute of Directors has always stood for an enterprise economy – a dynamic high productivity, high investment, economy built on a strong entrepreneurial culture. And this evening I want to devote my remarks to how to widen and deepen the enterprise culture in our country – strengthening the stability that is its foundation, the competitive environment that is its essential building block and opportunities for the talents of people- their ideas their skills and their initiatives – that are its driving force – to flourish.
Now I am grateful for the opportunity on the eve of my visit to the IMF, World Bank and G20 meetings in Ottawa to speak to you about the challenges we face in Britain and globally.
The tragedies of September 11th will never be forgotten and there are many here this evening whom I know lost friends and colleagues in the collapse of the twin towers.
I can tell you that in Ottawa Finance Ministers and Bank Governors will match the successful military action against terrorism with agreement on an international action plan to cut off the supply of finance to terrorism.
Those who finance terrorism are as guilty as those who practise it and having in Britain alone frozen and immobilised £70 million of suspect terrorist funds we will ask all 183 member countries to outlaw and seize suspicious transactions which may abet terrorism.
And I can tell you that from Britain we will offer to coordinate a central register for technical assistance to countries implementing anti-terrorist measures. And now that anti-terrorist finance units are being set up in all major financial centres we will offer London as an international clearing house for information exchange on asset tracking.
In times like these that challenge and test us, the essential economic function of government is to maintain the conditions for stability and growth and more than ever this must be done not just nationally but internationally.
And 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 willingness to take any necessary further action.
All of us should be heartened by not just the spirit but the letter of the historic agreement reached at Doha, developed and developing countries working together to agree to enter a new round of world trade talks – the so called “Doha development agenda” that will engender among the economies of the world greater confidence in the months ahead.
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. 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, recession threatening in America as well as Japan, and no-one yet sure about the final impact of the events of September 11th, these are still 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 and the pressures of today.
Over the last four years the message you – and the whole of business – have consistently sent us is: maintain the conditions for long-term stability.
Since we introduced a new monetary and fiscal framework four years ago – with bank independence, a symmetrical inflation target, debt reduction and new fiscal rules - inflation has remained at or near the Government's target of 2.5 per cent.
Indeed, before bank independence the financial market expectation of inflation 10 years ahead was 4.2 per cent– even when there was a 2.5 target – this year the long-term inflation expectations have been averaging 2.5 per cent – exactly on target.
And interest rates have come down to 4 per cent – the lowest for nearly 40 years – precisely because we have a low inflation economy. And we will continue to back the Bank of England in all the difficult decisions it makes.
Central to our fiscal stability is the tough decisions we took in the first Parliament to cut national debt to sustainable levels. Debt was 44 per cent of national income in 1997 when this Government inherited a £28 billion deficit and we immediately took the difficult decisions to freeze spending, introduce new fiscal rules, make the tax changes that were necessary and so cut the burden of unsustainable debt. And in future years, we will also have the strength to take any difficult decisions where they are necessary.
Today debt is falling towards 30 per cent, in contrast to 41 per cent in America, 49 per cent in France, 51 per cent in Germany and 102 per cent in Italy. Britain’s debt as a share of national income is now the lowest in the G7 and lower than our major European competitors.
These sustainable levels of debt allow us to meet our health, education, and transport commitments, deal with emergencies as they arise and at all times maintain and hold both our fiscal rules.
Both you and I want a culture that entrenches low inflation and fiscal discipline – not just for a year or two but also over the long term. So even when tested by events and pressures for spending here and there, the resolve you asked us to demonstrate in 1997 will be maintained. We will not bow to short-term pressures or the old quick fix solutions – we will not abandon the inflation target, relax our fiscal discipline or put our hard won stability at risk but will stay the course.
And we will not change our European policy either: in principle our support for the single currency, in practice the five economic tests that have to be met.
Stability is the foundation but productivity achieved from that platform of stability is – as you know – the key to our future prosperity. And the central economic theme of our Pre-Budget Report will be our support for enterprise – for building a stronger, more dynamic, enterprise economy.
In the past, politicians - indeed both my predecessors and I - have been accused of saying one thing to one audience and another thing to another. So I want to share with you today the agenda for modernisation that I have put to both the Labour Party and the TUC. I am not saying to you what I have not already said to them.
I told them that we must never again be seen as anti-success, anti-competition, anti-profit, and anti-markets.
I said that the new information age economy would need not less but more competition, and not less but more entrepreneurship and flexibility.
It is undeniable that for fifty years after 1945 the British economy and Britain suffered from backward looking and self-defeating conflicts between capital and labour, between state and market, and between public and private sectors – denying Britain a shared national economic purpose.
I believe Britain and the British people have moved beyond these outdated divisions.
As we have entered a new century we have been leaving behind the old disputes and I am optimistic that together – directors, managers and workforce, public and private sectors – we are defining for our times a shared national economic purpose for Britain.
And my reasons for optimism are these:
First, there is now public support from the board room to the shop floor for our framework for monetary and fiscal stability that together we have to build and sustain – even when it means making unpopular decisions;
Second, the work ethic – so important to success in the years of the first British industrial revolution – is being once more re-invigorated in high unemployment communities where it had in recent decades withered – thanks not least to the contribution your companies are making to the New Deal;
And third, perhaps of even more long term importance, we are rediscovering our essential strengths as a nation: our inventiveness and flexibility; our internationalism and openness to the world; our willingness to adapt to change; and our belief in self-improvement and the importance of education.
These historic strengths, which represent some of the proudest parts of our heritage, can contribute most to a successful future and are reflected in:
- British initiatives in trade and development designed to advance our national goals of free trade and open markets;
- a new emphasis on science and innovation to release the creativity and inventiveness of the British people, not least in knowledge based industries; and
- putting education in our schools first to reassert the importance of learning, to raise standards at all levels and to allow young people to develop the talents necessary for high productivity growth.
So how can we build on this in the Pre-Budget Report and beyond?
Our aim for this decade should be to achieve the fastest rise in productivity of competitor countries. Indeed, in a period where the world is slowing down it is the high productivity performers that will gain the most. And beyond our responsibilities for stability, the modern, more focussed, role of government is to:
– ensure there is a competitive environment throughout the economy so the companies that are the most innovative and dynamic can flourish; and
– maximise educational employment and economic opportunities so people can make the most of their talents, ideas and initiatives
thus creating a wider and deeper enterprise culture that promotes investment and entrepreneurship and rewards success. And I can say tonight that our budget tax decisions will promote these goals and help build an economy that is not only enterprising but where enterprise is open to all.
Having already cut corporation tax for companies from 33 to 30 pence - the lowest rate in the history of British corporation tax and now the lowest rate of any major industrialised country anywhere, including Japan and the United States – and having also cut small business tax from 23 to 20 pence and introduced a new starting rate of tax for small companies of 10 pence in the pound we are considering further measures to extend the cuts in small company tax.
And of course businesses will also benefit from the reduction in long-term capital gains tax from 40 pence to 10 pence.
When we came into power we had many priorities: health, education, transport, pensions. Amidst all these priorities we decided that enterprise and long-term investment would be enhanced by reforms in capital gain tax including cutting rates – and we set aside hundreds of millions of pounds to do so.
Capital gains had been fixed at 40 per cent for almost ten years. So in 1998 we cut the long term rate of capital gains tax for business assets and next April we propose doing so again: from 40 per cent to 20 per cent for investments held for one year; and to 10 per cent for investment held for two years.
And because Britain’s challenge is to grow more successful dynamic businesses, I am introducing new measures that help dynamic managers build up these businesses and rewarded for doing so.
The new Enterprise Management Incentive scheme allows growing companies to give options of up to 3 million pounds of shares – free of income tax and national insurance – to recruit and retain the employees they need to be successful. Since it was introduced in July 2000, over 1500 companies have used EMI for more than 12,000 of their employees. In the Budget I am considering doubling the asset limit to £30 million – doubling the asset size of companies which can benefit from EMI.
We know that open not closed economies are the driving force in productivity growth. And we know that it is the global reach of business, not protectionism, that is the key to dynamism and growth.
Because competition is the spur to efficiency and innovation, and because greater competition at home will mean greater competitiveness abroad, we are creating the most open competition policy this country has ever seen.
In 1997, we made monetary decisions independent of political influence within a long-term framework where the policy objective is clear, the division if responsibility is clear, and there is maximum transparency and accountability. Now we must do the same for competition policy – sending an important message that the days of picking winners and uneconomic state subsidies and corporate fixes are over and cannot return and wherever there are barriers to competition we will tackle them.
And because we recognise the increased importance of innovation to economic growth we have already:
- invested 1 billion pounds extra in science;
- established a new University Challenge Fund to help commercialise British inventions; and
- created eight new Institutes of Enterprise to bring management skills into engineering and science.
The new Research and Development Tax Credit gives even the newest and smallest business cash help to research and develop their innovations, even before they make their first profits. At a cost of £100 million this year, rising to £150 million next year, this targeted tax cut ensures that nearly a quarter of small business research and development costs will be underwritten by Government.
But we need to do more to turn scientific inventions in Britain into jobs for Britain by honouring the spirit of invention, facilitating the exploitation of invention and encouraging the commercialisation of invention.
So we are discussing with large companies a further tax cut for innovation and R&D that will give Britain one of the best incentives for innovation anywhere in the industrialised world.
Because we understand the importance of e-commerce we have set ourselves the task of making Britain the most favourable environment in which to conduct e-commerce – creating a new legal framework to give new incentives for businesses to use the internet, putting government services themselves on line, and gearing our education and training system to the IT revolution.
All our reforms are designed to create a more adaptable workforce for the modern dynamic labour market where people change jobs more often and skills are at a premium.
I am grateful to the 60,000 employers in Britain who have signed up to participate in the New Deal and are now working on the Ambition programme to link people without jobs to the skills we now need. To ensure proper supply of labour, we will continue to tighten the responsibilities expected of the unemployed, and with our tax and benefit changes we will ensure that for families work pays more than benefits.
I am grateful too for the IoD’s support in extending employee share ownership. Two years ago only a fraction of British employees, and an even smaller minority of those outside senior management, owned shares in the companies that they worked for. Today, 470 companies are set to enjoy the benefits of the share incentive plan – involving 700,000 employees – moving towards the first one million to benefit – representing a key milestone in removing the “them and us” culture.
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.
And the efficiency we seek in the private sector we demand on the public sector. Having doubled net public investment by 2003-04 to £18 billion per year, and agreed £180 billion of new public and private investment over ten tears for transport, government at every level – national, regional, and local – must raise its game.
And, early next year, we will take the enterprise agenda forward in Europe with proposals in a European Economic Reform White Paper to modernise capital and product markets, encourage innovation and an enterprise culture, and develop a modern skills base.
I want a Britain where just as employment is for all, enterprise is open to all – a Britain with a creative, innovative and enterprising economy in every area.
Indeed we must do far better than we have in the past. We must go beyond what was achieved in the eighties giving more people the chance to turn their ideas into profitable companies, to start firms, create jobs and win business for Britain.
And I want to send a message to every business and every would be businessman or woman: if you are starting up, hiring for the first time, growing and looking for capital, seeking to export or seeking to float as a company: we are on your side, whatever your trade whatever your region, whatever your ambitions.
So we are simplifying vat for half a million small firms and have published proposals for a new flat rate scheme – reducing business costs by up to £1,000 a year – a move widely supported by trade bodies.
And we introducing a further deregulatory measure – at present companies must compile separate accounts for Companies House and for the purpose of calculating their tax. We are now consulting with business on abolishing the requirement for separate accounts for tax, cutting both red tape and business costs.
I would like to ask directors and managers here and throughout the country to take in interest in helping renew and regenerate our high unemployment areas – often inner city estates and old established heavy industry communities where small business creation is, and remains, low.
As I told the Labour Party conference there is no solution to the problems of these high unemployment areas without the creation of more small businesses and more businesses generally. I see old established areas as new opportunities for business, new markets with untapped resources for economic development.
So to cut back the cost of investing in high unemployment areas, and regenerate out towns and cities, in August this year we introduced:
- a cut in VAT on residential property conversions to 5 per cent;
- 100 per cent first year capital allowances for bringing empty flats over shops back into the residential market; and
- an accelerated tax relief set at 150 per cent for cleaning up contaminated land and considering a further corporation tax relief, for firms investing in our new urban regeneration companies.
And to make the first stages of buying property and bringing land back into use tax free we are considering introducing a stamp duty exemption on property sales in our most disadvantaged areas.
To cut the cost of small business borrowing we have introduced a new Community Investment Tax Credit will create the first Community Development Venture Capital Fund - a partnership between government, financial institutions and the charitable sector for which the chairman of our review, sir Ronald Cohen, proposes a capitalisation of £40 million.
But we can do more. I want us to spread the message of enterprise throughout the country and to open up the opportunities of enterprise to all.
I care passionately about this. And I know George Cox your director general does too and I praise him for the work he has done in Enterprise Insight, taking the enterprise message to schools and colleges.
When I was at school the world of education was far too remote from the world of business.
I want every young person to hear about business and enterprise in school; every college student to be made aware of the opportunities in business, even to start a business; and every teacher to be able to communicate the virtues of business and enterprise.
I want businessmen and women going into school and into the enterprise classes; I want every student to have a quality experience of working in a local business before they leave school; I want every community to see business leaders as role models.
We have begun to improve the national network that brings schools and businesses together – increasing the scale of enterprise classes in our schools. But I want to see more businesses even more involved with their local schools – improving the quality of work experience for year 10 students and business placements for teachers.
Around Britain there are many successful examples of schools and businesses working together for the benefit of both. And I want all schools – especially those in disadvantaged areas – to benefit.
I applaud the new national enterprise campaign “Enterprise Insight” – promoting the work of partners including Businessdynamics and Young Enterprise, bringing schools and businesses closer together and providing more than 100,000 young people every year with hands-on experience of what it is like to be in business. Since its launch earlier this year 246 companies have already signed up to take part.
If we are to have a deeper and wider more entrepreneurial culture we need, we must start in our schools and colleges. The Secretary for Education and I have asked sir Howard Davies to examine how we can make progress.
And I urge all businesses throughout the country to adopt a school ‑ whether it is by taking students on work experience and teachers on work placements, sending employees into schools to help run enterprise classes, or being business governors.
In this way, every business in the country will be helping to build the new enterprise culture that we all want to see.
We must not rest but be determined about Britain’s future, not relax our efforts but step them up and prepare for the next stage of our productivity drive by removing all the old barriers to employment and prosperity.
If we do so there is a great prize – not only the long-term stability you asked us to build but sustained rises in growth and prosperity for our communities and our companies, and from which the whole country can benefit.