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CHANCELLOR'S SPEECH TO BUSINESS LEADERS (FULL TEXT)

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Speech by chancellor Gordon Brown at the annual conference of the British Chambers of Commerce today:...
Speech by chancellor Gordon Brown at the annual conference of the British Chambers of Commerce today:

'Can I say what a pleasure it is to be at this annual meeting of the

Chambers of Commerce, to have the opportunity to thank all of you

here for the contribution you make to the success of the British

economy, and to thank in particular your new president Bill Midgely,

your Chief Executive and staff - and your membership of 135,000

businesses - for your work in encouraging new business, new

employment and new economic development in every city, town and

region of our country.

And it is because of your resilience, your fresh thinking, your

courage to respond and change that we see 4,000 new businesses

starting up each week and 125,000 people finding new jobs every week.

Men and women of commercial flair, entrepreneurial vigour and civic

pride built Britain's towns and cities in the nineteenth century and

our great Victorian cities were known as citadels of economic

dynamism throughout the world. And these business leaders built the

Chambers of Commerce movement.

Now in the 21st century with your active engagement as Chambers,

Britain's cities and towns are being renewed again - vigorous,

dynamic, entrepreneurial centres from Birmingham to Bristol, from

Leeds to Liverpool, from Manchester to Cardiff, from Newcastle to

Nottingham, from Belfast and Edinburgh to Sheffield --- responsible

for many of the 2.2 million new jobs created in our economy and for

consistently high rates of economic growth, showing as the Chambers

of Commerce movement testifies and your manifesto proposes that we

are a Britain of many dynamic centres of enterprise and initiative.

And I thank you for your contribution and promise you I want to see

the wide and deep consultation we have built up continue to

strengthen.

I believe that the nations that will succeed amidst today's ever more

intensive global competition - not least from a rising China and

India - will be those that are sufficiently confident and

forward-looking to entrench stability, to celebrate enterprise, to

make long term investments in science and skills, and be outward

looking rather than protectionist, leading as pro Europeans the drive

for competitiveness across the European Union.

And while it would be easy in the heat of an election campaign to

trade allegation and counter-allegation, here today I want to ask

whether a non partisan, shared pro-enterprise consensus about the

future of our country can, over the next few years, be built that can

stretch across our whole country and across all groups. And whether

we can ensure together that building on Britain's great strengths -

as the country with traditions of stability deeper than almost any

other industrial economy, with traditions of scientific inventiveness

longer than any other, and with a global reach that has been wider

than almost any other - we can together forge a shared national

economic purpose where we agree on the right long term decisions for

stability, science, skills and enterprise so that great Britain can

be one of the great success stories of the global age.

Context

The challenge to all of us is a global economy undergoing the most

rapid and extensive transformation the world has ever seen - in pace

of change, in scale of change, in the impact of change.

In the next ten years world output is likely to rise by 50 per cent.

In the next ten years world trade volumes will rise even faster - by

almost 100 per cent.

In the next five years alone world trade volumes will rise by nearly

50 per cent.

An opportunity but also a challenge for Britain and all advanced

industrial economies.

In 1980 less than a tenth of manufacturing exports came from

developing countries.

Today it's almost 30 per cent.

In twenty years' time probably 50 per cent.

So we are witnessing the most rapid shift in the global balance of

production the world has ever seen.

Twenty-five years ago, only a quarter of the exports of developing

country were manufactured goods: today 80 per cent.

China is already consuming half the world's cement, over a quarter of

the world's steel and a third of the world's iron ore. Between them

China, India and the rest of Asia already account for nearly a

quarter of the world's trade. And we are undergoing a global

economic and - as we are seeing - employment transformation on a

continental scale that is the equivalent of America's rise in the

20th century and will dominate the first decades of this century.

And the issue is not China and India as low-cost, mass producers

while the advanced world prospers in high-tech value added goods. For

on my visit to China I saw for myself an Asia moving forward in

science based, high skilled, high value added production and services

too.

So for companies like yourselves, there is hardly a product or

increasingly a service you produce that is not subject to global

competition. And no country, however successful today, can assume it

will still be successful tomorrow.

Countries, indeed continents, will prosper only if they adapt and

change but they will fall behind if they relax or are complacent.

Quite simply, that the countries that will do best will be the

countries that have the resolution, foresight and patriotic pride to

make the long-term changes and investments to succeed.

Stability

And of all the long term economic responsibilities of government

where a long term view must be taken the greatest and pre-eminent is

the creation and entrenchment of economic stability and never taking

stability for granted but at every point taking the hard decisions to

lock stability in, even in difficult times in the world economy.

Let us remind each other of Britain's chronic post war history of

stop-go, inflation, short-termism, under-investment and higher

unemployment and the damage it did to good hard working businessmen

and women.

As recently as during the world downturn in the early 1990s the

British people and British business suffered 10 per cent inflation,

15 per cent interest rates and more than 2 million out of work.

This was the old stop-go Britain: an instability that meant with 10

per cent interest rates or more for a whole four-year period,

businesses like yours could not invest with confidence.

And with interest rate charges so high and prospects so uncertain

many with talent and initiative found it too costly and risky to

start up companies, would-be entrepreneurs having to devote all their

energies not to their ideas and innovation but instead trying to stay

afloat as high interest rates threatened their very survival.

Even the most successful businesses could not make long term plans as

everyone expected inflation to recur - and we must never repeat those

mistakes again.

And it is important we understand how and why it is Britain - once

the most stop go of economies - that has avoided the downturns that

hit America, Germany, Japan and Italy and, unlike most other

industrial economies, has recently enjoyed the least volatile record

in inflation and enjoyed continuous and sustained growth.

So let me just explain that it was not just one but four long-term

difficult decisions that had to be made - decisions that have to be

reinforced each year as we seek to entrench the stability we have

achieved.

When we came into power - and having understood the damage that stop

go instability had done to your businesses and having talked widely

with people like Alan Greenspan and others whom I respected round the

world - the new government decided to break decisively with the old

short termism.

And so in our first day in office we removed the politicians' power

to make month-to-month interest rate decisions.

Remember how in the past it was the course of least resistance to

delay necessary interest rate decisions before an election - and to

put the electoral cycle ahead of the economic cycle. Remember how on

six occasions in 1996 and early 1997 the Bank of England's advice to

raise interest rates was rejected and inflation rose beyond the 2.5

per cent target. And then how in the later in 1997 and 1998 it was

necessary because of the delay in acting to raise interest rates on

five occasions.

Without the Bank's independence it was always easier to postpone the

right action.

Indeed in the past politicians may have wanted to do the right thing

but always found a cause for delay.

Now in 2004 and 2005 in the pre election year there have been four

interest rate rises, independence of the Bank ensuring that the

electoral cycle will never again take precedence over the economic

cycle.

But the change we made was not just the bold one of making the Bank

of England independent.

Perhaps even more important - and a decision vital to our continued

stability today - we put in place a wholly new long term fiscal and

monetary discipline and framework which some now refer to as the

'British model' for monetary and fiscal stability.

Why was it so different from the past?

It was different not just because we put in place an independent

Monetary Policy Committee with outside members external to the Bank

but also because we instituted a symmetrical inflation target - now

just 2 per cent.

Many - including many businessmen and women - thought that an

independent Bank would be too cautious, would refuse to be forward

looking, and would act behind the curve instead of ahead of the

curve.

We have seen in America the benefits of proactive, forward looking

monetary policy - 19 interest rate changes since 2001 - in contrast

to just seven in the euro area where interest rates have been at 2

per cent for nearly 2 years.

Our symmetrical inflation target requires the monetary authorities to

be forward looking and proactive as we have seen Dr Greenspan be over

many years. Our symmetrical inflation target means that the Bank has

to take deflation as seriously as inflation. This was important in

how we responded to the world downturn. But it is also important to

how we have responded as the economy has moved upwards. With our

interest changes in the last year people understand very clearly we

will never be complacent and stability will never be put at risk.

A third decisive change arose from our new framework -- setting new

fiscal rules not just for one year but for the whole economic cycle

and imposing a new fiscal discipline founded on a radical reduction

of the national debt.

In the old days governments made spending decisions at one time of

the year and then make tax decisions at another time.

The deficit or surplus was simply the residual arising from the

balancing out of two separate decision making processes.

I remember past decades when fiscal rules were set and re-set almost

every year - a balanced budget, a balanced budget over the cycle,

towards a balanced budget, towards a balanced budget over the cycle -

rules set almost annually to explain away the difficulties in fiscal

policy at the time.

Since 1997 we have had two fiscal rules, one to balance the current

budget - the golden rule - and the second, to borrow only for

investment if our levels of debt are sustainable.

And starting with a radical reduction of debt and debt interest

payments we have been able to meet all our rules.

Having tightened fiscal policy by over 4 per cent of GDP and sold off

assets including spectrum - paying off more debt in one year than all

the debt paid off in the whole of the last fifty years taken together

- we cut debt from well over 40 per cent of GDP to well under 40 per

cent.

Having cut debt, we have reduced our debt interest payments - which

with social security had taken up 75 per cent of all additional

public spending just over ten years ago - to around 2 per cent of

GDP, lower than at any time since the First World War, a position

that remains true in 2005.

So our long termism has avoided problems that have befallen the

European Stability and Growth Pact. Our rules are not short term

annual rules but for the whole economiccycle. By adjusting for the

cycle we can avoid spending too much in an upturn and avoid having to

cut back in a downturn, the wrong time to retrench.

Fourth, our long term rules now take into account the needs of

investment - long term investments in education and in infrastructure

and transport - which matter I know to business and which you have

rightly emphasised in your own business manifesto.

Today it is a measure of Britain's fiscal stability and strength that

we have lower deficits and lower debt than all our main competitors

from France and Germany to Japan and America.

So with monetary and fiscal stability, the low inflation that eluded

most previous governments has been achieved each year since 1997. Our

inflation target met each year and every year. And as a result

interest rates are half the average of the last government; mortgage

rates half the average; and unemployment half the average - and not

least because of the obligations of the New Deal and your engagement

with it unemployment is today half that of Germany and France and

today lower than the USA.

And instead of being - as in the old days - first in, worst hit and

last out of any world downturn, Britain has not only avoided

recession but has continued to grow in quarter after quarter, year

after year, in all 8 years of our government since 1997.

And now that the world economy is strengthening, growth is also

becoming more balanced with business investment, manufacturing output

and exports rising now - and expected to continue to rise this year

and next.

Let me promise you we will always be vigilant to the risks not least

to high oil prices and growing economic imbalances between the

continents but while this year's euro area growth is expected to be

just 1.5 per cent and Japanese growth less than 1 per cent, growth

will be between three and three and a half per cent in Britain with,

of the G7 countries, Britain and North America again growing fastest.

And I can also assure you that having had the strength to make four

difficult long term decisions after 1997, we will continue to have

the strength to take the long term decisions that put stability first

now and in the future, supporting our monetary authorities in the

difficult choices they have to make. And I can say categorically to

investors everywhere that while no-one can ignore the reality of the

economic cycle and the potential of global events to impact on the

economy, we will entrench not relax our monetary and fiscal

discipline.

Not only have we in an election year seen interest rates rise in the

interest of entrenching stability but while making affordable tax

cuts and investments in our future, the Budget locked in stability as

we tightened fiscal policy.

So we have refused to make the short termist mistakes of the past.

And we are determined not to be diverted from that path.

With difficult long term decisions that in my view the country must

stick with - Bank independence, a symmetrical inflation target, long

term fiscal rules, attention to long term investment and also the

obligations of the New Deal - our watchword is stability yesterday,

today and tomorrow. Stability first and foremost and always.

And it is not simply in the running of the British economy through

the Bank of England - and in maintaining our tough inflation target -

but in any decision about the British economy that we will do nothing

to put stability at risk. While we support the euro in principle we

have been determined that to ensure stability any decision must be

based on the national economic interest and be clear and unambiguous.

And I believe that we were right to conclude in this Parliament when

we examined the five tests in detail that we could not recommending

joining. In the next Parliament and at all times I can guarantee that

the five tests would have to be met and the results clear and

unambiguous. Stability and the national economic interest will

always come first.

But just as in the last decade we have pioneered a British way to

economic stability that has turned Britain from one of the world's

stop go economies into one of the world's most stable, so too, in

this decade, we must pioneer a British way to prosperity in a fast

changing global economy.

Britain's future success depends upon making the right long term

choices and the role of government is not to stop the clock against

change or to subsidise loss makers. In a global economy the role of

government is to create and sustain the stability and competitive

environment in which the entrepreneurial, the talented, and the

dynamic can rise and succeed. And I tell you my view: we must be

prepared to change as required; modernise as required; reform as

required; create new incentives as required; and be more flexible and

competitive as required. There can be no room in the new Britain for

the old complacency, for accepting second best, for condoning failure

or low aspirations, or for tolerating outdated inflexibilities or the

old them-and-us confrontational attitudes.

For decades the neglect of investment in science, education and

infrastructure damaged British growth and prosperity. And today,

again like every advanced nation, Britain faces a stark economic

choice: we could repeat the mistakes of the past, once again failing

to invest long term in our science, skills and transport and

infrastructure or just as together we forged a British way to

stability in the global economy, together we build upon our

scientific and creative culture, our commitment to education, our

global reach, and forge a British way to prosperity in the new

economy.

Enterprise

So I want our government at all times to be on the side of

businessmen and women as they start up, look for finance, look to set

up their first payroll, hire their first employee, make investments

and look to get equity into their company.

And I can tell you that while in every country health care cures and

technologies have meant rising costs - in America almost twice as

expensive as ours - hence our decision that national insurance pay

for new investment matched to managerial reform in the NHS - we have

since 1997 cut corporation tax from 33 pence to 30 pence, cut small

business corporation tax from 23 pence to 19 pence, cut capital gains

tax for long term business assets dramatically - from 40 pence where

it had been for years down to 10 pence - and we will continue to look

with you at the business tax regime so that we provide incentives for

investment in wealth creation and rewards for success and so that

Britain has and retains a competitive tax regime.

In your manifesto for business you asked us to consider incentives

for investment and not only have we made first year capital

allowances permanent not least for modern manufacturing strength but

particularly in the wake of Rover we will do more - expanding

regional venture capital funds, improving the small firms loan

guarantee scheme and introducing new enterprise capital funds to give

new and growing businesses the finance they need to expand. And I

hear what your members say about the importance from the regions of

encouraging new firms to enter our export markets with support from

the DTI.

I understand that regulation, red tape and bureaucracy are challenges

in every industrial country of the world and whenever I go to the USA

businessmen and women there raise the very same things about the USA

economy - red tape, bureaucracy and regulation. you asked if together

we could look at vat. And instead of having to account for every

transaction, an automatic flat rate VAT calculation for small

businesses which lifts the burden of VAT red tape off the shoulders

of hundreds of thousand of companies and I am pleased we will now be

working together with you to increase take up of this scheme.

You asked us in your manifesto if working together we could look at

red tape in planning and we are working with you to develop a faster

track planning process. You asked us if working together we could

look at red tape in auditing and we have exempted more small

businesses from the requirement to submit an independent audit. You

asked us if working together we could look at the system of

inspections and enforcement and its costs and by applying the

principle of risk based regulation we are now able to cut inspections

by a million a year, reducing 35 inspection agencies to just 9 - a

reduction of 26 just as we also cut public sector inspectorates from

11 to 4 - and we will apply to new and existing regulations a

competitiveness test. Because 40 per cent of major new regulations

come from Europe we are resisting inflexible barriers being added

into European directives like the working time directive and agency

workers directive, showing as in our determination to make

deregulation a theme of our Presidency this year that the best

contribution we pro Europeans can make to Europe's future is to lead

the reforms that will make it more competitive.

Enterprise starts in our classrooms. In 1997 less than 15 per cent of

schools offered enterprise education. Now half of all schools do. By

2006 every school will. And I praise you for your work with schools

in widening and deepening our entrepreneurial culture. And I want us

at the same time to become the best educated and best trained

workforce: demanding, in return for investment, the highest standards

in our schools and further education colleges; and, as your manifesto

suggests, making training more responsive to business needs,

investing in the all too often neglected area of vocational education

and the improvement of the numbers and quality of modern

apprenticeships giving young people the practical skills they and the

economy needs.

Conclusion

I said at the outset that more than ever Britain, building on our

historical qualities - the pioneer of free trade, the home to

scientific invention and the industrial revolution - needs for our

future a shared sense of and a patriotic pride in our national

economic destiny:

A Britain - once the stop go economy of the world - determined to

entrench long term stability.

A Britain that succeeds in the new global competition because working

together we reject the old rigidities of the past and win as a

flexible, reforming, and ever more enterprising economy.

A Britain that succeeds globally because working together we invest

in science and skills, and look outward to Europe and the world.

Government effective where it has to be effective - in economic

stability, science, skills; businesses able to be the wealth creators

they are, and encouraged where it matters - with incentives and

rewards to invest and grow.

And a Britain that succeeds globally because we share a long term

economic purpose - that long term commitment not ever to take the

easy way out or the short term course but resolute to get things

right for the long term.

Making Britain a better place to do business - and, if we continue to

make the long term changes needed, better still years from now.'

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