'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
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
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.
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
In 1980 less than a tenth of manufacturing exports came from
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
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.
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
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
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
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
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
Without the Bank's independence it was always easier to postpone the
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
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
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
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
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
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
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
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
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
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.'