Speech at the Confederation of British Industry
"I'm delighted to have this opportunity to speak to you today.
No government can run businesses and create wealth. What governments can do is create the best possible conditions for wealth creation.
So I believe the next Conservative government should set itself a simple economic objective: to make Britain the best place in the world to do business.
There are five great dangers which stand in the way.
We must attack these barriers to wealth creation as vigorously as we attacked the scourges of inflation and union domination in the 1980s.
The first great danger is fiscal irresponsibility. Tax and spend. And of particular concern at the moment, pensions.
In monetary policy, an independent Bank of England setting interest rates with reference to a fixed inflation target is the right policy and has worked well.
But from a fiscal perspective, I believe that the Chancellor has been devastatingly irresponsible…
…public spending up 37 per cent between 1999 and 2004…
…planned to increase by 86 per cent between 1999 and 2009…
…and with much of this money wasted: for example, the NHS itself admitting that 73 per cent of the extra spending has been eaten up by cost pressures.
Government borrowing was £35 billion last year, when we should have been in surplus, at that stage in the economic cycle…
…and we have some of the highest business taxes in the OECD, where just five years ago Britain had some of the lowest.
But behind the statistics lies a deeply worrying story.
Just as Nigel Lawson's supply-side reforms of the 1980s left a long and beneficial tail, so the destructive effects of Gordon Brown's fiscal irresponsibility will be felt for many years to come.
It's not just that he's increased taxes. It's how he's done it.
His pension tax rise both reduces security for pensioners and cuts company earnings as they try to fill the gap.
Increasing Stamp Duty hits individuals and families, but it also harms labour market flexibility.
Higher government borrowing not only puts pressure on interest rates, it gives us less flexibility to face the challenges of the future.
Gordon Brown's fiscal irresponsibility is undermining stability and our ability to create jobs.
So a top priority for the next Conservative government should be to restore prudence to the management of the nation's finances.
Fiscal responsibility is the first duty of any Chancellor.
On tax, I'm clear about the right priority. It's essential to reduce taxes on employment and wealth creation in order to enhance our economy's competitiveness.
But I don't think it's sensible today to write a Conservative budget for 2009 or 2010, with specific pledges on tax reduction...
…we don't whether the economy will be growing or shrinking…
…we don't know whether the debt burden will be high or very high…
…and so increased borrowing to fund tax cuts could put upward pressure on interest rates.
But I want to focus in particular on pensions today, because I know it's an issue causing you great concern, and rightly so.
I'm just about old enough to remember our 'Double Whammy' election poster.
On pensions, Labour have done it again.
First, a craven surrender to the public sector unions on the retirement age.
And now, an attempt to sabotage Adair Turner's pension policy commission.
This is no way to run an economy.
Your Director-General has accused the Government of "mortgaging Britain's future for £750 billion" - his estimate of the cost of Alan Johnson's decision to allow existing public sector workers to retire at 60.
I share his - and your - frustration.
We need strong political leadership for the long-term.
I would respond to the Turner Report on the basis of a number of clear principles. Our policy must be:
…reduce means testing and promote a savings culture…
…be equitable between the public and private sectors…
…and encourage competition and private provision.
HOSTILITY TO CAPITALISM
The second threat to our future prosperity is less direct. It's the growing cultural hostility to capitalism.
In 1970, MORI asked the public whether the "profits of large companies help make things better for everyone who buys their products and services".
The public agreed - by a majority of two to one.
Three decades later, when asked the same question, the public - by two-to-one - disagreed.
For too many people, profit and free trade are dirty words.
The consequence has been a massive rise in risk aversion, a willingness to concede power to the state to try and take risks out of life.
Health risks. Safety risks. Inequality risks. Security risks. Environmental risks. An ever-increasing burden of regulation applied by modern states and their agencies.
We can see the results:
…a regulatory burden costing Britain's economy an estimated £40 billion a year;
…Britain has fallen from 13th to 51st in the World Economic Forum's regulation league table;
…and we dropped from 11th to 26th on bureaucracy;
…so that overall, Britain has fallen in the world competitiveness rankings from 4th to 13th.
Promoting wealth creation means changing the climate of opinion so that politicians and bureaucrats who argue for measures that damage competitiveness are less likely to succeed.
In short, we need to campaign for capitalism.
To promote profit. To fight for free trade. To remind, indeed to educate our citizens about the facts of economic life.
The message is simple - you cannot win the battle against red tape unless you win the intellectual and cultural battle for open markets.
The third great danger which threatens our competitiveness is the regulatory culture of the European Union.
The recent i2010 report showed that Europe risks becoming a "second or third-world region" within a generation because of its excessive regulation.
I want the Conservative Party to take the lead in developing the diplomatic and policy agendas that will avoid that disastrous outcome.
There is now an exciting opportunity for a new alliance for EU reform, driven by new leadership on the centre-right.
The first priority must be the return of powers over employment and social regulation. This would be the strategic imperative of my European policy.
The Government has shown that it is not fit for the task of EU reform. It is too unwilling to stick its neck out. It doesn't want to ruffle feathers.
It will not countenance the return of powers from Brussels to Britain. But if you don't will the means, you will never achieve the ends.
The fourth great danger to our future prosperity is inadequate public infrastructure.
A world class economy must be able to move people and goods around efficiently and reliably.
Yet Britain has the most congested roads in Europe. Our journeys to work take the longest. And punctuality on the railways is now at lower levels than it was in 1997.
The CBI itself has estimated that the costs to employers of transport congestion are around £20 billion a year.
Britain now needs a concerted programme of road building, accompanied by the introduction of advanced traffic management methods, including new solutions for road charging based on usage and the time of day.
This, along with better market incentives for low or zero-carbon fuel sources, will enable us to meet the need for an efficient transport network…
…while tackling the even more important challenge of climate change.
Upgrading our energy infrastructure must also be a priority, based on the twin objectives of guaranteeing security of supply and tackling climate change.
And in an economy where networks play an increasingly important role in value creation, we need to catch up with and overtake our competitors' investment in broadband, 3G and wi-fi.
HUMAN CAPITAL AND NETWORKS
The fifth barrier to wealth creation in Britain today is the fact that we're not doing enough to nurture the skills and talent of our people.
So much potential is being wasted by this Government.
A devastating lack of rigour in primary and secondary education.
An examination system in which universities and employers have less and less confidence.
A complete absence, after eight years in office, of any kind of coherent strategy for vocational education.
And universities that are held back by centralised bureaucracy, telling them how much they can spend, what they should teach - and now, even who they should admit.
Our universities need more resources and less government direction. As I've said, tuition fees are a necessary part of that change.
But we need to do more.
Businesses thrive in clusters. In the high value, high tech areas where we should be competing most vigorously, links between the private sector and fundamental science are of the utmost importance.
We need to reproduce - not just in Oxford and Cambridge, but elsewhere - the mix of conditions that exist in and around universities like Stanford in California…
…so crucial in the development of world-beating companies like Cisco Systems and Google.
Removing these five barriers to wealth creation:
…the growth of the regulatory culture;
…EU social and employment regulation;
…and insufficient capacity for developing the talents of our people…
…together this constitutes a coherent and ambitious programme for wealth creation, based on economic liberalism and the values that are at the heart of my political philosophy…
…trusting people, and sharing responsibility.
If we apply these values to the great economic challenges we face, I'm optimistic that we can make this country the best place in the world to do business.
A vision which I hope will be at the heart of my Party's programme for government."