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Davis: Creating a new spirit of enterprise

Speech to the Confederation of British Industry

"It's a long time since two Conservative Shadow Cabinet ministers had the honour - and pleasure - of addressing a CBI Conference.

I'm sure David Cameron is as delighted as I am to be here this morning.

He and I have been spending so much time together that rumours of a civil partnership are doing the rounds.

Even Hello magazine is said to be bidding for a joint interview!

Business and politics

Twenty years ago, most businessmen would have been card carrying members of the Conservative Party - you don't need to be an economic forecaster to know that that proportion has declined.

And that's a measure of what the Conservative Party has to win back.

Far from being seen as the party of business we have been usurped by our political opponents.

We must regain that role - and soon

I find it disappointing that business people so rarely go into politics, and that as a result so few get to the top.

You have to think back to Neville Chamberlain and Harold Macmillan to find a Prime Minister with direct business experience.

Personal experience

In the days before I stood for Parliament, I made my way in the business world, ending up on the board of Tate & Lyle.

Some of you probably regard my decision to take up politics as a move downmarket.

Indeed, 20 or so years ago I was on the CBI's Financial Policy Committee administering advice to the then Director General who, like Adair Turner and Digby Jones, was a shy and retiring type, always reticent with his opinions and letting others take the limelight!

One issue I remember coming before us was whether Britain should join the European Currency Snake, the forerunner of the ERM. I'm delighted to say that the considered view of the CBI was that we should not.

But my business experience was the best training I could have had for a life in politics - and for life in general.

You might be amused to know that, back in the 1980s, I wrote a book called "How to turn round a company."

Of course, I got some things wrong.

I warned of the dangers of "one-man rule".

Obviously I hadn't met Margaret Thatcher then!

But quite a lot of the advice I gave in that book rings true today.

I listed some reasons for a company's decline.

Major project failure was one.

Poor cost control was another.

Plainly I should have sent a copy to the Chancellor of the Exchequer.

United Kingdom plc

If the United Kingdom were a limited company, it would be ripe for a hostile takeover.

I believe that UK plc would have happier shareholders and would be in safer hands if it had new owners and managers.

Let's start with tax. The overall tax burden in the UK is now at its highest level for 25 years - not since James Callaghan plunged the country into the Winter of Discontent and his Chancellor Denis Healey squeezed the wealth makers till the pips squeaked has Britain been so heavily taxed.

The average family is now paying £5,000 a year more in Labour's stealth taxes than in 1997 - a punitive back-door increase equivalent to 16.5 per cent extra on the basic rate of income tax.

Nor has business escaped Gordon Brown's squeeze. According to the CBI's own figures, business taxes will be £54 billion higher by next April than they were in 1997.

And the British Chambers of Commerce estimate that the cost to business of additional regulations introduced since 1997 now stands at £40 billion - a figure that is rising at the rate of £6 billion a year.

But higher taxes and higher regulation are only part of the reason why UK plc is underperforming so badly.

Like the tax and regulatory burden, the nation's debt is also spiralling out of control.

Four years ago, our once prudent but now profligate finance director forecast that he would borrow a modest £12 billion by April 2006. How wrong he was. Total borrowing over this period has so far reached £103 billion.

Meanwhile, Enron-style accounting has become the order of the day in the Treasury. Take Network Rail and its debts of £20 billion.

They have been moved off the national balance sheet despite the fact that the only guarantor of this huge liability is the poor old taxpayer.

But this figure is dwarfed by a far bigger scam - unfunded public sector pension liabilities.

These are claims on future tax revenues and the Pensions Commission estimates that at the end of last year this off-balance-sheet liability amounted to a staggering £500 billion.

Add this number to the national debt and all of a sudden one of Mr Brown's much vaunted golden rules - that public sector net debt should be no more than 40 per cent of national income - looks terribly tarnished, rising from its officially sanctioned 37 per cent to 80 per cent.

In short, cost control at UK plc has collapsed. Taxes, spending and regulatory costs are soaring and debt is ballooning, despite the resort to distinctly dodgy accounting practices.

But the picture gets worse once you turn to the output side.

Productivity growth has fallen by a third since 1997 and output per man hours worked in the UK in 2003 was $37.70 (£20), lower than the G7 average and lower not only than France, the United States and Germany, but lower even than Italy.

Meanwhile, a million jobs have been lost in manufacturing since 1997 compared with virtually none in the previous five years.

But public sector jobs, few of which are in the frontline in schools and hospitals, have rocketed in the same period - up by nearly a million.

The balance of trade - a deficit of £40 billion in 2004 - is the worst since the 17th Century. And business investment is running at only a third of its 1997 level.

After all this, it comes as no surprise to hear that UK plc is sliding down the international competitiveness league table - down from fourth in 1997 to 13th last year.

With a record like this, I suggest that if Gordon Brown were finance director of your firm, he would be suspended while the auditors were called in to look at the books.

We simply cannot go on running the economy this way: taxing more, spending more, borrowing more, while slowly throttling the spirit of enterprise and innovation on which the country's prosperity and its vital public services depend.

We need a change of direction: less tax, spending no more than the country can afford and a real determination to take a scythe to the thicket unnecessary and costly regulation.

With countries across the globe aggressively cutting tax rates, with massive competition from a range of countries from India and China to Eastern Europe,there is no alternative but to compete by reversing Gordon Brown's suicidal high-tax, high-spend high regulation approach.

That is why I have put forward my "growth rule" - the perfectly sensible proposition that public spending should increase by one per cent less than the trend rate of growth of the economy.

My approach would still allow for higher spending on schools and hospitals. But it would also return money to the taxpayer - the business taxpayer and the personal taxpayer alike. By the end of the first term of a Conservative government under my leadership, taxes would be cut by £38 billion a year.

But enough of the rival bid. Let me turn to another area of serious concern - the crisis in our pensions system.

Pensions

The Chancellor tells us he has been a prudent custodian of the British economy

But what is prudent about lifting £5 billion a year from the nation's savings account?

In one stroke he vandalized one of the healthiest pension systems in modern Europe and turned it into one of the sickliest.

And what is the Chancellor's cure?

It is to punish still more those who create the wealth on which a decent society is built.

Mr Brown's Pension Protection Fund is yet another stealth tax which will tip many small and medium-sized firms into receivership. It's almost an invitation to irresponsible companies to be bailed out by responsible ones.

This tax will most adversely affect firms in the Midlands and the North, where older companies, with a strong tradition of manufacturing have built up big pension obligations over the years.

But, while Mr Brown expects the private sector to pick up a massive pensions bill, he ducks the issue when confronted with the same problem in the public sector.

This creates a double whammy for the private sector.

It means that corporate and individual tax payers are making sacrifices for their own pension provision, while at the same time paying for the protection of civil service pensions.

Is it any wonder that our pension system is in meltdown?

But the effect of this crisis goes well beyond the economy.

I believe Mr Brown's assault on pensions has seriously corroded the culture of thrift and self-reliance which are the cornerstones of any successful economy.

The Chancellor's response to his mishandling of pensions has been to rely more and more on means testing.

As a result, in Brown's Britain it pays not to save.

Put a little aside for retirement - and Mr Brown will have it.

Save nothing - and the state will pick up the bill.

There are many other areas of the

Mr Brown berates British businessmen for being short termist and not planning for the long term, yet when it comes to pensions he's doing everything possible to discourage long term investment and planning.

These are not the foundations on which to build a decent society.

There are many other areas of the economy which face equally serious problems which I do not have time to deal with this morning: some long-term and some immediate.

The lack of a coherent energy policy leaves us with gas prices at an all time high, and serious problems of security of energy supply. And if we started building today, we would not have a single extra nuclear power station for seven years.

Similarly our lack of an intelligent transport strategy leaves us with a cost of congestion of £15 billion a year - and this cost is accelerating, unlike our traffic.

Or take scientific skills, which the Chancellor rightly tells us are at heart of our drive for innovation. The number of physics graduates has fallen from 45,000 to 30,000 in 8 years, and a third of physics teachers will retire in the next 10. So we face serious weakness in the most fundamental of scientific skills.

We also have a similar vocational skills gap, with large members of retiring skilled workers not being replaced in the workforce,

I could go on - but the basic issue is clear: Britain needs a more business-friendly government.

But I have to tell you that this will take longer than one Parliament. It is a 2-3 Parliament project.

Finale

So whether it falls to David or myself to lead the Conservative Party into the next election, I am quite clear that creating a new spirit of enterprise must be at the forefront of what we are about.

We need to set business free, to break the shackles which hold back our most innovative minds and entrepreneurs.

We need to reduce the tax, pension and regulatory burden and allow businessmen and women to do what they do best - create jobs and wealth.

If we in politics provide you in business with the kind of economic environment you can flourish in, we'll have done our job, so you can do yours.

Together we can ensure that the whole country can share in a new age of prosperity."

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