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Duncan Smith: Failing public services are a tax on business

In a speech today to the Confederation of British Industry, the Rt Hon Iain Duncan Smith MP, Leader of the Conservative Party, said:

"It is a great pleasure for me to be with you this morning at the 25th CBI National Conference, and I am grateful for you kind words of introduction.

"I am particularly pleased, at the beginning of my new role, as the leader of my party, to have this opportunity to speak to you. I hope that today is the beginning of a new dialogue between the Conservative Party and British business.

"Your Conference this year takes place against an increasingly difficult background for British business and the United Kingdom economy as a whole. The feeling of unease and uncertainty has, of course, been exacerbated by the events of 11 September.

"The Conservative Party is fully behind the Government in its total backing for the United States in the war against terrorism. It is their war and it is our war. We must see it through to the end.

"All of us has a role to play. Politicians in presenting a united front. And you, in business, by not allowing the terrorists to succeed in deflecting you from your normal, daily activities.

"Yet it is clear, as most commentators agree, that the global economy was weakening from well before the terrible atrocities committed on that day.

"As the most recent Economic Review by Deloitte and Touche states: 'there is no doubt that a severe slowdown is in train'.

"As the report makes clear, to blame this on 11 September would be, in their words, 'mistaken'.

"Without in any way being alarmist about our prospects this picture gives us all concern. It means that for many businesses there are going to be immense challenges ahead.

"In this context of growing economic difficulty, it is more important than ever that the Government's policies support business and foster competitiveness.

"Throughout its first term, the current Government inherited an economy in which the fundamentals were strong. There was a favourable global economic environment. The world economy generally performed well.

"As a result the Government was able to increase taxes while their immediate effect for many people was blunted by rising incomes.

"The task of any responsible Government, however, is not to pursue an economic policy just for the times when things are going well and then assume that those circumstances will last forever. They need to ensure that the economy is also in a position to withstand unexpected shocks. Instead, Ministers seem to have believed their own rhetoric about boom and bust being abolished forever.

"At a time when many of our competitors have been cutting taxes, Gordon Brown has spent the last four years raising them. The tax burden has increased by a massive £28 billion, or 10p on the basic rate of income tax. The CBI itself puts the increased burden of business taxes at £5 billion a year.

"It is little surprise, therefore, that a recent Pricewaterhousecoopers study showed that Britain has now lost two-thirds of the tax advantages we enjoyed against our European neighbours in the mid 1990s.

"To make matters worse, instead of easing the burden of regulations on British business, the Government has spent the past four years increasing them. The Institute of Directors has put the added cost to business of regulations at a further £5 billion. According to research carried out by the independent House of Commons Library in the year 2000 alone, 3,864 new regulations were introduced- the highest figure on record.

"And in place of a truly responsible and prudent approach to spending, we have seen spending allowed to run ahead of growth. If that continues it can only mean one thing.

"As the IFS said in March: 'If spending is to grow by more than GDP growth beyond 2003-4 then further increases in tax will be required'.

"Or as a senior Downing Street policy adviser was quoted as saying yesterday: "We have to get over, and the public have to understand, that all these changes that are being talked about come at a price. The only way that they can be paid for is tax increases".

"All of this has contributed to a worrying picture for our competitiveness.

"Now there is the risk of adding further uncertainty to the economy. The Government have set a course to join the euro that would lock us forever into a one size fits all interest rate irrespective of whether it suited our economic circumstances of not.

"Of course on Sunday, the Chancellor sought to sound a more cautious note than the Prime Minister in Brighton last month. Yet this is just another episode in Labour's now all too familiar good cop, bad cop routine whose purpose is to make a decision to bounce Britain into the euro look objective.

"It is all part of a game. Whenever they want to appear warm about the euro, we see the Prime Minister, or Peter Mandelson or Peter Hain. When they want to appear sceptical we see Gordon Brown or Jack Straw. They urge those of you who are pro-euro to run ahead of them in advocating membership. At the same time they try to assure those of you who are against, that membership is a far off prospect when the truth is that they are committed to join.

"The result of this game is to produce the worst of all worlds. It is destabilising to industry that wants to plan ahead with a degree of certainty. And it clearly exposes the so-called five economic tests as totally bogus. We all know that they have nothing to do with economics and everything to do with politics.

"A strong, dynamic economy relies on fundamental economic stability and the flexibility to respond to different circumstances. That is why in the referendum Conservatives will campaign to keep the pound.

"I know that some of you will agree with this, while others won't. Yet our position has the virtue of being offering stability - you at least have a clear sense of where you are with the Conservatives. And it is sustainable because, as the fourth largest economy in the world we can make a success of our own currency, if that is what we choose.

"It stands in stark contrast to the now you see it, now you don't peekaboo politics being played by the Government on the euro.

"Building a strong, dynamic and competitive economy is vital. It underpins so many of our aspirations. Without it, the improvements that all of us seek in our public services simply are not deliverable. And building world-class public services has to be our overriding priority as a nation.

"Britain is the fourth largest economy in the world. Yet ask anyone who uses the public services, and they will tell you that in so many areas they would disgrace the third world.

"Of course I don't pretend that the problems with our public services began 1 May 1997. Yet it is undoubtedly the case that since then things either haven't improved, or they have simply got worse.

"Our hospitals have been operating throughout the summer at winter levels of crisis so that a Health Minister is now forced to admit the winter crisis now lasts for the whole year. Our schools are such that up to forty per cent of all teachers with three years experience are leaving the profession. Our police are so demoralised that, according to the Chairman of the Police Federation, morale is at an all time low with resignations having increased by over 80 per cent in the past four years.

"We live in the age of the communications revolution, where vast amounts of information are transmitted across the globe every second. Yet we have patients lying on trolleys in crowded hospital wards for hours before they are seen by a consultant.

"We live in the age of the global economy where more money is traded in the City of London's foreign exchange markets in two hours than the British Government spends in a year. Yet too many of our children leave school ill-equipped to take advantage of the opportunities that are on offer.

"And we live in an age of where we can buy goods and services through the internet in minutes. Yet the state of our transport system means that travelling a few miles can take hours.

"What angers people more, is that this comes at a time when we are constantly told that record amounts of investment are going into these services. We are urged to be patient. All that is needed is time. The Government's view seems to be that all it will take is one more heave.

"Yet we have had four and a half years already. For all the boasts of new investment, of record amounts of money and new initiatives, things the experience of real people is that things are not just failing to get any better, they are going from bad to worse.

"Take the Health Service. Only yesterday figures showed that despite an extra £8.4 billion in the past two years alone, there has been almost no rise in the numbers of patients treated. At the present rate there is no way that Labour will meet their Election pledge to cut the maximum waiting time for in patients to six months by 2005. No wonder Ministers are reportedly concerned that the cash "has disappeared into a black hole".

"All of this is of enormous importance to all of you in business. Put simply, failing and unreformed public services cost you money. They cost you money in the extra taxes the Government imposes on you to pay for them. And they add to your costs when you have to pick up the bills for their failure. It is happening now.

"Your own annual absence survey for 2001 states that 192,000,000 working days were lost due to sickness. It estimates that this costs British business £10.7 billion a year. Coronary heart disease in men accounts for the loss of 47,000 working years every year. In France and Germany waiting times are virtually negligible. Here, it can take a year for a heart by-pass. A constituent of mine waiting for a by-pass started by working five days a week, gradually it went down until after a year he was working a half day, one day a week. Yet as he put it to me: "my employers still have to bear the cost of not having me around".

"According to one survey transport problems are costing British business at least £5 billion a year in lost working time. Include productivity losses, the cost soars to £10 billion a year. As one who has used the Tube endlessly to get to work, my abiding memory of last summer is not just the endless delays that make people late, but the cramped and sweaty carriages that mean when you eventually arrive, it takes half an hour before you are in a fit state to think of work.

"Last year Tesco was so alarmed by poor literacy and numeracy standards that it was forced to spend £1 million to send hundreds of recruits on courses to bring them up to scratch on the 3Rs. As one Tesco manager said: 'The people we are employing are not thick or stupid. They have just not been given the right education in the first place'.

"The conclusion is clear. Failing public services don't just create human tragedies; they result in business tragedies too.

"For too long in this country we have been locked into a sterile debate. We have been told that there were only two choices. Either we have higher taxes and better public services, or we have lower taxes and worse public services. Yet what we have had for the past four years is higher taxes and worse services.

"It is a false choice, based on an argument that simply wouldn't run anywhere else in those European countries that tax no more heavily than we do, yet spend more on their public services.

"The real choice before us is not, as the Prime Minister tells us, between short term tax cuts or increased investment. We can continue down the same road of taxing ever more heavily in order to plough ever more money to pay for unreformed services. Or we can combine a low tax, wealth-creating economy with genuine public service reform.

"The other danger with the current course is that not only will it not work, it will ultimately be self-defeating. As taxes continue to rise we will risk undoing those things on which business success - and the money to pay for public services - actually depends. We will never pay for public services pursuing a policy that taxes and regulates businesses out of existence.

"We will have a situation in which sclerosis in the unreformed public services will ultimately lead to sclerosis in the economy as a whole.

"Nor will the Government's approach to public/private partnerships solve their tax and spend dilemma. Conservatives strongly believe in bringing the private sector in to help provide public services. But Labour's approach won't work because it is a one-sided partnership.

"Four things are needed when private capital is brought into public projects: clear information, on which customers and suppliers can make a choice; freedom for customers to choose; freedom for providers to manage their businesses; and sanctity of contracts.

"Labour is providing none of these. In the health service, for example, the information about cost and performance is not available. Customers are not free to choose their health provider. Private providers are not free to manage their businesses, but have to abide by NHS practices. The Government is insisting on total control.

"What they are offering is not a public private partnership, but off-balance sheet finance. It is public services on the never-never.

"What they fail to understand is the trade-off between risk and reward that the private sector makes. If private capital providers can't rely on the Government to keep to the terms of the deal, if the Government don't hold to the sanctity of contracts, then there will be a huge risk premium on providing capital for public projects. And who is going to trust the Government to keep to the deal after they have ripped off 250,000 shareholders of Railtrack? What is the risk premium on dealing with the Government now?

"After the Railtrack debacle how many of you would want to deal with a Government that expects you to take all the risks, but is prepared to dump on you the minute anything goes wrong? So I make no apology for saying that we need a fundamental re-assessment of our approach. Not just to the financing of our key services, but also to the way in which those services are run. Because, the truth is that however much money we pour into the system, so long as the system remains the same things will not change. And Britain will be condemned to public services that shame our country.

"Just as the incoming Conservative Government in 1979 came to power with a radical reform agenda to transform an ailing economy, Britain now needs a Government with the an equally radical reform agenda to transform the public services.

"We need to reject the dogma that insists on services always being delivered by a monopoly state provider. We need to run our services in the interests of those who use them instead of providing favours for the vested interests that pay the political bills. And we need, where appropriate, to include the best of British enterprise and innovation that is found in the private and voluntary sectors.

"That is what other countries do. Only an ideological attachment to existing structures prevents Britain from doing the same. Yet that is what we get with Labour. They are ideologically wedded to the system, which is why, whatever the rhetoric, they simply cannot deliver.

"So we will be listening to the people who work in our public services as well as those who use them. We will be working with the charities, the churches, the public and the private sector to help us shape the policies that will deliver the results that people demand. And we will be seeing what can be learned from other countries too. That is why I have asked members of my Shadow Cabinet to travel to other European countries and beyond to see why their public services are so much better than ours.

"There are those who say that we can only have European levels of healthcare, education standards or transport if we have European levels of tax. They are missing the point. It is European countries such as France and Germany that are reducing taxes, while Britain has been putting them up.

"Our European neighbours have been prepared to learn from Britain about the need for low taxes, flexible markets and privatisation. It is time, when it comes to running public services, Britain has the self-confidence to learn from Europe.

"So the choice for Britain over the coming years is a clear one. It is to continue taxing and regulating ourselves into yesterday, while at the same time presiding over the steady and certain decay of our essential public services. Or we can choose a different way - one that sets business free, that promotes enterprise and on the public services whose only dogma is delivery.

"It is the latter course that, under my leadership, Conservatives will be following over the next four years.

"I know from working in industry that the most important resource a business has is its people. Yet the failing public services has become a hidden tax on that resource.

"People are devalued, while business is left to pick up the cost.

"Instead of investing in people we spend more and more money investing in failure.

"And the failure to reform our public services is a failure to invest in people."

ENDS

Inquiries to Conservative Central Office Media Unit on 0207 984 8121.

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