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Hague: Blair must back Vaz or sack him

I am delighted to be able to join you here this evening. It is a great pleasure to be back in Wales and particularly at the Cardiff Business Club, where I am among many old friends, friends who form the backbone of business in Wales.

But I want to begin by briefly saying something about the bitter civil war now consuming the most senior members of the Government following Peter Mandelson second resignation in twenty five months.

Tony Blair said last week that Peter Mandelson was a bigger man than his critics. It is clear from the farce of the last few days that these critics include Jack Straw, Gordon Brown, Alistair Campbell and Tony Blair himself, who have all rushed to bury the body of their old friend while it is still warm. What could be more in character with the so-called New Labour Party that Peter Mandelson helped Tony Blair to build?

These Cabinet Ministers need to get a grip on something other than each other's throats. Instead of being driven by events and media deadlines, the Prime Minister must restore some order to the Government. That will only happen if he now does these three things:

First, ensure that the Hammond Inquiry into the Cash for the Passports Affair covers all the issues raised over the last week and is able to initiate further enquiries if evidence demands that it; that it is published in precisely the form in which it is submitted to the Prime Minister, that it reports in full before a General Election is called, and that Ministers do not try to use it as a smokescreen behind which to hide from answering the questions asked by Parliament; Ministers' accountability to Parliament is their first duty

Second, either give a statement that Keith Vaz continues to enjoy his full confidence or ask him to leave the Government immediately.

Third, end the open civil war between senior members of the Labour Party by insisting that senior members of the Labour Party, starting with his own Press Secretary Alistair Campbell, stop the spinning, the secret briefings, the backstabbing and the smearing that is now paralysing Government.

Whether or not Tony Blair is now able to get a grip, this scandal has laid bare the true deceit of New Labour. They always claimed they were the People`s Party, but it is clear that New Labour is now, and has always been, about spin and media deadlines, about one-upmanship and back-stabbing, about helping cronies while ignoring the interests of the mainstream majority.

Let me now turn from the fantasy world of New Labour politics to the very real world of you businesses and the Welsh economy.

When I was Secretary of State I tried to spend as much time as possible working with Welsh business on economic development in Wales, particularly on bringing in new manufacturing investment. And I am proud to be associated with that time of increasing success.

It was not easy for Wales to get into that position. As Secretary of State I saw at first hand how the decline of traditional industries had hit families and communities particularly hard here in Wales. But I also experienced the determination of people in Wales to move forward.

The jobs secured and new jobs created in Wales since the early 1990s stand as testimony to the structural reforms of the economy under the previous Conservative Government. And they are a tribute to the hard work and commitment of business here, which has been ready and eager to grasp the opportunities of the new economy.

That hard work goes on today. The Welsh Development Agency continues to be assiduous in canvassing industry across the world on behalf of Wales, and alerting international business to the enormous advantages of investing in the Welsh economy.

I wish the WDA every success in its efforts. But the environment in which the Agency is operating today looks significantly less promising than only a few years ago. The number of jobs brought to Wales through inward investment from overseas has reduced dramatically since 1997. The stock of VAT registered businesses is beginning to fall. And manufacturing employment is falling.

There are already worrying signs of a manufacturing crisis ahead here in Wales. Corus shed 2,000 jobs across Wales last year. Now the jobs of 3,500 Corus employees and up to 3,000 contractual workers are threatened. I sincerely hope that some form of settlement will be found that will protect the thousands of jobs that are at threat at in Newport.

But sound economic policy is not about rescue bids. It is about providing strong and stable economic fundamentals that allow businesses to take risks and grow. That requires a Government that listens to business and understands its needs. Unfortunately I do not believe that Wales today has such a Government.

The possibility of a rates reduction for Corus comes at a time when the Assembly Cabinet is suggesting a new local rates levy on business here in Wales.

Corus is threatening to move production to eastern Europe, at the same time as the United Kingdom Government is set to impose a new Energy Tax, the Climate Change Levy, that will hit steel producers hard. In fact the tax will cost the steel industry £7m a year - that is net of the reductions in NI contributions - with Corus expected to pay 80 per cent of it.

Industry in the West Wales and the valleys could benefit hugely from Objective 1 aid. But, in the words of the 'Independent Task and Finish Group' - set up to examine the shambles over finding matching funds - there has been a 'significant leadership gap' and a 'policy and strategy vacuum'. Objective 1 funding could bring £1.2bn to the West Wales and the Valleys, and I know industry is increasingly frustrated at the progress that has been made.

But it is not just traditional industries, like steel that are risk from a Government that has grown complacent by the economic legacy it was bequeathed. In the last year, 2,000 jobs were lost in the electronic manufacturing industry in Wales, including 1,400 at Panasonic here in Cardiff.

So I am not being alarmist when I say that the situation in Wales is a cause of deep concern for us all.

Regrettably the difficulties that manufacturing is experiencing here in Wales are part of a much wider problem in manufacturing that is having an impact throughout the United Kingdom. The blunt truth is that 245,000 jobs in manufacturing have been lost since the Labour Government took office, 100,000 in the past year alone. Currently, the rate of job losses stands at over 10,000 a month.

In recent months we have seen how the car industry has been particularly badly affected, with job the end of car production by Ford at Dagenham that will result in the loss of 2000 jobs, and the closure of Vauxhall's Luton plant with the loss of another two thousand jobs.

All of this is a far from impressive record for a Government whose Chancellor promised in the run up to the last Election that he would 'implement an industrial policy so that our manufacturing industries can grow again'. It contrasts sharply with the increase in manufacturing jobs of over 70,000 under the previous Conservative Government from 1992-7. And it is a far cry from the mid-1990s when the Chairman of BMW could say 'Great Britain is currently the most attractive country among all European locations for producing cars'.

To a large extent the real crisis of confidence in British manufacturing has been masked behind the headlines about falling unemployment in the economy as a whole. Even here, however, there are some deeply worrying signs. For example, figures published by the Office of National Statistics earlier this month - using the Government's preferred method of counting - showed a fall in the number of people actually in work of 25,000 in the three months to November. And, on the same method of counting, unemployment rose by 11,000.

Of course it would be wrong simply to seize on one set of figures and to blow them out of all proportion in order to make lurid predictions of imminent disaster. Nevertheless, the worrying signs are there for all to see, because these figures represent the first fall in employment since the beginning of 1993. Taken together with the dramatic job losses that we have seen in manufacturing jobs in the past three years it all points to an extremely serious and worrying trend.

I am the first to acknowledge that a number of the problems we face are largely beyond the control of this, or any, government. In the car industry, for example, it is currently estimated that, worldwide, over production stands at 6 million. The industry everywhere is undergoing a period of restructuring from which Britain is not immune. Added to that there are the continuing problems - that I do not underestimate, still less dismiss - of the weakness of the euro against the pound that obviously makes it more difficult to export to the continent.

You will not, however, be surprised to hear that I disagree strongly with those who argue that the answer to this latter problem is for the United Kingdom to be preparing to join the euro. Rushing headlong into a one size fits all interest rate that might be totally unsuited to our own conditions would do nothing to improve our competitive position. If the current exchange rate is a problem for business now, then locking ourselves forever into that exchange rate would be ultimately catastrophic. Nor would joining the euro promote greater stability when it has been so notoriously volatile so far.

It has always struck me as odd - if not a little disingenuous - that that the same people who two years ago argued that we would be compelled to join the euro because our currency would be too weak to compete with it, now argue the precise opposite, that it is essential for us to go in because the pound is so strong. They ignore the real problem here, that it is not the pound that is too strong, but the euro that is too weak.

But where the Government can help, and should be taking a lead, is in ensuring that on those areas for which it is directly responsible it is doing all it can to boost the competitive position of British industry. Companies that find themselves at the edge, and are cutting margins to the bone, should be able to rely on the Government to set an economic backdrop of low taxation and low regulatory costs, and not to add to their problems. Quite often that is the difference between a companies being able to hang on or not, literally the difference between survival and going bust.

Instead, over the past four years in Britain we have been doing the reverse. Savage increases in taxation have been imposed on business and an endless burden of red tape and regulations has been added. This has seriously undermined the competitive position of British business - especially manufacturing. Far from making the outlook for manufacturing in the United Kingdom any better, the current Government has made it considerably worse.

Don't just take my word for it. According to CBI figures, British business is now paying a staggering extra £5 billion a year in tax - through things like changes to the administration of Corporation Tax, the abolition of dividend tax credits on pension funds, the hikes in fuel duty and the Climate Change Levy.

No wonder the CBI said in a recent briefing said that:

'Current tax and regulatory policy is not helpful to manufacturing industry's problems. In particular the Government could seek to reduce the costs arising from energy taxes, fuel duties and employment legislation'.

On red tape the Institute of Directors puts the additional cost to business at a further £5 billion a year. And the impact falls disproportionately on small business, the entrepreneurs and risk takers who are the employers of tomorrow and the building blocks of our prosperity.

Everywhere I travel in Britain today I hear the same stories from small businessmen who are fed up to the teeth with form filling and struggling to keep on top of things when all they want is to left alone to run their businesses. As the British Chambers of Commerce have put it:

'The reality is that Government has dramatically increased the regulatory burdens that threaten small business competitiveness. Excessive red tape is stifling the very enterprises the Government is seeking to promote'.

Across all arms of business the consensus could hardly be clearer - that tax and regulation are too high and too many firms are simply having the life strangled out of them.

This is all profoundly depressing for those of us who are passionate about Britain grasping with both hands the opportunities that are being presented to us by the new global economy. Because if we are to succeed, not only is the competitiveness of British business in world markets paramount, so is the competitiveness of the United Kingdom as a magnet for inward investment from business overseas.

The global economy is staggering in terms both of its scale and speed. For businessmen it offers hitherto unimaginable possibilities. Yet it presents you with difficult challenges too. Consumers have access to far greater information than ever before, giving them the freedom to make much better informed choices.

In the information age location, both for consumers and businesses, is no longer the relevant factor it once was. For example, it can be just as easy, and convenient, for someone living in Cardiff to use the internet to buy a CD or a book from a business based hundreds or thousands of miles away as it for them to buy it in a high street shop. It gives business, including manufacturing, greater freedom of choice over where they locate. They can be more mobile than ever before.

For governments everywhere the lessons are clear. Pursue economic policies that increase burdens and regulations and they will be punished. Potential investors will simply go to a country where the economic climate is more attractive. Equally, they run the risk of losing even well established companies who are able to manufacture and sell their products elsewhere.

So there is in reality a simple choice for politicians. Either we can go for a low tax, lightly regulated dynamic economy and have a chance to compete successfully, or a high tax, highly regulated economy in which we are simply overtaken by our competitors.

As a result of the structural changes to the British economy that took place under Conservative Governments of 1980s and 1990s we stand on the threshold of a great opportunity to be a world leader in the new economy. We are currently ahead of the rest of Europe.

But that position is precarious. And instead of pressing home our advantages we have been wasting them. Instead of making headway Britain has been marking time. Instead of exploiting our great opportunities the great British opportunity is being missed.

Our economy has been growing, but then so have the economies of our competitors and at a faster rate. Away from the headlines and the spin that we are accustomed to seeing come out of Downing Street and the Treasury the British economy is not nearly so strong the Government would have us believe. And it is certainly nowhere near as strong as it could be.

Since 1997 Britain's share of world exports have fallen. The economy has grown at a slower rate than those of the United States or Euroland. The gap between the British tax burden and that of the United States has grown by 8.5 per cent while the gap between the British figure and that of Euroland has shrunk by two-thirds since the mid-1990s. Fourteen OECD members have lower unemployment rates.

In recent years we have become accustomed to talking about the contrast between the Anglo-Saxon, US style economy and the more rigid continental model.

In the United States the new Bush administration is proposing a programme of tax cuts totalling a staggering $1.3 trillion. But even our European partners are now waking up to the necessity of lower taxes as the key weapon in the fiercely competitive battle to attract investment. In France, taxes are being cut by £12 billion over three years, including cuts in income tax and road tax, while in Germany taxes are being cut by £15 billion including reductions in the top rate of tax and corporation tax.

It is the exact reverse of Britain where taxes have gone up and, because of plans to go on increasing public expenditure faster than growth in the economy as a whole, sooner or later they will have to go up again.

So it is hardly an exaggeration when I say that Britain needs a change of direction and it needs to do it as a matter of urgency. We need to shake off the culture of complacency and start living up to our potential. Unless we do that we risk throwing away an unprecedented chance to build in Britain the kind of prosperity that previous generations could only have dreamed of and to spread it more widely than ever before.

To throw away that opportunity would be a tragedy for Britain. Because I believe that Britain can be the best. And I believe in a Britain that can lead the world.

That is why the next Conservative Government will be a tax-cutting Government.

But the British people are right to be highly suspicious of tax promises of politicians, unless they can show exactly where the money is coming from. They remember that it was only a few years ago that another Leader of the Opposition was promising them that he had 'no plans to increase tax at all', before he went on to increase taxes by £25 billion as Prime Minister.

Our promise of lower taxes is credible because Michael Portillo and I have now set out our spending plans, so that everyone knows where the money is coming from.

At the heart of our spending plans is a basic Conservative principle - the Government should only spend what the nation can afford.

This sounds like such common sense that it is difficult to imagine any Chancellor of the Exchequer being so imprudent as to spend more than the nation can afford. But, of course, that is precisely what the present Chancellor is planning to do. Total Government spending over the next three years will increase by around 3.4 per cent a year, while the Treasury assumes that the economy will only grow at around 2.25 per cent a year over the same period.

The next Conservative Government will also increase public spending in real terms year on year, but we will plot a course of spending that is within the trend growth rate of the economy. In other words, we will only spend what the nation can afford.

By 2003-4 that means we will be spending around £8 billion less than Labour's spending plans, and we will give that £8 billion back to the people from whom it came from - the tax payer.

So how will we spend £8 billion less by 2003-4? Where will the money come from?

In a series of recent announcements, my colleagues in the Shadow Cabinet have shown how.

The next Conservative Government will not spend more than it needs to do the job.

So we will reverse Labour's increases in Whitehall running costs, bringing them back down nearer to level they were when we left office and saving £1.8 billion.

We will give benefit inspectors the teeth to tackle social security fraud by giving them the same powers as tax inspectors and creating a single 'fraud squad' to deal with all welfare cheats, and save £1 billion on fraud. We will take the administration of housing benefit out of the hands of incompetent local authorities, and save another £425 million.

We will reform the work of the Department of the Environment, scrapping the hugely costly 'best value' regime and helping regenerate our inner cities with tax breaks instead of handouts. These reforms will save a further £1 billion.

The next Conservative Government will also do only what it is necessary for Governments to do.

For example, the DTI should be spending its time cutting red tape not subsidising e-commerce or trying to become a venture capitalist. We will make sure it does, and save £300 million in the process.

The next Conservative Government won't necessarily provide everything itself.

We will make student loan repayments tax-free and double the income at which graduates have to begin paying back their loans at all by transferring the student loan system to the private sector. We will use the money we raise to invest in our universities and save the taxpayer £1.3 billion.

We will create a Community Legal Aid Fund that will award legal aid without the use of an unfair means test, and pay for itself by taking a portion of damages won thereby saving the public purse £525 million.

We will use companies and charities to help the long-term unemployed find real jobs and to keep them in work. They will be paid by results replacing the failed and expensive New Deal at a saving of £400 million.

We will give firms an incentive to make their workplaces safer by making employers responsible for insuring their workforce against injury rather than the Government and save the public purse £160 million.

We will create fund for sports and the arts, independent of the government, paid for in part by selling off Channel Four - a TV channel that most people thought was in private hands anyway. That saves us £210 million.

And the next Conservative Government will encourage personal responsibility and choice.

We will require lone parents of secondary school-aged children find work because teenagers of single parents who work are more likely to go and find work themselves. That saves £500 million.

Our Can Work Must Work Guarantee will mean that unemployed people who can work, and who are offered a job, must take that job or lose their unemployment benefit. And we will move towards a single fundholder that will help disabled people who are desperate to work find jobs. Together, these will save £430 million.

I've given you a comprehensive, detailed list of the changes we would make because I want to show you that our spending plans are detailed and comprehensive and credible.

Add up these individual items, and you will reach a total of over £8 billion of savings - savings that would bring the overall increase in government spending in line with what the country can afford; savings that mean we can give £8 billion back to the people of this country in tax reductions; above all, £8 billion of savings that can be achieved without touching a penny of the vital investment we need in our key public services.

Of course, the Labour Party won't give up lying about our spending plans and trying to scare voters. But they will look increasingly foolish and incredible as they do so. For as Evan Davis, Economics Editor of the BBC's Newsnight programme, said recently: 'The Tories are telling the truth and only by wilfully misreading the Conservatives' spending plans can you call it £16 billion' (Newsnight, 5 December 2000).

The sensible Conservative spending plans I have set out scotch some of the malicious scare-mongering of our political opponents.

First, it is clear that we will not cut public spending. In fact, our plans involve a big, year on year increases in public spending that amounts to £63 billion extra by the year 2003-4. But these will be increases that the country can afford; increases that are in total £8 billion less than the unsustainable total in Labour's plans.

Second, it is abundantly clear that we won't take a penny from the investment planned for our vital public services. We will match Labour's increases for the NHS and for our schools. We propose no reduction in spending on law and order or on transport. Not one of the spending savings I have talked about affect any of these public services.

Third, it is plain that we are deadly serious about reducing taxes in this country. In the coming weeks, we will set out the details of the tax cuts that will give back to the British people some £8 billion of their money that the Government now takes from them.

Around the world our competitors are reducing the burden of taxes on their citizens and their businesses and so must we. But the case for reducing taxes is not just an economic one. There is a powerful moral case too.

For high taxes don't just damage prosperity and drive away tomorrow's entrepreneurs, they also undermine a good conscience, generosity, and a sense of personal responsibility and they lead to a deep cynicism about the institutions that give our lives moral shape.

Or to put it another way, low taxes are not just the basis of a dynamic economy, but also the foundation of a compassionate, responsible and free society.

That is why what we will propose at the next election is not an indiscriminate, across the board tax cut. Instead, our tax reductions will be targeted to help those who need and deserve it most.

We will help the hard-working, married couple who do not want to look to the state for handouts. We should be giving married couples all the support we can, but instead they've been hit hard by Labour stealth taxes on marriages, mortgages and home ownership. It sends precisely the wrong message to young people about the importance of marriage and family life.

That's why the next Conservative Government's tax plans will mean that millions of married families get to keep more of their own hard-earned money, and that's why we will give particular support to mothers trying to juggle all the competing pressures of a successful career and looking after young children.

We will help pensioners and savers who do the right thing, and save all their lives so that they enjoy a little independence from the state in their retirement. Instead of punishing them as Labour has with their pensions tax and their assault on savings, we should setting these responsible people up as an example and rewarding them for their good sense.

That's why the next Conservative Government's tax plans will let pensioners and savers enjoy many more of the fruits of their prudent savings. As Michael Portillo said yesterday, we want to help create a responsible society of people who are encouraged to save and, when they reach retirement, look back and feel that it was worthwhile saving.

And we will help businesses, and especially small businesses and high tech entrepreneurs, upon whom our country's jobs and prosperity depends. Labour treats people who work long hours to make a success of their business as rich pickings for the taxman and the bureaucrat, when what they should be doing is getting Whitehall off their backs.

That's why the next Conservative Government will cut tax and red tape to create an environment in this country that gives all our businesses, from the largest multinational to the self-employed contractor, the best possible chance to succeed.

We will help all these people - hard-working families, young mothers, pensioners, savers, small businessmen, entrepreneurs - and many others with our £8 billion tax reductions.

We will send a signal about the kind of society we wish to see: a society of responsible, compassionate and free citizens, working hard and saving hard to be independent of the state; a society in which marriage is supported not denigrated, in which charity is encouraged not punished; a society of strong families in strong communities, not a society of atom-like individuals whose only meaningful relationship is with a monolithic state.

We will do all this because we believe in a Britain that can be the best place in the world in which to do business. That means cutting taxes and being ruthless about regulations. It means setting out to establish Britain as the IT capital of Europe by leaving entrepreneurs alone to flourish rather than holding them back. And it means restoring our universities to the best in the world by setting them free, and endowing them so that they have a secure base for the future and can attract the best teachers and students.

We will do all this because we believe in a Britain that is the best place in the world in which to live. That means waging war on crime like never before and making sure that we back the crimefighters rather than the criminals. It means supporting the values of the mainstream majority and not a politically correct liberal elite.

It means developing a new social agenda in which we use our prosperity to build up world-class public services, to give parents and teachers greater control of schools and to end political interference in hospitals so that doctors and nurses can get on with what they do best. It means giving future pensioners the chance to build up a funded alternative to the state system. And it means developing a new approach to regenerating our inner cities.

And we will do all this because we believe in a Britain that is among the most admired and respected nations in the world. That means upholding our independence as a nation. That means being a fully committed member of the European Union, but not being run by Europe and it means maintaining the economic flexibility by keeping the pound.

All of this is the kind of Britain in which I believe. It is the kind of Britain that reflects the common sense values of the mainstream majority of its people. And it is the Britain that the next Conservative Government will give back to the people of this country.

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