This is my first major speech as Prime Minister – and I am going to address the first priority of this government: transforming our economy.
Today, Britain is at a turning point. The decisions we make now will live with us for decades to come. For many years we have been heading in the wrong direction.
Our economy has become more and more unbalanced, with our fortunes hitched to a few industries in one corner of the country, while we let other sectors like manufacturing slide.
It has become over-reliant on welfare, with mass worklessness accepted as a fact of life and around five million people now on out-of-work benefits. It has become increasingly hostile to enterprise, with business investment in the past decade growing at around one per cent each year – only a quarter of what it was the decade before. It has become far too dependent on the public sector, with over half of all jobs created in the last ten years associated in some way with public spending.
And, of course, as a country we have become indebted on an unprecedented scale. Our huge deficit and rapidly growing public debt are the clearest manifestations of our economic mistakes – the glaring warning sign overhead telling us we have taken the wrong route.
We have been sleepwalking our way to an economy that is unsustainable, unstable, unfair and, frankly, uninspiring.
Now that this country is waking up to it, the people of Britain – the people of the world – want to know: can we turn this around? Can we rebalance economic power across our regions, across different industries, so that more people have a stake in our success? Can we end the inevitability of millions on long-term welfare and bring hope to those unemployed? Can we inject new life into the private sector, so that enterprise can drive not just our recovery but the re-building beyond it? Can we go from an economy built on debt and borrowing to one built on saving and investment? Can we re-open Britain for business?
My answer is an unequivocal, emphatic yes.
We have always been ambitious for the future of our economy. We have set out a series of clear, transparent benchmarks for our economy from ensuring macroeconomic stability to creating more balanced growth, getting Britain working and ensuring our whole country shares in rising prosperity.
And today I want to explain how we will realise these goals – by setting out the coalition strategy for economic growth that will turn our economy around.
That task begins with the deficit.
Today, the British state is borrowing one pound for every four it spends. Our Budget deficit is set to overtake Greece. If we don’t deal with this, there will be no growth, there will be no recovery. It will be undercut by rising interest rates, rising inflation, falling confidence and the prospect of higher taxes. Getting the deficit down and keeping it down will help to restrain inflationary pressures, allow interest rates to remain lower for longer and create the space for private sector investment.
So dealing with this deficit is not an alternative to economic growth – the two go hand-in-hand. What’s more, without sound finances, none of our ambitions will be deliverable. That’s why – in just the first two weeks of this Government – we have changed the way Budgets are written forever by creating an independent Office of Budget Responsibility and we have launched and completed an in-year spending review to save £6 billion of public spending.
As a result of this we have put a stop to the previous government’s proposal to put up National Insurance Contributions on almost every job in the country.
But much more still needs to be done. So on 22nd June, we will have an emergency Budget, setting out how we will cut the bulk of our deficit over the course of this Parliament, giving this country what it has been desperately lacking – a credible plan to live within its means.
There are difficult choices ahead. But they are unavoidable – and it’s the same for our international partners. Almost every country in Europe faces the same challenge – to reduce deficits in order to help restore sustainable growth. I’ve met with Chancellor Merkel and President Sarkozy and discussed some of the issues facing the Eurozone.
Of course we are outsiders in one sense – we are not members of the euro and we will not join the euro. And that is absolutely right. But we have shared interests. We want the Eurozone to deal with its problems. We want it to be prosperous. We want it to be stable. That is not only in their own interests but in ours – about half of our exports go to the EU, overwhelmingly to the Eurozone.
And they want us to get our deficit down and restore Britain’s economic vitality – because we are the Eurozone’s largest export market; larger even than the US.
We are in this together – and we are agreed on the way forward. We are determined – along with our European partners, and our international partners in the G20 – to ensure there is a return to more balanced growth and that we address the massive imbalances which played such a significant part in the recent economic crisis.
And for Britain, the prize of turning our economy around is this: well-paid jobs, rising living standards, the sense that each year we are providing more for our families and moving forward as a country.
Cutting the deficit not enough
So turning our economy around begins with cutting the deficit. But that cannot be the only part of our strategy for economic growth. It is only the start of what we must do.
Just as our plans to build the Big Society aren’t simply about cutting back big government and hoping civic society will spring to life so our plans to revive our economy are not simply about cutting public spending and hoping the private sector will spring to action. Government cannot be a bystander.
In society we will actively agitate for social renewal and community action and in our economy we will actively help new businesses start, attract enterprise to our shores, light the fires of entrepreneurialism in every corner of our country. That’s what our coalition strategy for growth is all about.
This strategy has three components.
First, we will liberalise keeping tax rates low, stopping the rise of red tape, so we free our economy – and our businesses – to compete.
Second, we will provide modern support for enterprise to grow, doing everything within our power to give businesses the tools they need.
Third, we will help to rebalance our economy, ensuring that success and prosperity are spread more evenly across regions and industries.
Let me take each in turn.
First, we will liberalise.
As someone who believes in the free market, it will not surprise you that I believe a big part of the previous Government’s economic failure was their endless interference. There was too much tax, too much regulation, too little understanding of what our businesses need to compete.
The facts are clear. Britain’s competitiveness has suffered in recent years, with businesses ranking us 84th in the world for tax and 86th for regulation. Indeed, since 1997, the tax legislation handbook has doubled in length. But you don’t need to know the facts to see how heavy this burden is. You see it in the exasperated faces of businesspeople. I’ve seen it, countless times, in my constituency and on my visits around the country. These people struck out into the world of enterprise with boundless hope and ambition and found themselves in a world of bureaucratic pain.
So a big part of our strategy for growth is getting out of the way of business. I’m going to be asking George Osborne, Vince Cable, David Willetts and their teams some simple questions week in, week out: what are you doing to make it easier to start a business? Easier to take people on? What are you doing to make regulation less complicated? To make locating a business here more attractive?
Already, just two weeks in, I’m hearing answers that I like – and that I know business will like.
We’ve abolished Home Information Packs, making it easier to sell a home and supporting our housing market while it is still fragile.
We’ve announced a moratorium on business rates, including for many businesses based at our ports, offering immediate help to firms struggling because of this unfair, unjust tax.
Today we announce a new fast-track system for international patents to reduce the global backlog which stifles growth and enterprise and costs the global economy £7.6 billion for every year patents are delayed.
But perhaps the most important change is our new ‘one-in-one-out’ rule for regulation. It’s simple: if you’re a Minister who wants to bring in a new piece of regulation, first you’ve got to find an existing one to get rid of. No-one should underestimate how revolutionary this is. For a long time, the whole business of Whitehall has been about creating new regulations. This new rule completely blows that culture apart.
If the Treasury’s power is about saying “no” to spending, this gives Vince Cable and the Department for Business a new power – in some ways as powerful – to say “no” to regulation.
And this is what we’ve done in just over two weeks. Over the weeks and months ahead, we will go much, much further – especially with radical tax reform. We’ll cut corporation tax rates by simplifying reliefs and allowances and tackling avoidance – while protecting manufacturing industries.
We will abolish employers’ National Insurance Contributions on the first ten jobs created by new businesses for the next two years.
And we will reform the complex Controlled Foreign Companies rules that have driven business overseas.
I am under no illusions. Achieving all this will be hard and it won’t happen overnight. But when we’ve finished, this will all add up to Britain having one of the most competitive tax systems in the world. ndeed our ambition is to have the most competitive corporate tax system in the G20.
Cutting tax and red tape is all about understanding the limitations of government – where we need to get out of the way. But at the same time, we should never be limited in our aspirations for government – where we need to get involved. Because economic growth doesn’t just depend on lower tax and fewer regulations. It depends on a stable banking system; on credit flowing through the economy; skilled workers; an effective competition regime; modern transport links; a robust intellectual property framework; secure energy supplies; digital infrastructure; opening up government procurement to more small businesses.
None of these things happen by accident – they happen by design. And one of the best things about having a five-year Parliament is that this gives us the space and the scope to make necessary long-term decisions – and see them through.
In the next five years the first works should start on a high speed rail network. The cables of super-fast broadband will be laid. The first Carbon Capture and Storage projects will be under way. These are the long-term commitments we’ve made.
But already – in just over two weeks – we’re getting involved and making real progress on areas that are absolutely essential to the future of our economy.
Michael Gove has invited all schools in our country to break free from bureaucratic control and enjoy new freedoms so they can set more of their own curriculum, pay new teachers more, restore discipline.
This will raise standards across our schools and lift the life chances of millions of children, giving them the skills they need and that businesses want.
Iain Duncan Smith has set in train the most radical reforms to welfare since the welfare state was born – so we truly reward work and support those who need help.
We’re not going to stand aside while a million young people live aimless lives – we will give them hope that comes with new training opportunities, the confidence that comes with personal help that is made to fit their needs.
And already we have been meeting leading banks and the British Bankers Association to talk about how we can get credit flowing through to the businesses that need it so desperately today.
Our view is clear: the hardworking British taxpayer has just bailed out the banking system to the tune of hundreds of billions of pounds. It is time for the banks to repay the favour.
So we will reform our banks, making them more stable – by putting the Bank of England back at the heart of regulation and setting up an independent commission on bank structure, making them more responsible – by getting to grips with the bonus culture and most importantly, making them serve the real economy and not just themselves – by opening up credit lines to businesses.
Of course reforming the banking system is not just a challenge for the UK – it’s a challenge for the world. So we need a renewed urgency to deliver the global banking reforms agreed by the G20.
And that includes taking forwards with our international partners our proposals for a levy on banks. And I am glad to see a growing international consensus on this in Europe and elsewhere. A strong, well-regulated global banking system is just one part of achieving balanced and sustainable world growth.
Another is promoting trade and fighting protectionism. One of the best things we could do for the British economy today is break down the barriers to trade. In the modern, global economy, our fortunes are entwined with the fortunes of others. So I will work with other international leaders to drive forward the Doha trade negotiations. Let’s be clear about what the Doha trade deal could mean: $170 billion added to the global economy each year.
But I recognise that achieving the full deal is a huge challenge – so I’m also keen to seek out other opportunities to open up markets. The UK exports more to Ireland than to Brazil, Russia, India and China combined. So the scope for future expansion is simply enormous if we could get the right trading framework in place. I will work with my European partners to push forwards with Free Trade Agreements between the EU and its key trading partners.
Concluding a trade agreement with India is a priority. Existing EU-India trade is worth around £50 billion per year, so the potential in an EU-India Trade Agreement for trade, economic growth and jobs is considerable and we must grasp it with both hands.
Rebalancing the economy
So government must get out of the way where it is inhibiting enterprise and it’s got to get active in those areas where it is needed. And there’s a third, crucial part of our coalition strategy for growth – which is to rebalance our economy.
Today our economy is heavily reliant on just a few industries and a few regions – particularly London and the South East. This really matters. An economy with such a narrow foundation for growth is fundamentally unstable and wasteful – because we are not making use of the talent out there in all parts of our United Kingdom.
We are determined that should change. That doesn’t mean picking winners but it does mean supporting growing industries – aerospace, pharmaceuticals, high-value manufacturing, hi-tech engineering, low carbon technology. And all the knowledge-based businesses including the creative industries.
And it doesn’t mean ignoring London – in fact we support Crossrail – but it does mean having a plan to breathe economic life into the towns and cities outside the M25.
I was speaking to Lord Heseltine about this – and few people know more about this than he does. He first visited the London Docklands when, in his words, it was “6,000 acres of forgotten wasteland.” Today it is one of the wealthiest and most dynamic parts of our capital. His experience was that regeneration only works through public-private, central-local partnerships – the coming together of business, government and councils. So that’s what you’ll get from us.
An early task will be to reform and refocus regional support and the RDAs. And Yorkshire is a priority.
I will be assigning Ministers and senior MPs to some of our biggest cities, with responsibility to work with local communities to help drive forward economic development by making sure blockages in Whitehall are dealt with.
We will give our biggest cities the opportunity to elect executive mayors, powerful local politicians who know the area, who have real clout to drive projects through. And we will give much more power to local councils.
A new general power of competence will make it easier for them to set up banks, develop property, run new services and own assets. And we’ll also give them the power to get together with local businesses to form their own local enterprise partnerships, to create the right environment for business investment and chart their economic future.
Support from government, civic leadership, business investment and expertise – this is how we’ll help to rebalance our economy across the country. And there really shouldn’t be any limit to our ambitions.
Let’s make Humberside lead the world in carbon capture and storage. Let’s make Bristol a centre for marine energy parks. Let’s make the Mersey a global trading centre once again. Let’s make sure the Olympics legacy lifts East London from being one of the poorest parts of the country to one that shares fully in the capital’s growth and prosperity.
Let’s make the next decade the most entrepreneurial and dynamic in our history – and let’s do it together. All of us, across Britain, sharing in our prosperity.
I passionately believe we don’t have to accept things the way they are. Imagine if Germany had given up after the Second World War, leaving the bombed-out factories on the Ruhr lying dormant. Imagine if South Korea, after years of war, surrendered to its fate as an economic backwater in the 1950s.
Imagine if Margaret Thatcher had seen the British economy in the seventies, wracked by strikes and deep in debt, and decided just to manage our decline.
They said ‘no, we can transform our economy’ – and they did, turning war-ravaged regions and strike ruined countries into economic power houses.
So this is my message today. There is no such thing as economic destiny. We can transform our economy here. We can turn this around. We make the future ourselves. Instead of controlling business, we will free enterprise to compete. Instead of acting with short-term initiatives we will think long-term about the modern support our economy needs. Instead of tolerating economic apartheid, we will give local people the power and the freedom to build success from the bottom up.
That is our coalition strategy for growth. Some people have said that our coming together will feature in the history books. But I don’t want this to be an historic government because we are a coalition, I want us to be an historic government because of what this coalition achieves. And if we keep to the clarity of this vision, if we stick to this determined plan then I truly believe we can transform our economy.