“Let me start by thanking you – directors, executives managers representing companies from all over the UK – for the contribution you are making to Britain.
I want to thank you this year especially because, together, we are facing the challenges of a rapidly changing global economy and living through the largest restructuring of industry and services the global economy has ever seen. You deserve and have earned the nations appreciation for your steadfastness, your resilience, your leadership and courage to change.
We meet here at an important economic moment.
I believe 2005 will go down in history as a year of challenge when the scale scope and speed of globalisation pressed in on us as never before – not just terror on a global scale, but the rapid trebling of oil prices, itself a direct result of the new Asia’s escalating demand for oil, the recurrence of global inflation, the re-emergence of protectionism not least because of the loss of jobs across manufacturing in Europe and America, and the shift of service jobs through outsourcing. These are all events driven by global change, most of all the dramatic entry of two billion people in India and China into the world economy.
But throughout my aim for Britain has been to maintain and entrench our hard won economic stability. And I believe that if we now make the right long term decisions, founded upon that stability, Britain is well suited to be one of the great successes of this new global era.
The very qualities we have – our belief in stability, openness to trade and a culture of enterprise and innovation – are the qualities the new global economy demands. My vision is of a Britain made for globalisation – the location of choice and the place for business to be.
If we have the strength to make the long term decisions for stability and if we capitalise on our distinctive advantages by investing in education, science and infrastructure, Britain is well placed to become world leaders in some of the worlds’ fastest growing, most wealth creating sectors.
And around these objectives, it is my determination that we, government and business together, build a shared national economic purpose.
Every time in past decades when the CBI met in conference your constant theme had to be Britain’s stop-go economy, the failure to control inflation, economic cycle after economic cycle, Britain first in, last out, worst hit in world downturns. In the 1950s it was said Britain managed decline, in the 60s mismanaged decline, in the 70s declined to manage and even in the 80s and early 90s inflation often went into double digit figures. For decades Britain was the stop-go economy of the world, the most prone to inflation.
And in the last eight years we have not been without economic challenges that have tested our resolve – the Asian crisis, an IT crash, a wall street slump and recession from the USA to Japan and Germany. And now today our resolution has again been tested – domestically, by the need to moderate the housing market and internationally, by the trebling over three years of oil prices and the doubling of major commodity prices – events which in the past always led Britain into inflation and recession.
But as we end 2005 which has seen the return of global inflation and this new threat to economic stability: while inflation is pushing up interest rates in the euro area and it is at 4.3 per cent in the USA, in Britain it is just half that.
This economic stability, what you need to plan ahead, is exactly what the post 1997 monetary and fiscal settlement – Bank independence, a symmetrical inflation target, new fiscal disciplines – was designed to achieve. Our 1997 reform was not some one-off change whose benefits lie only in the past, but an enduring and resilient framework that continues to give us the capacity now and in future to respond quickly and proactively to changing circumstances.
And so today, thanks to what you as businesses and we as a country have achieved, Britain is acknowledged as the economy with one of the lowest inflation rates, among the most stable and the least volatile. And my first and foremost commitment is to maintain economic stability: stability yesterday, today and tomorrow.
Let me just say also that so strong is our commitment to stability that for the first time in a century in the run up to a general election interest rates were raised not once but four times. With Bank independence, we ensured that the political cycle would not interfere with the economic cycle.
There are three forces driving the return of global inflation, all of them a product of global economic change: rising commodity prices because of the rise of Asia, goods prices low for some years because of Asian competition, and service sector prices, more influenced by domestic labour costs and with our oil initiative to match demand and supply for energy, and Tony Blair will say more about nuclear and other sources of power tomorrow, with our competition policy designed to continue get the full benefit of low Asian prices, and with our demand for discipline in public sector pay, our policy is to address, at root, all inflationary pressures.
And just as we have met our inflation target in every year since 1997 we will meet our inflation target in future years so that businesses can plan ahead, invest for the future with confidence, grow and prosper And as I made clear last Thursday seeking discipline in public sector pay, I will resist inflationary pressures from wherever they come, safeguarding Britain’s fiscal position today and for the future.
This is the background – our commitment to long-term stability, to debating all the long-term challenges facing the country.
Indeed it was for that reason that the Turner Commission on pensions – and I thank Lord Turner and his Commissioners for their work – was set up. Tony Blair and I want to encourage a debate so that by examining the full range of options we can build a long-term consensus across our country on the future changes necessary.
The issue is not reform versus the status quo. There must be reform. The debate ahead will show that the issue is how best we achieve the right reforms, reforms which are sustainable, fair and affordable.
If we look back, our first major reform as a Government in our first Parliament was to make the Bank of England independent. Modelled on that change, I have announced in writing to Parliament this morning a further reform that will also contribute to entrenching long-term stability.
Having reviewed the framework for national statistics, I propose to legislate to make the Office for National Statistics independent of government, making the governance and publication of official statistics the responsibility of a wholly separate body at arms length from government and fully independent of it.
So that as with the Bank of England, we will legislate for the creation of an independent governing Board for the Office for National Statistics, with delegated responsibility for meeting an overall objective for the statistical system’s integrity;
As with the Bank of England, we will legislate for the appointment of external members to the board, drawn from leading experts in statistics and including men and women from academia and business;
As with the Bank of England, we will legislate for a new accountability to Parliament through regular reporting by the Board to explain and to be questioned by the Treasury Select Committee on their performance.
While Parliament alone is the appropriate place to vote on tax and spending and to scrutinise the fiscal position – and we cannot contract out that responsibility we discharge for the British people – if one looks back to 1997 you can see just how much I have tried to take decisions that should be made on the basis of economics out of politics: the independent audit of fiscal assumptions from unemployment rates to oil prices to vat revenues and equity prices, the independent audit of the trend rate of growth, the independent audit of the start and end of the economic cycle, and now the independence of national statistics.
In these last few years we have removed where it is right to do so essential elements of monetary policy, competition policy and industrial policy and now statistics from the pressures of day to day politics, taking government out of areas where it need not be and government guaranteeing economic decisions are made as they should be – for long-term economic purposes, not for short-term partisan gain.
And let me be absolutely clear with you: at every point I want to work with you and listen to your concerns so that just as we are meeting the stability challenge, we can meet all long term challenges by making the reforms you need and the modernisation you require and the country requires for economic success
On planning, which we all know has been inflexible for decades, I will set out in the Pre Budget Report the next stage of our reforms to make planning law and procedures simpler more efficient and more responsive to business and the long-term needs of the economy.
On transport, where we all know we are still paying the price for decades of underinvestment, as Alistair Darling has discussed with you this morning, we are doubling investment and will work with you on the basis of the Eddington Review of long term needs to agree future priorities and how the public and private sectors can work together to deliver them.
On tax, having cut long-term capital gains tax from 40 pence to 10 pence, corporation tax from 33 pence to 30 pence, and small business corporation tax from 23 to 19 pence, the Pre Budget Report will continue to ensure rewards for success and examine new incentives for investment.
On science, I will update at the Pre Budget Report our 10-year science plan focusing on the new partnerships between universities, government and business that can make us world leaders in science based and creative industries.
On research and development, the Pre Budget Report will report on changes and improvements we can make in the R&D tax credit, which is already serving 18,000 firms.
On housing, we all know that as the economy has grown supply has not kept pace with demand, and in Sir Digby Jones words “constrains labour mobility, and has a negative impact on business and the performance of the UK economy” – issues I will address in the Pre Budget Report, implementing the recommendations of your former economic adviser Kate Barker.
On skills, with, next week, the interim report from Lord Leitch and the first stage of an audit of Britain’s skills needs to 2020, we will work with you in introducing the new national employer training programme and then radically reform further education.
On pay, where I have sent new guidance to public sector pay review bodies, I can tell you that we must and will do more to encourage pay flexibility.
On enterprise, where thanks to your efforts there are now 575,000 more businesses than 1997, over 3,500 new businesses created every week, the Pre Budget Report will set out the next steps to encourage young British people with ideas to become entrepreneurs with profitable products and to strive for the us levels of business creation we admire.
We all agree that at the heart of the modern enterprise challenge is minimising regulatory concerns and I want to say something about that now. Whenever I go to the USA and talk to businessmen and women there, they express exactly the same frustrations about regulation and the same hopes about reducing burdens.
And I know that you feel that what we need is real delivery – and I want to underline this by a better understanding of risk and indeed implementing a modern risk based approach to regulation so that the culture change we all agree upon can be advanced.
And let me thank Sir David Arculus your new President for his pathbreaking work and many others in this organisation who have led the way.
In the old regulatory model – and for more than one hundred years – the implicit principle from health and safety to the administration of tax and financial services has been, irrespective of known risks or past results, 100 per cent inspection whether it be premises, procedures or practices.
So regulation came to mean that government routinely and continuously inspected everyone and everything, demanded information from all of us on a blanket basis, required forms to be filled in for all issues subject to regulation and inspection – the only barrier to complete coverage usually being a lack of resources.
This approach, followed for more than a century of regulation by governments of all parties is outdated. The better, and in my opinion the correct, modern model of regulation – the risk based approach – is based on trust in the responsible company, the engaged employee and the educated consumer, leading government to focus its attention where it should: no inspection without justification, no form filling without justification, and no information requirements without justification, not just a light touch but a limited touch.
The new model of regulation can be applied not just to regulation of environment, health and safety and social standards but is being applied to other areas vital to the success of British business: to the regulation of financial services and indeed to the administration of tax. And more than that, we should not only apply the concept of risk to the enforcement of regulation, but also to the design and indeed to the decision as to whether to regulate at all.
In the new legislation we will publish before Christmas we will make this risk based approach a statutory duty of the regulators.
In his widely acclaimed report Sir David Arculus has challenged us to set setting quantifiable targets to reduce the administrative burden of regulation. And I can tell you that because I want the Treasury to lead the way, HMRC will, in the Budget, be set the first of these targets and we are today publishing measures based on this risk based approach to save businesses up to £300 million a year of administration burdens.
For example, for 90 per cent of companies we will abolish the form business complains to me about most, form 42 for employee share awards. This will benefit three hundred thousand companies every year.
By, in addition, simplifying tax forms we will save employers from at least one million queries every year. And you will be pleased to know that to help 2 million small businesses we plan a new simpler self-assessment which we are piloting from next April.
Coordinating the work of Companies House and Revenue and Customs, we are consulting on how best to introduce a single filing date, benefiting 1 million companies. And as a first stage in working towards a single point of contact for business on tax issues, I want to discuss with you the potential benefits of unified registration for all taxes.
And driving further the risk-based approach in financial services, I will publish at the Pre Budget Report 10 new simplification and deregulatory measures which will cut demands for information, forms and reporting requirements including cutting by 15 per cent disclosures of change of control and up to 20 FSA consultations each year.
European regulations – of course – account for 50 per cent of significant new rules for business
And for some time I have been concerned about what is called the goldplating of European regulation where in the process of translation into our own UK laws we end up with additional and unnecessary burdens. So I have asked Neil Davidson QC, the former Solicitor General for Scotland, to work with departments and the better regulation executive to conduct a full audit of all areas where gold plating of European regulation has in fact led to additional burdens so they can be addressed and where possible removed. And going forward we will rigorously enforce guidelines prohibiting goldplating.
And to emphasise our commitment to this new approach the Government is today abolishing a specific example of goldplating. Best practice is of course for companies to report on social and environmental strategies relevant to their business. But I understand the concerns about the extra administrative cost of the goldplated regulatory requirement that from April next year all quoted companies must publish an operating and financial review.
So we will abolish this requirement and reduce the burdens placed upon you – the first of a series of regulatory requirements which by working together we can abolish in the interests of the British economy.
There is a another matter of great urgency on which I want us to work together – securing a trade deal in Hong Kong.
One of Britain’s great qualities is that as the pioneer of free trade we are the greatest supporters of open trade in the new global economy and we must take the opportunity in the next few days which may not come again for many years – to achieve, in Hong Kong, a new trade deal that will reverse the recent retreat into protectionism. This weekend I will host a meeting of G7 Finance Ministers with also China, India, South Africa and Brazil. We now need progress that allows countries like India and Brazil to positively support the liberalisation of services and greater market access. And the key to unlocking that door is America and Europe, through further reform of protectionism in agriculture.
Mr President, this year’s enterprise week which was sponsored by the CBI and which engaged the energies of hundreds of thousands, has shown how strong the entrepreneurial spirit is and can be in our country
Even with the global challenges now clear, and this year has brought them home as never before, I am optimistic that as an ever more enterprising nation, we can build a national economic purpose: a consensus around our shared belief in stability; investment in science, education and transport; a radical commitment to minimise regulation and to maximise flexibility; and to reach out and to take our rightful place in the world.
A vision of Britain as the place to be.
Let us together make Globalisation work for Britain to the benefit of all – for British companies, the British economy and the British people.”
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