Rebooting and Rebuilding Britain's Economy
Thank you very much for that introduction. You are right, I have just flown in from Toronto and so I forgive anyone who falls asleep during my speech as long as you don’t mind if I do the same thing.
There were some high points and low points at the G20; obviously one of the high points was the ultimate act of economy for a British Prime Minister which was to share a chopper ride with the President of the United States. Clearly the low point and the exquisite torture was watching England being thrashed by Germany in the company of Chancellor Merkel. I have to say, she is one of the politest people I have ever met; every time the German – or, as I kept pointing out to her, mostly Turkish and Polish – players managed to slip another one past our lads, she would turn to me and say, ‘I am really very sorry.’
As I sat around first that G8 table and then that G20 table, the question I was asking myself was not just whether Britain can continue to earn its place in these fora, but can we also make sure we continue to earn our voice. Are we going to be a serious economic and political and diplomatic player, are we going to be listened to, are we going to recover our economy from the state that it has been in?
For me, the essential question – and the question I want to try and answer tonight – is how will Britain earn its living and its place in the world in the future. I think there are too many people in this country who live under the delusion that a prosperous past guarantees a prosperous future, and you just spring back after a difficult time. It isn’t written anywhere that this country automatically deserves a place at the top table; it was once said that freedom once won is not won forever. It is like an insurance premium, each generation has to renew it. I think economic prosperity is the same; just because we have had it before doesn’t mean we will automatically get it again.
The world doesn’t owe us a living – I am sure that was one of the conclusions of your sessions today – Britain has to earn a living. The crisis that we find ourselves in means that we have got to rebuild our economy, and I profoundly believe that we can turn our economy around and we can be a real success story over the next few decades. Just as we broke ground in the past with supply-side reform, privatisation, the rebirth of enterprise and more competition, so we can break new economic ground today. Like before, we need a clear diagnosis of the problems we face and the courage to deal with them decisively, and it sounds like your five tests were a pretty clear and decisive break.
We can actually, I think, show some leadership in the world in tackling the problems that so many countries, particularly in Western Europe, all face together. I wanted to set out what I think are the three vital steps for doing that. First is – and my first is the same as your first – making government live within its means with a decisive plan to bring down the deficit. The second thing we have to do, though, is to make work pay with reform of the welfare and benefits system. Third, and crucially – and I think this comes up in a couple of your five – is that we have got to make sure Britain earns its way in the world once more, with a new drive to make Britain a magnet for investment and a new thrust to advance British commercial interests around the world.
I think these three steps can help Britain earn its living in the decades to come. Ever since it was said that we had lost an empire but not yet found a role there has been a lot anxiety about our future, about our declining place on the world stage and our diminishing fortunes. I believe, however, that decline is not inevitable; we have huge advantages – the English language, great universities, established industries, ingenuity, one of the most open economies in the world, fantastic talent – these are old advantages that we can renew again and I think there is another new one, which is a growing attitude across the country – particularly perhaps in business – that we are not just going to deal with these debts and fight for our survival, but we are going to build on it with success.
Now, let me just take the three points I made and make some points about them; living within our means, making work pay and selling Britain around the world again. Government living within its means: you know the scale of the problem, it was frightening actually sitting there at the G20 looking at all of those countries and recognising that, according to the IMF figures, the country with the biggest budget deficit in any of those countries is Britain at over 11%.
I think it is very important to take on directly those who say, ‘Wait,’ who say cutting the deficit is somehow an alternative to growth. That is just simply wrong; looking at it the other way round, could you imagine, if we spent more, that our economy would actually improve? It would probably tip us over the edge into a Greek-style situation. Put it another way; if you think, ‘What if we did nothing, what if we just didn’t accelerate the deficit plans?’ Again, I think we would be punished, and rightly so, by the markets with higher interest rates and less confidence.
It is not only that dealing with the deficit is essential for confidence which is essential for growth; if we do nothing, by the end of this parliament we would be spending £70 billion just on the interest on our debt. To put that into context of government spending, that is the whole of the schools budget for England, plus the whole of the transport budget for the United Kingdom, plus every single penny piece we spend on climate change. That is the same size as the interest bill we would be paying on our debt. So we have got to take on the people who say that fiscal consolidation is an alternative to growth; it is actually part of getting confidence that gets growth.
I also think we have to take on those who argue that dealing with the deficit has to be unalloyed misery. Now, of course it is going to take difficult decisions, of course there will be painful decisions and we have taken some of those in the Budget, but I think it is important that we, as a political team, approach this task not as a bunch of hatchet-faced accountants – and let me say, some of my best friends are accountants – but actually as people who want to reform.
So if you just consider a couple of facts: if productivity growth in the public sector in the last decade had been the same as productivity growth in the private sector, our public services would cost us £60 billion less. That would go a huge way to dealing with the problem. Take another fact: if you, in fulfilling one of your objectives, go for a choice and competition-driven model for schooling, you can make huge steps forward. In Sweden, they employ 300 people in their Department of Education – we have thousands – which even has higher standards and higher results. Reform also should mean making sure there are no places where payment by results and reform are not prepared to go.
Let me give you another fact: every prison place in this country costs £45,000 a year and, on average, 40% of prisoners leaving prison are back in again within a year. Now, think of that in business: imagine if one of your subsidiaries came to you and said, ‘Well, I have got this great business, every unit we produce costs £45,000, but within a year 40% of them are defective.’ It is a completely unacceptable situation and one where reformers need to get to grips with what we are doing.
What is interesting is everyone is watching all of the countries who have to deal with this massive fiscal crisis, and I want us to be one of the countries that people look at in future years and say, ‘Yes, they did it, they understood what needed to be done to get more for less in public services to deal with their debts.’ I think there is an opportunity for Britain here; the European Union has got huge problems with the Euro, in the US there is still some debate about stimulus and any debt reduction package will be tough to get through Congress. We can actually take a leading role in trying to demonstrate how this can be done, done well, done decently and done fairly.
Second issue: how do we make work pay? All of you in your annual reports and in your businesses always use that phrase about the greatest resource you have is your people. Well, that is actually true for a modern industrial country as a whole; one day there won’t be so much North Sea oil, so much North Sea gas, we will have to do more in terms of relying on the ingenuity and brilliance of our people. But look at our record. Today, eight million people in Britain of working age are economically inactive, five million people are on out-of-work benefits and, as a social consequence of this, one in six children is growing up in a household where nobody works.
So this is not just a question of maximising our GDP by getting more people off welfare and into work, it is also the answer to the question, ‘How do we pay for good public services? How do we pay for our future pension liabilities?’
Today, quite rightly, we have set out a new approach on immigration; immigration has been too high in this country, it needs to be brought under control, and having controls and having a cap I think is a thoroughly good idea. But the real long-term answer to immigration is actually to reduce the demand for immigration by means of which you actually reform welfare and get people off welfare and into work. I think this is a huge agenda of making work pay. We have already raised the tax thresholds, we have already taken some families out of the tax credits system, and we are going to have a big thrust on reforming welfare and getting people back to work, by having a system where we do give genuine tailored help and support to people who are stuck on welfare, but in return for that, if you are offered a job that you can do, and you choose not to, you cannot go on receiving benefits.
Let me just address the third question: how do we help to earn our way in the world? I do sometimes sense when I look at how we deal with international relations in terms of trade and trade promotion that we are playing softball while the rest of the world is playing hardball. Let me just give you one figure which I asked for. I went to see the Crown Prince of Abu Dhabi, and I flew over the UAE and saw some of the extraordinary growth that is taking place in that economy, and we all know the problems, but I asked for the figures just to see what has happened over the last decade. A decade ago, we had 8% of their market, the same as China. Today, ten years later, we have 4%, and China has 16%.
If you take just that one example of a high-growth economy where Britain has got a fantastic set of relationships, historical connections, great coordination between governments, armed forces, a huge amount of exchange of people, and yet our performance is like that. We export more to Ireland than we do to Brazil, Russia, India, and China combined. In India, somewhere where we have historic links and fantastic business opportunities, we have gone from 4th to 18th in terms of their imports. I really believe there is an opportunity for a new government at the bottom of an economic cycle, beginning to grow out of it, with an enthusiastic team of ministers to completely refocus our trade and our diplomatic effort to turn it more towards South East Asia, to turn it more towards Gulf countries where we have such opportunities.
I have set up this National Security Council, which is mostly about making sure our foreign policy and our security policy march hand in hand. At the same time, it does have economic ministers on it as well, because part of our security is our economic security. When we are thinking of our relationships, whether with Russia, or China, or India, we should be thinking about the economic relationship in a way that is much more focused than it has been in the past.
Let me just end with a couple of other thoughts on this. We have slipped to 86th in the world league for regulation. In terms of tax – one of your highest priorities – one of the things I was proud George Osborne was able to do in the Budget was to set out annual cuts of one pence every year to get us down to a 24p corporation tax. There aren’t many things where global competition is so clear and so obvious, but it seems to me an advertisement for your country, a commercial for your country, if everywhere you go, you can point out that coming to invest in Britain and you will be left with one of the lowest tax rates anywhere in the G8 or the G20.
So, what I want to say to you tonight before trying to answer your questions is: I don’t think we should necessarily say there is a great opportunity, because we have massive challenges to meet in reducing the deficit, in making work pay, in getting Britain to earn its way in the world, but it is a challenge that we should be excited about meeting. Because I think if we can show that you can get a deficit from 11% back down to zero, if you can show that work pays, and you are not going to have a country where 5 million people live on out-of-work benefits, and if you can show that in some of those key markets where Britain knows it can succeed, like India, like China, like the Gulf, you are going to have a renewed effort, a renewed focus, and get Britain making things and exporting things again.
I think if you can do those things, when you sit at that table at the G8 or the G20, or when you try and sell your goods or your services anywhere in the world, you can do so with a pride that Britain is back in business, back sorting out its problems, back giving an example to the world of what proper, good, decent, responsible government looks like in 2010. All I can say after 50 days of trying to do this job: it’s an incredible privilege to have that opportunity. Thank you.