Three Steps to Heal Britain's Economy

David Cameron, The Times October 25, 2009

Friday’s growth figures were deeply disappointing. A 0.4% fall in our national income may not sound much, but it adds up to £6 billion over a year. And its effects will be painfully felt in more bankruptcies, redundancies and repossessions. Gordon Brown, the man who said he had abolished boom and bust, has given us the deepest and longest recession since records began.

It is true that there was a worldwide financial crisis. But hang on: France, Germany and Japan started growing six months ago — and are getting stronger and stronger. Why are we so badly left behind? Partly it is because of the economic mistakes of the past. For example, the government’s Vat cut added billions of pounds to what was one of the biggest budget deficits in the developed world, making the debt crisis even worse.

The other reason Britain’s economy is still stuck in recession and falling behind those of other countries is that Labour has no serious plan for our economic future. The countries that are recovering strongly are all doing three things: getting their banks to supply credit to businesses; giving investors confidence; and implementing a proper plan for growth.

In all these areas, the government is failing to act. It is astonishing to think that, 12 months after the bank rescue, lending to businesses is still falling. It is shocking that the government has still not come forward with a credible plan to get the deficit under control. If we fail to get a grip on public spending, investor confidence will fall, interest rates will rise and there will be fewer jobs. It is almost unbelievable that at a time when we face not just a debt crisis but a jobs crisis too, with unemployment heading for 3m, the government is planning to bring in an extra tax on jobs by raising National Insurance contributions.

We need to change direction, with a new government that puts in place a pro-growth, pro-enterprise agenda.

First, we need change in the banking system. A lack of credit, coupled with big margins between the interest rates at which the banks can borrow and the rates at which they lend, is still sapping demand from our economy. Fixing this should be our priority. For nearly a year now we have been calling for a national loan guarantee scheme. This would underwrite lending from banks to businesses — guaranteeing billions of new loans and helping new enterprises to start and existing ones to survive.

However, the banks need to realise that we are all in this together. We saved them so they could help families and businesses, not to help the bankers. The profits they are making now should be channelled back into new lending and lower margins, not paid out in big bonuses. If that does not happen, then we reserve the right to take action to ensure that it does. In addition, to help prevent a similar crisis from happening again, we would abolish Brown’s failed tripartite system and restore responsibility for regulation of the banks to the Bank of England.

Second, we need change in public spending. Unlike Labour, we have acknowledged the scale of the debt crisis and been frank with the British people about the difficult choices we will have to make. That is why we have started to set out a plan for reducing public spending, including a one-year pay freeze for all but the 1m lowest-paid public sector workers, in order to help protect jobs.

Third, we need change in our attitude to the economy. At our party conference, we announced our plan to get Britain working. It is the most radical departure in economic policy in this country for a generation — a plan to unleash investment and enterprise so we create more wealth and jobs.

It starts with giving businesses space to grow. We will cut the red tape that makes their life a misery and simplify Labour’s nightmare tax system. But we need new businesses to start too. And to give new companies an even bigger head start, we will abolish all tax on the jobs created by new companies for two years.

Getting Britain working is also about getting people ready for work. This is where some of our most radical reforms come in. We will bust open the state monopoly on education. That will increase competition, raise standards and make sure our children get the education they need to succeed. Our plans for technical schools in our 12 biggest cities and 100,000 new apprenticeships mean we will also develop the engineering and technological skills of the future. And we will radically reform the welfare system so the unemployed get the tailored support they need to get back into work.

I know that a vision of growth may seem a long way off in the light of the latest figures showing that we are still in recession. But Britain does have the resources to get there. We have got the people, the ingenuity, the ideas. We just need a government that will help them, not stand in their way.

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