Check against delivery
It is a privilege to have the opportunity to address the CBI Annual Conference as Leader of the Labour party.
I want to pay tribute to the work that the CBI does as the voice of British business and I want to pay particular tribute to Richard Lambert.
He has been an outstanding advocate on many issues for progressive business sense.
As befits a party that lost the election only five months ago and a leader beginning his fifth week in charge, I am not here to give you my manifesto for 2015, but to set out our direction for the future, and begin the process of engagement we need with you, the wealth creators and entrepreneurs of Britain.
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New Labour’s insight in the 1990s was to recognise that we needed to be a party that understood wealth creation as well as its distribution, that we needed to be for economic prosperity as well as social justice and that solving our society’s problems could not be done without a partnership between government and business.
With Alan Johnson as Shadow Chancellor, John Denham as the Shadow Business Secretary and Douglas Alexander as the Shadow Work and Pensions Secretary, we intend to carry forward all of these New Labour insights.
Enterprise and job creation are fundamental to the good economy and good society and I will lead a party that understands that at its core.
The argument I want to make today is that because the world has changed so much since the 1990s and because we need to learn lessons from success and failure, what it means to be pro-business in the 2010s is different to what it meant back then.
The result of the financial crisis is that we have a deficit we need to cut, but the lessons are much deeper.
In tackling the deficit, we need to recognise the fundamental weaknesses in our economy that led to it and which we need to put right if we are to have a stronger economic future.
Let me start with the deficit.
I want to be clear: if we had won power in May, there would have been cuts.
We will therefore be selective about the cuts we will oppose and will support.
On welfare, we have said that we will work with the government on reforms to Disability Living Allowance, sickness benefits and other areas where there is genuine reform.
We will support reforms which bring greater value for money.
Now, this audience will know that we have a difference with the government on the pace and scale of deficit reduction. We do believe that a four year timetable for halving the deficit would be a better approach.
And, I do fear that the path the government is pursuing is a gamble with growth and jobs.
They have a programme which will lead to the disappearance of a million private and public sector jobs but no credible plan to replace them.
And their refusal to accept that a deficit reduction plan has to be sensitive to changing economic circumstances needlessly makes the British economy a hostage to fortune.
Time will tell whether they turn out to be right.
But my wider point is this - we don’t just need to pay down the deficit in a way that ensures growth now: we need to understand the causes of the high deficit and the deeper lessons about our economy to prevent a recurrence of the financial crash and build a strong economy for the future.
There is a view that the deficit arose solely because of spending choices made in the last decade.
In fact, the deficit was 2.4% of national income in 2007/8, broadly the same level as public sector capital investment.
It was what happened next that led to led to a deficit of over 10%: a combination of the loss of 6% of our national income, and the tax receipts that went with them; the consequent rise in benefit spending; and the discretionary decisions to stabilise the economy.
Not everything the last government did was right, but if we misread history we will fail to tackle the big structural issues we face in our economy.
There are important lessons to be learned about why the deficit went up so significantly and we need a wider plan for our economy which understands these deeper lessons.
Without profound change in the way we manage our economy, we are at risk of at best, sleepwalking back to an economy riddled with the same risks as we saw before the recession hit.
First, a new system of financial regulation which avoids a repeat of the crash and creates a banking system that works better in the interests of our economy.
Second, a new approach to industrial policy so we have a more balanced economy.
And third, we need to do more to create an economy which by supporting everyone to make a decent living, whether in employment or a by starting a small business, creates a more stable platform of economic growth.
First, on financial regulation.
British political debate in the last thirty years has been dominated by debate about the dangers of excessive regulation.
Government should always be vigilant about the substance and implementation of regulation.
But as is now widely recognised, the financial crisis revealed the real dangers of the opposite.
If government fails to play its proper role, businesses suffer.
The financial services industry in Britain is a major employer and it is important that it remains strong.
But over time, support for financial services led to competitive deregulation as countries sought to extract comparative advantage.
We need policy-makers and regulators who recognise that we need stronger rules but also that we need a culture that balances the need to support financial services with the need to protect our wider economy.
And, change shouldn’t just be about reducing risk but also about increasing opportunity.
We must also use this moment to tackle the historic problem that we have long faced in the British economy: our financial services industry is a great employer but does not do enough to support small business and industry.
As Richard Lambert said in a speech earlier this month: “One constant complaint I hear from SMEs around the country is that decisions which affect their business are not being taken by people who know anything about it. Instead, they are referred up to the centre, where loan requests are decided against a set of box-ticking benchmarks.”
This has been a decades-long problem and business as usual will not tackle it.
That is why I hope the banking commission and indeed the government looks radically at the structure of the banking system but also at the case for new models of ownership in the banking sector.
Both Richard and Paul Myners have suggested the case for greater public involvement in helping to finance the small business sector, for example through a new small business bank, like the ICFC created after the Second World War.
Others have made the case for mutuals and for public/private structures of banking ownership, as we make decisions about the stakes we have in the banks.
All of these issues should be on the table if we are to get the banking system our economy needs.
Secondly, we should learn the lessons of the financial crisis: that we need to more fundamentally reform our economy if we are to broaden our economic base.
The truth is that over time, Britain became over-reliant on the financial services sector - for jobs and for tax revenues. Financial services became the goose that laid the golden egg.
This is why, in part, the deficit went up so much in the UK after the financial crash happened.
Until late in its time in office, I believe our government did not do enough to support other sorts of industry in this country.
Scarred by the failed exercise in picking winners decades ago, government has been too afraid to support the industries of the future.
Under governments of both parties, we let other countries steal a march on us and I fear the same may happen again: from creative industries to green manufacturing to bio-sciences.
Despite all the talent in engineering and work in our universities, I fear Britain still suffers from an anti-manufacturing bias.
The way to support British businesses who want to lead in the industries of the future isn’t for government to do nothing.
Government action can make a difference, and government inaction can make life harder.
Where do we need to do better?
In finance as I have already said.
As Energy Secretary, I was constantly struck by the risk aversion in relation to new green industries compared to say, construction.
And in the absence of commercial finance, sometimes government needs to step in.
For example, the decision to withdraw support from Sheffield Forgemasters risks our traditional problem: bought by Britain, made elsewhere.
We need to do better in public procurement, where we do not yet do enough to get bang for our buck when it comes to supporting British business.
We need support for infrastructure that provides a platform for new industries, from ports for the wind industry to broadband and high speed rail.
And we need to make sure we have the right skills base, growing the pool of talent in Britain which can attract new industries.
All too often, British success is undermined by one or more missing elements. Too often poor public policy or a lack of action leads to failure.
As an opposition, a focus on the future sources of prosperity and growth will be at the heart of our policy review.
Nobody should pretend these are easy questions to answer but we must not ignore them and continue with business as usual.
Third, we must address a deeper and perhaps the most challenging lesson of the financial crisis.
We went into it with an economy in which rising living standards for too many lower and middle income families, depended on high levels of personal debt and rising asset prices.
Why was this?
We were successful as an economy at creating jobs but not good enough at creating and sustaining well-paying, high productivity jobs.
Indeed globalisation - trade and immigration - had the effect of squeezing out middle-income jobs, and holding down wages in a number of sectors in our economy.
And while for individual companies, this had benefits, for too many families they had no option but to take on higher levels of debt to sustain their standards of living.
In the world after the credit crunch, this is not a credible route to sustaining higher living standards or overall demand in our economy.
So the long-term task we face is to move towards an economy in which good quality jobs attract rising salaries, alongside rising productivity, both for the good of those families and the prosperity of our economy.
This requires the kind of broader industrial base I talked about
earlier, but it also requires a shift away from Britain’s competitive advantage being in low paid, low skilled jobs.
As the last government and many of you have rightly said, this depends on having a better skilled and higher productivity workforce.
Government must play a role in this: sometimes through direct support for training, but that does not always make it happen.
We therefore need to find new ways of rewarding those employers who invest in their workforce.
So I have suggested, for example, tax cuts for those employers who pay the living wage as an incentive to develop the skills of the people who work for them.
We also need to do more to support people and local communities to take control of their own economic future.
That means much greater emphasis on small business.
There have been and still are too few in British politics who speak up for small business.
The change Tony Blair brought to our party rightly made us more open to the business community, but we have not yet done enough to understand the real importance of small business as a way of liberating individuals and creating the economy we need.
I want our party to stand up for small business and entrepreneurs.
And I look forward to working with you to help create this high wage high productivity economy in Britain.
Our country faces some big choices in the months and years ahead.
We can accept an analysis that nothing matters bar deficit reduction.
But I fear that is a gamble with growth and jobs.
Even more importantly, it does not address the deeper risks and flaws in our economy.
To think this is the best we can hope for is a deeply pessimistic view.
I believe we need to take a different and more optimistic approach – an approach that sees deficit reduction as a start not an end and is willing to learn the profound lessons of the crisis.
My view is that it is only this that truly serves the interests of British business.
It is only this that will insulate business from the risks that are part and parcel of the financial services industry.
It is only this that will actively support the creation of British industries that can lead in the global economy of tomorrow.
It is only this that can combine fairness, prosperity and economic stability.
That is what I believe it means to be pro-business in the wake of the financial crisis.
It is the pro-business approach I will adopt.
I look forward to working with you in the months and years ahead.