Miles, thank you for inviting me here today, to the O2 arena to address your annual conference this afternoon.<font face="Verdana">
It’s not my first visit to the O2 this year - I was actually here with my family just a few weeks ago to see the X Factor Live Show... Not my choice you understand… and it was rather a different audience. I do hope you won’t shout as much as they did !
But it is my first time speaking at your annual conference – and it allows me to thank and applaud you Miles for all your public service over the past seven years.
Over the last decade and more I have had the opportunity to work closely with the Institute – particularly on enterprise education in schools.
But the IoD is also burned deep into my political memory.
Because it was the combination of an invitation to speak to an IoD dinner at your Pall Mall office - and a faulty pager - which together meant I missed my first ever vote in the House of Commons, despite a mad sprint down Whitehall in record time.
The whips were furious. But don’t worry Miles, I blamed the pager.
And let me start by sympathising with you all - as this is the second speech from a politician you have had this afternoon.
I know you will be expecting me to highlight our differences.
But I also know that it is the clear view of business that, where possible, we politicians should seek consensus where we can in the national interest.
So let me start with where the Chancellor George Osborne and I agree on the big questions of our time.
1. Banking reform
The first thing that George Osborne and I agree on is the need for banking reform.
The global financial crisis started with the reckless lending practices of American financial institutions, but it exposed risky behaviour by banks and inadequate regulation in every major country of the world, including in Britain.
This must never happen again.
2. Deficit reduction
The second thing that George Osborne and I agree on is that we do need a credible plan for deficit reduction.
The consequence of that global banking crisis is that every major economy in the world now has a large fiscal deficit. If we had not let deficits go up, recession would have turned to depression round the world.
But here in Britain we went into that crisis with lower national debt than America, France, Germany and Japan – lower debt and a lower deficit than we inherited.
And as the immediate crisis passed, we were clear - in the difficult decisions we took in the Budgets of 2009 and 2010 - that a credible balanced and workable plan to reduce our deficit was necessary to get our economy back on track.
3. Long-term plan for jobs and growth
But reducing the deficit is not by itself a guarantor of economic success.
So the third thing George Osborne and I agree on is that we do need a long-term plan for growth to support and back your leadership and innovation and risk-taking.
We know that our economy must work not just for financial institutions, but for businesses large and small and the people who work for them – in an economy that is both dynamic and fair to all who work hard and play their part.
So we agree on these three objectives.
The question is: does the Coalition have the right analysis and policies to address them?
On banking reform, first of all, I think the jury is out.
Lending to businesses has contracted in recent months. And the Bank of England has found that for some SMEs, ‘banks have been seeking to replace overdraft facilities with alternative, more expensive, credit products.’
I was disappointed by the Project Merlin deal - which has been widely criticised by business for being ‘a damp squib’.
But for the longer-term, I do believe that the interim report from the Vickers Commission is promising – though the devil will be in the detail of the final report.
Vickers is right to argue that to protect customers and taxpayers we need much tougher accountability and transparency and clear, workable and robust firewalls - as well as stronger competition, especially in business lending.
But we must take a careful and balanced approach
Too soft: and we risk again leaving taxpayers and businesses exposed.
Too heavy-handed: and we risk throwing the baby out with the bath water.
We need to have in our minds the US response to the World Com and Enron accounting scandals a decade ago.
The US Congress reacted with a heavy-handed piece of rules-based legislation – Sarbanes-Oxley. But it didn't work.
It did not stop the financial crisis which started in the US.
And its complexity drove jobs and tax revenues out of the US year by year.
This audience doesn't need telling that rigid rules-based regulation is often not the answer.
And we must be mindful that there are many hundreds of thousands of jobs in the financial services industry – in Edinburgh and Leeds and Birmingham and Bristol as well as in London.
I agree we need a more diverse economy. But a sensible and balanced approach must mean valuing our creative and service industries as well as manufacturing – and that must include financial services too which are vital to Britain’s economic future.
On deficit reduction, too, we also need a balanced approach.
We need a credible plan.
But that means a plan which will work, and which pulls all the levers required to deliver deficit reduction.
Of course, we need spending cuts and tax rises as part of that package.
But we also need jobs and growth to get the deficit down.
When Labour was in office, we made a tough commitment - to halve the deficit in four years - the same commitment agreed to by all G20 countries.
But our plan was based on restoring strong, sustainable growth, getting people back into work, and then beginning the difficult task of cutting spending and raising taxes where necessary.
A year ago, that plan was on track - in fact, borrowing came in over £21 billion lower than forecast in our last year in office.
But a year ago today, when the Coalition was formed, they took a radically different path.
First, they decided that the speed of deficit reduction had to be substantially increased.
Second, the emphasis of their plan took a sharp turn from increasing jobs and growth to immediate and steep spending cuts and the VAT rise.
Earlier, George Osborne explained to you why he felt this change in approach was necessary: he claimed that market confidence was so fragile last year that deficit reduction on the speed and scale of his plan was vital to stop Britain going ‘bankrupt’; and he cited in evidence what has happened in recent months to Greece, Ireland and Portugal.
It must be the first time in history that a UK Chancellor has looked to those countries as Britain's chief comparators – rather than America, France or Germany.
The fact is - and thankfully unlike Britain - those countries are locked into the Eurozone: they have no exchange rate flexibility and are therefore stuck with the same rising interest rates as growing countries like Germany.
And the structure of their debt bears no comparison with Britain’s, which has the longest term bonds of any major country.
But there is one comparison between Britain and those countries which is worth noting.
George Osborne’s logic is that if only Greece, Ireland and Portugal had made cuts and tax rises on the scale and speed of his plan, they would not be facing deepening crises. The problem for him is that they did. Indeed, Portugal has gone one better than our Chancellor and had two VAT rises in the last year.
But what Ireland, Portugal and Greece have all discovered is that it does not matter how much they try to cut spending or raise taxes - if they cannot create jobs and growth, their debt and deficit problems and the loss of market confidence gets worse not better.
And my concern is that we are seeing the same vicious circle here in Britain.
If the economy isn’t growing and so fewer people are in work paying taxes - and more people claim benefits instead - it makes harder to get the deficit down, and harder to maintain confidence.
So when we see that output was stagnant over the last six months – no growth at all - and when this morning the Bank of England downgrades its forecast for economic growth this year into next, this isn't just bad news for jobs and growth.
I fear it will make it harder to get the deficit down – and undermine long-term investment and confidence at just the wrong time.
Long-term plan for jobs and growth
Which brings me to my third and final concern.
You all know very well that the pressure of international competition from China and India is quickening.
I am not going to claim to you that Labour got everything right in the last 13 years – let alone that you all agreed with what we did.
But many of our most successful economic policies:
- faster planning decisions,
- record investment in rail and roads,
- an expansion of higher education and science,
- a renaissance in apprenticeships,
- CGT for entrepreneurs cut to 10%
- the car scrappage scheme,
were successful because we had moved beyond the old-style British debate – public bad? private bad? – and recognised that partnership between business and Government is vital if we are to rise to the competitive challenge.
That is why I am committed to working with you and listening to you on all issues which affect your businesses and our economic future - whether we agree or disagree.
Because at a time like this, when we need to rebuild our economy for the future, that partnership is needed more than ever.
And whether it is backtracking on planning for large- scale infrastructure projects, the abolition of RDAs or the scrapping of skills programmes, I fear that taking the view that the only thing Government needs to do for business is just to get out of the way risks undermining your efforts, not backing them.
Let me conclude by saying this. My political opponents have accused me of talking down the economy.
As I have argued before, British history shows us that on previous occasions when major economic mis-judgements were made, broad-based political, media and financial opinion was in favour of the decision at the time. The dissenting voices of economists were silenced or ignored – most recently when Britain joined the ERM in 1990.
So we should learn the lessons of history, and beware British politicians or media commentators who tell us that there is no alternative or that something has to be done because the ‘financial markets’ demand it.
Adopting the consensus view may be the easy and safe thing to do, but it does not make you right and, in the long-term, it does not make you credible.
It is because there is so much at stake that I believe we must be honest - and not duck it where we disagree.
That is what I have tried to do today.
And I thank you for listening to me.</font>