12/08
6 February 2008
Speech by the Chancellor of the Exchequer, the Rt Hon Alistair Darling MP, at the EEF Manufacturers' biennial dinner, the Dorchester, London W1
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1. Let me start by thanking you for inviting me here this evening.
2. I would like to thank Alan for the invitation to speak this evening. Over many years EEF, and Martin Temple in particular, and the Treasury have been working together closely. We value that relationship.
3. As you know manufacturing has been undergoing a transformation in the last ten years. It adds over £150 billion to the economy and generates over half of all our exports. It is a real success story for Britain.
4. I was in the West Midlands last week and was delighted to visit a small manufacturing company that was exporting components to China. I saw too how in the automotive industry – another British success - companies and the public sector are working together to bring new technology to the market – again supporting manufacturing and jobs.
5. As I travel around the country it is striking how many firms, large and small do so well at home, and crucially in the export market. And the older more established industries are doing just as well as the newer ones. I saw that in Birmingham last week.
6. But this evening I want to talk about the changes we need to make in order to ensure success in the future.
7. And underpinning that is a strong and stable economy. I am determined to keep it that way, especially at this time.
8. The decisions we took over 10 years ago have ensured continuous growth – something unimaginable even 15 or 20 years ago.
9. An independent Bank of England, to deliver low inflation – low interest and mortgage rates.
10. A new system for planning and controlling public spending to bring about long-term decision-making, which is essential in important areas like education and transport which benefit your businesses.
11. And in those 10 years manufacturing has also been undergoing a transformation. Those who say that our best years are behind us are completely wrong. Much of what we do is world class – in aerospace, pharmaceuticals and hi-tech manufacturing.
12. The UK is the sixth largest manufacturer in the world; it adds over £150 billion to the economy – a seventh of total UK output.
13. Now we also know that these are uncertain times, there are challenges ahead. The global economy is facing its biggest test in more than a decade. It demonstrates so clearly that, yes, there are huge opportunities from globalisation – but there are big challenges too. Especially today.
14. Since the summer, global financial markets have suffered a prolonged period of turbulence, triggered by the mortgage crisis in America. It shows how today a problem in one part of the world can spread right across the globe, affecting the Far East, Europe and us here in Britain.
15. We do not yet know the full effects of what has happened in the financial markets. But we do know that there are good reasons to believe that we will get through this difficult time provided we do what is right for the country. We have good reasons to be confident.
16. The global economy has seen major shocks before. And in previous decades these would often have been associated with UK downturns and large increases in unemployment – as we saw in the 1980s and early 1990s.
17. But the British economy has proved more resilient than any of the major advanced nations to the shocks of the past decade. We have a flexible, open economy.
18. First came the fallout from financial crises in Asia and Russia, and the collapse of Long-Term Capital Management. The UK economy continued to grow.
19. Despite the bursting of the dotcom bubble and the terrorist attacks of 9/11 the UK economy continued to grow.
20. We have been the only G7 economy to grow continuously throughout the past decade. It is because of this record of resilience that I believe we are in a strong position to face today’s global challenges.
21. Importantly, employment is at a record high and unemployment is at its lowest since 1975. That will underpin confidence.
22. Your own fourth quarter Business Trends Survey was positive, and your latest Economic Briefing forecast resilience in the face of today’s global challenges, with growth of over two per cent this year and over two and a half per cent next.
23. Our macroeconomic framework, our commitment to flexible and open labour markets continues to deliver sustained economic growth, putting us in a strong position to respond to global economic conditions and to take advantage of the opportunities of the coming years.
24. And the UK business environment, I believe, remains one of the best in the world. And I am determined to keep that way.
25. Stability here in the long term, is essential. That is why I want to see longer-term pay deals in the public sector, for example.
26. And, the fortunes of the housing market are understandably the subject of great interest and debate and of huge importance to our economy.
27. Housing market conditions today are very different to those we saw in the early 1990s. Interest rates remain at comparatively low levels - as do mortgage rates. And unemployment is currently at 30-year lows.
28. What’s more there are important differences between the housing market in the US and the housing market here. While many US mortgages were sold at hugely discounted rates, leaving people unable to meet repayments when rates increased, lenders in the UK have been more responsible in taking account of an individual’s ability to pay. And demand for housing outstrips supply.
29. We want to increase the supply of housing in the longer-term.
30. And as I said last year we also want to see greater availability of affordable long-term fixed rate mortgages. For many households, particularly those on low incomes, fixing the level of mortgage repayments for several years makes real sense; and it can also contribute to wider macroeconomic stability.
31. But a key issue now is the continued tight credit conditions in the secondary mortgage markets. The easing and recovery of those markets is essential to stabilising the housing market.
32. In order to increase transparency and improve investor confidence, the Government will consult on a new “gold standard” for covered bonds and mortgage backed securities - which will help not just the housing market but wider economic growth in these uncertain times.
33. I will report on both of these proposals as part of a wider review looking at housing finance at the Budget next month.
34. But it is not just in housing that we need to look ahead and work with business to adapt to rapid global change. In just 12 years time China will be the second biggest economy in the world. India the sixth.
35. In the Budget in March, I will continue to take the decisions necessary to ensure the stability of the economy, to raise growth. But we also need to plan for Britain in 2020 and beyond.
36. We have the platform to continue to take long-term decisions. Decisions which matter to you and your workforce such the business environment, skills, science, infrastructure and energy.
37. We need to ensure that you have the best environment in which to do business.
38. For decades the UK’s productivity and performance had lagged behind that of many industrialised economies. But we have turned that around. We have more successful entrepreneurs in the UK than ever before. Our manufacturing productivity has risen by a quarter in the last 5 years.
39. Competition lies at the heart of a dynamic economy. And such dynamism lies not only in the strength and resilience to adapt to survive, but the flexibility to respond to new markets and new opportunities.
40. We will also continue to take other steps to make the UK the best place to do business. I want to do more to cut back on unnecessary regulation.
41. A competitive and simplified tax regime is essential. We cut the main rate of corporation tax in Gordon Brown’s first Budget in 1997 and again in 1999. And this April the main rate of corporation tax falls again from 30 per cent to 28 per cent, below the OECD and EU15 averages and maintaining our position as having the lowest corporation tax rate in the G7.
42. This goal is, and will continue to be, to maintain the most competitive corporation tax rate of any major economy. I will continue to assess the case for further reductions in the corporation tax rate, consistent with our objective to maintain sound public finance.
43. Alan, I know that my proposals for the reform of capital gains tax were not universally popular. But I was determined to simplify this tax, and this rate is internationally competitive and is half of what it was 10 years ago.
44. The entrepreneurs' relief that I announced recently will help the owners of small businesses. The relief will also be available to all employees and company directors who make a material investment in their company.
45. Entrepreneurs’ relief will provide a 10 per cent tax rate for up to the first £1 million of lifetime capital gains. Rollover relief also remains available to people wishing to reinvest in another business.
46. And everyone remains entitled to make gains of up to £9,200 a year without paying any capital gains tax. This annual exemption will rise again in April.
47. Around 80,000 business owners and investors will gain from the entrepreneurs’ relief next year alone.
48. The number of small businesses in the UK has risen by 760,000 since 1997 and in the Budget I want to do more to help business angels and others continue to thrive.
49. International surveys consistently show that the UK is acknowledged as having a business friendly environment and competitive tax system.
50. So I promise that I will work with you on the tax regime so that we provide incentives for investment in wealth creation and rewards for success – and make and keep the UK as the best place for business.
51. But emerging economies will open up growing markets for goods and services for strong competitive companies.
52. At the same time, the emergence and integration of developing countries into the world economy will increase competitive pressures for all countries. It is vital that British companies benefit from this rapid economic growth.
53. And there are massive new markets for British companies. And the development of world leading skills and talent will be critical for all British workers. UK Trade and Investment will continue to help British business abroad.
54. And to make the most of these opportunities we need to make sure we have the best and most highly skilled workforce.
55. We are changing what we do, following Lord Leitch’s report last year. Providing business with the training they want – not what providers choose to supply. Skills are essential.
56. In addition to this the National Skills Academy for Manufacturing will deliver courses, designed by industry for industry, training 40,000 employees a year by 2012.
57. And last week we outlined plans for a major expansion of apprenticeships. The proposals will increase the number of apprenticeships being taken by 16-18 year olds by 90,000 by 2013.
58. Growth in the world economy, and particularly in emerging markets is creating new opportunities. But, it has presented challenges too - in particular, climate change and secure access to affordable energy. And these challenges are business opportunities for us all.
59. Climate change is one of the biggest economic challenges we face. Tackling climate change supports growth and development; ignoring it will ultimately undermine it.
60. And Stern also showed that if we design policy correctly - acting early as part of a coordinated global effort, and using prices and markets - the costs of acting should be fully consistent with supporting growth and development.
61. We need to create a global carbon market to provide the incentives for companies to tackle climate change efficiently. And to provide private finance, for example that helps the developing world move to a lower carbon growth path. But the challenge is so urgent that we must go further now.
62. Securing energy supplies in the future will be essential. To keep energy prices down is important to you. As demand grows and political uncertainty remains in many countries with oil production we want a diverse, secure as well as cleaner supply of energy.
63. We want to be more efficient too. More renewables. Nuclear – new technologies like carbon capture and storage are necessary. And importantly all this is providing British businesses with huge opportunities – we need to lead and we can to our huge gain.
64. So this weekend, with my US and Japanese colleagues, I will call on the G7 to join us in setting up a new climate change fund at the World Bank providing access to advanced clean energy technologies in developing countries, assist them in adapting to climate change, and provide finance for tackling deforestation.
65. In the global economy we will only prosper if we are at the forefront of innovation and invention.
66. We are a nation of inventors. From Faraday’s electric motor to the iPod chip, British science and innovation has changed the way we see the modern world.
67. And, at the same time, it has changed the economy.
68. We are living in a time of massive change across the world on a timescale we could hardly have imagined even ten years ago.
69. Globalisation can bring huge opportunities provided we are ready to seize them. We can and must compete on quality and excellence. And particularly on our ability to innovate.
70. If we set out to build an ever more open, flexible economy, endowed with a well-educated and skilled work force we will succeed.
71. Knowledge-based businesses account for over half of our job growth in the past two decades. We have some outstanding high-intensity knowledge industries – pharmaceuticals, computer games and design and film. Our biotechnology sector leads Europe in terms of capitalisation, revenues and product development.
72. The strength of the UK science base underpins many of these industries. That is why public investment in science will rise to over £6 billion in three years time. The Technology Strategy Board will lead a programme worth £1 billion over the next three years to support innovation, taking it from the laboratory to the market place across all sectors of the economy.
73. We have four of the world’s top ten universities; that is why long-term investment is so important. The UK remains second only to the US in global scientific excellence. Since 2003, 30 university spin-outs have floated on the stock market, with a combined market value of over £1.5bn. And the strength of the UK research base is attracting major global companies such as Boeing and Pfizer to invest in projects in the UK.
74. In aerospace we are shaping the design and manufacture of the next generation, supporting over 270,000 jobs across the economy.
75. So although the challenge is there and we are well placed to meet it.
76. And to meet it we need an economy which is open to globalisation and opposed to protectionism. Without an open economy, the trade and transfer of people, capital and technology we rely on would not materialise.
77. And we must reject any calls for protectionism. We must continue to build upon Britain’s strengths of openness and internationalism.
78. And on Doha let me say this, it is a critical moment for the round. This is our last chance to secure a deal before 2010, at the earliest. And it would be a real tragedy to lose the gains we have made so far, especially the benefits for developing countries.
79. These three challenges – economic stability, a competitive business environment and free and open trade – are very clear. Ignore them and our economy suffers. Embrace them, as we have, and the result is a pro-stability, pro-business and pro-enterprise government.
80. And we must not be deflected from this goal. That is why public investment is so important, especially where it supports business and growth.
81. It will allow us to maintain our strength, deal with our weaknesses and leave us in the best possible position to compete in an increasingly globalised world.
82. I will make it my job to ensure you have the right kind of government on your side as you work to grow your global success.